3 ms·

It doesn't matter who is responsible for the situation, if it presents a large risk to the economy it should be mitigated.

• sokoloff 7y ago
  Alcohol, tobacco, obesity, and general unhealthy lifestyle likely underpins more risk to the economy than student lending. It’s perhaps more “priced in”, but otherwise seems much more serious. Drug abuse is less long-term priced in and likely also has higher aggregate risk as well.
  • foota 7y ago
    There's a difference between risk and harm. Risks are something that represent an unknown future harm to the economy, likely in the form of a potential recession. The things you list undoubtedly waste resources, both from loss of productivity and from spending resources that otherwise could have been utilized for something else, but they're known quantities. In a sense the things you list are kind of like the broken windows fallacy. The increase in healthcare spending shows up in our GDP, but isn't an efficient use of the resources. I also imagine that student loan debt could reduce local growth. If you have a graduate using most of their income on repaying loans, that's money that may have been spent locally and is instead sent to the bank. Of course the opposite is true before graduation, where inflated costs of education result in more money in the local economy. However due to interest it may be the case that the former outweighs the latter.
    • sokoloff 7y ago
      Isn’t student loan repayment harm rather than risk as well, then? It seems like they’re also well known quantities.
      • tbrownaw 7y ago
        The amount that's owed is known, but ability to repay can change. Suppose that someone invents a better version of ELIZA, and everyone in the psychotherapy business is suddenly out of work. Or slightly less absurdly, suppose that Intuit and H&R Block mess up their next round of lobbying, and the IRS implements that one-click tax payment we've all been asking for. And the accountant industry shrinks by a few percent and wages go down for the ones that are left. Either of those would be a significant shift in the job prospects of a large group of people, which could affect how many student loans actually get repaid. I think it might also count as a risk if it suddenly became fashionable to get degrees in, say, underwater basket weaving. As in, incoming students aren't perfectly rational with perfect information about what degrees have what job prospects, and I'm assuming the college loan system might not react quickly if something caused an overall shift towards less economically useful degrees. It does lack one "feature" that helps the bad mortgages cause problems, in that I don't think it would be self-reinforcing. From what I understand, subprime defaults were contagious in a way that I don't think this would be.