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> 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

> 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.
    - wdewind 9y ago
      > And why would "more economic growth" be a good thing? Because billions of people still live in poverty worldwide. > 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). No one does. Economic growth, although not by itself, helps alleviate a lot of these issues. There are other factors that also impact this, and I'd argue a lot of the economic issues we face aren't from too much growth but from these other factors (taxation etc.) not being handled properly. So in general more growth is advantageous, but we have to other things going right as well. > 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? Well a lot of people disagree about what things like quality of life and adequate environmental care are. One of the beauties of capitalism is that it allows people with wide disagreements about what's important in life to coexist and even benefit each other. Edit: sorry I didn't see this before: > Under the current model though. Whereas e.g. better distribution of wealth might help them more than more lending. Maybe, but if that better distribution of wealth comes at the cost of shrinking the overall system (which there is a real reason to think would happen: this is why people and corporations bank outside of the US frequently already) then I think it's hard to conclusively argue either way. Again this is not to say I don't see problems with our current economy, I just think "it's growing too much" is not one of them.
      - coldtea 9y ago
        >Because billions of people still live in poverty worldwide. That depends on available resources and distribution -- not economic growth. Besides, what's really bad about poverty is not access to lack of access to West-level consumption but lack of basics -- from health care to housing.
        wdewind 9y ago
        I agree with that. Economic growth can help these issues, but it's not the only, or even the biggest, factor. As I mentioned...
      - 9y ago
  - AnthonyMouse 9y ago
    > No, because it means much less economic growth. You're assuming the alternative to lending at interest is nothing rather than something. A loan really does three things. First, it creates new money. When you borrow money from a creditor, notice that they generally don't mail you a bundle of dollar bills. What really happens is that they credit your account with the loan amount, and at the same time create a loan account with a negative balance which is what you owe them. These cancel out, which causes their books to balance even though it is simultaneously the case that the amount of cash in their vault hasn't changed and the amount of money in your bank account has. This is why increased lending causes price inflation. Second, it causes there to be more money in the hands of borrowers. This is where you get economic growth; people have more money to spend. And third, it causes the borrower to owe the lender interest. Notice that the first two are the only ones that are actually good for anything. Even the inflation is generally a cost, but in moderate amounts it's beneficial because it counteracts the natural deflationary tendencies of a growing economy. All you really want is for people to have money to spend. But you don't actually need any lenders for that. If all you want is to create new money and give it to people, the government can create money by fiat and just hand it out to all citizens, or pay for government with it in lieu of taxing people. It's the same thing, there is just no interest.
    - wdewind 9y ago
      > You're assuming the alternative to lending at interest is nothing rather than something. No, I'm arguing with what you proposed, which is this: > > People would still lend money to their friends and family. Stores would extend credit to customers because they want to make sales. which is not in anyway a meaningful alternative to the actual credit market. > Notice that the first two are the only ones that are actually good for anything. Except that the first two only exist because of the third. > But you don't actually need any lenders for that. If all you want is to create new money and give it to people, the government can create money by fiat and just hand it out to all citizens, or pay for government with it in lieu of taxing people. It's the same thing, there is just no interest. It's the same thing, there is just no incentive whatsoever for the behavior to happen, so it reality it's not at all the same thing. This would cause massive devaluation of currency.
skybrian 9y ago
As a real-world example, there are workarounds used for banking by Muslims who don't believe in ursury. https://en.m.wikipedia.org/wiki/Islamic_banking_and_finance https://en.m.wikipedia.org/wiki/Islamic_banking_and_finance
- wdewind 9y ago
  Murabaha is largely a semantic hand wave that really doesn't fundamentally differ from the credit/mortgage model we have. The lender makes profit, frequently there are late fees, the government gets involved if the loan is not repayed (with varying consequences based on the country), the underlying asset gets seized etc. The major difference is that you don't call the profit 'interest.' It's really basically just a way for Islamic countries to claim that they are adhering to Sharia law while not being completely left in the dust because credit is so completely vital to a modern economy.
  - qubex 9y ago
    These are different forms of yield, which is a superset of interest (as are windfall, zero-coupon bonds, & cetera).
- nandemo 9y ago
  In addition to what wdewind said, the restriction on charging interest and late fees is problematic. What to do about defaults and late payments? In the Gulf, the solution is to put debtors in prison.
AnthonyMouse 9y ago
> 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. There are a lot of good reasons to think that they aren't, too. If you model credit as something you give to one person then it looks like a win -- now that person can afford a home when they couldn't before. But if you make credit generally available then it causes price inflation. That not only means higher costs, you have to pay interest on the inflated price until you've paid off the principal. Which middle income people can generally never do, because if they could then the people in the percentile below them could have gotten an interest-only loan and outbid them for the house. The result is that you get to claim a PR win because more people "own a home", except that the homes are really owned by the bank and the only difference from renting is that the payments are called interest instead of rent. The number of people who own a home outright goes down because many middle income people could otherwise have bought a home without borrowing, but against the wildly inflated prices they have to take out a mortgage. Imagine the cost of a home was little more than a down payment currently is. And this carries down through the generations because children who inherit a home now also inherit a loan in nearly the entire amount, the money used to pay inflated medical bills that are only so expensive because credit availability allows them to be. It's perhaps not a coincidence that the last few decades have seen ever increasing credit availability while the middle class shrinks.
- wdewind 9y ago
  I'm not really sure what you're arguing here. As I've mentioned in other posts, there's obviously a balance, but suggesting that the credit markets could go away entirely and be supplanted by "friends and family" loans is a gross misunderstanding of the credit markets, and certainly would not at all benefit the lower class. The entire premise of TARP was that this is true and economists on both sides of the aisle largely agree with it. > It's perhaps not a coincidence that the last few decades have seen ever increasing credit availability while the middle class shrinks. I don't think so. I think it has much more to do with tax law.
  - AnthonyMouse 9y ago

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.
  - wdewind 9y ago
    > And why would "more economic growth" be a good thing? Because billions of people still live in poverty worldwide. > 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). No one does. Economic growth, although not by itself, helps alleviate a lot of these issues. There are other factors that also impact this, and I'd argue a lot of the economic issues we face aren't from too much growth but from these other factors (taxation etc.) not being handled properly. So in general more growth is advantageous, but we have to other things going right as well. > 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? Well a lot of people disagree about what things like quality of life and adequate environmental care are. One of the beauties of capitalism is that it allows people with wide disagreements about what's important in life to coexist and even benefit each other. Edit: sorry I didn't see this before: > Under the current model though. Whereas e.g. better distribution of wealth might help them more than more lending. Maybe, but if that better distribution of wealth comes at the cost of shrinking the overall system (which there is a real reason to think would happen: this is why people and corporations bank outside of the US frequently already) then I think it's hard to conclusively argue either way. Again this is not to say I don't see problems with our current economy, I just think "it's growing too much" is not one of them.
    - coldtea 9y ago
      >Because billions of people still live in poverty worldwide. That depends on available resources and distribution -- not economic growth. Besides, what's really bad about poverty is not access to lack of access to West-level consumption but lack of basics -- from health care to housing.
      - wdewind 9y ago
        I agree with that. Economic growth can help these issues, but it's not the only, or even the biggest, factor. As I mentioned...
    - 9y ago
- AnthonyMouse 9y ago
  > No, because it means much less economic growth. You're assuming the alternative to lending at interest is nothing rather than something. A loan really does three things. First, it creates new money. When you borrow money from a creditor, notice that they generally don't mail you a bundle of dollar bills. What really happens is that they credit your account with the loan amount, and at the same time create a loan account with a negative balance which is what you owe them. These cancel out, which causes their books to balance even though it is simultaneously the case that the amount of cash in their vault hasn't changed and the amount of money in your bank account has. This is why increased lending causes price inflation. Second, it causes there to be more money in the hands of borrowers. This is where you get economic growth; people have more money to spend. And third, it causes the borrower to owe the lender interest. Notice that the first two are the only ones that are actually good for anything. Even the inflation is generally a cost, but in moderate amounts it's beneficial because it counteracts the natural deflationary tendencies of a growing economy. All you really want is for people to have money to spend. But you don't actually need any lenders for that. If all you want is to create new money and give it to people, the government can create money by fiat and just hand it out to all citizens, or pay for government with it in lieu of taxing people. It's the same thing, there is just no interest.
  - wdewind 9y ago
    > You're assuming the alternative to lending at interest is nothing rather than something. No, I'm arguing with what you proposed, which is this: > > People would still lend money to their friends and family. Stores would extend credit to customers because they want to make sales. which is not in anyway a meaningful alternative to the actual credit market. > Notice that the first two are the only ones that are actually good for anything. Except that the first two only exist because of the third. > But you don't actually need any lenders for that. If all you want is to create new money and give it to people, the government can create money by fiat and just hand it out to all citizens, or pay for government with it in lieu of taxing people. It's the same thing, there is just no interest. It's the same thing, there is just no incentive whatsoever for the behavior to happen, so it reality it's not at all the same thing. This would cause massive devaluation of currency.

skybrian 9y ago

As a real-world example, there are workarounds used for banking by Muslims who don't believe in ursury. https://en.m.wikipedia.org/wiki/Islamic_banking_and_finance https://en.m.wikipedia.org/wiki/Islamic_banking_and_finance

wdewind 9y ago
Murabaha is largely a semantic hand wave that really doesn't fundamentally differ from the credit/mortgage model we have. The lender makes profit, frequently there are late fees, the government gets involved if the loan is not repayed (with varying consequences based on the country), the underlying asset gets seized etc. The major difference is that you don't call the profit 'interest.' It's really basically just a way for Islamic countries to claim that they are adhering to Sharia law while not being completely left in the dust because credit is so completely vital to a modern economy.
- qubex 9y ago
  These are different forms of yield, which is a superset of interest (as are windfall, zero-coupon bonds, & cetera).
nandemo 9y ago
In addition to what wdewind said, the restriction on charging interest and late fees is problematic. What to do about defaults and late payments? In the Gulf, the solution is to put debtors in prison.

AnthonyMouse 9y ago

> 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. There are a lot of good reasons to think that they aren't, too. If you model credit as something you give to one person then it looks like a win -- now that person can afford a home when they couldn't before. But if you make credit generally available then it causes price inflation. That not only means higher costs, you have to pay interest on the inflated price until you've paid off the principal. Which middle income people can generally never do, because if they could then the people in the percentile below them could have gotten an interest-only loan and outbid them for the house. The result is that you get to claim a PR win because more people "own a home", except that the homes are really owned by the bank and the only difference from renting is that the payments are called interest instead of rent. The number of people who own a home outright goes down because many middle income people could otherwise have bought a home without borrowing, but against the wildly inflated prices they have to take out a mortgage. Imagine the cost of a home was little more than a down payment currently is. And this carries down through the generations because children who inherit a home now also inherit a loan in nearly the entire amount, the money used to pay inflated medical bills that are only so expensive because credit availability allows them to be. It's perhaps not a coincidence that the last few decades have seen ever increasing credit availability while the middle class shrinks.

wdewind 9y ago
I'm not really sure what you're arguing here. As I've mentioned in other posts, there's obviously a balance, but suggesting that the credit markets could go away entirely and be supplanted by "friends and family" loans is a gross misunderstanding of the credit markets, and certainly would not at all benefit the lower class. The entire premise of TARP was that this is true and economists on both sides of the aisle largely agree with it. > It's perhaps not a coincidence that the last few decades have seen ever increasing credit availability while the middle class shrinks. I don't think so. I think it has much more to do with tax law.
- AnthonyMouse 9y ago