Category Archives: Price and Wage Controls

Right on Cue

In this morning’s CEI Podcast, my colleague John Berlau predicted that the new price cap on debit card swipe fees would lead to the end of free debit cards and free checking. He pointed out that while this is an unintended consequence, it is also entirely foreseeable.

It didn’t take long for that prediction to come true. Bank of America just announced that it will start charging its debit card users $5 per month. They are not the only ones:

JPMorgan Chase and Wells Fargo are testing $3 fees for debit cards in select areas, and Citibank recently announced it is raising its fees for checking accounts. Janney Montgomery Scott analyst Thomas McCrohan said last week that Visa and MasterCard, the top two debit card companies, may increase drastically increase (sic) fees on small purchases to offset the losses.

Thanks, Congress.

CEI Podcast for September 29, 2011: The End of Free Debit Cards

Have a listen here.

Every time you use your debit card, the merchant has to pay a fee to the company that issued your card, usually about 1 percent of the purchase price. On October 1, that price will be capped by law to 21 cents. John Berlau, Director of CEI’s Center for Investors and Entrepreneurs, explains the unintended consequences that will hurt consumers, merchants, and banks alike. John has written on interchange fees for The Wall Street Journal, Investor’s Business Daily, The American Spectator, and other outlets.

How to Lie with Statistics

Steven Landsburg uncovers a whopper. Take a look at this graph for a second. Pay special attention to the right-hand y-axis. Then click on over to Landsburg’s blog post to find out what’s wrong with it.

Unintended Consequences of Unemployment Benefits

This letter of mine ran in today’s New York Times in response to Paul Krugman’s July 4 column.

To the Editor:

Paul Krugman is at a loss to explain why some people oppose extending unemployment benefits. One reason people hold such an opinion is that when government subsidizes something, there tends to be more of it.

The more government subsidizes unemployment, the more people will indulge in it for longer periods of time.

Ryan Young
Washington, July 6, 2010

The writer is a journalism fellow at the Competitive Enterprise Institute.

Making Broadband Accessible: Innovation, Not Intervention

FCC regulators want to provide wider and cheaper broadband access by subsidizing it, raising taxes, and forcing network owners to share their network infrastructure with competitors.

A few things the FCC should consider:

-Subsidies don’t make broadband access any less expensive. They just change who pays for it. In this case, that would be anybody with a phone. Which probably includes you. The great economist Ludwig von Mises observed that “A government can no more determine prices than a goose can lay hen’s eggs.”*

-The tax would make owning a phone more expensive. And when something becomes more expensive, people consume less of it. With tax-exempt technologies like Skype and Google Voice now available, people can switch away from a taxed phone to something cheaper more easily than ever. The more people who do that, the less revenue the phone tax would generate, defeating its very purpose.

-If a company has to share its network infrastructure with its competitors, it loses the incentive to maintain and improve that network. Why invest millions of dollars if it will help your competition just as much as yourself? Quality suffers. So does innovation. In the long run, it is innovation, not FCC intervention, that will make broadband affordable and accessible for everyone. The long-run view is just as important as the short-run view here.

-Land-based networks are expensive to build in rural areas. The cost per customer is huge compared to denser urban areas. Fortunately, that isn’t as much of a problem for wireless technologies. The FCC seems hellbent on the land-based networks since wireless networks aren’t yet advanced enough for mass-market broadband service. But they will be soon enough. And every dollar spent on old-fashioned wired networks is a dollar unavailable for improving wireless service. An unintended consequence of FCC intervention would be slower innovation.

*Ludwig von Mises, Human Action, 4th ed., (Irvington-on-Hudson New York: Foundation for Economic Education, 1996 [1949], p. 397.

Minimum Wage, Maximum Unemployment

Teenage unemployment is 25.5% — an all-time high, and nearly triple the general unemployment rate.

Maybe the fact that the minimum wage has increased three years in a row has something to do with it. Why would an employer hire someone unless they produce at least what they’re paid?

A lot of younger people have little experience and no marketable skills. Such things take time to develop. Until they do, they will remain unattractive hires unless they can be paid what they’re worth. Minimum wage laws, of course, make that illegal in many cases.

Another case of good intentions gone awry.

Exploiting the Minimum Wage

The minimum wage is going up for the third year in a row, effective today. The new wage floor is $7.25 per hour.

Young people with little or no work experience may not be able to offer $7.25 per hour worth of productivity; no wonder so many of them are having trouble finding summer jobs. They have to be paid more than they are worth. Wage floors reduce the number of jobs.

Alex Tabarrok also explains why minimum wage laws are inherently anti-competitive. Some employers support wage floors, which is surprising at first glance.

But suppose a company has higher labor costs than its competitors. If they can’t cut their own costs to compete, why not just pass a law to increase their rivals’ costs? Tabbarok also observes, “This is why unions have typically been in favor of the minimum wage even when their own workers make much more than the minimum.”

Lost jobs and a less competitive economy, in other words. And minimum wage hikes still routinely poll at over 80% in favor. One of life’s mysteries, that.

Don’t Trust Democracy

Yesterday I posted about Sen. Claire McCaskill’s proposal to legislate a maximum salary. Simple economic logic shows it to be a bad idea.

This bad idea also gets 92% support in a poll. Sen. McCaskill must be smarter than I thought.

And far more cynical.

Senators Say the Darndest Things

“We have a bunch of idiots on Wall Street that are kicking sand in the face of the American taxpayer,” says Sen. Claire McCaskill.

One could level the same charge at Congress; but I digress.

Sen. McCaskill was talking about her new bill. It would cap salaries at companies that take bailout money. In a nice bit of symbolism, Wall Street executives would be allowed to earn no more than President Obama’s salary.

Now, suppose that you’re a talented executive who specializes in rehabilitating poorly performing companies. A turnaround artist. Why would you go someplace that would only pay you $400,000? You’ll work somewhere else. The companies that need top talent the most wouldn’t be able to attract it. To do so would be illegal.

Somehow, I don’t see Sen. McCaskill’s legislation helping ailing companies. Or the jobs they provide.

Minimum Wage to Increase Thursday

On Thursday, the federal minimum wage will increase to $6.55 per hour. Next July it is scheduled to go up to $7.25 per hour. CNN reports:

Rep. George Miller, a California Democrat who was one of the sponsors of the measure in the House, said up to 13 million workers benefited from the first increase under the bill, which brought the federal minimum wage to $5.85 per hour in July 2007.

Why stop there if so many people benefit? Why doesn’t Congress raise the minimum wage to, say, $100 per hour?

Maybe they’re stopping at $7.25 per hour because minimum wage laws have costs as well as benefits. And the higher the minimum wage, the higher the costs. As I wrote earlier, the unemployment rate for young people is already more than three times the national average. Making them more expensive to hire will not help.

Still, let’s assume Rep. Miller’s “13 million benefit” figure is correct. Every cent of those benefits came from the pocket of someone who was priced out of a job. Rep. Miller is no humanitarian.

A minimum wage does not create wealth. It does not make people better off on net. At best, it is a wealth transfer program that takes money from the unemployed and gives it to the employed.