Tuesday, December 2, 2014

Bootleg Lending

When something is outlawed, it makes outlaws very rich.

It is hard to believe that less than 100 years ago, our country decided to outlaw alcohol.   In the land of the free, people thought that it was the government's job to sober people up.  Oh right, we had smaller, less intrusive government back then, in a paradise of non-regulation.  Right.

Pretty weird, huh?  And today, the tea partiers complain when Michelle Obama suggests that a diet of Sweet Tea and Moon pies might be bad for you.  "She's telling us what to do!" they cry (like little babies).   Well, how about prohibition, buddy?  Sort of puts things in perspective.

Economists will argue - correctly - that when you outlaw something, it creates an underground or black-market economy for that commodity.   We saw this during prohibition, when bootlegging was rampant.   When the government tried to crack down, corruption and violence ensued, and as a result, organized crime became, well, better organized.

A similar thing is happening in Mexico today.  We decided to "crack down" (no pun intended) on the drug trade by throwing money at Mexico and doing joint raids with the DEA and the Mexican Army.   The net result was the stronger and more violent drug cartels that we have today.  Will we win the "war on drugs" in Mexico?   Perhaps.   But perhaps only because of legalization of Marijuana in some States in the U.S., and the popularity of "home-grown" alternatives like methamphetamine and prescription drugs (Oxycontin and the like).

Colombia was once ravaged by drug cartels during the 1970's and 1980's.   Today, the country is on the mend.   Is this because they have chased down all the drug lords?   Or because cocaine has been replaced by other drugs (notably methamphetamine) on the streets of the US?  Or that the business has just moved to Mexico?

Interesting questions.  I don't have the answers.

Financial transactions, however, follow a similar pattern.   As I noted in an earlier posting, loan sharking is just a form of bootleg lending.   And numbers running is just a form of bootleg gambling.   Today, both illegal businesses are in the decline, as legalized forms are readily available.

When I was a kid in the 1960's, there were no State lotteries, period.   Today, almost every State has a lottery, it seems.   Back in the 1960's, "number running" was a pretty big business in the ghetto, and bookmakers took illegal bets on football games and the like.   When I was a pizza delivery driver, I had to drop off envelopes full of cash for football bets.  I didn't ask questions - I preferred my kneecaps intact.

These sorts of illegal businesses have fallen by the wayside.   Why?  Because government-sanctioned legal equivalents are available.   Why "play your numbers" with some shady candy-store owner (who may or may not pay off) when the local 7-11 is selling lottery tickets (for dozens of different game types)?   Why bet with a bookie (who may or may not pay off) when you can go "gaming" at the Off-Track-Betting parlor?  Why get involved in an underground poker or craps game when chances are, you live within a 30-minute drive of an Indian Casino, gambling boat, or other legalized casino?   Legalization of these businesses has destroyed the underground economy for gambling.

Similarly, loan-sharking certainly must have taken a hit, now that you can go bankrupt in a real hurry with a payday loan, a title pawn loan, or the like.   Usury laws have been abolished, and loan companies can charge whatever interest rate the market will bear.   And desperate people (usually desperate for drugs) will pay any amount to have cash today, without regard for the ultimate cost tomorrow.   Why get your legs busted by a loan shark, when you can just get your car repossessed by a title pawn loan company?

Some might argue that this kinder, gentler form of loansharking is an improvement over the past.   After all, we've taken the loan-sharking and numbers running businesses away from organized crime and made them legitimate.   One way to reduce crime statistics is to simply re-categorize many crimes as "legal".  And this is the argument put forth by the folks at NORML.

Of course, the problem is, where do you stop?   And there are some in this country - who style themselves as "Libertarians" but who are really more Anarchists - that want to see nearly every behavior legalized.   Some argue that we should all go around armed to the hilt with guns - and enforce our own laws.  "An armed society is a polite society" they argue (quoting Heinlein).   But of course, the carnage and bloodshed of such an arrangement would be horrendous.   And those who are "polite" would still be gunned down by those who have a lot of armed friends - much as it was in the old West, until the rule of law was enforced.

No, that is not the answer.   Afghanistan has been trying this solution for years - and what it devolves to, is groups of organized gangs of thugs (often related clans), ruled by warlords, fighting among one another.  It is the most primitive form of civilization - the armed city-state, where everyone toils for a local ruler in return for protection from other predators.  A great system if you are on top.   Not so great if you are on the bottom - or don't belong to a gang or clan of your own.

Anarchy is not the answer.  Legalizing everything is an admission that we cannot govern.  On the other hand, we have to pick and choose carefully what it is we should make legal - and illegal.   Driving things underground is no solution to a problem - particularly problems where people choose certain modes of behavior, willingly.

No one wants to get mugged, raped, or shot.   But people love to gamble, drink, use drugs, and borrow money at steep interest rates.   All are bad for you.   But when people have a choice to do bad things, should be make their choices for them?   That is the Libertarian argument.

Perhaps there is some middle ground - that we can allow people to make bad choices, provided the industries that profit from these bad choices are regulated, and that people pay for the overall costs of their bad choices.   We have done this with the liquor and tobacco industries - and now the marijuana industry.   Maybe it can be applied to Payday Loans as well.  Perhaps.

One thing is for sure - while Republicans talk about going back to "the good old days" they don't mean going back to the days before payday loans, title pawn loans, and all the other rotten financial deals we now offer the poor.