Devil in the Details


Republicans want to make sure voters have a proper
appreciation of their efforts in time for the 1996 elections. Under the budget
plan they approved this past November, tax cuts would apply partially to 1995
and checks for special refunds on 1995 taxes would be mailed out in--guess
when--October 1996.

On the other hand, the elderly would not see higher Medicare premiums reflected
in their Social Security checks until January 1997.

Under the pending telecommunications legislation, cable television rates would
be deregulated, but a little-noticed provision delays any rate increases until
just after November 1996.

Now you've noticed.


Readers of this column may recall the Republicans'
disdain for direct lending, a popular Clinton administration reform of the
student loan program. [See Devil in the Details, " HREF="../21/21chai.html#banks">Welfare for Banks, Again,"
TAP, Spring 1995.] Under direct lending, the government lends tuition
money directly to students rather than simply guaranteeing loans made by banks
or private lenders. The appeal for students is two-fold: It makes the loan
application process far simpler, and it allows them the option of paying back
their loans as a percentage of their income. No less important, the program
saves the government money, by cutting down on opportunities for waste and
eliminating millions in bank subsidies. (Banks demand the subsidies as a price
for making loans in the first place, even though only credit cards and
industrial loans are more profitable than the student business.) In the final
compromise hammered out in 1993, Clinton agreed to phase in direct lending
gradually and have it compete with the private lenders for much of the business.

Almost immediately, direct lending was a hit with students, so much so that the
government also offered to consolidate old loans. In other words, the government
offered to pay off a student's existing private debts and issue in its place one
new loan under direct lending. This was a real boon to students, many of whom
carried three or four different loans, each held by a different lender. (Student
loans are often bought and sold in secondary markets, so that a student might
pay one bank one month, and a different bank the next, for each separate loan.)
In the first year the Department of Education made the offer, it consolidated
more than 25,000 loans.

But this success came at a price. Private lenders fought hard to reign in the
initiative and hold on to their business. The Republicans obliged. Congressman
Bill Goodling of Pennsylvania and Senator Nancy Kassebaum of Kansas pushed
through bills severely limiting involvement in direct lending, essentially
guaranteeing the banks the rest of the business by law.

Even that quota, though, wasn't enough for the private lenders, who remained
angry that the government might steal away existing loans through consolidation.
Once again, they leaned on their Republican friends, who in turn leaned on the
Education Department. According to a high-ranking official at the department,
several Republican staffers called the administrators in charge of direct
lending and warned them either to cease advertising the program to students or
incur even deeper cuts. Later, Goodling included a provision in his bill
restricting the department's advertising.

Goodling and his pals weren't finished yet. The one rap on direct lending is
that it puts a lot of administrative responsibility in the hands of the
Department of Education, a federal agency known for management problems. To its
credit, the department under Secretary Richard Riley had begun constructing a
national student loan database, which would allow it not only to keep better
track of loans but also to police independent contractors involved in the
program. Did Gingrich's Congress, so enthralled with technology and so concerned
about government inefficiency, applaud this innovation? Nope. They proposed to
zero out its funding instead, as part of an 80 percent cut in administrative
funding for all student loan programs.

Markets work great when competition exists, and it's fine--even ideal--to have
government compete with private lenders for student loan business. But if the
Republicans don't allow government to advertise its program or run it
efficiently, there's no way the government can keep up.

Of course, maybe that's the whole idea.

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In the lead article in the summer issue of the
Democratic Leadership Council's The New Democrat, Michael Rothschild
offers the following:

The End of Scarcity and the Politics of Plenty

"Thanks to the near-miraculous capabilities of microelectronics, we are
vanquishing scarcity. . . . Consequently, the venerable politics of class
warfare, which results from an economic reality in which a fixed amount of
goodies must be divvied up among too many grasping hands, is dying, along with
conventional economic thinking. Stunning technological advances are shoving
aside the gloomy politics of 'limits to growth' and replacing them with the
politics of plenty. . . .

"For many decades, the 'economic pie' will grow faster than the
population, and the widespread rise in living standards will make appeals to
class warfare sound increasingly absurd. Economic growth of such magnitude is
beyond historical experience and hard to imagine. . . .

"The losers this time are those who cannot or will not participate in the
Knowledge Age economy. . . . Never before has the income gap between educated
and uneducated Americans been as wide or fast-growing. Like illiterate peasants
in the Age of Steam, today's unskilled are being left behind by the new economy. . . .

"Other than the poorest 20 percent of Americans whose illiteracy prevents
their participation in the Knowledge Age, everyone senses the promise of the new

Is any of this true?

The Census Bureau reports that in 1993 (the latest year available) the incomes
of the bottom 95 percent of families were worse off than in 1989, with the
middle 20 percent having suffered a 6.7 percent (or $2,648) income loss. Between
1989 and 1994 real wages have declined for the bottom 80 percent of men and the
bottom 60 percent of women.

Are these losers "uneducated" and "illiterate," a group on
par with nineteenth-century "peasants" who "cannot or will not
participate in the Knowledge Age economy"? Are they "unskilled"?
The group whose wages have continuously fallen since 1979 actually consists of
the three-fourths of the workforce that does not have a four-year college
degree: those who have not completed high school (about 13.7 percent), those
with just a high school degree (40.5 percent), and those with some college or an
associate college degree (22.3 percent). By Rothschild's logic, today's
peasantry apparently includes men with from one to three years of college, a
group whose wages fell 11 percent from 1979 to 1993. In fact, his peasantry even
includes male college graduates, a group whose wages have fallen continuously
since 1987.

Rothschild is only making explicit what has been implicit in New Democrat
policies and politics: The Democrats should appeal to the "forgotten middle
class" solely on issues related to values. Above all, Democrats should not
present an economic populist platform lest they fall into the trap of practicing
the politics of class warfare. But this would indeed be a curious moment for
Democrats to eschew class politics since the Republicans are charging ahead
full-throttle with a program designed to massively shift power and wealth from
the many to the few.

Elsewhere in the article, Rothschild contends that it's the winners in the
economy who are abandoning the Democrats. In fact, it was the economic losers
among both men and women who abandoned the Democrats in 1994. The only net swing
to Democrats was among college graduates. Census data indicate that 73 percent
and 69 percent, respectively, of the 1992 and 1994 electorate were "losers"

Rothschild may be literate, but he is apparently innumerate when it comes to
political and economic arithmetic.

["Peasants, Unite" by Lawrence Mishel.]

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