Another Fine Mess: The Unintended Consequences of Social Engineering

In this episode of Fascinating!, Rik from Planet Vulcan, along with senior editor Prego de Nada, unpacks yet another disastrous social engineering project: the student loan crisis. With dry humor and keen analysis, Rik walks us through the history of student loans, which began as a small, well-intentioned but panic-driven initiative under the National Defense Education Act. Originally designed to fund a select group of students, the program ballooned into a massive system of unsustainable debt that now burdens millions of young borrowers.

Prego explores how this program, much like the redlining of mortgage markets, was intended to manage risk but instead created a shitstorm of unintended consequences. Tuition soared, degrees lost value, and the ideological hijacking of education left students without the skills to repay their debts. Join Rik as he dives into the folly of central planning and asks: How many more fine messes will Earthlings create before they finally learn to let markets evolve naturally?

Transcript

Good day to you, and welcome to Fascinating!  I am your host Rik, from Planet Vulcan.  My continuing mission on Planet Earth:  to search for signs of intelligence and to encourage its spread.

During Season 3, senior contributing editor Prego de Nada penned an essay on the social engineering project, undertaken in the 1930’s, of creating a secondary market for home mortgages.  This was the social engineering project that led to the practice of redlining.  

Prego has now submitted a new essay about another social engineering project, which he has titled “Another Fine Mess”.

Prego writes:

Redlining was the social engineering solution to the problem of default risk, a risk which had to be dealt with as part of the project to create a secondary market for home mortgages, and to put the administration of this market under the control of agencies of the federal government.

Many people have ascribed malicious intent to the team of social engineers who came up with the idea of redlining.  

And although it is plausible to suspect that many of those who were in charge of drawing the lines in specific instances did so with malicious intent, there is no reason to assume that the practice itself as imagined by the drafters of the laws and regulations was so motivated.

These drafters simply understood that they needed some sort of method to limit default risk, and it must have seemed to them that putting entire neighborhoods off limits for insured lending was a perfectly reasonable method of mitigating this risk.  

A shitstorm is what has actually resulted from the practice of redlining; and there is not much good you can say about the way the government-run secondary market for mortgages has performed either.  

And my point in writing about redlining in the first place was, not to weigh in on how to manage the shitstorm, but to argue that this sort of thing is what ALWAYS happens when intelligent designers attempt to socially engineer quasi-markets instead of allowing the evolution of natural markets.

Natural markets evolve in such a way that a price on risk emerges from the action of impersonal forces of supply and demand, in a way that an engineered quasi-market cannot duplicate or even approximate.  

Now America is facing another shitstorm of impressive magnitude as a result of the student loan program, a social engineering project that was begun on a small scale in 1958 as part of the National Defense Education Act, the NDEA, which was enacted quickly and in an atmosphere of near-panic shortly after the USSR launched its first Sputnik satellite in October 1957. 

The panic stemmed from the fact that the USSR had suddenly and unexpectedly demonstrated that it had the technical capability of launching intercontinental ballistic missiles carrying nuclear warheads.

The purpose of the student loan program under NDEA was to fund the education of a select group of students who were studying things like science and engineering, as a means of meeting the technical challenges of what came to be known as the “space race”.  The first loans pursuant to the NDEA were made in 1967.

The scope of student loans was initially narrow, and it was not unusual for a student loan application to be rejected.

But as the decades have passed, it has become easier and easier for more and more students to obtain a loan, particularly after the US Government began making these loans directly to students instead of merely insuring loans from private lenders, until it became possible and even easy for virtually any college student, no matter how young they were, or how little they understood about what they were getting themselves into, to borrow tens of thousands of dollars, or even hundreds of thousands.  As far as these adolescents knew and understood, borrowing was just what one did to pay for college.

What had begun as a limited social engineering project with the purpose of nurturing technical talent eventually became an unlimited project aimed at enabling anyone and everyone who wanted to, to obtain a college degree.

And eventually, after the loan guarantee part of the program was ended in 2010 and all loans after that were made directly by the federal government, there came to be no control at all over default risk, not even something as clumsy as redlining was in the attempt to control default risk for guaranteed mortgage loans.

Unintended consequences have multiplied.  Even as tuition prices have soared in response to all the funds that have been flowing so freely, the actual value of a college degree has plummeted, primarily due to the fact that so many of the degrees that are now being awarded have not been accompanied by much in the way of meaningful education, to put it mildly.  

And enterprising and frequently unscrupulous people have set up and/or expanded private educational institutions in order to climb onto the gravy train, in the same way that physarum goes for the oat flakes that experimenters lay out when they wish to observe foraging behavior by this fascinating organism.

In many public institutions students looking for something meaningful to study have been recruited to participate in ideological crusades thinly disguised as educational programs, with the end result that much of what these students have been taught has produced negative value, and they are obliged to eventually recognize that much of what they think they know is wrong.

And now huge numbers of college graduates have found themselves with crippling loan payments, but without the knowledge, skills and abilities they would need to participate in the creation of the economic value that would enable them to make the payments.

The political debate around the consequences of this huge debacle has now come to center on the issue of forgiveness for student loans.

Some people are pointing out, and rightly so in this reporter’s opinion, that it was wrong to saddle huge numbers of unsuspecting adolescents with a debt burden they cannot possibly bear.

Others are arguing that, even it “mistakes were made”, it will be hugely damaging to our economic system to set a precedent of simply forgiving debt obligations.  

And what about all the students who did not take student loans, but who, along with their families, footed the bill for their own education?  Can we in all fairness leave them out of the benefits that we want to provide to those who did take the loans?

My reply to the argument that it will be hugely damaging to the economic system to set a precedent of abolishing debt obligations is not that it will not be hugely damaging.  Of course it will.  But that the damage, for all intents and purposes, has already been done.  It was done when the bulk of the lending was done, lending which was imprudent by any rational standard.

The only question now remaining is how to absorb the damage that has been done.  It seems inconceivable that we will collectively insist that the hapless students who borrowed the money and now find themselves in dire financial straits ought to be onerously burdened for most of their young lives for mistakes committed by the social engineers.  Shouldn’t we be regarding these borrowers as collateral damage of the social engineering, rather than trying to hold them responsible?

I do not propose to offer suggestions for how to manage the shitstorm; that is not my role.

My role is, once again, to put it front and center, and to emphasize that intelligent design thinking is bad science and always leads to suboptimal outcomes at best, and it helps the situation not at all to claim intentions were good when things inevitably go awry.

Many thanks to Prego for this essay.  We Vulcans keep wondering how many more such failures it will take before Earthlings start to get it about the folly of social engineering, and the frequently accompanying folly that real-world risk can be made to vanish when a majority of your elected representatives merely votes for it to be gone.

I invite you to have a listen to the next installment of Fascinating!.

If you find the lessons from nature in these podcasts personally valuable, please recommend it to your friends.  See also our YouTube Channel, Fascinating@pregodenada.

Theme music:  Helium, with thanks to TrackTribe.

Live long and prosper.  Savor your experiences.  Treasure your memories.  Anticipate a happy and rewarding future.

And respect nature’s wisdom.