Why student loan forgiveness plan is bad for the poor and working class

Why student loan forgiveness plan is bad for the poor and working class

student loan debt

Why student loan forgiveness plan is bad for the poor and working class

Key Points

  • A core part of our mission at the Georgia Center for Opportunity is to give the poor and working class a leg up on the economic ladder.
  • White House plan unfairly penalizes the poor and working classes, which disproportionately do not have college degrees and have not attended any college at all. 
  • Instead of loan forgiveness, we should work with borrowers to structure their loan repayments in a way that’s manageable but also helps them honor their commitments.
This week, the Biden administration announced a plan to forgive up to $20,000 in student loan debt for millions of Americans. The plan applies to households making up to $250,000 a year (or $125,000 for individuals), an income threshold that targets the middle class and upper middle class and many high-earning professionals.

A core part of our mission at the Georgia Center for Opportunity is to give the poor and working class a leg up on the economic ladder. This doesn’t come through cycles of generational government dependence, but through career training and credentialing that provides the pathway to fruitful full-time work and, ultimately, a better life.

We believe the White House’s plan is wrong on many levels, but a top way is the way it unfairly penalizes the poor and working classes, which disproportionately do not have college degrees and have not attended any college at all. 

Many of these individuals are working service-oriented jobs, entry-level positions, or laboring in the skilled trades. They are paying taxes. Yet under the Biden administration’s plan, they will bear the burden of paying off the student loans of their wealthier neighbors through their tax dollars.

Here are four additional ways that student loan forgiveness is ill-advised:

  1. It will contribute to already high inflation

Another way this plan hurts the poor and working class is by increasing inflation. This demographic spends a disproportionate share of their income on essentials like food and gas that have seen the most dramatic price increases in recent months.

As the Brookings Institution points out, $10,000 in debt forgiveness “would involve a transfer that is about as large as the country has spent on welfare … since 2000 and exceeds the amount spent since then on feeding hungry school children in high-poverty schools through the school breakfast and lunch program.”

  1. It doesn’t actually forgive anything

The White House has labeled the plan a “forgiveness” of student loan debt. But in reality, this approach simply transfers the burden onto the backs of taxpayers.

  1. It penalizes hard-working Americans

We’ve already discussed how the poor and working classes are treated unfairly by this plan. But the unfairness extends to many middle class families as well who worked hard to pay off their student loans or their children’s student loans. Once again, government policy is punishing hard work.

  1. Finally, it does nothing to address the affordability problem in higher education

According to Forbes, between 1980 and 2020, the cost of a college education jumped 169%. Meanwhile, the economic value of many four-year degrees has declined. The rapid inflation in the cost of college is, in large part, due to rampant government subsidies in higher education. Forgiving student loans only makes that problem worse.

The Success Sequence is a formula that outlines areas we can work in that will reduce poverty.

The Success Sequence is a formula that outlines areas we can work in that will reduce poverty.

A better way forward

Instead of loan forgiveness, we should work with borrowers to structure their loan repayments in a way that’s manageable but also helps them honor their commitments. We should also work to find a way to lower the cost of higher education to make it more affordable and encourage high school graduates to consider stable, good-paying jobs that do not require expensive college degrees.



A glimmer of good economic news? Maybe not

A glimmer of good economic news? Maybe not

A glimmer of good economic news? Maybe not

Key Points

  • As of June, 35 states and D.C. have not recovered the number of lost jobs
  • The labor force has shrunk despite population growth.
  • Its stated goal of the Federal Reserve remains the same–to reduce inflation to its 2% target, meaning it will take steps to prevent the price level from coming back down. This bad policy goal will burden the working class and the poor and retired persons the most.

It may not matter if federal policy does not change.

We’ve seen some back-to-back encouraging news within the last few weeks. The Employment Situation Report for July showed that the United States finally recovered the number of its lost jobs from the start of the pandemic, and the Consumer Price Index (CPI) inflation rate for July was essentially zero. But digging a little deeper to put the news into perspective reveals real concerns that stagflation will not end anytime soon.

The States Who Are Driving the Job Recovery

On the jobs front, yes, it’s true we’ve recovered the number of lost jobs benchmarked to February 2020 before the drastic impact on the labor market from COVID-19. This indicates we’re on the mend, but the job recovery process has not been the “V” shape hoped for at the beginning of the pandemic, one that would have meant a robust job recovery. 

Two-and-a-half years later, the civilian non-institutionalized population base that feeds the labor force grew by 4.8 million. Our own ARIMA Model job forecast shows we are approximately 5.8 million jobs short of where we would have been had the pandemic not happened. 

But this is not the case for all 50 states. Astoundingly, four states—Montana, Utah, Idaho, and Wyoming—have matched or nearly matched their pre-pandemic ARIMA Model forecasts, effectively eliminating any impact from the pandemic on the number of lost jobs. 

In the meantime, the national job recovery to pre-pandemic levels is driven probably by just 15 states who already recovered their number of lost jobs prior to the nation as a whole. These states are Utah, Idaho, Texas, Montana, North Carolina, Georgia, Florida, Tennessee, Arizona, South Dakota, Colorado, Arkansas, Indiana, and Nevada. 

As of June, the remaining 35 states and D.C. have not recovered the number of lost jobs. We have to wait another week before we know whether another state slipped onto the list of leading states that helped tip the balance for the national July data. 

According to our analysis, a common feature of the leading states is that they tend to have policies that value economic freedom more than the other states do. Incidentally, and for explanatory reasons and not for the purpose of getting political, all but three of the 15 leading states have given political control to the governor’s office and both chambers of the state legislature to the Republican Party.

Jobs Versus People Employed 

One problem with job data is that the dataset allows for double counting. If we want to count the number of people employed, it paints a different picture. 

The Current Population Survey shows the U.S. is still more than half a million workers short when compared to February 2020. In fact, we had fewer employed persons in July than March of this year, using seasonally adjusted data. 

The reason is that the labor force has shrunk despite population growth. This can be seen with the 62.1% labor force participation rate that is more than a percentage point below where it stood in February 2020.

This means that the 3.5% unemployment rate—which now matches its pre-pandemic level—is misleading. The shrinkage of the labor force is distorting the meaning of the metric.

Taken together on a national scale, jobs have recovered but the number of employed persons has not. This can mean only one thing. More people are working multiple jobs to make ends meet. 

Inflation versus the Price Level

July’s CPI ever-so-slightly decreased. It ticked down 0.2% at an annualized rate–a welcome change from the past 25 months. Just to keep this in perspective, the price level nonetheless increased 14.1% since the start of the pandemic. But there is no need to tell this to average consumers who have been feeling it in their pocketbooks. 

Disturbingly, the Federal Reserve shows no interest in doing something about the elevated price level–and who isn’t even discussing it. Its stated goal remains the same–to reduce inflation to its 2% target, meaning it will take steps to prevent the price level from coming back down. This bad policy goal will burden the working class and the poor and retired persons the most.

 

stagflation

“Disturbingly, the Federal Reserve shows no interest in doing something about the elevated price level–and who isn’t even discussing it. Its stated goal remains the same–to reduce inflation to its 2% target, meaning it will take steps to prevent the price level from coming back down. This bad policy goal will burden the working class and the poor and retired persons the most.”

“Disturbingly, the Federal Reserve shows no interest in doing something about the elevated price level–and who isn’t even discussing it. Its stated goal remains the same–to reduce inflation to its 2% target, meaning it will take steps to prevent the price level from coming back down. This bad policy goal will burden the working class and the poor and retired persons the most.”

Fiscal and Regulatory Policy

The Federal Reserve does not stand alone with its bad policy. Congress and the Administration are just as guilty, if not more so.

Excessive fiscal spending also drives up the price level. Worse, increasing business taxes will pull  resources from businesses. These resources are needed to produce goods and services that we all use and enjoy. It also enables these very same businesses to pay workers and compensate investors, and it leads to more economic growth and prosperity. Likewise, more excessive regulatory restrictions have similar negative effects on people and the economy.

Increasing business taxes and regulating businesses even more at this time will not help keep prices down. Rather, a good portion of these higher costs will be passed onto consumers.  And they will be passed on to consumers to the degree that individual businesses are able to do so. If businesses can’t pass all or even some of those costs on to consumers, then they will be forced to make more difficult decisions, such as cutting back on the number of employees or suspending pay raises to employees. Profits will clearly suffer that may cause a few businesses to scale back or exit the industry altogether. These consequential actions all aggravate stagnation. Add in the price increases and we get more stagflation, not less.

Unfortunately, the President just signed into law the erroneously named Inflation Reduction Act that will do nothing about inflation, but it will hike business taxes and increase regulations that will only worsen the economic situation. 

Congress and the Administration need to start following the lead from the states who are doing it right. Only pro- growth policies relying on innovation and production organically sprouted from within the economy will help us out of this mess, and it won’t work if politicians think that means taking money from successful businesses or imposing new mandates on others or picking the winners and losers in the economy.



 

Media Statement: Assessing the GDP numbers and what it means

Media Statement: Assessing the GDP numbers and what it means

In The News

Media Statement: Assessing the GDP numbers and what it means

Today, the U.S. Bureau of Economic Analysis announced that in the second quarter of 2022, real Gross Domestic Product (GDP) declined by 0.9%. That marks two consecutive quarters of negative growth, a barometer of economic health that economists typically use to define a recession.

The Georgia Center for Opportunity’s (GCO) take:
“It’s now official. We’re having stagflation.

There has never been a time when the Business Cycle Dating Committee did not declare a recession when real GDP declined for two consecutive quarters since the availability of quarterly GDP data,” said Erik Randolph, GCO’s director of research. “In fact, the opposite is true. There have been two times, since the availability of the data, without two consecutive real GDP declines when the Committee declared them to be recessions. This happened with their declared 1960 and 2001 recessions. Who knows if and when the NBER Committee will declare whether we’re already in a recession, and for how long. But if it doesn’t declare so despite the real GDP data, it would be unprecedented and require a good explanation. In the meantime, GDP gives perhaps the broadest measure of economic activity, giving a strong signal that we’re in a recession until such time economists work out their various methodologies to affirm or deny.”

Georgia non-adjusted unemployment numbers increase as economy dips into possible recession

Georgia non-adjusted unemployment numbers increase as economy dips into possible recession

In The News

Georgia non-adjusted unemployment numbers increase as economy dips into possible recession

 A week after reporting Georgia’s June seasonally adjusted unemployment rate hit an all-time low, new numbers show the state’s unemployment rate increased.

Last week, officials said Georgia’s preliminary seasonally adjusted unemployment rate for June 2022 was 2.9%, below the national rate of 3.6%. The state’s rate decreased from 5.4% in June 2021…

“There has never been a time when the Business Cycle Dating Committee did not declare a recession when real GDP declined for two consecutive quarters since the availability of quarterly GDP data,” Erik Randolph, director of research for the Georgia Center for Opportunity (GCO), said in a statement. “In fact, the opposite is true. There have been two times, since the availability of the data, without two consecutive real GDP declines when the Committee declared them to be recessions. This happened with their declared 1960 and 2001 recessions.

“Who knows if and when the NBER Committee will declare whether we’re already in a recession, and for how long,” Randolph added. “But if it doesn’t declare so despite the real GDP data, it would be unprecedented and require a good explanation. In the meantime, GDP gives perhaps the broadest measure of economic activity, giving a strong signal that we’re in a recession until such time economists work out their various methodologies to affirm or deny.”

Georgia non-adjusted unemployment numbers increase as economy dips into possible recession

Biden denies recession after GDP decline, but economists say otherwise

In The News

Biden denies recession after GDP decline, but economists say otherwise

The U.S. economy has shrunk for six consecutive months, according to federal data released Thursday. which led many economists to declare a recession. But the Biden administration is pushing back, arguing the U.S. is not in a recession after all…

“There has never been a time when the Business Cycle Dating Committee did not declare a recession when real GDP declined for two consecutive quarters since the availability of quarterly GDP data,” said Erik Randolph, the Georgia Center for Opportunity’s director of research. “In fact, the opposite is true. There have been two times, since the availability of the data, without two consecutive real GDP declines when the Committee declared them to be recessions. This happened with their declared 1960 and 2001 recessions.”

Randolph said not declaring a recession this time would be “unprecedented.”

“Who knows if and when the NBER Committee will declare whether we’re already in a recession, and for how long,” he added. “But if it doesn’t declare so despite the real GDP data, it would be unprecedented and require a good explanation. In the meantime, GDP gives perhaps the broadest measure of economic activity, giving a strong signal that we’re in a recession until such time economists work out their various methodologies to affirm or deny.”

 
Georgia non-adjusted unemployment numbers increase as economy dips into possible recession

Amid Recession Fears, Economically Free States Continue to Outperform

In The News

Amid Recession Fears, Economically Free States Continue to Outperform

 

Florida Gov. Ron DeSantis recently responded to questions about California Gov. Gavin Newsom’s ads airing in Florida, “It’s almost hard to drive people out of a place like California given all their natural advantages, and yet they are finding a way to do it.” He noted that California is hemorrhaging its population because of bad progressive economic policies so that they could be more free

Florida ranks third in the nation for economic freedom, according to the Fraser Institute. And California ranks second to last…