The Perils of Handing Out “Free” Money

The Student Loan Disaster

In America, inflation is completely out of control, the Democrats just raised taxes, the economy is nosediving into the pavement, and we’re already in a recession even if the Left denies it. Despite all that, what is the Biden administration doing? They’re giving away between $440 and $600 billion (estimates vary) of your tax dollars in “college loan forgiveness” to people making up to $125,000 per year. When you consider that level of income AND the fact that college graduates make 900k more over the course of their lifetimes than high school graduates, there are few groups less deserving of a government handout in the whole country. How do you justify adding to the tax burden of people who never went to college or who did go to college, but did the right thing by scrimping and saving to pay off their debt to help some of the most privileged people in the country?

Of course, if you were trying to come up with people that deserve free money from the government even less than college graduates making more than a hundred thousand dollars, some people, in an effort to defend the meritless college loan welfare we just handed out, would say that the business owners that had PPP loans forgiven would be it. Is that true? Not really, although that whole program was insane for a whole different reason. When COVID hit, the government simultaneously forced many businesses to shut down AND then loaned them money to keep their employees on the payroll. As many of us noted at the time, this was a terrible idea:

John Hawkins @johnhawkinsrwn

Today: We need to shut down EVERYTHING! Screw the economy! If you want people to go to work, you want my grandma to die! Six months from now: I'm out of work & no one wants to hire me. My grandma's small business closed! Why is the economy this bad? Same people.

Afterward, the government forgave the money in most cases. Were there some businesses that would have suffered and perhaps gone out of business without the PPP program? Yes, but many of the businesses that benefitted from it were primarily suffering because the government forced them to shut down in the first place. In other words, it’s like the government broke their arms with a baseball bat, gave them a cast, and later didn’t charge them for it. Does it make sense that the government didn’t charge them for the cast? Sure, but if they hadn’t been in the business of breaking arms in the first place, no one would have ever needed the cast.

This also applied to the three rounds of checks the government sent people in the mail.  Across the country, the government was literally suing business owners and sending the police to stop people from working and this quite naturally put a lot of people who would have otherwise been employed, out of work. Some of that would have happened anyway because of COVID, but the government’s foolish reaction to COVID did far more damage. So, what was the government’s answer to the problem it created? Naturally, it was more free money. The government sent $800 billion to Americans which was simultaneously not enough money to replace the money they lost from not working, but also something that made sense given that again if the government is going to get into the arm-breaking business, it’s hard to say it’s wrong for them to provide free casts as well.

What can we even say about this level of financial irresponsibility at this point? It’s obviously unsustainable, but human beings are remarkably good at doing what they want to do in the short term, and pretending like the bill for their bad behavior isn’t ever going to come due. Our own government is also extraordinarily good at keeping American citizens in the dark about what they owe and where their money is being spent. For example, did you know our national debt is approaching $31 trillion? Maybe you did, but did you realize that comes out to more than $244,000 per taxpayer? Well, nothing to worry about, right? If and when the time comes, all those billionaires will be the ones paying the bills. Really? Because depending on which estimates you believe, there are only roughly 600-700 of them worth somewhere between 3-4 trillion in assets collectively. Depending again on which estimates you believe, that may not even cover HALF of the 2021 federal budget. If you’re a taxpayer, did you know that you’re on the hook for that much money? Do you know how much deeper in the hole you’re going to be after this year? Do you know what specific programs your tax dollars are going to be spent on? Exactly. You are completely disconnected from the process, which is exactly what they want.

In a world full of responsible nations on the gold standard, the United States would have gone bankrupt long ago. However, governments across the world are playing the same game we are and so we’ve managed to forestall our inevitable comeuppance by being the best of a lot of bad options. At some point, even this won’t be enough because everyone will see the handwriting on the wall and the only entity in the world willing to buy our bonds will be our own federal reserve. Once we get there, the economic apocalypse that will result will make the Great Depression look like a tea party with the queen of England. When will that happen? No one knows exactly. So, after hearing that enough times, people have started to shrug their shoulders and assume it’ll never happen, which is incredibly foolish.

That’s why in one sense, the horrible beating our economy is taking and is likely to continue to take for a while is perversely a good thing because it teaches people there are real consequences to “free” money. I’ve written a whole column on this subject, but the short explanation is that between the ungodly amount of money the Fed created out of thin air and the astronomical amount the government spent, we generated the worst inflation since the Jimmy Carter era. Meanwhile, because the country is so deep in debt, the Fed can’t raise interest rates as high as it should to stop inflation. In fact, we better hope the conventional thinking on interest rates is wrong because the idea has always been that you raise interest rates HIGHER than inflation to get it under control. We’d have to triple where we are right now to get there which would obliterate our economy, drive our debt into the stratosphere, make it increasingly unlikely that anyone would buy our bonds, destroy confidence in the dollar, cost us our reserve currency status, and lead to an economic collapse. Does that mean we could be in for a long bout of stagflation, which is high inflation and stagnant economic growth, without any obvious way out of it? Everyone is crossing their fingers and hoping it doesn’t come to that, but the truth is that’s entirely possible. If all this sounds scary, then good because our country has been skipping along, humming a merry tune as we head towards a cliff and this is a sign that we’re getting closer to the edge. If we were a serious country, which we’re not, this would scare the living sh*t out of people.

On top of that, the supply issues we’re seeing are part of this whole trend. We paid people not to work and now we have shortages. These are not unrelated developments. As Elon Musk famously said on the Joe Rogan Experience:

The only good thing to come out of all this is that we have an opportunity to learn from our mistakes… yet what did we do with it? We’re making the same stupid mistakes all over again, except worse with college loan welfare. In 2020, 90% of Americans made less than $125,000, yet Americans making $124,999 are eligible to have $10,000 worth of debt waived. This is just giving “free” money to people that don’t deserve it and in many cases, don’t need it.

Additionally, in a sane world, if the government was eating student loan debt because it wasn’t worth it for the recipients to pay it off, the next logical step would be to get out of the student loan business entirely. The fact that they’re not considering doing this tells you it’s also a sop to universities, which all have to be thinking, “If the government is going to be chipping in taxpayer dollars for college for an education, we should raise our rates.” Why wouldn’t they do that? Because once the precedent has been set, why wouldn’t every Democrat running for President promise to do this – except with a larger amount? Furthermore, if “free” money is the order of the day and it’s just being given out for purely partisan reasons, as a way to buy votes, why shouldn’t Republicans do it, too? Maybe we could have a $10,000 credit for mortgages under $250,000 or for families with kids? That would be a great way to buy votes right?

It should worry people that Alexander Tytler sounded like he was talking about us and foreshadowing when he said:

We’re like the people you hear about with throat cancer who have holes cut in their necks and keep smoking:

We’ve silently given up on the idea of having a bright economic future and are just determined to get as much pleasure as we can now, whatever the cost may be. That is always, always, always a foolish decision for a country to make because the short-term gains are never sweet enough to make up for the excruciating pain that irresponsibility brings down the road.

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