Vilifying PPP recipients in defense of student loan forgiveness is disgraceful

Since unveiling its Student Loan Debt Relief Plan last week, the Biden administration and its allies have struggled to explain its rationale and defend the policy on its merits. As criticism has mounted — including from prominent Democrats — the administration apparently has decided that the best defense is a good offense, choosing to forgo a coherent, full-throated justification for its approach and instead striking at its critics.

Some of the attack lines have followed the usual script: shopworn tropes along the lines of “Why can’t the little guy get a break, when the rich [fill in the blank: receive tax breaks, don’t pay their fair share, receive bailouts, etc.]?” As Sen. Bernie Sanders (I-Vt.) said in an interview with George Stephanopoulos on Sunday, “I know it is shocking, George, to some Republicans that the government, on occasion, does something to benefit working families and low-income people.”

Far worse than garden-variety class warfare is the offensive undertaken in a series of tweets from the White House’s official Twitter account. The thread called out prominent Republican House representatives for criticizing the principle of debt cancellation, even though they themselves personally benefited from loan forgiveness (of significantly greater dollar amounts than contemplated by the Student Loan Debt Relief Plan) associated with the COVID-19 Paycheck Protection Program, or PPP. The administration presumably believed that highlighting the supposed hypocrisy of critics would buttress the case for the policy integrity of its own debt relief plan.

Comparing loan forgiveness granted to borrowers pursuant to the PPP to President Biden’s Student Loan Debt Relief Plan dishonestly conflates two vastly differently conceived policies.  While extinguishing any financial obligation owed to government represents a transfer payment benefiting one specific group (in this case, borrowers) at the expense of another, usually larger group (taxpayers), the circumstances that give rise to such transfer — or really, any governmental spending — are integral to assessing the legitimacy of any redistribution scheme.

Even political conservatives will grudgingly acknowledge that transfer payments as a component of a modern market-based economy are here to stay. Recognizing that wealth redistribution fails to comprise an unassailable public good, as with spending on national defense, policing and the maintenance of a judicial system, the bar should be appropriately high for transfer payments favoring some constituencies at the expense of others. How do the PPP and the Student Loan Debt Relief Plan compare?

Even for those skeptical of redistributive relief programs, a strong case can be made for the PPP.  The following circumstances associated with the creation of the PPP are worth considering:

The PPP addressed a crisis of the government’s own making. While the COVID pandemic may not have been the direct “fault” of the federal government, the shutdowns and closures resulting from decisions made at the state and local level in reliance on federal public health guidance directly impacted employers unable to operate their businesses in the normal course. One can also argue that the public health establishment’s failure to anticipate and prepare for a public health emergency of the type that occurred in March 2020 exacerbated the impact of the pandemic and imperiled the prospects of commercial enterprises. 

Moreover, a line plausibly can be drawn to the U.S. government’s role in promoting China’s accession to the global rules-based order, where it has been an irresponsible, revisionist actor — as clearly evidenced in its response to the initial coronavirus outbreak in Wuhan and thereafter.

The environment in which PPP was enacted was one of exigent threats to the U.S. and global economy, with decisive action required. The CARES Act, which created the PPP, was premised on the notion that keeping employees of small businesses employed was preferable to massive job losses. In addition, in the case where employees remained on the payroll of businesses that were not operating, this “employment” represented a more efficient delivery mechanism for de facto unemployment benefits than the real thing. Further, the public interest is served by keeping workers employed; the positive externalities of gainful employment over receiving a handout (the same argument against a Universal Basic Income) can be readily observed in any community having recently lost its largest employer.

Although focused on wages, the PPP was more than just an employment plan. The program required the proceeds of loans to go to specified uses in order for a company to qualify for forgiveness, primarily employee wages. Since money is fungible, this freed up resources to keep businesses afloat and avoided a wave of insolvencies and industrial distress that might have resulted in longer-lasting disruption to the global economy and financial system.

I detailed earlier this year why blanket student debt forgiveness of the type reflected in the administration’s relief plan is poor public policy. It is particularly appalling to see student loan forgiveness favorably contrasted with the PPP, particularly given easily discernible and critical distinctions between the respective programs, which suggest student loan relief falls well shy of clearing that high bar.

Most importantly, PPP loans contemplated subsequent forgiveness, provided program requirements were met. This element was designed to incentivize compliance with the plan’s intended purposes. Student loans, on the other hand, like other forms of traditional debt, are evidenced by a binding contract and a commitment to repay amounts borrowed on agreed terms.  They contain no “If you do X, such debt will be forgiven” provisions.

In contrast with student loan debt, the PPP was created and implemented in a very short period of time in response to an exogenous, unanticipated crisis. It was not a policy trial-ballooned over several months, formulated to appeal to a particular constituency, and announced just prior to hotly contested midterm congressional elections.

Lastly, as described above, there was a clearly stated, easily comprehended rationale for the PPP.  No such rationale exists for forgiving student loan debt, other than “providing relief.” Why this particular relief, at this time, favoring this group, and not some entirely different form of “relief”?

That the Biden administration has chosen to vilify Republican lawmakers for receiving the benefit of the bargain they entered into — complying with PPP requirements in order to receive forgiveness of loans made to sustain employment in the public interest — demonstrates just how hollow the policy arguments are in favor of wholesale student loan forgiveness. A president who campaigned on a theme of “unity” instead has advanced a policy nakedly favoring a critical electoral constituency, willfully attempted to confuse the issue by accusing its critics of hypocrisy, and promoted student debt relief without making a credible case for it.

The Biden administration, evidently out of ideas, cynically believes it can succeed electorally by setting some groups against others. Referring to a plurality of the electorate over the weekend as “semi-fascist” is apparently a feature of this approach, not a bug. The risk in such a strategy is fostering an increasingly resentful and demoralized populace, with groups not benefiting from public largesse rightly wondering, “Why not us?” 

Zero-sum, “beggar thy neighbor” policies are not the American way. We are better than this, even if our current administration isn’t.

Richard J. Shinder is the founder of Theatine Partners, a financial consultancy, and a frequent lecturer, speaker and panelist on business and financial topics. He has written extensively on economic, financial, geopolitical, cultural and corporate governance-related issues. Follow him on Twitter @RichardJShinder.