Brad Voracek, Author at

On the first day of the Democratic National Committee we heard Bernie talk about how the new Democratic platform will allow children in any family making less than $125,000 a year to go to a public college or university tuition free, while substantially reducing student debt. This is a big win for the platform, and evidence that Bernie forced Hillary left.

Meanwhile, Obama’s Council of Economic Advisors released a report arguing that the $1.3 trillion in student debt is helping, not hurting, the US economy. They argue it is helping relative to a baseline where people would not attend college if not given access to loans to get there. They come to this conclusion using lifetime earnings models to show that on average someone with a bachelor’s degree makes $1 million more than someone without it. This then outweighs the costs of their student debt. If student debt levels rose to $500,000 for a college education, however, their argument still holds.

The thing is, the economy would be doing even better without the massive debt burden placed on our young people. As Nick Cassella of Civic Skunk Works argues, framing education like they do reveals their preference to view a college education as an investment rather than a right. It also frames a four year bachelor’s degree as “the” college education, rather than helping students to understand all the options available. As sociologist James Rosenbaum highlights, high schools and community colleges encourage almost exclusively four year bachelor degree programs to their students. This downplays important certifications and associate’s degrees. If a bachelor’s degree is a right, a public investment we believe all citizens should have, then it should be available for free without debt. If it is merely an individual investment, than it should not be promoted as the solution for everyone. The highest volume of in demand jobs today do not require a four year bachelor’s degree.

13708380_10209674501161410_3611875036576826971_o — Illustration: Heske van Doornen

The interplay of education and job access highlights the two, sometimes not overlapping, goals of higher education housed into one institution: educating our population, and training our workforce. This has been an institutional feature of the American system for some time, noted by socio-economist Thorstein Veblen in his 1918 piece The Higher Learning in America. William Deresiewicz, in his book Excellent Sheep, recounts his time at Yale and the stories he saw of youth conflicted between these two goals. Students are taught to be active engaged citizens, which for some would involve teaching and public service, yet careers on Wall Street and in big private sector firms are the ones that allow them to payoff their debts faster and make college “worth it”. Framing college as an investment discounts the true value of an education. Pushing students to take on debt to get their degrees also forces this view of college as a monetary investment rather than an investment in education. Even when it is framed as an investment, it does not payoff the same for everyone. While averaging across all bachelor’s degrees you get a million dollar payoff, those lifetime earnings are not distributed equally among all graduates. Using the 2014 ACS, I calculate that the average income of a white person with a bachelor’s degree is $63,000 versus $48,000 for a black person. The St. Louis Fed shows that racial wealth gaps still exist despite college degrees. Even the CEA report says “ten percent of workers age 35 to 44 with a bachelor’s degree had earnings under $20,000, compared to 25 percent of workers with only a high school diploma.” As an investment then, it pays off the most for those who can already afford it.

If the goal of the university system is to educate our population, then it should be a right for everyone. John Adams said that “the whole people must take upon themselves the education of the whole people, and must be willing to bear the expense of it.” If our definition of educated continues to mean a four year bachelor’s degree, we must bear that public expense and not put it on students through debt. However, if we can accept educated to be at a high school level, then we can stop the college for all rhetoric and help students better understand the demand side of the economy. For every 2 jobs that require a bachelor’s degree, there are 7 that require a certification. FRED shows 5.5 million job openings today in America. Close to a million are in healthcare and social assistance, half a million are in manufacturing and construction, and around 760,000 are in the leisure and hospitality industry. Most jobs in these industries only require associate’s degrees, certifications, or high-school educations with on the job training. These are good jobs. We need social workers, nurses, plumbers and electricians, and these jobs do not require four year bachelor’s degrees. As Rosenbaum argues “the real goal should not be the unrealistic vision of everyone becoming a doctor, but rather the elimination of the all too common outcome of youths facing dead-end jobs and unemployment as their only options.” Yet 5.5 million job openings does not come close to the over 17 million unemployed according to official unemployment numbers. When there just aren’t enough jobs to go around, we should not be encouraging our citizens to take on high levels of student debt.

Rather than suggesting workers take on debt to be “trained” for the workforce, we should focus on creating jobs that pay workers to learn valuable skills. As Minsky said, “it has never been shown that a thorough program of job creation, taking people as they are, will not, by itself, eliminate a large part of the poverty that exists.” A bachelor’s degree is not a blanket guarantee to a better life, so if we believe in having a more educated population it should be a right as the Democrats are now arguing for. If it is purely meant to be thought of as a monetary investment in training yourself for the workforce, then by looking at the demand side we see that it is clearly not for everyone. John Adams said that “laws for the liberal education of youth, especially of the lower class of people, are so extremely wise and useful, that, to a humane and generous mind, no expense for this purpose would be thought extravagant.” This education need not be a four year bachelor’s degree, but I think it should be. As it is today, we need to make sure young people are aware of all the options available in the economy, and only straddle themselves with debt if they truly will benefit from it. Getting rid of student debt for public bachelor’s degrees allows us all to benefit from having a more educated population. Without large amounts of debt to worry about, student’s can focus on learning for four more years. We have the rest of our lives to work.

Written by Bradley Voracek
Illustration by Heske van Doornen

Over 35% of American adults are considered obese. These numbers are disproportionately higher in communities of color, whose access to healthy food is limited by time, money, and location. American Big Fast Food pushes “healthy” options which are laden with sugar, but advertised as “fat free”. The nutrition science community sold the idea that fat free meant free from creating fat, but the distinction is not quite true. Likewise, “low calorie” diets were sold on a similar idea that all calories are equal. The body in fact has different subsystems for digesting different types of calories. Carbohydrates go one place, proteins another, and fats themselves are digested separately. Carbohydrates are easily stored as glycogen and when present in the system the body prefers the quick use of them. When no carbohydrates are present, gluconeogenesis breaks down fats and proteins for use as energy. Looked at from this system perspective, the high carb low fat diet commonly advocated from the 1980s onward seems rather foolish if one wishes to burn fat stored on the body. In fact, the opposite should be advocated, a low-carbohydrate diet which starves the body of the fast glycogen deposits and forces it to switch into ketosis. The aphorism that “fat makes you fat” was wrongly sold to the public. While an understanding of the body system seems to clearly disprove the old ideas, the fact that the old paradigm pervaded common thought means communities continue to suffer from obesity without access to the new knowledge and healthy diets.

fatisnotfat America has another problem caused by a common misconception. There is a pervasive view that the government should not have a deficit, and should in fact run a surplus and pay down all of its debt. Of course, any good American pays down their debts. The banking system is gracious enough to give us loans to buy houses, cars, and get educations. We pay them back for the opportunity, never wanting to default on payments and enter bankruptcy. It makes sense that we think that our government, which so well represents us, should similarly pay back its debts. It is not quite that simple. Much like the fat in food being different from the fat in our bodies, the idea that government debt is the same as household debt is a harmful misconception. Like not all calories are the same, not all debts are the same. When the government runs a deficit, and spends more than it collects in taxes, it is engaging in an act of money creation. When it runs a surplus, and spends less than it collects in taxes, it is engaging in an act of money deletion. Like understanding the subsystems of the body helped us understand how different calories are used, understanding the economic subsystem of money helps us understand how different debts are used and created.

The government determines what is used for money. Today, USD denominated deposits within the banking system are the main thing we use for money. They are widely accepted and we use them to pay taxes. Deposits enter into the system in two ways. The first is through the budget process which determines the amount of fiscal spending, most of it largely mandatory based on existing law. The budget has some discretionary spending which can be increased by Congress, which can go towards things like education, public jobs, and infrastructure. As the Treasury deficit spends deposits in bank accounts are created, and the Treasury issues a bond as the matching liability on its balance sheet (“the debt”). The other way deposits enter the system is through private banks making loans to households and firms. Banks can always extend loans if they think the venture will be profitable. They make the loan, which creates a deposit as a liability in another bank. After loans are created, the banking system needs to meet reserve requirements for the amount of deposits in the system. If they are not holding enough reserves they can sell assets to the Fed to get them. So banks make loans whenever they see profitable business ventures, and the government accommodates with enough reserves for them to do so. money creation3.jpg

After deposits are created, they circulate hopefully a few times within the banking system but ultimately are collected as taxes or used to pay down private debts. When taxes are collected the Treasury extinguishes some bonds as the debt is now paid. So running a surplus means the government is removing deposits from the system (“paying down the debt”). What happens if we rely on only the private sector to add deposits? Bill Clinton tried in the 1990s when he ran an unprecedented surplus for a couple years. It turns out however that Americans are stubborn and still wanted to buy houses, cars, and get educations. So as our real incomes fell rather than reduce our standards of living we graciously racked up debt with the banking sector. The banks saw us as profitable ventures and gave us loans as deposits, causing the central bank to create the reserves to accommodate this lending. This debt that households accumulated is fundamentally different than the debt pinned on the government as this process unfolds. This is because the government can never be forced to default. Looking at the net flows of financial balances yearly sheds some light into this process. Every year, the net amount spent by the government (red line) matches the net amount saved (or dissaved) by the rest of the world (blue is domestic, green is foreign). This exact mirroring is the result of accounting identities within the system.

sectoral_balances1

In the 1990s and 2000s you see the private sector as a whole taking on debt and dissaving for the first time in recent history, as the government ran a surplus and other countries bought up large amounts of US securities. Today many US households are still holding onto these debts. The misconception that government debt is the same as these private debts has starved our economy. Much like the mistake of the nutritional science community in prescribing low fat diets to reduce fat, it has been the mistake of the economic science community to prescribe low government debts in order to fix our household debts. debtisnotdebt3 In order for households to get enough deposits so they can pay back their debts, the government should run deficits that end up in their hands. The reliance on the private sector has taken priority over the public good, and most of the deposits have landed in the hands of the top 1%. They were supposed to “trickle-down” the wealth to the rest of us, but after forty years of trying this has not happened. The private sector only employs as many people as it finds profitable to do so, and if they can deploy their capital in financial casinos to make more profit than employing people to build stuff that enhances society, they will do just that. So how can we get money into the hands of the financially responsible Americans who just want to work and pay back their debts? A answer to this problem is to rely on direct government job creation, much like the New Deal after the Great Depression. This spending will cause the government to accumulate more debt in the short term, but if spent on education, infrastructure, public jobs, worker co-ops, and raising the minimum wage then these new deposits would funnel into the bottom of the income distribution, and American households could pay down their own debts. Maybe then we’ll realize: government debt, like a nice fatty avocado, is good for us.

Written by Bradley Voracek

Author: Brad Voracek

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