Thanks, Dick

Posted by Marc Hodak on December 8, 2011 under Unintended consequences | Be the First to Comment

Dick Durbin’s amendment to Dodd-Frank, capping fees on credit card transactions to 21 cents, is one of the most blatant examples of government price fixing implemented in a long time.  In this article, we get a good glimpse of one of the unintended effects of this law:

Just two months after one of the most controversial parts of the Dodd-Frank financial-overhaul law was enacted, some merchants and consumers are starting to pay the price.

Many business owners who sell low-priced goods like coffee and candy bars now are paying higher rates—not lower—when their customers use debit cards for transactions that are less than roughly $10.

That is because credit-card companies used to give merchants discounts on debit-card fees they pay on small transactions. But the Dodd-Frank Act placed an overall cap on the fees, and the banking industry has responded by eliminating the discounts.

The stated intent of government price fixers is almost always to lower costs to consumers.  Their premise in these matters is that particular vendors (in this case, credit card processors) charge arbitrarily high prices for their stuff, and a price cap will keep the prices from getting too high.  The assumption is that sellers will simply eat the resulting losses without any other changes in their business practices, i.e., that the sellers will transfer their gains to the buyers without altering the amount or quality of what they sell.

I don’t believe that Dick Durbin is a Marxist, nor Mssrs. Dodd or Frank or very many of the clowns who voted for this fiasco of a law, but the premise and assumption above are Marxist premises and assumptions.  A market-oriented economist with an Ivy League PhD might come up with plausible exceptions to the premise that price controls create predictable distortions, that consumers will, in aggregate, pay the cost of those distortions via a net loss in economic welfare, and that those losses are likely to be concentrated on the very individuals who were promised the greatest benefits.  But none of those plausible exceptions were provided in support of this legislation.

This law was passed based on raw economic ignorance ground in those Marxist assumptions, even if none of the ignorami consciously (if not publicly) espouses Marxism.  They were simply, and I might add expertly, playing to the economically-challenged voting mob, or to special interests that believed they had something to gain by the careful application of the threat of police power to otherwise voluntary transactions between consenting adults.

The irony is that as the sellers begin to do what they will to adapt to this law, the law’s supporters will begin to see that response not as a market reaction to bad law, but as part of the conspiracy that made the law necessary in the first place.  They will see the effects of law not as a repudiation of the premises and assumptions behind the law, but evidence of its incompleteness in its drafting, and reason that the law’s reach must be extended in order to serve it’s stated (higher?) purpose.  The next Dick will carefully identify the places where the squeezed balloon has popped out, and craft amendments to push those errant bubbles back to their original form.

Practical definition: Get tough

Posted by Marc Hodak on December 4, 2011 under Politics, Reporting on pay | Be the First to Comment

According to BBC News:

The government should not be setting pay rates, Mr Clegg stressed, while making clear he supported top executives being well rewarded if their companies were successful.

What does he mean?  Well, we need to take that phrase in the context of the speech where he declares:

We need to get tough on irresponsible and unjustified behaviour of top remuneration of executives in the private sector…What I abhor is people getting paid bucket loads of cash in difficult times for failure.

A politician will say all those things in the same speech because he wishes to whip up the mob that loves bashing the wealthy elite, but he doesn’t want to alarm that elite by saying he actually wants to determine how much they are paid.  And he can say these things without worrying that the press will call him on it, and will, more likely, lay out these points as a balanced position rather than a contradictory one.

The press won’t question that “the government ‘getting tough'” necessarily means that
the politicians in charge should use the police power of the state to get the private sector to do what the politicians want them to do.  In this case, Mr. Clegg means that the British government should decide how much an executive is allowed to make in a company deemed not successful.  This, in turn, means giving bureaucrats the authority to make the distinction of “successful,” which would necessarily have to be applied to every single company.  Is a company that loses any market value successful?  What about a company that loses value in difficult times?

In other words, having the government “get tough on pay” means having the government set pay rates, at least in some situations, and potentially for any company.

There are citizens who don’t mind the idea of bureaucrats actually setting pay rates in the private sector, and there are some who don’t mind as long as it’s not their pay.  But there are many people who would bristle at the thought of government setting pay rates for anyone not in government.  By threatening to “get tough” on pay but claiming that they “should not be setting pay,” a politician can have it both ways, and the print media that boasts its role as an agency of letters and, occasionally, as a public watchdog will go right along with.