[eemax]

Well, it does actually solve the problem in the sense that it actually causes houses to be built and students to go to college. Probably this indicates the real problem is more about bad monetary policy and bad tax policy, not a fundamental shortage of resources.

Of course, it would be better to improve monetary policy rather than just making a bunch of dumb, risky loans leading to a dramatic boom and bust.

But that would require policymakers understanding basic macroeconomics, so don't hold your breath...

[jdoliner]

Is that really solving the problem though, or does it just give us houses no one wants to own and college graduates no one wants to employ? That's what it looks like to me at least. I don't think it's bad monetary or tax policy per-say, although those are bad, but just bad policy in general. But the badness of the policy comes from a fundamental over estimation of what the government is capable of doing for a society.

[eemax]

Well, to some degree, people probably do want to live in big, new houses. There's also probably some "real" underlying demand for an education, outside of people needing it (or believing that they need it) to get a good job.

But the point is, regardless of how much people "actually" want them, it is in fact technologically and ecologically possible to provide most people in the U.S. with these goods. (The evidence is that a lot of people do in fact have these things, even if on paper they are underwater on a mortgage or saddled with a big student loan.)

The bad policy is that by subsidizing and insuring these loans / mortgages far too cheaply, the government is driving up demand, and as a result people buy a bigger house than they need, or get an education that isn't useful for getting a high-paying job.

If the government stops subsidizing mortgages and student loans with bailouts, insurance, laws preventing default, etc. the result will probably be

1) the cost of a college education goes down and also that less people actually go to college 2) people don't buy as many homes and buy smaller houses than they otherwise would have

If you then want more people to have houses, education, healthcare, food, etc., whether or not they are able / willing to sell enough of their labor to pay for these things themselves, the next step is to solve wealth inequality.

We could probably fix wealth inequality with good monetary policy (e.g. NGDP targeting) and "taxing the rich" in a sane way, e.g. with land value taxes, luxury consumption, VAT taxes, etc. After that, you're probably done, but for the remaining poor, the government can just give them cash, e.g. basic income, instead of trying to subsidize a million different services like healthcare and education and homes, in which case the subsidies end up in the pockets of doctors and administrators and landlords.

[aggronn]

Okay you piqued my interest... "bad monetary policy" usually means we should be on the gold standard, but I've never heard that before as a solution for student loans. What are you proposing is the monetary fix?

[eemax]

A gold standard is terrible monetary policy, even worse than the status quo.

Good monetary policy would be the fed doing NGDP level targeting a la Scott Sumner: https://www.mercatus.org/system/files/NGDP_Sumner_v-10%20cop...

Monetary policy only goes so far though, if you actually want to distribute resources in an equitable way, you probably also need good tax policy.

Good tax policy would be taxes which decrease wealth inequality (e.g. luxury consumption taxes, land value taxes).

[adamson]

I don't think the Mercatus Center is the best place to look for good or sincere ideas on how to distribute resources in an equitable way

[koolba]

Rampant inflation would fix those student loans real quick. Ditto for discharging the crippling mortgage payments and credit card debt.

Not suggesting I recommended it but it is an option for an across the board sweep.

[wonder_er]

not OP, but taking a stab, since I agree with their assessment:

bad monetary policy, in regards to student loans, means subsidizing them in two ways (at least):

1. paying the difference in interest rate compared to going to a regular bank. I can get student loans w/3% interest, but a bank wouldn't give me that money for less than 7%.

2. Making it illegal to disperse student loans in bankruptcy.

Both of these are monetary policy decisions that "hide" risk.

The higher interest rate is to compensate for the riskiness of the loan, while making loans illegal to disperse is the gov't response to the risk.

both of these will hide increasingly large amount of risks, where everything looks like its going fine, until it will all fail, catastrophically.

The politicians will claim no one could have seen it coming, but if they'd not allowed the risk to be so hidden, they'd have seen the institution crumbling decades before.

edit: formatting