Payday Lending, RIP
Ohio has effectively shut the door on payday lending. The state legislature -- a bunch of nanny do-gooders -- recognized the seen: the closing of 1,600 payday stores and the loss of some 6,000 jobs. But these same folks missed the unseen: the tens or hundreds of millions of dollars invested in these businesses; with investment losses to be suffered by many unknown Ohioans.
Of course, these losses are bound to ripple through Ohio's rust belt economy, creating unpredictable effects.
These types of state interventions in the market reduce future investment in capital. An investor has to consider the consumer, the market, and the state. Of those three, the state has become the most volatile, the greatest unkown.
Payday lending is gone in Ohio. Current and future Investors in the state will have to wonder if the whims of the legislature have finally trumped property rights in the Buckeye State, with the state willing and able to alter ownership and control of property with the stroke of a pen.
Is Ohio any different from the troubled countries to our south? I am no longer certain that it isn't.
Comments (98)
"Payday lending is gone in Ohio."
well, gone from the streetfront, but re-located to the carpark behind the tavern. personnel changes, too. now, big men with loud clothes and bad manners.
Published: May 15, 2008 11:38 PM
Investment in industries which have records of:
(1) targeting predominantly the poor (otherwise known as teh 'at-risk' part of our society); and
(2) evidence of causing the abovementioned people harm in some instances
Will always be at risk of impending governement 'attention' and even legislation.
The passing of this Bill does not change that.
Published: May 16, 2008 2:22 AM
"n" is exactly right. Remember the Prohibition when the revenue from selling booze went from your friendly barkeeper on the corner to people like Al Capone?
Published: May 16, 2008 3:35 AM
No wonder poor people are poor. They believe in an organization "Government" that has the sole purpose of stealing their wealth and giving it to someone else. The best part is that the "Government" feels good about this.
As usual we will take people entering into a mutually agreeable contract and toss the contract leaving the parties to go in other directions.
The real hurt party here are the lendees. They get hosed and are forced to change the Pay Day Lending to loan sharks and other folks who charge higher fees and use more violent collection methods.
Published: May 16, 2008 7:20 AM
I really hope that this destroys the Republican Party in Ohio once and for all. I find it amazing that any party with an ounce of belief in LIMITED GOVERNMENT would back such a bill amazing.
Republicans at all levels of government continue to make it easier to vote for anybody else.
Published: May 16, 2008 7:25 AM
"No wonder poor people are poor."
That. Is a telling statement in itself, but not about 'poor people'.
Republican as a word does not mean 'less government'. I think the current fiscal blowouts would have shown you that. Republican first and foremost means supporting an independent Nation ruling itself. Small government is an optional belief for them and they will use it when and only when it advantages them (like when there is no 'War on Terror' ...cough cough)
Payday lending is primarily seen as exploitive by the government because the relationship between the two parties are not equal and the borrower is usually in a vulnurable position.
One ofthe stated goals of a government IS to protect those who are vulnurable such as children, disabled, old people, sick and yes poor people. That is the rationalse behind it. It is not as simple as it being a pure free market contract when you consider power relations and vulnurability.
Published: May 16, 2008 7:43 AM
Owen: "Payday lending is primarily seen as exploitive by the government because the relationship between the two parties are not equal and the borrower is usually in a vulnurable position."
How has the government helped poor people who need loans? The government is telling poor people that, even though you think you need a loan, you don't and we're not going to let you have one. But as others have pointed out, poor people rarely listen to the state. If they want a loan, they have other ways of getting one. Without payday lenders, they will have to pay higher interest rates from loan sharks or pawn shops. I guess I'm a slow, but you'll have to try much harder to help me understand how this helps poor people.
Published: May 16, 2008 8:06 AM
My guess is that the "booleggers and baptists" syndrome brought down the payday lenders, not concern for the poor because this hurts the poor. If you dig, you'll probably find that other lenders didn't like competition from the payday lenders. The banks (playing the role of baptists) could claim moral outrage, while the loan sharks (playng the role of the bootleggers) supported them.
Published: May 16, 2008 8:09 AM
I agree with fundamentalist that banning them was not the answer. It is similar in many ways to the prostitution argument.
If government was really concerned about those 'poor' people it would have taken steps to give them direct assistance rather than shutting down what were mostly honest businesses.
There should be other avenues for those 'poor' people such as family or emergency financial aid from charity or the state.
Published: May 16, 2008 8:18 AM
If Mises is correct, prior to the ban of payday lending, the poor were poorer than they would have been in the absence of existing government intervention. Now, due to additional intervention, the poor will be even poorer, the need for payday loans will increase. A vicious cycle will ensue as the poor become poorer and more intervention occurs. Of course, the "poor becoming poorer" will be inappropriately blamed on that vicious system called capitalism.
Published: May 16, 2008 10:38 AM
Oh yes "Damn those innocent children of negligent parents and with no other extended family, damn them. Give them nothing and let them starve!"
That'll show them for being born! They deserve nothing and shall get it!
I have more right to my BMW and holiday in Vegas than that kid has to food in it's mouth. Damn them! They are someone else's problem but not mine!
Published: May 16, 2008 10:48 AM
Owen,
"They are someone else's problem but not mine!"
You are missing the point. They are MY problem, but they are not the state's problem.
You need to recognize that free marketeers are not hard-hearted, and statists are not soft-hearted. It's actually the other way around.
Published: May 16, 2008 12:11 PM
Owen, you have every right to be righteous with your own property, but not everyone else's. You have NO idea what ends people will use their wealth. You think you do, but you don't. And on top of that you seem perfectly willing to us force against others even though your assessments are faulty. Has it sunk in that a century of regulation, taxation, and other interferences have accomplished little? If it had, we wouldn't still have the very same problems we had then. Take care of yourself, your property, and give altruistically according to your moral draft. I'll give you a wide berth in doing so. I expect the same.
In other words, if your moral plan were so mighty, by all means persuade others to behave SPECIFICALLY, not some oblique assessment of vulnerabilities met with oblique force. Just as we shouldn't balm our fears of foreign threats by tossing bombs every which way, we shouldn't trod so forcefully domestically.
Published: May 16, 2008 12:34 PM
Owen,
Investment in industries which have records of:
(1) targeting predominantly the poor (otherwise known as the 'at-risk' part of our society);
You use the word 'targeting' in the pejorative as if there was something sinister about an industry that caters to poor people. Pay-day loan companies happen to have customers that are poor, but this comes not because of some special targeting or advertisement from the loaners, but due to a demand
for rapid credit that predominates in this group.
(2) evidence of causing the above mentioned people harm in some instances
Owen, the problem here is one of vagueness - what harm have people suffered, "in some instances"? What I think is that you are arguing from anecdotes, which is not good logic. Only in the case of direct fraud or coercion can one talk about harm, but the market being what it is, a company that practiced bad policies with its customers would find itself quickly out of business.
Payday lending is primarily seen as exploitive by the government because the relationship between the two parties are not equal and the borrower is usually in a vulnerable position.
It really does not matter what the "government" sees (actually, economics-ignorant politicians). The issue is that payday lending, if not fraudulent, is an entirely voluntary exchange between two parties. Stating that one of the parties is in a "vulnerable" position cannot be further than your own opinion, since you have no way of knowing the "vulnerability" of a person's position in a transaction, unless you either read his mind or you are that person.
The fact is that politicians, in their effort of looking as if they cared about poor people, intervene in totally free, voluntary exchanges, by applying their own prejudices, elitism and ignorance of economics, with the result that they often do more harm than good. The end result is that poor people with poor credit will not have access to quick loans, which are usually needed for short-term emergencies.
Published: May 16, 2008 6:37 PM
It is the economic ignorance in combination with the arrogance of the ego-driven interventionists.
Someone please educate the interventionists and the public that there is an underground economy even under the most oppressive regimes imaginable.
The more severe the intervention the more likely that the underground economy will be dominated by thugs who can make corrupt arrangements with the interventionists and their minions!
This graft booty may be what is behind the legislation, to finance the politicians' campaigns so they can stay in power and live parasitically of the rest of us.
The public needs to see how sleazy the politicains and their schemes are so they can make wiser decisions.
Published: May 16, 2008 8:33 PM
Payday lending is a hard issue to support, because it is difficult to see why it would be worhwhile borrowing $400 and paying back $600. Yet it is that very attitude, the idea that one knows better than someone else whether or not he should be allowed to make such a loan, that is exploitative and coercive, not the loan itself.
When the choice is a high-interest loan or financial ruin, it becomes clear that banning such loans is harmful, not helpful.
Published: May 16, 2008 10:50 PM
I recently received a large check from an out of state client and deposited it in my California bank. When I my balance I noticed that although the check had been credited, that a hold had been placed and that I would not have access to the funds for 15 days (11 business days). I know my bank's logo is a stagecoach, but does it take 15 days to clear an out of state check? In Canada, a check from another bank in Montreal would be credited real-time when presented at a different bank in Vancouver.
The bank representative was very courteous and suggested that next time that I take it to a check cashing service! - a lot cheaper than all of the overdraft fees charged by the bank.
So before you conclude that the sponsors of the Ohio legislation were do-gooders, I'd check contributions from the banking lobby.
I am old enough to remember Federal usury laws. Before Jimmy Carter, "organized crime" served as a lender of last resort, know pejoratively as "loan sharking". When the short term rate went above 20% the usury laws were repealed. Banks and credit card companies moved in and took over the loan shark's business. "Organized crime" then turned to drug dealing!
Published: May 16, 2008 11:52 PM
I wonder if the journalists who so eagerly act as government mouthpieces will now hit the streets and find out just what happens when people in need have no access to payday loans. Will there be a rise in prostitution? Will there be a rise in mafia loans and the inevitable beatings that go along when payment is late?
No one in the legislature will feel any pain over this decision, but plenty of poor people will. It just goes to show how much they (legislators) really care.
Published: May 17, 2008 12:53 AM
Um... sometimes, though probably not in this case but rather with certain kinds of bank loans, allowing them also works against the interests of the borrowers through a mechanism like the Tragedy of the Commons.
Here's a made up example to illustrate it. A town has an agricultural area around it, supplying food. Suddenly someone arranges loans so the farmers can buy fertiliser. Each farmer reasons accurately that if he takes a loan and applies fertiliser, he will sell more than if he does not. However, that does not mean "sell more than before", though some farmers might mistakenly guess that, because people in the town only eat so much - their demand for food is inelastic. Food prices drop a little and some land is taken out of production, in the short term, and the farmers only gain from needing fewer other resources on the rest of their land which has become productive enough to produce the same amount of food.
The result is a negligible increase in overall wealth, but farmers end up worse off as they also have to pay the interest. Long term, the rural sector gains as the excess land can be sold for urban use and/or put back into production once urban populations rise enough to raise demand for food. Nevertheless, since that is a generational process, different individual farmers will be the gainers. Providing fertiliser loans in such an equilibrium actually makes the particular borrowers worse off.
Of course, when fertilisers really did come in, there wasn't that sort of food security already around; things really did get better then. As I said, this is just to illustrate a mechanism that applies in special cases - the cases where the result is not to produce more than before but to produce more than if you do not borrow, zero sum situations or near that. They are rare but they can come up. They were the norm in the Middle Ages, and - hidden behind metaphorical language as they didn't yet have the science - that was what the Catholic Church feared would always happen from what they called usury, and why they tried to ban it.
Published: May 17, 2008 2:18 AM
Jim & Brad:
Sorry guys but your 'property' is a legal right conferred and protected by the state. However under current laws in most countries this right is not absolute and is subordinated to, among other things, redistributive taxes that go to the poor. Like it or lump it.
The only difference is your different conceptual rank ordering of rights, specifically property above peoples right to live. In the West at least, those who do not think like you both outnumber you and have bigger guns. End of story.
Francisco Torres:
1) Semantics.
2) Please refer to this one academic study (among many) that finds payday loans increase bankruptcies: http://www.law.vanderbilt.edu/faculty/faculty-personal-sites/paige-skiba/download.aspx?id=2221
Michael A. Clem:
Sorry but I think you misunderstand what a payday loan is. It is never the CAUSE of financial ruin and is usually extremely short term and small amounts. These amounts can almost always be negotiated with ones creditors once or twice. The problem comes when this cycle is repeated ad nauseum and someone gets into a debt and interest trap.
Bruce Koerber:
Sorry mate but this "market" would hardly exist were poverty reduced through proper redistribution. It can therefore be levelled as a symptom of the capitalist system not redistributive policies or regulations.
Published: May 17, 2008 8:09 AM
Owen:
"'property' is a legal right conferred and protected by the state"
"were poverty reduced through proper redistribution"
Are you being sarcastic here? I hope so because if you are serious you need to do a little more reading in the archives of this site. You have some fundamental errors regarding the reality of both property and poverty.
Published: May 17, 2008 10:41 AM
R.R. Schoettker:
I think you don't realise that both poverty and property are conceptual constructs formed in the minds of humans. They describe a way of seeing the world.
In this way, it is irrelevant what another persons conception of property is, because like I said, it is a construct so will differ from person to person, as will any definition of poverty.
To say that one conception is more 'right' than another is nothing more than a value judgement. Everybodies values are slightly different so any differences in conception are only natural.
When someone claims "you cannot take my property" they are usually protected in his view by the state who uses a conception of property to protect that persons right to property. However in the absence of that government protection the person only has his word against another mans or even his force against anothers'.
Published: May 17, 2008 11:14 AM
Owen:
Thanks for your response. I now think I understand your original statements more clearly. I had assumed (mistakenly?) that you either shared or were willing to argue within the 'conceptual construct' of the classical liberal/libertarian/natural right/Austrian economic framework since you were posting on the Mises web blog. If you are expediently relativistic enough to just accept the 'value judgment of the State that such matters as what constitutes property or what is poverty rather than personal well being; are defined by the institution that holds the monopoly of force rather than a more objective definition determined by the economic framework espoused on this site then clearly all decisions will be determined by the State and be right because they were decided by the State. Just as clearly the only "values" that matter are those decided by the State and those of us who think that both the State and ourselves should be subject to a more objective set of values decided by a reason derived economic framework rather than force are just 'irrelevant'. Very convenient.
Published: May 17, 2008 12:22 PM
What I find particularly discouraging is the role of the Catholic church in this outrage. Despite the heroic efforts of scholars like Thomas Woods (see http://www.lewrockwell.com/woods/woods25.html ) the pernicious doctrines of Rerum Novarum continue to harm the poor.
A review of the supporters of this incredibly evil legislation reads like a who's who of the Catholic church. See http://ohiocoalitionforresponsiblelending.org/default.htm
A brief biography of this organized crime syndicate shows that the Catholic Church played an early and leading role:
http://ohiocoalitionforresponsiblelending.org/about.htm
There was a time when I felt twinges of guilt about being a lapsed Catholic. Now it is a source of pride.
Tu ne cede malis sed contra audentior ito.
Published: May 17, 2008 6:10 PM
So, Owen, you fell right into the same trap. Why am I not surprised??
Published: May 17, 2008 7:36 PM
What's the big deal about the 'monopoly of force'? A private landowner would have a geographic monopoly and would be able to use any and all force to repel all thieves and invaders.
Published: May 17, 2008 9:33 PM
Big Nanny is watching you
What is the problem with PayDay loans? Why is it different than any other business in a free market? Doesn' t the business arise to fill a need that is not met by another business? If you think they are making "excessive profits", why not open a shop next door and undercut them?
Michael A. Clem
Payday lending is a hard issue to support, because it is difficult to see why it would be worthwhile borrowing $400 and paying back $600
If you believe that, you would have to condemn not only credit cards (30 month to double at 30%), but car loans and mortgages. A $500,000 6% 30yr fixed mortgage has $1,0790,000 in mortgage payments.
I save up and pay cash for a car. Other people prefer to lease or get a car loan to buy a new car. The key question is, do you want to make this choice yourself or have some nanny goat in Washington make it for you?
Published: May 17, 2008 9:40 PM
One again Michael Clem says nothing of substance in his post.
Published: May 17, 2008 10:35 PM
All actions are based on subjective valuations. And, all noncoerced trades are fair.
The outside observer cannot, based on his subjective values, declare a trade unfair. Example:
Today my one year old woke from a nap with a dirty diaper. At the same moment, my oldest daughter was about to begin vacuuming her room. Now, I know that my daughter hates to vacuum, so I asked her to switch tasks. She willingly accepted.
Thinking back on that trade, I am left to believe that I really took advantage of my daughter (Vacuuming is nothing for me, yet cleaning a diaper ... well ...).
If you were to take me out of the trade and set me aside as the outside observer to a similar one, I might be tempted to declare the trade unfair.
The outside observer knows nothing of the subjective values being traded and cannot declare fairness or unfairness.
Even a trader cannot judge the valuation of his trading partner, save to say that the partner valued the first trader's item more than his own.
This holds for pay day loans and dirty diapers.
That said ... Owen establishes the construct of government without providing a foundation for its ethical basis. He needs to spend a few days turning pages of a few Hoppe books.
Published: May 17, 2008 10:37 PM
A one year old child is playing in the park and her parent is talking to another. A man in a long black coat and dark glasses offers the child a lollypop to get into his car. We all know where these stories can end...
Yes by all means ALL transactions between ALL parties no matter how vulnurable one party might be, should be upheld.......You make me sick Jim.
There is obviously a role for the state to protect vulnurable parties in a transaction where this can be identified, and this is exactly what is done in the western world in all sorts of industries.
There is another solution to the payday loans issue which involves eliminating the poverty forced on some in our society from the capitalist system by government redistribution.
Published: May 17, 2008 10:47 PM
Owen,
I'm tacking Mises and Rothbard onto your reading list.
I suggest you drop the Evelyn-Wood-speed-reading-type review of posts and go a little slower, helps with comprehension.
You blurred "all noncoerced transactions" into "all transaction" and "all parties." On purpose?
Passion can be a great means to an end, but take time to contemplate before spewing vile nonsense. Really, your comments make me wonder about you.
I'm certain that there is a government agency that will gladly medicate you at my expense. Enjoy.
Published: May 18, 2008 12:05 AM
Jim Fedako:
1. I have read them
2. How was the little girl in the playground coerced? She agreed and went willingly. It is just a pity that you promote taking away the protection of her from those that would attempt to attack her vulnurability.
3. Payday lenders target vulnurable people. Government is interested in protecting the vulnurable parties.
4. It appears you are the one that needs to bone up - on what though I am not sure.
Published: May 18, 2008 12:28 AM
Here's an interesting comparison (from Wikipedia)
* $100 payday advance with $15 fee = 391% APR;
* $100 bounced check with $48 NSF/merchant fees = 1,251% APR;
* $100 credit card balance with $26 late fee = 678% APR;
* $100 utility bill with $50 late/reconnect fees = 1,304% APR.
Also, if the Military thinks that anything over %36 is predatory, why don't they do a 2 week advance at $1.50 per $100 loaned?
Published: May 18, 2008 12:54 AM
Mike D.
I think you and Wikipedia forgot to add in the cost for having to provide their television or family jewellery as security for the payday loan including the risks this entails and the loss of use of those items.
Published: May 18, 2008 5:04 AM
I forgot to mention above that the government agencies looking to medicate you do not need your consent.
1. I have read them
-- Read for comprehension next time.
2. How was the little girl in the playground coerced? She agreed and went willingly. It is just a pity that you promote taking away the protection of her from those that would attempt to attack her vulnurability.
-- Strawman. but I'll bite. Answer this: How did government protect the girl? Seems the worst happened despite taxes paid for police, etc. How did government protect the family in my neighborhood who suffered an armed home invasion? As the vast majority of property thefts and assaults are not solved by your beloved government, how do you claim that it protects property and life?
3. Payday lenders target vulnurable people. Government is interested in protecting the vulnurable parties.
-- Government is not interested in protecting the vunerable. I held a minor, local political position and can tell you that no one I served with cared about the vunerable. They cared about power and prestige, nothing else.
4. It appears you are the one that needs to bone up - on what though I am not sure.
-- Ouch, your pen is sharp as a razor.
Published: May 18, 2008 8:29 AM
Owen
I think you and Wikipedia forgot to add in the cost for having to provide their television or family jewellery as security for the payday loan including the risks this entails and the loss of use of those items.
I think what you are referring to here is a pawnbroker. We still have these in California - they tend to have a reputation for fencing stolen property. I'm not sure what they charge as fees. They have been around for such a long time, and cussed to boot, that I assume that they fulfill a useful social function.
Published: May 18, 2008 11:28 AM
As if Ohians can't visit Payday lenders in neighboring states?
Published: May 18, 2008 11:57 AM
First and foremost, we need to return to a nation of laws and respect for private property rights and enforceable contracts. History has shown us time and again, that prosperity for ALL only comes with respect for the rule of law and respect for SECURE private property rights. It is not the job of the state to think for us and decide what contractual arrangements we as people decide to enter into. If the contract is unfair, then the courts should decide on this matter. This is the foundation of a free society. This may seem polly-annish, but it is the truth. We have seen all too well how state meddling in private matters leads to erosion of civil liberties and economic repression--just look at the US Government.
Published: May 18, 2008 2:51 PM
Owen,
2) Please refer to this one academic study (among many) that finds payday loans increase bankruptcies
What it purportedly shows is that people that ask for payday loans have a 2.83 percent increase in the likelihood of filling for bankruptcy, but does not show that, by themselves, payday loans generates bankruptcies. People who file for bankruptcy tend to be not good managers of their money, and the study showed that those that got payday loans were already in debt from other sources.
Sorry guys but your 'property' is a legal right conferred and protected by the state.
Owen, if this were true, then all other rights should be also conferred by the State, like our right to live. Would you be prepared to say that you are alive right now because the State wants it? If property as a right is conferred by the State, then your primary property (your own body) is conferred only because the State says so. Would you be ready to say that you are not a slave because the State says so? What happens when the State decides otherwise, making you a slave? Would that make it all right? Would you be fine with that? I mean, if you are consistent in your assertion that "rights" are whatever the State says they are, then you should accept that your life and freedom are owned by the State.
A one year old child is playing in the park and her parent is talking to another. A man in a long black coat and dark glasses offers the child a lollypop to get into his car. We all know where these stories can end...
Yes by all means ALL transactions between ALL parties no matter how vuln[e]rable one party might be, should be upheld.......You make me sick Jim.
Don't be dishonest, Owen - kidnapping is not a transaction, it is a forceful taking of a person's freedom and body. Why would any reasonable person accept that scenario as an example of a transaction is beyond me. Makes me think that either you have very weak arguing skills or you are simply dishonest.
Published: May 18, 2008 5:15 PM
CHEWIE, GET THE FALCON READY!!! LooL361
Published: May 20, 2008 10:55 AM
Coming from someone who has bailed his brother out of the payday loan trap twice, I think it's a good thing. They charge an effective interest rate of 260%. And unfortunately there are several who for whatever reason walk right into the money trap. So basically, in this instance the government is protecting the people from financial harm, I think that's a fine thing. Even the credit card industry doesn't approach this level of financial trap. Maybe what Ohio should have done was regulate the amount they could charge and make it more in line with credit cards, let's say 25% per annum.
Published: May 20, 2008 11:13 AM
Poor people are made even more poor by payday loan companies. Yes, there will some short term hurt from this. Long term, it was absolutely the right decision.
Payday loans are a trap. Once you (as a poor person) start using them, chances are, you'll be a regular customer. They are a horrible drain on the financial resources of those who have almost no financial resources to begin with.
Published: May 20, 2008 11:36 AM
The Anonymous "poor people are made even poorer by payday loan companies".... This is absolutely true on most accounts, but in a free society we make the decisions that will make us wealthier, poorer, happier, sadder, etc... I don't want the government (or you in your enlightenment) making those decisions for me. If you don't want a payday loan don't get one, but please stay out of others people right to do what they want with their lives. Gambling makes you poorer so outlaw it? Having children makes you poorer so outlaw it? Can you see what happens when you want to take freedoms away?
Published: May 20, 2008 12:33 PM
I'm glad that at least one state has had the intestinal fortitude to stop payday loan businesses. I realize that many of the posters before me are outraged because this decision is another example of an overreaching government. I'm glad legislators intervened and I really hope that the local government in my state do the same thing. Payday load rackets are legal loansharking that charge there customers interest measured in hundreds of percents, it's insane. People turn to them out of desperation and often end up in worse situations. We need the federal government to pass a similar bill and to get to work cracking down on the credit card industry.
Published: May 20, 2008 12:53 PM
Good riddance. These lenders prey upon the poor. They are just as bad as loan sharks.
I see nothing wrong with outlawing or regulating things like this. If these companies want to lend people money and help people out.. how about they set the interest rate to something under a thousand percent per year.
Published: May 20, 2008 12:56 PM
Property rights are simply not natural rights. They are pretty much a European invention and can only exist with strict governmental enforcement. In many cultures, you have the right to use as much land as you can make use of, and no more. That is pretty much the way all pre-feudal societies functioned and is the natural order of things. Austrian economics tends to forget that fact.
Also, a couple of years ago I got into a difficult financial situation and went to a payday loan place. It was just supposed to be once, but it kept ballooning and in the end I had to refinance my house to get out of it. Every week I owed a little bit more, every week it got a little bit harder to get out of the cycle. I can honestly say that it was only the fact that I had a house already and that property values were going up at a ridiculous rate that saved me, although it also helped that I discovered a legal way to rip off the payday lenders...
Published: May 20, 2008 1:02 PM
What are you guys smoking? Many of you seem to be saying it's OK to take advantage of the poor. Our legislature (Maine) has a continuing agenda of regulating these slimey sons o' guns. Constant regulation and oversight is necessary because these companies are so exploitive and downright dishonest. I say end the oversight, eliminate the need to regulate, make these businesses illegal. Hooray, Ohio.
Published: May 20, 2008 1:21 PM
Shawn G: "Maybe what Ohio should have done was regulate the amount they could charge and make it more in line with credit cards, let's say 25% per annum."
That's exactly what they did...though it's capped at 28%.
I've been reading this thread with much interest...many eloquent defenses were made. To me, this is really just an extension, or perhaps, a revival, of common law usury laws.
Having said that...
a.) it's funny that the main justification (echoed in these comments) for this form of usury is to keep its clients from suffering the ill effects of *other forms* of usury (such as overdraft fees, which are protected by state legislatures/Congress only because the banking industry is more influential. If you read through the lines of the article linked above, you'll see that they legislators are saying that the payday lenders pissed them off in some way.)
b.) There was an interesting scientific study that showed that the way the brain processes spending money in cash or debit card differs dramatically from the way that the brain processes spending money on a credit card (the former activates parts of the brain associated with pain.) As time goes on, I suspect more research will confirm things like this and it will become possible to show that some types of financial products take advantage of people in ways in which they are naturally defenseless. Obviously, that violates primary tenets of basic free-market transactions. I could see some financial lenders getting themselves stuck in tobacco-industry like lawsuits.
Published: May 20, 2008 1:22 PM
It is not the job of the state to think for us and decide what contractual arrangements we as people decide to enter into. If the contract is unfair, then the courts should decide on this matter. This is the foundation of a free society.
History has clearly shown that there must be government oversight of contracts. We saw it in '29, and we're seeing it again with the great credit crisis of 2008. With agreements of limited transparency and between unequal parties, the potential for fraud and exploitation are simply too great. The repercussions affect more than the two de jure parties.
Published: May 20, 2008 1:37 PM
(follow link for context - a great response on reddit)
The United States has effectively shut the door on slavery and indentured servitude. The United States Congress -- a bunch of nanny do-gooders -- recognized the seen: the closing of 1,600 plantations and the loss of some 6,000 jobs. But these same folks missed the unseen: the tens or hundreds of millions of dollars invested in these plantations; with investment losses to be suffered by many unknown owners of and investers in these plantations.
Of course, these losses are bound to ripple through the southern United States' agrarian economy, creating unpredictable effects.
These types of federal interventions in the market reduce future investment in capital. An investor has to consider the consumer, the market, and the state. Of those three, the state has become the most volatile, the greatest unkown.
Slavery is gone in the United States. Current and future Investors in the United States will have to wonder if the whims of Congress have finally trumped property rights (after all, the Dred Scott case legalized it) in the United States, with the government willing and able to alter ownership and control of property with the stroke of a pen.
Is the United States any different from the troubled countries to our south? I am no longer certain that it isn't.
Published: May 20, 2008 1:46 PM
I've found that many employers and investors like to have a payday loan place nearby. Perhaps the access to quick money gets rid of some of the impulses for needy employees to steal from the company. Also, getting rid of payday loans is just going to force more folks onto welfare. I've never gotten a payday loan, but often use their establishments to cash checks. Many banks charge to cash a check for a non-customer and/or require everything short of a urine sample. I can pay 1% to cash a $400 check at the payday joint, or pay $5 to cash the very same check at the bank.
Published: May 20, 2008 1:53 PM
The state is not your projected mommy (which you call a nanny). It is simply the people's organized will - both good and bad. Fuck you.
Published: May 20, 2008 1:55 PM
For what it's worth, mafia loan sharks charge *less* juice than payday loans, and their collection methods aren't nearly as brutal as people think.
Published: May 20, 2008 1:56 PM
this is kind of off topic, but i've been reading up on the austrian school, and it mostly seems like magic. also, most of you don't really seem to be proponents of this or any other philosophy, but rather callous assholes who get off on using esoteric (and anti-scientific) structuralism to justify your white white world view. you suck, and your opinions are every bit as oppressive as those you rail against. people who think they have concrete solutions are almost always the problem itself.
Published: May 20, 2008 2:18 PM
I think some senators might be losing their jobs also because of this.. I bet they didn't take that into account. If they are killing payday loans, they need to kill nsf/overdaft fees also. Its the same cycle.
Published: May 20, 2008 3:31 PM
Coalition for Responsible Lending = Banks who want $25 dollar fee on 1 dollar overdraft, then have other person make 15 dollars on 100
Published: May 20, 2008 3:35 PM
Profit from payday loans == blood money
Published: May 20, 2008 3:46 PM
It IS the job of the government to put a big leash around the neck of capitalism. Capitalism without conscience is evil, payday loan profits are blood money. Instead of trying to make a buck off of people who are poor and don't know the system, open a non-profit ministry to teach poorer people responsible financial stewardship. That would make your greedy ass-lives worthwhile for once.
Published: May 20, 2008 3:52 PM
It's statists like "Bunuel" and "James" and "rotten apples" who make me believe that Western civilization is about fifteen minutes away from imminent collapse.
Enjoy the coming economic catastrophe, guys. You are helping to make it happen.
Published: May 20, 2008 4:13 PM
That was my initial reaction, too. I encourage you to stick it out. If you could elaborate on some of the particulars that seemed implausible to you, I would be happy to discuss them. I think that the distinction between Austrian and mainstream economics is more in what Austrian econ does NOT claim, where mainstream asserts a point that is normative or is based on pure inductive reasoning.
Now, that seems a bit unspecific. Austrian economics is not a philosophy, but a particular way of examining the market. For philosophy, you would be referring to libertarianism. If you are saying that there is not consensus in libertarian thinking, well, you are correct! However, the binding principle that we all agree on is the non-aggression principle. How libertarians differ is in how they interpret the NAP.
Being called an "asshole" is usually the point at which I stop trying to reason with someone, but since it seems to be your first time here, I'll wave that one aside.
I'm not sure where you got the notion that the Austrian school is structuralist. In fact, nothing could be further from the truth! Austrian economics favors deductive reasoning more strongly than other schools of economics, something that the humanists held in high regard. Structuralism, on the other hand, seeks to find meaning in the relationships between things (the "structure" from which it gets its name), and is distinctly antihumanist.
Again with the name-calling.
Libertarian thinking asserts that freedom is the most valuable thing that people can possess. If you can come up with a good argument for why restricting freedom increases freedom, I'll be happy to listen to it.
I think that you just described government, from which so many flawed and counter-productive "solutions" flow. That's why libertarians favor allowing the market to find the solutions that you and I can't conceive of.
Published: May 20, 2008 5:10 PM
James,
Since when is capitalism evil, its not people are evil, Kim Jong il, spends 720,000 on henessy while, his people make 720 dollars a year, their not capitalist right.
I have never seen anyone killed for not paying off a payday loan so how is this blood money... Yes, instead of making money off people, why not open a non-profit and take money from me through taxes without my decision. Thanks you and yours can be another family for me to pay for. Maybe if you would get some ambition, start a company and make some money, you wouldn't have all this time to try and push your misguided morals off on me
Published: May 20, 2008 5:22 PM
Why doesn't http://ohiocoalitionforresponsiblelending.org/ setup a non-profit and loan to these people when their in need for say 10%. That would seem like the right thing to do, offer a helping hand, or loan them the money for free based on them going to a financial literacy class. hmmm seems fishy to me..
Published: May 20, 2008 5:25 PM
In most situations, a Payday Advance is cheaper than overdraft fees charged by the bank. Note that in most cases, you must have a checking account to get a Payday Advance. Prior to the recent sub-prime crisis, FIs like Wamu made > 50% of their profits from overdraft fees.
Now, who do you think is funding the anti PDL lobby?
Published: May 20, 2008 6:09 PM
Property rights are simply not natural rights. They are pretty much a European invention and can only exist with strict governmental enforcement.
Property rights exist since civilization exists. It is mentioned in the Bible, for example - the eight commandment, for example, does not make sense if there is not a right to property. So your assertion is false.
In many cultures, you have the right to use as much land as you can make use of, and no more. That is pretty much the way all pre-feudal societies functioned and is the natural order of things.
Property as a right is not limited to land. Also, the concept of property as "how much one uses" is pretty vague: how much is that supposed to be? According to whom? That is why civilizations invented fences. And fences are older than pre-feudal organizations.
Austrian economics tends to forget that fact.
Austrian Economics do not "forget" about such facts, rather it explains how the economic process works within a framework of free and voluntary exchanges and use of private property.
Also, a couple of years ago I got into a difficult financial situation and went to a payday loan place.
Your personal anecdotes are irrelevant to a discussion on the merits of payday loans. You may refrain yourself from using their services, but just because you had a bad experience does not give validity to the argument that they should be banned.
Published: May 20, 2008 6:18 PM
Ah, yes, another government intervention that prevents “deserving” libertarians from taking advantage of less-“deserving” people…
Published: May 20, 2008 6:30 PM
@Francisco Torres
Okay, lets get down to brass tacks then, shall we?
Read a little bit about developmental sociology, and then re-read my post. I said specifically that property rights are predominantly an invention of European civilization, although I should have been more specific... they tend to be a common thread throughout the cultures that make up this culture, while being far less in evidence in many other societies.
If you actually follow the libretarian ideals you folks espouse to their logical conclusion, you end up back at feudalism in pretty short order. The market actually can't regulate itself, it is inevitably the rule of the strongest. The social contract is actually what allows all of those property rights you are so fond of to work. Anytime you have actually had a non interventionist state, you have ended up with inequality on a level you can't even imagine (try spending some time in Papua New Guinea, where rule of law is more theory than practice... then tell me how you don't need government intervention).
Of course, I don't know why I bother. Every argument that someone can come up with to refute Austrian Economics is inevitably shot down with the claim that if there was just a little less intervention than there is, then it would have worked, but that this isn't really an example of non-intervention.
As to personal anecdotes, in an earlier post someone linked a statistical document showing the difficulties caused by payday loans, it was shot down. Now I am using a personal example (as someone who is not in poverty but was nearly put there as a result of one bad month and a bad decision)... so if stats aren't relevant and personal experience isn't relevant... ah, why bother.
Published: May 20, 2008 6:36 PM
If you actually follow the libretarian ideals you folks espouse to their logical conclusion, you end up back at feudalism in pretty short order.
If you were to say, spend your adult life studying the economic history of Western Europe from around 1050 to 1550, you would see that the unusual degree of market liberty granted to certain city-states on the Mediterranean is what brought about the end of the power structures known as feudalism.
You would find that the economic development of this region was thereafter eventually squelched, before it rose again in northwest Europe, centered primarily in the Dutch Republic, before it was squelched again, primarily by the imperial Spanish, Portuguese, and later the British and French empires.)
Published: May 20, 2008 7:23 PM
Glad these businesses are gone; they're deeply unethical businesses that target the desperate and stupid.
Despite what many of you might think, ripping off stupid people isn't a good thing, nor does it improve the economy. People should be allowed to make mistakes, fine. However, enticing people to make terrible mistakes and then destroying them for a few extra dollars is just bad for everyone.
There's a lesson for all you free-market capitalists here, and that's that the invisible hand isn't very good at fixing things that damage a lot of people. These payday lenders have been around for a long time, but
they've simply gotten greedier and more deceptive.
Everyone knew that this day would come if they didn't change their ways, but the inevitable race to the bottom occurred and all the ethical lenders simply left the business. Finally, "the people" as a bargaining group were forced to cease to do business with them.
In a rational market, transactions between individuals should profit both parties. Unfortunately, an increasingly large of number entities now use their lies and muscle to keep leveraging their advantage to the point where their clients hate them; if they were fiscally rational, they'd keep their business less grasping and be able to last for many more years, but you see, the sort of people who are obsessed with money are often nutcases who are incapable of seeing the long term or understanding why deals which are too unequal will prevent their clients from flourishing and kills their repeat business.
Published: May 20, 2008 8:11 PM
Apologies for substandard grammar above, I clicked Submit rather than Preview.
I also wanted to post this link http://wsws.org/articles/2008/may2008/ineq-m20.shtml as relevant.
It's interesting that I earn literally 100 times as much as my next-door neighbor, a hard-working man wh's extremely good with his hands, but not very verbal. It's deplorable that when I looked into his affairs, I realize that this man had been systematically robbed by his employers for a year, and when he finally sought redress, was then scammed by the government (when he won his case, he was given $180 compensation fr over a years' fraud - I calculated that he was being taken for almost that much *each week*).
If you are sick, old, stupid or poor, you spend surprisingly large amounts of your time avoiding being ripped off by corporations. And once you get behind, it's impossible to get ahead.
It is the belief of most people on this site that the highest ethic is simply profit; that it's fine to make money by doing unethical business with someone who is stupid - or someone who's temporarily stupid because they're sick, old or desperate.
Well, I think that's wrong. We'll never agree on this matter, but there are increasingly many people who agree with me and pass laws to force organizations who are currently getting the huge asset of limited liability from the people for almost nothing, and hold them to a real ethical standard, as in the case above.
Published: May 20, 2008 8:38 PM
Logic11 wrote "In many cultures, you have the right to use as much land as you can make use of, and no more. That is pretty much the way all pre-feudal societies functioned and is the natural order of things.", "I said specifically that property rights are predominantly an invention of European civilization, although I should have been more specific... they tend to be a common thread throughout the cultures that make up this culture, while being far less in evidence in many other societies" and "If you actually follow the libretarian ideals you folks espouse to their logical conclusion, you end up back at feudalism in pretty short order".
That's two mistakes and one lack of insight.
The first two quotations are clearly nonsense, if you look at just how many clan societies had land rights systems, often blending life holdings by individuals while they remained loyal with parcelling out land to the young by the chiefs (which gave them patronage). Sure, it's easier to find cases from our own past, like the Scots and Irish, but even if you rule them out as "too European", there are others.
Here's a story to illustrate that from Nigeria, where my father ran a chain of department stores in the '60s. A young man had the job of looking for a new site, somewhere between two towns that already had stores. So he drove halfway between the two and got out on the side of the road, with nothing but jungle and the laterite road visible. He called out "does anyone own this land" - and, just as he suspected, a local had been watching him and stepped out and said that he did. The young man knew that the claimant probably didn't own it, but that it was a good way to start negotiations and track down whoever did own it.
Or look at how things worked out in Fiji, and almost any number of other places. The point is that there was a well established local system of land ownership in these cultures.
As for feudalism, it is often misunderstood as something hidebound and restrictive. Actually, that was what it degenerated into from about the twelfth century onwards, largely because it was captured by central rulers who bought off vested interests by giving them greater privileges at other people's expense. Before that, it was actually a sensible and sound decentralised approach, whose only defect was that there was an imbalance of power between the people going into it - which, while it sowed the seeds of the feudal system's capture, was not a feature of the feudal system itself.
Published: May 20, 2008 9:29 PM
So heres where things get interesting. I have lived in cultures where land rights are a recent invention, and still not strictly enforced. The basic logic is that if you can use the land, great. If not, someone else does. This is the traditional culture of Nigeria, Fiji, most of the southern world. Also native North and South Americans.
As to the rest, you believe something is a logical conclusion, but that something has never been tested. Not only has it never been tested, there has never been a situation that constitutes evidence in favour of that situation (and by the way, feudalism is not a horrible form of government, I'm well aware of that, but it does tend to be open to corruption quite easily). History is littered with examples of why the completely free and open market simply doesn't work, but your right, the mises view of the market has never actually been tried. Guess what? Neither has communism. Both would probably work great in a theoretical world without scarcity... but in the real world a free market tends to concentrate power as does a communist one. In fact, pretty much any extreme that's been tried tends to concentrate power to one group or another, and that is really the flaw in the whole thing.
Also, I've been poor, I bootstrapped myself out of it, and I know that I have had advantages that others haven't. I still know too many of the people I grew up with, the homeless ones, the addicts, the people who didn't start out with a level playing field, to think that a system that doesn't take them into account is a good idea.
Published: May 20, 2008 10:50 PM
mc says:
"Payday load rackets are legal loansharking that charge there customers interest measured in hundreds of percents, it's insane.
hooray! let's make them illegal. tony soprano's open for business (and plenty of other goodfellas - so there's competition). problem fixed.
Published: May 21, 2008 1:46 AM
logic11 says:
"I've been poor, I bootstrapped myself out of it, and I know that I have had advantages that others haven't."
yea, the good communist land-speculator gets a lucky break on the house-bubble!
Published: May 21, 2008 2:02 AM
Ah, of course you know my life story. Never mind the stuff in the paragraph above the one you quoted, this one looks easier to pick apart... even though it is tangentially related, not directly and is being used more as an establishment of who I am and why I am speaking about this.
Truth is, there still is no evidence to support this whole Lew Rockwell/Ludwig Van Mises mess of half formed ideas and deep, deep selfishness. It really doesn't matter if I am a multi-billionaire industrialist (I'm not), an ivory tower intellectual (I'm not) or a poor kid who ended up middle class via hard work and screwed up a time or two on the way (I am). My core point is that you have nothing backing you up in terms of real world evidence... and nothing said here has refuted that. By the way, here in Nova Scotia, Canada the law has actually prevented payday loan companies from charging usurious fees... but they simply made the loan repayable a day early and charged a huge fee for late payment. The scam I used to get out of it? My fiance had cash back on her bank account. I started writing her a check and depositing it after close of business the day before payday. We would then pay off the payday loan for only the interest accrued, not the incredible "late fee" that was the core of their business model. If we had discovered that earlier, we wouldn't have had to refinance. I was going in there every week, seeing the same people negotiating loans. The first time we payed back early the previously friendly staff became hostile. By the end of it, they were glaring daggers at my fiance and myself every time we came in. Still, better than the alternative. These places are evil, and they are thriving in an economy where misery abounds... they can only thrive in that sort of economy.
Published: May 21, 2008 7:55 AM
Neither has communism [been tried]. Both would probably work great in a theoretical world without scarcity ... but in the real world a free market tends to concentrate power as does a communist one.
I am so very, very sick of reading this brain-dead platitude! When will it finally die?
If you think that Communism (pure, impure or otherwise) would "work great" in ANY form of economy involving the division of labor (i.e., any group larger than about 7 people), then you clearly have not understood the Calculation Problem or Hayek's description of the price system.
Communism is NOT good "on paper." It is NOT good "in theory." The reason for its failings have nothing to do with concerns over power or good intentions or human weakness.
The reason Communism fails is the same reason every other form of collectivism fails -- it deprives all individual economic actors of the vital information that they need to make decisions about what kinds of activities are economically productive.
Prices tell you where there is an unmet economic need. Prices are the exchange ratios of the value of every good relative to every other good in society. A brief acquaintance with combinatorics should be sufficient to show that the level of complexity in the economy of even a relatively small population is enormous. ("Enormous" is a gross, laughable understatement, actually.)
Without prices in a free market, it is absolutely impossible for anyone to determine how much wheat to grow, how much sugar, home much tin to mine, how much iron, how much oil, how many cars to make, how many toasters, how much schooling to get, what kind of house to build, where to build it, etc.
That's why the Soviet Union had too many nuclear physicists and not enough bread.
And, the whole "without scarcity" idea is just silly. If nothing else, there is always the scarcity of time. Every action must be performed in real time, and therefore carries an opportunity cost. Oh yeah, there's also the scarcity of physical space -- no two things can occupy the same space at the same time. So, other than the little problem of the scarcity of time and space, Communism would work great.
Published: May 21, 2008 8:20 AM
Thanks, that was my point... I'm not a communist. I am a communalist, and a marginal socialist, but not a communist (communalist means a strictly opt in sharing community usually fairly small). In fact, my point is that the theories of Lew Rockwell and Ludwig Von Mises suffer the same kinds of problems that communism does, they can't work in the real world.
Published: May 21, 2008 8:29 AM
Logic11: “In fact, my point is that the theories of Lew Rockwell and Ludwig Von Mises suffer the same kinds of problems that communism does, they can't work in the real world.”
Actually, that’s not true. Capitalism and communism have both been tried, capitalism for 400 years, communism for a century. It’s stupid for people to argue that they haven’t simply because the history doesn’t match the highly abstract, theoretical constructs of both which were created in the past few decades. Capitalism has been tried in Western Europe, the US, Japan, S. Korea, Taiwan and other places with varying degrees of free markets, but with generally greater freedom than most nations in history. Capitalism is responsible for the huge disparaty in wealth between the West and the rest of the world.
The USSR, China, N. Korea, Vietnam, Cuba and other nations have implemented communism as much as is humanly possible. If those nations didn’t achieve the communist ideal, then that’s because the ideal is impossible and never will become a reality. The results of communism have been visible for decades. Only people who are willingly blind ignore them.
I’m familiar with communalism and communitarianism. It claims to be a third way between capitalism and socialism. As Mises pointed out, any “third way” always leads to socialism. So all you’re doing is acting as a front man for socialism. Communalism is very much like fascism in that it believes in private property in name only. It will let people retain a piece of paper stating that they own property, but the state controls every aspect of the use of that property. So it keeps the terminology of property while gutting it of all meaning. How honest is that?
It’s not very flattering to you to claim that Rockwell and Mises have half-baked, untried ideas. That only means you have read very little of their works. Mises advised the Austrian government for many years and as a result of heeding his advise, Austria suffered very little of what the rest of the world called the Great Depression. Thanks to the “third way” policies of the US government, this country suffered the deepest and longest depression of any country in the world.
Published: May 21, 2008 9:02 AM
See, again with the extremes, and the officialness. Communalism is an opt in philosophy that can be practiced by small groups, it specifically can't work as an official strategy by a government.
What many of us advocate is simply a sane middle road. Unfettered capitalism is impossible in the real world, just like true, theoretical communism. It becomes corporatism or feudalism inevitably without some kind of government intervention. Often that intervention has its own problems, but from a human perspective it is better than the alternative. By setting up the straw man (those that oppose Austrian Economics are all communists who want to control your life) you are being dishonest.
Even the most extreme capitalists agree that the state needs to handle policing and defence. That requires taxation. If you get rid of that, you simply have anarchy where the strongest and most ruthless get to decide what to do.
Now, I believe (and so do many others), that the public good needs to include a little more than just cops who arrest people who shoot you. Maybe I would like to see the cops arrest someone who pollutes my land. Of course, that means I need a clear definition of pollution (I refuse to accept the simplest test, that of my family dying as a result of the pollution), so standards need to be set. In order for this to be fair, you need a body to set those standards and everyone has to agree to abide by its rules. I'm not saying the EPA does a great job of this (or Environment Canada here), but they are better than nothing.
Also, I like to know that when I sign a contract there is a neutral body that can enforce its terms. Otherwise, it is pretty much a useless gesture. Again, this is supported by taxes.
Okay, I bet you don't even disagree with me so far. Now I'm going to go out on a limb and posit something even more radical. I like turning on my tap and getting water. Bet you do too. Now, private industry has never actually created a water infrastructure (and every time private industry has tried to run one, it has been a disaster). I choose to live in a country where that works, even though I have the option of moving to one where they don't take my tax dollars for that sort of thing. Here in Canada, you could easily create a private water industry if you thought you could make money at it... there are even a few places that aren't serviced by municipal water. No private company has ever done this. It comes down to a simple equation, cities have government water, the country has wells. There aren't enough wells for the city to have them. I appreciate my taxes going to this purpose.
How about power? I like electricity. The infrastructure was created by government. Since it was privatized, it has degraded a bunch. No private company has even asked for the right to build an alternate infrastructure. Why not? Well, because it is damned expensive. Certainly you might be able to make a buck or two if you only supplied power to high density areas, but that probably doesn't serve society as a whole all that well.
Education is the big one that I will always disagree with you folks on. I don't believe private school is a good idea. Private school with a profit motive will inevitably lead to students who can afford it getting an education, and those who can't getting left behind.
Now, welfare. I know far too many people who were on it briefly, used it to get their life in order, and then never went back to it to believe it is the evil it is portrayed to be... also, when you look at percentage spending, welfare is simply so small as to barely rate.
As to the argument of philanthropy and charity, it seems (based on history) that it works well on a small scale, but fails massively on a large scale. Charity and philanthropy have never created a space program, a super collider, a decent medical care system.
Published: May 21, 2008 9:54 AM
Wow. You are the embodiment of the well-indoctrinated statist.
Your economic analysis never goes beyond the hand-waving conclusion that economic liberty "won't work." Naturally, from this dung-heap of a premise, you pile on the conclusion that the State is somehow "necessary" (I guess it's necessary to preserve whatever benefit you are getting from it.)
Property isn't real. Feudalism is just around the corner. Utility and infrastructure are best run as monopolies.
What's next? Telling us that we only need the right people to be in charge of the State and everything will be all right?
Published: May 21, 2008 10:19 AM
Actually, I don't think it's a matter of the right people. I think that there will always be issues between freedom and responsibility, I think that there will always be a struggle to find the balance needed. I also think that the path you people want to walk is impossible. Not simply won't work, you can't get there from here. That is why it has never been tried to your satisfaction, never been proven.
Do you disagree with the need for policing? How about for defence? Courts?
Okay, now how about electricity? Do you have anyone in mind to run the electricity? I don't see anyone willing to make the infrastructure investment, do you?
Published: May 21, 2008 10:32 AM
Do you disagree with the need for policing? How about for defence? Courts?
Have you not read ANY of the books sold through this website?
Besides, I can tell you a few things about the economic realities of policing, the military and the courts. None of it is good.
Also, there is a massive private court system in the US, which most people don't know anything about, which handles billions of dollars of disputes every year, and does it 100+ times more efficiently than the government courts.
Okay, now how about electricity? Do you have anyone in mind to run the electricity? I don't see anyone willing to make the infrastructure investment, do you?
It's a M-O-N-O-P-O-L-Y. No one could run such a business if they wanted to.
There were DOZENS of private, competing electricity providers in the early days of the technology. Unfortunately, the technology was first developed into an economically-useful form during the nadir of the febrile insanity known as the Progressive Era, back when people actually believed that you could use "scientific socialism" to plan an economy.
(These pre-WWI socialists are the same people who promoted eugenics, by the way. Both agendas -- the planned, "scientific" economy and the "scientific" approach to breeding -- stem from the same hubris, the same fantasy of the Grand, Impartial, Benevolent Administrator, a la Philip Dru. Look it up.)
As a result, the Big Boys used GOVERNMENT to shut down their competition by BRIBING their way into getting monopoly charters.
The same thing happened with oil companies, water companies, steel companies, railroad companies, etc. All experienced the same thing -- one group of businesses scheming together to buy the special favors of government to lock out the competition using extensive regulation.
Published: May 21, 2008 10:48 AM
Really? In every country on earth? With 100% success? That takes a bit of doing. If the mises thing worked, it would be everywhere. There would be startup power companies all the time (at least in the third world). Infrastructure projects would come about naturally, maybe not in the US, but everywhere else. That has never happened. Why not?
Published: May 21, 2008 10:57 AM
logic11,
I encourage you to take a serious look at the history of utilities in the United States. One of the earliest utilities was the distribution of natural gas. It was piped all over the place by private companies...along roads for street lamps and into individual homes and businesses. In fact, the Baltimore area was served by around 60 different private utility companies until Baltimore Gas & Electric (BGE) lobbied for consolidation into a publicly regulated utility in order to reduce competition. Basically, they figured out they could make more money by simply taking over the infrastructure already built by other companies than to build it themselves, so they asked government to step in.
You'll find the same is true of railroads. The first railroads were privately constructed, and they were efficient and extremely profitable. Once they were nationalized, it all went downhill
If you do the research, you'll find that every time the free market "failed" it was directly due to some type of government intervention. Of course, the answer to those failures has always been ever more intervention, so the cycle perpetuates itself. You're right...it would be tough to "get there from here" because we're so firmly entrenched in the regulatory state that reverting to a free market would cause hardship for all the people who benefit from the intervention, which are for the most part large corporations.
No libertarian or Austrian will disagree with the need for the protection of individual rights (or "policing") or for enforcement of contracts. Most of us understand, however, that government is the least effective mechanism of providing them.
Published: May 21, 2008 11:02 AM
What you call the "third world" is even more acutely under the control of mafia organizations called "states" (which co-conspirators like the US government frequently prop up with the explicit or tacit threat of military force, or when the US government disagrees, they engineer the replacement of that client state, like it did in Iran, Iraq, Israel, most of Central America, Chile, Syria, Greece, etc.).
Those places have even less of a free market for the kinds of economic goods you are describing. They do not support your argument.
Infrastructure projects do come about naturally, when they are (a) left alone by the mafia-State, and (b) economically justified.
Like the Great Northern railroad, built privately. Like the cell phone system in the US. Like all of the electric companies that existed before the age of the local monopolies.
Haven't you ever wondered why the electricity-distribution system is using technology that hasn't changed in decades? Why prices keep rising, where in other technological areas where there is competition and private property there is innovation and price drops?
The fact that private companies do not build things like space programs does not support your argument. It demonstrates that only a State would engage in something so patently wasteful and economically unsound as NASA.
Published: May 21, 2008 11:13 AM
Again, why has this never worked anywhere on earth? I assert that it is because it can only work on a limited scale for a limited time.
As to NASA, that is a great argument for government. It isn't profitable, and probably never will be, unless you consider science and the advancement of human knowledge profitable. I do. Hence, I like to have something out there that doesn't come from a profit motive.
The rest of it, I have lived in the third world (many different countries) and while there are examples of states that are basically mafia states, those states are the result of a vacuum of law, the type that tends to come up whenever there isn't a central government.
The arguments you are making should make a truly capitalist society an inevitability, after all, nothing could possibly compete with it. In the end, that hasn't been the case. In fact, the most successful countries have tended to have a mixed capitalist and socialist economy. The market is useful, but it is not a divine and infallible force, instead it is one of the tools of a free society. By pinning everything on this concept of individual freedom you are actually ignoring the very things that have allowed humanity to (for better or worse) take control of the planet the way we have.
Anyway, just so people know, I won't be responding on here after this, I have real work to do. Please don't take that as capitulation on my part, simply that the economic incentive of convincing you isn't there, and my altruism has just about run out...
Published: May 21, 2008 11:30 AM
logic11 says:
"It becomes corporatism or feudalism inevitably without some kind of government intervention.
this is a non-sequitur. corporatism (as in italian fascism) is only possible when government favours are dispensed to particular clients.
as for water, i live in australia. all but one capital city are subject to water restrictions. government has total control over urban water, even controlling water storage on private property. at my local supermarket, the bottled water shelves are never empty. i wonder why that is?
my state's electricity utility is a government monopoly, we suffer regular power outages in summer.
you sound like a true believer, and i don't think faith-based reasoning can be shaken. but one thing about pure communism - it was tried in the early years of the bolshevik revolution, and was so disastrous that even lenin had to water it down and use price signals and money to a limited extent.
Published: May 21, 2008 11:34 AM
no nasa? what would we do without alfoil, tang and teflon frypans? worth the countless billions spent. the russians got rich out of their sputnik programme, didn't they?
Published: May 21, 2008 11:39 AM
Again, why has this never worked anywhere on earth? I assert that it is because it can only work on a limited scale for a limited time.
(a) If by "it" you mean free markets, they happen all the time. Look around you. (Well, maybe not in Canada, of course.) There are degrees of "free," and the freer ones produce better results than the less free ones.
(b) It only requires a limited time for free markets to create large amounts of wealth, which attracts thugs like flies.
I have lived in the third world (many different countries) and while there are examples of states that are basically mafia states, those states are the result of a vacuum of law, the type that tends to come up whenever there isn't a central government.
You still don't get it at all. The "central government" that you applaud is just the latest version of the same kind of mafia organization that preceded it, the one that was strong and brutal enough to kill off the others.
The most effective crime syndicates are the ones that can convince their victims that they are good and benevolent and something other than criminals.
The arguments you are making should make a truly capitalist society an inevitability
No. That's a straw man. I have never suggested that free markets are inevitable, only that they produce economically-optimal results. They nonetheless require decent, intelligent people to promote them and protect them from criminals (and the cheerleaders for criminals).
Anyway, just so people know, I won't be responding on here after this, I have real work to do. Please don't take that as capitulation on my part, simply that the economic incentive of convincing you isn't there, and my altruism has just about run out...
Ciao. Leave with the knowledge that your pre-packaged propaganda has been a complete failure.
Published: May 21, 2008 11:52 AM
Logic11: “Unfettered capitalism is impossible in the real world…”
No, real “unfettered capitalism” was practiced in the Dutch Republic, Engand and in the US before WWI. When you write “unfettered capitalism” you may be thinking the socialist straw man for capitalism in which there are no laws. But not even anarchism, which advocates no state, proposes no laws. Anarchism includes natural law to protect property, courts and police; they’re all private. Your view of capitalism is the straw man in this debate. True capitalism is the rule of law, equality before the law, honest courts and police.
Logic11: “Maybe I would like to see the cops arrest someone who pollutes my land… I'm not saying the EPA does a great job of this (or Environment Canada here), but they are better than nothing.”
We never had “nothing” to protect the environment. The court system protected people against pollution of their property very well before the EPA and was making a lot of progress. EPA cut that option off. In fact, there is reason to believe that the EPA has made pollution worse than what it would have been had we continued to use the court system.
Logic11: “Now, private industry has never actually created a water infrastructure (and every time private industry has tried to run one, it has been a disaster).”
I don’t know about Canada, but in the US there are hundreds of private water systems, mostly in rural areas. And they work very well. Besides, what would you call the bottled water industry, which is all private?
Logic11: “How about power? I like electricity. The infrastructure was created by government. Since it was privatized, it has degraded a bunch.”
Again, I don’t know about Canada, but almost all electricity in the US is produced and distributed by privately owned companies. The state has given each a monoply in its service territory in exchange for the state setting rates. But it has become clear recently that only the distribution (the wires) might need a monopoly, and then for mere aesthetic reasons: people don’t want dozens of competing companies stringing wire down the same streets. There is no justification for monopoly status on production of electricity.
Logic11: “Private school with a profit motive will inevitably lead to students who can afford it getting an education, and those who can't getting left behind.”
That has always been the case. The US has seen an explosion of private schools and home schooling because of the failures of the public system. In many states, only the poor send their kids to public schools.
Logic11: “As to the argument of philanthropy and charity, it seems (based on history) that it works well on a small scale, but fails massively on a large scale. Charity and philanthropy have never created a space program, a super collider, a decent medical care system.”
History supports just the opposite. Wealthy people have been very generous in the past when the state has caused economic disasters such as the Great Depression. Today, private philanthropy in the US is about the same size as the federal budget, but it doesn’t go into areas that the state controls, such as the space program. However, history proves that wealthy people financed art and science for centuries before people became convinced that only the state could do it. There is no reason to assume that they would not have supported a space program, a super collider or medical research. In fact, today Boeing, a private corporation, is a leader in space technology.
Logic11: “If the mises thing worked, it would be everywhere. There would be startup power companies all the time (at least in the third world). Infrastructure projects would come about naturally, maybe not in the US, but everywhere else. That has never happened. Why not?”
The “Mises thing” has worked everywhere it has been tried. It made the tiny Dutch Republic the wealthiest, most powerful nation of its day. It did the same for the English and eventually the US. Mises’s always claimed to that he stood in the long line of economic liberalism dating from before Adam Smith.
Just curious, but I wonder why you think China and India are developing so rapidly and moving millions of people each year from poverty to middle class status. Do you think it was because the state exercises greater control? After all, India is devoutly socialist and China is still communist. In the 1980’s the Chinese would have starved to death had the US not shipped tons of grain to them on credit. Then suddenly, in the 1990’s, the Chinese became self-sufficient in food. Do you honestly think that was due to the state exercising greater control over agriculture?
Published: May 21, 2008 12:18 PM
logic11: "The arguments you are making should make a truly capitalist society an inevitability, after all, nothing could possibly compete with it. In the end, that hasn't been the case."
You would think, wouldn't you? Why other people don't immitate success I can't understand. But Russia, and most of the former states in the USSR, are moving towards capitalism. China and India have recognized the benefits and are moving that direction. It just takes a while to change the ideas of large numbers of people. Look at yourself; no amount of logic, history or economic fact can change your mind. You're wedded to communalism and refuse to consider anything else. You're no different than the rest of humanity.
Published: May 21, 2008 12:24 PM
So, now I'm off work and I see the disconnect. You guys think that I don't want any kind of market, and that everyone who disagrees with the kind of radical market you propose is in favour of outright communism. No matter how many times I try to describe a more moderate approach, with free market and regulation mixed you read it as "commie".
Of course a blended economy (like China is moving toward, like India is moving toward) is better than a totalitarian state. The thing is, in the end you just need a decent mix. Doctors need to be licensed to practice medicine, because while the market sorts out the real doctors from the fake, people die. Pollution needs to be illegal, because it kills people, social safety nets are important because when you get rid of them people die. The reality is that you who accuse me of attacking straw men are conflating my belief in a liberal democracy with largely free markets and some sane controls with Russia under Stalin. Of course, I already know that I won't convert any of you, you are all true believers. You take as an article of faith that the cause of societies success is one element of that society, not the totality of it, and that all the other parts are just in the way of more success.
I don't argue with you to convince you, I argue to provide an alternating viewpoint to random strangers surfing in off of reddit.
Published: May 21, 2008 4:27 PM
logic11: "The thing is, in the end you just need a decent mix. Doctors need to be licensed to practice medicine, because while the market sorts out the real doctors from the fake, people die.”
Licensing of doctors is a fairly recent event. How did people manage before? Reputation. A new doctor had to work with an established doctor and thereby “borrowed” the established doctor’s reputation until he earned one for himself. Licensing was created, not to protect patients, but to limit entry into the medical profession and raise the incomes of doctors. That has been the main motivation behind most licensing schemes.
Logic11: “Pollution needs to be illegal, because it kills people, social safety nets are important because when you get rid of them people die.”
No argument there. But you are convinced that only the state can perform those tasks, whereas history shows that the free market can do them and do them better.
Logic11: “The reality is that you who accuse me of attacking straw men are conflating my belief in a liberal democracy with largely free markets and some sane controls with Russia under Stalin."
Not quite. But history shows that intervention in the market by the state causes many problems, often blamed on the market, which then causes people, like you, to demand greater state intervention. Over time, you end up with socialism and an end to liberty. If you read some of the materials on this site, you’ll find that the state is necessary for very few things. In addition, most of what the market gets blamed for is actually the fault of state intervention.
Published: May 21, 2008 5:29 PM
Maybe last post before this blog disappears into oblivion, but here it goes:
If you actually follow the libe[r]tarian ideals you folks espouse to their logical conclusion, you end up back at feudalism in pretty short order.
Which ideals would that be? Because Property Rights, Free and Voluntary Trade, Liberty - these were not in high supply during the feudal times.
The market actually can't regulate itself, it is inevitably the rule of the strongest.
You certainly do not understand the concept of "market". We are not talking about a savanna or the jungle, but the millions of decisions and actions taken by us individuals each day. You seem to think that, without some sort of overseer, we would kill each other instead of trade freely, but that would be the truth if all humans were irrational imbeciles. All of us are rational individuals, with few exceptions.
The social contract is actually what allows all of those property rights you are so fond of to work.
The "Social Contract" exists precisely BECAUSE of property rights, not the other way around. You have it exactly backwards.
Anytime you have actually had a non interventionist state, you have ended up with inequality on a level you can't even imagine
For someone calling himself "Logic11", you surely know how to indulge in question begging - what do you mean by "inequality"? Why would inequality in itself be a bad thing? Do you know what has happened in the 20th century with FORCED equality?
Every argument that someone can come up with to refute Austrian Economics is inevitably shot down with the claim that if there was just a little less intervention than there is, then it would have worked, but that this isn't really an example of non-intervention.
What I believe you are trying to say is that whenever bringing forward an argument against free market economics, your arguments tend to be countered by the fact that your examples of market failures are not due to the market but to interventionism by the State, and that you think that is unfair, somehow...
Now I am using a personal example (as someone who is not in poverty but was nearly put there as a result of one bad month and a bad decision)... so if stats aren't relevant and personal experience isn't relevant.
There are lies, damned lies and then there are statistics... I indicated a problem with the statistics presented by Owen. As for personal anecdotes, those are not evidence in themselves. I can give you a personal anecdote regarding a dog that bit me, but I would be extremely irrational to suggest we should ban dogs because they bite - when only ONE dog bit ME. That is why personal anecdotes are irrelevant to this discussion.
Published: May 21, 2008 7:45 PM
Logic11 writes "The basic logic is that if you can use the land, great. If not, someone else does. This is the traditional culture of Nigeria, Fiji, most of the southern world." This is plain wrong. Hey, I've lived in some of these places myself, and I know. How many more examples would I have to give to counter this?
On the merits of taxation, here is something I just sent to Ken Couesbouc following up a recent article of his about this at Counterpunch (he describes systems where taxes are not the sole support of regimes):-
The problem with your argument is that taxation never can be endorsed by the taxpayers, since they do not exist as a single entity in a collective way. At best, some representative body can give enough support that enough taxes are raised willingly for the taxers to enforce collection on those that don't agree, which gives leverage to the representative body against the government; in former times governments faced with major tax resistance were in a bind, since they couldn't fund the enforcing without the taxes and couldn't get the taxes without the enforcing. At worst, which we generally have now, representative bodies have been captured on the principle of "it doesn't matter who you vote for, a government always gets in" and are part of the government, and the government has enough slack from fiat currency, withholding taxes, VAT, etc. that it can do the enforcing first and never gets into a position where a tax strike can be put together by ad hoc means and made to stick. Indeed, even attempting to co-ordinate a tax strike would be viewed as a rebellion undercutting the "democratic" basis for demanding taxes made by the captured representative bodies! Paradoxically, representative bodies are only valuable as the democratic element keeping a mixed system honest when they are not the government part of things, and actually work against the people the way communist trade unions did once they are an integral part of a wholly "democratic" system.
Published: May 21, 2008 9:05 PM
re: traditional fiji land use - it's been a long time since i was in fiji, but from memory only indigenous fijians can purchase land. the other large ethnic group (indians) is barred from freehold. the indians run virtually all the business sector, and are reviled by the fijians for their hard work and business acumen. civil strife and small scale pogroms occur regularly.
hardly the idyll that logic11 has painted. nice weather, though.
Published: May 21, 2008 10:18 PM
Almost correct, Newson. The Indians aren't reviled for their "hard work and business acumen" as such, but for prioritising them over traditional Fijian values and connections, e.g. the warrior ethic, personal and tribal loyalty, etc. (they are, rather unusually, a Melanesian ethnic group with a Polynesian chiefly culture). For example, hardly any of the Indians there joined up during World War II, compared with the natives, and they were reviled for that. Likewise they are reviled for not being "one of us", as are the Tongan minority (who are mostly in the north-eastern islands, if I recollect correctly). I think one Fijian island was comparatively recently resettled with people displaced from yet another island group, and they get the same treatment.
Published: May 22, 2008 2:16 AM
newson, Land use among the tribes of North America was very similar. Tribes had territories and you had to be a member of a tribe to use tribal land. In addition, you had to go to the tribal council to get permission to use land. As long as you were using it, land tenure worked very much like private property. As land became more scarce, corruption set in with wealthier tribal members bribing councel members to give them the best land.
As for whoever wrote that property in land is a Western invention, that just shows ignorance of history. Private ownership of land goes back to the Middle East and earliest recorded history. If nothing else, look in the first book of the Bible and you'll find Abraham buying land around 2,000 BC.
Published: May 22, 2008 8:57 AM
in fiji i stayed (as a guest) in a very small village, where the lifestyle was essentially a subsistence one. the menfolk spent much of the day drinking kava, and yes, the tribe is extended family for the indigenous fijians.
the indians only lived in the major towns, and the two ethnic groups rarely mixed socially, and didn't intermarry. from memory the gnl. rambuka coup originated from racial tension.
Published: May 23, 2008 11:45 AM