New York Times
September 29, 2011
Bank of America, the nation’s biggest bank, said on Thursday that it planned to start charging customers a $5 monthly fee when they used their debit cards for purchases. It was just one of several new charges expected to hit consumers as new regulations crimp banks’ profits.
Wells Fargo and Chase are testing $3 monthly debit card fees. Regions Financial, based in Birmingham, Ala., plans to start charging a $4 fee next month, while SunTrust, another regional powerhouse, is charging a $5 fee.
The round of new charges stems from a rule, which takes effect on Saturday, that limits the fees that banks can levy on merchants every time a consumer uses a debit card to make a purchase. The rule, known as the Durbin amendment, after its sponsor Senator Richard J. Durbin, is a crucial part of the Dodd-Frank financial overhaul law.
Until now, the fees have been 44 cents a transaction, on average. The Federal Reserve in June agreed to cut the fees to a maximum of about 24 cents. While the fee amounts to pennies per swipe, it rapidly adds up across millions of transactions. The new limit is expected to cost the banks about $6.6 billion in revenue a year, beginning in 2012, according to Javelin Strategy and Research. That comes on top of another loss, of $5.6 billion, from new rules restricting overdraft fees, which went into effect in July 2010.
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For the debit cards fee controversy see also here, here, here, here and here.
Friday, September 30, 2011
The Dick Durbin Bank Fees
Wall Street Journal
September 29, 2011
This Saturday, government price controls on debit card interchange fees (which card issuers charge to merchants) go into effect. The controls are the result of the Durbin amendment to last year's Dodd-Frank financial reform legislation. They were enacted at the behest of big-box retailers such as Wal-Mart and Walgreen's, which stand to gain a multimillion-dollar windfall. But the controls are already transforming the retail banking landscape.
The Durbin amendment tasked the Federal Reserve with establishing the allowable maximum interchange fees. It originally intended to slash them by 70%-80%. In response to a firestorm of criticism, the Fed cut the fees about in half, to about 24 cents per transaction from an average of 44 cents per transaction, including a one-penny allowance for fraud prevention. The new fee limits apply to any bank with more than $10 billion in assets.
Faced with a dramatic cut in revenues (estimated to be $6.6 billion by Javelin Strategy & Research, a global financial services consultancy), banks have already imposed new monthly maintenance fees—usually from $36 to $60 per year—on standard checking and debit-card accounts, as well as new or higher fees on particular bank services. While wealthier consumers have avoided many of these new fees—for example, by maintaining a sufficiently high minimum balance—a Bankrate survey released this week reported that only 45% of traditional checking accounts are free, down from 75% in two years.
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For the debit cards fee controversy see also here, here, here, here and here.
Thursday, September 29, 2011
Working in the Dark
The New Republic
September 28, 2011
I thought I knew what this book was going to be about when I started it, but by the time I came to the end I was no longer sure. There is a prologue that begins with Charles Dickens’s observations and depictions of miserable London poverty, and then moves naturally to the classical Malthusian trap as the only explanation offered by the political economy of the time: any improvement in the general standard of living will be wiped out by increased population, so nothing much can be done except perhaps exhortations of abstinence. Dickens himself entered a plea for a more humane political economy. (This was an interesting piece of news to me. Presumably he intended something more than sugarcoating the pill, but what?) That could indeed be a “Grand Pursuit”: how economics and the economy learned to adapt to sustained growth and rising living standards. Sylvia Nasar’s first chapter almost confirms this idea; it is about Marx and Engels, with more emphasis than is usually given to Engels and his powerful Condition of the Working Class in England in 1844.
But this suggested theme does not hold up. The book is not “The Story of Economic Genius” that is promised in the subtitle. It is instead the story of the public and private lives of a handful of major figures in economics, some of them pretty clearly possessed of “economic genius,” at least part of the time, and some of them pretty clearly not, unless one plays fast and loose with the notion of genius. Most surprisingly, there is not much about the evolution of economic ideas in this book, either in the way Dickens hoped or otherwise. There is a lot of quite fascinating biographical detail about a series of interesting economists, and even more about the political, financial, and economic setting in which they functioned. Nasar spends much more time on the public role of her subjects than on their thoughts about economics itself. They were indeed all public figures of one kind or another. Many of them were also important economists, but you do not hear much about that at all; and when you do, the book skimps on intellectual content.
One does not have to wait for an example of this gap. A chapter on Alfred Marshall follows immediately after Engels and Marx. Marshall was one of the founders of modern economics. His Principles of Economics, which appeared in 1890 and went through a total of eight revised editions, was the great general treatise after John Stuart Mill. When I first studied economics in 1940, we were not given Marshall to read as a textbook; it would probably have been an improvement if we had. It is not much remembered today that Marshall was not merely the man who systematized the theory of the firm and the interaction of supply and demand in a competitive market. He was also an assiduous observer of the industrial practices of his time, and the ways in which they often deviated from the neat but necessary abstractions of theory, including his own. He was interested, for example, in the role that perceptions of fairness played in the determination of wages. He knew that rising productivity was the serious answer to mass poverty. You might say that he was starting to give Dickens his wish. So it is surprising to read a forty-three-page chapter about Alfred Marshall that arrives at the Principles of Economics only in its last few pages. By contrast, Agnar Sandmo, the author of Economics Evolving: A History of Economic Thought, an excellent recent history, offers an economist’s-eye view: he devotes a twenty-five-page chapter to Marshall, almost all of which is essentially about the content and the influence of Marshall’s great work.
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Friday, September 9, 2011
Rationality, games and conflict
Vox
September 9, 2011
Nobel laureate Robert Aumann of the Hebrew University of Jerusalem talks to Romesh Vaitilingam about his work on ‘rule rationality’, the development of game theory and its potential for understanding conflict – from the Pax Romana to the modern day Middle East. The interview was recorded in August 2011 at the Fourth Lindau Meeting on Economic Sciences, which brought together 17 of the 38 living economics laureates with nearly 400 top young economists from around the world.
Listen to the interview here
Wednesday, September 7, 2011
Washington's Antitrust Timewarp
Wall Street Journal
September 6, 2011
The Obama administration's suit to block AT&T's acquisition of T-Mobile will harm, not help, our sputtering economy. The administration claims the acquisition "would result in tens of millions of consumers . . . facing higher prices, fewer choices and lower quality products for mobile wireless services." It argues that stopping the buyout "will help protect jobs in the economy" since mergers usually reduce jobs through the elimination of redundancies.
The first of these claims has no factual basis—indeed, the market believes otherwise. The second is indefensible as social policy.
It is very difficult at an abstract level to know what the effects of a merger or acquisition will be on competition within an industry. Firms may merge to create market power and increase prices, though they may also merge to create efficiencies that lower prices.
The Justice Department presumes that the acquisition of T-Mobile (the fourth largest wireless provider) by AT&T (the second largest) will lead to "higher prices . . . and lower quality products" based on the high market share that would result. But market share is a very rough proxy for market power and essentially meaningless in a network industry.
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Sunday, September 4, 2011
Fourteen magic words that can increase voter turnout by over 10 percentage points??
The Monkey Cage
September 4, 2011
Christopher Bryan, Gregory Walton, Todd Rogers, and Carol Dweck did two experiments in which they increased people’s voter turnout in real electionsby over 10 percentage points by simply asking them the following survey question on election day:
- How important is it to you to be a voter in the upcoming election?
In the comparison condition, potential voters were asked:
- How important is it to you to vote in the upcoming election?
Unfortunately, there doesn’t seem to have been a control condition in the experiments, so all they could really do was compare these two treatments to each other.
The gimmick of the experiment is that it harnesses humans’ natural belief in essentialism (see, for example, reference 14 in the link above), the idea that being “a voter” is more essential than being a person who happened to vote.
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