published Friday, June 17th, 2011

The illusion of price controls

Wouldn’t it be nice if government could just enact a law to reduce the prices of goods and services? Well, it might seem nice, but if government forces a company to charge less for a particular item, the company has to make up that revenue in higher prices somewhere else — or it may have to lay off workers.

Under new federal regulations, it is expected that banks will have to reduce sharply the fees that they collect from merchants when customers pay for goods and services with debit cards. That may appear to be a great deal for customers. After all, who wouldn’t like to pay lower fees for any kind of service?

But the banks have to make up that lost revenue — which is expected to be about $14 billion.

So, among other things, there is talk that banks might eliminate free checking for their customers, and programs that give bonuses to debit card users are being scaled back or eliminated. Meanwhile, customers who are used to getting their debit cards for free may have to start paying a fee to have one.

Banks are “going to have to charge you for things that they used to give away ...,” one analyst told The Associated Press.

So once again, Washington hasn’t gotten rid of a particular cost. It has only shuffled it around, so it will be paid somewhere else.

That’s not price control. It’s price shifting. And it’s not the proper role of government.

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nucanuck said...

Removing bank regulation led to the financial meltdown of 2008 and is at the core of what still ails the American economy. To think that banks don't need heavy oversight is to not think.

America will not recover without complete financial reform. Period.

June 17, 2011 at 12:06 p.m.
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