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Except housing prices aren't what matter, monthly payments are. If interest rates are lower but payments are the same, the only people that benefit are existing

Except housing prices aren't what matter, monthly payments are. If interest rates are lower but payments are the same, the only people that benefit are existing homeowners, but new home buyers aren't harmed since monthly payments stay the same. The banks and MBS investors are the ones who get screwed since they make super low rates. In some ways lower interest rates is actually better since higher home values mean you can spend more on amenities like high end kitchen and bathroom as a builder. The issue comes when you start looking at sub-prime debtors like students. If you have a 300 bps risk premium for being an unreliable borrower but the interest rate for reliable creditors is only 2%, your risk premium is 150%, but if the reliable borrower rate was 6% then your risk premium is only 50%. Add to this the fact that refinancing student loans (issued by the government) causes them to lose benefits like the 0% interest pause we have right now. That means the government intervention has caused a market distortion: you can't fungibly exchange your loan for a refinanced one at the market rate but instead are stuck with the 5-8% rates from 5 years ago. Government intervention also has other impacts: since you can't discharge student loans in bankruptcy, there's no incentive for universities to make students succeed or to discriminate admittance/cost by major (proxy for future earning power). That means we have a huge number of people stuck with high interest loans they can't discharge or refinance and useless degrees in majors that have 0 value to society. If you changed this to allow students to discharge student debt in bankruptcy and forced universities to assume the risk instead of the government, university incentives would be aligned with student incentives.

Red_Leaves_Flyy 5y ago
I can’t think of a single degree that has zero value to society. At scale, I can think of several that have negative value. But generally? No, every degree has value. Some are abstract and hard to quantify in ways that economists can track but that doesn’t mean the world wouldn’t be worse without them.
- b9a2cab5 5y ago
  Zero value, negative value, for the purposes of determining whether we should be subsidizing college these are the same. I think it's very unlikely most humanities majors are going on to produce culture defining works. Perhaps in the Ivy Leagues, but that's also where students are primarily wealthy and already capable of paying for college and therefore not subsidized by the state. I went to a highly ranked public school and most humanities majors ended up working either in low paying clerical work (data entry, event planning, on-site property management, etc.) or in food service (i.e. barista). These are jobs where you don't need a college education (or maybe just an associate's degree) and certainly not a four year degree in classics. IIRC most European countries don't have anywhere near the size of humanities programs that the US does, most students that can't make it into a good humanities program or can't make it into STEM go to trade schools. Europe doesn't have quite the number of private schools offering these useless degrees to people who couldn't get accepted into more prestigious institutions.

Red_Leaves_Flyy 5y ago

I can’t think of a single degree that has zero value to society. At scale, I can think of several that have negative value. But generally? No, every degree has value. Some are abstract and hard to quantify in ways that economists can track but that doesn’t mean the world wouldn’t be worse without them.

b9a2cab5 5y ago
Zero value, negative value, for the purposes of determining whether we should be subsidizing college these are the same. I think it's very unlikely most humanities majors are going on to produce culture defining works. Perhaps in the Ivy Leagues, but that's also where students are primarily wealthy and already capable of paying for college and therefore not subsidized by the state. I went to a highly ranked public school and most humanities majors ended up working either in low paying clerical work (data entry, event planning, on-site property management, etc.) or in food service (i.e. barista). These are jobs where you don't need a college education (or maybe just an associate's degree) and certainly not a four year degree in classics. IIRC most European countries don't have anywhere near the size of humanities programs that the US does, most students that can't make it into a good humanities program or can't make it into STEM go to trade schools. Europe doesn't have quite the number of private schools offering these useless degrees to people who couldn't get accepted into more prestigious institutions.