lmm 1 hour ago | parent [–] | on: The World After Capital (2018)
>> For tribal chiefs, food probably wasn't scarce. For kings and lords, land was not scarce. For industrialists, capital was not scarce.
>On the contrary, kings and lords were acutely aware of how much land they had and devoted much of their energy to amassing more. Likewise for tribal chiefs and food, and presumably likewise for industrial. They had more of it than others, sure, but it was scarce for them: it was the limiting factor on what they were doing.
I'm sure that Bezos or Musk are also acutely aware of their capital, that does not mean that they have any scarcity.
>Right, but at that individual level too, capital isn't really the issue these days. You can get a loan for anything, anyone can get a credit card. If someone wants to improve themselves, it's rarely capital that's the limiting factor - it's more likely to either be time, or something a bit more complicated.
I think you seriously underestimate the difficulties that come with being poor. There are lots of studies that show that the primary problem with poverty is actually lack of funds. There have been many projects that showed that giving poor people money with no strings attached has higher success rates than anything else. Also your advice of getting loans or credit cards is quite unrealistic and shows you the cost of being poor. The loans that a poor person will get are essentially so expensive that the only thing they do is making them poorer.
> The loans that a poor person will get are essentially so expensive that the only thing they do is making them poorer.
One thing I haven't understood is the idea of charging high interest on poor debtors.
Conceptually the problem is simple. The debtor must repay the entire sum. What if the debtor is unable to do so? It would imply that the debtor is only able to repay the sum partially. But here is the problem. How does charging high interest help the debtor repay the loan? It doesn't. The only difference is that the bank gets the money sooner rather than later. You borrow $1000 and repay $800 and then default. -20% interest for one year. Clearly a bad loan.
The bank charges 30% interest on your credit card. You still only repay $800. The bank got your money sooner. So the only explanation for this is that the high interest rate discourages bad debtors (it clearly doesn't otherwise people would have stopped borrowing at a much lower rate like 10%) or there are people who can repay the debt even at excessive interest rates. They ask family or friends to chip in and a lower interest rate would not put enough pressure on people to take money from someone else.
Debtors aren't just divided into "can pay" and "can't pay", there's a huge category in there of "can meet the minimum payment required to avoid default (and potential legal problems) for a very long time".
There's other categories, but high interest debt (e.g payday loans) is targeted at that one: it locks them into a situation where they will nearly perpetually have to pay a small amount to the debt issuer, while their total debt rises.
The high rate is there to increase the probability that the debt will "lock on", even for small sums. This way, even if they manage to land a windfall someday, it often won't pay back the full interest owed, so they remain in debt and, crucially, making regular small payments upon which the debt issuer relies -- it's basically a SaaS model.
In this way, a person who just needed $200 once can end up paying $2500 over a multi-year period before somehow escaping or defaulting -- and that's why the bank does it, to maximize return.
The person who borrows $1000 but can only get back $800 ever is rare -- the person who can only get $1000 back over the course of 16 weekly payments of ~$60, and can somehow then go on to keep paying $60/week for another full year, is common.
They're not making money from the person who defaults (well, maybe if they default after a long series of payments). They're making money on average by lending to a lot of people, of which only a subset default. If you look like a bad risk, you pay more to subsidize all the people who also look like bad risks and will actually default.
> I'm sure that Bezos or Musk are also acutely aware of their capital
I'm not. I suspect they're paying a lot more attention to who they have working for them, their regulatory situation, particular projects....
Put it this way: when Rockefeller decided to build a new factory, his first question would've been "where's the capital coming from". When Bezos or Musk decide to build a new factory, what do you think is the first question they ask?
> There have been many projects that showed that giving poor people money with no strings attached has higher success rates than anything else. Also your advice of getting loans or credit cards is quite unrealistic and shows you the cost of being poor. The loans that a poor person will get are essentially so expensive that the only thing they do is making them poorer.
I wasn't giving advice. But I think your studies are taking a naïve approach - that kind of program inherently selects for the kind of person who gets access to that kind of program, which is immensely class-loaded.
>> For tribal chiefs, food probably wasn't scarce. For kings and lords, land was not scarce. For industrialists, capital was not scarce.
>On the contrary, kings and lords were acutely aware of how much land they had and devoted much of their energy to amassing more. Likewise for tribal chiefs and food, and presumably likewise for industrial. They had more of it than others, sure, but it was scarce for them: it was the limiting factor on what they were doing.
I'm sure that Bezos or Musk are also acutely aware of their capital, that does not mean that they have any scarcity.
>Right, but at that individual level too, capital isn't really the issue these days. You can get a loan for anything, anyone can get a credit card. If someone wants to improve themselves, it's rarely capital that's the limiting factor - it's more likely to either be time, or something a bit more complicated.
I think you seriously underestimate the difficulties that come with being poor. There are lots of studies that show that the primary problem with poverty is actually lack of funds. There have been many projects that showed that giving poor people money with no strings attached has higher success rates than anything else. Also your advice of getting loans or credit cards is quite unrealistic and shows you the cost of being poor. The loans that a poor person will get are essentially so expensive that the only thing they do is making them poorer.