David Pritchard kindly directed me to this April 2012 article he wrote for Occupy.com, in part a response to this piece I wrote in October, 2011. Pritchard criticizes securities based on student loans and notes that they are subsidized; however, governments intervened in the student loan market purportedly to fix the market failure emerging from the fact that human capital is valuable but illiquid.

In 2011, I claimed that student loan debt is the “‘Occupy’ movement’s weakest talking point” for several reasons. This is still the case for the same reasons I discussed in 2011.


There are a lot of college degrees out there that represent real investments in human capital. There are a lot of others that are great fun and very fulfilling, no doubt, but they are consumption goods. Most people will tell you that financing consumption with borrowed money isn’t a very good idea.

If you have borrowed $100,000 to get a degree in computer science or accounting, you can have probably invested. If you have borrowed $100,000 to get a degree in dance, then you have probably consumed (after allowing for sheepskin effects and the signal that comes with just having a degree).

Second, we’re in the student loan mess for a lot of the same reasons that got us into the housing mess. There are differences, like the fact that student loans can’t be discharged in bankruptcy. It looked like a good idea at the time and led to some short-run successes, but it’s likely unsuccessful in the short run.

Third, Justin Wolfers called forgiving student loans the “worst idea ever” in response to a 2011 petition claiming that doing so would stimulate the economy. As Wolfers asks,

If we are going to give money away, why on earth would we give it to college grads? This is the one group who we know typically have high incomes, and who have enjoyed income growth over the past four decades. The group who has been hurt over the past few decades is high school dropouts.

Further, he points out the political economy problems. If throwing money at interest group X is a bad idea, it’s still a bad idea even after we’ve thrown money at interest group Y.

This is a bunch of kids who don’t want to pay their loans back. And worse: Do this once, and what will happen in the next recession? More lobbying for free money, rather than doing something socially constructive. Moreover, if these guys succeed, others will try, too. And we’ll just get more spending in the least socially productive part of our economy–the lobbying industry.

Student loan forgiveness redistributes wealth upward, which is at odds with the Occupy movement’s rhetoric, and doing so would encourage even more growth in the lobbying industry as others look for handouts. Some people who have borrowed tons of money to finance college have made terrible mistakes, albeit terrible mistakes they had every incentive to make because of loan subsidies and the like. This doesn’t suggest that we should make the incentives even worse by putting taxpayers on the hook for those mistakes.

Here are a few things I wrote about the Occupy movement when it was going on:

Lessons From and For the Class Struggle on Wall Street

Occupy Bourbon Street? Big-Time Sports and Inequality

Iniquity, Irresponsibility, and/or Incentives?

Smash Capitalism and You Destroy Civilization