A couple days ago, I saw this video of Sen. Lindsey Graham, a conservative senator from South Carolina, being pummeled by members of the “tea party.” The problem is that he is apparently not conservative enough.
You can hear the first questioner recommending that we basically dismantle the entire federal government to allow the “free market” to solve all our problems. It’s amazing to hear how prevalent this viewpoint is. I often hear it from conservative acquaintances, that government is in the way that the free market will take care of us much like God will take care of us, if only we would stop trying to help ourselves and just let good things happen. There is much evidence that this “free market fundamentalism” is pie in the sky, and it is also a dangerous way to think. And see this analysis and here.
The idea of free market fundamentalists, that good things will simply happen in a systematic way is based upon a huge mistaken assumption that all people are selfish and rational and that this selfish rationality will drive the system in a coherent way. This guiding principle of widespread rational selfishness is often referred to as homo economicus. Also consider that regulation, formal or otherwise, is prevalent throughout nature.
This week, I had two experiences which served as powerful evidence to me that people are not necessarily rational or selfish. Both of these situations involve houses, which are typically the single largest investment made by most people. Therefore, there is a lot at stake in these situations, and we should expect that if people are selfish and rational that they would act especially selfishly and rationally when it comes to something as expensive as a house.
The first experience concerns a married couple who bought a house two doors west of my own house in the City of St. Louis. They bought that house three years ago when it already needed considerable repair, but they did not move into the house after buying it, they have done no repairs on it, and it remains vacant today. Today, there are big holes in the roofs of the house itself and the garage. Shingles are falling from the roof. One of the exterior walls is badly
deteriorated and starting to bulge. They purchased the house for $240,000 (they overpaid considerably), but because they have done nothing to patch the roof, water has been pouring into the structure, causing mold to flourish on the inside. They have left at least one window open, allowing more water to pour in, and allowing animals to live in the structure. At bottom, the structure is starting to collapse. Some of the neighbors and I have worked hard to get these owners before the city housing court, in order to force them to fix up the property to preserve it. To make things worse, my neighborhood is an historical district which involves a strict preservation code.
In front of the housing judge on Tuesday, the owners showed up and were angry that the neighbors were making them try to fix up their property to comply with the housing code. The judge explained to them that their property has deteriorated severely and that they were essentially watching the collateral to their mortgage be destroyed by doing nothing. The judge urged them to sell the property “as is” to someone who would be willing to rehab it, if that is even possible at this point.
The bottom line is that this house, which was purchased for $240,000 three years ago, is now worth about $100,000. The owners are upside down in their house (they owe much more on their mortgage than the house is worth), and they allowed this situation to become what it now is through their own lack of involvement. They asked the judge to basically to leave them alone to allow them to do nothing at all, such that the house would completely collapse and be worth less then zero. I would contend that this behavior is not rational.
Here’s the second recent incident–this one reminding me that an economic system that depends on people being selfish is woefully incomplete. Yesterday, I worked for Habitat for Humanity, as part of a group effort arranged by my law firm (I was working for the day with a team of about 12 employees of my law firm). This particular build site is in north St. Louis, where Habitat for Humanity built 24 new modest houses last year and it is building about 20 more this year.
The people who will live in these houses are required to purchase them, but they are allowed to buy them for merely the cost that it takes to build them. In other words, there is no financial profit tacked onto the sales price of the houses. Further, much of the work building these houses is done by volunteers. I volunteered for one day, and it was a wonderful and fulfilling experience, but my work was nothing compared to the work of many of the volunteers. For instance, I met one man who has volunteered every Wednesday for the past 12 years. He has been part of the building of hundreds of homes that have served the needs of many needy families.
Habitat for Humanity, an ecumenical Christian organization, not only sells these low-cost houses to the folks that need them, but provides them with no-interest loans, and trains the new owners on how to maintain their houses and manage their budgets. It is a wildly successful program that depends upon hundreds of volunteers and contributors not being selfish.
I was going to comment about the difference between God and The Free Market (besides God not existing while TFM does), but then I realized that TFM doesn't exist either as an entity. It is just another God-type anthropomorphous container concept that is used to shove personal responsibilities onto. Methinks……
The video demonstrates that people are ignorant. The interference and costs most people complain about are entailed when a private concern violates laws and the government moves in to remedy the situation. What happens? Court involvement. The private concern, rather than abide by the law, fights the government, which drives costs up and up. The expenditures on litigation in these instances often exceed the costs of just fixing the damn problem. People seem to think that if the government did nothing, there would be no costs. Obviously, as in the example of the irresponsible couple and the house collapsing, this is simply not the case.
Many Americans approach these issues with an unspoken combination of good intentions and "let someone else pick up the mess" which defies all logic.
Combined with the hobby horse of conspiracy theory, you see the result—any attempt on the part of the government to solve a problem is seen as a takeover, but none of these people seem to pay any attention to the infractions on the part of private business. All they seem to be saying is "We have a right to fuck things up and go our own way."
Children.
Well stated Planeten Paultje, Erich and Mark.
One thing I have stated for some time now is that property only exists as far the government regulates it. Without regulation you have no ownership other than that which can be enforced by violence. (In the case of government, you have a monopoly of violence that is enforce on behalf of the individual). To state that free economies create maximum freedom is a fallacy, if your only freedom is the ability to buy, do you have freedom?
Of course the mixing of labor to own land always kind of appeals to me as no one could own land that they weren't personally working on:)
But the weirdest thing with market fundamentalism is that systems do exist that fit their ideals. We call them 3rd world countries. It is strange, we build our economies to match the 3rd world, and we get a 3rd world.
The shift in this country is amazing. When America was #1, our leaders said, "we owe it all to America", and that we had to give it back. Now we get the "I did it all myself and screw you". American exceptionalism is part to blame, the "We are #1 cause we are America" attitude. We were #1 cause we stood up and looked at what other people were doing, learned from it, and did it better. The just cause attitude destroyed our ability to compete cause we began to think we didn't have too.
Jay: Consider a quote that inspired me, but which would be scoffed at by the free marketers and Ayn Randians. These words were spoken by John F. Kennedy:
"Ask not what your country can do for you – ask what you can do for your country."
Class action suits are a free market adjustment. In one of the cases in which I was an unintentional participant, I had been damaged to the tune of $5,000.00, and I received a settlement payment of $28.77 for which the law firm probably received tens of millions for their few months effort. I'd been offered the option of being a named participant, but declined to actively sue a bankrupt investment company.
Government regulation of the active free market in toxic asset trading over the last half decade would have saved them the trouble, and me my money. But who wants that?
Jay,
Way back in the beginning, the one thing that we took seriously here that it took the rest of the world a very long time to get equally serious about (and many places still haven't gotten there) is the question of ownership as fundamental right. The King could take anything away from you, and the further down the social ladder you were, the easier it was. While certainly we didn't do it perfectly, we made it reliable that when you acquired ownership, the system would back you. (Yes, I'm aware of dozens of work-arounds that plague people all the time, but I'm speaking in relative terms now.) That was unique and remained so for a long time and has been the basis for the so-called American Dream—and it is at the bottom of peoples' fears that they will lose that if the government "takes over" something. Mindless, of course, that the only reason the right exists in any meaningful sense, as Jay points out, is because the government guarantees it.
Dan:
You've raised something that seems tangential to this post, but it compels a response.
Many types of civil lawsuits, both individual cases and class actions, "regulate" the market. I'm not going to defend all of the class action settlements that have ever occurred. There have been many abuses over the years. A friend of mine received a 12 cent settlement check for securities fraud. It probably cost $10 to process his claim and send the check. It sounded ridiculous, though maybe other investors suffered much greater losses. It wouldn't be so laughable if you and thousands of other investors had each recovered $1,000, even if the law firm got a fee that amounted to 20% of the recovery. Would it be better if there was no such thing as a class action, and the company that committed the fraud kept many million in illegal funds?
There are many advantages of class actions for consumers. http://en.wikipedia.org/wiki/Class_action Consider how you could be ripped off for small amounts, with no remedy, if the class action vehicle didn't exist. Would that be more fair than having a class action procedure that is sometimes abused?
Class actions serve the important procedural goal of providing for the just and efficient resolution of large groups of similar claims. Bringing a suit as a class action does not alter the substance of claims or the remedy permitted, but simply governs the method by which plaintiffs pursue their claims.
Full disclosure: I am an attorney who has filed class actions. Many of my cases are against predatory lenders such as payday lenders (who charge as much as 500% interest), where the relatively small damages per customer (often less than $1,000) means that no individual customer would ever be able to bring a suit, even if he or she was blatantly defrauded. We are heavily litigating some of these cases at my law firm. We go up against some of the biggest law firms in the country and it is not easy work. I am proud of the work that I am doing, and I don't expect to ever have anyone claim that I received an unfair attorney fee based on an insignificant recovery. In fact, the 2005 federal Class Action Fairness Act addresses most of the abuses that have been highlighted in the past by the media.
In sum, not all class action are like the one you mentioned, and far fewer of them are like that in the wake of CAFA. Finally, I would suggest that class actions often regulate the market in ways that sorely need to be regulated. The next time that you feel ripped off by a merchant for an amount of money that seems too small to do anything about it (a $10 illegal fee a bank charges to each of its 800,000 customers, for example), don't just get mad and throw away the bank statement. Consider contacting a class action attorney and seeing whether you could serve as a class representative to disgorge some of that $8,000,000 in illegal profits from the bank and teach that bank to stop engaging in that practice.
Thanks for the support everyone and listening to my ranting.
Erich : For these smaller lawsuit amounts, isn't small claims court appropriate.
I believe this is what has been happening with these peoples.
http://www.youtube.com/watch?v=PUXRBehEuH0
Jay: We are handling one case where 400,000 were ripped off by a big payday loan company. The laws are complicated and most of the people (they are typically the working poor and the poor) have no idea that the company ripped them off. The violations include excessive renewals in excess of that which is allowed by law, failure to require a reduction in principle during each renewal, failure to screen the borrows to make sure they had the ability to repay these 469% loans and other violations. Therefore, they don't even know that they were victimized. If they did, they would all have to visit court individually, which requires filling out a petition by themselves (but they don't know that they have been victimized). Then, we'd need to have 400,000 individual hearings.
Or we could have one class action and we could resolve all 400,000 claims at one time with one trial that would last a few days.
Small claims court is a terrific option for many people, but when we know that huge numbers of people have all been victimized in the same way by the same company, a class action (or a class arbitration) can be an extremely efficient way to resolve all of those claims at once.
Erich: Was not aware of the details. 400,000 is a LOT of people to be ripped off, and frankly, I REALLY don't like the payday loan industry, you are definitely doing the right thing their, kick their asses several times over for me:).
The payday loan people are kinda like the S&L in the 80's, the, "were not banks so you can't regulate us though we lend money at interest" type crap. I believe I heard a couple years ago that payday loans have won in court in such a way that prevents interest rates from being regulated by the Fed?
Interest rates just shy of 500%, that is beyond absurd. Seriously, how sick do you gotta be to charge that much interest?
And I better not hear how their founder is a good Christian or anything like that, the non-conservative bible project version of the bible forbids lending at interest. Hmmmmmm…now I'm wondering how Schlafly and crew will rewrite that part.
Uh, back on topicish. Yeah, small claims is a great option that I wish more people were educated about, but seeing as how the massive scale of the ripoff you are dealing with go for it, justice is not automatic as they say. Keep us updated on that case.
400,000, *DAMN*!