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Source link: http://archive.mises.org/8112/payday-lending-rip/

Payday Lending, RIP

May 15, 2008 by

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.

{ 108 comments }

Chris May 20, 2008 at 1:53 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.

Bunuel May 20, 2008 at 1:55 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.

Intelligent and Civil May 20, 2008 at 1:56 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.

rotten apples May 20, 2008 at 2:18 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.

Yo May 20, 2008 at 3:31 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.

Bob May 20, 2008 at 3:35 pm

Coalition for Responsible Lending = Banks who want $25 dollar fee on 1 dollar overdraft, then have other person make 15 dollars on 100

James May 20, 2008 at 3:46 pm

Profit from payday loans == blood money

James May 20, 2008 at 3:52 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.

magnus May 20, 2008 at 4:13 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.

Scott D May 20, 2008 at 5:10 pm

this is kind of off topic, but i’ve been reading up on the austrian school, and it mostly seems like magic.

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.

also, most of you don’t really seem to be proponents of this or any other philosophy,

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.

…but rather callous assholes who get off on using esoteric (and anti-scientific) structuralism to justify your white white world view.

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.

you suck, and your opinions are every bit as oppressive as those you rail against.

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.

people who think they have concrete solutions are almost always the problem itself.

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.

Yo May 20, 2008 at 5:22 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

Mike May 20, 2008 at 5:25 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..

cd May 20, 2008 at 6:09 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?

Francisco Torres May 20, 2008 at 6:18 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.

Jean Naimard May 20, 2008 at 6:30 pm

Ah, yes, another government intervention that prevents “deserving” libertarians from taking advantage of less-”deserving” people…

logic11 May 20, 2008 at 6:36 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.

magnus May 20, 2008 at 7:23 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.)

Tom Ritchford May 20, 2008 at 8:11 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.

Tom Ritchford May 20, 2008 at 8:38 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.

P.M.Lawrence May 20, 2008 at 9:29 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.

logic11 May 20, 2008 at 10:50 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.

newson May 21, 2008 at 1:46 am

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.

newson May 21, 2008 at 2:02 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!

logic11 May 21, 2008 at 7:55 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.

magnus May 21, 2008 at 8:20 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.

logic11 May 21, 2008 at 8:29 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.

fundamentalist May 21, 2008 at 9:02 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.

logic11 May 21, 2008 at 9:54 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.

magnus May 21, 2008 at 10:19 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?

logic11 May 21, 2008 at 10:32 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?

magnus May 21, 2008 at 10:48 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.

logic11 May 21, 2008 at 10:57 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?

Ron May 21, 2008 at 11:02 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.

magnus May 21, 2008 at 11:13 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.

logic11 May 21, 2008 at 11:30 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…

newson May 21, 2008 at 11:34 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.

newson May 21, 2008 at 11:39 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?

magnus May 21, 2008 at 11:52 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.

fundamentalist May 21, 2008 at 12:18 pm

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?

fundamentalist May 21, 2008 at 12:24 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.

logic11 May 21, 2008 at 4:27 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.

fundamentalist May 21, 2008 at 5:29 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.

Francisco Torres May 21, 2008 at 7:45 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.

P.M.Lawrence May 21, 2008 at 9:05 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.

newson May 21, 2008 at 10:18 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.

P.M.Lawrence May 22, 2008 at 2:16 am

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.

fundamentalist May 22, 2008 at 8:57 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.

newson May 23, 2008 at 11:45 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.

TimF August 28, 2008 at 3:03 pm

Financial institutions invite regulation from government when they start to hurt families and communities. Payday lenders in Ohio invited government intervention when they trap hundreds of thousands of consumers in a cycle of debt each year. The Ohio legislature acted by capping interest rates at 28% APR. The payday lenders are now lying to Ohio voters in attempt to overturn one of the nation’s best consumer protection laws in November.

Watch here: http://www.youtube.com/watch?v=zDoeXujagE4.

The payday lobby is spending millions on TV to deceive voters and convince Ohioans that 391% amounts to financial freedom! 391% is not freedom, it’s a trap! Payday lenders need to acknowledge that their business is predicated on their ability to trap people in debt!

Payday lending is a scourge on our families, our communities and our economy! VOTE YES ON OHIO ISSUE 5!

http://www.yesonissue5.org

Bernie October 6, 2008 at 11:40 am

Payday loans are DANGEROUS! My husband took out one and then another and then another and then another and we couldn’t get out from under them for almost a year (and it might have been longer, but he wouldn’t tell me about when he actually started, I found out by accident). The only reason we got out was because he got a “windfall” of severance pay when he got fired from his job of 17 years.
But there has to be another source of short term loans that doesn’t charge such high interest rates. I also agree with the need for money management training and not just for adults…it should be taught in school right along with mathematics.
I’m also upset regarding the deceptive ads about saving jobs in Ohio…it doesn’t mention anything about the payday loan issue, just job loss… Yes, there will be job losses, but more importantly there will be an end to the predatory interest rates!
I’m definitely voting YES on Issue 5!

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