An entrepreneur pencils out a money making enterprise…say an automatic car wash station. He makes some assumptions, runs the numbers, weighs overhead against projected revenue, and sees a worthwhile profit potential to exploit. Then he borrows money from his local credit union to get the venture off the ground.
If he’s a good business man, the deal will work out for both he and the bank. He’ll cover his costs and have a healthy profit to take home. The credit union will have a performing loan on their books. But if things don’t pan out, the credit union will take a loss and the would be entrepreneur will have to find a wage job until he comes up with a new – hopefully better – venture.
In private enterprise, win-win deals are commonplace. What’s more, they bring wealth to the world. In public dealings, or when an element of political engineering’s involved, win-win deals are humbug. They don’t exist. Moreover, they subtract wealth from the world.
Here’s what we mean…
An Impressive Lose-Lose Deal Fostered by the Government
Student loan debt now tops $1 trillion. Much of this, unfortunately, is subsidized by the U.S. Department of Education. This means, these loans are implicitly backed by the taxpayer.
It was supposed to be a win-win. Making government loans to students so they could afford college was supposed to prepare them for prosperous future. Upon graduating from college they could acquire a professional paying job and repay their loans as they moved up the income ladder.
Instead, subsidizing the cost of education with government loans is shaping up to be an impressive lose-lose deal fostered by the government. The results, as far as we can tell, have been inflated tuition costs and a generation restricted to debt servitude before they even got started. Moreover, this will be one more debt burden, dragging down the economy, to be covered by the taxpayer.
Even if just 10-percent of the loans go bad, that will amount to $100 billion in losses. But it could be far worse. According to the U.S. Department of Labor, the unemployment rate for those under 24-years old was 16.4 percent in July…nearly twice the national rate of 8.3 percent.
The sad fact is, those graduating with degrees that aren’t in high demand – like engineering or computer science – will not find jobs that will allow them to effectively payoff their student loans. Regrettably, English literature and anthropology degrees will only qualify a recent graduate for low-paying coffee house positions, if that. The implication is that massive amounts of student loans will go bad over the next few years. You can count on it.
In the meantime, what was supposed to be another big policy win-win is causing hunger pangs the world over…
Mandates and Morons: Twisting the World into a Madhouse
According to Reuters, the Environmental Protection Agency’s Renewable Fuel Standards require U.S. fuel companies “to ensure that 9 percent of their gasoline pools are made up of ethanol this year, which means converting some 40 percent of the corn crop into the biofuel.” Corn ethanol, if you recall, was supposed to be a win-win. It was to deliver us from the evils of global warming and provide boundless demand for corn farmers.
But now, at just the moment the world needs food to eat, corn must not be eaten…it must be burned. Why? Because it’s the law.
Passing laws, no matter how moronic, is what legislatures do. Agency’s headed by mindless bureaucrats carryout these laws even if they are completely ridiculous. Ultimately, they twist and distort the world into a complete madhouse while creating a nation inhibited by lose-lose deals.
These outlandish government mandates would be quite humorous if they weren’t so destructive. Over the coming months the repercussions will be rather extreme. When food prices spiked in 2008 and 2011, if you recall, food price riots broke out from Mexico to Egypt, Tunisia and India. This time EBT card holders in the U.S. could be the ones throwing bricks when their cards run out of money before the month is over.
Nonetheless, there’s never a bad idea that can’t be made worse by a government solution. Soon enough some credulous government fool will come up with a law making hunger illegal. By edict, they’ll banish food shortages from the face of the planet.
After that some new agency will have to implement the new war on starvation policy. Perhaps they’ll distribute unlimited EBT cards to the entire planet. Before long, several billion people will be dependent on this new agency to feed themselves. To pay for it a new withholding line item will appear on your paycheck. Yet it won’t matter, within one business cycle the new program will be in the red.
We wish we were kidding…but it has happened before.
for Economic Prism