“On a long enough timeline, the survival rate for everyone drops to zero.” – Fight Club
Amber lost the lawsuit to Johnny Depp to the tune of $15 million. I guess she’s now deep in Depp.
One thing that I like to do is test ideas. Sometimes, like PEZ® and velvet Elvis posters, the idea is a classic of Western Civilization. Other times, like communism, communism, and communism, the idea is horrible. Others? Others are a kludge that we’ve made work. Or the idea is just the system that we have.
This post will test an idea that just might be the most dangerous one I’ve ever shared.
An idea that has been with us for most of recorded history is the concept of interest rates. The idea is simple – I borrow $10 today, and next year I give back $11. The extra dollar is the fee I pay for borrowing the money. There are records that compound interest was charged by the Sumerians back even before your momma was born, back in 2,400 B.C. They even had the math to accurately calculate it. Area of a circle?
Nah.
How much you owe me? That’s easy as pie. But not as easy as a nearly 22/7 pies, I guess.
Sorry, that joke was irrational.
Regardless, interest rates have been with us a very, very long time. And they have been vexing us for just as long. The good properties of interest are that it allows for people who don’t have money to get it, which they like. It allows people with “excess” money to get something for having the money, which they like.
There are some pretty significant downsides. Let’s take a simple example: There are several people on an island after a three-hour tour. A three-hour tour.
There are 10 ounces of gold on the island. I need to borrow them because, well, I have no idea. Assume it involves me trying to get to Mary Ann’s coconuts. Whatever.
A year later, the person who lent me the 10 ounces of gold wants 11 back. But there aren’t 11. I default. I default because there is a limit on the currency. This simple example shows that, in a society where interest exists, eventually there must be either a default, or there must be an inflation of the money supply.
I guess there’s a reason The Mrs. buys coconut shampoo?
This leads, inevitably, to a series of booms and busts. It also leads to, over time, a greater and greater concentration of money (or cash) in the hands of those who actually do nothing more than have the cash. In our society, these people often just print the cash, unbacked by anything, like it’s some amazing Sumerian money magic.
I hear the ladies love a man in cuneiform.
Thus, the financial sector, through the use of interest, both (over time) gains control over society through the concentration of capital. The golden rule? He who has the gold, makes the rules. In this case, the Federal Reserve® (which is not federal, and doesn’t have reserves) is actually owned by the member banks. So, the banks own the Fed™. Which makes the rules.
As I said in a previous post, there has been a concentrated effort to remove the political from the economic, and the economic from the political. Sure, Congress passes $1.7 trillion spending bills so we can send lots more money to the Ukraine, but who finances all of these shenanigans?
The Fed®. Look in your wallet, and pull out some cash – it says “Federal Reserve Note®” – not United States Dollar. A difference. Congress doesn’t print the cash – the Fed™ does. And the Fed© has to print more of it each year, because people keep getting charged interest.
This leads to cyclic bouts of inflation and/or currency default due to the accumulated debt. The Great Recession of 2008 was brought about because of a debt-fueled housing spending spree that collapsed.
What car does the Chairman of the Fed® drive? A Fiat™.
So, what happens if . . . we don’t allow interest to be charged?
It’s a big thought. And the world has had interest rates for a long time. In Imperial Rome, they varied from 5% to 25% depending on the time and on what was being invested in, and there are records of just the same sorts of credit crunches as we see today. And also the need for the Romans to take their silver coin, the denarius, and turn it into a mainly base-metal coin by the end of the Empire.
But I’m not alone in speculating about what would happen if we stopped charging interest. Aristotle himself (and not the Aristotle who makes the gyros at the fair during the local harvest festival in Modern Mayberry) had the idea that it shouldn’t exist because, heck, I’ll let him tell you:
“The most hated sort, and with the greatest reason, is usury, which makes a gain out of money itself, and not from the natural object of it. For money was intended to be used in exchange, but not to increase at interest. And this term interest, which means the birth of money from money, is applied to the breeding of money because the offspring resembles the parent. Wherefore of all modes of getting wealth this is the most unnatural.”
I’m not sure if Aristotle was upside down on a used goat that he bought, but what I think he’s trying to say is this: the act of lending money creates no value. If I buy a building and build a PEZ® factory, the PEZ™ factory either makes a profit or makes a loss. If it makes a profit, that’s one signal that it has created value for society. It has employed people to make a wholesome product that, when consumed in moderation, is harmless. If I can make a profit doing that, I’ve created value in society.
If I lend money? Not so much. My singular objective is only the profit from making money.
It takes an infinite amount of Zenos to screw in a light bulb.
How would such a world work? Perhaps people combine to lend money to businesses based on the idea that they might create value (and thus a profit) and take the gain in their money from that value created through the business? People combine to finance a business for a purpose, and thus gain.
No interest required.
How about a house? Why would I loan money, absent interest, on a house? Perhaps the payment could be based on the assessed value (thus making the loan an investment, rather than a loan). If the value goes up, the payment goes up. Down? Payment goes down.
This would put skin in the game for the banks, and they would have a vested interest (pardon) in making sure that the investment was good. No incentive for the housing crisis. Payments linked to . . . value created.
Car lending? Yeah, that’s harder, since that is a declining-value asset. I’m sure that it could be figured out, since I’ve already solved tons of loan issues with the two solutions above. I’ll leave solving the car loan problem to the class. Oh, and the student loan problem, too.
I hear that $221 million in student loans were canceled. Those lucky seven people!
It can be done. It has been done. Oddly, I think it would result in a freer world where, rather than focusing on ways to, uhm, view people as assets to extract value from, people would be forced to seek to provide value for their fellow man. Making happy customers.
Think of it as a thought experiment. A dangerous one that would change who has power in this world.
See, I told you this was my most dangerous post.
Not really workable. The loaning of money has value in itself. (Admitted that the loaners may well be crooks).
Without interest, why would anyone loan money to anyone but close friends in need. And in your initial premise, the supply of gold increases as it is mined. It does increase slowly, thus it is a very sound basis for money. And the value of gold on an island, with no contact with other islands would probably be less than the value of coconuts. And you never loan ALL of your value, whatever it is.
Given our fiat financial system will fail the instant even a small percentage of the people realize it is not based on anything. But people are stupid. They may never realize that.
Interest is a good thing. It can move money in the direction of good things.
Everyday people used to increase their wealth by saving money, because of compound interest.
Interest represents the value of money itself, while we should definitely get rid of the crooks, lets keep the system.
We could have lending without interest, if we allowed for payment of interest in goods, rather than in money. Suppose I need to borrow $10,000 to repair my tractor. When I bring in a harvest, I sell most of my grain and pay back the $10,000, plus 100 bushels of wheat. Now, you can take delivery and eat it, or you can sell the wheat to anyone you want, and it’ll be to someone who has money, so what’s the difference? You’re bearing the risk for the price of wheat at the time of harvest, not me. If, by the time my crop comes in, I can only get $10,000 for it, I don’t go deeper in debt just to pay the interest. On the other hand, if the price goes up, you benefit.
“Value” means other people’s opinions about personal priorities. If I want money, and you lend it to me, your act of satisfying one of my wants creates value; I am assigning a value to your act of giving me a loan.
I think you’re using a bogus ‘labor theory of value’, which says value is produced by doing labor, not from satisfying human wants. I can do labor by digging holes and filling them up, but since nobody wants that, I’m not creating value.
Queen Victoria was on a gold standard, where the amount of money was approximately constant (except for mining), and there was no business cycle of booms and busts.
Huh? Nowhere did I indicate there was a labor theory of value. For the record, I absolutely reject that.
The loan doesn’t create value – the actions made with the capital may create value.
Money has two functions: 1) as a store of value, and 2) as a communication medium. Gold has a value separate from its use as a communication medium, because you need Gold for jewelry and electronics. In the island example, they should use dried fish for money, not tree leaves, because dried fish has a value, food, other than its use as money.
Fiat currency and cryptocurrencies only serve the communication function of money, not the storage of value function. I expect the value of Bitcoin to drop to near zero once somebody invents Bitcoin 2.0. Fiat only has value because government employees will kill you if you don’t surrender as much of it as they demand.
Agreed.
John, interesting idea…
I especially like the positive feedback loop this would build into the housing market.
One thing I’ve noticed over the years, is that properties that are either given (welfare) or drastically under priced ALWAYS deteriorate and end up being slums no matter their condition when they were sold/rented.
By forcing the price to reflect the market value it give the renter/home owner the ultimate incentive to maintain and repair that property.
Now as far as automobiles…Here is a class of property that usually decreases in value quite quickly even if they are maintained and repaired very well.
Question: Why should society have a class of products that require interest in order to ensure ownership?
I can’t think of any other product that society as a whole has accepted that you Must have a loan in order to purchase. Perhaps it is the distorted society that is the problem on this one, maybe we as a people need to realize that if an entire category of consumer goods is designed to be out of reach financially, society Must adjust to that reality instead of breaking society in order to continue to buy what we can’t afford.
Basic transportation CAN be purchased without a loan, if the need is sufficient and you work and save.
Just my 2 cents, and another dangerous thought of the day…
MSG Grumpy
It is the fiat currency that has developed the loop. If people had to buy stuff with real money, the entire equation changes, as you suggest.
Your question is perfect. And would change the way we view the world. Like I said, dangerous.
It is a fun thought experiment but like many of those there isn’t a scenario apart from a complete collapse and rebuilding where it happens. Absent a credit market, the whole thing collapses.
Also, the credit market is not the same regardless of the type of credit. There is a huge difference between interest charged on a loan used for capital improvements at a Pez factory versus buying a house versus buying a car versus buying the aforementioned Pez from a dollar store using your credit card. When we really get into issues is when a third party, usually the government, enters into the equation.
Arthur, I thought you were an accelerationist?
Great idea but…The Fed & BOA/Wells/Truist/Chase have no interest in no interest.
Why??? Zeno evil.
Hahahaha!
“What happens if . . . we don’t allow interest to be charged?” is kinda the same idea of “ZIRP”…
https://www.reuters.com/article/us-usa-fed-zirp/ten-years-on-feds-long-strange-trip-to-zero-redefined-central-banking-idUSKBN1OF0HI
Since 2008 ZIRP has allowed the rise of huge numbers of zombie corporations on Wall Street and an apparently consequence-free explosion of the Federal debt from $10 trillion to $31 trillion (and a corresponding proportional rise from 68% to 123% of GDP) in only 14 years.
https://www.thebalancemoney.com/national-debt-by-year-compared-to-gdp-and-major-events-3306287
Although many agree with your title thesis that ZIRP is a “dangerous thought”…
https://www.aol.com/news/2010-03-06-why-the-feds-zero-interest-rate-policy-may-be-dangerous.html
…it’s certainly a popular one…
https://www.federalreserve.gov/pubs/feds/2004/200448/200448pap.pdf
https://i.insider.com/4f608c2569bedd8e3700006a?width=2200&format=jpeg&auto=webp
https://a57.foxnews.com/static.foxnews.com/foxnews.com/content/uploads/2018/09/1862/1048/0_21_350_121609_greta_time.jpg?ve=1&tl=1
So… “don’t charge interest”. Been there, done that. I guess we’re gonna see what happens next.
Zombies appear constantly due to deterioration in management teams or market conditions. Low/zero interest rates allow them to persist to notable levels, and when rates rise (like now) when the FRB is attempting to shift the economic cycle, they struggle and die.
In an equity-based system these companies’ inability to generate economic value and thus dividends would be noticed by their shareholders, and these would be incentivized to direct changes. Presently most controlling interests are held by titanic investment funds who do not have an ‘economic value’ mandate, and so passively either do not vote on shareholder issues or vote with management.
The problem was not the low interest rate, it was the low (0%) reserve rate. The banks were allowed to print their own money to loan out. In infinite amounts. And so they did. Because there is no downside to handing out loans of money you digitally printed at the touch of a keyboard, which had to be paid back with real money. Even when people default on their loans, the bank just zeroes out their debt with a different keyboard.
As far as housing, a case could be made for charging interest, a modest amount related to the difference between the cost of a house and a similar rental property.
ALL housing loans should be designed to retire in 10-15 years. That would encourage people to buy a more modest home. The biggest factor in foreclosures is too much house for the family income.
No balloon payments. Original lender to keep the loan, AND the risk for its nonpayment.
ALL borrowers have to have some skin in the game. If they can afford a down payment of several thousand dollars on a car lease, they can afford the down payment in a house.
I’m suspicious of anyone who goes around saying things like “encourage people to buy a more modest X.” Manipulating what people buy or do by trying to set certain conditions is just a version of social engineering that we could all do without.
None, though, is different from zero. During ZIRP I got a 3.5% mortgage. That ain’t zero.
There is a book related to this ancient history:
https://archive.org/search.php?query=the+Sumerian+swindle&sin=
As for a modern country trying a new monetary system, but they were crushed by the “allies”, their men genocided and their children brainwashed to think they are the worst people in history.
It’s been tried in other places, other times . . . .
I work in finance, and have apent some thought on this topic.
Given the dollar amounts, saving for a car is in reach for most workers. However, cars could be handled on a lease-to-own, with the lessee/buyer responsible for maintenance for the duration of the lease. Could do houses this way also – most money invested in housing loans is actually pension/insurance fund money, which wants that long-term payment stream. Mark-to-market accounting on these could be a real chore, though.
Student loans? Just prohibit that nonsense.
I don’t think a prohibition on charging interest would actually lead to an economic collapse, especially if done with adequate warning. Presently banks are prohibited from taking equity stakes in most businesses. Give them 10 years to eliminate their debt exposures and permission for reserve-based equity investments, and their balance sheets would smoothly rotate to equity holdings. Give them permission to pool investments (rent-to-own houses in Mayberry, USA) and sell fractional interests in the pool (and charge a servicing fee), and they’d be as happy as pigs in mud. Money for nothing tangible, you see. Another benefit- depositors would see a higher return from pass-through income vs. CD rates, and with loss-shares in the contract the banks would be incentivized to originate quality and service it well.
I believe this does not work without sound money. Otherwise everyone’s trying to rent assets or gain investors, and then share the inflating money with them later.
This is entirely workable. However, the idea of interst is deeply embedded in the human psyche, and as said previously, it would take a truly brutal economic collapse to implement it.
That collapse is coming. And student loans are a monstrosity.
This reminds me of an exercise we had in my “Practical Law” class elective in senior year of HS about 25 years ago. Teach taught us how our currency system works and how dollars come into existence in the modern world. I remember distinctly being shocked at hearing that our currency was loaned into existence by the Federal Reserve via selling bonds, now backed by nothing since the Gold Standard was abandoned. My hand shot up, and the teacher called on me. I said,
“Um, if there’s a finite supply of currency, and loans need to be paid back in full with interest, what happens when the bonds need to be paid back with interest, and there is insufficient total currency present to pay the full amount?”
Teach grinned and said, “Well, you float another bond, and loan more money into existence to cover the interest on the previous bonds.” My jaw dropped.
“But teach… that just makes the problem WORSE! What you’re saying is that they have to make loans faster and faster at an ever-accelerating rate just to keep the system from imploding!”
The teacher grinned triumphantly and gestured to me and said, “He gets it!” The rest of the class seemed bored. I was absolutely horrified, the implications immediately apparent. All the money I and everyone I ever knew would ever earn while working our tails off trying to be useful members of society would quickly become worthless once the curve went hockey-stick. And the only people with anything of real value would be those who would get the collateral when the whole system defaulted.
I agree that loans and interest should be avoided at all cost. I don’t know if we could just reconfigure things to make interest on loans impossible or illegal. I do know that Muslims have a concept known as Riba which was considered a sin in early Islam and banned entirely; nowadays they like to quibble about how much is a sin.
https://en.wikipedia.org/wiki/Riba
Rather than entirely banning interest or just limiting it (continual bleeding is generally bad no matter the amount!), I think we should go a bit deeper into history and bring back Jubilee. No, not the X-Men comics Jubilee (although the ability to create a precise detonation in a human brain mimicking the effects of a massive stroke might be useful in correcting modern problems, if applied to certain brains)… I mean the biblical Jubilee that the Israelites used to have every 50 years where all debts were cancelled, land returned to heirs, etc.
https://en.wikipedia.org/wiki/Jubilee_(biblical)
Now if you’ll excuse me, I need to go find out where these weird little bright red dots are coming from, they seem to be following me around…
A small idea like this has very, very powerful implications. And that might explain those lights . . .
Usurious interest on loans (e.g. visa revolving credit) is just like the lottery in that they rely on the apathy and utter pig-ignorance of the consumer to even exist. A 19.8% fee on new purchases when your bank is grudgingly paying 0.05% interest on passbook savings? A one in 10 million chance of just breaking even on scratch-off tickets bought over the course of a few years? You might as well toss your dollars into the pellet stove.
Granted, major purchases such as a house or automobile are generally beyond the reach of most people’s cash reserves, forcing some degree of indebtedness. But then there is amortization on those loans that further stacks the cards against the poor, dumb borrower, while ensuring that the lender gets its ‘vig’ up front. How is that even legal?
My first house was purchased for $65k at 13.5% interest way back in the dark days of the mid-1980s. And I had to take out mortgage insurance until the loan was 20% paid off. The bank’s disclosure statement spelled out quite clearly that my total payments over the 30 year life of the loan would amount to about $245k, if I remember correctly. That tiny shack sure didn’t look like a quarter million dollar home to me.
I fear you’ve made a mistake in your underlying premise. “Money” isn’t the 10 bars of gold in your example, it’s _all the things in the economy that have value and can be exchanged_.
Charging an extra bar of of gold for the lending of money doesn’t force someone to “print” another bar of gold automatically, but it does create a debt to be paid back with something which is worth the same as an extra bar of gold–in the Gilligan’s island case, some new gadget the professor dreams up, the swapping of tents for a better ocean view, or even renting out some time with the aforementioned coconuts.
If the debt is to be repaid, it actually.forces the economy to grow–that’s a good thing. If the government cheats their way out of the debt, e.g. by temporarily grabbing everyone’s gold, reapportioning the 10 previous bars into 11 slightly smaller bars, then saying “Lookee! I just paid you the extra gold bar I owed you!” They’ve obviously diminished the value of each gold bar. That’s inflation of the currency. No additional value in the economy was created and it’s evil. But that’s got nothing to so with interest on debts.
Sorry, you’re the confused one. “_all the things in the economy that have value and can be exchanged_” is wealth. Money is something completely different. Money is the idea that you can exchange worthless pieces of paper for valuable eggs. Government and banks (where these are different) print money, as much as they feel like, regardless of the total value of goods and services available to the country.
You’ve confused currency with money. McChuck.
Fiatbux have no intrinsic store of value, therefore they are not money (and never can be), just ornately-engraved toilet paper.
As for any or many people acting as if one were the other, the question that starts “If everybvody else jumped off a cliff…” applies in bold capital letters.
All this as anyone who wrote or signed Art 1, §8, Clause 5 of the U.S. Constitution knew in their bones.
There is a way. And if we had actual money instead of fiatbux, it gets simple.
Phase 1. Buy PEZ
Phase 2. ???
Phase 3. Profit
How do you decide between the roughly infinite similar business plans who to loan to? The guy who slips you a fiver gets a leg up, right? How about the guy who offers you ten?
It’s always about the demand.
There’s a small business in town that needed a few bucks. I bought 2% for a few bucks. No loan.
And you shouldered more risk that way than if you’d bought their bonds (i.e., made them a loan). You can buy equity, or make a loan. Owning equity puts you at the bottom of the list to get your money back.
Or, make loans illegal?
Interest depends on an economy that grows above the rate of inflation. Inflation doesn’t happen if those with the milk/money, don’t add water/inflation to the milk/money. Since that rarely happens, economies contract, or crash, and those with something of intrinsic value control everything, with the perils of a desperate society. When most people don’t have enough to even borrow, interest becomes the additional number of eggs required to acquire another chicken.
@jess, interesting that you mention adding water to milk. Because they have come to do just that. Skim, low fat, and even ‘whole’ milk are no longer just the liquid that came out of the cow. And in places like China, where they are resource constrained, and subject to cheating, they added so much water that the result won’t test as milk, which leads to adding melamine which fools the test into showing that the white water really is milk.. and poisoning their customers.
nick
(and there is a whole market for ‘counterfeit’ milk – a liquid that that has most of the characteristics of milk, is sold as a ‘sort of’ milk, and contains no actual milk- ie. ‘almond milk’ or ‘soy milk’…. because the milk, like the currency, has been debased until it is really “water with some stuff in it that looks and mostly functions like actual milk” and clever Tommy has figured out that he can convince people that his ‘water with white stuff in it’ is worth paying for, sometimes it’s BETTER than paying for the original. And that is another parallel to fiat currency- almond milk sells for a premium to Bordon, like the swiss franc or British Pound sold for a premium to the US Dollar.)
“Skim, low fat, and even ‘whole’ milk are no longer just the liquid that came out of the cow.”
Been that way a long time. Dairies separate the cream, then fill the sales for butter, cream, ice cream, etc., Whatever cream is left gets mixed back in with the skim to make the various grades. That’s why stores often run low on A&D — there’s more money in selling 20 gallons of 2% than in selling 15 gallons of whole milk.
Interest depends (in the end) on a growing currency.
Perhaps people combine to lend money to businesses based on the idea that they might create value (and thus a profit) and take the gain in their money from that value created through the business? People combine to finance a business for a purpose, and thus gain.
No interest required.
— this pretty much describes stock companies. People buy fractional ownership in a venture, pooling their money to create something that will gain in value, or continue to produce value over time. They exchange money for pieces of paper and an idea. They DO expect to receive money in return for their loan. We just call it “dividends” and not interest. Some of them expect to get their money and a profit by selling their ownership at a future date for more than the value of the money they put into the venture. That sale is often dependent on finding “a bigger sucker” these days.
Since the invention of stock companies, we have had BOTH systems of financing growth, so there must be a need for both in the marketplace (ie the world.)
Both systems compensate people for diverting part of their money (which is for most people really just stored up work) into ventures with no guarantee of success, because without the incentive of compensation for risk, no one would risk it.
nick
(I acknowledge that banks no longer have the involvement or ‘skin in the game’ that they used to. And that stock companies are often involved in activities that don’t produce anything of value – like taking loans to buy back stock and manipulate stock prices to enrich management, or various money losing activities in the name of ‘equity’ or ‘inclusion’. There are distortions caused by social pressure and by regulation that provide perverse incentives.)
Again, a local business needed some cash, I bought 2%. Will it pay out? Dunno. But I believe in the business.
One more comment about the ‘affordability’ of cars and houses…
I don’t have an actual percentage, but a LARGE percentage of the cost of a modern car is caused by regulation. Tata wanted to enter the US market with a cheap car they produce in India (working from memory, so ‘iirc’ applies.) They found that they couldn’t produce the car cheaply after all if they had to meet the same regulatory requirements that other manufacturers did.
Just look at seatbelts, or more generically ‘passenger restraining systems’. First there were none, unless you bought them. Then someone convinced .gov that ‘too many’ people were dying from injuries that might be prevented if they had seat belts. So they are ‘required’ to be in vehicles. But some people didn’t WEAR them. So new complex systems were ‘required’ to ensure that people used them- and those early systems were intrusive and unreliable. Anyone else remember motorized shoulder belts that rode in a track in the door? Or strapping a grocery bag into the passenger seat because the seat sensor wouldn’t let you drive with an “unsecured passenger”? (.gov backed down a bit after someone got raped because they couldn’t get away, when the mandatory stuff blocked her escape.)
Then someone determined that SEATBELTS themselves were causing injuries, and airbags became a thing. Collapsible steering columns too. THAT added expense and complication, which added cost. Then LO! airbags killed some kids and injured some people. Now NEW sensors are required, NEW airbags (two stage) are required. “Child Safety Restraints” are added. And people were STILL getting hurt because they were too close to the steering wheel (add adjustable foot pedals, and adjustable steering column -this I have straight from a Ford engineer), or enjoying the added range of motion that the self-retracting seat belts afforded so add “seat belt pre-tensioning devices”.
Eventually you end up with ‘side impact’ airbags, and because these are little explosives, and because they are hidden behind tear away panels, having them deploy means there is no real way to FIX them, so you total the vehicle- adding more cost to the equation.
Does the car driver benefit from all this? Yes, he survives stuff that would have been un-survivable. But it doesn’t come without cost to the driver, and given a choice between safety and low cost, a whole lot of people would (and have in the past, and still do) choose low cost.
If you look at the mandated features, and the cascades of decisions and fixes to fixes that result from gas mileage mandates (and the subsequent need to LIGHTEN everything while still being strong enough to meet the other requirements) and I’d guess that somewhere around 80% of the cost of a passenger vehicle in the US is due to mandates.
nick
For a short list of other things-
Power door locks are standard because without them the doors can open in a rollover crash, and there is a mandate that they must not. Backup cameras because rear windows are too small to see thru (because of rollover requirements), and the vehicle shapes are determined by fuel economy goals. The “Ralph Nader pin” in the door assembly has forced a change in how rescue workers need to extract you, meaning more and more expensive equipment on the truck. Collapsing dashboard assemblies trapping drivers meant adding a structure to the dash that the rescuers can jack against to move the dash off your (probably broken) legs. Fuel pump cutoff switches. Fuel injection and engine management computers, variable timing and valves, high tech alloys because of higher operating temps, piston heads shaped on CNC machines – added costs because of mileage requirements. Electric fan motors instead of a belt and a pulley- throw in sensors and control electronics- again in the name of fuel economy. Heck go all the way back to unibody instead of body on frame construction…
If we stipulate that the passenger may be left to shift for himself after an accident, and must pay cash up front for all subsequent medical care after his failure in the Darwinian selection process that is driving stupid and HUTA (that’s the abbreviation for “Head Up etc.” for those unfamiliar), then cutting costs and driving the pride of Indian automotive engineering would be viable.
But if every taxpayer is on the hook for all the idiots’ own stupid choices, from speeding to not wearing seatbelts to buying a crap car, and we can’t leave those miscreants to die in a quivering bloody pile when they’re stupid (and in fact, stop, point, poke them with sticks, and post their final gasps of breath on YouTube for public mirth and enjoyment, along with the address of their next of kin, for bonus razzies), it’s too expensive to let people drive cheap crap cars.
Franklin’s comments about liberty vs safety definitely apply, but that Rubicon was crossed the minute it became not only unjustified, but actually unlawful, for anyone who hit me while driving intoxicated to be shot in the face by me on the spot, or by my heirs and assigns at any subsequent time and place of their choosing.
Fair is fair.
@aesop,
it’s too expensive to let people drive cheap crap cars.
— that is of course AN argument, and the one others make as well, but it depends on the stipulations of your first paragraph.
The whole thing comes down to cost shifting.
When insurance companies (Hi Warren B.!) got tired of paying for their customers’ mistakes, they undertook to shift those costs to others (taxpayers) through regulation. Geico and the others undertook a massive campaign to make seat belt (and helmet) use mandatory, under threat of state violence… and they succeeded. They didn’t care that Mary’s dress was wrinkled by the seatbelt on her wheelchair (remember that piece of propaganda?) they cared about paying for her long term care.
Since the companies are still around and still making money, they have succeeded in shifting those costs, and in fact found ways to profit from it.
If one accepts the stipulations you made, one can make an argument that the net cost to society in general is lower, although I’ve never seen an actual study saying that. The cost to individuals is certainly higher (assuming they don’t eventually benefit from the taxpayer largess.) However, those stipulations weren’t always true, and don’t have to continue to be. The arabs have the “death price” or “blood money” as a different way of dealing with some of those issues. We used to have charity hospitals as another. And we ‘let’ our elected representatives PUT us on the hook for those costs. At least in theory, we can get them to take us OFF the hook. (I know, wipe the tears of laughter from your eyes…)
The world is what it is, and the situation is going to remain the same as long as there is money to pay for it, especially “someone else’s money”.
If the money doesn’t run out, the question is always, where does it end? At what point does the regulation and added cost kill the thing it’s regulating? The safest vehicle is one you don’t drive. The safest house is the one nobody occupies. The safest life is one you don’t live. Is there a point where “you’re too stupid to live” becomes the literal end result and the culling begins?
nick
sorry, the SECOND paragraph stipulates the way things are… not the first as I mis-wrote.
n
Everything has a cost, including doing nothing.
And the other end of the bell curve is equally true: cars with no regulations had a huge cost as well.
Because people are idiots.
Even the Garden of Eden only had one – ONE – rule. Which was royally buggered almost immediately.
Enter regulation, where anything is concerned. And then we’re off to the races.
See Burke’s The Axemaker’s Gift.
All human technology, including sharpened sticks, fire, and the wheel, is an exercise in squeezing jello with your bare hands. There’s always some part you can’t control that gets away from you.
Even something as benign as a clock seemed like a great idea, at first. Now ships could tell their longitude.
Until the boss put one at the shop door.
And then some miscreant put an alarm on one.
We’re still paying for that invention, and will till the literal end of time itself.
TANSTAAFL
You are a good salesman. I have a hankering to go look at some Tatas.
Looking at tatas is cheap until it gets to be very expensive… 😉
n
Exactly. And another part about cars is that the industry feeds on new car buyers, for an “asset” that depreciates as soon as it’s driven off the lot.
Point Of Order, learned scribe:
“the act of lending money creates no value”
If that’s rightly stated, then Aristotle was a financial moron.
The act of lending money allows the continuation of trade, which is of inestimable value.
Barter is, frankly, bullsh*t.
Illustrated thusly, off the top of my head:
If two spears is worth seven pots, how do I only buy one pot (because I don’t need the other six, nor wish to now be forced to trade pots I don’t need for things I do need in even trading), without money?
But if getting a loan of money to buy bronze and wood lets me make 100 spears, and I sell them for more money, which enables me to pay for the one pot, and repay my loan, and cover the interest to the bank, and have money left over for new sandals, a grinding stone, and wages enough for me to hire an assistant at the spearmaking shop, that loan has satisfied 100 customers in the town militia’s phalanx, and the bank’s owners, and me, and gotten my shiftless nephew a paying trade, and the wife gets the pot she needed, and I don’t cut my feet walking the road to the shop every morning, and the next batch of spears are now delivered sharper, and gotten my future customers a vast improvement over buying Demetrius’ shoddy second-rate spears that are duller than Demosthenes’ youngest son, who lives under the bridge, and eats worms and bugs. In fact, I might even have enough income that I now have leisure time to go fishing on Sundays, which might also get even Demosthenes’ youngest son a denarius or two, if he’ll forego lunch once a week, and sell me some of those worms for bait.
Ya feel me yet?
QED
“No value” from lending???
That amount of value from one paltry loan beggars the bare ability to calculate value without taking off your sandals. And probably borrowing calculus from the Arab trader down the lane.
Only an absolute idiot would suggest that “no value” was created, and from the historical evidence, Aristotle was no idiot.
Somehow I think we’re missing a “come to Zeus” moment here.
And while we’re up, am I the only one who saw that entire capitalistic Greek parable whole as an Aesop’s Fables segment of a notional Rocky & Bullwinkle Show as yet unshot?
I’ll stand by that. The same benefit could have come from an investment in the business (i.e., partial ownership) and taking out of profits. Similarly, if I took those spears and went raiding, I could give the people who finianced the raid a set cut of the booty. Charging interest doesn’t create value – the real act of value creation is the pooling of the capital that makes it possible.
ANd there are a lot of other ways to do that.
The other answers are equivalent only if time stands still.
Waiting T until $=X introduces a non-avoidable but substantial cost (in units that can never be repaid, only spent/invested/squandered), whereas lending money erases time as a consideration, except to the lender.
IOW, yes, you could pay cash for a house (or car, or business expansion), if you don’t mind living in an apartment (and burning up the rent every month as well) until you’ve saved enough for the entire price on top of your current obligations out of profits or investment capital (which term, BTW, is simply another way to say loan, with expectation of interest in the form of a share of wild profits, except one may manage to discharge that obligation through sheer incompetence – which, nota bene, will not work if the investor employs legbreakers named Guido, Vito, and Rocko for collections), which for most people would be somewhere between the ages of 72 and 216 years.
Lending money at interest trades a percentage for a fee, while eliminating time as a consideration, in favor of NOW.
To highlight the flaw there, what you’re suggesting, in essence, is that people on the Titanic should be told to save up until they can afford their own lifeboat.
Taking the spears and going raiding transitions this from a discussion of finance, to one of politics, ethics, and morality, starting with the moral vacuity necessary to embark upon piracy and brigandry as a business strategy.
For a lesson in how that looks in the real world in modern times, you have 536 obvious examples in America alone, starting in the Oval Office and Capitol building.
So, I have to ask: do you really want a giant framed portrait of Hunter Biden (or Fat Bill and Shrillary), with the plaque reading “Our Founder” at the bottom, hanging in the boardroom of your enterprise?
As always, you bring up great points – and also embedded in many of them are the way out. Houses could not cost as much, even in California, without interest sucking their lives out to pay for people who do . . . nothing.
And, if people on the Titanic had cash saved up for the lifeboats (or the White Star liner did) then they could have bought ’em.
I don’t want Bill or Shrillary as “Our Founder”, and outlawing interest would likely make that less likely. Cue Solyndra.
And we totally need more Rocky & Bullwinkle.
And, forgive me, one more “just one more” comment about houses…
Regulation constantly drives up the complexity and cost of houses the same way it does cars.
Just one example from the electrical codes. Used to be, US homes were electrified with two wires, a ‘hot’ and a ‘neutral’ with the ‘neutral’ being provided locally, by driving a stake into the dirt. Only a single wire would come to the house. Outlets were “two prong”, one side connected to the hot, one to the neutral. Turns out that you could plug a device in “backwards” and parts of the device people could contact became ‘live’. To avoid this hazard the “polarized” plug was mandated.
Later, “grounded” outlets became standard (and mandated). Then GFCI outlets (which use the ‘ground’ conductor to provide more protection for the user when a bad thing happens) became required for outlets near water sources. The newest code will require GFCI outlets pretty much everywhere. GFCI outlets (or breakers) are more complex and more costly than regular outlets and breakers. Of course, certain loads (ie things people plug in) don’t work well with GFCIs, which necessitated even more complex GFCI devices.
Arc Fault Circuit Interrupter outlets and breakers had a similar path, and are required in places like bedrooms now. And they often ‘nuisance trip’ too. Also more expensive and complex.
Heck, just the requirements for the outlet COVER on outdoor outlets has increased the cost of a single outlet from around $4 to ~$30 (standard outlet and metal ‘lift the flap’ cover, vs GFCI outlet, and heavy duty “in use” box cover.)
The new code version will require “tamper resistant” outlets in most places now too, again adding — say it with me — cost and complexity.
Energy codes have required additional insulation, extra work, more expensive heaters and airconditioners, extra testing… and all those things cost more. We’ve sealed buildings up so tight that ‘indoor air quality’ has become a major concern, and expensive mechanical ventilation with heat exchangers are required. Lighting is regulated by energy use per square foot, which means you sit in the dark or you put in more expensive and complex lighting sources, and you must control them with relays, occupancy sensors, “daylight harvesting” control schemes (like windows and motorized blinds- all monitored and controlled…)
Regulations never get simpler, or applied to fewer things. They continue to expand and extend their reach, adding significant new costs to whatever they touch.
I think you have to consider the effect of regulation in any discussion of economic forces, because it becomes a major cost factor, and the effect is mostly hidden from view, or at least mention it as a possible alternative driver for whatever effect is being discussed.
nick
whew, fun times!
Anyone besides me thinking that *maybe* we’re trying too hard to prevent the idiots from Darwin-ing themselves, and that we’re getting past time to take the whole life bubble wrap and coffee table corner bumpers off and let the herd cull itself a bit? I know that sounds a bit callous – but the only ‘safe’ existence is one where we never take the red pill and unplug from the Matrix…
(or at least, that’s what they’d have you believe)
I thought that’s what the covid vaxx was doing.
Regulation is driven (in some cases) by the regulated. Think the plumbing board wants the plumbing to be easier so they have more competition?
very cool
Thoughts are a construct of the white male patriarchy. Honk!
Make the young comrade true believers heads explode with the old maxim about the guy with the gold in his sacks makes the rules.
Remember when JFK gave the speech about disbanding the Criminals In Action and private banking cartel Federal Reserve?
He was no longer with us about two weeks later.
No fan of the “peaceful religion” but no usury is something they got right in the credit where it is due department.
And remember when JFK tried to make money instead of Federal Reserve Notes?
The Catholic Church had banned and codemned usury for centuries – a sin that cried out to heaven – until they stopped. There is a lot of writing done by smart monks and clerics over those years on the subject. Zippy Catholic, before passing away – RIP – was really fascinated by the subject and did a great summary on it (within Catholic teaching)
https://zippycatholic.wordpress.com/2014/11/10/usury-faq-or-money-on-the-pill/
He has many posts, but that is one worth perusing. He also has a good post on Qualm 29 from the FAQ
https://zippycatholic.wordpress.com/2014/12/19/29-qualms/
As can be seen in many of the comments here, most of us moderns of the West tend to have a rigorous take on usury’s definition: charging interest on a loan. That is not the proper definition of usury (and is not the one John gave). Some loans can charge interest or a fee, others it would be morally wrong to do so, such as student loans.
There are ways to make Main Street rich, instead of Wall Street.
Dangerous.
Check out “Islamic banking”. The Koran still forbids lending at interest, so Muslims have really had to twist the lending concept around to make it work in the modern world, but it’s still there.
Yes John you live dangerously and your fingers are a dangerous weapon to the banking elite… Now, can I borrow ten gold shillings so I too can get a gander at Mary Ann’s coconuts? I will gladly pay you back on Tuesday for a peek today.
Hahahaha! I had a friend who grew up in the house next to hers. He was smitten. She always came over for coffee with his mom.
John, related to Durandel’s post, it occurs to me in the Old Testament that charging interest was forbidden among the Hebrews (but not, as I recall, loaning to other people). Probably observed more in the breach than in practice of course.
Crowdfunding – So this happens now. I have funded a few projects via Go Fund Me. Did I get something in return? Yes – in one case some Gamma Word Figures (Badders) and in the other two cases reading resources, plans, and videos (Permies.com). Did I get the true “value” of what I funded? Probably not monetarily, except that enabled things that I thought were worth funding to get funded. Could one crowd fund something like a home or land purchase? I think so, or at least I think that is how groups like the Amish do it.
The issue with thing like homes and college education is the more the cost increases, the more loans (with interest) are required, which drives up the cost of all the other homes, which drives up the cost, etc. Limiting the length of home loans might help ultimately bring down price, as the finite amount of a loan that can be paid off in 10 to 15 years is not the same as a loan that can be paid off in 30 years. But value also drives property taxes, which drives local government spending, which means that value “dropping” is “robbing” the local government of its ability to do all the things…
College loans increase the cost of college. Period.
Homes? There are other ways. Families, for instance. Pool wealth and don’t give it away?
“College loans increase the cost of college. Period.”
Also demonstrably false. (I suggest more coffee.)
The correct statement is “Government guaranteed college loans increase the cost of college.”
When you, the borrower, and private financial institutions were on the hook for your entire loan, doctors and engineers could get cash; transectional gender studies majors and community activism majors, not so much. And the cost of college tuition was remarkably stable over time (other than general systemic inflation, which hit everyone starting in 1933, for reasons having nothing to do with college, nor loans for it).
Once Uncle Sugar, who couldn’t care less how marketable that degree was going to be, got into the picture, just like on Oprah, “Everybody gets a loan!” Exactly as foretold by Dead White Male Adam Smith, Supply and Demand kicks in, people with no business getting into college attend, and crash and burn in a host of ways, so you can’t get in and out in less than 6 years for a 4-year degree. As a bonus, the only job your major in Vogon poetry gets you is a partitime gig as a barrista on the night crew at Starbucks, allowing you to repay that $100K loan in just over 200 years at minimum wage, as the new price of college tuition, always,
= Maximum FedGov Loan Amount + $10K x 1+(200 years’ interest).
By a remarkable coincidence, college adminstrators and professors’ salaries multiply in exact parallel with rising loan amounts, but the pool of available course teaching staff actually shrinks. Funny, that.
Even private education loans increase the cost of college education.
The universities keep jacking up the price based upon the funding that they know is accessible to applicants. They are more than happy to allow applicants to indenture themselves in order to take the cash now and run to their endowment managers.
Whether the default rate on private or government education loans are much different is data I don’t have. But I’d guess that without government guarantees, the private education loan market would disappear quickly. The risk of the end product being able to repay the loan is too great, as it depends on way too many factors. So the idea of non-governmental education loans without guarantees is a purple squirrel. Rare enough to assume they don’t exist.
In this, I agree 100%. Your corrected statement is correct, with the corollary that bankruptcy won’t get someone out from under them. Bringing in Uncle Sugar and making the loans not something that can be escaped short of death?
Bad combo.
True, but there’s no bottomless pit of money from lenders for all degrees. And colleges can’t increase pricves for one or a few majors, without killing the golden goose, so they didn’t.
Until government turned college loans into Money For Everybody.
QED
College tuitions skyrocketed the minute government took over the loan program in its entirety. Not before.
Again, 100% agree with each syllable.