Editor’s Note: This article was originally published by Liberty Unyielding on April 10, 2022, and is republished here with permission.
Joe Biden has provided billions of dollars in handouts to high-income people. The most recent example is his administration’s decision last week to suspend student loan repayments yet again, through August 31. It did that even though people with big student loans tend to be people with high incomes, like lawyers and doctors. Most people can afford to make payments on their student loans, because the unemployment rate is only 2 percent for college graduates, and less than 5 percent for recent graduates.
The suspension of student loan repayments costs taxpayers over $52 billion per year. And it bothers even some progressives. Inflation and inequality are getting worse due to the suspension, says Matthew Yglesias, who co-founded the progressive website Vox, and wrote for Slate and The American Prospect.
In the Washington Post, Yglesias notes that the long pause in student loan payments since 2020 has disproportionately benefited the wealthy, at the expense of taxpayers who mostly don’t have college degrees, and don’t have student loans:
Between canceled interest and the erosion of principal due to inflation, the prolonged pause has already saved student debtors a bunch of money. But the benefits are awfully lopsided. As Marc Goldwein of the Committee for a Responsible Federal Budget shows, medical doctors have received $48,500 in relief versus $29,500 for people with law degrees, $4,500 for people with bachelor’s degrees, and a measly $2,000 for those who didn’t finish their degree and are objectively most in need of help.
Yglesias says that Biden’s suspension of student loan repayments will drive up the inflation rate:
Most Americans say the most important problem facing the country is inflation — and President Joe Biden just made it worse. His administration announced last week it would extend yet again the emergency suspension of student loan repayments, even as his frenemies on the left are urging a program of complete forgiveness of all student debt.
Rapid inflation is already occurring due to massive government spending, he says, and student loan forgiveness will make matters worse:
That gigantic fiscal infusion [Biden’s $1.8 trillion stimulus package] supercharged demand in 2021 … putting inflationary pressure on the economy. Pressure then got superdupercharged by Russia’s invasion of Ukraine and the ensuing sanctions…..The economy no longer needs stimulus — in fact, it needs to restrain demand….So to the extent that it’s possible to reduce inflation by directly curtailing consumption, that can be helpful. And the most progressive approach is to curtail the consumption of the affluent….Non-collection of student loans, meanwhile, has the opposite effect…Restarting loan payments would drain some demand out of the economy, and would do so by disproportionately targeting those most able to pay….Restarting student debt collections would restrain inflation at the expense of a disproportionately high-income minority of the population. Broad debt cancellation, by contrast, would boost inflation.
Inflation is twice as high in the U.S. as it is in Europe. The U.S. inflation rate is about 8 percent, while wholesale price inflation has reached double digits in the U.S. By contrast, in Europe, the inflation rate is only about 4%.
Suspending student loan payments will encourage colleges to raise tuition, by making it seem more attractive to take out loans to cover tuition. The Daily Caller notes that “each additional dollar in government financial aid translated to a tuition hike of about 65 cents,” according to the Federal Reserve Bank of New York.
The inflationary effect of Biden’s policies have been described by both liberal and conservative economists. The Biden administration recently proposed regulatory changes that will inflate the cost of government procurement at taxpayer expense.
Larry Summers, who was Treasury Secretary under Bill Clinton, says that recent increases in government spending have exacerbated inflation. Steven Rattner, who was in Obama’s Treasury Department, warned his fellow Democrats that big government spending would spawn inflation.
As Rattner noted in the New York Times, the Biden administration adopted the “wrong” policies on “this critical issue” even after liberal economists warned against them:
They can’t say they weren’t warned — notably by Larry Summers, a former Treasury secretary and my former boss in the Obama administration, and less notably by many others, including me. We worried that shoveling an unprecedented amount of spending into an economy already on the road to recovery would mean too much money chasing too few goods….The original sin was the $1.9 trillion American Rescue Plan, passed in March. The bill — almost completely unfunded — sought to counter the effects of the Covid pandemic by focusing on demand-side stimulus rather than on investment. That has contributed materially to today’s inflation levels.
Yet Biden has doubled down on these inflationary policies. In March, Biden signed an across-the-board increase in federal spending that will increase inflation even further. Last May, Biden proposed a record $6 trillion budget that “would push federal spending to its highest sustained levels since World War II” as a share of our economy, reported the New York Times. The Biden administration itself forecast budget “deficits at more than $1 trillion for at least the next decade” if his budget plan were adopted, noted CNN.
Biden’s “Build Back Better” plan would lead to more inflation, according to economists across the political spectrum. Manhattan Institute senior economist Brian Riedl said it would “fuel inflation.” U.S. Chamber of Commerce Senior Economist Curtis Dubay said the bill will “undoubtedly worsen“ inflation. The Committee for a Responsible Federal Budget’s Marc Goldwein said, “I expect inflationary pressures” from “Build Back Better.” Former Congressional Budget Office Director Doug Elmendorf said Biden’s agenda “will tend to push up” inflation. Bank of America economist Ethan Harris said Biden’s plan will “create even more price pressure.”