Student loan debt: 'Occupy' movement's weakest talking point
on anarchism and its influence on the Occupy Wall Street protests is a pretty interesting read that gets at some of the complexities of a movement that鈥檚 obviously much more than spoiled rich kids upset that they don鈥檛 have the cash to upgrade to the new iPhone but obviously much less than a thoughtful criticism of systematic distortions in the banking system.
To emphasize a theme I wrote about on Friday, mere contempt for 鈥�Wall Street Greed鈥� is ineffective and unhelpful. In this morning鈥檚 FEE 鈥淔rom the Archives鈥� feature, Nicholas Snow suggests getting back to David Hume鈥檚 assumption that 鈥渁ll men are knaves鈥� and focus our analysis on how institutions direct that knavery for good or ill. Nobel Laureate Joseph Stiglitz makes this important point about current institutions on which economists from across the ideological and intellectual spectrum can agree: 鈥淭here鈥檚 a system where we鈥檝e socialized losses and privatized gains. That鈥檚 not capitalism; that鈥檚 not a market economy. That鈥檚 a distorted economy.鈥�
The comments on the Chronicle article are interesting. At least one comment plays right into the hands of the Occupiers鈥� critics: the comment鈥檚 author complains that her dreams as 鈥渁n academic, poet, and scholar鈥� are hampered by the student debt she incurred in graduate school. Student loan debt is the issue on which it is hardest to take the Occupiers seriously, and no doubt this is why the critics have seized on loan complaints as a reason to dismiss the movement as (again) a group temper-tantrum by spoiled kids who don鈥檛 realize how good they have it. There are a lot of college degrees out there that represent real investments in human capital. There are a lot of others that are great fun and very fulfilling, no doubt, but they are consumption goods. Most people will tell you that financing consumption with borrowed money isn鈥檛 a very good idea.
The Occupiers appear to lean left, for the most part. Let鈥檚 go back over the last couple of decades and think about the policies that have helped create the crisis (summarized in Thomas Sowell鈥檚 The Housing Boom and Bust) and Peter Wallison鈥檚 excellent Wall Street Journal article). As I wrote in Friday鈥檚 Forbes article, our current bind is an unintended consequence of yesteryear鈥檚 allegedly enlightened housing policies.
Suppose the banks had said 鈥渘o, we can鈥檛 do this because these are unsustainable and unwise policies that will create serious problems down the road.鈥� My guess is that Wall Street would have been occupied by many of the same people carrying 鈥淧eople Before Profits鈥� signs. The great irony is that a lot of the current mess is due to a policy regime that encouraged financial institutions to put 鈥減eople before profits鈥� with an array of carrots (like a liquid market for what would become Troubled Assets provided by Fannie and Freddie and backed by an implicit government guarantee) and sticks (HUD pressure to pursue political goals). Sowell (pp. 40-41) discusses how activist groups were able to use their political connections to pressure banks into making loans they wouldn鈥檛 have otherwise made.
The problems in the housing market also illustrate the perils of focusing on the short run. Policies aimed at expanding home ownership looked like free lunches when in fact they were contributing to an unsustainable boom that has left a lot of the purported beneficiaries of the policies with ruined credit scores. I鈥檝e seen a handful of comments in recent weeks talking about how this policy or that policy has 鈥渨orked鈥� even in spite of warnings from economists and other analysts. Triumphant proclamations focusing on the short run should be taken with a few grains of salt. As we saw with the housing market, today鈥檚 policy triumph could very well be tomorrow鈥檚 financial crisis.
