Grace Ross: Government Borrowing Choices Hurt Regular Folks

Tuesday, July 30, 2013

Grace Ross, GoLocalWorcester MINDSETTER™

The rich get richer, and the poor get poorer. When will the tides change?

Like everything else the government does, the way it loans and the way it borrows are not neutral acts.

Much of what government does is move money around. For that reason, to be informed participants we have to get comfortable with thinking about what the government does with our money and how what it does impacts who has money in the future.

For decades, a mantra of many on the far right has been “get government out of our lives”. Of course, the reality is that for a society this large to function together, government is in our lives–sometimes constructively and sometimes destructively. The real danger with this argument is that we miss the real goal: how are we ensuring that government is by and for us, the regular people of our society?

Years ago when advocates from the right were saying that they wanted government intervention out of our lives, they were at the same time trying to tie the meager amount of money that folks got for welfare payments to incentive programs for single mothers to marry or fighting for laws defining what consenting adults could do in the bedroom together when no one else is around. Honestly, we all want government intervention in the ways we define. Government has its fingers in our lives–the question is how and to whose benefit.

Government loans and borrowing are out there–and our government’s choices in this area like in making any government budget has moral implications. We have a birthright to government by and for the people–what do we want?

Elizabeth Warren has been visible in recent weeks going on and on about student loans. As we know, many of the private bank student loan policies have become as predatory as mortgages were 10 years ago. All the laws we’ve passed to try to force mortgages to no longer be marketed purposefully deceptively to consumers nor use terms far beyond what average consumers understand. Many of those same practices have plagued lending to students as their primary option to go to college or graduate school.

Today, students graduate from college and graduate programs with massive amounts of debt and no guarantee of a future job even with a degree. If they do get a job, it is often not in their field and usually does not pay nearly enough to pay off expensive school debt.

The national debate has been about the way government lends money to students: trying to force the government interest rates down towards what actual interest rates are now. Why? As my friend David Tierney pointed out, the federal government has been and plans in the future to loan to students far beyond what regular interest rates would be; essentially then, every time a student makes a payment on their government student loan they are, in fact, adding in a small subsidy to our federal government. In an odd way, this is tying some of the government’s economic future to funding by today’s students. Is someone going to argue that because this is our young people’s future, they should be paying for it? This is a 180° turn about from claiming that we need to pay down government debt now so we don’t indenture our children’s future.

Many of us have been pushing the other direction at the state level. We are trying to get the Governor to borrow and spend the infrastructure and jobs money that’s mostly been sitting authorized, but not implemented. There’s some $14 billion out there now plus a little bit more from this year’s bond bills that passed the legislature. The Governor has consistently refused to borrow the money claiming that they debt will be too heavy of a burden on the state. Of course at this point the state can borrow money at incredibly low rates approaching zero interest especially when you take inflation into account at a time when one could then lock in rates that would be cheap for decades.

This proposal is exactly opposite of what the national government’s student loans policy is. State government would borrow money from the biggest lenders to fund absolutely critical infrastructure repair and improvement, provide tens of thousands of good paying jobs which will in turn jump start our state economy. Given that future interest rates are likely to increase, the government will then pay that money back at less than future interest rates making a little bit of money off of the biggest lenders each time our state government paid back part of its debt.

One has to ask oneself what is more reasonable, effective, and just. What if we pay less than increasing future interest rates to the same biggest banks most of whom engaged and are still engaging in the draining of massive amounts of money out of our state economy through questionable mortgage deals and illegal foreclosures. Or do we support policies like our federal government where students who can’t even make ends meet when they graduate are going to be asked to subsidize our federal budget in little tiny amounts for many years every time they pay back?

With the huge outflow of money from regular people to the biggest banks and from our government to the biggest banks, the time has come to turn the tide. We can and must stop charging regular people extra money to supposedly support our government when the vast wealth of especially the financial industry continues to build at the detriment of our government and our overall economic wellbeing.

Grace Ross is a former Gubernatorial candidate and author of Main St. Smarts.