The debt hawks are to economics as the creationists are to biology. Those, who do not understand Monetary Sovereignty, do not understand economics. If you understand the following, simple statement, you are ahead of most economists, politicians and media writers in America: Our government, being Monetarily Sovereign, has the unlimited ability to create the dollars to pay its bills.
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I saw two articles in the paper today, and my first reaction was different from my second reaction. See how you feel:
“Record tab in race to top job,” by Fredreka Schouten, USA Today.
“This could easily be a $2 billion presidential election, and that’s just for the nominees,” said Sheila Krumholz, executive director of the non-partisan Center for Responsive Politics.”
[ . . . ]
Liberal groups say they’ll capitalize on the Supreme Court’s decision in Citizens United v. Federal Election Commission to raise large amounts to aid Obama. The ruling, denounced by Obama during his 2010 State of the Union Address, allows groups that operate independently form candidates’ campaigns to spend unlimited amounts of corporate and union cash in ads.
My first thought was, “It’s outrageous to allow all that money to be spent. People will buy the election. The individual voter/contributor doesn’t stand a chance. There should be some limit on the money that goes into these campaigns.”
However, my second thought is, this is a perfect way to protect the individual voter/contributor. Let’s say the cost of a campaign were “only” $1 million. Then a wealthy candidate could dominate. He/she could put in $500K of his own money, and virtually own the public’s attention. But how many people could dominate a $2 billion campaign?
Even adding another billion wouldn’t make much difference. The law of marginal returns says that a certain point, each additional dollar of advertising makes less and less impact. And there is a point where additional dollars actually can have a negative effect. If GM doubled its advertising budget, it wouldn’t sell double the cars. It may not even sell many more cars at all.
Perhaps, massive budgets actually protect the individual voter/contributor in our free speech society. No individual could dominate. Because political contribution rules are so byzantine, we might achieve more fairness by simply letting everyone contribute as much as they wish. What’s wrong with a $10 billion presidential campaign? Letting everyone spend what they wish sure would eliminate cheating, wouldn’t it?
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Then I saw an editorial about “swipe fees,” the charge each retailer pays the credit card clearing companies. It said:
<Every time you use a debit or credit card, you shell out an invisible sales tax in the range of 1% to 3%. That’s how much retailer have to pay the banks taht issue the plastic.
These anti-competitive charges–known as interchange, or swipe , fees – add up. In 2008 retailers paid $48 billion, which they passed on in the form of higher prices. That’s an average of $427 per household.
[ . . . ] the 2008 financial crisis soured Washington on banks, giving retailers an opening to win a provision in the financial reform law that limits fees on debit cards and allows stores to rebate the saving to their customers. The Federal Reserve has tentatively set the fees at 7 cents to 12 cents per transaction, down from the current average of 44 cents.
My first thought was, “Bravo. Cut those fees. Save consumers money.”
My second thought was: Every time Congress gets into the price-setting business, they cause more trouble than they solve. How is this different from Congress setting the price of milk, bread, cars and TV sets?
Most people receive a benefit from their credit cards. They get convenience. They get the ability to cancel purchases. They get a 30-day delay in payment. They receive points or miles or dollars for each dollar spent. Someone has to pay for those services, and ultimately that someone is the consumer. If the banks can’t charge sufficient swipe fees, they will find some other way to make a profit. Perhaps raise annual fees? Charge for mailing invoices? Charge for customer phone service?
And who says the government knows best, when deciding prices? There are many cards available, and there is strong competition among card issuers. Sure, it makes populist sense to rule against banks, these days, but does it make business sense? Does Congress really do consumers any favors when it determines the price an industry may charge? Is Congress really that skilled at business?
Government price controls always seem to have a dark side, related to higher costs and/or poorer service. I say, hands off, government.
What do you think?
Rodger Malcolm Mitchell
http://www.rodgermitchell.com
No nation can tax itself into prosperity, nor grow without money growth. It’s been 40 years since the U.S. became Monetarily Sovereign, and neither Congress, nor the President, nor the Fed, nor the vast majority of economists and economics bloggers, nor the preponderance of the media, nor the most famous educational institutions, nor the Nobel committee, nor the International Monetary Fund have yet acquired even the slightest notion of what that means.
Remember that the next time you’re tempted to ask a dopey teenager, “What were you thinking?” He’s liable to respond, “Pretty much what your generation was thinking when it screwed up the economy.”
MONETARY SOVEREIGNTY
#Monetary Sovereignty - Mitchell 
Rodger,
I accept Monetary Sovereignty and the corollary that government spending is in principal not harmful. However, the danger is that government uses its spending power to grow and spread its tentacles into every facet of the economy and the above example is just one of probably millions where the law of unintended consequences cannot be repealed. This is also why I have sympathy for someone like Ron Paul who you are always denigrating. At least he understands the downside and dangers of government interference.
Speaking of the Presidential campaign, I wish there were a candidate who understood economics as described on your blog but who also understood the dangers of government expansion. Now that would be a candidate I’d get excited about!
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The example you gave is a law, not a spending initiative. The government can “spread its tentacles” without spending one cent. See the difference?
The problem is, the Ron Pauls of the world have no discretion and no plan. The Tea Party wants to cut $100 billion. From where? They don’t say.
Cut Medicare? Cut Social Security? Cut defense? Cut Medicaid? Specifically, which tentacles would you like to cut? Aid to education? Aid to the poor? Roads and bridges? Medical research? Scientific research? National parks? The ecology?
The problem with the budget cutters is they don’t care what harm they do. They don’t care about people or the nation. They just want to cut, and damn the consequences.
Rodger Malcolm Mitchell
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The problem is that those that pay with cash, have to pay the fee also.
Perhaps the law should read that we know what these fees are when we buy something. Like you said they are hidden fee. Everyone know about taxes why don’t they know about this credit card convenience fee?
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Can’t argue with disclosure, but where does it end. Must a retailer disclose what part of the product cost went to advertising, what part to salaries, what part to transportation, what part to returns, what part to shoplifting losses?
You go to a store and see a price. The price includes all of the above, including the swipe fees. If you like the price, you buy. If you don’t like the price you don’t buy.
Rodger Malcolm Mitchell
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The main problem with swipe fees is insufficient competition. Another problem, as pointed out, is the lack of transparency. If I have a credit card, I know what rate I pay. The swipe fee cost is, by and large, passed on to me, but I am not informed about it. This is different from advertising costs, because using a credit or debit card is my decision, whereas advertising is the retailer’s decision. Another problem, also pointed out, is the negative externality borne by the cash customer. The card companies, the retailer, and card users form a coalition against the cash customers. One reason we have gov’t is to reduce negative externalities.
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No, your decision is to make the purchase at the stated price. That price includes all of the retailer’s many costs, one of which is swipe fees. Do you feel you need a listing of all the retailer’s costs before you make a purchase?
Every retail customer pays the same, though each receives different benefits. Go to a food store, and you may elect not to use a shopping cart, though the cost of that cart is part of the price you will pay.
There is zero difference between the “hidden” cost of shopping carts and the “hidden” cost of swipe fees. The federal government should not regulate these costs.
Rodger Malcolm Mitchell
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Rodger, you are ignoring the three-way relationship between the retailer, the card customer, and the card company. Assuming, as is normal, that the swipe fee is largely passed on to the card customer, then the card company is imposing a cost on the customer without revealing that cost to the customer.
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I, for one, would like to see the product cost structure before making any purchase. I would happily spend much more on products where a larger share of the price went to primary producers / laborers rather than middlemen.
I agree that the government shouldn’t regulate these costs, but maybe the government should mandate the cost structure be made available to consumers who want to know.
It wouldn’t be much hardship for the retailers to provide this. Even small businesses know exactly what their cost structure looks like.
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You are mistaken; it is the card processing companies that dictates customer behavior. The retailer, according to a signed agreement to offer plastic, cannot offer a discount for cash.
Why must a retailer pay it to the MC/Visa, etc., through a bank intermediary, who siphon off an additional service fee, when they can make available an incentive (cash discount) to the customer in savings, and in doing so a service that makes for customer retention.
Worst, American Express charges between three and four percent, (one to two percent more than MC/Visa). Again, the retailer is in contract violation, if they even suggest the use of a different card, when a customer pays using an Amex card.
Neither the customer nor retailer has a choice, unless, of course, the retailer chooses not to offer plastic. Good luck with that
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Not quite true. In NY and NJ, gas stations have different prices posted for cash and credit. From what I can see it is causing a lot of customers to opt for cash as the difference is significant.
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Jason,
It has been some years, since I owned a retail operation. Perhaps, the rules are changing. Here, in Atlanta, I have not found one retailer who offers a cash discount. From your experience, it is obvious that customers prefer to save money, when they can.
Since the processing fees are cost neutral to the merchant, in as much as he either pays it to the bank that provides the processing service, or can pay it to the customer in the form of discount for cash, it comes out of his pocket.
It is true that any of these costs is reflected in the final price, but that is not the issue.
Roger, I think you are missing the point of those wishing to see a price cost listing; it is their sense that something is just not right. The cash-paying customer is being penalized when the structure of the plastic industry imposes this fee on him. Even the cardholder can save money by using different cards, all of which makes no difference to the merchant, as it is a pass through cost.
Please be aware this legislation involves DEBIT cards, which in today’s society is equivalent to cash. In this regard, it is I who is providing a convenience – to the banks, because they avoid the costs of manually handling cash. Where is my discount?
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Most certainly the largest donors will still have untoward influence, although indirectly, despite the size of the overall presidential campaign budgets, because the party that controls the Congress or the Senate moves the President’s agenda. The President is beholden to more than just contributors.
Try meeting with your local congressman and see how much time he allows you to speak with him. Large contributions buy more time, and for this reason influence.
Golden Sachs contributed close to one million dollars to Obama’s last campaign, and almost a quarter of that to John McCain’s. I guess the cost of doing business is going to go up.
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I see that many of you folks would like to see a list of retailers’ costs, for instance store rent, clerk salaries, executive salaries, advertising, marketing, perhaps even the cost of cleaning the store at night?
Credit card cost is just one of thousands of retailer costs, no different from telephone, heating, air conditioning and store fixtures. Would you like to inspect the retailers’ balance sheets? And then, of course, you have the option not to patronize stores that accept credit cards — or pay rent.
Rodger Malcolm Mitchell
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Credit or debit card costs are not just one of the retailer’s costs. The card companies are doing an end run around their own customers, funneling costs to them without telling them so.
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Vince,
I think you should get a discount for not using your card. I also think you should get a discount from the store that offers free shipping, if you carry out the merchandise.
Also, there are stores whose paid employees will answer your questions, but if you don’t take up paid time asking questions, I think you should get a discount.
And if you don’t get any phone calls from the store, you should get a phone discount. And if you never read their advertisements, you should get an ad discount. If you don’t use the store’s bathroom, how about a bathroom discount. Same for a drinking fountain in the store. And if you walk to the store, why should you pay for that parking lot?
Sarcastic? Yes? But the point is, credit or debit cards are one of the many services businesses provide, and all the costs of these services are lumped into the sales price.
I’m puzzled about why swipe charges suddenly have become the cause celebre, when there literally are thousands of store expenses, and many of them don’t benefit you directly.
At one time it was a contract violation to provide a discount for not using a card. It may still be. But really, aren’t there more important things to worry about — like why should a blind person pay for store lights?
Rodger Malcolm Mitchell
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Roger, I appreciate your sarcasm.
There truly are more important issues, but I cannot answer for the blind. Before the Americans With Disability Act, people with physical impairment were at significant disadvantage within society. These accommodations , too, have added to operational costs, which do not directly benefit me. Although I will argue, that which benefit society as a whole does, indeed, benefit me.
Nevertheless, in kind, let me be sarcastic: wasn’t it you that originated this post?
Since our argument might be now bordering on the ridiculous, I am surprised, other than I, no one has responded to your comments on the projected combined Presidential campaign budgets.
Are we throwing away dollars to save pennies? It amazes me that the public at large, with no small part played by the mainstream media, consumes much of its time with trifling taking time away from addressing the more important issues of our time.
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These fees became the cause celebre in Australia a year or so ago. This is because there was no competition evident in the price of the card swipe fees.
I agree that government shouldn’t fix prices, but neither should anyone else. Maybe the answer is regulation to prevent companies from acquiring quasi-monopoly pricing power?
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Instead of trying to control prices, the government should just pay the “swipe fees”. It costs taxpayers nothing, banks get their dough(don’t they always?), retailers’ costs go down, and customers pay less. It’ll be a win-win-win-win.
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