Student Loan Interest Rates: Elizabeth Warren Promises Bread and Circuses

At least two of my followees posted this on their FB feeds:

Oh gawd.

Oh gawd.

Posting something like this, without any caveats or qualifications, to me, is a symptom of Acute Economic Unawareness (AEU). This is kind of sad for me, because I really liked Elizabeth Warren a few years ago when, as the Chair of the Congressional Oversight Panel on TARP, she reservedly and intelligently criticized the Wall Street bailouts. Since achieving cult hero status for her agitated exaltation of the ‘social contract’, she has won a seat as a U.S. senator from Massachusetts. She now comes across to me like just another bread-and-circuses Democrat who views laws of economics as mere guidelines.

Her latest campaign is to give free money away to students. Mother Jones recently reported on her reasoning:

“If we can invest in big banks by giving them low interest rates on government loans,” Warren said in the statement, “we certainly can do the same to help students get an education.”

Mrs. Warren used the same “if… then” type of statement in her introduction speech for this bill. Unfortunately, she and her other colleagues in government can’t invest in big banks by giving them low interest rates on government loans. The later part of her reasoning, therefore, does not necessarily follow.

Giving banks low interest rates on loans is a significant part of problems with our economy as of late. As Tom Woods cogently explained, pervasive government interference with the price of borrowing money fuels the malinvestments that lead to troublesome booms and busts:

The government should stop doing this sort of thing, not do it even more.

2 Responses to Student Loan Interest Rates: Elizabeth Warren Promises Bread and Circuses

  1. David says:

    The government should stop because that’s the one-size-fits-all answer to everything. No thinking needed. As regards your claim that Sen. Warren wants to “give free money away to students,” I wish she would. But she is not proposing to “give free money away.” Maybe by “give away” you mean to loan? Okay, then loaning free money away means, what, to loan ar zero interest? She hasn’t proposed that either. Continuing to be generous, maybe you meant to loan money at no cost to the lender, but that is not proposed either. No, I am afraid there is no getting around it, you lied.

    • autofyrsto says:

      That’s a fair criticism. I could have explained that more clearly. Thinking back a year ago to when I posted this, the thought process went like this: Bankers in the market naturally loan money to students at an interest rate ‘A’. To further promote education, under the belief that ‘A’ is too high of an interest rate, do-gooders and politicians convinced the federal legislature to offer loans to students at reduced rate ‘B’, removed from market constraints. The difference between the amount of money paid at interest rate ‘B’ and the amount of money paid at interest rate ‘A’ is the amount of free money the government wants students to have. The promotion worked wonders, as many students purchased schooling that they might not have purchased. Now, after the recession, many students are having trouble paying that money back. Warren’s solution, as I understand, is an even further reduced interest rate for students, ‘C’, even further removed from market constraints; egro, more free money for students.

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