- Mark Thoma links to Ken Rogoff's measured embrace of the idea of usury laws. He also mentions Islamic finance. It's interesting - the right has gone bananas over whispers of sharia law, but they don't seem to have latched on to the discussion of Islamic finance that has been going on in economics for a while now.
- A couple days ago we had an event at the Urban Institute on refund anticipation loans (RALs). We just released several reports on RALs and several other high-price, small-dollar credit products (pawnshop loans, payday loans, etc.) - I co-authored a couple of them. Anyway, in this talk Chi Chi Wu - one of the panelists (not from the Urban Institute) - mentioned usury laws. Keynes argued that usury laws are generally considered ill advised, but they do have at least something to them if you have a liquidity preference (rather than a pure loanable funds) theory of the interest rate. I'm not saying "let's cap interest rates". I'm saying, with the proper historical context, this body of thought is not as goofy as it first sounds. I leaned more towards Bob Weinberger and especially Melissa Koide's position during this talk than I did towards Chi Chi Wu and even my colleague Brett (although he mostly stuck to the numbers). The video for the event is here:
Video streaming by Ustream
By the way - that's me in the front row to the right of the woman in the black and white plaid jacket. That's Nancy Pindus, another Urban Institute researcher and a co-author on one of the reports that came out of this project.
Thursday, March 3, 2011
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Usury laws hurt the poor; they are something of a holdover from Aristotle's notion that it is "unnatural" to make a profit from the lending of money.
ReplyDeleteBig-picture I agree with you completely, but I think we need to be careful when we make this argument (perhaps if you don't come from a Keynesian perspective you can afford to be less careful). I'll try to sketch out a tentative endorsement of at least the effort to tamp down usury tomorrow or Saturday.
ReplyDeleteThere are apparently somewhat large international banks that run on Sharia laws on financing, including a big one centered in Malaysia. I just remember seeing an advertisement for it in The Economist magazine. I vaguely remember some reports about Islamic finance based institutions in Dubai too.
ReplyDeleteAnyway, would you say usury laws are akin to...financial regulation?
Probably more akin to monetary policy, actually - I'll try to comment more on this later.
ReplyDeleteTo make things clear - I'm not advocating usury laws. I just think this is one of those situations where we don't give people enough credit for being "wrong for the right reasons".
Hmmm...so it's probably more like Malthus' views on food production, then? Gets some parts of the big picture right, but not all or the most essential ones?
ReplyDeleteHow did that happen? Us agreeing. Alert the press! :)
ReplyDeleteDid I mention my new blog here? Sorry, all the moving, etc. has me sort of tired and memory addled.
ReplyDeletehttp://pacificcresttrail.wordpress.com/
Sorry about the self-promotion, but I'm an entrepreneur now. :)
ReplyDelete