Be Chrool To Your Scuel

Jacob T. Levy takes note of some grade inflation at National Review's higher education blog "Phi Beta Cons" (which sounds like it should have been the name of a late-eighties comedy with Danny DeVito, Judge Reinhold and Ray Walston).

In this case, PBC refers to an attack by Sen. Lamar (Lamar!) Alexander (R-Tennessee) on the Obama Administration's changes to the system of federal student loan guarantees. PBC headlines it "Alexander: Obama's 'Soviet-Style' Takeover of Student Loans." Says Levy: 

Notice that banks would be free to continue to make student loans. And they're not having their existing assets taken. All they're losing is the ability to make publicly subsidized student loans in the future. A comparison with Soviet nationalization is just nuts. And it's not even what Alexander said.

Anyway, the headline-post gap wasn't what first struck me about this. Neither was the surrender of National Review to being the microphone handed to current Republican office-holders. Rather, it was this:

Back in the days of the Savings and Loan crisis, and again in the days of Freddie Mac and Fannie Mae, we saw lots of commentary from the right that the problems couldn't be blamed on the free market. After all, in both cases massive moral hazard had been created by federal guarantees underwriting the debts, eliminating market discipline. Pains were taken to piously distinguish the free market from corporatism and corporate welfare (a distinction I take very seriously, I might add).

In the last two weeks, I haven't seen any Republican official or Republican-leaning intellectual make the slightest reference to the problems with a system in which private lenders make risk-free profits by lending on the back of a federal guarantee. The indictment of corporate welfare has been nowhere to be found. The view that there's something distinctively unproblematic about private lenders with public guarantees has been completely lost. And the (misleading) headline, the reference to a Soviet-style takeover, crystallized this for me. Since there's been no crisis in student lending, no collapse of the system, the status quo ante has been naturalized; there are people on the right who think that the subsidized revenue streams to which lenders had become accustomed were a kind of property that has now been seized. The ex post commentaries on FSLIC and Franny and Freddie have been forgotten.

I mentioned a few weeks ago, and will reiterate in an upcoming print column, that the move from guaranteeing student loans by private lenders to lending directly to students is a "marginal improvement in a diseased system." It's an idea that dates back at least 15 years, and it streamlines the lending process. I had hoped that, with the Treasury Department lending directly and student loan defaults increasing, it also might make the government more scrupulous in examining the credit risks of students it lends to. But all the experts I consulted say that's a pipe dream.

The great mental trap of public/private partnerships is in believing that because private parties have found a way to privatize profits while nationalizing losses, something has in fact been "privatized." The federal government should not be in the business of creating more college customers: Americans already value education highly enough, and college diplomas still have enough market value, that there's no need to encourage demand. The student loan reform doesn't solve that problem, but it's hardly an example of President Obama's love of Soviet-style centralization and government control. (You can find enough real examples of that without stretching for evidence.)

In fact, there might be an advantage in having Fannie Mae and Freddie Mac, for example, make direct loans rather than guaranteeing loans made by private players. If nothing else, when the market collapsed it would be obvious even to the dumbest among us that the problem was not the greed of unregulated capitalists, but the inevitable and foreseeable result of public policy.

P.S.: I think that should be "distinctly," not "distinctively." I wish people still learned and internalized Fowler's argument against the proliferation of syllables.

P.P.S.: Be Chrool To Your Scuel:

P.P.P.S.: Dogs in college, courtesy of a 1930 MGM "Dogville" short so bad it will make you wonder how talkies caught on: