Wolves, Vultures, Consumers - and New Debit Card Regulations

Debit card changes swipe at consumers, by Chuck Jaffe @ MarketWatch.

In an otherwise mundane piece concerning the mechanics of debit card fees and the effect that new Federal regulations will have on them, Jaffe snuck this in:

Currently, legislation in both the House and Senate would at least delay the reform, and the rhetoric is flying on both sides. Since releasing the proposal, the Fed has received more than 11,000 comment letters. Financial institutions call the planned cut in swipe fees a “$12 billion gift to retailers,” while the retailers respond by suggesting that postponing the change would be akin to “another bailout” of the banking industry.

This is a battle between wolves and vultures for the last meat left on the carcass and, ladies and gentlemen, we’re the meat.

I get my back up when I see other Americans being treated this way. Keep in mind that we're not talking about fraud here. We're talking about fees for services "consumers" find valuable.

I've left the following brief comments:

Mr. Jaffe laments the “battle between wolves [retailers] and vultures [banks] for the last meat left on the carcass and, ladies and gentlemen, we’re the meat” – i.e., between the people that provide the outlets for products and services we desire and those who provide popular and convenient means of purchasing them. That privileged, superior elite – we “consumers” – are not vultures or wolves, of course. “We’re” entitled to cheaper fees than the lowly producers are willing to charge – imposed by regulatory fiat by our alleged protectors.

It’s a shame that the entitlement mentality has penetrated so deep that we can’t see the real wolves and vultures – those newly empowered “public servants” whose idea of “reasonable” ... supersedes the voluntary decisions of the private market participants: and newly empowered by virtue of the financial overhaul bill allegedly necessitated by a financial crises. “We” just want our cheaper fees, personal freedom of choice be damned.

Note that Jaffe acknowledges that the new regulations - which will, if enacted, result in "debit-card fees [being] sliced by up to 70%" - will encourage banks to replace the lost revenue elsewhere:

Consumers will pay for those benefits in the form of higher banking fees — bigger charges on use of ATMs outside your bank network, but also additional charges for online banking or paper statements and other conveniences. Consumers might see less-favorable interest rates (particularly on the accounts where they get reduced swipe-fee revenue, but also on loans), and fewer rewards programs.

Free checking accounts, already on the endangered species list, could become virtually extinct.

But, Jaffe doesn't question the practical wisdom of the Fed meddling in the debit fee arena - let alone the moral or legal right to interfere in what is a private, voluntary trade among merchants, banks, and consumers. He simply accepts as the given the regulations coming forth from government officials - like an unchallengeable law of nature - and simply convicts retailers and banks for the sin of reacting.

In our massively regulated financial industry, it's hard to tell what fees we are paying in response to what prior regulations. Jaffe quotes an expert as saying "You could make swipe fees a lot more transparent on the front end — and that would be seen as good — but if the banks and the retailers find other ways to hit you for a few hundred bucks that is less transparent, it would be hard to say you came out ahead.” The biggest cloud of all, however, is the government regulatory Leviathan - which was made even bigger and more complex by Obama's reform bill - another one of those legislative monstrosities that nobody even reads, let alone understands.

Talk about lack of transparency! It's a wonder our banking system even works at all.

Tax Credits and the Separation Issue

The state, religion and the U.S. Supreme Court
by Linda Stamato and Sanford M. Jaffe

"The First Amendment’s establishment clause, meant to protect religion against any intrusion by the state or, to put it another way, to ban government from the establishment of religion, has stood, despite challenges, until this decision, which allows the use of tax credits to pay for religious school tuition. Not, by the way, because the court had a close look at what the state of Arizona in this case was doing — aiding religious schools — but saying it didn’t have to look at that issue because those who were bringing the case had no standing to challenge it."

Why didn't "those who were bringing the case [have] no standing to challenge it"?

Today’s landmark decision [Arizona Christian School Tuition Organization v. Winn] declared that the plaintiffs in the case lack standing to bring the challenge in the first instance because the program is funded by private contributions, not government funds.

“When Arizona taxpayers choose to contribute to [School Tuition Organizations], they spend their own money, not money the State has collected from respondents or from other taxpayers,” wrote Justice Anthony M. Kennedy, for the 5-4 majority. “While the State, at the outset, affords the opportunity to create and contribute to [a School Tuition Organization], the tax credit system is implemented by private action and with no state intervention. Objecting taxpayers know that their fellow citizens, not the State, decide to contribute and in fact make the contribution.”

“Like contributions that lead to charitable tax deductions, contributions yielding [School Tuition Organization] tax credits are not owed to the State and, in fact, pass directly from taxpayers to private organizations. Respondents’ contrary position assumes that income should be treated as if it were government property even if it has not come into the tax collector’s hands. That premise finds no basis in standing jurisprudence,” continued Kennedy. (U.S. Supreme Court Dismisses Legal Challenge to Arizona School Choice Program)

It comes down to two fundamentally different views of concerning the relationship between the state and the individual - i.e., collectivism vs. individualism. The authors acknowledge this conflict, saying "It came down to determining whether the granting of a tax credit is the functional equivalent of collecting and spending tax money".

For their part, the court minority opinion holds:

[A]ssume a state wishes to subsidize the ownership of crucifixes in one of three ways. It could purchase them in bulk and distribute them; it could reimburse buyers with a check; or it could pay with a tax credit. ... Now, really — do taxpayers have less reason to complain if the state selects the last of these three options?

I've left the following comments:

zemack April 30, 2011 at 8:20AM

On tax credits, the authors are easily refuted on the facts. Who is "the tax payer"? It's the person who earned it. A person earns $100. He decides to take advantage of an education tax credit program. He spends it according to his own judgement. His tax liability is thus reduced by $100. He is simply not sending it to the government. No other taxpayer is involved. In the case of education tax credits, money spent on education doesn't change. What changes is who decides how it is spent. Follow the money: private taxpayer to private institution. The government is out of the loop. In what way are “the taxpayers” or the government subsidizing religion? They are not. Every dollar in question involves only the taxpayer that earned it.

There are two broader issues involved here, though. First, does the citizen’s life belong to the state, or is the state the servant of the citizens? Who has first claim on the nation’s earnings, and first responsibility for the education of the child? Is it those who earned the money, and those who brought the child into the world? Or, is it the state. The authors argue for the state, and thus support a totalitarian concept. That is the root of their position.

The second issue involves the church/state issue. Here, the authors are 100% correct. People have an unalienable right to their religious beliefs, including the right to believe in and practice no religion at all. Any tax funding of religion is a threat to that freedom. The corollary is that no one should be forced to support, through their taxes, religious ideas they may or may not agree with. The separation doctrine protects religion from government, and us from religion. Fair enough, and I concur.

So, why should I be forced to support, through my taxes, educational ideas that I may or may not agree with, or that “offend” me? I abhor the collectivist theories of John Dewey, which dominates modern progressive education. I believe in the individualist educational and epistemological philosophies of Maria Montessori and Ayn Rand. Why should I be forced to pay for Dewey? And why should I be forced to pay for the education of other people’s children, any more than be forced to pay for the religious training of those same children?

When government controls education, it controls what is taught and how it is taught. It controls the flow of ideas. The very convincing arguments in favor of the separation of church and state, clearly articulated by the authors, apply equally to education generally. Phasing out and abolishing the government-run public schools – i.e., the separation of school and state – follows logically from the church/state issue. The ultimate answer to the tax credit issue is to abolish education taxes altogether.

A Refreshing Defense of Individualism

Actually, We're Not All In This Together, by Edward H. Crane, president and cofounder of the Cato Institute.

My commentary:

Ed Crane is right. No one can think for you. No one can acquire knowledge or skills for you. No one can exert the mental efforts required to make the neurological connections that make understanding possible in you own brain. No one can make the choice for you whether to initiate action or stagnate. No one can make the choice for you of what kinds of actions to take. Everything you are begins with self-motivation and self-discipline. The choice of whether to be honest or not, a parasite or not, a thug or not, self-supporting or not, is entirely an individualistic affair, no matter what advantages in terms of nurturing parents or the accumulated knowledge of mankind or other kinds of cooperative opportunities “society” makes available to you.

Collectivists see no difference between human beings. That is why collectivism in any of its manifestations must lead to the subordination of the thinking, self-supporting, honest, moral people to the lazy and the shiftless. The “We’re all in this together” philosophy is a philosophy by and for parasites and power-lusters – seekers of unearned material benefits and seekers of unearned greatness and “prestige”. It is the siren song of universal destitution and totalitarianism.