President Biden is out with an op-ed in today’s Wall Street Journal in which he declares, “fighting inflation is our top economic challenge right now.” If he believed that, he would not actually be considering the plan to give $10,000 worth of student-loan forgiveness to college graduates with household incomes of up to $300,000.
Putting aside the fact that loan forgiveness is bad policy that raises serious constitutional questions; it is also inflationary. The plan Biden is reportedly considering would eliminate $380 billion of federal student loan debt, and cost taxpayers $250 billion, according to the Committee for a Responsible Federal Budget. Even though that money won’t be directly injected into the economy all at once, it would still affect spending, because it would dramatically increase people’s income expectations.
As an example, let’s say that after forgiveness, somebody expects to pay $200 less per month in debt payments. That person could now decide to spend the money on a new phone, or car lease, or any number of goods and services. In fact, it is for this very reason that for years, proponents of student loan forgiveness touted it as economic stimulus.
Here was Senator Elizabeth Warren making that case just before Democrats took power:
Canceling student loan debt will provide immediate relief to millions struggling during this pandemic. It will increase Black & Latinx families’ wealth & help close the racial wealth gap. And it will deliver a much-needed boost to our economy. #CancelStudentDebt
— Elizabeth Warren (@SenWarren) September 17, 2020
Democrats cannot have it both ways. They cannot claim on one hand that a given policy is going to boost the economy, and then on the other hand, ignore the fact that in doing so, it would drive up inflation.