Thursday, September 24, 2015

Under our radar

This is Joseph

Mike Konczal has been quietly doing some great analysis about student loans and their implications for financing higher education costs.  One thing that has been quite interesting is how he points out that no such market can be designed without government intervention.  He even points out the main free market solution actually increases government oversight:
You’ll be happy to note that Kelly is against any kind of usury regulation and bankruptcy protections for ISAs. That would interfere with the market. The thing where he describes building a joint government–creditor surveillance state, where the IRS uses its extensive power to consistently feed all of your personal information to debt collectors in real time to assess the earnings they need to collect? That’s just normal for markets.
The exact quote is:
An ISA servicer cannot efficiently verify a recipient’s income, particularly in real time, without the involvement of the recipient’s employer or the involvement of a governmental agency that can withhold wages. The former is difficult because of privacy concerns and confusion with prohibitions on the assignment of wages. With data from the Internal Revenue Service or Social Security Administration, the Department of Education could provide ISA servicers with the information they require. 
This tends to reinforce my view that there is no such thing as a completely unregulated market.  Even a place without formal enforcement mechanisms (e.g. medieval Iceland) had the strength of convention and informal rules of conduct. 

Generally speaking, something has to act to create markets and large markets (with a high potential for fraud) really need that to be something that looks like a government.  So there is no question that the government will be interfering in markets (e.g. to prevent fraud) and the real question is how extensive will this involvement be.

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