Axios Macro

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Is your Twitter feed filled with economists feuding over student debt cancellation? Just us? OK. We explain below why they're fighting over President Biden's controversial plan, officially announced this morning.

  • Plus, some solid news on durable goods.

Today's newsletter, edited by Javier E. David, is 524 words, a 2-minute read.

1 big thing: Student loan cancellation clash

Photo: Al Drago/Bloomberg via Getty Images

Today, a passionate debate among prominent economists over student debt forgiveness will come to a head.

  • As expected, Biden announced plans to cancel $10,000 in federal student debt for individuals earning less than $125,000 (or $250,000 for families) each year. The administration also extended the COVID-era moratorium on loan repayments until the end of the year.

Why it matters: For days, the imminent announcement has ignited strong emotions among economists and policymakers. The crux of their debate is whether or not the debt cancellation — one of Biden's campaign promises — will be a setback for the nation that's now battling decades-high inflation.

The debate, naturally, has played out on Twitter — and two tweets highlight the contours of the argument:

  • "[N]ot all loan reductions, or even monthly payment reductions, bear on consumer demand. But the direction is clear. And, for several years, demand increases from broad forgiveness will exceed reductions from the IRA," former Treasury Secretary Larry Summers tweeted yesterday, referring to the Inflation Reduction Act.
  • "Whatever you think about student debt cancellation, inflation worries shouldn't drive the policy, as some people seem to be arguing," economist Joseph Stiglitz tweeted.

By the numbers: New analysis from the Penn Wharton budget model said Biden's expected proposal would cost the government at least $300 billion over the next decade.

  • Roughly 70% of the debt relief will accrue to borrowers in the top 60% of the income distribution.

The big picture: The passion in the forgiveness debate is not exactly proportional to the macroeconomic effects of Biden's proposed relief.

  • For borrowers who qualify, settling balances frees them up to spend the money that would have gone toward repayment elsewhere. It potentially creates additional demand that could continue to push up prices.
  • That means it likely is counterproductive for reducing inflation, at least directionally, even if the effect is ultimately small.

The bottom line: Whatever impact the policy ultimately has on inflation says nothing about how meaningful it will be for millions of Americans set to see their student loan balances partly reduced — or afforded a longer break on repayments.

2. Durable goods sure don't look recessionary

Shipping containers

Business investment is holding up. Photo: Patrick T. Fallon/AFP via Getty Images)

It is a really confusing time in which recession talk is seemingly everywhere — except in the data.

  • New numbers on durable goods orders out this morning are but the latest example.

Driving the news: Overall, durable goods orders were flat in July, but orders for core capital goods (excluding volatile air transportation and defense) rose 0.4%, the fifth straight month of increase.

State of play: These are only the latest numbers that suggest businesses aren't exhibiting the usual behaviors they do at the onset of a recession.

  • Layoffs have remained quite low, as evidenced in both weekly jobless claims numbers and public reports of mass layoffs.
  • The new durable goods numbers indicate there has been no pullback in capital spending over the summer — another behavior you expect to see when CEOs get nervous about the outlook.

The bottom line: Actions speak louder than words in terms of how the economy evolves. And while confidence among executives may be soft right now, as evidenced in a range of surveys, their actions point toward continued growth.