Month: November 2022

Econ 101:  Student Loan Forgiveness

“The Biden administration recently announced it will forgive roughly $500 billion in student debt…. Borrowers whose income was under $125,000 ($250,000 if married) in either 2020 or 2021 are eligible.” “Does Biden’s student debt forgiveness achieve his stated goals” Biden would forgive this government guaranteed debt by executive order. Congress has not passed a law authorizing it. In my opinion, it should be and presumably will be overturned by the Supreme Court as an overreach of executive authority. 

Many people who claim to champion social justice and more equal income distribution favor Biden’s proposal. I assume that they don’t really understand what they wish for. While I covered these issues seven years ago, perhaps some memories should be refreshed:  “Two approaches to American governance-the case of higher education financing”

The basic facts are that, aside from the idle rich who might attend college solely for cultural enrichment (which is nice if you can afford it), people attend college to acquire the knowledge and skills that enable them to earn higher incomes than otherwise. “According to new data from the Federal Reserve Bank of New York, the median annual wage for a full-time worker ages 22 to 27 with a high school diploma is $30,000. For a full-time worker with a bachelor’s degree, it’s $52,000…. The return on investment for a college degree is substantial — worth upwards of $800,000 or more in increased earnings over a lifetime.”   “Wage gap-college-high school grads”  For taxpayers to pay for this education would transfer income from the middle-income class to the higher-income class, not something that social justice champions can justify. Multiple private and government programs pay for low-income students to attend college.

As the amount of student borrowing has skyrocketed, so has the cost of college. “Over the past several decades, the cost of higher education has increased dramatically, more than doubling since 1985 at both public and private universities.” While some have attributed the increase in the cost of college to the easy access to government guaranteed loans (especially if they don’t have to be repaid), evidence: “points instead to administrative growth as reactive to consumer demand and regulatory requirements….    Most colleges today operate their own systems of justice to comply with federal regulations like Title IX, and HR departments have grown apace with changes in federal regulations about hiring practices.” “A new theory of rising college costs”

“Administrative spending comprised just 26% of total educational spending by American colleges in 1980-1981, while instructional spending comprised 41%. Three decades later, the two categories were almost even: administrative spending made up 24% of schools’ total expenditures, while instructional spending made up 29%…. The factors that drive universities to hire more administrators can be boiled down to a few main explanations, often reflecting a shifting landscape in the higher education, including government regulations, competition between schools, and a modern population of students with increasing needs…. Perhaps most controversial is an increasing raft of federal and state regulations that universities must abide by: the Clery Act, which requires campuses to report their crime activity; new Title IX regulations that govern the handling of sexual assault; and Family Educational Rights and Privacy Act (FERPA) requirements for providing educational records….   A Vanderbilt study of 13 colleges and universities found that regulatory compliance comprises 3 to 11% of schools’ nonhospital operating expenses, taking up 4 to 15% of faculty and staff’s time….  And on a deeper level, colleges and universities are simply being asked to do more. Families expect their sons and daughters to have access to career assistance, readily available health services or counselors if they’re struggling with a mental illness.” “Bureaucrats and buildings-the case for why college is so expensive”

Those choosing to invest in college who are not helped by family and friends and have not worked and saved enough to cover the cost, generally have no credit record or collateral to offer banks or other outside lenders. This is what motivated the government guaranteed student loan program. For the future we should consider college financing arrangements in which the lender has “skin in the game.” To repeat from my blog seven years ago: Milton Friedman in 1955 and repeated in Capitalism and Freedom in 1962 made an interesting proposal for sharing the risk of investing in higher education between the borrowing student and the lender. “Enter income-share agreements ( ISAs ), which are essentially equity instruments for human capital. Investors finance a student’s college education in return for a percentage of their future income over a fixed period. ISAs are not loans and there is no outstanding balance. If students earn more than expected, they will pay more, but they also will pay less—or nothing—if their earnings do not materialize.”   “from the Wall Street Journal”

The Student Success Act proposed by Sen. Marco Rubio (R., Fla.) and Rep. Tom Petri (R., Wis.) almost a decade ago (but never adopted) would provide for the collection and publishing of information on the cost and average earnings of graduates of different colleges and fields, which would help students choose where and how to invest in their futures. We need to improve the information on which young people base their college and career choices and ensure that those who would benefit from college but can’t afford it at the time are not there by prevented from doing so. But otherwise, students choosing to benefit from college should pay for their investment.

The difference between Bitcoin and FTX

Bitcoin is a digital currency (cryptocurrency) that can be paid to another bitcoin user willing to accept it via a blockchain account.  It is backed by nothing and promises nothing. Its US dollar value has fallen from $65,496 on November 14, 2021, to $15,630 on November 21, 2022.

“FTX Exchange was a leading centralized cryptocurrency exchange specializing in derivatives and leveraged products. Founded in 2018, FTX offered a range of trading products, including derivatives, options, volatility products, and leveraged tokens. It also provided spot markets in more than 300 cryptocurrency trading pairs such as BTC/USDT, ETH/USDT, XRP/USDT, and its native token FTT/USDT.12 In early November 2022, the exchange and the companies in its orbit began a steep fall from grace….  According to its bankruptcy filing, FTX, which was once valued at $32 billion and has $8 billion of liabilities it can’t pay, may have as many as 1 million creditors…. On November 16, a class-action lawsuit was filed in a Florida federal court, alleging that Sam Bankman-Fried created a fraudulent cryptocurrency scheme designed to take advantage of unsophisticated investors from across the country. ” “FTX exchange”

The difference between Bitcoin and FTX is that Bitcoin is a digital coin/token that some believe might achieve wide adoption as money and thus a stable demand that could stabilize its price. In my opinion, this is HIGHLY unlikely. I explained this potential eight years ago: “Cryptocurrencies the bitcoin phenomena”   “The future of bitcoin exchanges”  But most people buying Bitcoin are gambling that they can sell it for a higher price than they paid for it (first cousins to slot machine addicts).

On the other hand, FTX and its related products and services promised real things and to play by known rules (contracts). On November 11, FTX and its affiliated firms were put into bankruptcy. Billions of dollars where missing? Founder Sam Bankman-Fried (SBF) claims that he was just careless. It appears more likely that he was a lying fraudster. “An attorney also said the firm had been run as a ‘personal fiefdom’ of Bankman-Fried with $300 million spent on real estate such as homes and vacation properties for senior staff.” “Crypto lender genesis says no plans to file bankruptcy imminently”  Presumably to promote himself as a good guy and to win influential friends, SBF also contributed millions to charities and politicians. 

Most crypto product and service providers want regulations that will give potential investors and customers more confidence in their products but that will not stifle the potential creativity of a dynamic industry.  Hopefully congress will get on with it — carefully. “Crypto bill criticized”

“Sam Bankman-Fried, the founder of the FTX exchange and Alameda Research, a cryptocurrency trading platform, seemed to confuse his bank and his companies. According to John Ray, the new CEO in charge of the restructuring of his empire which went bankrupt on November 11, Bankman-Fried received a personal loan of $1 billion from Alameda. He is not alone: ​​the firm, which is a kind of cryptocurrency hedge fund, has also lent $543 million in personal loan to Nishad Singh, an associate of Bankman-Friend, and $55 million to Ryan Salame, the co-CEO of FTX Digital Markets, one of FTX’s affiliates.  

“’Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,’ Ray wrote. ‘From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.’”  “Bankman-Fried received 1bn in personal loan from his company”

“Bankman-Fried’s net worth peaked at $26 billion.[11] In October 2022, he had an estimated net worth of $10.5 billion.[12] However, on November 8, 2022, amid FTX’s solvency crisis, his net worth was estimated to have dropped 94% in a day to $991.5 million, according to the Bloomberg Billionaires Index, the largest one-day drop in the index’s history.[13][10] By November 11, 2022, the Bloomberg Billionaires Index considered Bankman-Fried to have no material wealth.[14]”  “Sam Bankman-Fried”

I assume that jail is next, perhaps in the cell previously used by Bernie Madoff.

If you subscribe to The Economist you can read fascinating details here: “The failure of ftx and Sam Bankman-Fried will leave deep scars”

Dear Congressman Kevin McCarthy

The Times of Israel and other press report that you “would remove Ilhan Omar, the Minnesota Democrat, from the House Foreign Affairs Committee, in part because of her criticism of Israel.” We should all speak out against antisemitism or any other hateful characterizations of other religious and ethnic groups. However, when you criticize the Biden administration, we would be wrong to call you unamerican. Similarly, you are wrong to conflate criticism of the Israeli government with antisemitism. 

In fact, the U.S. government has been embarrassingly negligent in criticizing the Israeli government’s illegal and abusive treatment of the Palestinian residents of the Palestinian territories.  Amnesty International has declared Israel an apartheid state. “Israel’s occupation of Palestinian territory is unlawful under international law due to its permanence and the Israeli government’s de facto annexation policies, a UN-appointed Commission of Inquiry said in its first report, published on Oct 20, 2022.” It is reassuring that the US is undertaking an investigation of the recent shooting death of Palestinian American Shireen Abu Akleh by an Israeli soldier.  “FBI investigation—killing of Shireen Abu Akleh by Israel military”

I was born and raised in Bakersfield and now live in the Washington, DC area, and I have worked extensively in Israel and the WBGS for the International Monetary Fund. I hope for more from you.   “Israel and Palestine”   My travels to Jerusalem”  

Sincerely,

Warren Coats

We are shrinking

It seems that many Gen Xers and Gen Zs do not understand the huge benefits of free markets and trade that have lifted millions out of poverty. As someone who cares about the poor and about my own liberty and well-being, I do my best to help educate them. Here are two of my blogs on trade:  “Tony Judt on trade”   “Trade protection and corruption” 

Unfortunately, the Trump and Biden administrations have increasingly moved us in the wrong direction of “protecting” American producers from foreign competition. See for example the following report from the excellent news aggregator and reporter Semafor  https://www.semafor.com/

“A transatlantic EV trade dispute

President Joe Biden’s Inflation Reduction Act threatens Europe’s electric car industry, according to the EU. One concern is the introduction of tax credits for U.S. EV manufacturers. The EU says this will harm overseas automakers such as Germany’s Volkswagen. South Korean officials have similar concerns for Hyundai’s exports. A few weeks ago, French President Emmanuel Macron suggested a “Buy European Act” to counteract U.S. and Chinese protectionism, while his finance minister said that the entire “level playing field between the United States and Europe” is at stake.”

With the excuse of national defence, we are playing dirty in our competition with China. We are giving up some of the win win benefits of trade to protect relatively inefficient domestic producers. We should not let our government and the crony capitalists it is protecting get away with such short sighted corruption. “Competing with- China”

Lockdown Lessons Learned During Covid

We are two and a half years into the Covid-19 pandemic. Data has accumulated on the effectiveness of lockdowns in reducing deaths and of the costs associated with lockdowns. The overall effectiveness of lockdowns must consider both aspects. Moreover, lockdowns took different forms in different places—total, targeted, etc.  Dyani Lewis has provided a very careful review of the major studies of these data in Nature  “What Scientist have Learnt from Covid Lockdowns”

To overcome issues of correctly attributing deaths to Covid, excess deaths is generally used (excess from all causes each period over the recent—usually five year– average for the same period). “The pre-vaccine period of the pandemic does show that countries that acted harshly and swiftly — the ‘go hard, go fast’ approach — often fared better than those that waited to implement lockdown policies. China’s harsh lockdowns eliminated COVID-19 locally, for a time.” But the economic and public moral costs in China are very large and continue to mount. “The most effective measures were policies banning small gatherings and closing businesses and schools, closely followed by land-border restrictions and national lockdowns. Less-intrusive measures — such as government support for vulnerable populations, and risk-communication strategies — also had an impact. Airport health checks, however, had no discernible benefit….

“The impacts of lockdowns also differed from one pandemic wave to the next. By the time second waves emerged, so much had been learnt about the virus that people’s behaviour was quite different…. These changes dampened the extent to which countries benefited from lockdowns” because people adjusted on their own.

“There’s a fundamental difficulty with analysing the effects of COVID-19 lockdowns: it is hard to know what would have happened in their absence…. [Many studies] could have overstated the size of the benefit because it assumes that without lockdown mandates, people wouldn’t have reduced their social contacts. In reality, rising deaths would probably have changed people’s behaviour….

“And lockdown policies did bring costs. Although they delayed outbreaks, saving lives by allowing countries to hang on for vaccines and drugs, they also brought significant social isolation and associated mental-health problems, rising rates of domestic violence and violence against women, cancelled medical appointments and disruption to education for children and university students. And they were often (although not always) accompanied by economic downturns….

“Pure economic analyses of whether lockdowns were worth it generally try to estimate the value of lives saved and compare that with the costs of economic downturns. But there is no consensus on how to make this comparison…. Not all harms can be [objectively measured]. Loss of education because of school closures might indirectly harm children in the long run, potentially decreasing their future earnings and placing them at greater risk of poorer health outcomes…. Such harms are so far off — decades, in some cases.”

Learning the lessons that experience teaches us is very important when formulating public policy. But extracting those lessons can be difficult. Lewis’s summary is the best I have read, and I urge you to read it. I continue to believe that when we are provided the best understanding available (which obviously grows over time) we will each make the best decisions for ourselves and our families, striking the balance that is best for each of us.

The attack on Paul Pelosi

The quality of our lives and that of our community/country depends on how responsibly and wisely we use the considerable freedom we each enjoy. For example, we each have a responsibility to minimize the spread of false information. Sadly, a surprisingly large number of people are eager to jump on and spread information that feeds their existing opinions without taking the time to investigate its authenticity.

“On Saturday, Hillary Clinton, the former first lady and 2016 Democratic presidential nominee, posted a tweet assailing Republicans for spreading ‘hate and deranged conspiracy theories’ that she said had emboldened the man who attacked Ms. Pelosi’s husband, Paul, inside the couple’s home in San Francisco early Friday.” In addition to eagerly spreading lies, too many of us also fan the flames of hate with such statements that are making serious discussion of issues almost impossible.

“In a reply to Mrs. Clinton’s tweet, Mr. [Elon] Musk wrote, ‘There is a tiny possibility there might be more to this story than meets the eye’ and then shared a link to an article in the Santa Monica Observer. The article alleges that Mr. Pelosi was drunk and in a fight with a male prostitute.“Mr. Musk’s tweet was later deleted.” “Musk tweets Hillary Clinton Pelosi Husband”

Mr. Musk was a bit quick with his tweet but at least he removed it shortly there after. In fact: “The man accused of breaking into House Speaker Nancy Pelosi’s home and assaulting her husband with a hammer allegedly told police he was on a ‘suicide mission’ and had a target list of state and federal politicians as part of his effort to combat ‘lies’ coming out of Washington.”  “David Depape Pelosi attack” David Wayne DePape, 42, was caught on police cameras breaking into the Pelosi home in San Francisco. “There, on camera, was a man with a hammer, breaking a glass panel and entering the speaker’s home.”   “Capitol police cameras caught break in Pelosi home”

Sadly, too many people are contributing to our damaging atmosphere of distrust by carelessly forwarding obvious lies. But what about those who invented this and other lies to begin with.  Are these irresponsible kids who think it would be fun to pull our legs, too immature to understand the damage they were inflicting? Or are they evil traitors deliberately undermining our public comity and undermining confidence in our institutions?