Actually, as long as they don't revolt, it's great for the economy. (It's unethical to dupe a whole generation into indentured servitude ... but great for the economy).

These people will have to work. No sabbaticals to find themselves, or time off to spend with a newborn. They'll have to put up with every pointy haired boss and dysfunctional workplace they encounter (at least until they can find another job).

Every day of their lives will boost the GDP. (But it sure sucks for them that their culture didn't steer them down a smarter road when they were 18 and didn't know better).

It's not that great for the economy.

Economies go great when people are spending money. If a large part of your discretionary income goes to paying off student loans instead of spending on other things, and you put off buying a house or having children due to financial insecurity caused by student loans, then the economy suffers.

Agreed. The US is primarily consumption driven economy. This could lead to behavioral conditioning that could affect future growth (e.g. depression era, silent generation).

https://blog.dol.gov/2016/11/03/spending-habits-generation

https://medium.com/generations-of-spending/meager-spending-a...

Those of the silent generation are what can be most accurately described as frugal spendors.

Again, this tendency is rooted in their surroundings as they grew and developed within the society around them that was facing hard and desperate times.

Your comment is full of assertions, but not evidence or explanation.

My own assertions:

(1) GDP measures production. If debtors are incentived to produce more, GDP rises.

(2) The spending of debtors doesn't fall. It is just directed toward different sectors (education and financial products instead of housing, etc.).

(3) Every dollar lost by a debtor is a dollar earned by a creditor. These dollars don't disappear from the system. And even if creditors tend to churn money less than debtors, inflation targeting by the Fed should fully counter any changes in the aggregate velocity of money.

Now, it's possible you're right and I'm wrong. But I think it takes a much more sophisticated (and justified) argument than what you are asserting.

I agree that a sophisticated argument would take longer.

Regarding (3): The money does not disappear, but what is done with it? Already excess money in the hands of the 1% is just going into real estate, the stock market and stupid VC companies. All this is not particularly good for the real economy.

FYI, this is a fallacy. Money cannot "go into" an asset, in aggregate. Every buyer is always matched with a seller. For example, I have heard people say that in the crash of 2008 there was more selling of stock than buying of stock. But that would have been impossible. Each time a dollar was collected from selling a stock, there was a dollar spent buying that stock. They exactly equal. Money cannot go into assets, in aggregate.

This is of course different from personal experience, where exchanges are essentially one-sided, not two-sided. An individual can exchange money for property. But a closed economy cannot.

True. But that only describe the private actors in an economy. In the same way that money come from the state it can disappear there. The state can decide that "running deficits" is bad and start to destroy money running a surplus, frequently, when what you need is the opposite, like currently in the Euro-zone.

Running a budget surplus doesn't mean that money is destroyed. Also, the claim that the Euro-zone needs deficits is a highly contentious point, and not at all obvious or a consensus. Asserting it rather than arguing it does a disservice to the subtleties.

"Running a budget surplus doesn't mean that money is destroyed."

What it means, then?

It means the government takes in more money than it spends.

Depending on the policy of the Fed (or other issuer of fiat currency), the money supply may be increasing or decreasing at the same time.

Sorry, you are right. I forgot that the central bank in the States is not part of 'the government'.

The 'other issue of fiat currency' sounds mysterious.

Banks create money when they lend, and destroy it when the loan is paid. It's one-sided.

(Of course, a well functioning government will compensate for that in monetary policy. The US gov just stopped being capable of that by around 2008, it is progressing on recovering some control, but still has very little.)

Again, a blank assertion that is in truth contentious. I apologize for my tone, but it frustrates me when armchair economists comment on the internet and phrase opinions as facts. It is not at all an established, consensus fact that the US Government lost control of monetary policy after 2008. In fact, quantitative easing and interest on reserves are two policy levers that central banks continued to pull after hitting the zero bound. Short-term interest rates are not the only tool, nor the only framing, of monetary policy.

Well, I'm not taking that point, sorry.

Quantitative easing was tried, and didn't work. There was nobody to lend money to, so velocity felt in proportion to the new money printed and the whole thing turned into just a hidden bank subside. It may work if coupled with the correct fiscal policy (AKA a temporary universal income), but nobody on the US government has the power to do that.

Interest on reserves is a fringe monetary instrument that is getting support from economists out of desperation. The leading theory is that it doesn't work at all, the fringe theory that everybody is hoping to be right is that it can work if the government restricts the use of paper money. AFAIK, nobody has any idea on what unexpected effects can come from doing it for any long period.

Interest rates are not the only tool, but the US government has already spent all of the orthodox tools. In fact, I do think the lest one to stop working was quantitative easing.

I think (3) is a very important and debatable point.

Important because, as you mentioned, there is a very large difference in marginal propensity to consume between 'hand-to-mouth' consumers and savers - this affects the velocity of money and GDP. Debatable because at the zero-lower bound, how much effect the Fed really have is very much in question (see: excess reserves at https://goo.gl/NQG2O5).

I personally would disagree - money funneled to creditors rather than in the hands of consumers is more harmful to the economy than the reverse, but is that money passed to capitalists (low consumption) or used for business investment (high investment)? That being said, consumption is about 70% of GDP.

> (1) GDP measures production. If debtors are incentived to produce more, GDP rises.

Production is dependent on demand of consumables in the U.S.

2 & 3 are the similar (the same?) point. The poorer one is, or the earlier in life they are (students) the greater % of their income is spent on consumables. I don't think money sloshing around financial services has as direct an impact on the things that most impact production.

I think he has confused the US economy with its controlling parties.

But isn't a large amount of debt that isn't transitioning whether by getting paid back or written off by the creditor bad for the economy? I'm no economist but my intuition is that these unmoving debts represent money that should exist but doesn't. Since student debt is unusual in that it can't be discharged by bankruptcy it will stay in limbo longer than other kinds.

It's reasonable to think that in time much of it will get paid back but there are other kinds of investments that would perform better, and hence the economy would have been better off had these loans not been made and the money were spent on something else.

Also to your comment about sabbaticals and other less productive activities, is that really the common case? I believe that underemployment via career choices and local demand for skills would be more common.

An entire generation that can't assume any slight risk for getting a better job or starting a company? No needed sabbatical for updating their knowledge (those aren't all just for fun, you know), no capacity to care for children.

Looks like a huge boost to an economy. Besides, let's not forget that economies are made of people.

People with no money can't buy things. Who will employ them if there are no customers?

Until they vote to change the laws and cancel all that debt.

boosting gdp this way does not create much value. Its when private wealth flourishes that you have better network effects in an economy.

Not sure why you are being downvoted. Perhaps because people tend to equate "good for the economy" with "good for well-being", which is not necessarily the case.

What you're getting in LA is tent cities of young people who can't live at home with their parents. You have an entire generaton of working young people who can't afford rent. Its producing a mean society, anarchy is more the outcome than class war, the war of off against all and the growth of a feral meaness in society.

Indeed. If it were discharged through bankruptcy, I think we'd see lenders making much more critical decisions (and a lot of firms who talk a good game but add no value going out of business).

> This is going to be a problem. Student debt cannot be discharged in bankruptcy, debtors simply garnish wages.

I studied in Austria so I'm not too familiar with how student loans in the US work, but as far as I know the Income Based Repayment program limits your monthly payments to a given percentage of your income. You can't discharge those debts, but an upper bound on the monthly payments doesn't sound too bad either.

But the interest keeps compounding, which means the person is going to be paying a still sizable portion of their income for a significantly longer timeframe. This is money that arguably would be spent on housing, family, and retirement, e.g. things that provide significant societal and personal stability.

>with a young overburdened workforce slaving away for their debt

this is already the reality for many americans. eventually they'll riot