Liz and the Tea Party

In February, 2009, President Obama announced a program to help home owners who were over-extended. This included potentially forgiving part of their mortgage debt. The following day CNBC news editor Rick Santelli complained that this was subsidizing bad behavior and that we needed a new Boston Tea Party. The following weekend the Tea Party was born as a political movement. People were outraged that President Obama would reward people who had borrowed irresponsibly while doing nothing for people who lived within their means.

A few days ago Senator Elizabeth Warren hit her own version of this outrage. Someone approached her and said that he had worked two jobs to pay for his daughter's college while his neighbor had taken out student loans. Since Warren was planning on paying off his neighbor's loans, was she going to pay him back for the money he had spent on his daughter's college. "Of course not," Warren told him.

A video of this exchange went viral forcing Warren to respond. She explained that she is "looking forward" and that all programs have a starting point where only people going forward were rewarded. Warren didn't really help herself much with her explanation. This is not only a matter of going forward, it is also a matter of perceived fairness.

As with Obama's mortgage program, Warren is proposing to reward bad behavior. People who planned ahead and managed their debt get no benefit from her proposal while people who assumed more debt than they could afford are rewarded.

Remember the fable of the Grasshopper and the Ant? The grasshopper spent his Summer enjoying life and doing nothing while the ant stored food for the Winter. When the Winter comes, the ant is comfortable but the grasshopper starves. In Warren's version, when Winter comes the government takes half of the ant's stores and gives them to the grasshopper.

Warren's problem is that debt forgiveness is not a forward-looking program. It is backward-looking. The people with the student debt agreed to it. They also got something for it - a college degree or at least some college. This was a voluntary exchange where the student agreed on future debt in exchange for increased future earnings. They were not required to assume this debt. They could have gone into another field.

This also rewards people who assumed a large student debt while pursuing a degree with no value whatsoever (a masters in puppetry comes to mind).

This is also totally separate from Warren's proposal for government funding for college. That is forward-looking. The government already funds K-12 so a case can be made for funding post-high school education. A better case can be made if the funding only includes employable fields. You can make the argument that we have to start somewhere going forward because it affects everyone the same. People who already saved will have a windfall. People who did not save will be spared a future burden. The important thing is that it would not reward bad behavior.

But Warren has a poor feel for politics. She also seems to think that people have a right to be debt-free regardless of how they accumulated the debt in the first place. This overrides any sense of fairness she has towards people who manage their finances responsibly.

Should Warren get elected and try to implement her debt forgiveness plan she will be met with a new version of the Tea Party.