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Free Markets vs. "Free" Markets
Should the federal government provide loans to college students? Or should it let the private sector make the loans but agree to guarantee them because otherwise the private sector wouldn't be interested? Rep. Howard McKeon (R–Ca) thinks the latter. Matt Yglesias, who's apparently on a first name basis with the distinguished congressman, comments:
The interesting thing here is not just the particulars of the policy, but the bizarre view of the role of government that Howard is espousing. Rather than a debate between progressives who want the government to provide a public service and conservatives who want the service to exist just insofar as it can be supported by the private market, we have a debate where both sides agree that the service ought to exist but the right thinks it’s important that it be done in a less efficient more costly manner....You have essentially the same debate over Medicare Advantage between Democrats who want the government to provide seniors with costly medical services and
Republicans who want Democrats to provide seniors with an even more costly version of those services by bringing private insurance companies in as middlemen. It’s ludicrous.
This really does highlight the right's frequently bizarre notion of "free markets." The only reason that private lenders are part of the college loan program in the first place is because the program was started in the 60s, and at the time banks were really the only institutions set up to make widescale loans. The government didn't have much choice except to use them as their origination arm and provide guarantees as a carrot to get them to participate.
The revolution in finance during the 70s and 80s changed all that, of course. The government doesn't need to pay banks to originate its loans any more than it needs to make the loans using gold bullion. But Republicans are convinced that having Uncle Sugar subsidize loans so that Sallie Mae can make outsize profits is somehow ordained by natural law. It must be more efficient because Sallie Mae is a private organization! And everyone knows that federal programs are cesspools of waste and inefficiency.
But it ain't true, and it ain't true of Medicare Advantage either. Sometimes the private sector does things better than the government, and sometimes it doesn't. In particular, when the main job at hand is cutting checks, the government is actually pretty damn efficient. There's not much to it these days, and with no middleman to get in the way the feds can provide money at a much lower cost than private lenders.
Bill Clinton tried to get rid of the private component of the college loan program, but he met a lot of resistance and didn't try all that hard. Hopefully Obama will try harder. After all, taxpayers deserve to have their money spent as efficiently as possible, right?
Ensuring profits
to private business is not amongst the six Constitutional purposes for which the USA was created.
Strive For The Ideal, But Deal With What's Real
A matter of definition
You have to understand what the term "free market" means to Republicans.
It means "using the power of government for corrupt purposes of private financial gain for Republican politicians and their ultra-rich corporate cronies and financial backers, at the expense of the American people."
Kevin - while I agree with
Kevin - while I agree with you on this, doesn't having the Govt do only the guaranteeing as opposed to the actual lending mean that the size of the Government bureaucracy doesn't increase? Also the Govt's role becomes one of sending checks, etc rather than actually administering the program, with all the inefficiencies that entails. Of course having the private sector there means that the cost may turn out more (as you and Yglesias point out) because of the high salaries and the very fact that a middleman exists. But still -- it seems that conservatives are being internally consistent by preferring "free" markets (rather than free markets) because the "free" markets keep the size of Govt down.
"doesn't having the Govt do
"doesn't having the Govt do only the guaranteeing as opposed to the actual lending mean that the size of the Government bureaucracy doesn't increase?"
But the whole "moral hazard" thing kicks in, right? If the gov't isn't regulating and verifying and checking that the companies they're guaranteeing are aboveboard, this could be just a giveaway. It's like insuring someone without checking their driving history, or approving someone for a NINJA mortgage :-)
scritic, what you describe
scritic, what you describe is the government contracting the administration of its student loan program out to private companies. That itself could be fine and in fact would genuinely use free market principles to provide better efficiency if the government contracting office were well run. (The question of why the contracting office, in these situations, immediately becomes corrupted whenever this scheme is put into practice is an exercise left to the reader.)
None of this describes the current student loan program, where banks are essentially guaranteed a profit of the difference between their loan rate and the rate of inflation, since the risk of loan default is assumed by the government. Consumers in theory can choose between competing banks, but since banking has become an oligopoly, that market isn't free.
This is one of my pet peeves
This is one of my pet peeves -- thanks for noticing it. I truly think people don't realize that these "privatized" programs are privatized only in the sense that the government spends more than is necessary to provide the program benefits, for the sole purpose of enriching favored private interests.
No wonder Bobby Jindal thinks government doesn't work.
Direct loans worked in the '60s and '70s
tagged as:- result
There was no problem processing direct loans from the government to students in the '60s, and I got one as late as '73. The program was called NDSL (originally "National Defense Student Loans", because in the '50s everything was "National Defense", even the Interstate highway program; later renamed to "National Direct Student Loans".) The government just made block grants to schools; the school's financial aid departments, which were already processing applications with the needed info, just disbursed the money (in my case I never even saw a check, it just got deducted from my registration bill), and sent the info off to NDSL central so they could send collection statements later. (Whether that NDSL central was staffed by civil servants or contractors, I don't know.)
O.T: Let's have a little
O.T: Let's have a little more respect for the pigs, aren't they smarter than cats?
(although I have several cats, and like them well enough:)
"Conservative" big government
Actually, "conservatives" love big government when it comes to directly interfering with peoples' private choices. They love having lots of tough laws as long as it applies to working stiffs and doesn't interfere with big business trashing out the lives and neighborhoods of working stiffs. They love government spending lots of money on capital intensive military projects. They love government locking up people who are marginalized and have little influence.
They go into tizzy fits about petty crime and then scream like little girls when someone demands accountability for big crimes. You steal a hundred dollars and you get the slammer. You steal tens of millions from communities and trash thousands of peoples' health because you're too cheap to clean up after yourself and you get honored at chamber of commerce meetings. But then again, this is nothing new so I guess they have a point. It's not about what's right. It's about continuing with business as usual: shafting those with little power. It's all their fault. They wouldn't be in this position if they'd either been born in the right household or learned how to kiss up to someone who had.
The Ford program worked for
The Ford program worked for at least one year during the mid 90's.
How much govt bureaucracy can there be when both payments to schools
and 80%+ of repayments from students will be electronic transfers.
Hipocrisy
Hipocrisy. Jsut as there's Nothing Convervative about this new wave of radical right wing politics, there's no sense on any of their so called "Free Market".
To these rich elites, it's "Free" Market if the money flows upward. But it is Socialism if the government spends money on its people.
What gets me is the hundreds of millions of republicans who can't read, can't eat and/or are working for minimun wage who think the republicans are on their side.
However, by now, you would have thought that this ("liberal democracy) would have already picked up on the right's scam by denouncing it and leveraging their attacks. But no, here we are after a landside Victory by We The People (call us liberals or whatever), and the lunatic fringe of the Limbaughs et all dominate the news!.
Go figure.
I think school loans should
I think school loans should be regulated. Peg the interest rates of private loans to those of the Federal Stafford loans with incremental increases to adjust for inflation. And if you become unemployed, the compounding of interest should be frozen until you have found a job. Frankly, attending school should be seen as an investment.
I think private banks have DEFINITELY gotten interested in funding education in the last 30 years. As manufacturing jobs have been outsourced, that increases the incentive for someone to attend college because its either that, join the army, or work at Walmart. Schools have gone from institutions of higher education to businesses. They have to compete with each other to attract students. So, they invest huge amounts of money into renovations (not neccesarily a bad thing), adding amenities like recreation centers, building new dorms, etc. Given that and if the supply of positions isn't increasing as fast as the demand, then the price goes up. So, by loaning more money for education to keep up with the demand and charging large interest rates, there is the incentive to make a profit! I could be wrong though...
Lipstick on a pig
We (our government) is throwing away billions in bailouts and with no end in sight and it is clear we are on the wrong path.
"To big to fail", I don't think so. Pigs get fat and hogs get slaughtered.
Citi and AIG are like black holes and when you find yourself in a hole? Duh..
These free markets ain't free.
Ok back to my point and I may be fuzzy in some details but aren't Fannie and Freddie subsidized by the government?
And if so then why not reclaim/reclaw(?) the money granted for bailouts that went to CEO's, exec parties, putting the co name on a stadium or the purchase of another entity and put that money into Fannie and Freddie, let one deal with student loans and the other deal with home loans?
I believe that is what they used to do but don't pour money into a black hole when you can invest it in Fannie and Freddie through homes and education.
unfree trade
tagged as:- solution
Michael Hudson, economist:
Adam Smith did not forsee the modern corporation, but the colonists rebelled against British Crown Corporations, for just cause. It was an economic, not political revolt.
Free Trade meant freedom from monopoly parasitism, humans protected by democratic government. Free Rents intended to be prohibited, such as INTEREST and mining (oil) rights, free land for railroads, etc.
Business supported free trade, and OPPOSED corporations for that reason.
For decades now, ideals have been reversed, and govt exists to protect corporations from democracy instead of protecting democracy from corporate tyranny.
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