Skewed Incentives

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We just got new windows installed in our house. It cost about $10,000 and I paid by credit card. Result: the window company had to pay a $200 fee to Visa for a transaction that probably cost about a dollar (credit risk included) and Wells Fargo rebated about half that back to me in the form of reward points that I will eventually convert into cash. In other words, I was just paid a bonus of $100 to use a credit card instead of paying with cash. Someone please explain a sane economic theory under which this makes sense.

But the windows look nice.

UPDATE: Commenter 98th Story spells things out:

I don’t understand what’s hard to understand here. Visa made out by netting $100 on the transaction. You made out by conveniently using a credit card and scoring $100 in rewards. And the window company made out by scoring a $10,000 dollar job, part of which included handling a $10,000 transaction in a smooth and covenient way. Maybe you wouldn’t have gone with another company just because this one didn’t take a credit card, but I’m positive a percentage of their customers would. Especially if they didn’t quite have $10,000 to spend on windows this month, but wanted to get it done anyway. This is called a win-win-win, and it happens in capitalism all the time.

Check, check, and check. The question is, is this sane? Is it sane to aggressively incentivize people with cash discounts to buy things on credit even if they can’t afford them “this month”? I’d argue that it’s not, even though every individual in this transaction might come out ahead in the short term. If the financial implosion of 2008 didn’t convince us of that, then I guess we deserve whatever follow-on financial collapse we get in the future.

Plus, keep in mind that I’m not opposed to credit card interchange fees. I just want them to be transparent. If everyone really is a winner from the current state of affairs, I very much doubt that Visa and Mastercard would prohibit my window installer from charging me a fee for using a credit card. So why not find out? If he did have that right, and chose not to charge me extra, it would be a strong indication that the fee is worth it to him. But if he had that right and chose to pass it along to me, it would be a strong indication that someone was trying to make a bit of monopoly rent at his expense. Why not let every merchant choose whether or not to pass along interchange fees to their customers and see what happens?

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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