Here is the audio and transcript, recorded outside in SW Washington, D.C. And no, that is not a typo, he does call himself “Alexander the Grate,” his real name shall remain a secret. Here is the event summary:
Alexander the Grate has spent 40 years — more than half of his life — living on the streets (and heating grates) of Washington, DC. He prefers the label NFA (No Fixed Address) rather than “homeless,” since in his view we’re all a little bit homeless: even millionaires are just one catastrophe away from losing their mansions. It’s a life that certainly comes with many challenges, but that hasn’t stopped him from enjoying the immense cultural riches of the capital: he and his friends have probably attended more lectures, foreign films, concerts, talks, and tours at local museums than many of its wealthiest denizens. The result is a perspective as unique as the city itself.
Alexander joined Tyler to discuss the little-recognized issue of “toilet insecurity,” how COVID-19 affected his lifestyle, the hierarchy of local shelters, the origins of the cootie game, the difference between being NFA in DC versus other cities, how networking helped him navigate life as a new NFA, how the Capitol Hill Freebie Finders Fellowship got started, why he loves school field trip season, his most memorable freebie food experience, the reason he isn’t enthusiastic about a Universal Basic Income, the economic sword of Damocles he sees hanging over America, how local development is changing DC, his design for a better community shelter, and more.
COWEN: What’s the best food you end up with? Where is it from? What’s an A+ for a food day?
ALEXANDER THE GRATE: You want my classification system?
COWEN: Let’s hear it, absolutely. I’m a foodie, too.
ALEXANDER THE GRATE: Okay, you’re jumping around, too.
COWEN: Yes, this is the point of the podcast. This is the jump-around podcast.
ALEXANDER THE GRATE: Yeah, but let’s consummate one thought at a time. There’s some cool stuff here, fun stuff. Alright, that’s the beginning of the Bums Banquet. For those that are not fully acclimatized, we had a classification system. This is a class A. It hasn’t even been taken out of its wrapper. Class B, maybe there’s one bite — TYO, trim your own. We found some of it still in its wrapper. Double A would be from the hand of the person donating to us. Triple A would still be hot.
COWEN: What’s a D? C–?
ALEXANDER THE GRATE: Only the rats know that. A lot of forks here, but we’ll keep it to the general stuff first. Anyway, after hours, at the picnic tables of the [Library of Congress] Madison Building, that’s where this happened. Eight-foot diameter tables, so we could fit 10 people around there. That was a continuation of the Freebie Finders and the Bums Banquet and all that.
But one more thing about the lunches. We’re an overfed population — the affluent society. Are you really hungry three times a day? It’s a luxury to have that many. When people have to hesitate, “What am I going to eat now?” Truth to tell, I don’t really need it, but it’s become a tradition, a tradition of the affluent. We don’t need to eat as much as we do. It’s more habit than anything.
But the kids, the junior-high kids throwing their lunch away — they didn’t know that at the bottom of the bag, their mamma left a napkin with a stick figure on it, saying, “Hi, hope you’re having a good time in DC. Love, Mom.” Mother’s love comes along with a peanut butter sandwich. But under the napkin is up to $2 in change or bills for drink money, [laughs] so there’s cash left behind there, too.
Alright, let’s back up a few tangents here. Man, you have a lot of things out on the floor here.
COWEN: A lot of things going, balls being juggled.
COWEN: Some economists I know have promoted the idea — it’s called universal basic income, and it’s something like every person would get $10,000, including NFAs. Is this a good idea?
ALEXANDER THE GRATE: Yes, Finland… Okay, save that for that because I’m going to ask you —
COWEN: You can ask me your question now, but also just indicate if you think that’s a good idea, bad idea, in between, and then you ask me yours.
ALEXANDER THE GRATE: Alright, I want to ask you — just the answer. National debt — this was before the multi-trillion-dollar relief bills had been signed into law by the president.
ALEXANDER THE GRATE: A progressive algorithm, no doubt, but I don’t know if they’ll factor in if it’s the five-year plan for the $5 trillion and they’ll add $1 trillion automatically to this amount. But it’s pushing $30 trillion, which is, what? You can scan this quick — $84,000 for every man, woman, and child in America.
COWEN: So you’re a fiscal conservative?
ALEXANDER THE GRATE: I’m just an observer at this point. The point is, I see this number, and I see a sword of Damocles hanging over the economic head of America. I know a lot of it’s built in, but theoretically, if all this came due catastrophically overnight, do we have a plan?
Recommended, you won’t find many podcast episodes like this one. It is noteworthy that Alexander has a better and bigger vocabulary than the median CWT guest. Also, this is one episode where listening and reading are especially different, due to the ambient sounds, Alexander’s comments on the passing trains, and so on — parts are Beckettesque!
We show that a gender earnings gap can exist even in an environment where work tasks are similar, wages are identical, and tenure dictates promotions. The 11 percent earnings gap in our setting arises from female operators taking fewer overtime hours and more unpaid time off than do male operators. Consequently, we observe that gender neutral policies can have differential effects on the two sexes.
We find that female operators value time, as well as schedule controllability, conventionality, and predictability more than male operators. Male and female operators choose to work similar hours of overtime when they are scheduled months in advance, but male operators work nearly twice as many overtime hours when they are scheduled on short notice. Moreover, male operators game the overtime system more than female operators: when faced with an undesirable schedule, male operators take unpaid time off, but also work more overtime during the rest of the week, resulting in an increase over base income.
Thus, the 11% wage difference wasn’t a result of employer discrimination. One might say the wage gap was a result of “systematic sexism” in family roles but if so is the sexism hurting women, who earn less, or men, who spend less time with their families? If all partners were unisex wouldn’t it still make sense for one partner to be more work-flexible than the other due to increasing returns?
One positive lesson is that employers who can increase schedule controllability might be able to make workers better off and lower wages making employers better off. It’s not clear, however, if such bills are left on the sidewalk but it’s not impossible.
It’s interesting that similar results were found for the gender wage gap among Uber drivers–men made more but not because of employer discrimination, which isn’t even possible in this context, but because on average there are small differences in how men and women drive, men drive a bit faster for example.
Photo Credit: FCPS.
Seeing a pile of resumes already, several leaders of law firm antitrust practices are predicting many more government attorneys heading for private practice in the coming months as a new-look Federal Trade Commission forms under the leadership of chairperson Lina Khan.
“I’m getting a lot more resumes across my desk from the FTC,” said the co-chair of one antitrust practice in an Am Law 100 firm who declined to be named so that he could discuss an agency that he frequently interacts with. “There’s a lot more people coming out, and they’re going to get snapped up fast.”
While some staff turnover in the wake of an administration change is routine, law firm leaders said the number of agency lawyers seeking out career options outside the FTC appears to be high now and they are anticipating more later in the year. They attribute that, at least in part, to agency lawyers who have different views compared with Khan’s ideas of what constitutes antitrust behavior and how to bring cases…
“I think there’s a real disquiet there now—even in what I would say is a pretty liberal agency,” the antitrust co-chair said. “Eyebrows are up over some of the most recent moves, which to some career attorneys at the agency might see as a little heavy-handed. I won’t be surprised if more folks decide maybe now’s the time to test the [private practice] market.”
Those are the (largely Democratic) lawyers — just imagine how the economists must feel! Here is the full article, with further detail, brutal throughout. It is at least comforting to see that if you try to destroy America’s greatest companies, there is some pushback in the system.
Israel had vaccine that was about to expire before it could be administered. South Korea needed vaccine immediately to stop a surge. They arranged a deal.
South Korea said it will receive 700,000 doses of Pfizer-BioNTech’s coronavirus vaccine from Israel on loan this week, in an attempt to speed up immunisation following a surge in infections around the capital Seoul.
…Under the vaccine swap arrangement announced by both governments on Tuesday, South Korea will give Israel back the same number of shots, already on order from Pfizer, in September and October.
South Korea has quickly distributed the COVID-19 vaccines it has, but has struggled to obtain enough doses in a timely manner as global supplies are tight, particularly in Asia.
“This is a win-win deal,” [Israeli Prime Minister Naftali Bennett] said in an earlier statement.
One of the weaknesses of the COVAX facility for distributing vaccines is that distribution is primarily based on population with all countries guaranteed that “no country will receive enough doses to vaccinate more than 20% of its population until all countries in the financing group have been offered this amount.” That’s equitable, but it has dynamic challenges: different countries may have different needs and capabilities at different points in time. A country may be given vaccines, for example, when it may not yet be ready to administer them — and that can potentially lead to waste. The Israel-South Korea deal, for example, only narrowly averted 700,000 Pfizer doses from being tossed. Countries may also have different preferences for vaccines, as different vaccines may fit better with their healthcare systems. A fixed distribution schedule doesn’t adapt to the unique circumstances of time and place, as Hayek might have said.
It’s not surprising that COVAX chose a fixed distribution rule as many people wouldn’t trust a centralized authority to decide who gets what vaccines when. But what about guaranteeing each country a right to vaccine but allowing them to trade? Trade wouldn’t be vaccines for dollars which could introduce ethical and agency issues but vaccine at time 1 for vaccine at time 2 as in the Israel-South Korea exchange or across other factors such as vaccine type. My colleagues on the Kremer team, most notably Eric Budish, Scott Duke Kominers and Canice Prendergast, have been helping think through the design of just such a system. Prendergast designed the now-famous distribution system for Feeding America, Budish helped to design Wharton’s Course Match system and Kominers has worked on mechanisms for allocating convalescent plasma, vaccines and many other goods.
A suitably designed exchange can increase efficiency while maintaining equity. The Israel-South Korea deal reminds us that this is a priority. Greater efficiency in this context means fewer vaccine doses wasted, and more lives saved.
I am glad to see Amanda Morris at the NYT pick up the ball:
But advocates for people with disabilities say guardianships have been used too broadly, including in cases of individuals with psychiatric disorders and developmental or intellectual disabilities who, the advocates say, do not require such intense or continuous oversight.
“I should have never been under guardianship, because I was always independent,” said Mr. King, 38. “Don’t judge me before you get to know me. Everyone needs help sometimes.”
Once a guardianship has been imposed, it can be difficult to undo. Mr. King’s parents, who say they reluctantly sought a guardianship for him in 2003 after being urged to do so by social services workers, attempted to have a judge rescind it in 2007. They say they faced barriers for years, including opposition from a court-appointed lawyer for Mr. King in the case.
“Judges are used to putting people in guardianships; they’re not used to letting them out,” said Jonathan Martinis, a lawyer the family eventually hired. The guardianship was finally revoked in 2016.
About 1.3 million people live under guardianships in America, according to a 2018 estimate from the National Council on Disability. They include older Americans who can no longer manage their affairs, but also many younger people, including some with intellectual or developmental disabilities. Studies suggest that the number of people under such arrangements has more than tripled in the past three decades.
Whatever you think our policies should be, is it not amazing how unwilling we have been to discuss these choices? And how about this?:
Only 14 states require guardians to obtain some sort of credential for the role, with a majority requiring certification from a nonprofit organization called the Center for Guardianship Certification.
Whether you think that number should be zero, fifty, or somewhere in between, how many of you even knew that in the first place? Or heard of the Center for Guardianship Certification?
And do read the story of Jenny Hatch toward the end of the article, this is essential journalism. Some of these cases, while they lack all of the elements of slavery, have some of the essential elements.
1.3 million Americans. What is the chance here that our policies are being optimized?
Alternative dosing is finally getting some attention. This story in Nature recounts some of the recent arguments and evidence:
Two jabs that each contained only one-quarter of the standard dose of the Moderna COVID vaccine gave rise to long-lasting protective antibodies and virus-fighting T cells, according to tests in nearly three dozen people1. The results hint at the possibility of administering fractional doses to stretch limited vaccine supplies and accelerate the global immunization effort.
Since 2016, such a dose-reduction strategy has successfully vaccinated millions of people in Africa and South America against yellow fever2. But no similar approach has been tried in response to COVID-19, despite vaccine shortages in much of the global south.
“There’s a huge status quo bias, and it’s killing people,” says Alex Tabarrok, an economist at George Mason University in Fairfax, Virginia. “Had we done this starting in January, we could have vaccinated tens, perhaps hundreds, of millions more people.”
…Sarah Cobey, an infectious-disease researcher at the University of Chicago in Illinois and a co-author of a 5 July Nature Medicine commentary supporting dose ‘fractionation’, disagrees about the need for time-consuming data collection.
“We shouldn’t wait that long,” she says. “People are dying, and we have historical precedent for making very well-reasoned guesses that we think are going to save lives.”
…According to a modelling study published by Tabarrok and other economists, such an approach would reduce infections and COVID-linked deaths more than current policies.
Addendum: The reason for doing the modeling study is precisely to take into account variants like Delta. Our modeling suggests that even with efficacy significantly lower than that suggested by Figure 1 in our paper, alternative doses of more effective vaccines would still provide significant reductions in mortality, even when new variants dominate. The benefits derive from vaccinating more quickly.
Here is the text, I won’t attempt a summary but here are some running comments:
2. Industry concentration has not driven wages down by “as much as 17%” — that’s a porky! OK, they say “advertised wages,” but come on…
3. I am happy to see the document take on occupational licensing.
4. Contra to the recommendation, we should not ban non-compete agreements outright. Many non-compete agreements are perfectly normal institutions designed to protect corporate assets against IP theft, client lists for instance. We should restrict non-compete agreements in some more sophisticated manner, still to be determined.
5. Lower prescription drug prices? Maybe. Do they estimate the elasticity of supply? No. Thus this discussion would fail my Econ 101 class. We do know, however, that prescription drugs are one of the very cheapest ways our health care system saves lives, so this is not obviously a good idea.
6. Right to repair laws? Again, maybe. But show me the trade-off and cite a cost-benefit analysis. If software gives more consumer surplus to consumers (again, a maybe), should we be wanting to tax it with contractual restrictions? Should we be wanting to tax Tesla right now?
7. Portability of bank account information is a good idea.
8. “Empower family farmers…” — do you even need to know what comes next? Aarghh!!!
9. The order “encourages” the DOJ and FTC to take various actions. I won’t blame Biden for this, but we’ve way overstepped what executive orders should be doing, some time ago. The net feeling the honest reader of this section receives is that our antitrust policies toward the large tech companies are not based in much of a notion of rule of law.
10. Should HHS “standardize plan options” in the NHIM to make price shopping easier? Makes me nervous — diverse market offerings can be good.
11. Lots of tired and not typically true claims and insinuations about concentration in airline markets; see my book Big Business or read Gary Leff. And shouldn’t airlines charge for bags? Maybe yes, maybe no, but prices per item are not in general a bad thing.
12. We are warned that farmers and ranchers take in an ever-smaller share of the food dollar spent — thank goodness! And there are a bunch of other selective, scattered observations about food prices (“corn seed prices have gone up as much as 30% annually…”), but nothing close to systematic or showing an actual market failure (corn prices by the way have been plummeting since 2012).
13. Broadband policy should indeed be improved, but this section reads as messy, should do more to emphasize the notion of competition and common carrier platforms, and how about a mention of StarLink?
14. There’s not really any point in marching through a discussion of the “Big Tech” section.
15. Is there a problem with bank concentration in this country? Not where I live. Maybe in some rural areas?
16. YIMBY > NIMBY would do more to limit market power than just about anything else, by the way.
17. Is there even a peep about this country’s biggest and worst-performing monopoly in K-12? Of course not. It is Amazon you have to worry about!
So overall this is not great economics. It is good to see the Biden administration pick up on a few pro-competition issues, but much of the document is not clearly pro-competition either. The reasoning and evidence are pretty much politicized from start to finish.
Preston Estep was alone in a borrowed laboratory, somewhere in Boston. No big company, no board meetings, no billion-dollar payout from Operation Warp Speed, the US government’s covid-19 vaccine funding program. No animal data. No ethics approval.
What he did have: ingredients for a vaccine. And one willing volunteer.
Estep swirled together the mixture and spritzed it up his nose.
…Estep and at least 20 other researchers, technologists, or science enthusiasts, many connected to Harvard University and MIT, have volunteered as lab rats for a do-it-yourself inoculation against the coronavirus. They say it’s their only chance to become immune without waiting a year or more for a vaccine to be formally approved.
Among those who’ve taken the DIY vaccine is George Church, the celebrity geneticist at Harvard University, who took two doses a week apart earlier this month. The doses were dropped in his mailbox, and he mixed the ingredients himself.
Church say…he believes the vaccine designed by Estep, his former graduate student at Harvard and one of his protégés, is extremely safe. “I think we are at much bigger risk from covid considering how many ways you can get it, and how highly variable the consequences are,” he says.
I’m a big fan of the RadVac vaccine and was recently asked to give a talk about the vaccine and the pluses and minuses of the open source approach. In my talk I cover patents, when it was rational to take an unapproved vaccine, the FDA, paternal medicine versus the Consumer Reports model and more. I’m especially pleased with this talk.
Addendum: Great set of posts from johnswentworth from LessWrong on making the vaccine and then testing it.
Five years ago, Marginal Revolution covered a new project, Stripe Atlas, to help founders incorporate their start-ups and thus make them successful realities. There is a one-time fee of $500. Here are the results:
In 2016, we launched Stripe Atlas to help founders turn their ideas into startups, and in turn, collectively grow the GDP of the internet. Since then, over 20,000 businesses have started with Atlas and have generated over $3 billion in revenue. We surveyed over 1,000 Atlas founders to get a snapshot of this generation of entrepreneurs and their needs…
Ninety-one percent of Atlas founders are not in Silicon Valley. In fact, outside of the US, some of the places where we’re seeing the fastest growth are Nigeria (400% year-over-year), United Arab Emirates (165%), and India (66%). Twenty-eight percent of founders told us that they identify as minorities in their country, and 24% are immigrants. Just 12% of founders identified as female. (This is slightly better when compared to the portfolios of major startup accelerators or venture capital firms.) Over time we hope to help more female founders start and scale. Forty-three percent of Atlas founders are building businesses for the first time—nearly 10,000 of them started in just the past year (an indication of an upward trend in entrepreneurship after nearly three decades of decline).
That is from Edwin Wee. The core lesson, at the meta-level, is that business services for an internet age remain drastically underprovided. But on the bright side, entrepreneurs are starting to remedy this…
That is the topic of my latest Bloomberg column, here is one part:
In economic terms, the private value of internet security is often less than the public value. A ransomware attack that results in only a slight decrease in profits for a business could translate into a major social inconvenience.
One consolation is that hackers will almost certainly “overfish” the pool of victims. At some point there will be so many attacks that most institutions will have no choice but to respond with significant defensive measures. The hackers themselves will accelerate this process, because each will try to maximize their profits before the game is over. Curiously, this means that a successful attempt to “slow down” the hackers could just delay the necessary adjustments that businesses need to make, leaving everyone worse off.
There is much more at the link.
In a series of tweets (try this one), Matt Yglesias has been arguing that academic economists are far more Democratic than the U.S. population as a whole, though less left-wing than most other academics. I agree with his claims, which are backed by plenty of data, but I wish to add some further thoughts.
Very often political views follow our socioeconomic class and the peer groups we are trying to impress or join. Thus those claims from Matt are true for American policies only. If you took a leftish (but not Marxist radical) Democratic U.S. economist, and asked that person what Mexico should do to improve, I think the answers would include the following:
1. Build state capacity to win the drug war, legalize or decriminalize some drugs too.
2. Make it easier for firms in the informal sector to enter the formal, taxed sector, and thus make it easier for them to grow.
3. Invest more in education for underprivileged Mexican youth.
4. End the state monopolies in industrial products.
5. Do something about corruption (but what?).
6. Diversify the economy away from Pemex and fossil fuels.
7. Maintain NAFTA and try to maintain and indeed rebuild the health of the earlier democratization.
Now, that is pretty much the same as my list! To be sure, the rhetoric on some of these proposals, such as #2 and #3, would be different coming from this imaginary leftish Democratic economist. (Lots more talk about “inequality” on #2 and more about the benefits of regulation on #3, for instance, whereas I would stress the benefits of firm growth.) But I don’t think the substance of the proposals would be all that different.
Whether you wish to say the leftish economist has a right-wing perspective on Mexico, or vice versa, is a moot point. Or are we all centrists on Mexico? There is in any case a reasonable coincidence of policy recommendations once you remove people from their immediate socioeconomic environment. And surely that makes the Democratic economists just a little suspicious to the non-economist intellectual Democrats, as you can see from the Twitter fury directed at Matt Y. for what were purely factual claims.
There is a reason why they call it “the Washington Consensus.” I can assure you that the World Bank and IMF economists are not a bunch of Republican wanna-bees. But the Washington Consensus works, at least on average.
If you asked a non-economist Democratic voter what Mexico should do, I am not sure what answers you would get. But it is hardly obvious you would get the above list (I’d love to see this done as a study and compared to the Republican answers). Maybe the non-economist would talk about foreign aid more? Immigration more? I really don’t know. But they probably are not very aware of the dismal productivity performance of Mexican SMEs and what a problem that is, and probably not very aware of the various state monopolies. They probably would mention corruption, however, and also public safety and winning the fight against the drug gangs.
When it comes to U.S. disputes, the Democratic economist probably would be more “off the rails” than the typical Democratic voter (sorry, you’ll have to find your own links here, there are plenty), if only because that person is more aware of the socioeconomic conflicts and more aware of what one is supposed to believe. The more symbolic the dispute, the further from the median voter the Democratic economist is likely to be. But that is the education doing the work, not the economics background.
If you want to get a Democratic economist making sense, just get that person talking about some other country, follow most of the policy advice, and remove the word “inequality” and a few other catch phrases.
Interestingly, there is a subset of Republican economists who don’t talk sense no matter what the country under consideration. For instance, they might think that “income tax cuts for Mexico” would do a lot of good. In this sense they are the more consistent “cosmopolitan ideologues,” taking that phrase as a truly joint concept. Since most economists are Democrats, perhaps examining “the remnant Republicans” is selecting for excessively consistent ideology. The remnant Republicans are less likely to insist that “every country is different,” a’ la Dani Rodrik. If they were so flexible, they probably wouldn’t still be Republicans.
As a final note, I fear we are entering a world so “well-informed” about affective polarization, and with Woke concepts so globalized, that at some point the majority of the Democratic economists won’t talk sense on Mexico any more either. But we are not yet there — maybe in five to ten years? Maybe never? And where will the Republican remnant end up?
Wyoming—the first US state to grant a charter to a crypto bank—has approved legal status for a decentralized autonomous organization ( ), the American CryptoFed DAO, according to an announcement on Sunday. The organization, which has a mission to introduce a new monetary system, now becomes the first legally recognized DAO in the U.S.
It comes after Wyoming lawmakers voted in March to pass a bill allowing DAOs to be officially registered in the state. The law affords these entities—which are governed by and dispense with the hierarchical control structure seen in traditional companies—the same rights as a limited liability company. The bill came into effect on July 1, 2021.
Just think — limited liability for “a company managed by nobody”! And:
The DAO law also solidifies Wyoming’s reputation as the most crypto-friendly U.S. state. Last year, it was the first in the US to issue a state charter for crypto banks and has already licensed two: Kraken and Avanti.
Here is the full story, via Shaffin Shariff.
According to Jonathan Martinis, the senior director for law and policy at a center for disability rights at Syracuse University, one of the most dangerous aspects of guardianships is the way that they prevent people from getting their own legal counsel. “The rights at stake in guardianship are analogous to the rights at stake in criminal cases,” Martinis said. “Britney could have been found holding an axe and a severed head, saying ‘I did it,’ and she still would’ve had the right to an attorney. So, under guardianship, you don’t have the same rights as an axe murderer.”
…there is also a wide range of alternatives to conservatorship that are less strict than what Spears has experienced, such as conditional powers of attorney or formal shared control of finances. As conservatorship law is written, the court is required to determine that a conservatorship is—and remains—necessary. “In practice,” Zoë Brennan-Krohn, a disability-rights attorney for the American Civil Liberties Union, said, “this is absolutely not the case. What should be happening is that a judge at a reëvaluation hearing would ask, ‘What else have you tried? Why isn’t anything else working?’ And, if the conservator hasn’t shown that they’ve tried less restrictive options, the conservatorship should be suspended. But I’ve never heard of a judge asking that in any situation.”
Here is the full New Yorker story by Ronan Farrow and Jia Tolentino, focusing on Britney Spears.
A new NBER paper by Allcott, Kim, Taubinsky and Zinman takes a close look at the behavioral economics of payday loans and finds that most common regulations make borrowers worse off.
Critics argue that payday loans are predatory, trapping consumers in cycles of repeated high interest borrowing. A typical payday loan incurs $15 interest per $100 borrowed over two weeks, implying an annual percentage rate (APR) of 391 percent, and more than 80 percent of payday loans nationwide in 2011-2012 were reborrowed within 30 days (CFPB 2016). As a result of these concerns, 18 states now effectively ban payday lending (CFA 2019), and in 2017, the Consumer Financial Protection Bureau (CFPB) finalized a set of nationwide regulations. The CFPB’s then director argued that \the CFPB’s new rule puts a stop to the payday debt traps that have plagued communities across the country. Too often, borrowers who need quick cash end up trapped in loans they can’t afford” (CFPB 2017).
Proponents argue that payday loans serve a critical need: people are willing to pay high interest rates because they very much need credit. For example, Knight (2017) wrote that the CFPB regulation \will significantly reduce consumers’ access to credit at the exact moments they need it most.” Under new leadership, the CFPB rescinded part of its 2017 regulation on the grounds that it would reduce credit access.
At the core of this debate is the question of whether borrowers act in their own best interest. If borrowers successfully maximize their utility, then restricting choice reduces welfare. However, if borrowers have self-control problems (“present focus,” in the language of Ericson and Laibson 2019), then they may borrow more to finance present consumption than they would like to in the long run. Furthermore, if borrowers are “naive” about their present focus, overoptimistic about their future financial situation, or for some other reason do not anticipate their high likelihood of repeat borrowing, they could underestimate the costs of repaying a loan. In this case, restricting credit access might make borrowers better off.
First, the authors find that borrowers clearly understand their own behavior. When asked, borrowers predict that they have a 70% probability of borrowing again in the next eight weeks which is almost exactly (74%) the actual borrowing probability. Experienced borrowers are better at predicting their own probabilities of borrowing again so learning also takes place.
Just because they can predict their own behavior doesn’t meant that borrowers like their own behavior (a drunk might predict they will get drunk again without “desiring” to get drunk again) and indeed the authors show with a clever experiment that many borrowers are willing to pay to modestly constrain their own choices. Overall, however, borrowers gain from payday lending so when the authors model payday loan regulations with borrower preferences (their “best”, long-run preferences) regulation reduces welfare:
Payday loan bans and tighter loan size caps both reduce welfare in our model. By contrast, 18 states have banned payday lending, and some states have particularly stringent loan size caps, such as the $300 limit in California.
The best regulation in the model is a rollover restriction which prevents borrowers from borrowing again and again and again. Rather than a blanket regulation, however, I’d prefer a self-exclusion option which would allow people to ban themselves from borrowing in much the same way that people with gambling problems can ban themselves from gambling establishments.
The bottom line is that payday lenders are serving a need and benefiting their customers. Preventing people from accessing payday lenders typically makes them worse off but that doesn’t mean that the customers are entirely sensible or without problems both internal and external. The most revealing statistic in the paper is one the authors mention only in passing:
although our participants are liquidity constrained and we sent two reminder emails, our gift card vendor reports that only 44 percent of the $100 gift cards were claimed
It’s no surprise that people who leave free money on the table have planning problems and need to borrow, it’s just that preventing them from borrowing doesn’t make them better off.
Governor Ron DeSantis would not let cruise ships sailing from Florida mandate vaccination? Well, this is what you end up with:
Now we know the true cost of not getting vaccinated for COVID-19: You won’t be able to order sushi when cruising on Royal Caribbean‘s Freedom of the Seas.
Here is a list of all the other restrictions for the unvaccinated cruise passengers. Via Stephen Jones.