Date: 2025-01-04 Page is: DBtxt003.php txt00027449
ECONOMY
SYSTEMIC PROBLEMS
Debt Was Supposed to Cure Poverty and Help Pay for College. What Went Wrong?
Three new books examine debt’s fraught politics and history.
SYSTEMIC PROBLEMS
Debt Was Supposed to Cure Poverty and Help Pay for College. What Went Wrong?
Three new books examine debt’s fraught politics and history.
Original article: https://www.nytimes.com/2024/09/12/books/review/debt-student-loan-microfinance-business-books.html
Peter Burgess COMMENTARY
Peter Burgess
Three new books examine debt’s fraught politics and history.
Credit...By Daniel Jurman
Written by Zeke Faux ... Zeke Faux is an investigative reporter for Bloomberg. An updated edition of his book “Number Go Up: Inside Crypto’s Wild Rise and Staggering Fall” will be released in October.
Sept. 12, 2024
“Going back to biblical times,” a man in the money-lending business once told me over beers in downtown Manhattan, “there was something dirty about charging for money.”
He held up his sudsy glass. “But a business owner can buy this beer for a dollar, mark it up eight times and sell it to idiots like us, and no one cares.”
His barroom philosophizing was self-serving. The man had earned a fortune off costly loans and spent his days partying in a mansion in Puerto Rico, while many of his borrowers were crushed by punishing interest rates. But there was a kernel of truth to what he said. Debt still carries a whiff of immorality, even as it’s become central to nearly everyone’s economic lives. After President Biden announced a federal student debt forgiveness plan — now tied up in legal challenges — Republicans denounced the initiative, often in shaming terms, blaming “slacker baristas” and “lesbian dance theory” majors who, having wasted their years in college, were unable to land a decent-paying job. Debt’s contradictions, its power and peril, are explored in three new books.
In THE HAMILTON SCHEME: An Epic Tale of Money and Power in the American Founding (Farrar, Straus & Giroux, 525 pp., $35), by William Hogeland, debt is a tool wielded by Alexander Hamilton to unify and empower the nascent United States. The scheme of the title is Hamilton’s plan to have the federal government assume the states’ Revolutionary War debts. A federal debt would require federal taxes, which in turn would mean funding for a federal army. It would enrich speculators and bind them to the country’s success. Through debt, Hogeland argues in this provocative, fast-paced book, Hamilton, the country’s first treasury secretary, aimed to consolidate the nation.
The cover of “The Hamilton Scheme,” by William Hogeland, features the title and author’s name in black type on a cream background where we can see, outlined faintly in green, a close-up of Alexander Hamilton’s face in profile, several armed 18th-century men, and a bit of what could be a piece of paper currency.
The debts that Hamilton had the government assume were minuscule by today’s standards, small enough that a federal tax on whiskey production and a tariff on imported goods were enough to cover the payments. (The national debt is now $35 trillion, and Donald Trump recently proposed his own scheme to pay it back: “We’ll hand them a little Bitcoin and wipe away our $35 trillion.”) But Hamilton’s whiskey tax was opposed by small-scale producers on the country’s western frontier, who saw it as a scheme to subjugate them to the financial class. Hogeland says they were right. Hamilton was a committed elitist, and he and other Revolutionary leaders feared the power of the working class. (Hogeland calls the heroic underdog version of Hamilton in Lin Manuel Miranda’s musical a “fan-fiction Alexander.”) When the producers rebelled in 1791 in what became the Whiskey Rebellion, Hogeland writes, George Washington was eager to suppress them, in part to preserve the value of his frontier land holdings. The rebellion was put down, and Hamilton’s financial scheme helped lead the nation to unprecedented prosperity and extreme inequality. “Conflicts over money and power,” Hogeland writes, “really created the United States of America.”
For a time, the microfinance industry seemed to have turned debt into a miracle cure for poverty. With a loan of just a few dollars, the pitch went, a poor woman could start a small business, repay the money and support herself. Microfinance allowed philanthropists to assist the needy while turning a profit. Credit became a one-size-fits-all solution, helping even a destitute borrower “actualize a sort of rags-to-riches story all by herself,” Mara Kardas-Nelson writes in WE ARE NOT ABLE TO LIVE IN THE SKY: The Seductive Promise of Microfinance (Metropolitan Books, 381 pp., $31.99). In 2015, Kardas-Nelson moved to Sierra Leone and soon began to question that story. At the health organization where she worked, a colleague told her that women, the primary recipients of microloans, were being jailed for defaulting on their interest payments. She decided to investigate.
The cover of “We Are Not Able to Live in the Sky,” by Mara Kardas-Nelson shows the title and author’s name in white type over a color photo of an African girl in a pink slip dress walking along a narrow wall next to a shallow canal strewn with garbage. Behind her we can see shanty-style homes stretching into the distance.
The result is this revealing study, which weaves together vivid stories of female borrowers in Sierra Leone with a deeply reported history of how the microfinance industry was created and where it went wrong. (Her subjects include Muhammad Yunus, the founder of the microfinance Grameen Bank, who was recently appointed interim leader of Bangladesh after the country’s prime minister fled amid nationwide protests.) Microfinance has become an integral part of the economy in Sierra Leone and many other countries, Kardas-Nelson writes. But lenders charge high rates and often use punitive collection measures. Changing lives seems at best an afterthought. (A 2015 study in Hyderabad, India, by the Nobel Prize-winning economists Abhijit Banerjee and Esther Duflo and two colleagues, found that microfinance had little impact on alleviating poverty.) Among the women Kardas-Nelson profiles with remarkable empathy are Adama, a mother of five who needs money to support her business selling buckets of broken rocks to homebuilders, and Abbie, who tries to start a shoe-resale business after her husband dies of Ebola. The women fail to make enough cash to cover the interest on their microloans, which, with the addition of various fees, approaches 100 percent annualized. Adama flees town following her arrest for nonpayment, and Abbie is trapped in a cycle of debt, taking new loans to pay off old ones. “I don’t want microcredit,” she says. “I just don’t have any other option.” For the U.S. legislators who created the federal student loan program, debt was a compromise. It was 1958, the Soviet Union had recently launched Sputnik, the first Earth-orbiting satellite, and amid fear that American scientists were falling behind, an education aid bill was introduced in Congress. Some House Republicans opposed the bill’s provision for scholarships as “socialist,” and so the resulting law, the National Defense Education Act, instead offered low-cost loans. The program helped finance a vast expansion in U.S. higher education. But it treated college as a personal investment, rather than as a public good. Now 42 million borrowers are loaded with $1.6 trillion in debt. BURDENED: Student Debt and the Making of an American Crisis (Dey Street, 323 pp., $29.99), by Ryann Liebenthal, is a powerful argument for reforming this system.
The cover of “Burdened,” by Ryann Liebenthal, features the title and author’s name in black type over three rows of yellow federal student financial aid application forms.
Liebenthal traces the roots of the current problem to the voucher program created by the 1944 G.I. Bill. Offering young men free money and free choice of colleges, the legislation attracted hustlers, eager to exploit them. By 1949, as many as 600,000 veterans were enrolled in for-profit schools, about a third of them scams. Since then, efforts to rein in the profiteers have been stymied by lobbying. The 1970s saw another epidemic of fraudulent for-profit schools, including “correspondence schools” that mailed out lessons. Today, for-profit colleges account for a disproportionate share of federal loans, even though about 70 percent of their students fail to graduate within six years. Liebenthal makes a good case that the government should stop “funneling taxpayer funds through third-rate entrepreneurs regulated with all the strength of a friendship bracelet.” I am less convinced that the entire student loan program is “rotten through and through,” as Liebenthal asserts. At public universities, just under half of undergraduates graduate with no debt, and the average owed by those who do borrow is $27,400. The resulting monthly payment would be around $300 — burdensome for sure, but hardly unmanageable, especially given that the typical four-year college graduate earns 86 percent more than someone with only a high school degree. Student loan horror stories tend to be about people who took on huge debt for graduate degrees, especially in low-paying fields. After a 2005 law eliminated caps on such loans, universities jacked up prices. At Columbia’s master’s program in film, for example, the median loan debt owed by recent graduates was $181,000. Liebenthal herself borrowed $100,000 for a journalism degree from N.Y.U., a decision she views as a financial mistake but one she says led to a fulfilling career and life. Liebenthal’s hopeful vision is that young people shouldn’t have to make a trade-off between getting an education and taking on crippling debt. “Education,” she writes, “ought to be a right of citizenship in a wealthy, humane, democratic society.” new More to Discover Expand to see more books What Are People Saying About the New Sally Rooney Book? well Is Green Tea Really ‘Nature’s Ozempic’? Fredric Jameson in 1988. His considerations of Balzac and Philip K. Dick, of Sartre and cyberpunk, of Proust and pop art are animated by enthusiasm and skepticism, by an engagement no less passionate for being unremittingly cerebral. books For Fredric Jameson, Marxist Criticism Was a Labor of Love More in Book Review Fredric Jameson in 1988. His considerations of Balzac and Philip K. Dick, of Sartre and cyberpunk, of Proust and pop art are animated by enthusiasm and skepticism, by an engagement no less passionate for being unremittingly cerebral. books For Fredric Jameson, Marxist Criticism Was a Labor of Love Save for later Try Something Different Kalpesh Lathigra books What Are People Saying About the New Sally Rooney Book? Save for later Joyce Lee for The New York Times well Is Green Tea Really ‘Nature’s Ozempic’? Save for later Vice President Kamala Harris and Kimberly Guilfoyle, a supporter of former President Donald J. Trump and the fiancée of Donald Trump Jr., were prosecutors in San Francisco more than two decades ago. Kenny Holston/The New York Times, Maddie McGarvey for The New York Times us The Long, Strange Saga of Kamala Harris and Kimberly Guilfoyle Save for later The accusations against the professor, who had invited a white nationalist to her class and said that Black people and women were less intelligent, led students and others to call for her to be fired. Rachel Wisniewski for The New York Times us Penn Suspends Amy Wax, Law Professor Accused of Making Racist Statements Editors Picks In a new study, researchers identified a network of 81 genes that were found only in Greenland sharks and are known to play a role in DNA repair. science This Shark Lives 400 Years. Its DNA May Explain Why. Ellen DeGeneres Is in Her Boss Era on Her New Netflix Special The Squishy Truth About Why You’re Seeing Fewer Spotted Lanternflies Rebecca Lobo Helped Build the W.N.B.A. Now She’s Calling Its Next Chapter. Save for later For more stories, return to home. See more on: Alexander Hamilton, Muhammad Yunus