Cowen makes an excellent argument today relating to paternalism generally, and specifically related to measures for Consumer Financial Protection:
"Let's say that two gay men, of unknown health status, want to have informed, consensual, unprotected sex. Should the law prohibit this? I believe the answer is no. Furthermore it is not just a matter of enforcement difficulty, it is a question of autonomy. If you don't think so, modify the example so that two heterosexual people want to have consensual but unprotected sex. And so on.
The unprotected sex is riskier and less prudent than borrowing money at an annualized rate of two hundred percent. Why prohibit one and not the other? Many of the borrowers are being fooled, but others have legitimate reasons to seek the money, such as wanting to buy a birthday present for a visit to one's child, living with a separated spouse."
By the way, this also relates to healthcare reform and moral hazard in a significant way, just as overeating and not exercising matter.
The alleged problem is that there are institutions that specialize in extending small loans to under-banked/relatively poor individuals who would have few other choices in getting that liquidity. These loans are usually unsecured, or poorly secured, and as such the interest rates can be pretty damn high.
ReplyDeleteDidn't we give a Nobel Prize to someone for doing just that? (http://en.wikipedia.org/wiki/Grameen_Bank)
its funny, I don't even oppose usury laws - while I understand the potential need for a payday loan, I think it probably does more harm to people than it helps. But it's a paternalism case - we allow all sorts of worse stuff (smoking, for one), so where do we draw the line?
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