Asset Protection Strategies, STAFF NEWS & ANALYSIS
Roman Disaster Redux: Private Sector Collects Debts
By Staff News & Analysis - October 05, 2011

Obama seeks debt collector proposal … To the dismay of consumer groups and the discomfort of Democrats, President Barack Obama wants Congress to make it easier for private debt collectors to call the cell-phones of consumers delinquent on student loans and other billions owed the federal government. The change "is expected to provide substantial increases in collections, particularly as an increasing share of households no longer have landlines and rely instead on cell-phones," the administration wrote recently. – AP

Dominant Social Theme: Government is owed money and should "partner" with the private sector to collect it.

Free-Market Analysis: One of the signals that Rome was failing was when the emperors began to use private debt collectors to harvest government taxes and fines. Once the private sector made common cause with the public sector, the velocity of mercantilism increased dramatically. Private enterprise, being efficient, married itself to the public purse and endless viciousness ensued.

That was then. This is now … but the patterns are unfortunately reoccurring. As Rome failed, the differentiation between what the public sector sought and the private sector could deliver increasingly blurred. Instead of creating viable and valuable enterprises, the private sector now created wealth through public sector debt collection, and drove the public sector to create even levies. Here's some more from the article:

The little noticed recommendation would apply only to cases in which money is owed the government, and is tucked into the mammoth $3 trillion deficit-reduction plan the president submitted to Congress. Despite the claim, the administration has not yet developed an estimate of how much the government would collect, and critics reject the logic behind the recommendation …

The Education Department [already refers debts] to 22 private debt collection companies. The firms collected $685 million outright, and another $1.7 billion was recast into agreements that are designed to be paid monthly, according to the report.

According to written responses the department provided to questions, it hires private collection agencies in part so the government can gain "the benefits of greater collections" through the use of new technology that is developed by private industry. Collection agencies can receive a fee of as much as 17.5 percent of the amount they recover.

A different federal agency, the Federal Trade Commission, collects extensive records about the private debt collection industry in general. "The FTC receives more complaints about the debt collection industry than any other specific industry," according to an annual report to Congress, more than 100,000 in 2010. The complaints fall into several categories, citing alleged harassment, demands for impermissibly large payments, failure to provide required consumer notice and threatening dire consequences such as jail time.

Of course, this is just the point. Once private enterprise is married to government monopoly demands there is no end to the harassment that citizens can experience. Government officials will try to justify their use of private collections via a number of subdominant social themes about the need for government to collect its "fair share," etc., but the perception created by such activities will likely be extremely negative.

Mainstream historians often wonder out loud why Rome fell but the answers seem fairly clear. Rome disintegrated because her citizens did not wish to live under the Roman system anymore. In the end, the barbarians came and looted Rome without much resistance. Relentless harassment over taxes and unjustifiable garnishment were one reason.

The rich were endlessly attacked, and often given notice that they ought to take their own lives before the emperor commanded their deaths. They were told to rewrite their wills to leave everything to the empire. The preferred method of death included a sharp knife and a warm bath. One slit one's wrists and bled to death fairly painlessly. So revenue was harvested 2,000 years ago.

Today, of course, Western governments are not nearly so brutal. And yet … the pressure to collect revenue is building relentlessly, along with people's resentment. And in countries like Greece where austerity is married to soaring taxes and expanding garnishments, resentment has long since turned to violence.

Thanks in large part to the Internet, people are increasingly aware of how little "bang for the buck" they get from their tax dollar. Government does not do a very good job of making things work. From infrastructure to education to public utilities, bureaucrats lack the competitive discipline of the Invisible Hand and thus are not very effective, and neither are government services.

A great deal of money is simply wasted. Most people become aware of this at some point in their lives, especially in the era of the Internet Reformation where information on the way the world really works is increasingly available.

As government grows bigger, people grow more cynical – and in some cases rebellious. When government reaches out to the private sector for help in collecting debts, then the potential for increased antagonism rises significantly.

After Thoughts

People perceive the debts are illegitimate or extortionate and that private sector efficiencies are making matters worse. It is a recipe for increased social tension and ultimately for either violence or apathy, or both. Private debt collection of public levies is a sign of a failing empire. Will the lessons Rome can teach be internalized? Or will history simply repeat itself? …

Posted in Asset Protection Strategies, STAFF NEWS & ANALYSIS
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