Any service the federal government provides to help the average people runs into two major objections from the right:
- COST: The cost is unaffordable; it will cause inflation; it will burden taxpayers.
- FAIRNESS: It’s unfair to those people who pay or have paid for the service
Objection #1, “Cost,” consists entirely of economic ignorance.
First, the federal government, being Monetarily Sovereign, never can run short of its own sovereign currency, the U.S. dollar. It can create infinite dollars at the touch of a computer key.
Former Fed Chairman, Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency.”
Former Fed Chairman, Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”
Thus, no federal expenditure or federal debt is “unaffordable,” an cost never should be an issue. The only issue should be, will the project benefit the American people?
Second, inflation always is caused by shortages of key goods and services, most often energy and/or food, never by federal spending.
Third, federal finances are different from state/local government, business, and personal finances. Uniquely, the federal government does not rely on any form of income when paying its obligations. State/local governments, etc., are monetarily non-sovereign, and so, can run short of dollars.
In fact, all federal tax dollars are destroyed upon receipt by the Treasury. Taxes are paid from checking accounts, the contents of which are part of the M1 money supply measure.
Upon reaching the Treasury, they become part of no money supply measure, effectively disappearing.
The federal government has the infinite ability to create dollars. There is no answer to the question, “How much money does the federal government have? Effectively, it has infinite dollars. Adding tax dollars to infinity does not change infinity.
Objection #2, “Fairness,” when taken to its illogical conclusion means the federal government never should initiate any new spending, because earlier, some people did not receive that aid, and today, some people will not receive that aid.
It’s the “If-I-didn’t-get-it,-they-shouldn’t-get-it” proposition, an appeal to selfishness and envy, but not to logical economics.
Here begins the explanation of right-wing logic from Reason.com:
Forgiving Student Debt Without Abolishing the Federal Loan Program Is Morally Wrong
Biden’s debt forgiveness will do absolutely nothing to change the incentive system that created this doom spiral in the first place.
Robby Soave | 8.24.2022President Biden formally unveiled his student loan debt forgiveness plan on Wednesday, and will use his executive authority to cancel up to $20,000 of debt for borrowers who make less than $125,000 per year.
“When I campaigned for president, I made a commitment that I would provide student debt relief,” said Biden. “I am honoring that commitment today.”
Biden will cancel $10,000 of federally held student loan debt for all borrowers who make less than $125,000 a year, and $20,000 for recipients of Pell Grants, which are need-based.
Biden’s action is nothing more than what government was formed to do, and has been doing, since its inception: Financially supporting people.
Social Security is based on that concept. So is every form of poverty aid. So is Medicare. So is free elementary and high school.
For example, Medicare first was signed into law in 1965, so the right-wing could claim it is “unfair” to all those people who were sick before 1965.
Also, most of those dollars help people who have reached a certain age, so according to right-wing logic, it is “unfair” to those who are younger. The dollars also aid people who have certain medical conditions, so if you don’t have those conditions, Medicare suppoedly is “unfair” to you.
The policy will impact up to 43 million people and cost the government at least $300 billion (in all likelihood, it will cost much more than that).
Ultimately, U.S. taxpayers—many of whom did not take out loans to pay for school—will be on the hook for the money. A very conservative estimate of the cost per taxpayer is $2,100.
That is a statement of the Big Lie that federal taxes fund federal spending. The reality is that not one tax dollar you ever have paid, or ever will pay, funds any federal expenditure. Not one.
The federal government creates new dollars, ad hoc, to pay all its financial obligations. Federal taxes have only three purposes:
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- To help the government control the economy by taxing what it doesn’t like and by giving tax breaks to what it wishes to encourage.
- To assure demand for the U.S. dollar by requiring taxes to be paid in dollars.
- To make you believe federal spending is funded by taxes, so you won’t ask for benefits.
This last purpose is an invention of the very rich, who can grow richer only by widening the income/wealth/power Gap.
“An entire generation is now saddled with unsustainable debt in exchange for an attempt, at least, at a college degree,” said Biden.
“The burden is so heavy that even if you graduate, you may not have access to the middle-class life that the college degree once provided.”
Millions of students cannot contribute to America’s strength because they are hamstrung by excessive debt. Millions more won’t even attend college for fear of falling into debt.
The problem for all of us is that America does not benefit from the brainpower of so many millions of our young people.
What is the right-wing solution? It has none other than to stop helping students. It is the same right-wing solution to all federal spending. Stop helping those who need help. Raise taxes on the poor. Reduce benefits for the poor.
In short, the conservative solution to the non-existent “problem” of federal spending is to stop helping the poor and middle classes (but to continue to give the rich tax breaks).
This is quite an indictment of the federal student loan program, so one might have expected that Biden’s generous debt forgiveness plan would be accompanied by serious reforms to the underlying system that produced such inequities.
After all, the government is conceding that its loan program has scammed millions of desperate people. Their situation is so dire, their prospects of repayment so dim, that Biden is requiring everyone else to pitch in and help them.
“Serious reforms” never are explained. But when you begin with the premise that the federal government can’t afford to help, combined with the reality that many people can’t afford college, no “serious reforms” are possible.
In essence, right-wing has created its version of an impossible perpetual motion machine and then challenges the left-wing to create one.
And no, not a single taxpayer will be “required to pitch in.” Federal spending costs federal taxpayers nothing.
Biden’s debt forgiveness plan will do nothing—absolutely nothing—to fundamentally change the incentive system that created the doom spiral in the first place.
Degree-seekers will continue to borrow large amounts of money to buy useless educations; indeed, they might feel even more to do so now that this precedent has been set.
The term “useless educations” tells you all you need to know about the right-wing attitude toward a college education which is: Rich kids should get them; the poor shouldn’t.
It is true that paying off student debts disincentivizes universities from financial efficiency. But there is a solution, and ironically, it is already in use.
I call it the “Medicare solution.” Medicare and its supplements pay doctors. So one might claim that doctors would raise rates to take advantage. But they don’t for a very simple reason. Medicare won’t let them. Medicare sets limits.
Have these limits hurt medical care? Well, yes, to some degree, mostly because the limits are too low, which is why we now have concierge doctors — doctors who charge a fixed, annual payment in addition to what they receive from Medicare.
And yes, these doctors are able, by dint of having fewer patients, to offer better, more personal care. But no one is left without healthcare, so long as they qualify for Medicare.
And therein lies the problem. Younger people generally don’t qualify. There is no reason why the federal government cannot fund Medicare for every man, woman, and child in America.
Similarly, there is no reason why the federal government cannot fund a college education for everyone who wants one.
Meanwhile, colleges and universities will have even less incentive to lower costs.
Economic researchers have often found that the government’s subsidized student loans cause educational institutions to jack up their prices for obvious reasons: If the feds cover the cost on the front end, no matter what it is, universities have every incentive to raise the sticker price.
Forgiving student loan debt exacerbates this problem since it encourages more reckless borrowing. Indeed, the Committee for a Responsible Federal Budget estimates the cumulative student debt level will return to current levels in just a few years.
Doctors and hospitals also have no incentive to lower cost other than the fact that Medicare won’t pay them if they try to raise prices.
A “College For All Who Want It” program could operate in the same way. Federal dollars could go only to those colleges that charge a federally agreed-upon tuition.
There are structural incentives that push students to borrow money that they can never hope to pay back, and the fact that so many people have fallen into crippling debt is a compelling reason to change these incentives.
No rule says the federal government must lure people down a path that leads to financial ruin with some frequency. Congress can sharply limit, or even end, this practice.
Right, Congress could eliminate student debt by paying for colleges, rather than lending money to students. There is not a single financial reason why the federal government lends to anyone. It does not need repayment of the dollars it has the infinite ability to create.
A one-off cancelation of some level of debt held by borrowers who happen to be in dire straits at this specific moment does nothing to fix the underlying problems; on the contrary, it exacerbates them. It is a slap in the face to everyone who either paid down their college debt or made different educational choices to avoid accruing it.
A one-off cancelation of some level of debt helps borrowers. It is easier to service a smaller debt than a larger one.
But it is true that it doesn’t fix the underlying problem which is: The federal government never should lend. It only should give.
And now, Mr. Soave finishes with one final statement of The Big Lie:
If Biden wanted to make the strongest conceivable case for forgiving some college debt, this course of action needed to be paired with serious changes to the entire higher education system. Otherwise, he is simply engaged in a vast transfer of wealth, taking hard-earned money from those who did not fall prey to the federal government’s scam and awarding it to those who did.
There is no transfer of wealth; there is no transfer of money from those who did not receive student loans. The money comes from the federal government which created it out of thin air.
As Ben Bernanke told Scott Pelley on 60 Minutes: “It’s not tax money… We simply use the computer to mark up the size of the account.”
ROBBY SOAVE is a senior editor at Reason.
Pitiful that while a “senior editor” does not understand basic economics, he writes about economics. No wonder the public is confused.
Rodger Malcolm Mitchell
Monetary Sovereignty
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