Thursday, April 16, 2015

In Defense of Payday Loans

In August last year, Last Week Tonight with John Oliver did a segment on payday loans. The video can be seen here below.

This is not the first time I am writing about a video segment that was aired on this show. I have written about the show's segment on Ayn Rand before. That post can be seen here.

The video was full of humor and compassion. But just as the previous video about Ayn Rand was based on puddle-depth knowledge about Rand or Objectivism, this video is based on economic ignorance.

Oliver does not come out and say that they ought to be regulated. He simply points out how payday loan companies use various legal loopholes to avoid regulations. One of the regulations that he mentions, which failed, is the interest cap that was imposed on payday loan companies by the Illinois state government.

Never mind that price controls have been attempted many times throughout history much to everyone's pain and suffering (see here, here, here, and here).

Lately, I've been reading a lot of Thomas Sowell's articles. Sowell is not a libertarian or an Objectivist. He is certainly an old-school conservative. Therefore, I do not agree with everything that Sowell says. However, when it comes to economics, the man is as sharp as a razor blade.

The following are some of the highlights of Sowell's views on the media's witch hunt against payday loans. The original article was published in The Washington Times and the entire post can be found here.

Yet there is remarkably little concern on the political left as to the actual consequences of the laws and policies they advocate. Once they have taken a stance on the side of the angels against the forces of evil, that is the end of the story, as far as they are concerned.
The interest rates charged on such unsecured loans to people with low credit scores are usually higher than on loans to people whose higher incomes and better credit histories make them less of a risk.
Because those who take unsecured short-term loans are usually poor and often ill-educated, the political left can cast the high interest rates as unconscionably taking advantage of vulnerable people. However, similar economic principles apply to more upscale, short-term lending to well-educated people who have valuable possessions to use as collateral.
Editorial demagoguery against “predatory” lending might well be called predatory journalism — taking advantage of other people’s ignorance of economics to score ideological points and promote still more expansion of government powers that limit the options of poor people especially, who have few options already.

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