“Fee? Fie!” follow-up

Cato@Liberty has a pair of articles germane to the specifics of my previous post:

I didn’t address Rortybomb’s question because Megan McArdle did a better job.  Well, Jason Kuznicki does a damn fine job of adding to her answer.  (RTWT.)  Of philosophical interest:

I am always amazed at how border cases are dragged out, again and again, as if they proved something against libertarianism. Border cases — How old before you can vote? How demented before a contract doesn’t bind? — are a problem in all political systems, because all systems start with a presumed community of citizens and/or subjects. We always have to draw boundaries between the in-group and the outliers before we have a polity in the first place.What makes the classical liberal/libertarian approach so valuable is in fact that it draws so few boundaries. Where other systems depend on class boundaries, race boundaries, religious boundaries, and so forth — with annoying boundary issues at every stop along the way — libertarians make it as simple as I think it can be.

Also of note is that — at least in my Rothbardian little mind — the boundaries in a liberal system stem from inherent natural rights (to life, liberty, and property), whereas a more authoritarian system tends to draw boundaries where its authorities please.  I can’t think of a better invitation for regulatory capture.

Next, we have a post by David Boaz on (among other things) the unforeseen consequences of credit-card regulation:

Only after the fact were economists able to identify the specific costs of the regulation. It seemed like a good idea – limit the cost of something that consumers (voters) want. Did anyone predict the consequences? People probably predicted that annual fees would rise to compensate for the lost revenue from interchange fees. But did they anticipate a slowdown in innovation in security and identity-theft protection? Did they anticipate that card issuers would work harder to get higher-risk customers?

RTWT.  In general, I suspect that regulatory shake-ups like the ones under discussion tend to encourage “quick-fix” changes to restore revenue in the short term — hell, if the industry’s lobbyists are doing their jobs, the bills are probably written with quick-fix loopholes built in.  This will of course be most true for the big players in whichever industry’s being regulated: smaller players, and companies in less-influential sectors that depend upon the first, seem more likely to play it safe and reduce their risks.  Not what you’d prefer to happen in a recession!

In other news, Megan McArdle reports that the proposed “cheat the demented” scheme isn’t merely evil, it’s also mindbendingly stupid:

Today, an employee of a major bank emails:

About Andrew’s post on ripping off old, demented, credit card customers I’d like to point out that this would be not so much evil as really REALLY stupid.  Since credit card debt is unsecured, the credit losses on this scam would be enormous and would definitely lose  a lot of money.  Nevermind the moral aspect of this, the financials for such a program would fail miserably and anyone suggesting such a program would be scorned not just for being an immoral jerk but for having zero business sense.

D’oh!  Oh well, it’s not like I haven’t come up with utterly impractical thought experiments.  (In fact, skip ahead a few paragraphs and you’ll find one.)  Ms. McArdle also wonders:

[W]hat if we turn it around?  Should banks be allowed–nay, encouraged–to use such a quiz to pick out customers they no longer care to do business with?  After all, we’d be protecting potentially demented customers from hurting themselves.

Of course, we’d also be potentially preventing non-demented customers from getting credit–given my work schedule, I not infrequently forget which day of the week it is, and when you’re retired, one day can easily shade into another.

It gets better.  You should read the whole thing.  She concludes:

Yet this is the logic of paternalism:  you discommode a large number of people in order to save other people, possibly a smaller number of other people, from financial distress.  Methinks, however, that many people who like government paternalism would view it differently if it were done spontaneously by banks out of profit motive.

Finally, let’s indulge in an extended thought experiment.  The “price = overhead + small profit” model lends itself to an oft-indulged fairy-tale interpretation of high prices, particularly where high overhead is not obviously present (as in the Interlink fees tale).  Here, it becomes “obvious” that the small profit has swollen to become egregious and exploitative, and one imagines rivers of dollar bills sweeping through pneumatic tubes to land in a Scrooge McDuck-ish vault brimming with wealth and malign credit-card execs doing the backstroke.

Suppose for a moment that this is really how it works.

Now the government, which has been your friend since even before Captain America punched out Hitler, passes a bill regulating the credit-card industry.  Let’s further suppose that this bill is honest and fair and brimming with old-time values (except for old-time values like racism and wife-beating), and threatens to curb the excessive, misbegotten gains of those Smaug-like executives.  And it’s enforced by good men with badges and guns who only occasionally shoot an unoffending dog for looking like a pit bull in the dark.

What do you suppose those credit-card fat cats will do about it?

We’ve constructed our little straw-men-in-expensive-suits as evil caricatures, the very embodiments of avarice.  We can assume, then, that they’d first try to do the avaricious thing and maintain their profits (profits being, perforce, evil).  So rather than give up the lovely streams of cocaine-scented greenbacks showering their swimming pool, they’re going to recoup that profit somewhere else.  Maybe they slash the wages and benefits of the honest and hard-working blue-collar labourers whose ceaseless efforts underpin their profitability in this little Marxist fantasy of ours.  Or maybe, as Rortybomb not unpersuasively suggests, they go after rich seniors with advanced dementia and rob the poor blue-hairs blind.  Maybe they sell crack to puppies.

Or maybe they don’t.  This is a fairy tale, so let’s give it a happy Disney ending.

Maybe the shock of well-intended regulation gives them pause, and forces them to look deeply into their blackened hearts and withered souls.  Maybe they recognize that Michael Moore really is the modern Oracle of morality and that their quest for filthy lucre is the greatest evil in the land.  Shamed and chastened, they donate their ill-gotten gains to charity and adjust their profit margins to a bare minimum — something morally acceptable, like 0.5% per annum.  Then they pull on battered and dusty Victorian overcoats, whistle cheerful tunes, and head off to sweep chimneys or otherwise earn an honest living.

Then their adjusted earnings report falls into the shitter and the Dow collapses under this certain indication that a major sector of the banking industry is utterly and irretrievably fucked.  Pension funds and university endowments watch their investments sink into the mire of Washington’s malarial swamp.  Banks collapse.  Landlords are foreclosed upon, sending their tenants shivering into the wintry streets.  Panicked politicians declare Visa, AmEx, and MasterCard to be too “big to fail” and force-feed them trillions of dollars magicked into existence by the Federal Reserve, and China, India, et al. start wondering whether the U.S. Dollar is really the global reserve currency they want to hold.  Again.

Oops; looks like we missed Disney and ended up in Grimm.


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