A Propagandized View of Debt and Forgiveness

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.

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16 Comments

  1. Don’t remember if it was you or Alexander Hellene who said that student loans are usurious because the “guarantee” that college degrees equal high paying jobs is erroneous. It’s an old way of thinking that isn’t applicable to Millennials and Zoomers. Brian Niemeier’s tweet to the Senator was perfect. Taxpayers can’t afford to help forgive immoral debts, but we sure can give billions to foreign wars.

    • I would say they are fraudulent because the guarantee is erroneous, and they are usurious because the loan isn’t backed by anything. That’s two reasons that people who are unable to pay them should not have to. And that is what the debt crisis is about – people who can’t pay. If everyone could service their debt we wouldn’t care to think about how it’s technically usury.

  2. Your point about forgiveness not being paying off loans is an important distinction I don’t see talked about. The other thing I see people bring up is “We don’t have the money!” This used to be me before I knew about the aforementioned. Also after the past 2 years and the current $$$ laundering in Ukraine you can’t take that argument seriously.

    Your original point aside, USD isn’t backed by anything and the state prints trillions for boondoggles anyway. Why not throw a bone to the peasants once in a while? The weapon, banking, medical cartels can still get as much as they want. Money printing isn’t a fixed pie. Ultimately, I think the naysayers boil down to bitter people that have already paid off their loans and boomers wishing to punish “stupid kids.” Maybe throw in some political partisans that hate anything coming from the left on principle.

    • Yes, I notice the biggest opponents to forgiveness are those that paid them off. Obviously, it doesn’t feel good to work at paying down a debt and then have somebody else just get a pass for the same thing, but most of the same people don’t apply the same sentiment to bankruptcy, which cancels out large amounts of debt. We really should consider making student loans dischargeable in bankruptcy like other forms of debt where the lender can’t recover an asset. The crisis exists because people CAN’T pay the loan down.

  3. One of the reasons I am ambivalent on SL forgiveness is that almost all solutions discussed among politicians do not appear to be accompanied by any structural reforms to the university system or the labor marketplace that would actually resolve the problem from happening again. Dems discuss subsidizing community college and other programs more (not going to work), and 95% of GOP poles are anti-forgiveness period so they do not entertain anything beyond saying “no” to forgiveness.

    At least in the political sense, forgiveness for forgiveness sakes often has unintended (or maybe intended) 2nd order consequences. See Regan Amnesty in the 1980s turning CA permanently blue with the promise of immigration reform (never happened). Presumably the biggest problem will be inflation as the government prints money to cover expenditures that the SL receipts would have covered, but there could be other consequences.

    I am concerned about applying Jesus’s teachings on forgiveness and making them applicable to large classes of people, especially in the modern American context. Christians were/are beaten over the head with “tolerance” and “love the sinner, not the sin” with LGBT issues for 30 years up until the point where Pride has complete cultural and legal victory. Feels like a similar trap of “just forgive; its what Jesus would have done.” while individuals pillage the government for spoils (more so than they already do).

    On the other hand, the plight of the average SL debtor is pretty bad for all the reasons you and others have pointed out… hence the ambivalence.

    • If it’s a matter of justice, we shouldn’t deny it because of who the victims are or whether serving justice has downsides (it always does – it costs money to lock up criminals, for instance). Before we think of what the solutions are, we should conclude that debt forgiveness is necessary according to justice in addition to the practical realities.
      At the very least, student debt ought to be discarded in bankruptcy like other forms of usuary loans, such as credit cards. A more full accounting, recognizing that the loans are usuary and are morally wrong, would be to force universities and similar institutions to co-sign the loans as a guarantee, making them non-recourse loans like a corporate loan. If we forgive the loans because they are usuary but do nothing to end the evil practice or punish wrong-doers, we haven’t fully served justice.

  4. Forgiving student debt would reward our enemies. We should instead use it to damage our enemies and sow discord among them. Balance the debt forgiveness with a tax on endowments. Let the administrators fight the students.

    • It’s a generational issue, not a left/right issue unless you consider everyone under 40 as “the enemy.” I know lawyers and doctors who can’t pay down their debt. Moreover, if the debt is an issue of justice, it’s a moral imperative to resolve it.
      Personally, I’m for seizing endowments and shutting down universities entirely. They no longer serve their intended purpose.

  5. Andrew Phillips

    The other night at our last United Methodist Men’s dinner meeting, I was sitting at a table with a Boomer and two members of Generation Jones when this came up. The impression I really came away with is that the Boomer, in particular, doesn’t grasp how much the world has changed since he went through school. The other two guys, one in his late 60s and the other almost 60, seemed to have a better grasp sense of the change, but they still talked about how they paid for school by working summers.

    We compared notes on what a semester hour cost. The contrast between the $4 per credit hour the Boomer paid back in the 60s, and even the $50 per semester the next youngest guy paid in the mid 80s, to the $250 or so I paid per hour starting in 1998, to the $700 or $800 I’m looking at for seminary now is stark, to say the least.

    • Everyone suffers from conceptual inertia. Your model of how things work isn’t going to be discarded until it no longer works – for you. Part of that extreme increase in costs that nobody talks about is the diminishing availability of scholarships, especially independent ones. When I was an undergrad (20 years ago now) my scholarships paid my tuition and I got a big check for the excess. Now, they wouldn’t cover a single semester, much less the books, which have also gone up by 100% (they are another scam I haven’t talked about in a long time).
      Most boomers I know get that its a problem, but being already established, they don’t quite get HOW BIG a problem they are for the young. It doesn’t matter if they are left or right, the problem is very foreign to their way of thinking.

      • By the way my first semester of tuition was around 800 dollars, with a maximum of 24 units, and I always took the max, or more. Around 33 dollars per unit. The same university is still very reasonably priced at only 3,400 dollars per semester. Harvard is 26k per semester.

      • Rudolph Harrier

        Most schools have also had “student fees” explode. For example, the University of Minnesota has about $450 of charges per semester for various “services.” There are about $100 more “general fees” and individual c0lleges charge their own fees. Individual colleges charge their own fees, with the STEM fields being a big offender (charging a whopping $1000; most colleges are closer to $200.) So the average student will be paying something like $1000-$1500 dollars per semester BEFORE paying for tuition, books, housing, etc.

  6. Universities should be the institutions giving out student loans. They are so flush with cash that they resemble hedge funds more than “places of learning”.

    If the “education” they offer is worth anything, they should have no doubt about the viability of these loans, consider them as investments and get as many people as they can onboard.

    If the “education” is a scam, it is they who would take the hit.

    My guess is, with that approach, many “gender studies” courses would get reconsidered…

    • If they had to co-sign on their loans (and thus make them not usuary), their business practices would change rather rapidly. As it is now, it’s infinite free money from the fed to add more admin staff.

  7. This is completely off topic, but I wanted to say that you and your family will be in my prayers as you begin your move today. God speed, safe travels, and a happy first homecoming to your new place!

    Joe

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