Protecting You With Less Choice
"Freedom Means Responsibility" is the headline on the George McGovern op-ed in The Wall Street Journal, and he talks about the detriments of removing choice -- which politicians do, supposedly in the people's best interest. It's actually not so simple. McGovern writes:
Buying health insurance on the Internet and across state lines, where less expensive plans may be available, is prohibited by many state insurance commissions. Despite being able to buy car or home insurance with a mouse click, some state governments require their approved plans for purchase or none at all. It's as if states dictated that you had to buy a Mercedes or no car at all.Economic paternalism takes its newest form with the campaign against short-term small loans, commonly known as "payday lending."
With payday lending, people in need of immediate money can borrow against their future paychecks, allowing emergency purchases or bill payments they could not otherwise make. The service comes at the cost of a significant fee -- usually $15 for every $100 borrowed for two weeks. But the cost seems reasonable when all your other options, such as bounced checks or skipped credit-card payments, are obviously more expensive and play havoc with your credit rating.
Anguished at the fact that payday lending isn't perfect, some people would outlaw the service entirely, or cap fees at such low levels that no lender will provide the service. Anyone who's familiar with the law of unintended consequences should be able to guess what happens next.
Researchers from the Federal Reserve Bank of New York went one step further and laid the data out: Payday lending bans simply push low-income borrowers into less pleasant options, including increased rates of bankruptcy. Net result: After a lending ban, the consumer has the same amount of debt but fewer ways to manage it.
Since leaving office I've written about public policy from a new perspective: outside looking in. I've come to realize that protecting freedom of choice in our everyday lives is essential to maintaining a healthy civil society.
Why do we think we are helping adult consumers by taking away their options? We don't take away cars because we don't like some people speeding. We allow state lotteries despite knowing some people are betting their grocery money. Everyone is exposed to economic risks of some kind. But we don't operate mindlessly in trying to smooth out every theoretical wrinkle in life.
The nature of freedom of choice is that some people will misuse their responsibility and hurt themselves in the process. We should do our best to educate them, but without diminishing choice for everyone else.
Reynolds had a post yesterday too, asking "Is it too late for him to run again?" Probably, alas
Crid at March 8, 2008 11:40 AM
There's so little sense in government these days. Hillary's health care plan, for example, is so pie in the sky ridiculous that it enrages me every time I think of it. And so few politicians seem to think through or research their policy beyond what plays best with whatever group they're trying to impress or justify their handouts from.
Amy Alkon at March 8, 2008 11:47 AM
Very late, but I feel the need to chime in.
I have used payday loans and also car title loans in the past. Yes, it was very expensive money, but the alternatives were worse.
I was unemployed and my daughter needed a Dr visit and anitbiotics. I knew it was a bad ear infection. No insurance. so, took out a title loan. The alternative was either stiffing the doctor, or sucking off the public teat. I managed to manage the debt properly and pay it off.
Payday loan was when I was working, but needed immediate rent money or would be homeless. No credit cards, no family, no savings...... payday loan. managed that expensive debt too.
World savers and do-gooders think that poor equals dumb. Sometimes it does, but not as much as they think it does. They never think things through. Yes these types of loans are very very high fee, high interest. They should not be a first resort, and it can be very easy to mismanage them. If they want to "help" teach about interest, and cost of money(debt),and saving 10percent of income each week. sometimes the alternative is worse than paying massive interst fees.
rsj at March 9, 2008 9:57 AM
A perfect example, rsj. Thanks for posting that.
Amy Alkon at March 9, 2008 11:35 AM
Who is this guy and what has he done with the real George McGovern? McGovern sure didn't talk like this when he ran for President in 1972. At that time he looked worse, from a libertarian point of view, than Richard Nixon--and believe me, that took some doing.
Rex Little at March 9, 2008 6:18 PM
The nature of freedom of choice is that some people will misuse their responsibility and hurt themselves in the process. We should do our best to educate them, but without diminishing choice for everyone else.
This is called "life." People need to learn about "personal responsibility." Suck it up and deal.
Flynne at March 10, 2008 6:11 AM
I'm a fan of the payday loan. It is the fear of late fees that make it attractive. Certainly, it is my problem about paying late, but how about scrutinizing those fees instead of a viable market? It is simple economics, when past due rent or a card payment will cost at least 3 times as much as the loan.
kbling at March 12, 2008 8:50 AM
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