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A Sallie Mae Defender Strikes Back

Stephen Spruiell objects to my post about student loan reform:

I will repeat (for the five readers who still care about this topic) what I wrote in this post: 1) Chait, despite having written a great deal on the subject, still does not understand how the old system worked (he thinks the banks were allowed to reap windfall profits when their borrowing costs fell; they weren't). 2) Conservative opposition to the Democrats' student-loan "reform" was rooted in our understanding that federal subsidies for traditional forms of higher-ed are mostly captured by universities and also hurt students for whom college might not be a good fit by encouraging them to take on massive amounts of debt they may never be able to repay. The Democrats' student-loan bill entrenched and expanded a system that conservatives hate. That's why we opposed it.

A few points: First, I have no idea why Spruiell says I believe that banks reap windfall profits when their borrowing costs decline. I suppose it's possible I once wrote that -- Spruiell provides no quote or link to suggest I did -- but that's not the heart of the critique. The heart of the critique is that you're paying private banks to do what the government does just as well for less money. The banks provide no benefit for the considerable income they derive.

Second, Spriell says his true position, in the perfect world he'd love to inhabit, is to oppose any student loan support at all, and I'm sure that's true. But that's irrelevant to my point. My point is that he prefers expensive private subsidies that benefit banks over cheap loans that don't. The Democrats student loan reform cut out the private lenders, used some of the savings to cut the deficit, and some of the savings to expand Pell Grants. Conservatives like Spruiell could have proposed using all the savings to reduce the deficit, but they didn't. Instead, they focused on preserving subsidies for banks. Spruiell's mourning of the loss of jobs at Sallie Mae was a reductio ad absurdum of his own position.

To that, Spruiell cries hypocrisy:

Chait links to a post in which I noted the loss of 500 jobs at a Sallie Mae call center. He writes, "Well, yeah. When you cut back on a wasteful government subsidy, some of the beneficiaries of that waste will lose their jobs." No kidding? Really? Because when I wrote that headline alluding to the whole "created or saved" mantra, I wasn't at all taking a jab at the kind of people who wrote long paeans to government waste back when the idea was to borrow and inefficiently deploy $800 billion in the name of boosting employment — e.g. "... if President Obama's economic stimulus fails to prevent a depression... it will be because he didn't waste enough money."

My column made perfectly clear that wasteful government spending is useful only during the limited circumstances of a liquidity trap. Nowhere did I suggest it's a useful long-term policy.