↳ Student+debt

December 9th, 2019

↳ Student+debt

Red Wave

DEPENDENCE EFFECT

Financialization in American higher ed

Like many systems of social provision—from housing to pensions—American education has become increasingly financialized. In a recent paper, Charlie Eaton, Jacob Habinek, Adam Goldstein, Cyrus Dioun, Daniela García Santibáñez Godoy, and Robert Osley-Thomas consider the scope and consequences of financialization in the market for higher education.

From the paper:

"Increasing dependence on financial markets may bias resources towards revenue-generating commercial projects and increased student loan origination. We document the growing role of finance across the heterogeneous subsectors of US higher education: traditional public and non-profit educational providers have come to rely more heavily on financially mediated flows of investment revenue and debt-funded capital. Meanwhile, equity capital fueled the growth of an explicitly financialized sub-sector of for-profit providers. Finally, educational consumers have been saddled with growing interest payments as debt balances grew. Interestingly, the state has been one of the main participants in the transformation we describe.

How does financialization affect educational outcomes and educational stratification? We show that students’ average student loan borrowing increased fastest and to the highest levels at for-profits. Yet for-profits and the poorest public institutions disproportionately enroll minorities and students from lower social class backgrounds. Together, these facts suggest that the financialization of higher education may play a significant direct role in exacerbating educational and economic stratification. We can also expect significant effects among public and non-profit institutions. Borrowed capital has disproportionately funded investments in non-instructional commercial activities, including amenities. In this way, bond markets promote organizational behaviors that may be at odds with the goals of cost-efficient social provision in areas like higher education."

Link to the full article.

  • Another Eaton paper, co-authored with Sabrina Howell and Constantine Yannelis, uses "novel data on 88 private equity deals involving 994 schools" to study the impact of private equity buyouts on higher education: "After buyouts, we observe lower education inputs, graduation rates, loan repayment rates, and earnings among graduates." Link. See also this detailed report on financialization and higher education from the Roosevelt Institute. Link.
  • "When public higher education cannot keep pace with growing public demand for access and programs, governments often allow for-profits to rush in and help fill the gap. The future tertiary market will not be the result of a well thought out policy at the national or state levels, but a quasi-free market result that will foster lower quality providers and fail to meet national goals for increasing the educational attainment level of Americans." A 2012 article by John Douglass analyzes the rise of for-profits in the aftermath of the financial crisis. Link.
  • "One generation of Americans owed $86 billion in student loan debt at last count. Its members are all 60 years old or more." At the WSJ, AnnaMaria Andriotis writes on the emergence of senior held student debt. Link.
⤷ Full Article

March 2nd, 2019

Weak Local Lineament

REACH ARREARS

Charting the significance of credit and debt throughout society

Household debt has proliferated in the past decade. In the final quarter of 2018, it reached $13.54 trillion—an $869 billion increase since the previous peak in 2008 and a 21.4% increase since the post-crisis trough. While it is now widely recognized that the financialization of household consumption set the groundwork for the Recession (see for example this chapter by Manuel Aalbers), credit markets seem immune to structural reform.

On the one hand, access to credit enables purchases and investments crucial to long term financial mobility; on the other, it incorporates those who lack resources into a cycle of obligations to lenders. In her most recent publication in the Annual Review of Sociology, RACHEL E. DWYER questions how debt has shaped the American social landscape. She develops a two dimensional model of formal debt relationships which categorizes contracts according to the source of credit (state vs. market) and the nature of the obligation (prospective vs. retrospective). The model integrates the logic of debt and credit relationships with an analysis of distributional politics:

"The top row of prospective credit offers are more likely made to affluent or middle-class and disproportionately white populations, and the bottom row of retrospective financial obligations are more likely to fall on lower-income or poor and disproportionately racial/ethnic minority populations. The experience of debt and financial fragility is thus different across these social groups defined by class, race/ethnicity, and other social status, though also tied together by similar logics of financialization and individualized accountability for life conditions."

Dwyer's research shows how credit and debt relations vary geographically and temporally, encouraging a comparative analysis of debt relationships in countries with different political economies. Link to the article.

  • On the unique role that credit markets play in the American economy, see Monica Prasad on the credit-welfare state tradeoff, and Colin Crouch on privatized-mortgage Keynesianism. Link to the first; link to the second.
  • For a pre-crisis examination of credit and inequality, see Patrick Bolton and Howard Rosenthal's Credit Markets for the Poor. Link.
  • Vicki Been, Ingrid Ellen, and Josiah Madar explore the relationship between urban segregation and subprime mortgage lending. Link.

    New Researchers: VISIBILITY PREMIUM

Political effects of celebrity exposure

In a novel paper, HEYU XIONG—a Phd candidate at NORTHWESTERN and newly appointed professor at CASE WESTERN RESERVE UNIVERSITY—studied the political consequences of television celebrity. He used the career of Ronald Reagan as a case study and exploited quasi-experimental variation in television reception to estimate the effects of celebrity media exposure on political outcomes, finding that
support for Reagan based on non-political factors extended nearly two decades after his television career—an effect more pronounced in areas in which Reagan was not a known political entity. The findings suggest that elections hinge considerably more on non-political media exposure and personal characteristics than previously assumed.

From the abstract:

"My results contribute to our knowledge of the vote decision process. Understanding what candidate information is pertinent and how that information is processed is key to understanding the selection of elected officials and, subsequently, the policies those elected officials enact. The economic theory of electoral competition is traditionally situated in the framework of the policy oriented voter. Even without the assertion of rationality, voters are, at the very least, presumed to be voting in order to advance a policy position or to express a political preference. While this preoccupation is not misplaced, the results suggest that candidates' personal characteristics constitute a significant, if substandard, criterion for vote choice."

Link to the paper.

⤷ Full Article

May 19th, 2018

Modelled Eye

EACH POINT ON THE CHAIN

Arguments for Value-Added Tax in the US, and using VAT to fund basic income

VAT

The Wall Street Journal lays out the basics popup: yes: “Unlike a traditional sales tax, a VAT is a levy on consumption that taxes the value added to a product or service by businesses at each point in the chain of production.”

VATs are ubiquitous—except in the United States. According to a 2013 Hamilton Project report popup: yes, “In recent years, the VAT has raised about 20 percent of the world’s tax revenue (Keen and Lockwood 2007). This experience suggests that the VAT can raise substantial revenue, is administrable, and is minimally harmful to economic growth.”  The TPC notes popup: yes that “every economically advanced nation except the United States” has a VAT. Countries adopted VATs over time: the EU first unified all its VATs in the 1970s, China adopted a VAT in 1984, Canada in 1991, and so on. Now the US is the only country in the OECD without one.

Why is there no VAT in the US? 

"Back in 1988, Harvard economist Larry Summers [...] explained popup: yes that the reason the U.S. doesn't have a VAT is because liberals think it's regressive and conservatives think it's a money machine. We'll get a VAT, he said, when they reverse their positions." (Forbes popup: yes.)

A VAT could certainly be a revenue-raising powerhouse. According to the CBO popup: yes, a 5% VAT could raise 2.7 trillion dollars in 2017-2026 with a broad base, or 1.8 trillion with a narrow base—the most massive of all the options for revenue popup: yes in their 2016 report.

And as for the regressive concerns, VAT proposals usually suggest adjusting other taxes or credits commensurately. A 2010 Tax Policy report popup: yes considers a VAT in the context of lowering payroll or corporate taxes, and the Hamilton Project suggests popup: yes adding tax credits or straightforward cash to low-income households.

VATs are appealing beyond their ability to raise a lot of money. They’re also easier to administer and document than other tax forms. A 2014 study popup: yes by Dina Pomeranz examines the way the VAT is documented in Chile, and finds that "forms of taxation such as the VAT, which leave a stronger paper trail and thereby generate more information for the tax authority, provide an advantage for tax collection over other forms of taxation, such as a retail sales tax." Beyond that, Michael Graetz argues popup: yes in the Wall Street Journal, "shifting taxes from production to consumption would stimulate jobs and investments and induce companies to base headquarters here rather than abroad." The Tax Foundation has advocated popup: yes for a VAT to replace the Corporate Income Tax for similar reasons.

⤷ Full Article