Education Financing

From a New York Times op-ed on Education Financing:

To avoid the next credit bubble and debt crisis, we need to eliminate government subsidies and link tuition financing to the incomes of college graduates.

Yeah I agree we need to eliminate government subsidies but I don’t think we “need…to link tuition financing to income of college graduates.” We don’t need to do anything. That’s the beauty of private property. No one cares more deeply about optimal financing regimes for education than the owner. Leave the government out of it completely.

Between 1977 and 2009 the real average cost of university tuition more than doubled.

So, let’s hear it, Gen Y, has the government helped with your desire for an affordable education? No? Why not? Well, it turns out that people counseling you to support the transfer scheme of college financing aren’t necessarily doing so in your best interest…

Since the government guarantees student loans, lenders have no incentive to lend wisely. All the burden of making the right decision falls on the borrowers. Unfortunately, 18-year-olds aren’t particularly good at judging the profitability of an investment without expert advice, and when they do get such advice, it generally counsels taking the largest possible loan.

That’s right, kids. Your college professors, university administrators, college football coaches, loan agents, etc. that encourage you to make “the most important investment of your life” might be a little more interested in their own financial well-being than yours. Surprising, I know…

Fiscal Cliff

Tyler Cowen with some thoughts on the pending “fiscal cliff“.

As I’ve said before I understand the whole “stimulate now, cut later” concept. I get it, fiscal smoothing, etc., etc. My only issue is I just want someone to give me a credible plan for the contraction phase. We have the largest generation in American history moving from the productive class to the dependent class. I’m no economist but I don’t see how that is positive for the economy. Ok, for argument’s sake let’s say that a miracle happens and he have robust growth while all of the Boomers exit the work force. Where are we going to find excess but to cut? The budget demands are going to balloon to pay for the entitlements of all of these retiring Boomers. Even if we radically slash all the other budget line items there is not enough remaining budget to pay for the entitlements. So, what then? I can only assume that those who aren’t advocating radical steps now to try curbing the looming catastrophe are resigned to their fate. I have to assume that they accept that tragedy is coming and there is nothing we can do about it so we might as well forestall it as long as possible. Because if you have any hope that we are going to get through this looming catastrophe you know that the only hope is to act now. Only hopeless people should be advocating for burning what excess we have now so that we can go down in a blaze of glory. I guess they believe as Kurt Cobain did, “it’s better to burn out than to fade away.”

End Game

A couple articles predicting impending economic shock:

Yesterday I was watching a clip of “This Week With George Stephanopoeus” which had Paul Krugman as a guest and I read Larry Summers’ new article in the FT and when you look at what their economic prescriptions are it’s clear they only see two options: borrowing or depression. For these guys there are no other options and I realize that they have no concept of the “end game”. When your options are borrow and be happy or don’t borrow and suffer, the choice is a no brainer. But, there are more than two choices. A sovereign can’t borrow forever. There comes a point when they can’t and then the end game sets in which is far more horrific than any pain caused by “austerity.” Let’s not pretend that there are only two plausible scenarios out there.


Crony Capitalism

Here’s an article in the WSJ about crony capitalism.

Crony capitalism has long been the case in Italy and Greece. 20 years ago in Greece, if you joined the Church you lost your job and your family disowned you. Not much concern for religious merit.

I think the author misses the root of the problem. Tax code? Loop holes? There is something bigger going on here. Doesn’t everyone want to give jobs to their friends and family? Doesn’t everyone want to transfer their losses to someone else and have their failed business models propped up by someone else’s money? What was it that stopped us from doing what is rampant in Italy and Greece? Was it the fact that your property was more protected here so cronyism was much less lucrative? Now that we’ve put the whole economy up for auction does it surprise anyone that we behave like the Greeks and Italians?

Besides, I think the argument in favor of merit is not “self evident”. If you want to hire your friends and family…fine. As long as I’m protected from your losses, I don’t care what business model you adopt, or what your attitude is toward merit. Of course, merit will win the day, but that’s because the meritorious and the crony will be equally protected.

On Spain ECB COI

From the WSJ, and article about the Spain bailout:

“Brimming with cheap three-year loans provided by the European Central Bank, Spanish lenders this year have been among the few buyers of Spanish sovereign bonds. Their heavy buying had helped keep a leash on bond yields, slowing their steady rise.

But Spanish banks largely have exhausted their stockpiles of ECB funds, analysts say. Now the question is whether, after getting recapitalized by the government, they will keep buying sovereign bonds.”

So banks get money from ECB, then they buy sovereign debt, then the Spanish government gets money and decides who to give it to? Well luckily I’m sure officials base their decisions on who to give funds to SOLELY based on need and NEVER consider helping the banks that buy the most sovereign debt. I’m glad we can construct all of these immensely valuable conflicts of interest and trust in human integrity that it will all work out in an honest and fair fashion. I think economists understand why that is…

Daily Irrelevent Wisconsin Spin

From U.S. News and World Reports, an article about different flavors of retirement funding. Here’s my favorite sentence:

Wisconsin voters may not have wildly cheered Republic Governor Scott Walker’s curbs on union rights. But they understand the financial times we live in, and clearly felt (aided by enormous recall campaign contributions from conservative groups) his actions did not justify his recall.

Yeah, I guess that’s one way to look at it…or you could just say “Wisconsin voters voted to limit union rights” which would have emphasized the point rather than draw questions about the author’s point of view.