Monday, October 24, 2011

Occupy the ATM: Tips for the 99%

Do you want to make a statement about the outsize role of banks in our economy? Do you want to see financial intermediaries have less influence in politics? Are you sick of "too big to fail"? There's a simple way to reduce the role of giant banks and the international finance system in your life.

Use cash.

When you make a purchase with a debit or credit card, the company issuing the card makes money. Global Review applauds the Obama Administration for reducing the amount that debit-card users can charge retailers for each debit transaction - it's now 24 cents, down from a previous market average of 44 cents. Global Review doesn't like regulation for the sake of regulation, but this one (partially) solved a significant externality in retail markets.

Consider the current situation: few retailers can charge different prices for cash and debit transactions. Such a policy is costly to enforce and it looks bad to customers. So instead, almost all American retailers accept debit, raise prices somewhat, and swallow the loss on those who use debit. Economically, that looks just about the same as a tax on cash transactions: when you use cash to buy something, you're paying a debit markup to subsidize those who benefit from the convenience of using debit.

Don't get me wrong: debit is a great convenience. But those who benefit from the convenience should pay for it. Bank of America's $5 monthly fee is a good start, but a per-transaction fee would be much better. Most of us want a debit card for big purchases (who wants to carry $500 in their wallet?), but would switch from debit to cash readily if a 50-cent fee was attached to each small debit purchase.

So if you want to show your sympathy for mom-and-pop stores, for waiters and waitresses, for manufacturers and farmers (or your antipathy towards bankers and finance whizzes), switch to cash. It's like dropping a quarter in the tip jar on the counter, but it costs you nothing.

Note: Saying "Credit" instead of "Debit" is just the same. If you're using a Debit Card (i.e., one that's tied to a specific checking account), it's not really a credit transaction at all, just a signature-based debit transaction, and the same law applies in both cases.

1 comment:

bpf said...