To Forgive is Divine
Not so fast.
While I know that a small minority of my readers has any direct connection to the Biden administration’s plan to forgive some portion of the Student loans out there, I think we all need to take a deeper dive into the why along with the how.
The idea that forgiving some debt, any debt, will help in lowering demand and reduce inflation is by far the most ludicrous explanation I have ever heard, for pretty much anything. This is something that the Democrats have been floating around and it really needs to stop.
How does reducing ones debt reduce demand? It make zero sense. If you reduce debt, you increase a person’s ability to spend. Period. Maybe in the throes of a deep recession or depression, this might be an effective tool to spur demand and make peoples lives a little easier but during a high inflation period, giving people more money to spend just fuels demand and spurs inflation. Democrats really need to go back to school and take Econ 101 and maybe it would help them understand the economy and business in general.
The President knows that his administration is failing and the Democratic Party is failing and without some sort of economic incentive to one the bases, they will get trashed in the November Midterms. Forgiving $10,000 of all Federal Student Loans will go a long way to help bringing that shaky core back into their camp for sure but using some dubious economic explanation will only rile up and already disappointed segment of their core, Middle America.
The party knows this and they are threading a very fine line by trying to push something like this through Congress. As it stands now, it won’t pass, and it shouldn’t.
This may be very old school but I was taught that if you borrow money, you pay it back. They didn’t give you the money, you borrowed it. Hence, you pay it back. With interest, so the lender can make money for the risk he is taking lending it. That, again, is Econ 101. Why does anyone think it is right to forgive loans? If a person is suffering hardship, you work with them until they are not suffering hardship. If that hardship becomes too great, you file for bankruptcy and work out a solution of some sort.
The pandemic has upended everyone and everything and I totally understood when President Trump used an executive order regarding student loan forbearance and I also understood when President Biden extended it the first time but let’s be realistic here. The economy has recovered faster than anyone expected and people were back to work. The unemployment rate has dropped consistently for the last 18 months and yet there seems to be a need for consistently. Why?
There are two things to think about here. 1. Those that received that gift from Presidents Trump and Biden have put that student loan money to good use as they have changed their spending habits. Earning similar wages (or inflation adjusted wages) these borrowers didn’t feel the need to put aside money for their loans, they spent it and now they are crying? 2. This great resignation that the media has endlessly talked about has altered the economy in ways seen and unseen and this is the unseen. These borrowers decided that they were better than the jobs they held and decided to leave. With part of their debt put on indefinite hold, it was easier to walk away from that unfulfilling job and search out new adventures.
Maybe I am old fashioned but you sign a loan agreement and you honor it. Times are extremely tough, the government will sometimes come in to help but it is not the governments job to support anyone. By forgiving debt, you are taking money from the people and essentially giving it away. Another thing you are doing is solidifying a vote.
When the government is open to giving you something, for nothing, your tendency is to keep that government in place. That may not be Econ 101 but it is painfully obvious what it is. There are a multitude of options for President Biden if legislation fails. The most obvious is extending the moratorium until November 8th of this year. Right after the Mid Terms.