Debit Cards and Capitalism

Over at The Corner, Katrina Trinko is not a fan of the Fed's proposed new caps on debit card swipe fees:

The idea behind the legislation was that the banking industry had these fees set too high. If the Fed forced them to lower the fees, retailers would save — and give their customers lower prices. Well, instead, it now looks like retailers will just pocket the extra cash and not charge lower prices, while banks will try to recoup some or all of their losses by charging consumers new or higher fees. Not exactly what the lawmakers intended to happen!

But it gets worse: the Fed has now announced they want to cap interchange fees at 12 cents per transaction — an amount that the Fed admits is “more than 70 percent lower than the 2009 average.” That’s a lot higher than the worse-case scenario of 50 percent that analysts had predicted — and means that consumers can expect to get slapped with a lot of banking fees.

Yep, that might happen. But here's the thing: the reason that Dodd-Frank forced the Fed to step in is because the debit card market is a monopoly that forces contracts on merchants that are almost criminally one-sided. Visa and MasterCard control an enormous proportion of the market, they charge sky-high fees that are plainly predatory, and they prohibit merchants from passing along these costs to customers.

It's the last one that's the smoking gun. Maybe you don't want to break up the card market because it's more efficient to have a small number of networks. Maybe you don't want the government stepping in to regulate fees. Fine. But if that's the case, then merchants should be allowed the free-market privilege of charging whatever prices they want. If they want to give discounts for cash, fine. If they want to add surcharges for debit cards, that should be fine too. If they want to add different surcharges depending on the card, also fine.

Then we'd find out where the problem, if any, lies. If merchants mostly decide not to bother with surcharges, then it means they feel like they're getting good value in return for the swipe fees. If surcharges become widespread, it means that Visa and MasterCard were using their monopoly power to extract unfair rents.

But the card companies have fought like crazed weasels to keep their contracts intact. They are absolutely, categorically intent on not letting merchants charge free market prices for the use of their cards. This should suggest to any good capitalist that something is amiss. And that's why the Fed is stepping in. The card companies have no one but themselves to blame.

The Digital Fog

Dan Gillmor:

Yahoo has decided to close its Web bookmarking service, Delicious, a move that is sparking angst to outrage around the intertubes. One result is a frenzied search for a new social bookmarking service to replace what many people, including me, have used over the years to stockpile and organize links to online material we've found interesting.

....But the most important result may ultimately be what this move, among others, does for public understanding of the role of Internet service providers of all kinds....We put our data — our websites, photos, bookmarks, email and more — on their sites. But they can, and do, change their terms of service at will, doing what they please with what we've put on their servers. And sometimes they just shut down the services they've been providing. They may do it for good reasons, or absurd ones. It doesn't matter. The point is, they can.

This is true. At the same time, it's nothing all that new. My first word processing was done in Scripsit on a TRS-80. Then in MASS-11 on a VAX 750. Then in Ami Pro under Windows 3.1. Then in Word. Then in Blogspot. Then in Movable Type at the Washington Monthly. Now in Drupal at Mother Jones. Everything I wrote on Blogspot is already gone, and it's true that everything I wrote at the Monthly and currently write at MoJo could easily disappear if either of those magazines goes bust. But guess what? Most of the older stuff is gone forever too even though it never touched the internet. The programs disappeared, the data formats disappeared, and the physical formats became obsolete. You can't buy Ami Pro or 5¼-inch floppy disks anymore. This is something that data retention experts have wrestled with for decades. Archival storage is nearly impossible in an era where both physical media and digital formats change relentlessly.

So yes, be careful. Backup your data. Don't trust the cloud for everything. But every time we do anything on our computers, we're trusting that the programs we use will be around for a while. Sometimes that bet pays off, sometimes it doesn't. I have a Civil War diary written by my great-grandfather in 1863, and it's still extremely legible and accessible. But what are the odds that a single word I've ever written will still be accessible in the year 2160? Aside from the stuff on paper, pretty slim, I'll bet.

The Stimulus Bill That Failed

New research from the University of Maryland shows that viewers of Fox News were more misinformed about factual questions than any other news audience during the 2010 midterm elections. No surprise there, I guess. But here's the breakdown on one particular piece of misinformation:

Overall, heavy Fox viewers were the most uninformed about this. But only slightly. With the exception of the MSNBC audience, every other audience was almost equally uninformed. The only exception was daily viewers of Keith and Rachel, and even there an astonishing 64% of viewers basically thought the stimulus was worthless.

I don't happen to believe that communication and messaging are as critical as the press sometimes makes them out to be, but something sure went cockeyed here. One way or another, the White House and congressional Democrats utterly failed to make a case that the stimulus bill did the economy any good at all. That's obviously a tough sell in a high-unemployment environment, but still. Complete, utter failure. It's astonishing.

The Decline of America

Ezra Klein on the tax deal:

Stripped bare, here's what the deal says about the two parties: Republicans care much more about tax cuts for the rich than about any of their specific arguments about what's impeding recovery, while Democrats don't have the votes to really put their preferred policies into place, and so are left settling for policies that they don't think will work that well and, in some cases, don't think will work at all. What we ended up getting was better than I expected, but it's not a deal that anyone with a coherent view of the jobs crisis would've designed.

Roger that. I can't remember when I've been more demoralized about American governance. I have this overwhelming feeling of barnacles building up relentlessly, untouchable because of interest group pressure on both left and right, and a complete inability and/or unwillingness to address any of it. Democrats have some things they want to do, but in addition to satisfying their own interest groups they have to settle for third or fourth best policies because Republicans have simply decided they don't care about anything except tax cuts for the rich, hating gay people, and bennies for favored industries. In the middle of a massive recession they opposed a stimulus bill. In the aftermath of a financial crisis they opposed a financial reform bill. In the face of skyrocketing healthcare costs they demagogued modest cuts in Medicare spending. They spent months negotiating a spending bill — transparently, openly, via the ordinary committee process — and then killed it just because it would annoy Harry Reid. Global warming is a hoax, gay recruits will destroy the military, and creationism is an appropriate topic for high school biology classes. Our infrastructure is crumbling and our schools are mediocre, but the creeping encrustation of government prevents anything serious from being done about either. We're in hock to Middle Eastern theocracies for our oil, and the laughable answer from the right consists entirely of nukes and a bit of marginal extra drilling around the periphery of America. An arms control treaty that could have been negotiated by Ronald Reagan himself is unsure of passage because too many Republican senators deem it unsafe to risk the wrath of Fox News or their tea party constituencies.

Democrats have their pathologies too. Teachers unions really do impede school reform. Public sector unions have bid up government salaries. Environmental and land use rules have made infrastructure development of any kind a grueling, expensive marathon. Both parties subsidize idiocies like corn ethanol, and both sides boast coal state senators who are unwilling to think seriously about pricing carbon.

But at least we all have access to 300 TV channels in glorious high definition! Who says America can't accomplish great things anymore?

Anyway. Just had to get that off my chest. Sorry. Back to work now.

Our Mounting Disaster in Afghanistan

Richard Holbrooke's last words, spoken to his Pakistani surgeon before he was sedated for surgery a week ago, were "You've got to stop this war in Afghanistan." The White House has since taken pains to tell us that he was speaking in jest, and perhaps that's just as well. Because recent news suggests that the war is neither going to end nor come to anything resembling a successful conclusion anytime soon.

Start with Afghanistan's president, Hamid Karzai. His attitude toward the United States, which has been all but clinically bipolar for quite some time, turned even more heated than usual recently when he met with several American officials to discuss the fate of private security firms. The Washington Post reports what happened:

As he spoke, he grew agitated, then enraged. He told them that he now has three "main enemies"—the Taliban, the United States and the international community. "If I had to choose sides today, I'd choose the Taliban," he fumed. After a few more parting shots, he got up and walked out of the wood-paneled room.

It is practically an axiom of counterinsurgency that success depends (among other things) on the active help of an effective and sympathetic government. It's become increasingly clear that we no longer have that in Afghanistan, if we ever did. The Karzai government is almost stunningly corrupt, it has effective control over only a fraction of the territory of Afghanistan, and Karzai himself in recent months has repeatedly gone into rages both public and private against the American occupation. It's no longer possible even for paid optimists to pretend that we have his support in any but the most technical sense.

Then there's the US intelligence community, which recently reported to Congress that the Afghanistan war cannot be won unless Pakistan gets serious about rooting out Taliban militants on its side of the border. But the report goes on to say the Pakistani government and military "are not willing to do that," according to an official quoted by AP. "The document says Pakistan's government pays lip service to cooperating with US efforts against the militants, and still secretly backs the Taliban as a way of hedging its bets in order to influence Afghanistan after a US departure from the region."

Military commanders dispute the intelligence analysis, but their protests are hard to take seriously. Pakistan has been supporting the Taliban for over a decade, they barely even pretend these days to prevent them from crossing the border at will, and they know perfectly well there's no real leverage we can bring to bear to change their behavior. As Andrew Exum put it in an otherwise positive report after a recent visit to Afghanistan, "I do not see a coherent or otherwise effective strategy for dealing with the sanctuaries in Pakistan. I do not see it anywhere in the US government or within NATO, whose writ only extends to the borders of Afghanistan anyway."

Finally, support for the war in the US has fallen off a cliff. ABC News reports: "Public dissatisfaction with the war, now the nation's longest, has spiked by 7 points just since July. Given its costs vs. its benefits, only 34 percent in the latest ABC News/Washington Post poll say the war's been worth fighting, down by 9 points to a new low."

The argument for optimism is that NATO forces have made substantial tactical gains in the past year: intelligence gathering is better, local support is stronger, security is improving, and the Taliban is in retreat. You can read a pretty good version of this case here, from Peter Mansoor and Max Boot. But tactical improvements only get you just so far. Our big long-term problems—lack of central government support, lack of Pakistani support, and lack of American public support—suggest pretty strongly that the war in Afghanistan isn't winnable in any ordinary sense of the word. It's hard to say if this has sunk in at the White House, which released its latest review of Afghanistan on Thursday and apparently plans to stay the course. Sort of. Troop withdrawals might begin next year, but only in token numbers. The new deadline is 2014, and even that's vague.

As Fred Kaplan says in his informative take on both the White House review and the thorny politics of the AfPak region, "Nothing about this war gets any easier." At this point, it's difficult to conclude that further US fighting in Afghanistan can do anything more than delay the inevitable—and possibly make it worse when it finally comes to pass. Without active support from Kabul, Islamabad, and the American taxpayer, tactical gains can never be more than limited and temporary. As bad as an American withdrawal from Afghanistan would be, our continued presence in the face of an impossible situation only makes it worse. A year ago Afghanistan still couldn't fairly be called anyone's Vietnam. Today, it's Obama's.

Google Unveils the Fabulous Ngram Viewer

Google has just put online perhaps the greatest timewaster in the history of the internet. For a certain kind of person, that is. Which I know many of you are.

It's the Ngram Viewer, which lets you graph and compare phrases over time, "showing how their usage has waxed and waned over the years." (Ngram is not a very small weight, it's a techie term for a sequence of letters. A digram is two letters, a trigram is three letters, and an ngram is a sequence of any length. UPDATE: Actually, ngrams can be sequences of letters or words, and word ngrams are more common. Google's reference is probably to word ngrams.) The dataset consists of 500 billion words from 5.2 million books scanned as part of the Google Books project. For example, here's a chart showing usage of data is vs. data are over the past century:

As you can see, data are reached a peak in the early 80s and then began a precipitous nosedive. By the mid-aughts, I'm delighted to report, data is was nearly as widely used and looks to be on course to overtake the obnoxious data are sometime in the next decade. Hooray! (As you've probably guessed, I'm a longtime proponent of data is as the proper modern usage.)

Anyway, I'm sure you can immediately see the potential here for timewasting disguised as scholarly research. Go ahead and give it your best shot.

The President's Priorities

Evan McMorris-Santoro tells us today about President Obama's legislative priorities:

Sources on the Hill are telling me a big reason DADT repeal isn't moving faster comes right from 1600 Pennsylvania Ave. Despite President Obama's public support for repeal, with DADT stacked up against the START nuclear arms reduction treaty that Obama carefully brokered with the Russians earlier this year, the White House is putting its legislative push behind START.

....No one questions that Obama wants to see DADT end, or that he wants to see it end this year. The concern is over the priorities: Obama, it seems, wants START to come first. And with the White House pushing START (in daily phone calls from top White House officials, according to one source on the Hill), Obama could end up standing in the way of DADT getting done.

"The White House has been crystal clear that their number one priority in this lame duck session is START," said one Senior Democratic aide.

If this is true, it's very disappointing. New START can pass next year; DADT can't. It's that simple. Repeal of DADT should come first and New START should follow.

UPDATE: TPM reports that Harry Reid has filed for cloture on DADT, which means the Senate will vote on Saturday. Good news.

How To Get a Job

Over at the League of Ordinary Gentlemen, Will writes about Peter Orszag's decision to take a multi-million dollar job with Citigroup shortly after leaving the Obama administration:

There’s another consequence of the revolving door phenomenon that really bothers me. My brother, who happens to be a recent college graduate, made an off-hand remark the other day about how nobody finds a job without an ‘in’ or a personal connection. At face value, this is faintly ridiculous: a white, upper-middle class kid with a degree shouldn’t be complaining about tough career prospects. But it’s a sentiment I’ve heard from many of my peers in the 20-something, college-educated demographic, and I can’t help thinking that Orszag’s new job is another data point in a line of policies and events that — while perhaps defensible individually — have created a prevailing narrative of influence/personal connections trumping ability/merit/worthiness. Maybe I’m reading too much into a few tossed-off remarks, but I’d venture that an entrepreneurial society depends to some degree on a culture that downplays influence-peddling and emphasizes individual achievement....This is all wildly speculative, of course, but I kind of wonder if a deluge of uncomfortable stories about corporate bailouts and political insiders could eventually sap some of this generation’s entrepreneurial vitality.

I don't have any idea whether this kind of thing saps entrepreneurial vitality — I'd guess not — but I'm curious about this personal connection business. I've heard this relentlessly too, usually with a figure of some kind attached. For example, 80% of successful job applicants heard about the job, or got the job, or something, because they knew somebody somewhere who recommended them (or maybe just told them about it). It's never clear where these numbers come from, or whether they only apply to white collar jobs, or whether it's all BS, or what. But certainly a lot of people believe it.

Anyway, the reason it's always struck me is that I've never gotten a job via personal connections. (Well, once, for a short-term consulting gig.) I've either just applied based on an ad or else been recruited. I'm not a very social person, so maybe that's all there is to it. But then again, I've also hired plenty of people, and interviewed people hired by others, and very few of them came in the door via personal connections.

So: comments are open. Is my experience unusual? Or is this business of needing an "in" just an urban myth, and most people get jobs exactly the way you'd expect: by applying for them blind. Anybody have anything interesting to say about this?

Debit Cards About to Get Cheaper

If the Wall Street Journal is to be believed, the Fed is about to crack down pretty hard on debit card swipe fees. Apparently they're considering two similar plans:

Both plans involve a cap of 12 cents per transaction and could cost banks billions of dollars in lost revenue but represent a victory for retailers.

Under one plan recommended by Fed staffers, card-issuing banks could use a formula to determine the maximum amount of an interchange fee that it may receive, based on certain costs incurred by the bank to process debit transactions. The Fed would set a "safe harbor" standard at seven cents per transaction. But then, any costs in excess of the safe harbor could be recovered up to the 12-cents-per-transaction cap....The alternative plan doesn't involve a safe harbor plan, just the 12-cents-per transaction cap.

Unless I'm missing something, this is a pretty stiff regulation. Current swipe fees generally amount to 1-2% of the transaction, so the fee on a $100 purchase is upwards of a dollar or two. Under either of the new rules, the maximum fee would be 12 cents.

It's not clear how much of this reduction will be passed on to consumers and how much will end up in retailers' pockets. But considering the monopolistic nature of the debit card market and the heavy-handed contracts it allows card companies to force on merchants, this rule seems eminently reasonable. Dodd-Frank says debit card charges have to be "reasonable and proportional" to the cost of providing the service, and 12 cents sounds about right to me.

Quote of the Day: Christmas on Capitol Hill

From Sen. John Kerry, commenting on Republican complaints about being forced to work through Christmas:

The irony, the hypocrisy of us sitting here with them standing up and saying "Oh my Gosh, it’s the last minute." It’s the last minute because they haven’t let us do anything. The game plan is usually to keep preventing things from happening.

These guys can go home anytime they want. All they have to do is allow two or three things to be voted on. If they win the votes, good for them. If they lose, that's life. But the Grinch in this case is pretty clearly all on the GOP side of the aisle.

On a purely personal note, let me just say that I have a bit of a hard time stomaching the endless complaining from senators being forced to actually work through the end of the year. News flash, guys: out in the real world, we all work through the end of the year. Get over yourselves.