Wednesday, March 09, 2005

Krugman: we must protect state-worshippers

Donald Luskin yesterday cited a couple of readers' responses to Krugman's latest Times op-ed. One reader critiqued the skewed study that Krugman cited, and the other described his experience as a veteran in bill collections. Not only does the study have a really screwball definition of "medical emergency," Mr. Williams' experience is that personal bankruptcies stem from simple overspending.

Krugman mentioned Jacob Hacker, who's not just any old bleeding-heart liberal: he's a Yale political science professor, an author and contributor to things like Washington Post and New Republic, and a big believer in universal health care. Hacker's so "out there" that one Amazon reviewer of Road to Nowhere book gushed, "What Noam Chomsky is to politics, Jacob Hacker is to American Health Reform in the 1990s." So now we see the motive behind Krugman mentioning Hacker and his flawed concept of "privatized risk":
...a steady erosion of the protection the government provides against personal misfortune, even as ordinary families face ever-growing economic insecurity.
Translated: "The state should protect you from the consequences of all decisions you make." Just make sure you're a good little state-worshipper, and it'll take care of you.

I'd really like to know what this "ever-growing economic insecurity" is. The Fed's beige book released just today states U.S. economic activity is expanding:
The nation's employment climate improved, shoppers rang up sales and factories boosted production last month, fresh signs that the economy is chugging ahead at a respectable pace.
An expanding economy is "ever-growing economic insecurity"? Does Krugman live in Wonderland, where everything is upside down, and words mean what you want them to mean?

My view on the proposed restrictions on bankruptcy filing is that it's about time. Call me a hard-hearted bastard, but I look on the relative ease of bankruptcy filing as a moral hazard. It encourages people to take on more debt than prudence otherwise dictates, because while they probably don't consciously want to run up debt, they know there's a way out if they get in over their heads. Exceedingly few people are intentionally irresponsible, and of course not many intend to get in over their heads. But if people weren't subconsciously aware of the options of easy bankruptcy and credit consolidation companies, they'd be extremely cautious about accepting any credit card. "I don't think I'm careful enough to get this card. I think I'm the overspending type, and I might have to sell my house to pay it off."

I'm sure some will say, "That's easy for you to say, you probably never faced tough times." Oh, but I have. To quote President Bush, "When I was young and stupid, I was young and stupid." It now seems so long ago, though it wasn't, and that young man's foolishness seems so foreign to me: I overspent, and on all the wrong things, not realizing how quickly it would catch up with me. I was 20 years old, had a relatively good income, and almost simultaneously, three separate companies offered me several thousand dollars in credit. You're young, you never before had that much spending power, and nobody ever showed you how much minimum monthly payments can be -- or how long it takes to pay off balances by paying just the minimum.

Some accuse credit card companies of predatory practices in bombarding people with so many offers. Another accusation of predation is the targetting of college students, because card companies know that parents will usually have to co-sign. There is merit to both of these, but I don't believe there should be laws against these practices. Absolutely not. It takes two to tango: people don't have to accept the cards, nor do parents have to co-sign. Also, how do you define those laws? "Companies may not market to students attending college who may spend irresponsibly." Should there be an age limit, and how do you define "irresponsibly," or another laws that says companies can't target people who aren't "creditworthy"?

If you think your son or daughter who's just starting college will be even the tiniest smidgeon irresponsible in using a credit card, then don't co-sign on a real credit card. Give them a Visa or Mastercard debit card tied to a checking account, and transfer money into it as needed. Allot them a specific amount every month, no more, and you'll be amazed how they'll learn to budget and spend prudently.

I once said on Jackie Passey's blog that as long as we're stuck with public schools, let's make a new high school requirement: one semester in personal finance, with a "C" or higher required to graduate. This is certainly not beyond the comprehension of teenagers, because after all, the Boy Scouts have a merit badge in just that. The BSA calls it Personal Management and requires it to get the Eagle rank. I never did complete that merit badge, let alone my Eagle, and I must say, that badge now is a lot harder to get than I remember. It's good stuff that every teen should learn, and can learn.


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