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Yeah, your reading is very different from mine, also. You're assuming things about the liquidity of the market, regulatory environment, and external situations

Yeah, your reading is very different from mine, also. You're assuming things about the liquidity of the market, regulatory environment, and external situations that simply aren't true. Toy models can be useful, but don't take them for reality. The point of this article is to tear down simplistic assumptions like yours. I guess it failed. Any time you say "this can't be true, because otherwise..." you had better take a hard look at your mental model and 1) make sure it's saying what you think it is, and 2) is backed up by evidence, not just an idealized version of the world. I think politics and economics are most bedeviled by these simple models, which tends to elicit this knee-jerk kind of response.

rayiner 10y ago
The article does absolutely nothing to "tear down simplistic assumptions." For example, with respect to the trailer park. The article says nothing about the guys return on investment, which you would need to know in order to determine whether he was earning some sort of abnormally high return by having a captive audience. The article also talks about the unfortunate situation faced by people who are evicted, but says nothing about the kinds of returns earned by those landlords. And studies have looked into this issue and confirmed the view I expressed above. For example, studies have found that competition in the payday loan market is intense. Interest rates are high because the default risk is high, not because people don't have choices between lenders that compete on interest rates.
- lutorm 10y ago
  I'm not sure what point you are making. Even if competition in the payday loan market is so fierce that there's zero margin, it still remains that the rates will be high enough to help trap people in poverty, and having people need to take out payday loans is the solution the capitalist system has devised for this situation. To pretend that this is not a failure of the capitalist system seems very narrow-minded.
  - rayiner 10y ago
    The folks attacking payday lending (i.e. mainstream American liberals) aren't suggesting replacing those options with minimum basic income or a comprehensive welfare state. They're simply ignorant, and think that poor people will be helped if the government sets lower rates by fiat. In reality, it will simply remove another option from people who have very few.
    - eropple 10y ago
      > The folks attacking payday lending (i.e. mainstream American liberals) aren't suggesting replacing those options with minimum basic income or a comprehensive welfare state "Mainstream American liberals" would love to be pushing for a comprehensive welfare state more aggressively except that they are then beset upon with screeches of the socialisms and the death panels. But we are pushing.
    - lutorm 10y ago
      Well, I am attacking payday lending, and I am for replacing it with a comprehensive welfare state. I don't know if I'm a "mainstream American liberal", I'm barely American, but maybe it would behoove you to be a little more open to the fact that maybe you don't in fact know what everyone else is thinking and whether they are ignorant or not.
      - rayiner 10y ago
        That's great, but I wasn't talking about you. I'm talking about the mainstream American liberals (i.e. the main constituency of the Democratic Party), which is pushing for heavily regulating payday lending but certainly doesn't embrace a European-style welfare state or basic income.
    - tptacek 10y ago
      Well, hold on. I'm familiar with the libertarian argument in favor of deregulated payday lending and I believe the figures that suggest rates are high because default rates are high. But the actual product being sold might be harmful, in the same sense as cheap revolving credit can be. The availability of payday loans leads to bad discretionary spending decisions (not just "flat screen TV" bad, but "accepting financial risks that are best not accepted" bad) which leaves people trapped --- and then you start getting interested in how much the returns in the payday loan business are subsidized by poor people who made understandable-but-ill-advised financial decisions and are now trapped under fees and interest from a payday loan. Your points about low-income housing are well taken. But I think the comparison to payday loans, and the subtext that all services offered to poor people are intrinsically beneficial, kind of falls apart. There are other problems here too. For instance, we tend to believe that renters are have worse upkeep incentives than owners, who directly benefit from improved property values. Similarly, people who let out trailers to the poorest people in society may also disincentivize upkeep. After all: they've pegged their business to the very bottom segment of the market. That's a real market phenomenon too: "the race to the bottom".

rayiner 10y ago

The article does absolutely nothing to "tear down simplistic assumptions." For example, with respect to the trailer park. The article says nothing about the guys return on investment, which you would need to know in order to determine whether he was earning some sort of abnormally high return by having a captive audience. The article also talks about the unfortunate situation faced by people who are evicted, but says nothing about the kinds of returns earned by those landlords. And studies have looked into this issue and confirmed the view I expressed above. For example, studies have found that competition in the payday loan market is intense. Interest rates are high because the default risk is high, not because people don't have choices between lenders that compete on interest rates.

lutorm 10y ago
I'm not sure what point you are making. Even if competition in the payday loan market is so fierce that there's zero margin, it still remains that the rates will be high enough to help trap people in poverty, and having people need to take out payday loans is the solution the capitalist system has devised for this situation. To pretend that this is not a failure of the capitalist system seems very narrow-minded.
- rayiner 10y ago
  The folks attacking payday lending (i.e. mainstream American liberals) aren't suggesting replacing those options with minimum basic income or a comprehensive welfare state. They're simply ignorant, and think that poor people will be helped if the government sets lower rates by fiat. In reality, it will simply remove another option from people who have very few.
  - eropple 10y ago
    > The folks attacking payday lending (i.e. mainstream American liberals) aren't suggesting replacing those options with minimum basic income or a comprehensive welfare state "Mainstream American liberals" would love to be pushing for a comprehensive welfare state more aggressively except that they are then beset upon with screeches of the socialisms and the death panels. But we are pushing.
  - lutorm 10y ago
    Well, I am attacking payday lending, and I am for replacing it with a comprehensive welfare state. I don't know if I'm a "mainstream American liberal", I'm barely American, but maybe it would behoove you to be a little more open to the fact that maybe you don't in fact know what everyone else is thinking and whether they are ignorant or not.
    - rayiner 10y ago
      That's great, but I wasn't talking about you. I'm talking about the mainstream American liberals (i.e. the main constituency of the Democratic Party), which is pushing for heavily regulating payday lending but certainly doesn't embrace a European-style welfare state or basic income.
  - tptacek 10y ago
    Well, hold on. I'm familiar with the libertarian argument in favor of deregulated payday lending and I believe the figures that suggest rates are high because default rates are high. But the actual product being sold might be harmful, in the same sense as cheap revolving credit can be. The availability of payday loans leads to bad discretionary spending decisions (not just "flat screen TV" bad, but "accepting financial risks that are best not accepted" bad) which leaves people trapped --- and then you start getting interested in how much the returns in the payday loan business are subsidized by poor people who made understandable-but-ill-advised financial decisions and are now trapped under fees and interest from a payday loan. Your points about low-income housing are well taken. But I think the comparison to payday loans, and the subtext that all services offered to poor people are intrinsically beneficial, kind of falls apart. There are other problems here too. For instance, we tend to believe that renters are have worse upkeep incentives than owners, who directly benefit from improved property values. Similarly, people who let out trailers to the poorest people in society may also disincentivize upkeep. After all: they've pegged their business to the very bottom segment of the market. That's a real market phenomenon too: "the race to the bottom".