• Tag Archives debt
  • I Immigrated to the US to Pursue the American Dream, Not to Pay for Your College Degree

    Candidates were back at it last week, competing to see who could present the best student loan forgiveness plan. Sure, that might appeal to some of the party’s base and America’s cash-strapped millennials. But for roughly 46 million immigrants like me, the idea that the government should forgive student loans is totally unfair. After all, when we came here, our idea of the American Dream was to work hard for a brighter future—not for the government to pick our pockets.

    I understand the motivation behind these proposals; alleviating student debt sounds ideal. I came from Russia to attend grad school in the US, so I know just how expensive tuition can be. But when I got my degree from Stony Brook University in New York, I did so without taking out a single loan. And it wasn’t because I was Hawkings-brilliant or Gates-wealthy. I planned meticulously, made sacrifices, and worked hard. This, I believed, was the way Americans did things and got what they wanted.

    Affording US tuition wasn’t easy for my lower-middle-class family, even at America’s cheapest schools. So, to earn the scholarships I had to have, I went above and beyond. While others partied, I spent my weekends studying and engaging in extracurricular activities that would boost my resume. When I didn’t understand a subject, my parents hired tutors with the little savings they had. While most of my classmates enjoyed their summers off, I was working at a department store six days a week from seven in the morning to 11 at night, building up savings for graduate school.

    As a result, I was offered a tuition waiver and a graduate assistantship, which included a stipend and health care benefits. I had to work as a teaching assistant and later a research assistant for next to minimum wage. Even with this financial package, there were times when I couldn’t even afford so much as a cup of coffee with my classmates, which made it more difficult to socialize and fit in.

    I knew that immigration wouldn’t be easy, so like many of my fellow immigrants, I chose a major that maximized my chances for an employer-sponsored visa and a decent income. I struggled against the natural pull of humanities and performing arts—creative professions that would have been a great fit for my personality and interests. But I literally could not afford the risk of being unemployed. Instead, I pursued a path that would still be professionally satisfying for me while also paying the bills. After all my classes, internships, and networking, I graduated with an MA in economics and political science. And, as a result, I found a well-paying job with benefits.

    I’m not alone. There are millions of highly-educated, foreign-born individuals in the US workforce with stories like mine. We took an entrepreneurial approach to our lives, seeking to better ourselves and live the American dream. That’s why it’s disappointing to see some Democratic presidential candidates push programs that would heavily tax people who have worked and saved for their future.

    To give you a sense of the fiscal impact of some of the proposals, let’s take a look at their estimated cost. Sen. Elizabeth Warren’s plan of canceling up to $50,000 in student debt would cost an estimated $640 billion. Sen. Bernie Sanders is proposing wiping out all of the existing student debt—a sum of about $1.6 trillion. To be fair, not everyone jumped on the wagon. Some of the candidates proposed smaller-scale solutions to the issue. And yet, although the specifics of how all the presidential candidates would raise the funds to cover their proposals differ, rest assured, in one way or another it will come out of taxpayers’ pockets.

    To boot, college loan forgiveness proposals don’t even address the root issue of the problems they claim to fix.

    Without a basic understanding of debt and future earning potential, there will always be a risk of overspending while young and becoming indebted for life. And low levels of financial literacy are still one of the primary reasons that millions of Americans are taking out student loans they then struggle to pay back. But basic financial knowledge could teach people to plan for their educations, mortgages, and retirement savings and give them the personal finance management skills they need. Some independently operated schools are already teaching financial literacy in places where parents don’t even have bank accounts.

    But proposing student loan forgiveness programs is just misguided. After all, a free lunch still isn’t free, and all Americans, foreign-born and natives alike, will end up paying the bills for these costly proposals. And for immigrants like me, that doesn’t quite look like the American Dream we thought we’d signed up for.

    Jen Sidorova

    Jen Sidorova

    Jen Sidorova is a Young Voices contributor and a policy analyst at the Reason Foundation. You can find her on Twitter @Jen_Sidorova.

    This article was originally published on FEE.org. Read the original article.

  • If Student Loans Might Be Forgiven, Why Not Borrow More?


    It’s one of the rules of electoral success: advocate policies that concentrate the benefits on an easy-to-identify interest group (preferably one that is sympathetic in the public eye) and disperse the costs onto the entire electorate. It’s how we get Coke sweetened with corn syrup rather than actual sugar. It’s also how we get proposals to cancel student loans. As my AIER colleague Will Luther points out, the fact that two of the Democratic frontrunners have made debt cancellation such an important part of their campaigns suggests that the issue is going to be with us for a while.

    But would it be a good idea to cancel student debt? And importantly, how does even the prospect of canceled student debt affect people’s incentives?

    First, let’s consider the quality of the policy. A lot of commentators are pointing out that it’s fundamentally regressive, meaning that we’re basically taxing the poor to pay the rich. As economist Alexander William Salter puts it in the Dallas Morning News, it’s

    a transfer of wealth to those with relatively high levels of expected lifetime income, at the expense of those with relatively lower levels of expected lifetime income.

    The idea might have some merit, but it will make wealth and income inequality worse rather than better.

    Even saying that the idea might have some merit is perhaps too charitable. In 2011, economist Justin Wolfers called it the “Worst. Idea. Ever.” in a Freakonomics post. Why? First, there’s the distributional effect. If we’re going to have policies that transfer wealth from one group to another, it doesn’t make much sense to transfer wealth from taxpayers generally to high-income college graduates. As Will Luther and so many others have pointed out, a college degree brings spectacular financial returns. As a group, college graduates aren’t “needy” by any reasonable definition.

    Second, Wolfers points out that debt cancellation doesn’t make college more affordable because it’s a transfer to people who already went to school and who are already enjoying the returns on their investment. Third, he notes that a successful campaign to cancel student debt will encourage further wasteful lobbying for transfers. The “cancel debt” movement is already part of the fallout from past bailouts, subsidies, and transfers. Capitulating will only encourage more lobbying.

    Hence, I think we would do well to focus on the downstream effect debt cancellation—or even the reasonable prospect thereof–will have on people’s future incentives. Encouraging people to produce and exchange rather than lobby for transfers and special privileges are important parts of the problem of constitutional design that has animated so many scholars, among them Douglass C. North and James M. Buchanan.

    The prospect of being able to enjoy good times now and stick other people with the bill later encourages people to be less-than-completely-responsible right now. My kids are seven, nine, and almost-eleven, and we’re very fortunate in that I work at an institution with an employee tuition benefit (which means, of course, that my salary is lower–so it’s not exactly “free” tuition), but there are a lot of other expenditures that go into college beyond tuition. If student debt cancellation is on the horizon within the next couple of decades, we now have an incentive to change how we plan to finance their college education and what they plan to study.

    There are three important effects here. First, the prospect of student debt cancellation encourages us to finance the entire thing with borrowed money. Why pay now or go to the trouble of trying to earn scholarships if we can borrow on the cheap and have a reasonable expectation that taxpayers will ultimately be left with the bill? Second, why should we be price-sensitive college shoppers, and why should colleges work to contain costs if there’s a good chance it will all be paid for with other people’s money? Third, we have incentives to borrow a lot of money to pursue boutique degrees with limited job prospects if (again) we know that someone else is going to pay the bill.

    As EconTalk host Russell Roberts explained it in the mid-90s, if we go to a restaurant and know that someone else is paying, we have incentives to order the best thing on the menu, drinks, appetizers–the whole lot. If you go to dinner with a few friends, it’s relatively easy for you to monitor one another and check anyone who seeks to take advantage of the situation. It’s a lot harder to do this in larger groups, and as the benefits get more concentrated and the costs get more dispersed over a larger and larger population, people have stronger incentives to take advantage of everyone else. What’s more, given our psychological proclivities and our tendencies to be self-serving, it can be pretty easy to convince ourselves that we’re actually doing everyone a favor by borrowing tons of money to study something that doesn’t translate into employable skills.

    Student debt cancellation is already suspect because it redistributes wealth upward. As we can see, the prospect of debt cancellation changes people’s incentives for the worse. I don’t know if I would call it the worst idea ever, but it’s certainly not a good one.

    This article is republished with permission from Forbes. 

    Art Carden

    Art Carden is an Associate Professor of Economics at Samford University’s Brock School of Business. In addition, he is a Senior Research Fellow with the Institute for Faith, Work, and Economics, a Senior Fellow with the Beacon Center of Tennessee, and a Research Fellow with the Independent Institute.

    This article was originally published on FEE.org. Read the original article.

  • The Price of Trading Future Obligations for Today’s Benefits

    I’ve been listening to Mark Spitznagel’s The Dao of Capital, which is three parts philosophy, two parts history, and one part investing advice, so if you’re into that sort of thing and don’t mind the same concept hammered home in a dozen different examples across multiple categories, you will love this book. In the chapter about the concept of “time preference,” he uses a striking turn of phrase when talking about the reality of our future selves and distant descendants.

    The symptoms of this affliction [referring to our culture’s extreme focus on the now, at the expense of the future] can be found in the chronically low savings rate in our culture, ranging from financial to even fresh water, soil, and of course forests. And analogously and most incredibly, governmental fiscal deficits that deviously and increasingly rob future generations, our helpless intergenerational forward selves.

    The first time I ran into this concept of a human being as a continuous being, simultaneously real across the span of his lifetime, was when reading about Kurt Vonnegut’s Tralfamadorians in Slaughterhouse-Five. They perceive time as existing all at once. In the book this produced a kind of passive, fatalistic philosophy. Since all that will be already is, there was no room for the idea of free will.

    I don’t take that view, but the image from the book, of viewing time and the people in it the way you might look at a stretch of the Rocky Mountains, their past and future selves just as real as the present one, stopped me in my tracks. It puts the present, which always dominates our perceptions and emotions, into a new perspective. It echoes something Einstein used to say about looking at past and future as equally and simultaneously real with the present.

    This is in a section where Spitznagel credits Austrian economist Eugen von Böhm-Bawerk with noticing this truth and applying it to economics, and his choice of the word “helpless” really leaped out at me. It is a word that for me instantly conjures images of the downtrodden people who it is our moral duty to help.

    Suddenly the ideas of saving, investing wisely, delaying gratification, sacrificing in the now for something better later, becomes more than just a strategy for self-gratification for the far-sighted. It is a moral duty to a future self and to future others, people every bit as real as you are right now, but whose condition is completely at your mercy.

    This idea is not so foreign to those who speak a language like Japanese or Chinese, where the verbs make no distinction between past, present and future. But for those of us raised on English, focusing more on the canoe than the river when thinking about time, this might be a jarring insight!

    Anyone wishing to change the world through politics has a duty to understand economics. As arcane as some try to make it, economics is really just the study of naturally occurring tradeoffs. It is a pair of binoculars we can use to survey the landscape of humanity’s struggle against the material world to grow and thrive. The better we can see, the better we can navigate in that realm. Those who don’t will often do what seems right, but actually leads to destruction.

    Böhm-Bawerk was right about the importance of time. Would-be reformers like some of the Democratic 2020 hopefuls would do well to pay attention to it. The systems we create today need to avoid creating crises later. Human affairs are unpredictable, but not hopelessly so. Through economics we actually can spot errors, learn from them, and plan to avoid them.

    We today are the children of generations that traded future obligations for present benefits: borrowing to make finance payments, instituting a monetary system that slowly bleeds the value out of cash savings in order to boost the present buying power of the state, the list goes on. We live in a time of incomprehensible abundance and yet the young feel as if they have to build their lives on very thin margins.

    Part of this, according to Robert Kiyosaki, is a failure to pass down financial wisdom, but there has also been a failure to respect the sanctity of our future selves and our distant descendants, all of whom are every bit as real as you are right now, even if they are not yet visible.

    We cannot reach back to the past to ask for the guilty to restore what they took, but we can decide what to do with the world that we now have. According to Albert and Eugen, the future already exists. The people in it depend on us in the here and now to act in their interest.

    No one else can.

    This article is republished with permission from Rabid Quill. 

    Benjamin J. Thompson

    Benjamin Thompson is a software developer living in South Bend, Indiana. He ran a grassroots Ron Paul 2008 group and is currently the Indiana coordinator for the Libertarian Party Mises Caucus. You can also find posts by him at the AustroLibertarian.com blog.

    This article was originally published on FEE.org. Read the original article.