Power & Market
Sen. Bernie Sanders and Rep. Alexandria Ocasio-Cortez unveiled sweeping new legislation on Thursday that would impose a federal cap of 15% on credit-card interest rates.
The bill would also allow state governments to set interest-rate ceilings even lower than the federal mandate.
Naturally, Sanders and Ocasio-Cortez are framing the bill as something designed to help "ordinary people." But in reality, the legislation will only act as to reduce access to credit for low-income and other high-risk borrowers.
Credit card companies don't attach high interest rates to credit cards because they are mean and cruel. Credit cards with especially high interest are that way because the borrowers have been determined to be an especially high credit risk. Credit card companies want people to borrow money from them, so if they can make loans at lower rates, they will, in order to undercut the competition. But these companies also must make sure they're likely to cover their costs. Thus, the high interest rate exists to ensure the lender can make consumer loans while still accounting for the high risk of default by borrowers based on a risk profile.
Given that interest rates are similar to a "price of money," if Sanders and Ocasio-Cortez manage to slap a new limit on credit card interest rates, they will be essentially imposing a price ceiling on credit cards.
And price ceilings are sure to lead to shortages.
That is, they'll lead to shortages in consumer credit for high risk borrowers — many of whom will be low-income borrowers.
If lenders cannot price their product in a way that allows them to recover costs, they'll simply stop providing that service. Rather than face lower interest rates on credit cards — as Sanders and Ocasio-Cortez imagine will happen — high-risk borrowers are more likely to not be able to borrow using credit cards at all. Given that default rates are generally higher for low-income borrowers, the cost of collecting payments is higher. Lending to high-risk groups then is only possible if the price of those loans is higher. Without the higher price, the service will go away.
Cutting Poor People Off — "For Their Own Good"
On the other hand, maybe this is exactly what Sanders and Ocasio-Cortez want. One way to claim to have "done something" about high levels of debt is to simply cut off potential borrowers from credit.
After all, there is an implicit paternalism in efforts to place roadblocks between low-income/high-risk consumers and the products those consumers may wish to purchase. In the minds of a government planner, the solution to the problem of people borrowing "too much" money is to pass a law preventing them from doing so.
This, of course, is inherently unfair to those people who are — for now — in the high risk category, but who do pay their bills most of the time. (They might simply be in their category because they are young and have never established much of a credit history.) Moreover, many people who missed payment in the past may now be much more reliable and less prone to default. As people who fit a certain high-risk profile at first, they're likely to face high rates. One of the best ways these people can build good credit, though, is to first gain access to credit at high interest rates. Over time, they will increasingly gain more access to credit on better terms. Should these people then be punished and cut off from credit because they can't qualify for more moderate interest rates right away? The effect of the Sanders and Ocasio-Cortez legislation would be to do exactly that.
Meanwhile, lenders who offer loans to high-risk groups are themselves being blamed for the proliferation of credit card debt among American consumers of all types.
In his essay on payday lending — an issue very similar to that of high-interest credit cards — Tom Lehman analyzes the accuracy of these sorts of claims:
Finally, the allegation that payday lending "causes" chronic or habitual borrowing may ignore the old adage that "correlation does not equal causation." As indicated above, it is a well-known fact that payday loans appeal to a clientele that face numerous financial difficulties (many of them self-induced), quite independent of the payday lending industry itself. Most of these households have failed to establish good credit, have poor credit histories, are not known for their timely bill-paying habits, frequently bounce checks, frequently change jobs, and may relocate often. In short, they are the type of people who are going to be frequently short of cash and who will borrow "chronically" when given the opportunity. Because payday lending institutions provide them with this opportunity to borrow when other institutions will not does not mean that payday lenders cause this behavior. They simply provide an opportunity for this behavior to be exhibited more often than otherwise.
As is so typical of politicians, the answer offered by this new legislation is to limit the options available to the most at-risk populations.
A better approach is to allow freedom for both borrowers and lenders, to treat borrowers like adults, and to not assume they are incapable of managing their own money.
Unmentioned in Assange arrest coverage — the US government after 9/11 dropped an Iron Curtain around itself. Wikileaks exposed US government crimes no one else would touch.
Julian Assange is charged with "conspiracy to commit computer intrusion." What about all the politicians and military officials who conspired to deceive Americans about the Iraq war?
The Assange arrest proves that no government critic "is above the law." But governments remain free to secretly trample the law as they please. Assange was labeled "our property" by same nitwit U.S. senator from West Virginia who wailed in 2016 that "due process is killing us."
Britain's foreign secretary whoops that Assange's arrest shows "no one is above the law." Except for the governments whose crimes Wikileaks and Assange helped expose.
The cheering by some of the US media on the Assange arrest vivifies how journalists no longer understand how government coverups destroy democracy.
Here's my USA Today piece from last November when reports surfaced of Assange’s indictment.
Formatted from @JimBovard on Twitter.
The timing of Jerome Powell’s appearance on “60 Minutes,” along with Janet Yellen and Ben Bernanke, is curious. Scott Pelley asked no penetrating questions, so nothing was learned. Fed Chairs aren’t known to hit the interview circuit. Bernanke appeared during the crisis to reassure the nation that the central bank can and will fix anything and everything.
Donald Trump (aka "Individual 1") tweeted in January:
The economy is doing great. More people working in U.S.A. today than at any time in our HISTORY. Media barely covers! @foxandfriends— Donald J. Trump (@realDonaldTrump) January 24, 2019
The folks at GNS Economics, in their Q-Review 1/2019 report, contend, contrary to the president, “the global economic recovery since 2009 has not been real. It has been achieved with massive debt and monetary stimulus, which has created an economy where normal rules of the market economy do not apply.”
The emphasis of the GNS report is the economy’s fragility. The economy “is unable to stand on its own without ongoing massive debt and monetary stimulus.”
Powell and the ECB’s Draghi recent U-turns back to monetary stimulus support this notion. If central banks exist for anything it’s to keep commercial banks in business. Forget about full employment and a strong currency, the Fed’s job is to keep the banks open. And, when rates were normalizing or heading upward last year, what was it doing to U.S. bank balance sheets?
Wolf Richter at WolfStreet.com provides the highlights from the FDIC’s Quarterly report, and mentions a doozy of a detail—”US Banks Report $251 billion of ‘Unrealized Losses’ on Securities Investments in 2018, the Most Since 2008: FDIC”
These are “paper losses” so far and, as Richter explains, don’t impact bank bottom lines. Richter writes,
“Unrealized losses” are losses on securities that dropped in value but that the banks have not yet sold. In other words, they’re “paper losses.” Every quarter in 2018 brought steep unrealized losses: Q1: $55 billion; Q2: $66 billion; Q3: $84 billion; and Q4: $46 billion.
When interest rates go up, bond prices fall. Everything will be oakey-dokey if banks can hold the securities until maturity and are repaid in full. However,
if banks are forced to sell those bonds during a liquidity crunch, as happened during the Financial Crisis, the “unrealized losses” become real losses.
Richter points out that America’s banks hold nearly half a trillion in US Treasuries. That’s quite a concentration of debt extended to a borrower that on its books is $22 trillion in debt. Off balance sheet liabilities are multiples of that amount and the country’s budget deficit is running over a trillion a year. Government debt can never be repaid, only refinanced. This is referred to as Ponzi finance.
Mr. Wolf concludes,
So, it’s still a good time to be a bank – especially since $251 billion “paper losses” don’t need to be included in net income. But loan-loss provisions are starting to indicate that the credit cycle has turned, and that banks are preparing little by little for the next phase in the cycle.
The next phase may turn those paper losses into real ones. Powell’s TV appearance and sudden change of policy signals the turn is near.
A nationwide system of gun registration could be a step toward national gun confiscation. However, antigun bureaucrats need not go that far to use the expanded background check system to abuse the rights of gun owners. Gun owners could find themselves subject to surveillance and even harassment, such as more intensive screening by the Transportation Security Administration, because they own “too many” firearms.
Republican control of the White House and the Senate does not mean our gun rights are safe. Republicans have a long history of supporting gun control. After the 1999 Columbine shooting, many Republicans, including many who campaigned as being pro-Second Amendment, eagerly cooperated with then-President Bill Clinton on gun control. Some supposedly pro-gun Republicans also tried to pass “compromise” gun control legislation after the Sandy Hook shooting.
Neoconservative Senator Marco Rubio has introduced legislation that uses tax dollars to bribe states to adopt red flag laws. Red flag laws allow government to violate an individual’s Second Amendment rights based on nothing more than a report that the individual could become violent. Red flag laws can allow an individual’s guns to be taken away without due process simply because an estranged spouse, angry neighbor, or disgruntled coworker tells police the individual threatened him or otherwise made him feel unsafe.
President Trump has joined Rubio in wanting the government to, in Trump’s words, “take the guns first, go through due process second.” During his confirmation hearing, President Trump’s new Attorney General William Barr expressed support for red flag laws. California Senator and leading gun control advocate Dianne Feinstein has expressed interest in working with Barr to deprive gun owners of due process. It would not be surprising to see left-wing authoritarians like Feinstein work with right-wing authoritarians like Barr and Rubio on “compromise” legislation containing both a national red flag law and expanded background checks.
My years in Congress taught me that few politicians can be counted on to protect our liberties. Most politicians must be pressured to stand up for freedom by informed and involved pro-liberty citizens That is why those of us who understand the benefits of liberty must remain vigilant against any attempt to erode respect for our rights, especially the right to defend ourselves against private crime and public tyranny.
Another Boeing 737 crashed Sunday in Ethiopia, killing all 157 aboard. This is the second crash of the new Boeing model Max 8 since October. Investigators have only begun sorting out this tragedy but some experts suggest that the plane’s automated safety software may have prevented the pilot from preventing the fatal plunge.
If software and sensors designed to prevent crashes actually increased the risk of catastrophe, then the Boeing accidents are another reminder that safety policies can have unintended fatal consequences.
Unfortunately, policymakers routinely ignore the unforeseen costs of well-intended safety efforts. For instance, the Transportation Security Administration, seeking to make air travel perfectly safe from terrorists in the months after 9/11, spawned airport checkpoint regimes that are so intrusive that many Americans choose to drive instead. A Cornell University study estimated that TSA’s heavy-handed policies helped boost traffic fatalities by at least 1,200 additional deaths.
A Business Week analysis noted, “To make flying as dangerous as using a car, a four-plane disaster on the scale of 9/11 would have to occur every month, according to an analysis published in the American Scientist.…People switching from air to road transportation in the aftermath of the 9/11 attacks led to an increase of 242 driving fatalities per month — which means that a lot more people died on the roads as an indirect result of 9/11 than died from being on the planes that terrible day.”
It's widely agreed that we need more entrepreneurship for economic growth and a higher standard of living. But more is not always better.
In fact, there can be too much of a good thing, in entrepreneurship as in so many other things. The reason is that economic growth comes from successful entrepreneurship that is also productive. And not all entrepreneurs who earn profits contribute to economic growth if they have unproductive -- or, worse, destructive -- effects on the economy.
Unfortunately, many entrepreneurs fail to consider what it is that they're contributing to the economy, and for that reason don’t always end up being productive. Sure, you don’t have to be productive to make money. And to the degree that "success" is a matter of getting big figures at the end of your P&L statement and being "in the black," you can succeed as an entrepreneur without contributing much to the economy or society.
Read the full article at Entrepreneur.
In addition to being a libertarian in political philosophy, I am also a member of the Austrian school of economics.
Austrian economics has nothing to do with the economy of that European country. It is so named because its founding fathers all emanated from that part of the world. They include such European scholars as Carl Menger, Eugen von Bohm-Bawerk, Ludwig von Mises, Friedrich A. Hayek (Nobel Prize winner in the dismal science in 1974) and Joseph Schumpeter. Murray N. Rothbard and Israel Kirzner are the most high profile American Austrians. In like manner, the Chicago School of economics does not at all focus on the commercial well-being of that particular city. Rather, this perspective too takes its name from the fact that its progenitors were all in some way associated with the University of Chicago. Luminaries include Aaron Director, Henry Simons, Milton Friedman, George Stigler, Gary Becker and Ronald Coase.
Big Tech has long faced calls for more regulation, and as their companies have grown, so has the pressure. Now those demands are coming from within Silicon Valley itself. Apple CEO Tim Cook recently told Axios that, though he supports the free market, it’s only a matter of time before Big Tech is restricted. “We have to admit when the free market is not working. And it hasn’t worked here,” Cook said. “I think it’s inevitable that there will be some level of regulation.” Indeed, a newly released Axios poll found that 55 percent of Americans “fear the federal government won’t do enough to regulate big tech companies.” That figure is up 15 points over last year.
The problem is that, if implemented, such regulations would only entrench existing firms and hurt consumers.
As Axios notes, Big Tech regulation has become “a rare topic uniting Republicans, Democrats and Independents.” In August, Representative Steve King, Republican of Iowa, floated the idea of turning tech giants into public utilities. On the Left, writer Richard Eskow went even further by calling for companies like Amazon and Google to be nationalized. The young right-wing firebrand Charlie Kirk recently advocated that Google be classified as a monopoly and anti-trust law be brought to bear against it.
It’s understandable why so many across the political spectrum have an uneasiness about Big Tech. After all, it has an immense amount of power, especially in regard to stored information.
But increased regulation will only empower Big Tech and leave it less accountable than before. The “revolving door,” through which officials move between government and the private sector, allows businesses to heavily influence regulation. Sometimes they’ll even advocate that regulation be increased as a means of ensuring that the new regulations work to their advantage. When groups like Business for a Fair Minimum Wage, whose members already pay employees “well over the minimum wage,” advocate for an increase in the minimum wage, it’s not out of benevolence toward workers. They want to force their competitors to pay more in the hope of driving them out of business. In economics, this is known as regulatory capture, an idea developed by Nobel laureate George Stigler.
Another tactic is making the regulatory hurdle so high that it ensures new competition and smothers startups in the cradle. A startup in someone’s basement can’t afford an army of lawyers to navigate through reams of regulations like Google and Facebook can.
Historically, Big Tech has been hands-off when it comes to lobbying, but that’s starting to change and the numbers show it. In 2017, Google, Amazon, Facebook, and Apple spent over $50 million on lobbying, a 32 percent increase for Facebook and a 51 percent increase for Apple. In fairness, that’s much less than other industries spend on lobbying—but as talk of regulation increases, expect to see Big Tech kick up its lobbying even further and for its competition to get squelched.
In a free market, companies only have the power that consumers give them when they make their consumption choices. Google, Facebook, and Amazon are huge and powerful because so many choose to utilize their services. Economist Ludwig von Mises called this “consumer sovereignty,” writing, “The captain is the consumer. Neither the entrepreneurs nor the farmers nor the capitalists determine what has to be produced. The consumers do that.” No matter how large a business is, if it doesn’t give consumers what they want, it will eventually falter. Just look at Nokia. In 2007, the company controlled almost 50 percent of the world’s smartphone market. By 2013, that number had fallen to less than 5 percent. Such a drastic change in fortunes occurred because consumers chose to make it happen—and because other companies innovated more to attract them.
But if Big Tech becomes entrenched and protected from competition through regulation, the consumer’s power over them is diminished. It’s a recipe for decreased innovation and customer service. Big Tech is kept on its toes by the fear of becoming the next Nokia, which is why they spend tens of billions of dollars every year on research and development. There will be far less incentive to do so if they know that they’re safe from potential upstarts supplanting them.
Big Tech has big problems, but increased regulation will only lead to more lobbying, less competition, and less innovation. Consumers have given Big Tech its power, and as long as there are competition and alternatives, they also have the power to take it away. Let’s hang on to that control rather than demanding that the government exercise it for us.
Republished with permission from the author.
"Right wing" Jair Bolsonaro has been elected president of Brazil, which extends a significant shift rightward from the days of Lula da Silva and Dilma Rousseff. In Latin America — and especially Brazil, which is itself distinct from Hispanophone Latin America — "right wing" can mean many things, and it certainly isn't the same thing as we mean in the US. Laissez-faire economics — even in rhetoric — isn't necessarily part of the equation.
There does seem to be a distinct lean in favor of the income-and-wealth-producing middle classes with Bolsonaro, and that may be a good thing.
Not surprisingly, then, the media is telling me that Bolsonaro is pretty much the modern incarnation of Hitler, just as they did with Trump. And while I'm hardly a Trump booster, the guy obviously ain't Hitler, either — or even Mussolini. (Never mind that both those guys heavily pushed their countries in the direction of socialism and central planning...)
In any case, the electorate of Brazil has apparently tired of the status quo which is one of terrible crime and sky-high homicide rates, rampant corruption, and a steady drumbeat for more and more economic regulation and intervention.
While much of Latin America (not Venezuela, of course) is seeing dropping violence coupled with steady economic growth (see Peru, for example, where homicide rates are a small fraction of Brazil's and where economic growth is far more steady than in Brazil) Brazil appears to spinning its wheels.
For a good take on Bolsonaro from one of our writers, see Brazil-born Alice Salles on "Understanding Brazil's Donald Trump."