I have a new post up at Demos on student loan debt and bankruptcy:
For some reason articles about student debt bring out a really ugly strain of pro-creditor moralizing. Lots of people apparently hold creditors and policymakers harmless for the current state of affairs, and want to place all the blame on the borrowers. The typical excuses you see for not helping student borrowers take a few predictable forms. Either the student is to blame because she picked a bad major, or because she should have realized at the time she took out the loans that she wouldn’t be making enough money to afford the monthly payments, or maybe she is just unworthy of our pity because she owns a cell phone or a laptop.
I’m not going to argue that students bear no responsibility for their choices, but I think that sort of moralizing misses the critical point that student borrowers are not to blame for the awful labor market conditions they are graduating into. The problem isn’t that graduates don’t have the skills to do the jobs that are out there. The problem is that there simply aren’t enough jobs out there.
Let’s bring it back to my brother. Dave went to the School of Visual Arts for photography. He learned real skills that have real value in the market. Photography and design skills are in high demand these days, especially in New York, so it’s not the case that he got some impractical degree. Dave turned out to be a really talented photographer and has been fairly successful at selling his work to some impressive clients. The reason he’s on the cover of Bloomberg is because he’s done some freelance work for the magazine this year.
The problem Dave is having is not that he can’t find any work, but that the volume of work in demand right now is too low. That’s not his fault — he can’t control how much money companies have available to spend on photography. Ensuring that there’s enough demand in the economy is the job of Congress, and the Federal Reserve. If members of Congress and the Federal Open Market Committee were doing their jobs, and not refusing to use all the tools at their disposal to return the economy to full employment, Dave would be in a more sustainable position.
Go read the whole thing over there. Lots of people for some reason feel politically aligned with creditors on debt issues, and I just don’t get it. The borrowers are being punished. The lenders so far have not been. But the lenders are the ones who did something much dumber, and their claims deserve to be written down. Steve Randy Waldman puts this well:
At an individual level the correlation between past consumption and recent unemployment is obviously negative. The people who have sinned are not by and large the people being punished. Some people overconsumed relative to their income, and some people invested poorly. Those who overconsumed have mostly faced consequences for their misbehavior — they are either deeply in debt, or they have endured foreclosure or bankruptcy. But the people who invested absurdly, especially “savers” who lent money but permitted themselves ignorance and indifference to how their wealth would be mismanaged, have not suffered the costs of their recklessness. Instead, they have been almost entirely bailed out. It is lenders and investors more than any other group who determine the patterns of our macroeconomy. There are always people willing to overconsume or gamble on foolish enterprises. We do and must rely upon those with resources to steward to ensure those resources are used wisely. They did not, and their recklessness has brought us to catastrophe. But rather than condemn them for negligence and permit their claims to be appropriately devalued, we applaud them for “prudence” and let government action be bound by commitments to sustain their destructive and ridiculous claims. You don’t counter that sort of villainy with technocratic arguments about liquidity traps. You point out that the motherfuckers who are calling themselves prudent, who are blocking both writedowns and government action that might risk inflation, are hypocrites and thieves. You state clearly that their claims are illegitimate and will be written down one way or another, unless we can generate sufficient growth to ratify them ex post, which would require claimants to behave less like indignant creditors and more like constructive equityholders.