Bankrupt

What issue can bring together Kevin Drum and John Cole? The recent bankruptcy “reform” that looks like it might finally emerge, dripping a trail of rancid slime as it crawls on its belly, from Congress. In a sense, this should not be surprising. Non-libertarian conservatives and non-Marxist liberals have some obvious overlaps: both accept free markets as the general basis for the economy of a democratic state, but both also recognize that there are various market failures due to such factors as unequal bargaining leverage, negative externalities, the effects of systematic changes on individuals, and imperfect information that require state intervention to alleviate. Of course, from there conservatives and liberals have serious disagreements about the severity of these problems, the efficacy of various forms of state regulation, priorities and tradeoffs, etc. But I think gutting bankruptcy protection for poor people while refusing to police even egregious usury highlights the shared premises (and shows, again, that the domestic policies of the Bush Administration are largely unrelated to any recognizable conservative principles but are rather dominated by constituent payoffs that seem to come from the crudest models of public choice theory.)

One of the things Drum’s most recent post (and make sure to scroll down for Cole’s response to the libertarian bromides of Jon Henke as well) demonstrates beautifully is that these reforms for the most part have nothing to do with the “free market.” First of all, it must be made clear at the outset that robust bankruptcy protection is absolutely crucial to the operation of a mixed-capitalist economy. Without them, individuals and entrepreneurs will be far less likely to take the risks that are necessary for economic development and innovation. Despite this, credit card companies want it all ways. They want the virtually unfettered privilege to gouge poor customers, but they also want to absolve themselves of the responsibility for the inevitable consequences of these risks. (They made these risky loans, larded with punitive fees, knowing what the bankruptcy laws were.) Similarly, most of the defeated amendments that Kevin lists are not restrictions on the market in any meaningful sense; they are designed to increase the transparency of market transactions. Obviously, it is in the rational self-interest of credit card companies to hide the underlying fees of using their cards to the greatest extent possible, but it is the responsibility of the state to impose some basic restrictions on this tendency. None of this is to say that I am in favor of blanket bans of relatively high-interest credit cards or payday loans. In many cases, it is a choice between this and poor people having no access to credit at all, and while it is tragic that the poor are compelled to pay more for credit when they can afford it less, I don’t think this is a problem that can easily be legislated away. But, certainly, we can expect the government to impose some limitations on the ability of companies to exploit consumers without violating any but the bust formalistic of free market principles.

One caveat with respect to the specific Dayton anti-usury amendment: I sneered at Hatch’s claim that the vote went down by a huge margin because it would pre-empt tougher state laws, but if you look at the roll call vote there may actually be some truth to that. Some fairly liberal Senators who voted consistently for the other amendments–including Kerry, Durbin, Leahy, and Cantwell–voted against this. On the other hand, both NY senators voted yea, and if I understand correctly NY has relatively tough laws, so I’m not sure what’s the real story with this. At any rate, I think the general objection stands: I think it’s safe to say that an amendment that establishes a federal ceiling without pre-empting tougher state restrictions will not be passed by the Senate anytime soon (the claim is certainly transparent nonsense coming from Hatch.) And if this isn’t the case, what a disgrace. (And a special Whore at the Trough prize to both of Delaware’s Democratic Senators, who understandably but still appallingly voted against every amendment I can find. Ah, Delaware, the parasite state.)One of the things Drum’s most recent post (and make sure to scroll down for Cole’s response to the libertarian bromides of Jon Henke as well) demonstrates beautifully is that these reforms for the most part have nothing to do with the “free market.” First of all, it must be made clear at the outset that robust bankruptcy protection is absolutely crucial to the operation of a mixed-capitalist economy. Without them, individuals and entrepreneurs will be far less likely to take the risks that are necessary for economic development and innovation. Despite this, credit card companies want it all ways. They want the virtually unfettered privilege to gouge poor customers, but they also want to absolve themselves of the responsibility for the inevitable consequences of these risks. (They made these risky loans, larded with punitive fees, knowing what the bankruptcy laws were.) Similarly, most of the defeated amendments that Kevin lists are not restrictions on the market in any meaningful sense; they are designed to increase the transparency of market transactions. Obviously, it is in the rational self-interest of credit card companies to hide the underlying fees of using their cards to the greatest extent possible, but it is the responsibility of the state to impose some basic restrictions on this tendency. None of this is to say that I am in favor of blanket bans of relatively high-interest credit cards or payday loans. In many cases, it is a choice between this and poor people having no access to credit at all, and while it is tragic that the poor are compelled to pay more for credit when they can afford it less, I don’t think this is a problem that can easily be legislated away. But, certainly, we can expect the government to impose some limitations on the ability of companies to exploit consumers without violating any but the bust formalistic of free market principles.

One caveat with respect to the specific Dayton anti-usury amendment: I sneered at Hatch’s claim that the vote went down by a huge margin because it would pre-empt tougher state laws, but if you look at the roll call vote there may actually be some truth to that. Some fairly liberal Senators who voted consistently for the other amendments–including Kerry, Durbin, Leahy, and Cantwell–voted against this. On the other hand, both NY senators voted yea, and if I understand correctly NY has relatively tough laws, so I’m not sure what’s the real story with this. At any rate, I think the general objection stands: I think it’s safe to say that an amendment that establishes a federal ceiling without pre-empting tougher state restrictions will not be passed by the Senate anytime soon (the claim is certainly transparent nonsense coming from Hatch.) And if this isn’t the case, what a disgrace. (And a special Whore at the Trough prize to both of Delaware’s Democratic Senators, who understandably but still appallingly voted against every amendment I can find. Ah, Delaware, the parasite state.)