Education and Student Debt

Republicans and Democrats attempt to differentiate themselves via their views of the government’s role in the economy.  With close examination, it is hard to find real differences between them.

Those on the Right promote the benefits of “true” capitalism that allows markets to set prices via supply and demand.  Those on the Left share the view that capitalism is too harsh and that the government needs to step in and smooth out inequities created by markets.  At the extreme Left, socialism is promoted, irrespective of its history of failure.

At the macro-economic level there is little difference between Republicans and Democrats.  Crony capitalism is rampant within both parties.  Republicans typically support large industries and those in the military industrial complex.  Democrats promote social programs that benefit industries including education, social services, medical services, and trial lawyers.  The result of crony capitalism has been a significant increase in governmental spending and a surging United States’ debt over the past 50 years.  This debt is in part responsible for the economic malaise that has been inflicted on the country over the past decade.

An example of crony capitalism and the damage it has done is the educational industry.  Through the US Department of Education, as well as at the state and municipal levels, the funds spent on primary education have been skyrocketing as indicated by the charts below.

Total Educational Spending

However, the increased spending has not resulted in improved education.  The chart below shows how poorly our students are doing in basic reading comprehension.

The problem is more significant at the college level.  The educational industry, with support of the US government and its loan programs, has created the false narrative that all Americans require and deserve a college education, irrespective of whether or not it improves their economic well-being.  As a result, the amount of student debt now exceeds $1 trillion and a significant portion of college graduates cannot make an income level that would allow them to pay off the debt in a reasonable period of time.  Many have been forced to move back into their parents’ houses.Student Debt

While a market-based economy can be a cruel arbitrator of scarce resources, crony capitalism has proven to be catastrophic to those who have been cajoled into inappropriate economic decisions based on government programs.  It is a major cause of the growing wealth disparity between the ultra-rich and average Americans.

Yes, both Hillary Clinton and Donald Trump have prospered under crony capitalism.  The same cannot be said for most Americans.

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Western Capitalism Morphs into Socialism

There is an unholy and symbiotic relationship between government and those who benefit from its largess. Those receiving entitlements believe the benefits are holy and guaranteed forever. Those employed by the government become beholden to it. In addition, through crony capitalism corporations become dependent on government for sales and earnings.

The relationship between government and those dependent on it creates a “positive” feedback loop that has the most negative consequences. Those dependent on government continue to vote into power politicians that will increase their benefits, whether entitlements, salary, or government contracts. This then creates still larger government and payouts. It then becomes nearly impossible to stop the cycle until an economy reaches the tipping point where the expenses become too great for income or borrowing to continue the payouts.

Crony capitalism and government dependence growth has been accelerating for decades. Those that believe it will result in bad consequences are now outliers. Still, the results are clear. The United States debt is now approaching $20 trillion, with much greater debt kept off books.

Americans and many Westerners have become immune to one side of capitalism; its inherent ability to ultimately balance supply and demand, as well as assets and liabilities. A recent article by investor Vitaliy Katsenelson explains the efficiency of capitalist markets and specifically its “invisible hand”, as republished below. The markets will have their day!

Whatever Happened to the Invisible Hand of Capitalism? By Vitaliy Katsenelson

When I was growing up in the Soviet Union, our local grocery store had two types of sugar: the cheap one was priced at 96 kopecks (Russian cents) a kilo and the expensive one at 104 kopecks. I vividly remember these prices because they didn’t change for a decade. The prices were not set by sugar supply and demand but were determined by a well-meaning bureaucrat (who may even have been an economist) a thousand miles away. If all Russian housewives (and househusbands) had decided to go on an apple pie diet and started baking pies for breakfast, lunch and dinner, sugar demand would have increased but the prices still would have been 96 and 104 kopecks. As a result, we would have had a shortage of sugar — a very common occurrence in the Soviet era. Continue reading

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