Good Friday Morning! Except for the White House Twitter account, which decided to spend Thursday blasting any critics of its student loan forgiveness plan for taking PPP loans. Watching an official government account blast other lawmakers for criticism by pointing to pandemic relief legislation is bizarre.
It’s about all this White House can do since their plan is the worst of all options. I’ll get into that more below. But it’s worth noting that the White House is coming out this prickly over their decision – it reeks of desperation ahead of the midterms. Links to follow.
Where you can find me this week
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[8/19/2022] Stelter’s firing signals more storms on the way for media – Conservative Institute
[8/22/2022] Americans know Inflation Reduction Act is Garbage – Conservative Institute
[8/26/2022] Biden chooses the only lose-lose proposition for student loans – Conservative Institute
Student loans and the worst decision possible.
When discussing student loans and politics, I always have to put a disclaimer on the front of anything I say. I’m a lawyer, which means I went through four years of college and then three years of law school. That’s seven years in academia, getting the degrees necessary to enter the field of law. The disclaimer I make is that I’m a direct beneficiary of any student loan cancelation.
With that out of the way, I’ve been watching the White House closely on this issue because it’s a pretty fascinating political football that got dropped into their lap. A recap on how we got here: the COVID-19 pandemic hits, and the federal government, in conjunction with the state governments, effectively shut down the entire economy — or at least come close to it.
Congress authorized PPP, which pumped trillions into businesses to prevent jobs from being lost. Trump halted student loan payments and interest accrual along with that (and many other things). These measures made sense to me at the time because if you’re forcibly preventing people from earning a living and businesses from engaging in business, that’s a form of “taking” under the constitution and demands payment.
If the government wants to build a road through your front yard, they can forcibly take the land. But they have to pay you equitably. During the pandemic, the government wanted no business activity – that demanded payment too. That was the logic, I concurred with it, and here we are two and a half years later.
The million-dollar question is, when do you ask people to start repaying those loans? When do you remove the protections from evictions? The answer on the right was simple, once vaccines were plentiful and people could engage in everyday activities. At that point, you could resume everything.
One hiccup with all that: the 2020 election. Donald Trump lost, and Joe Biden won. Student loans have become a golden calf issue for the new Democratic Party, which is mainly made up of the highly credentialed — the people most likely to have student loans (people like me, and I know a lot of Democrats).
Biden has struggled to answer this question. Every time he hits the issue, he’s punted the restarting of payments. In February, I wrote a column for the Conservative Institute talking about how those with student loans had shifted their behaviors:
But now, it’s up to the Biden administration to decide when to bring repayments back. And with progressives hot on the Biden administration to provide debt forgiveness of some kind on student loans, Biden faces a challenging political choice. Bringing student loan repayments back will make him even less popular, especially when Americans suffer from red-hot inflation, which the White House is doing nothing to solve.
Any story from the last two years that talks about the increased spending power of the US consumer must take into account the fact that Americans have been able to use money earmarked for repayments for other functions. And now, the federal government wants to return things to normal after freezing every loan in place for two years.
That CNBC report said, “Even before the coronavirus pandemic, the country’s outstanding student loan debt balance exceeded $1.7 trillion and posed a larger burden to households than credit card or auto debt. Roughly a quarter of borrowers, or 10 million people, were estimated to be in delinquency or default.”
If the Biden administration goes ahead and turns repayments back on, those delinquencies are then live in an inflationary environment where the American consumer is already losing chunks of paychecks to inflation. In short, it will be another economic point that Americans will blame Biden for allowing. That’s partially why people are banking repayments getting extended again.
At the time, I was only thinking through the ramifications of bringing student loan debt payments back. You have to remember that it’s been over two years since anyone had to make any payments on a student loan.
I don’t think it’s a mystery we’ve witnessed my generation, millennials, explode into the housing market, driving prices up. No one who has student loan debt in my generation has had to make those payments, many of us have gotten new, higher-paying jobs, and people are leveraging this situation to get a house for the first time in our lives (in case anyone wonders, getting your first job in the aftermath of the Great Recession and the Obama recovery sucked).
The Great Financial Crisis and the awful recovery during the Obama years delayed everyone generationally. Baby Boomers had to delay retirement (they didn’t start jumping into retirement hard until the pandemic). GenX and Millenials were stuck waiting for the retirements to occur before job promotions and advancement opened up. Gen Z is emerging into a market where things have shifted dramatically, but we’re also entering a new recession.
The pandemic and its aftermath have accelerated everything in the economy on a generational scale. And all that’s happened is a wave of retirements (and deaths during COVID), a red hot jobs market driving wages higher, and no student loan payments opening up other avenues for money to flow.
I know I’m speaking generally here because this doesn’t cover those who didn’t take on loans. But the loan impact can’t get ignored because the pause shifted billions of dollars from loan payments to other things. Add in the free checks from the federal government, and the economy radically altered in the past few years.
Pausing repayments has unquestionably helped inflation because it helps boost demand. People who couldn’t afford certain things suddenly could. The crushing demand (and low supply) for cars, housing, and more have combined to bring about the current moment.
In July, I wrote a follow-up column that said the reason Democrats wanted Biden to act on student loans was two-fold: 1) Democrats don’t have the votes in their coalition to pass student loan cancellation, and 2) Democrats know this is an electoral loser. Here’s what I wrote:
Democrats have turned into lobbyists. They are lobbying the White House to forgive billions upon billions of student loan debt. Yet these same Democrats do not want to bring that concept to a vote on the floor before the midterms.
That gives you two tells here. First, not even Democrats believe the economy is doing well. Polling supports this notion, with Democrats wanting a new Presidential candidate on the ballot in 2024. Second, this policy, which they assure us is favored, is one they don’t have the guts to vote on and try to pass with Congressional backing.
Democrats claim to care about inflation, even renaming their signature legislation from Build Back Better to the Inflation Reduction Act of 2022. But dumping trillions in new spending on top of massive student loan forgiveness is pouring more money into an economy already running hot with inflation. Even if the next inflation report cools because gas prices are lower, spewing more government spending on the issue encourages prices to go higher.
Democrats can spin the recession story all they want. Inflation is still real, negative growth is real, and forgiving all that student debt will have a real impact on inflation.
Pausing payments helps boost inflation, and so will canceling the debt. There’s no way around this reality—estimates for the canceling debt range from $350 billion to $500 billion.
If pausing payments to student loan debt changes consumer behavior, what will removing $350-500 billion do? Demand will get a boost at the exact moment the Federal Reserve is trying to crush it. And all the so-called “savings” from the Inflation Reduction Act get wiped out instantly.
Charles C. W. Cooke took a flamethrower to the entire proposal at National Review (Mike Rowe reposted the whole essay on Facebook):
As President Biden made clear today, this is a one-time deal, a lottery, a lightning strike. People who paid off their loans last week aren’t covered. People who will take out new loans after the policy has run its course aren’t covered. The problems in the system aren’t addressed. The colleges, and their endowments, are left unmolested. American culture’s increasingly credentialist presumptions aren’t altered. Within four years, overall debt will return to its present level. With the stroke of a pen, the already-fake deficit savings within the Inflation Reduction Act will be wiped out. This isn’t a reform. It’s not even pretending to be reform. It’s a contemptuous, abusive, unbelievably expensive shot in the dark — the net effect of which will be that fewer people correctly calibrate whether college is worth it, fewer colleges change their offerings to meet market demand, and, because this sort of executive giveaway will now loom large as a possibility, fewer people feel the need to save for college.
It seems so arbitrary. Why does Biden not want to do the same thing for loans on trucks owned by plumbers? Why not for mortgages — which, given how heavily it subsidizes them, the federal government clearly thinks are worthwhile? Why not for credit cards or auto payments or mom-and-pop credit lines? The answer, I’m afraid to say, is disgustingly classist: Because Joe Biden and his party believe that college students are better than everyone else. Because Joe Biden and his party believe that college students are of a finer cut. Because Joe Biden and his party prefer college students to you, and they think that those students ought to be rewarded for that by being handed enormous gobs of your money.
Electricians, store managers, deli workers, landscapers, waitresses, mechanics, entrepreneurs? Screw ’em. Sure, college graduates make more money than non-graduates, and their unemployment rate is lower, too. But non-graduates don’t have access to the president, so they don’t matter. They’re tradesmen, the riff-raff, the great unwashed. They’re background noise, dirty-handed types, second-classers. They don’t deserve $10,000 in debt reduction. What would they even do with it? Go hunting? Give it to their church? Their role is to subsidize the superior people, and the superior people go to college.
Why did Joe Biden do all this? That’s why. Why was this what Joe Biden chose to break his oath to achieve? That’s why. When it came down to it, good ol’ Scranton Joe sent cash from the sort of people he cynically pretends to care about to the sort of people he actually cares about: the privileged, accredited, self-dealing clerisy that his ever-dwindling political party now calls its base.
The last point I want to make is that I couldn’t stop laughing at how Joe Biden decided to fix this problem. I will fully grant him the leeway to say this wasn’t his problem and that Trump dumped the issue of when to restart payments on him. Fair.
But no one has forced Biden to take the worst possible path politically. Ignore everything I’ve said about inflation and the economy thus far. The White House is only looking at this measure for how it helps them for the midterm elections and nothing else. On a political basis, Biden chose the one path gives him a win with no one.
Forgiving student debt of any amount is an anathema to conservatives, libertarians, and the right at large. Blue collar voters will naturally ask, “why are we paying for someone else’s loans?” They have a point! People who have already paid their loans off will ask the same. If you have large debts of another kind, you’ll ask, “Why are these people getting special treatment?”
I get modern politics has the memory of a goldfish. But the fallout of the Great Financial Crisis of 2008-09 was stark. On the right, the Tea Party arose, and on the left, Occupy Wall Street. Americans HATED the bank bailouts, TARP, and more. We had that recession because of bad mortgages. For a time, some in the Obama administration suggested that we bail out people with mortgages.
That concept prompted Rick Santelli of CNBC to go off on an epic rant on the New York Stock Exchange floor. It was the rant heard worldwide because it was the viral moment that kick-started the Tea Party movement on the right. Within days there were Tea Party protests around the country. The bailout anger boiled over when Obamacare passed Congress by Democrats ramming it through.
The Obama administration laughed off Santelli’s rant, which was an early sign of how politically out of touch they were. That rant kneecapped the Obama White House for the rest of the decade. The Obama admin never saw it coming.
Now, Democrats have done the deed partially with student loans. The arguments around canceling home mortgage debt are identical to student loans. There will be blowback; it’s unavoidable.
Further, the blowback won’t come from just the right. It will come from the left too. Progressives have run on canceling student loan debt for years. Not some of it, all of it. Biden capping this at a measly $10-20k per person won’t calm any of those passions down. It’ll be seen as the opposite, a betrayal. I know DC journalists call this a promise kept by Biden, but that’s not how the progressive left will see this move.
Politically, there are no good choices for Biden. If you don’t restart payments, you’re delaying the inevitable and keeping everyone in a weird stasis. If you don’t forgive the debt, progressives hate you. If you forgive the debt, the right will hate you. Biden chose to make everyone hate him with a “forgive some of the debt” approach.
This path will ensure he gets the maximum blowback on the right while gaining nothing from the left. It makes sense for him to swing big and forgive all the debt on pure political calculations. That at least keeps his base with him and gets something for the midterms.
Only this White House would be incompetent enough to choose the worst possible option. They gain nothing politically, they’ll increase inflation, and nothing gets fixed. That’s par for the course for them. Whatever the decision, you can guarantee they’ll find the worst possible option and take it. Sometimes, I’m convinced they’re creating new buttons to push to find an even worse possible outcome.
My last note is that I don’t have anything to say on the legality of this right now. There are several weird mechanisms the White House uses to forgive the debt, and I need to see more of that play out before writing about it. Lawsuits are likely, but what a successful case looks like is another story.
Links of the week
Biden’s student debt plan is a Democratic version of ‘trickle-down’ economics – Catherine Rampell, The Washington Post
California to Ban the Sale of New Gasoline Cars: The decision, to take effect by 2035, will very likely speed a wider transition to electric vehicles because many other states follow California’s standards. – NYT
Biden’s student loan announcement is a regressive, expensive mistake – The Washington Post Editorial Board
Mark Zuckerberg tells Joe Rogan FBI warned Facebook of ‘Russian propaganda’ before Hunter Biden laptop story: Mark Zuckerberg defended Facebook’s actions in limiting the reach of the Hunter Biden laptop story – Fox News
Whistleblowers describe ‘out of control’ culture of corruption at FBI field offices – The Washington Times
Google Partners With Top Universities For This Prestigious Fellowship. Lawyers Say the Racial and Gender Quotas It’s Imposing Are Illegal: ‘Third and fourth nominees must self-identify as a woman, Black/African descent, Hispanic/Latino/Latinx, Indigenous, and/or a person with a disability,’ the fellowship guidelines read. – Washington Free Beacon
The Line Between Anti-Racism and Racism Keeps Getting Fainter: How an antisemitic bigot named Laith Marouf built a lucrative career as a Canadian government-funded ‘anti-racist’ – Jonathan Kay, Quillette
Twitter Thread(s) of the week
Satire of the week
Thanks for reading!