Re: So, Other Ways Of Thinking About Debt Are Possible. And?

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I'm not done reading it yet but I'm getting a lot out of it. The big picture stuff is interesting and a lot of the things he tackles along the way I haven't really thought about before. The connection between honor and violence for example, or the fact that we're all micro-scale commies (or at least those who aren't assholes are).

As far as the big picture - since I'm not done reading it I can't really comment, but I'm definitely coming away with the impression that no solutions are going to be offered. To be honest I don't think that much more than band-aids can be applied to the situation. Certainly commerce on the scale of the industrialized world isn't possible based on interpersonal relationships alone.


Posted by: togolosh | Link to this comment | 03- 1-12 7:43 AM
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Yeah, I didn't mean to be saying "If it doesn't offer a complete and practical legislative program, it's worthless." I guess I was hoping for more than "made me think about stuff," though.


Posted by: LizardBreath | Link to this comment | 03- 1-12 7:49 AM
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I have gotten the vague impression that he does propose a debt jubilee?


Posted by: nosflow | Link to this comment | 03- 1-12 7:54 AM
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Certainly commerce on the scale of the industrialized world isn't possible based on interpersonal relationships alone.

Daniel points out that commercial debt was recognised as sui generis even in bronze age Mesopotamia, which means, in terms of anything recognisable as commerce, from the get go. I haven't read Graeber's book yet - I intend to - but the problem seems to me to be not that commercial debt shouldn't in principle be privileged but that a ton of transactions which would during most of history lain outside the business sphere and been recognised as personal transactions are now part of it. Which leads us back to the quote from the Communist Manifesto which always gets rolled out on these occasions, about how capitalism has homogenised all human relationships into the commercial sphere.

As far as solutions go, Marx and Engels had one idea, and nobody else I can think of has really addressed the practicalities. Which is why I get infuriated by people who say that Marxism is dead. The two big questions that Marx raised, this and the issue of control over monopolies, have simply never been addressed by his opponents.


Posted by: chris y | Link to this comment | 03- 1-12 7:56 AM
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I think it's definitely time that unfogged formalised its status as "Crooked Timber with cock jokes" by starting to have book seminars of its own. I see the relationship to the CT seminars as similar to the relationship between "A Christmas Carol" and "The Muppets' Christmas Carol", and I mean that as a compliment to y'all.


Posted by: ajay | Link to this comment | 03- 1-12 8:06 AM
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dsquared's CT post makes the point that modern commercial debt (designed, a consequence of contract law) is not like historical debt (evolved). Most of what Graeber gets wrong is contemporary (modern debt is emphatically not military tribute, for instance, mentioning them in the same paragraph is an error), and what G is interesting about is in the distant past. So that's a useful insight.

Doesn't completely apply to sovereign debt, though. The social aspect to different kinds of modern debt is really variable. There definitely is a social dimension to rational scorn for ongoing incompetence, and both public speech about the topic and private feelings are all too quick to scolding.

Here is the chart for yields of portugese government bonds, yield now down to 12%. I wouldn't buy at this price, personally.


Posted by: lw | Link to this comment | 03- 1-12 8:20 AM
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whoops, portugese bond yield:
http://www.bloomberg.com/quote/GSPT2YR%3AIND


Posted by: lw | Link to this comment | 03- 1-12 8:22 AM
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a ton of transactions which would during most of history lain outside the business sphere and been recognised as personal transactions

I run into difficulty on this issue: it's true, but I can't see an alternative to the arms-length modern way of doing things. Scale seems to make it impossible to turn back to relationship-based transactions in any generalized sense if you're not willing to go live in a self-sustaining agricultural collective. It's an interesting issue, but I can't see where it leads in terms of action that doesn't appear absurd.


Posted by: LizardBreath | Link to this comment | 03- 1-12 8:31 AM
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I think the book as a whole is more a collection of fascinating insights and new ways of thinking about the course of history a book with a clear argumentative agenda; in that way, it's closer to big 19th century synthetic theories of history than to modern scholarship. But if I had to give the elevator pitch for the book, it would basically be this:

1) Wage and debt slavery: not as different from slavery-slavery as you might think.
2) You can have commerce without a state, even at a fairly high level, but a society committed to enforcing monetized debt requires men with guns behind it.
3) Because of 1 and 2, it's at least as appropriate to think of personal monetized debt as a form of violence and maintenance of hierarchy than as a basically consensual contractual relationship. While Graeber doesn't spell out solutions explicitly, there are obviously implications for debt forgiveness and personal bankruptcy.
4) More broadly, and this is where the anarchism comes in, this particular problem of dominance probably isn't going to be solved by a bigger state, because of the deep connection between monetized debt and state violence. So, instead of looking to big government fixes for our problems, we should look for ones that sidestep the state entirely. It's this point where I get off the boat personally, but I'm not an anarchist.

That doesn't really do justice to the book, though, as it's more of a collection of insights about economic history from an anarchist perspective.


Posted by: Robert Halford | Link to this comment | 03- 1-12 8:35 AM
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Scale seems to make it impossible to turn back to relationship-based transactions in any generalized sense if you're not willing to go live in a self-sustaining agricultural collective.
It seems like social networking technology should help somehow. Karma-based monetary system, anyone?


Posted by: Eggplant | Link to this comment | 03- 1-12 8:38 AM
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He kind of skates around it, actually, but I think the key underlying argument is about the relation of the state to economic life. Classical economists and marxists (sort of) agree on state and market as separate actors; neoliberalism is premised entirely on that. But the deep history of debt as the foundation of money is largely meant to show that state and market have always produced each other. Graeber's been more explicit about the politics of this sort of insight in other work, i.e. "Fragments of an Anarchist Anthropology."


Posted by: marichiweu | Link to this comment | 03- 1-12 8:41 AM
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[A] society committed to enforcing monetized debt requires men with guns behind it.
Why does debt repayment need to be enforced at all? Lenders take their chances, and if someone has a history of non-payment, they don't get new, large loans.


Posted by: Eggplant | Link to this comment | 03- 1-12 8:41 AM
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I thought DD's post on this was really pretty bad -- he turns vaguely fusty and Tory whenever the topic gets to financial / banking issues that are close to his professional life. I really think there is something personal going on there, as he is rather brilliant in other areas. (And always smart, just that with financial stuff he turns his smarts more toward evading the issue).

Modern commercial debt is certainly as socially embedded as any other form of debt. Who gets to effectively default on debt and who doesn't is a constant running theme in commercial bankruptcy, and it's all about power relations. Just because it runs through the legal system shouldn't conceal that. In the economic anthropology/sociology perspective, where the whole point is that the market is a social site like any other. The idea that the market is impersonally rational is a screen for evolved social and power relations. The idea that modern commercial debt is a technocratic system successfully designed to maximize total productivity shouldn't pass the laugh test.

With that said, I haven't read Graeber, although I've read a lot of other economic anthropology types. From glancing at his book it seems like a quite valuable introduction/history/overview of the concepts. I will read it at some point. One thing that helps is understanding just how important the implications are here for economic theory, you have to be pretty deeply into macroeconomics before you see the full implications of what might seem to be a common sense take on things.


Posted by: PGD | Link to this comment | 03- 1-12 8:42 AM
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Partly pwned by Rob Halford. Damned anarchists.


Posted by: marichiweu | Link to this comment | 03- 1-12 8:42 AM
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All the people I know who've tried to do business in China in the last twenty years think they run as much on relationships as on abstract arms-length contracts. Kind of true of Japan also, although in a different way. (Haven't read Graeber, does he cover guanxi [sp?]?)


Posted by: clew | Link to this comment | 03- 1-12 8:47 AM
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Scale seems to make it impossible to turn back to relationship-based transactions in any generalized sense if you're not willing to go live in a self-sustaining agricultural collective.
It seems like social networking technology should help somehow. Karma-based monetary system, anyone?

Bruce Sterling, "Maneki Neko".

You can have commerce without a state, even at a fairly high level, but a society committed to enforcing monetized debt requires men with guns behind it.

Yeah, no. I'm pretty sure that enforcing the repayment of monetary debt is something that can be done by a non-state actor. (The actor in question being Robert De Niro.)


Posted by: ajay | Link to this comment | 03- 1-12 8:48 AM
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I think 11 is right, but it's also important to nite that he doesn't think that you need a state to have any kind of commercial relations at all (e.g. the section on Islamic medieval commerce) -- just that there's a deep connection between the state and state violence and a market based around monetized individual debt.


Posted by: Robert Halford | Link to this comment | 03- 1-12 8:48 AM
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Why does debt repayment need to be enforced at all? Lenders take their chances, and if someone has a history of non-payment, they don't get new, large loans.

Because the lenders want to maximise their chances of repayment to the point of ensuring it even when it seriously incommodes the borrowers. This is one aspect among many of the emergence of a class society. If people with more resources than they can feasibly use choose to lend some of it (at interest or not) until they do need it, instead of blowing it all in a potlach or something, then they can use some of the rest to enforce its repayment at the agreed time.


Posted by: chris y | Link to this comment | 03- 1-12 8:53 AM
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I'm pretty sure that enforcing the repayment of monetary debt is something that can be done by a non-state actor.

Sure, but he still does it more effectively with guns (or bronze tipped spears) on his side of the dispute.


Posted by: chris y | Link to this comment | 03- 1-12 8:55 AM
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16 last -- I am guessing you haven't read the book, but the point is that it's a relation that gets enforced by men with guns. You need the state to monetize the relationship; the men with guns don't need to be wearing badges. The idea of monetized debt as violence and hierarchy is particularly stark with the mobster, but Graeber's point is that the same kind of violence underlies, at a deep level, even more explicitly licit enforcement of personal debt.


Posted by: Robert Halford | Link to this comment | 03- 1-12 8:55 AM
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I got the strong sense in his discussion of Islamic commerce that he was wearing rose-colored glasses, in a way I didn't get anywhere else. Not that I have any facts to contribute.


Posted by: Minivet | Link to this comment | 03- 1-12 8:58 AM
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I really think there is something personal going on there, as he is rather brilliant in other areas.

I think the personal issue is pretty clear: "it's a dirty job but somebody's got to do it". In society constituted as it is now, there has to be a banking sector, or everything collapses. That doesn't mean that it's above criticism, but it does mean that you can't reasonably criticize bankers with the same breadth of condemnation you'd use for meth dealers or child molesters: if you're not just grumbling, you have to at least be trying to point to something particular you want to have been done differently in the past, or to be done differently in the future.

This is frustrating for those like me, who are both fairly ignorant about the details of the financial system and cranky and hostile about the politics of it all: "Don't criticize me unless you could do my job" turns very readily into Jack Nicholson from A Few Good Men ranting about how you need people like Dsquared on that wall, at which point it would be indefensible. But I think what Dsquared actually does say along those lines is generally pretty reasonable, just more belligerently phrased than is politic at a time when emotions run high.


Posted by: LizardBreath | Link to this comment | 03- 1-12 8:59 AM
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13.2 Huh, that's really interesting. Who writes well about the politics of commercial bankruptcy? I guess that I was thinking mostly about access to credit, which looks to me like a powerful equalizer since industrialization.


Posted by: lw | Link to this comment | 03- 1-12 9:00 AM
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I can't see an alternative to the arms-length modern way of doing things. Scale seems to make it impossible to turn back to relationship-based transactions in any generalized sense if you're not willing to go live in a self-sustaining agricultural collective.

It seems to me a major point of economic anthropology is to question a simple opposition between 'arms-length' and 'relationship-based'. It seems to be based on assuming away the risk of default or fraud. But debt institutions are *all about* default and fraud, they are the entire issue. I get that we can create debt institutions that permit arms-length transactions to some extent, but these institutions themselves are deeply embedded in systems of formal and informal social regulation. The social assumptions and weaknesses in those institutions often make it extremely important to know your counterparty, particularly for large transactions. In a modern economy as much as any other.


Posted by: PGD | Link to this comment | 03- 1-12 9:02 AM
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It seems to me a major point of economic anthropology is to question a simple opposition between 'arms-length' and 'relationship-based'. It seems to be based on assuming away the risk of default or fraud.

I don't understand that -- arms-length transactions generally explicitly account for the potential for default or fraud. Can you try this again in different words, and maybe I'll be able to follow you?


Posted by: LizardBreath | Link to this comment | 03- 1-12 9:05 AM
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a ton of transactions which would during most of history lain outside the business sphere and been recognised as personal transactions are now part of it.

I don't think that's quite right. the largest counterexmaple is in marriage transactions. Marriage contracts were entered in order to create business or governmental alliances, settle feuds, etc. We mostly don't do that any more (An exception proving the rule: about a decade ago, the daughter of the President of Kazakhstan married the son of the President of Kirghistan. I don't see Malia Obama going in that direction.)

On another level, routine incorporation of businesses has created a distinction between business and personal assets and liabilities that didn't exist before the nineteenth century. No one goes to debtor prison when their business fails these days.

Also it's difficult to take seriously any argument that depends on an empirical claim regarding"most of history." Lots of different societies did lots of different things.


Posted by: unimaginative | Link to this comment | 03- 1-12 9:09 AM
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18, 20

But the first large-scale borrowers were sovereigns who needed to pay their armies. Modern debt looks much more voluntary to me than feudal debt, enforcement matters as a boundary condition, but I don't see that it's central.


Posted by: lw | Link to this comment | 03- 1-12 9:09 AM
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What I would like to see is someone evaluate the book's historical claims. It seems that the economic anthropology evidence has reasonable support, and I feel confident evaluating its claims about the modern-day world. But I know nothing about the written historical evidence about Lydia and coinage and all that, so I'd like to see an alternative expert source weigh in on it.


Posted by: Walt Someguy | Link to this comment | 03- 1-12 9:10 AM
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I think the personal issue is pretty clear: "it's a dirty job but somebody's got to do it". In society constituted as it is now, there has to be a banking sector, or everything collapses. That doesn't mean that it's above criticism, but it does mean that you can't reasonably criticize bankers with the same breadth of condemnation you'd use for meth dealers or child molesters

I think the issue with the financial sector is pretty clearly that the average product is positive but the marginal product is negative -- the sector is too large, it's doing damage at the margins, and it has to shrink in particular ways. The problem with D-squared is that he gets emotionally wrapped up insisting that the average product is positive (the sector shouldn't be eliminated entirely) and it gives him a tin ear for the questions about the margin. Especially since I don't think most rational people question the need for some form of financial intermediation.

As for the meth dealer point, I think certain questions about financial regulation -- like payday lending, for instance -- are pretty exactly analogous to questions about drug regulation. I was rather astonished to see DD say in the comment thread on CT that regulating payday lending was a technocratic question that could be engineered by economists. Setting up a regulatory structure for payday lending is much closer to deciding on controls for a drug with medical benefits but severe addictive potential than it is to building a bridge.


Posted by: PGD | Link to this comment | 03- 1-12 9:11 AM
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26.1: I don't think that is a counterexample -- what you're saying is that things we'd normally now think of as armslength and impersonal like business mergers and national alliances were in the past often intertwined with the building of personal/familial relationships. Now the spheres are separate, then they weren't.


Posted by: LizardBreath | Link to this comment | 03- 1-12 9:12 AM
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Setting up a regulatory structure for payday lending is much closer to deciding on controls for a drug with medical benefits but severe addictive potential than it is to building a bridge.

Sure, but to use your example, it's counterproductive to globally condemn anyone who provides opiates to consumers. Sometimes they're drugs of abuse, but sometimes they're medically necessary painkillers, and while regulation should be stringent, it does seem like a technical question of how to balance risks and benefits to me.


Posted by: LizardBreath | Link to this comment | 03- 1-12 9:15 AM
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25: right, the entire movement from 'personal' to 'arms-length' is all about trying to contract for all possible default contingencies. But in a practical sense that is impossible. Someone with the resources to hire good lawyers can break the contract and dare you to sue them, if you get caught up in a bankruptcy you are vulnerable to losing out in the bankruptcy process in all kinds of ways that were not foreseen in the contract, and subtle forms of non-performance cannot always be contracted for. This obviously becomes more important the more you have invested in a single counterparty.

Some social institution, like exchanges or clearinghouses, can make you genuinely indifferent to your counterparty because e.g. the clearinghouse imposes itself between counterparties. But then the social institution has to be very highly regulated, formally and informally.

OK, gotta actually work now...


Posted by: PGD | Link to this comment | 03- 1-12 9:16 AM
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28 -- me too, but it's worth noting that one of the guys in the CT thread is a historian of the ancient economy.


Posted by: Robert Halford | Link to this comment | 03- 1-12 9:18 AM
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33: I missed that. Which one? I was going to read the whole thing, but I started reading from the end, and both the post and the comments sucked, so I quit.


Posted by: Walt Someguy | Link to this comment | 03- 1-12 9:20 AM
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Neville somebody. IMO that and Dsquared are the only things there worth reading and the comments blow.


Posted by: Robert Halford | Link to this comment | 03- 1-12 9:24 AM
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it's counterproductive to globally condemn anyone who provides opiates to consumers

Indeed, if people keep up this demonizing of drug dealers some of them may start to act unethically.


Posted by: foolishmortal | Link to this comment | 03- 1-12 9:27 AM
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36: The point is that some of them are doctors, treating actual pain in a medically appropriate manner; if you treat them like meth dealers, it gets harder to handle the actual medical needs. But here we are in analogy land, so we're all banned.


Posted by: LizardBreath | Link to this comment | 03- 1-12 9:30 AM
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things we'd normally now think of as armslength and impersonal like business mergers and national alliances were in the past often intertwined with the building of personal/familial relationships. Now the spheres are separate, then they weren't.

Yes, and that's exactly the opposite of moving things that used to be outside of the business sector into it.

32: The protections of incorporation, Bankruptcy, etc. are imperfect and some people still get screwed. the 2006 bankruptcy reforms made that risk significantly worse, although not as it was pre-1978 reforms. Nonetheless, the long-term trend is to permit a larger personal sphere carved out from the business sphere.


Posted by: unimaginative | Link to this comment | 03- 1-12 9:32 AM
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"the issue with the financial sector is pretty clearly that the average product is positive but the marginal product is negative -- the sector is too large, it's doing damage at the margins, and it has to shrink in particular ways"

It's also less efficient now than it was a century ago. http://pages.stern.nyu.edu/~tphilipp/papers/FinEff.pdf


Posted by: ajay | Link to this comment | 03- 1-12 9:34 AM
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38.1: I guess I don't see that as 'exactly the opposite'. If you think about it as moving categories of transactions out of the personal sphere, rather than into the business sphere, it's looks compatible to the claim, rather than contradicting it. Business mergers used to be both economic and interpersonal. Now they've left the personal sphere almost completely.


Posted by: LizardBreath | Link to this comment | 03- 1-12 9:37 AM
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Nonetheless, the long-term trend is to permit a larger personal sphere carved out from the business sphere.

This, I want to disagree with as well. Bankruptcy is a vital protection for creditors and a good thing. But I don't understand it as part of the 'personal sphere' rather than the 'business sphere'. Your entitlement to bankruptcy protection from your creditors has nothing to do with interpersonal relationships, it's an impersonal protection granted by the state based on objective factors. That seems to me to be part of the legal underpinning that makes commercial/impersonal interchange practical, rather than harking back to what Graeber calls a human economy.


Posted by: LizardBreath | Link to this comment | 03- 1-12 9:42 AM
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The point is that some of them are doctors, treating actual pain in a medically appropriate manner; if you treat them like meth dealers, it gets harder to handle the actual medical needs. But here we are in analogy land, so we're all banned.

The issue with payday lending is not whether to allow short-term credit to be provided, but whether the effective interest rate for such credit should be capped (which admittedly does mean less will be provided). I do think the exact cap is a pretty technical matter which you need a lot of market data to set thoughtfully. But the presence and even the level of a cap is also a profoundly normative question which there is no one right technical answer to, the way there is a right answer about a load-bearing bridge. My surprise at DD was in his buying into the notion that there was a right technical answer to the question about the utility of consumption smoothing and this was an apolitical matter for economists.

Unfortunately CFPB does not have the power to set a payday loan interest or fee cap.


Posted by: PGD | Link to this comment | 03- 1-12 9:47 AM
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My surprise at DD was in his buying into the notion that there was a right technical answer to the question about the utility of consumption smoothing and this was an apolitical matter for economists.

Is this really as distinct a question from bridge design as you'd think? Bridge design includes normative questions about tradeoffs between expense and safety; you need the technical experts to clarify what normative choices are available, and what the tradeoffs are. You don't abdicate those choices to the technical experts, but politicians need to work with technical experts to be able to make the choices they think they're making.

Sort of the same with payday lending. Whose interests are to be considered and what weight is to put on each is a matter for politics (normatively, I'm on the protect the needy, fuck the lenders bench, probably a popular one around here). But you need technical expertise to figure out what regulations are going to serve those normative ends -- well-meaning regulations passed without deep understanding of the needs of the affected parties aren't going to help anyone.


Posted by: LizardBreath | Link to this comment | 03- 1-12 9:54 AM
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My surprise at DD was in his buying into the notion that there was a right technical answer to the question about the utility of consumption smoothing and this was an apolitical matter for economists

That's not really what I meant. My example was:

We need an estimate of the benefits to borrowers of being able to smooth consumption, an estimate of how far we can regulate rates before we push down the industry's return on capital to a level where they give up, an estimate of the social externalities caused by payday lending, and an estimate of the likely prevalence of loan-sharking in the absence of a regulated payday loan industry. Maybe once a decade we have a Royal Commission about why these communities have such low and irregular incomes that they are always using payday lenders.[1]

The point I'm trying to make here is - since we get the first two from economists, and the last two from sociologists/criminologists, what did we hire the anthropologist on the team to do?

I don't think that's apolitical; it's not wholly clear, but "we" at the start of the first paragraph refers in my mind to "we, the democratically elected government or its civil service". The point I was making though is that this is not a question to which the anthropologists bring much added value, unless they can demonstrate that their social meanings and blahblahwhathaveyou of debt are translatable into actual social or economic consequences. If someone's going to argue that there is something specially bad about being in debt, over and above the price paid (the economists' role) or the social externalities (the criminologist's role), then they are basically in the same position as people who have religious objections to it, IMO.

In fact, effective interest rate caps are a really bad way of regulating consumer credit (they end up being just a prohibition on very short term lending). The blood and guts of regulation here is on the marketing material, and the extent to which the regulator is going to have the stones to stand up to the industry and pull licenses. You might consider the assessment of marketing material to be applied sociology, applied psychology or applied economics, but I don't think it's anthropology.


Posted by: dsquared | Link to this comment | 03- 1-12 10:00 AM
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12, 18: Also to make it easier for marginally reliable people to borrow.

Under a regime of enforcement, the probability of repayment is higher, so the credit risk is lower. The set of people you'd lend to at a given interest rate, without enforcement, is a strict subset of the people you'd lend to with enforcement.

Collateral is another example of the same phenomenon; instead of reducing default rates, it reduces severity, but in both cases it increases the expected value of the loan to the lender, which makes them more willing to lend, and at lower interest.


Posted by: Benquo | Link to this comment | 03- 1-12 10:02 AM
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I was happy to vote, with a big majority of folks in my state, to cap payday lending interest rates at 36%. I'm also happy to see that at least one Native tribe has taken up online payday lending as a way to make ends meet. No, I'm not troubled by the inconsistency.


Posted by: CharleyCarp | Link to this comment | 03- 1-12 10:07 AM
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45: Why is having a higher rate of borrowing desirable? What determines the optimal level?


Posted by: Eggplant | Link to this comment | 03- 1-12 10:12 AM
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44 -- wouldn't the anthropologist be particularly useful (perhaps necessary) for an effective regulation of the marketing material?

But more broadly the framing of the hypothetical seems a little unfair to anthropologists -- I don't see why their usefulness depends on being able to provide immediate policy advice for specific bureaucratic decisions.


Posted by: Robert Halford | Link to this comment | 03- 1-12 10:13 AM
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I was happy to vote, with a big majority of folks in my state, to cap payday lending interest rates at 36%.

btw, I am cynical enough to believe that (unless the payday lending industry has completely shut up shop in your state which it might have), what you actually voted for was for payday lenders to disguise three quarters of the interest charge as a "service fee".


Posted by: dsquared | Link to this comment | 03- 1-12 11:26 AM
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I'm pretty sure that wouldn't have worked -- that definitions were good enough. And basically it is gone. The tribal outfits say they're only lending to out-of-staters -- I hear that the AG doubts this, but he's running for governor, and so I wouldn't be surprised if he let it slide for now -- so I guess local folks have to borrow online from offshore outfits. Which changes, it seems to me, the whole men with guns calculus.


Posted by: CharleyCarp | Link to this comment | 03- 1-12 11:30 AM
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DD, you might find this interesting, as anthopology. Text of the thing is pages 17-20, and the arguments for and against are pages 21-23.


Posted by: CharleyCarp | Link to this comment | 03- 1-12 11:45 AM
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No sounds like you're right then. If it's being done exclusively off Native lands, that usually means it has been regulated out of existence in your state. Which will tend to mean all manner of pains in the ass for poor people with short term cash flow problems, but this is the sort of tradeoff that democracies are there to make.


Posted by: dsquared | Link to this comment | 03- 1-12 11:52 AM
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You could have done a better job writing the opposition argument.


Posted by: CharleyCarp | Link to this comment | 03- 1-12 11:55 AM
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47: It's not, necessarily. But the people who are borrowing think that they would be better off borrowing than not borrowing. And the people who are lending think they would be better off lending than not lending.

That's not to say that there are no losers. If someone would have borrowed and not repaid under no-enforcement, then that person is worse off under enforcement.

But the power to make a legally binding commitment is valuable.


Posted by: Benquo | Link to this comment | 03- 1-12 11:57 AM
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So do the people who believe that having legally enforceable debt obligations is superior to a system where the penalty for walking away is reputational also believe we should eliminate bankruptcy, or at least make it harder? Bankruptcy and caps on interest also increase costs. It's not clear to me why the government has to involve itself in debt forgiveness negotiations on the side of creditors.


Posted by: Eggplant | Link to this comment | 03- 1-12 12:00 PM
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But the people who are borrowing think that they would be better off borrowing than not borrowing.
I have a strong dislike for this argument, as it seems to underly a lot of economic "proofs". Not all voluntary transactions are voluntary.


Posted by: Eggplant | Link to this comment | 03- 1-12 12:03 PM
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55:
the people who believe that having legally enforceable debt obligations is superior to a system where the penalty for walking away is reputational

I actually don't have an opinion on that, except for the weak one that we should be careful about changing parts of our society as fundamental as the enforceability of contracts.

56: Yeah, it's overused as a "proof." But I do think that the burden of evidence is on someone who wants to show that a mutually voluntary arrangement is harmful to a participant.

The problem with the poor is that they haven't got enough money. Why would someone borrow on payday lender terms if they had enough money to make do?


Posted by: Benquo | Link to this comment | 03- 1-12 12:20 PM
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57: the burden of evidence is on someone who wants to show that a mutually voluntary arrangement is harmful

Certainly payroll anticipation loans are basically a slam-dunk for that, though? Usurious interest rates that very often have the effect of forcing the debtor into a long-term cycle of short-term loans that is very difficult to break: what's not injurious about that?

When I was 21 and living on Skid Row in Omaha, temping and barely scraping by, I had a bank account back home, but it was a pain to access it in those days, even though the same bank had branches in Omaha. I did go to the check cashing place a few times, but only with my actual check in hand. I can't remember exactly what the fee was -- but something on the order of $3 for a $200 check -- obviously very profitable, but it was hardly plunging me further into immiseration. If there's a burden of proof for showing harm, then I think there needs to be a corollary justifying the immense profits that accrue. I've seen little evidence that those are necessary for the efficient functioning of the marketplace.


Posted by: Natilo Paennim | Link to this comment | 03- 1-12 12:44 PM
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58 seems to get it right to me.


Posted by: Robert Halford | Link to this comment | 03- 1-12 12:45 PM
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58: Usurious interest rates that very often have the effect of forcing the debtor into a long-term cycle of short-term loans that is very difficult to break: what's not injurious about that?

What does the alternative look like? What happens to the people who would take out a payday loan, if they can't get one?

The takeaway from this seems to be that the poor are underbanked, and that prices are above their equilibrium level, i.e. payday lenders make an economic profit.

But I don't see why profitability is evidence one way or the other about the harmfulness of payday lending. Apple is very profitable, but it doesn't follow that buying an iPhone makes you worse off.


Posted by: Benquo | Link to this comment | 03- 1-12 1:13 PM
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Why would someone borrow on payday lender terms

for the same reason people gamble, or do any other behavior that gives benefits today for costs tomorrow. The intuitive model for when short term credit is helpful is for one-time incidents (car repair, etc.) where you need cash quickly but can be sure you will repay in the future. Substantial numbers of payday borrowers engage in regular, repeated use of short-term loans for fees amounting to $15-20 per $100. They are basically buying back their own money at exorbitant rates in a way that is hard to reconcile with the situations where short-term credit would really be economically beneficial. There are well-known human weaknesses around short-term self control, particular in stressful situations (which poverty is).

we should be careful about changing parts of our society as fundamental as the enforceability of contracts

please. Contracts are already selectively enforceable based on the legal firepower you can engage. More broadly, contract enforcement is one important part of our legal framework but it's a means and not an end in itself. Refusing to enforce certain kinds of contracts, or forcing renegotiation of terms ex post, can have many benefits.


Posted by: PGD | Link to this comment | 03- 1-12 1:23 PM
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61.1: It sounds plausible to me that payday loans hurt people in the long term because they exploit our tendency to focus on the short-term benefits rather than the long-term costs.

Is there any research out there about whether this is true of the typical payday loan?

61.2: "Careful" doesn't mean we shouldn't do it. I am skeptical of a sudden and complete elimination of contract enforceability (or even the enforceability of all financial contracts), but I see nothing wrong with making small changes and seeing how they work out.


Posted by: Benquo | Link to this comment | 03- 1-12 1:54 PM
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And borrowers rolling over their debt doesn't establish that they're worse off. It just establishes that they're poor. They're poor, so they need (or think they need) the payday loans in the first place, and once they've gotten the loan, they're still poor, so they can't (or think they can't) pay off the balance.

That's exactly what I'd expect even if 100% of payday loans were used for unexpected expenses like fixing the car.


Posted by: Benquo | Link to this comment | 03- 1-12 1:57 PM
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There are well-known human weaknesses around short-term self control, particular in stressful situations (which poverty is).

This too. Poor people often make decisions you or I might not approve of. I highly doubt that they will start making decisions you like just because they're no longer able to obtain credit lawfully.


Posted by: Benquo | Link to this comment | 03- 1-12 2:01 PM
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62.2 -- See this paper . 'Naive hyperbolic discounting' is econospeak for excessively short time horizons.


Posted by: PGD | Link to this comment | 03- 1-12 2:02 PM
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63: If people are habitually borrowing under usurious terms, then yes they are worse off.


Posted by: Eggplant | Link to this comment | 03- 1-12 2:08 PM
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63: so they need (or think they need) the payday loans in the first place, and once they've gotten the loan, they're still poor, so they can't (or think they can't) pay off the balance.

That's the question, though -- if it's only think they need the loan, and think they can't pay off the balance, then they'd be better off without the opportunity to get the loan: they're paying a great deal of interest for no serious benefit.

This is, I think, a really hard question that requires actual expertise: some low-income people -- the ones with, e.g., jobs that they will lose unless they can get their cars fixed ASAP -- are better off given the availability of short-term credit even at very high interest rates. Other people -- the ones who are going to borrow for no urgent reason and roll the loan over for a long time, so that they're paying a ridiculous amount of interest for very little gain -- would be better off if the credit wasn't available to them.

Writing the regulations to balance the benefits and harms to those two groups of people is a difficult task, that involves knowing how many of each type there are, what affects their needs and borrowing behavior, and so on.


Posted by: LizardBreath | Link to this comment | 03- 1-12 2:10 PM
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64 -- Maybe so. But the usury-lenders they might go to know have to operate without the coercion of the state. Because we've withdrawn it from them.


Posted by: CharleyCarp | Link to this comment | 03- 1-12 2:14 PM
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67 is pretty much what I think.

To know whether eliminating payday lending is beneficial, you have to have some idea what proportion of payday loans go to someone who could just cut back on consumption but doesn't want to, and what proportion of payday loans mean that the car gets fixed or the baby gets fed.


Posted by: Benquo | Link to this comment | 03- 1-12 3:10 PM
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65: That paper argues that payday borrowers do not exactly optimize the time of default, which seems quite plausible to me, but is a very different question from whether they would have been better off without the loan.


Posted by: Benquo | Link to this comment | 03- 1-12 3:15 PM
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70: No -- the early default point is that the only way payday loans make sense for many borrowers is if you default (thus getting a free loan and cutting off your access to futher high-cost credit) before you get in too deep. Not defaulting is proof that they have crazy discount rates (very high valuation on short term monies over long term costs) and that they are not taking steps to enforce self-control through default. Remember, an econ paper is never going to say something like "this is not good for you". Naive hyperbolic discounting is the same function economists use to model drug addiction, so when they say that the behavior shows evidence of naive hyperbolic discounting that is significant.

I agree access to short term credit is useful, particularly in a world where other forms of short term credit like bank overdrafts can be extremely expensive (another effective form of usury that should be regulated). It is a balancing act as LB says in 67. However, my experience is that overattention to the nuances of the balancing act has a strong tendency to paralyze regulation altogether. All regulation that affects profits faces enormous counterpressures and nuance is an opening for that. I think we would be better off enforcing some clear usury norms across our credit system rather than fine-tuning everything ultra carefully in a back room, even if some balance is not precisely optimal.

A couple of other points -- as I understand it, payday loans are not targeted at the very poor (check cashing places are, but that's different). The ideal payday customer is moderate income with busted credit. Also, interesting quote from California survey of payday loan customers:

"When asked if they would recommend payday loans to others, most indicated that they would provide the information about payday lending, but would also provide cautions to the 'addictive', 'repetitive', and 'vicious' cycle that can be a part of the payday lending experience."

Posted by: PGD | Link to this comment | 03- 1-12 3:56 PM
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I think we would be better off enforcing some clear usury norms across our credit system rather than fine-tuning everything ultra carefully in a back room, even if some balance is not precisely optimal.

This, I agree with -- no regulation is a regulatory choice, and there's no reason to think it's superior to the best guess you can make with the information you have.


Posted by: LizardBreath | Link to this comment | 03- 1-12 4:15 PM
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71.last is news to me, and suggests that payday lending is unlikely to be beneficial on net.


Posted by: Benquo | Link to this comment | 03- 1-12 4:58 PM
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Check cashing is really weird. We have a bunch of clients for whom we serve as a rep payee. We get their social security and pay their rent and whatever other bills that get agreed on in their budget. Then we give them a spending check-- sometimes once a month, other times weekly.

They can cash their checks for free at the bank we use, and yet I had a client I could not convince to go to the bank--even though the fees are a lot on a $50 check. She just didn't like banks.


Posted by: BostoniangirlI | Link to this comment | 03- 1-12 5:31 PM
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Feinman and Gabel:

One vehicle of persuasion was the law of contracts, which generated a new ideological imagery that sought to give legitimacy to the new order. Contract law was one of many such forms of imagery in law, politics, religion, and other representations of social experience that concealed and denied the oppressive and alienating aspects of the new social and economic relations. Contract law denied the nature of the system by creating an imagery that made the oppression and alienation appear to be the consequences of what the people themselves desired.

Banaji:

Marx's conception of the wage-contract can thus be summed up in the words used by Friedrich Kessler to describe standardised contracts or contracts of adhesion in modern capitalism: the worker's 'contractual intention is but a subjection more or less voluntary to terms dictated by the stronger party'. That is, nothing in the nature of free labour prevented employers from imposing the harshest possible terms on their employees, including restrictions on their mobility. If this seems paradoxical, that is only so because contract entails the 'general irony of coercion imposed in the name of freedom'. Freedom of contract enables capitalists to 'legislate by contract', and to legislate in a 'substantially authoritarian manner without using the appearance of authoritarian forms'.

Liberalism, as methodological individualism and "justice under law" and "freedom of contract" is nothing but authoritarianism, and one step from fascism.

There can be no fair and efficient regulated payday loans when one side is Capital. It's absurd and pernicious.


Posted by: bob mcmanus | Link to this comment | 03- 1-12 8:12 PM
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I haven't read the whole thread, but to respond to 74, banks often treat non account holders like absolute shit (and often have fees and such that discourage people with minimla assets from being account holders).

Say what you will about payday lenders; at least they're happy to have your business.


Posted by: urple | Link to this comment | 03- 1-12 8:21 PM
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Oh, bob! You're such a maverick!


Posted by: JP Stormcrow | Link to this comment | 03- 1-12 8:23 PM
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Having just finished Debt, although in a seriously sleep-deprived and jetlagged state, I was kind of frustrated that his suggestions were all condensed into the last two pages and kinda vague. After telling us repeatedly that the notion of debt is all bound up in the definition of money and the whole way the economy operates, he suggests a jubilee -- what does that mean? Which debts does he want to eliminate and how do you distinguish them from the ones that, if eliminated, would collapse the whole system?


Posted by: essear | Link to this comment | 03- 1-12 11:34 PM
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I feel like I should read Debt but I also feel like I already feel like what I will feel like a month or two after I've read Debt


Posted by: fake accent | Link to this comment | 03- 1-12 11:36 PM
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More generally, there was a huge amount of interesting history in the book, and following up on his most frequently-cited references might be an interesting thing to do. The overarching "argument" feels a little thin, but that's true for most social science things I try to read -- I'm bad at renormalizing my standards for what feels convincing.

Aside from the Apple quote, the bit where he mentioned "the quadratic equations of economics" to mean "really abstruse math we can't understand" was pretty funny.


Posted by: essear | Link to this comment | 03- 1-12 11:39 PM
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Usurious interest rates that very often have the effect of forcing the debtor into a long-term cycle of short-term loans that is very difficult to break

This is precisely an example of how anthropological approaches are going to screw things up in designing a regulatory regime. It isn't the interest rate that forces the debtor into the destructive cycle of loans - it's the practice of rolling over the loan when you can't pay it rather than defaulting because you can't pay it.

And the way you deal with this in a regulatory regime is by attacking the problem at source - by setting out a code of practice on rollovers, and pulling the licences of payday lenders who do it too often (outright bans don't seem to work, because although you want lenders to put a bad loan into default as early as possible, you also want to say that a lender with too many defualts is making too many irresponsible loans, and some rollovers are the best alternative). Left to themselves, lenders will always try to roll over the debt, because the value of the annuity of minimum payments is considerable, and left to themselves, too many borrowers will keep rolling over the debt because they don't want to admit that they're bankrupt. A reasonably competent and well-resourced regulator (the UK one seems to do a good job; lots of US regulatory bodies seem ludicrously underresourced I admit) should not have much trouble spotting a bad lender and pulling his consumer credit licence.

So I think you get two big mistakes from the sort of folk-psychology or anthropology approach to debt that make a big difference in payday lending. First, the view that some APR rates are intrinsically usurious and ought to be banned (mistake about mathematics of compounding). And second, the view that defaults on debt are intrinsically a bad thing and ought to be minimised (actually they probably ought to be a lot higher than they are). When it's done right, economics is the science of trying to do a bit better than what everyone takes for granted.


Posted by: dsquared | Link to this comment | 03- 1-12 11:47 PM
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Again, 81 may or may not be right as an answer to how to regulate payday lenders, but I don't understand how it is a remotely valid attack on economic anthropology. Why on earth wouldn't it be useful to actually have the information as to how people behave and think about debt? That doesn't prevent economists or whoever from coming up with clever answers to regulatory problems, but understanding how the world actually works seems like a pretty damn useful thing; economic anthropology might indeed give you an answer like "it's not the initial rate, it's the rolling over," let you know the kinds of people who actually use payday lenders and how and why they use them, etc.


Posted by: Robert Halford | Link to this comment | 03- 2-12 12:38 AM
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Also, the view that defaults on debt are "intrinsically a bad thing" is exactly what Graeber, at least, wrote his book to argue against. And while I understand that commercial defaults are common and that economists and bankers don't theoretically have a moral opposition to default, if you look at e.g. the attitude of the economics profession to the most recent, awful set of changes to the US bankruptcy code you might get a sense of why most of us aren't like oh yeah economists and bankers they are totally pro making defaults easier for poor people.


Posted by: Robert Halford | Link to this comment | 03- 2-12 12:44 AM
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After telling us repeatedly that the notion of debt is all bound up in the definition of money and the whole way the economy operates, he suggests a jubilee -- what does that mean? Which debts does he want to eliminate and how do you distinguish them from the ones that, if eliminated, would collapse the whole system?

Graeber's an anarchist, isn't he? I'm not sure he actually does want to distinguish the debts that will collapse the whole system from the ones that won't.

That said, I haven't read the book. I feel like I've read enough about it to get the gist, and if I'm understanding it correctly I basically already knew the broad outlines of his empirical argument. It does sound interesting enough that I probably should read it at some point, but it's not a high priority.

Also, the subtitle annoys me. Surely the subject of the book is not the "first" 5000 years of debt but the "last" (in the sense of "latest" rather than "final").


Posted by: teofilo | Link to this comment | 03- 2-12 12:47 AM
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economists and bankers

Not at all the same set of people, btw. There's some overlap, but a lot less than you might think.


Posted by: teofilo | Link to this comment | 03- 2-12 12:48 AM
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Well, right, but Dsquared here seems to want. To lump them together and defend both.


Posted by: Robert Halford | Link to this comment | 03- 2-12 12:50 AM
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44: an estimate of how far we can regulate rates before we push down the industry's return on capital to a level where they give up

I'd probably be as interested to read an economic anthropologist's or economic sociologist's take on this problem as I would a standardly-trained economist's.


Posted by: x.trapnel | Link to this comment | 03- 2-12 12:50 AM
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Oh, and Halford's 9 was really a great summary. I could make an obvious parallel to 9.2 about how artistic output also doesn't need a state, even at a very high level, though a societal commitment to guaranteeing that revenue streams accrue to particular individuals requires men with guns--but even I find myself tiresome after a certain point, so I'll spare you all anything further.


Posted by: x.trapnel | Link to this comment | 03- 2-12 12:57 AM
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86: It's not clear to me that that's actually what he's doing, but then I haven't read his CT post. I do agree that his characterization of anthropology in this thread doesn't make a whole lot of sense, or at least doesn't describe the discipline as a whole in any recognizable way.

I've mostly just been thinking about the banker/economist distinction a lot lately on account of Judgmental President's friend's novel.


Posted by: teofilo | Link to this comment | 03- 2-12 1:01 AM
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I read a shorter essay by Graeber (here, pdf) a month or two ago that I thought was pretty worthwhile. Not really about debt, just power and violence and stuff.


Posted by: fake accent | Link to this comment | 03- 2-12 1:02 AM
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Halford's 82 also seems very sensible to me. If one doubts that equilibrium models accurately capture what's going on with low-income borrowing--and I doubt this very much--then I don't see why economists, whose professional training is precisely to see the world as made up of equilibrium models, should be particularly privileged here. "Being an economist" means, to my mind, having gone through the standard graduate micro/macro/econometrics sequences. But while statistical analysis is of course quite useful, and probably necessary, for any serious investigation into the sort of thing we're talking about here, economic sociologists would also have such training, and I'm not convinced that the more eclectics methods and theoretical background one would expect from a sociologist would be a bad thing here.


Posted by: x.trapnel | Link to this comment | 03- 2-12 1:08 AM
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Incidentally, there's a bit of subfield on debt and American history now: Republic of Debtors, Born Losers, Balleisen's book on the 1840(?) bankruptcy law whose title I can't remember.


Posted by: fake accent | Link to this comment | 03- 2-12 1:26 AM
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Oh, as an aside: I admit that I was a bit irked, both when I read Debt and when I read any of Graeber's pieces hyping it, at the emphasis he puts on debunking the myth of barter. I was dubious about whether (1) the myth is really all that prevalent, and (2) it really gets deployed in an ideological fashion. But lo! Today I see some evidence in Graeber's favor, from a 2006 NY Regents Exam:

Later, people started trading. When people traded, they no longer had to make everything they needed. People began to do certain kinds of work. Then they would trade what they made to someone else in order to get different foods and goods... [What if, the author asks,] the cow farmer wanted to trade a cow for a horse? Or if the chicken farmer wanted to trade ten chickens for a pig? They would have to carry their animals with them. Bartering did not have a way to make change, either. What if the cow farmer wanted to trade a cow for a chicken? A cow is worth more than a chicken. One cow might be worth ten chickens. But what if the farmer only wanted one chicken, not ten? The farmer should get "change." But how can you make change from a cow? This is where money comes in...

Plus, some misleading stuff about FACTS versus OPINIONS, which I know Helpy-chalk was recently complaining about. All in all, I weep for our children.


Posted by: x.trapnel | Link to this comment | 03- 2-12 1:45 AM
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Also, the view that defaults on debt are "intrinsically a bad thing" is exactly what Graeber, at least, wrote his book to argue against.

I don't agree. If he thinks that, then why is he so keen on a debt jubilee, rather than everyone who needs to default doing so? ("Because he doesn't really understand bankruptcy at all well" is a possible answer here).

The fact that people roll over debt is a matter of empirical economics, and there are papers published on it in the economics journals, not in the anthropology journals. And the fact is all you need to know; if anthropologists were to be able to tell us "oh actually it's to do with religion, or ancient Sumeria, or potlatch or something" then this doesn't change the facts of the matter. Economists also study the kinds of people who use payday loans, along the economically relevant categories of their income, wealth, job category and so on. A lot of this takes place in the academic literature and a lot more in the practitioner literature on banking and regulation. That's how I know these things.

Graeber seems to want to rebuild economics along the lines of anthropology by bringing in a load of cultural and social categories and I really don't see what this adds. And the amazing underwhelmingness of the last chapter of his book confirms me in my view that it doesn't seem likely that there are massive policy insights to be gained from doing so.


Posted by: dsquared | Link to this comment | 03- 2-12 1:46 AM
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I admit that I was a bit irked, both when I read Debt and when I read any of Graeber's pieces hyping it, at the emphasis he puts on debunking the myth of barter. I was dubious about whether (1) the myth is really all that prevalent, and (2) it really gets deployed in an ideological fashion.

I've definitely encountered it enough to believe that it's pretty widespread, but I've always just sort of assumed it's a myth that's necessary to provide the underpinnings for economic theory but not actually intended to reflect historical reality. And, indeed, according to Graeber that appears to be the case! I was a little surprised at the implication that lots of people actually believe it to be literally true as a matter of historical fact, but the past discussion we've had of the book here has convinced me that this is in fact true as well.


Posted by: teofilo | Link to this comment | 03- 2-12 1:49 AM
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If one doubts that equilibrium models accurately capture what's going on with low-income borrowing

Why are we doubting this, by the way? If someone is regularly rolling over debts, never paying the principal sum and constantly being held in a form of debt peonage by a creditor who knows that the annuity of minimum payments is more than fair compensation for the original sum advanced, then that's pretty easy to capture in an equilibrium model. You might not like it, but it's an equilibrium. And if we think that low-income borrowers have an anomalously high disutility for defaulting, or a myopic discount function then that's not difficult to model either.


Posted by: dsquared | Link to this comment | 03- 2-12 1:50 AM
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There's a widespread tendency in the social sciences for books and articles to consists primarily of a detailed empirical study of some phenomenon, with a bit slapped on at the end giving "policy implications" or "recommendations" which are almost universally much less useful or interesting than the main analysis. It sounds like Graeber sort of tried to avoid this but didn't quite manage it.


Posted by: teofilo | Link to this comment | 03- 2-12 1:56 AM
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"that's pretty easy to capture in an equilibrium model" is not the same as "the behavior is actually caused by the individual rationally maximizing their utility, subject to the myopic discount function that they have." And if in fact this logic of maximization does not reflect the real underlying social/psychological causal mechanisms, policy responses that use the model that was fit to the data on the assumption that the maximization-model is true may well go wildly wrong, because the real processes may generate quite different behavior in an even slightly different context. A huge range of behaviors can be modeled as equilibrium responses, but that doesn't mean it's a good idea.


Posted by: x.trapnel | Link to this comment | 03- 2-12 1:58 AM
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Bewildered and indignant, Lily resolved to try the effect of a personal appeal; but she returned from her expedition with a sense of the powerlessness of beauty and charm against the unfeeling processes of the law. It seemed intolerable to live on for another year under the weight of her debt; and in her extremity she decided to turn to Miss Stepney, who still lingered in town, immersed in the delectable duty of "going over" her benefactress's effects. It was bitter enough for Lily to ask a favour of Grace Stepney, but the alternative was bitterer still; and one morning she presented herself at Mrs. Peniston's, where Grace, for the facilitation of her pious task, had taken up a provisional abode.

-----
And the realization of this fact brought her recurringly face to face with the temptation to use the legacy in establishing her business. Once installed, and in command of her own work-women, she believed she had sufficient tact and ability to attract a fashionable CLIENTELE; and if the business succeeded she could gradually lay aside money enough to discharge her debt to Trenor. But the task might take years to accomplish, even if she continued to stint herself to the utmost; and meanwhile her pride would be crushed under the weight of an intolerable obligation.

These were her superficial considerations; but under them lurked the secret dread that the obligation might not always remain intolerable. She knew she could not count on her continuity of purpose, and what really frightened her was the thought that she might gradually accommodate herself to remaining indefinitely in Trenor's debt, as she had accommodated herself to the part allotted her on the Sabrina, and as she had so nearly drifted into acquiescing with Stancy's scheme for the advancement of Mrs. Hatch. Her danger lay, as she knew, in her old incurable dread of discomfort and poverty; in the fear of that mounting tide of dinginess against which her mother had so passionately warned her. And now a new vista of peril opened before her. She understood that Rosedale was ready to lend her money; and the longing to take advantage of his offer began to haunt her insidiously. It was of course impossible to accept a loan from Rosedale; but proximate possibilities hovered temptingly before her. She was quite sure that he would come and see her again, and almost sure that, if he did, she could bring him to the point of offering to marry her on the terms she had previously rejected. Would she still reject them if they were offered? More and more, with every fresh mischance befalling her, did the pursuing furies seem to take the shape of Bertha Dorset; and close at hand, safely locked among her papers, lay the means of ending their pursuit. The temptation, which her scorn of Rosedale had once enabled her to reject, now insistently returned upon her; and how much strength was left her to oppose it?


Posted by: the wharton school | Link to this comment | 03- 2-12 2:03 AM
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Does Graeber actually argue that anthropology as a discipline should literally replace economics as a mechanism for crafting economic policy? That sounds like a terrible idea for a number of reasons.


Posted by: teofilo | Link to this comment | 03- 2-12 2:08 AM
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But #98 is a generic problem for any kind of policy analysis. Unless we believe that social anthropologists have a unique insight into the true mental processes of everyone, then they're just as vulnerable to making mistakes, and their mistakes are going to be much more difficult to deal with because there's no obvious way to test them against the data.

Also, the policy response doesn't always or even usually depend on specific behavioural assumptions of the model. In the case of payday lending, the best answer to the rollover problem is to put limits on it from the supply side - in other words, to take a motivation-agnostic position that loans shouldn't be rolled over in the absence of reasonable objective evidence that doing so increases the likelihood that the borrower will be able to repay. The only role for the equilibrium model is to establish that the roll-over equilibrium exists; once you know that the problem's there, you have a new problem. There's a whole literature on "robust" regulatory solutions, and when I was a bank regulator we always used to chide each other for "solving the problem in the model".


Posted by: dsquared | Link to this comment | 03- 2-12 2:10 AM
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Does Graeber actually argue that anthropology as a discipline should literally replace economics as a mechanism for crafting economic policy?

He does argue that economics should be substantially redesigned to be more like anthropology - that's the point of the "myth of barter" bits. It's basically an anthropological spin on the whole (IMO) godawful "behavioural economics" literature.


Posted by: dsquared | Link to this comment | 03- 2-12 2:13 AM
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I actually do believe that economists ought to cede a fair amount of authority to economic sociologists, and even a bit to economic anthropologists, when it comes to policy analysis. And I think it's a mistake to think that anthropological studies can't be "tested against data", though obviously they have a different relationship to data than a standard regression analysis; I'll let an actual anthropologist argue this one.

I'll concede that folks actually working within regulatory bureaucracies, particularly fairly-functional ones like I hear you have in the UK, may for that reason be more sensitive to the data and less likely to be led astray by theory than some fresh-faced MIT PhD. Nevertheless, my limited exposure to the academic economics has me convinced that it really does inculcate a particular way of seeing the world, a way that may well miss quite a bit; thus my desire for some pluralism within policy analysis.


Posted by: x.trapnel | Link to this comment | 03- 2-12 2:20 AM
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I actually do believe that economists ought to cede a fair amount of authority to economic sociologists, and even a bit to economic anthropologists, when it comes to policy analysis. And I think it's a mistake to think that anthropological studies can't be "tested against data", though obviously they have a different relationship to data than a standard regression analysis; I'll let an actual anthropologist argue this one.

Personally I am hugely in favour of heaps more left-wing politicians making policy, and to be honest, bugger the rest of it. I think that quite often we confuse the people implementing decisions for the decision makers, and if you swapped economists for economic sociologists without also changing politics I do not think anything would really change in the long run.


Posted by: Keir | Link to this comment | 03- 2-12 2:33 AM
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s I understand it, payday loans are not targeted at the very poor (check cashing places are, but that's different). The ideal payday customer is moderate income with busted credit.

One of the comments at CT made the same point: typical customer is under 30, making about £23k a year, and works for the police or the NHS.

Which makes sense; payday lenders would tend to serve people who have paydays, and that wouldn't include the very poor who are either unemployed or casual/black economy workers.


Posted by: ajay | Link to this comment | 03- 2-12 2:51 AM
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60, 81: I agree that I was being somewhat imprecise here, w/r/t the distinction between the negative effects of high interest rates vs. the negative effects of continuously rolling over the debts. Also, I was trying, but failing I think, to make a distinction between check-cashing vs. payroll loans, even though they seem to be under the same physical roof a lot of the time.

On the first question, it does seem to me that you can't really get debt peonage or anything like it, below a certain interest rate. That is just a tautology. So I think we have to specify a range of interest rates, or at least a floor, that determine whether rolling over the debt is going to be materially harmful to the debtor.

I think there are some pretty important anthropo/sociological questions involved here too. The demographics, in my experience, of people who fall into specific problems with debt are pretty meaningful. I don't see a lot of young people with very precarious situations getting taken in by the payroll lenders -- they're simply not stable enough, and the amounts of money are too small for them to be put in a dangerous position. I do see younger people getting in bad with student loan debt on a very regular basis. A friend wound up taking out a SELF loan in the early 1990s that wasn't placed in default until it had ballooned to something like 5 or 6 times the original principle amount. Then when it was defaulted, it bounced through a number of different creditors, making it very frustrating to track down and discharge when there was money to pay it off. I've seen lots of similar stories with utility debts for young people too, many predicated on the transience and disconnection of people in their early 20s.

I think, though, that my conclusion still stands, i.e. where is the social benefit to these various opportunities to make excessive profits and/or ruin peoples' credit early on in their economic life?

I should probably just read Debt, there's a copy kicking around the house. Graeber has gotten up my nose a bit with all of this "Oh by the way, did you know I invented anarchism?" stuff. I'm still from the old school, and distrust activists on a rock star trip.


Posted by: Natilo Pa ennim | Link to this comment | 03- 2-12 2:55 AM
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I can't really comment on check cashing or American student loans because I don't really know enough about these weirdo American things. But in general payroll lenders aren't making excessive profits - I used to trade a few and as an industry, my assessment is that if you carry it out in an ethical and regulated manner, you will earn returns that range from meh to meh, depending on the economic cycle. I suspect that if you do it in the unethical and unregulated way, you will earn massive profits for a short while and then flame out in one way or another.

But I really do want to push back on this idea that looking at the demographics of defaulting borrowers is some arcane theoretical activity that only anthropologists can do. It's bread-and-butter applied economics. I am not quite sure whether there is a big anthropological literature out there which economists (and practitioners) are ignoring, or if this is more a question of Graeber launching a normal interdisciplinary land grab with the opening salvo "you guys are doing this all wrong. we anthropologists could do much better if we were given a chance". Which is a game I have seen the economists themselves play far too many times to be impressed with it in advance of the delivery of results.


Posted by: dsquared | Link to this comment | 03- 2-12 3:24 AM
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107.2: Yes, I'm sure a broader familiarity with the literature would probably give me a much more nuanced view of what claims are likely to be made in what venues. But this is the internet!

In the near term, however, I'm probably going to be focusing on urban farming issues. I'm stepping back from the radical scene, and looking for more practical, hands-on activism/activity. Plus trying to write more.


Posted by: Natilo Pa ennim | Link to this comment | 03- 2-12 3:33 AM
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||
I think I have built up a tolerance for opiates very quickly. The Percocet I took an hour ago does not seem to be having any effect, neither on the gout pain nor in soporific terms. I still maintain that I should be getting more than 5 mg of oxycodone per dose. I just wish the damned gout would subside. It is getting very old. And it would sure be nice not to have to take so many different pills every day. Oh well. Going up stairs is at least fairly easy now, though descending is still a hassle.

I really need to reduce. I can't have big health emergencies like this every year, it would totally sap my will to live.
||>


Posted by: Natilo Paennim | Link to this comment | 03- 2-12 3:57 AM
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76: And it may be because she's Russian. Staff will go with them, and the bank is happy to have *our* business.


Posted by: Bostoniangirl | Link to this comment | 03- 2-12 4:10 AM
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4

As far as solutions go, Marx and Engels had one idea, and nobody else I can think of has really addressed the practicalities. Which is why I get infuriated by people who say that Marxism is dead. ...

Inasmuch as every attempt to run a country along Marxist lines has failed miserably I don't think Marx and Engels adequately addressed the practicalities. Marxism seems pretty dead to me.


Posted by: James B. Shearer | Link to this comment | 03- 2-12 6:23 AM
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Natilo, will you be writing about urban farming? I'm interested. (And sorry about your hard recovery. As I've said, my time after my gall bladder was removed was just awful. Don't listen to the experiences of people who just had theirs out as an easy, uncomplicated surgery rather than waiting a week in the hospital to see if antibiotics could bring down the swelling before the thing erupted. Though you don't really have to listen to me either.)


Posted by: | Link to this comment | 03- 2-12 6:49 AM
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||

Emerson at Trollblog got linked to by Thoma today. Interesting, does Thoma read everything or use a spider to trawl the webs.

The problem I have with Emerson's attack on economism is that he underrates the extent to which homo economicus and its weltenschaaung infects all social relations. We might grant that the premises of rational actors, utility maximisers, markets, equilibrium are unwarranted assumptions in economics, but then accept some level of those characteristics in descriptions of feminism, anti-racism, anti-colonialism, culture, politics. There is a reason critical theory and post-everything arose after the 60s.

Every partial liberation a self-enslavement, and every oppression an opportunity. Every progress a regress. The dialectic may not rule at the sub-atomic level, but it describes all human behavior in a social setting, because we are each ruled by eros and thanatos, egoism and altruism, historically and dynamically.

The only rational act is a mad society (game) is not to play. But we do play, which means all of us are crazy.

|>


Posted by: bob mcmanus | Link to this comment | 03- 2-12 7:09 AM
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Tbh, I think a lot of the people contributing to the CT discussion didn't seem to be aware that bankruptcy involves writing off debt, and also seemed to think the US dollar is on a fixed exchange rate.

It would be interesting to know how it would have gone if D^2 had referred to "cramdown" or "debt relief" instead of "bankruptcy".

On the other hand, using US nonrecourse mortgages as an example of debt relief was PGD's tin ear right down to the ground.


Posted by: Alex | Link to this comment | 03- 2-12 9:09 AM
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Related to the above debate, Krugman. I don't accept that people who use microfounded models based on atomistic optimising consumers are "real economists" any more than Ted Nugent is a "real American".


Posted by: dsquared | Link to this comment | 03- 2-12 10:47 AM
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Usurious loans are often motivated by threats from other sources, e.g. eviction threats, utilities shutoff, need for medical care, or repossession threats. I don't think that many are taken to get party money. So the borrower is between a rock (eviction) and a less-bad hard place (a usurious loans). The lender isn't really the cause of the problem and can be thought of as the solution, but not a very good one.

It really hurts to agree with most of what Halford has said here.


Posted by: John Emerson | Link to this comment | 03- 2-12 12:02 PM
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If he thinks that, then why is he so keen on a debt jubilee, rather than everyone who needs to default doing so? ("Because he doesn't really understand bankruptcy at all well" is a possible answer here).

I agree that Graeber doesn't spell out in detail the mechanisms for the "debt jubilee" but this doesn't fly; in the US, at least, for the paradigmatic underwater homeowner, a pure default or, say, a Chapter 13 bankruptcy with a recourse second mortgage is a disaster, and bankruptcy is as much a punitive measure as it is pure debt relief.


Posted by: Robert Halford | Link to this comment | 03- 2-12 12:11 PM
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Whatever else it's good for, I think that anthropology can help understand folk resistance to actions like forgiving debtors, inflating the currency, welfare spending, deficit spending, and "fiat currency". All of these actions can be useful under some circumstances, but they anger up the capitalist group mind. This is especially true of goldbugs -- those I've met seem like classical fetishists in a tradition going back to Beowulf, Croesus, the Scythians, et al. (and often seriously disturbed people.)

These factors are plainly observable in American life, but maybe it has something to do with what Europe is doing. Atrios, DeLong, and many others have been baffled by the way that Europe seems to be unerringly zeroing in on exactly the wrong thing to do.

Graeber probably mentioned it, but the bondage of sharecroppers and miners in company towns was imposed in the form of debt -- low wages at the only job in town, high prices at the company store. Overt bondage would have been regarded with indignation, but the folk mind finds it very hard to justify letting people run out on their sacred debts.


Posted by: John Emerson | Link to this comment | 03- 2-12 12:25 PM
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Bah Krugman.

The micro-foundations thing (RBC;sticky;DSGE) was developed after the late 70s so that "Keynesians" would be able to get hired at banks etc, and get tenure at top schools and attract students who wanted to get hired at banks etc.

Minsky followers and Marxists don't get jobs at Goldman or the ECB.

Mainstream economists follow and serve the policy choices of politicians and adjust the "science" accordingly. Like the guy said after no WMD's were found. Doesn't matter if you are wrong. as long as you are wrong in a way that flatters your masters.

The Romers and Mankiw are brilliant at this.


Posted by: bob mcmanus | Link to this comment | 03- 2-12 12:41 PM
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I am really not all that interested in understanding folk resistance to debt restructuring, welfare spending or stimulus policy. If I had the time, I'm sure the reasons would be fascinating, but as with global warming deniers and people who want to ban abortion, "because fuck off, that's why" will do for now as an explanation.

"Happiness economics" has already been coopted by the Conservative Party so I am vvvvv unenthusiastic about the anthropological turn in economics if it means taking that sort of damn fool right wing crap seriously.


Posted by: dsquared | Link to this comment | 03- 2-12 12:47 PM
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This seems to be a good time for a hearty "Who cares what dsquared is or isn't interested in?" Others have different interests than you.

The "folk" I was referring to were the heads of the European states and their state banks. We should care what they think.

You're getting pretty close to "correct opinion" politics, which I learned about from Trotskyists who assured me that their 200-person faction had the correct position and would certainly prevail. In my lifetime I've seen the horizon of leftist futility move from the Trotskyists to the left-liberals to the old New Deal liberals, and frankly contemporary neoliberalism isn't that secure either. So if anthropology can help us figure this out, it's worth taking a look.


Posted by: John Emerson | Link to this comment | 03- 2-12 1:06 PM
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Material conditions, usually catastrophes, meaning wars, depressions, civil insurrections are about the only things that change the discourse and ruling ideas. A change in the ruling class, or the actual fear of death or displacement, changes the ruling ideas.

The great compression wasn't about a lightbulb "Wow, Hicks Hanson Samuelson Keynes! Social Democracy!". It was about labor grabbing actual power in the ruins of WWII.

The shogunate was always about making sure the peasants stayed at subsistence, and the samurai at slightly better than subsistence, and alienated from the peasants, and the daimyo never strong enough to control either peasants or samurai without help from the top and each other.


Posted by: bob mcmanus | Link to this comment | 03- 2-12 1:06 PM
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The "folk" I was referring to were the heads of the European states and their state banks. We should care what they think.

Then you're hardly in a position to complain when you're misunderstood, are you? Next time I want to refer to the Thai royal family (example chosen because AFAIK they're the only people left on earth who are protected by laws against lese majestie), I'll call them. "Y'know, those guys in Bangkok".

It is, as a matter of established fact, the right who have decided that there is mileage in the idea that if you can't afford to pay the electricity bill, it doesn't matter because there are more important things in life than avoiding hypothermia. If there's a plausible anarchist version of "happiness economics" which is entirely different, I'll listen to any anarchist who wants to explain it to me.


Posted by: chris y | Link to this comment | 03- 2-12 1:24 PM
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Well, immediately after I said what I did about folk psychology in America, in the next paragraph I went on to the baffling (to Atrios and Delong) way European statesmen and bankers were insisting on doing the wrong thing, and I suggested that the same (folk-psychology) reasoning might explain that. It looks clear enough to me, though I didn't spell it out by putting "folk psychology" in the same sentence as "bankers".


Posted by: John Emerson | Link to this comment | 03- 2-12 2:13 PM
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