student debt

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We Know How to Fix Student Debt

Published by Anonymous (not verified) on Sat, 01/08/2020 - 12:31am in

In 2019, researchers from Harvard Business School, Indiana University and Georgia State University took advantage of a fortuitous court ruling to find out what happens when you get rid of student debt. A judge had ruled that National Collegiate, a company that bought up student debt and treated it as an asset, actually didn’t have a valid claim to much of that debt. So the debt was cancelled. How much? 800,000 individual loans amounting to $12 billion. A lot of students and their parents were very happy.

The researchers realized this was a golden opportunity. By tracking other graduates who lived in the same zip codes with similar amounts of debt as the lucky 800,000, they could compare the outcomes of the still-indebted control group with the suddenly debt-free students. Before this ruling, comparing students with debt to those without had always been complicated. Now it was easy.

What they found was that students whose debt was erased ended up with incomes that were 12.5 percent higher than their indebted peers in the years following graduation. Why? Not just because they had more immediate cash on hand — that difference was taken into account. The extra income often derived from changes in their behavior. The debt-free graduates could take more career risks. They were more mobile, able to move to where the higher paying jobs were. They could also pay off other debts — credit cards, car loans, mortgages — which improved their credit ratings and prevented defaults.

Removing college debt, the researchers found, improved these students’ financial outcomes in all sorts of unexpected ways. More of them got married and had kids, for example. Their improved circumstances benefit the entire economy.

blackboardCredit: Oliver Knill

The debt problem

Some 44.7 million American adults are saddled with student debt totaling $1.6 trillion. That’s more than all U.S. credit card debt combined. This didn’t happen overnight. In the 1980s, the government began to replace student grants (which are essentially gifts) with loans, shifting the financial costs of higher education to students and their parents. Meanwhile, state governments cut the budgets of state colleges. The cost of higher education in the U.S. has surged more than 500 percent since 1985. A $10,000 education 35 years ago would cost over $50,000 today. The costs are rising faster than inflation, which makes for a dicey investment.

Student debt has quadrupled in the last 15 years, leading many high school graduates to wonder if an investment in higher education is still worthwhile. For the most part, it is. With a college education, you stand to make 84 percent more money than someone with just a high school diploma. In the U.S., this gap between earnings for college grads and high school grads keeps growing, mostly because wages for high school grads are declining, and wages for college grads, even if they haven’t skyrocketed, continue to rise. 

Still, as we saw, all that student debt can hold folks back well beyond college. It’s a drag on the entire economy. Eliminating it is a worthy goal, which is why there have been proposals to cancel student debt. But simply canceling it doesn’t deal with the root of the problem: the high cost of college in the U.S. Until we deal with that, the next crop of students will simply rack up huge debts all over again.

Can this be fixed? Yes, it can. If we look at other countries, many have solved the problem of crazy-expensive higher education, and by extension, the student debt problem. 

blackboardCredit: Oliver Knill

Free and cheap tuition is good, but that is only part of the solution

College tends to be very affordable in Europe. Top universities are tuition-free in Finland, Norway, Denmark, Iceland, Ireland, Czech Republic, Greece and Scotland. Sweden now charges a nominal fee of E500 for undergraduates. Germany charges for graduate programs, but undergraduate education is free. Austria and France are almost free for EU citizens — they charge a few hundred Euros. 

It’s not just European universities. Mexico and Brazil have extremely cheap higher education options. Argentina is tuition-free, as is Kenya, Morocco, Egypt, Uruguay and Turkey.

education spendingCredit: Mises Institute

A typical American response to this might be, “Oh, those countries simply have high taxes, so that’s how they subsidize colleges.” But it’s not as simple as that. The U.S. is 73rd in the world in spending on higher education as a percentage of GDP —  below Sweden, New Zealand and Norway, but ABOVE Germany, France and Canada, all of which have college options that are far more affordable. So it’s not a simple matter of tax more, spend more, problem solved. 

In many cases it’s not just the tuition that is the burden, but the cost of housing and eating for four years. Some places have come up with creative approaches.

blackboardCredit: Oliver Knill

New Zealand

In New Zealand, the first year of college is free, but tuition can be as high as NZ 10,000 ($6,600 USD) a year after that. So, not exactly free at all. However, government student loans are interest-free, and students don’t have to begin paying them back until their post-graduation income rises higher than NZ 20,000 ($13,300 USD). The loans are also interest-free for as long as you stay in New Zealand. This system has allowed a lot more kids to go to college — three years after these loans were introduced in 1992, university enrollment went up 49 percent. 

New Zealand also offers a Student Allowance — basically, grants to cover the cost of living expenses. Whether or not you have to pay these back depends on your parents’ income, your age and whether you are married or have a child.

Norway

Similarly, in Norway tuition is completely free, but the cost of living is high. This is a problem in the U.S., too. Part of what makes American colleges so expensive are all the extras that come with it — the dorms, the food halls, the football stadiums, the fundraising departments. And because American students often don’t live at home, add-ons like housing, food and transportation can be as expensive as tuition. 

Norway solves this problem by making state loans available that can be used by students to cover living expenses. These loans are interest-free until graduation, and some students can convert up to 40 percent of them into grants that don’t have to be paid back.

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Denmark

In Denmark, tuition is free, and the cost of living is not as high, but even so there are grants to cover expenses depending on parental income. I’m seeing a pattern here.

South Korea

In South Korea, tuition is about one-third as high as in the U.S., which is still much higher than a lot of other countries. But some 18 percent of these costs are covered by private companies and foundations. I’m not sure how one prevents undue influence from corporations on the syllabus, but one hopes that the companies realize that even without influence an increase in graduates benefits them all.

Germany

The German system is unique. Early in life, kids are placed into one of three tracks: college preparatory, vocational training, or something in between. This means a lower percentage of folks go to university than in similar countries — even though it’s tuition free! This early-stage sorting means that those who do go to college tend to get masters or doctorates, while those on the vocational track get training and go into the job market. One has to make this choice early on — in high school or even earlier — which, for some of us, seems a bit young to commit to one’s life path. It’s not impossible to jump over to the university track later, but not many do.

Like in other countries, to cover the costs there are government interest-free loans for which repayment depends on post-graduation income. This model — repayment based on later income — seems to be a common and successful means of greatly reducing the burden of student debt.

Higher education as a public good?

The countries mentioned above don’t completely subsidize every higher education cost, but they have eased the burden by lowering or eliminating tuition and making loan paybacks flexible. These policies have proven successful and have lessened the crippling effects of student debt. We can learn from their examples. 

We accept lots of things as public goods and happily pay for them: drinking water, fire and police departments, sewage and garbage disposal, roads and bridges. I pay for roads even though I don’t own a car because, well, that’s how my groceries get to the local store. And folks would go nuts if the fire department only served those who paid for the service, though that is actually the case in some communities.

In many countries, higher education is viewed this way, too — as a public good, a basic right. (In the U.S., that concept is wholeheartedly embraced up through high school, so the idea of education as a right does exist — it just stops short of college.) It would be unthinkable to defund grade schools and high schools (though austerity budget cuts amount to the same thing). The question is, do we accept the idea that, in the contemporary world, college might be essential as well? The bar has been raised. Education fosters resilience, which, as recent events have shown, is something the U.S. needs more than ever. 

The post We Know How to Fix Student Debt appeared first on Reasons to be Cheerful.

Proof From 2006 of How Out Touch Graun Hacks Were Even Then

I found this fine quote from the Guardian’s Polly Toynbee in the ‘Pseud’s Corner’ section of Private Eye, 20th January – 2 February 2006. It’s an rosily optimistic paragraph in which she raves about how much better everything is now. She said

Let’s get one thing clear. This is the golden age – so far. There has never been a better time to be alive in Britain than today, no generation more blessed, never such opportunity for so many. And things are getting better all the time, horizons widening, education spreading, everyone living longer, healthier, safer lives. Unimaginable luxuries are now standard – mobile phones sending pictures everywhere, accessing the universe on the internet and iPods with all the world’s music in your ear.

This obviously has aged terribly. Toybee was writing during the glow of the Blair administration, and was obviously fatally impressed with how his ‘centrism’ – by which he meant Thatcherism – was going to improve the country. She couldn’t be expected to have predicted the banker’s crash two years later, nor the austerity which has created mass poverty after the return of the Tories. But there were signs that all was not fine and dandy, even then.

At roughly the same time she was spouting this, Blair and Mandelson were introducing tuition fees, which has burdened Britain’s students with mountains of debt they can’t shake off. They were much lower than they are now, £3,000 per year as opposed to the £9,000 or over. But this was harming students and it was harming universities, as courses which relied on expensive technical equipment, like archaeology with its geophysics technology, suddenly found they had to make savings.

Blair also introduced the wretched ‘fitness for work’ tests, taken over at the advice of American health insurance fraudsters Unum, who had also been advising Peter Lilley. It was also under Blair that food banks were introduced. This was limited to illegal immigrants, who were denied welfare benefits due to their status. But under the Tories it has been massively expanded.

Blair was also a busy bee continuing the Tories piecemeal privatisation of the NHS. Again, his administration, like that of the Tories, was stuffed with advisors and senior staff from private healthcare companies. His health secretary, Alan Milburn, wanted to reduce the NHS to a kitemark on services provided by the private sector. And in industry generally, privatisation and deregulation was in order, with private sector advisors, including company CEOs given important positions on the regulatory bodies. George Monbiot describes this highly pernicious influence in his book Captive State.

It was also under Blair that the Tories harsh ideology towards benefit claimants generally continued. The process of claiming benefit was to be made so humiliating in order to deliberately deter people from signing on. And it worked. I personally know people, who didn’t sign on despite the fact that they were jobless, because of the degradation they experience in the Jobcentre.

As for the endless opportunities she saw, Adam Curtis provided ample evidence in one of his documentaries – I think it was All Watched Over By Machines of Loving Grace – that thanks to Blair’s embrace of tick box questionnaires and general social policies, social mobility had actually stopped.

Things weren’t getting better for ordinary people. And ordinary people knew it, that’s why they started leaving the Labour party in droves. The Labour vote actually went down under Blair’s leadership. He still won over the Tories, because people despised them even more. But in terms of popularity, he was much less popular than Corbyn, although the latter’s was destroyed at the last election by the massive press smear campaign. Of which the Guardian was an enthusiastic participant.

But I dare say everything was looking grand for highly paid media types like Toynbee, living in the metropolitan bubble. And her views expressed above show how it is that the Guardian is full of right-wing Thatchers backing Starmer’s purges, all in the name of continuing the Thatcherite project introduced by Blair.

She raves about Blair’s reign as a golden age. But as the writers of the Roman empire knew, the golden age gave way to that iron and rust. Just as it has done in England, due partly to Blair.

Toynbee and the rest of the Guardian were out of touch even then, and their views have become even more divergent from reality. The rag’s in crisis. And as I wrote the other day, I have no sympathy.

A Generational Crisis: Restructuring America’s Social Insurance System to Better Protect Young People

Published by Anonymous (not verified) on Wed, 01/04/2020 - 5:04am in

In the last three weeks, it has become clear that millennials are going to experience a second major recession in their working lives before they turn 40. Even before the COVID-19 crisis, it was widely documented that this generation—ages 24 to 39 and the most racially diverse adult cohort in history—was experiencing long-term harms from the 2009 financial crisis. The economic scars of the last recession were already affecting young people’s ability to save, invest, and start families; now, those scars are reopened wounds. And, unless the government takes a very different approach to our current crisis than it did in 2009, the class of 2020 can look to millennials for what their economic future holds. 

The generational crisis that millennials face (and Gen Z appears to be teetering on the brink of) should spur us to think about how we can restructure the social insurance system to protect young people from macroeconomic shocks to their working lives. Typical responses to economic downturns focus on seniors’ lost savings and the lost wages of the newly unemployed. But a comprehensive safety net should cushion the long-term blow of entering the job market in a bad economy just as it does for injury and illness. Far from making this kind of structural change, the policy response to the last recession exacerbated the downturn’s long-term effects on millennials by pushing them to take on huge amounts of student debt. If legislators write policies that factor labor market conditions at job-market entry into the social insurance system now, they could rectify this past failure and ensure that future generations do not suffer a similar fate.     

At this point, we have quite a bit of data on the effects of recessions on job market entrants. One leading study on this topic, by economist Lisa Kahn (no relation), found that for every percentage increase in the unemployment rate, the wages of college graduates entering the labor market were reduced by 3 to 4 percent a year. Eighteen years after graduation, the effect was still roughly 2.5 percent. This amounts to a loss of nearly $80,000 over the first 20 years of a person’s career. Furthermore, a study for the National Bureau of Economic Research (NBER) showed that the labor market entrants hardest-hit by the unfortunate timing of entering the labor market during a recession are those with the lowest predicted earnings (namely non-white and non-college graduate workers). Additionally, cohorts that enter the workforce in a recession have low employment rates even after the recession ends. This compounds into significant wealth effects for these disadvantaged cohorts, exacerbating existing—and persistent—racial and gender wealth gaps. According to a 2016 report from the St. Louis Fed, the Great Recession reduced wealth levels for people born in the 1980s by 34 percent. 

Despite these stark facts, relatively little aid is targeted at these cohorts. Unemployment insurance (UI), the existing social insurance program designed to protect workers from macroeconomic shifts, does not protect against the bad luck of entering the workforce during a recession as opposed to a period of growth. Unemployment benefits are not available to new job-market entrants, nor do they make up for the lifetime of lower wages for those who are able to find a job. As a society, we have never considered the long-term impact of macroeconomic conditions at labor-market entry important enough to address through social insurance. Millennials’ experience should change this.  

To their credit, Democratic members of Congress made attempts in the recent stimulus package to address the needs of young people. In addition to proposing to cancel some student debt, they included a “job entrant compensation payment” for individuals whose work history is insufficient to qualify for unemployment insurance, but who would be entering the workforce were it not for the pandemic. This provision did not make it into the final package. Broadening the unemployment insurance system to include new labor-market entrants is important, as a recent report on a 21st century UI system made clear, but it does not address the long-term wealth effects of entering the labor market in a recession. 

We need big ideas that address the long-term earnings effects of recessions on young workers. For example, the Social Security formula could be changed to increase the benefit of those who enter the labor market during a recession. Right now, Social Security benefits are calculated as a percentage of a person’s average indexed monthly earnings (AIME) during their 35 highest-earning years. This formula could be changed to increase the percentage of the AIME a person receives based on the national unemployment rate early in their career. Ultimately, building economic conditions at labor-market entry into the Social Security formula could compensate for the wealth effects of entering the labor market in a recession. 

Another idea might be creating a job-market entrants’ tax credit triggered by employment numbers dipping below a preset level. The tax credit could be structured to last 15-20 years—the typical length of recession wage effects on job-market entrants—tapering as recipients spent longer in the labor market. Structured in this way, a tax credit would directly address the long-term wage loss job-market entrants experience in a recession, allowing them to build wealth at a similar rate to more-advantaged cohorts. It could also be increased if the same cohort faced another recession, as millennials now are. 

The social insurance system exists to protect individuals from economic events beyond their control, but it insufficiently protects new labor-market entrants. The ideas proposed here should be considered, though they alone are not necessarily the answer. As millennials face the second major recession of their early working lives, it’s time to figure out how to build progressive, comprehensive protections for young workers into our social insurance system. 

The post A Generational Crisis: Restructuring America’s Social Insurance System to Better Protect Young People appeared first on Roosevelt Institute.

MLA Statement on the Termination of Graduate Student Strikers at the University of California, Santa Cruz

Published by Anonymous (not verified) on Fri, 06/03/2020 - 6:29am in

The Executive Council approved the following statement in March 2020.The Executive Council of the Modern Language Association condemns the termination of employment for graduate student strikers at the University of California, Santa Cruz, calls for their reinstatement, and urges the university to commence negotiations with the students as soon as possible. We consider that their demands for an appropriate augmentation of salary in line with the increased costs of living are legitimate and note that they now have the full support of the UAW, with whom the university is contracted. Graduate students are indispensable workers who cannot be expected to execute their teaching duties and to pursue their own research when housing and food costs are not affordable with their current wages. The Modern Language Association maintains that graduate students should be compensated at a level that makes it possible for them to flourish on campus as research assistants, teachers, and emerging scholars. A fair wage correlated with cost of living increases is a necessary precondition for their own work, essential to fulfilling the educational mandate of their departments, and essential for the dignity of all workers at the university. To punish students for exercising their rights to demand a decent wage is, in our view, unjust and unacceptable, and all penalties should be reversed immediately.

Kindergarten debts

Published by Anonymous (not verified) on Tue, 03/03/2020 - 11:08pm in

FRONT RUNNING: Student Debt, March 2, 2020

Topic: Student Debt || Guests: Steve Keen, Michael Hudson, Randy Voller

MAX KEISER: Welcome to Front Running 2020 with Max Keiser and Stacy Herbert and a bevy of special guests right here in fabulous, hipster Brooklyn. I’m feeling it. So Stacy, this episode is all about student debt.

STACY HERBERT: And the students, of course, are the Millennials and Generation Z. They like the candidates promising to get rid of all the student debts. There’s $1.6 trillion in outstanding debt today in America. That is up from $363 billion in just 2005. Joining us to discuss this, Dr. Michael Hudson, Professor Steve Keen and Randy Voller. Professor Steve Keen, of course, you talk a lot about debt and in fact the rate of increase of debt. What do you think of that number, $363 billion in outstanding student loans in 2005 and $1.6 trillion today?

STEVE KEEN: Well, it’s doubling every two years, which is a huge rate of growth that simply can’t be sustained indefinitely. And that’s whether by the students themselves coming on board or by the lenders. It’s a huge increase in the private debt load on the economy and it’s falling on the people who earn the least money. And it’s setting them up for being unable to participate in the rest of the economy later, which is also driven by debt. So I think that’s one form of debt that is going to basically eat the other form. Student debt is going to make it impossible to keep boosting household debt. So the financial sector is eating itself.

MAX KEISER: I’m so old, I remember the 2008 financial crisis and if you recall, the subprime debt bubble blew up and we had this global meltdown. The student debt is already bigger than the subprime debt bubble.

STEVE KEEN: No, it’s not the same scale. Subprime debt was about $9 trillion . . . it went from $6 trillion to $9 trillion between about 2000 and 2005. So we’re not talking the same scale of increase in debt. We’re talking about the debt being taken by people who aren’t earning an income. And then when they graduate, they’re graduating . . . often with what about $100,000 US dollars is the level of debt?

STACY HERBERT: The average is $30,000 and, in fact, it’s non-dischargeable. Part of what happened with the subprime crisis was people could do the jingle mail and walk away. Students can never walk away from this. Almost all of it is essentially owed to the government. So the government owns you anyway and you can’t escape it. You can’t just jingle mail away from the US government.

STEVE KEEN: The $30,000 is their starting level and they go ahead and get graduate jobs where they might be earning something of that scale per year. So they’re starting with the debt to income ratio of 100% before they even pay the rent, let alone consider paying a mortgage.

STACY HERBERT: Max and I graduated before 1991, you all graduated before that sort of time. The rate of increase since the 1980s … and a lot happened in the 1980s we could talk about … the rate of tuition increase has gone up eight times faster than income. When I went to UCLA, I was able to afford the tuition and my own apartment by working part time in a stationery shop. You can’t do that today. Dr. Michael Hudson, what do you have to say?

MICHAEL HUDSON: Well, just like a house is worth whatever a bank is going to lend against it, as banks lend more and more for housing, causing real estate prices to rise, education is worth whatever a bank is going to lend against it. The government had banks draw up student loans. You made a key point: subprime debt was owed to banks, but student debt is now owed to the government. That means that the government could wipe out all the student debt and it wouldn’t hurt any private creditor at all. It could be wiped out without any disruption of the economy. In fact, unless it’s wiped out, the economy will be distorted, because as Steve Keen just said, if you have to pay a lot of money in student debt, you can’t afford to get a bank mortgage to buy a house of your own, and you’re going to end up living with your parents.

MAX KEISER: Whoa. Dr. Michael Hudson here, according to Moody’s, erasing student debt would be a small stimulus, but would it create moral hazard. Moral hazard!

STEVE KEEN: They would, wouldn’t they?

MICHAEL HUDSON: What is the moral here anyway? The moral hazard is if the rich families that can afford to send their kids to school without an education would no longer be able to lord it over the families that are driven into poverty by student debt. The moral hazard is that there wouldn’t be a polarizing economy between an oligarchy at the top and a democracy at the bottom. That’s the moral hazard according to the oligarchy and neoliberals.

STACY HERBERT: But bringing it back to the subprime crisis, Moody’s was very much responsible for that. Now, Randy, you, of course, have been involved with … you were a Bernie delegate back in 2016. Tell us what Bernie thinks of student debt, what his plan is and how that relates to . . . he’s very popular with Generation Z and the Millennials . . .

RANDY VOLLER: Well, obviously, he’s very popular because this is one of the single biggest issues holding that generation down. His plan is simply to wipe out all the student debt and then come back later and lower the interest rate to below 2% … I think 1.88%. Right now the rates are between 4% and 7% and . . . I didn’t have student debt either, Stacy, I don’t really know what happens when you default, but I do know anecdotally that when you’re paying your taxes and you think you’re going to get your stimulus as a refund, the IRS collects for your student debt. So I know that his plan, and these are policies, Stacy . . . When my parents met at UC Berkeley in 1960, it was free to go to Berkeley and you paid for incidentals. Now it’s $13,000 if you’re in state and $40,000 out of state. These are actual policies made by people in government that decide who’s going to owe what.

STEVE KEEN: And when I went through university, as well, there were fees just before I started, but they were trivial relative to the costs today because the bureaucracy in universities was trivial. The head of department by my predecessor effectively would have a meeting with the vice chancellor, talk about the budget that was needed and it’d be discussed over lunch and that was the end of the discussion. Now there’s an entire bureaucracy involved in doing that. So a huge part of the increase in cost of universities has not been money going to the academics or to the facilities for students, it’s this enormous bureaucracy, which is part of this whole student debt, the whole overload.

STACY HERBERT: And what is that? That’s neo-liberalism, right?

STEVE KEEN: Yeah . . . believing managers make things work better, you need managers to tell academics what to do.

MAX KEISER: But also these universities are acting like gatekeepers. So there are a small number of jobs where you can make the elite type of mega millions and folks are willing to pay. I went to NYU back in the 70s and 80s and I was shocked to find out that tuition is now over $50,000 a year. So you really can’t afford that much. And even you’ve got celebrities and Hollywood folks adding another $200,000 or $300,000 in bribes to get into a university that’s going to cost $200,000 or $300,000 to begin with. Because they want to get the job at the top of the banking system. The bank of the Ponzi scheme . . . financialization has created an enormous Ponzi scheme, if you want access to be at the top of the Ponzi scheme, you’ve got to go through the Ivy League. You’ve got to go deep into debt, you’ve got to pay another huge bribe. And that just disenfranchises so many millions of people that won’t have any access at all. So the whole point of university is not education anymore. They’re acting as gatekeepers to the elite oligarchy.

STEVE KEEN: It’s credentialism. I mean, I have had students telling me they’re only at university in order to get a job and I’m telling my father I was at university to get an education. And if you make it all about credentialism, you end up devaluing the quality of the education itself. So we end up with a less genuinely educated workforce. And the caliber of the teaching that . . . during this whole period of increasing costs, the student to staff ratio has been falling. There’s less staff teaching, there’s more marking load, everything has been more mechanized. The personal contact is declined. So rather than this increase in cost reflecting an increase in input and quality, it’s actually a degradation of that and just this huge bureaucratic layer over the top.

MICHAEL HUDSON: Well, the result of what Steve’s talking about is there’s been a whole change in the shape of the how much education adds to your earning power. It used to be the more education you got to the PhD, the more you earn. But now, that’s been reversed. Certainly in my field of economics. Once you have a PhD in economics, you’re so brainwashed with tunnel vision that the only thing you can do is teach. But the universities, in order to pay all this money to the administration overhead that Steve pointed to, they only hire part-timers to teach. You can only get an adjunct professorship for maybe $3,000 a course. So the higher your education, the less qualified you are to actually work in the real world. Especially in economics.

RANDY VOLLER: One anecdotal point is I have some close friends that were really happy that their daughter got into a very prestigious school in Boston and I asked how they’re going to pay for it and it was $70,000. And they had saved and they had money and she was going to get loans. And I asked them point blank based on what she wanted to study. I said, “Why don’t you just buy her a house in Las Vegas where you live for $280,000 and give her the house and send her to community college.” She’ll have an asset with no debt. She can live there and get a skill. It’s a good question, man. When you’re spending $70,000 a year and she would emerge . . . I mean, she may not have debt, but others could come out of there with $100,000 to $150,000 of debt.

MAX KEISER: That’s how the Five Guys Burger chain got started. The dad said, I can send you to college or we can start some business together. They started Five Guys Burgers. Now they all can afford to buy a university.

MICHAEL HUDSON: Getting back to what Max was saying about the gatekeepers, the problem doesn’t just begin with college, it begins in kindergarten. Here in New York City, it costs more to go to kindergarten and grade school than it does to go to college. And in fact, you remember in the stock market crisis when Citibank was having the fraudulent stock broker, the deal with the stockbroker is, we will get your daughter into kindergarten if you give a good stock market report here. So the weeding out process begins already in grade school to go to a school that can get you into the prestige college. So it really is a hereditary aristocracy that’s emerging.

STACY HERBERT: I knew you were going to say this because that’s why I wore my kindergarten outfit because I thought this was going to come up. In fact, we’ve had this scandal as well. Not only did we have the celebrities and the powerful people apparently paying bribes to get their children into these schools, which shows you that even though they have this huge wealth, that the importance of getting that degree from a particular university, regardless of what you actually learn at university is so important now in our economy. And we have the hereditary issue is something like 40% – a huge percentage, especially white Americans at Harvard or you know, certain select universities are actually children of families that are powerful or went there. This is the definition of a like an aristocracy or oligarchy that is being entrenched in this economy.

MAX KEISER: Right, the universities and libraries used to be built by the rich to give back. Now the pendulum has swung the other way. They’re using them to ossify and calcify their place as the elites by grading these drawbridges that once you get over the bridge they pull it up and everyone else is left adrift, right? So if there are no public institutions, then there is no public domain and there is no common good and we have not escaped the monarchies of Europe. And we brought back a central bank. What’s the difference now between where we work 200 years ago before we even bothered with the Declaration of Independence and the Constitution?

STEVE KEEN: It’ a compelling question. The point is should we actually be charging for education? Because when we charge for something, it’s because it’s a benefit to the person who’s buying it. And that’s the ideology that took over education about 30 or 40 years ago. But the perspective of education was originally that education is a benefit for society in general. I wouldn’t want to live in a society without doctors or engineers or scientists. I’d happily live in one without economists. Okay. But seeing it as being a private benefit and ignoring the public means that we’re ignoring that the skill basis we need for a sophisticated society and putting the burden of that skill basis on the individuals. And what we’ve turned it into is just another churn institution. Higher education has become a version of a real estate scam that is not the basis for a functional society.

MAX KEISER: Alrighty. We’re going to be back after the break so you can go to school on us right after this. Don’t go away.

====== BREAK =======

MAX KEISER: Welcome back to Front Running 2020 with Max Keiser and Stacy Herbert. Before the break we were talking about $1.6 trillion in student debt and we left it off on this idea of competitiveness, Stacy.

STACY HERBERT: Yes, Germany has free education. America has expensive education and yet it seems that Germany is out competing us. Steve Keen.

STEVE KEEN: The basic reason is because you’re not relying upon the students for fees. So to get into university, you’ve got to get a good mark. You’ve got to be an intelligent person to get in, not a wealthy one or somebody who’s borrowed money. Consequently you can afford as an academic to fail the students if they don’t do a decent job. Whereas if you try to fail students where they’ve paid, they think they’ve bought it and they deserve to get what they’ve paid for, which is a degree. And that subverts the whole purpose of education. I’ve experienced this over a 30 or 40 year period in academia and I’ve seen the quality, the capacity to fail bad students simply collapse. So what is happening is universities are graduating people with credentials but not an education.

STACY HERBERT: But the fact is we do have a problem with household formation. It is at a record low and a lot of this, many economists say, is because of this student debt. So when people argue against forgiving this debt, and remember Elizabeth Warren and Bernie Sanders definitely want to forgive this debt . . . the argument against it is like, “it’ll create the moral hazard and all these other people paid and they worked hard to pay and why should we forgive these debts?” Which is better for the economy, however, that those debts get made whole and that they’re paid off or household formation. How important is household formation to an economy?

MICHAEL HUDSON: You have to put it in the context of how competitive the economy is in terms of how many jobs it has in the first place. Now, take the case of Germany where Steve mentioned. If you can go to school and don’t have to pay tuition, that means that you can afford, if you’re a doctor to provide medical services or an engineer to provide engineering services, or you can afford to work for an income that does not require you to add on a payment of student debt. In America, if you graduate with … for a dentist it’s $300,000 of student debt from the NYU’s Dental School … you’re not going to be able to afford to take most jobs that don’t pay enough to pay the student debt. And so you’re going to default. So the real question about moral hazard, is it worth polarizing the economy and impoverishing a whole class just for the principle that all debts can be repaid. When, as Steve and I say, we know the debts can’t be paid in the end anyway … to follow this false dream that somehow the economy can afford to pay its debts and somehow the rich people deserve to impoverish the 99% of the economy that’s further and further in debt. The real moral issue is should the 99% be indebted for student debt, mortgage debt, all the other forms of debt to the 1%? That’s the moral issue.

And should America give up its hope for a competitive economy just to make students pay for loans so that you can afford to have the rich families monopolize education and lock out families that cannot afford the $40,000 that it takes to get into kindergarten in America.

STACY HERBERT: But you also have, as we’ve mentioned earlier, the tuitions have gone up. Those are the tuition prices for private university and public university. Public university is up higher … and these are wages. Wages have stayed flat.

MICHAEL HUDSON: But if you take the wages of professors, they’ve gone down and down and down because they can only get part time jobs as professors. So the professors jobs are going down because they’re part-timers while the university costs are going up because of the bureaucracy.

STACY HERBERT: Bureaucracy is what I think of as neoliberalism. And neoliberalism seems to have really come in after we went off the gold standard and you can create all sorts of fiat money, you could create all sorts of debt and credit. And the Boomers were first in. We’re not saying they’re horrible people, they were lucky. They got to be the first one in on this pyramid scheme. And now there is a battle. There is a reconciliation to be made that the Millennials are stuck with these huge debts. And how is this going to resolve itself?

RANDY VOLLER: It’s going to resolve itself through revolution, as Bernie says, “our revolution,” or it’s going to resolve itself at the ballot box. And I think that as more people get fed up and they get interested in casting their ballot on these issues that are basic issues that “I’m indebted to the 1%” and “I’m basically working a dead end job.” I’ve done radio shows where people call in and said, “I did the American Dream. I got two degrees. I went to school and I’m up to my eyeballs in debt and I get paid less than $40,000 a year in Wake County, North Carolina. I’ll never be out of debt.” And yet they did what they were told to do. This will be resolved at the ballot box and it’s exactly why Bernie is incredibly popular with Millennials and Gen Z.

MAX KEISER: To contrast the two approaches here, Sanders wants to make college free. While Elizabeth Warren has proposed a billionaire’s tax that she said would pay to eliminate up to $50,000 in education loans. Are either of those viable? Is there any difference between those two? How would you characterize those?

MICHAEL HUDSON: If you wiped out student debt, as we said before, nobody has to suffer. The government doesn’t need the money. The government either can print the money or it can raise the taxes.

STEVE KEEN: A large part of the problem arose from people saying, we have to pay for things like education using taxes, and that’s a burden on the state. Let’s impose a burden on the individuals that are benefiting from education instead. But the opening thesis is wrong. It argues the government has to tax in order to be able to spend. And part of what is called Modern Monetary Theory, which is a major factor in this election probably for the first time ever . . . The progressive economic theory is part of the political debate, makes the point that governments actually spend before they tax. Governments by spending create part of the money that enables the private sector to function. Now, if the government tries to tax more than it spends, that means it’s actually taking more money out of private bank accounts than it’s putting into them, which means you’re reducing the amount of money that actually makes the economy operate.

In fact, the government is the only institution in society which can manage to spend more than it gets back in income because it owns its own bank. Now that means it should actually be spending more than it gets back. That’s actually a sensible thing, within reason, for it to do. Over history, America’s government has spent 2.4% of GDP more than it has taken in tax every year on average for the last 120 years. I would rather have it do that by funding education than funding bureaucrats in education or funding bombing other countries. So in terms of a way of government actually creating the money, creating it by financing education is a much better way to do it than virtually any other. And that’s why it should be funded by Bernie’s scheme of the government simply paying for education than the taxation scheme.

MICHAEL HUDSON: This is very important because it clears up a widespread misinterpretation that Vice President Biden contributed more than anyone else to. He said, “Unlike all other forms of debt, student debt cannot be forgiven, cannot be wiped out by bankruptcy because it’s owed to the government. And we don’t want the tax payers to lose a penny.” But Modern Monetary Theory, which Steve and I both believe in, says wait a minute, taxpayers won’t lose a penny if you wipe out all the student debt, because the government will fund it the same way it funded the bailout, the same way it funds the military industrial complex.

It’ll simply print the money. It doesn’t need the money. So all Biden did was put in a very nasty thing. “We’re going to make students that are not born rich really suffer, because when they can’t pay, they cannot use bankruptcy that all the rest of the population can use.” It’s one of the most perverse arguments made in American politics.

STACY HERBERT: Just to clarify, it was Vice President Biden as a Senator who introduced the bankruptcy reform, which made it very difficult to discharge many debts but almost impossible to discharge student debt.

MICHAEL HUDSON: That’s correct. Biden had read 1984 and he knew what doublethink is.

MAX KEISER: So it’s like a financial gerrymandering, right? So you’re politically parsing the society in ways for political gain. You know, and the thing is about this education market, and again referring back to NYU, it’s really a property development firm disguised as a university. The property development is enormously profitable because of the way students are crammed in, professors are underpaid, and the people who run New York University are property developers, like a Trump, who are fabulously wealthy disguised as an institution of education. That’s clearly not what’s going on.

RANDY VOLLER: You’re exactly right, Max. This is what’s going on with charter schools and even in higher education and what they do is they own the real estate and they lease it back. And sometimes it’s two separate organizations, but it’s controlled by the same group. Just how McDonald’s made a lot of money owning the real estate and you’d have a franchisee, they’re doing the same scheme with some of the real estate in higher education or public school education with K through 12. And ultimately what it’s doing is creating more debt. It’s creating a lot of wealth for the 1%, but it’s not producing an educated workforce.

STEVE KEEN: Yeah, it’s devalued education dramatically over my career as a professor. The whole idea that you should be able to buy an education is a fallacy. You should be passing an education. You should achieve a standard, which means you’ve got the skill set, you understand the technology, you understand the philosophy, whatever’s involved in your discipline. That’s what should be the arbiter. And instead that’s completely gone away … with this increase in student debt has gone a degradation of the quality of education and we should get rid of it and go back to the days when was provided by the state. But it was difficult to get in. You needed to get good marks and be intelligent to get into the particular level of education. You needed to study hard.

STACY HERBERT: But bringing it back to Germany, Germany has apprenticeships, they have vocational programs. We don’t have that. Part of it is this neoliberal economy. You’ve got to be like a celebrity kind of vague doing nothing, McKinsey-eque sort of think tanker. How do we even bring back vocational schools though, if we don’t even have an industrial capitalism here anymore? Michael Hudson.

MICHAEL HUDSON: Well, you may have mentioned China also, where you have the Confucian system, where you have to take tests in order to get into the university. And the people who get in are the people who do the best in tests. So again, we’re having a whole international divide. We’re having that part of the world where people get an education on the basis of merit and intelligence, and here where people get education in proportion to how much wealth they’ve inherited from their family and which of their ancestors have gone to the most prestigious schools so that they get a legacy. We’re having a bifurcated economy here that is the exact opposite of what the more successful economies are doing. And these successful economies have much lower costs of education . . . They can afford to compete because they don’t have this overhead of a sort of idle, rentier aristocracy.

MAX KEISER: Right. So the student debt cancellation, is that a winning vote getter? Yes or no? Dr. Hudson?

MICHAEL HUDSON: Absolutely, yes. Because if a student can’t pay the debt, it’s a bad loan.

MAX KEISER: Steve Keen?

STEVE KEEN: Yes, it’s a winning idea and it’ll make the economy and the society better for it.

MAX KEISER: Randy Voller?

RANDY VOLLER: Yes, I agree. It is. And it’s actually going to turn out a huge amount of vote for Bernie Sanders.

MAX KEISER: Well, that’s going to do it for this edition of Front Running 2020 with me, Max Keiser and Stacy Herbert. By the way, I’ve given you all straight A’s.

RANDY VOLLER: All right?

MAX KEISER: Talk about grade inflation. And until next time, bye all.

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