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Anytime the US wants the world to be a certain way but just can't quite get reality to conform debt is our answer. Everyone should be a homeowner but for some r

Anytime the US wants the world to be a certain way but just can't quite get reality to conform debt is our answer. Everyone should be a homeowner but for some reason isn't? Simple, just give them cheap loans for houses. Everyone should be educated but it doesn't seem to be happening? Debt time. Why do we do this? Because it allows us to pretend that complicated long-term structural problems are simple short-term capital problems. People just need some activation energy to get over the hump, that's all. We're addicted to debt, if we ever admitted that it's not solving these problems for us we'd have to contend with reality, and who wants to do that? Especially a reality as dismal as that of public education.

eemax 9y ago
Well, it does actually solve the problem in the sense that it actually causes houses to be built and students to go to college. Probably this indicates the real problem is more about bad monetary policy and bad tax policy, not a fundamental shortage of resources. Of course, it would be better to improve monetary policy rather than just making a bunch of dumb, risky loans leading to a dramatic boom and bust. But that would require policymakers understanding basic macroeconomics, so don't hold your breath...
- jdoliner 9y ago
  Is that really solving the problem though, or does it just give us houses no one wants to own and college graduates no one wants to employ? That's what it looks like to me at least. I don't think it's bad monetary or tax policy per-say, although those are bad, but just bad policy in general. But the badness of the policy comes from a fundamental over estimation of what the government is capable of doing for a society.
  - deleted 9y ago
    [deleted]
  - eemax 9y ago
    Well, to some degree, people probably do want to live in big, new houses. There's also probably some "real" underlying demand for an education, outside of people needing it (or believing that they need it) to get a good job. But the point is, regardless of how much people "actually" want them, it is in fact technologically and ecologically possible to provide most people in the U.S. with these goods. (The evidence is that a lot of people do in fact have these things, even if on paper they are underwater on a mortgage or saddled with a big student loan.) The bad policy is that by subsidizing and insuring these loans / mortgages far too cheaply, the government is driving up demand, and as a result people buy a bigger house than they need, or get an education that isn't useful for getting a high-paying job. If the government stops subsidizing mortgages and student loans with bailouts, insurance, laws preventing default, etc. the result will probably be 1) the cost of a college education goes down and also that less people actually go to college 2) people don't buy as many homes and buy smaller houses than they otherwise would have If you then want more people to have houses, education, healthcare, food, etc., whether or not they are able / willing to sell enough of their labor to pay for these things themselves, the next step is to solve wealth inequality. We could probably fix wealth inequality with good monetary policy (e.g. NGDP targeting) and "taxing the rich" in a sane way, e.g. with land value taxes, luxury consumption, VAT taxes, etc. After that, you're probably done, but for the remaining poor, the government can just give them cash, e.g. basic income, instead of trying to subsidize a million different services like healthcare and education and homes, in which case the subsidies end up in the pockets of doctors and administrators and landlords.
- aggronn 9y ago
  Okay you piqued my interest... "bad monetary policy" usually means we should be on the gold standard, but I've never heard that before as a solution for student loans. What are you proposing is the monetary fix?
  - koolba 9y ago
    Rampant inflation would fix those student loans real quick. Ditto for discharging the crippling mortgage payments and credit card debt. Not suggesting I recommended it but it is an option for an across the board sweep.
  - eemax 9y ago
    A gold standard is terrible monetary policy, even worse than the status quo. Good monetary policy would be the fed doing NGDP level targeting a la Scott Sumner: https://www.mercatus.org/system/files/NGDP_Sumner_v-10%20copy.pdf https://www.mercatus.org/system/files/NGDP_Sumner_v-10%20cop... Monetary policy only goes so far though, if you actually want to distribute resources in an equitable way, you probably also need good tax policy. Good tax policy would be taxes which decrease wealth inequality (e.g. luxury consumption taxes, land value taxes).
    - adamson 9y ago
      I don't think the Mercatus Center is the best place to look for good or sincere ideas on how to distribute resources in an equitable way
  - wonder_er 9y ago
    not OP, but taking a stab, since I agree with their assessment: bad monetary policy, in regards to student loans, means subsidizing them in two ways (at least): 1. paying the difference in interest rate compared to going to a regular bank. I can get student loans w/3% interest, but a bank wouldn't give me that money for less than 7%. 2. Making it illegal to disperse student loans in bankruptcy. Both of these are monetary policy decisions that "hide" risk. The higher interest rate is to compensate for the riskiness of the loan, while making loans illegal to disperse is the gov't response to the risk. both of these will hide increasingly large amount of risks, where everything looks like its going fine, until it will all fail, catastrophically. The politicians will claim no one could have seen it coming, but if they'd not allowed the risk to be so hidden, they'd have seen the institution crumbling decades before. edit: formatting
linkmotif 9y ago
You forgot to mention the cops. Cops and debt together are the United States solutions to all problems.
brianjoseff 9y ago
> Why do we do this? Also an issue of framing. Wrong metrics. With your framing above, it was "everyone should be a homeowner" and "everyone should be educated"... well we did that. Reality conformed. Just at tremendous cost and risk. The issues are of course way more complex than "# of ppl who own a home" and "# of ppl with a degree" So the question, then, is how do we use instruments of governance to move complex systems in the direction we think we want. This is complicated by, among other things: 1.) the fact that politicians are really just optimizing for "signaling" that they are fixing things rather than tangible results. 2.) long time horizons on these issues clashing with shorter time-horizons of political attention spans and our capacity to even reason about long-term things. etc...
- jdoliner 9y ago
  If reality had conformed the rate of homeownership in The US wouldn't have been declining since 2008: https://imgur.com/a/O2uF8 https://imgur.com/a/O2uF8
bkanber 9y ago
Not disagreeing with you, just adding: Debt is not inherently bad. If the concept of debt didn't exist our society would hardly have advanced in the last 2000 years. We owe a ton of our society's development to the fact that bankers exist, otherwise only a handful of people throughout history would have had the resources to build ships, open new businesses, build factories, new technologies, etc, and there would be zero competition. Student loan debt has ballooned. That's because there are a lot of people going to college that really shouldn't be going to college. And yes, there's some greed involved too: people are willing to take out loans and pay for school, so the schools charge as much as they can get away with. But most schools (believe it or not) reinvest that money into better facilities in order to attract more and higher quality students. The problem here isn't debt. There are people who want to go to college and who should go to college that need debt to get there. The problem is in the fact that people who should have learned how to weld in high school are pressured to go to college and find an office job, because we've told ourselves (or our parents have told us) that learning a trade is beneath us and that not going to college is awful (it's not).
- yuhong 9y ago
  The problem is that we have been running trade deficits for decades now, mean that most of the debt is spent on imported goods. This led to businesses with high profit margins that are designed to exploit debt, and the economy ended up being based on stocks going up for things like retirement (partly because other governments ended up buying US bonds). This is the main cause of things like Corinthian Colleges and ITT Tech going bad.
  - mlevental 9y ago
    the article you're commenting on (this very article) makes the point that much of the debt has actually been spent on education so...
georgeecollins 9y ago
This isn't a moral fault of Americans as much as it is effective lobbying and marketing by the financial industry. The government subsidies student debt and mortgages, which the financial industry trades and collects fees for servicing. Corporate debt is tax deductible, for terrible economic reasons. Why should raising money through debt be tax deductible, but not through selling equity? My finance prof. told me these were ultimately the same thing. One kind of transaction has a strong lobby behind it. This causes all kinds of problems of excessive leverage in our system.
asdjasldkjkljd 9y ago
It also seems like a natural way to solve problems when your entire economy rides on a recession cycle. Loans loans loans, recession, loans loans loans, recession.

eemax 9y ago

Well, it does actually solve the problem in the sense that it actually causes houses to be built and students to go to college. Probably this indicates the real problem is more about bad monetary policy and bad tax policy, not a fundamental shortage of resources. Of course, it would be better to improve monetary policy rather than just making a bunch of dumb, risky loans leading to a dramatic boom and bust. But that would require policymakers understanding basic macroeconomics, so don't hold your breath...

jdoliner 9y ago
Is that really solving the problem though, or does it just give us houses no one wants to own and college graduates no one wants to employ? That's what it looks like to me at least. I don't think it's bad monetary or tax policy per-say, although those are bad, but just bad policy in general. But the badness of the policy comes from a fundamental over estimation of what the government is capable of doing for a society.
- deleted 9y ago
  [deleted]
- eemax 9y ago
  Well, to some degree, people probably do want to live in big, new houses. There's also probably some "real" underlying demand for an education, outside of people needing it (or believing that they need it) to get a good job. But the point is, regardless of how much people "actually" want them, it is in fact technologically and ecologically possible to provide most people in the U.S. with these goods. (The evidence is that a lot of people do in fact have these things, even if on paper they are underwater on a mortgage or saddled with a big student loan.) The bad policy is that by subsidizing and insuring these loans / mortgages far too cheaply, the government is driving up demand, and as a result people buy a bigger house than they need, or get an education that isn't useful for getting a high-paying job. If the government stops subsidizing mortgages and student loans with bailouts, insurance, laws preventing default, etc. the result will probably be 1) the cost of a college education goes down and also that less people actually go to college 2) people don't buy as many homes and buy smaller houses than they otherwise would have If you then want more people to have houses, education, healthcare, food, etc., whether or not they are able / willing to sell enough of their labor to pay for these things themselves, the next step is to solve wealth inequality. We could probably fix wealth inequality with good monetary policy (e.g. NGDP targeting) and "taxing the rich" in a sane way, e.g. with land value taxes, luxury consumption, VAT taxes, etc. After that, you're probably done, but for the remaining poor, the government can just give them cash, e.g. basic income, instead of trying to subsidize a million different services like healthcare and education and homes, in which case the subsidies end up in the pockets of doctors and administrators and landlords.
aggronn 9y ago
Okay you piqued my interest... "bad monetary policy" usually means we should be on the gold standard, but I've never heard that before as a solution for student loans. What are you proposing is the monetary fix?
- koolba 9y ago
  Rampant inflation would fix those student loans real quick. Ditto for discharging the crippling mortgage payments and credit card debt. Not suggesting I recommended it but it is an option for an across the board sweep.
- eemax 9y ago
  A gold standard is terrible monetary policy, even worse than the status quo. Good monetary policy would be the fed doing NGDP level targeting a la Scott Sumner: https://www.mercatus.org/system/files/NGDP_Sumner_v-10%20copy.pdf https://www.mercatus.org/system/files/NGDP_Sumner_v-10%20cop... Monetary policy only goes so far though, if you actually want to distribute resources in an equitable way, you probably also need good tax policy. Good tax policy would be taxes which decrease wealth inequality (e.g. luxury consumption taxes, land value taxes).
  - adamson 9y ago
    I don't think the Mercatus Center is the best place to look for good or sincere ideas on how to distribute resources in an equitable way
- wonder_er 9y ago
  not OP, but taking a stab, since I agree with their assessment: bad monetary policy, in regards to student loans, means subsidizing them in two ways (at least): 1. paying the difference in interest rate compared to going to a regular bank. I can get student loans w/3% interest, but a bank wouldn't give me that money for less than 7%. 2. Making it illegal to disperse student loans in bankruptcy. Both of these are monetary policy decisions that "hide" risk. The higher interest rate is to compensate for the riskiness of the loan, while making loans illegal to disperse is the gov't response to the risk. both of these will hide increasingly large amount of risks, where everything looks like its going fine, until it will all fail, catastrophically. The politicians will claim no one could have seen it coming, but if they'd not allowed the risk to be so hidden, they'd have seen the institution crumbling decades before. edit: formatting

linkmotif 9y ago

You forgot to mention the cops. Cops and debt together are the United States solutions to all problems.

brianjoseff 9y ago

> Why do we do this? Also an issue of framing. Wrong metrics. With your framing above, it was "everyone should be a homeowner" and "everyone should be educated"... well we did that. Reality conformed. Just at tremendous cost and risk. The issues are of course way more complex than "# of ppl who own a home" and "# of ppl with a degree" So the question, then, is how do we use instruments of governance to move complex systems in the direction we think we want. This is complicated by, among other things: 1.) the fact that politicians are really just optimizing for "signaling" that they are fixing things rather than tangible results. 2.) long time horizons on these issues clashing with shorter time-horizons of political attention spans and our capacity to even reason about long-term things. etc...

jdoliner 9y ago
If reality had conformed the rate of homeownership in The US wouldn't have been declining since 2008: https://imgur.com/a/O2uF8 https://imgur.com/a/O2uF8

bkanber 9y ago

Not disagreeing with you, just adding: Debt is not inherently bad. If the concept of debt didn't exist our society would hardly have advanced in the last 2000 years. We owe a ton of our society's development to the fact that bankers exist, otherwise only a handful of people throughout history would have had the resources to build ships, open new businesses, build factories, new technologies, etc, and there would be zero competition. Student loan debt has ballooned. That's because there are a lot of people going to college that really shouldn't be going to college. And yes, there's some greed involved too: people are willing to take out loans and pay for school, so the schools charge as much as they can get away with. But most schools (believe it or not) reinvest that money into better facilities in order to attract more and higher quality students. The problem here isn't debt. There are people who want to go to college and who should go to college that need debt to get there. The problem is in the fact that people who should have learned how to weld in high school are pressured to go to college and find an office job, because we've told ourselves (or our parents have told us) that learning a trade is beneath us and that not going to college is awful (it's not).

yuhong 9y ago
The problem is that we have been running trade deficits for decades now, mean that most of the debt is spent on imported goods. This led to businesses with high profit margins that are designed to exploit debt, and the economy ended up being based on stocks going up for things like retirement (partly because other governments ended up buying US bonds). This is the main cause of things like Corinthian Colleges and ITT Tech going bad.
- mlevental 9y ago
  the article you're commenting on (this very article) makes the point that much of the debt has actually been spent on education so...

georgeecollins 9y ago

This isn't a moral fault of Americans as much as it is effective lobbying and marketing by the financial industry. The government subsidies student debt and mortgages, which the financial industry trades and collects fees for servicing. Corporate debt is tax deductible, for terrible economic reasons. Why should raising money through debt be tax deductible, but not through selling equity? My finance prof. told me these were ultimately the same thing. One kind of transaction has a strong lobby behind it. This causes all kinds of problems of excessive leverage in our system.

asdjasldkjkljd 9y ago

It also seems like a natural way to solve problems when your entire economy rides on a recession cycle. Loans loans loans, recession, loans loans loans, recession.