Home » Uncategorized » More Government = Less Affordability

More Government = Less Affordability

To the surprise of absolutely no one, Democratic Presidential candidate (and erstwhile Soviet aficionado) Bernie Sanders this week unveiled his plan to forgive an estimated $1.6 trillion dollars in student loan debt—a move that could impact up to 45 million people who are still paying off college loans.

The viability of this boondoggle is a subject for a blog post of its own.  Indeed, I grew frustrated yesterday with the number of people who supported the concept of the government forgiving private, voluntarily-incurred debt.  Maybe they could include the proposal in the Adulting is Hard Act of 2019.

One of the arguments in favor of the idea points to the skyrocketing increases in college tuition over the past generation.  This is a fair point.  Any study shows that those numbers are headed through the roof.  But why is that?

This handy-dandy chart from the American Enterprise Institute offers a clue.  It examines the increase in costs (since 1997) for several entities.

inflation

You’ll notice the ones whose costs have increased all have one thing in common…direct government involvement or oversight—be it through regulations or underwriting risk.  Those entities who costs are DECLINING are comparatively-free of direct government oversight.

In fact, as you go up and down the chart, you can see the DEGREE of government involvement is also a near-perfect predictor of the increase in cost.  I.E., the more heavily government is involved, the steeper the price increase.  And Vice-Versa.

The government has FAR less incentive than a private entity to keep expenditures down to a bare minimum.  That comes with the territory when you can *literally* print your own money and/or extract it from people.

As a result, when the government gets involved in what are otherwise free-market ventures by underwriting loans, those making the loans and those who serve as beneficiary can now behave like the government.  They have FAR less incentive to tamp down on ancillary costs while making their product available for the lowest price possible.

A Civil War-era privateer is quoted during Ken Burns’ famous PBS Series, “You can sell the government anything at any price you’ve got the guts to ask.”  When you are negotiating with someone that has unlimited resources, money is truly no object.

Therefore it should not came as a surprise that the cost of a college education has increased exponentially, with the precipitous rise beginning (more or less) when governments began underwriting and guaranteeing student loans.

Does this sound familiar?  That’s because you remember the housing crisis…ancient history…less than two decades ago.

Here is the bottom line.  The private sector isn’t perfect and the public sector isn’t 100% evil. But the vast majority of the time, the side that has the greater incentive to provide high quality service at the lowest possible price is the Private Sector.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

Follow me on Twitter

%d bloggers like this: