Reply #3: Which reduces the principle for college loans, which means that

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students have to "finance" less of their own economic development and progress into the middle class.

I heard a program on CBC about micro-loans. After twenty or so years, liberal economists are starting to think that they don't really work. Micro-loans have very high failure rates despite the occassional success story and countries in which they're very popular have seen even greater wealth polarization than in countries in which they're not popular.

What micro-loans do is that they ask people who have nothing -- no assets, just the ability to work -- to finance their own economic development. They make you responsible for all the loans of a group of people. The bank always gets their interest. It's practically guaranteed. However, for the individuals, there's not really an improving economy which you're tapping into. What you're tapping into is the good fortune of one of your group of 20 or so people. In these economies, most still fail. But one gets lucky, and that one ends up being responsible for the pooled debts of the whole group, which reduces that one person's ability to capitalize on his or her gains -- lots of the profits end up going to the bank.

Joe Stieglitz and others point out that the real way to grow economies isn't by forcing people to fiance their own economic development. It's to give them assets against which they can take out loans and take risks. And the best asset to give them is their own land. Apparently, countries with low rates of land ownership, or countries with ineffective land title systems have very low rates of economic development (when you're not sure who owns land, it's hard to get a loan on its value).

Land ownership is an injection of huge amounts of wealth in the working class. If you can leverage your land, rather than your labor, you can really magnify your gains. Furthermore, with a micro-loan, you're forcing 20 people to leverage their ability to work hard in an economy which isn't going anywhere because there is no wealth in the working class which they can tap into. But when you have land reform and give land ownership to the working class, you create wealth for those people who want to work to tap into.

I don't think I'm explaining this well, but I think the micro-loan situation probably has a lot in common with the way the middle class pay for education.

Education is the pathway to the middle class for people with few assets. More loans forces you to finance your education with labor in a world in which people have few assets, where 1/5 of Americans have no net worth (and average debt loads of about $9K).

What Edwards is proposing -- 1 year at a state school free if you work 10 hrs a week) reduces the debt burden by 25%. I am so sure that it's cheaper for the government to pay this up front rather than pay it out over years in the form of subsidized interest payments on student loans. Furthermore, reducing the debt burden makes recent graduates more powerful economic actors with more choices and an increased ability to make a positive impact on the economy.