Wednesday, August 08, 2007


Remember when there used to be a thing out there called "the sensible center?" You may have to think about it for a good long time, because it's been a while since something like that existed. Pummeled by those on the left as being "reactionary cretins" and by those on the right as being "liberal wackos," it was eventually beaten to a pulp and left to die, at least in the U.S. Congress.

One example of what we've lost through this process is discussed by James Surowecki in a New Yorker article on the sorry mess that has been made of the idea that college students should be able to get loans to pay for school.

(The) convoluted process is good at making student-loan companies rich—Sallie Mae, the biggest issuer of student loans, earned $1.3 billion last year, with a return on equity that dwarfs most other companies’. But it’s not very good at getting government money to students cheaply and efficiently. President Bush’s 2007 budget shows, for instance, that it’s four times as expensive for the government to subsidize and guarantee private loans as for it to issue those loans itself. In other words, the current system is not just corrupt. It’s also inefficient. So why are we stuck with it?

In part, it’s ideology, and the dominance of what you might call the privatization mystique—the idea that anything the government can do, the private sector can do better. Often, this makes sense: the free market is more likely to come up with efficient ways of creating and distributing products and services than the government is. But the student-loan market isn’t a free market in any meaningful sense of the term, because the government effectively determines prices, insures against losses, and subsidizes volume. In this environment, most of the competition among private companies is really just squabbling over how to split up the spoils. Economists call this behavior—when a company seeks to manipulate economic conditions rather than actually create value—“rent-seeking.” It’s common in areas where the fetish for privatization has taken hold, such as the outsourcing of homeland security to private contractors and the boom in private Medicare insurers. (The private insurers are less efficient than Medicare and receive billions in subsidies from the government.) Outsourcing tasks to private companies is supposed to let government reap the benefits of the free market. But sometimes it just ends up uniting the worst of government and the worst of the private sector into one expensive mess.
Without a sensible center, decisions on how to best implement ideas get hijacked by ideology. And this is what happens when fetishizing a practice based on ideology, in this case outsourcing of government services, takes the place of a sensible practice based on truly maximizing efficiency. But even more than that, it also points out how a program that is implemented in this half-assed way eventually betrays the ideology itself in the pursuit of what is essentially corporate welfare.

True devotion to "getting the government off our backs" would lead to cashiering the entire system of government-subsidized loan programs, leaving students to do the best they could on their own ("with no collateral and uncertain future earnings") to cover the skyrocketing costs of a higher education. Oh, but maybe that wouldn't go down too well with the voting public.


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