November 30, 2004

What's the Point of Usury

The Angry Economist is right that usury laws limiting interest just shift the money lending business to illegal lenders, most likely organized crime. But I think he's somewhat deficient in his analysis.

No matter how counterproductive such laws are, they are an expression of public desire and libertarians should not try to beat something with nothing. What is the something that people try to accomplish with these laws and what would be the libertarian solution to the situation. Why would that libertarian solution be better?

I think the essential impulse of such laws is to try to make people think and not do stupid things like take 200% loans for inessential things, to do without rather than dig yourself into a hole of neverending, spiraling interest payments. At a certain point, the wider public pays, either in charity hospitalization after the Mafia's leg breakers engage in their art or in paying a generally higher interest rate because of bankruptcy.

By just removing the usury laws, all you ensure is that we all pay for individual irresponsibility through the latter, not the former. I'm not sure that a creeping spread of moral hazard in ever increasing bankruptcies is the best that libertarians can do. In fact I'm pretty sure that we can do better.

Posted by TMLutas at November 30, 2004 04:40 PM