Thomas Sowell defends usury

At NRO today, Thomas Sowell gets cranky about a California newspaper's investigation into "payday loan" companies and their practices. He particularly objects to a line suggesting that customers of such institutions are charged what amounts to an annual interest rate of more than 400 percent:

The 460 percent figure comes from imagining that the borrower is not just going to borrow the money for a couple of weeks, but is going to keep on borrowing every couple of weeks all year long.

Using this kind of reasoning — or lack of reasoning — you could quote the price of salmon as $15,000 a ton or say a hotel room rents for $36,000 a year, when no consumer buys a ton of salmon and few people stay in a hotel room all year. It is clever propaganda, but do people buy newspapers to be propagandized?

Sowell, having raised such questions, might've attempted to answer them.

That might've detracted from his screed, though, because the evidence is that quite a few customers actually do get caught in a debt spiral with these companies. In 2007, Michael Stegman did an overview of the industry for the Journal of Economic Perspectives:

Sowell, in the end, decries the story as part of a lefty plot to keep payday lenders from defending themselves:

Instead, we get the story of how the payday-loan industry, like most other industries, has lobbyists contributing money to politicians to try to be spared more regulations. This the investigative reporter calls “protecting” the payday-loan industry.

Protecting it from what? From the politicians. Some would call their campaign donations “protection money,” in the same sense in which the mafia collects protection money.

Not exactly. In California, the payday loan industry has put its muscle behind a bill that would boost their profits by letting them lend greater amounts of money at higher rates of interest. That's not defensive, it's aggressive. If Sowell's mafia analogy is correct ... well, let's just say the payday industry would be the guy in the leather chair, stroking a cat.

I suspect the broader argument is that payday companies provide a valuable service, which workers are free to use or not use. But it certainly appears that the systemic incentive is to put the working poor on the hook and encourage them to stay there for as long as is profitable. Sowell's fellow conservatives like to talk a lot about liberty from government, but payday loan lenders offer plenty of evidence there are other institutions that offer oppression, which is no less pernicious.

Rand Paul is really angry about the Herman Cain scandal story

Paul adds that fear of sexual harassment suits damages workplace relations.

“There are people now who hesitate to tell a joke to a woman in the workplace, any kind of joke, because it could be interpreted incorrectly,” he says. “I don’t. I’m very cautious.” 

via nationalreview.com

You know what else damages workplace relations? *Sexual harassment.* It's ok, I think, to be cautious about telling that dirty joke.

We know how to help the economy: Aid distressed homeowners

I found this recent magazine article very interesting. Here are a couple of key paragraphs from it:

Underwater homeowners can’t refinance at today’s rock-bottom interest rates, because they’re considered bad credit risks. They can’t move to where jobs are more plentiful or the pay is better, because if they sell their home, they end up owing the banks a bundle. But if they lose their job, their wages drop. If they have a medical emergency, they may fall behind on their mortgage payments and be foreclosed upon. If that happens, they and their family can lose both their home and their credit rating.

We don’t need another stimulus to fix what ails the economy. We need to fix the housing market. And the way to do that is to allow a mortgage cramdown in the context of a personal bankruptcy. Put simply, someone who owes $450,000 on a house worth $300,000 isn’t going to be helped that much by a lower interest rate. He would be helped​—​as would the housing market and the larger economy​—​if the lender could be compelled in a bankruptcy proceeding to write down the loan amount to $300,000, which is all the lender would recover in any case were it to foreclose on and then auction off the property.

Oops! That's actually two different magazine articles—the first paragraph comes from Robert Reich's piece in November's American Prospect, a liberal magazine. The second—and this is kind of shocking—is from Ike Brannon, writing in the conservative Weekly Standard.

Reich and Brannon have slightly different approaches to the issue, but their bottom line is roughly the same: Distressed homeowners should have their mortgages written down to reflect the post-bubble value of their homes—so that those owners don't owe more than what the house is worth. Banks make no less money than they would if they were forced to foreclose, but owners gain back some of their money and freedom to move to a new job.

Free those underwater homeowners, and they might start buying stuff again. When people start buying stuff again, demand will rise and the people who make and sell stuff will likely start hiring more people to make and sell that stuff. The economy would get new life.

Smart people on the left and right can see this. Yet a serious effort to help these homeowners doesn't seem to be in the offing, either from the president, his GOP rivals for the office, or Congress. Why not?

Blog news

First of all, a thank you to everybody who reads this blog regularly: October was the best traffic month I've had since returning to this Blogspot site after leaving Philadelphia Weekly. It's more gratifying to write this stuff when people are actually reading it.

Second of all: I'm certain I won't break that record in November. I have my (knock on wood) final diverticulitis surgery on Nov. 8, and preparations are already consuming my time and mental energy. I won't be here quite as much this month. I'm sorry about that. My hope is that being restored to full health allows me to write and opine more vigorously than before.

I had thought, for a little while after the first of my three surgeries, that I might abandon political blogging entirely. What I've discovered in recent months is that I have a passion for understanding and making sense of how the country is run, and how it might be run better. I want the blog to reflect my other interests, too: Parenting, cooking, reading, movies. But the core of it will continue to be learning and thinking about policy and politics. My hope is not to hew to orthodoxy, but to be an independent thinker. Maybe even "original thinker" on occasion, but I'll settle for independent at the least.

So I hope you're still here when I come back. Thanks again for reading.

Even Paul Krugman thinks Max Boot sounds like Paul Krugman

I've poked fun at conservative defense writer Max Boot lately because of Boot's recent assertions that cutting defense spending would end up cutting American jobs in a soft economy. I noted that Boot sounded like liberal columnist Paul Krugman, and suggested that "mainstream conservative Republicans—whatever their fiscal rhetoric—have long favored the soft socialism of big defense spending."

Krugman sounds the same theme this morning, not mentioning Boot specifically, but otherwise making the same point. He calls this crowd "weaponized Keynesians," a term borrowed from Barney Frank.

First things first: Military spending does create jobs when the economy is depressed. Indeed, much of the evidence that Keynesian economics works comes from tracking the effects of past military buildups. Some liberals dislike this conclusion, but economics isn’t a morality play: spending on things you don’t like is still spending, and more spending would create more jobs.

Beyond that, there’s a point made long ago by the Polish economist Michael Kalecki: to admit that the government can create jobs is to reduce the perceived importance of business confidence.

Appeals to confidence have always been a key debating point for opponents of taxes and regulation; Wall Street’s whining about President Obama is part of a long tradition in which wealthy businessmen and their flacks argue that any hint of populism on the part of politicians will upset people like them, and that this is bad for the economy. Once you concede that the government can act directly to create jobs, however, that whining loses much of its persuasive power — so Keynesian economics must be rejected, except in those cases where it’s being used to defend lucrative contracts.

Right. I don't mind that Boot and his fellow hawks are making an economic argument for defense spending. I just wish they'd apply that same logic to the rest of government.

Shut up and be happy, you ungrateful Occupy Wall Street protesters!

A conservative friend posted this to Facebook a couple of days ago, and it's been gnawing at me a bit:

The suggestion here being that the Occupy Wall Street crowd is selfish and ridiculous to be protesting.

This is both right and wrong. We should all be grateful in a cosmic sense for what we do have, of course. But "being a starving baby with ribs showing" shouldn't be the only grounds for complaint. (If it is, the Tea Party might want to pipe down as well.)

If you believe that your betters are tilting the playing field not through luck, not through accident, not merely through hard work, but through the greasing of palms and the escaping of the same rules that apply to you—then I think it's fine and appropriate to speak up.

This is a similar logic to those who suggest (say) American women shouldn't complain about disparities in the United States because, hey, Afghanistan! Burkhas! It's a logic that allows the people at the top to deflect the complaints (merited or not) of people in the middle and even people near the bottom—in in deflecting, serves those people at the top quite well.

It's also a logic at odds with the American Founding that conservatives like to claim as their unique heritage: The Founders might've been taxed without representation, but they were doing pretty well under the British, by and large. My conservative friend replies to this point that the Founders were concerned with "representation and consent of the governed. It wasn't simple materialism."

Well, exactly.

There are many Occupy Wall Street critics who have convinced themselves that the protests are, at foundation, envy by the poor of the rich. Perhaps there's some of that at work. But the most common complaint, as I understand it, is about governance. The fact that government is supposed to be accountable to people, but seems to be more responsive to moneyed interests—in ways that disadvantage many of us.

No: Things don't suck as much here as they might in other parts of the world. They might not suck as much as they did 100 or 200 years ago for many people. But it's not irrational to look at one's own time and place and ask if we could or should be doing better—and it's not selfish to push for that improvement if you can identify it.

The flat tax is bad

So says I in this week's Scripps Howard column with Ben Boychuk:

The flat tax is Republican-led class warfare. It makes the rich richer and the poor poorer, for no better purpose than making the rich richer and the poor poorer.

We have progressive taxation -- in which people with higher incomes pay a higher tax rate than those at the lower end of the scale -- for a reason: People on the low end are less able to pay. Flat taxes invert that logic, giving the rich a huge tax break and often burdening the poor.

The Tax Policy Center says a low-income family making $31,000 a year would lose its $5,147 tax return under Perry's plan, for example.

(Herman Cain's plan is worse. Nearly everybody making under $50,000 would see a huge tax increase.)

Perry's plan was unveiled the same day as a new Congressional Budget Office report showing economic inequality is widening in this country.

From 1979 to 2007, people in the richest 1 percent grew their after-tax income by 275 percent. The three-fifths of people in the middle class saw less than 40 percent income growth during the same period -- and the bottom fifth grew incomes just 18 percent.

The gap is getting bigger. Even before the recession, the middle class was being left behind. Perry's plan would exacerbate the problem -- and likely balloon the deficit even further.

"But I don't care about that," Perry says. He should.

In the new book "The Darwin Economy," economist Robert H. Frank points to research that high levels of income inequality are correlated to slow economic growth. "Larger shares (of income) for poor and middle-income groups were associated with higher growth rates," Frank writes.

Flat taxes burden the poor, make income inequality worse, and in so doing put a stranglehold on an already-strangled economy. Other than that, Mrs. Lincoln, how did you like the play?

Ben, in his portion of the column, points out that Perry's plan would let people opt to stay under the current tax structure. Fair point. The likely result of that is top earners would choose the flat tax and lower earners would stick with the current tax structure—meaning the Perry plan is to make the rich richer, and let the poor spin their wheels. That's not quite as awful as the picture I paint, but it seems kind of pointless—particularly in an era of ballooning deficits. Nobody's made a serious suggestion that I'm aware of that the problem with the economy is that rich people don't have enough money; I'm skeptical that such a plan would actually deliver good results for the rest of us.