Morning Ed: Money {2017.06.13.T}


Will Truman

Will Truman is the Editor-in-Chief of Ordinary Times. He is also on Twitter.

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141 Responses

  1. Avatar Murali says:

    M2: I have never read a serious article which was so gleeful at the collapse of the family. It is a bit jarring.Report

  2. Avatar Damon says:

    [M5] This is one reason why “title loans” etc. are not necessarily the cruse of the working poor a lot of the left believes it is.

    [M6] Who was it exactly who believed that our illegal immigration problem was folks south of the border overstaying their visas? They don’t bother to get them, they just cross. But the article makes a point. We ought to deport these guys too…damn Canadians!

    [M7] There’s lots of reasons why you might pretend to not be wealthy even if you are. Crime. Big house, fancy car, invitation to getting robbed. Standard of Living. where I live, the MEDIAN family is @150K a year. By Florida standards, that rich. By the standards in most of my state, that’s “middle class”.

    “On the one hand, upper-middle-class Americans believe they are operating in a meritocrac…. on the other hand, they constantly engage in antimeritocratic behavior in order to give their own children a leg up.” Well, duh, it’s their kids. Do you expect parents to be act any different regardless of their income? And all that zoning restrictions? Used to keep and maintain wealth. Of course? They act in their own best interest. Who doesn’t?Report

    • Avatar dragonfrog says:

      [M7] That’s really not what the article is about though.

      I think part of the reason might be, we think being “rich” would feel different somehow. Since I’m the same old me, I must not be rich yet.Report

      • Avatar Damon says:

        The author only address one of several possible reasons for this behavior. I added some of my own. The author basically says that rich people should feel guilty like the rich Brits do, ” At least posh people in England have the decency to feel guilty.” I fail to see why anyone would feel guilty. Guilty presumes bad acts. Assuming none, and taking action in your own or your families self interest, isn’t.

        And again, “rich” is situational. I’m “rich” because I live in a high cost area and I have a commensurate income to cover the cost of living in this area, although I don’t make 200K a year…far from it.Report

        • Avatar Kimmi says:

          Well sure. If you haven’t done anything wrong, you ought not to feel guilty.
          But if you can find me someone who’s conscience is that lillywhite, well, let’s just say that they’re pretty fucking sheltered.
          We build our lives on the suffering of others, both now and in the future.
          If by your actions you cause other people to bubble and burn, well, I’d say that’s something to feel guilty about. Maybe you’ve never seen a burn ward?
          [Yes, I’m still on about that glass factory in Mexico. The kids there are in more danger from the narcostate than my buying habits. It’s a specific, concrete example. There’s tons more.]Report

          • Avatar Damon says:


            I’m going to make some statements. No one is going to like them. I’m ok with that.

            I do not intentionally inflict suffering on others. I actually abhor it. I will not make excuses for my lifestyle or consumption habits, nor do I judge other’s. I will spend as little and as much as I deem the product is worth. If a company that makes glass sets up a facility in a third world and uses child labor, and said children are horribly burned making the same product I buy, I will be sad, momentarily. But that’s it.Report

            • Avatar Kimmi says:

              Honesty is always something to be sought after, and I admire you for going out of your way to ask and answer some of the harder questions.

              You say that you do not intentionally inflict suffering on others. I say that you do not do so in a way that means you need to suffer the empathy. Somehow screams half a world away mean less to people (myself included) than those directly in front of them.Report

        • Avatar dragonfrog says:

          It seems we got drastically different things out of that article. What I saw there was the argument that rich people (objectively rich in that they can and do things like own a 2000+ sq ft house in a nice neighbourhood, always drive a Subaru or Audi or BMW under seven years old, golf, send their kids to hockey camp, vacation in Mexico every few years, spend a poor person’s weekly grocery budget on a single restaurant meal, etc.) – feel that they are not “rich”. That “rich” is always wealthier than they are now.

          William Jennings Bryan notwithstanding, I don’t think anyone’s calling for those with money to refrain from spending it, be the millionaire who wears the same ripped brown duffel coat for years.

          Rather, it’s to be conscious of the fact that the things you might be doing out of the list above, that seem “normal” and not “rich” to you – are likely normal to you because all your friends are also rich.

          I mean, I sure don’t feel rich. When someone smashed their van through the fence in January, I fretted a bit about how we were going to pay to get it fixed. Even though the broken fence in no way threatened the survival of the family – it was a totally optional expense to take on in the first place.

          Which was only ever even a consideration because we own a house, with a yard surrounded by a fence, in a pleasant neighbourhood. If we weren’t rich, we’d be in a small apartment, and would not own a fence to have smashed.Report

          • Avatar Kimmi says:

            Anyone who doesn’t have $1000 in the bank is poor. That’s two-thirds of America, bought and sold by the loansharks.Report

            • Avatar dragonfrog says:

              Kiiiiinda. I mostly agree with you.

              Except when a large income is constantly spent on large luxuries. Are you rich if you have enough income that with more frugal habits you could have tens or hundreds of thousands of dollars in the bank?

              By which I don’t mean living off beans on toast, but more like, not buying a power boat or an RV or fancy RC plane or a vacation in Iceland every time you manage to clear enough room on the credit card for it.

              I don’t know. They might not be rich, but I wouldn’t call them poor either. Broke is different from poor.Report

              • Avatar Kimmi says:

                Okay. So if cutting cable and other non-necessities (which you do if there’s problems), gets you $1000 in the bank… then you’re not poor.Report

          • Avatar Damon says:

            Let’s take a real world scenario. Back in the day, when I was married, although I am loathe to disclose too much on the internet:

            Single family house on a quarter acre. 4 Bedrooms. 3K plus square feet. We had a “luxury German vehicle” and a Japanese import small SUV. New or slightly used. No kids. Took international vacation every other year and spent significant amounts of money doing so-Switzerland, Ireland, Italy, etc.

            Is that rich to you? Is that rich to the readers here? I got news for you. It’s not for the area I live in. We intentionally moved to the exurbs because we COULD NOT AFFORD a single family home in the surburbs. They were going for over half a million for shitty modest houses. This was in the early 2000s. I’m not talking about fancy housing or mcmansions, I’m talking about Ryan homes. Market rent for a townhouse where I live is in the range of 2500 dollars a month. Gas is 3 dollars a gallon. I pay fed, state, and county income taxes. I earn quite a lot vs other people, but I also have to spend a lot to live here. There’s a difference between high income and rich.Report

            • Avatar dragonfrog says:

              Yes, that is rich to me.

              It sounds like the same league as our financial situation (maybe you are/were a bit higher in the league standings). And I also consider myself to be rich.

              I don’t feel rich though. I have to apply conscious thought, to realize that the fact I’m sitting at a desk in the office in our house (square footage that we could totally live without, a luxury) overlooking the largish yard, surrounded by my wife’s bellydance costumes, having just discussed last night what music festivals we will go to this summer – there’s incredible luxury and wealth in every one of those things.

              And that was what I was getting at with my comment above – we have to realize that “rich” isn’t going to feel different, so if we’re waiting for the feeling of richness to know when we’re rich, we will be missing class consciousness.

              Or, to quote the article

              “I see now that English class consciousness has an important silver lining. At least there we know that class is a real fact of social life. Posh Brits are more likely to see that their position is at least in part the result of good fortune. For Americans to solve the problem of their deepening class divisions, we will have to start by admitting their existence and our complicity in maintaining them. We need to raise our consciousness about class. And yes, I am looking at you.”Report

              • Avatar Oscar Gordon says:

                To my view, “rich”, or “wealthy” means having enough income & capital such that the cost of living in an area (however defined) is a second or third order concern – same goes for purchasing common mass market items (vehicles, clothes, furniture, etc.) or services.

                If the cost of a primary residence is a driving concern, or the cost of other common mass market items or services, then you are not rich or wealthy. You may be “well off”, and “doing OK”, but you are still limited by financial concerns.

                What separates most of the SES isn’t the absolute amount of income and capital, but how limited a person is by the lack of the same.Report

            • Avatar Kimmi says:

              You’re rich compared to the pharmacist who puts out the sign on his front door “We don’t carry Oxycontin” (that’s to prevent break-ins).

              You’re solidly Upper Middle Class (although trending towards lower upper class), in a very stressful environment.

              You’re richer than me, that’s for sure (no car, single family, smaller house).Report

            • Avatar Saul Degraw says:

              I don’t think you and Dragonfrog are necessarily disagreeing.

              Yes your situation strikes me as being well-off to rich if only based on income. The issue is as you note entirely situational and there is a human tendency to always look up instead of down.

              I mentioned below that I went got chewed out in college for suggesting to go to a Chinese takeout restaurant. I could and did easily get defensive along the lines of “Hey, I am not driving a fancy car like X, Y, and Z. Why are you yelling at me?

              I think this can always be done. Why are you angry at me? Look at my boss and his Pacific Heights mansion or Fifth Avenue Penthouse.Report

            • fillyjonk fillyjonk says:

              It seems rich to me, but it does bring up memories of growing up in a “bedroom community” where the wealthy attorneys/executives/doctors lived (my dad was a college prof/lowlevel administrator, my mom stayed at home).

              We were comfortable and had what was important – when my brother or I got sick, there was no question of “do we take our child to the doctor for treatment?” on my parents’ part. We ate pretty well as I remember – no Hamburger Helper or the like. (Then again: my mom grew a large garden in the summers and canned and froze lots of stuff. Nearly all the tomato-based things we ate came from the tomatoes she canned. And she baked all the bread and baked goods we ate, but I think that was more her protest against Wonder Bread than anything).

              But we weren’t “rich” and that was regularly reminded to me by my classmates – my clothes were downmarket by comparison with theirs (I got teased for wearing Wrangler jeans when the popular girls had Jordaches). We didn’t go on fancy vacations – the typical thing was to drive to visit relatives or drive to a national park and stay in a cheap motel. I didn’t realize there were motels ritzier than Holiday Inns until I was an adult. The only other country I’ve ever been to is Canada. And we only got toys for our birthday or Christmas, or if we saved up/earned the money to buy them.

              Then again, I think my brother and I grew up wealthy in other ways.

              And now, I’m in the weird position of being “rich” for my town (on a professor’s salary, and a professor’s salary that’s less than half the published national average). I have a small older house but I own it outright and I own my car (a midrange Ford) outright. My one big complaint is that most of the food stores here are pretty crummy (Wal-mart is the only large one) but perhaps that’s not such an awful complaint to have. (I would spend more, and buy fancier food, if I had the option – to do that now would mean regular trips to Dallas which is so not going to happen).

              I dunno. I was raised by parents who hated the “conspicuous consumption” mindset you all describe, and I suspect it served me well – were I conspicuous consumer, I’d probably be more of a target for burglars/thieves than I am, and I might have neighbors resenting me.

              By global standards, though, I’m incredibly, unbelievably, wild-dream rich, and I remind myself of that on a regular basis whenever I feel a little bad about the path of my life. (And I have a bank account with enough “emergency money” to cover all but the very largest home repairs….two years ago I paid for a new whole-house air conditioner and was able to pay it off all at once.)Report

              • Avatar Damon says:

                I hear you.

                I grew up in the rural west. We heated the house with wood. Every year we cut that wood down and stacked it. My job was to split it and bring it to the deck for use. To till the garden. To cut the grass. To go hunting with Dad for deer meat. Our big trips were to the national parks too. I was 3000 miles from all my other relatives and my grandparents came out once and I went back once.

                On the positive side, I grew up eating real pacific salmon, clamming on the wash/oregon coast, and picking morels and huckleberries in the forest. We canned fruit and made jerky, and my dad smoked shad and canned tuna himself. I’m sure my Dad earned a good living, but we lived a low key, quiet life.Report

            • Avatar Richard Hershberger says:

              Solidly upper-middle class, by American standards. The tip-off isn’t the house, but the cars and vacations. Well, the house too, in that with no kids you each get a room for private space, with a bedroom to spare. These are luxury goods–nearly purely so in the case of the vacations, and in the case of the house and cars, to the extent that you could have made do with less expensive versions with sacrificing anything essential. But I’ll cut you slack on the house, as the economics of housing in America are seriously weird.Report

              • Avatar Kimmi says:

                When the politicians stop using the words because they don’t focus test well, it’s time to stop looking backward and use words with real relevance to Actual America, as opposed to 1950’s America.

                There is no longer a middle class. Instead, there are “working families” and the rich, of which Damon is one.


              • Avatar Damon says:

                Yeah, ANYWHERE else but where I live, DC, NYC, SF, LA, and I’m sure a few other areas, you’d be correct. Here, as I said, the median income is 150K. I make way way less than that. Every third car around here is a bmw, an audi, a caddy, etc. 40+ k cars are common. Single family homes START at 500k..Report

            • Avatar Jaybird says:

              The only goods worth having are relational.

              A yearly vacation to Cedar Point every year compared to…
              People going to Paris and London every year?
              People going to Mount Rushmore (or something similarly dumb) every year?
              People trying to figure out how to get the managers at their two different jobs to agree that they can have Thursday nights off?

              You’re comparing yourself to the folks in the suburbs.
              Which is all well and good. They’re the folks that you’re nearest to, I guess.

              But there are a *LOT* of people that you’re not comparing yourself to.Report

              • Avatar Stillwater says:

                The only goods worth having are relational.

                So, the only value of any and all goods is signaling value? That seems like an impossibly hard thesis to justify without circularity.Report

              • Avatar Jaybird says:

                We’ve argued it a thousand times, though. I even argued the converse way back when. (Brief aside: The television that was under $5000 in 2014 is now under $3500.)

                That said, way back then, I said this:

                Additionally, I don’t think that there is an objective baseline. As in: there is not an objective baseline. That said, subjective baselines are not terribly interesting to me and the difference between the technologies of this year versus that one are, at the very least, *MEASURABLE* which makes them marginally more useful for stuff like comparisons than feelings.

                Since then, I’ve become fascinated with subjective baselines. And feelings for that matter.Report

              • Avatar Damon says:

                I don’t disagree. I’m comparing myself to the people around where I live. Why? cause that’s where live. The area is filled with 2 income families who work for fedgov or state gov or teach. The tax burden is high and the costs are high. Ergo, the pay is high.30% or more of my pay is directly related to the cost of living where I live–or more. That’s been my whole point…”rich” is relative. Relative to whether it’s income or earning/dividends, where you live (cost) and a whole host of other things.Report

              • Avatar Jaybird says:

                The problem with beginning with “‘rich’ is relative” is that it always seems to end with “and that’s why the only people I should compare myself to are those richer than I.”Report

              • Avatar Damon says:

                That’s certainly an issue, but it’s also not appropriate to compare, say, my cost of living and income to middle of now where West VirginiaReport

              • Avatar Francis says:

                “The only goods worth having are relational.”

                The only people in a position to say that are those who have reliable long-term access to the bottom two tiers of Maslow’s pyramid, including:

                water / sewage, food, shelter, basic and emergency health care, basic education …

                Also, personal relationships (friends, family).

                Really, does it matter to you that someone else has a “better” marriage than you do? Or that someone else is buying brand label pharmaceuticals while you buy generics? Is the quality of your water supply a relative matter or absolute?Report

    • Avatar DavidTC says:

      [M5] This is one reason why “title loans” etc. are not necessarily the cruse of the working poor a lot of the left believes it is.

      No. That’s not really what that says. It says those are rational choices, yes, but that doesn’t mean we should leave them alone.

      What people on the left need to realize is that title loans and payday advances places are not being patronized out of stupidity. The poor are making a rational decision.

      That rational decision involves risking a whole bunch of money in the future over something that is, to us, a small amount of current money. The non-poor would never do that over a hundred dollars or so, so we assume it’s stupidity causing them do to it.

      Instead of it being a rational decision that is their best possible choice.

      And thus we, stupidly, argue they should be shut down, harming the poor. Sure, in *some* cases the poor were wrong, and managed to get the money some other way, or live without it, and didn’t get sucked in a cycle of fees or whatever…but in the vast majority of cases they ended up not being able to fix their car so got fired, or whatever their entirely rational need for the money was.

      What we need to be doing is given them better alternatives. Either by regulating the existing things, or creating new things.

      We need to stop assuming it’s dumb for the poor to borrow money at, functionally, 200% interest, and instead say ‘Is it really impossible to not have institutions that will lead to the poor at 20% interest?’.

      Once those better institutions exist, the absurd ones will disappear anyway.

      And that’s good rule we could choose to remember all other times: Any law that is designed to stop the poor from ‘making mistakes’, aka, by getting money in ways we don’t like because those ways are ‘dumb’ or ‘exploitative’, or anything, is doomed to fail, because the poor often are correct about the fact they really really need money, right then and there. (And it’s completely idiotic for us not to believe them.)

      From extremely-high interest loans, to prostitution, banning it does not actually work.(1) What we actually need to be doing is saying ‘Here is another option for money’.

      1) I think the sole thing that sorta kinda worked is human organ sales, and that is mostly because there really aren’t that many you can sell and keep alive, so that law is more a murder deterrent anyway. And for the stuff that could be sold, it requires doctors illegally participating with it.Report

      • Avatar Kimmi says:

        I think you misunderstand.
        Bleeding the rural South dry is a tactic.
        It is being done for the good of America as a whole.Report

      • Avatar DensityDuck says:

        Or we just need to recognize when we’re focusing on the edge cases. That they are edge cases is not a reason to not pay attention to them, but we also need to consider whether our solution for the edge cases ends up resulting in more overall harm for everyone else.

        Like, it’s right to feel bad when we hear about someone who didn’t pay their loan back and got hit with a ten jillion percent interest rate, but we need to ask how many other people didn’t get hit with that high rate because they paid the loan back the next day like they were supposed to. And what all those other people are going to do when the payday loan place gets shut down and they haven’t enough cash in the bank to pay for a plumber to fix the suddenly-broken toilet.Report

        • Avatar DavidTC says:

          Well, yes, but it is entirely reasonable to point out that a lot of the things aimed at the poor seem *extremely* exploitative, and ask if there’s a way we can fix that.

          We have the ability to do really specific actuarial checks, and the fact is, those loan places are way outside any reasonable position. Poor people should be charged 20%, and in fact *are* charged 20%-25% or so by credit card companies.

          There’s not any particular reason that they’re being charged absurd amounts at payday loan places.

          Well, actually there is a reason. And that’s because existing, actuary-based loan institutions are deliberately staying away from those customers. Some of this is because interacting with banks is expensive (Which raises the question of why the hell poor people need those expensive banks and where the cheap banks are.), and some of it is, to put it bluntly, because banks make a hell of a lot off money off the payday loan industry, and own a good chunk of it, and finance the rest.

          Which, uh, makes their unwillingness to loan to poor people somewhat suspect.

          It’s also interesting that banks have started providing something called ‘deposit advance’, which is basically an internal payday loan…which *also* has absurd interest rates, despite banks having almost no risk, as it’s done only with people who have direct deposit. (In theory, someone could have lost their job and decide to borrow a bunch of money they can’t pay off, but that seems low probability, and they still have an account there and usually had one for years and it’s not like someone walking into a payday advance place they’ve never been in before.)

          Again, the solution is not to attack those places. The solution is to provide alternatives, or regulation in a way that allows the places to keep existing but protects customers.Report

          • Avatar Kimmi says:

            Dare I ask why we would want to “fix” people who are so ignorant of macroeconomics? Dead and dying towns will blow away like dust. Trying to stave off their collapse serves no one except petty politicians.Report

          • Avatar DensityDuck says:

            “[I]t is entirely reasonable to point out that a lot of the things aimed at the poor seem *extremely* exploitative, and ask if there’s a way we can fix that. ”

            hmmm. Seem extremely exploitative. Seem.

            Are they? As Troublesome Frog points out, you’d assume that if these loan institutions were fleecing their customers then they’d be rolling in dough, but they don’t seem to be doing any better than those boring rich-people-only low-rate banks.

            Maybe the issue is that staying in business requires a certain amount of absolute income, and if you work with short-term loans that necessitates higher rates? I mean, you know how to do math, right? If you say “but the interest rate of a loan is based on risk!”, you’re right, but that’s not the only thing it’s based on.

            “It’s also interesting that banks have started providing something called ‘deposit advance’, which is basically an internal payday loan…which *also* has absurd interest rates, despite banks having almost no risk, as it’s done only with people who have direct deposit.”

            And this should have provided you with an important clue regarding the supposed “exploitative” rates of payday-loan lenders.Report

            • Avatar DavidTC says:

              Maybe the issue is that staying in business requires a certain amount of absolute income, and if you work with short-term loans that necessitates higher rates?

              Well, there are two options.

              One is that you can charge a fee for that overhead. Just like if I get a money order, I have to pay a few dollars for that. Granted, this would involve a credit check and ID and stuff, so it would be more, but, as I said, the overhead of each individual payday advance loan has been estimated at $10, and plus there’s an overhead of a building and stuff, so $25 would probably cover it. And then, obviously, some interest to cover the risk.

              That would be a reasonable, non-exploitative way to do it.

              Or, alternately, you can lend money to a person who you know aren’t able to pay it off under the terms of the loan, and hit them with hundreds of dollars worth rollovers, and thus collect enough money from them to cover the five people who did pay on time and one that didn’t pay at all.

              One of those reduces risk with a ‘down payment’, and spreads the pain over a large group of people, all who understand what they are getting into, and is how banks normally operate…and one of them is basically a game of Russian Roulette.

              Guess which one payday lenders do?

              And this should have provided you with an important clue regarding the supposed “exploitative” rates of payday-loan lenders.

              There’s not any actual way you can use use that to prove anything, mostly because banks clearly are exploitative.

              See, the thing is, while payday lenders actually do have a bunch of overhead and have to do a bunch of checks WRT payday loans…banks don’t.

              WRT to ‘deposit advances’, bank already confirmed who their customers are, they can see their monthly earnings, they can even fairly quickly check if the employer has laid of a bunch of people. They also already have buildings and tellers and everyone.

              The estimated cost of payday deposit loans is about $1 of overhead. And they’re a lot less risky.

              So the logical conclusion is…payday deposit loans should be a lot cheaper, right?

              No. No they are not. They are cheaper, but only barely.

              What banks getting into the business demonstrates is that exploiting the poor is something the amateurs will never be able to compete with.Report

              • Avatar North says:

                Odd, if it was merely a structuring choice wouldn’t the payday lenders just restructure when the rules change? As I recall in places where the authorities tamped down on the rates and fees the payday lenders simply closed up shop. That suggests to me like there’s a lot more “pay for the default risk” in those rates then I think you’re giving them credit for. It’s not like payday lenders turn very large profits.Report

              • Avatar DavidTC says:

                Odd, if it was merely a structuring choice wouldn’t the payday lenders just restructure when the rules change?


                My entire point is to get things structured better for the consumers.

                As I recall in places where the authorities tamped down on the rates and fees the payday lenders simply closed up shop.

                Because they usually did naive laws that simply impacted ‘the interest rate’, and those rules stupidly include any fee in them.

                I.e., if you charge someone a $25 fee to loan them $200 for a month and they have to pay back $210, it is, under those laws, worse as loaning them $200 for a month and they have to pay back $230.

                In a very important way, that first loan has less than a third the interest rate than the second. Yes, if you pay them both off on time, the first loan comes out slightly worse. But that isn’t harmful. The problem occurs is when the loan isn’t paid off on time, and it keeps ballooning.

                But that doesn’t matter under the laws restricting payday loans, which tend to just naively pretend the problem is ‘interest rate’ (Which is calculated based on ‘all money that will have been paid if loan is paid on time’.) instead of ‘spiraling out of control costs when the payment schedule is not met’. Under those stupid laws, the first one is a worse loan!

                No, it’s not. It’s much better. Yes, it costs most people $5 more, but it would cost random people hundreds of dollars less…and banks are not supposed to be operating lotteries, or anti-lotteries, like that.

                But here’s an interesting thing:

                In Colorado, they made a new law: The monthly payments for a payday loan can only be 5% of a person’s income.

                Which means now all the loans are stretched out, and has resulted in most people paying more to payday lenders on average, because longer payment schedules obviously build more interest.

                But what it’s almost completely cut out is people having to get loans to pay loans, or ‘rolling them over’. Almost everyone is able to pay them off.

                That suggests to me like there’s a lot more “pay for the default risk” in those rates then I think you’re giving them credit for. It’s not like payday lenders turn very large profits.

                Profits are a red herring. The problem is that a large section of the profits are made from putting people into financial distress it takes years to pull themselves out of, instead of just equally pulling money from all their customers based on the normal banking practice of ‘charging interest’.

                If I operate a fast food restaurant at cost, except I somehow have a system set up where every 10th person who walks in the door has to pay an extra $100, I’d still barely be making money either! And I’d get a lot of customers due to my low prices.

                That, uh, doesn’t mean we should allow people to operate businesses like that.Report

              • Avatar DensityDuck says:

                “One is that you can charge a fee for that overhead…[a]nd then, obviously, some interest to cover the risk.”

                Congratulations, you invented Sharia-compliant lending.

                Which is not functionally different from a high-rate loan that’s paid back in the very short term–like, “it’s Tuesday and I get paid Friday” kind of short. But you do avoid the sin of usury.

                “mostly because banks clearly are exploitative.”


                See, I was assuming that you were coming at this from a genuine “I don’t understand why these things happen” sort of place. I wish I’d known up front that you were actually coming from “fuck bankers, fuck capital, fuck money, fuck Je–I mean fuck moneylenders“.Report

              • Avatar DavidTC says:

                Which is not functionally different from a high-rate loan that’s paid back in the very short term–like, “it’s Tuesday and I get paid Friday” kind of short.

                It’s not functionally different if everyone pays their loan back on time.

                It’s very very different if they don’t.

                See, I was assuming that you were coming at this from a genuine “I don’t understand why these things happen” sort of place. I wish I’d known up front that you were actually coming from “fuck bankers, fuck capital, fuck money, fuck Je–I mean fuck moneylenders“.

                If you think it’s reasonable that banks are charging their own customers, that have been with them for years, 10% for a month of a loan at almost no risk to the bank (Because the money is coming in via direct deposit and the bank will just take it.), I don’t know how to respond to that.

                It’s the same sort of ‘reasonable’ that charges $35 for overdrafts which then keep piling up on top of each other, instead of just loaning them the money at, again, no risk at all, as the amount of people who walk away from a bank account because it overdrafts by few dollars is almost nil. (No one’s going to close out their bank account and change everything because they conned their bank out of $12.)

                There’s not even any human interaction there needed to approve any loan….charge them $2 for going over every month they’re over at any point, and a daily interest of 0.1%.

                But, hey, I’m apparently ‘fuck banks’ instead of ‘The lack of competition in banks has resulted in banks becoming very exploitative’.Report

      • Avatar Troublesome Frog says:

        We need to stop assuming it’s dumb for the poor to borrow money at, functionally, 200% interest, and instead say ‘Is it really impossible to not have institutions that will lead to the poor at 20% interest?’.

        It seems like the profit margins of the payday lending industry should tell us that. If they’re lending at 200% when it would also be profitable to lend at 20%, they should be making gobs of profits. If they’re not, that seems like a pretty good indication that 200% is what they need to charge to cover the risk.Report

        • Avatar Stillwater says:


          My recent study with Jeremy Tobacman finds payday lenders’ firm-level returns differ little from typical financial returns, notwithstanding their effective annualized interest rates of many thousand percent. Standard financial data (on stock returns and SEC filings) and loan-level data from a payday lender are consistent with an interpretation that payday lenders face high per-loan and per-store fixed costs in a competitive market.


        • Avatar Kimmi says:

          Dog leasing seems to be making a killing.
          Nobody ever reads the TOS.Report

        • Avatar DavidTC says:

          It seems like the profit margins of the payday lending industry should tell us that. If they’re lending at 200% when it would also be profitable to lend at 20%, they should be making gobs of profits. If they’re not, that seems like a pretty good indication that 200% is what they need to charge to cover the risk.

          No it doesn’t. Payday loans can be barely making a profit and still be exploitative and need restructuring.

          As you pointed out in your other comment, there is a high fixed-per loan cost. The loan itself can cost somewhere near $10 to even do, and they also have to maintain premises and staff.

          The problem is that their solution to that is unacceptable, because it involves deliberately loaning money to people who are going to not be able to make payments.

          What they could be doing is to charge…a per-loan cost. A flat cost. $25 a loan would probably cover it.

          But they instead give loans ‘for free’. No upfront cost at all.

          What they are really doing is charging a high interest rate, and making their operating costs via knowing that a certain percentage of their customers will keep running up the tab, but eventually pay off.

          Banks, actual banks, are actually forbidden from operating that way. They are supposed to make money enough money on the loans that are paid off in a timely manner to cover their loses on bad loans, not lose money on loans that are paid off in a timely manner so have to hope that some portion of them aren’t paid off on time, but enough of them are paid off that they make a profit there. In fact, they’re forbidden from loaning you money at all if they think you’re going to be unable to pay it back.

          Why? Letting people who loan money make money of ‘failed’ loans gives exactly the wrong incentives. It means payday places, instead of trying to see if someone will pay the loan back, are actually hoping the person fails to make payments, but can eventually be hounded into paying enough of the loan back that a profit is generated.

          That, right there, is what is going on with payday loans, and why they are structured so wrong.

          Actual banks want(1) every single person to pay their loans on time, paying exactly the stated amount on the loan, and will make a nice steady profit if that happens. Payday lenders will go broke if that happens (Because they do not actually charge enough to cover the cost of loans), they instead want everyone to roll their loans over several times and, on average, pay back at least, let’s say, 20% more. (Which in reality is 60% paying their loan back on time, 30% paying back their loan three or four times over, and 10% defaulting.)

          1) Note that actual banks have gotten a bit out of control recently too, with all the fees and stuff, so this is more what ‘ideal’ banks should be thinking.Report

          • Avatar DensityDuck says:

            “Actual banks want(1) every single person to pay their loans on time, paying exactly the stated amount on the loan, and will make a nice steady profit if that happens. Payday lenders will go broke if that happens”

            Please provide actual numbers from actual businesses showing that this is the case–that payday lenders actually do not charge enough to pay for operations if everyone paid their loans on time.

            No, not “here’s a story of a guy who had to sell his children for medical experiments”. Actual. Numbers.Report

            • Avatar DavidTC says:

              LOL. You do realize that the only logical conclusion of your dispute makes payday lenders look worse, right?

              Something like 80% of all payday loans are rolled over. Within 14 days.

              And here’s a fun line from that:
              ‘Three out of five payday loans are made to borrowers whose fee expenses exceed amount borrowed: Over 60 percent of loans are made to borrowers in the course of loan sequences lasting seven or more loans in a row. Roughly half of all loans are made to borrowers in the course of loan sequences lasting ten or more loans in a row.’
              (Note, at 15% payback, seven is the point where you hit 105%, so those first two sentences are talking about the same thing.)

              Payday lenders should made roughly 15% of the money they loan if the money is paid in time. Let’s say, for stupid math, that they loaned 100 people $1 each. They should have made $15, $0.15 each. But for 60% of those people, they made at least $1.05 from each, or $63. Which, minus the 15% they ‘should have’ earned anyway, is $51.

              I.e, they made $15 that they ‘were supposed to’ make, and another $51 because people failed to make their payments. (Note that’s assuming that that 40% were exactly on time, and 60% rolled over exactly 7 times, and nothing more…and we know that’s way too low. I didn’t even try to do the math on the ‘ten or more loans’.)

              It is clear that most of income in the payday loan industry is due to rollovers. By far. By far by far.

              And I have absolutely no evidence here as to whether or not the payday loan industry could lose at least 77% of all net income (And actually more) and remain profitable. I mean, just on basic economic principles, this sounds like a completely absurd proposition for any business, but hey, maybe they could!

              But arguing they could seems like a very dubious ‘defense’ of them, and in direct contradiction to what you just asserted about their profit margin vs. banks.Report

              • Avatar DensityDuck says:

                Thank you for giving actual numbers instead of ideological foofery. I agree that if the industry can’t survive without that degree of grasping, then there is a systemic problem and not an isolated-individual one.Report

              • Avatar Kimmi says:

                And yet you squeal like a stuck pig when confronted with proposals that actively got rid of payday lenders. Funny, innit?Report

              • Avatar DavidTC says:

                Because, as I pointed out, I do not want to get rid of payday lenders.

                People are not making stupid choices. They need that money. Taking away that option is harmful, no matter how bad the outcome is. (And, of course, taking away that option just drives it underground, and no matter how bad a payday lender is, a loan shark is worse.)

                There is no reason that society should not be able to supply such loans. There is very little profit in it, but there’s not zero profit. The promise is that it is hard to set up such a system, and the laws, paradoxically, can also make it difficult.

                Like I said, Colorado has been doing well by making all payday loans only allow a payment of 5% of someone’s income a money.

                I can think of perhaps some ways that might not ideal, and I wonder if it means that some people can’t get loans they need, and I also wonder if checking income adds to the overhead. (OTOH, I wonder if it’s not needed overhead. Entities really should not be issuing loans that cannot be paid back, period, and knowing someone’s income is an important part of that.)

                Even if it’s not ideal, it’s certainly better than ‘Pay it all off next month’, which is completely absurd as a loan concept, and there’s no possible way it could work.

                Other alternatives I can think of: Require that payday loan places allow extension of loans that are no more than 1/4th the original fee. (Which makes sense, because *supposedly* a lot of the overhead is checking the customer out, but if they’re already a customer and their account is getting rolled over by computer…huh? Where’s the overhead? There’s no magical overhead appearing because a month passes!)

                I.e., if the loan was $100 with a payoff of $116 the next month, then if the borrower don’t pay it back, they now ‘automatically borrow’ $116 to pay it off (Like before), but that loan can only add 4% for the next month, instead of the 16% previously. (Please note that 4% a month is still completely absurd as an interest rate!)

                And, yes, that’s going to cause the starting rates to go up, but that’s kinda the point. The loans should cost more at the start, and then not balloon as quickly, which not only would make it clearer what people were getting into, but remove the idiotic incentive to loan to people who can’t pay the money back. Which we not only disincentive in the actual banking industry, but literally make illegal.

                This is, of course, a somewhat sneaky way of having the ‘borrowing fee’ I was talking about.Report

    • Avatar Kimmi says:

      Title loans are the deathknell of the rural South.
      You think we don’t have the fucking numbers, man?
      I’ll tell you that those numbers got Wall Street to sit up straight.
      Better than Payday loans, those are — and if someone defaults, instead of staying on model and skipping food and medicine?? Well, you just take the car. And then what’ll they do?

  3. Avatar LeeEsq says:

    M2: Like Murali, I found this article disturbing. Using the old saw of familial responsibility as arguments against the welfare state is bad because many people have horrible families. Taking relish in the destruction of the nuclear family is one of the weirder things in leftist thought that I can’t understand though.

    M4: Malls thrived because they were places where teens could hang out with some independence of adults after the decline of the traditional downtown because of suburbanization. When online social media came along and online shopping, malls declined.

    M5: You have to figure out the cost to get to the store with the cheaper product though.

    M7: Saul spoke about this article yesterday on LGM. I don’t think Reeves is being exactly accurate when it comes to posh schools. The line between private and public schools in the United Kingdom and other European nations can get be a lot blurrier than it is in the United States. There are many schools that were founded as charitable endeavors for educating during the Middle Ages, Renaissance, and Early Modern periods that transformed into elite schools over the centuries. After being subject to a lot of legislation and tax supported funding over the years, they aren’t quite private and they aren’t exactly public, state run, either. You can send your kids to these schools and technically say your sending your kid to a public school.

    America never had formalized class relationships like other countries did because we did not have an inherited aristocracy, although attempts were made to set up something like that by the British and Dutch. Its a little known fact of American history that thanks to the Dutch, New York had something like a rent-living gentry class called the Patroons until the 1820s or 1830s when the New York legislature changed property law to get rid of any trace of feudalism. The lower and middle groups never had to call the wealthy titles like Your Worshipful or Your Excellency like they did in Europe or Latin America will into the 20th century in some parts. Instead race replaced class with Anglo-Protestants on top and Blacks and Native Americans on bottom and everybody else in-between. This makes it easier to pretend your middle class when your wealthy.Report

    • Avatar Murali says:


      Its what happens when you equate material dependence with subordination and couple that with an ethos of simplistic anti authoritarianism. Each claim on its own contains some plausibility. Combining them gives you really weird results. Leftist concern is thus not about the possibility of bad family, but the fact that people are dependant on and thus in a vulnerable position with regards to family in the first place.Report

      • Avatar LeeEsq says:

        This seems right. Many Swedish Social Democrats proudly boast that Sweden had the highest percentage of citizens living alone because of their welfare system. This makes social bonds more voluntary than they would in places with less generous welfare states.Report

        • fillyjonk fillyjonk says:

          This is really a double-edged sword, isn’t it?

          On the one hand: I’m really grateful my choices in life were something other than “Marry the first man who asked me” or “become a governess to a wealthy family and live in perpetual insecurity”

          On the other hand: there are clear problems from the breakdown of family units, and, for that matter, the breakdown of community in general – I barely know some of my neighbors to nod to because those houses are rentals and the renters change every six months. And I wonder, as a single, childless person, what I would do if I needed big help – like, if I had to have surgery and needed someone to help with household tasks after I was out of the hospital. In the old days, you went and stayed with a family member, or one stayed with you – but my parents are in their 80s, my brother and his family live 1000+ miles from me, and my cousins and I are not that close (and anyway, none of them are geographically close to me).

          I worry about depending on friends in that instance, because what investment do they have in me, really? They all have families that would come first in an emergency….

          On the third hand: I’m glad I don’t have a legion of Gladys Kravitzes telling me how to live my life and reporting everything I do on the gossip grapevine. (That might still happen but I’ve never had any of it get back to me).Report

            • fillyjonk fillyjonk says:

              Can’t tell if in earnest or satire.

              My parents’ neighbors, fortunately, are all good friends of theirs – they watch each other’s houses when traveling, they do shopping for each other if someone’s under the weather, they’ve loaned lawnmowers when someone’s was on the fritz.

              I introduced myself to the neighbors when I first moved in but there’s been a complete turnover since I did.Report

              • Avatar DensityDuck says:

                My wife and I used to host a neighborhood get-together. Some neighbors exchanged contact information and stayed in touch; others smiled happily and made friendly cooing noises while eating our donuts, and we’ve never seen them since.

                We stopped hosting it a couple years ago due to time commitments, and nobody has started up in our stead.Report

    • Avatar Richard Hershberger says:

      Some parts of Maryland still have ground rents, which are a vestige of a colonial attempt to set up a landed aristocracy. The Carolina colony tried for something similar, even going so far as to appoint an official herald to record coats of arms. These attempts didn’t get very far. There was a severe labor shortage in the colonies. It turned out that people didn’t emigrate from the old country so they could be serfs in America, and there always was an employer somewhere offering a better deal that didn’t require tugging the forelockReport

      • Avatar Kimmi says:

        Some people did emigrate from the old country to be serfs. We just called them slaves. Means the same thing when you think about it.Report

      • Avatar LeeEsq says:

        Hollywood even made a movie about New York’s old Patroon class, based on a novel naturally, called Dragonwyck. Vincent Price plays the Patroon. There is a great scene of him collecting rents while setting on a chair made to look like a throne and showing how humiliating and ridiculous the situation is.Report

      • Avatar Kolohe says:

        Leaseholds are also a frequent thing in Hawaii – they mostly consist of lands that were owned by a branch of the Royal family (who married an Anglo guy) and are now in trust to fund the main Native Hawaiian school system.

        (the administration of that estate trust has not been without controversy over the years)Report

    • Avatar DavidTC says:

      Using the old saw of familial responsibility as arguments against the welfare state is bad because many people have horrible families.

      Or just no family at all.Report

    • Avatar DensityDuck says:

      “Taking relish in the destruction of the nuclear family is one of the weirder things in leftist thought that I can’t understand though.”

      What’s a more obvious, deeply-felt, and close-to-the-heart example of an oppressive societal structure than your old man who yells when you turn your music up and is always after you to do your homework and says that unless you clean your room up you can’t have the car keys?Report

  4. Avatar LeeEsq says:

    M8: Downward mobility is not an attractive prospect for most people. Few people want to be less wealthy than their parents and unable to live as an adult with the material comforts they enjoyed as a child. Upward mobility is exciting. Liberals and leftists can get confused about what sort of society they want because of some inchoate beliefs about materialism and money. I’d generally say that the liberal ideal is to want a society where most people live like people earning 50,000 to 100,000 a year. There would be few poor people and even fewer very wealthy people. The Left are more radical because many of them hate consumerism and materialism but people like their creature comforts in different forms and most aren’t suited or want the minimalist, Bohemian life.Report

    • Avatar Kimmi says:

      Liberal guilt about every stupid fucking thing is a real thing.
      My lifestyle is built on slavery and destruction of the Earth. I accept this.
      I may try to change it, but I will not “feel good” for putting bandaids on the problem.
      The problem is humongous, and very, very deadly.
      When billions die, it will be on my head, just as much as on yours.Report

    • Avatar Doctor Jay says:

      I am a liberal. This is a caricature. I’d be happy if the multiplier between lowest and highest paid worker in a corporation was 50x, instead of the 250x we often see. 50x is a lot of wiggle room. It spans from 50K/year to 2.5m/year. Somehow that isn’t enough?Report

      • Avatar notme says:

        Why is corporate pay any concern of the gov’t?Report

      • Avatar Dark Matter says:

        This is a caricature.

        Noted. But I think it deserves a serious answer.

        I’d be happy if the multiplier between lowest and highest paid worker in a corporation was 50x, instead of the 250x we often see. 50x is a lot of wiggle room. It spans from 50K/year to 2.5m/year. Somehow that isn’t enough?

        No, it’s not “enough”. When we start looking at real world examples where we know what’s going on rather than fictional ones where we don’t, the idea falls apart.

        Arnold Schwarzenegger at his peak could demand more than $30 million dollars a movie (I’m tempted to round that to $50 million because of his other potential upsides but whatever), that’s for probably 4 months worth of work. So that means every janitor on the set is worth $200k a month?

        Fortune 500 companies can have assets of hundreds of Billions of dollars and incomes of dozens of Billions.

        A point of growth for a $100 Billion dollar company is worth $1 Billion. A bad CEO can destroy a company, a good CEO can create extra points of growth, at the extreme even numbers like +10% are reasonable.

        You start crunching numbers, ask what’s reasonable compensation for Billions of dollars of growth, and CEOs start to look underpaid, not overpaid.

        And the reason for that is we have difficulty separating out the Steve Jobs rockstar level CEOs from the merely lucky, or even the lucky from the bad.

        However the central point is “what someone is worth” has nothing to do with “what someone else is worth”. Issuing laws in defiance of economic realities will have easily predictable (and bad) outcomes. For Schwarzenegger that would probably mean his movie(s) needed to be made in other countries. For CEOs, the guy making the decision on whether to move the company overseas might also get a 10x pay increase if he does.

        Pushing economic activities/people outside the US because they make too much money is probably a bad thing.Report

        • Avatar DavidTC says:

          You start crunching numbers, ask what’s reasonable compensation for Billions of dollars of growth, and CEOs start to look underpaid, not overpaid.

          And you have thus perfectly repeated the talking points as to why CEO are so well paid.

          Now, ask yourself, since there are a bunch of different ways to measure CEO performance, why extreme bad CEOs seems to be paid just as well, and often seem to get shoved out the door with millions and millions of dollars.

          Here’s the most fun examples of CEO that failed:

          Nabors Industries paid its CEO $70 million in 2014. Nabors Industries, incidentally, had such bad performance that year it was removed from the S&P 500 for 2015.

          Mattel gave their 2-year CEO, under whose leadership the stock price had fallen by half, $50 million dollars.

          And the absolute best example: Merrill Lynch literally destroyed itself in the financial collapse, having to declare bankruptcy and sell itself to Back of America. This was at least partially because the CEO decided he would play golf while the entire rest of the financial sector was running around like chickens with their heads cut off. The company lost, in his last quarter, $2.3 billion dollars, and also wrote down $8.4 billion in losses on housing. He retired in October 2007 with a $161.5 million payout.

          But that’s is just executives on the way out the door. Maybe companies have reasonable pay scales for executives while they are employed?

          Nope. the company does good, executive compensation goes up. When it does bad, it…goes up anyway.

          Yahoo, for an absurd example, kept raising its CEO compensation even though the company had slowly declining revenue for a decade. Sure, the stock price was forcible kept up, but it was kept up by stock buybacks that were funded by selling stocks of Alibaba, a Chinese e-commerce company (Basically their that Yahoo luckily invested heavily in years ago and did well. The CEO had nothing to do with any of that, and in fact she spent $2.8 billion of Yahoo’s money in acquiring other companies, none of which managed to do a damn thing to the declining revenue stream! And, if you’ve been paying attention, Yahoo literally just (As in today) was bought by Verizon for $4.48 billion, and the CEO walked away with $186 million…for…selling the company? Why? Almost the entirety of the value was the trademarks (Which are probably worth less than she was paid.), some extremely confused old people who still visit the place, and the Alibaba stock that hadn’t been sold yet!

          Goodyear, for an example of ‘not mismanaged but had a bad year’, had revenues decline 8% in 2016 from the previous year. The performance bonuses for their CEO did decreased his pay from 11.5 million to 9.5 million. Sounds correct…except then the board voted to just, uh, pay him more salary. He got $19.3 million in 2015, and $19.6 million in 2016. The justification was that he completed a strategic plan (So, uh, did his job?), and ‘to move him closer to median market base salary rates given his tenure in his current role as CEO’. I.e.,they justified raising his pay because everyone else did it.

          Comcast, meanwhile, gave huge executive bonus in anticipation for the Charter merger…which of course didn’t happen. That’s a pretty weird sort of performance-based pay! (Maybe by performance-based, the board thinks it’s like theatre. As long as you go through the motions of a merger, you get rewarded.)

          Seriously, I can list hundreds of them. So instead I ask you to find a company. Any company. One with high executive compensation, let’s say over $10 million dollars, that actually racketed down the pay in a meaningful way when the company did badly.

          I have found one. CBS, did actually racket down their CEO pay in 2015, from $57 million to $53 million….except that sorta started out absurdly overpaid (Media companies are the most absurd worst offenders here.), and considering that year their stock lost 15% and their market capitalization declined from $28 billion to $22 what really happened is that his performance bonuses fell a lot, and then the board gave him $7 million dollars, undoing about 60% of the performance bonuses drop. Hrm. At least they kept him under what he was the previous year, unlike Goodyear. (And that’s not even mentioning that the drop in the revenue would have been even larger if not for the money made by spinning off CBS Outdoors.)

          The actual reasons that CEOs get paid as well as they do has almost nothing to do with how well they perform, and everything to do with the fact that they are extremely well-connected, and in fact board members and CEOs are often in opposite positions at other companies.Report

          • Avatar Dark Matter says:

            Seriously, I can list hundreds of them. So instead I ask you to find a company. Any company. One with high executive compensation, let’s say over $10 million dollars, that actually racketed down the pay in a meaningful way when the company did badly.

            Bad CEOs should be fired, not have their pay reduced. A 1% loss on a $100B company is a Billion dollars loss. Even if the CEO is “free” that’s a shockingly bad bargain.

            The math suggests if we could tell the rock stars from the awful, then pay should be measured in hundreds of millions if not billions. The risk and/or lack of information you’re pointing to (does a bad year indicate a bad CEO or just that it was a bad year) is why pay is as low as it is.

            As for all your examples, I’m pretty sure I’ve seen a bad movie or two where the people involved were overpaid. The market is brutal on poor company performance, that’s strong motivation to fix things. And yes, granted, fixing things so the CEO is properly evaluated and incentivized is an ongoing issue in society.

            The actual reasons that CEOs get paid as well as they do…

            In less politically charged situations where it’s clear we’re looking at market forces, we see the same phenomenon.Report

  5. Avatar Kolohe says:

    M4 – we need a name for the thing where every single story by a particular writer eventually veers into his or hers pet narrative – even if that narrative is not wrong.

    (Like, the more extreme version is Walter Sobchak always going on about Vietnam. It’s not quite that though, because there is a valid point and a valid connection to that point. I just think maybe everything isn’t about that point)Report

  6. Avatar Kolohe says:

    M4 addendum – is there a similar retail apocalypse going on in Europe right now? Serious question.Report

    • Avatar J_A says:

      Not really. Europe is behind the curve, and the retail apocalypse is the High Street stores Closing because they can’t compete with the hypermarkets that are being built in the suburbs

      But you have to remember that most Europeans live in small towns/large villages, so “suburbs” means something different thereReport

      • fillyjonk fillyjonk says:

        I also wonder if cars are an added factor. Everyone here talks about how our downtown (which used to have a JC Penneys! and a T G and Y! and an honest-to-God bookstore) died after “most people” got cars in the 50s and 60s, and especially after the interstate was completed and people realized they could drive to the next largest city and go to the mall.

        And now malls are dying because I guess everyone has a computer and has realized that they can buy stuff in their underwear and they don’t have to talk to people? Or something?

        (Though I will say there are people here who unironically refer to the wal-mart as a “mall.” IT IS NOT A MALL DANGIT)

        I dunno. This is where I’m maybe a little bit of a hipster but I kind of wish there were still nice downtowns for those of us with no one to talk to at home, so we don’t wind up just ordering a ton of weird crap while sitting alone, online, in our underwear.Report

  7. Avatar J_A says:

    M1: China Banks

    If you think the article is scaremongering, you are wrong. If anything, they are downplaying the situation. It’s much worse.

    First, and worst, the article is ignoring the role of provincial banks. Provincial and city banks are the preferred tools to square the circle between contradictory government goals. An example:

    Power prices are regulated by the cities/provinces. By regulated I mean mostly frozen. But China is a net importer of primary energy (coal, gas, oil). Hence the cost of fuel for power generation reflects international prices. Before the drop in oil prices, power plants sold the energy at prices lower than the cost of the burnt fuel. How you keep the power plants going? You get a one year loan from the provincial bank. What happens at the end of the year, when the loan can’t be repaid, and you are still paying more for fuel than your electricity revenue? You roll over the old loans for one more year, and you get another fresh one year loan.

    Multiply by the number of power plants in the province.

    Repeat for all other socially necessary industries: gas and water utilities, the factory that provides local employment, construction companies building the new housing spurring like weeds all over China.

    And now you have the banks carrying over a zombie economy. Loans can’t be repaid, and collateral can’t be repossessed because the industries cannot be stopped without significant impact to the community. Cleaning up this mess will take decades and massive amounts of money. Hence it will not be attempted.

    The system will collapse, sooner rather than later (though “sooner” might be years or decades, so this is a prediction of limited use)

    The other major issue, in my opinion, that banks in China are operating under a XIX century paradigm of debt and collateral. Banks insist on physical, instead of financial, assets as collateral. Borrowers are forced to pledge different elements or their plants as collateral for different loans (loan A can be be secured by the boiler, loan B by the turbine, loan C by the generator).

    We were forced, on a gas utility, to pledge the buried pipes, yes, the ones buried in the ground. But the bank would not accept a pledge of the receivables from the customers. It’s not a physical asset, you see.

    Some of the large banks in Shanghai and Beijing can do modern financing. But even in those cases, the team that understands modern financing is a very limited, very selected, team, and their deals are chosen with care by whatever powers that be make that decision. Their bread and butter business is run by the same people, and the same procedures, that permeate 95% of the China banking system, the one that’s provincial in scope and never gets mentioned in BloombergReport

    • Avatar notme says:

      There was an interesting article in the NYT yesterday about the role Chinese banks are playing in the building of infrastructure, esp bridges, and whether those loans can be paid back.Report

    • Avatar Kolohe says:

      I would think though that the kind of friction in securitization your describing might serve as a governor to mitigate the (metaphorical) inflation financial bubble.

      The essence of the 2008 meltdown was trading on the pledge of receivables of customers i.e. loan repayment streams. These turned out to be less valuable than the physical assets ostensibly used as the underlying collateral. Like, if all the guys trading CDOs and CDSs were merely looking to cover with pieces of various houses, that would have been less bad that the fairy tales they actually were telling each other and themselves.Report

      • Avatar J_A says:

        You are right in this specific case, but that’s not because financial collateral is a flawed per se concept. Pipes buried on the ground as collateral is even more screeed up.

        What was ignored in the creation of CDOs was systemic risk. What if the value of all real state drops simultaneously.

        If I was king I would impose a rule that originating banks could not dispose more than 80% of their loans in CDOs and similar packages, so they kept skin in the game. Right now banks make their money in the origination/closing fees and not in the performance of the loan through maturity. That’s the big distortion that modern financing brought forthReport

    • Avatar Oscar Gordon says:

      This is a shell game that is as old as government, especially when that government has enough control over the economy and information about it. No one who has been keeping even half an eye on China has any illusions as to what they are doing, nor do they have any question as to what is going to happen when the bottom falls out (because it will fall out, no one has ever figured out how to undue the damage while maintaining economic & political control). All those companies investing in China know that the game is make as much money as you can and either get out before the end, or make sure you can eat the losses.

      What amuses me are the people who glorify the noble public works China is doing while ignoring the financial realities. Same people who still think Venezuela had it right.Report

      • Avatar Kimmi says:

        Venezuela had it TONS better than China ever did. Venezuela did better than Saudi Arabia and the gulf countries, in the main (fewer slaves).

        0-5 years on China before it collapses (It’s FUN knowing someone who works for RAND). Not trying to catch the falling knife.Report

      • Avatar North says:

        The balancing act and eye of the needle the Chinese are trying thread is breathtaking. They are trying to modernize their economy, become a world power militarily all while trying to beat out the collapse of their ecosystem, the demographic collapse of their populace and the rising demands for accountable government from their people. On top of that since they’re the next thing to an autocracy they’re doing it with one eye closed and one hand tied behind their back. I have no idea how it’s going to end but history suggests it’s going to be one hell of a crash. That is a lot of teacups up in the air.Report

  8. Avatar Saul Degraw says:

    M2 and M3: I suspect neo-liberalism has taken a bad term because it seemed to relish the destruction of the Safety Net too much. Our own North admits that neo-liberalism suffers too much from corporatism. To me, neo-liberal also suffers from someone preferring a Rube Goldberg-sequel nudge policy over just direct action (though this is slowly changing) TNR at the height of their neo-liberal days might have seen themselves as being against the National Review but the effect was different and they could often be racist or close to it.

    M5: I don’t buy the economics here. A 20 minute detour might be worth a lot more than 50 dollars to a well off person relative to the cost of an item. Time is money.

    M7 and M8: I liked all three articles. I think Phoebe is right and the upper-middle class are acutely aware of the precarious nature of their situation. This is why I think parents in my hometown focused on grades to a good college to grades to a good grad school/professional school to a well-paying job. Our Tod has critiqued the issue of private college especially the Ivy League as being a status-thing unique to the Northeast but it kind of works. You have to be a real fuck-up to be a broke HYPS grad or equivalent school.

    M8 is more interesting and possibly sociological. I suspect that a lot of liberals
    see being an upper-middle class professional as virtuous but capital or inherited wealth as not so virtuous. Keep in mind that wealthier liberals seem to be professionals with healthy six figure incomes instead of business types worth 7 figures or more usually with some exceptions. Conservatives would flip plus the upper-middle class are their dreaded enemy.Report

    • Avatar North says:

      Well my era of TNR had crazy uncle Marty banging around in the attic and he was… umm… eccentric.Report

      • Avatar Saul Degraw says:

        Uncle Marty aside. I still see that a lot of neo-liberals/center Democrats overlearned the lessons of 1994. This is human nature but frustrating. There is still too much of a path at the top-levels of both parties from junior/senior staffer to spending a few years in lobbying/banking/law and making your fortune to elected office and back. Rinse lather repeat.

        This still leads Rahm Emmanuel types to make some bone-headed decisions and stick with them like privatizing parking meters/toll roads for some quick cash and/or doubling down on Charter schools. “School choice” is an issue growing increasingly unpopular with the Democratic base.

        You still see the centrist wings of Labour and the Democratic parties and their wonkish supporters tsk tsking anything about a candidate like Sanders or Corbyn who argues for more welfare state measures and worker protections. But how many of these more centrist candidates have a corporate bias because they go so quickly from staffer to management or top-tier lobbyist to politician or staffer again?Report

        • Avatar North says:

          Sure, but you also have plenty of liberals who claim the lessons of ‘79-‘94 didn’t exist. Thatcher and Reagan did actually happen though and liberals did have to convince the masses that they do know how to do public budgeting and that they won’t just chuck money away on nothing. I think that liberals succeeded (and in the US ironically now are the only side that still pays attention to math).

          I like dear ol’ Bernie and the populist/socialists but they have some serious wonk work to do before I can take them very seriously since almost all their prescriptions have a tendency to amount to “Have a political revolution- revive unions/institute class equality/*insert given bugaboo*- equality and prosperity for all!”Report

    • Avatar Troublesome Frog says:

      M5: I don’t buy the economics here. A 20 minute detour might be worth a lot more than 50 dollars to a well off person relative to the cost of an item. Time is money.

      Right. But the answer to that question should be the same whether you’re buying a $1000 tablet or a $75 pair of shoes. $50 is $50 and 20 minutes is 20 minutes, regardless of the other details.Report

      • Avatar Richard Hershberger says:

        I think that people are using the cost of the item as a signal for the wealth of the buyer. Fifty bucks is spare change to the guy buying a $1000 item, but a much bigger deal to the guy settling for the $300 version. This isn’t the intent of the thought experiment, but it wouldn’t be the first time that an economist fails to understand the psychology of actual people.Report

        • Avatar DavidTC says:

          That’s what I was thinking, also.

          People aren’t saying ‘I would spend 20 minutes to save $50 on a $300 item, but not a $1000 item’.

          They’re saying ‘If there is a specific type of thing that can be valued between $300 and $1000, if I was the kind of person who regularly buy the $1000 version, I would not spend 20 minutes to save $50. Whereas if I was the kind of person who buys the $300 version, I would do that.’Report

        • Avatar Troublesome Frog says:

          The biggest one I see all the time is people driving around or waiting in long lines to find the cheapest gas. If you fill up 10 gallons, that $0.04 a gallon you save is $0.40.

          The people who are doing this are not the types of people who should be doing this. If I said, “Hey, I dropped $0.40 about a block and a half over there. You can just walk over and pick it up and it’s yours,” they’d look at me like I was out of my mind. But they’ll go out of their way to go to Costco just for gas and wait in a long line for the same amount of cash.

          I’m a weird place right now in that I’m an hourly contractor part time with a flexible schedule and I’m well below my hour cap most of the time. That means anything I do with my time literally translates into money. I’ve always sort of done that calculation, but now it’s explicit. “Stop off for a cup of coffee” could end up being like $40 for me now if I’m not careful. Not surprisingly, this is also a completely exhausting way to live.Report

  9. Avatar North says:

    Yeah I still like the term neoliberal though, frankly, it’s become so common across the moderate end of the left spectrum that just calling them liberals is probably sufficient.Report

  10. Avatar Doctor Jay says:

    [M7] I can’t say that I agree with Phoebe when she says that “privilege awareness” is the same thing as class consciousness. It isn’t. Americans are class-blind to a fault. We have a class system, but mostly it’s invisible to everyone except the people who are in the class. They have developed a system of markers, clothing, phrases, hairstyles, and so on.

    I think Phoebe is right in that when people become rich, they can become obsessed with staying rich, and with the idea that everyone wants their money. That fear needs to be confronted. Too much fear of losing it all will make you too conservative with your investments, for instance. And you’ll become hostile and suspicious of everyone you meet as a golddigger. It’s ugly. It’s bad for you. It’s isn’t necessarily a requirement, but getting out from under it takes some focus and some effort.Report

    • Avatar Oscar Gordon says:

      the idea that everyone wants their money

      Might have something to do with a near constant “soak the rich” narrative from some corners.Report

    • Avatar notme says:

      That fear needs to be confronted.

      How do you suggest that liberals do that?Report

      • Avatar Doctor Jay says:

        I’m not talking about liberals, I’m talking about people with money. What do liberals have to do with this? Yes, some liberals have not money, but political beliefs are not particularly salient to the point I’m making.

        Tell you what, Google “hedonic adaptation”, or “hedonic treadmill”.Report

        • Avatar notme says:

          Liberals generally want to take their money and redistribute it to someone they think is more deserving, which is usually a liberal voter.Report

    • Avatar Saul Degraw says:


      I know lots of people who grew up comfortably middle-class and above and are now raising their children in the same situation. Some are literal trust-fund kids whose income from day jobs does not match with their lifestyles (read: They work in the arts and/or in . Others were just raised in middle-class suburbs by professional parents and are now raising their kids in the same level of comfort.

      A lot of my friends either keep very silent about their level of wealth growing up or now and/or they try to talk about their privilege. The issue is that no good can come of this. Either you get a mini-pitchfork scene at your hands and/or honestly talking about your privilege sounds an awful lot like a humble brag.

      Most of the people I know in this spectrum are Democratic/Left-leaning to varying degrees.

      I went to a college with really horrible food and not many options (and those were often repeated). I had enough privilege that I could afford to eat every now and then at the Chinese takeout place that was a block from campus. This place served 5 dollar meals that lasted two days. I once suggested going there and got chewed out by someone who needed to use the campus meal plan to eat. And this was at a college where 40 percent of students went to private school and there were people who stood to inherit tens of millions of dollars in inherited wealth. I’ve seen other people get the pitchfork treatment and then just decide to stay quiet.

      The humble brag that I see the most follows a typical pattern. It is a woman (usually), white (usually), with one or two children, a house in an upscale suburb or a condo in a desirable urban neighborhood. Her husband works a good job with benefits. The woman is either an artist of some kind (usually a writer) or starting her own small business. Said woman usually tries to write an essay or a facebook post about how privileged they are to be in such a situation.Report

      • Avatar Doctor Jay says:

        The things you describe seem to me like things that happen. I’m not sure what my takeaway is supposed to be, though.Report

        • Avatar NoPublic says:

          What the takeaway on Saul’s posts always is.
          Saul is awesomest and makes the bestest choices for completely rational reasons.
          Other people are not nearly as awesome, because they are not Saul enough.Report

  11. Avatar Jaybird says:

    Peter Suderman has a corker of an essay today on vidja gaems. Not on them being games qua games, of course. But on them providing a “UBI for the Soul”.

    A handful of goals. A handful of achievements. Achieve them and *DING*, you now have endorphins that you’d once (maybe, perhaps) get from doing a job well.

    We’re on the cusp of something huge. Automation taking over all kinds of jobs. People will need a UBI if there’s no work that will let them earn money. When it comes to the question of “but where will they find meaning? Meaning is found in good honest work!”, the answer comes: Vidja.

    In the same way that pornography provides a rough approximation of sex, video games provide a rough approximation of achieving things.

    Personally, this scares the ever-living itshay out of me because I know full well the siren’s call of the vidja. If I had access to a UBI that would cover the tubes, the electricity, the rent, and the food?

    We’re on the cusp of something truly awful.Report

    • Avatar Joe Sal says:

      [Event reminder: Pull Jay out of the matrix in five years]Report

    • Avatar Doctor Jay says:

      At one level, I get this. I understand the addictive quality of videogames.

      At another level, I will point to my understanding of human motivation, which I learned from the videogame industry. It is a three-factor model. People are motivated by

      1. Autonomy
      2. Mastery
      3. Connection

      At the end of the day, a healthy person will want to do something that entails some skill, lets them make their own decisions, and has an impact on other people. That might be a job, or it might be a videogame. But it probably won’t be a videogame as we know it.

      That gets boring after a bit, and people hunger for something that has a little more meaning, to themselves and to others.

      For instance, I know a guy who was born independently wealthy, and went out and got a Ph.D. in Computer Science, and worked as an engineer for a Silicon Valley company, or really, a series of companies. The wealth meant that there were certain things he could just say “no” to. It didn’t mean he sat on his ass playing videogames, or whatever. He wanted to do something that was meaningful, and exercised his skills.

      I don’t think there’s any inherent emotional difference between someone like him and someone living in Ohio, so I think that roughly the same sort of thing will happen.Report

    • Avatar North says:

      Help me with the truly awful bit Jay.Report

      • Avatar Jaybird says:

        People who don’t do the real thing of anything, but merely rough approximations.

        Instead of sex, porn.
        Instead of achievements, video games.

        It feels like the real thing.Report

        • Avatar Kimmi says:

          If done right, a well told fantasy can be better than the real thing. Else why do we read books? Why is truth stranger than fiction?Report

          • Avatar DensityDuck says:

            Yep; “real” is what you make it.Report

            • Avatar Jaybird says:

              While it’s true that feeling real things gives similar sensations to feeling things that feel like the real thing, I can’t help but think that there is some sort of Johnsonian refutation of this Berklean idea that “real” is what we make it.Report

        • Avatar North says:

          If they elect to do so is it terrible? I’m starting to get shades of the Dune prequels here.Report

          • Avatar Jaybird says:

            No more terrible than what happens to cats when they are spayed/neutered and kept well fed, well brushed, well smooched, and sleeping on the bed in the air conditioned room.Report

            • Avatar North says:

              Hmmm I’m still struggling with calling it awful. Also I don’t think the cat comparison completely works since the kitties don’t really actually opt in to that lifestyle nor can they opt out.

              But I may be letting personal views color it because God(ess?) knows I love me some vidja games.Report

    • Avatar Richard Hershberger says:

      I point out, every time this comes up, that there is historical precedent: the Victorian gentry class. A gentleman by definition did not work, though in practice this was stretched a bit around the edges. A gentlemen lived off of investment income: ideally rents from his tenant farmers, but in practice stocks and bonds. Where did the principal come from? Victorian England was the richest nation in the history of the world. The money came from trade and industry, which the heirs promptly denying anything so vulgar.

      So how did this impressively large class of idle rich spend their days? It varied wildly. The Empire didn’t run itself, and while the administrative matters were largely performed by middle class drones, there needed to be Quality at the top running things. Then there was always the army and navy. Around the edges there were the professions: doctors and lawyers were gentlemen, though just barely. And there is always politics, of course.

      This still left a large number of gentlemen without occupation. What about them? A lot of them spent their days in stupid social games and fornication, and some of them blew their brains out due to sheer boredom, and booze and opium were always options. So there was that. But some fraction found better ways. Think of those naturalists risking any number of tropical diseases to go to darkest Africa to collect butterflies, which they brought home, stuck on pins in cabinets, and classified. We tend to be dismissive of this stuff, but a lot of foundational science was done by these guys. For that matter, Darwin was one of these guys. The truth is, a lot of really impressive scholarship came of the Victorian gentry.

      I feel a warm fuzzy about these guys because I totally would be one of them, if I didn’t have to earn a living. Really, I am one of them. My job allows me the time to devote to 19th century baseball: about as useless a hobby as can be imagined. It makes me happy.

      I foresee something similar, come the UBI. There will be vast swaths of people playing video games, but some self-selected fraction will use their economic freedom to creative ends.Report

      • Avatar DavidTC says:

        I foresee something similar, come the UBI. There will be vast swaths of people playing video games, but some self-selected fraction will use their economic freedom to creative ends.

        it seems weird that we would have a problem with people living off UBI and not doing anything ‘productive’, but we don’t have a problem with people working their entire life doing stuff that objectively don’t accomplish anything other than moving produced goods slightly closer to the consumers. (Truck drivers, stock people, cashiers, etc.)

        If we replace every single one of those people with robots, and all those people lived off UBI, we would almost certainly have more creative output total.Report

      • Avatar Jaybird says:

        But this isn’t an article about “Let’s make people Victorian Gentry” which, indeed, would result in, among other things, gentlemen without occupation who spend their days in stupid social games and fornication or suicide by way of guns or booze or opium with the additional option of instead going to darkest Africa to collect butterflies.

        It’s an article discussing a really, really high grade of opium.Report

      • Avatar LeeEsq says:

        The gentry class was a small fraction of Great Britain along with the rest of the European aristocracy. Whether humans can survive as a mass gentry class is another question.Report

  12. Avatar DensityDuck says:

    [M6] This is a great article with something for everyone. Conservatives can talk about how there’s hard data showing that a secure wall would stop hundreds of thousands of people entering illegally every year. Liberals can talk about how it’s conservative racism that leads them to focus on the wrong people. Libertarians can talk about how even the government admits that it has no idea what the actual number is and no idea how it would go about even getting one beyond a massive surveillance operation.Report

  13. Avatar DensityDuck says:

    [M8] I think that any discussion of class and wealth in America really needs to just cite Burt Likko’s Tennessee Taxonomy, which is pretty much exactly following the “stickness” in social mobility that the article describes.Report

  14. Avatar Dark Matter says:

    [M7] America may have a problem with the wealthy pretending they’re not wealthy.

    This kind of reverses cause and effect. The normal way the wealthy become wealthy is by living below, sometimes far below, their means.

    Read “The Millionaire Next Door” for the mechanics and mindset of it.Report