Words are not the only things that enable political rhetoric to
magically transform reality. Numbers can be used just as creatively—
and many voters are even more gullible about statistics than they are
about words, apparently because statistics seem more objective.
The latest Congressional crusade is to clamp down on small finance
companies that provide "payday loans" and check-cashing services in many
low-income neighborhoods where there are few banks.
A common practice in making small loans of a few hundred dollars for a
few weeks is to charge about $15 per hundred dollars lent. Politicians,
the media, community activists and miscellaneous other busybodies are
able to transform these numbers into annual percentage charges of
several hundred percent, thereby creating moral melodramas and demands
that the government "do something" about such "abuses."
Of course, these loans are seldom borrowed for a year. They are often
loans for a couple of weeks or less, to meet some difficulty of the
moment by people who live from payday to payday, whether they are being
paid by a job or are receiving checks from Social Security, unemployment
compensation or welfare.
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The alternative to getting a payday loan may be having the electricity
cut off or not having money to buy some medication. It is worse to
borrow from illegal loan sharks, who have their own methods of
collecting.
While $15 per hundred dollars may sound like a high rate of interest, it
is not all interest. The finance company incurs costs just to process a
loan, and these costs are a higher proportion of the total cost for a
small loan than for a large loan.
When Oregon imposed a limit of 36 percent annual interest on what a
finance company could charge, that meant charging less than $1.50 for a
hundred dollar loan for a couple of weeks. A dollar and a half would
probably not even cover the cost of processing the loan, much less the
risks of default.
Not surprisingly, most of the small finance companies making payday
loans in Oregon went out of business. But there are no statistics on how
many low-income people turned to loan sharks or had their electricity
cut off or had to do without their medicine.
This is just one of the many ways in which self-righteous busybodies
leave havoc in their wake, while going away feeling noble.
Statistics played a key role in creating the housing boom and bust that
led to the current economic crisis. Back in the 1990s, politicians, the
media, community activists like Jesse Jackson and others all made a lot
of noise about statistical studies showing that (1) non-whites had lower
rates of home-ownership than whites, (2) were turned down for mortgage
loans more often than whites, and (3) resorted to more expensive
subprime mortgage loans than whites.
All this led to pressures and even quotas for banks to lend to more
low-income and minority applicants. That in turn led to lower mortgage
lending standards, more risky mortgages, higher default rates and the
collapse of financial institutions that bought these more risky
mortgages or securities based on them.
We have seen and heard the same kinds of things when statistics about
other racial differences have been cited in the same strident voices
when other statistics showed blacks laid off more than whites during
economic downturns or the children of black women having higher infant
mortality rates than the children of white women.
What we have very seldom seen or heard in such parading of statistics
are other statistics— which are readily available— showing that (1)
whites are turned down for mortgage loans more often than Asian
Americans, (2) whites resort to subprime loans more often than Asian
Americans, (3) whites have been laid off more in a downturn than Asian
Americans, and (3) the children of white mothers have higher infant
mortality rates than the children of mothers of Filipino or Mexican
ancestry, even though these mothers receive less prenatal care than
white mothers.
In other words, numbers do not "speak for themselves." Politicians, the
media and others speak for them— very loudly, very cleverly and often
very wrongly.
