Student Debt Relief Won't Contribute To Inflation, Paul Krugman Says

New York Times columnist Paul Krugman looks on
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News & Politics
Damir Mujezinovic

President Joe Biden announced in late August that he would extend the pause on student loan payments until the end of the year and forgive up to $10,000 for those making less than $125,000 annually.

The president also said he would forgive up to $20,000 for Pell Grant recipients who make less than $125,000 per year.

The policy is being criticized by Republican politicians and conservative figures, who claim forgiving student debt is unfair and will contribute to inflation.

But is that really true? No, according to economist Paul Krugman.

Inflation Fears

Word inflation seen on screen with graphs and high prices
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Writing for The New York Times, Krugman acknowledged that some of his colleagues believe Biden forgiving student debt will boost inflation but described their fears as unfounded.

According to Krugman, even though it's true that several hundred billion in taxpayer money will be spent on debt forgiveness, this won't contribute to inflation because it will have little to no effect on private spending, according to the economist.

Krugman wrote, "we’re talking about tens of billions a year in a $25 trillion economy," which is "basically a rounding error."

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Krugman stressed that other experts agree with him.

He pointed to an analysis from Goldman Sachs, which estimated that student loan payments will fall from 0.4 percent of personal income to 0.3 percent, which is nothing in the grand scheme of things.

The economist also wrote he would "spend money on children rather than adults," but noted that Biden could forgive student debt through executive action. At the same time, he can't handle child poverty without Congress.

Krugman Takes Aim At GOP

Economist Paul Krugman looks on
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In his column, Krugman also discussed Republican critics of Biden's student debt relief plan, noting that conservatives claim the president is ignoring blue-collar Americans and pandering to educated elites.

Krugman asked Republicans, "what are you proposing to do" for blue-collar workers, writing that their economic agenda boils down to tax cuts and deregulation.

The economist concluded the op-ed by stressing that debt relief will not contribute to inflation.

"So you should ignore the inflation scaremongers, whose numbers don’t add up. And you should evaluate this plan in terms of political reality -- in terms of what Biden can actually do. When you do that, it looks pretty good."

What The Fed Is Doing

As reported by CNBC, Fed Chairman Jerome Powell said Friday said high-interest rates would persist "for some time" and vowed to "use our tools forcefully" to fight inflation.

High rates are absolutely necessary, even though they will "bring some pain to households and businesses," according to Powell.

"Price stability is the responsibility of the Federal Reserve and serves as the bedrock of our economy. The economy does not work for anyone without price stability," he said.

The Dow Jones Industrial Average dropped by more than 500 points following Powell's remarks.

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