Archive for the ‘Economics’ Category

My contribution to our China trade deficit

June 13, 2017

Our yearly trade deficit with China is around $340 billion and rising. That is, we import from China $340 billion worth of goods more than we export to China. Trump fulminates obsessively about this, saying China “rapes” us to the tune of that $340 billion.

Confession: I have personally added to our past China trade deficits, by importing many thousands of dollars worth of goods.

Typical Northern Song coin

They were old Chinese coins, bought mainly from one Shanghai dealer, Luo. I think he actually got rich in the process. But I made money too. For example, I’d get Northern Song Dynasty (960-1127 AD) coins, 10,000 at a time; cost around 13¢ apiece (shipping included). I’d sort through them, cleaning many, picking out better ones to sell for a buck or two, and the rest typically at $20 per hundred. Collectors loved such inexpensive thousand-year-old coins.

A middleman or trader like me has traditionally been seen as a kind of economic parasite. After all, I produce nothing myself. However, what I do is to get coins from people who value them less to ones who value them more. That creates what economists call a “consumer surplus,” making both my suppliers and my buyers better off. That’s economically beneficial.

I sell much to other dealers too. They retail the stuff to other collectors, creating still more customer value. And meantime, Luo got the coins from other Chinese sellers. They too profited and were made better off.

Also it’s not exactly the case that I produced nothing. My work of sorting, cleaning, and identifying coins added value to them.

Did any of this entail any job losses? On the contrary, my profits made me richer and hence able to buy more goods; and enabling my customers to buy coins cheaper than they would otherwise pay left them with more money to spend on other things. All this added buying power triggers creation of more jobs, to produce the additional goods and services now wanted. Similarly, Luo’s enrichment, and that of his Chinese suppliers, enabled them to spend more, contributing to Chinese job growth. And more jobs in China means Chinese can buy more goods made in America.

So is China “raping” us? What nonsense. Trade is win-win. That’s why people do trade. Being able to buy imported goods cheaper than they can be made here puts something like a trillion dollars annually in American consumer pockets; and spending that extra cash creates lots of jobs — surely more than the few trade might displace.*

Trump refuses to understand this. In his ignorant diseased mind, all deals have a winner and a loser. Sad.

My personal trade imbalance with China ultimately reversed. Chinese coins got much more expensive in China; Luo stopped selling those and switched to other stuff, which he’s been buying in recent years from me. Alas, my profit margin on those is much smaller.

* Another perspective on our China trade imbalance is that as Americans buy more Chinese goods than Chinese buy from us, money flows from the U.S. to China, which translates into China saving and investing at a higher rate than Americans do. Net annual saving by U.S. citizens has hovered around zero. And we finance our combination of consumer spending plus government spending by borrowing (much from China, lending us back the money we’ve spent for their goods). But that’s another issue.

Trump’s climate speech — full of covfefe

June 3, 2017

America first? Really? Who’d ever thought a U.S. president could make his Russian and Chinese counterparts appear better global citizens than us? But now even Putin and Xi Jinping are on the climate change high road, while America slithers down the other (accompanied only by the dictators of Syria and Nicaragua).

After Trump’s European trip, Germany’s leader Merkel judged that the era of U.S. leadership is over and Europe is on its own. Trump proved her point with his announcement of withdrawal from the Paris climate accord. A grown-up nation does not renege on its promises. Far from making America great again, he’s deformed it from an upstanding world leader into a child in a temper tantrum. America has never been this ungreat.

Trump says it’s to protect U.S. jobs. He just says things without regard to any reality; it’s just more covfefe.

It is true that even if carbon emissions went to zero, global temperatures would still rise, only a little less than otherwise. So if we were to curb emissions by reducing industrial output, to combat climate change, the economic harm would outweigh any benefit. But that’s not what Paris does.

Instead, it merely recognizes carbon’s effect on climate and the desirability of minimizing it to the extent we can. Simple common sense. Its targets are not binding commitments, with any penalties for noncompliance, but rather just earnestly expressed ambitions. Which virtually every other nation on Earth agreed are wise.

So no job losses. Zip, zero, zilch. Nor any transfer of wealth from America to other nations — more nonsensical Trump covfefe. His whole speech was a farrago of nonsense detached from reality, an embarrassment to the country. Transitioning sensibly from dirtier to cleaner energy sources can only have economic (as well as environmental) benefits. Trump’s coal fetish is simply insane. Coal blights the planet as well as miners’ health, and is a comparatively costly energy source. Even China, the world’s leading coal nation, is assiduously cutting back on it. And clean energy is creating around ten times as many jobs.

So why would Trump go out of his way to trash what he himself referred to as a “non-binding” agreement? To pander to his base of course — the rest of the world can go hang. Sensible heads in both government and business almost unanimously advised him against withdrawing from Paris. Polls show a majority even of Trump supporters opposed doing it. So this is aimed at the hard core of the hard core. Even politically it seems insane.

But it sticks a thumb in the eye of the world order, so Trump can play the disruptor. And it reflects yet again his bottomless ignorance about the world, the willful ignorance of a fool who thinks he knows it all. And perhaps also Trump, even in his literally diseased mind, could see that his record so far is not his lie of triumphant accomplishment but a train wreck. Trashing Paris was at least one thing he’d said he’d do that he could actually do. To him a no-brainer. Too bad it really is brainless.

In the Rose Garden he said the world was laughing at us for agreeing to Paris, and that will stop. Trump has an uncanny thing for turning reality exactly inside out. They weren’t laughing at us then, but now they are, while shaking their heads sadly.

My credo

January 18, 2017

 

unknownAs our political transition unfolds, I find myself caught between the Scylla of a Democratic party increasingly romanticizing socialist economics hostile to enterprise and trade, and a Republican Charybdis fallen into a dark hole of nativism romanticizing a past that won’t return and shouldn’t. Today’s real divide is between mindsets of openness and closedness. With irresponsible foolishness of every sort running rampant, trampling sound classically liberal principles, I will not give up on them, but will continue to defend them in the years ahead. Here I recap those core principles.

 

  • Democracy and rule of law, so government is accountable to citizens, its powers over them restricted.

 

  • Freedom of speech, expression, and argument. images-1No idea immune from critical examination – even if that offends or discomfits some. This is not only integral to personal freedom, it is also crucial for society to evaluate ideas and progress thereby.

 

  • Limited government, filling only roles that individuals cannot. People able to choose for themselves how to live and act, with society dictating only when its reasons are compelling; basically, only to protect others from harm.

 

  • Free market economics is the best way to grow the pie so all can prosper. images-2Profit-seeking business is how people’s needs and desires get satisfied. That is best promoted when businesses are forced to compete openly and fairly with each other, none gaining advantage through government intervention. Instead government should function to remove barriers to competition and business enterprise.

 

  • This does not mean businesses unregulated. They too are subject to laws to protect others from harm.

 

  • Inequality is the inevitable result of people striving to better themselves, and is not unjust or an evil. Successful people are not the enemy, nor the cause of want. But a market economy generates enough wealth that we can afford to give everyone a decent living standard, out of simple humanity.

 

  • When another country can sell us something cheaper than we can produce it ourselves, we benefit as well as they. images-3Impeding such trade only impoverishes both nations. The gains from freer global trade, through lower consumer prices, vastly exceed the costs in any jobs lost.

 

  • America prospers best in a world wherein democracy, free trade, and peaceful development prevail among other countries, making them too more prosperous; so promoting those values must be the core of our foreign policy. Forces in the world threatening those values must be actively combated.

 

  • Government spending and taxation must be brought into a sustainable balance. Heedlessly piling up excessive debt will not end well.

 

  • Truth and facts should be sought objectively, and should shape our beliefs, rather than our beliefs shaping what we think are facts. unknown-1Confirmation bias is the enemy of reason. We acquire truth through science, a method of rational inquiry which progresses by self-correction as more facts become known and understood.

 

  • No religion is better or truer than any other. All are equally false; and that false consciousness can only impede people in grappling with challenges all too real.

 

  • Human beings are natural animals, resulting from Darwinian evolution. Ultimately the only thing that matters in the Universe is the well being of creatures capable of feeling. All people have equal dignity and worth (except for those who imagine their kind is superior, thereby proving they are inferior).

 

  • Over the centuries, the increasing application of all these principles has made for enormous global progress, with ever more people able to live ever better lives. unknown-2Abandoning these principles endangers that progress.

Jobs of the future and Idiocracy

January 9, 2017

The Economist magazine recently tried to identify where America’s job growth will come from. Of course, pessimists are always seeing the opposite, afraid that advancing technology will put people out of work – starting with the 19th century Luddites, who campaigned against factory automation – and could not have foreseen the explosion of new jobs that technologies like railways, telegraphy, and electrification would soon bring.scan-2

So using data from the U.S. Bureau of Labor Statistics, The Economist presented the job categories that should see the highest growth rates in the years ahead, to 2024. Now, America, judging from current politics, is fixated upon old-time factory jobs (like Carrier’s). But here’s what struck me from that Economist article. It’s not just that such factory jobs aren’t in it. Of course not. However, I asked myself whether the kinds of people who did such factory jobs can switch into these other professions. I don’t think so.

Well, maybe for one or two of the 16 shown, like “ambulance drivers.” Though even that may overlook the advance of self-driving technology.

images-1The top job growth category is “wind turbine service technicians,” reflecting increasing emphasis on alternative energy technologies. But most of the list reflects a different trend: ageing populations, and the panoply of services they’ll require. And, as The Economist notes, “[t]hese are all tasks that require empathy and social skills.”

Again – not the métier of America’s army of less educated assembly line jockeys. They’re yesterday’s men.

The Economist’s writer also points out that the analysis doesn’t take into account job categories that don’t exist yet. Some will be related to technologies that are just emerging, like virtual reality and drones. unknownHe notes that his 16-year-old daughter wants to be a robopsychologist (who figures out why robots are misbehaving). Such jobs don’t exist now, but probably will soon. And then there are all the future jobs we can’t even conceive of today.

A lifeline for all those yesterday men? Not a chance. Yet we’re still producing such people. Our educational system still spits out a sizeable cohort of folks without even a high school diploma. Some can do those remnants of low skill jobs that aren’t automated away. Many though have to be supported by the productive population, in one way or another; the “disability” system covers a lot of people whose “disability” is really just being useless.

unknown-1The movie Idiocracy (one of those dystopian-future flicks) began by contrasting two families. A highly educated, brainy couple agonize over having even a single child. While a bunch of doofuses pops them out right and left. Result, after multiple generations: a nation of doofuses. Apparently everyone is supported somehow because technology dispenses with a need for human work. Not very realistic.

The fact is that, to support all our yesterday’s men (and women) we’ll need a lot of tomorrow people, capable of doing the tomorrow jobs that the former cannot. And Idiocracy wasn’t entirely cuckoo in highlighting that advanced modern populations are not reproducing themselves. So where will we get the tomorrow people we need? Immigration.

Indeed, a key reason why America’s economy has been more dynamic than Europe’s is our greater ability to assimilate immigrants. They fill the gaps our own natives cannot. Our schools don’t produce enough Americans to do all the high tech and skilled service jobs; a lot of them are done by immigrants (especially from Asia).

unknown-2The idea that other countries send us losers and scroungers is stupid. People willing to uproot themselves and start fresh in a new and unfamiliar environment are, to the contrary, full of the kind of enterprise and drive we need.

America’s fixation on manufacturing jobs – and its growing hostility toward immigration – are a double whammy of, well, idiocracy.

 

Eat the Rich

December 17, 2016

unknownP. J. O’Rourke is the funniest serious writer I know. Or the most serious humorist. Even the “Acknowledgments” section of his book Eat the Rich is hilarious. Its subtitle is A Treatise on Economics – often called the dismal science. Some dispute that – denying economics is a science. But it’s normally no laff riot. O’Rourke makes it one while actually treating the subject in deadly earnest.

O’Rourke asks why countries are rich or poor. It’s not obvious. He starts by naming the usual suspects – brains, education, natural resources, culture, history, hard work, technology, government – and exonerating them all with counter-examples. Admittedly that’s a mite glib. While he says government doesn’t cause affluence, because places with a lot of government are often broke, the kind of government matters.

unknownSo he visits countries, seeking enlightenment. First stop, Albania. So dysfunctional is Albania in O’Rourke’s telling that it’s a mystery Albanians don’t just starve. He titles the chapter “Bad Capitalism,” but capitalism per se is not Albania’s problem. It’s a deficiency of civil society. Albanians never got the memo about living decently among other people.

Next, Sweden: “Good Socialism.” This “socialist utopia” is often romanticized – the common mistake of confusing labels with reality. O’Rourke: “When the Social Democrats did get in office, they made socialism work by the novel expedient of not introducing any.” Instead, they retained a free market capitalist economy, and heavily taxed the resulting prosperity to fund egalitarian redistribution and social welfare spending. Swedes bought into this because, on the civil society spectrum, they’re at the opposite end from Albanians – really nice people who believe in egalitarianism and social welfare.

unknown-1But unfortunately, O’Rourke explains, politicians found they could buy votes with ever increasing hand-outs. Whereas originally, benefits mainly went to working people, now non-work started to pay.

Guess what. Redistributing the fruits of prosperity might fly, but not redistributing fruits you’re not producing. Sweden got into a deep hole. But at least, being Swedish and sensible, they saw the need for retrenchment. So today’s Sweden is very much not what lefties dream.

images-1Then on to Cuba: “Bad Socialism.” Worse even than Albania which at least actually has an economy, sort of. I won’t go into details, but if you’re one of those ideologues who thinks Cuba is the cat’s meow (the healthcare! the healthcare!) – you’re an idiot.

I mean, come on, really, you are.

O’Rourke quotes a Cuba guidebook that a museum’s antique furniture was “recovered from the great mansions of the local bourgeoisie” – “Tactfully put,” he says. “Outside the tourist areas, however, there was a fair danger of experiencing some freelance socialism; you might find that you were the local bourgeoisie from which something got recovered.”

Finally, Hong Kong: a tiny place with huge population density and no natural resources, poor as dirt when the Brits came in. They made it rich. How? By doing nothing. Just letting Hong Kongers freely do their own thing. The freest market economy on Earth. Today its per capita income exceeds Britain’s own (the Brits partly socialized themselves).images-2

This sets the stage for O’Rourke’s summing-up chapter – a cogent, compelling defense of free market capitalism.

In pre-industrial times, nearly everyone was poor as dirt. Economic growth was approximately squat. Since then, growth has multiplied average incomes around tenfold. More efficient production is part of it. But you also need secure property rights, rule of law, and democratic (hence accountable) government. These are interconnected, and part of a society’s culture.

unknown-2So is a free market – enabling people to freely utilize their abilities to improve their lot, and enjoy the fruits of their efforts. No freedom is more fundamental. This is also more moral than any alternative – even though it results in inequality, which some deem unfair. O’Rourke: “The market is ‘heartless.’ So are clocks and yardsticks.” Blaming inequality on free markets is like gaining twenty pounds and blaming the bathroom scale.

The common error is thinking Joe’s wealth causes Sue’s poverty. As though there’s a fixed amount of wealth to go around, and Joe having more means Sue having less. Not so. Mainly, the world’s Joes get richer by producing something of value, enlarging the pie, enabling Sue to have more too. So wealth is not an evil, it’s a good thing. And actually, the ethic of capitalism, as opposed to mere wealth, is to reinvest riches, not just hoard them. This also grows the pie.

unknown-1Adam Smith, in 1776, called it the “invisible hand.” The truth that folks striving to enrich themselves wind up enriching society. Many still don’t get it. Why? Because it is invisible. Yet because of it, globally, the gap between rich and poor is in fact narrowing, not just in money, but in quality of life measures like literacy, infant mortality, longevity, etc. Some unfairness is a reasonable price to pay for the betterment of all (or most).

unknown-3But O’Rourke deems it actually wrong to care about fairness. He invokes the Tenth Commandment: don’t covet thy neighbor’s stuff. Get your own. A message to socialists, egalitarians, and fairness fetishists.

Here’s my own summation – also a concept that eludes many people (like Bernie, the Cuban government). All wealth comes from producing goods and services people need or want. Whatever encourages (or at least doesn’t hinder) folks getting on with it is good economic policy.

That is all ye know on earth,
And all ye need to know.

Trump: Making China great again

November 27, 2016

unknownThanks to president-elect Trump’s opposition, the Trans-Pacific Partnership (TPP) trade deal is dead. And considering all his China-bashing in the campaign, it’s a supreme irony that they’re high-fiving each other in Beijing – because Trump has handed China one gigantic geopolitical triumph.

This is America forfeiting – to China – Pacific region trade leadership. The TPP, painstakingly negotiated over many years, was our way to unite the other regional nations with us to resist Chinese bullying. unknown-2With America pulling back, now they’re left to fend for themselves, which will mean accommodating to China as the region’s big Kahuna.

But the words “trade deal” have become so politically toxic here. Shame on Democrats for their cowardly unwillingness to defend one of President Obama’s key initiatives. He himself was forced to give up on it. Not to mention Republicans, who until recently knew better on this issue too.

America’s share of global manufacturing has not been falling. Manufacturing jobs have been disappearing — but due more to technological advancement than trade. And trade-related job losses are overwhelmed by the benefits to U.S. consumers when prices we pay are lower. That savings translates into more consumer spending, which creates jobs, making up for any lost. Furthermore, if trade makes countries like China and Mexico richer, that’s good for us — they can buy more from us. And anyhow, the TPP would not actually have given other countries much added ability to sell us stuff – our tariffs were already quite low. unknown-1But it would have required those other nations to reduce their trade barriers, enabling U.S. businesses to sell more to them. For us, it was a no-brainer. But I guess we have no brains now.

The Debate

September 27, 2016

images-2I sat down with a sense of dread; and a bowl of popcorn to medicate the pain. Conventional wisdom said Clinton had to tread a lot of fine lines, some mutually incompatible. Whereas all Trump had to do was not appear deranged.

Half an hour in, I was gaping in horror. He seemed to be having his way with her.

Of course I knew everything he said was ridiculous, but tried to see it from the eyes of a voter still (amazingly) undecided – uninformed, unengaged, impressionable. And I recalled bin Laden’s aphorism that when people see a strong horse and a weak horse, they like the strong one. unknown-1Trump was all bold colors, forcefulness, conviction; full of soundbites to which the yahoo will shout, “Yeah, that’s right!” While Clinton was full of standard left-liberal politician boilerplate droning that puts one to sleep.

But I also remembered a commentator’s suggestion to watch the debate with the sound off – TV being, after all, primarily a visual medium. I had told Clinton to smile, but I thought she overdid it, with an often sappy-looking clown-grin. unknownHowever, Trump’s facial dynamics were much worse. Not at all the visage of a serious public man. He almost flunked the non-derangement test.

Still, I was surprised by the consensus verdict of polls* and pundits that Clinton won big (or “bigly” in Trumpanese). I’d feared more people would fall for his alpha-male shtick and snake oil. If not, that’s reassuring.

He did seem to kill her on trade. Clinton basically had no come-back because she’d compromised herself by pandering to her party’s anti-trade left. Too bad Gary Johnson (the Libertarian nominee) wasn’t there to point out that importing goods made cheaper overseas than we can make them here benefits consumers through lower prices; enabling them to spend more on other things; which creates jobs, making up for those lost. And Trump’s condemnation of trade deals like NAFTA is utter rubbish. There’s scant evidence it cost us jobs – but it sure helped Mexico – and richer Mexicans can buy more from us, again adding to U.S. jobs. How tragic that free trade is undergoing a brainless political lynching.

But happily Clinton nailed Trump on his despicable business practices, though she could have been more forceful. The thousands of lawsuits deserved mention. She did note his multiple bankruptcies but failed to explain that a bankruptcy has victims – all those whose bills go unpaid, and whose investments are wiped out. His whole fortune comes from stiffing, ripping off , screwing people.

images-1And why no mention of Trump University? Here we have the extraordinary, odious circumstance of a presidential candidate on trial for fraud. And this doesn’t even come up?

Then there’s his refusal to reveal his tax returns. It’s a lie that being audited prevents this; the IRS itself refutes it. Today’s paper says Trump has never actually shown evidence that he is in fact being audited! And what of his boast that not paying income taxes was “smart?” Who ever imagined a candidate saying such a thing? If that’s not a gaffe, I don’t know what a gaffe is.

But Trump is a clever manipulator of factoids and verbiage – a true BS artist. This was displayed in his twisty answer on birtherism. Hillary’s response could have been stronger. I wanted to hear, “Donald, that’s just complete nonsense, that insults our intelligence. Everyone knows you were the leading promoter of birtherism. It was always a lie, you knew it, yet you kept at it, and now you’re still twisting the facts.”

I always felt that at the end of the day, while many voters seem up for a crazy roll of the dice with Trump, more would opt for the less exciting, uninspiring, more conventional, definitely compromised, yet steadier, saner, safer choice. Response to the debate suggests this outcome.

unknown-2Having that vile creep on a presidential debate stage is already a national degradation. Let us hope that this will mercifully end in November with Trump defeated.

Bigly.

* Forget the online polls, they mean nothing.

Ban the box?

September 20, 2016

unknown-1Since 2007, eleven states have enacted bans on checking a job applicant’s credit score. The aim is equality and fair hiring – since someone with low credit would more likely be black, poor, and/or young. Yet when two economists (Robert Clifford and Daniel Shoag) studied these bans, they found hiring more racially biased.

Why so? Another well-intentioned liberal utopian idea whacked by the law of unintended consequences. It seems that when employers cannot see applicants’ credit scores (often a good predictor of reliability on the job), they give added weight to factors like educational attainment and experience – on which young, poor, and black people do even worse.

imagesThe Americans with Disabilities Act similarly aimed to help a disadvantaged class, by giving them a litany of on the-job-protections — enforceable through litigation. Thusly turning disabled workers into lawsuit bombs, making employers wary of employing them at all.

Well, you may say, what’s wrong with requiring employers to treat disabled staff fairly, and penalizing them if they don’t? But even an employer with all the goodwill in the world would realize that what she considers fair, someone else might not, and in today’s litigious culture, that’s a big risk. unknown-2Some lawyer sharks make their livings by cooking up dubious ADA cases and shaking down businesses for settlements. (The ADA was a bigger boon for lawyers than for disabled people.)

It’s all part of a trend to see businesses as enemies of society. As if people should provide you with goods and services with no profit, selflessly, as a public service. A friend of mine constantly whines about supermarkets making profits, asking why they can’t just give up some profit and cut prices. But she likes being able choose among thousands of products in one store. Supermarket profit margins average around 1%.

Now we have the “ban the box” movement – referring to the job application checkbox, “have you ever been convicted of a crime?” As though it’s somehow unfair for an employer to know this about a job seeker. Applicants do have rights; but don’t businesses have some rights too? Isn’t it, indeed, unfair to require a business to hire someone without knowing their credit rating, or criminal record? Those tell something about the person. And while people with bad credit or jail time deserve some consideration, are they entitled to be treated as though those facts about them aren’t facts?

unknown-3And I’m dubious anyway that “ban the box” would actually help the intended beneficiaries – let’s face it, mainly young black men. Who, percentagewise, have a greater likelihood of criminal justice encounters. Businesses know that. If barred from learning whether a black applicant has a clean record, a common response would be wariness about hiring him – making it harder for black men to get jobs. Just like with credit scores.

Sometimes the “unintended consequences” are not even a surprise. Sometimes they stare you in the face. But that never seems to daunt liberal do-gooders in their effort to repeal reality.

After I wrote this up, an article in The Economist reported on another study, showing states with “ban the box” laws, sure enough, do experience lower black hiring.

unknown-4And now Massachusetts has banned employers from asking job applicants what their present salary is. Fairness to women is the stated aim.

Why not just go for total fairness and require businesses to hire workers knowing nothing about them at all?

Observing an Alaskan feeding frenzy

August 31, 2016

We did an Alaska cruise. Not our first, but it’s a way for my 95-year-old Californian mother to get the whole family together.

imagesShe enjoys the shipboard slot machines. I pointed out there’s a device right in her stateroom where she could similarly put in money, press a button, and flush it away. Unknown-1But she prefers the ones in the casino.

One of our wildlife experiences was to witness that phenomenon called feeding frenzy. In the middle of the ship, they’d set up a special jewelry sale, a big table piled with boxed sets of necklaces, bracelets, etc, priced from $19.95 to $39.95. There was not much variety. But the deal of the century: buy four, get one free! Holy cow!

images-1Now, I am no connoisseur of women’s jewelry; but this garish stuff looked to me like what a six-year-old would enjoy for dress-up. Yet the table was thronged with women, grabbing stacks of boxes up to their chins.

I felt glad my wife wasn’t one of them. Then one friendly looking gal, holding a box, smiled wryly at me. images-2I said to her, “You don’t really need this.”

“I suppose,” she replied.

Emboldened, I added, “Looks like overpriced junk.”

“I suppose,” she said.

But I doubt this broke the spell or dissuaded her from buying.

The scene evoked that sneer word “consumerism,” which refers to your disapproval of someone else’s purchase choices. But I reminded myself of Pope Francis’s line: “Who am I to judge?”

Payday lending and lawyer extortionists

August 8, 2016

imagesPayday lending has been in the news again, with do-gooders seeking a crack-down. These are businesses making small short-term loans, to mostly poorer people in a fix for cash. Their charges, if calculated as annualized interest rates, might seem exorbitant. What would be reasonable? An 18% limit? On a one week $100 loan at 18%, the business would clear . . . thirty-five cents. Would you make such loans? With all the costs and overheads, rent, wages, etc., all the risks of running a business, handling a lot of cash, in what may be a crime-ridden neighborhood? Plus the risk of non-payment and all the hassles of trying to collect? Do these businesses actually make excessive profits? That we’re never told.

But well-intentioned liberals want to protect the poor from victimization by payday lenders. Put them out of business. So poor people needing quick cash will have no way to get it. Isn’t it great that affluent “progressives” stand up for the disadvantaged?

UnknownHowever, some businesses are predatory. Like Trump University. A total rip-off. And prominent among the predators are lawyers – whose predation mostly targets legitimate businesses. I’ve written about the class action lawsuit scam. You find some business that has done something maybe, arguably, a little bit wrong, no matter how trivial, and you sue their butt off, forcing them to settle to avoid ruinous litigation costs. The lawyers typically get six or seven figures, while the consumers they’re supposedly fighting for get peanuts.

Unknown-1One such case involved a restaurant’s alleged failure to honor a free meal coupon. A consumer, to get anything, would have to produce that old $3.99 coupon (good luck). The lawyers got $515,000. Who’s more guilty, them or the restaurant?

The Economist recently highlighted another such scam – lawsuits charging businesses with violation of the Americans with Disabilities Act. The ADA rulebook is hundreds of pages, so no business, however well-intentioned, can be in 100% compliance. And Congress, in its wisdom, instead of having a government agency police this, opened it up for private litigation. Maybe the lawyers’ lobbies had something to do with that.

UnknownAnd if you’re a business that’s sued — perhaps because a sign is not properly positioned – I’m not kidding – you might suppose you could simply fix it. Nope. No fun for lawyers in that. They get their pound of flesh just by showing a violation ever existed. And you have to pay their attorney fees too.

Not surprisingly, some lawyers have gone whole-hog into this ADA extortion racket – filing suits against every business in sight, shaking them down to settle rather than face even costlier litigation. Settlements typically run $3500-7500. But California has special rules even more skewed against businesses, so settlements there run $15,000-20,000. A California judge has ordered a Colorado retailer to pay legal fees likely to exceed $100,000 because its website didn’t accommodate screen-reading software for the blind. (There’s always something.) The Economist says some lawyers file dozens of these cases weekly.

So we target payday lenders, who provide a real service to needy people, but stack the deck in favor of predatory lawyers and against the legitimate businesses they victimize. And we wonder why small business growth in America is way down. Unknown-2All the yammering about “jobs, jobs, jobs” in political discourse seems disconnected from the fact that jobs come from businesses.