Student loan relief is not free. It would be paid for. Part of it would be paid for by the 87% of Americans who do not benefit but lose out from inflation. Part of it would be paid for by future spending cuts & tax increases—with uncertainty about who will bear those costs.
When President Bush originally cut taxes @WilliamGale2 & @porszag developed analysis about the distribution of tax cuts when the financing was uncertain.
Greg Leiserson and I explained the logic in the context of the Trump tax cuts. vox.com
Greg Leiserson and I explained the logic in the context of the Trump tax cuts. vox.com
Two ways to think about it:
1. Real resources. We’re at capacity now. Student loan relief would lead some people to spend more. We can’t make more so others would consume less. The way that happens is inflation.
1. Real resources. We’re at capacity now. Student loan relief would lead some people to spend more. We can’t make more so others would consume less. The way that happens is inflation.
2. Budget constraint. If you add hundreds of billions to the deficit eventually taxes will rise or spending will be cut. Or some tax cut or spending increases that could have happened won’t. Either way a cost.
A full evaluation of student loan relief would take this into account. You might still like it—it benefits recent college grads and hurts most everyone else, both rich and poor. But don’t assume it is “free” money—it is not.
P.S. You can try to play various games with baselines to get around the above. But under current law debt service payments are scheduled to restart. So if loans are forgiven the only new policy is that relief.
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