I'm not sure exactly how to demonstrate the fairness to you if you don't see it in the above hypothetical case, esp if you agree that you wouldn't "lend" your entire retirement to a poor credit risk individual. I'll take one more shot at it:
In order to attract prudent capital to a riskier investment, the projected rate of return must be higher than that of any available safe, or safer, investment. IOW, to lend to "high risk" customers, the credit card company has to charge some form of higher fees or rates. If they don't elect to offer lower rates to the "low risk" customers than those that they have to charge the high-risk customers, then someone else will come along and cherry-pick the low-risk customers.
Said only slightly differently, why would anyone choose invest at arms-length in something riskier if there were a safer alternative available with an equal rate of return? They wouldn't, and any attempt to compel them to do so via regulation is unlikely to produce a result that you'd be happy with. It will either dry up credit for everyone, dry up credit for only the riskier potential patrons, or result in #1, followed by the demand for changes to the bankruptcy laws to enable creditors to safely lend at the mandated terms to all comers. I doubt that any of those will be a net benefit to society, except possibly the second, which would still result in extreme short-term pain to lower economic status individuals, who are disproportionately represented in the "high risk" cohorts of the market.
You are explaining why the lender makes more money by doing X or why they cannot possibly survive without doing X or why it is financially prudent or their fiduciary responsibility....
That has nothing to do with fair. At least not a definition of the term outside of the rules of the market. If you define fair as 'legal' or 'in keeping with free market economics' then sure, it's fair.
Perhaps it would be helpful to propose some alternative situation-specific metric of fair to help me understand what you're not understanding about what I'm saying. To you, how would you define "fair" so as to create a stable system in a way that's fundamentally different from "in keeping with free market economics"?
In a free market of lenders and borrowers, "fair" is whatever each party agrees to enter into acting in their own best interest. If the lender thinks the terms are "unfair" to them, they don't lend. If the borrower thinks the terms are "unfair" to them, they do not borrow. Therefore, if a lender lends to a borrower, both parties have agreed that the deal is "fair".
If a borrower finds that no one will lend to them on terms the borrower likes and then freely decides to loosen their standards and borrow anyway, I don't see any unfairness at work, rather that the borrower has updated their own concept of what a "fair deal" is, in order to borrow the money they want.
He is talking about statistically risky groups. Someone who has had >X accidents (regardless of fault) is statistically riskier to insure to drive. As are males between certain ages. I'm sure you could find all sorts of links between ethnic affiliation, schooling history, level of education that identify individuals as statistically riskier to loan to.
These all pass his (& your) fairness test. IE, you make more money (or lose less) by not lending to them, or lending at higher rates. It passes the market test. For the individual who gets told that Mongolians from Sweden pay an extra 3% if they where shiny shoes, it may seem unfair.
Your use of "fair" (whatever each party agrees to enter into acting in their own best interest) is the same as saying 'what's fair got to do with anything.' By your definition, price gouging is fair. Monopolies are fair (unless you want to mark your definition of fair to conventional free market wisdom pretty pedantically). There is no such thing as unfair or obusive practices.
Fair is unnecessary to describe the ethical world you are referring to. Coercive/noncoercive will suffice.
In this case you agree with me on all but semantics: 'what's fair got to do with it? Free markets dissolve the concept.
That's helpful in explaining your and my disconnect. I suspect that you are I are pretty much talking to each other at this point, which is more than fine with me, as I find it quite interesting.
> For the individual who gets told that Mongolians from Sweden pay an extra 3% if they [wear] shiny shoes, it may seem unfair.
It may seem unfair to that person, but if it's wrong (meaning not borne out by the facts/stats), then another insurance or credit card company will almost surely come along and offer Swedish Mongolian shiny-shoe wearers deals at par, or even at a discount, to what the 3% surcharge company offers. In other words, if a company significantly overprices a given risk, that's just bad business or bad judgement, but it's not unfair. Similarly, if they underprice the risk, that's also not unfair, just bad business/judgement. Wherever significant price deviations are present and leaving money on the table, a competitor will come in to address the consumer need. And if they don't, then that's just the market price, which to me is the fair price.
So I think I agree with your assesment that in my mind fair is a synonym, or at least an extremely close analog, to non-coercive.
What you call price "gouging" (such as increasing the price of food, water, or gasoline in a time of shortage), I call an efficient market allocating scarce resources to those in the greatest need (as demonstrated by being willing to pay the highest price). If you mandate that the price of gasoline be $1.00 in the weeks following Katrina, how much gasoline do you think will get sold? Almost none would be my prediction. Instead, you'd find massive hoarding and gas stations closing rather than selling gas at a loss. How does that help anyone?
Instead, if you let the price float to $5, $6, then those who need gas will buy it; those that don't will have no incentive (in fact a disincentive) to hoard it, and those who might be just driving around aimlessly for amusement will temporarily stop doing that, conserving that very limited resource. Seems VASTLY more efficient to me, and seems perfectly fair as well.
Similarly, if you arrive at a monopoly through market forces, I think that's perfectly fine. If you are AWARDED a monopoly by the state, then that monopoly must be a tightly regulated monopoly by that same state. But I don't see any reason why Google shouldn't be allowed to reap the rewards of conquering search if they eventually do so. Or why Virgin Galactic couldn't operate a de-facto monopoly on space tourism, or any other example of where a market-derived monopoly is inherently unfair. To me, the state taking away an earned monopoly is what would be unfair.
I have really enjoyed our discussion, though I suspect we're at the point of understanding pretty well what each other is saying and probably unlikely for you to agree that $5-$6 gas is "fair" post Katrina, and for me to think it is, and agree to disagree after a thought-provoking discussion.
By whatever standard. But saying that it is fair because it complies with the free market assumes that the free market is a sufficient measure of fairness. So 'fair' becomes a meaningless term really. Like saying I like to eat tasty things or I'm rich because I have lots of money.
