I love getting all these comments on my credit card piece from earlier, even if many disagree with my argument. So let me elaborate: I'll be the first to agree that some credit card companies play some despicable games and need some reform.
First, don't forget that the credit that we're talking about is unsecured. It's not like an auto loan where you can repossess the car or a mortgage where you can foreclose. Chances are, if you decide not to pay a credit card balance, the card company will end up taking a substantial loss on it - more substantial than it would take with a secured loan.
Because of that high risk involved, it's important for credit card companies to be able to dynamically alter their terms and conditions, or else their risk models won't be able to accurately protect the money they lend. Without that dynamic nature, they will have to treat the credit line as a loan for the full value of the line, just in case. That will result in higher rates and more fees in general, since they need greater protection. Is that preferable? Maybe to some, but probably not to people who pay their bill every month.
My chief concern, and point, was to explain that by trying to make credit card laws "fairer," Congress will merely price many borrowers with poor credit out of the market. I believe that those borrowers should have the option of receiving a credit card if they qualify for one with more aggressive policies - so long as they know what they're getting themselves into. (So yes, more transparency is important and desirable.) Otherwise, the card companies simply won't be able to afford to do business with them. This is particularly problematic for consumers with bad credit who want to improve their credit going forward, which having a credit card with aggressive terms would eventually help with if they use it responsibly.
One final note: the ultimate power has always lied in the hands of consumers, who can simply choose not to use credit cards if they don't like their practices. That's how a free market works - eventually companies will have to change their practices if they want your business.
the ultimate power has always lied in the hands of consumers, who can simply choose not to use credit cards if they don't like their practices.
Have you tried getting by without a credit card lately? I use mine as little as possible, but going cash only is more expensive and often very inconvenient.
More expensive to pay cash rather than to borrow money? Umm... I have a guidebook for you:
http://www.hulu.com/watch/1389/saturday-night-live-dont-buy-stuff
It is in the hands of the consumers...You can easily go with cash without having it be more expensive or inconvenient: use a debit card, your choice. Any other reason you'd need a credit card is if your spending outside your budget, which you if don't do and your responsible there should be no complaints
It's harder to rent a car or book a hotel room without a credit card. Sometimes a debit card just doesn't cut it. And let's not forget some of those transaction fees for using your debit in some mom-and-pop shops. And Carl's Jr! You need to read that little placard near the register to find out that they charge you for punching your pin in a debit transaction!
I tried to rent a car without a credit card and could not do it.
I gonna introduce you to a website that has helped me live within my means. It's called http://www.stopbuyingsh*tyoudumbmofo.com It has saved me and you will be saved too.
You can always get a charge card. Pay an annual fee. Yes, you actually have to pay -- it is apparently a valuable service to you, you should be paying for it.
This is too rich.
I love getting all these comments on my credit card piece from earlier, even if many disagree with my argument. [...]
Even if "many disagree"? Are you kidding? Every single commenter called you out for distorting things and only telling half the story. It's not like there was a cacophony of opinion on both sides, but maybe one was a little louder than the other. No. Everyone saw the glaring omissions in your little allegory.
One final note: the ultimate power has always lied in the hands of consumers, who can simply choose not to use credit cards if they don't like their practices. That's how a free market works - eventually companies will have to change their practices if they want your business.
Unless, as noted, you try to opt out, thus you have no credit score at all, thus you have no ability to rent or buy a car or a house, and when the system breaks down like we're seeing now, you're still on the hook for society's tax liability to clean up the mess.
chris,
you can get a mortgage or a loan for a car without a credit score. Banks have the ability to do that. The credit card companies are the ones benefiting from the idea that we must have a good credit score to do anything. We have been brainwashed into the idea that we must start using credit cards early and often in order to achieve anything.
I've lived outside the US and have noticed that people elsewhere don't rely on credit for anything other than mortgages. It can be done.
How? Have you personally ever done that? Please, tell me how you were able to purchase a car or a house without a credit score.
I've never had a credit card and I own several cars and a house. Now, admittedly, all the cars were bought with cash so I've never financed a car. I've also rented several apartments, all of which required a credit check (and a cursed $35 fee). Some of the apartments required a co-signer.
But the lack of a credit card history has never been an issue. When buying the house, the lender didn't come back and say, "Golly, you don't have any credit record. That's gonna be a problem." It has never come up. I just provided a bunch of documentation of my income and liabilities and assets and they did their magic and a few days later told me that they had approved the loan.
I have had student loans (paid off) so I suppose that is on my credit score.
There are companies that offer loans based on your ability to repay the loan. They look to see that you've had a steady job, pay your rent on time, and your level of debt. The process is called manual underwriting and does not preclude you from getting the best interest rates available.
I highly recommend a book called "The Millionaire Mind" by Thomas Stanley. It describes how in America the wealthiest people aren't the Wall Street type or the people living in the McMansions or driving the latest model BMW. They are actually people driving reasonable cars that they tend to keep for 10 years or so, they don't use credit cards, and they save. They basically live like most of our grandparents used to. It is an excellent book.
There's no question that some credit card companies are mean and abusive, but it's a competive market, so if most customers don't like their current company's practices, they can walk. (In fact, that's my experience and that of most people I know - I get stung with an unexpected fee once in a while, and once I get mad enough, I change providers.)
What the angriest commenters seem to be concerned about is a customer who (1) gets a change in terms; (2) no longer has sufficient credit to obtain new credit anywhere else except on similar or worse terms, and (3) doesn't have sufficient cash to switch to a debit card or secured credit card for new purchases; and (4) needs additional credit.
The first question this raises is an empirical question - when rates change or unexpected fees crop up, how many people either walk to a new card, or could walk but don't because they now plan to avoid these fees? Presumably some, but how many.
The second problem is that for these people, Daniel is essentially right -- they can't get better credit anywhere else, or they could walk. The angry commenters apparently want the credit card companies to sell some kind of credit insurance -- that if my credit risk increases, the credit card company has to continue to loan me money at the same rates -- and want to force all credit card purchasers to do so.
That might be the right thing to do -- it particularly is if you think that the use of credit cards is essentially a bad idea -- but it's worth thinking concretely about the costs to consumers from doing it.
Does this "Atlantic" publication post articles like threads on forum?
Is there anyone (with a grain of common sense) reading or approving these articles?
If this is journalism and such articles get attention on Yahoo! News and Google News... well... no wonder we're screwed...
On the other hand google news is a robot picking up stories from, obviously, even shadier places on the internet...
The Atlantic is (normally) a very reputable publication. (It actually goes back to 1857; Mark Twain among others have written for it in the past.)
Much of their material going back to 1995 is available online for free, while notable articles back to 1857 are also available
On the other hand, they obviously don't mind playing a bit more fast & loose with, well, reality with their online blogs like this one. They seem to feel that's the price for keeping up with the times (or should that be, "The Times"?).
"This is particularly problematic for consumers with bad credit who want to improve their credit going forward, which having a credit card with aggressive terms would eventually help with if they use it responsibly."
This has to be the dumbest reason I have heard. Consumers with bad or no credit still have options to establish credit, even if credit cards become more difficult to get. It was mentioned that these cards are unsecured loans unlike homes, cars, etc. What happened to making the consumer do the appropriate leg work to establish or improve credit by finding co-signers. Here is an even greater option, seek out a local bank and get a SECURED CREDIT CARD line. Pay $500 and get a $500 credit line. Consumers will still have options regardless.
Have the free market worshiping Libertarians applied for tax-exempt status yet? It should qualify as a bonafide religion by this point.
As I said in a comment to the previous article: without education to understand the terms being fully disclosed, the consumer might as well be reading Greek. The problem is deeper than just disclosure; people have not been taught what using credit does. We need to better teach our people how to be fiscally responsible so that the disclosure we are now forcing actually means something. Otherwise, people have to learn through experience, and that is very costly to many people. I agree that some people will be priced out of the market by this legislation. But, given the current level of sophistication of consumers I would prefer to cut them off from credit than to make them a slave to it.
First off, let’s get our facts straight. A credit card is “secured” in the only sense that matters—they will get paid. If you file for Bankruptcy and you are not almost third world destitute, you will pay back the credit card company. Your house may go away, but your credit company will collect ALL of the principle originally charged as well as a substantial part of the various add-ons, including usurious interest, late fees, over limit fees, etc.
Another fact is that, to an honest thoughtful person of good will, the nature of many of the changes in terms that credit card companies pull is that of bait and switch. A person gets a deal, and then latter, after being cornered, finds that deal has changed and they are stuck with the new deal.
So, we have a paradox here. Honest credit card companies and honest consumers need some flexibility for when conditions change. As to the dishonest companies and persons, well, it’s a war out there. The best way to deal with the dishonest is to disengage. Though disengagement might not be easy, there are always creative fall-back positions.
If you are a credit card company dealing with a dishonest consumer, you need to improve your prediction model and not rely on after the fact tweaks to the agreement. If you are an honest consumer dealing with a dishonest credit card company, you need to improve your financial savvy and not get into these messes in the first place. You need to understand the game. If you are dealing with a genuinely dishonest credit card company, you need to pay them off as fast as you can, and never deal with them again. If, you feel that you can’t disengage in this fashion, you need to treat the matter like the war it is and work to remove the unfairness through decisive individual and social action.
The best social action is to point out to an oppressor, either overtly or covertly, that his actions will gain him little while they threaten the stability of the system that grants him benefits. An example is the way the new Bankruptcy law of 2005 played out.
Prior to 2005, Americans ran up unprecedented debts. Many were dishonest or in denial about their credit condition. As a result, the credit card companies sought to protect themselves with this law that, for all intents and purposes, essentially secured their debt in bankruptcy. Now, the reaction was that people shifted the financing of their profligate spending to their home equity lines from their credit cards, knowing that the house payment could go away with the house, but the credit card payment would only decrease somewhat.
As a result of this tipping point legislation, we had a system, America’s financial stability which was in serious long term trouble, suddenly become a near term crisis for many, including the very banks that held BOTH home mortgages and credit card paper. What goes around comes around, as many in the financial community are now well aware.
Nature mandates that people need to be selfish. But that selfishness needs to be enlightened. Our individual interests need to be informed by the context of the entire social environment—or else, we will continue to get these rude awakenings.
Given that most bank debit cards work as conveniently as credit cards, but without as much risk of corporate chicanery since credit is not an issue, "convenience" is still preserved without the all problems of credit cards. I don't see a problem shackling credit card companies with strong consumer protection laws. Ususry laws should also be reimplimented. The very notion that the marketplace alone will "correct" abusive and nearly criminal behavior is absurd, since even if it did work, by definition, the abusive behavior would have to occur first. It should never happen to begin with.
If marketshare is constant, then the basis of incresing profitability of credit cards seems to be in tricking people to fork over increasing amounts of money for the same "convenience": it is a business that is opposed to a measure of real productivity since it ultimately reduces the buying power of consumers.
Moreover, I even question the value of the economic stimulus associated with facilitating up-front consumer purchases via credit. It seems a bit of a ponzi to me since once the credit capacity of a person or people is reached, the marketplace is no better off than before and in fact worse off since collective buying power has been reduced. That is why the housing market collapsed, dragging down with it the rest of the economy.
Credit is a perilous economic gambit and should be heavily regulated with plenty of corporate as well as consumer-side oversight.
Max, regardless of your opinions (which I still adhere to), I want to say that people like you and Bill Churchill manage to express yourself very clearly and propose smartly constructed arguments. You deserve to write a financial blog in this magazine much more than Daniel Indiviglio.
The "free market" argument is often used to justify and protect the entire gradient of shady business practices. Just because it is a free market doesn't make capitalizing on people's vulnerability ethical. That's what the bill is designed to address. A responsible credit card company can still make a decent profit on the 3% cut they get on purchases and reasonable interest. In fact, it would be in their best interest to be more service-oriented rather than profit-oriented. They would retain more customers.
Bank overdraft fees (which I also hope come under heavy regulation) are another aspect of the "free market" that can be downright aggravating. Like steep credit card fees, overdraft fees are designed to exploit what are usually honest mistakes. One can keep a ledger and stay up to date on their purchases, but all it takes for a person on a tight budget is to forget about one bill or check that hasn't cleared yet, and the bank will have no problem in running an account deep into the red and claim the fees as payment for a "courtesy service". These fees, like the credit card fees mentioned, place consumers in untenable positions where they might incur fees again. Sometimes this goes on and on in vicious cycles that seem to have the worst effect on the working poor.
One can't go through life without a bank account, much like many can't go without a credit card for one reason or another. So simply saying that people have the choice to not use a credit card is not a sufficient answer. Most people try to establish a good credit history, and a part of that process is holding a credit card and paying the monthly balance on time.
All this in the name of the "free market". As people, we're free to our beliefs, speech and actions, but within confines that protect us. But when it comes to doing business (specifically in the financial sector), this model doesn't seem to apply.
A lot of the terms being outlawed by Congress are pretty commonplace in large loans made to companies (lender reserve the right to change certain terms, or lender will increase the rate, declare a default or call the loan based on over all credit worthiness over the borrower or the borrower's other borrowing or even what the borrower spends money on.
Credit card companies can't negotiate those terms for each small time loan they make in the form of a card, so the wrap it in boiler plate and makes millions of little loans. Cool business model because it lets individuals, like large companies, even out periodic income & expense flows.
I doubt that more than 10 senators have ever seen a plain vanilla $25 million loan, but they know what’s right and wrong in a $2,000 one.
I agree with Chris Deevers comment below – a thoroughly incompetent article. You fail to grasp (as do most other people) the core issue with the credit companies, namely the unilateral changing of a contract – meaning, the vile practice of changing the terms of a contract arbitrarily and without consent. Its one thing to raise fees and increasing interest rates when it’s all spelled out in the contract and you consent by signing it. Its quite another when you sign and consent to one thing and then the terms are changed, often arbitrarily. The most despicable of these is for people who always pay their bill on time and in full only to find out that their rate mysteriously goes up and the their billing cycle is shortened. Another is when you are late on another unrelated bill and the credit company uses that as an excuse to raise your interest rate.
Your take on assumed “risk” and Jake/Howard analogy are completely wrong. If you understood economics you would understand that accepting more risk is NOT about minimizing loss – rather, it’s about getting a higher REWARD. Take the lottery for instance. The odds of winning the California lottery (where I live) is approx. 1 in 41 million. The odds (risk) of loosing your $1 investment, in practical terms, are almost 100%. If the jackpot was a measly $100 why would anyone take such a risk? Why buy a ticket when you know its practically a sure thing that you will just loose your dollar? But if the jackpot is $50 million, well now all of a sudden you are willing to take on the enormous risk because the potential REWARD is so high.
Same with credit card companies. They lend money to losers like Jake not to minimize losses, but to get higher rewards. If that were not the case, why lend at all??? If you are so sure you will loose money on Jake, then lend him zero and you will have zero loses.
Credit companies lend to losers like Jake not to minimize losses, but rather to get higher rewards. Your whole "ability to dynamically alter” risk argument is plain stupid. So, if Jake suddenly becomes responsible and starts paying his bills on time and thereby REDUCING his risk profile, should not the credit company REDUCE his interest rate?? Should not your mortgage company have the ability to alter your mortgage rate when the risk profile changes??? Secured debt you say..???? What about when the value of the collateral falls??? Has not the risk profile altered the bank’s ability to protect the money they lent?
Bulls**t. Credit companies are about one thing and one thing only and that’s to make as much money as possible. While that is not a crime in and of its self, the WAY they do it is. No one else can arbitrarily change the terms of an credit agreement (or any agreement for that matter) once its been agreed to like the credit companies. They add on fees, change billing cycles and prey on every conceivable weakness consumers have (i.e., ONE late payment is enough to trigger the default rate which can be 30%+). Rates are determined through tacit collusion – everyone charges what everyone else charges and the industry is practically a monopoly. You effectively have no choice in the matter. In today’s economy you HAVE to have a credit card and you HAVE to use it. If you don’t, you don’t have a credit score, and if you don’t have a credit score you don’t have options. I personally had no credit cards for years, until I tried to buy a mattress and was turned down for financing - how embarrassing. Why? No record of consumer credit.
All the arguments against this new law are total nonsense – including your article. Credit companies spend massive amounts on lobbyists to get a license to extort money – which is basically what they do. No else can charge usury rates, but them. No one can “dynamically” manage financial risk except them. No one can unilaterally change the terms of a contract except them. They are the scourge of the earth. What, this means less credit you say..?? As it should be – stop spending money you don’t have.
ExBanker, are you serious? You write:
If you understood economics you would understand that accepting more risk is NOT about minimizing loss – rather, it’s about getting a higher REWARD.
Technically its about getting an acceptable expected outcome, which involves both risk and reward. You require a $100 million payoff to enter the powerball lottery, but a $100 payoff is enough for a instant win because the odds on the instant win are so much better.
Let's say that you're a convenience store owner and I come in to gamble.
On day one, you sell me an instant win ticket for $1 with a $100 payoff and 100:1 odds against winning. Fine, I say.
On day two, you offer to sell me an instant win ticket for $1 with a $100 payoff and 200:1 odds against winning.
I decline, of course, at which you become outraged, and start lecturing me that if I knew anything about economics, I would know that risk is irrelevant, and since the two tickets have the same reward, I am obligated to buy one.
J Mann - what is your point? I never implied that that the risk component was separate from the outcome. How is it that you read that in my statement?
In order to assume a higher risk (odds)you need to offer a higher reward, i.e., higher expected return. And technically speaking , its not about GETTING an acceptable outcome, its about EXPECTING an acceptable outcome. Re-read what I said:
"...that accepting MORE risk .... getting a higher REWARD"
Who said anything about reward being exclusive of risk? You misread my statement.
Dear Dan,
It's time to give it up. While Day 1's excuse might have been assuming the role of the devils advocate; Day 2 can only be described as the ramblings of the Village Idiot.
Dan...it's time to cut YOUR losses and move on.
Fuready
Mr. Daniel Indiviglio this article is shorter than most comments you received on your first piece. If you were a journalist, you may have been able to produce a short text that apologized for criticizing the proposed bill while completely missing its point. However, you lack that skill, and this text was even worse than the first one, and you are still missing the point: "That's how a free market works - eventually companies will have to change their practices if they want your business." How are you supposed to do this if you don't understand these companies' practices? Wait and get screwed, then leave? To go to another CC company until they themselves screw you... I'd rather have a law that protects me and tries to keep everyone honest.
I hope the Atlantic's editor is reading the contents of your blog, including its comments.
I think many of the commenters might not be getting Daniel's point. For those of you with a scientific mind, at least consider the following assertion.
No one can force credit card companies to do business. If Daniel is right, then credit card reform is likely to lead to (1) higher starting interest rates and/or annual fees for everyone, including good credit customers; and (2) both worse starting terms and more outright denials of credit to people with bad credit. It may also prevent some abusive practices.
If you agree with that statement, but think it's an acceptable price to pay, then you don't disagree with Daniel, you just think the benefit is worth the cost. If you disagree with that statement, you need to explain why.
I'm sorry but I don't see things that way: The congress imposing more transparency to CC companies has many other effects than the three you are mentioning, and all can be grouped under the umbrella benefit "facilitating business between consumers and CC companies".
In addition to your 3 likely outcomes, the reform could also lead to:
- lower profits in the CC industry (after all, the current levels of profit are based on unethical practices and may not be sustainable)
- new business models (disruptive innovation in the CC industry with products that better correspond to consumer needs and priced according to delivered value, not just based on risk: someone mentioned better service, but CC companies could also offer better products that are focused on a specific use of the card (e.g. delayed payment, convenience (e.g. payments with your cell phone like in Japan), insurances, etc.)
- more honesty: someone with a high risk of not paying back should be paying 40% APR, and should be explained why, vs. a disguised 20% + fees, shady penalties, etc. and not know why. The price of money is just not the same to everyone in a free market economy, nor it should. Maybe people will then pass on buying a new plasma screen if they end up paying the price + 40% annually.
You are also making the assumption, that many people make, that you cannot have a free-market with regulations, or that a free-market is less efficient with regulations in the long run. This is false. In fact, most industries have regulations, and they help make business ethical and therefore sustainable. The CC market will adapt to the new conditions, and some CC company will offer competitive products to "good payers" to gain them as consumer. Similarly, some companies will find a way to convince "bad payers" to sign up for those 50% APR credit cards, and will end up making money from them. In the end, both "good payers" and "bad payers" may not be paying more than they are today. At least the situation will be fair.
So to answer your question not only it is an acceptable price to pay, it is our collective responsibility to reform the industry to fight bad business practices. This is the reason why monopolies, collusion and other rogue business practices should be fought tooth and nail by the governments all over the world. We will not know if it ends up costing the consumers more before the market actually morphs. But it will probably create a saner, more productive environment to conduct business according to clear rules understood by all parties.
Daniel is wrong.
1) It will not result in higher fees (maybe initially)particularly with good creditors. Higher fees/rates will disrupt current competitive dynamic. Roughly 90% of CC industry controlled by hand-full of players. Smaller competitors (i.e. regional banks) will offer lower fees/rates for good customers to capture market share. Larger players will have to stay competitive
2) Less credit for people with bad credit? So what - the last thing people with bad credit need is more credit. Its the great American myth that people think they can get out of a financial headlock by having someone "help" them out by loaning them money.
I seen several messages on this Blog regarding the Good or Evil of Regulations and Free Markets…So, here goes.
As to the issue of “Free Markets”…
There exists a paradox between “service” and “profit.” Each of us wants to profit from granting our unique service so that we can enjoy the service provided by others. As we gain greater profit by this means, we become less inclined to want to serve, and more inclined to want to rest on our laurels and direct the service of others. In the “wild nature,” dinner must be BOTH caught or cultivated and consumed. Nature provides a regulator to strike the balance. If we eat too much, we kill the prey stock. If we eat too little, we underutilize our generative potential. If we over-emphasize service, we are taken advantage of, and are thus rendered less likely to exert ourselves in providing service beyond that necessary to obtain a minimum acceptable profit. If we over-emphasize profit, we impose a similar condition on others and thus kill the goose that laid the golden egg.
The danger in regulating any market is in the fact that the regulator must, by the very act of regulating, distort this balance. The fundamental problem in such a distortion is that the regulator MUST take sides in his quest to provide a normative solution. The regulator must decide that they know more than nature itself about how to strike the balance between incentive, (profit seeking), and fairness, (service). In short, the regulator must play God in the act of regulating.
(Now it is a fact that for a regulator to regulate, they have to have obtained the unique position that allows them to make the imposition of regulations upon others. By whatever means and to whatever extent, certain governments, corporations and individuals have been able to finagle this level of power in modern times. Such power is itself an outcome of nature.)
Herein lays another paradox. We are all “deciders.” Some have a greater scope of decision power than others—but each of us can honestly say that, “I am the decider.” It is natural to want to increase the scope over which we make decisions—but our individual and collective capacity in this regard is highly limited. As the areas over which we decide expand arithmetically, our capacity to strategize around contingencies MUST expand exponentially in order to encompass all the potential consequences of our choices. Everyone has a limit, and so regulators eventually work against themselves via the laws of unintended consequence. Only God is able to understand all contingencies, and so the other mighty ones must all fall eventually under the weight of their own lack of cognitive capacity—some more ruinously than others.
We are all deciders, but we must be sparing and wise in our quest to impose our solutions on others. We should understand and flow around and through nature—not beat it with the bludgeon of normative regulation. This said; it is important to realize that some do have a greater capacity to strike the balance than others do, and that; as with all things in nature, there is a wide diversity of powers and strategies that prevail in various times and under various conditions.
Yes, regulation has its place, but that place is limited and precarious. All regulation stifles something or someone. It should be used sparingly, and then only after a careful and full consideration of the law of unintended consequences.
Bill Churchill, that is a very classic, and as it turns out, very false argument. By your logic, policemen, traffic regulation, and so on would also have prohibitively bad "unintended consequences". It always amazes me how some people love to cling to simpleminded Darwinian notions as the basis for sane economics, much as Hitler misused Darwinian "selection" to justify genocide. Sure, he ultimately lost, but such simpleminded notions also plunged the world into 5 to 10 years of unnecessary hell.
Your basic premises are wrong. Consumer selection only works in simple cases where the consumer can actually rally enough information make a proper decision for self-interest. If you think about it, since consumer debt has very few upsides, by your logic such debt should never occur at all. Economically, pretty much all consumer debt is "bad debt" for the consumer, unless perhaps there is hyperinflation where the value of debt depreciates noticably within the term of the loan. Then why does consumer debt even occur, and moreover why has it be increasing in apparent opposition to consumer self-interest?
Even trained economists struggle with the notion of how credit should be properly used to maximize self-interest. How can consumers expect to compete in such a specialized environment?
That quandary is why most professions have peer-reviewed regulatory organizations, - because the public can not be expected to have the necessary information to make proper decisions in their self-interest. Unfortunately, as we are finding out, even private self-regulation itself is often too close to the self-interests of the business rather the consumer, - a bit like the fox guarding the hen house.
Government won't necessarily be the ideal bastion of neutrality either, especially if businesses will be able to buy back, though political means, the regulation they will lose when self-regulation is curbed. But at least in the public sphere there is some distance, and therefore a greater chance for neutrality in deciding what is fair and what is criminal.
No. My premises are not "wrong."
I generally don’t trust extremists of either “right” or the “left.” There are no clear notions that apply to all situations. However, there are pragmatic ideas that support the ends sought—and there are practical ways of understanding who is doing the seeking and what is the object of their quest.
In your reply, you said that, “Consumer selection only works in simple cases where the consumer can actually rally enough information (in order to) make a proper decision for self-interest.”
The lack of perfect information does not constitute the lack of enough useful information. It’s really a question of “satisficing” verses “optimizing.” No one has enough knowledge to be granted a blanket right to run the lives of others. Too much regulation is as bad as no regulation—and vice versa. We can know enough as individuals to make decisions—not perfect decisions—but our own somewhat informed decisions. If someone intrudes into our decision making process, they are intruding into our lives. In my 50-odd years, I have learned that when someone wants to thus short circuit my decision process with their “optimal solution,” they usually have some selfish private purpose in mind. They may say they are “selfless,” but their actions and the fruit thereof betray their duplicity. It is one thing for people to elect standard setting and enforcing bodies—when the electors can participate in the framing of those decisions throughout the whole process. It is another when people can simply insinuate themselves into the lives of others on the basis of their ability to say, “I am the decider.”
Yes, we need police departments, fire departments and courts. But do the halls in which they meet have to be made of marble walls and cost several times the price, (before the inevitable cost overruns), of similar sized buildings that serve private interests? Do we somehow benefit from the encroachment of taxes into every aspect of our lives while governments squander money? Do we benefit from the favoritisms granted “for the public interest” by governments.
The mayor of Chicago recently forced a draconian bill though the city council that essentially seized, (via the use of “Denver Boots”), automobiles that had more than 2 parking violations. When confronted on the issue, he merely said that “the city needs the money”—as if to say (in the words of Tony Soprano), “Wha’dya gonna do ‘bout it.” (He even looks like Tony Soprano.) The premise of this is that it’s ok for the government to radically alter someone’s life, (by taking away their transportation), over a minor matter.
Machiavelli once said that a prince, (or any other governor or government), should live and govern frugally—or else he will have to sooner or later resort to rapine in his dealings with the people. His rule will become more and more oppressive and the public peace and mutual social trust will suffer. Machiavelli also pointed out that people will suffer such a rapacious prince for an extended period, and that that period will only be capped if another prince should credibly offer the promise of relief.
I never suggested that we eschew all regulation, but that we tread lightly when we decide to use it. That we tax lightly--that our public institutions all remain frugal. Government should remain in the background as much a possible.
An ancient Chinese sage once said that, “a ruler is best who is so delicate in its manner that he is neither seen nor heard.” (It may have been Lou Tzu who said this, but I do not remember.) In my life, with my family and my business associates, I try to get things done in such a way as to not force things—but to let people think that it is either they themselves or nature itself which is the great mover of what I want done. But I try to keep my effort, ego and personality out of it. Furthermore, I realize that their strategy may be better than mine, which gives me pause when I might otherwise be urged to interfere.
Further, you said that, “pretty much all consumer debt is ‘bad debt’ for the consumer.” As an economist, I understand that debt is simply time “displacement” as applied to money. I won’t go into the details of this concept other than to point out a simple example of how consumer debt can be a boon to the consumer. I have credit cards with grace periods. I can buy something today on a credit card with a zero balance. I will get a bill in about 2 weeks asking for payment in about another 10 days. If I pay that card off in full, I will have been able to enjoy the money rent-free for the period between the purchase and payment—AND, if I had a temporary cash flow shortage in the interim, I will have gotten over that slump interest-free thanks to the credit card company.
As to the notion that self interest would be somehow mitigated if the government played referee—do you remember anything about the former Soviet Union?
It’s important that we don’t force our fellows—no matter what our notion is of what is good for them. Darwin’s concept of “Fitness” had to do with “fit”—which is the same as “niche.” The big guerrilla in the room can do a lot of damage if he isn’t restrained by the fleas.