Oct
05
2011

Post Letter: Student loan forgiveness would lead to recession

I read Monday’s Post editorial and was flabbergasted to see Keynesian dogma in my own university’s newspaper. This claim that the only thing this economy needs is more spending has been disproved time and time again.

The definition of insanity is doing the same thing multiple times while expecting different results. I’ll explain how this Keynesian theory is the definition of insanity.

The executive editor writes, “A student-loan forgiveness initiative would mean all students and graduates facing loan debts after graduation would be absolved of any payments to the government. Forgiving a recent graduate for his or her student loans would allow them to live debt free.”

And with this paragraph the writer effectively underlines exactly why the government shouldn’t be in the market of lending. An individual comes to the decision to lend after the calculation of a risk/reward scenario.

Banks won’t lend to individuals if there isn’t the chance of a return on this investment. This applies to financing an education as well. When the government lends, it’s essentially gambling with other people’s money.

There is no need to take into account if the loan will be paid off with interest or at all, and totally absolving borrowers of their responsibility to pay back their debt sets up an unsustainable system.

The writer goes on, “In order to stave off another recession, we need to be stimulating the economy. Putting money in graduates’ pockets would mean greater consumer spending. Instead of paying loans to the government, they would have expendable income.”

This idea has been tried by our federal government for the last century. People who advocate consumer spending (and as a result government spending in the event of sluggish private sector spending) in order to keep the gears of the economy moving fail to understand basic concepts of economics. The federal government, in order to stave off the recession caused by the dot com bubble, forced interest rates artificially low to encourage more borrowing, and as a result, more consumer spending.

This intrusion of the government led to malinvestments in the housing market, which collapsed when? Any guesses? The housing bubble collapsed when those debts came due and the people couldn’t afford them.

What the editor and Mr. Jackson Monday are advocating is something that could directly lead to another recession caused by malinvestments in education which were encouraged by Ben Bernanke and Alan Greenspan and their artificially low interest rates, as well as Jesse Jackson and The Post for the incentive of not having to pay off loans.


0 Comments + Add Comment Send Inquiry

Leave a comment