The UWIRE Forum


Conservatives cast aside ideology, whine about Obama cutting big government
September 24, 2009, 12:08 pm
Filed under: Uncategorized
Chris Burks

Chris Burks

America took a small step away from big government last week, but you wouldn’t know it judging from the comments of the rabble rousers now looked to as the leaders of the conservative rump that remains in Washington.

The House of Representatives voted to remove banks as middle men in the student loan business and to make direct loans to students, saving $87 billion for the U.S. according to the initial CBO estimation.

Some conservatives claim that the government was taking over part of the economy and crowding out private business by, get this, eliminating subsidies for the banks that were used for these loans.

Instead of the government takeover that some conservatives warned of, the reality is that government is the economically efficient actor in the student loan marketplace both because of the scale of investment and the sound administration of the direct loan program that is already in place.

Under the current system, a student can get Stafford Loan or PLUS Loan through either the Direct Loan program, where a student receives the loan directly from the government, or through the Federal Family Education Loan Program, where a student goes through a bank to secure a loan, which is guaranteed and subsidized by the government. Overall, the FFEL costs the government billions of dollars a year in subsidies.

At best, risk-free hand outs to profit-seeking third parties is politics as usual; at worst, a big money scheme that fleeces those who we should be investing in the most — students in need.


The Obama Administration and the Congressional majority have now done their part to end this classic case of Washington waste.  Moreover, they’re helping students by reinvesting $40 billion of the money saved from eliminating the subsidies into the Pell Grant program, grants for low-income students that don’t have to be repaid.

As for the conservative opposition, it’s hard to conclude anything other than these folks are upset that some private businesses wouldn’t make as much of a profit or exist without a handout.

Inconsistency of ideology is no unusual feat for lifetime Washingtonians, but the pure relativism of the free-market ideology employed by these conservatives is a sight to see.  Most conservatives claim adherence to a strict Adam Smith approach of efficiency at all times and want to cut wasteful middle men employed by the government.

The inconsistency here starts with the fact that subsidies, just like tariffs, represent clear economic inefficiencies. Whether to corporate farms, small domestic businesses or individuals, incentivizing efficient action in a marketplace makes economic sense.  Propping up those entities without requiring anything in return simply doesn’t add up.

Conservatives serious about government efficiency would have applauded an end to such subsidies for education, yet Washington partisan politics gets in the way and free market ideology is cast aside on a whim.

Exploring how these Washington conservative partisans are, as described above, the head of a rump and are rabble rousers is worthy an in-depth report for another time, but it will suffice for now to say that increasing polarity and progressive dominance in recent elections has lead to fewer moderates and more conservative voices from the right side of the spectrum.

Further, the populist rage that is surging over the airwaves and into the townhalls has shown these Washington conservatives that they can push the limits of inflammatory rhetoric and that there is some marginal political benefit to be found in opposing anything brought forward by Obama and the congressional majority.

There were times when moderate New England Republicans with firm free market convictions were a fixture in the D.C. establishment, but, as Dylan would say, their old road is rapidly aging.

But shifting back to the real issue at hand, cutting out the third party lenders in the student loan business could be a sign of the hallmark of the Obama Administration.

Relying on statistics and using the most efficient deliverer in the marketplace is a main tenet of the so-called post-partisan non-ideology the Obama campaign sought to wrap itself in last fall.

Lastly, for icing on the efficient public policy cake, the bill passed by the House also contains a few extra smart education policies that only further highlight the keen economics employed by the current administration.

The bill contains $4 billion for school facility financing and a competitive grant program with $1 billion in pre-kindergarten program funding.  This funding resembles a handout almost the same as current conservative leaders in D.C s look like free market adherents, which is to say not very much at all.

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2 Comments so far
Leave a comment

Yeah, a monopoly of a government run loans is certainly going to improve things. After all, the government is good at managing money.

Comment by indyfromaz

Thanks for the comment. I’m sure this runs counter to your ideology, but, in this case, the government is clearly better at managing money than a private entity.

Whether it is because of generally poor loan management, or wasteful spending on executives, or losses in other businesses that caused alterations to these policies, the banks are inefficient.

As for a monopoly, yes, you are exactly right. I could try to argue with you that you should expand your notion of the marketplace and that this is a rational policy in line with economic thought, but, instead, I agree that this monopoly will improve things.

Comment by Chris Burks




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