Cancelling Student Debt

Let's start with the obvious. Some politicians want to cancel student debt. Student debt? Are you kidding? It is definitely not about student debt. Imagine all the debts that students have. Many students are bad poker players and have a lot of poker debt. Some have car debt. Some have grocery debt. Some owe their parents for their education but in most cases it is the parents that have the real education debt. Many of these parents are lawyers and other well paid folks. 

This whole political thing is not about student debt.  Apparently it is mostly about money that parents/children borrow to go to college. College? You know, that's the place where students, who were treated as prisoners in high school were finally emancipated and sent to dorm rooms where they could party at night and oversleep in the morning. The amount they spend on one weekend's partying at the frat house dwarfs the actual cost of their required sociology course. 

Boo hoo. Student debt. What is with our liberal progressive politicians that they are turning their backs on people who need real help so they can help EVERYONE who borrows for college? 

Who is getting bailed out here? Yep, parents for sure. But what about the colleges? If students don't have to pay to go to school -- they are writing checks to universities on accounts that have borrowed money which doesn't have to be paid back. Not only are the kids/parents skating but the colleges are being subsidized too. Without these non-repayable loans, how would people pay the colleges for their services? In the usual old way-- out of checks from accounts or from loans they actually have to service. 

Now that's the grabber. If they actually have to use real debt or real money to pay for school, they will be judicious with their money. Maybe junior won't go to the Ivy League where one semester's tuition costs more than a new Lamborghini. Maybe junior won't take a random sampling of courses for years on end before graduating. Maybe junior will think as much about supporting herself as she consumes the latest woke news from her long-haired professors. 

When you buy most things, you ponder a bit. Do I really want/need this thing? What do I have to do without if I buy this thing? You make reasoned choices. If college education is essentially free, do we handle decisions about it with the same attitude as buying a house or a car? Is this degree really worth the money I am really paying for it? Is there a way to get the full benefits of a college education at the lowest possible cost? 

Nope. Some of our politicians want you to have a free college education. 

Don't get me wrong about one point. I am not saying that government cannot find ways to subsidize people who cannot afford it. We need social policies that help the poor and a university education ought to be part of that. But writing off student debt in general is not the right way to do that. 

The Here and Now

Buddhism has helped to popularize the very useful idea of living in the here and now. On the surface it sounds like the right idea. The past is sewn up so why spend precious time worrying about that? The future isn't here yet so worrying about that seems unproductive. We can proactively plan for the future but that's different from worrying about things that might never happen. 

Sensible advice. Focus on what you can change. Focus on here and now. Right here and right now. 

Then I started thinking more deeply about that and came away confused and unsure. It might have been the gin. I can't be sure. This is not a macroeconomics topic but since it seems to be the cornerstone of a major world religion, I had to pursue this topic and enlighten my faithful followers. 

I started thinking more deeply about the now part of here and now. What is "now" anyway? The second you can utter the word "now" the now has up and gone. Where did it go? It was here a second ago but now its gone -- only to be replaced by another now. Call that now-2. So upon further thought, I am wondering how useful the idea is. We are supposed to focus on something that you can't really nail down. 

Now is here and than wham -- it's gone to be replaced by something else. 

How can I focus on that? It's like that rabbit playing in your yard. It was just there a minute ago. Where did it go? How can I focus on that?

It seems to me that anyone sitting legs crossed and contemplating the here and now should be concerned about this. What in the hell are we supposed to be thinking about? One school says to focus on your breathing. Focus on that instead of the job you just lost or your child who just got kicked out of the second grade for pulling Mary Ann's pigtails. 

But that is a fool's game. Which breath do you focus on? The current one? Certainly not the past one or a future one. But what is the current breath? Is it the one you just exhaled or the one you are about to inhale. I don't think so. What about the current one? Not really. An instant after you have that breath it is gone and is part of the past. How can you focus on that? 

So that's that. I decided to take on an existential* subject today and I have come away with nothing. The here part makes sense to me but the now just makes me wonder if Buddhists have a strange sense of humor and want to torment us Christians and Jews. 

So that's it for today. Maybe next week I will return to less existential topics like inflation and gross private domestic investment. Or maybe not. The future is not part of the now and I really shouldn't be fretting about that. I guess I will have to work on it in the now whenever that is. 

Have a nice day. 

* Existential.  I have noticed lately that everyone from Joe Biden to my local grocery clerk uses that word often and with great confidence. Here is the way Webster defines it: a chiefly 20th century philosophical movement embracing diverse doctrines but centering on analysis of individual existence in an unfathomable universe and the plight of the individual who must assume ultimate responsibility for acts of free will without any certain knowledge of what is right or wrong or good or bad. Wow. 

Inflation and Greed

Inflation has been on our minds lately. Most measures show it rising and we have different opinions about how high it will go and for how long it will last. Some see it as a flash in the pan, rising and then falling. Others worry that the increases will be sustained. It is a legitimate issue with no easy answers. 

And then there is the question of what is causing it to rise. At one extreme are the folks who believe corporate greed is causing higher sustained inflation. At the other end are people who believe higher inflation is the result of macroeconomic policies -- the rapid increase in the money supply engineered by the Fed and the waves of increased fiscal stimulus packages. 

What I find interesting about this discussion is that one's opinions about the causes of inflation come from very different definitions of inflation. The greed folks look at inflation literally. Who actually changes those prices? Neither Nancy Pelosi nor Jerome Powell have ever set any price. That would be well below their dignity and pay grade. The people who set prices every day are the people who manage companies. 

We don't usually see the people changing the price signs, but when we drive down a street with a gas station on the corner, we see that someone at that gas station has changed the price on the sign. In the old days we used to see them climb up on ladders to physically change the price. Whether we see them or not, we understand someone from Shell Oil decided to raise or lower the price that day. We know who did it!

When inflation rises, therefore, it is easy to imagine store managers changing their prices. Often times they increase the price. Usually we are humble enough to know we don't know all of the many things that might cause them to increase price at a given time. Imagine all the things that go into the cost of a gallon of gasoline. Yep, greed or the desire to increase profits is surely one of them. But it could be a lot of other things too. 

My point is that, yes, it is easy to imagine a person or a company responsible for price and inflation. It is easy to imagine that the greed of the person on that day promoted the price increase. But it is also easy to imagine that there might have been some other things causing that manager to raise that price. I am always interested to know what might cause a given company to have more greed today than yesterday. But I never had a course about the causes of greed change so I can only guess. 

Which leads me to my second point -- while we know that some person actually changes the price -- a legitimate question is why she changed it. Yes, greed could be the answer. But it could be a lot of other things. In economics we have something called price theory and without reviewing all the details here, let's just note that price theory says that changes in demand and supply cause changes in price.

No, I am not going to review price theory today (maybe tomorrow?) But I will make note that the demand for goods and services can be very much affected by macroeconomic policy -- by the Fed's monetary policy and the government's fiscal policy. And those of us awake lately, know that these macroeconomic policies have been off the chart. A policy to keep interest rates at zero and highly stimulative fiscal policies have been designed to get us to spend spend spend. Surely those policies put pressure on demand for goods and services and prices to rise. Today with all sorts of factors preventing supply to respond to demand leaves us with much higher inflation. 

Yet, most of us don't want to admit policy is the cause. It seems so theoretical. It involves markets, and demand curves, and supply curves, and theories, and such. That line of thinking seems so fuzzy compared to thinking about a greedy guy sitting in a plush office giggling on the way to the bank as he raises prices. 

Friends, greed might be a factor today. But before I buy that line of thinking, I want to know two things. First, why did greed increase so much lately? Second, relative to greed, how much of what we see in prices is coming from monetary and fiscal policy? Let the greedo-maniacs answer those questions please.  

Deficits as Far as the Eye Can see

Since 1962 through 2020 and projected through 2022, the US has had a government deficit every year except during the Nixon years 1969 to 1973. 

The table shows revenues, outlays, deficits, and total government debt since 1962*. 

Including the Nixon presidential years (1969 to 1973) does little to affect the notion that the US government has yearly budget deficits.  From 1962 through today we have a string of annual government deficits sans the Nixon years. That's roughly six decades of deficits. 

An annual government deficit means the government spent more in that year than it received in tax revenues. So what? So what is that the government incurs a debt in each of those years. In order to spend $5.44 trillion in 2022 it raised taxes of $4.39 trillion. Obviously the revenues did not cover the whole amount of spending. What we call the national government deficit is the $1.154 trillion difference between spending and tax revenues. That's how much we had to borrow for just that one year. 

How does one spend more than they earn? Tuna knocks over 7/11s. The rest of us have to borrow. Thus a national deficit in 2022 means the government has to borrow $1.154 trillion in 2022. The amount of new debt that year gets added to the existing or old debt. Note that if you have a deficit in one year, you cannot pay down the existing accumulated debt by even one penny.

It is worth pointing out that when the government snaps up that $1.154 trillion in the credit markets, there is less money available for the you, me, and General Motors. Economics say we get "crowded out" by the government. The government has some very large elbows and the rest of us get less. Of course, we don't know that the game is on and so the act of the government and the rest of us trying to borrow all that money sends interest rates up. Between rising interest rates and crowding out, the private sector gets knocked around by those large government elbows. 

Looking at the next to last column (annual deficits) you notice that the debt (last column) had to grow every year -- except the years 1969  to 1973 when we had annual budget surpluses. The last column shows you the accumulated debt of the US government. It started at $248 million in 1962. It has grown and grown to over $24 trillion by 2022.  That's quite an increase. 

Again, you might say so what? After all, the government is not the Tuna and is not even Donald Trump or Bill Gates. You might imagine that the government does not have to pay its debts. No big deal. Have big and bigger debts. 

Well, it does have to pay. Those debts are evidenced by bonds issued. If you hold one of those bonds you fully expect the government to pay you annual interest and then the principal. Just because it is the government does not mean it does not have to pay its debts. The bigger the debt gets, the more concern we have that the government might not pay. 

That's where it gets sticky. If the debt gets too large and we worry the government might not pay, then that creates some problems. For example, if the government tries to sell bonds and we decide not to buy them, the market price of the bonds falls and the market rate of return rises. That influences other interest rates and pretty soon the rise in interest rates hurts borrowing and spending. Higher interest rates adversely affect the buying of houses, cars, and many other goods and services.

And that's not the whole story. You might note that the government controls the supply of money. The Fed can just crank out a bunch of $100 bills and buy those pesky bonds. There today, gone tomorrow, replaced by money. That helps to keep those interest rates down and the government slides on down the road with its huge debt. 

Well, that all works pretty well until all that liquid wealth -- the money -- burns a hole in our national pockets and we start spending like the Tuna at a Macy's Christmas sale... and that starts to bid up the prices of everything from tuna salad to a 42 ounce T-bone. 

It all sounds kind of cool until you realize that there is no reason to let the national debt grow and grow and grow. Grown-up congressmen are allowed to say no to additional spending. They can also raise taxes enough to cover the extra spending. Sadly, the ones we have had lately don't seem to have the sense or the stomach to do what's right. We should tell them to hit the road. 

*To economize on data points in the table, I omitted the years in between the years 1962 and 1972, 1972 and 1982, 1982 and 1992, 1992 and 2002, 2002 and 2112.