Not only should Bernie Sanders step down as a presidential candidate, but he should also resign from the Senate. The problem is that it’s not just Sanders who doesn’t know anything about economics. Most Democrats and not a few Republicans don’t know much about economics, and if they do know the fundamentals of economics, they ignore them because they need to buy votes with stolen money.
It’s easy to be magnanimous with other people’s money.
So what did Bernie Sanders tweet that disqualifies him from holding any political office?
“You have families out there paying 6, 8, 10 percent on student debt but you can refinance your homes at 3 percent. What sense is that?”
I suspect that when millions of Americans read something like this, they’re saying, “Go, Bernie, Go!” The typical college student most likely could not figure out what’s so wrong about Bernie’s tweet concerning the disparity in interest rates between a home loan and a college loan.
A home loan is backed by the value of the home being purchased, therefore, the risk is somewhat lessened. If someone defaults on the loan, the lending institution can sell the house and hopefully get its money back. In addition, people who purchase homes generally have to put some money down before being able to secure a loan.
People wanting to purchase a home have to show job security. Try getting a loan if you’re self-employed. It’s more difficult. A student doesn’t have a job, and won’t have a job for at least four years. This makes him or her high risk.
If a student defaults on a student loan, there is no equity in the person defaulting. That’s why parents generally have to co-sign for the loan. What if the parents are renters? How does the lending institution get any of its money back in a default? There’s an old economic saying that goes like this: “I owe you $10,000, you’ve got me. I owe you $100,000, I’ve got you.”
In a new NBER paper, ‘Accounting for the Rise in College Tuition,’ Grey Gordon and Aaron Hedlund create a sophisticated model of the college market and find that a large fraction of the increase in tuition can be explained by increases in subsidies.” (H/T: FEE) Simply put, since the government got into the student loan business, college costs have gone up. It’s simple economics: More money chasing greater demand means higher prices. Then the inevitable inevitability happens.
When educational costs go up, Congress calls for more subsidies. Bernie Sanders is promoting “free college” as part of his presidential campaign. Where is this “free” money coming from? The “free college” money will come from the same place where the money for free food, free housing, and free healthcare are coming from – taxpayers.
Governments believe they can overturn economic laws by the use of force. You can see how well that’s working in North Korea, Cuba, and Venezuela.
There’s a scene in the 1946 film The Best Years of Our Lives1 that stars Frederick March, Myrna Loy, Dana Andrews, and Teresa Wright that demonstrates the problem of feel-good economics.
March’s character, Al Stephenson, is a loan officer at a bank. Stephenson gets his job back at the bank. He greets a customer who turns out be a returning solider like him. The would-be farmer wants a loan:
“[March’s character] asked him what kind of collateral he can provide. The young veteran looks back with a blank stare; he has no collateral. Al explains the bank needs to have some kind of security, a guarantee of sorts so they know they can get their money back. Dejected, the vet still could not understand why he was being refused. Al is painfully uncomfortable telling the young vet all this.” (H/T: Twenty Four Frames)
The bank officials are made to look like money grubbers for not loaning money to this genuinely sincere ex-G.I. The bank was right. Al, as much as he believed in the would-be farmer, was wrong. If he really believed in the man’s abilities and the soundness of the business venture, then he should have loaned him some of his own money. It was easy for Al to loan money that wasn’t his. There was no risk to him.
- The film won seven Academy Awards including Best Picture, Best Director (William Wyler), Best Actor (Fredric March), Best Supporting Actor (Harold Russell), Best Film Editing (Daniel Mandell), Best Adapted Screenplay (Robert Sherwood), and Best Original Score (Hugo Friedhofer). [↩]