(Photo: CampusGrotto / Flickr)Last month Senator Elizabeth Warren put forward her first bill as a senator, a proposal to allow students to borrow for college at a 0.75 percent interest rate, the same rate that the Federal Reserve Board charges banks for borrowing reserves. In putting forward the bill Warren noted the rapid run up in student debt at a time when recent graduates face an especially bleak job market.
As much as I think it would be good to help struggling students, I initially did not like the proposal. As a general rule it is best for the government to be transparent in its subsidies, which means appropriating money directly from the budget.
The failure to be transparent can have large amounts of money going places where we do not especially want it to go. For example, the largest chunk of housing subsidies goes to families with incomes over $100,000 in the form of the tax deduction on mortgage interest.
It is unlikely that many politicians would stand up and argue that the rest of us should pay higher taxes so that the richest 10 percent can buy bigger homes, but that is the effect of our current housing policy. It is largely unchallenged because few people understand the implications of the mortgage interest deduction.
There are many other areas where hidden subsidies have similar effects in redistributing income upwards. One of my favorites is the implicit too big to fail insurance that we give to the country’s largest banks.
This implicit insurance allows them to borrow at below market interest rates, a subsidy that has been estimated at more than $80 billion a year by Bloomberg. This money is enriching the banks’ shareholders and top executives, some of the richest people in the country. It’s hard to imagine even Mitt Romney openly advocating an $80 billion handout for the Wall Street crew.
By tapping the Federal Reserve Board for below market loans, the Warren proposal creates the risk of yet another subsidy which could go badly awry. Depending on the conditions, we may see a lot of relatively affluent students borrowing money to invest in the stock market while completing their Stanford MBA. That one would not be a high priority for most people.
But the proposal would also have the effect of making a college education more affordable to millions of students with more limited means. Since there is not much else on the table in this respect, why not grab it?
Somehow sound economics are only important in discussions of policies that are intended to help the poor or middle class. After all, in addition to the too big to fail subsidy, our government also supports the financial industry by exempting it from the sort of sales taxes that other industries pay.
Even the IMF has written about the unfairness of the financial sector’s special tax exemption. Yet the Obama administration has not only obstructed a sales tax on financial products in the United States, the Treasury Department has done unpaid lobbying work for Goldman Sachs and J.P. Morgan to block financial taxes in Europe.
Of course the financial sector is not the only industry that gets special protection from the government. The pharmaceutical industry is able to pull in hundreds of billions of dollars a year in additional revenue as a result of government granted patent monopolies.
One of the top items on our “free trade” agenda is increasing the strength of patent and related forms of protectionism in other countries. The policy types in Washington won’t even consider a discussion of more efficient, less corrupt, mechanisms for support the development of new drugs.
And we see a similar story with the requirements of Internet intermediaries that the entertainment industry was pushing for the Stop Online Piracy Act (SOPA). After massive public outrage sent SOPA down in flames last year, the Obama administration is now trying to make everyone a copyright cop through the trade agreements it is negotiating. That’s hardly good economics or good public policy.
And, we can tell the same story with fracking. The government wants oil and gas companies to be able to pollute people’s groundwater with impunity and to enshrine this principle in trade agreements that will be blessed as “free trade.”
That is the world in which we live. So is the Warran plan the best way to help struggling students pay for the cost of higher education? Certainly not. But given the way Washington works, you take what you get, which means Senator Warren’s plan deserves support.
Not best way to do it, but what is the point of being the only honest party in the debate?
Truthout Is Preparing to Meet Trump’s Agenda With Resistance at Every Turn
Dear Truthout Community,
If you feel rage, despondency, confusion and deep fear today, you are not alone. We’re feeling it too. We are heartsick. Facing down Trump’s fascist agenda, we are desperately worried about the most vulnerable people among us, including our loved ones and everyone in the Truthout community, and our minds are racing a million miles a minute to try to map out all that needs to be done.
We must give ourselves space to grieve and feel our fear, feel our rage, and keep in the forefront of our mind the stark truth that millions of real human lives are on the line. And simultaneously, we’ve got to get to work, take stock of our resources, and prepare to throw ourselves full force into the movement.
Journalism is a linchpin of that movement. Even as we are reeling, we’re summoning up all the energy we can to face down what’s coming, because we know that one of the sharpest weapons against fascism is publishing the truth.
There are many terrifying planks to the Trump agenda, and we plan to devote ourselves to reporting thoroughly on each one and, crucially, covering the movements resisting them. We also recognize that Trump is a dire threat to journalism itself, and that we must take this seriously from the outset.
Last week, the four of us sat down to have some hard but necessary conversations about Truthout under a Trump presidency. How would we defend our publication from an avalanche of far right lawsuits that seek to bankrupt us? How would we keep our reporters safe if they need to cover outbreaks of political violence, or if they are targeted by authorities? How will we urgently produce the practical analysis, tools and movement coverage that you need right now — breaking through our normal routines to meet a terrifying moment in ways that best serve you?
It will be a tough, scary four years to produce social justice-driven journalism. We need to deliver news, strategy, liberatory ideas, tools and movement-sparking solutions with a force that we never have had to before. And at the same time, we desperately need to protect our ability to do so.
We know this is such a painful moment and donations may understandably be the last thing on your mind. But we must ask for your support, which is needed in a new and urgent way.
We promise we will kick into an even higher gear to give you truthful news that cuts against the disinformation and vitriol and hate and violence. We promise to publish analyses that will serve the needs of the movements we all rely on to survive the next four years, and even build for the future. We promise to be responsive, to recognize you as members of our community with a vital stake and voice in this work.
Please dig deep if you can, but a donation of any amount will be a truly meaningful and tangible action in this cataclysmic historical moment.
We’re with you. Let’s do all we can to move forward together.
With love, rage, and solidarity,
Maya, Negin, Saima, and Ziggy