Dorf! Lessons in Self-Awareness

Jeffery Dorfman-Via Forbes

From time to time, a publication founded by a funny-faced multi-millionaire publishes something so tone-deaf and utterly detached from reality, that I feel a visceral need to subject the author to champagne-boarding until they admit supply-side economics is bunk.  The publication I speak of is none other than Forbes.  Today’s author is Jeffrey Dorfman P.H.D. and he explains to us why the student debt crisis is no biggie because people also owe auto loans.

The purported crisis of mounting student loan debt is one of the most overhyped problems of this young century. We were treated to thousands of news stories when student loan debt went above $1 trillion in total, more as it continued to rise, and a growing avalanche of stories designed to create sympathy for these poor indebted college graduates (and drop-outs). Yet, auto loan debt in the U.S. has now reached $1.1 trillion, up 30 percent from its pre-recession peak, without a similar mountain of press warning of the imminent catastrophe. This divergence in media coverage and analysis tells us much about how the student debt crisis is more manufactured than real.

Don’t worry everybody, even though these are two separate loans, for two separate purposes, with limited overlap, the comparison is still great.

The average college graduate who has any student loan debt graduates with between $25,000 and $30,000 in student loan debt. On a standard ten year repayment schedule, this means a monthly payment in the range of $280 to $330 per month. The average new car loan in the second quarter of 2015 averaged $28,500, was for five years, and carried a monthly payment of $483 month. Payments on student loans and auto loans both take up almost exactly the same percentage of income.

This argument is on shaky ground.  First, Dorfman is talking mean not median.  In both cases, the mean is likely driven higher by expensive outliers.  Second, I don’t think I know a recent college graduate, who can pay $483 a month for a car payment without major assistance from family.  Most recent college graduates that I’ve met are lucky if they can afford a 10-year-old Civic.  Third, there is not 100% overlap here.  I would speculate that someone buying a $20,000-30,000 car probably is, at least, employed full-time. Auto loans and student loans are also inherently different.  Auto loans can be forgiven in bankruptcy, cars can be repossessed, and the debt can be settled.  Student loans are not usually forgiven until full payment or death.  Furthermore, if they are also carrying $30,000 in student loans in a job that doesn’t even pay $12 an hour, they aren’t getting any new loan for much at all.

If Your Forbes Editorial is Based on Kelso, You May Want to Rethink Your Career

I've noticed that over the past two years or so, the content of Yahoo's homepage has deteriorated rapidly, but as I am a creature of habit and a glutton for punishment, I continue to check it daily.  In my daily reading, I came across an editorial written by University of Georgia economist and Forbes contributor Jeffrey Dorfman called "When Did We Get Too Proud For Entry-level Jobs?"  Now admittedly, I read that title and was skeptical, but I decided to hear him out and keep an open mind.  Surely this economics professor would back up assertions with some hard data and force me to reevaluate my own biases.  In retrospect, I have far too much faith in the academic diligence of economists.