Friday, September 27, 2013

U6 Watch bonus: Can there be any doubt that the point of student loans is to maximize inequality?

While preparing this month's U6 Watch, I kept coming across evidence that student loans are strangling American innovation. First, the in the Wall Street Journal:
Having the student-loan debt “is preventing me from being able to take a lot of chances or risks that are usually necessary when starting a business,” Ms. Carney says…
Some academic experts say leftover loans are the biggest impediment to upstart entrepreneurship by those who recently received college or graduate degrees. “I mentor students all the time,” says Vivek Wadhwa, a fellow at Stanford University Law School. “The single largest inhibitor to entrepreneurship is the student loans.”
Recent graduates and college dropouts account for a disproportionate share of the founders of technology startups that have transformed the economy over the past decade, says Shikhar Ghosh, a senior lecturer at Harvard Business School. Many freshly-minted M.B.A.s “are willing to sleep on a couch for a year or two, but they can’t do it with the burden of student loans,” he adds.
Obviously, cash flow is always a problem for startups. Student loan payments exacerbate that problem:
For many young entrepreneurs, it is critical to invest capital to develop ideas, market products, and hire employees. Student debt burdens require these individuals to divert cash away from their businesses so they can make monthly student loan payments.
Clearly, student loan debt is threatening innovation, job creation, and economic growth if bright ideas are being held back by student loan payments. If we wanted to maximize innovation, start-up companies, job creation, and economic growth, we would prevent this situation by making college more affordable.

But making college more affordable means raising taxes.* Obviously our political system has no current interest in raising taxes to pay for social welfare spending to benefit low- and middle-income families.

Step back a moment to take in what that means. It shouldn't be a surprise that our political system is willing to sacrifice the well-being of college-educated twenty-somethings in order to maintain inequality. But it's no embellishment to point out that by failing to reform college tuition and student loans, we are sacrificing innovation and its gifts of jobs and economic growth. By insisting on innovation-killing student debt--our political system proves that it values inequality more than it values innovation, job creation, and economic growth. If this is surprising to you, it shouldn't be--because these priorities are decades old.

For more on the poverty sustainment of student loan debt, see this month's U6 Watch.

*As I've written before, raising taxes on the rich to pay for social spending to benefit everyone else is a mistaken priority of American liberals/progressives. The most "progressive" countries--the Scandinavian social democracies and Austria--tax regressively, and so should we. The Swedish don't use the rich like a piggy bank, and neither should we. We should go with what works, not with what sounds good. As usual, America's so-called "liberals" are asleep at the wheel.

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