How many rookie American politicians, seated in a colloquy with a French economist, can get repeated rounds of applause from the packed high-walled pews of Boston’s Old South Meeting House?
At least one: Senator Elizabeth Warren. And she can do it while repeatedly referring to Thomas Piketty, the bestselling author of Capital in the Twenty-First Century, professor at the Paris School of Economics, as “Tom.” He even seemed to like it.
That’s the phenomenon that is Elizabeth Warren. She doesn’t have a massive or national following (the Boston event was full but not mobbed), and she isn’t the policy prodigy some supporters might hope, but she has some serious political talent.
On Saturday, Warren and Piketty participated in a discussion led by Ryan Grim, Washington bureau chief of the Huffington Post, in part funded by Patriotic Millionaires, a group of wealthy Americans campaigning for higher taxes on themselves.
For over an hour, the economist and the former law professor talked about inequality, cronyism, and the glories of progressive taxation. Piketty’s recently released book, which contends that capitalist societies see ever increasing inequality because the returns on capital outstrip the growth rate of the economy as a whole, has a couple of dramatic proposals: top income-tax rates hitting 80 percent and a global tax on wealth.
Warren seemed sympathetic to implementing a wealth tax in the United States, after Piketty pointed out that the U.S. already has property taxes that don’t extend to financial assets or take into account financial liabilities. “I’m in,” she said, if existing property taxes could be replaced with a Piketty wealth tax in a revenue-neutral way.
Discussion of Capital in the Twenty-First Century wasn’t what raised the spirits of the mostly college-aged and sixtysomething crowd. It was Warren’s talk about student loans and eliminating tax loopholes for the wealthy that really got her fans going.
Her comments on these issues were quite impressive, in a way — it isn’t that easy to get a rousing round of applause for an explanation of regulatory capture or a call to “clean up the tax system.” But it’s also on these substantive topics that, to a slightly more skeptical observer, she clearly falls short.
The two professors agreed that access to education is an important way to mitigate rising inequality. The senator’s current proposal on this topic, which she described, is clever but obviously flawed. She’d let holders of student loans refinance their loans with the federal government, just as borrowers with other kinds of debt refinance when rates drop. It’s not clear what that does for access to education going forward, but it seems “only fair,” right?
Well, not to private lenders, no: Holders of entirely private student loans would now be able to refinance their loans at a much cheaper rate with the feds, repaying their private loans early en masse and costing lenders most of the expected profits.
And borrowers with federal loans are welcome to refinance their loans now, if they could get private lenders to offer them a better deal. They can’t, because federal student loans are heavily subsidized. Even if it seems unfair that people are paying down old 7 percent federal loans when today’s students are borrowing at 3.8 percent from the feds, both groups are getting a better deal than the market would offer. Warren is simply proposing to subsidize them even more, and give indebted graduates more free money from taxpayers — after the borrowers signed a loan agreement that gave them some lesser amount of free money. (It seems a little less fair now, doesn’t it?)
The cost of servicing student loans, she argued, is holding back some people from buying houses and thereby slowing the economy (there’s some evidence this is the case). But if Warren’s student-loan proposal is meant to address this, she’s abandoning the pretense that it’s about inequality or access to education and instead is calling for a bizarre roundabout economic stimulus. This is the kind of policy that comes out of focus groups, not white papers. (To her credit, her current legislation is less ridiculous than her last student-loan proposal, which was essentially laughed at by education analysts.)