Moneybeat - Stimulus and student loan debt

MARY REICHARD, HOST: Coming up next on The World and Everything in It: The Monday Moneybeat.

NICK EICHER, HOST: Financial analyst and advisor David Bahnsen joins us now, as he does on a regular basis here on Mondays. David, good morning.

DAVID BAHNSEN, GUEST: Good morning, Nick. Good to be with you.

EICHER: Well, let’s talk politics. Looks like the table’s set for another round of stimulus to pass the Congress without the need for Republicans, and they’re gunning for $1.9 trillion. Think they’ll get it?

BAHNSEN: Yeah, I don’t think they’re going to be able to get $1.9 trillion on a simple majority vote. I don’t think they have the votes from the Democrats to do that. But already it looks like they’re having to shed the corporation of a federal $15 minimum wage out of it. And it looks like they’re having to dramatically lower the income thresholds of who would get the additional direct taxpayer payment of $1,400. So, ironically, that’s actually something that President Trump wanted. And because of Joe Manchin and some of the moderate Democrats, they’re going to have to peel that back. 

But the irony of it politically is that the Republicans kind of gave President Biden a really interesting opportunity to get most of what he wanted—certainly get the most important things policy-wise—and provide a sort of optic of bipartisanship by taking a kind of compromised bill and working with these 10 Republican Senators that would enable them to do this without budget reconciliation and he didn’t take the bait. And so I think that they’re pretty willing to take their chances with the voters. I don’t think anyone seems to feel—on either side—that bipartisanship is really important right now politically. I think most people feel that they look better to their own bases when they don’t work with the other side.

EICHER: So, that’s the politics, but what about the economics? Do you think there’s anything in this package that’s going to hasten the end of bad economic times?

BAHNSEN: No, because the bad economic times that we face ultimately will come from the excessive indebtedness. This isn’t going to cure bad economic times, it ultimately is adding onto it. But that doesn’t mean that in the short term there aren’t things to specific people in a specific timeframe that will be beneficial. I certainly get that. 

But this is really piling on at this point. It’s not targeted. I mean, that’s my biggest critique is we can talk about what dollar level is appropriate or inappropriate to spend in general and why for some reason we have to keep coming back to a second, third, fourth bite of the apple. 

But interestingly, Bill Clinton’s old treasury secretary, Obama’s old economic czar, very highly regarded center-left economist Larry Summers wrote a really high profile op-ed this week that was just all the talk of the town in Biden-land saying that the problem with this proposal is not only that it was way more than is needed to fill the economic gap and, therefore, has various wasteful elements to it fiscally. But he said you’re spending the money that you could be spending into infrastructure and other goals of a left-wing agenda—so, you’re shooting bullets and you’re going to leave yourself without bullets in the gun for the future. And I think he’s right. 

If I were a progressive, I’d be very frustrated with this bill because they’re really spending a lot of the money for the sake of saying they spent it. And I think there’s a lot of silliness in the latest bill. And I think there was a lot of silliness in the $906 billion bill that was passed in December. This is not a partisan thing for me and I’m actually quite irritated by some on the right who have all of a sudden gotten really fiscally worried about this. I would remind them that the last $3 trillion of stimulus came under a Republican president.

EICHER: Yeah, good reminder. Let me go to another issue. 

Here’s Senator Elizabeth Warren last week, urging President Biden to sign another executive order and by so doing wipe out virtually all student loan debt—up to $50,000 per borrower—when the average debt load is 25K at the high end. Let’s hear this.

WARREN: Canceling student loan debt is the single most effective executive action that President Biden can take to kickstart this economy. Canceling student loan debt is the single most effective executive action that President Biden can take to help close the racial wealth gap. Canceling student loan debt is the single most effective executive action President Biden can take to lift the economic prospects of tens of millions of young Americans. Data show that canceling the student loan debt would result in greater home ownership rates, more housing stability, improved credit scores, higher incomes, higher GDP, more small business formation, and more jobs. Canceling student loan debt is good for you whether you have student loan debt or not because it is good for our economy.

Now—same day—at the White House, spokeswoman Jen Psaki had the answer to this and she said Congress needs to pass a bill—not an EO—and the president wants $10,000, not 50. 

So what do you say to the economics claim Senator Warren makes?

BAHNSEN: Well, I actually wrote a whole chapter in my book about Elizabeth Warren on this very topic of student loan debt and was really shocked at all the research I did to find how overwhelmingly clear the evidence is that everything she just said is not true. 

First of all, it’s stunning for a progressive to be saying, “I want to use a huge chunk of federal treasury to go help doctors and lawyers,” and not the lowest-income people in society. The bottom deciles of wage earners do not have college degrees, ergo they did not have college education, did not attend college classes, and do not have student debt. Ergo this is a bill intended to help out people of higher-income producing capacity. 

It also is so riddled with moral hazard it is unbelievable. 

Why in the world would anyone believe the government will not come in and wipe out credit card debt? Credit card debt is certainly impacting people’s economic well-being. Every argument she just made on student debt can be made on credit card debt. So this will create significant moral hazard. This is unethical and immoral to the core because of how it rewards people who have not paid off debt and punishes people who have paid off debt. This is divisive because it will build resentment at those that feel that they did the right thing. 

There’s really nothing good I can say about this. 

Now, that’s not to say that I look at the whole system and say, hey, everyone got a great deal with this student debt. Too bad for them. I actually think the entire higher education system is a joke. But the reason it’s a joke is because now an education that’s worth $10-$15,000 costs $50-$60,000 a year and the reason it does is because of the subsidies that university professors have no price competitive pressures at all because of unlimited loan financing from the federal government. So, there are ways to fix the system. They’re doing it the exact opposite way.

And the idea that this would be a boon to the economy by people getting their debt forgiven is a classic broken window fallacy. They’re simply saying that they’re going to divert money from one place to the next and viola it’s going to be better for everyone, with no consideration to the longer term effects and the broader amount of people that it impacts.

EICHER: Quickly and we’ve got to go, what do you think President Biden will do?

BAHNSEN: Yeah, that part is tricky because he does have some advisors who are for it and he does have some advisors who are against it. And he has been on the record being opposed to it in the past. All this stuff about him giving into the progressive left is piling up and I kind of think he’s going to want to get some kind of street cred, if you’ll pardon the expression, of how he doesn’t capitulate to the far left all the time. And I know a lot of people don’t believe that or don’t think he’s headed that direction, so this is somewhat of a contrary view. This may be an area where he says, no, this is where I’m standing up to the far left. It’s totally unaffordable, it’s totally ill-advisable, it’s bad policy, and riddled with moral hazard. This would be a great opportunity for Biden to say, hey, this is one area where I’m going to draw a line.

EICHER: Financial analyst and advisor David Bahnsen. Thank you, David. Have a great week.

BAHNSEN: Thanks. Always enjoy being with you, Nick.

(AP Photo/Andrew Harnik) Sen. Elizabeth Warren, D-Mass., speaks at a news conference on Capitol Hill in Washington, Thursday, Feb. 4, 2021, about plans to reintroduce a resolution to call on President Joe Biden to take executive action to cancel up to $50,000 in debt for federal student loan borrowers. 

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