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Circle of Competence Issue #101


"He who is not a good servant will not be a good master." - Plato


Populist Pendulum

I'm interested to see how the Democratic candidate, whoever it is, will perform against Trump in November. The main issues that are becoming more and more pressing are mainly economic issues. Will the country choose a conservative populist or a democratic socialist or a democratic blueblood?

An explosion in student debt due to the rising cost of education, the rising cost of healthcare which is leaving more and more people either in debt or bankrupt, and the lack of affordable housing in many metro areas - these are the issues that will be high on voters' priority lists in November, not social issues. Sure, they may affect disproportionate groups, but they are based on economic, not social, realities.

I can't help but think these rising costs are all connected to the dramatic drop in interest rates over the past twelve years since the great financial crisis. When faced with a financial meltdown, our government and central bank reacted swiftly to buoy the financial system with plenty of liquidity, but did lowering the cost of capital for so long lead to inflation in these critical areas of consumer spending? It is hard to say. But it feels connected in some deeply intuitive way. In classical economic models, when the supply of money is increased, it typically leads to inflation. Perhaps it has, but in very specific industries like housing, higher education, and healthcare.

But how does this all reset from a macroeconomic perspective? Will the house of cards come falling down? Or will regulators force markets to bend to their will? Tree don't grow to the sky, and if we keep up the current rates of inflation within these three areas of spending, we could end up in an Elysium-like situation within a generation. This certainly explains the rise of Bernie Sanders and his 'free everything' plan along with Modern Monetary Theory.

As I've written before, we need alternative models in higher education.