Student Loan Forgiveness: One Idea That Doesn’t Deserve to Graduate

This article was originally published at ValuesandCapitalism.com on May 21, 2012.

If you are like most college students, you have already accrued a considerable amount of student loan debt. College is expensive, and without student loans many would simply be unable to obtain a college education.

But over the past few months, many have begun to question the efficacy of borrowing so much money—even for a purpose as worthy as education. Recently, the Chicago Tribune reported that student loan debt reached $870 billion—surpassing both car and credit card debt—and is projected to climb rapidly over the next few years.

Thus, it is understandable that The Fairness for Struggling Students Act (FSSA) has become high on the agenda for many government and education officials. The FSSA would allow student loan debt from private lenders to be wiped out in bankruptcy proceedings. Seen as a remedy for a growing economic problem, the Act has found support among many in government and academic circles.

But the reality is: The FSSA is an unjust bill that should warrant no support from respectable students, no matter how indebted they are.

First, no one is entitled to a college education. Despite what many progressives preach, education is not a right, but a privilege. But by forcing private banks to forgive loans for those who prove unable to repay them, government asserts that college is a right and need not be paid for.

This entitlement culture is bad for morals and ruinous for the economy. Telling students that they have a right to go to college even if they cannot ultimately pay for it only perpetuates this sort of selfish attitude.

Second, defaulting on loans is a privilege, and forcing lenders to forgive bankrupt lendees is a coercive affront to property rights.

If an individual is able to lend money to needy individuals, it is only because that individual was able to save or acquire enough money to be able to do so while maintaining an acceptable quality of life. Such saving requires much diligence and thrift—behaviors that should be encouraged and expected of all people.

But when the government forces lenders to forgive lendees, they spit in the face of those who empower the less fortunate.

Banks are not evil. When they grant loans, they are doing lendees a favor—allowing them to use money now and not pay until later. But by forcing banks to forgive the loans of those who cannot repay them, the FSSA disadvantages banks and discourages further lending.

Third, the FSSA will only encourage the increasing indebtedness of America’s youth and will do nothing to discourage underqualified students from acquiring student loans.

It sounds harsh, but the fact is: a sizeable amount of college students simply should not be at college (AEI scholar Charles Murray is right!). This is not because college should be reserved only for the intelligent. It is because college, for many, is simply a bad investment that hurts them more than it helps—especially when paid for by student loans. College is expensive, and if one does not possess the natural talent necessary to do well, then the expense can often outweigh the cost. If this is the case, there is no justification for going to college.

But for decades, the government has encouraged maximum college attendance by making student loans unbelievably easy to obtain. Thus, many who would otherwise not go to college are empowered to enroll, despite the fact that they do not possess the skill necessary to do well. By forcing banks to forgive the debts of those unable to pay, the government only gives underqualified students more incentive to go into debt.

If you really care about your fellow students, you will not support any measure that lets them off the hook when unable to pay college debt, or any bill that forces owners of money to forgive lendees who promised to pay them back. Acquiring debt entails the responsibility to repay it—seeking government’s help to fight against your lender is no less than theft.

Power and Market: A Review

This article was originally published by the Ludwig von Mises Institute on February 11, 2013.

Coercive intervention into economic affairs is economically detrimental, no matter the circumstances. This is the thesis of Murray Rothbard’s Power and Market, an exhaustive and systematic analysis of all forms of economic intervention. Written to elucidate the effects of government intervention in the economy, the book is bold and as accessible as it is scholarly. Though written in 1970, the principles of the market economy described in this book are valid for all time, and are not framed solely in the context of the modern American political system. In Power and Market, Rothbard systematically refutes any alleged justification for government intervention into economic affairs, proving that a moral opposition to intervention is a matter of principle — not situational prudence.

Championing the totally free market, Rothbard, a prominent 20th-century economist and ardent intellectual enemy of the state, leaves his reader hard-pressed to discover any logical fallacies with his argumentation or to develop any substantial counterarguments to his seemingly radical but hitherto indestructible scrutiny of the distortionary and often self-defeating effects of coercive economic intervention. Neither is his analysis overtly confrontational. While the implications of his conclusions — that any and all forms of economic intervention are injurious and rarely, if ever, achieve their stated goals — are very different from prevalent beliefs today about the uses of economic intervention, Rothbard is frank and matter-of-fact in describing the effects of various types of intervention, and takes a strictly scientific approach to the topic.

Rothbard understands government intervention as a distortion of the natural economic order, whereby all men are free to contract with all others. But Rothbard’s personal views are not manifested in Power and Market by way of partisan or lopsided political rhetoric. Rather, his analysis of the effects of economic intervention is strictly academic and consistent with the charge of professional economists to remain wertfrei, or value neutral, while elucidating economic truth. Where Rothbard does criticize impure laissez-faireists and proponents of government intervention, it is not without a strong defense of his own views and a careful dissection of exactly where interventionist policies go awry. His opponents are thus painted as wrong by implication of his economic analysis and not by his assumptions about their unspoken motives or their being of a different intellectual background or political persuasion.

The book begins somewhat awkwardly with an illustration of defense services on the free market. Rothbard posits that in the free market no invasion of property takes place because everyone voluntarily refrains from such aggression or because what methods of forcible defense exist are sufficient to prevent such aggression. It follows that it is a fallacy to believe the free market is inherently incapable of supplying defense services. According to Rothbard, laissez-faireists — while claiming to support the free market — erroneously assume that there must be one single, uniform code of law to uphold contracts, and subsequently one powerful institution to uphold it. It follows, then, that they assume defense services must be large and uniform, and that a state is the only institution capable of providing such a service.

Rothbard proves this is false by uncovering what a free-market defense system might look like. While he admits that it is impossible to blueprint the exact conditions of any future market, it is not futile to prove the possible existence of a future market through reasoned speculation. The picture of free-market defense that follows is detailed and convincing. To sum it up, Rothbard writes,

A supply of defense services on the free market would mean maintaining the axiom of the free society, namely, that there be no use of physical force except in defense against those using force to invade person or property. (p. 2)

Defense, then, would be obtained like any other service: through contract and the laws of supply and demand. There is no justification for a government monopoly on defense.

As stated above, beginning the book with a discussion of defense on the free market is awkward. But only after reading the entire book does any possible reason come to mind as to why Rothbard opens his book in this manner: the inability of the free market to give rise to adequate defense services against invaders of property is a common belief among critics of the market, and allowing this erroneous belief to go unaddressed before Rothbard begins his analysis and deconstruction of all advocacy of economic intervention may prevent apprehensive readers from adopting his views. If not for this, the order of Rothbard’s discussion could very well be a matter of random chance.

From here, Rothbard progresses to discuss the fundamentals of economic intervention. He posits that intervention into economic affairs can take three forms. The first he calls autistic intervention(p. 12). This occurs when an intervener (that is, “one who intervenes violently in free social or market relations”) commands an individual to take or not take certain actions, even when such actions involve only the affected individual’s person or property. Such intervention exists today in the form of homicide, assault, and compulsory enforcement or prohibition of any salute, speech, or religious observance.

The second form he calls binary intervention (p. 13). This involves a coerced “exchange” between the intervener and the subject, such as the various forms of taxation, government subsidies for select private firms, conscription, and compulsory jury service.

The third form is triangular intervention (p. 13), in which the intervener compels or prohibits two individuals or firms from freely contracting with one another. Such intervention exists today in the form of price controls, drug-trade prohibition, and grants of monopolistic privilege.

These three forms of intervention comprise every possible instance of intervention into economic affairs. But as Rothbard writes,

it is impossible in the space of this volume to trace all the effects of every one of the almost infinite number of possible varieties of intervention … it must be remembered that acts of binary intervention have definite triangular repercussions. (p. 14)

And while Rothbard does not confine his discussion of intervention to government intervention (he refers to homicide and assault, which do not necessarily involve the state, as forms of economic intervention), it is presumed that government is the most egregious violator of the free market, and that the vast majority of the most oppressive and distortionary interventions come at the hand of state bureaucrats.

Following his exhaustive description of the effects of every type of economic intervention, Rothbard identifies and corrects many common misconceptions about the free market. Among these are the beliefs that monopoly pricing is inevitable in a free market, that government must do what free individuals cannot do, and that free-market advocates assume all human beings are angels. Rothbard’s refutation of those who claim that equality is the highest end, and that its incompatibility with the free market renders such a system immoral, is particularly damning.

The claim that a market economy fails to achieve the goals of equality is, according to Rothbard, among the most common ethical criticisms of the market economy. And regardless of whether equality is shown to be attainable under any economic system whatsoever, many maintain the belief that at least some cut in living standards is a fair price to pay for what increase in equality allegedly or possibly arises from them (taxes for the welfare state, for example). But Rothbard notes that the assumption of equality as an attainable and worthy goal in and of itself is anything but self-evident.

Indeed, when scholars call for greater equality among men, they often reject (by implication) two of the basic tenets of praxeology: the diversity of human skills and resources and the disutility of labor.

“If each individual is unique,” he writes, “how else can he be made ‘equal’ to other than by destroying most of what is human in him and reducing human society to the mindless uniformity of the ant heap?”

Equality of the form that many egalitarians and critics of the free market desire is simply incompatible with the nature of mankind.

Perhaps the most important section of Power and Market is the closing chapter (“Economics and Public Policy”). Here, Rothbard defines the parameters of economic science and shows where an economist can and cannot make policy recommendations while simultaneously honoring the charge on professional economists to remain value neutral in their analysis. Breaking this charge, he says, is one of the prime reasons for flawed policy recommendations and bad policy itself. He writes,

Neither can economists legitimately adopt the popular method of maintaining ethical neutrality while pronouncing on policy, that is, taking not their own but the ‘community’s’ values, or those they attribute to the community, and simply advising others how to attain these ends. An ethical judgment is an ethical judgment, no matter how many people make it. (p. 15)

A shallow criticism of this claim might be to point to Rothbard’s defense of the free market and call it biased, as it undermines the majority of popular views about economic intervention. But this would be unfounded, as Rothbard’s defense of the free market — as stated above — is strictly scientific. His analysis is based on the self-evident first principles of praxeology, and what implications result are not his own manipulations of the data but the natural and predictable implications of the nature of human action and the free market.

To his credit, Rothbard refrains from making any positive policy recommendations or relying on empirical data as evidence for the justifiability of certain types of intervention until after his thorough refutation of the argument for intervention of any form. While the argument from experience can be useful in defending one’s principles, experience alone is not enough to prove the validity or superiority of one philosophy over another. There is no such thing as a closed system or equilibrium in economics by which to accurately identify the causal relationships, and thus to rely experience as proof is to assume one’s infallibility in identifying causal relationships in a field of inherently uncontrollable variables.

As a means of communicating free-market principles, this book succeeds, but more in an academic sense than as a tool for persuading a popular audience of the irrationality of interventionist policies. While Rothbard’s arguments are thorough and compelling, many of the arguments againstthe unhampered market — as identified in the book — are rooted in emotional concern, perverse morals, or irrational “intuitions” about the nature of the economy and human action. With these sorts of arguments Rothbard deals carefully, but appeals to reason alone. His analysis and critique is entirely based on reason and logical extrapolations from the first principles of praxeology.

Unfortunately, reason tends to be less than effective in persuading a popular audience of the validity of certain claims. And when dealing with economic policy, this tendency is only magnified. The existence of the state provides a means for the wielding of coercive power; for an aspiring or current political ruler to give in to the fact that economic intervention by government is irrefutably harmful undermines what personal gains could be made by that political ruler. Indeed, the facts about intervention, as codified in Power and Market, are damning for the state and all those who wish to use violent coercion to engineer, direct, and alter the lives of their fellow human beings.

Read the article at Mises.org.

Reality TV Inventor Loses Big to ‘Buy American’ Fallacy

Bad economics and reality television just made Donny McCall an overnight hero. Unfortunately for him, it’s all for naught.

On a recent episode of ABC’s Shark Tanka show that features a panel of super-rich investors negotiating investment proposals from entrepreneurs, Invis-a-Rack owner Donny McCall was denied $100,000 to help expand his business because of his refusal to outsource any part of his production structure to foreign labor markets. Because of a love for his country and his ailing hometown economy, he decided beforehand that looking overseas for cheaper production costs was simply unacceptable. “It’s high time that somebody stood up and not just bow down to the automatic of going to overseas to do anything” he said in a post-show interview.

McCall has been praised all around for his apparent “patriotism” and refusal to outsource. He appeared on Fox and Friends to discuss his experience on Shark Tank, and his patriotic spirit has earned him the love of Americans everywhere. A Washington Times commentator said he was simply “doing the right thing”, and one blogger has condemned the “quick-kill mentality” that supposedly kept the venture-capitalists from seeing things the right way and investing in McCall’s business.

But there is one problem with this: Producing overseas does not hurt American workers. McCall’s refusal to outsource production only limits the growth of his American-owned corporation, in turn limiting the size of the American economy.

Not surprisingly, the venture-capitalists knew very well why McCall’s insistence on “American-made” product was unwise and ultimately self-defeating. All five of them rejected his otherwise-enticing offer, saying he was not willing to do what it took to take his business to the next level. One wisely remarked that by refusing to outsource, he was limiting the number of Americans who would benefit from his product, as well as the number of Americans he could ultimately employ. McCall offered no response but to stand by his decision.

As I’ve shown before, the notion that ‘buying American’ is inherently good for the American economy is simply wrong. While it may seem that such a claim is true on the surface, a deeper investigation into just what happens when consumers pay more to ‘buy American’ shows that not only does doing so not help the economy, but it actually limits economic growth.

When foreign producers sell goods in the United States, it is because they are making a profit. They are supplying goods that American consumers demand at prices they agree to pay. By doing business in the US , they are inevitably in competition with American firms as well. This has the effect of incentivizing all firms to increase the quality of their good while lowering prices. This in turn benefits the American consumer, who has more goods to choose from while keeping more of their income.

In McCall’s case, outsourcing production would allow him to lower production costs and sell his product at a lower price. This would make the Invis-a-Rack available to more Americans, who would in turn use it to run their own businesses and lower their own production costs. He would be able to hire more American workers, and perhaps begin to sell in foreign markets as well, eventually bringing revenue into the United States from foreign markets.

Perhaps McCall’s economic mistake is most obviously revealed in the fact that he seemed to have no problem outsourcing to other states. Indeed, he said his parts come from several suppliers around the country. But according to his logic, such outsourcing harms his hometown–which he claims is suffering economically. Why outsource to Ohio or Michigan when the same production can be done in one’s own state or hometown? I would wager that he’d say it still benefited the American economy. But if that is the case, does not outsourcing to China benefit the global economy, in turn benefiting Americans?

McCall is wrong, and his stubbornness harms both his business and his countrymen. His adherence to principle is admirable, but the principle itself is flawed.

The ‘buy American’ fallacy is costly. It inhibits economic growth, keeps prices high, and limits trade between nations. It cuts off capital flows to developing economies and restricts consumer choices. It makes small-business owners feel guilty for using cheap overseas labor to start businesses in the US–some of which ultimately create thousands of American jobs. It contributes to the “fortress mentality” that has millions of Americans erroneously believing that sacrificing innovation is more than acceptable if it means one more step down the road to American economic ‘self-sufficiency’.

But for Donny McCall, the fallacy has been costly indeed.

Published at HansEconomics.com on February 12, 2012.

Farewell Rob Bell? Beloved pastor victim of unfair criticism

Op-ed about the controversy surrounding evangelist Rob Bell’s book Love WinsPublished in The Collegian on March 11, 2011.

Is renowned American pastor Rob Bell a universalist? No one knows for sure, but Bell became a Twitter celebrity last week after it was revealed that his new book, “Love Wins,” challenges the idea of hell maintained by most “orthodox evangelicals” today.

Two weeks ago, HarperOne released a video and synopsis of Bell’s new book saying he argues “that a loving God would never sentence human souls to eternal suffering.” A foreseeable uproar followed. Condemnation came from Twitter and the blogosphere, warning laypeople about the danger and heresy of Bell’s “universalism.”

The consensus was clear: Bell had crossed the line, and his theology should be rejected by those who hold to orthodox beliefs about the afterlife.

But there was one problem: no one had read Bell’s book. And no one will for two more weeks. It has not yet been released, and the only clue about the content of the book comes from a two-sentence synopsis written by someone other than Bell. One blogger claims to have read a few chapters, but he did not say what was in them or claim to have any certainty about whether or not Bell was indeed a “universalist.”

Granted, many critics claimed only to be warning their readers for what might be to come. But some found sufficient reason to condemn Rob Bell himself. “Farewell Rob Bell,” tweeted John Piper after he read a critical article about the synopsis of Bell’s book. (What he means by this I cannot figure out. Is Bell no longer saved?)

But Piper did not explain his send-off to his 128,000 Twitter followers, sparking what he had to know would be a huge controversy within the church. This response, like most others, was needlessly divisive and inflammatory.

Twitter wars like this between pastors are just as harmful as the faint possibility that Bell might turn out to be a pseudo-universalist. Using Twitter to cry heresy and condemn pastors (or any individual, for that matter) should be well below the likes of Piper.

But concerns about online etiquette aside, this whole fiasco reveals a serious problem with modern American evangelicalism. The tone in which the doctrine of hell is taught and affirmed is not consistent with the content of the doctrine.

It is easy to rattle off one’s “orthodox” belief about hell as a place of eternal punishment for the unregenerate and eternal suffering for the enemies of God. But for those prone to doubt and skepticism, any meditation on hell is terrifying, even crippling. Bell’s critics, amidst all of their flippancy, seem to have forgotten this fact. As they campaign around the Internet triumphantly dismissing those whose belief about hell might be somewhat different than theirs, they are forgetting the immense weight of this doctrine and the true implications of what they are affirming.

One wonders whether the accusers can even relate to those who have seriously considered what it would be like to suffer forever and therein found the gospel simply too frightening to believe.

If our ultimate goal as Christians is the preservation of our individual and very precise doctrinal beliefs, then maybe Bell’s critics are justified in being so casually dismissive. But if our goal is first to reach out to and love the lost, including those struggling with the implications of believing in the existence of eternal damnation, then Bell’s critics have absolutely failed.

Nobody has denied the existence of hell, and there is no reason for the divisive accusations that are splitting the church and making quite an amusing spectacle for the enemies of the faith.