A Little Student Loan Perspective

For months, college students and their advocates have decried impending increases in federal student loan rates. This past Saturday, it happened: variable interest rates on existing taxpayer-subsidized Stafford loans rose from 5.3 percent to 7.14 percent, and new loans were pegged at a fixed rate of 6.8 percent. Doomsday had arrived!

Or had it? As a new report from the National Center for Education Statistics makes clear, it wasn’t very long ago that students faced significantly higher interest rates than those that went into effect Saturday, yet for the most part borrowers were able to repay their loans without great difficulty.

According to the report, most borrowers who graduated in the 1992-93 academic year paid interest rates of 8 percent in their first four years after graduation, and between 6 and 9 percent for the remaining years. Despite that, relatively few borrowers had long-term difficulty repaying their loans, and even many who at some point defaulted eventually got back on track.

What this shows, of course, is that taxpayer-backed loans aren’t nearly the burden on students that college activists have made them out to be. But don’t expect student advocates to admit that anytime soon. After all, if they didn’t act incessantly oppressed by having to pay for some of their own education, it would be a lot harder for them to get politicians to fork over ever-more taxpayer dollars.

Jefferson v. Stevens

Justice John Paul Stevens recently dissented from the majority opinion in Randall v. Sorrell, the case involving campaign finance restrictions imposed by Vermont. Stevens has long argued that money is not speech, and thus restrictions on money cannot raise First Amendment issues.

Robert Bauer offers a devastating critique of Stevens’ opinion. Bauer justly says Stevens’ dissent will be “cited, for years to come, as a prime example of carelessness, close in nature to fecklessness, in treating the First Amendment issues raised by campaign finance regulation.” Bauer’s blog, his website, and his book, More Soft Money Hard Law, are essential reading for anyone who care about free speech or the future of American politics.

Thomas Jefferson once wrote, “The natural progress of things is for liberty to yield and government to gain ground.” It’s a pity a long-serving Supreme Court justice thinks government gaining ground in free speech is a good thing and even worse that he projects his own statist sympathies onto the Founders, who were nothing if not defenders of liberty.

Charity Chased Hence by Rancor’s Hand

Both Jonathan Chait’s LA Times op-ed bashing charity and Matthew Yglesias’s post cheering it on demonstrate the confusion of contemporary statist liberalism’s antagonism to civil society. Matt writes:

Donating to charities is a great way to support the arts and pretty much the only way to support religious groups you believe in, but as a method of remedying social problems, it leaves an enormous amount to be desired. Failure to recognize this is a huge problem.

What it leaves to be desired, it seems, is that it does not empower the political class. Chait notes that Warren Buffett’s massive gift to the Gates Foundation comes to 1/10th of 1 percent of the federal budget, and asks:

How much would it cost to influence the political system to move 1/10 of 1% of the budget out of, say, wasteful subsidies and into the sorts of programs the Gates Foundation supports? I’m not sure, but it’s way less than $31 billion.

This is so depressingly wrongheaded it’s hard to know where to start. Let’s start with the obvious thing: math and silly comparisons.

If you have to spend money to spend money, you’re wasting money. Suppose Warren Buffett spent only $20 billion to redirect $31 billion of the federal budget to, say, poverty relief and education programs. Well, then it would be costing $51 billion to secure $31 billion in government spending. Even if government programs were optimally effective, Buffett would basically be burning $20 billion he could have spent directly on poverty relief and education. And if faction A started spending huge amounts of money to “influence the political process,” faction B, with competing priorities, would start spending similarly huge amounts, ratcheting up the number of dollars you would have to spend to influence the direction of each dollar of government spending. And what about the people who receive “wasteful subsidies?” They don’t think the subsidies are wasteful at all, so will they all roll over the moment a billionaire starts flashing cash?

(By the way, here is an article Chait wrote arguing for campaign finance reform in order to stop big money from influencing the political process. So it’s okay as long as the direction of influence is Chait-approved?)

Also, pointing out that Buffett’s gift is a mere 1/10 of 1 percent of the federal budget is simply bizarre—sort of like sniffing at a $100 million yacht because it costs a mere 3 percent of a Nimitz-class aircraft carrier. Would it ever occur to you to argue that the money raised through taxation must be trivial since Warren Buffett alone pays only a small fraction of 1 percent of the entire nation’s taxes? Well, Buffett isn’t the only person who gives money to charity, either. The fact that his gift comes to only a bit more than 10 percent of the $260.3 billion in charitable giving in the US in 2005 makes it no less impressive. Americans gave more money to charity last year than the entire 2005 GDP of Denmark—which is bigger than Greece’s, Ireland’s, Portugal’s, and Argentina’s. Or to put it another way, if American charity was a country, it would have the 27th biggest economy in the world.

Second: effectiveness. One of the leading causes of poverty in America is decades of ineffective government anti-poverty policy. The leading cause of poor education in America is the completely irrational incentives held out to administrators, teachers, and students by union-dominated monopoly public schools. So let’s spend money to lobby the government to do more of that? Thankfully, the Oracle of Omaha knows how to stay away from a bad deal.

Buffett’s donation is about 2/3 of the Department of Education’s budget for one year. Next year’s budget for the schools in Fairfax County, Virginia alone is $2.1 billion, about 7 percent of Buffett’s gift. Is there any reason to believe putting $31 billion or even $100 of taxpayer money on the table for the existing broken system to fight over would improve American schools? Nope. Budgets have already been doubled and tripled to no avail. The government’s problem isn’t usually a lack of money, it’s usually misallocation, due to the lack of feedback from a functioning price system.

The worldview that holds that the same amount of money voluntarily spent on direct charity would have been better spent if only it had been coercively appropriated through a wasteful process of political competition, filtered through a squandering bureaucracy, and then spent ineffeciently (whatever is left of it, that is) makes my brain hurt. Of course, no one actually professes that worldview in those terms, but that’s what the Chait-Yglesias romantic-magical conception of government comes to in practice. “Failure to recognize this is a huge problem,” as some sage once said.

Which brings us to the last thing: fantasy. Chait and Yglesias are in the grip of a beautiful dream in which an elect class of wise persons happen to know exactly how to spend money to make bad things better, and in which there is some way (clap our hands and hope?) the elect can get and stay in control of government spending without (1) wasting huge amounts of money that could actually be spent for humanitarian purposes in the ceaseless fight for the apparatus of state coercion, (2) wasting huge amounts of money paying off the special interest groups that got them elected (i.e., Chait’s “wasteful subsidies”), (3) wasting huge amounts of money in inevitable bureaucratic bloat, (4) wasting huge amounts of money due to the ineffectiveness of government agents who are neither penalized nor rewarded for failing or succeeding. “Success” is just a bigger budget next year, no matter how badly the agency fails.

Chait admits that “Unfortunately, Washington doesn’t always care what works,” but then goes on to imply that this is mainly a problem caused by the present Republican administration’s capitulation to myopically greedy corporations who have come to Washington to seize power. Chait thinks that if only Buffett poured money into a foundation to create big-business lobbyists with Jonathan Chait’s political priorities, then all would turn out well, and Buffett’s money will have been well-spent.

But the problem here is not a lack of far-sighted virtue within corporate boards, or a lack of adequate instruction in the unassailable correctness of Jonathan Chait’s politics, it is simply an inevitable consequence of the incentives created when government puts government power on the table. No doubt government and business aren’t acting as collusively and anti-competitively as they could, and that many businesses might benefit by doing more to lock down their temporary market advantages by creating new costs that upstart competitors will be unable to bear, making sanctimonious noises about the public interest all the while. Remember the tobacco master settlement? Is anyone more concerned with saving us from ecological catastrophe than the civic-minded Archer Daniels Midland Corporation?

Civil society is so profoundly important because voluntary cooperative association is the basis for moral community and because the romantic-magical view of government is false. The Gates Foundation has had incredible success with health initiatives in less developed countries because they are not subject to the truly perverse incentives of the aid bureaucracies. Though I am very skeptical of plans to improve public schools by giving them better computers instead of better incentives, targeted initiatives funded by outside money do allow for a kind of experimentation and feedback that is almost always squelched by the vested interests in control of the public funding process. If public schools are going to get better, it is probably going to be due to the relatively small amount of experimentation made possible by a relatively small amount of private charitable giving.

In general, the difference between civil society and politics is the the difference between cooperation and conflict, between consent and coercion, between correcting feedback and bureaucratic failure. People who wish aloud that wealthy benefactors would throw their money into politics instead of funding the flourishing of voluntary civil society are wishing, whether they mean to or not, for the power of the political class over the productive class—for the reign of conflict over cooperation. Chait says, “don’t get me wrong when I say that instead of lavishing the whole thing on malnourished or otherwise underprivileged children, [Buffett] should be giving some of it to slick political operatives.” Okay. But things don’t look so good for Chait if we get him right.

[Curious about the title quotation?]

Topics:

Madness!!!

President Bush has endorsed adding the former Soviet province of Georgia to NATO, a measure that seems designed to provoke the Russians without adding any net benefits to the alliance.  Georgia would bring more liabilities than assets to NATO because it is inherently indefensible.  It is nearly surrounded by Russia; its only border with NATO is a short border with eastern Turkey.  Georgia has no significant military forces of its own, and Russian troops already occupy two enclaves there.

Article V of the NATO Charter obligates all NATO governments to respond to an attack on any NATO country, increasing the probability that a minor confrontation between Georgia and Russia would lead to a larger war between NATO and Russia.  NATO should not be broadened to include countries on the Russian border unless those countries have substantial military forces and defensible borders.  For a similar reason, the earlier addition of the three Baltic countries to NATO was a mistake.  Peaceful and productive relations with Russia are more important than any value these new members bring to the United States and NATO.

President Bush was gracious in hosting the president of Georgia this week and was correct to support the major economic reforms that Georgia has initiated.  But he was wrong in endorsing NATO membership as a sort of after-dinner mint.  There are much larger issues at stake for the U.S., Europe, and Russia.  One wonders what Bush now expects to accomplish with Putin at the G-8 meeting in St. Petersburg next week.  

Technology - er, Paying Attention - Will Save Us All

With masterful dry wit, ars technica skewers a new Defense Department research project.  The idea?  Using technology to find information.

The Air Force’s Office of Scientific Research has commenced a study called “Automated Ontologically-Based Link Analysis of International Web Logs for the Timely Discovery of Relevant and Credible Information.”  In translation, that means, “We’re going to pay attention to blogs.”  Price tag: $450,000. 

Talk about government waste. I would have sold them that idea for $399,000.