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.