, he uses this very topic of payday lending to illustrate a repetitive mistake we make with our laws.The mistake? Well-intended laws that begin with broad, categorical judgements by elitist do-gooders and nanny staters (my words, not Sowell's) have very bad effects on the very people the elitists proclaim they are helping. Reflexive stereotypes and emotionally-charged phrases like "predatory lending" and "exploitative interest rates" set the tone and parameters of regulations, precluding any consideration of basic economic common sense.
First, the video:
Notice the inability to answer the question of whether or not the poor are better off if they never have the opportunity to get high-interest loans? As Sowell would say, that question never gets asked in the hysteria that went into making the law, let alone answered.
As Sowell points out, after Oregon made it illegal to charge interest past 36 percent annual, 3/4 of payday loan business shut down. Why? 36% annual works out to be $1.50 interest on a loan of $100 due in two weeks. There is no way a business can sustain that rate of return, especially one dealing in high risk loans that many times do not get repaid. Short term loan interest rates are rated for short periods of time, even days, so when scheduled out to one year they end up with astronomical rates of 800% or higher. These are the kinds of numbers that get tossed around to whip up furry against businesses set up to actually provide a service for people down-and-out and in need of fast cash.
Poor people in Oregon need now have far fewer places to turn, thanks to the legislation that was intended to help them.
