Friday, December 18, 2009

Louise Slaughter's Ignorant Hubris

Speaking of my local and awful representatives, until a few months ago I lived in NY-28, which is currently represented by Louise Slaughter.

There is some buzz today about Slaughter's post at the Daily Kos (liberal blog/hate site) about her introducing HR-4300 which would restrict credit card companies from charging rates higher than 16% APR.

That post, and her proposed bill, are an excellent example of the hubris and ignorance it takes to be a liberal.

First, you have to believe that voluntary agreements entered into by individuals and credit card companies are somehow the government's business.

No one forces someone to get a credit card. Nor does anyone force someone to get a credit card with specific APR terms. If people don't want credit cards with 25% or 30% or 100% or - heck - 200% - or whatever APRs, they don't have to get them.

The reality is that credit card agreements are a free and voluntary arrangement and should be none of the government's business.

Second, you have to believe that you can set interest rates for credit cards better than the market. Screw supply and demand - Slaughter knows better!

It begs the question, why 16%? Why not 12.5%? Why not 3%? Why not 18%? Following along with Slaughter's proposed claims that consumers are better off with 16% APR than 30%, should they be even more better off if rates are capped at 15.5% or 15% or 14% or 10% or 1%? Why not tell those evil credit card companies they can't even chard any interest. And late fees are evil too - no more late fees! Free credit for everyone! And also, free ponies, please.

Again, returning to reality, in a free market we have the "marvel", as Hayek put it, of the price system which can do a better job of coming up with the right interest rate than any individual ever could.

Third, you have to staunchly stay with stage-1 thinking. You can't think through things like "oh, if credit card companies can't have the option of charging higher interest rates, maybe they'll turn to higher annual fees or not offering credit to anyone with a moderate to high credit risk."

Returning a third time to reality, that's exactly what they'll do. The interest rates on credit cards reflect the cost of the risk of lending -- the risk you won't pay the lender back. If you're a high risk, perhaps because you missed a payment (and thus your rate increased), and the 16% APR doesn't cover the cost of your risk, no lender is going to offer you an unsecured credit line.

Finally, you have to think that people's irresponsibility makes the victims who need protected. Too irresponsible to pay off your balance each month? Victim! Too irresponsible to find a card with a lower rate? Victim! Too irresponsible to pay your card on time? Victim!

A final return to reality: If you can't manage your own finances, that's not the credit card companies, and it shouldn't be the government's job to nanny you.

Here's a much better idea than the Slaughter bill: First, Slaughter (and perhaps everyone in Congress) should be required to read Hayek (or at least Roberts) and Sowell. Then, every American carrying a credit card balance should be required to read Ramsey.

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