THE PROBLEM WITH PAYDAY LOANS

Posted in Rants on April 27th, 2009 by Ed

Desperate for a leader or at least a visible public figure who doesn't humiliate the entire movement, conservatives have recently rekindled their love for Margaret Thatcher. One of the Iron Nitwit's quotes has been making the rounds lately, popping up on t-shirts and bumper stickers hawked by people who lack the creativity to come up with their own slogans: "The problem with socialism is that you eventually run out of other people’s money." Interesting logic. Let's run with it.

Indiana Governor Mitch Daniels became something of a hero for the Cato Institute crowd while igniting a fierce controversy here in the Hoosier state when he announced a plan to auction off the rights to Indiana's toll roads. For a one-time payment of $3.8 billion dollars, the state surrendered the rights to a Spanish transportation conglomerate for 75 years. The system was making $160,000,000 in revenue annually. Indiana drivers (and long-haul truckers serving the state) have noticed no change in quality of the road conditions, which is good. They have noticed that all of the tolls have doubled, which is bad. So everything's the same except that the state no longer makes money from the endeavor and it costs more for the same services.

In Chicago, Mayor Daley and the county board are in the midst of an orgy of privatization as they desperately try to un-bugger municipal budgets that are bleeding red. Daley leased the city parking meters to Morgan Stanley for $1.16 billion – and rates immediately quadrupled. This is in addition to the 99 year lease on city parking garages that Da Mare sold Stanley for $563 million in 2006. And in September the city accepted a $2.52 billion bid on Midway Airport from a Citigroup-led team of investors.

As municipal governments across the country run out of revenue, this kind of cannibalization of assets will only become more common. Minnesota legislators are suggesting a "garage sale" of municipal assets starting with the airport, and in Texas they think that privatized roads are about the greatest idea since beer helmets. All of these transactions follow the exact same pattern: state surrenders revenue-generating asset to private bidder, private bidder forks over some up-front cash, and the costs to end users, i.e. you, double or triple.

Basically it's a payday loan. Only worse. And the problem with this strategy, as Ms. Thatcher would no doubt point out in the interest of ideological fairness, is that eventually you run out of shit to sell.

Only two kinds of people take out payday loans: the desperate and the phenomenally stupid. These state/local governments are among the former (and perhaps the latter, but for different reasons). I think they realize that the assets they're selling could produce more revenue over the life of the leases than the pittance they receive up-front, but…they need money now. As each dollar one borrows from Check-and-Pawn Express takes three or four future dollars out of one's wallet, each asset sale deals another blow to states' ability to generate revenue in the future. Draw your own conclusions about how pathetic it is that our governments are now responding to the same incentives, and in the same way, as the urban poor.

I see no conservative tears being shed over this future-mortgaging exercise in fiscal irresponsibility largely because, as usual, it is only the sacred ideology that matters. The Free Market is better than public ownership; so was it written, so shall it be. Why bother worrying about the fact that Chicago could make ten or fifteen times as much profit over the 99 years for which they've sold off city assets. Like a starving person, they can no longer conceive of a future and are beginning to digest their own organs in a desperate effort to get through the next minute, the next hour, or perhaps the next day.

So you get screwed and the Free Market wins big. Stop me if any of this sounds familiar.