Author Archive

Is Debt Slavery?

Wednesday, May 2nd, 2012

“Debt is the slavery of the free.” (Publilius Syrus, Roman author, 1st Century A.D. and former slave). Ralph Waldo Emerson stated: “A man in debt is so far a slave.” I have been musing on the foregoing quotes and I agree that debt can be a form of slavery.

Here is my reasoning:

I will define slavery as the obligation to labor for the benefit of another. Like slavery, debt is also (1) an obligation; (2) to labor; (3) for the benefit of another.

(1) “an obligation” – The debtor undertakes a legally enforceable obligation to repay the loan with interest. The debtor-creditor relationship involves some coercion, inasmuch as the government will enforce the creditor’s right to collect the debt.

(2) “to labor” – Because most of us obtain money by working, an obligation to pay money (debt) is an obligation to work. When a person incurs debt, she is essentially selling a portion of her future labor.

(3) “for the benefit of another” – Interest benefits the creditor, and not the debtor. Interest is defined as “a charge for the use of credit or borrowed money.” (interest. (n.d.). Collins English Dictionary – Complete & Unabridged 10th Edition. Retrieved August 10, 2011, from Dictionary.com website: http://dictionary.reference.com/browse/interest.)

To the extent that the debtor incurs an obligation to pay interest, she has committed to labor for the benefit of the creditor. The degree of exploitation of the labor of the debtor depends upon the amount of interest the debtor must pay the creditor. Of course, creditors obtain additional revenue from debtors through means other than interest, such as through the imposition of various fees and penalties (e.g. fees for late payments).

Interest rates, the availability of credit, and the length of the term of many loans have increased in recent decades. These developments have substantially increased the amount of interest Americans pay. Interest rates and the availability of credit increased considerably after the decision of the United States Supreme Court in Marquette Nat. Bank v. First of Omaha Corp., 439 U.S. 299 (1978), which effectively invalidated the usury laws of the states. After Marquette, the credit card industry took off. Because lenders could compensate for a greater risk of default by charging higher interest rates, they extended credit much more freely.

The terms of many loans have also been increasing. For example, “[m]ost auto loans are over 6 years in length. This is double the loan term of a typical auto loan 25 years ago.”  (http://www.creditloan.com/infographics/a-lifetime-of-debt-the-financial-journey-of-the-average-american/.) In the mortgage industry, fifty year loan terms are increasingly common.

One source stated, “[o]ver a lifetime, the average American will pay over $600,000 in interest.” (Id.) If we ignore various complicating factors such as taxes, a person making $60,000 per year would dedicate ten years of his working life to pay $600,000 in interest to creditors. Although that $600,000 figure initially appeared high to me, it seemed more reasonable after considering that “[a]fter 30 years of making payments, a homeowner with a $240,000 mortgage loan will have paid over $580,000 on his/her house.” (Id.) It is clear that the average American dedicates the equivalent of many years of labor to paying interest on her debt. I wonder if it is still appropriate to characterize America as the “land of the free” where such a substantial portion of our lives is devoted to working for the benefit of our creditors.

Of course it is true that debt is often desirable. Many debtors are unquestionably better off because they used debt to finance the purchase of a home, obtain an education, or start a business. However, when we incur debt, we give up a portion of our freedom, as we obligate ourselves to work to benefit someone else. Whether debt should be incurred in a specific circumstance depends upon whether the benefit of receiving money now outweighs the costs that will result from the debt, including the loss of some freedom.

 

Federalism Protects Our Voice in Government

Thursday, July 7th, 2011

In the United States, federalism is the division of powers between state governments and the federal government. In the Constitution, the federal government was given power to make laws in certain areas, such as national defense, bankruptcy, and the regulation of the value of money. (See U.S. Const. art. I, § 8.) The states retained power to make laws in other areas, such as education, welfare, and criminal law. Federalism is sometimes referred to as the vertical separation of powers. The horizontal separation of powers is the division of power between the legislative, executive, and judicial branches of government.

Many of the founders believed that the concentration of political power is dangerous to our liberty: “What has destroyed liberty and the rights of man in every government which has ever existed under the sun? The generalizing and concentrating all cares and power into one body, no matter whether of the autocrats of Russia or France, or of the aristocrats of a Venetian senate.” (Thomas Jefferson, letter to Joseph C. Cabell, Feb. 2, 1816.) The diffusion of power that occurs in a federalist form of government is a powerful check on tyranny.

Federalism also protects one of the privileges we enjoy as citizens in a representative government: our power to influence government decisions through our right to vote. When political power is consolidated into one body, the ability of citizens to influence government policy is diminished. The following example illustrates this concept:

Suppose that a number of years ago, the federal government entered an area of law that previously had been a province of the states – I will use agriculture in this example. In regulating agriculture, Congress and a federal administrative agency promulgated a variety of laws and regulations. For example, one regulation limited the amount of land farmers could dedicate to the production of certain crops. Congress also passed a law prohibiting states from regulating agriculture.

Tom is a farmer in Utah. Prior to the passage of the federal laws regulating agriculture, Tom could influence agriculture policy in Utah by voting for candidates for state office, such as candidates for the state legislature. After passage of the federal legislation, Tom could influence agricultural policy in the United States by voting for candidates for federal office, such as Congress.

When the federal government asserted control over agriculture, Tom’s ability to influence agriculture policy in Utah was significantly curtailed. Let us assume that there are 1,530,574 registered voters in Utah, (State of Utah Elections Office), and about 146,311,000 registered voters in the United States, (U.S. Census Bureau, Current Population Survey, November 1996, 2000, 2004, and 2008). Therefore, about 1% of registered voters in the United States are from Utah. As far as influencing agricultural policy in Utah is concerned, the votes of people from Utah are now worth about 1% of what they were worth when agriculture was a state issue. I note that in a state where the average number of voters is close to the mean of about 3 million (146 million registered voters in the U.S. / 50 states), the votes of people from that state on agricultural issues are now worth about 2% of what they were worth when agriculture was a state issue.

After Congress began to regulate agriculture, Tom’s votes for Congressional candidates could influence agricultural policy in the entire nation. However, Tom has little interest in influencing agricultural policy in other states. He has a much greater interest in influencing agricultural policy in Utah because it directly affects himself, his family, and friends.

When the federal government took the power to regulate agriculture from state governments, the votes of people from Utah regarding agricultural issues became diluted to the point of practical insignificance. People from Utah essentially lost the ability to control agricultural policy in Utah. The consolidation of political power results in the effective disenfranchisement of citizens. This disenfranchisement is a subtle erosion of individual rights, and occurs when the principle of federalism is violated.

When Congress entered the area of agriculture, people like Tom felt relatively powerless to influence agricultural policy in their states, and became less likely to vote or otherwise engage in the political process. We should not wonder at low voter turnout where the federal government has increasingly taken over functions that were previously allocated to state and local governments. Since the early days of this country, the federal government has greatly expanded its reach into many areas, including education, welfare, agriculture, labor, healthcare, the environment, and criminal law. Various problems arise when citizen involvement in the democratic process is reduced. For example, special interests are able to exert greater influence over the political process, securing results that benefit themselves, even while the populace as a whole is harmed.

Although the example above examines the division of power between the national and state governments, a dilution of an individual’s political power also occurs when a state assumes control of an issue that should be decided by a local government. Therefore, it is also important be aware of this issue in state and local matters.

In conclusion, the concept of federalism allocates greater political power to the individual because the smaller the political unit, the more influence each vote carries. Federalism encourages citizen participation in the governing process by protecting our voice in government – our ability to influence the political process.

 

*Note:  In the example above I make the simplifying assumption that all individuals have an equal ability to influence policy with their votes.  In reality, all votes do not have the same weight.  For example, in elections for the United States Senate, the votes of people from less populous states have a greater weight than votes of people from more populous states, because no matter how many people are in a state, each state can choose two senators.