Jill Stein’s Student Loan Plan is Grossly Misinformed

Check out this video of Jill Stein on The Young Turks:

My apologies for not doing a transcript, but in the interest of time, let me summarize. Quantitative easing as a hat trick you do not need to understand. She says that the government bailed out the banks with quantitative easing. We could do the same for students and abolish student debt. She is wrong on every count.

I want to make a very clear distinction here. Bernie Sanders had (has?) a plan to make college free. There are a lot of questions that need answered—how much? Will there be rationing? How will we control costs? Who qualifies? The list goes on. But the fact of the matter is that Congress can loosen its purse strings and pay for this through a variety of options, meaning Sanders proposal, whatever its policy merits, is feasible. Whatever your opinions, whatever the facts are, Congress could go down this route. Jill Stein would have to violate basic accounting principles to do this.

The way Quantitative Easing works is fairly straightforward for, you know, central banking. Companies keep a heap of valuable things that do not go away called assets: buildings, cash, raw materials, and the like. Equivalently, they keep more abstract things that have value, like promises to get paid in the future. An IOU for 100 dollars is assumed to be worth 100 dollars. Against this they can make promises, borrowing or deferring payment against their assets. These are called liabilities. Importantly, that borrowing creates a liability for you and asset for someone else. This is a lot of vocabulary to say if someone is owed by someone, someone owes it in the first place.

Quantitative Easing is when the Government buys debt that might not get paid back from the company it is owed to; quantitative easing works on the asset side of the equation. In place of the asset they drop cold hard cash. On paper, it does not make the company any better off because the cash and the debt have the same value, but in practice they no longer have to worry about the debt not getting paid. There is a bitter, technical fight that, if I’m being honest, I do not completely understand about whether or not this is good monetary policy. Depending on which equations you plug the data into, it is somewhere between a good alternative to normal monetary policy and a total drag on the economy.

Fortunately for us, my confusion about the finer points of statistical modeling are besides the point. If we did quantitative easing to student debt, it would work like this: The Federal Reserve would swap student debt off of the books of banks and companies like Sallie Mae. Students would pay the Federal Reserve at the same rate as before. It is not a bailout in any conventional meaning of the word. The technical reason for this is that the Fed (basically) cannot buy liabilities and so cannot purchase them from students. This is not unlike a coffee shop paying you for your morning latte; they end up out cash and having less value on hand.

It is worse than that, though. If you are familiar with the principles of fiat money, then you know that the Fed holds assets in the first place in case it needs to change interest rates. If liabilities significantly exceed assets, then the value of the dollar will plummet leading to a bank run on the Federal Reserve and currency collapse. When this happened to Argentina, it was bad. We are talking about the world’s choice reserve currency. Jill Stein could bring about the end of the US Dollar if the Fed agreed to go through with this. (I suspect there would be a mass resignation of the Fed Board and an institutional crisis, but we are so far down the rabbit hole at this point I just do not know.)

We could talk about the merits of letting students off the hook in other ways! I’m skeptical of many of the more popular proposals, but many of them are technically feasible in a way that Stein’s just are not. As a matter of definition and accounting identity, Jill Stein’s proposal will not work.

Throw this in with her stances on vaccines, GMOs, and wi-fi, and she might actually be the least informed presidential candidate.


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