Twee artikels uit het magazine "The Freeman"

Ook uit één van de laatste nummers van het economisch libertarische “The Freeman”, het maandblad van de Amerikaanse Foundation for Economic Education, waar ikzelf binnen twee weken ondergedompeld zal worden in hun leerprogramma “Freedom University” in New York, kan ik hieronder twee artikels hernemen die best lezenswaardig zijn voor een groter Vlaams publiek. In de eerste plaats gaat het om een bespreking van de recente trend in de VS om bepaalde soorten van leningen aan banden te leggen. Ook in Europa steekt de regelwoede inzake financiële producten de kop op, zogezegd om de consument te “helpen”. Dit artikel bewijst net het tegendeel. Het tweede artikel bespreekt de nutteloze impact van antiracisme- en antidiscriminatiemaatregelen in het licht van de vrijemarktwerking die volgens de FEE-auteur in kwestie de ganse situatie zelf zal weten te reguleren. Racisme en discriminatie worden enkel problematisch als de overheid ze oplegt of in stand houdt door overregulering. Beide artikelen zijn opnieuw niet van de kortste. U weze gewaarschuwd.

Banning Payday Loans Deprives Low-Income People of Options
By George C. Leef

In 2006 North Carolina joined a growing list of states that ban “payday lending.” Payday loans are small, short-term loans made to workers to provide them with cash until their next paychecks. This kind of borrowing is costly, reflecting both the substantial risk of nonpayment and high overhead costs of dealing with many little transactions. I wouldn’t borrow money that way, but there is enough demand for such loans to support thousands of payday-lending stores across the nation. They make several million loans each year.
But no longer in North Carolina.

Pointing to the high cost of payday borrowing, a coalition of groups claiming to represent the poor stampeded the North Carolina General Assembly into putting all the payday-lenders out of business. The reason I’m writing about this now is that the North Carolina Office of the Commissioner of Banks recently felt the need to justify the ban with the release of a study purporting to demonstrate that the politicians did the right thing. How do they know? Because payday lending “is not missed.” The preposterous lack of logic in this whole exercise cannot pass without comment.

Before we look at the defense that has been given for this Nanny State dictate, we should consider what I call Sowell’s Axiom: You can’t make people better off by taking options away from them - it’s named for the economist Thomas Sowell, one of whose books drove this point home to me many years ago. An individual will act to further his self-interest, and in doing so, will choose the course of action that is most likely to succeed. Sometimes a person faces difficult circumstances and has to choose the option that’s least bad. But that doesn’t change the analysis. If he’s out of money and needs cash until his next paycheck, he will have to consider various unpleasant alternatives and choose the best one.

Obtaining money through a payday loan works like this: The borrower, after proving to the lender that he is employed and has sufficient income, writes a check to the lender postdated to his next payday for some amount, say, $300. The lender gives him a smaller amount of cash, say, $260. The lender then cashes the check on its due date. That is obviously a very high annual rate of interest if you consider the $40 fee as an interest charge. A payday loan is not an attractive option - unless all your others are worse. No one would do it unless every other course of action looked even costlier.

Nevertheless, the North Carolinians who worked to abolish payday lending are eager to say they did no harm. A group called the UNC Center for Community Capital conducted a telephone survey of 400 low- and middle-income families in the state about how they deal with financial shortfalls. Only 159 reported having had financial troubles they couldn’t meet out of their regular income. From this small number of responses, the people doing the study concluded that “Payday lending is not missed.” That’s because, based on the telephone surveys, “almost nine out of ten said payday lending was a ‘bad thing’ and “twice as many respondents said the absence of payday lending has had a positive effect on their household than said it has had a negative effect.” There you have it. Most people said payday lending was “bad” and few miss it now that it has been banned. That certainly proves that the state did the right thing in getting rid of it. Or does it?

Completely forgotten in the rush to justify the ban are the people who said they think they are worse off for not having this option anymore. Yes, they were a minority of the respondents, but that is no reason to conclude that “payday lending is not missed.” An accurate conclusion would instead be, “Payday lending is missed by some people.” Maybe the silliness of this approach will be apparent if we consider a hypothetical case that parallels it. Imagine that a group of people in New York hates opera. They regard it as too costly and time consuming, and a bad moral influence. Using their political connections, they succeed in getting the city government to ban live opera productions. Out goes the Met, the Civic Opera, and any other companies. A year later this group commissions a survey asking 400 New Yorkers if they miss having opera in the city. Since most people don’t care about or even dislike opera, the results come in showing that the overwhelming majority of New Yorkers agree “Opera is not missed.” Would that justify taking opera away from the, say, 5 percent who said they would like to have had the option of going?

My point is that the views of the people who don’t patronize a business or art form shouldn’t count for anything. The people who don’t like opera are free not to go, and the people who think payday lending is “bad” are free to avoid it. As long as anyone wants to attend an opera or needs a payday loan, the government has no business forcibly depriving them of those choices.

Returning to the North Carolina study, people were also asked how they respond when they have a money shortage. The results showed that people coped in various ways, including paying bills late, dipping into savings, borrowing from family or friends, using a credit card to get cash, or merely doing without things. Jumping on that information, North Carolina’s deputy commissioner of banks, Mark Pearce, said in the November 14, 2007, Raleigh News & Observer, “Working people don’t miss payday lending. They have a lot of financial options and they use them.”

We can only wonder why it doesn’t occur to Pearce that having one more option might be good. What if someone has already exhausted all possible money sources and faces serious consequences from either paying late (suppose the next missed payment means the power gets turned off) or doing without (you’ve got to have some car repairs so you can get to work)? A payday loan might be the best option left.

In an August 2006 paper on the payday-lending business (“Payday Lending and Public Policy: What Elected Officials Should Know”), Professor Thomas Lehman of Indiana Wesleyan University found that this kind of lending fills a market niche and concluded, “Preventing or limiting the use of payday loan services only encourages borrowers to seek out and utilize less attractive alternatives . . . that put the borrower in an even weaker financial position.”

A November 2007 study by two economists with the Federal Reserve Bank of New York (“Payday Holiday: How Households Fare after Payday Credit Bans”) came to the same conclusion. Authors Donald Morgan and Michael Strain found that a ban on payday lending results in increased credit problems for consumers. They wrote, “Payday credit is preferable to substitutes such as the bounced-check ‘protection’ sold by credit unions and banks or loans from pawnshops.” So I maintain that Sowell’s Axiom holds. When government takes away options, it is bound to make some people worse off. Instead of acting like Big Nanny, government should stick to enforcing laws against coercion and fraud.

How Free Markets Break Down Discrimination
By David R. Henderson

One of my favorite lines in the classic movie “The Magnificent Seven” comes when a traveling salesman and his partner offer to pay the local undertaker to haul a dead Indian to boot hill. The undertaker refuses. He’d like to oblige, he explains, but the townsfolk are so prejudiced against burying Indians alongside whites that he can’t persuade his driver to haul the body. One of the salesmen says, “He’s prejudiced too, huh?” The undertaker replies, “Well, when it comes to a chance of getting his head blown off, he’s downright bigoted.” Experience with economic freedom illustrates the opposite point: When it comes to saving their economic lives, even otherwise-prejudiced people are downright tolerant. The reason is that markets make people pay for discriminating unless they’re discriminating in favor of the productive. Moreover, governments and government officials rarely bear a cost for, and often benefit from, discriminating against unpopular people, which is why the greatest horror stories of discrimination are about governments.

The insight that markets break down discrimination is not new. Over 200 years ago Voltaire wrote: “Go into the London Stock Exchange. . . and you will see representatives of all nations gathered there for the service of mankind. There the Jew, the Mohammedan, and the Christian deal with each other as if they were of the same religion, and give the name of infidel only to those who go bankrupt.” Voltaire was pointing out that people on the London Stock Exchange wanted so much to make money that they were willing to deal with others who had different religions and cultural backgrounds. This seems an obvious insight, but apparently it is not. How often have you heard people denounce businessmen for ruthlessly pursuing profits and, in the next breath, castigating those same businessmen for discriminating against a minority group simply because they’re a minority? Well, which is it? Are they trying to maximize profits or are they discriminating? It can’t be both.

Think about the most notorious examples of racism, and the odds are high that you will think of a government implementing it and private citizens, out of the profit motive, opposing it. Take South Africa’s apartheid. Please. The apartheid regime and the “colour bar” that preceded it illustrate both points. From the early 1920s to the early 1990s, the South African government put barriers in the way of employers’ hiring black people for the plum jobs, especially, early on, in mining. In other words, the government officially enforced discrimination. Among the strongest opponents of this discrimination and the strongest advocates of tolerance were white employers. They hated that the government prevented them from hiring qualified black people to work in mines and elsewhere. Interestingly also, among the strongest supporters of the colour bar and, later, apartheid were white labor unions.

Indeed, something happened under the colour bar in 1923 that is so striking that the story should be told by parents everywhere to their children and talked about incessantly in coffeehouses. It was a strike by members of the powerful white Mine Workers’ Union, who were protesting white mine owners’ plans to hire less-expensive black workers. The 12-word banner that they proudly carried through the streets read, “Workers of the world unite, and fight for a white South Africa.” This Karl-Marx-meets-David-Duke slogan is further evidence of the connection between government power (socialism is the ultimate in government power) and racial discrimination. Interestingly, the union received support for this strike from its allies in the South African Labour Party (SALP), formed in 1908 with the explicit goal of achieving privilege for white workers. The SALP was modeled intentionally on the British Labour Party, an avowedly socialist party.

And if you think something like that would never happen in the United States, then consider the origins of the minimum-wage law. The main proponents of the minimum wage were northern unions that wanted to harm their lower-wage southern competition, many of whom were black. This goal animated unions as recently as the 1950s. At a 1957 hearing on increasing the minimum wage, a northern U.S. Senator who favored the increase stated: “Of course, having on the market a rather large source of cheap labor depresses wages outside of that group, too - the wages of the white worker who has to compete. And when an employer can substitute a colored worker at a lower wage - and there are, as you pointed out, these hundreds of thousands looking for decent work - it affects the whole wage structure of an area, doesn’t it?” Who was the senator? Here’s a hint: just four years later he was the President. His name: John F. Kennedy.

That markets break down discrimination is such an important finding that the economist who first showed it in a rigorous model, Gary Becker, earned the Nobel Prize, in part, for that work. In his book “The Economics of Discrimination”, Becker pointed out that free markets make discriminators pay for discriminating because they give up opportunities to work with productive people. That doesn’t mean, he noted, that people in a free market will never discriminate; the most extreme racists and bigots will often be willing to pay the price for discriminating. But pay they will.

Becker’s book pointed out that the wage differential between black and white workers of a given ability and experience level is a measure of the remaining discrimination against black workers; the larger the differential, other things equal, the more discrimination black workers face. This insight has been abused two ways in discrimination lawsuits in the United States. The statistical abuse is to assume that the whole wage differential between blacks and whites is due to discrimination rather than to other factors that the researcher has failed to measure. Yet, as virtually every economist who studies wage data will admit, you can never account for all factors, especially those that you can’t observe. You can’t know someone’s earnings simply by knowing that person’s age, experience, union affiliation, and education. Many people are the same age as Bill Gates and are similar in all other respects, but none of them has close to his level of wealth.

The second abuse of Becker’s insight is an even more fundamental breach of justice. Workers who feel discriminated against sometimes sue their employers, often seeking compensation. What they fail to recognize is that these employers, who actually hired blacks and other minorities, are helping to eliminate discrimination. To the extent that lower wages are due to discrimination, they are caused by those not hiring people in the discriminated-against group. But haven’t we all heard of the minister who blames those present for the low turnout? It should be noted, though, that the U.S. economy is not free but hampered by many anticompetitive government interventions, such as licensing. Yet competition is the key to minimizing discrimination. Thus those who oppose bigotry could do no better than to work to eliminate all such interventions.

More fundamentally, though, people should be free to discriminate. Freedom includes freedom of association, the freedom to choose whom you work for and whom you hire. Employees are free to discriminate against employers for any reason they wish; employers should have the same freedom. Let’s have markets, not governments, punish those who exercise their prejudices.

Meer over dit magazine op www.thefreeman.com.
Meer teksten van Vincent De Roeck op www.libertarian.be.