Political vs Private Marketplaces - Granite Grok

Political vs Private Marketplaces

Government marketplace or Private marketplace?

From Big Government is this piece from US Rep Ted Budd (R-NC) on the recognition of what I alluded to in my previous post – the subsuming, by Government, of organizations and industries by mere dint of its size and spending.  I’ve written for years of how organizations formerly known as charities (now calling themselves social services organizations) that used to depend on the wealthy and regular folks alike to dig into their wallets to support their missions but now end up begging on their knees to a mere handful of politicians to gain entry into the Public Treasury (what a HOWL they put up in my County when the Commissioners sliced them down to mere pittances this year).  Rep Budd elaborates (emphasis mine), especially on the Durbin amendment in Frank-Dodd law that mandated fees on debit cards) :

In the United States, we’ve long had a free market system, but that system is not what it once was. Total government spending–state, federal, and local–has grown in real terms by more than 400 percent since 1965Government spending is now one-third of the economy. As the private economy retreats, the importance of a new marketplace grows: the political marketplace. Products and services are no longer judged according to their usefulness to the economy at large–they’re judged according to whether or not they are politically useful or connected.  

The political marketplace is the marketplace of crony capitalism. Its supply and demand are lobbying expenditures and the resulting federal program or carve out. Its actors are not firms, but the political class and the politicians they influence. This won’t be anything new to people who have been following Washington over the years, but I do want to talk about a textbook case of this–it’s called the Durbin Price Control and it affects regular Americans every day, whether they realize it or not. The Durbin Price Control is a price control on the fees retailers pay to banks whenever a consumer uses a debit card.

I suspect that most readers of this publication know that price controls aren’t effective policy. But what’s even more interesting is how this provision came into being. Unlike the private market, the political marketplace works best in the dark, and that’s what happened with the Durbin Price Control. There was no debate or hearing on the provision in Congress. It was included in the 11th hour of the Dodd-Frank Conference Committee and pushed through by a liberal Democratic Senator.

Another key feature of the political market is that the products it delivers, government interventions in the free market, aren’t beneficial to the average taxpayer. They’re beneficial to the narrow interests that got them in. Durbin is very much in that mold. Before Durbin, more than 75 percent of banks offered free checking. Now only 40 percent do. The average checking account fee cost has more than doubled, from $5.90 per month to $13.25 per month. Most people haven’t noticed, but the ones that do are generally on the lower end of the income scale. It’s been estimated by the International Center for Law and Economics that working class Americans now see between one and three billion dollars in additional banking costs because of Durbin.

The political market is also increasingly looked to as a weapon of last resort to settle market disputes in unrelated areas.

One current event is that of United Airlines pulling a customer off a plane.  Seriously, is this something that Congress should be getting involved?  No, it shouldn’t – the guy was wronged, he sued, and apparently has gotten a big settlement.  The PR backlash has severely hurt them. Between those two things, the Free Marketplace is dealing with the problem.  But these meddlesome self-righteous nincompoops (who, btw, can’t even do the work they are elected to DO, like passing budget appropriation bills in a timely fashion) just KNOW that every OTHER thing is in their power.  And we keep electing the same ones over and over?  Sheesh…

The arguments being made in the service of the price control are that the market for debit cards is broken, because prices on swipe fees have gone up and that the price control actually restores the free market. The cause of the increase is supposedly monopoly power by debit card issuers like Visa. If that sounds a great deal like an antitrust dispute, that’s because it is. We have two different laws on the books, each more than a century old, to figure out these types of problems, but the federal courts have ruled against the claims three times, in rulings going back to 1986. Even the Ninth Circuit, no friend to free-market economics, has ruled against retailers making the antitrust argument.

The private marketplace had already set up a system of how to price the use of debit cards.  Unfortunately for us, US Senator Dick Durbin (D-Ill) decided, upon being pressured by the “other side” in this to reverse via political fiat (his Amendment in Dod-Frank) to “fix this” by turning the tables.  Sure, his corporate donors won but they won, not in the Free Market but in the Political Market – and we had no choice.

And THAT is what we all suffer when the Political Marketplace overrules the Free Marketplace – choice.  OUR choice, the ability to choose what is in our own best self-interest.  In a Government directed economy, that which Rep. Budd laments), politicians and bureaucrats make decisions for us – not we ourselves.

THIS is the primary reason why I would love to be in the position of being able throw Government onto the chopping block and start slicing to prune it back to the point where we, the people, will have a larger say in what is “good for us”.

I’m a retailer myself, and I used to own a gun store in North Carolina. I’ve personally paid tens of thousands of dollars in swipe fees. It was also my choice whether or not to accept debit cards, and I did so because I thought it was worth the price. Retailers around the country have made the same decision.

Jeb Hensarling, Chairman of the Financial Services Committee (a committee on which I sit) has introduced a Dodd-Frank repeal bill that eliminates the Durbin Price Control. If we were able to get a full repeal, it would strike a blow to the political market, one of the most important we’ve seen in a long time. I’m looking forward to a sharp debate, and I’m hopeful that the full repeal provision holds strong throughout the process.

I hop they do…but I’m not holding my breath anymore.  A shining example is the Obamacare repeal mess by the Republicans (especially the Progressive and mealy mouthed ones) who, when their votes now count, actually show their true colors and weasel away from doing the deed on a program they actually want to keep.

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