The New York Times had a piece on how education secretary Betty DeVos is trying to block state efforts to prevent abusive practices by student loan servicers after she had weakened federal protections. Her argument is the same one that the federal government used to weaken state rules on mortgage lending practices during the housing bubble years — that federal law preempts state law.
I’ll leave it to the lawyers to decide the legal question here, but the economic one is straightforward. If servicers can make money from abusive practices (e.g. harassing phone calls, illegal threats, and charging arbitrary fees), they will. That is what we expect in a free market economy, businesses try to maximize profit.
While the piece treats this as a consumer protection issue, which it is, it is also one of economic efficiency. If it is possible to make lots of money by ripping off students in servicing their loans, then businesses will devote resources to ripping off students rather than something productive.
Think of it like making stealing cars legal. If people could make lots of money by stealing cars, many will quit their day job and spend their time stealing other people’s cars.
We should also understand the issue of government-issued or government-insured student loans for tuition at for-profit universities the same way. Many of these universities provide little in the way of education and do not give students a marketable skill. As a result, the default rate on loans at many of these schools is often over 40 or 50 percent.
For these for-profit colleges, the students are simply intermediaries to access to government money. They allow students to make tuition payments which they could not possibly do otherwise. The students basically get nothing for their money, but in a world where the government requires no accountability from the schools, this doesn’t matter.
It seems that for Betty DeVos, the point of the student loan program is to make the people who own these for-profit colleges richer with taxpayer money. In this respect, it is probably worth noting that she made the dean of DeVry University, one of the biggest for-profits with a very high default rate, head of the student loan fraud division at the Education Department.
The New York Times had a piece on how education secretary Betty DeVos is trying to block state efforts to prevent abusive practices by student loan servicers after she had weakened federal protections. Her argument is the same one that the federal government used to weaken state rules on mortgage lending practices during the housing bubble years — that federal law preempts state law.
I’ll leave it to the lawyers to decide the legal question here, but the economic one is straightforward. If servicers can make money from abusive practices (e.g. harassing phone calls, illegal threats, and charging arbitrary fees), they will. That is what we expect in a free market economy, businesses try to maximize profit.
While the piece treats this as a consumer protection issue, which it is, it is also one of economic efficiency. If it is possible to make lots of money by ripping off students in servicing their loans, then businesses will devote resources to ripping off students rather than something productive.
Think of it like making stealing cars legal. If people could make lots of money by stealing cars, many will quit their day job and spend their time stealing other people’s cars.
We should also understand the issue of government-issued or government-insured student loans for tuition at for-profit universities the same way. Many of these universities provide little in the way of education and do not give students a marketable skill. As a result, the default rate on loans at many of these schools is often over 40 or 50 percent.
For these for-profit colleges, the students are simply intermediaries to access to government money. They allow students to make tuition payments which they could not possibly do otherwise. The students basically get nothing for their money, but in a world where the government requires no accountability from the schools, this doesn’t matter.
It seems that for Betty DeVos, the point of the student loan program is to make the people who own these for-profit colleges richer with taxpayer money. In this respect, it is probably worth noting that she made the dean of DeVry University, one of the biggest for-profits with a very high default rate, head of the student loan fraud division at the Education Department.
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Robert Samuelson used his Labor Day column to tell us that our pay really didn’t end up in the pockets of rich people. The problem is that it all went to employer-provided health care insurance. The argument is that health care costs have vastly exceeded the overall rate of inflation. Since a standard health care benefit is larger as a share of the pay of a low-wage worker than a high-wage worker, the increased cost of the benefit took away the money that otherwise would have gone into pay increases. He cites a survey (but doesn’t link to it) that purports to show this.
The problem with this story is that it contradicts the data from the Bureau of Labor Statistics which show little change in the share of labor compensation going to employer-provided health insurance. This is true even in lower paying occupations.
For example, the share of compensation going for health benefits for workers in Production, transportation, and material moving occupations went from 8.5 percent in 2004 to 9.8 percent in 2018, according to the Bureau of Labor Statistics Employer Cost for Employee Compensation series. That means that if health insurance costs had remained at a constant share over this period, wages would be approximately 1.4 percentage points higher, adding 0.1 percentage point annually to wage growth. The series actually peaked at 10.4 percent in 2014, which means that declining health care costs should have been adding to wage growth for these workers in the last four years.
There is a similar story for office and administrative support occupations where the wage and salary share of compensation fell from 71.0 percent in 2004 to 69.3 percent in 2018. The latter figure is up from a low of 68.8 percent in 2014. Again, the declining wage share of compensation only explains a small part of the wage stagnation story.
There are three things going on here. First, lower-paid employees are much less likely to have health insurance coverage at their job than was the case two decades ago. Second, they are likely to have less generous coverage, with more deductibles and co-pays. Also, they more often have to pay part of the premium. Finally, in recent years, health care costs have largely moved in step with overall economic growth, which explains their declining share of compensation.
The Washington Post may always have room for people denying that there has been an upward redistribution of income, but it happens not to be true. There has been and it is enormous.
Robert Samuelson used his Labor Day column to tell us that our pay really didn’t end up in the pockets of rich people. The problem is that it all went to employer-provided health care insurance. The argument is that health care costs have vastly exceeded the overall rate of inflation. Since a standard health care benefit is larger as a share of the pay of a low-wage worker than a high-wage worker, the increased cost of the benefit took away the money that otherwise would have gone into pay increases. He cites a survey (but doesn’t link to it) that purports to show this.
The problem with this story is that it contradicts the data from the Bureau of Labor Statistics which show little change in the share of labor compensation going to employer-provided health insurance. This is true even in lower paying occupations.
For example, the share of compensation going for health benefits for workers in Production, transportation, and material moving occupations went from 8.5 percent in 2004 to 9.8 percent in 2018, according to the Bureau of Labor Statistics Employer Cost for Employee Compensation series. That means that if health insurance costs had remained at a constant share over this period, wages would be approximately 1.4 percentage points higher, adding 0.1 percentage point annually to wage growth. The series actually peaked at 10.4 percent in 2014, which means that declining health care costs should have been adding to wage growth for these workers in the last four years.
There is a similar story for office and administrative support occupations where the wage and salary share of compensation fell from 71.0 percent in 2004 to 69.3 percent in 2018. The latter figure is up from a low of 68.8 percent in 2014. Again, the declining wage share of compensation only explains a small part of the wage stagnation story.
There are three things going on here. First, lower-paid employees are much less likely to have health insurance coverage at their job than was the case two decades ago. Second, they are likely to have less generous coverage, with more deductibles and co-pays. Also, they more often have to pay part of the premium. Finally, in recent years, health care costs have largely moved in step with overall economic growth, which explains their declining share of compensation.
The Washington Post may always have room for people denying that there has been an upward redistribution of income, but it happens not to be true. There has been and it is enormous.
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Perhaps it has something to do with the ten-year anniversary of the Lehman crash, but we seem to be seeing more financial crisis stories in the media lately. Today’s version comes to us from The New York Times in a column by Bethany McLean, headlined “the next financial crisis lurks underground.” The subhead tells us the basic story:
“Fueled by debt and years of easy credit, America’s energy boom is on shaky footing.”
The piece looks to be a very reasonable discussion of the fracking boom and points out that most fracking operations are not profitable. It describes fracking as essentially a Ponzi scheme, where fracking companies are able to survive by finding suckers to buy their stock. Most frackers don’t actually make enough money to repay their debts and generate a profit.
All of this sounds very plausible, although a jump back to 2014 type oil prices ($100 a barrel or higher) would presumably change this picture. (That’s not a prediction, just noting the arithmetic.) But the problem is that if the Ponzi game ends, where is the financial crisis? We are told:
“Amir Azar, a fellow at the Columbia University Center on Global Energy Policy, calculated that the industry’s net debt in 2015 was $200 billion, a 300 percent increase from 2005.”
Okay, so suppose two-thirds this debt goes bad and investors get back fifty cents on the dollar, both pretty extreme assumptions. That comes to $67 billion in losses on $134 billion in debt, an amount equal to 0.34 percent of GDP. Perhaps there is a world where this gives us a financial crisis, but not this one.
Just to be clear, The New York Times picks the headline, not the author of the column. The column is a perfectly reasonable piece on fracking, the headline is not.
Perhaps it has something to do with the ten-year anniversary of the Lehman crash, but we seem to be seeing more financial crisis stories in the media lately. Today’s version comes to us from The New York Times in a column by Bethany McLean, headlined “the next financial crisis lurks underground.” The subhead tells us the basic story:
“Fueled by debt and years of easy credit, America’s energy boom is on shaky footing.”
The piece looks to be a very reasonable discussion of the fracking boom and points out that most fracking operations are not profitable. It describes fracking as essentially a Ponzi scheme, where fracking companies are able to survive by finding suckers to buy their stock. Most frackers don’t actually make enough money to repay their debts and generate a profit.
All of this sounds very plausible, although a jump back to 2014 type oil prices ($100 a barrel or higher) would presumably change this picture. (That’s not a prediction, just noting the arithmetic.) But the problem is that if the Ponzi game ends, where is the financial crisis? We are told:
“Amir Azar, a fellow at the Columbia University Center on Global Energy Policy, calculated that the industry’s net debt in 2015 was $200 billion, a 300 percent increase from 2005.”
Okay, so suppose two-thirds this debt goes bad and investors get back fifty cents on the dollar, both pretty extreme assumptions. That comes to $67 billion in losses on $134 billion in debt, an amount equal to 0.34 percent of GDP. Perhaps there is a world where this gives us a financial crisis, but not this one.
Just to be clear, The New York Times picks the headline, not the author of the column. The column is a perfectly reasonable piece on fracking, the headline is not.
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Donald Trump is very confused about trade and it seems the confusion has spread to the NYT. Its article on the trade negotiations between the United States and Canada told readers that Trump is threatening with tariffs on the cars it exports to the United States.
Canada doesn’t pay tariffs on cars exported to the United States. The companies that import the cars to the United States would be the ones that pay the tariffs. This would primarily be Ford and General Motors, although there may also be some foreign auto companies that bring cars in from Canada.
In Trump World, it seems that trade is a battle between countries, with the ones that have the largest trade surplus being the winners. In reality, many US corporations have benefited hugely from the imports that have been associated with the U.S. trade deficit. They have taken advantage of lower cost labor (not really true in Canada) in other countries to reduce costs.
The basic story is that trade is about class, not country. Our patterns of trade were put in place to redistribute income upward.
When Trump threatens to disrupt the patterns of trade established over the last quarter century he is most immediately threatening US corporations. While there may also be some negative effects for workers in other countries, the direct targets are US corporations. Trump may not understand this fact, but the NYT should.
Donald Trump is very confused about trade and it seems the confusion has spread to the NYT. Its article on the trade negotiations between the United States and Canada told readers that Trump is threatening with tariffs on the cars it exports to the United States.
Canada doesn’t pay tariffs on cars exported to the United States. The companies that import the cars to the United States would be the ones that pay the tariffs. This would primarily be Ford and General Motors, although there may also be some foreign auto companies that bring cars in from Canada.
In Trump World, it seems that trade is a battle between countries, with the ones that have the largest trade surplus being the winners. In reality, many US corporations have benefited hugely from the imports that have been associated with the U.S. trade deficit. They have taken advantage of lower cost labor (not really true in Canada) in other countries to reduce costs.
The basic story is that trade is about class, not country. Our patterns of trade were put in place to redistribute income upward.
When Trump threatens to disrupt the patterns of trade established over the last quarter century he is most immediately threatening US corporations. While there may also be some negative effects for workers in other countries, the direct targets are US corporations. Trump may not understand this fact, but the NYT should.
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That could be one conclusion from the Commerce Department’s release of consumption data for July. According to the release, spending on prescription drugs accounted for 24.7 percent of the growth in real consumption spending for the month. Before people get too nervous about the worsening of the opioid epidemic, it is worth noting that real spending on drugs actually declined in the prior two months. July’s figure was just 3.0 percent above the year-ago level.
It is worth noting that inflation in drug prices has been quite restrained over this period. The Commerce Department’s measure, which is somewhat different than the measure in the Consumer Price Index, shows drug prices rising by just 0.9 percent over the last year. The main reason that the cost of drugs has risen in the last four decades is that new drugs are put on the market at very expensive prices, not sharp price increases in existing drugs.
That could be one conclusion from the Commerce Department’s release of consumption data for July. According to the release, spending on prescription drugs accounted for 24.7 percent of the growth in real consumption spending for the month. Before people get too nervous about the worsening of the opioid epidemic, it is worth noting that real spending on drugs actually declined in the prior two months. July’s figure was just 3.0 percent above the year-ago level.
It is worth noting that inflation in drug prices has been quite restrained over this period. The Commerce Department’s measure, which is somewhat different than the measure in the Consumer Price Index, shows drug prices rising by just 0.9 percent over the last year. The main reason that the cost of drugs has risen in the last four decades is that new drugs are put on the market at very expensive prices, not sharp price increases in existing drugs.
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It really is hard to follow economic policy debate these days. After all, we have robots taking all the jobs so no one will have any work, but then we keep getting reminded that the baby boomers are retiring, so we won’t have any workers.
We got a dosage of the latter concern in the middle of a very interesting Thomas Edsall piece that everyone should read, on the question of whites becoming a minority. The piece quotes Thomas Frey, a demographer, at Brookings:
“Given the slow and in fact, last year, negative growth of the white population along with its rapid aging — it is important for older whites to understand that the only way we will have a growing labor force will be to embrace the younger racial minority populations.”
The point about needing immigrants who are not generally viewed as white in order to have a growing labor force is true, but why exactly do we need a growing labor force? Japan and Germany both have shrinking labor forces and their populations are not suffering in any obvious way as a result. To be clear, I am not arguing that we should keep out immigrants, but if the argument rests on the assumption that we need a growing labor force, then we have a problem.
It really is hard to follow economic policy debate these days. After all, we have robots taking all the jobs so no one will have any work, but then we keep getting reminded that the baby boomers are retiring, so we won’t have any workers.
We got a dosage of the latter concern in the middle of a very interesting Thomas Edsall piece that everyone should read, on the question of whites becoming a minority. The piece quotes Thomas Frey, a demographer, at Brookings:
“Given the slow and in fact, last year, negative growth of the white population along with its rapid aging — it is important for older whites to understand that the only way we will have a growing labor force will be to embrace the younger racial minority populations.”
The point about needing immigrants who are not generally viewed as white in order to have a growing labor force is true, but why exactly do we need a growing labor force? Japan and Germany both have shrinking labor forces and their populations are not suffering in any obvious way as a result. To be clear, I am not arguing that we should keep out immigrants, but if the argument rests on the assumption that we need a growing labor force, then we have a problem.
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We wouldn’t have known this without the a Washington Post article headlined “…on NAFTA, Canadians worry they have been outmaneuvered by Trump.” While that is the theme of the piece, the only person quoted or cited in the piece who says anything like this is a member of the opposition Conservative party.
The piece also bizarrely concludes that the US has much more leverage with Canada than the other way around:
“But the latest turn in the talks makes the ‘no deal’ option particularly dangerous for Canada if Trump goes ahead with his threat to impose tariffs on Canada’s substantial exports of cars and automotive components to the United States.”
The companies that export cars from Canada to the United States have names like “Ford” and “General Motors.” These companies will not be happy if Donald Trump uses his leverage to punish them. It is also not clear that the net effect in this story would a substantial increase in manufacturing employment in the United States, since some of the cars produced in Canada will be replaced by cars produced in other countries.
We wouldn’t have known this without the a Washington Post article headlined “…on NAFTA, Canadians worry they have been outmaneuvered by Trump.” While that is the theme of the piece, the only person quoted or cited in the piece who says anything like this is a member of the opposition Conservative party.
The piece also bizarrely concludes that the US has much more leverage with Canada than the other way around:
“But the latest turn in the talks makes the ‘no deal’ option particularly dangerous for Canada if Trump goes ahead with his threat to impose tariffs on Canada’s substantial exports of cars and automotive components to the United States.”
The companies that export cars from Canada to the United States have names like “Ford” and “General Motors.” These companies will not be happy if Donald Trump uses his leverage to punish them. It is also not clear that the net effect in this story would a substantial increase in manufacturing employment in the United States, since some of the cars produced in Canada will be replaced by cars produced in other countries.
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