Regulations hurt consumers
Regulations are usually created by large commercial interests capturing a regulatory body in order to make it harder for the competition to enter the market and compete (bootleggers) or by ideological nannies who are well-intentioned but counterproductive, which makes it harder for some existing businesses to compete (Baptists). Economist Bruce Yandle created this public choice classification in his book Bootleggers and Baptists.
The Nevada Gaming Commission recently ruled that only Nevada casinos can operate a fantasy sports game in the state, making such popular internet sites as Fan Duel and Draft Kings inaccessible to Nevadans. This was a move by Las Vegas casino magnate Sheldon Adelson and other bootleggers to keep new competition out of the Nevada market.
In 2014, Republican Rep. Jason Chaffetz of Utah and Republican Sen. Lindsay Graham of South Carolina sponsored a bill written by Sheldon Adelson’s lobbyist to redefine the Wire Act of 1961 to prevent online gambling as well as sports betting in Nevada and other states. Graham, a self-described “libertarian with different tactics,” complained that legal wireless internet gambling was undoing his state’s removal of 33,000 video poker machines from within its borders since they were banned in 1999. Graham whined that now anyone with a cell phone could play video poker. To morality-regulating Baptists like Graham, technology is just not fair because it runs rings around the ability of the state to tell people what’s bad for them and use force to keep them from doing it.
Why is internet sports betting banned? Well, why can you gamble against the spread in Verdi but have to drive to Truckee to buy a lottery ticket? The states may be laboratories of democracy but sometimes that just proves democracy sucks for consumer access to new options the ever-creative markets are providing.
Left-wing nannies are rearing their Baptist heads with a new initiative by the Elizabeth Warren/Bernie Sanders wing of the Democratic Party’s favorite new toy, the Consumer Finance Protection Bureau, to destroy the payday lending industry. Payday lenders are more popular than McDonalds. Instead of inquiring into government policy that helped create so many lower middle class folks who need a small loan without having much credit, the focus in good regulatory Baptist fashion is on the sins of the moneylenders, not the needs of the consumers. There are so many payday lenders because consumers need them. Unlike the state, payday lenders don’t get their business at the point of a gun.
There has been a prejudice against lending money with interest for thousands of years. One reason why the Arab Middle East has few large businesses except for oil is because interest is still officially prohibited in most Muslim countries. It was only in the 19th century that economists arrived at the best reason for interest: The moneylender is giving up the use of his money in the present, in the hopes of receiving a larger sum in the future. The borrower receives the immediate use of the money but will repay more later. It’s all a matter of time preferences. Greed, at least in free markets, has little to do with it.
Sen. Rand Paul, R-KY, who understands finances better than most politicians, says interest rates are important because they send signals. High interest rates for a short-term cash loan reflect the higher possibility of default because the borrowers do not earn or possess that much. But they are people who need the immediate cash. If the Warren/Sanders Democrats succeed in strangling the payday loan industry, they will hurt, not help, the most vulnerable among us.