Morning Must Reads: The Pennsylvania Senate Considers Payday Lending, Really?

Last week, the Pennsylvania Senate Banking and Insurance Committee held a hearing on payday lending. The testimony, time allotments and treatment of testifiers was biased in favor of the out-of-state companies seeking to permit the entry of storefront payday lenders in Pennsylvania by way of Senate passage of House Bill 2191.

This bill allows these lenders to enter the state because it raises the cap on interest rates on small loans from 24% to 369%. The Philadelphia Daily News has an editorial cartoon this morning that pretty much sums up the effect of permitting payday lending in Pennsylvania. The Patriot-News Editorial board calls opposition to HB 2191 a "no-brainer." Here is our own work summarizing why HB 2191 is a bad bill.

Mark Zandi is promoting a new book and answers a few questions this morning about economic policy choices made during the Great Recession.

Q: Was the public cost of the stimulus and bailouts justified?

A: Taxpayers have paid dearly, but they would have paid even more if policymakers had not been so aggressive. The bill for the government's response to the financial panic and Great Recession will ultimately total $1.8 trillion. This is huge; for context, it nearly equals the last two years of total economic output in Pennsylvania, New Jersey, and Delaware. And since the Treasury has borrowed to pay for this, it roughly doubled the nation's debt load.

But if policymakers had sat on their hands while the economy cratered, the cost would have been immeasurably greater. The Great Recession would have become a 1930s-style depression. Tax revenue would have shriveled and government spending would have ballooned automatically for existing income-support programs, forcing the Treasury to borrow far more than it did. We have big problems with deficits and debt that must be addressed, but those problems would be completely overwhelming if not for the government's aggressive reaction to the crisis.

From the State of Working Pennsylvania (PDF):

Were it not for the full range of federal interventions, including ARRA, Pennsylvania could have lost as many as 400,000 jobs, sending the unemployment rate to 15%. Instead, the state’s unemployment rate peaked at 8.7%, and employment loss over the whole of the Great Recession was 243,000 jobs.[1]

As job losses and cuts in hours of work accelerated in 2008 and early 2009, incomes generated in the market-based economy in Pennsylvania cratered. Between the 3rd quarter of 2008 and the 3rd quarter of 2009, incomes derived from providing services to the market economy declined by 7%. However, over this same period, disposable personal income per capita — the income available to Pennsylvania households to purchase goods and services — declined by just 1%. Government transfers, such as for Social Security, unemployment insurance or public health care and tax cuts, made the difference.

Figure 1.7 illustrates the impact of the recession and the federal interventions included in ARRA on personal income in Pennsylvania. The blue line represents personal income minus transfers per capita a proxy for the incomes earned in the market. The solid black line represents disposable personal income per capita or the income households have available to spend on goods and services. The dashed black line in between provides a rough sense of how important federal tax cuts, tax credits and ARRA benefits, like extended unemployment insurance and food stamps, were to preventing larger declines in consumer spending.[2]

If federal policymakers had sat on their hands in the wake of the recession, disposable income per capita likely would have declined by $2,500 between the 3rd quarter of 2008 and the 3rd quarter of 2009. Instead, disposable personal income per capita over this period declined by just under $400 per capita. Federal action blunted the decline in disposable incomes. But for deficit financed tax cuts and credits, enhanced unemployment, social security and food stamp benefits the decline in consumer spending in the private economy would have most certainly been greater than it was and as a result the Pennsylvania economy would have experienced significantly greater job loss than it did.

Although market-based incomes began to recover in the last quarter of 2009, they have yet to match their pre-recession peak — a reflection of the continued high level of unemployment still bogging down the economy.


[1] 243,000 is the number of jobs lost between December 2007 and the trough of employment in Pennsylvania which was February 2010. The official end of the recession was June 2009 as defined by the Business Cycle Dating Committee at the National Bureau of Economic Research (NBER). The NBER considers more than just employment in identifying business cycle peaks and troughs.

[2] It does so by assuming that the historic relationship between per capita disposable personal income and personal income minus transfers in Pennsylvania was maintained from 2008 to the end of 2011. If policy makers had not introduced deficit financed tax cuts and credits and expanded unemployment and social security benefits disposable personal income would have had to fall more than it did to reflect the loss of market based incomes in the economy.


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