Monthly Archives: September 2011

Bank Fees on the Rise

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Bank of America has announced that it’s going to raise, drastically, the monthly fees for debit card swipes made by its customers.  Why is this bad, though?  It’s certainly true that banking—and shopping—is going to get more expensive for all of us (Wells Fargo and JP Morgan Chase are expected to follow suit, and then the rest of the major banks, and the little banks, will do the same), but is this the real reason?

Big Government, via Dodd-Frank, is dictating limits on what banks can charge for debit card swipes and for a host of other fees.  Dodd-Frank uses the Federal Reserve Bank to cap debit card swipe fees, and the Fed has set this cap at a level that’s 50% of what the banks originally charged, at a cost to those banks of some $16 billion (based on 2009 revenues).  Those additional fee limits will cost still more revenue.  Yet these limits are set in the name of protecting the consumer—us.

Let’s look at the debit card fee limit for a bit.  We use our debit cards 16 times a month on average, for a $10 purchase each time, again on average, according to the Washington Post article at the link.  The merchants used to pay the banks some 4%-6% per debit swipe (depending on the merchant’s size and the size of the actual purchase—that’s the original 44 cent cap on the swipe fee).  Just doing some back of the envelope calculating, we’re buying $160 of goodies each month with our debit cards, and if Bank of America proves typical, we’re going to pay a $5 debit card use fee for that month.  That fee works out to a bit over 3% of our average monthly purchase.  The merchant is still paying 24 cents per transaction: 2.4% of the buy.  Debit card swipe costs now total, then, something like 5.4%.  There’s real change.

Here are some of the unintended consequences of Big Government looking out for the little folks.  In addition to the card swipe problem, for instance, Dodd-Frank makes it difficult for banks to charge for bounced checks—the customer has to agree to be charged beforehand (and there are those other fee caps).  The fees we pay generally will rise because, instead of banks charging those riskier customers higher fees, the Dodd-Frank limits force them to cover those high-risk costs by spreading them across all their customers—low-risk customers are now subsidizing those high-risk ones.

Small checking accounts, the kind held by consumers who aren’t so well off (and that’s a lot of us in this Obama economy) face higher fees to maintain those small balances.  How many of these consumers will be forced to turn to check cashing enterprises, or to prepaid credit cards (with their higher interest rates) and the like, because they cannot—or do not want to—pay the $60/year debit card “convenience” fee?

We’ll also pay more for our credit cards as the banks look to make up for their lost banking fee revenue where they can.  This means higher annual fees, higher interest rates on unpaid balances, and so on, on our credit cards.

Watch out for the results of this latest round of government price controls.  We saw their effectiveness when applied during the Nixon years: gasoline price caps, for instance, intended to fight inflation led to more inflation, gasoline shortages, and long lines at the pump.  We’re already seeing reduced availability of banking services: higher cost for our debit cards, reduced access to low cost checking accounts, harsher credit cards, and so on.

But there’s an additional problem to this government intervention, and it’s a moral one.  One of the most fundamental tenets of our social compact is that each of us is both free to transact our property—our labor, our goods, our money—with others for their property in any way we might mutually agree, and each of us is solely responsible for the outcomes of those transactions.  Government’s sole role under our social compact is to protect that freedom and responsibility.  Yet here we have government’s intervention utterly violating that tenet.  Big Government has determined that it cannot allow two men seeking to do business with each other in a free market to conduct that business unless Big Government is in the middle managing the relationship.  Banks (for instance) no longer can charge high risk customers higher fees: instead, they must, in order to make enough money to stay in business in this regulatory regime, spread those high risk costs across all of their customers.  On what basis should the rest of us be required to subsidize the riskiest?  On what basis does government transfer responsibility from parties to a transaction to others of us who are not involved?

“Bank of America is trying to find new ways to pad their profits by sticking it to their customers,” Senator Dick Durbin, Dem, IL claimed about that debit card fee adjustment.  This, though, is just a paraphrase of what our President has said: “I do think at a certain point you’ve made enough money.”  On what basis does government transfer responsibility from parties to a transaction to itself?

Finally, it’s a bit cheeky for Big Government to dictate to businessmen in the private economy how to handle their accounts, when Big Government has no understanding of the matter whatsoever when it comes to its own accounts.

Bad Moon Rising

The Blessings of Government

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Candidate for Senate from Massachusetts, and late of the Consumer Financial Protection BureauAssistant to the President and Special Advisor to Treasury Secretary Timothy F. Geithner, Elizabeth Warren, recently had this to say about our need for big government:

There is nobody in this country who got rich on his own. Nobody. You built a factory out there—good for you. But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for….  You built a factory and it turned into something terrific or a great idea—God bless, keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay it forward for the next kid who comes along.

There are some thoughts on this statement.  I paid for those roads, too, not just “the rest of you.”  And that’s a legitimate tax: fostering the free exchange of goods, as well as fostering their easy production, by free citizens is part of the government’s job: under our social contract—the one actually in existence via our Declaration of Independence and our Constitution—the government’s sole job is to protect those individual liberties.  And nothing more.

On the other hand, “the rest of you” didn’t pay for the education of the workers I hired.  My fellow members of my local community and I paid for that education.  As did, individually, all the local communities surrounding all the other factories pay for the education of those factories’ workers.  Your Federal government had little to do with that, Arne Duncan and his Office for Civil Rights’ “Dear Colleague” letter’s attack on the rights of our students notwithstanding.

Further, “the rest of you” didn’t pay for the police and fire protections of my workers—again, the local community around my factory did, and does, that.  “The rest of you,” and I, do pay for the federal police function that keeps our borders secure, and our citizens along the border area safe.  We’re well aware of how that’s working out.

And if my workers and I were able to keep more of our money, instead of having it confiscated by an overreaching government for current spending (note that: not “paying it forward for the next kid”), I’d be able to improve my factory, develop better products, and hire even more workers (educated by local communities, not “the rest of you,” and kept safe by locally funded and manned police forces, not paid forces for by “the rest of you”).  On top of that, if my workers and I were able to keep more of our money, we would be able to put “a hunk of that” by to “pay forward” to our own kids.  But your kind of government won’t even let us do that.  You’re going to increase the death taxes you seize to 55%—at direct cost to those kids.

Progressives and Democracy

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The ProgressivesDemocrats have long insisted that they Know Better than mere Americans, and so we should just sit down, shut up, and follow their guidance.  “Throughout the nation men and women, forgotten in the political philosophy of the Government, look to us here for guidance,” said Franklin Roosevelt in his 1932 nomination acceptance speech.  “I think at a certain point, you’ve made enough money,” said Candidate Obama.  Even your estate is better off in the hands of the government—and furthermore, as ex-Congressman Anthony Weiner insists, we shouldn’t even care: “You’ll be dead,” he insisted in a national television interview.

We have, now a governor, Bev Perdue (Dem, NC), saying with a straight face,

I think we ought to suspend, perhaps, elections for Congress for two years and just tell them we won’t hold it against them, whatever decisions they make, to just let them help this country recover. I really hope that someone can agree with me on that….  You want people who don’t worry about the next election.

Of course her aides quickly spoke up and said this was just a joke, just hyperbole to make a point.  And perhaps she was only making a point, but what point?

Here’s the larger backdrop in which the Progressives (dang—I keep confusing them) Democrats are operating and against which Gov. Perdue’s statement was made.  The Democrats in the Wisconsin and Indiana State Houses both openly attacked our democratic foundation by going AWOL in mid-session, preventing their respective State governments from doing the job they’d been elected to do—from functioning at all—on the premise that if they couldn’t have their way, the good citizens of these States couldn’t have democracy.  A critical part of Obamacare is the Independent Payment Advisory Board (IPAB)—the death panel—consisting of “experts” who will dictate cuts to Medicare payments to doctors and hospitals, rationing health care in accordance with their own criteria, not the doctor’s or hospital’s decisions in conjunction with the patient in question.  These Democrats’ death panels are almost without oversight: the panel’s decisions must be positively overruled by Congress, our representatives, rather than be positively accepted.  The Obama Congress created an entity known as the Consumer Financial Protection Bureau which is totally outside the oversight of Congress, getting its funding from Treasury essentially on demand.  This unaccountable entity has powers to dictate to banks, and to the mom and pop grocery store, the terms under which, for instance, they might offer credit to a customer.  The Democrats in the present United States Senate threatened us all with a Federal government shutdown and proximately with denial of funds to FEMA so thousands of Americans suffering ongoing emergencies from natural disasters like Hurricane Irene and flooding along the Mississippi River would go unaided solely because these Democrats weren’t going to be allowed to continue their profligate spending to which they’re so addicted.  The list goes on, but the backdrop for Gov. Perdue’s “suggestion” is plain.

Perdue’s rationale for this?  It’s in her statement:  “…tell them we won’t hold it against them….  You want people who don’t worry about the next election.”  Umm, Governor, that’s sort of the point of democracy, including—especially—the republican democracy that we have.  These folks work for us; we’re not hanging around just to give them something to do.  They do need to be worrying about the next election; they do need to be worrying about their jobs.  We sent them to Washington (and your constituents sent their representatives—and you—to the NC state house) with specific instructions.  If they don’t, or won’t, do what we told them to do, they need to get gone at the next election.  But a Progressive (dang!) governor doesn’t seem to get this.

Just whose side are these…Democrats…on?  Besides their own?

Update: Here’s Gov Perdue in all her glory, courtesy of The Daily Caller via PowerLine: Gov Perdue  You decide whether she was joking, or hyperbolizing….

Black Markets and Free Markets

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Under the social compact theory of government (see, for instance, in no particular order, Locke, Rousseau, and Hobbes) men begin in a state of nature where each man is equally free to do what he will so long as that does not interfere with the freedom of another to pursue his interests.  Each man, also, whether in this state or not, has certain rights inherent in his existence (our Declaration of Independence acknowledges them as an inalienable endowment from our Creator); these include a sole ownership property in his own mind and body; from these, a sole ownership property in his labor; and from that, a sole ownership in the produce of his labor.  This Natural Man, though, in fact leads a quite, umm, Hobbesian existence: his life is short and brutish, the strong and greedy prey on the weak, and the Devil takes the hindmost. As a result, men band together in groups—form social compacts—in order to create more or less formal governments (and so the structure must exist only with the consent of those who will be governed by this new entity), whose sole purpose is to protect the members of a compact from each other and from depredations from outside.

Among the members’ attributes being protected (as part of protecting the members themselves) is that ownership of labor and of labor’s output.  This necessarily includes the right to engage in trade with others according to terms agreeable to those engaged in the trade.  Any interference with that trade is a violation of those men’s inalienable rights: government’s legitimate role here is limited to ensuring that trades occur only on terms those participants, of their own accord, accept.

But this only addresses the rights of men.  It also is man’s nature to be free and unbounded: in the present context, to engage only in transactions that are profitable to himself.  Adam Smith recognized this with his “invisible hand.”  That hand is nothing more than a man’s self-interest—his greed—in pursuing what he sees as beneficial to himself combining with another man’s self-interest—that other’s greed—to result in the production of a better outcome for both than either could have achieved individually.

Thus, one man works his field and produces a quantity of wheat, which he then trades for something of value with a baker.  The baker then bakes a loaf of bread, and he either has food for himself and his family, or he trades that loaf with a third man for something of value.  Meanwhile, the first man takes what he got in trade from the baker and uses it himself, or he trades with a fourth man….  This network of trades, by satisfying the separate greed of four individuals, makes all four men better off than any of them were individually, and it makes the four as a group better off than the sum of the four in a state of nature, where one, being stronger than the others, simply takes it all—and cannot get more bread, for instance, because he has driven the baker out of business, cannot even get more wheat for having forced the farmer into the same fate.

Legitimate governments preserve that system of free trade.  (As an aside, it’s important to note that all money does to this barter system of free trade system is facilitate its efficiency: money is only a store of value that is easier to transport, track, store, and so on than are the hard goods—or the labor—whose value is represented by sums of money.)  Illegitimate governments interfere with free trade, whether by design or by side effect of good intentions.  When governments tax trade, it reduces the amount of trade: taxes collected are funds not available to men to support their commerce, which leads to fewer goods available and so increases their costs to all.  When governments tax goods, it reduces the amount of money available to men to pursue their own ends, including their commerce, with the same results.  When governments say that only certain forms of commerce are allowable, or only certain goods can be exchanged, or specific parameters of exchange must be followed, they directly reduce the degree and flexibility of commerce—increasing the costs of commerce and of the goods exchanged.

What happens when these interferences become too onerous?  Men follow their nature and seek ways to step outside the sanctioned, “legal” system of commerce, and engage in their trade away from the eyes of that government—in a black market.  Indeed, one can see a measure of the legitimacy of a government by how extensive is a black market in that polity.  The greater the black market, the greater the interference by government in the legal market.

Yet, a black market is not wholly free, or efficient, either; it only represents men’s efforts to trade more freely than their (not so legitimate) government will allow.  The black market, with its added costs of concealment so as to avoid sanction, is costlier to its participants than is a truly free market, although its participants view it as better than their own legal market.  The black market, too, for being outside government protection, is much more Hobbesian than a legal, free market.

Those are passive failures of a black market; there is at least one active failure.  We can see this illustrated in the present Greek situation.  As governments attempt to raise revenue by taxing commercial activity, or any stage of it, black market activity, being outside the “legal” system, goes untaxed.  Without considering the legitimacy of closing the Greek budget deficit by raising taxes on its citizens, where is the effectiveness of such a move when the transactions, being outside the tax system, never were taxed and remain untaxed under the new, higher tax régime?

But the takeaway from this long scrivening is this: black markets, with all their shortcomings, are freer trade systems than the market allowed by the government that coughed up the black market.  Men will engage in free trade; it is our nature: the existence of black markets proves this.  From this we see that governments that interfere with our free trade, that interfere with our nature and with our inalienable rights, are moving toward illegitimacy, and one index of this illegitimacy is the extent of the black market in the polity.  The loss created by this illegitimacy, in purely economic terms (eliding the moral costs; that’s another post), can be found in the difference between the costs of a black market compared with a free market summed with the difference between the costs of the government-hindered market and a free market.

Equal Outcome and Equal Opportunity are Equally Moral?

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Senator Marco Rubio (Rep, FL) spoke on the floor of the Senate last August; a recording of that speech was posted by Senator Rubio here: This Debate Will Continue.  I agree with almost all of his words, but there is one critical passage with which I must take issue, albeit at a late date.

Senator Rubio said (these words can be heard beginning at about the 5:20 mark of his roughly 10 minute recording),

One the one hand, there are those who believe that the job of government is to deliver economic justice, which basically means an economy where everyone does well or as well as possibly can be done.  There’s another group that believes in the concept of economic opportunity, where it’s not the government’s job to guarantee an outcome but to guarantee an opportunity to fulfill your dreams and your hopes.

One is not more moral than the other; there are two very different visions of the role of government in America.

Senator Rubio has fallen for the siren song of moral equivalency: one group’s belief is as valid as another’s on the sole basis that each group has a belief.  Yet these two positions—equal outcomes and equal opportunities—are not at all morally equivalent; one is plainly immoral from its inception.

John Locke, Jean-Jacques Rousseau, and many others, have shown that all men have an inalienable right, a right inherent in a person’s very existence, to an exclusive property in their bodies and minds, their labor, and the fruits of their labor.

Our Declaration of Independence acknowledges this in so many words,

[A]ll men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.

John Adams pointed out, as he wrote Massachusetts’ 1780 Constitution, that “Happiness” is nothing more, or less, than this:

All men are born free and independent, and have certain natural, essential, and unalienable rights, among which may be reckoned the right of enjoying and defending their lives and liberties; that of acquiring, possessing, and protecting property; in fine, that of seeking and obtaining their safety and happiness.

So, what does it mean that government will guarantee equal outcomes, or substantially equal outcomes, for all?  How can government guarantee this?  The only way this is possible is for government to give something to the less successful to bring them to the same level of outcome as the more successful.  Government, though, has nothing of its own; it must first acquire what it intends to give, and it can acquire only by taking from those enjoying greater success.  Yet this taking can only reduce that very success; government, of necessity, must circumscribe the success of one group in order to “improve” the lot of another.

This only saps the morality of both groups, though.  It teaches the less successful that they do not have to work as hard, they do not have to acquire skills to the same degree, as the more successful: they do not have to work to the fullest of their own potential.  Equal outcomes teach the less successful that they can rely, instead, on government to make up any shortfall.  Equal outcomes give those receiving a portion of the others’ success a measure of dominion over those others by asserting for the recipients that claim on those others’ property.

This outcome redistribution, by circumscribing the result of effort, also teaches the more successful: there is little point to effort; government will simply take much of what they have earned and give it away.  This deprecates success and thereby reduces incentives to work, to seek success.  This combination of one group not having to work hard and the other group not caring to work hard reduces the outcomes for all.

Equality of opportunity, though, guarantees to each member of our social compact that chance to work to our own maximum potential, free of the threat of government confiscation.  This ability to keep what we have earned, to dispose of the fruits of our labor in accordance with our individual imperatives, combined with the knowledge that we are responsible for our own futures, that none of us can claim a portion from another, combine to provide ample incentive to each of us to work hard and to live our lives to their fullest.

Further, that equality of opportunity is central to our morality: each of us is responsible for our own actions.  All of us must work to our own capabilities, not to the capabilities of others; all of us are morally obligated not to assert any claim on the produce of others.

Equal opportunity, not equal outcomes, gives each of us the fundamental equal right to fulfill our own potential without outside interference.  This equal opportunity is the grand implementation of our rights and liberties  that are acknowledged, and the fulfillment of our moral needs that are implied, in our Declaration of Independence.

In the end, the only way government can guarantee equal outcomes is to guarantee equal poverty.  This is a direct violation of our endowment of fundamental equality, it reduces all of us to government dependents, and it removes from us our morality—including our explicit Judeo-Christian teachings, which also are implied in the principles identified in our Declaration of Independence—and transfers that morality to government.

By guaranteeing equal opportunity, however, government leaves us true equality—our ability, each of us, to reach the fullness of our individual potentials.  The quality of life we gain from this, the confidence we gain from achieving our successes on the basis of our own hard work and our own struggles, reinforces the morality that we also now retain—to see, ourselves, to the least among us, rather than running from that responsibility into the comfort of government dependency.