Responding to our coverage of last week’s higher education reconciliation bill, Cato’s Neal McCluskey asks, “How can you love an auction because it supposedly uses market forces, while simultaneously supporting the gargantuan market distortion that is the overall federal student aid system?”

We can understand how this might be confusing to someone who works for an organization that holds that unrestrained markets always produce the best possible outcomes. But McCluskey is confusing means and ends here. Harnessing market forces is often the most efficient way of getting to a particular end. But we believe that public policy should use market forces to achieve desirable ends based on public goals and values, not simply accept whatever outcomes the unrestricted market produces. The market is a pretty awesome way of organizing economic life that usually produces better economic outcomes than the available alternatives. But sometimes problems in the market—lack of information, externalities, and so forth—mean individuals make decisions that collectively lead to suboptimal outcomes. McCluskey calls efforts to correct for these problems distortions. We call them good policy.

Critics of federal student aid today argue that the growing presence of private lenders offering non-federally guaranteed loans means we don’t need government involvement in student aid. But it’s important to realize that federal student aid didn’t come along and distort some well-functioning private student lending market; it created a market for student loans that private lenders later decided to become a part of. Before the federal government (and a few states preceding them) got involved, banks and other lenders simply didn’t offer student loans, and students couldn’t borrow for college. And today, private student loans are still a much worse deal for students that federal student aid.

McCluskey agrees with us that the level of lender subsidies arbitrarily set by Congress in the current federal student loan program distorts the market and wastes taxpayer funds. Where we disagree is on how those funds could be better used: McCluskey favors tax cuts, and we favor redirecting them to help students pay for college. We believe that market forces—such as the auction plan in the soon to be law higher education reconciliation bill—are one important way to increase efficiency in federal student aid. Ultimately, though, McCluskey's complaint with us boils down to a disagreement about the federal role in promoting equity, affordability, and college access. We believe that federal policy should ensure that no qualified student who wants to go to college should have to forego higher education due to lack of financing. We think this is important to increase college affordability and access and to level the playing field for students from disadvantaged families, because among other reasons, a better educated population produces broader social benefits—more civic engagement, innovation, economic growth, etc.

The Advisory Commission on Student Financial Assistance estimates that approximately 1.4 million qualified students will forego college this decade due to lack of financing. That’s a huge loss for them and for the country, and shows the continued need to improve federal policies to expand college access and affordability. McCluskey doesn't explain why he thinks it's a good thing for these students not to go to college. Instead he chooses to wind up his argument with a series of ad hominem attacks on us. For the record, we are not politicians, nor do we work in academia, and we think we understand how a "real market" works. To our mind, understanding where a real market works includes recognizing ways that unrestrained markets don't always serve society's interests. Too bad McCluskey can't see that.

Comments