How's Your Buying Power Lately?

The stock market continues to soar. My financial advisor ignores me when I wring my hands and tell her to change my asset allocation so that I have less stock. By ignoring me, she's brought me a lot more money. But I would just feel so much safer in more bonds and real estate and less sticks. Because, everyone knows this asshole is going to crash the market at some point. And that comes fast and hard and it's too late when that death spiral begins. Every time I can get her to put even a small amount more into bonds, I feel a sense of accomplishment. I'm having dinner with her in a week or two and I'll tell her to lighten up on the stocks some more. Meanwhile, though, I'm certain she's not as big a Bernie fan as I am. Although she loathes Trump.

This morning, the Financial Times reported that 56% of all equities (in terms of value) in this country are owned by just 1% of Americans... and yet Trump's whole campaign is going to eventually come down to "the economy, the economy, the economy." Without a doubt Bernie is best equipped to go toe to toe him on that, not Steyer and not the more venal billionaire Bloomberg, let alone clowns and empty suits like Mayo, Status Quo Joe or Klobuchar. Presidents don't react jobs by Trump's policies and administration created 1.5 million fewer jobs in his first three years in office than predecessor Barack Obama did in his final three. Newly revised figures from Trump’s own Department of Labor show that 6.6 million new jobs were created in the first 36 months of Trump’s tenure, compared with 8.1 million in the final 36 months of Obama’s-- a decline of 19% under Trump. During the SOTU address, when Trump said "If we hadn’t reversed the failed economic policies of the previous administration, the world would not now be witnessing this great economic success," he was-- as he does constantly-- lying and gaslighting.

Last week, writing for The Atlantic, Annie Lowrey noted that "in one of the best decades the American economy has ever recorded, families were bled dry: The Great Affordability Crisis Breaking America. "In the 2010s," she wrote, "the national unemployment rate dropped from a high of 9.9 percent to its current rate of just 3.5 percent. The economy expanded each and every year. Wages picked up for high-income workers as soon as the Great Recession ended, and picked up for lower-income workers in the second half of the decade. Americans’ confidence in the economy hit its highest point since 2000, right before the dot-com bubble burst. The headline economic numbers looked good, if not great. But beyond the headline economic numbers, a multifarious and strangely invisible economic crisis metastasized: Let’s call it the Great Affordability Crisis. This crisis involved not just what families earned but the other half of the ledger, too-- how they spent their earnings. In one of the best decades the American economy has ever recorded, families were bled dry by landlords, hospital administrators, university bursars, and child-care centers. For millions, a roaring economy felt precarious or downright terrible."

Viewing the economy through a cost-of-living paradigm helps explain why roughly two in five American adults would struggle to come up with $400 in an emergency so many years after the Great Recession ended. It helps explain why one in five adults is unable to pay the current month’s bills in full. It demonstrates why a surprise furnace-repair bill, parking ticket, court fee, or medical expense remains ruinous for so many American families, despite all the wealth this country has generated. Fully one in three households is classified as “financially fragile.”

Along with the rise of inequality, the slowdown in productivity growth, and the shrinking of the middle class, the spiraling cost of living has become a central facet of American economic life. It is a crisis amenable to policy solutions at the state, local, and federal levels-- with all of the 2020 candidates, President Donald Trump included, teasing or pushing sweeping solutions for the problem. But absent those solutions, it looks certain to get worse for the foreseeable future-- leaving households fragile, exacerbating the country’s inequality, slowing down growth, smothering productivity, and putting families’ dreams of security out of reach.

The price of housing represents the most acute part of this crisis. In metro areas such as the Bay Area, Seattle, and Boston, severe supply shortages have led to soaring prices—millions of low- and middle-income families are no longer able to purchase centrally located homes. The median asking price for a single-family home in San Francisco has reached $1.6 million; even with today’s low interest rates, that would require a monthly mortgage payment of roughly $6,000, assuming that a family puts down the standard 20 percent. In Manhattan, listings for sale now ask an average of nearly $1,800 per square foot.

The housing cost crises in the Bay Area and New York might be the country’s most obscene. But the problem is national, driven by a combination of stagnant wages, restrictive building codes, and underinvestment in construction, among other trends. Home prices are rising faster than wages in roughly 80 percent of American metro regions. In 2018, housing affordability declined in every one of the 160-some urban areas analyzed by the National Association of Realtors, save for Decatur, Illinois. Rising prices and housing shortages are squeezing families in Reno, Minneapolis, and Phoenix.

The problem now even extends to rural areas, where income growth has lagged in the post-recession period. A recent report by the Pew Charitable Trusts found “sizable” increases in the number of households spending half or more of their income on housing in rural counties across the country. The housing crisis is hitting Bertie County, North Carolina, and Irion County, Texas, too.

One central effect of the housing-cost crisis has been to turn the United States into a country of renters. The homeownership rate has fallen from a peak of nearly 70 percent in the mid-aughts to under 65 percent today; the numbers are more acute for Millennials, whose homeownership rate is 8 percentage points lower than that of their parents at the same age. Unable to buy, roughly 3.5 million younger families have kept renting-- delaying the Millennial and Gen X cohorts’ wealth accumulation, thus consigning them to worse net-worth trajectories for the rest of their lives. And renting, for many families, is not affordable, either: Nearly half of renters are facing uncomfortable monthly bills, and the cost of renting has risen faster than renters’ incomes for a full 20 years now.

The cost-of-living crisis extends beyond housing. Health-care costs are exorbitant, too: Americans pay roughly twice as much for insurance and medical services as do citizens of other wealthy countries, but they don’t have better outcomes. In the post-recession period, premiums, deductibles, and out-of-pocket costs in general just kept rising, eating away at families’ budgets, casting millions into debt, and consigning millions more to bankruptcy.

Shan Chowdhury, the progressive candidate running in southeast Queens has made affordable housing his top campaign issue, along with affordable healthcare. "The cost of living is way too high and wages have remained stagnant," he told us today. "We have to ask ourselves who this country is changing for? The wealth disparities are greater today than it was 50 years ago. With crumbling student debt, low wages, inaccessible healthcare, jobs and opportunities-- we have to tip the power back to working families and out of the hands of billionaires who profit off our backs."

Spokane area progressive Chris Armitage is running hard on Medicare-for-All. "Here in eastern Washington, folks share plenty of stories about their healthcare situations," he told me. "While in a local farming community, a woman told me about how her family of five. Three have diabetes, but they share a single insulin prescription each month. I wish this horrible situation was unique, or even uncommon, but the truth is many families in our rural communities lack the basic healthcare all humans need to live a full, productive life. Inaction in DC is killing people in our district. Our rural families deserve better. We are ready for Medicare for All because, as my former Commander said 'the best answer is the right answer, the second best answer is the wrong answer, and the worst answer is no answer."

Rachel Ventura, a progressive candidate for Congress in the Chicagoland suburbs sits on the modern housing solutions committee in Will County and she told me they too have a housing crisis. "We just don’t have enough housing period. Affordable housing, transitional housing, starter homes, mid size, or high market homes are all on high demand. As our area grows the incomes are definitely not keeping up which is pushing more Chicago residents to move to our area furthering the problem. Our committee is looking at cargo homes, tiny homes, vertical building, and other solutions outside the box. Unfortunately the trade war and the race to the bottom labor practices have complicated the issue even more. It is no longer profitable to build homes in our area because they can’t buy quality products or hire qualified labor for the price people can afford. Instead our area builds more warehouses. Creating millions of living wage jobs is just the beginning. Just one more reason why we must pass the Green New Deal. I look forward to applying my knowledge from the local level to the federal level to create policies that help communities build and retrofit homes for the future."

Young Turks founder and host Cenk Uygur is a first-time congressional candidate in the suburbs north of Los Angeles. "This current barbaric system," he told us this morning, "is crushing us on a daily basis. In some ways, I view my election as a rescue mission-- 45,000 people a year die because they don't have health insurance. We have to save their lives! We also have to save families from being financially ruined and out on the streets even if they have insurance. Every other developed country covers everyone and pays less!"

Montana state Rep. Tom Winter is running for the Montana open congressional seat this year. There are both a conservative Republican and a conservative Democrat who believe in Austerity. Tom backs single payer Medicare-for-All and is campaigning on it. "The whole reason I'm running for Congress," he told me "is because our broken political system is failing working Montanans. Working families all across this state are struggling to afford to live in an economy that seems to be rigged against them every step of the way. Healthcare is unaffordable. Housing is unaffordable. Childcare is unaffordable. 'Full employment' used to mean everyone had a job-- now it means many of us have two. Montanans shouldn't be priced out of being able to live in the state they built simply because they don't have the power to buy politicians and pay lobbyists to cater each and every law towards their best interest. We must rebuild an American economy that rewards work rather than wealth, and doesn't make living unaffordable. He was just getting warmed up:

Montana's hospitals charge patients nearly three times more than what the federal government sets as a 'fair' cost for care under Medicare. Prescriptions are being left unfilled. Life-saving drugs are being rationed. Working families are being saddled with medical debt, and in some cases across the country they are being imprisoned for it. People are being charged hundreds and sometimes thousands of dollars a month for insulin costs-- while it costs $39 just 15 minutes north of Eureka, MT over the border. Montana's critical access and rural hospitals are at constant risk of closure.

Montana’s cities rank as some of the most unaffordable in the nation. The rest of the country thinks this is only a problem in cities like Seattle and San Francisco. But ask anyone working a 9-to-5 in Bozeman or Missoula if they have a realistic chance of owning a home. For the same price you would have paid 5 years ago you get half the square footage, bedrooms, and bathrooms for a median house now.

Every day, families across Montana wake up to our ongoing childcare crisis. Over 45,000 children under the age of 6 need childcare in Montana while childcare facilities in the state only have capacity for 20,000. Childcare costs ($34k for 4 years) families more than in-state college tuition ($29,900 for 4 years) in Montana. Over 42% of single mothers with children under the age of 5 are living in poverty. Single Parents earning minimum wage pay 54% of their income towards childcare.

"If I'm painting a dire picture," Winter concluded, "it's because this is how the other half of the country lives. Politicians always claim to support families, but when it comes right down to it working families are left in the lurch. Montana is running out of time. We could care less how well the Dow is doing or how low the unemployment rate is. We need healthcare. We need housing. We need childcare. We need to be able to afford to live."

The “cost burden” of health coverage climbed through the 2010s; just from 2010 to 2016, family private-insurance premiums jumped 28 percent to $17,710, while median household incomes rose less than 20 percent. That meant less take-home pay for workers. Deductibles-- what a family has to fork over before insurance kicks in-- also soared. From 2010 to 2016, the share of employees in health plans with a deductible jumped from 78 percent to 85 percent. And the average annual deductible went from less than $2,000 to more than $3,000.

The country’s insurance premiums and out-of-pocket health-cost burdens are just very, very high-- including for people with publicly subsidized or public coverage. The average person on Medicare spends $5,460 on health care beyond what they pay for insurance every year. The average person with Medicaid forks over nearly half that. No wonder two in three bankruptcies are related to medical issues, and nearly 140 million American adults report “medical financial hardship” each and every year.

Next up is student-loan debt, a trillion-dollar stone placed on young adults’ backs. Or, to be more accurate, the $1.4 trillion stone, up 6 percent year over year and 116 percent in a decade; student-loan debt is now a bigger burden for households than car loans or credit-card debt. Half of students now take on loans of one kind or another to try for a higher-ed degree, and outstanding debts typically total $20,000 to $25,000, requiring monthly payments of $200 to $300-- though of course many students owe much more. Now nearly 50 million adults are stuck working off their educational debt loads, including one in three adults in their 20s, erasing the college wealth premium for younger Americans and eroding the college earnings premium.

The Rochester, NY congressional district is safely blue but with a useless middle-of-the road backbencher as their Representative. Robin Wilt is running for that seat on a full-bore progressive platform. "The sharp increase in student loan debt is negatively impacting the U.S. economy by delaying the timeline for young people to buy houses and start families. Simply speaking, Boomers are less likely to be able to sell their homes because Millennials aren't in a financial position to buy them. We see this stagnation across the board, but this burden disproportionately affects borrowers of marginalized racial, gender and socioeconomic groups." She had a lot more to say about it:

"More and more, student borrowers have to dedicate ever-increasing portions of their income to student loan repayment, rather than spending on goods or services, traveling, getting married or buying a house. Moreover, many within marginalized communities are paying student loans with additional financial challenges stacked against them. This is particularly true in Rochester and Monroe County, which is plagued by the highest rates of segregation in the country. Not only are students of color more likely to borrow more for a degree and borrow in higher amounts for the same degree, but they’re more likely to struggle to repay student loans than their white counterparts. Meanwhile, the wage gap exacerbates the burden of student debt for women borrowers, since at all levels of educational attainment, women earn, on average, 25% less than men. Not only is the crushing burden of student debt weighing down potential growth in the U.S. economy, it is fundamentally altering our culture-- with people getting married and starting families later in life, and some questioning the value of higher education. Debt forgiveness is a positive way forward, with estimates that over the course of 10 years, student debt cancellation would create $943 billion in GDP, adjusted for inflation. Student debt cancellation results in economic growth by increasing the average households’ net worth and disposable income. This net increase in wealth drives consumption and investment spending. I wholeheartedly support student debt cancellation from a social justice standpoint, as well as from an economic sustainability standpoint."
 

Finally, child care. Spending on daycare, nannies, and other direct-care services for kids has increased by 2,000 percent in the past four decades, and families now commonly spend $15,000 to $26,000 a year to have someone watch their kid. Such care is grossly unaffordable for low-income parents in metro areas across the country, causing many people to drop out of the labor force. But one in four American mothers returns to work within two weeks of giving birth, so heavy are the other cost burdens of living in this country. The whole system is broken.

I spoke to three experienced candidates, Audrey Denney (CA), Brianna Wu and Marie Newman (IL) who came close in 2018 and plan to finish the job against their reactionary opponents, respectively Trumpist Doug LaMalfa, New Dem Stephen Lynch, and Blue Dog Dan Lipinski, this year. Audrey has watched her "friends struggle to afford to deliver their babies, miss work to care for their newborns, and provide childcare when they go back to work. I’ve watched as my close friends drop out of the workforce once they’ve had a second child-- not because they wanted to-- but because they could afford it. These are women who are teachers, manage restaurant chains, and who had management roles at non-profits. Celebrating our mothers on Mother’s Day is not enough, we must pass legislation to support maternity leave, women’s health, and affordable childcare options. Not only do we have the highest maternal mortality in the developed world, we are the only developed country that is seeing increases in maternal mortality. We are also experiencing shocking rates of postpartum depression (as high as 1 in 5 in some states!). We have to be better at creating conditions where new moms can care for their physical and mental well-being and that starts with paid maternity leave."

Everything that motivates and propels Brianna Wu's campaign has been about greater equality. And when it comes to the high cost of educational loans, she told us that "Higher education has become big business in this country, and the burden is placed on the backs of nearly 50 million Americans who just want an education for a chance of success at life. I know people in their 40s who are still paying off student loans 20 years after they graduated from college. Higher education, whether it's a college or university or a trade school, should not have the potential to bankrupt any American, or place an incredible burden on students right out of the gate. I fully support tuition-free public college for all.  It's the right thing to do, and it can be done. We need leaders in our government with the political will to do it. My opponent, Rep. Stephen Lynch, is silent on it, as he is most every initiative that will better the lives of Americans. When I get to Congress, tuition-free public college will be a priority for me."

Marie Newman had similar experiences and told me "The cost and lack of affordabilty of our daily lives, Is why I have an affordable solutions set in platform. Among these solutions in this platform is universal childcare where we would leverage existing assets like schools, libraries and community centers to offer 12 hr care to our kids. We cannot expect parents to continue to work 2 and three jobs round the clock."

The federal government has set as a benchmark that low-income families should not spend more than 7 percent of their income on child care. But child care is generally the single biggest line item on young families’ budgets, bigger even than rent or mortgage payments: Putting a kid in daycare costs 18 percent of annual income in California; home-based options equal 14 percent of family income in Nebraska; having an infant in professional care in the District of Columbia costs more than most poor families earn.

It all adds up, and it all subtracts from families’ well-being. The price tags for tuition and fees at colleges and universities have risen twice as fast as wages, if not more, in recent years. Rental costs are outpacing wage gains by a percentage point or more a year. Health-care costs have grown twice as fast as workers’ wages. And child-care costs have exploded. These cost pressures are particularly acute on young Americans who have seen worse employment prospects and smaller raises than their older counterparts.

The effects are wide-ranging. High costs are preventing workers from moving to high-productivity cities, thus smothering the country’s economic vibrancy and putting a drag on its GDP; economists have estimated that GDP would be as much as 10 percent bigger if more workers could afford to live in places like San Jose and Boston. High costs are forcing families to delay getting married and to have fewer children, and putting the dream of owning a home out of reach.

What is perhaps most frustrating is that the Great Affordability Crisis is amenable to policy solutions-- ones most other rich countries adopted decades ago. In other developed economies, child care, early education, and higher education are public goods, and do not require high-interest-rate debts or endless scrambling by exhausted young parents to procure. Other wealthy countries have public-health systems that cover everybody at far lower cost, whether through socialized or private models. And numerous proposals would transform residential construction in this country, including one that just failed in California’s legislature.

But the Great Affordability Crisis hides in plain sight, obvious to households but unmentioned in the country’s headline economic numbers. It persists even as President Donald Trump rightly praises the country’s growth, low unemployment rate, and rising household incomes. And though there are many nationwide policies that could end the crisis, they all seem unlikely to pass through the country’s broken Congress; the brightest glimmer of hope lies in housing and health-care policy by individual states. But it is still a dim glimmer. This crisis looks sure to stay with us for the coming decade, whatever recessions or expansions it may hold.

Jennifer Christie is a first time candidate, running for a seat north of Indianapolis. She knows quite a bit about the costs of child care. "I left a 'good job' when we adopted four children," she told me today. "In three years, we tripled our family size and had four children under four years old. My job required travel several times per month and often overseas. Childcare was not only complicated, but it was expensive. It would have cost well over 30,000 per year with so many littles. It just didn’t seem worth it to be away from my children so much and to give that much of my paycheck away.  So I started a home-based business and began teaching. My business was very successful; we were profitable, I had several employees, and was able to have a flexible schedule. I was so passionate about giving families freedom and a living wage that I mentored hundreds of other women entrepreneurs on starting their own business too. What I found was that childcare was the biggest challenge that women faced to start a business or to work at all, especially single moms who are some of the hardest working people on the planet. Childcare needs to be safe and affordable while paying childcare workers a living wage too (most childcare workers are also moms). We need the skills that moms bring to the table. I have worked in the sciences most of my career, but the toughest job around is Mom: it requires patience and strength, compassion and determination, selflessness and grit and so much more. Now more than ever we need a mom’s voice in Congress. I am running to be that voice to lift up families by guaranteeing universal healthcare, a livable planet, a living wage, education for all and universal childcare."

Pramila Jayapal, co-chair of the Congressional Progressive Caucus went over the Trump budget and told her Seattle constituents that his "budget proposal leaves no question: His Administration does not care one bit about poor, middle-class and working Americans, nor about the future of our country, global relationships or planet. On every level, this budget neglects the health of our people, planet and democracy. Trump’s budget slashes funding for the Environmental Protection Agency, leaving our water, air and communities vulnerable to pollution, toxins and climate change. It recklessly destroys infrastructure investments that our communities badly need, completely zeroing out federal funds that the 7th congressional district relies on to make our highways and bridges safer, maintain and expand our port and public transit systems and build more affordable housing."

Trump’s budget also destroys critical programs that have supported vulnerable Americans and helped lift millions out of poverty. It cuts $6.2 billion in federal funding for education programs, jeopardizing our children and their future, and proposes changes to Medicare and Medicaid and Social Security that will hurt millions of Americans. It also slashes funding for important programs that help workers stay safe on the job and protect seniors in the workforce.

Instead of investing in education, health care, affordable housing, public health and other important priorities, the Trump budget floods money into more cruel attacks on immigrants and people of color. Trump wants to steal money from vital programs to fund his vanity wall and flood billions in immigration enforcement activities that promote racial profiling and mistreatment of communities of color. President Trump does not understand the values and investments that have made America and our people strong-- and it is no surprise his budget fails to reflect them as well.

President Trump’s national security budget is completely out of touch with reality. For the fourth year in a row, Trump’s budget also cuts funding for the State Department and international development-- the deep and disproportionate 22% cut to these programs will undermine our diplomatic efforts around the world. Meanwhile the budget includes $740.5 billion in defense spending for an unaccountable Pentagon plagued with corruption. Funneling more and more money to the Pentagon, which has been unable to even pass an audit, does not make us more secure.

Two New Presidential Candidates Today-- One Great And One Scraped Off The Bottom Of The Toilet... Let's Stick With Elizabeth Warren Though

I expect dozens of politicians for the 2020 election cycle (for Congress as well as president) to start officially announcing later in the week, or maybe next week. Kara Eastman (NE-02) and Elizabeth Warren (President) beat them to it. Kara announced she's running for Congress again-- Blue America's first endorsed candidate for the 2020 cycle-- a week or so ago and Elizabeth Warren announced that she's formed a presidential exploratory committee a few hours ago. Please watch Senator Warren's excellent announcement video up top.

Earlier this morning I thought I would take some time and do the research for another in the DWT series, Worst Democraps Who Want To Be President, to welcome corporate ambititron Terry McAuliffe into the fray. His SuperPAC sent out an e-mail this morning: "We need Terry's voice in the arena and our PAC has already raised his profile in key early states like Iowa, New Hampshire and South Carolina through early ad buys." How insider and full of crap is that? It's all about me, me, me. And the image... I wonder how much they made the consultant who came up with it; for their sake, I hope not too much:

I'll hold off on McAuliffe for the day. I like this frame from Elizabeth Warren's video so much better:

Her brand new website doesn't have much verbiage yet-- almost none at all, in fact. But this biographical paragraph, all there is, is useful if you want to understand who she is and why she's running: "Elizabeth grew up on the ragged edge of the middle class in Oklahoma and became a teacher, a law professor, and a US Senator because America invested in kids like her. She’s spent her career taking on powerful interests and fighting to give every kid the same chance to succeed." Her video shows what we should all know already, unlike Claire McCaskill, Warren is one senator who is very much in touch with the zeitgeist. As you probably may know, I'm a Bernie supporter. But I'm a Warren supporter too. I wish they were running as a ticket.

Associated Press pointed out this morning that "Now, as a likely presidential contender, she is making an appeal to the party’s base. Her video notes the economic challenges facing people of color along with images of a women’s march and Warren’s participation at an LGBT event."

Warren has the benefit of higher name recognition than many others in the Democratic mix for 2020, thanks to her years as a prominent critic of Wall Street who originally conceived of what became the government’s Consumer Financial Protection Bureau.

She now faces an arduous battle to raise money and capture Democratic primary voters’ attention before Iowa casts its first vote in more than a year. She has an advantage in the $12.5 million left over from her 2018 re-election campaign that she could use for a presidential run.

Warren’s campaign is likely to revolve around the same theme she’s woven into speeches and policy proposals in recent years: battling special interests, paying mind to the nexus between racial and economic inequities.

“America’s middle class is under attack,” Warren said in the video. “How did we get here? Billionaires and big corporations decided they wanted more of the pie. And they enlisted politicians to cut them a fatter slice.”

I fell in love with Warren in 2014 when I read one of her books, A Fighting Chance. I was so thrilled that there was someone with her intelligence and elegance fighting on our side. In the prologue, she wrote "Today the game is rigged-- rigged to work for those who have money and power. Big corporations hire armies of lobbyists to get billion-dollar loopholes into the tax system and persuade their friends in Congress to support laws that keep the playing field tilted in their favor. Meanwhile, hardworking families are told that they’ll just have to live with smaller dreams for their children. Over the past generation, America’s determination to give every kid access to affordable college or technical training has faded. The basic infrastructure that helps us build thriving businesses and jobs-- the roads, bridges, and power grids-- has crumbled. The scientific and medical research that has sparked miraculous cures and inventions from the Internet to nanotechnology is starved for funding, and the research pipeline is shrinking. The optimism that defines us as a people has been beaten and bruised. It doesn’t have to be this way. I am determined-- fiercely determined-- to do everything I can to help us once again be the America that creates opportunities for anyone who works hard and plays by the rules. An America of accountability and fair play. An America that builds a future for not just some of our children but for all of our children. An America where everyone gets what I got: a fighting chance."

I've been an Elizabeth Warren partisan ever since, although a year earlier I had noted with enthusiasm that she led a fight against Obama's putrid deal with Republicans (and through them, Wall Street) on the student loan debacle, a bill-- likely masterminded by Biden-- which benefitted some students in the short term and crucified all students over time-- a really ugly, shameful "compromise." The deal on student loan interest rates was an unacceptable plan to sell out and profit off the backs of students. It jeopardized the long term well being of students, their families, and the country’s economy by making a college level education inaccessible for many, while locking those who do go to college into even more years of debt. Warren was one of the senators then willing-- enthusiastically willing-- to stand up to Obama, Biden and Wall Street and say that we needed legislation that protects students and promotes education and entrepreneurship, not a plan that raises rates and puts students at the mercy of the market. Elizabeth Warren, Bernie, Ed Markey, Jack Reed had the guts to go after their own misguided president. Remember, this was 2013. Bernie spoke out: "The White House is being disingenuous and is trying to sweep under the rug big increases in interest rates for students and parents in the near future. Because college costs are out of control and interest rates are rising, students are leaving college deep in debt or in some cases choosing not to continue their education because they cannot afford it."

The Amendment offered by Warren and Reed failed 46-53 in the Senate, corrupt conservative Democrats Tom Carper (DE), Joe Donnelly (IN), Tim Kaine (VA), Mark Pryor (AR) killing it-- along with Angus King (I-ME) and Tom Harkin (IA-- don't ask me what kind of fucking bee got in her bonnet that day) by voting with every single Senate Republican; Claire McCaskill (MO) coincidentally got locked into the lady's room and didn't have to vote.

After the roll call, Senator Warren sent out this brief statement, while Obama and his Wall Street pals celebrated: "Today's vote is over, but our fight to make college more affordable and a better deal for our students continues. I'm in this fight for the long haul-- we must invest in our kids, bring down the skyrocketing costs of college and tackle the more than trillion dollars in student loan debt that is crushing middle class families and threatening our economy. I am eager to work with the President and my colleagues to attack these problems head-on and find solutions that will provide a real shot at an education for all of our children."

Elizabeth Warren by Nancy Ohanian

Which Would You Prefer-- Free State Colleges Again... Or Joe Biden Again?

The big early news in the 2020 presidential primary not going to be coming from Iowa-- 88% white, 50% rural-- and New Hampshire-- 92% white and 37% rural. I have nothing against those states but I was (mostly) happy to read that California will have an impact from now on as well-- California: 39.6% white, 38.1% Latino, 13% Asian, 6% Black and 4.2% rural. "When Iowa Democrats hold their February 2020 presidential caucuses," reported Reid Epstein for the Wall Street Journal yesterday, "millions of Californians will already have their primary ballots. The nation’s most-populous state has moved its primary to March 3, 2020, so it can have more influence in picking presidential nominees. The move from a June primary in 2016 will press hopefuls to consider a West Coast perspective on issues such as immigration and the environment, empower the state’s growing Latino and Asian populations and drastically increase the amount of money candidates must raise to mount a competitive campaign." Hmmm... I don't like the implications of that last phrase. (As Epstein points out, "With a population of 40 million, California is considered too large for a campaign to build a field operation. A week of statewide TV advertising costs about $6 million, making it prohibitively expensive for most campaigns."

The geography for primaries will likely mean the voters critical to winning the presidential nomination will be considerably different from the electorate that carried the party to sweeping victories in the 2018 midterm elections, when Democrats flipped 40 House Republican seats and regained the chamber’s majority.

...While 2018 congressional candidates focused on health care and targeted educated suburban voters, candidates in 2020 must appeal to a far more diverse group in the nation’s cities.

“There will be a need to discuss issues of racial inequality,” said Matt Barreto, the co-founder Latino Decisions, a polling firm. “People are disgusted with the way that they are being talked about in such hostile racial language... It has to do with being respected and being wanted in the Democratic community.”

...California, Texas and seven other states have set March 3 contests and more-- including Georgia, where black voters make up more than half the Democratic electorate-- could move to that date as well, said Josh Putnam, a University of North Carolina-Wilmington lecturer who tracks the presidential nominating calendar.

Also upending the traditional focus on Iowa and New Hampshire is a heavier emphasis on early voting, a process that has become more popular with each election. Millions of California voters will receive their ballots 29 days before its primary, on the same day as the Iowa caucuses. Vermont’s early voting will begin Jan. 18, two weeks before Iowans choose a candidate.

...Joan Kato, who served as delegate director for Sen. Bernie Sanders’s campaign in 2016, said the first four states, with their small populations, will test candidates’ ability to interact with voters rather than serve as a gauge of who can reach the most people through advertising.

“It makes an unfair playing field,” Ms. Kato said. “Should our presidency be decided by the amount of money somebody can fundraise?”

...It also isn’t a given that California’s increased influence will pull the party’s nominee to the left. Mrs. Clinton won the state twice, even though she was seen as less liberal than Mr. Obama in 2008 and Mr. Sanders in 2016. Both times Mrs. Clinton was better known than her opponent.

“This idea that California is a super-liberal bastion is wrong,” said Matt Bennett, a co-founder of the center-left think tank Third Way. “You’ve got to think about California ideologically the way you have to think about the whole country.”

There's definitely going to be a centrist running, someone from the corporate wing of the party, possibly a Biden/Gillibrand ticket, which would be running since he's not just a gaffe-machine, but a #MeToo nightmare, the only issue she's distinguished herself on.

Going back to Biden's corporate identity isn't something he'll accept gracefully in public, but it's indisputable for people who examine his long, sordid record. Which is exactly what David Sirota did in 2015 for the International Business Times-- and on one particular issue: Joe Biden Backed Bills To Make It Harder For Americans To Reduce Their Student Debt. Biden has always been on the side of the creditors, never the borrowers. "Americans," wrote Sirota, "now face more than $1.2 trillion in total outstanding debt from their government and private student loans. The bill [to roll back Bush's and Biden's awful bankruptcy bill] is a crucial component of the party’s pro-middle-class economic message heading into 2016. Yet one of the lawmakers most responsible for limiting the legal options of... students is the man who some Democrats hope will be their party's standard-bearer in 2016: Vice President Joe Biden."

As a senator from Delaware-- a corporate tax haven where the financial industry is one of the state’s largest employers-- Biden was one of the key proponents of the 2005 legislation that is now bearing down on students like Ryan. That bill effectively prevents the $150 billion worth of private student debt from being discharged, rescheduled or renegotiated as other debt can be in bankruptcy court.

Biden's efforts in 2005 were no anomaly. Though the vice president has long portrayed himself as a champion of the struggling middle class-- a man who famously commutes on Amtrak and mixes enthusiastically with blue-collar workers-- the Delaware lawmaker has played a consistent and pivotal role in the financial industry's four-decade campaign to make it harder for students to shield themselves and their families from creditors, according to an IBT review of bankruptcy legislation going back to the 1970s.

Biden's political fortunes rose in tandem with the financial industry's. At 29, he won the first of seven elections to the U.S. Senate, rising to chairman of the powerful Judiciary Committee, which vets bankruptcy legislation. On that committee, Biden helped lenders make it more difficult for Americans to reduce debt through bankruptcy-- a trend that experts say encouraged banks to loan more freely with less fear that courts could erase their customers’ repayment obligations. At the same time, with more debtors barred from bankruptcy protections, the average American’s debt load went up by two-thirds over the last 40 years. Today, there is more than $10,000 of personal debt for every person in the country, as compared to roughly $6,000 in the early 1970s.

That increase-- and its attendant interest payments-- have generated huge profits for a financial industry that delivered more than $1.9 million of campaign contributions to Biden over his career, according to data compiled by the Center for Responsive Politics.

Student debt, which grew as Biden climbed the Senate ladder and helped lenders tighten bankruptcy laws, spiked from $24 billion issued annually in 1990-91 to $110 billion in 2012-13, according to data from the Pew Research Center.

According to the Institute for College Access and Success, as of 2012, roughly one-fifth of recent graduates’ student debt was from private loans that “are typically more costly” than government loans.

Consequently, every major Democratic presidential candidate has introduced his or her own plan to reduce college debt. Biden himself has spotlighted the issue as he has publicly pondered a White House bid. Earlier this month he attended an event to discuss student debt at community colleges, telling students at Miami-Dade College: “I doubt there were many of you who could sit down and write a check for $6,000 in tuition without worrying about it.” His comments amplified his rhetoric from the 2012 election, when he decried the fact that "two-thirds of all the students who attend college take out loans to pay for school." He said that the accumulated debt means that when the typical student graduates, "you get a diploma and you get stapled to it a $25,000 bill."

But advocates for stronger protections for debtors argue that Biden was a driving force in creating the laws that made the problem worse.

“Joe Biden bears a large amount of responsibility for passage of the bankruptcy bill,” Ed Boltz, president of the National Association of Consumer Bankruptcy Attorneys, said in an interview with IBT.

That legislation created a crisis, said Northeastern University law professor Daniel Austin. Federal Reserve data show that about 1.1 million people face student debt loans of $100,000 or more, and roughly 167,000 face student loans of $200,000 or more.

“It is perverse and obscene,” Austin told IBT. “We are creating a generation of indentured people. It is mind-boggling that we would do this to a whole generation of young people. I can’t understand any other modern society doing this.”

Is there a better idea that a visionless, stays quo warrior from another era, like Biden? You bet. First watch this video of Richard Wolff interviewing Stephanie Kelton, Bernie's chief economic advisor, just about one year ago:



Now let's take a look at what Bernie is proposing. He's boiled it down to 6 steps at a time where a highly competitive global economy demands the best-educated workforce in the world. "It is insane and counter-productive," he wrote, "to the best interests of our country and our future, that hundreds of thousands of bright young people cannot afford to go to college, and that millions of others leave school with a mountain of debt that burdens them for decades. That shortsighted path to the future must end."

• MAKE TUITION FREE AT PUBLIC COLLEGES AND UNIVERSITIES.

This is not a radical idea. Germany eliminated tuition because they believed that charging students $1,300 per year was discouraging Germans from going to college. Chile will do the same. Finland, Norway, Sweden and many other countries around the world also offer free college to all of their citizens. If other countries can take this action, so can the United States of America.

In fact, it’s what many of our colleges and universities used to do. The University of California system offered free tuition at its schools until the 1980s. In 1965, average tuition at a four-year public university was just $243 and many of the best colleges-- including the City University of New York-- did not charge any tuition at all. The Sanders plan would make tuition free at public colleges and universities throughout the country.

• STOP THE FEDERAL GOVERNMENT FROM MAKING A PROFIT ON STUDENT LOANS.

Over the next decade, it has been estimated that the federal government will make a profit of over $110 billion on student loan programs. This is morally wrong and it is bad economics. Sen. Sanders will fight to prevent the federal government from profiteering on the backs of college students and use this money instead to significantly lower student loan interest rates.

• SUBSTANTIALLY CUT STUDENT LOAN INTEREST RATES.

Under the Sanders plan, the formula for setting student loan interest rates would go back to where it was in 2006. If this plan were in effect today, interest rates on undergraduate loans would drop from 4.29% to just 2.37%.

• ALLOW AMERICANS TO REFINANCE STUDENT LOANS AT TODAY’S LOW INTEREST RATES.

It makes no sense that you can get an auto loan today with an interest rate of 2.5%, but millions of college graduates are forced to pay interest rates of 5-7% or more for decades. Under the Sanders plan, Americans would be able to refinance their student loans at today’s low interest rates.

• ALLOW STUDENTS TO USE NEED-BASED FINANCIAL AID AND WORK STUDY PROGRAMS TO MAKE COLLEGE DEBT FREE.

The Sanders plan would require public colleges and universities to meet 100% of the financial needs of the lowest-income students. Low-income students would be able to use federal, state and college financial aid to cover room and board, books and living expenses. And Sanders would more than triple the federal work study program to build valuable career experience that will help them after they graduate.

• FULLY PAID FOR BY IMPOSING A TAX ON WALL STREET SPECULATORS.

The cost of this $75 billion a year plan is fully paid for by imposing a tax of a fraction of a percent on Wall Street speculators who nearly destroyed the economy seven years ago. More than 1,000 economists have endorsed a tax on Wall Street speculation and today some 40 countries throughout the world have imposed a similar tax including Britain, Germany, France, Switzerland, and China. If the taxpayers of this country could bailout Wall Street in 2008, we can make public colleges and universities tuition free and debt free throughout the country.

On The Trump Regime's Hostility To Education And Social Mobility

Yesterday, Seth Frotman, the top government official (ombudsman) overseeing the $1.5 trillion student loan market resigned from the CFPB-- not just resigned, but resigned in protest over the Trump Regime's open hostility toward protecting the nation’s millions of student loan borrowers. His scathing resignation better pointed out that the Regime "has turned its back on young people and their financial futures."

The office was at the center of the lawsuits against for-profit colleges like Corinthian Colleges and is currently heading up a lawsuit between the CFPB and Navient, one of the nation’s largest student lenders. The Navient lawsuit has been mired in bureaucratic red tape as the Department of Education, headed by Betsy DeVos, has been unwilling to help the CFPB with their lawsuit. Since its creation, the student loan office has returned $750 million to harmed borrowers.

“You have used the bureau to serve the wishes of the most powerful financial companies in America,” Frotman wrote, addressing his letter to Mulvaney. “The damage you have done to the bureau betrays these families and sacrifices the financial futures of millions of Americans in communities across the country.”

Congress created the student loan ombudsman office when it established the CFPB, citing a need for a go-to person to handle student loan complaints nationwide. One previous occupant of that position is Rohit Chopra, who was appointed by President Trump to be a commissioner at the Federal Trade Commission.

The ombudsman’s office is quite powerful, able to work with the bureau’s enforcement staff to target bad behavior in the student loan market as well as act as a voice inside the government on behalf of student loan borrowers. The office processed tens of thousands of complaints from student loan borrowers and was among the first major government offices to raise alarms about the growing issue of students being unable to afford repaying their loans.

But despite its work, Mulvaney downgraded the mission of Frotman’s student loan office earlier this summer and moved it under the umbrella of consumer education instead of enforcement. While at the time Mulvaney’s office said it was a minor organizational shake-up, consumer advocates saw the change as a move to downplay the CFPB’s mission when it came to student loans.

Frotman also accused Mulvaney and his staff of deliberately hiding a report from the public that raised alarms that banks were overcharging student loan borrowers.

“When new evidence came to light showing that the nation’s largest banks were ripping off students on campuses across the country by saddling them with legally dubious account fees, bureau leadership suppressed the publication of a report prepared by bureau staff,” Frotman wrote.

The student loan office is not alone. Under Mulvaney, the bureau has scaled back its enforcement work and has proposed revising or rescinding all of the rules and regulations it put into place under the Obama administration.

“Seth Frotman is a public servant who treated every student loan complaint with the seriousness it deserved,” said Debbie Goldstein, executive vice president at the Center for Responsible Lending. “His departure raises concerns about the priorities of Mulvaney and CFPB leadership and whether they are fulfilling the mission of the CFPB to focus on protecting consumers from financial abuse.”

So what happens when the Trump nightmare is over? Moving forward, not backwards into some kind of status quo ante. Six months ago the Levy Economics Institute-- a nonpartisan public policy think tank at Bard College-- published The Macroeconomic Effects of Student Debt Cancellation by Stephanie Kelton, Scott Fullwiler, Catherine Ruetschin and Marshall Steinbaum. As DWT readers are aware, Stephanie Kelton was Bernie's economic adviser and they made a very big deal out of student debt all through the campaign, so big a deal that even Clinton and other status quo candidates began addressing the issue seriously. I suggest you read the entire paper but this is excerpted from the executive summary-- and goes right to the problems Frotman was trying to deal with while fending off a Regime generally hostile to education and to upward mobility of working class kids:

More than 44 million Americans are caught in a student debt trap. Collectively, they owe nearly $1.4 trillion on outstanding student loan debt. Research shows that this level of debt hurts the US economy in a variety of ways, holding back everything from small business formation to new home buying, and even marriage and reproduction. It is a problem that policymakers have attempted to mitigate with programs that offer refinanc- ing or partial debt cancellation. But what if something far more ambitious were tried? What if the population were freed from making any future payments on the current stock of outstanding student loan debt? Could it be done, and if so, how? What would it mean for the US economy?

...Student debt cancellation results in positive macroeconomic feedback effects as average households’ net worth and disposable income increase, driving new consumption and investment spending. In short, we find that debt cancellation lifts GDP, decreases the average unemployment rate, and results in little inflationary pressure (all over the 10-year horizon of our simulations), while interest rates increase only modestly. Though the federal budget deficit does increase, state-level budget positions improve as a result of the stronger economy. The use of two models with contrasting long-run theoretical foundations offers a plausible range for each of these effects and demonstrates the robustness of our results.

A one-time policy of student debt cancellation, in which the federal government cancels the loans it holds directly and takes over the financing of privately owned loans on behalf of borrowers, results in the following macroeconomic effects.

• The policy of debt cancellation could boost real GDP by an average of $86 billion to $108 billion per year. Over the 10-year forecast, the policy generates between $861 billion and $1,083 billion in real GDP (2016 dollars).
• Eliminating student debt reduces the average unemployment rate by 0.22 to 0.36 percentage points over the 10-year forecast.
• Peak job creation in the rst few years following the elimina- tion of student loan debt adds roughly 1.2 million to 1.5 million new jobs per year.
• The in ationary effects of cancelling the debt are macro-economically insignificant. In the Fair model simulations, additional inflation peaks at about 0.3 percentage points and turns negative in later years. In the Moody’s model, the effect is even smaller, with the pickup in in ation peaking at a trivial 0.09 percentage points.
• Nominal interest rates rise modestly. In the early years, the Federal Reserve raises target rates 0.3 to 0.5 percentage points; in later years, the increase falls to just 0.2 percentage points. The effect on nominal longer-term interest rates peaks at 0.25 to 0.5 percentage points and declines thereafter, settling at 0.21 to 0.35 percentage points.
• The net budgetary effect for the federal government is modest, with a likely increase in the de cit-to-GDP ratio of 0.65 to 0.75 percentage points per year. Depending on the federal government’s budget position overall, the de cit ratio could rise more modestly, ranging between 0.59 and 0.61 percentage points. However, given that the costs of funding the Department of Education’s student loans have already been incurred, the more relevant estimates for the impacts on the government’s budget position relative to current levels are an annual increase in the de cit ratio of between 0.29 and 0.37 percentage points.
• State budget de cits as a percentage of GDP improve by about 0.11 percentage points during the entire simulation period.

• Research suggests many other positive spillover effects that are not accounted for in these simulations, including increases in small business formation, degree attainment, and household formation, as well as improved access to credit and reduced household vulnerability to business cycle downturns. Thus, our results provide a conservative estimate of the macro effects of student debt liberation.

The Racial Dimension of Student Debt

Compare the two charts above. They show median wealth of households headed by black individuals (top chart) and white individuals (bottom chart) between the ages of 25 and 40 in successive waves of the triennial Survey of Consumer Finances, with and without student debt. (Credit to Matt Bruenig for preparing these data from the SCF.)

by Gaius Publius

Student debt is increasingly burdening everyone, but that burden disproportionately weighs on black households.

—Marshall Steinbaum (source)

As an interim addendum to our short series, "Killing a Predator — Cancelling Student Debt" — Part 1 here, Part 2 here — consider the observation above by Marshall Steinbaum, one of the co-authors (with Stephanie Kelton, Scott Fulwiler, and Catherine Ruetschlin) of the Levy Institute paper on student debt cancellation we've been looking at. It comes from a more general piece Steinbaum wrote for the Roosevelt Institute discussing his Levy Institute paper. I'd like to focus here on just that observation.

Before we look at more of what Steinbaum wrote, please note three things about the charts above.

First, consider the differing degrees to which student debt subtracts from the wealth of young black households and white households. The takeaway from that should be: No, canceling student debt would not mainly benefit the rich. It actually disproportionately benefits black households when measured as a percentage of household wealth.

Second, look at the vertical scales of the two graphs, their Y-axes. The numbers are not the same.  The top charted point (peak of yellow line) for young white households is $80,000. The top charted point (peak of yellow line) for young black households is slightly more than $18,000. That's a peak-to-peak wealth differential of greater than 4:1.

Worse, the actual wealth of these black households in 2016 is less than $4,000 (blue line, top chart), compared to more than $40,000 for white households in the same year (blue line, bottom chart). In other words, the 2016 wealth differential is more than 10:1.

Canceling all student debt would bring that differential down to "just" 5:1 — still shameful for a society like ours, but it shows what a great boon student debt cancellation would be for young black households.

Finally, note that from 2013 to 2016, white wealth for these households has recovered somewhat from the Wall Street–caused "great recession" while black wealth has recovered not at all. 

Now Steinbaum:

One thing that immediately becomes clear upon investigation of the student debt crisis is the extent to which it is a creature of this country’s legacy of racial discrimination, segregation, and economic disadvantage patterned by race. My prior research with Kavya Vaghul found that zip codes with higher population percentages of racial minorities had far higher delinquency rates, and that the correlation of delinquency with race was actually most extreme in middle-class neighborhoods. What this tells us is that student debt is intimately bound up with the route to financial stability for racial minorities.

In that work, we ascribe this pattern of disadvantage to four causes: segregation within higher education, which relegates minority students to the worst-performing institutions, discrimination in both credit and labor markets, and the underlying racial wealth gap that means black and Hispanic students have a much smaller cushion of family wealth to fall back on, both to finance higher education in the first place and also should any difficulty with debt repayment arise. The implication is that while higher education is commonly believed to be the route to economic and social mobility, especially by policy-makers, the racialized pattern of the student debt crisis demonstrates how structural barriers to opportunity stand in the way of individual efforts. Insisting that student debt is not a problem amounts to denying this reality.

Looking at the time series of median wealth for households headed by black and white people between the ages of 25 and 40 (what we refer to as “white households” and “black households”) in successive waves of the Survey of Consumer Finances (SCF) [see charts above] reveals these racialized patterns. ... By this measure, the racial wealth gap (the ratio of the median wealth of white households in that age range to the median wealth of black households in that age range) is approximately 12:1 in 2016, whereas in the absence of student debt, that ratio is 5:1.

Moreover, while overall net household wealth levels for the non-rich increased between the 2013 and 2016 waves of the SCF for the first time since the Great Recession did violence to middle-class wealth, rising student debt weighed in the other direction—especially for black households. The time trend from these charts is clear: Student debt is increasingly burdening everyone, but that burden disproportionately weighs on black households.

Steinbaum refers to another study to explain why this is the case (emphasis mine):

A 2016 paper by Judith Scott-Clayton and Jing Li offers clues, since it tracks the debt loads of black and white graduates with four-year undergraduate degrees. They find that immediately upon graduating, black graduates have about $7,400 more in student debt than their white counterparts. Four years after graduating, that gap increases to $25,000. The crucial difference is simply that white graduates are likely to find a job and start paying down their debt, more-or-less as the system is designed, but black graduates are not—they carry higher balances, go to graduate school (especially at for-profit institutions) and thus accumulate more debt, and subsequently earn no better than whites with undergraduate degrees.

What this suggests is that any given educational credential is less valuable to blacks in a discriminatory labor market (probably because they attended less well-regarded institutions with weaker networks of post-graduate opportunity, and also because even assuming they did attend the same institutions as their white counterparts, outcomes for black graduates in the labor market are mediated by racial discrimination). ... The assumption that debt-financed educational credentialization represents constructive wealth-building and social mobility thus reflects a failure to comprehend the landscape of race-based economic exclusion.

The interaction of student debt with "race-based economic exclusion" provides a powerful argument for student debt cancellation all on its own. Something to keep in mind as this idea enters public discourse.

GP
 

Killing a Parasite, Part 2 — How to Implement Student Debt Cancellation

The other side of student debt: Salaries of some private college presidents according to the Chronicle of Higher Education (source). These numbers are deceptive. According to the Huffington Post, the president of the University of Chicago, for example, was paid $3.3 million in 2011 if you include deferred compensation.

The other side of student debt: Salaries of presidents of some public (taxpayer-funded) colleges and universities according to the Chronicle of Higher Education (source), These numbers do not appear to include deferred compensation.

by Gaius Publius

This is the second part in a short series, "Killing a Parasite — Canceling Student Debt."

In Part 1, we made the case that the institutionalized and growing student debt crisis is not fed by predatory activity on creditors, but by parasitic activity. Predators kill, eat, and move on. Parasites disable, then live off the energy system of the disabled host for as long as they can keep the host alive. The argument there was simple: "Viruses are a form of parasite. So are credit card companies."

A non-human parasite: The "tongue-eating louse" is a parasitic crustacean of the family Cymothoidae. The parasite enters fish through the gills and then attaches itself to the fish's tongue, strangling and replacing it. Then it feeds on the fish as the fish feeds itself (source).

An especially pernicious form of "loan parasite" includes institutions preying financially on students, who incur their debt without current income to pay it, yet need a college degree to effectively compete in the post-graduation job market. Because at one point the federal government guaranteed many or most student loans in the U.S., private lenders eagerly extended credit to anyone who asked for it. No-risk lending is a no-brainer in the financial world.

These practices put a flood of money into the higher education system, money which continually drives up the price of higher education, even in public colleges and universities. Institutions charge what students can afford to pay, and since students were paying with government-backed loans — and today are paying with government-originated loans (see below) — they become a mere pass-through from lenders to college and university administrations.

Thus the more money this "program" makes available, the higher the tuitions charged by the receiving institutions. (It's really a racket in the classic sense, since students are coerced by the ever-increasing need for "credentialization" in an ever-deteriorating full-time labor market. Again, see below.)

A great deal of the new money that colleges and universities acquire ends up in the hands of the administrators themselves via growth in their number and growth in their salaries. At the top, many college presidents are paid like corporate CEOs, whom they consider themselves to resemble.

Paul Campos, writing in the New York Times, first identifies the "cover story," the comfortable myth, that's used to explain the booming cost of college (my emphasis throughout):

Once upon a time in America, baby boomers paid for college with the money they made from their summer jobs. Then, over the course of the next few decades, public funding for higher education was slashed. These radical cuts forced universities to raise tuition year after year, which in turn forced the millennial generation to take on crushing educational debt loads, and everyone lived unhappily ever after.

This is the story college administrators like to tell when they’re asked to explain why, over the past 35 years, college tuition at public universities has nearly quadrupled, to $9,139 in 2014 dollars. It is a fairy tale in the worst sense, in that it is not merely false, but rather almost the inverse of the truth.

He then shows that the truth is almost exactly opposite:

In fact, public investment in higher education in America is vastly larger today, in inflation-adjusted dollars, than it was during the supposed golden age of public funding in the 1960s. Such spending has increased at a much faster rate than government spending in general. For example, the military’s budget is about 1.8 times higher today than it was in 1960, while legislative appropriations to higher education are more than 10 times higher.

In other words, far from being caused by funding cuts, the astonishing rise in college tuition correlates closely with a huge increase in public subsidies for higher education.

If car prices had gone up as fast as tuition over the same period, he writes, "the average new car would cost more than $80,000."

Where is this money going? Among other places, into the pockets of the administrator class. Campos notes that "an analysis by a professor at California Polytechnic University, Pomona, found that, while the total number of full-time faculty members in the C.S.U. system grew from 11,614 to 12,019 between 1975 and 2008, the total number of administrators grew from 3,800 to 12,183 — a 221 percent increase."

To see the effect on the salaries of college presidents, the industry's CEO class, see the charts at the top.

Part 1 in this series looked at the Why question — Why should all student loans be canceled? — and answered it in economic terms, since ending student loan debt would benefit not just the students affected, but the economy as a whole. It also answered the Why question in moral terms: Ending the practice of parasitism, humans preying on humans, is a good thing in itself.

This piece looks at the How question — How should ending student loans be implemented? A future installment, the last, will address the What Next and What If We Don't questions. (Hint: Extreme parasitism is not a stable system, and the social consequences of extreme human suffering aren't limited to the ballot box.)

The Federal Government Is the Largest Originator of Student Loans

A little background before we get to the implementation. The largest originator and owner of student loans is now the U.S. government:

The Federal Student Aid (FSA) loan portfolio balances were $896 billion at the end of 2012. The FSA managed $473 billion under the Federal Direct Student Loan Program at the end of 2012. New loans originated under the program during 2012 totaled $106.7 billion. Loan portfolio balances managed by the FSA for the Federal Family Education Loan Program are slowly and steadily shrinking as new loans offered to students by the U.S. Department of Education originate under the FDSL program. Most of the growth in FDSL loan portfolio balances can be attributed to new loan originations, while being the sole government program for student loans. Another contributor to the rapid escalation in loan balances is due to the cost of higher education increasing rapidly, faster than inflation. Students are spending and borrowing more to finance their higher-priced, higher education.

As of the 2015 GAO audit, the total of the Federal Student Aid loan portfolio was one trillion dollars. [Footnotes removed]

By comparison, note that the aggregate national student loan total, including both public and privately originated loans, is close to $1.5 trillion.

The percentage of private loans is actually much smaller that these numbers imply. According to a new paper by Scott Fullwiler, Stephanie Kelton, Catherine Ruetschlin, and Marshall Steinbaum, "The vast majority of [student] debt originates from federal lending, with the private student loan market accounting for just 7.6 percent ($99.7 million) of all student debt." (More from this paper below.)

Also note that the government-guaranteed loan program, in which private lenders were the source of the money, was eliminated only recently, in 2010:

Following the passage of the Health Care and Education Reconciliation Act of 2010, the Federal Direct Loan Program is the sole government-backed loan program in the United States. Guaranteed loans—loans originated and funded by private lenders but guaranteed by the government—were eliminated because of a perception that they benefited private student loan companies at the expense of taxpayers, but did not help reduce costs for students.

So the loan guarantee program became a loan origination program. This makes the U.S. government today the major parasite driving the student loan crisis, though $100 million in private student debt is still a sizable prize for private lenders.

This also puts the U.S. government in a unique and powerful position — it can, if it wishes, solve this problem by its own action alone.

How to End the Student Loan Crisis

Part 1 of this series argued the benefits of a "debt jubilee" on all student loans in the U.S. The paper cited above also argues those benefits (see the Executive Summary). The mechanics of this cancellation, ways it can be implemented, are as follows. Note in the second bulleted paragraph how private loan debt would be handled (emphasis mine):

• The current portfolio of student loans held by the ED would be cancelled or, equivalently, borrowers would simply be allowed to stop making payments and any principal due on a given date would be cancelled at that time (that is, the loan would effectively be cancelled in stages as payments come due). As of the second quarter of 2016, the ED’s outstanding loans totaled $986.19 billion.

• The federal government would either purchase and then cancel, or, equivalently, take over the payments on student debt currently held by the private sector. As with the ED’s loans, if the government purchases the privately held loans it can choose to cancel them immediately or as borrowers’ payments come due. The government-guaranteed loans are $266.69 billion, while nonguaranteed privately issued loans are $101.58 billion, both as of the second quarter of 2016. Having the government assume these payments or purchase and cancel the loans is preferable to cancellation by private investors. The latter would require the private sector to write down nearly $370 billion in both assets and equity, which could be highly destabilizing (or worse) for the affected sectors.

Section II of the paper works out the effects of the various choices presented above. Note again that the effect on the national debt derives solely from the loan servicing amounts (interest payments), which are either lost to the government in the case of canceled government loans, or paid by the government in the case of privately issued loans. Canceling the outstanding loans balances themselves has no effect at all on the amount of federal debt.

But Wouldn't This Disproportionately Benefit the Rich?

One of the chief objections to this proposal is that it's regressive, that it would disproportionately benefit the rich. The authors address this concern:

The Distributional Consequences of Student Debt, Student Debt Cancellation, and Debt-Free College

...[T]he main controversy over student debt generally and debt cancellation in particular has not been its macroeconomic impact, but rather the implications for people in different income and wealth quantiles and the impact on inequality. The controversy arises from the factual observation that among borrowers, those with the largest amount of debt outstanding tend to have the highest incomes, and those who spend the most on college (and who therefore—so the story goes—have the most to gain from the option of free college) come from the highest-earning families....

This objection, overly simple and therefore easy to "sell," fails to take into account the wholesale changes that have occurred in both the student loan population and the U.S. labor market.

The widespread criticism of ambitious policies to address the student debt crisis, based on their supposedly regressive impact, is overdrawn. In some cases, it misinterprets the evidence about who is most burdened by student debt and who would benefit most from relief. In this section, we consider the evidence about the distribution of debt and debt burdens in the population and the evolution of those distributions over time. Our main point is that, while the largest loan balances are indeed held by comparatively high-earning households, the extent to which student debt is held by the rich has diminished significantly. Moreover, the argument that the distribution of the burden of student debt has not, in fact, changed very much, even as the total amount of debt outstanding has increased dramatically, fails to consider the significant changes in the population of people with any student debt at all. These issues of interpretation extend beyond accurately assessing the distributional impact of the policies we model—they point to larger problems with the assumptions behind existing higher education, student debt, and labor market policies. The student debt crisis is one of several linked manifestations of those problems. Others are wage stagnation, underemployment, and increasing inequality of household wealth.

Student debt was once disproportionately associated with graduate school and with relatively well-off households, in part because it was possible to graduate from community college or a four-year public institution with little or no debt, and in even larger part because many people did not need to obtain any higher education credentials in order to access the labor market. What has happened in recent decades, and especially since the mid-2000s, is a vast expansion of student borrowing, such that the preponderant share of younger cohorts newly entering the labor market carry student debt. This expansion is due in part to much higher tuition, mostly thanks to state-level cutbacks in funding for higher education, and in part because it is simply far more difficult to access the labor market now without higher education credentials. And that “credentialization,” in turn, is due to the underperformance of the labor market since 2000 and especially since the financial crisis and the Great Recession that began in 2008. Since 2000, the most important federal labor market policy has been the extension of student debt and the encouragement of a larger share of the population to obtain debt-financed higher education credentials, on the theory that underemployment and stagnant wages were caused by a “skills gap” that could be remedied through debt-financed higher education. The most obvious and acute effect of that policy was the growth of the high-priced for-profit higher education sector, but it was also evident in rising enrollment across all types of institutions, even as tuition rose. The “skills gap” was a false diagnosis of the labor market’s problems, and hence the prescription of more debt-financed credentials not only failed to solve the problem, it also created its own problem in the form of unsustainable debt.

The bottom line is this: Student debt today is killing a generation in a way it didn't before. This is new and not a function of loans to students born of wealthy parents. It's a societal and generational problem, actually a multi-generational one, that hurts us all. The economic harm done to an entire generation of Americans is not captured by the objection that this is somehow a "regressive" proposal.

As the authors note, there's more in that section of the paper in support of these claims.

The Need for Debt-Free Public Higher Education

It's clear that this proposal, in my view necessary, must also be accompanied by the Sanders campaign proposal of debt-free public colleges and universities. The arguments for Sanders' proposal, on its own merits, were well explored during the campaign.

A major objection to Sanders' idea was again that it would mainly benefit the rich — an argument that ignores, disingenuously I think, the fact that the very wealthy do not send their children to public colleges and universities. Harvard University would not become tuition-free under Sanders' proposal.

But in the context of the current proposal for cancellation of all student debt, there's another reason for instituting debt-free public colleges and universities: moral hazard. Briefly, canceling debt without removing the reasons debt is incurred in the first place encourages reckless borrowing in the expectation of future cancellation.

The authors address the problem this way:

The primary theoretical criticism of debt cancellation plans focuses on the reaccumulation of debt following the cancellation, in particular the potential for problems of moral hazard to arise. From this perspective, debt relief today could change the incentives of future student debtors who may increase borrowing with the expectation that the loans will be forgiven, causing an even faster accumulation of debt and increasing the negative consequences at the household, local, and macroeconomic levels. The perverse incentives for unsustainable borrowing in this scenario are the result of inappropriate policy institutions that absolve borrowers of their debts while perpetuating the necessity of increasing debt. In order to avoid problems of moral hazard, any restructuring of student debt—including our debt cancellation proposal—should be accompanied by strong and appropriate policies that enforce the consequences of borrowing and address the market failures that lead to undesirable social costs. In combination with debt cancellation, publicly funded free or debt-free college would provide the institutional reform.

In combination with a program like the one Sanders proposed during the campaign — free public colleges and universities — student debt cancellation would indeed and effectively address the current student debt crisis. The two proposals are a necessary pair and should be implemented together.

Finally, the "Fairness" Question

Which brings us to the last of the objections. In effect, it comes down to this: "I paid for my college degree with my hard work and sacrifice. I paid off all my loans, and believe me it was tough. But I did it. So why should others get a break that I didn't get?"

The problem here is what one writer described as "status quo bias," an emotional preference in which the "current baseline (or status quo) is taken as a reference point, and any change from that baseline is perceived as a loss."

but there's another bias as well, which could be called "retributional bias." This situation is similar to any in which an originally beneficial policy was first rescinded and then reinstated. Public education was largely free prior to the Reagan era, and with the GI Bill, millions paid next to nothing to attend. As the paper's authors point out, the largest loan balances were associated with post-graduate work.

But higher education policies changed under and after Reagan, reaching crisis proportions today. Should people trapped in debt by the blatant injustices of the post-Reagan world be allowed to veto, in the name of "fairness," the repeal of those injustices?

The essence of this objection is, "It's not fair that I was born at the wrong time." This has been described as being "trapped by history." Is it unfair that many be so trapped? Of course it is. But the perp in that unfairness is not the next generation to also be shackled, but the times themselves, the politicians who ruled them, and voters who kept them in power.

To therefore perpetuate that unfairness — to make, in effect, this generation suffer "because I had to" — is more than just unfair to them. It's cruel.

GP