Education Cost and Benefit: Why Ed Loans Should Not Be Seen As a "Distortion" From a Perfect Market

Some see low interest education loans as distorting the market for education and therefore bad, supposedly making the market less perfect, less efficient, less well-tuned.

Why focus on the narrow education loan segment alone as if it weren't entirely and necessarily interconnected with the needs it serves. What about business needs? The larger market ecosystem -- the economics of business and education -- involves a requirement for a supply of educated workers. Limiting the supply to only those who can pay their own way into education impedes business, a practical flaw in the greater job market. How would it be perfecting the greater job market to reduce the supply of educated workers to business when it is already insufficient?

This opposition to "distortion" on a narrow, inextricable segment of the greater system fails to qualify as an objective "good". It's an artificial and aesthetic goal rather than a practical, objective improvement of the greater economic system. The greater economic system for workforce education can relatively objectively be seen as functioning more perfectly when it yields a supply of qualified labor that's sufficient to foster business profits and yet not so excessive as to detract from employee prosperity. The current system falls short in supply of educated workforce.

Seeing loans as a distortion here is rather like seeing the spokes in a gear as a distortion from a perfect circle. Yes, those teeth on a gear distort its form from a perfect circle. But cut the teeth off the gear that drives the propulsion and a machine won't get very far. Education loans serve as teeth for the workforce capability gear. Remove the "distortion" from education loans and the wheels of modern business will slow towards a halt.

Sometimes getting rid of distortion would rob us of what we need most.

The Lesson That Ought To Be Learned

From Mark Thoma's The Great Lesson For The Great Recession for the Fiscal Times,

"Fiscal policymakers in Congress deserve more blame and scorn than they have received for their poor response to the recession. Congress failed to implement a fiscal stabilization package that was large enough to address the big problems the economy was facing, and due to Republican opposition it refused to implement additional measures when it became clear the initial package was too small in both size and duration. Congress could have, for example, followed up by putting people to work on infrastructure projects that would have more than paid for themselves just in terms of their value to society, never mind the additional benefits from helping the unemployed. 

That failure was bad enough. But even worse is that fiscal policymakers actually began moving in the wrong direction – toward austerity – at a time when just the opposite policy was needed. The result has been a much slower recovery than we might have seen otherwise."

Continued

The trend continues. No real surprise, except perhaps that efforts to obstruct any real progress by avoiding jobs bills and by other general deficit hawkery haven't quite managed to interrupt the all-too-gradual recovery ... at least so far.

It's not for lack of trying.

That there's more or less a picture of our current fiscal contraction. The reduction in Real Government Consumption Expenditures and Gross Investment drains the life out of our recovery, making it tepid at best. And if our recovery halts before we make a dent in our output gap, that's the obvious main culprit right there.