Why usury laws are bad for you
Sioux Falls, South Dakota owes much of its recent explosion of growth to South Dakota's extremely loose usury laws .
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Dozens of credit card operations, from Citi on down, have made Sioux Falls home. Other credit offering operations, like student loans, have also flocked to Sioux Falls.
The party might be about to end. Student loan jobs at risk in the Sioux Falls Argus Leader:
Aiming to get subsidized private companies out of student lending and turn it over to the government, the proposal could save $80 billion the next decade by eliminating subsidies paid to lenders that keep interest rates down.
That savings would be used to make college more affordable for more students by increasing the maximum Pell Grant by $1,400 up to $6,900 and reducing interest rates on student loans.
But the legislation places the 1,200 people who work in student lending services in Sioux Falls in the precarious center of the debate.
Sioux Falls is home to two of the five largest student lenders in the country: Citibank's Student Loan Corp. and Wells Fargo's Educational Financial Services.
. . .
"This is a significant book of business that they are involved with and if it goes, the jobs go with it," says Sen. John Thune, R-S.D., who anticipates the legislation, which passed in the House earlier this month, coming before the Senate later this year or the beginning of next.
Should it pass, it could directly and indirectly affect as many as 3,000 jobs statewide, he says.
Now, I'm not philosophically opposed to banks charging whatever they can get for their services, like I'm not philosophically opposed to any business charging whatever the market will bear.
What I am philosophically opposed to is the government charging in with its usual bull-in-the-china-shop behavior to distort the market in whatever way seems politically expedient this week.
The solution to banks charging outrageous interest rates is two-fold:
1) Other banks that charge less. This is called "competition." Contrary to what some in Washington, D.C. might think, governments do not-- can not "compete" with private concerns. Competition assumes that all parties operate under the same set of rules. Competition also assumes that all parties have equal consequences for failing to effectively compete. This is usually called "going out of business" or, less catastrophically, "exiting the market." While I might think it worthy goals for government to go out of business or to exit numerous markets that it has injected itself into, it's not really very likely to happen any time soon, is it?
2) Consumers being better informed. Competition does this. The other banks that charge less (see #1 above) have a selfish interest in educating consumers. They also have an interest in not charging exorbitant rates, because in a healthy, competitive market, there will always be a competitor willing and able to undercut their prices. Consumers themselves have an obvious interest in making informed choices between these competitors--learning all they can about the competitors and their products, and making informed judgments about what is best for each individual consumer. They also have an interest in avoiding the well-earned ridicule of their friends and neighbors when they do stupid things. This is called "peer pressure."
Government intervention is not a replacement for either one of these two solutions. Government intervention merely distorts how people--companies or consumers--go about implementing those solutions. First, government sets up barriers to entry into most industries, making #1 much less effective than it otherwise would be. They set up a massive regulatory system which at the margins might actually protect people from some of the most egregious excesses, but this comes at the expense of not only the visible taxes which come out of your pocket, but also of an enormous hidden tax on you, the consumer--the overhead caused by the paperwork required to conform to the government regulations. Yes, you pay 100% of the cost of that overhead, because the companies being regulated simply pass that cost on to you.
But the really insidious effect of government is in suppressing #2. When consumers have the mistaken belief that the government is regulating things for their benefit they no longer feel the need to educate themselves adequately to make informed decisions. So, they don't. Decision-making is like a muscle--the more you do it, the better you get.
(This is, by the way the reason why it is occasionally said that "some people--generally people that Don't Look Like Us--aren't ready for freedom." Their decision-making ability becomes so atrophied by lack of use that they literally become unable to make good decisions. This then results in do-gooders thinking that more government is necessary to "take care of the least fortunate." But that solution is perhaps the most cruel of all--much like telling a person with poor muscle tone that he or she shouldn't try to lift any weights or go for a walk because they might get hurt that way.
Working out at a gym, or going for a walk is harder than just sitting on the couch, waiting to be told what to do. But it's better for you in the long run.
So is a vigorous exercise of your decision-making abilities--your freedom--your liberty. The more you do it, the better you'll get at it. And the better you'll feel about yourself.
The politicians have a selfish interest in doing things which are in the politicians' interest, not things that are in your interest. Definitely not your interest. (Seen any red-light cameras lately? Do you really think they are there for your benefit? ) Any result of government action that redounds to your benefit is a very, very secondary effect. Collateral damage, as it were. The particular skill of a politician is in convincing people that doing things which will increase the power and advance the interests of the politician will also be good for those people.
Sometimes, this is actually true. More often, it's bullshit.
So the net "unintended consequence" of government is not only that all of your goods and services cost more than they otherwise would, but also that the government atrophies your ability to make good choices regarding those goods and services.
Is this an argument against any government at all? Not necessarily. The original purpose of government is physical protection of person and property. Government actually does that passably well, as long as it doesn't get distracted into too many interventions into economic markets.
This is the meaning of that saying (variously attributed to Thomas Jefferson, Thomas Paine, or Henry David Thoreau):
That government is best which governs least.
Or, in the words of Ronald Reagan:
Government is not the solution to our problems. Government is the problem.
Source: Medary.com
