Though I’m sympathetic to David Brooks’s column on debt, I think Noah Millman is making sense. I strongly agree with his prescriptions, particularly his stalwart advocacy of a VAT. I’d just like to add one minor point.
I do think it would be a good idea to crack down on predatory lending and so forth. But advocates of doing this should recognize that this will not suddenly make lending available at better terms; it will mean less lending to a given class of people. If we’re talking about college students, that’s probably a good thing. If we’re talking about laid-off workers, maybe not. Similarly, I have friends who are involved in establishing nonprofit credit unions to provide small loans to people who can’t get credit at a traditional bank, and shouldn’t have to rely on (legal or illegal) loansharking to get access to capital. These kinds of institutions can also do a lot in terms of financial education.
There is a long tradition of anti-usury laws in the United States. There is also a long tradition of laws criminalizing prostitution as well. Some favor legalizing and regulating prostitution as a harm-mitigation strategy. Payday loans are, to some extent, filling a niche that was once occupied by racketeers and loansharks. I think banking the unbanked is a very important goal, and I favor spending more of my (and your!) tax dollars on it. (Don’t worry, I favor spending less on other things.) I also think nonprofit credit unions should be encouraged. But the Banfieldian distinction between those with short time horizons and long time horizons is important to keep in mind — we can’t eliminate short time horizons through legislative fiat, and we should be wary of the consequences of pushing the payday loan trade back underground.