Economics Questions

Re: Is lending for the purposes of consumption immoral?

JAlanKatz — Tue, 08 Jan 2008 00:36:01 GMT

cyclops:
As for borrowing being a voluntary choice - while this is technically true, the reality is that the system is 'gamed' so that people will get themselves into debt (for the first time since the great depression, Americans have a negative savings rate). Sure, one could argue that this actually increases productivity because it compels people to work, but slaves will only work just as hard as they have to - and you can forget about any independent thought.

I think there might be a point here which is somewhat ignored in the responses. Most responses are picturing a borrower and lender entering into an uncoerced transaction, and then I agree with them - each is doing what he expects to profit from ex ante, and there's no blame attached to the lender if the borrower didn't have good entrepreneurial insight. In fact, even from a utilitarian perspective that makes sense - you do not strengthen the economy by making sure that people who are unable to predict the future and figure out what to invest in have more money to make their mistakes with.

However, this does not adequately describe our world. Consider the "payday loan" concept. Without it, one may argue, people will have difficulty obtaining credit if they have poor history, and may not have enough food to eat each day. This is all true - but how did the borrower get into the situation he is in? So there's nothing wrong with the lending act, but the very situation in which the act takes place is in the context of an economy made far weaker by government intevention. Consider a customer who happens to be black, with a history of minor convictions, and employed off the books. Is he not in this situation because of a racist legal system, which would not have imposed the same penalties on a white man, because of the minimum wage which makes him unemployable in above-board operations, and because of the government's requirement of background checks for work in more and more industries? So it's possible that the presence of predatory lending points us to the existence of other problems, and that the predatory lending, rather than being applauded, should be recognized for something which corrects for the disaster wrought by government intervention, but which would not exist without those interventions.

Re: Is lending for the purposes of consumption immoral?

Bogart — Mon, 07 Jan 2008 23:44:46 GMT

Assuming an un-coerced debtor, there is nothing immoral for lenders to stupidly lend to debtors unable to pay just as there is nothing immoral about debtors going into so much debt that they can not pay it back. The debtor and lenders enter into voluntary contracts and would not do so if it was not in their interest. I have never seen a debtor who at the beginning of a transaction did not understand the consequences although I have heard that such people exist in great numbers. I have my doubts....

Their is only one immoral entity in this mess and that is the government. There are plenty of lendors to go around so these lendors will treat their best customers, the ones most able to pay the best with the lowest interest rates and best terms. They will treal their worst customers, those least able to pay with the highest rates and worst terms. So government in its quest for power jumps in and makes volumes of regulations supposedly helping the debtors but really they create monopoly situations for the lendors. To make matters worse the government has this group called the Federal Reserve, a truely evil institution, that creates money out of nothing on a continuous basis. This means that the real wealth money purchases is always in decline. So it is a rational decision for debtors to go way into debt as the money they pay back will be worth less in the future.

Re: Is lending for the purposes of consumption immoral?

Nathyn — Mon, 07 Jan 2008 20:29:40 GMT

Cyclops, you referred to the situation as "sheep" and "wolves." Let's examine that analogy:

In the case of credit card companies, people apply for credit cards and then use them believing it helps them achieve some goal of theirs.

To use your analogy, this is like saying the wolves live in a cave, the sheep heard about the wolves' cave, and promises that the wolves' could give them something tasty to eat. Based upon this ridiculous assumption, the sheep traveled to the wolves' cave and the wolves devoured the sheep.

In that case, who is responsible? The wolves shouldn't have devoured the sheep, but the sheep were incredibly stupid and irresponsible to go to the wolves' cave in the first place. To deny responsibility for any side in the matter is disingenuous and, as I said, practically trying to stop usury is impossible (see Islamic banking) and does more harm than good. And wolves devouring sheep is the nature of the world. You can either accept it or reject it. Either way, yor lack of comfort changes nothing.

As a Zen Buddhist, I believe that true ethics involve individuals subjectively examing the merits of their own behavior and trying to impose your moral code on others is usually a stupid thing to attempt. After all, you can only control yourself. And who is to say you are necessarily right about morality, where all others have been wrong? Attempts to control others will always fail, whether you're a Libertarian or a Socialist. And uncertainty about ethics make it a huge gamble to try and use authority to establish ethics.

I can bark on and on about how Libertarianism is unethical and they can bark on about how taxation is theft. In the end, both of us are only going to be ethical to the point that we are sincere with ourselves, as individuals. We can't be made "ethical" by arbitrary decree by you, me, or anyone else.

As the Dhammpada says:

Love yourself and watch -
Today, tomorrow, always.
First establish yourself in the way,
Then teach,
And so defeat sorrow.
To straighten the crooked
You must first do a harder thing -
Straighten yourself.
You are your only master.
Who else?
Subdue yourself,
And discover your master.

Re: Is lending for the purposes of consumption immoral?

Don Roberto — Mon, 07 Jan 2008 19:58:52 GMT

cyclops:
I realise that I wll probably be crucified for saying that on this forum, but part of the government's role should be to protect the sheep from the wolves.

Well, this protection could be provided by anyone. Everyone should decide for themselves what kind of protection they want and accordingly pay for it, and not play sheeps in front of the government.

cyclops:
However, I do believe that there are a significant number of people out there who are incapable of making sound financial decisions on their own behalf.

What is a sound financial decision? Peoples preferences are different. If you don't want a candy/ride on the carousel/etc. doesn't mean that someone else shouldn't want it. It takes different things to make different people happy. ... I think I shouldn't continue, just watched the news and am sick of the politicians and 'knights of morality' preaching every day.

Re: Is lending for the purposes of consumption immoral?

Nathyn — Mon, 07 Jan 2008 19:58:44 GMT

macsnafu:
Nathyn:

Inquisitor:
If the lender and the borrower do not value the transaction, they oughtn't enter into it.

And if the crack addict didn't value crack, he shouldn't buy it. Right?

Inquisitor phrased that poorly. If the lender and the borrower do not value the transaction, they WOULD NOT enter into it.

Addiction is a whole 'nuther thread...

I disagree with your definition of "voluntary" since consciousness of one's actions is necessary for something be truly "voluntary."

But yeah, that's another thread, you're right. I won't hijack.

The question in this thread isn't that difficult to answer.

Re: Is lending for the purposes of consumption immoral?

macsnafu — Mon, 07 Jan 2008 19:50:31 GMT

Nathyn:

Inquisitor:
If the lender and the borrower do not value the transaction, they oughtn't enter into it.

And if the crack addict didn't value crack, he shouldn't buy it. Right?

Inquisitor phrased that poorly. If the lender and the borrower do not value the transaction, they WOULD NOT enter into it.

Addiction is a whole 'nuther thread...

Re: Is lending for the purposes of consumption immoral?

cyclops — Mon, 07 Jan 2008 19:22:35 GMT

Broadly speaking, I am against paternalism. However, I do believe that there are a significant number of people out there who are incapable of making sound financial decisions on their own behalf. Likewise, there are those out there who intentionally prey on such people. I realise that I wll probably be crucified for saying that on this forum, but part of the government's role should be to protect the sheep from the wolves.

Re: Is lending for the purposes of consumption immoral?

Nathyn — Mon, 07 Jan 2008 17:05:50 GMT

Inquisitor:
If the lender and the borrower do not value the transaction, they oughtn't enter into it.

And if the crack addict didn't value crack, he shouldn't buy it. Right?

Re: Is lending for the purposes of consumption immoral?

Inquisitor — Mon, 07 Jan 2008 14:30:04 GMT

If the lender and the borrower do not value the transaction, they oughtn't enter into it. I don't buy this whole 'weak-willed' argument; if we extended it to society in general we could justify any amount of paternalism. There is nothing immoral in and of itself with the phenomenon of lending.

Re: Is lending for the purposes of consumption immoral?

Bank Run — Mon, 07 Jan 2008 13:42:54 GMT

cyclops:
Does it actually provide any economic benefit to society, or merely enslave the weak willed and impulsive by enticing them to spend beyond their means?

The slaver may well be the well intentioned, but may not realize he is subjugator.

It has been my observation that some will use any means. They justify, or ethicly codify, ends only.

I suggest if you favor usery laws, than look into the history, or the moral philosophy behind them. Try to evalute the marginal gains of, lets say, islamic banking

cyclops:
Any thoughts?

I'm sure my witt, if it may even be called that, is mostly borrowed, but I'll try. I, as one of the laymen, me so wants to defend them. That is a fine end for what I value. The means I choose to utilize is what is important. IF someone has the end of "I want to explitive myself," than it is ethical to say "than go get explitived, just don't explitive me". Actually I would prefer when explitiving yourself you not explitive any one else too. I can't stop you and they can't stop you if you really want explitive yourself, you will acheive your end. If you want to employ the use of force to stop people from explitiving themselves, than you are not serving the only legitimate function of any government. This function is simple, it is to serve the people by employing the best means possible in attaining the end of protecting people from aggression from other people, whether that be the state, society, groups, or other individuals.

If a lender charges to high a fee he will not bear many leans(in a free market). He will be thankfully, competitivly be priced out/undersold. If however you as the state choose to set rates of consumption at an equal level, in order to prevent usury, or helping the stupid. This means will imply the end that competition will be restricted, likely only a special privilidge will be able to manipulate and benifit, of this intervention. So you try to make a floor and a ceiling, which is a house of cards, some will manipulate, but more criticaly the power of the consumer will be marginalized. Because the financial institutions are made not to fail, by very unconstitutional law. This also aggrevates the check of the purchasee.

Re: Is lending for the purposes of consumption immoral?

nirgrahamUK — Mon, 07 Jan 2008 12:09:44 GMT

to cyclops:

is paternalism something to be avoided, or a badge of honour for you?

plus, what are the limits to what consenting adults should be allowed to agree to, from your perspective as a 3rd party, not directly involved in those agreements?

Re: Is lending for the purposes of consumption immoral?

Nathyn — Mon, 07 Jan 2008 09:31:35 GMT

cyclops:
A house or car wasn't really what I had in mind, since these provide long term tangible benefits and an increase in productivity. I was thinking more along the lines of 'impulse buys' that provide a fleeting, short term sense of happiness - the type of purchases typically made on a (generally high interest) credit or store card.
As for borrowing being a voluntary choice - while this is technically true, the reality is that the system is 'gamed' so that people will get themselves into debt (for the first time since the great depression, Americans have a negative savings rate). Sure, one could argue that this actually increases productivity because it compels people to work, but slaves will only work just as hard as they have to - and you can forget about any independent thought.

My idea of ethics follows two overall paradigms:

1) Enlightened self-interest (not the same as Rand's "rational" self-interest, but it's close enough)

2) Compassion

Credit for consumption could be regarded as unethical, then, I suppose. However, proposals to restrict usury are even more unethical because they cause even greater harm than they seek to prevent.

Furthermore, per #1, people are largely responsible for their own behavior. If a person makes an impulsive purchase, it's wrong of the businessman to take advantage of that person's stupidity, but it's also wrong for the person to be so irresponsible.

Re: Is lending for the purposes of consumption immoral?

cyclops — Mon, 07 Jan 2008 09:16:17 GMT

A house or car wasn't really what I had in mind, since these provide long term tangible benefits and an increase in productivity. I was thinking more along the lines of 'impulse buys' that provide a fleeting, short term sense of happiness - the type of purchases typically made on a (generally high interest) credit or store card.

As for borrowing being a voluntary choice - while this is technically true, the reality is that the system is 'gamed' so that people will get themselves into debt (for the first time since the great depression, Americans have a negative savings rate). Sure, one could argue that this actually increases productivity because it compels people to work, but slaves will only work just as hard as they have to - and you can forget about any independent thought.

Re: Is lending for the purposes of consumption immoral?

Nathyn — Mon, 07 Jan 2008 08:28:36 GMT

cyclops:
Does it actually provide any economic benefit to society, or merely enslave the weak willed and impulsive by enticing them to spend beyond their means?

Any thoughts?

No. Easy question to answer.

I'll agree with Austrians on this one: Lending is generally voluntary and people borrow (on a basic level) based of subjective time-preferences. In most cases, it seems silly for a person to buy goods on credit, but if they want to, why not?

Beyond this, in life buying things on credit is necessary unless you have an absurd time-preference (I mean "absurd" in the practical sense, not that I disagree with subjective utility).

Everyone at some point in their life has to buy a car and a house. I suppose a "house" you could call an "investment," and a car is a "durable good." But in both cases, most people buy them for their consumption purposes.

Now, are you really going to say that it's unethical to loan people money to buy homes and cars? Should we expect people to have to save for several decades to buy a home, as they do in some countries with no credit institutions?

The idea of "usury" is silly. It seems to be a primitive understanding of some of the problems of financial markets, but that's another issue entirely.

Is lending for the purposes of consumption immoral?

cyclops — Mon, 07 Jan 2008 07:31:32 GMT

Does it actually provide any economic benefit to society, or merely enslave the weak willed and impulsive by enticing them to spend beyond their means?

Any thoughts?