Student Loans and STEM

Blog 21 Oct 10 student debt

Random thoughts generated by observing all the PYTs (pretty young things) in the grocery store on a Sunday evening:

How many of the people just graduated from universities are hamstrung by their student loans? Anecdotally, most students graduating from college are saddled with about $20,000 worth of debt. If they’ve just graduated from law school, or earned an MBA, or gotten a Ph.d. in the sciences or liberal arts, it is likely double that. At a minimum, they have to figure out a way to come up with about $300 every month, for at least 5 years.

Easy enough if they are computer science majors, or hard science types whose diploma is in high demand. Not so much for your basic English Lit. major, or, even worse, those gender studies folks. For the latter, it’s likely a struggle to find any job, let alone a job that comes with a salary sufficient to meet the debt obligation.

So, for a lot of them, it’s a future that doesn’t include a shiny new car, or saving for a few years to accumulate a down payment for that first house. No, it’s back to the parents, or slumming with a few room-mates in that edgy part of town where the rents are low enough for a group effort to pay the landlord. Last year, the Washington Post reported that the total outstanding student loan debt was $865 Billion.

Every year, our institutions of higher learning churn out thousands of graduates whose educational achievement, for the most part, doesn’t promise a future of movement up the social ladder.

It is such a waste.

Here’s what I think. First, instead of wasting more money on crony capitalism, investing in solar panel plants, and lending money to Brazilians so they can sell oil to China, let’s write off existing student loans, subject to a few simple rules. Give each debtor a 2-1 tax credit for ever dollar invested in short term Treasuries. Suspend debt repayment while saving is occurring. Once the debtor has accumulated sufficient savings and tax credits, write off the debt. Allow the student to transfer the accumulated funds to savings program created for the establishment of a 10% down payment on a house or condo. I don’t think I have to spell out the benefits to our economy of such a program.

STEM2

Second, going forward, student loans would only be offered to students enrolled in a STEM degree. Remember, STEM stands for science, technology, engineering, and mathematics. Those degrees just happen to have the highest starting salaries for new employees, represent the hardest degrees at most universities, and are those programs most needed for the US to continue as a dominant player in the world economy.

Want to major in gender studies, women’s contemporary literary issues, or African-American history? Feel free, but don’t expect a dime from the US taxpayer. Because you likely won’t be able to pay your debt, and you most likely won’t be able to find a job to support yourself. Which means the degree is essentially worthless. And that is a luxury this country cannot afford any longer.

Man-Made Chicanery

William Galston has put up a timely post at the New Republic website which absolutely nails the current debacle in Washington. If I may quote liberally from his post, which should be read in its entirety:

Raising the debt ceiling is a man-made crisis amenable to straightforward policy remedies. Political will is all that is lacking. Not so the economic crisis that our preoccupation with fiscal policy has temporarily obscured.

…The IMF recently conducted a comparative study of ten post-war economic recoveries seven quarters after the business cycle trough, or recession’s end. Its findings for the United States are stunning. For employment and household finances, the current recovery is the weakest since the end of World War Two. For the business and financial sectors, it’s the strongest. The banks, recipients of lavish public funds and guarantees during the meltdown, are reporting a rapid recovery from their lows in profits, loan charge-offs, and equity-to-asset ratios. Meanwhile, growth in employment, disposable personal income, personal savings and consumption, and total GDP all anguish. Needless to say, investment in structures—residential and non-residential—comes in dead last. Were it not for a strong performance in equipment, software, and exports, the current recovery would barely have a pulse. The IMF study does nothing to weaken the increasingly credible thesis that downturns induced by financial crises differ structurally from those in normal business cycles.

…At the same time that the business and financial sectors are becoming decoupled from employment and household balance sheets, gaps among different parts of our population are growing. A report just out from the Pew Research Center shows that while the median net worth of all U.S. households declined by 28 percent between 2005 and 2009, the figure was 53 percent for African Americans and 66 percent for Hispanics. And these percentages mask an even more troubling reality: The assets of black and Hispanic households have just about been wiped out.

…This painfully slow recovery is rending the fabric of American society. In turn, these growing socio-economic gaps are contributing to the rising polarization of our politics and declining trust in government—developments that will make it even more difficult to forge agreements on the policies we’ll need to get out of this deep hole. No doubt adverse trends in the global economy are making things even worse. But in the end, our economic crisis is a governance crisis. The stalemate over the debt ceiling is a symptom of this systemic fact.

Note well his words: our economic crisis is a governance crisis.

But What If The Pirates Don’t Respect Our Legal System?

Multi-cultural. Nuanced. Consensus. In consultation with other countries. Searching for diplomatic solutions.

None of these high minded concepts have slowed the pirates of East Africa from continuing to board ships and hold crews for ransom. I think of it in the same way as the English privateers of the 16th century must have considered the heavily laden Spanish galleons; as a never-ending stream of opportunites to acquire wealth beyond the pale.

I mean, at the very basic human level, what motivates decision-making? Fear, greed? If the greed urge overcomes the fear urge, greed occurs; not until the fear urge assumes a greater role will decisions change.

Does the thought of spending 5 years in a federal prison in the United States, with shelter, television, regular meals, and great health care scare an East African pirate? Is any one of them willing to do a little hard time knowing that they will, soon enough, return to the beaches of Somalia and loll about with their share of the millions of dollars earned from ransom payments?

But don’t worry, folks. The FBI and the Department of Justice (late of the Stevens case) are ready to investigate and prosecute. I’m sure those East African pirates are shaking in their dashikis.

PowerLine lends a little perspective…..

The FBI is preparing criminal charges against the Somalian pirates. This is reassuring too: "[O]ur Justice Department has said that it would favorably consider prosecuting such apprehended pirates." That’s kind of them.

Of course, there is ample precedent for such criminal prosecutions. When Jefferson dispatched the Navy to the Mediterranean to stop Muslim pirates from enslaving Americans and others, he told them to make sure to bring the pirates back alive so they could stand trial. And above all, he instructed the Navy not to step foot on the Shores of Tripoli without a search warrant.

This is what happens, I suppose, when you have lawyers running everything. National defense becomes just another type of litigation. Let’s hope this isn’t a harbinger of the Obama administration’s approach to the problem of piracy.

UPDATE: Negotiations with the pirates reportedly have broken down, and the FBI is treating the hijacked ship, the Maersk Alabama, as a "crime scene." That’s what they did with the Arizona, right?

This is getting ridiculous…….

UPDATE: Well done, Navy SEALs!!!

Further Update: This Somalian gentlemen does NOT seem to be suggesting that there might be a discovery process, depositions, indictments, negotiations, and the possibility of indictments should another US citizen fall into their hands.

One pirate named Ali, in Galkaiyo, Somalia, said the American Navy rescue won’t discourage other Somali pirate groups at all.

“As long as there is no just government in Somalia, we will still be the coast guard,” he said, adding: “If we get an American, we will take revenge.”

We’ve been warned.

Congress is a Lynch Mob

From The Big Picture and worth repeating in its entirety:

A Lynch Mob!
March 21, 2009

“Let’s go hang ‘em.”

American history is replete with examples of lynch mobs taking control of a situation and inflicting injustice. In the end most lynch mobs have dealt harmful blows to society. Congressional action to punish AIG employees over the bonus issue is already seeding that outcome.

Members of the US House of Representatives who voted for this bill said they were reacting to the anger of their constituents. In failing to show leadership they have just undermined the entire structure designed to repair the financial system.

Specifically the House did the following:

1. They licensed the abrogation of contracts. Their message is simply that it makes no difference what rules we put into effect now; we can and will change them so you cannot depend on them. Global businesses take heed: Your previous judgment about the sanctity of US law has been rendered faulty by our political leadership.

2. They passed retroactive taxation. Their message is that, whatever you plan with regard to the federal tax code, do not assume consistency and do not build any reliability about your government into your decision making. We, in Congress, can reverse our laws and confiscate your results.

3. They made the tax punitive. A 90% tax on something is like taking all of it. The chairman (Rangel) of the House taxation committee actually admitted that by taxing the 90% he was leaving the remainder for the states. In other words, states are now encouraged to engage in the same form of behavior.

Sure citizens are outraged over the $165 million in bonus payments to AIG staff. But they should direct their outrage at the Congress and not threaten the employees or their families with personal injury. The Congress authorized these payments; Dodd, Geithner, and Obama Administration personnel admitted that. Remember, the law passed without giving anyone the chance to testify in public hearings and without allowing comment on the draft legislation. When the law originally went through the Congress, the House leadership suppressed amendments. This Barney Frank and Nancy Pelosi-led House is especially guilty of ignoring the rule of law. They are now guilty of encouraging the rule of lynch mob.

The result of this House action is already damaging. The federal regulator of Fannie Mae and Freddie Mac has shown the courage to ask that this law not be advanced in the Senate. We expect to hear more from those federal personalities who have the strength to speak up and oppose this House-approved proposal.

But depending on the Senate to soften the law or depending on the US Supreme Court to overturn it is a dangerous strategy. Some Congressmen admitted privately that they voted in favor because of constituent pressure, even though they were really opposed to the concept. They voted “yes” because they were relying on the Senate or the courts to say “no.”

Some damage is already done. Firms that were gearing up to participate in the federal program to be announced this coming week are considering withdrawal. They fear that any action which puts them into the federal assistance plan will subject them to the chance of retroactive punishment and taxation. The House has undermined the so-called public-private partnership designed to help restore financing of consumer items like automobiles and credit cards. We expect that the participation in the program to be announced this coming week will be tepid at best.

At Cumberland, we are advising institutional clients to take great care when engaging in any form of activity with the federal government. Simply put: a lynch mob can turn on you in a second and cannot be trusted. The risk is now very high.

Other firms that are already acting with TARP monies, or other federal monies for that matter, are seeking ways to deleverage and exit. In the entrepreneurial and risk-taking business and financial community the universal response to this act by Congress is outrage and distrust and disgust.

So far President Obama is silent on this lynch-mob approach. He has yet to declare himself against it.

Obama needs to be reminded of a parallel in history. A century ago a man named Leo Frank was lynched in Georgia for a murder he did not commit. Local politicians supported the lynch mob; those courageous politicians that opposed it were voted down. Frank was an innocent victim. His subsequent posthumous pardon did not undo the harm.

A century later a man named Barney Frank brags about the earmarks he obtained for his Congressional district (see his website). This modern Frank foments the modern-day version of a lynch mob. The House of Representatives and the Financial Services Committee under the leadership of Barney Frank have made the first day of spring, 2009 a sad day for America. They suppressed the rule of law; they chose the rule of the lynch mob; they are now going to have to live with that result.

When the citizens of America realize what the House has done, they may redirect the lynch mob against the Congress. That is coming next. As Yogi Berra said: “This ain’t over till it’s over.”