debt

Solving the student debt problem

PNRJ education, inequality, market failure, politics, public policy, science and academia , , , , , , , ,

Aug 24 JDN 2460912

A lot of people speak about student debt as a “crisis”, which makes it sound like the problem is urgent and will have severe consequences if we don’t soon intervene. I don’t think that’s right. While it’s miserable to be unable to pay your student loans, student loans don’t seem to be driving people to bankruptcy or homelessness the way that medical bills do.

Instead I think what we have here is a long-term problem, something that’s been building for a long time and will slowly but surely continue getting worse if we don’t change course. (I guess you can still call it a “crisis” if you want; climate change is also like this, and arguably a crisis.)

But there is a problem here: Student loan balances are rising much faster than other kinds of debt, and the burden falls the worst on Black women and students who went to for-profit schools. A big part of the problem seems to be predatory schools that charge high prices and make big promises but offer poor results.

Making all this worse is the fact that some of the most important income-based repayment plans were overturned by a federal court, forcing everyone who was on them into forebearance. Income-based repayment was a big reason why student loans actually weren’t as bad a burden as their high loan balances might suggest; unlike a personal loan or a mortgage, if you didn’t have enough income to repay your student loans at the full amount, you could get on a plan that would let you make smaller payments, and if you paid on that plan for long enough—even if it didn’t add up to the full balance—your loans would be forgiven.

Now the forebearance is ending for a lot of borrowers, and so they are going into default; and most of that loan forgiveness has been ruled illegal. (Supposedly this is because Congress didn’t approve it. I’ll believe that was the reason when the courts overrule Trump’s tariffs, which clearly have just as thin a legal justification and will cause far more harm to us and the rest of the world.)

In theory, student loans don’t really seem like a bad idea.

College is expensive, because it requires highly-trained professors, who demand high salaries. (The tuition money also goes other places, of course….)

College is valuable, because it provides you with knowledge and skills that can improve your life and also increase your long-term earnings. It’s a big difference: Median salary for someone with a college degree is about $60k, while median salary for someone with only a high school diploma is about $34k.

Most people don’t have enough liquidity to pay for college.

So, we provide loans, so that people can pay for college, and then when they make more money after graduating, they can pay the loans back.

That’s the theory, anyway.

The problem is that average or even median salaries obscure a lot of variation. Some college graduates become doctors, lawyers, or stockbrokers and make huge salaries. Others can’t find jobs at all. In the absence of income-based repayment plans, all students have to pay back their loans in full, regardless of their actual income after graduation.

There is inherent risk in trying to build a career. Our loan system—especially with the recent changes—puts most of this risk on the student. We treat it as their fault they can’t get a good job, and then punish them with loans they can’t afford to repay.

In fact, right now the job market is pretty badfor recent graduates—while usually unemployment for recent college grads is lower than that of the general population, since about 2018 it has actually been higher. (It’s no longer sky-high like it was during COVID; 4.8% is not bad in the scheme of things.)

Actually the job market may even be worse than it looks, because new hires are actually the lowest rate they’ve been since 2020. Our relatively low unemployment currently seems to reflect a lack of layoffs, not a healthy churn of people entering and leaving jobs. People seem to be locked into their jobs, and if they do leave them, finding another is quite difficult.

What I think we need is a system that makes the government take on more of the risk, instead of the students.

There are lots of ways to do this. Actually, the income-based repayment systems we used to have weren’t too bad.

But there is actually a way to do it without student loans at all. College could be free, paid for by taxes.


Now, I know what you’re thinking: Isn’t this unfair to people who didn’t go to college? Why should they have to pay?

Who said they were paying?

There could simply be a portion of the income tax that you only pay if you have a bachelor’s degree. Then you would only pay this tax if you both graduated from college and make a lot of money.

I don’t think this would create a strong incentive not to get a bachelor’s degree; the benefits of doing so remain quite large, even if your taxes were a bit higher as a result.

It might create incentives to major in subjects that aren’t as closely linked to higher earnings—liberal arts instead of engineering, medicine, law, or business. But this I see as fundamentally a public good: The world needs people with liberal arts education. If the market fails to provide for them, the government should step in.

This plan is not as progressive as Elizabeth Warren’s proposal to use wealth taxes to fund free college; but it might be more politically feasible. The argument that people who didn’t go to college shouldn’t have to pay for people who did actually seems reasonable to me; but this system would ensure that in fact they don’t.

The transfer of wealth here would be from people who went to college and make a lot of money to people who went to college and don’t make a lot of money. It would be the government bearing some of the financial risk of taking on a career in an uncertain world.

The Republicans passed a terrible budget

PNRJ current events, inequality, politics, public policy , , , , , , , , ,

May 4 JDN 2460800

On April 10, the US House of Representatives passed a truly terrible budget bill. It passed on an almost entirely partisan vote—214 Democrats against, 216 Republicans for, 2 Republicans against. So I think it’s quite fair to say that the Republicans passed this budget—not a single Democrat voted for it, and only 2 Republicans voted against it.

So what’s so bad about it?

Well, first of all, in order to avoid showing just how much it will balloon the national debt, the new budget operates on different accounting rules than normal, using what’s called “current policy baseline” instead of the standard method of assuming that policies will end after 10 years.

In addition to retaining $3.8 trillion in tax cuts that were supposed to expire, this budget will cut taxes by $1.5 trillion over 10 years, with the vast majority of those cuts going to the top 1%—thus the real increase in the deficit is a staggering $5.3 trillion over 10 years. This is absolutely not what we need, given that unemployment is actually pretty good right now and we still have a deficit of $1.8 trillion per year. (Yes, really.) That kind of deficit is good in response to a severe recession—I was all in favor of it during COVID, and it worked. But when the economy is good, you’re supposed to balance the budget, and they haven’t.

The richest 1% stand to gain about 4% more income from these tax cuts (which adds up to about $240 billion per year), while the combination of tax cuts and spending cuts would most likely reduce the income of 40% of the population.

They aren’t even cutting spending to offset these tax cuts. This budget only includes a paltry $4 billion in spending cuts—less than 0.1% of the budget. (I mean, sure, $4 billion is a lot of money for a person; but for a whole country as rich and large as ours? It’s a rounding error.) And then it includes $521 billion in spending increases, over 100 times as much.

They are talking about making more cuts, but they’ve been cagey as to where, probably because the only plausible ways to save this much money are the military, Medicaid, Medicare, or Social Security. Obviously Republicans will never cut the military, but the other three programs are also enormously popular, even in deep-red states. It would be not only very harmful to millions of people to cut these programs—it would also be harmful to the Republicans’ re-election chances. They could also get some savings by cutting income security programs like SNAP and TANF, which would probably be less unpopular—but it would also cause enormous suffering.

This new budget is estimated to add some $6.9 trillion to the national debt over 10 years—and even more after that, if the policies actually continue.

I am not exactly a “deficit hawk”; I don’t think the budget should always be balanced. But this is not the time to be increasing the deficit. When times are good, we should balance the budget, so that when we have to go into debt during bad times, we can afford to do so.

And bad times are probably on the horizon, since Trump’s tariff policy is already such a disaster. So are we going to borrow even more then? While bond yields are rising? We’re going to end up spending most of our budget on debt payments! And all this injection of money into the system won’t be good for inflation either (and on top of the tariffs!).

The only sensible thing to do right now is raise taxes on the rich. We need that revenue. We can’t just keep going deeper into debt. And the rich are the ones who would be least harmed by raising taxes—indeed, if you focused the hikes on billionaires, they would barely feel anything at all.

But the Republicans don’t care about what’s in the interest of ordinary Americans. They only care about the interests of the rich. And that’s why they passed this budget.

What most Americans think about government spending

PNRJ politics, public policy , , , , , , , , , ,

Oct 22 JDN 2460240

American public opinion on government spending is a bit of a paradox. People say the government spends too much, but when you ask them what to cut, they don’t want to cut anything in particular.

This is how various demographics answer when you ask if, overall, the government spends “too much”, “too little”, or “about right”:

Democrats have a relatively balanced view, with about a third in each category. Republicans overwhelmingly agree that the government spends too much.

Let’s focus on the general population figures: 60% of Americans believe the government spends too much, 22% think it is about right, and only 16% think it spends too little. (2% must not have answered.)

This question is vague about how much people would like to see the budget change. So it’s possible people only want a moderate decrease. But they must at least want enough to justify not being in the “about right” category, which presumably allows for at least a few percent of wiggle room in each direction.

I think a reasonable proxy of how much people want the budget to change is the net difference in opinion between “too much” and “too little”: So for Democrats this is 34 – 27 = 7%. For the general population it is 60 – 16 = 44%; and for Republicans it is 88 – 6 = 82%.

To make this a useful proxy, I need to scale it appropriately. Republicans in Congress say they want to cut federal spending by $1 trillion per year, so that would be a reduction of 23%. So, for a reasonable proxy, I think ([too little] – [too much])/4 is about the desired amount of change.

Of course, it’s totally possible for 88% of people to agree that the budget should be cut 10%, and none of them to actually want the budget to be cut 22%. But without actually having survey data showing how much people want to cut the budget, the proportion who want it to be cut is the best proxy I have. And it definitely seems like most people want the budget to be cut.

But cut where? What spending do people want to actually reduce?

Not much, it turns out:

Overwhelming majorities want to increase spending on education, healthcare, social security, infrastructure, Medicare, and assistance to the poor. The plurality want to increase spending on border security, assistance for childcare, drug rehabilitation, the environment, and law enforcement. Overall opinion on military spending and scientific research seems to be that it’s about right, with some saying too high and others too low. That’s… almost the entire budget.

This AP NORC poll found only three areas with strong support for cuts: assistance to big cities, space exploration, and assistance to other countries.

The survey just asked about “the government”, so people may be including opinions on state and local spending as well as federal spending. But let’s just focus for now on federal spending.

Here is what the current budget looks like, divided as closely as I could get it into the same categories that the poll asked about:

The federal government accounts for only a tiny portion of overall government spending on education, so for this purpose I’m just going to ignore that category; anything else would be far too misleading. I had to separately look up border security, foreign aid, space exploration, and scientific research, as they are normally folded into other categories. I decided to keep the medical research under “health” and military R&D under “military”, so the “scientific research” includes all other sciences—and as you’ll note, it’s quite small.

“Regional Development” includes but is by no means limited to aid to big cities; in fact, most of it goes to rural areas. With regard to federal spending, “Transportation” is basically synonymous with “Infrastructure”, so I’ll treat those as equivalent. Federal spending directly on environmental protection is so tiny that I couldn’t even make a useful category for it; for this purpose, I guess I’ll just assume it’s most of “Other” (though it surely isn’t).

As you can see, the lion’s share of the federal budget goes to three things: healthcare (including Medicare), Social Security, and the military. (As Krugman is fond of putting it: “The US government is an insurance company with an army.”)

Assistance to the poor is also a major category, and as well it should be. Debt interest is also pretty substantial, especially now that interest rates have increased, but that’s not really optional; the global financial system would basically collapse if we ever stopped paying that. The only realistic way to bring that down is to balance the budget so that we don’t keep racking up more debt.

After that… it’s all pretty small, relatively speaking. I mean, these are still tens of billions of dollars. But the US government is huge. When you spend $1.24 trillion (that’s $1,240 billion) on Social Security, that $24 billion for space exploration really doesn’t seem that big.

So, that’s what the budget actually looks like. What do people want it to look like? Well on the one hand, they seem to want to cut it. My admittedly very rough estimate suggests they want to cut it about 11%, which would reduce the total from $4.3 trillion to $3.8 trillion. That’s what they say if you ask about the budget as a whole.

But what if we listen to what they say about particular budget categories? Using my same rough estimate, people want to increase spending on healthcare by 12%, spending on Social Security by 14%, and so on.

The resulting new budget looks like this:

Please note two things:

  1. The overall distribution of budget priorities has not substantially changed.
  2. The total amount of spending is in fact moderately higher.

This new budget would be disastrous for Ukraine, painful for NASA, and pleasant for anyone receiving Social Security benefits; but our basic budget outlook would be unchanged. Total spending would rise to $4.6 trillion, about $300 billion more than what we are currently spending.

The things people say they want to cut wouldn’t make a difference: We could stop all space missions immediately and throw Ukraine completely under the bus, and it wouldn’t make a dent in our deficit.

This leaves us with something of a paradox: If you ask them in general what they want to do with the federal budget, the majority of Americans say they want to cut it, often drastically. But if you ask them about any particular budget category, they mostly agree that things are okay, or even want them to be increased. Moreover, it is some of the largest categories of spending—particularly healthcare and Social Security—that often see the most people asking for increases.

I think this tells us some good news and some bad news.

The bad news is that most Americans are quite ignorant about how government money is actually spent. They seem to imagine that huge amounts are frittered away frivolously on earmarks; they think space exploration is far more expensive than it is; they wildly overestimate how much we give in foreign aid; they clearly don’t understand the enormous benefits of funding basic scientific research. Most people seem to think that there is some enormous category of totally wasted money that could easily be saved through more efficient spending—and that just doesn’t seem to be the case. Maybe government spending could be made more efficient, but if so, we need an actual plan for doing that. We can’t just cut budgets and hope for a miracle.

The good news is that our political system, for all of its faults, actually seems to have resulted in a government budget that broadly reflects the actual priorities of our citizenry. On budget categories people like, such as Social Security and Medicare, we are already spending a huge amount. On budget categories people dislike, such as earmarks and space exploration, we are already spending very little. We basically already have the budget most Americans say they want to have.

What does this mean for balancing the budget and keeping the national debt under control?

It means we have to raise taxes. There just isn’t anything left to cut that wouldn’t be wildly unpopular.

This shouldn’t really be shocking. The US government already spends less as a proportion of GDP than most other First World countries [note: I’m using 2019 figures because recent years were distorted by COVID]. Ireland’s figures are untrustworthy due to their inflated leprechaun GDP; so the only unambiguously First World country that clearly has lower government spending than the US is Switzerland. We spend about 38%, which is still high by global standards—but as well it should be, we’re incredibly rich. And this is quite a bit lower than the 41% they spend in the UK or the 45% they spend in Germany, let alone the 49% they spend in Sweden or the whopping 55% they spend in France.

Of course, Americans really don’t like paying taxes either. But at some point, we’re just going to have to decide: Do we want fewer services, more debt, or more taxes? Because those are really our only options. I for one think we can handle more taxes.

Statisticacy

PNRJ core principles, education, financial advice, science and academia, statistics , , , , , , , , , , , , , , , , , ,

Jun 11 JDN 2460107

I wasn’t able to find a dictionary that includes the word “statisticacy”, but it doesn’t trigger my spell-check, and it does seem to have the same form as “numeracy”: numeric, numerical, numeracy, numerate; statistic, statistical, statisticacy, statisticate. It definitely still sounds very odd to my ears. Perhaps repetition will eventually make it familiar.

For the concept is clearly a very important one. Literacy and numeracy are no longer a serious problem in the First World; basically every adult at this point knows how to read and do addition. Even worldwide, 90% of men and 83% of women can read, at least at a basic level—which is an astonishing feat of our civilization by the way, well worthy of celebration.

But I have noticed a disturbing lack of, well, statisticacy. Even intelligent, educated people seem… pretty bad at understanding statistics.

I’m not talking about sophisticated econometrics here; of course most people don’t know that, and don’t need to. (Most economists don’t know that!) I mean quite basic statistical knowledge.

A few years ago I wrote a post called “Statistics you should have been taught in high school, but probably weren’t”; that’s the kind of stuff I’m talking about.

As part of being a good citizen in a modern society, every adult should understand the following:

1. The difference between a mean and a median, and why average income (mean) can increase even though most people are no richer (median).

2. The difference between increasing by X% and increasing by X percentage points: If inflation goes from 4% to 5%, that is an increase of 20% ((5/4-1)*100%), but only 1 percentage point (5%-4%).

3. The meaning of standard error, and how to interpret error bars on a graph—and why it’s a huge red flag if there aren’t any error bars on a graph.

4. Basic probabilistic reasoning: Given some scratch paper, a pen, and a calculator, everyone should be able to work out the odds of drawing a given blackjack hand, or rolling a particular number on a pair of dice. (If that’s too easy, make it a poker hand and four dice. But mostly that’s just more calculation effort, not fundamentally different.)

5. The meaning of exponential growth rates, and how they apply to economic growth and compound interest. (The difference between 3% interest and 6% interest over 30 years is more than double the total amount paid.)

I see people making errors about this sort of thing all the time.

Economic news that celebrates rising GDP but wonders why people aren’t happier (when real median income has been falling since 2019 and is only 7% higher than it was in 1999, an annual growth rate of 0.2%).

Reports on inflation, interest rates, or poll numbers that don’t clearly specify whether they are dealing with percentages or percentage points. (XKCD made fun of this.)

Speaking of poll numbers, any reporting on changes in polls that isn’t at least twice the margin of error of the polls in question. (There’s also a comic for this; this time it’s PhD Comics.)

People misunderstanding interest rates and gravely underestimating how much they’ll pay for their debt (then again, this is probably the result of strategic choices on the part of banks—so maybe the real failure is regulatory).

And, perhaps worst of all, the plague of science news articles about “New study says X”. Things causing and/or cancer, things correlated with personality types, tiny psychological nudges that supposedly have profound effects on behavior.

Some of these things will even turn out to be true; actually I think this one on fibromyalgia, this one on smoking, and this one on body image are probably accurate. But even if it’s a properly randomized experiment—and especially if it’s just a regression analysis—a single study ultimately tells us very little, and it’s irresponsible to report on them instead of telling people the extensive body of established scientific knowledge that most people still aren’t aware of.

Basically any time an article is published saying “New study says X”, a statisticate person should ignore it and treat it as random noise. This is especially true if the finding seems weird or shocking; such findings are far more likely to be random flukes than genuine discoveries. Yes, they could be true, but one study just doesn’t move the needle that much.

I don’t remember where it came from, but there is a saying about this: “What is in the textbooks is 90% true. What is in the published literature is 50% true. What is in the press releases is 90% false.” These figures are approximately correct.

If their goal is to advance public knowledge of science, science journalists would accomplish a lot more if they just opened to a random page in a mainstream science textbook and started reading it on air. Admittedly, I can see how that would be less interesting to watch; but then, their job should be to find a way to make it interesting, not to take individual studies out of context and hype them up far beyond what they deserve. (Bill Nye did this much better than most science journalists.)

I’m not sure how much to blame people for lacking this knowledge. On the one hand, they could easily look it up on Wikipedia, and apparently choose not to. On the other hand, they probably don’t even realize how important it is, and were never properly taught it in school even though they should have been. Many of these things may even be unknown unknowns; people simply don’t realize how poorly they understand. Maybe the most useful thing we could do right now is simply point out to people that these things are important, and if they don’t understand them, they should get on that Wikipedia binge as soon as possible.

And one last thing: Maybe this is asking too much, but I think that a truly statisticate person should be able to solve the Monty Hall Problem and not be confused by the result. (Hint: It’s very important that Monty Hall knows which door the car is behind, and would never open that one. If he’s guessing at random and simply happens to pick a goat, the correct answer is 1/2, not 2/3. Then again, it’s never a bad choice to switch.)

The idiocy of the debt ceiling

PNRJ current events, politics, public policy , , , , , , , , , ,

Apr 23 JDN 2460058

I thought we had put this behind us. I guess I didn’t think the Republicans would stop using the tactic once they saw it worked, but I had hoped that the Democrats would come up with a better permanent solution so that it couldn’t be used again. But they did not, and here we are again: Republicans are refusing to raise the debt ceiling, we have now hit that ceiling, and we are running out of time before we have to start shutting down services or defaulting on debt. There are talks ongoing that may yet get the ceiling raised in time, but we’re now cutting it very close. Already the risk that we might default or do something crazy is causing turmoil in financial markets.

Because US Treasury bonds are widely regarded as one of the world’s most secure assets, and the US dollar is the most important global reserve currency, the entire world’s financial markets get disrupted every time there is an issue with the US national debt, and the debt ceiling creates such disruptions on the regular for no good reason.

I will try to offer some of my own suggestions for what to do here, but first, I want to make something very clear: The debt ceiling should not exist. I don’t think most people understand just how truly idiotic the entire concept of a debt ceiling is. It seems practically designed to make our government dysfunctional.

This is not like a credit card limit, where your bank imposes a limit on how much you can borrow based on how much they think you are likely to be able to repay. A lot of people have been making that analogy, and I can see why it’s tempting; but as usual, it’s important to remember that government debt is not like personal debt.

As I said some years ago, US government debt is about as close as the world is ever likely to come to a perfect credit market: with no effort at all, borrow as much as you want at low, steady interest rates, and everyone will always be sure that you will pay it back on time. The debt ceiling is a limit imposed by the government itself—it is not imposed by our creditors, who would be more than happy to lend us more.

Also, I’d like to remind you that some of the US national debt is owned by the US government itself (is that really even “debt”?) and most of what’s left is owned by US individuals or corporations—only about a third is owed to foreign powers. Here is a detailed breakdown of who owns US national debt.

There is no reason to put an arbitrary cap on the amount the US government can borrow. The only reason anyone is at all worried about a default on the US national debt is because of this stupid arbitrary cap. If it didn’t exist, they would simply roll over more Treasury bonds to make the payments and everything would run smoothly. And this is normally what happens, when the Republicans aren’t playing ridiculous brinkmanship games.

As it is, they could simply print money to pay it—and at this point, maybe that’s what needs to happen. Mint the Coin already: Mint a $1 trillion platinum coin and deposit it in the Federal Reserve, and there you go, you’ve paid off a chunk of the debt. Sometimes stupid problems require stupid solutions.

Aren’t there reasons to be worried about the government borrowing too much? Yes, a little. The amount of concern most people have about this is wildly disproportionate to the actual problem, but yes, there are legitimate concerns about high national debt resulting in high interest rates and eventually forcing us to raise taxes or cut services. This is a slow-burn, long-term problem that by its very nature would never require a sudden, immediate solution; but it is a genuine concern we should be aware of.

But here’s the thing: That’s a conversation we should be having when we vote on the budget. Whenever we pass a government budget, it already includes detailed projections of tax revenue and spending that yield precise, accurate forecasts of the deficit and the debt. If Republicans are genuinely concerned that we are overspending on certain programs, they should propose budget cuts to those programs and get those cuts passed as part of the budget.

Once a budget is already passed, we have committed to spend that money. It has literally been signed into law that $X will be spend on program Y. At that point, you can’t simply cut the spending. If you think we’re spending too much, you needed to say that before we signed it into law. It’s too late now.

I’m always dubious of analogies between household spending and government spending, but if you really want one, think of it this way: Say your credit card company is offering to raise your credit limit, and you just signed a contract for some home improvements that would force you to run up your credit card past your current limit. Do you call the credit card company and accept the higher limit, or not? If you don’t, why don’t you? And what’s your plan for paying those home contractors? Even if you later decide that the home improvements were a bad idea, you already signed the contract! You can’t just back out!

This is why the debt ceiling is so absurd: It is a self-imposed limit on what you’re allowed to spend after you have already committed to spending it. The only sensible thing to do is to raise the debt ceiling high enough to account for the spending you’ve already committed to—or better yet, eliminate the ceiling entirely.

I think that when they last had a majority in both houses, the Democrats should have voted to make the debt ceiling ludicrously high—say $100 trillion. Then, at least for the foreseeable future, we wouldn’t have to worry about raising it, and could just pass budgets normally like a sane government. But they didn’t do that; they only raised it as much as was strictly necessary, thus giving the Republicans an opening now to refuse to raise it again.

And that is what the debt ceiling actually seems to accomplish: It gives whichever political party is least concerned about the public welfare a lever they can pull to disrupt the entire system whenever they don’t get things the way they want. If you absolutely do not care about the public good—and it’s quite clear at this point that most of the Republican leadership does not—then whenever you don’t get your way, you can throw a tantrum that threatens to destabilize the entire global financial system.

We need to stop playing their game. Do what you have to do to keep things running for now—but then get rid of the damn debt ceiling before they can use it to do even more damage.

Maybe we should forgive student debt after all.

PNRJ critique of neoclassical economics, current events, ethics, inequality, personal, politics, public policy , , , , , , , , ,

May 8 JDN 2459708

President Biden has been promising some form of student debt relief since the start of his campaign, though so far all he has actually implemented is a series of no-interest deferments and some improvements to the existing forgiveness programs. (This is still significant—it has definitely helped a lot of people with cashflow during the pandemic.) Actual forgiveness for a large segment of the population remains elusive, and if it does happen, it’s unclear how extensive it will be in either intensity (amount forgiven) or scope (who is eligible).

I personally had been fine with this; while I have a substantial loan balance myself, I also have a PhD in economics, which—theoretically—should at some point entitle me to sufficient income to repay those loans.

Moreover, until recently I had been one of the few left-wing people I know to not be terribly enthusiastic about loan forgiveness. It struck me as a poor use of those government funds, because $1.75 trillion is an awful lot of money, and college graduates are a relatively privileged population. (And yes, it is valid to consider this a question of “spending”, because the US government is the least liquidity-constrained entity on Earth. In lieu of forgiving $1.75 trillion in debt, they could borrow $1.75 trillion in debt and use it to pay for whatever they want, and their ultimate budget balance would be basically the same in each case.)

But I say all this in the past tense because Krugman’s recent column has caused me to reconsider. He gives two strong reasons why debt forgiveness may actually be a good idea.

The first is that Congress is useless. Thanks to gerrymandering and the 40% or so of our population who keeps electing Republicans no matter how crazy they get, it’s all but impossible to pass useful legislation. The pandemic relief programs were the exception that proves the rule: Somehow those managed to get through, even though in any other context it’s clear that Congress would never have approved any kind of (non-military) program that spent that much money or helped that many poor people.

Student loans are the purview of the Department of Education, which is entirely under control of the Executive Branch, and therefore, ultimately, the President of the United States. So Biden could forgive student loans by executive order and there’s very little Congress could do to stop him. Even if that $1.75 trillion could be better spent, if it wasn’t going to be anyway, we may as well use it for this.

The second is that “college graduates” is too broad a category. Usually I’m on guard for this sort of thing, but in this case I faltered, and did not notice the fallacy of composition so many labor economists were making by lumping all college grads into the same economic category. Yes, some of us are doing well, but many are not. Within-group inequality matters.

A key insight here comes from carefully analyzing the college wage premium, which is the median income of college graduates, divided by the median income of high school graduates. This is an estimate of the overall value of a college education. It’s pretty large, as a matter of fact: It amounts to something like a doubling of your income, or about $1 million over one’s whole lifespan.

From about 1980-2000, wage inequality grew about as fast as today, and the college wage premium grew even faster. So it was plausible—if not necessarily correct—to believe that the wage inequality reflected the higher income and higher productivity of college grads. But since 2000, wage inequality has continued to grow, while the college wage premium has been utterly stagnant. Thus, higher inequality can no longer (if it ever could) be explained by the effects of college education.

Now some college graduates are definitely making a lot more money—such as those who went into finance. But it turns out that most are not. As Krugman points out, the 95th percentile of male college grads has seen a 25% increase in real (inflation-adjusted) income in the last 20 years, while the median male college grad has actually seen a slight decrease. (I’m not sure why Krugman restricted to males, so I’m curious how it looks if you include women. But probably not radically different?)

I still don’t think student loan forgiveness would be the best use of that (enormous sum of) money. But if it’s what’s politically feasible, it definitely could help a lot of people. And it would be easy enough to make it more progressive, by phasing out forgiveness for graduates with higher incomes.

And hey, it would certainly help me, so maybe I shouldn’t argue too strongly against it?

Stupid problems, stupid solutions

PNRJ current events, public policy , , , , , ,

Oct 17 JDN 2459505

Krugman thinks we should Mint The Coin: Mint a $1 trillion platinum coin and then deposit it at the Federal Reserve, thus creating, by fiat, the money to pay for the current budget without increasing the national debt.

This sounds pretty stupid. Quite frankly, it is stupid. But sometimes stupid problems require stupid solutions. And the debt ceiling is an incredibly stupid problem.

Let’s be clear about this: Congress already passed the budget. They had a right to vote it down—that is indeed their Constitutional responsibility. But they passed it. And now that the budget is passed, including all its various changes to taxes and spending, it necessarily requires a certain amount of debt increase to make it work.

There’s really no reason to have a debt ceiling at all. This is an arbitrary self-imposed credit constraint on the US government, which is probably the single institution in the world that least needs to worry about credit constraints. The US is currently borrowing at extremely low interest rates, and has never defaulted in 200 years. There is no reason it should be worrying about taking on additional debt, especially when it is being used to pay for important long-term investments such as infrastructure and education.

But if we’re going to have a debt ceiling, it should be a simple formality. Congress does the calculation to see how much debt will be needed, and if it accepts that amount, passes the budget and raises the debt ceiling as necessary. If for whatever reason they don’t want to incur the additional debt, they should make changes to the budget accordingly—not pass the budget and then act shocked when they need to raise the debt ceiling.

In fact, there is a pretty good case to be made that the debt ceiling is a violation of the Fourteenth Amendment, which states in Section 4: “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.” This was originally intended to ensure the validity of Civil War debt, but it has been interpreted by the Supreme Court to mean that all US public debt legally incurred is valid and thus render the debt ceiling un-Constitutional.

Of course, actually sending it to the Supreme Court would take a long time—too long to avoid turmoil in financial markets if the debt ceiling is not raised. So perhaps Krugman is right: Perhaps it’s time to Mint The Coin and fight stupid with stupid.

Could the Star Trek economy really work?

PNRJ futurism, inequality, macroeconomics, public policy , , , , , , , , , , , ,

Jun 13 JDN 2459379

“The economics of the future are somewhat different”, Jean-Luc Picard explains to Lily Sloane in Star Trek: First Contact.

Captain Picard’s explanation is not very thorough, and all we have about the economic system of the Federation comes from similar short glimpes across the various Star Trek films and TV series. The best glimpses of what the Earth’s economy is like largely come from the Picard series in particular.

But I think we can safely conclude that all of the following are true:

1. Energy is extraordinarily abundant, with a single individual having access to an energy scale that would rival the energy production of entire nations at present. By E=mc2, simply being able to teleport a human being or materialize a hamburger from raw energy, as seems to be routine in Starfleet, would require something on the order of 10^17 joules, or about 28 billion kilowatt-hours. The total energy supply of the world economy today is about 6*10^20 joules, or 100 trillion kilowatt-hours.

2. There is broad-based prosperity, but not absolute equality. At the very least different people live differently, though it is unclear whether anyone actually has a better standard of living than anyone else. The Picard family still seems to own their family vineyard that has been passed down for generations, and since the population of Earth is given as about 9 billion (a plausible but perhaps slightly low figure for our long-run stable population equilibrium), its acreage is large enough that clearly not everyone on Earth can own that much land.

3. Most resources that we currently think of as scarce are not scarce any longer. Replicator technology allows for the instantaneous production of food, clothing, raw materials, even sophisticated electronics. There is no longer a “manufacturing sector” as such; there are just replicators and people who use or program them. Most likely, even new replicators are made by replicating parts in other replicators and then assembling them. There are a few resources which remain scarce, such as dilithium (somehow involved in generating these massive quantities of energy) and latinum (a bizarre substance that is prized by many other cultures yet for unexplained reasons cannot be viably produced in replicators). Essentially everything else that is scarce is inherently so, such as front-row seats at concerts, original paintings, officer commissions in Starfleet, or land in San Francisco.

4. Interplanetary and even interstellar trade is routine. Starships with warp capability are available to both civilian and government institutions, and imports and exports can be made to planets dozens or even hundreds of light-years away as quickly as we can currently traverse the oceans with a container ship.

5. Money as we know it does not exist. People are not paid wages or salaries for their work. There is still some ownership of personal property, and particular families (including the Picards) seem to own land; but there does not appear to be any private ownership of capital. For that matter there doesn’t even appear to be be much in the way of capital; we never see any factories. There is obviously housing, there is infrastructure such as roads, public transit, and presumably power plants (very, very powerful power plants, see 1!), but that may be all. Nearly all manufacturing seems to be done by replicators, and what can’t be done by replicators (e.g. building new starships) seems to be all orchestrated by state-owned enterprises such as Starfleet.

Could such an economy actually work? Let’s stipulate that we really do manage to achieve such an extraordinary energy scale, millions of times more than what we can currently produce. Even very cheap, widespread nuclear energy would not be enough to make this plausible; we would need at least abundant antimatter, and quite likely something even more exotic than this, like zero point energy. Along this comes some horrifying risks—imagine an accident at a zero-point power plant that tears a hole in the fabric of space next to a major city, or a fanatical terrorist with a handheld 20-megaton antimatter bomb. But let’s assume we’ve found ways to manage those risks as well.

Furthermore, let’s stipulate that it’s possible to build replicators and warp drives and teleporters and all the similarly advanced technology that the Federation has, much of which is so radically advanced we can’t even be sure that such a thing is possible.

What I really want to ask is whether it’s possible to sustain a functional economy at this scale without money. George Roddenberry clearly seemed to think so. I am less convinced.

First of all, I want to acknowledge that there have been human societies which did not use money, or even any clear notion of a barter system. In fact, most human cultures for most of our history as a species allocated resources based on collective tribal ownership and personal favors. Some of the best parts of Debt: The First 5000 Years are about these different ways of allocating resources, which actually came much more naturally to us than money.

But there seem to have been rather harsh constraints on what sort of standard of living could be maintained in such societies. There was essentially zero technological advancement for thousands of years in most hunter-gatherer cultures, and even the wealthiest people in most of those societies overall had worse health, shorter lifespans, and far, far less access to goods and services than people we would consider in poverty today.

Then again, perhaps money is only needed to catalyze technological advancement; perhaps once you’ve already got all the technology you need, you can take money away and return to a better way of life without greed or inequality. That seems to be what Star Trek is claiming: That once we can make a sandwich or a jacket or a phone or even a car at the push of a button, we won’t need to worry about paying people because everyone can just have whatever they need.

Yet whatever they need is quite different from whatever they want, and therein lies the problem. Yes, I believe that with even moderate technological advancement—the sort of thing I expect to see in the next 50 years, not the next 300—we will have sufficient productivity that we could provide for the basic needs of every human being on Earth. A roof over your head, food on your table, clothes to wear, a doctor and a dentist to see twice a year, emergency services, running water, electricity, even Internet access and public transit—these are things we could feasibly provide to literally everyone with only about two or three times our current level of GDP, which means only about 2% annual economic growth for the next 50 years. Indeed, we could already provide them for every person in First World countries, and it is quite frankly appalling that we fail to do so.

However, most of us in the First World already live a good deal better than that. We don’t have the most basic housing possible, we have nice houses we want to live in. We don’t take buses everywhere, we own our own cars. We don’t eat the cheapest food that would provide adequate nutrition, we eat a wide variety of foods; we order pizza and Chinese takeout, and even eat at fancy restaurants on occasion. It’s less clear that we could provide this standard of living to everyone on Earth—but if economic growth continues long enough, maybe we can.

Worse, most of us would like to live even better than we do. My car is several years old right now, and it runs on gasoline; I’d very much like to upgrade to a brand-new electric car. My apartment is nice enough, but it’s quite small; I’d like to move to a larger place that would give me more space not only for daily living, but also for storage and for entertaining guests. I work comfortable hours for decent pay at a white-collar job that can be done entirely remotely on mostly my own schedule, but I’d prefer to take some time off and live independently while I focus more on my own writing. I sometimes enjoy cooking, but often it can be a chore, and sometimes I wish I could just go eat out at a nice restaurant for dinner every night. I don’t make all these changes because I can’t afford to—that is, because I don’t have the money.

Perhaps most of us would feel no need to have a billion dollars. I don’t really know what $100 billion actually gets you, as far as financial security, independence, or even consumption, that $50 million wouldn’t already. You can have total financial freedom and security with a middle-class American lifestyle with net wealth of about $2 million. If you want to also live in a mansion, drink Dom Perignon with every meal and drive a Lamborghini (which, quite frankly, I have no particular desire to do), you’ll need several million more—but even then you clearly don’t need $1 billion, let alone $100 billion. So there is indeed something pathological about wanting a billion dollars for yourself, and perhaps in the Federation they have mental health treatments for “wealth addiction” that prevent people from experiencing such pathological levels of greed.

Yet in fact, with the world as it stands, I would want a billion dollars. Not to own it. Not to let it sit and grow in some brokerage account. Not to simply be rich and be on the Forbes list. I couldn’t care less about those things. But with a billion dollars, I could donate enormous amounts to charities, saving thousands or even millions of lives. I could found my own institutions—research institutes, charitable foundations—and make my mark on the world. With $100 billion, I could make a serious stab at colonizing Mars—as Elon Musk seems to be doing, but most other billionaires have no particular interest in.

And it begins to strain credulity to imagine a world of such spectacular abundance that everyone could have enough to do that.

This is why I always struggle to answer when people ask me things like “If money were not object, how would you live your life?”; if money were no object, I’d end world hunger, cure cancer, and colonize the Solar System. Money is always an object. What I think you meant to ask was something much less ambitious, like “What would you do if you had a million dollars?” But I might actually have a million dollars someday—most likely by saving and investing the proceeds of a six-figure job as an economist over many years. (Save $2,000 per month for 20 years, growing it at 7% per year, and you’ll be over $1 million. You can do your own calculations here.) I doubt I’ll ever have $10 million, and I’m pretty sure I’ll never have $1 billion.

To be fair, it seems that many of the grand ambitions I would want to achieve with billions of dollars already are achieved by 23rd century; world hunger has definitely been ended, cancer seems to have been largely cured, and we have absolutely colonized the Solar System (and well beyond). But that doesn’t mean that new grand ambitions wouldn’t arise, and indeed I think they would. What if I wanted to command my own fleet of starships? What if I wanted a whole habitable planet to conduct experiments on, perhaps creating my own artificial ecosystem? The human imagination is capable of quite grand ambitions, and it’s unlikely that we could ever satisfy all of them for everyone.

Some things are just inherently scarce. I already mentioned some earlier: Original paintings, front-row seats, officer commissions, and above all, land. There’s only so much land that people want to live on, especially because people generally want to live near other people (Internet access could conceivably reduce the pressure for this, but, uh, so far it really hasn’t, so why would we think it will in 300 years?). Even if it’s true that people can have essentially arbitrary amounts of food, clothing, or electronics, the fact remains that there’s only so much real estate in San Francisco.

It would certainly help to build taller buildings, and presumably they would, though most of the depictions don’t really seem to show that; where are the 10-kilometer-tall skyscrapers made of some exotic alloy or held up by structural integrity fields? (Are the forces of NIMBY still too powerful?) But can everyone really have a 1000-square-meter apartment in the center of downtown? Maybe if you build tall enough? But you do still need to decide who gets the penthouse.

It’s possible that all inherently-scarce resources could be allocated by some mechanism other than money. Some even should be: Starfleet officer commissions are presumably allocated by merit. (Indeed, Starfleet seems implausibly good at selecting supremely competent officers.) Others could be: Concert tickets could be offered by lottery, and maybe people wouldn’t care so much about being in the real front row when you can always simulate the front row at home in your holodeck. Original paintings could all be placed in museums available for public access—and the tickets, too, could be allocated by lottery or simply first-come, first-served. (Picard mentions the Smithsonian, so public-access museums clearly still exist.)

Then there’s the question of how you get everyone to work, if you’re not paying them. Some jobs people will do for fun, or satisfaction, or duty, or prestige; it’s plausible that people would join Starfleet for free (I’m pretty sure I would). But can we really expect all jobs to work that way? Has automation reached such an advanced level that there are no menial jobs? Sanitation? Plumbing? Gardening? Paramedics? Police? People still seem to pick grapes by hand in the Picard vineyards; do they all do it for the satisfaction of a job well done? What happens if one day everyone decides they don’t feel like picking grapes today?

I certainly agree that most menial jobs are underpaid—most people do them because they can’t get better jobs. But surely we don’t want to preserve that? Surely we don’t want some sort of caste system that allocates people to work as plumbers or garbage collectors based on their birth? I guess we could use merit-based aptitude testing; it’s clear that the vast majority of people really aren’t cut out for Starfleet (indeed, perhaps I’m not!), and maybe some people really would be happiest working as janitors. But it’s really not at all clear what such a labor allocation system would be like. I guess if automation has reached such an advanced level that all the really necessary work is done by machines and human beings can just choose to work as they please, maybe that could work; it definitely seems like a very difficult system to manage.

So I guess it’s not completely out of the question that we could find some appropriate mechanism to allocate all goods and services without ever using money. But then my question becomes: Why? What do you have against money?

I understand hating inequality—indeed I share that feeling. I, too, am outraged by the existence of hectobillionaires in a world where people still die of malaria and malnutrition. But having a money system, or even a broadly free-market capitalist economy, doesn’t inherently have to mean allowing this absurd and appalling level of inequality. We could simply impose high, progressive taxes, redistribute wealth, and provide a generous basic income. If per-capita GDP is something like 100 times its current level (as it appears to be in Star Trek), then the basic income could be $1 million per year and still be entirely affordable.

That is, rather than trying to figure out how to design fair and efficient lotteries for tickets to concerts and museums, we could still charge for tickets, and just make sure that everyone has a million dollars a year in basic income. Instead of trying to find a way to convince people to clean bathrooms for free, we could just pay them to do it.

The taxes could even be so high at the upper brackets that they effectively impose a maximum income; say we have a 99% marginal rate above $20 million per year. Then the income inequality would collapse to quite a low level: No one below $1 million, essentially no one above $20 million. We could tax wealth as well, ensuring that even if people save or get lucky on the stock market (if we even still have a stock market—maybe that is unnecessary after all), they still can’t become hectobillionaires. But by still letting people use money and allowing some inequality, we’d still get all the efficiency gains of having a market economy (minus whatever deadweight loss such a tax system imposed—which I in fact suspect would not be nearly as large as most economists fear).

In all, I guess I am prepared to say that, given the assumption of such great feats of technological advancement, it is probably possible to sustain such a prosperous economy without the use of money. But why bother, when it’s so much easier to just have progressive taxes and a basic income?

For labor day, thoughts on socialism

PNRJ critique of neoclassical economics, ethics, inequality, market failure, public policy , , , , , , , , , , , , , , ,

Planned Post 255: Sep 9 JDN 2458371

This week includes Labor Day, the holiday where we are perhaps best justified in taking the whole day off from work and doing nothing. Labor Day is sort of the moderate social democratic counterpart to the explicitly socialist holiday May Day.

The right wing in this country has done everything in their power to expand the definition of “socialism”, which is probably why most young people now have positive views of socialism. There was a time when FDR was seen as an alternative to socialism; but now I’m pretty sure he’d just be called a socialist.

Because of this, I am honestly not sure whether I should be considered a socialist. I definitely believe in the social democratic welfare state epitomized by Scandinavia, but I definitely don’t believe in total collectivization of all means of production.

I am increasingly convinced that shareholder capitalism is a terrible system (the renowned science fiction author Charles Stross actually gave an excellent talk on this subject), but I would not want to abandon free markets.
The best answer might be worker-owned cooperatives. The empirical data is actually quite consistent in showing worker co-ops to be as efficient if not more efficient than conventional corporations, and by construction their pay systems produce less inequality than corporations.

Indeed, I think there is reason to believe that a worker co-op is a much more natural outcome for free markets under a level playing field than a conventional corporation, and the main reason we have corporations is actually that capitalism arose out of (and in response to) feudalism.

Think about it: Why should most things be owned by the top 1%? (Okay, not quite “most”: to be fair, the top 1% only owns 40% of all US net wealth.) Why is 80% of the value of the stock market held by the top 10% of the population?

Most things aren’t done by the top 1%. There are a handful of individuals (namely, scientists who make seminal breakthroughs: Charles Darwin, Marie Curie, Albert Einstein, Rosalind Franklin, Alan Turing, Jonas Salk) who are so super-productive that they might conceivably deserve billionaire-level compensation—but they are almost never the ones who are actually billionaires. If markets were really distributing capital to those who would use it most productively, there’s no reason to think that inequality would be so self-sustaining—much less self-enhancing as it currently seems to be.

But when you realize that capitalism emerged out of a system where the top 1% (or less) already owned most things, and did so by a combination of “divine right” ideology and direct, explicit violence, this inequality becomes a lot less baffling. We never had a free market on a level playing field. The closest we’ve ever gotten has always been through social-democratic reforms (like the New Deal and Scandinavia).

How does this result in corporations? Well, when all the wealth is held by a small fraction of individuals, how do you start a business? You have to borrow money from the people who have it. Borrowing makes you beholden to your creditors, and puts you at great risk if your venture fails (especially back in the days when there were debtor’s prisons—and we’re starting to go back that direction!). Equity provides an alternative: In exchange for giving them the downside risk if your venture fails, you also give your creditors—now shareholders—the upside risk if your venture succeeds. But at the end of the day when your business has succeeded, where did most of the profits go? Into the hands of the people who already had money to begin with, who did nothing to actually contribute to society. The world would be better off if those people had never existed and their wealth had simply been shared with everyone else.

Compare this to what would happen if we all started with similar levels of wealth. (How much would each of us have? Total US wealth of about $44 trillion, spread among a population of 328 million, is about $130,000 each. I don’t know about you, but I think I could do quite a bit with that.) When starting a business, you wouldn’t go heavily into debt or sign away ownership of your company to some billionaire; you’d gather a group of dedicated partners, each of whom would contribute money and effort into building the business. As you added on new workers, it would make sense to pool their assets, and give them a share of the company as well. The natural structure for your business would be not a shareholder corporation, but a worker-owned cooperative.

I think on some level the super-rich actually understand this. If you look closely at the sort of policies they fight for, they really aren’t capitalist. They don’t believe in free, unfettered markets where competition reigns. They believe in monopoly, lobbying, corruption, nepotism, and above all, low taxes. (There’s actually nothing in the basic principles of capitalism that says taxes should be low. Taxes should be as high as they need to be to cover public goods—no higher, and no lower.) They don’t want to provide nationalized healthcare, not because they believe that private healthcare competition is more efficient (no one who looks at the data for even a few minutes can honestly believe that—US healthcare is by far the most expensive in the world), but because they know that it would give their employees too much freedom to quit and work elsewhere. Donald Trump doesn’t want a world where any college kid with a brilliant idea and a lot of luck can overthrow his empire; he wants a world where everyone owes him and his family personal favors that he can call in to humiliate them and exert his power. That’s not capitalism—it’s feudalism.

Crowdfunding also provides an interesting alternative; we might even call it the customer-owned cooperative. Kickstarter and Patreon provide a very interesting new economic model—still entirely within the realm of free markets—where customers directly fund production and interact with producers to decide what will be produced. This might turn out to be even more efficient—and notice that it would run a lot more smoothly if we had all started with a level playing field.

Establishing such a playing field, of course, requires a large amount of redistribution of wealth. Is this socialism? If you insist. But I think it’s more accurate to describe it as reparations for feudalism (not to mention colonialism). We aren’t redistributing what was fairly earned in free markets; we are redistributing what was stolen, so that from now on, wealth can be fairly earned in free markets.

The real crisis in education is access, not debt

PNRJ current events, ethics, public policy , , , , , , , , , , , , , ,

Jan 8, JDN 2457762

A few weeks ago I tried to provide assurances that the “student debt crisis” is really not much of a crisis; there is a lot of debt, but it is being spent on a very good investment both for individuals and for society. Student debt is not that large in the scheme of things, and it more than pays for itself in the long run.

But this does not mean we are not in the midst of an education crisis. It’s simply not about debt.

The crisis I’m worried about involves access.

As you may recall, there are a substantial number of people with very small amounts of student debt, and they tend to be the most likely to default. The highest default rates are among the group of people with student debt greater than $0 but less than $5000.

So how is it that there are people with only $5,000 in student debt anyway? You can’t buy much college for $5,000 these days, as tuition prices have risen at an enormous rate: From 1983 to 2013, in inflation-adjusted dollars, average annual tuition rose from $7,286 at public institutions and $17,333 at private institutions to $15,640 at public institutions and $35,987 at private institutions—more than doubling in each case.

Enrollments are much higher, but this by itself should not raise tuition per student. So where is all the extra money going? Some of it is due to increases in public funding that have failed to keep up with higher enrollments; but a lot of it just seems to be going to higher pay for administrators and athletic coaches. This is definitely a problem; students should not be forced to subsidize the millions of dollars most universities lose on funding athletics—the NCAA, who if anything are surely biased in favor of athletics, found that the total net loss due to athletics spending at FBS universities was $17 million per year. Only a handful of schools actually turn a profit on athletics, all of them Division I. So it might be fair to speak of an “irresponsible college administration crisis”, administrators who heap wealth upon themselves and their beloved athletic programs while students struggle to pay their bills, or even a “college tuition crisis” where tuition keeps rising far beyond what is sustainable. But that’s not the same thing as a “student debt crisis”—just as the mortgage crisis we had in 2008 is distinct from the slow-burning housing price crisis we’ve been in since the 1980s. Making restrictions on mortgages tighter might prevent banks from being as predatory as they have been lately, but it won’t suddenly allow people to better afford houses.

And likewise, I’m much more worried about students who don’t go to college because they are afraid of this so-called “debt crisis”; they’re going to end up much worse off. As Eduardo Porter put it in the New York Times:

And yet Mr. Beltrán says he probably wouldn’t have gone to college full time if he hadn’t received a Pell grant and financial aid from New York State to defray the costs. He has also heard too many stories about people struggling under an unbearable burden of student loans to even consider going into debt. “Honestly, I don’t think I would have gone,” he said. “I couldn’t have done four years.”

And that would have been the wrong decision.

His reasoning is not unusual. The rising cost of college looms like an insurmountable obstacle for many low-income Americans hoping to get a higher education. The notion of a college education becoming a financial albatross around the neck of the nation’s youth is a growing meme across the culture. Some education experts now advise high school graduates that a college education may not be such a good investment after all. “Sticker price matters a lot,” said Lawrence Katz, a professor of Harvard University. “It is a deterrent.”

 

[…]

 

And the most perplexing part of this accounting is that regardless of cost, getting a degree is the best financial decision a young American can make.

According to the O.E.C.D.’s report, a college degree is worth $365,000 for the average American man after subtracting all its direct and indirect costs over a lifetime. For women — who still tend to earn less than men — it’s worth $185,000.

College graduates have higher employment rates and make more money. According to the O.E.C.D., a typical graduate from a four-year college earns 84 percent more than a high school graduate. A graduate from a community college makes 16 percent more.

A college education is more profitable in the United States than in pretty much every other advanced nation. Only Irish women get more for the investment: $185,960 net.

So, these students who have $5,000 or less in student debt; what does that mean? That amount couldn’t even pay for a single year at most universities, so how did that happen?

Well, they almost certainly went to community college; only a community college could provide you with a nontrivial amount of education for less than $5,000. But community colleges vary tremendously in their quality, and some have truly terrible matriculation rates. While most students who start at a four-year school do eventually get a bachelor’s degree (57% at public schools, 78% at private schools), only 17% of students who start at community college do. And once students drop out, they very rarely actually return to complete a degree.

Indeed, the only way to really have that little student debt is to drop out quickly. Most students who drop out do so chiefly for reasons that really aren’t all that surprising: Mostly, they can’t afford to pay their bills. “Unable to balance school and work” is the number 1 reported reason why students drop out of college.

In the American system, student loans are only designed to pay the direct expenses of education; they often don’t cover the real costs of housing, food, transportation and healthcare, and even when they do, they basically never cover the opportunity cost of education—the money you could be making if you were working full-time instead of going to college. For many poor students, simply breaking even on their own expenses isn’t good enough; they have families that need to be taken care of, and that means working full-time. Many of them even need to provide for their parents or grandparents who may be poor or disabled. Yet in the US system it is tacitly assumed that your parents will help you—so when you need to help them, what are you supposed to do? You give up on college and you get a job.

The most successful reforms for solving this problem have been comprehensive; they involved working to support students directly and intensively in all aspects of their lives, not just the direct financial costs of school itself.

Another option would be to do something more like what they do in Sweden, where there is also a lot of student debt, but for a very different reason. The direct cost of college is paid automatically by the government. Yet essentially all Swedish students have student debt, and total student debt in Sweden is much larger than other European countries and comparable to the United States; why? Because Sweden understands that you should also provide for the opportunity cost. In Sweden, students live fully self-sufficient on student loans, just as if they were working full-time. They are not expected to be supported by their parents.

The problem with American student loans, then, is not that they are too large—but that they are too small. They don’t provide for what students actually need, and thus don’t allow them to make the large investment in their education that would have paid off in the long run. Panic over student loans being too large could make the problem worse, if it causes us to reduce the amount of loanable funds available for students.

The lack of support for poor students isn’t the only problem. There are also huge barriers to education in the US based upon race. While Asian students do as well (if not better) than White students, Black and Latino students have substantially lower levels of educational attainment. Affirmative action programs can reduce these disparities, but they are unpopular and widely regarded as unfair, and not entirely without reason.

A better option—indeed one that should be a no-brainer in my opinion—is not to create counter-biases in favor of Black and Latino students (which is what affirmative action is), but to eliminate biases in favor of White students that we know exist. Chief among these are so-called “legacy admissions”, in which elite universities attract wealthy alumni donors by granting their children admission and funding regardless of whether they even remotely deserve it or would contribute anything academically to the university.

These “legacy admissions” are frankly un-American. They go against everything our nation supposedly stands for; in fact, they reek of feudalism. And unsurprisingly, they bias heavily in favor of White students—indeed, over 90 percent of legacy admits are White and Protestant. Athletic admissions are also contrary to the stated mission of the university, though their racial biases are more complicated (Black students are highly overrepresented in football and basketball admits, for example) and it is at least not inherently un-American to select students based upon their athletic talent as opposed to their academic talent.

But this by itself would not be enough; the gaps are clearly too large to close that way. Getting into college is only the start, and graduation rates are much worse for Black students than White students. Moreover, the education gap begins well before college—high school dropout rates are much higher among Black and Latino studentsas well.

In fact, even closing the education gap by itself would not be enough; racial biases permeate our whole society. Black individuals with college degrees are substantially more likely to be unemployed and have substantially lower wages on average than White individuals with college degrees—indeed, a bachelor’s degree gets a Black man a lower mean wage than a White man would get with only an associate’s degree.

Fortunately, the barriers against women in college education have largely been conquered. In fact, there are now more women in US undergraduate institutions than men. This is not to say that there are not barriers against women in society at large; women still make about 75% as much income as men on average, and even once you adjust for factors such as education and career choice they still only make about 95% as much. Moreover, these factors we’re controlling for are endogenous. Women don’t choose their careers in a vacuum, they choose them based upon a variety of social and cultural pressures. The fact that 93% of auto mechanics are men and 79% of clerical workers are women might reflect innate differences in preferences—but it could just as well reflect a variety of cultural biases or even outright discrimination. Quite likely, it’s some combination of these. So it is not obvious to me that the “adjusted” wage gap is actually a more accurate reflection of the treatment of women in our society than the “unadjusted” wage gap; the true level of bias is most likely somewhere in between the two figures.

Gender wage gaps vary substantially across age groups and between even quite similar countries: Middle-aged women in Germany make 28% less than middle-aged men, while in France that gap is only 19%. Young women in Latvia make 14% less than young men, but in Romania they make 1.1% more. This variation clearly shows that this is not purely the effect of some innate genetic difference in skills or preferences; it must be at least in large part the product of cultural pressures or policy choices.

Even within academia, women are less likely to be hired full-time instead of part-time, awarded tenure, or promoted to administrative positions. Moreover, this must be active discrimination in some form, because gaps in hiring and wage offers between men and women persist in randomized controlled experiments. You can literally present the exact same resume and get a different result depending on whether you attached a male name or a female name.

But at least when it comes to the particular question of getting bachelor’s degrees, we have achieved something approaching equality across gender, and that is no minor accomplishment. Most countries in the world still have more men than women graduating from college, and in some countries the difference is terrifyingly large. I found from World Bank data that in the Democratic Republic of Congo, only 3% of men go to college—and less than 1% of women do. Even in Germany, 29% of men graduate from college but only 19% of women do. Getting both of these figures over 30% and actually having women higher than men is a substantial achievement for which the United States should be proud.

Yet it still remains the case that Americans who are poor, Black, Native American, or Latino are substantially less likely to ever make it through college. Panic about student debt might well be making this problem worse, as someone whose family makes $15,000 per year is bound to hear $50,000 in debt as an overwhelming burden, even as you try to explain that it will eventually pay for itself seven times over.

We need to instead be talking about the barriers that are keeping people from attending college, and pressuring them to drop out once they do. Debt is not the problem. Even tuition is not really the problem. Access is the problem. College is an astonishingly good investment—but most people never get the chance to make it. That is what we need to change.