And debt forgiveness was Biden's plan

Ten days ago I was writing this for the blog:

Economic Policy: A Plan for Democrats

Dems should support debt forgiveness for consumers, with limits to prevent abuse by the wealthy. A whole policy strategy can be built around this theme. That's something the Dems need

President Biden's plan was to forgive student debt. Republicans undermined Biden's plan at every turn. The Republicans don't like the idea of debt forgiveness. They will gladly line up against it. A clear path is open for Democrats.

That's as far as I got. Then I forgot about it and went on to other things. No problem; I'd have found it eventually. But now I find this:

Whoa! Have I been getting Trump all wrong? Can it be?

The Newsweek article (dated 20 Oct 2025) says

The Trump administration has confirmed its agreement to cancel student loan debt for eligible borrowers under certain plans, following a legal agreement between the American Federation of Teachers (AFT) and the Department of Education.
...
The latest decision marks a major policy pivot for the Trump administration, which previously paused or restricted student debt relief through federal income-driven repayment programs. 

Newsweek lays out the backstory:

• Trump halted "Income-Based Repayment" debt forgiveness earlier this year.
• In March 2025, the American Federation of Teachers (AFT) sued the administration.
• Newsweek says "The recent legal settlement, filed on October 17, between the Department of Education and AFT confirms that the administration will now resume loan cancellations" for the affected plans.

"The Department of Education," according to the Newsweek article, "said most loan discharges will be processed within two weeks after October 21." For the next two weeks, then, debt forgiveness should be in the news. If it isn't, you might want to make some noise about it.

Is it a big debt-forgiveness plan?

The Newsweek title reads "Student Loan Forgiveness Update: Trump Admin Cancels Debt For Millions". Sounds good. But in the article they say as many as "2 to 2.5 million borrowers". So yes, it is millions -- plural -- but it's not plural by much.

Joe Biden's Fact Sheet of August 24, 2022 has the number of student loan borrowers at 45 million. Google has the number today at 42.5 million for federal student loans. Either way, helping 2.5 million people get out of debt helps less than 6 percent of those with student debt. Less than 6 percent. That will do little or nothing to boost our economy, which is mired in all kinds of debt.

Why We Need Debt Forgiveness

In the Newsweek article, under "What people are saying" they report: 

AFT President Randi Weingarten said in a statement: "For nearly a decade, the AFT has fought for the rights of student loan borrowers to be freed from the shackles of unjust debt—and today, a huge part of that affordability fight was vindicated. 

and: 

Winston Berkman-Breen, Protect Borrowers legal director said in a statement: “This is a tremendous win for borrowers. With today’s filing, borrowers can rest a little easier knowing that they won’t be unjustly hit with a tax bill once their student loans are finally canceled, pursuant to federal law... ”

Weingarten is focused on "affordability" for borrowers. Berkman-Breen sees a "win for borrowers".

Joe Biden's fact sheet from 2022 is titled "President Biden Announces Student Loan Relief for Borrowers Who Need It Most". Biden's plan was to help people cope with the cost of student debt repayment. So is Weingarten's, and so is Berkman-Breen's.

I'm not an economist. I'm a former math major, 76 years old. I've been studying the economy -- not economics --  since 1977. And I have to say that Biden, and Weingarten, and Berkman-Breen are all doing micro-economics. All three are worried about the individual; in this case, about the individual borrowers. Biden wanted to help the people who needed it most. So did Weingarten and Berkman-Breen.

I call for debt forgiveness on a grand scale because that will fix the macro-economy. It will make the economy better for everyone, even for those that had no debt. If we make the economy better, we make it better for everyone. If we only make the economy better for those who need it most, then everyone, even those we are helping, still have to cope with our failing economy.

 

Live Long and Prosper

Google identifies three distinct periods of prosperity in the last 100 years or so: 

• The Roaring 20s, 
• The "golden age" that followed World War Two, and 
• The "New Economy" of the latter 1990s and early 2000s.

Each of those prosperous periods appears as an uptrend in the line on the graph below:

In each case, prosperity begins almost as soon as the line starts showing a persistent increase. In each case also, prosperity comes to an end around the time the persistent increase comes to an end. There is a strong connection between prosperity and the data shown on the graph. 

The graph shows the amount of private debt in the economy, per dollar of public debt. The orange line shows data from the Bicentennial Edition of the Historical Statistics. The blue line uses the FRED data, from the ALFRED archives.

Times of prosperity begin when the private-to-public debt ratio is relatively low. They end when the ratio is relatively high. In other words, times of prosperity do not begin until the ratio is low enough, and do not end until the ratio is getting too high.

Prosperity begins when the ratio is low. But other conditions also vary, so prosperity may begin at a higher low or a lower low.

Prosperity ends when the ratio is high. But again, other conditions vary, and this affects the level at which prosperity fails. 

Two times out of three, on the graph above, the prosperity ended painfully: once with the Great Depression, and once with the Great Recession. Something to keep in mind.

 

Times of prosperity are times when private-sector debt is growing faster than public-sector debt. That is what makes the line go up. This makes sense, I think, because a vigorous private sector is the source of prosperity.

We can think of the graph as showing a prosperity cycle: like the business cycle, but longer. Times of prosperity are like times of growth. Times without prosperity are like times of recession. Our time is such a time. In such times, public debt grows faster than private debt.

It is necessary, I believe, to have times when public debt grows faster than private. Only in such times does the line on the graph fall to a low point where prosperity can resume. This is why our efforts to reduce federal spending and balance federal budgets have been failing since the 1970s: As the graph shows, public debt must increase more rapidly than private debt to bring the line down, so that prosperity can resume. Unfortunately, we have been trying for years to create prosperity by slowing the growth of public debt. As the graph shows, our efforts were doomed to fail.

Most people and most economists, I think, see cutting government spending and debt as the way to fix our economy. Some economists, and maybe a few other people, see expanding government spending and debt as the way to fix it. Both groups need to focus not on government data alone, but on the ratio of private-to-public.

We need to get the ratio low enough to kick-start prosperity. Cutting government spending and debt makes the ratio higher. That is the wrong solution.

Increasing government spending and debt will make the ratio lower, which is what we need. But we have been trying to do that for 50 years with very little success. The only prosperity we had since the 1970s came in the latter 1990s. And yes, federal deficits got smaller in those years.  But the smaller deficits were more the result than the cause of that prosperity.

Because of the Savings & Loan Crisis (1985-1995), private debt grew slowly. Slow private debt growth worked the way rapid public debt growth would, causing an decrease in the private-to-public ratio. It was several years of slow growth of private sector debt that pushed the private-to-public ratio down enough to permit the rise of prosperity.

One last point.

Three bullet points in a BusinessInsider article at MSN: "New student-loan forgiveness under Trump is coming. Here's what borrowers should know." 

• The Trump administration said it is processing student-loan forgiveness for some borrowers on income-based repayment.
• Eligible borrowers received emails stating that they are expected to receive relief in the coming months.
• The ongoing government shutdown could cause delays.

The timeline is now months plus delays. 

Hume on the arbitrary power of tyrannical government

The excerpt below is from FEE, the Foundation for Economic Education, from "David Hume Believed in the Miracle of Commerce" by Richard M. Ebeling. My remarks appear on the white background.

The FEE Excerpt		My Response

David Hume emphasized that commerce and trade were among the most important avenues to offer opportunities to raise people’s standards of living, and to bring refinement and cultural betterment to a growing portion of a nation’s population.

I accept Hume's view that commerce and trade did offer good opportunities for people to improve their living standards in the 1750s when he wrote about it. There are still opportunities today.

Commerce also served as an important leveler of the material inequality of a society based on political privilege and government-bestowed monopoly. Through trade, a wider variety and quality of goods became available to a growing number of the people in any society, fostering the development of a “middle class.”

I do not dispute Hume's view that commerce played a powerful role in reducing inequality in the 1750s and for many decades thereafter. But the US middle class has been shrinking for half a century now.

At the same time, growing wealth among more and more members of society acted as a means to restrain and weaken the arbitrary power of tyrannical governments, as a larger percentage of the population had the means to free themselves from government dependency and control...

The growth and distribution of wealth helped to keep the arbitrary power of tyrannical governments at bay for generations. But in our time, failing growth and the concentration of wealth have encouraged tyranny and the abuse of power.

... government dependency and control. Or as Hume expressed it in his essay, “Of the Refinement in the Arts”:

“But where luxury nourishes commerce and industry, the peasants, by a proper cultivation of the land, become rich and independent; while the tradesmen and merchants acquire a share of the property, and draw authority and consideration to that middling rank of men, who are the best and firmest basis of public liberty.

The decline of the middle class -- the middling rank, Hume says -- brings with it the decline of "the best and firmest basis of public liberty."

“These submit not to slavery, like the peasants, from poverty and meanness of spirit; and having no hopes of tyrannizing over others, like the barons, they are not tempted, for the sake of that gratification, to submit to the tyranny of their sovereign. They covet equal laws, which may secure their property, and preserve them from monarchical, as well as aristocratical tyranny.”

That is the best paragraph in the excerpt. The best in the post. And Hume wrote it about us: the middle class, and those who want to take back our place in the middle class.

Governments and special interest groups, Hume feared, are always want to use and abuse political authority and influence to gain much for themselves at the expense of the ordinary, or common, members of society. And as a society grows in wealth there is more for the government to siphon off through taxes for its own purposes and for interested groups to use the state to plunder and manipulate. But with the emergence of a middle class that is increasingly supporting itself through commerce and industry, they have the financial means to resist these encroachments by the state. Or as Hume said in his essay “Of Commerce”: “So the luxury of the individuals must diminish the force, and check the ambition of the sovereign.”

Hume, quoted by Keynes

“It is of no manner of consequence, with regard to the domestic happiness of a state, whether money be in a greater or less quantity. The good policy of the magistrate consists only in keeping it, if possible, still increasing; because by that means he keeps alive a spirit of industry in the nation, and increases the state of labour in which consists all real power and riches.” (Essay On Money, 1752).

From a footnote in Chapter 23 of The General Theory

Graph #1: The Quantity of Transaction money per Dollar's Worth of Output
The low before the Great Recession runs from 2004 to 2009.

 

Graph from mine of November 28, 2024.

Last Chapter, First Sentence

The outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes.

J. M. Keynes, 1936