LearnLiberty Audio Podcast

Student loan debt has reached an all-time high, putting a heavy burden on many recent graduates. This has led some to propose and support student debt forgiveness as a way to alleviate the problem. Professor Daniel Lin argues that forgiving student loans would do little to address student debt in any meaningful way. Student debt forgiveness: - Would provide only a temporary solution to help currently indebted students - Would not address the underlying problem - Would not prevent future debt problems - Would not reduce pressure for rising tuitions - Would benefit one of the more privileged groups in the country - Would only add to the already enormous national debt Professor Lin suggests that instead of forgiving student debt, student loans should be dischargeable in bankruptcy. This would encourage lenders to be more careful about the recipients of student loans, causing interest rates to rise and fewer loans to be given out. While these may sound like bad things for borrowers, such outcomes would actually provide important incentives to students. Students would be encouraged to consider how they will repay their loans before they amass more debt than they can handle. As an added benefit, such reforms would also put greater pressure on colleges to control their costs. Making student loans dischargeable in bankruptcy would actually address the fundamental causes of student debt and rising tuition costs.

Historical trends in gas prices can largely be explained by changes in supply and demand. Demand for oil rose through the 20th century. Although this put upward pressure on price, supply initially increased even more rapidly as people produced newer and less expensive production methods. Professor Art Carden shows how oil prices changed based on various events that caused shifts in the demand and supply of oil. Political events, economic growth, and international conflicts, among other things, affect the supply or demand of oil. These, in turn, contribute to the prices we see at the pump. Prof. Carden offers several examples, including the following: - The 1973 Yom Kippur war led to decreased supply as oil producers cut production to punish countries that supported Israel: prices rose. - Iran's revolution in 1979 and Iraq's invasion of Iran in 1980 decreased supply: prices rose. - The East Asian crisis led to a reduction in the demand for oil: prices dropped. - Surging economies in China and India in the last decade combined with political instability in the Middle East have increased demand for oil and decreased available supply: prices rose. Should we be worried that we'll run out of oil? Prof. Carden thinks not. He argues that prices, profits, and losses provide incentives for innovation and improvements. 'People are pretty clever,' he says. 'They come up with innovative and ingenious ways to solve problems every day.'

Rising gas prices fuel public outrage, and the popular explanation is that unscrupulous oil companies are taking advantage of helpless consumers. This makes a good story but, as Professor Art Carden explains, it's not accurate. Instead, gas prices can be explained by the laws of supply and demand. Supply shifts occur when it becomes easier or more difficult to bring oil to the market. So what about exorbitant oil company profits? Profits and losses send important signals to the market, attract entry to a market, and ensure resources are allocated effectively. They also can encourage more research and development in alternative energies. Taxing or otherwise curtailing oil industry profits will actually reduce those key market signals and won't lead to any reduction in prices at the pump. Many of the barriers to entry in the market are actually the result of political problems. Gas prices would be lower if there weren't barriers to drilling for new sources and barriers to the development of new energy, like nuclear power. They would also be lower if demand were not artificially increased through war and other wasteful expenditures.

College tuitions continue to rise, and students are leaving school with more and more debt. Professor Daniel Lin argues that there are two main causes for increases in college tuition: a rise in demand for a college education and government subsidies. Problematically, government subsidies are supposed to be helping offset college tuition costs. So what should be done? Professor Lin argues that we should get rid of government subsidies for higher education completely. While subsidies do encourage more students to attend college, many of those students struggle. Two-thirds of students are unable to graduate in four years, and 40 percent of students drop out of college. Those who never finish a degree tend to have significant debt. In addition, many graduate and take jobs they could have had without a college degree. While the average college graduate does earn more than the average high school graduate, not all college graduates earn higher incomes. While eliminating government subsidies for higher education may cause demand for higher education to decrease, it does not necessarily mean students who cannot afford college would be at a disadvantage in the job market. Many industrial countries have training and apprenticeship programs for high school graduates to prepare them for successful careers. As it stands, government subsidies are contributing to increasing higher education costs. Such a policy, which is worsening the problem it is supposed to fix, should be eliminated.

Economic freedom is about the freedom to buy and sell things, says Professor Antony Davies, but it's also about the freedom to interact with people, to converse with others, to travel, and to say what we want to say. Evidence shows that economic freedom is associated with many positive things in society. This holds true among states in the United States and across the countries of the world. Countries that have more economic freedom also tend to have higher GDP per capita. They tend to take better care of the environment. They also tend to have less child labor and more gender equality. Prof. Davies examines the data on these factors and several of the arguments people have raised about the data to show the many benefits of economic freedom. Economic freedom is about being free to make your own choices. It allows us to: - Do what we love - Create wealth - Protect the environment - Improve equality - End child poverty

People and organizations incur costs when they compete for money that is 'given' away. For example, if a college offers a scholarship to the student who writes the best essay on a particular subject, students competing for the scholarship will spend time and resources to create their essays and submit their applications. Although the chosen winner will likely benefit from the prize, the other students who competed for the scholarship and lost also lose the time and money they invested in getting the award. The cumulative sum of the time and effort of all the students together may in fact exceed the monetary value of the award. Economists call these prizes rents, and the effort expended to get such a prize is called rent seeking. Rent seeking happens when money is awarded based on the result of competition. Professor Michael Munger shows how people will spend time, money, and other resources lobbying for such awards. While people may speak of the government as giving money away, they often fail to recognize the associated costs. One major cost may be that the government gives money to organizations with the best lobbyists, not necessarily those that provide the best services.

Surveys routinely show that the general public is poorly informed about government and politics. In a survey conducted in 2010, for example, fewer than half of respondents even knew which political party held the majority of the seats in the House of Representatives. Professor Diana Thomas asks why the public knows and cares so little. To answer, she draws upon an argument from Professor Anthony Downs. He claimed that it is actually rational for people to be ignorant about politics because the act of voting itself is irrational. One voter is unlikely to influence an election or lead to improvements in government performance. Informed voters may put a lot of time and energy into researching the best candidates and understanding the issues in government. For this work, they receive little reward since the chance their votes will change the outcome of an election are virtually zero. In other words, people don't take the time to be informed because there is little incentive to do so. For this reason, many economists will say it is completely rational to be ignorant about politics. Animation and post-production by Tomasz Kaye: info@redshiftmedia.com

Why is it that organized interest groups such as the National Rifle Association wield such powerful influence in policy discussions? According to Professor Mike Munger, the reason is simple. In politics, small but organized groups win. Politics is sometimes more complicated than simply having the majority of voters on your side. Prof. Munger explains the three main factors that can allow a smaller interest group to succeed in implementing a policy that may be opposed by a larger (but unorganized) group. First, an interest group's members receive individual benefits from the group's success, which encourages them to act. Second, smaller groups will find it easier overcome the 'Free-Rider Problem' since each member's contribution is more visible. Finally, interest groups frequently offer selective incentives that reward people who help support their cause. This economic concept applies to issues far beyond gun rights. Interest groups ranging from environmental activists to rent-seeking corporate lobbyists all understand that Prof. Munger is correct when he says, 'Politics in Washington is about concentrating and focusing power.'

Fewer than half of 1 percent of Americans are in state and federal prisons. That sounds like a small number. But when the U.S. prison population is examined by race, we find that the effects of the criminal justice system in the United States are unequally distributed in society. While whites make up 64 percent of the U.S. population, they make up 31 percent of the incarcerated population. In contrast, Blacks represent 14 percent of society but 36 percent of prisoners. Similarly, Hispanics represent 16 percent of the U.S. population, but 24 percent of the prison population. While fewer than 1 in 100 Americans are in jail, among the population of young black men, the ratio is closer to 1 out of 4. A young black man is more likely to be imprisoned than to get married or go to college. Professor Daniel D'Amico argues that while the causes of this trend are complicated and multicausal, perhaps part of the blame should be placed on the U.S. criminal justice system. He points out problems with the perverse incentives politicians and bureaucrats have in developing laws. Although laws about drug prohibition, for example, are ostensibly color blind, people with different levels of wealth face different costs and benefits to participating in the drug trade. Minorities are overrepresented in U.S. prisons. In light of this, Prof. D'Amico argues that radical changes to the system might be necessary and preferable to the status quo.

The United States houses more human beings in prisons than any other country, both in terms of actual numbers and in relation to population size. The U.S. prison population began to grow dramatically in the 1970s. Professor Daniel D'Amico examines the data behind the alarming increase in the number of prisoners in the United States and finds that much of the growth in the last 40 years has been driven by the war on drugs. From 1980 to 1990, the total U.S. prison population more than doubled. In that same time, the proportion of people in prison for nonviolent drug crimes rose from 7.5 percent to 24 percent. Prof. D'Amico says this statistic actually understates the influence of the drug war on the prison population because drug prohibition also increases violent crime by leading to the formation of gangs and cartels. By 2000, the prison population had nearly doubled again, but the proportion of prisoners due to drug-related offenses remained similar. From 2000 to 2010, the number of people incarcerated in the United States rose again, albeit at a much lower rate. Still, the proportions of offenses related to drug crimes held steady. Prof. D'Amico argues that America's unique methods of enforcing drug prohibition seem to parallel its unique prison population. Is our country really better off with so many nonviolent drug offenders behind bars? We spend billions of dollars each year on the drug war and continue to lock up hundreds of thousands of people. Surely there is a less costly approach to addressing drug use in America.

According to Prof. Michael Munger, prices (as in, the price of a carton of milk, or a new car) are akin to magic. Prices 'magically' convert countless pieces of dispersed, complex information into a single signal that conveys to sellers what they should do to best benefit society. By ignoring the price system, you're really ignoring the needs of those whom you want to serve. Prof. Munger illustrates this through an example of two farmers trying to decide whether to plant corn or soybeans. One farmer is purely altruistic; he refuses to acknowledge the role of prices and instead sets about to determine which crop would help society most. He pours over data but finds himself overwhelmed with his impossible task. He makes a guess and plants corn. Unfortunately, there is already too much corn on the market. Not only is society not much better off, but his business fails. The other farmer cares only about profits. A variety of world events have driven up the need for soy, so the price is higher. He sees the increased price and produces soybeans in order to maximize his profits. He doesn't care why the price is high, and he doesn't need to know. All that matters is that he was motivated to produce exactly what humanity wanted. This is the 'magic' of the price system - it merges the needs of society with each seller's desire for profit.

We often hear that the rich are getting richer and the poor are getting poorer. While a surface-level examination of U.S. households by quintile from 1967 to 2009 would seem to support this claim, Professor Sean Mulholland uses other data to show that this measure overlooks two vital pieces of information that should concern those who care about the welfare of the poor. First, the share of total income does not tell us anything about whether income increased or decreased when adjusted for inflation. From 1967 to 2009, the real mean household income of the top quintile increased by 71 percent, meaning the rich became much richer. Over the same period. The real mean household income in the bottom quintile increased by 25 percent. This means the poor became richer as well. This measure shows that Americans in the lowest quintile could afford more goods and services in 2009 than in 1967. Second, these measures do not tell us what happened to particular households. Household income can change from year to year, but these measure do not track that. If we look at the households in the bottom quintile in 1987 and follow those households until 1996, we find that about 45 percent of them have moved up to a higher quintile. If we look at the next 10-year period, we find that 40 percent of households move up. Professor Mulholland also discusses income mobility from the top quintile down and across generations. He argues that these facts suggest that more improvements have been made for the poor in the past 40 years than many people believe. 'To continue these improvements,' he says, 'we should seek ways to expand opportunities for income growth and, with it, greater absolute mobility for those across the income distribution.' Sources: 1. Data on household income shares by quintile come from here: http://www.census.gov/hhes/www/income/data/historical/household/. U.S. Census Bureau, Current Population Survey, Annual Social and Economic Supplements, Table H-2. Share of Aggregate Income Received by Each Fifth and Top 5 Percent of Households, All Races: 1967 to 2009 2. Data on mean household income levels by quintile come from U.S. Census Bureau, Current Population Survey, Annual Social and Economic Supplements, Table H-3. Mean Household Income Received by Each Fifth and Top 5 Percent, All Races: 1967 to 2009. These data can be found here: http://www.census.gov/hhes/www/income/data/historical/household/. 3. Data on relative household income mobility by quintile comes from: U.S. Treasury Department, (2008). Income Mobility of the United States from 1996 to 2005, Washington, D.C. It can be found here: http://www.treasury.gov/resource-center/tax-policy/Documents/incomemobilitystudy03-08revise.pdf. 4. Data on generational income mobility comes from: Isaacs, Julia B. (2007). Economic Mobility of Families Across Generations. The Brookings Institutions. It can be found here: http://www.brookings.edu/~/media/research/files/papers/2007/11/generations%20isaacs/11_generations_isaacs.pdf

An 'externality' occurs when a transaction between two people affects a third person without that person's permission. Professor Michael Munger illustrates a simple externality problem with potato chips. If Art sells potato chips to Betty, Art and Betty are both better off. However, if Betty crunches her chips loudly enough that it annoys Carl, then Carl has to bear a cost (in the form of annoyance), despite not receiving any benefit from the potato chip exchange. In this example, the volume of Betty's eating is an externality Carl has to endure. Because negative externalities represent a cost that is not included in the price of a transaction, it seems like the solution would be to try to adjust price so it coincides with the total cost. Many people believe that means the problem should be fixed with taxes, but Professor Munger shows several alternatives. For example, if Carl asked Betty to eat more quietly, she probably would. Alternatively, Betty could share some of her chips with Carl in exchange for her munching. Even if these solutions don't work, it may be difficult for government action to resolve the externality. Even A. C. Pigou, the original scholar who proposed fixing externalities with taxes, recognized that it would be very difficult for a government body to obtain sufficient knowledge to solve this problem. The government has a knowledge problem just like everybody else, and poor policy can lead to negative unintended consequences.

What if libertarians and classical liberals were wrong and the free-market system actually did make the rich richer and the poor poorer? Would that change their support of those ideas? Professor Matt Zwolinski expects that it would. This implies that most proponents view how the poor fare under free-markets as more than just an attractive selling point for the free-market system. It is a crucial element in justifying market-based policies. Who ends up with what in terms of money, jobs, or opportunities is affected by the legal and social rules under which people operate. We have rules defining and enforcing property rights, rules of contract, taxation, and so on. Prof. Zwolinski says, 'Rules like these don't determine exactly how any particular person in society will fare compared to anyone else, but they do affect the overall patterns of distribution in society.' The famous egalitarian John Rawls said that 'a just society's rules tend to work to the maximum advantage of the least well off classes.' Prof. Zwolinski argues that while we may disagree on the means to achieve this end, free-market proponents can agree with this statement. We can embrace a theory of social justice without believing the state has to do anything to directly promote the welfare of the least well off. Prof. Zwolinski believes that when it comes to social justice, supporters of a traditional concept of social justice and free-market proponents have much to learn from one another.

College tuition costs have gone up 945 percent since 1980. The increase in tuition places a heavy burden on young people and their families. What has made college tuition so expensive? Professor Daniel Lin explains that tuition prices are rising so quickly because of supply and demand. As demand for college increases, universities can respond by increasing either enrollment or tuition costs. Since most universities are limited in the number of students they can enroll, they have largely responded to higher demand by increasing tuition. Demand for a college education has increased partly because graduating college dramatically increases job prospects and partly because of government subsidies. Although many believe subsidies will make college more affordable, government subsidies actually contribute to rising costs. 'When you subsidize something, it's cheaper for people to consume. So people consume more of it and demand rises,' Professor Lin says. A rise in demand will mean a rise in costs. Colleges have no trouble filling seats, even with rising costs, so they keep spending and increasing tuition. Improvements to campus facilities and the addition of more administrative staff make college tuition even more expensive without necessarily improving the quality of education students receive. We now know the root causes of rising tuition-promises of higher wages and increased subsidies. Professor Lin contends that this information should be used to seek solutions.