Joe has much, but at least he's got his pride

The long (1 week) awaited (by me) "part 2" of the travails of Joe the exactly $250,000 before taxes income recipient/earner has now been published. You may recall part one (here), and my critique (here). In part 1, "Joe" talked about how hard he worked to get his $250,000. In part 2, he talks about where he spends it. It is short and easy to read, so I won't summarize it. Still, here are a few thoughts on both parts 1 and 2:

First, I'm open to the possibility that Enrico, the author, may have intended these columns as a parody. I have read nothing else he has written. But some of the statements--especially in the second essay, when he says that if he lived in the "very expensive city" in which he works, he would have to live "in a high-rise apartment with a doorperson, because otherwise, I would need to carry an Uzi when taking the garbage down the hall to the incinerator"--likely is not meant to arouse any sympathy from people who actually live in that city.

Second, it is very unclear to me how "Joe" can claim to earn exactly $250,000 before taxes. In my last post, I wondered whether the tax increase proposed by Obama et al. was based on adjusted gross income or based on some prior income consideration. Is the $250,000 before or after the AGI is figured? More to the point, in part 2, "Joe" mentions how hard it is to put away anything for retirement, which suggests that he puts at least something away. Now, there are various ways to save for retirement, and many ways involve tax-deferred mechanisms, such as 401(k)'s and IRA's.* He probably, therefore, earns at least some money that is not taxable, so the claim he earns "$250,000 before taxes" is probably more an approximation. (I am not certain if there is an income level beyond which one may enjoy tax-deferred contributions, and if there is, perhaps that challenges my point here.) Finally, I assume he has at least 1 interest bearing account--either taxable or non-taxable--and for the interest to add up, plus his other income, to exactly $250,000 is quite a feat, especially if it happens more than one year in a lifetime. [see update below]

Third, I'm sympathetic to the claim, implicit in both of his posts,** that he is a net-taxpayer (i.e., that he pays more in taxes than he receives in services). Yet he receives at least some services and benefits. In one of "Joe's" hypothetical scenarios, his children go to a public school in an "affluent" suburb. In most of his scenarios, "Joe" drives a car on roads that are maintained in part by public funds (yes, I know some of the roads are probably toll roads). Take, also, social security and medicare. It is possible that they are not involved, yet, in the proposed tax increases on "the rich."*** I won't mention the temporary relief given on social security taxes this year (actually, I just did mention it, but I'm not sure if there's an income requirement that would make "Joe" ineligible for the relief). I will even grant that maybe those programs won't be around by the time "Joe" retires. But if he has a parent or parents who depend on social security and / or medicare, it is just possible he is therefore an indirect beneficiary.

Fourth, Joe has more choices. He need not live in an expensive high-rise apartment: he can probably rent out a good room with the owner of a two-flat, like my girlfriend and I do. And I'm sure the landlord would be much happier to have a low-maintenance middle-aged man with a stable income than a slack-jawed (almost middle aged) grad student like myself.

Fifth, it is true that in one of the hypothetical scenarios, "Joe" has a skillset the demand for which is in decline. In other words, if he loses his job, it would be very difficult for him to find a comparable job at the same or similar salary. Indeed, he might even be priced out of less remunerative jobs because, as a former senior level management person, he might be seen as too overqualified for, say, a barrista post at Stardollars (a job that he might find is hard in its own right). I also acknowledge that as someone who is presumably middle-aged, he would probably face the very real prospect of age discrimination on the job market (as someone who is approaching middle age myself, I am becoming much more sensitive to the possibility). But in those cases, he will be earning far less than $250,000 and therefore will no longer be one of the oppressed rich.

As I argued in my last post on the plight of "Joe," I have much sympathy--even empathy--for Enrico's apparent effort (if he's not writing a parody) to challenge the facile assumption that "people who make $250,000 a year have it easy." In some ways ways, they have their own challenges and worries and concerns, and their life might attain a level of stress, ennui, and unhappiness that others who make less might be more in a position to avoid (the key word is "might"....they might very well have other stressors, ennuis, and unhappinesses, too, but I'm not dismissing outright the possibility that "Joe" has it worse than he might if he made, say, only $50,000 a year). But in some important ways, "Joe" has choices, and he appears, largely, to deny it.


Update: 5-21-11: The reason I harp so much on the difficulty of claiming that "Joe" makes exactly $250,000 a year before taxes is because that claim is meant to have a lot of persuasive force. The reader is lead to believe that, but for the arbitrary imposition of a penny (or, more likely, a dollar) in his salary, "Joe" would evade the terrors of the tax increase. The persuasiveness of his claim about the apparent arbitrariness of the line-drawing would not be as strong if "Joe" made, say, $255,000 before taxes. Also, and as an aside, I suspect many people would draw the line at which one becomes rich well-to-do at a point somewhat lower than $250,000, say, at $200,000, or at $100,000. Such people would likely see the arbitrariness as extending in the other direction: too many of "the rich" are getting by without the increase, they might say.


*My understanding of Roth IRA's is that the income invested is taxable, but the interest/earnings on the investment are not, or are at least tax deferred.

**For example, in the first essay, he complains about people raising his taxes for "federal budget deficit I had nothing to do with," and in the second essay, he complains about property taxes raised to support local schools, etc.

***I have heard the claim, the truth of which I don't know, that these programs are actually funded by unique funding streams and are not really included in what is officially counted as the budget deficit....again, I don't know if that is true, but I have heard the claim.

By whom the offense cometh

One common theme of Mr. Zywicki's at the volokh conspiracy is to point out how new financial regulations at the state and federal levels tend to harm the very credit consumers that they are intended to help. The gist of his arguments: while making it more costly to provide certain loans (either through limitations on such impositions as late fees or limitations on interest rates), these regulations prompt lenders to restrict credit to more creditworthy folks or to shift costs onto those who have less. (For an example of the latter, see his linking to an article about the trend away from "free banking." Click here to read it.)

His most recent post (click here to read it) is about an initiative in Montana which effectively outlaws payday loans by drastically lowering the interest rates that lending facilities can charge. Mr. Zywicki says he holds little favor for payday lenders, but putting them out of business effectively denies choices to people rather than helps them.

There's a counter-claim to his claim, namely that the "real" problem is that people are drawn into an ever oppressive system of debt and repayment and that closing down these lenders puts an end to the enticement to this trap. I think this claim is fundamentally an empirical one that could plausibly be tested. I think such a test would show that in at least some cases, the claim proves true.

But none of this really denies Mr. Zywicki's claim. If some are helped by no longer being exposed to the trap of payday lending (and it's unclear to me how many customers of payday lending find themselves in an irresolvable debt-repayment trap and how many have been able to use the services a few times when cash was particularly tight and repay everything before the cycle becomes oppressive), some are, in effect, "harmed" by no longer having the option.

What Mr. Zywicki argues goes against my instinctive sense of what's just. But I think he is right, as much as I am disinclined to want to admit it. He himself notes that he is "no fan of payday lending and auto title lending." I am beginning to think that the morality of payday lending is a distinct issue from whether the state ought to ban it. As Lincoln said, quoting a passage in the Bible, "if it must needs be that offenses come, then woe unto the man by whom the offense cometh." (I myself ought not be pompous in claiming who's to blame for the offenses. One summer, I gave brief but serious consideration to applying for a job at a payday lending post: I had the requisite banking and cash handling and probably had a chance at getting the job.)

I do wonder, however, if there is some other way to prevent or at least curtail significantly predatory lending schemes. I do think one partial solution would be to encourage banks to take on more customers. (I blogged about this a while ago, click here to read it if you're interested.)

Words I prefer people not use

I'd like to preface this list with a few clarifications and disclaimers:

1. I am not claiming a false moral equivalence. For example, "WASP" is on my list, but I am not saying that it "is just as bad as the N-word." It's not; the N-word is much, much worse.
2. I realize and acknowledge that the words on this list reflect my own class, gender, race, sexuality, etc., and that for the most part they reflect that I am not, in most senses of the term, "marginalized" whereas other words (e.g., the N-word) are most commonly directed at other marginalized people and function as a way to further marginalize others. In most of the senses of the word, I am not marginalized, and I do not claim to be. I am, in fact, quite privileged.
   
3. As a corollary to number 2, I realize that most or all of these words are sometimes used by marginalized people as a defense mechanism or as a way to strike back at an oppressor class--a strategy/tactic that Robin D. G. Kelley refers to as "infrapolitics." I personally have doubts about the utility and advisability of such "infrapolitics," but I also acknowledge the issue is much more complicated than "I don't like these words and people shouldn't use them," even though I don't like these words and would prefer that people not use them.
4. I am not arguing for censorship (other than self-censorship). I am not even arguing that companies or employers ought to enforce rules against using these words, although I would posit in the abstract that in some employment situations it might be wise for management to encourage a degree of mutual respect, and that might entail forbidding the use of such words (even so, I suspect that simply devising an "index of prohibited words" is not, by itself, a wise management tactic). I am not arguing for political correctness; if anything, I am arguing for politic correctness: we all have to live on this earth with other people, and I am letting others know that certain words or terms they may not have thought of might function as a way to impede civility and understanding than as a way to foster it.
5. I have in the past, and maybe even now, sometimes used the words on this list unironically. I say this for the sake of disclosure, not to defend my use of the words or even to claim that I don't sometimes use these words.
   
6. There are other words that deserve to be on the list, but that I am omitting. Some of them are not necessarily widely accepted as offensive or derogatory (e.g., the word "gay" as a pejorative, a word that I have sometimes used myself in that way, even though I ought to know better). Others are so offensive (like the c-word or the n-word), that I would hope that anyone would have them on their list. I am including only the words that affect me personally.
7. (I don't like the number 6, so I wanted to end with "7")
   

Here's the list of words:

• Breeder: I realize that this word comes as a counterpart to "queer" or the "fag" and as with a lot of words, is descriptively accurate (some people "breed" and some don't). Still, maybe there's a better way to say "straight person" or "person who decides not to have children." Also, this term assumes that all straight people want to "breed," although I have encountered at least one straight person who used it to describe herself.
  
• The d-word: my sexual anatomy doesn't define me to any greater or lesser degree than it defines any one else (with all necessary qualifications about our "phallocentric" society, etc., etc., which, even if true, assume a lot that is contestable.)
  
• (The faux "southern" accented word: e.g., "guvmint," "Jebus," "librul," "terruh"): these words are used to accuse other people (without actually accusing them, so it's hard even to answer the accusation) of being ignorant or uneducated simply because they are religious or challenge certain prevalent assumptions (most of which I share) about the power of the state or the threat that terrorism might pose. These terms also smear a large portion of the U.S. population by implication, drawing on the stereotype that southerners are uneducated and stupid while also assuming that all southerners speak with one voice on matters of state power, religion, and the "war on terror."
  
• Sausage Fest: see "d-word." I encountered this word in grad school, used (mostly but not exclusively) by my lesbian friends [see update below], and its very hard to tell them how offensive I find it.
  
• WASP: Not all "White Anglo-Saxon Protestants" are part of the power elite, and even if they were, it's not right to a priori assume that they are all like some vicious insect that "stings" the weak and powerless.
  
• White boy / white girl: the use of this term, as a term, is probably the most defensible on the list, because it functions as a way to underscore that the racially "unmarked" person--i.e., the white person--does indeed belong to a "race" (socially constructed or otherwise...I won't enter into the Walter Benn Michaels debate now). Still, it would be nice for people (including white people, like me, and especially me, as I tend to think in these categories) to at least think twice before identifying people first, primarily, and only by their race. On a more personal note I can recall from middle school and high school non-white people who used it on me as a bullying word.
  

Again, I want to stress my qualifications and disclaimers at the front of this post.

UPDATE 12-28-10: The spirit of this post is to argue for restoring civility. By stating, above, that "my lesbian friends" tend to use a certain term, I have just resorted to the sort of labeling that most of the rest of this post decries. Therefore, I offer my apologies. I am leaving my original phrasing above because I believe that once I post something, I should take responsibility for having posted it. I haven't always followed that policy on this blog, but I have been trying to do so of late.

Are markets in any meaningful way "natural"?

It is a common meme of our culture (and by meme I mean "something that I claim to be 'in the air,' but I abjure any responsibility for proving that people actually say or believe it") is that "markets" and "market mechanisms" are "natural" and that attempts to interfere with them by, say, government regulation, are "artificial" constraints on the natural. It's sort of a zen thing: the natural laws of, say, supply and demand are immutable, and regulations don't change those laws, they just frustrate and channel their operation in what are, in the long term, harmful ways. I simplify, of course: I suspect that I don't really understand the "laws supply and demand" and that at any rate they by themselves do not sufficiently explain what a market is.

What is a market? Wikipedia defines "market" (at least today it does) as " any one of a variety of systems, institutions, procedures, social relations and infrastructures whereby businesses sell their goods, services and labor to people in exchange for money. Goods and services are sold using a legal tender such as fiat money. This activity forms part of the economy. It is an arrangement that allows buyers and sellers to exchange items." I'll work with this definition not necessarily because it is the right one, but because I'm too lazy to come up with my own or to research all the other possible meanings.

Those who speak of the market and "market mechanisms" as natural are, I believe, speaking metaphorically. The most literal construction to put on the difference between "natural" and "artificial" demonstrates that, literally speaking, markets are not natural at all. According to my Google master (which is the ultimate owner of this blogspot account and the Prime Mover behind the search engine I use, praise be its name), lists, among several definitions of artificial:

• contrived by art rather than nature; "artificial flowers"; "artificial flavoring"; "an artificial diamond"; "artificial fibers"; "artificial sweeteners"
• artificially - not according to nature; not by natural means;
• Man-made; of artifice; False, misleading; Unnatural
  

It is the notion of "(hu)man-made" that I want to emphasize here. (I do not, however, want to emphasize "falsity," as is implied in the last definition I cited.) In the most literal reckoning, markets, because they involve, by Wikipedified definition, people, are "artificial." Without people, there would be no markets. (Probably. I don't know if people make the argument that non-people, say, dogs, cats, paramecia, or venus flytraps engage in behavior that can be properly labeled "market"-oriented behavior. I'll also concede, without knowing or even caring, that there is probably some species of chimpanzee somewhere whose members participate in some "market-like" behavior.)

Rather than claiming that markets are literally natural, the "market naturalizers," I think, are making a different claim. One variant of this claim is that people, left to their own devices, engage in market-like behavior and that a political economy that lessens obstacles to this market-like behavior encourages people, in effect, to do what they are "naturally" inclined to do. Conversely, a political economy that, through regulation, increases the obstacles to this market-like behavior discourages people, in effect, from doing what they are "naturally" inclined to do.

This claim and its converse have a corresponding normative claim that markets are good, first on the the ground that what is "natural" is good, but second on the much more tangible ground that markets lead to greater material and even non-material happiness: market competition leads to more "choice" and more goods and services (material) and allows each to develop his or her comparative advantage (material and non-material inasmuch as pursuing one's true calling is a "comparative advantage" and leads to personal happiness). The first ground is facially compelling but empirically unprovable: it's just assumed, and most people presumably share the assumption. The second ground is subject to quantifiable proof, and even though "happiness" is always tricky to pin down or to quantify, access to the goods one wants and to the ability to pursue what one does best can be easily measured.

One question that comes to mind, for me at least, is who or what enforces fairness in the market? If I cheat somebody on a sales transaction, how can someone get redress? I suppose that one would not patronize my business or services if I were known to be a cheater (and, for the sake of simplicity, I am speaking of a market as a center of distribution of goods and services and not the more hoary (because I don't understand it) notion of "public choice" theory that probably extends market behavior to other types of action....in other words, I'm sticking toward my working definition cited above). Would the person I cheated get their money back? How? It seems that there needs to be some arbiter that will prevent the person I cheated from resorting to challenging me to a duel, or paying protection to a bunch of thugs who will make sure I pay back that which I stole (but then we get into a feudalism thing, and that's usually not very pretty).

The type of example I just mentioned is not really all that damning. The market naturalizers recognize, usually, that there needs be some enforcement mechanism for a market to operate smoothly; they also mention the phenomenon of "market failures," in which goods and services are not really allocated all that well (the tragedy of the commons, and all that). In answer to my assertion that "there needs be some arbiter," a market naturalizer might claim that a distinction ought to be made here between "government" and "governance," and it's a distinction I don't understand fully. But to the extent that I do understand it, it merely begs the question (in the sense of "raises the question" and not in the sense of "assuming that which is to be proven") of what "government" is, or what the "state" is, or what is an "artificial regulation" and what is a "regulation in accord with the natural laws of the market."

I've written a lot here, and I don't have an answer to my own question, at least not an answer that would convince anyone not already predisposed to agree with me. Here's my tentative answer: markets, whether natural or not, are fragile things and need to be propped up by something and the something that props them up is part of what defines the state. Two objections to the preceding sentence: the first clause (about inherent fragility) is merely the confession of a bias that is not particularly provable; the second clause (about defining the state) merely begs the question (in the sense of "assuming that which is to be proven" and not in the sense of "raises the question"). But that is the starting assumption I am working with.

Why bother stating this assumption? I'm certainly not the first at questioning the naturalness of the market, nor is my questioning of it necessarily the most eloquent or even comprehensible. But I think, or at least hope, that looking at markets as fragile entities "demystifies" (a term I hate, because it would make me look like a Marxist who spends all his time whining about commodity fetishisms and the "alienation of labor from the product of labor") the notion that "darn it, markets just need to be free" and any governmental intrusion into the economy is a hindrance of that freedom.

There are, of course, wiser and less wise governmental intrusions into the economy, and some intrusions create perverse incentives that make things worse. The Health Insurance Reform, for example (which I support by the way), will, even if it works like it's supposed to and isn't declared unconstitutional, create certain challenges that can't be escaped from just by governmental fiat: will there be enough doctors to service the newly insured at the lower remunerations that will likely result from government controls on the prices of premiums? how much will the prices of premiums be lowered? how will smaller businesses bear the burden of having to provide insurance? how will people out of work find jobs now that it would be more expensive for even larger businesses to hire new employees? But the notion that the reform merely impinges on something "natural" would not be a good argument by itself to lodge against the reform. Any such argument needs to be supplemented by what would be better, by an assertion of a different kind of structuring of the health insurance and health care markets, and that assertion would either be the status quo (which no one, to my observation, claims to like) or something different, based on, say, tort reform or tax credits or decoupling (through new employment taxes) employment from access to health insurance.

One of the tags for this post is "libertarianism." By so tagging this post, I do not mean to imply that libertarians have no valid points when it comes to regulating or deregulating the economy, and I do not mean to build a man o' straw--I know their critiques of regulation are more sophisticated--but I do notice that they sometimes indulge in the "markets are natural" rhetoric, and it is this indulgence I am objecting to.

What I'd like to know about interchange fees

There is much ado about whether or how much or in what way the government should regulate what are known as "interchange fees." These are the fees a merchant pays every time he or she charges a customer's credit card. So, to take some made up numbers, if a customer uses a credit card to pay for something that costs $10, the credit card company (or the bank with which the merchant has the credit card processing account) charges the merchant, say, 2%, or 20 cents, if my math is correct.

The controversy is that some merchants, presumably smaller merchants who operate on close profit margins, claim that the fees are so high that they often cut into the merchants' profits, especially when credit cards are used for purchases of small dollar prices. The contention, I presume, is that x% of a $1 pack of gum--or at least x$ on several single purchases of $1 packs of gum--takes away the merchant's entire profit margin. According to some merchants, credit card services require that merchants accept credit cards for all transactions. Therefore, some claim, smaller business owners get the short end of the stick. There are other arguments advanced for a more robust regulation of interchange fees: the price of the fees get passed along to consumers, even those who pay cash, in order to subsidize those who pay with credit cards; some credit cards allegedly command higher interchange fees than others, so there is a sense of arbitrariness and unpredictability of costs; the two dominant credit card companies--which I'll call Misa and VasterCard so as not to single anyone out--allegedly operate as near monopolists and unfairly negotiate with smaller merchants who individually lack bargaining power.

The justifications for unregulated/less regulated interchange fees range from arguments that robust regulation would be price fixing and government is generally less than competent to do price fixing, to more practical considerations, such as the assertion that individual merchants could, if they wanted to, negotiate with credit card companies to pass the fees on to customers or use one of the other credit card companies (which I'll call US Express and Uncover); the assertion that having a credit card is to mean anything, it means being able to buy anything at a merchant that accepts a card; and the assertion that interchange fees represent real costs to the authorizing banks and that handling cash and/or checks carries its own costs (the risk of checks bouncing, robberies, counterfeit currency).

I'm not sure where I fall exactly. And before I make up my mind, there are some things I'd like to know the answers to. Some are factual items--I just don't know a lot--and some are hypothetical (the "what would really happen if we did x, y, or z?"). I've heard assertions one way or another on a lot of these points. I assume they can't all be true, or at least not categorically true:

• Are merchants currently forbidden by credit card agreements from allowing discounts to cash only customers? I heard assertions both ways and imagine it might depend on the context. (One would also have to look at the merchant's incentive to offer the cash-only discount. I probably wouldn't base decision to purchase a $2 cup of coffee on a difference of, say 5 cents.)
• Do antitrust laws prevent merchants from organizing collectively to gain a credit card contract more to their liking?
• What would happen if merchants were allowed outright to charge higher prices for credit card holders? Would they simply raise all their prices by x percent and charge cash-only customers what they charge now?
• What would regulation of interchange fees look like? Would they simply be tacked on to the customer's credit card bill? Would there be a set percentage that merchants could charge? Would the government simply declare a "fair" fee? I know that Sen. Durbin has advanced an amendment to the currently pending finance bill that would do a variant of this latter scheme in respect to interchange fees on debit cards: in short, the Federal Reserve would set the rate. But I wonder if "price fixing," as the opponents label attempts to regulate interchange fees, is the only way to go about ending this practice.
  
• How are interchange fees regulated or enabled by currently existing regulation? (Sometimes opponents of "new" regulations, especially those who benefit from the status quo, do not realize or fail to acknowledge the ways in which current regulations play an active role in buttressing their current interests.
  

As someone who uses cash for most purchases--even to the point of being willing to pay the fees charged by out-of-network ATM's instead of using my debit or credit card--my interest in interchange fees is more academic than not. I'm just outlining some of the things I'd need to know before making a decision on the matter.

Thoughts on Walmart and local merchants

In Chicago for the last 6 years or so--perhaps longer--a debate has raged over whether to allow Walmart to build stores in the city limits. One of the many arguments against allowing Walmart an entree into the Chicago market is the claim that it chokes off smaller business that is locally owned and operated. The argument for Walmart hinges, at least in part, on the claim that the economy of many of the targeted neighborhoods in Chicago is so bereft of local merchants and the goods, services, and jobs they are supposed to supply that a Walmart would be a welcome addition.

I have heretofore expressed some reservations about the we-need-to-ban-Walmart-to-protect-local-businesses argument (see my post here, and a comment I made on a post at the Volokh Conspiracy here). In short,

Personalized business, or where to buy junk food

Sometimes, I prefer to patronize local businesses in part because I feel something tending toward a "moral" obligation that I want to support locally owned businesses. For example, there is a convenience store near where I live that appears to be owned by a family who, I assume, live in the neighborhood. Right across the street, a corporate gas-station/convenience store has opened up as well. The main difference between the two is that the latter offers gasoline and can induce a greater number of customers with slightly cheaper prices and loss leaders. Whenever, on rare occasions, I wish to patronize a local convenience store, I try to use the locally owned one (I don't have a car, so gasoline is a moot point). The reason: they're always nice to me and I don't want to see them lose their business.

Now, nothing I buy there is important, and there is a grocery store