I’ve heard it and seen it over and over on Facebook and in person and on the streets: we should just cut people loose of their student loan debt or their mortgage debt because it’s the right thing to do. One thing progressives and socialists are fond of doing is lashing out at The Banks as if the banking system was some external, inchoate, evil threat. On the contrary, as I already pointed out, the banking system is essential for taking ordinary people’s hard earned money, protecting it, investing it, and increasing it all while making money available to others who are creating new jobs, buying homes, or building housing. Megan McArdle takes on the folkenomics of presidential Bernie Sanders in a concise post at Bloomberg. Why can’t we just forgive everyone’s student debt or offer low rates?

The short answer is: “Loans are not priced in real life the way they are in Sunday School stories.” In a Sunday School story, the cheapest loans would go to the nicest people with the noblest use for the money: single mothers who need money to buy their kids a Christmas present, say.

That’s splendid for the recipient. But what about the lender? Let’s say you had $150 that you really needed to have at the end of the month, say to pay your rent. Would you want to lend it to the single mother whose income is stretched so tight that she needs to borrow money for Christmas presents, or would you want to lend it to some heartless leech of a securities litigator with an 800 credit rating who happens to have left his wallet at home? C’mon. You know the answer; you just don’t want to say it. If you really need the money — if you cannot afford to turn your loan into a gift — then you lend it to the better credit risk with the higher income, not the person who may find themselves too short to pay you when the loan comes due.

In aggregate, most of the money in your savings account is loaned out using this cold calculus, and unless you could afford to have the contents of that account suddenly vanish, you want it to be. That’s why poor people, on top of all the other unfairness heaped upon them, pay higher interest rates. And that is why secured loans, like mortgages, get lower interest rates than unsecured loans, like credit card balances and student loans.

The money that people have a hard time paying back is, in the end, owed to all the rest of us. The money that is used to expand the economy, ironically for socialists, a collective investment in the future by millions of investors. To simply say, “Don’t worry about it!” means lots of other people will lose parts of their savings, pension funds or face reductions in services when government bails them out.

The interconnected nature of the economy and financial system–and it’s collective nature, both in terms of risk and reward–is easy to ignore for socialists. They’d rather point out the instances when individuals or groups act irresponsibly or violate the law and say the financial system is itself corrupt. But this is the indictment issued by an angry mob, not a reasoned approach to dealing with the systems shortcomings.

When it comes to housing, in general, developers and builders get paid for their work as a percentage of overall project cost. The money they make for their companies pays them, their employees and serves as the basis, often, for further investment in housing projects. What about the investors, who range from private parties to banks to huge pension funds? They are all responsible to create a return. If the City tries to dip it’s ladle in the supposed gravy train created by new housing all they do is increase overall project costs which must be offset by more rent or sales revenue. I pointed out how a Debt Credit Ratio (DCR) works in another post.

What the City does when it tries to tax profits from housing or punish developers for building housing with financial exaction doesn’t work. Even if City could reduce the rate of return to investors, they aren’t hurting anyone but lots of hardworking people who have aggregated their money in the form of savings or retirement accounts. What will the City Council tell the retired teacher who’s monthly pension check goes down because her pension fund was forced to take fewer dollars in “profit” from investing in new housing in Seattle? The truth is that the pension fund wouldn’t make that bad investment, so either the rents go up to offset the cost of the project or the project doesn’t happen and that pension fund money goes somewhere else.

There are really fair and efficient ways of collectively subsidizing lower rents, including the Multifamily Tax Exemption (MFTE) program and the Housing Levy each of which have created thousands of housing units priced affordably for individuals and families. The sooner progressives and socialists recognize that we’re all in this together, the sooner we can actually come up with constructive solutions to housing issues in Seattle. Until then, all we’re going to do is add more costs and more hassles to building housing which will reduce supply, increase costs, and discourage production, a recipe for higher housing prices.