Empathy and Economics


Via Instapundit comes a worthy midday economics lesson from Megan McArdle.  Starting with Socialist-Democrat Presidential Candidate Bernie Sanders’s ignorant talking point about the loan rates for refinancing a home being lower than the rates for college loans, McArdle asks readers to think about those from whom the loan money comes and exercise a little empathy:

Let’s say you had $150 that you really needed to have at the end of the month, say to pay your rent. Would you want to lend it to the single mother whose income is stretched so tight that she needs to borrow money for Christmas presents, or would you want to lend it to some heartless leech of a securities litigator with an 800 credit rating who happens to have left his wallet at home? C’mon. You know the answer; you just don’t want to say it. If you really need the money — if you cannot afford to turn your loan into a gift — then you lend it to the better credit risk with the higher income, not the person who may find themselves too short to pay you when the loan comes due.

For those susceptible to facile talking points, though, even this plain argument will only go so far.  Who loans money and why is an intricate question with plenty of room to pretend we can tighten the net just so in order to catch only those greedy profiteers who can afford to lose $150 to desperate present-buying mothers from time to time.  It doesn’t work that way, in large part because greedy profiteers have the incentive, savvy, and power to hide themselves and pass the buck.

At that point, the public’s imagination has to continue along.  To stop bad actors from being able to act badly, somebody has to be empowered to define them and regulate them or to confiscate their ill-gotten gains, and the officials thus empowered are going to come with their own incentives and tendency to be captured by the powerful, in one way or another.  (After all, even the straightforward task of enforcing parking meters slips to corruption.)

McArdle’s right, though, that we shouldn’t simply scoff at those who don’t understand (or care to contemplate) this tangle of complexity.  The more of them who can be persuaded to take a few steps down the path of considering others’ pressures and points of view, the more they’ll come to the correct conclusion: that is, only a fool would trust a political system to resolve these complex issues.  Not only do we need to imagine ourselves in others’ positions, but we also need to take personal responsibility to interact with each other as unique individuals.

  • Rhett Hardwick

    Another comparison. If you had money to loan, would you loan it to someone who offered security (real property) or to someone who does not offer security for the loan. Another factor, the homeowner can file bankruptcy and walk on the loan;(the security is still applied to the loan) student loans are not dischargeable in bankruptcy. I remember the media frenzy when that one was pushed through; the newspapers were afire with stories of doctors making hundreds of thousands, but not paying their student loans. Bankruptcy law comes directly from Congress and is very political. In the last “reform” about 15 years ago, which heavily favored the credit card companies, Barney Frank was interviewed about the unfairness. He responded “What could I do, the law was bought and paid for”.

  • ShannonEntropy

    If you had money to loan, would you loan it to someone who offered security (real property) or to someone who does not offer security for the loan ??

    Rhett raises a very good point about loan “collateral” … which is why The Poor and Students keep getting screwed borrowing money

    Nobody will loan the owner of a 10 yr old car a thousand bucks to get their transmission fixed. But they WILL loan them $25K to buy a *new* car. So guess what happens when the gears start slipping ?? The owner of an otherwise salvageable car buys a new car … and goes even deeper into debt

    Any time a lender can’t re·possess the car // house // what·ever being borrowed against ,, the cost of the loan goes up. Legislating a “ceiling” for interest rates on those types of loans just freezes those with low-or-no-collateral out of the credit market

    *THANKS!* for all the “help” ,, Poverty Pimps !!

    • Rhett Hardwick

      Nobody will loan the owner of a 10 yr old car a thousand bucks to get their transmission fixed.

      Not the first time I heard this. In a conversation with my mechanic he mentioned that when he gives quote on a transmission job for a 7 year old car, the people decline. Next time he sees them, they have another car. I heard/saw a news report the other day that 70% of Americans have less than $1,000 in savings