Sunday, April 29, 2012

Using Student Loans to Study Economics

If you listen to politicians these days, you'd think that the greatest danger to Our Republic is the way that the other party wants to pay for an ongoing reduction in interest on Stafford Loans, the student loans presently offered by the federal government to college students. Without action from Congress, loans made after 1 July 2012 will be charged interest of 6% and change, as compared to the present rate of 3% and changed, discounted awhile back allegedly to protect the nation's students from too much student debt.

Meanwhile, a few politicians are talking about forgiving student debt, in whole or in part. That stands in pretty stark contrast to present policy, by which no one can escape paying a student loan, even through the most severe forms of bankruptcy.

All of this, of course, is exactly counterproductive to the goal of restraining the growth of student debt. Why don't they teach economics in these colleges?

How is that the case, SWNID? Isn't it better for students if they're charged less interest? And doesn't the bankruptcy provision protect lenders from students who would otherwise take out loans that they can never pay back?

The answers, of course, are no and no.

First to the interest. Let's pose the question this way: will people buy more of something if it's cheaper or more expensive. We won't bother to answer, but we'll note for those who need to hear it that the cost of a loan is its interest. Discount the interest, and you'll make more loans.

So why are students borrowing so much? Not just because college costs a ton. Some colleges are cheaper than those that many students attend. They borrow because borrowing is cheap.

Second, to the no-bankruptcy thing. Why do lenders lend so much to students, regardless of their likely ability to pay the money back? Why can someone borrow $200k to earn a degree in gender studies from a second-tier private college, knowing that the graduate will be in the same pool of educated but unskilled workers seeking to be hired in entry-level cubicles in an economy in its third year of doldrums? The answer is that the lender pretty much owns the borrower in this transaction. It doesn't matter how much or how little the borrower owes, for All Your Salaries Is Belong to Us.

Let's imagine a different world. Let's say that interest rates on student loans floated with the market for unsecured loans. That would put the interest at the level of a favorable credit card rate, maybe around gthree to four times the three-ish percent presently being charged. Would the number of students borrowing be reduced? Well, yes, of course.

Would fewer go to college? Perhaps. But some would seek more affordable options. Colleges, in turn, would have to respond by finding ways (and for most, there are ways) to reduce their costs and so charge less.

Back to the present: we act like student debt is high because college is too expensive. Maybe college is expensive and debts are high because we've underpriced student loans--by Congressional mandate.

To the bankruptcy aspect. Imagine a world in which one could escape student loan payback with bankruptcy. Would lenders, including Uncle Sugar, then lend money to students who are bad risks? Of course not. One would have to show more than an acceptance letter to qualify for a loan. Banks (and let's assume that they're making the loans in our scenario, as the government lets politics interfere with commercial transactions when it does the transactions itself) would lend on the basis of students' credit worthiness, including their grades, employment options, even their demonstration of financial planning while going to college. Is there any of that stuff that ought to be discouraged in the present environment.

SWNID doesn't think that free markets are magic. But we do think that politics, when injected into the market, tends to distort the market's ability to set realistic costs and assess real risks. In higher education as in housing, we're seeing how that can seriously foul up people's lives.

So it's time to end the charade and make student loans just like other loans: costing what they cost but not indenturing the student to the lender until death. That gives the proper caution to all sides, eliminating the awful moral hazards of the present situation, and perhaps could restore some sanity to the cost of higher education.

But at least one could say that the institutions that study and teach economics aren't run on a financial scheme that defies economics.

Postscript: We expect a few readers (those who remain devoted to this blog despite the dearth of content recently) to inquire as to how such a scheme would affect the institution to which SWNID is attached, a modestly priced but still pricey faith-based institution of higher education. We respond that our place would inevitably have to find a way to drive prices down, noting as we do that the decline in the percentage of our institution's costs borne by donors as paralleled the rising percentage assumed by government grants and loans. When Uncle Sugar pays and loans to poor students, why should I give to help  poor students? When I've got to pay Uncle Sugar what I owed him for my degree, why should I give to my alma mater?

Note well that if we thought our suggestion might be listened to by politicians (we have personally explained the economics to at least one Congressman in person, with the classic response that says "not interested in political suicide"), we would recommend its being phased in over five to ten years, allowing institutions time to adjust to the new normal.

Saturday, April 28, 2012

Ark Encounters Apathy

For a second time in history, Noah's ark is not making a big public impression.

Object of SWNIDish scorn Answers in Genesis is notoriously engaged in a family theme park built around a replica of Noah's ark. The project needs about $25 million in donations to get going. Groundbreaking was slated for spring 2011, then spring 2012.

It is now mid-spring 2012, and per the Ark Encounter web site, a little more than $5 million has been raised. "That ain't hay," as the SWNIDish sire used to say, but it's roughly a fifth of the goal, a year after the initial deadline.

We expect that various explanations will address this puzzling condition: (a) the economy is bad; (b) investors are afraid to take a chance; (c) the media has savaged the project. We allow all of those, noting only that media savaging could be a positive for some endeavors, given the public's disdain for media opinions, that is, at least the part of the public that digs AIG.

But we wonder whether the hot air is starting to leak out of the Ken Ham's militant-young-earth balloon. Ham's hostility could be making him enemies as fast as it used to make him friends.

Or maybe we're just jealous. Ham has raised mass bootle for AIG in the past, both more and faster than has any organization with which SWNID has been personally associated. But we will assert nevertheless that when fundraising is based on a personality, the money can disappear as quickly as it once appeared.

Saturday, April 21, 2012

The False Comfort of a Morally Simplified Universe

For some, Alger Hiss will always be innocent and Chuck Colson will always be guilty.

We suspect that many who read this have never before heard of Alger Hiss. Hiss was a State Department Official of the 1940s accused of spying for the Soviet communists and eventually convicted of perjury. Hiss was patrician, erudite, and associated with causes and institutions celebrated by the political left. His accuser was Whitaker Chambers, a former communist turned political and religious conservative, who admitted his own perjury while accusing Hiss and who spent the next decade writing anticommunist, pro-Christian essays. But the most famous of Hiss's opponents was a young Congressman named Richard Nixon, who built his early political career around the Hiss investigation and hearings.

Though his conviction was reinforced by evidence that continued to emerge from US Government files and from KGB files released after the fall of the Soviet Union, Hiss insisted on his innocence until his death. He was for a generation a cause cèlébre of the intellectual left in the United States, who portrayed him as the archetypical victim of anticommunist witch hunts.

Colson, of course, was President Nixon's special counsel, responsible for many of the illegalities of Nixon's presidency. Like Chambers, he experienced a dramatic religious conversion that altered the course of his public life. Unlike Hiss or even Chambers, Colson's accomplishments following his public disgrace were prodigious. Prison Fellowship, Colson's organization, has inarguably been the most potent force for the welfare of the incarcerated in the history of Our Republic.

With Colson's passing, the mainstream media has updated its prewritten obituaries for timely publication. Most that have met the SWNIDish eye have respectfully balanced both sides of Colson's life, with due credit for his post-conversion accomplishments, even with admiration for the tangible demonstration of his redemption that they provide.

But the internet being what it is, some of the citizens who comment on such obits are less than respectful. For them, Colson can never be forgiven for his illegal activities in association with the great bogeyman of the twentieth century, Richard Nixon. His conversion was a public relations gimmick, which if real--if any Christian conversion can be "real"--would surely have cured him of his political conservatism and driven him to a lifetime of denouncing his former self, his former boss, his former ideology, and all those tainted by association or support of any of the above. There is no statute of limitations and no clemency for assistant bogeymen.

These who vilify Chuck Colson, we suspect but cannot prove, would in the next breath celebrate Alger Hiss, were Hiss's name to be uttered in the same context. Hiss did no wrong. Colson did no right.

One could go on about the hypocrisy of such ranters, as we apparently already have. One could decry the slovenly, un-self-critical thinking that so easily moves from credulity to vindictiveness and back again.

But we will instead observe something different, something that applies to many, regardless of religious or political affiliation.

We observe how comforting it is to construct a world in which certain people are the repositories of evil perpetually. In such a world, one can be deeply annoyed by evil but personally untouched by it. Yes, I may have my faults, but those people are the real problem. Look how awful they are! They are ruining our world! Ruining it! And all while it's just so obvious where the truth and goodness are.

One can double down on that comfort if it also excludes the possibility of conversion and change. Bad people remain bad, even if they try to do something good after they admit that they're bad. They can never apologize enough. They can never denounce what they've done enough. They can never exhibit sufficient shame to assuage my resentment about their ruining my world. They are always available for my quarantining of evil to their wretched souls.

As for me, I don't need repentance or conversion. I'm fine. I know what's true and what's right. Don't tell me about redemption. The right people don't need it, and the wrong people can't get it.

The human psyche tries to calm its fears by constructing a simple, predictible world in which bad things only happen to bad people, in which good people are safe from tragedy or guilt. When the bad people show signs of profound change, the simple world isn't simple any more. Repentant bad people threaten good people's goodness, when their badness is supposed to support good people's goodness. So repentance must be phony or inadequate.

When one gives up the effort to construct the world for such psychic safety, a couple of realities emerge. One is that good people and bad people both tend to indict the self. I'm not as good as some, and I've got plenty in common with people who are obviously and enormously bad. The other, flowing from the first, is that redemption had better be available, or we're all doomed.

We think that Chuck Colson demonstrates all of this. And as to the latter part about redemption, Colson would tell his obituary writers that his life after Watergate was not his redemption but the result of it. He didn't do good to overbalance his evil. He did good in grateful response to being freely forgiven.

Tuesday, April 03, 2012

SMH for BHO. Or, Is Social Darwinism Worse than Socialism?

Republicans have made our political discourse toxic.

How? By proposing policies that Democrats oppose.

Today, the Leader of the Free World said that the budget proposal from the Republican chair of the House Budget Committee amounts to "social Darwinism."

That for offering that a tax increase on "millionaires" that would add only about a billion dollars of federal revenue--with static budget scoring--is not worth the hit to economic growth that it likely would entail. That for offering that a Medicare program that is set to run out of money before SWNID retires ought not to be perpetuated in its present state, "as we know it," but redesigned with greater support for needier retirees and with more choice and competition to hold down the growth of medical costs. That for suggesting that since people live longer and stay healthier, they ought to retire a few months later.

Really. He said this.

We recall the charge of social Darwinism against Baroness Thatcher back in the day. Really, it didn't work. A plurality of British subjects realized that a little less of the welfare state led to better public welfare. In the end, the Thatcherite Tory majority was only overturned when the opposition party became a parallel version of the Conservatives, saying that they could do conservatism better.

In the meantime, Mr. Obama's budget got exactly as many votes from Democrats in the House as did Mr. Ryan's, which is to say none. At least Republicans voted for the Ryan budget. So far in the Obama administration, even when both houses were under his party's control, and with the Senate for a time, even enjoying a fillibuster-proof Democratic majority, the Federal Government has had not one budget. Not one. So much for Presidential leadership.

Republicans are fond of accusing Democrats of socialism. Really, of course, it's a matter of degree. But at this stage, Democrats led by their President are committed to spending 25% of GDP on Federal Government entitlements and expenditures while raising the percentage of GDP collected as Federal taxes maybe to 18%. Forgive our SWNIDish self if we find that problematic. So much for Presidential leadership.

Of course it's fiscally problematic. But it's also politically problematic. Democrats presently assume that Americans are fools, mathematical imbeciles, who are pliant objects of demagoguery. So much for Presidential leadership.

That's why we're voting for the rich Mormon in November. He's a flip-flopping goof, but at least he can add.