It sounds like it could be coming from the mouth of Vermont’s famously progressive, Democratic Socialist Senator. The sentiment expressed by the President of the Federal Reserve sounded more like it was coming from one of the so called “Bernie bros” from the election than from the man in charge of the nation’s central bank.
Nevertheless, in a press briefing in New York yesterday, Federal Reserve President William Dudley said that it might be time for the country to thinking about making all higher education tuition completely free.
But unlike Senator Sanders, Dudley doesn’t say this because he believes that education is the right of every citizen. He doesn’t say it because he finds it immoral for rich people to have access to better education or because he understands that higher education is the great social equalizer.
He says that we should provide university education for free because in the past few years, the federal economy has been hamstrung by student debt. When young people owe tens of the thousands of dollars in education debt, they don’t make a lot of big purchases.
“To the extent that student-loan growth inhibits home-ownership, this could obviously have significant consequences for the economy, because when someone buys a home, that can lead to more home construction, which has a pretty high multiplier.”
Buying a house is one of the key drivers of the economy, because when someone buys a house, they usually also buy appliances and furniture and plants and landscaping. But since the financial meltdown of 2008, fewer people are buying homes. American debt has consisted mostly of car and education loans, rather than home mortgages.
One of the responsibilities of the Federal Reserve is to set interest rates for bank loans. In order to do that effectively, they need to try to determine the balance between debt and spending. To keep the economy moving forward and prospering, Americans need to spend money.
The President of the Federal Reserve Bank suggests that eliminating all that built up student debt would encourage people to buy more houses and spend more freely. If that happened, the Bank would have a reason to increase the lending rate.
So the banks would make more money on what they lend us.
Now it makes sense!
The Social and the big banker agree. What next, the Republicans voting for Medicare for All?
Featured image via Wikimedia Commons.