Americans love universality - and hate moral hazard
The strength, and weakness, of Bernie Sanders
Americans love universality.
It’s part of our founding myth. All men are created equal, so we once declared, and therefore we have a built-in affection for public policy which treats everyone equally. Bernie Sanders, now the front-runner for the Democratic nomination to be president, understands this as well as anyone. His policies are popular not because they’re socialist per se, but because they are universal.
Why, then, does Sanders also persist in supporting policies which are textbook cases for the exact opposite of universality, that is an inequality leading to extreme moral hazard? As we roll toward the Nevada primary, it’s worth examining these concepts in two contrary policy proposals: universal health care and student loan forgiveness.
The first is best understood not as a socialist takeover, but as a popular framing given American’s innate affinity for fairness and universality. The second, on the other hand, represents the exact kind of unfair extreme moral hazard that Americans generally loath.
“I believe in the concept of universality”
Sanders actually laid his universalist cards on the table in the December 19th Democratic debate, although few noticed. All but lost among disagreements about who is more or less progressive, or more or less electable, Sanders came right out and explained why he chooses the policies he does (video here): “I believe in the concept of universality.”
He was speaking in the context of a debate on whether the government should make public universities free for everyone, or only free for lower and middle income people. And while it may feel wrong to pay for a billionaire’s kid to go to college, Sanders believes that’s exactly what we’ve got to do. If, in the rare chance, young 13-year-old Baron Trump decides he wants to attend a public university, that public university should cost the same for him as it does for anyone else. That cost should be low, but it should be equal.
This is why universal healthcare is popular. Americans aren’t generally upset that the rich have more than they do (after all, most Americans think they will one day be rich). What Americans get resentful about is when their neighbor gets a handout they don’t get. Investigation after investigation has shown that public hostility to Obamacare can be traced back to the income requirements for the various tiers: if you make X amount of the median income, you get Y, but if you make X+1, you get nothing.
The kind of complex means testing and income requirements to receive various tiers of social benefits may sound progressive in practice, but it’s also a breeding ground for resentment.
You may think it’s fair that the rich pay more, but what feels deeply unfair is when you work hard and get nothing, while at the same time your neighbor, who maybe worked a little less hard, gets something that you don’t. That’s universality turned inside out.
Sanders understands that Medicare for All may never become reality, and it’s a good bet that most of his supporters also understand that. So why say it? Because Americans want universality, and Medicare for All has it right there in its title: it’s for everyone. While Democrats have been bending over backwards for decades to build coalitions out of means-tested social programs designed to support various interest groups, Sanders deserves the title of policy innovator for this one, simple reason: he understands that a universal policy is a popular policy (the only one who perhaps understood it even better is Andrew Yang, with his proposal for a universal basic income).
Which is why it’s so puzzling that Sanders is so vocal about his support for student loan forgiveness.
A brief history of the Tea Party
It’s easy to forget, because Americans have short memories, but the Tea Party movement was born during a rant against mortgage loan forgiveness. The year was 2009, and the Obama administration had just announced a plan to give money to homeowners underwater on their mortgages.
The next day, a televised rant by CNBC business editor Rick Santelli from the floor of the Chicago Mercantile Exchange in which he called for a “tea party” of traders dumping derivatives into the Chicago river went viral, and a national movement was born.
There were many bad actors in the Great Recession, but most of what happened can be blamed not on bad people, but on the transference of risk away from those who should have been bearing it. We let mortgage loan officers sell loans with no financial stake in whether the homeowner could pay them back. We let banks profit from the loans while allowing them to also repackage bad ones into financial products they sold elsewhere.
We hate that kind of thing. It’s wrong, it’s unfair, and it feels deeply un-American when those who profit from risk don’t have to deal with the downside of their decisions.
Which is also why a lot of people hated it when the Obama administration proposed allowing homeowners to escape the consequences of their decisions. Many on the left might protest that homeowners were misled and lied to, and that may be true. It’s not hard to make bad guys out of bankers and unscrupulous mortgage lenders. But it’s also incredibly paternalistic, as if millions of little people couldn’t possibly have made a different decision because of the dark forces manipulating them.
Student loan forgiveness feels deeply unfair
Sanders isn’t alone in supporting student loan forgiveness. His fellow liberal in the race, Elizabeth Warren, also supports it, and last month at a campaign event she was confronted on the subject:
Father: My daughter's getting out of school, I saved all my money, she doesn't have any student loans. Am I going to get my money back?
Warren: Of course not.
Father: So, you're going to pay for people who didn't save any money and those of us that did the right thing get screwed.”
You can watch the whole thing here:
The thing is, the father is right.
For everyone who diligently paid off student loans (including myself, it should perhaps be noted), or who chose to go to a cheaper program, or who worked double shifts and made sacrifices, watching politicians promise to pay off other people’s student loans feels deeply unfair. Personally, if student loan forgiveness ever does pass - which I don’t expect it will - I expect my $25k in loan payments back.
Here’s how the writer Caitlin Flanagan responded not long after the father confronted Warren, in response to another of Warren’s tweets on the subject:
It’s true. Anyone with only $6 in their bank account has likely already made some questionable decisions in their life, and whatever those decisions were shouldn’t be compounded by spending another $3 in the hopes that a liberal politician will bail them out.
Again, the left may protest that College is too expensive (true), and that many students were too young to know what they were getting into (again paternalistic and questionable; but also parents sign off on loan paperwork). There are a host of problems with education in America, as well as the process by which we pay for it, but the answer cannot be to embark on a program of extreme moral hazard.
Alternatives to student loan forgiveness
In this newsletter, policy prescriptions will necessarily take a backseat to discussions of rhetoric, myth, and public perception, all of which have a greater effect on elections and politics than the actual details of a given policy, or even the background experience of a given politician.
As in many areas of life, what we perceive to be true about something matters more than the actual substance of the thing.
However, in this case it is worth suggesting that the alternative to the student loan forgiveness program of extreme moral hazard is in fact an which has found support among Democrats and Republicans alike, a program the likes of which already exists in the military: a program of national service.
This country should not, and likely will not, bail out people (or institutions, for that matter) for their own poor decisions, nor should the government be assuming or transferring risk for debts incurred by said people or institutions.
But what we can and should offer people moving forward is the opportunity to serve their country and be paid back in the form of loan forgiveness. Barack Obama proposed such a program, and so did George W. Bush, and so did Mitt Romney. Where has our bi-partisan commitment to service to our neighbors and our communities run off to?
The military will pay for College for those who serve in the armed forces. We should expand and institutionalize national service beyond military expeditions or, as in the Peace Corps, volunteer work in other countries. Here in America, we have very real educational, housing, infrastructure and healthcare needs which are in desperate need of labor and attention. Why not transfer money away from loan guarantees for banks (i.e., which only inflate the price of education while allowing banks to escape accountability) and toward such a program of national service?
And yes, even Baron Trump should be eligible to participate.
This is extremely well written. I really like how you didn't tell me what to think, your asking me to think. I learned a great deal from this article and it has given me much to think about going forward. Your humor is much appreciated in this article as well.