So, a lot of people, particularly on the right, are claiming that the student debt forgiveness will be inflationary. And I decided to actually comment on this.
Will it? Eh, technically. But...let me put it this way. ANY idea that helps the working class and gives them money is going to be somewhat inflationary. A minimum wage increase would be inflationary. UBI would be somewhat inflationary. Simply giving poor and middle class money to spend, is inflationary. It's too much money chasing too little goods.
The real question is, how inflationary is it? And is it worth it? Everything in economics is a tradeoff. The alternative to inflation is poverty, unemployment, and wage slavery. If you have people have money and be taken care of, inflation increases by default. But....let's be honest, current inflation is abnormal. it's the result of economic shocks, and is mostly driven by supply chain issues and corporate greed rather than people having too much money. It's not an issue with demand as much as it's an issue with supply, when it's not just people trying to exploit the situation out of greed. We discussed this. This is not a normal inflationary shock. It isn't a problem of wage price spirals and the working class having too much bargaining power, and high wages driving prices up. That's what people normally think with inflation.
Nor is this just printing money and giving it to people. I mean, rather, it's the equivalent of a slight tax decrease. Think of student loans like a tax. If you're on IBR, you're gonna be paying like 10-15% of your income above say, $18k. And if you only had $10-20k in debt, well, your payments probably werent that high in the first place. I mean, on a standard 10 year plan, $10k would probably amount to around $100-125 a month? $20k maybe $200-250? And if you're on IBR, you paid that OR LESS. So how much does this actually save you a year? $1200-3000? This is another minor stimulus check for people. And only for those it actually wiped the debt out for (20 million people). Keep in mind this only wiped out $300B of the $1.7 trillion in debt. Most debt is held by the people in the deep end of the student debt pool, having massive totals and punishing payments every month. We're talking $500-1000 a month or even more. And this really doesnt touch THAT.
So how much money is really being added to the economy here? Or in MMT terms not being removed from it as this is essentially a tax? Not much. Will it help some people? Sure. Will it be absolutely earth shattering? No. Will it MEANINGFULLY contribute to inflation? Probably not. The effect of this is arguably going to be marginal.
Right wingers love using the specter of inflation to crap on anything good for average people. Because anything good for average people TECHNICALLY contributes to inflation. As I said, if you have a minimum wage increase, it's inflationary. UBI? Inflationary. Those middle class tax cuts republicans like giving people? Technically inflationary. And I don't see republicans screaming the trump tax cuts are why inflation is high. Technically those were arguably as inflationary as forgiving student loan debt. Because allowing people to keep more of their money is inflationary.
So let's ignore right wing crocodile tears about inflation. The real question is whether policies like this cause RUNAWAY inflation. And the answer is no. To cause runaway inflation you need to dump tons of money into the economy. Funding a UBI without taxes (helicopter money) would be inflationary. As would raising the minimum wage to like $30 an hour or something that the economy cant sustain. Wage price spirals happen, and too much money chasing too few goods happens. But being too hawkish on inflation is bad too. If you wanna know why the living standards of the bottom 80% have stagnated since the 1970s, it's because right wing policy is too counter inflationary. If you try too hard to counter inflation, you get austerity, and people suffer that way. No inflation is actually bad. But too much is bad too. I'd say you wanna aim for around 3% a year. The fed aims for 2%. Right now we're at 10%. Anything more than 4-5% or so is bad IMO. You wanna keep it below 4%.
Now, just to address the other right wing claim on student debt, that suddenly next semester colleges will raise their prices by $10k. No, that's ridiculous. First of all this was a one time forgiveness of past debts and doesnt forgive future debt. Second of all, most people paying student debt payments are out of school so schools cant just turn around and raise prices on them. This concern is just ridiculous. People really make up such bad faith arguments about inflation. It's like the "if you have UBI landlords will increase rent by $1000 a month". It makes sense intuitively but reality is far more complex and a lot of these arguments are made in bad faith, essentially to argue that nothing should ever be done to help people, ever. What these analyses often ignore is that even if some minor inflation occurs the overall benefit to people will greatly exceed inflation. Still, there ARE limits to how much we can help people. I argue only for a $14k or so UBI funded with taxes for a reason. Because I dont believe we can just print out and give people $30k a year or something. Same with the minimum wage. Some progressives want $30 an hour or something. I argue for $15-18 given a 5 year phase in. The logic being helping people a bit is good, but helping them too much evntually WILL be inflationary, where the tradeoffs arent worth it.
Like just to put things in context, helping people a little generally provides more positive benefits than drawbacks. Helping them in excess will be inflationary to a point that is does more harm than good. The goal of progressives is to help people as much as we reasonably can, while still erring mostly on the side of not being overly inflationary.
Is biden's really minor student debt forgiveness package going to cause SOME inflation? Perhaps. Will it cause noticeable inflation or make the current crisis worse? Almost definitely not, and the idea that it would seems to be made in bad faith.This is a good plan. It just doesn't go far enough in my opinion.
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