Is Bangladesh, the latest applicant for an IMF loan (likely to be $4.5 billion) going the same way as Sri Lanka and Pakistan? No, the other two went to the IMF after emptying their coffers whereas Bangladesh is seeking precautionary assistance when its forex reserves are still a healthy $40 billion, enough to cover five months of imports. Bangladesh’s public debt is just 36% of GDP, with an external component of only 14%, mostly on highly concessional terms. But it has been hit by the sharp rise in oil and fertilizer prices, while a global recession is hurting its exports. Bangladesh has been forced to raise oil prices after resisting that move for months, stoking street riots. It is clever politics for the government to blame the IMF for necessary tough measures to cut subsidies and prune other spending.
Unlike Sri Lanka and Pakistan, Bangladesh has been highly selective in choosing projects to be financed by China’s Belt and Road Initiative (BRI). This includes a major bridge across the Padma river, a tunnel under the Karnafuli river and an expressway connecting Dhaka with Sylhet. These are viable projects, not the white elephants funded in Sri Lanka for political reasons. Bangladesh has also got a loan of $3.8 billion from India. Its Prime Minister Sheikh Hasina is about to visit India to expand the Comprehensive Economic Partnership Agreement (CEPA) between the two countries. Bangladesh has long played off India against China, obtaining loans and technical assistance from both on favorable terms.
In 1981 India sought its biggest-ever IMF loans to tackle the second oil shock. This was a precautionary move to build a buffer in case the shock worsened. But oil prices soon eased and India did not draw the final loan instalment. Bangladesh is using a similar approach right now. Its application to the IMF is a sign of good management, not crisis.
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It’s Time to Break the Myth of the Credit Card Market Duopoly
The Economist has a new article about the “threat” that existing payments companies face in the credit card market, and it does discuss a few interesting facts. But it’s hard to get past the title—Can the Visa-Mastercard Duopoly be Broken?—because there is no duopoly.
Visa has about a 50 percent market share of the credit card market (by volume), while MasterCard and American Express have roughly 20 percent each. For anyone keeping track, that’s three companies. Not two.
There’s also Discover, the fourth largest card network, with a much smaller but slowly growing share of the volume.
When viewed, instead, by the share of Americans that have particular cards, Visa has less than a 50 percent share, MasterCard has less than 40 percent, Discover has 18 percent, and American Express has 15 percent. For those keeping track, that’s four companies. Not two.
These facts are relevant to structuring sound arguments about whether there is a duopoly, but they have virtually nothing to do with the key legal and economic issues. Even the existence of a duopoly with market power, however defined, would not be problematic on its own. From a legal standpoint, all that would matter is what those companies do with their alleged market power.
And it is very difficult to make a case that the credit card market runs afoul on these grounds. For instance, it’s ludicrous to suggest that the card networks do not compete for volume, or that multiple upstart fintech firms do not threaten the industry’s traditional payment methods. Both factors clearly affect prices. Strangely enough, the Economist article acknowledges these threats.
Unfortunately for American consumers, Senators Dick Durbin (D–IL) and Roger Marshall (R–KS) do not care about these threats. They’ve introduced the Credit Card Competition Act of 2022 to break up the “duopoly of Visa and Mastercard.” Basically, the bill would implement the same types of harmful price controls and routing requirements that the original Durbin Amendment forced on the debit card sector.
Durbin and Marshall may believe otherwise, but price controls make more people worse off than they help. The original Durbin Amendment was a terrible public policy. It should be repealed, not extended to the credit card market.
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In Liz They Truss‑t: Britain’s New Prime Minister
Today Liz Truss becomes the UK’s fourth Prime Minister in just over six years. She will be the third female Prime Minister in the country’s history (after Conservatives Margaret Thatcher and Theresa May).
Earlier this summer, Conservative members of Parliament (MPs) toppled incumbent Prime Minister Boris Johnson. First they forced a Tory MP confidence vote on his leadership, which he survived. Soon after, a slew of high-profile Cabinet resignations made his position untenable.
Notionally, the triggers were revelations of several COVID-19 related lockdown breaches and then a government sex scandal involving one of the party’s whips. Yet there was dissatisfaction bubbling with Johnson from his backbenches on various policy topics even before this. The Prime Minister resigned.
His decapitation started a torturously long Conservative leadership contest, with 11 MPs declaring their candidacy, and 8 being formally nominated, before this group was whittled down to just two through successive rounds of voting by Conservative MPs.
Truss proceeded each time and ultimately found herself up against former Chancellor Rishi Sunak in the final run-off. This culminated in a full ballot of ordinary Conservative Party members across the country. She emerged victorious today with 57% of the vote and will become party leader and, so, Prime Minister, given the party’s “working majority” of 73 seats in the House of Commons.
The central cleavage of the leadership campaign against Sunak was on taxation and borrowing. Sunak argued that new health and social spending, COVID-19 debts, and inflation all justified raising taxes permanently in the name of fiscal responsibility.
As Chancellor, he had increased the employee and employer national insurance rates (a bit like social security contributions), frozen income tax thresholds, and set in train a rise in the headline corporation tax rate from 19 percent to 25 percent. The UK’s overall tax burden relative to GDP was due to rise to its highest level since World War II.
Truss argued that this would suffocate economic growth, and so pledged to cancel the corporation tax increase and reverse the national insurance rate hikes. She would tolerate higher government borrowing in the short-term, although committed to keep the growth rate of government expenditure below GDP growth over the medium term. Sunak warned of higher interest rates with her extra borrowing; Truss said his tax-raising plans would kill the incentives for a recovery. Tory members were more convinced by the latter.
Truss is a free-marketeer and delivered a wide-ranging speech on economics at Cato in 2018. Her daughter is named “Liberty.” Her writings before entering government show she is a supply-sider in the broad sense of wanting to remove government barriers to free economic activity and lifestyle freedoms. She criticized the UK’s restrictive land-use planning system, argued for reining in the regulatory state, and was hawkish on government spending, especially as leader of the “Free Enterprise Group” caucus of Conservative MPs.
As trade secretary, she oversaw the development of new free trade agreements with Australia and New Zealand and pushed for the UK to enter the Asia-Pacific CPTPP as the UK restored its independent trade policy after Brexit.
Though a Remainer in the 2016 Brexit referendum, she quickly embraced the Leave result, and has talked about diverging from Brussels on issues where the EU’s regulatory instincts are highly precautionary. In recent months, her team have mused on the possibility of changing the Bank of England’s monetary mandate from a 2 percent inflation target to a nominal GDP target.
As foreign secretary, Truss has been very hawkish on Russia and strongly favored extensive sanctions on the country following the Ukraine invasion. Largely as a result of that conflict, though, Truss will be stepping into an economic crisis. Headline inflation in the UK was 10.1% in July. A sharp rise in energy prices is threatening a deep recession.
As the chart below shows, the huge spike in the wholesale gas price has seen UK households’ (and businesses’) energy bills skyrocketing and they are projected to continue on an upwards trajectory. The increase is so large that it seems inevitable Truss’s government will reach for some policy intervention to protect the worst-affected households and businesses. An early test of her liberalizing bonafides is whether Truss can use this crisis to persuade the country to permit fracking for natural gas and other supply-side liberalizing measures to lower living costs.
Whatever Truss’s personal convictions on economic policy, the UK has a more collective style of government and the politics of the moment are unlikely to lend themselves to a major shrinking of the state.
Boris Johnson won the 2019 election with a massive majority, eating into Labour’s traditional “Red Wall” heartlands, in part by promising major infrastructure projects and more money for public services. Truss has pitched that she can keep that electoral coalition together. Although she advocates for more market-based means of reviving these industrial heartlands than Johnson, her pivoting to major spending cuts, especially without a general election victory, is unlikely. Without that sort of electoral mandate, she would struggle to get any contentious legislation through the House of Lords.
That said, there are plenty of smaller policy changes that a Truss government could make on the regulatory front to enhance freedom and opportunity immediately. UK growth has been pathetic since the financial crisis in 2008. The UK is now around 30 percent poorer than the U.S. in per capita terms and has 15 percent lower productivity per hour. This suggests that better supply-side policy could still have a big impact on living standards.
The UK must have a general election by January 2025 and, currently, the Conservatives trail Labour in the polls. That leaves Truss a narrow window of time to oversee a change in economic fortunes and to make her mark on the contours of the British state.
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Chile and Latin America’s Disposable Constitutions
Chile votes this Sunday on a proposed, new constitution. It is a far-left document that would undermine fundamental rights and impoverish the country. Chileans should reject it. My colleagues and I have discussed the Chilean success story under the current constitution, the political conditions that gave rise to a constitutional convention that began meeting last year, and the problems with the proposed basic charter here, here, here, here, and here.
In light of Chile’s referendum, I reprint below a rough translation of an article I published in Peru in 2019 about Latin America’s sorry tradition of frequently replacing its constitutions with increasingly longer ones (the proposed Chilean constitution would make it one of the longest in the world if approved). Although the article was intended to dissuade Chile and Peru from going down the constitutional convention path, it is still relevant in those countries and beyond.
Disposable Constitutions
(El Comercio, November 5, 2019)
To resolve our problems, we need a new constitution. That old, Latin American way of thinking has resulted in Latin America becoming the region with the most constitutions in the world.
Latin America has had almost 200 constitutions, more than 10 per country, on average (the European average is 4; the British American average is 1.5). The Dominican Republic has had 32 constitutions, the most in the region, followed by Venezuela (26) and Ecuador (21). Peru has “only” had 12.
Those numbers come from Professors Niall Ferguson and Daniel Lansberg-Rodriquez, which they document in a study published by the Fundacion para el Progreso in Chile. The fundamental laws of the region’s countries have been replaced so often that it can be said that Latin America produces disposable constitutions.
Historically, both populist leaders on the left and right-wing caudillos have instigated the replacement of old constitutions with new ones. In recent years, the extreme left has led these changes in Venezuela, Bolivia, Ecuador and Nicaragua, as is well known. Popular discontent with political systems is now leading to calls for constitutional conventions in Peru and Chile. Due to massive, often violent, protests in Chile, President Sebastian Pinera’s government says it does not dismiss considering that possibility.
One of the arguments used in favor of drawing up a new constitution is that the current one was born under dictatorship and, as a result, cannot be legitimate. But according to the authors of the study, history belies that impossibility since 20 percent of current democratic constitutions emerged under non-democratic conditions and they subsequently adapted to democracy. Examples include those of Japan, the Netherlands, Argentina, Mexico, Belgium, and Norway.
The authors add, “it is worth remembering that the oldest and arguably most successful republican constitution, that of the United States, was drafted by a cadre of unauthorized and undemocratically appointed landowners working under conditions of absolute secrecy, and partly aiming to prolong the life of the institution of slavery.”
Frequently replacing constitutions, on the other hand, can amplify instability by hindering the constitution from establishing a reputation over time and by promoting a kind of “adhocrarcy,” as the authors put it, which supposedly is what a constitution is set up to avoid.
It is more difficult now than in previous times to produce a good constitution, say Ferguson and Lansberg-Rodriguez, given extreme public scrutiny over constitutional negotiations. That condition leads to constitutions that promise an increasing number of “rights” without having to determine whether or not they can be provided; and it explains why constitutions have become lengthier in the last 50 years. Latin American constitutions, for example, have an average of 249 articles, while in British America, where constitutional replacement is least frequent, the average is 34.
Replacing constitutions every time there is public discontent does not make sense, especially if the constitutions have been in place for a long time under democracy, have been amended under democracy, and have as a result gained legitimacy, as in the cases of Peru and Chile.
It’s nonsensical to ask for a change in the constitution based on street protests, as is occurring in Chile. As Sylvia Eyzaguirre observes, “The street is uneven not only because in the near term it is captured by the interests of the most organized groups, but rather, above all, because it renders invisible the millions of individuals who do not publicly protest but have an equal right to influence decisions.”
Let’s hope that neither Chile nor Peru returns to the unfortunate tradition of frequently discarding their constitutions.
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Friday Feature: Teachers-Turned-Entrepreneurs
A recurring theme of the Friday Feature is public school teachers who start their own alternative educational options—such as Deeper Root Academy, Safari Small School, Urban Cottage Educational Collaborative, and Valley Troubadours.
A new report out of Florida, Leaving a Classroom But Starting a School, highlights the experiences of 10 former public school teachers who ventured out to start new private schools. This diverse group of teachers participated in focus groups led by Step Up for Students and EdChoice to help researchers understand their journeys and what obstacles they faced. The group included founders of three larger private schools and three smaller ones, along with one microschool, one homeschool co-op, one hybrid homeschool, and one learning pod.
When asked what prompted them to leave public school teaching and found their own schools, the most frequent reasons were: frustration with public schools, wanting to give their own children a better education, and providing more options for teachers. These responses fit with what I hear when I talk to former public school teachers who have either started their own learning entities or joined someone else’s. In particular, teachers tell me the system is too bureaucratic and doesn’t give them the freedom to help kids in the way they think is best.
An interesting part of the new report is where the teachers share what hurdles they’ve faced. Start-up funds, facilities, and compensation for themselves and their employees were common responses. In a webinar yesterday with three of the focus group members, they talked of pouring all of their savings into their new endeavor and the fear that came with that decision.
Fortunately, for entrepreneurial teachers in Florida and other school choice friendly states, programs like tax credit scholarships, tuition vouchers, and—especially—education savings accounts (ESAs) can help solve these problems. But since the funds are often distributed throughout the school year, and the per student value is typically far below what public schools receive, challenges persist.
The focus group participants discussed other solutions to the obstacles that make it hard to start new schools, including: raising awareness about entrepreneurial opportunities among teachers, starting networks to help would-be school founders connect, simplifying the rules around facilities, expanding ESAs, and incorporating educational entrepreneurship and school choice ideas in teacher prep programs.
In addition to the report, you can find videos of some of the teachers sharing their stories as well as charts and graphs that help tell the story of education today.
Just like more parents are open to new educational options, teachers are increasingly realizing there are opportunities beyond district schools. They can still do what they love—teach students and help put them on a path for future success—without dealing with the bureaucracy and inflexibility that are part and parcel of government-run schools. This new report is a terrific resource that will help other teachers follow their own dreams. And it gives policy makers a wealth of information to help craft public policies that will help—instead of hinder—these entrepreneurial teachers.
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If you’re interested in more about this topic, please join us for an online panel, School Choice Is Good for Teachers Too, on September 14th 4–5 p.m. EDT. I’ll be joined by the three former public school teachers who have found happiness in new teaching environments. We’d particularly love to connect with current or potential public school teachers to help them learn about other options and see how they can create their own paths with nearly limitless possibilities.
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Valid Grounds for Objections in the Electoral Count Reform Act
As Congress moves forward with the proposed Electoral Count Reform Act, there is broad, bipartisan consensus on the need to reform the ECA and how ECRA would go about doing so. Attention has therefore turned to a variety of technical drafting details that have been flagged for concern. At the recent Senate Rules hearing on ECA reform, members of both parties and the cross-ideological lineup of expert witnesses generally agreed that these fixes are important to get right, even while praising the overall framework and main provisions of ECRA. My colleague Thomas Berry and I agree with that general sentiment, and focused on some of the tweaks we suggest in our statement to the committee.
One of the main areas of concern, and perhaps the most surprising element of the ECRA draft as released by the Collins-Manchin working group, concerns the valid grounds for objections during the joint session. These are the rules that limit on what basis members of Congress may challenge a state’s electoral votes, and a central goal of ECA reform is to constrain that process to its proper, narrow constitutional limits.
The ECRA draft retains the existing ECA’s provision on this point mostly unchanged, including two of its most notoriously uncertain terms: that objections may be entertained on the basis that electors were not “lawfully certified” or that their votes were not “regularly given.” These are terms of art intended to reflect a specific set of (generally unlikely) problems: that the electors whose votes have been submitted are not actually the persons who were appointed by the state as its members of the Electoral College, or that their votes violate any of the handful of explicit constitutional provisions governing how the electors are to vote and for whom they may vote.
That bifurcation runs through the existing ECA, is strengthened by ECRA, and is grounded in the underlying constitutional provisions and principles. There are, essentially, two distinct questions: who a state has appointed as its presidential electors, and how those electors have voted. With one notable exception, Congress is properly bound to the outcome from the states on the former question. On the latter, Congress (and only Congress) can properly consider the rare scenarios where validly appointed electors have cast invalid votes: by voting for an ineligible candidate, for example, or failing to cast their votes according to the procedures spelled out in the Twelfth Amendment.
One of the problems with the existing ECA is how the distinction between these two kinds of objections has been muddled. Most notoriously in 2021, but also in 2017, 2005, and 2001, objections were attempted ostensibly on the grounds that electoral votes had not been “regularly given,” but in fact these objections challenged the validity of the electors themselves (based on disputes about the underlying popular election results in a state, which are then used to decide which party’s slate of elector candidates gets appointed). These objections should have been reckoned as “lawfully certified” objections, in which case they would have been out of order for impermissibly challenging the timely and definitive certification by the states on that question. By instead framing their objections, inaccurately, as “regularly given” challenges, the objectors were able to evade the intended constitutional and statutory limits on Congress’s powers during the count.
Defining “Lawfully Certified” Electors
The ECRA draft attempts to tie “lawfully certified” objections back to what it terms, in a somewhat unwieldly mouthful, each state’s “certificate of ascertainment of appointment of electors” as provided for under a prior section of the bill. Put more plainly, this means Congress is supposed to simply accept who the state says it has appointed as electors, which is a process that unfolds under state law, with any disputes litigated through the courts for a definitive ruling before the matter reaches Congress. One of the goals of ECRA is to both streamline the judicial procedures for litigating elector appointment controversies and then to bind Congress to accepting that outcome. This reflects the Constitution’s command that states appoint electors and do so in a manner of their own choosing, limited only by the time Congress has directed for doing it.
The likely intent here is to permit such objections only if somehow, in violation of the law’s other provisions, electoral votes were presented to Congress cast by somebody other than the state’s duly certified electors. In this regard, the objection provision functions as a kind of fail-safe, only to be used in very narrow circumstances if something else has gone terribly wrong with the process. It is not supposed to be used to challenge the content of the state’s elector appointment certificate, which would undermine the whole purpose of providing a process for that certificate to be binding and conclusive. Rather, it is only to be used to enforce the appointment certificate. But this point could be made more clearly than the current ECRA draft’s somewhat confusing language.
There is also an additional wrinkle here. There is one additional kind of objection that falls under questioning the “lawful certification” of a state’s electors but is not otherwise addressed by previous steps in the process. This concerns compliance with the following provision in Article II, Section 1: “no Senator or Representative, or Person holding an Office of Trust or Profit under the United States, shall be appointed an Elector.”
States have, at times, been careless with regard to this often-overlooked provision. A state legislator or party official who is also an officer in the Army Reserve, for example, or is an administrator at the local Social Security office, would probably qualify as holding “an Office of Trust or Profit under the United States” and thus should not be an elector. This is the only rule in the Constitution under which Congress could legitimately refuse to accept an elector who has otherwise, indisputably, been properly appointed by a state. Unlike disputes based on which party’s ticket really won a state’s popular election, such an elector eligibility challenge would not be clearly addressable under the usual process for post-election litigation.
Ideally, if a state finds that it has inadvertently appointed an ineligible elector, it should correct this problem under the state’s procedures for filling a vacancy among the electors, correcting the mistake before the Electoral College meets and casts its votes in mid-December. Depending on the exact rules a state has adopted, that could mean appointing an alternate elector who has previously been designated as a backup, or allowing the remaining electors to choose someone to fill the vacancy. But if an ineligible elector nevertheless casts a vote, Congress would be within its proper constitutional role to reject that appointment and refuse to count the resulting vote.
Structuring the rule for “lawfully certified” objections to cover both of these two scenarios—an ineligible elector, or a purported elector who was not actually named in the state’s appointment certificate—would also neatly resolve another thorny issue. For these two cases also cover the cases where Congress would properly not count such invalid electors as among the “whole number of electors appointed,” a majority of whose votes are required to win the Electoral College and avoid a contingent election in the House (for president) or Senate (for vice president). If Congress finds that no such elector was, in fact, validly appointed, then they do not count for that purpose. If, on the other hand, a validly appointed elector has cast an invalid vote, such an elector would still count for determining the needed majority.
Taking the current format of the ECRA draft and tweaking it to reflect these recommendations would produce language something like this:
(ii) GROUNDS FOR OBJECTIONS —
The only grounds for objections shall be as follows:
(I) that one or more of the purported electors who have signed the certificate of votes are not among the persons lawfully certified in the State’s certificate of ascertainment of appointment of electors according to section 5(a)(i), or that one or more of the persons so certified are constitutionally ineligible to be an elector.
Defining “Regularly Given” Votes
With “lawfully certified” objections properly cabined, the bulk of possible objections would then fall under claims that certain electoral votes were not “regularly given.” This phrase, too, is a term of art. Derek T. Muller of the University of Iowa has produced a thorough and well-documented explanation documenting the history of how the term was used and understood in 1887.
The key point is that whereas “lawfully certified” refers to the validity of the electors, “regularly given” refers to the validity of their votes. The claim that a vote has not been regularly given, then, depends on the handful of specific constitutional rules that spell out when an electoral vote might be invalid even though it was cast by the correct, duly chosen elector.
These rules include candidate eligibility: a vote cast for a presidential candidate who is younger than thirty-five years old, for instance. It would also cover the Constitution’s requirements that presidential electors must meet and cast their votes on the same day throughout the United States, that they must sign and certify their votes in the form required by the Twelfth Amendment, and that they may not vote for candidates for president and vice president who both live in the same state as the elector.
One option, which I outlined in my Cato policy analysis on ECA reform, would be to simply enumerate each of these discrete constitutional rules which electors must follow. While this would still be my first preference, it’s understandable to be a bit wary about getting such a list precisely right so that it is neither under-inclusive (by not permitting Congress to reject a clearly unconstitutional vote) nor over-inclusive (by wrongly allowing Congress to reject a constitutionally valid vote). The exhaustive nature of enumerating the valid grounds for objections is an important part of getting ECA reform right.
There is, however, a simpler option. That would be to simply define “regularly given” in categorical terms, reflecting the understanding clearly intended by both the authors of the 1887 ECA and the 2022 ECRA. Rather than trying to list each constitutional rule which a vote could conceivably violate, this approach would simply require that the objection allege an objection of this nature, and require the objectors to cite the constitutional provision they alleged has been violated. Most importantly, this would make it clear that “regularly given” objections are not challenging the identity of the electors, thus closing off any backdoor attempts to evade the separate process for determining that question.
Such a provision would look something like this, picking up from where the block quote above leaves off:
(II) that a vote or votes cast by one or more lawfully certified electors have not been regularly given, because they are in violation of a specified provision of the Constitution regarding the meeting and voting of the electors, or the form in which their votes are to be transmitted, or for whom the electors may vote as President and Vice President.
Conclusion
It is a testament to the good work of the ECRA’s drafters that their bill has largely followed the nuanced (and admittedly sometimes confusing) distinction between objections to electors and objections to electoral votes. Properly construed, the terms “lawfully certified” and “regularly given” would already adopt the correct substance on that matter.
However, it is important as a practical matter to repudiate the faulty interpretations of these terms that Congress has permitted in the past. Doing so would ensure that the rules for the joint session of Congress are plainly understandable, without the need to refer to outside scholarship and commentary on what “lawfully certified” or “regularly given” really mean. More importantly, it would ensure that these rules of procedure fit neatly with the law’s other provisions, functioning as a harmonious whole without conflict or contradiction.
Canceling Student Debt Could Inflate College Prices? Suddenly, People Don’t Like It
“Debt” is an unpleasant word, evoking an obligation that people can feel hangs over them. Given that, it would be no surprise if mass cancellation of federal student loans, as President Biden declared last week, had intuitive appeal to many people. Indeed, new polling from Cato’s Project on Public Opinion reveals just such support. But it also reveals something else: When presented with potential downsides of mass cancellation, especially its quite possible effect on infamously high college prices, sentiment flips from major support to major opposition.
The basic premise in the new survey is a bit different from what Biden ended up announcing, asking about “forgiveness” for individuals making less than $150,000 and households less than $300,000, rather than the $125,000 and $250,000 in the final plan. Also, the administration added $20,000 of cancellation for loans held by people who also received Pell Grants, moving more of the benefit to lower-income borrowers than higher. But it was still mass cancellation.
As seen below, presenting student debt forgiveness by itself generates lopsided support, with approval outpacing disapproval 64 to 36 percent.
That is big. But introduce tradeoffs, and support turns upside down.
Most striking, when respondents are presented with cancellation adding more fuel to the college tuition skyrocket, the results change to a staggering 3‑to‑1 against.
That danger is real. As you can see in the chart below, aid and price have grown together, with the aid almost certainly enabling colleges to raise their prices at rates far exceeding normal inflation. Basically, give people more money to pay for something and the price of that thing rises.
This is hard to prove empirically because colleges’ costs are directly tied to the money they spend, so it is plausible their costs rise independently of aid. That said, many studies have found an inflationary effect, including one from the Federal Reserve Bank of New York that found that for every dollar increase in “subsidized” student loans colleges raised their prices 60 cents. Frankly, statistical research is not necessary to see this. One need only ask oneself, could colleges charge what they currently do, and have their current enrollment, without the aid that is nearly ubiquitous? Of course not.
The logic and evidence of aid fueling higher prices applies to mass debt cancellation. With the precedent set that debt will be cancelled whenever a president deems it too burdensome, both colleges and students can reasonably expect generous forgiveness in the future. That could encourage schools to raise prices even higher because students will see a good chance they’ll never have to fully repay.
Presentation of other costs also flips majority support to majority opposition.
As shown in the first graphic, when respondents were asked if they would back mass forgiveness that resulted in their taxes rising, 64 to 36 percent support flipped to 64 to 36 percent opposition. And Biden’s plan may well necessitate higher taxes, with cancellation expected to cost in the vicinity of $500 billion and the federal government not exactly flush with cash.
Another major problem with federal aid is that it has artificially pushed enrollment, driving a credential glut that has made having a bachelor’s degree increasingly necessary to get jobs that previously did not require one. Researchers with the Harvard Business School have found some gigantic gaps between the share of want ads calling for degrees and the share of people currently in the positions holding them, including a shocking 67 percent of job postings for supervisors of production workers calling for a bachelor’s but only 16 percent of current occupants possessing one.
Basically, one has to spend more and more time in school just to stay in one place in the labor market.
Present folks with the “credential inflation” problem, which the constant prospect of future forgiveness could well worsen, and only 29 percent support cancellation, versus 71 percent opposing.
Student debt cancellation sounds great in the abstract. But contemplate very possible downsides and the bloom falls off the rose.