Certain issues have been so heavily subject to political messaging that normally rational individuals will be unable to hear arguments outside the frame established by propaganda. Debt is one of these, and for some, the messaging surrounding the concept runs so deep that they will, during the context of the topic, forget the normal meaning of words.
“Student debt forgiveness,” as the name should imply, involves the forgiveness of debt. And yet, church-going Americans who have a firm grasp of the forgiveness offered by God through Christ, suddenly forget its meaning entirely any time you mention student loans. They immediately spout the platitude that the “taxpayers foot the bill.” I have to believe this is because of the repetition technique of propaganda: if you repeat something enough times, people will think it is true.
But, the truth is in the definition. “Forgiveness” is just that. If Peter owes Paul 100 dollars, and Paul forgives the debt, then Peter no longer owes Paul 100 dollars. Paul does not have to go rob Mary to get the 100 dollars he is owed. Paul didn’t have the 100 dollars prior to the forgiveness, and he didn’t have it afterward. Peter is no longer obligated to give it to him in the future.
Somehow when the debt holder becomes the fluid mass known as “government,” words lose all meaning
If the government is holding a debt, and it forgives it, that is the end of the debt. It doesn’t have to raise taxes to cover the debt because it’s not paying anyone any money. It didn’t have the money it was owed before and after the forgiveness. All it loses out on is the interest owed on the debt, which hasn’t been paid yet and would have gone away anyway had the debt been paid down.
And this is all quite to the side of the way the government manages its debt in the real world, which is through the creation of money. When the government issues a treasury bond and the Federal Reserve buys it, it does so with money it has conjured out of nothing. It doesn’t even bother to print new money. On paper, there is a debt, but the Fed got the money from nobody since it can create money at will. If the Fed were to “forgive” the government’s debt to it (which makes no sense since the bank is part of the government), it isn’t as if it has to call in debts to cover the books. It did everything through imaginary money in the first place.
Those of you who know monetary theory will know that 9/10 of all the money that exists is in the form of deposits. It’s imaginary, created by the transactions between banks and the fractional reserve banking system, which treats debts as assets on its books. The short explanation is this: if you deposit 100 dollars into a bank, it loans out 90 dollars, which is then deposited into another bank (or even itself), which then loans out 81 dollars, etc., and everyone treats their deposit (like the original 100 dollars) as money. Eventually, you get to 1000 dollars, all of which was created out of thin air.
That initial deposit in our system is usually created through debt, when the Fed credits a member bank’s account with a loan. Loan forgiveness at any stage “destroys” that portion of money on paper as an asset. It’s calling in debts that creates the real deflationary force, as each bank has to go backwards through the cycle (this, according to some economists, caused the great depression by contracting the money supply by 30% within a few years, making investment impossible). But calling in debts is very different from forgiving debts.
Perhaps people have been trained to think that forgiving debt is the same as giving a person that amount of money. But as above, no money is changing hands. You haven’t given the debtor anything, you are forgiving what he owes you. He didn’t have the money beforehand (or presumably, he wouldn’t need debt forgiveness), and he doesn’t have the money afterward. What he loses is the debt, including the interest to service it. The debt holder has not “spent” money to forgive the debt because the money was already spent (hence it was a debt—perhaps that definition gets forgotten as well), and the interest had not yet been paid.
I mentioned that banks treat debts as assets. There’s nothing wrong with this for most debts because the loan has a particular value associated with it, namely the value of what the loan purchased plus interest. The value of a mortgage is in the house it was used to purchase, plus interest accrued over time. If the debtor fails to service his debt, the lender can acquire the asset (the house) and recover what he spent initially on the loan. The house makes him whole.
But student loans are usurious by their nature. There is no asset to recover. The debtor cannot give up his college diploma to the lender, nor can he borrow against it in the future. He cannot acquire equity in his diploma because it isn’t an asset. Therefore, it follows that such loans should not be treated as assets in the same way that a mortgage is. If a student loan is forgiven, the debtor doesn’t own any more equity than he did prior since he acquired nothing tangible with his student debt.
It occurs to me that the propagandized view of debt forgiveness assumes that some other third party holds the debt and that the government will “give” money to that third party to make them whole. Most debt is held by the government, so writing it off won’t affect any third party, even the taxpayer. But what about those private loans?
Now we’re getting to an actual discussion.
Brian Niemeier suggests seizing the university endowments to pay them since they are responsible for selling a worthless education (my reasoning, not necessarily his). But what if the government printed money to pay them? Would the taxpayer have to pay then?
Sort of. The government would pay by printing money, which could cause inflation if there are no other deflationary forces to counter it. That is a tax, and one that we all pay. Then again, member banks owe large sums of money to the Fed on paper, so it could just be a canceling out of a few lines on the books with no money changing hands at the end of it.
I’ve also suggested that a jubilee be declared (which is not “forgiveness”), and lenders will just have to eat their losses. After the 2008 financial crisis, I have very little sympathy for banks and how they invest, and since the loans are usurious, I don’t think them losing on a bad investment (like education) is unjust, just like going bust buying stock in an untested start-up isn’t unjust.
But this is what we really ought to be discussing: is it just to forgive certain loans vs. others? Is it moral? How does our faith inform us on this issue? Do we own a stake in the government and therefore have the authority to forgive loans owed the government? Is it moral to enforce a jubilee? At that point, we have remembered what some of our words mean. Feel free to leave me your opinions on the matter, either here on Twitter.
I am an independent artist and musician. You can support me by buying my books. In particular, I would love if more people checked out “Pulp Rock,” edited by Alexander Hellene.