Defending financial illiteracy

Or ... how lawmakers negate the need for discernment

I want to take just a moment to quote from one of my heroes who appears often on these pages: Leonard Read, the founder of the Foundation for Economic Education. In one of his articles, which I have quoted from time to time, Read writes of his early childhood at the close of the 19th century to “parents struggling to make a go of it on a small, Midwestern farm.”

If there were not many con men who tried to take us in, it was because the detection of phoniness was the price of survival. The con­ditions in which we lived bred into us an unrelenting skepticism. To be taken in by deception was a disgrace; to be ‘made a sucker of’ was to be identified with the unfit.

Our country school taught men­tal arithmetic, that is, how to do “figures in your head.” A good pupil could do 89 times 91 “in his head” nearly as easily as 2 times 2. This type of training made it hard on phonies; it was good pro­tection against knavery.

This recitation brings me to the Idaho Legislature’s consideration of House Bill 649 which supposedly would tackle the supposed scourge of certain payday lenders whose fees, when expressed as annual percentage rate, could be in double or triple digits.

An example presented was a loan of $300 for a term of 21 days. The borrower pays a flat fee of $18.50 on every $100 borrowed. So the House Business Committee members argued that this would translate to an APR of more than 300%,

I could get into the full debate and the misapplication of scriptural text to it, but Brian Almon does a good job writing about the controversy on his page.

Instead, I’d like to go back to the quaint life of Leonard Read, and what he wrote about himself and his rural farm family:

While we didn’t know very much about the wide world, we did have many simple beliefs. I chuckle now to think how my dad would have reacted had a college-bred bureaucrat dropped by, proposing to pay him for not growing crops. My dad knew little about political economy as taught now, but he likened all something-for-nothing schemes to the unauthorized shell games at county fairs to fleece the rural yokels. He would have “laughed his head off” had some­one proposed to secure his old age by forcibly taking funds from him, spending the proceeds on moon shots, and putting an IOU in the cash box.

Notice that it’s hard these days to find a young person, fresh from high school or college who could easily multiply 89 times 91. It’s practically impossible to find a person behind the counter of any store who can confidently make change. I blame the public education system, where 90% of Americans learned reading, writing, and math, the latter being certainly nowhere near the level that Mr. Read remembered.

Politicians managed the education system and the general dumbing down of Americans. In this system they’re taught that government exists to solve problems and protect people from bad decisions made as a result of the lack of knowledge. And so the population is constantly running to government with new and interesting dilemmas to confront, and legislators are left believing it’s their job to intervene.

I don’t discount the motives of lawmakers in this particular case. It is the latest in the long line of interventions. But isn’t it equally possible that by stepping in for every odd thing that comes their way, politicians are merely eliminating the quality of discernment that our parents, grandparents, and great grandparents prided themselves with having?

Read continues:

Knavery can thrive only where foolishness lacks strong opposition; it is hope­lessly out of business where there is a natural aristocracy of virtue and talents.

I’m of the opinion that for certain people, a short term loan with a fixed-rate fee from a reputable lender can be a good thing. For those individuals, it sure beats the alternative of turning to sketchy characters who inhabit dark alleys and threaten to take a finger off for every week you’re late on payments. Or the Internet equivalent thereof.

The problem asserts itself in greater proportion when the need for discernment fades, as any skill might, because an outside force — usually manifested as government — determines there is no need to exercise discernment. The call to outlaw a thing that is useful to one because it is dangerous to another, produces its own litany of problems.

As another great thinker, Thomas Sowell, has often warned: there are no solutions, only tradeoffs. Americans don’t save for retirement like they should because of the existence of Social Security. They don’t prepare for the possibility that they might be out of work one day because of unemployment insurance. They don’t eat or exercise like they should because government-run healthcare is a thing.

And at present: they don’t have to read the fine print because the government has done it for them; they’re protected from anything bad. No need to build sharper skills.

The constant effort to have government play the part of “protector” leaves — treating the world as a place that lawmakers must proactively fortify with soft cushions in case we fall — invariably makes people less inclined to be sophisticated about the world around them.