BuckeyeBlog

I’m sure you’ve noticed, but Obama has been getting some pretty bad press lately. From his bloated stimulus plan to his 60 Minutes appearance to his patently offensive Special Olympics comment on late night television.

But bad news for Barack – the press isn’t going to get any better, especially with his new cap and trade plan now on the table.

The plan entails selling permits to emit carbon, which businesses may pay for at the outset, but the cost of which will quickly be passed on to consumers.  What Ohioans need to take note of is how deeply unequal these costs will be distributed across regions and income groups.

Ohioans receive roughly 86% of their electricity from coal. Our neighbors Indiana (94%), Pennsylvania (56%), and West Virginia (98%) are in similar situations. This means we’ll get hit especially hard, and during a time when we’re already feeling the pain.

To put it in real terms, the Congressional Budget Office estimates that the average household in the bottom income quintile will spend $680 more every year to pay for Obama’s plan.

You often hear about jurisdictions where people go to do their banking or invest their money in order to avoid their home nation’s taxes. These are called tax havens and are usually condemned by politicians. There are certainly benefits to those who use these tax havens — they avoid paying as much in taxes. But there are other benefits to tax havens, as Dan Mitchell of the Center for Freedom and Prosperity explains in this video:

Over at the Cato Institute’s Cato@Liberty blog, David Boaz has an excellent post on what he terms “Bailout Nation.” His premise is that failure in the free market is a good thing and that when government steps in it short-circuits the signals that help the market run efficiently, which hurts us all:

Capitalism is a system of profit and loss. It works because each person and each company, in seeking its own interest, is led “as if by an invisible hand” to supply goods and services that others want. Companies that satisfy consumers prosper. Companies that can’t produce goods that consumers want–like Chrysler, repeatedly–suffer and sometimes go out of business. The failures are often painful. But as Dwight Lee and Richard McKenzie wrote in their book Failure and Progress (or at least in this column based on the book), “Economic failure is to the economy what physical pain is to the body. No one enjoys pain, but without it the body would lack the information needed to maintain its health.” Government subsidies to prevent business failure simply keep pouring money into businesses that are relatively unsuccessful at satisfying consumer desires. They are, among other things, censorship of vitally needed information. Employees, entrepreneurs, and investors need to know where their money and talent are most valuable. Profits and losses are key indicators of that.

When businesses make bad decisions, they should suffer economic losses. That’s how we keep the system honest and productive. Caroline Baum of Bloomberg points out that the bailout for subprime borrowers involved helping people to stay in homes that they couldn’t afford, in many cases because they misled lenders or connived with lenders who knew they could package and resell bad mortgages. When governments make bad decisions, they should not pour good money after bad. Instead, they should try to repeal burdensome regulations, privatize functions that ought to be private, and be willing to sell purchases they shouldn’t have made, even at a loss.

There is an interesting feature in The Other Paper out of Columbus pondering the future of the payday lending industry. It notes that credit unions may rise to fill the void if payday lenders are indeed shut down:

Stretch pay is the credit union’s payday loan alternative, according to Jeff Carpenter, vice president of membership and development at Wright-Patterson Credit Union. It was developed two years ago in Ohio and has spread to five other states: Michigan, Wisconsin, Maryland, Colorado and North Carolina. There are currently 28 locations that offer stretch-pay loans in Central Ohio.

“We tend to have a better deal,” he said. “In terms of specifics, with our product, you’re looking at one annual fee; with their product it’s $15 to $20 every time you borrow. We also have an 18 percent APR, which, on $500, is about $7.40.”

If these loans are such a good deal why do we need a law that effectively bans payday lending? Payday lenders can offer their products and credit unions can offer their products. If those who attack payday lending are right that borrowers are being exploited and robbed by payday lenders then it stands to reason that the credit unions would take over the market, wouldn’t it? Why would people continue to borrow from the evil payday lenders if they can get such a good deal from credit unions? The answer is that people are being offered a service by payday lenders that they actually prefer over their other alternatives, including credit unions. People freely choose payday loans in the face of these other alternatives. If people borrow from payday lenders when they have a lower-priced loan available, how are they being exploited?

There have been questions raised about the extent of the credit union industry’s support for a ban on payday lenders. It seems credit unions may want to use the government to shut down an industry with which they have a hard time competing in a free market.

While you would be hard-pressed to find “fair and balanced” (to borrow a phrase) coverage of the payday lending referendum in the Columbus Dispatch, the Dayton Daily News, or other large papers in Ohio, there are some papers who have actually been presenting the facts — or at least quoting those who have the facts.

In today’s Delphos Herald, Rep. Matt Huffman is quoted extensively on why he opposed the payday lending ban. Rep. Huffman should be applauded for not only grasping the facts of this issue but for having the political backbone to oppose a law that was supported overwhelmingly by his colleagues. Here’s what Rep. Huffman had to say about why he opposed this ban:

I voted against it because I think, in some instances, it’s a product people want to have available. I don’t see a lot of difference between these loans and what happens with credit cards where people get a $5,000 line of credit and pretty soon, they’re maxed out and at 19 percent, can never pay it back. Let’s be clear: this is a bad option but it may, at times, be folks’ only option. If they need to make a child support payment or they have a medical bill or some doctor says you have to have $150 up front before he’ll see you. There are different cases where this is appropriate and most people pay it back on payday.

It’s misleading to say it’s at a 391 percent interest rate. It’s similar to going to an ATM at a bank other than your own to take out $100 and they charge you $2. Well, that’s one day’s worth of interest and you can say that’s extremely high but it’s really just a question of what somebody is willing to pay for a service. That’s why it’s confusing to say it’s 391 percent and that’s only one example. That’s why they had to take that out of the ballot language.

The people who want to keep this in business make a lot of money and don’t want it to sound so bad. This is a really bad financial product. It’s a bad thing for people to do but it’s a lot worse to pay $4 for a .12 ounce drink at the movie theater when you can buy it for $.35 wholesale, for example. The state rips people off more with the lottery than payday lenders do with these loans.

The debate about payday lending has been notable for the anti-lending forces as well as those in the press (am I being redundant?) fail to grasp basic facts about the payday loan industry. I have documented that repeatedly on this blog. It seems that I have more work to do, however, based on today’s editorial in the Dayton Daily News. Let me just comment on a few of the more egregious departures from reality the editors make:

There are alternatives to payday lenders. Credit unions, for instance, and even some banks will make short-term loans for much more reasonable rates.

Really? Then why do people choose payday lenders who, in the view of these editors, rip them off? Are these consumers idiots? Well, no, since the notion that credit unions or banks are going to be making high-risk, unsecured loans at low rates to a large number of people is ridiculous. It isn’t happening now and it won’t happen when the ban goes into effect. The fact is that these high rates are necessary to provide the product that borrowers want and need.

After Sept. 1, short-term loans simply would be capped at 28 percent on an annualized basis, versus the 391 percent that can be charged now. Borrowers would pay $18 for a two-week $300 loan, not $45.

No. A 28% APR on a two-week, $300 loan is $3.23. Would you loan money to someone for that low of a rate? Would you make a profit if you did?

But when lawmakers looked into the payday businesses’ practices, they found that many customers were being encouraged to take out loan after loan because high fees were trapping them in debt.

That sounds like lawmakers actually did a study of the issue and discovered the borrowing patterns of those who take these loans. That didn’t happen. They heard from a handful of people who needed a payday loan at the time but, in retrospect, didn’t like the price they paid. But these borrowers agreed to pay the price at that time, indicating that the viewed it then as a fair price. Furthermore, there was no evidence that people were being encouraged to take out more than one loan. The plural of anecdote isn’t data. (more…)

The Buckeye Institute’s Mike Maurer discusses the governor’s economic agenda, the federal bailout of Fannie Mae and Freddie Mac, and what it means to be a conservative with Ohio Republican Rep. William G. Batchelder. A 32-year legislative veteran, Rep. Batchelder is the dean of Ohio conservatives.

Or click here to download the audio.

State Rep. Josh Mandel (R-Lyndhurst) joins Buckeye Institute President David Hansen to discuss his support for special needs vouchers, his opposition to Gov. Strickland’s misguided so-called stimulus bill, and his support for Rep. John Adam’s State Income Tax elimination bill. A Marine Corps officer who has served two tours of duty in Iraq, Rep. Mandel also gives his perspective on the progress of the war.

A first term legislator, Rep. Mandel is quickly becoming a steadfast voice for conservative principles in the Ohio House of Representatives.

In anticipation of the Fourth of July, Steven Chapman at Reason magazine has an interesting article about how freedom (specifically economic freedom) is essential to the pursuit of happiness:

Two things, it appears, are needed to increase the supply of happiness: freedom and money. As it happens, a substantial amount of freedom is crucial to the creation of wealth. There is no such thing as a rich totalitarian country, as even the onetime totalitarians in Beijing finally realized. So in a very real sense, freedom is the key to happiness.

The survey, by the Institute for Social Research at the University of Michigan, involved asking people in 97 countries two simple questions: “Taking all things together, would you say you are very happy, rather happy, not very happy or not at all happy?” and “All things considered, how satisfied are you with your life as a whole these days?”

What the researchers found is that in the 52 countries where the poll has been done over the last couple of decades, the percentage of people giving upbeat answers rose in 40. Among the places where smiles have been spreading are such developing countries as China and India, which have grown freer as well as more prosperous.

The Evergreen Freedom Foundation’s Labor Policy Analyst Scott Dilley discusses labor union accountability with Buckeye Institute President David Hansen.