The current system was instituted by Ronald Reagan, ostensibly to prevent government from stifling the innovation, efficiencies and other benefits of the so-called free market. Direct government lending to students was simply handed over to private banks. The result, as described here a few months ago, was a 35-year plunder of taxpayers and borrowers.

Photo by elyceflix,, via Flickr, licensed under a Creative Commons Attribution, NonCommercial, No Derivative license.

Banks enjoyed government guarantees for their student loans, making them virtually risk-free. Then they turned around and jacked up interest rates, lavished gifts on financial aid officers to get them to steer students to take out the banks’ loans; and illegally data-mined the personal data of borrowers.

None of this should come as a surprise, of course. But because the banking industry has insinuated itself so deeply into congressional policymaking, the needlessly corrupt and expensive system remained in place.

The lion’s share of credit for pushing reform through the House goes to Representative George Miller of California. I love his victory quote: “Today the House made a clear choice to stop funneling vital taxpayer dollars through boardrooms and start sending them directly to dorm rooms.”

What is galling and pathetic is the response of opponents of the reform, mostly Republicans and friends of the banking industry. They say that the new House bil makes you a gosh-darn socialist! Representative John Kline, the top Republican on the House Education Committee, called the reforms “a government takeover of an industry.”

So we’ve come to this Orwellian pass: Getting corporations off the public dole amounts to a government takeover. Ridiculous. Weirdly, the selfsame defenders of the “free market” see no philosophical contradiction in their dependence upon government subsidies. The banks, after all, were making enormous profits by making risk-free, taxpayer-guaranteed loans to a captive customer base procured through cozy relationships with colleges, which enjoyed kickbacks and junkets from the arrangement.

It is striking how the reforms of the student loan business parallel those of health insurance. In both cases, the government can perform a fairly mundane, commodity-like transaction far more efficiently and honestly than the self-styled entrepreneurs and innovators of the free market.

The GAO concluded in 2005, for example, that the federal government can make direct loans to students for $1.70 per $100 loaned, as opposed to the $9.20 per $100 that private banks charge. Health insurance could be provided for a similar fraction of the prices charged by private insurance companies — but letting the government work its magic would be (cue the fright music)..socialism!

No political reformers are going to make much headway — in student loans, health insurance, or dozens of other issues — until they can get past the fear-mongering and demonization of government. Too bad that hardly anyone in positions of power in Washington is providing a full-throated defense of government as an instrument to protect our common interests. No wonder the private interests are succeeding in distracting our attention with overheated rhetoric and bogus arguments — time-proven tactics for plundering our common wealth.

It may be a warped way of regarding the world, but….welcome to mainstream economics!

That’s why it is such a pleasure to encounter an important op-ed in today’s New York Times by Eric Zencey, a professor at Empire State College. Zencey describes the fallacy of measuring economic activity as if it were synonymous with human well-being. Grow the economy, improve human welfare? That’s the simple-minded equation that economists, politicians and corporations regard as a self-evident truth.

Geographic distribution of world G.D.P. Photo by arenamontanus, via Flickr, licensed under a Creative Commons Attribution license.

But listen to Zencey:

In general, the replacement of natural-capital services (like sun-drying clothes, or the propagation of fish, or flood control and water purification) woirh built-capital services (like those from a clothes dryer, or an industrial fish farm, or from levees, dams and treatment plants) is a bad trade — built capital is costly, doesn’t maintain itself, and in many cases provides an inferior, less-certain service. But in gross domestic product, every instance of replacement of a natural-capital service with a built-capital service shows up as a good thing, an increase in national economic activity. Is it any wonder that we now face a global crisis in the form of a pressing scarcity of natural-capital services of all kinds?

This points to the larger, deeper flaw in using a measurement of national income as an indicator of economic well-being. In summing all economic activity in the economy, gross domestic product makes no distinction between items that are costs and items that are benefits. If you get into a fender-bender and have your car fixed, G.D.P. goes up.

Zancey’s piece is a welcome reminder of something that has been pointed out since 1934, when the first report of national income was made to Congress. The economist Simon Kuznets then pointed out that “the welfare of a nation can….scarcely be inferred from a measure of national income.” More recently, my colleague Jonathan Rowe developed this theme — the fallacies of G.D.P. as a measure of national well-being — in his landmark 1995 piece in The Atlantic, “If G.D.P. Is Up, Why is America Down?”

But if the deficiencies of G.D.P. as a measure of national progress has been well-known and prominently criticized for decades, then why does G.D.P. still hold such sway over the public imagination? Because it is in the political interests of leading market players to equate their success with national well-being. G.D.P. fulfills that role perfectly — and the news media and captive politicians are happy to play along.

But so long as this increasingly lame charade continues, the actual value of the commons will go ignored — and the pathologies of unfettered markets will persist and expand. Which is why it’s time to demand an economics that gives us a full-cost accounting of actual costs, including the hidden subsidies provided by the commons and the despoliation of the commons by market activity.

“How about this for a New Rule: Not everything in America has to make a profit. It used to be that there were some services and institutions so vital to our nation that they were exempt from market pressures. Some things we just didn’t do for money. The United States always defined capitalism, but it didn’t used to define us. But now it’s becoming all that we are.”

Maher then goes on to point out, with characteristic bite, how the US now outsources government functions to for-profit contractors to wage war, operate prisons and manage health care. Even the news can’t be allowed to be news unless it turns a profit:

“….unlike in Cronkite’s day, today’s news has to make a profit like all the other divisions in a media conglomerate. That’s why it wasn’t surprising to see the CBS Evening News broadcast live from the Staples Center for two nights this month, just in case Michael Jackson came back to life and sold Iran nuclear weapons. In Uncle Walter’s time, the news division was a loss leader. Making money was the job of The Beverly Hillbillies. And now that we have reporters moving to Alaska to hang out with the Palin family, the news is The Beverly Hillbillies.

Maher concludes:

“If conservatives get to call universal health care “socialized medicine,” I get to call private health care “soulless vampires making money off human pain.” The problem with President Obama’s health care plan isn’t socialism, it’s capitalism.

“And if medicine is for profit, and war, and the news, and the penal system, my question is: what’s wrong with firemen? Why don’t they charge? They must be commies. Oh my God! That explains the red trucks!”