An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
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Thursday, June 27, 2019
Wipe Out Student Debt and Everyone Wins, Says Bernie's Economist — Katia Dmitrieva and Alexandre Tanzi
Positive reporting. MMT is now being taken seriously.
All Kelton is saying is that wiping out student debt is stimulatory: i.e. it increases demand, all else equal. Well that’s pretty obvious: any debtor whose debt is wiped out will tend to spend more.
But imparting stimulus is something that any old fool of a government ought to be able to do, and at no real cost: all it has to do is create money and spend it. Ergo in that cancelling student debt imparts stimulus, it does not achieve much.
As for “everyone wins”, unfortunately for every debtor, there is a creditor somewhere. That is, for every dollar’s worth of “win” there is a dollar’s worth of loss somewhere. E.g. if a law is passed saying that all student loans owed to banks shall be wiped out, then bank shareholders lose out. And given the precarious position that banks are in half the time, that probably means taxpayers have to come to the rescue of banks, yet again. In which case taxpayers lose out.
And finally, please note that I am not arguing against student loan cancellation: I’m just arguing against Kelton’s logic.
All Kelton is saying is that wiping out student debt is stimulatory: i.e. it increases demand, all else equal. Well that’s pretty obvious: any debtor whose debt is wiped out will tend to spend more.
ReplyDeleteBut imparting stimulus is something that any old fool of a government ought to be able to do, and at no real cost: all it has to do is create money and spend it. Ergo in that cancelling student debt imparts stimulus, it does not achieve much.
As for “everyone wins”, unfortunately for every debtor, there is a creditor somewhere. That is, for every dollar’s worth of “win” there is a dollar’s worth of loss somewhere. E.g. if a law is passed saying that all student loans owed to banks shall be wiped out, then bank shareholders lose out. And given the precarious position that banks are in half the time, that probably means taxpayers have to come to the rescue of banks, yet again. In which case taxpayers lose out.
And finally, please note that I am not arguing against student loan cancellation: I’m just arguing against Kelton’s logic.