Category Archives: ethics

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

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.