7 ms·

Actually, without interest people would have no incentive to lend to others. Any loan carries a risk of not getting your money back. If interest was illegal th

Actually, without interest people would have no incentive to lend to others. Any loan carries a risk of not getting your money back. If interest was illegal then the rational move would be to never loan out any money.

schoen 9y ago
Or lending might be done as charity https://www.hflasf.org/ https://www.hflasf.org/ https://www.jfla.org/ https://www.jfla.org/ or only upon collateral.
- wdewind 9y ago
  Which would mean that much much less of it would get done, which is not a clear win.
  - schoen 9y ago
    I agree with that. Seeing more of this thread, I would clarify that I agree that interest rewards people for accepting risk in addition to temporarily losing the use of their money, and I support that. I just want to point out that the phenomenon of interest-free lending as charity is a real one.
- tengbretson 9y ago
  Lending with no interest AND collateral creates a very perverse set of incentives for the lender.
AnthonyMouse 9y ago
> If interest was illegal then the rational move would be to never loan out any money. People would still lend money to their friends and family. Stores would extend credit to customers because they want to make sales. But regardless, how was that supposed to dispute any part of the post you responded to?
- wdewind 9y ago
  > Stores would extend credit to customers because they want to make sales. Not GP but: much less credit would be extended because many stores wouldn't be able to do much with bookings. One reason credit cards are so ubiquitous is because they allow even tiny stores to take advantage of extending credit without having to worry about all the stuff that comes with it (not getting paid soon, fraud etc.). So yeah, sure, some people would still lend to close friends and family, but in general the credit market would get orders of magnitude smaller, and I don't think that's good for anyone. > But regardless, how was that supposed to dispute any part of the post you responded to? Again, not GP, but he is replying to your comment implying that access to money at interest would make things worse for the lower class in this model and that making that change would make it more realistic. It may make it worse for the lower class in this model because you can't inflate the number of dollars, but in real life there's a lot of good reasons to think credit markets are extremely helpful for everyone, including the lower class.
  - coldtea 9y ago
    >Not GP but: much less credit would be extended because many stores wouldn't be able to do much with bookings. Isn't that a good thing? In lots of places, e.g. Germany for one, people almost never buy with credit.
    - wdewind 9y ago
      No, because it means much less economic growth. There is obviously a balance: too much lending and the economy collapses the other way. But too little lending is really bad for everyone too, and there are pretty fair reasons to think it might impact the lower class the most. Getting rid of (relatively) easy access to credit would be completely catastrophic for the global economy.
      - coldtea 9y ago
        >No, because it means much less economic growth And why would "more economic growth" be a good thing? I don't want endlessly slaving to make the pie bigger (while ignoring second order effects, from quality of life, to environmental issues, to debt etc). How about we learn to enjoy a moderate rate of economic growth, or even a steady economy, and focus on improving other aspects of life besides bank accounts? >But too little lending is really bad for everyone too, and there are pretty fair reasons to think it might impact the lower class the most. Under the current model though. Whereas e.g. better distribution of wealth might help them more than more lending.
21 9y ago
How is then rational for bars to have a "customer tab", with 0 interest typically? How about clients paying suppliers many months after stuff was delivered? It is very rational to lend money with zero risk if that gets you more business.
- wdewind 9y ago
  So first off, I want to question the premises that this is a widespread thing, and that it is an effective business practice. The whole point of credit cards is it allows the bar to be out of this business, and most of them gladly accept credit cards so they can do that. Second of all, especially in smaller communities where this practice is more likely to occur, there is a social capital gained by doing it which is not necessarily directly monetary, but I think it's pretty easy to see the rational self interest argument for "being part of a community" outside of just purely monetary gain. > It is very rational to lend money with zero risk if that gets you more business. Well it's definitely not zero risk, and when credit cards exist, which deal with all the risk, it's not rational to lend money without credit cards.
  - OJFord 9y ago
    > I want to question the premises that [tabs in pubs and bars] is a widespread thing Really? Where do you think it's confined to? Credit cards are not an equivalent service, they're a means to pay the tab...
    - wdewind 9y ago
      I think its confined to places outside of major metropolitan areas, where the vast majority of money moves around. If you have a credit card you don't need a bar tab.
      - jack9 9y ago
        If you have ever spent a non-trivial amount of time in a bar, you can see that people with credit cards run up tabs due to a myriad of events that include intentional bad decisions or irresponsibility (like being too drunk to remember to pay before jetting off to another destination). These tabs are generally held for a number of hours, days or weeks (depending on familiarity with the parties involved) before being elevated to a more serious consideration.
coldtea 9y ago
There are loans without interest. An extra cost/profit is calculated up front (that's e.g. how Murabaha works in islamic banking which prohibits interest). The law still enforces the person to pay back the original amount (or face the repercussions). (Plus people lend money and tools and whatever all the time with neither interest nor legal guarantees).
- ralfd 9y ago
  Isn't that just paying the interest in the beginning in full, instead of over time or at the end of the loan?
  - coldtea 9y ago
    Obviously no, because it doesn't increase. Like with credit cards, most of the money on loans is not paid on the default interest and with the perfect payment schedule, but on late payments.
- arkis22 9y ago
  interest by another name
  - coldtea 9y ago
    Yes, and by another mechanism with different attributes.
ww520 9y ago
In a deflationary environment, you can lend out with 0 interest or even negative interest as long as it is smaller than the deflationary rate.
kobeya 9y ago
Then apply negative interest to holding money.

schoen 9y ago

Or lending might be done as charity https://www.hflasf.org/ https://www.hflasf.org/ https://www.jfla.org/ https://www.jfla.org/ or only upon collateral.

wdewind 9y ago
Which would mean that much much less of it would get done, which is not a clear win.
- schoen 9y ago
  I agree with that. Seeing more of this thread, I would clarify that I agree that interest rewards people for accepting risk in addition to temporarily losing the use of their money, and I support that. I just want to point out that the phenomenon of interest-free lending as charity is a real one.
tengbretson 9y ago
Lending with no interest AND collateral creates a very perverse set of incentives for the lender.

AnthonyMouse 9y ago

> If interest was illegal then the rational move would be to never loan out any money. People would still lend money to their friends and family. Stores would extend credit to customers because they want to make sales. But regardless, how was that supposed to dispute any part of the post you responded to?

wdewind 9y ago
> Stores would extend credit to customers because they want to make sales. Not GP but: much less credit would be extended because many stores wouldn't be able to do much with bookings. One reason credit cards are so ubiquitous is because they allow even tiny stores to take advantage of extending credit without having to worry about all the stuff that comes with it (not getting paid soon, fraud etc.). So yeah, sure, some people would still lend to close friends and family, but in general the credit market would get orders of magnitude smaller, and I don't think that's good for anyone. > But regardless, how was that supposed to dispute any part of the post you responded to? Again, not GP, but he is replying to your comment implying that access to money at interest would make things worse for the lower class in this model and that making that change would make it more realistic. It may make it worse for the lower class in this model because you can't inflate the number of dollars, but in real life there's a lot of good reasons to think credit markets are extremely helpful for everyone, including the lower class.
- coldtea 9y ago
  >Not GP but: much less credit would be extended because many stores wouldn't be able to do much with bookings. Isn't that a good thing? In lots of places, e.g. Germany for one, people almost never buy with credit.
  - wdewind 9y ago
    No, because it means much less economic growth. There is obviously a balance: too much lending and the economy collapses the other way. But too little lending is really bad for everyone too, and there are pretty fair reasons to think it might impact the lower class the most. Getting rid of (relatively) easy access to credit would be completely catastrophic for the global economy.
    - coldtea 9y ago
      >No, because it means much less economic growth And why would "more economic growth" be a good thing? I don't want endlessly slaving to make the pie bigger (while ignoring second order effects, from quality of life, to environmental issues, to debt etc). How about we learn to enjoy a moderate rate of economic growth, or even a steady economy, and focus on improving other aspects of life besides bank accounts? >But too little lending is really bad for everyone too, and there are pretty fair reasons to think it might impact the lower class the most. Under the current model though. Whereas e.g. better distribution of wealth might help them more than more lending.

21 9y ago

How is then rational for bars to have a "customer tab", with 0 interest typically? How about clients paying suppliers many months after stuff was delivered? It is very rational to lend money with zero risk if that gets you more business.

wdewind 9y ago
So first off, I want to question the premises that this is a widespread thing, and that it is an effective business practice. The whole point of credit cards is it allows the bar to be out of this business, and most of them gladly accept credit cards so they can do that. Second of all, especially in smaller communities where this practice is more likely to occur, there is a social capital gained by doing it which is not necessarily directly monetary, but I think it's pretty easy to see the rational self interest argument for "being part of a community" outside of just purely monetary gain. > It is very rational to lend money with zero risk if that gets you more business. Well it's definitely not zero risk, and when credit cards exist, which deal with all the risk, it's not rational to lend money without credit cards.
- OJFord 9y ago
  > I want to question the premises that [tabs in pubs and bars] is a widespread thing Really? Where do you think it's confined to? Credit cards are not an equivalent service, they're a means to pay the tab...
  - wdewind 9y ago
    I think its confined to places outside of major metropolitan areas, where the vast majority of money moves around. If you have a credit card you don't need a bar tab.
    - jack9 9y ago
      If you have ever spent a non-trivial amount of time in a bar, you can see that people with credit cards run up tabs due to a myriad of events that include intentional bad decisions or irresponsibility (like being too drunk to remember to pay before jetting off to another destination). These tabs are generally held for a number of hours, days or weeks (depending on familiarity with the parties involved) before being elevated to a more serious consideration.

coldtea 9y ago

There are loans without interest. An extra cost/profit is calculated up front (that's e.g. how Murabaha works in islamic banking which prohibits interest). The law still enforces the person to pay back the original amount (or face the repercussions). (Plus people lend money and tools and whatever all the time with neither interest nor legal guarantees).

ralfd 9y ago
Isn't that just paying the interest in the beginning in full, instead of over time or at the end of the loan?
- coldtea 9y ago
  Obviously no, because it doesn't increase. Like with credit cards, most of the money on loans is not paid on the default interest and with the perfect payment schedule, but on late payments.
arkis22 9y ago
interest by another name
- coldtea 9y ago
  Yes, and by another mechanism with different attributes.

ww520 9y ago

In a deflationary environment, you can lend out with 0 interest or even negative interest as long as it is smaller than the deflationary rate.

kobeya 9y ago

Then apply negative interest to holding money.