Mike Konczal at Rortybomb:
Maybe it is because I’ve binged on Michael Sandel’s Justice series on youtube over the holidays, but I want to create a moral dilemma to see how far you are willing to go in thinking this justification works for our current financial system. But first I’ll need to go into Evil Financial Rortybomb mode. Ever see that Star Trek where in the Mirror Universe everyone is evil and has a goatee? It’s like that.
I want to pitch to the credit card and financial industry a new innovative online survey. It is targeted for older, more mature long-time users of our services. We’ll give a $10 credit for anyone who completes it. Here is a sense of what the questions will look like:
– 1) What is your age?
– 2) What day of the week are you taking this survey?
– 3) Many rewards offered are for people with more active lifestyles: vacations, flights, hotels, rental cars. Do you find that your rewards programs aren’t well suited for your lifestyle?
– 4) What is the current season where you live? Are any seasons harder for you in getting to a branch or ATM machine?
– 5) Would rewards that could be given as gifts to others, especially younger people, be helpful for what you’d like to do with your benefits?
– 6) Would replacing your rewards program with a savings account redeemable for education for your grandchildren be something you’d be interested in?
– 7) Write a sentence you’d like us to hear about anything, good or bad!
– 8 ) How worried are you you’ll leave legal and financial problems for your next-of-kin after your passing?
Did you catch it? Questions 1,2,4,7 are taken from the ‘Mini-mental State Examination’ which is a quick test given by medical professionals to see if a patient is suffering from dementia. (It’s a little blunt, but we can always hire some psychologist and marketers for the final version. They’re cheap to hire.) We can use this test to subtly increase limits, and break out the best automated tricks and traps mechanisms, on those whose dementia lights up in our surveys. Anyone who flags all four can get a giant increase in balance and get their due dates moved to holidays where the Post Office is slowest! We’d have to be very subtle about it, because there are many nanny-staters out there who’d want to coddle citizens here.
E.D. Kain at The League:
The point he’s making is basically that the whole “irresponsible borrowers deserve what they get” argument is a false one, and I tend to agree.
The whole process of luring in irresponsible borrowers and then saddling them with fines, fees, and extremely high interest rates strikes me as fairly awful. People with very little credit and fairly poor credit – high risk people like college kids, poor people, and so forth – are nevertheless given high credit limits, are lured in with perks and benefits, and are then pushed into a cycle of debt that is often extraordinarily hard to recover from. Many of these people were high enough risks that responsible lenders should never have extended so much easy credit to them to begin with.
At the very least, already we have two irresponsible parties – the borrowers and the lenders. Both have incentives to get into bed with one another. The borrowers are typically low income or young. Having a line of credit increases their standard of living, at least at first, giving them some financial wiggle room, more purchasing power between paychecks, and a lifeline in case of emergencies. A relatively short line of credit is usually enough for this. A thousand dollars in case the car breaks down or in case you run short on bills and still need to pay for food and gas.
The lender has a more insidious incentive: when the borrower inevitably fails to “act responsibly” the irresponsible lender starts making some real money. That’s why they don’t give out just a thousand dollar credit limit but rather two, three, five thousand dollars – on top of other credit card companies who have already extended similar lines to the same borrower.
People who don’t see a problem with this relationship usually focus on the borrower rather than the lender as the sole irresponsible party, but that’s a wrong-headed way to look at things, especially since many of the people who get into these situations are young, ill-informed, and not prosperous or wise enough yet to manage the sort of responsibility that comes with having credit. In America, this sort of borrower is considered fair game, and the people who lend to them are called “bankers”. In more civilized places we refer to these people as “loan sharks”. In civilized places the burden of determining who is a responsible borrower falls on the lender’s head. This is what separates bankers from loan sharks.
A Libertarian Litmus Test
Mike Konczal transforms into his evil twin to propose a way for credit card companies to rip off old people suffering from dementia.
I’m not sure why this is supposed to be a hard question for libertarians. I mean, I might argue that preventing people from ripping off the marginally mentally impaired would, in practice, be too difficult. Crafting a rule that prevented companies from identifying people who are marginally impaired might well be impossible–I’m pretty sure that if I wanted to, I could devise subtler tests than “What day of the week is it?” And while the seniors lobby is probably in favor of not ripping off seniors, they’re resolutely against making it harder for seniors to do things like drive or get credit, which is the result that any sufficiently strong rule would probably have.
But it’s pretty much standard libertarian theory that you shouldn’t take advantage of people who do not have the cognitive ability to make contracts. Marginal cases are hard not because we think it’s okay, but because there is disagreement over what constitutes impairment, and the more forcefully you act to protect marginal cases, the more you start treating perfectly able-minded adults like children.
The elderly are a challenge precisely because there’s no obvious point at which you can say: now this previously able adult should be treated like a child. Either you let some people get ripped off, or you infringe the liberty, and the dignity, of people who are still capable of making their own decisions.
Konzcal is, I take it, in favor of more paternalism. But the objection that I have to paternalism is not that it prevents companies from more effectively ripping off their customers. The presumption that a majority of American adults are essentially children puts the state in loco parentis, which hands too much power to people who are not nearly as clever and wise as they believe themselves. It is morally wrong for companies to attempt to capitalize on dementia, just as I believe it is morally wrong for casinos to attempt to identify, and monetize, their customers with serious gambling problems. But giving that moral belief force of law is not necessarily a good idea, particularly if it involves eroding the presumption that we are adults capable of, and responsible for, running our own lives.
Jason Kuznicki at Cato:
I’d add two responses of my own.
First, I can’t believe there’s all that much money to be had here. Anyone who wanders into Tiffany’s and back out again without remembering what they bought is, generally speaking, a bad credit risk. Mildly irresponsible people — those who slightly overspend, then have to make it up later — those are probably great for creditors. Lesson learned: If you’re not demented, don’t be irresponsible. (If you are demented, you’re not going to follow my advice anyway.)
Second, I am always amazed at how border cases are dragged out, again and again, as if they proved something against libertarianism. Border cases — How old before you can vote? How demented before a contract doesn’t bind? — are a problem in all political systems, because all systems start with a presumed community of citizens and/or subjects. We always have to draw boundaries between the in-group and the outliers before we have a polity in the first place.
What makes the classical liberal/libertarian approach so valuable is in fact that it draws so few boundaries. Where other systems depend on class boundaries, race boundaries, religious boundaries, and so forth — with annoying boundary issues at every stop along the way — libertarians make it as simple as I think it can be. We presume that all mentally competent adults are worthy of liberty until they prove themselves otherwise.
The boundary cases are still there, but they are fewer and more tractable. Konczal just wandered into one of them. It proves much less than he thinks.