Comment by sofixa

> What I'd expect instead, based on my having taken exactly one class in economics as an undergraduate, is subtler effects that play out over time.

As a PhD student in Econ, I am glad to see that you learned something about how to actually apply this work. Thanks for making my day after some rough grading.

> What I'd expect instead, based on my having taken exactly one class in economics as an undergraduate, is subtler effects that play out over time. Maybe the general growth in prices over time slows down a titch until a new equilibrium point is met. Maybe wages rise a little bit because retailers can afford to pay their employees more. Maybe life gets easier for smaller businesses that have less negotiation power than the multinational behemoths. Maybe some bank executive somewhere decides not to buy that third luxury car at the same time as ten thousand restaurant owners decide that, just today, they will treat themselves to an espresso drink from the coffee shop instead of making drip coffee at home. That kind of thing.

To veer a little off-topic, this is why my biggest economic policy dream would be banning or severely restricting ads and marketing.

The fees you describe are a few percent points. The average B2C company spends 10-15% of their budget on what is, for the most part, a zero-sum game with their competitors. Even ignoring all the aesthetics and societal benefits, imagine the boon to overall productivity.

obviously gradually, and over many years, to make the transition manageable. e.g. increase taxation on marketing expenses by a few % a year so it is less and less financially viable.

>because it calls attention to how merchant/consumer is a false dichotomy

Yes! People forget that the many merchants in this country are also participants in this consumer economy as well. I think one's exposure to mom&pops/small businesses informs this view greatly. One can be forgiven of seeing merchants as faceless corporations if the entire shopping experience has happened at faceless multinationals (...of whom's profits contribute to many consumer's 401ks!)

And also Merchants are in many ways the "edge compute" of the long, very complex tangle of suppliers, wholesalers, service providers, and (of course) the bank. All which entail transactions that, in isolation, looks very similar to merchant-consumer.

Except prices in Australia, especially in Tech, are among the highest in developed countries.

Like I get what you are saying, but reality, in this case, trumps theory.

I my part of the EU I'd certainly feel like I'm missing out if I just kept on paying the ~€5 a month fee for a bank account and didn't look for a card that gave me some kind of return on my spend every month...

(It's Finland btw, and you need a Finnish, not "anywhere-in-SEPA", bank account in order to practically function in society here with the strong online authentication service)

Why would you prefer a world where where you can’t get a 1-5% discount on everything you buy vs the alternative (spending on a debit card or using cash)? Obviously some people try to over optimize, but 30min of research every few years is definitely with the thousands of dollars of benefits in my mind

What do you mean by “spending time working to scrape back money”? Cashback rewards are fairly automatic. Maybe some have a simple redemption step. Apple Card’s is 100% automatic.

Rewards programs cause higher prices just like “free delivery” or “no questions asked returns for 6 months” does.

It’s just another cost of business. Sometimes you bump up the price to account for it, sometimes you take the hit in profit in exchange for more volume hand more profit).

Very rarely do businesses do “cost plus” pricing. They usually charge what they can.

Which is why prices are sticky.

For the businesses that price based on cost alone they usually reject credit cards all together. Long ago I shopped at a computer parts store that had the best prices and they were all focused on volume - no further discounts, no credit cards, no free delivery.

Why do you say they cause higher prices for rewards recipients? Is there evidence of this?

Until pricing in the US exceeds the rest of the developed world, you won't convince me of this. After all, we are among the top countries that use credit cards.

> They cause higher prices for everyone (even for the rewards recipients).

Honestly no. Price is relative. The sticker price might change, but the effective price depends on the customer. Largely generalized: Low-credit customers essentially subsidize the cost for high-credit customers. Let me explain:

So let's call the current price: p.

- The cash customer pays: p

- The rewards card user pays p - 1% (because they get cashback)

- The mid-level rewards customer pays p - 2%

- The premium reward users pay p - 5%

Now let's say that reward cards are banned. No more rewards cards. Let's call the new price (after rewards cards and their associated fees are removed) as 'n'. What would happen?

Scenario A: No Change

Now I believe if you got rid of rewards cards, then n = p. Merchants wouldn't lower prices, they would just keep them the same and pocket the difference. So now everyone loses, except for cash customers who are unchanged. But everyone pays p, which is at best the same as before, and at worse 5%+ more expensive by getting rid of rewards cards.

Scenario B: Utopia, the Merchants Care

Let's make the argument you are making, which is that maybe the merchants would be nice and give us a cut of the rewards card savings. This would save them maybe 1%. I suspect slightly less on average, but let's call it 1% to be generous.

So in scenario B: n = p - 1%

Yes cash customers win! They pay 1% less than before. But the majority of customers still lose. Cash customers are the only winners. Normal rewards card users are paying the same amount they were before. The bell curve of card users are probably paying 1% more, while the high-end premium card users are paying 4%+ more than before. The majority of consumer still lose, only cash customers come out ahead.

This scenario of course assumes that merchants are generous and pass on the savings. If this did happen, you would likely notice savings for a year or two at most, due to economics and market forces.

Eventually, like I said above. The price just becomes normalized and the price is the price once again. House or car prices go up slightly at first because of more money in customer pockets, employers are less pressured to give out high raises, so maybe income raises are 0.5% on average lower that year, and 0.3% lower the next year and 0.2% lower the year following (which actually makes it look like raises are increasing YoY other than the first year). This continues and 3 years later that 1% gain is normalized into the economy and becomes the new baseline and we are back where we started.

So no, everyone does not lose with rewards cards. There are winners and losers. You could argue that lower income customers (the ones most likely to pay with cash or low-end credit cards) pay the price for the higher-income customers (the ones most likely to have 800+ credit scores with premium cards).

So, largely generalized you could argue that low-credit customers subsidize the price of goods for high-credit customers. I think that's a more accurate argument. And to be clear, I'm not stating that it's fair, just that it's accurate.

I think the round the world ANA ticket I got a few months ago for less than 10x face value was worth reading one The Points Guy article about how to use Amex points.

I respect that. FWIW I just use three cards:

1. Apple Card which is 2% back on all Apple Pay

2. Costco Visa that does 3% on restaurants and travel

3. Amazon prime visa, 5% back on Amazon and Whole Foods. (This is just saved to my Amazon account so I don’t have to think about it.)

It’s pretty easy to remember to use the Costco card at restaurants.

So get one of the cards that offers 3% on everything / 2.5% and no international transaction fees, and just cash it out monthly or whatever? You’re not being cool or whatever, “my big brain is too full for such trivialities!” you’re just leaving >$100/mo on the table (for most households here) for literally zero effort beyond clicking "redeem" when you want it.

https://old.reddit.com/r/CreditCards/wiki/list_of_flat_cashb...

But credit card fees exist, and will exist regardless of what you choose. Just like filing for your tax return - you can either take the money or let the bank+merchant have it. But maybe you're just too busy to be bothered by reclaiming that money, too?

The amex "I pay $500/y for a 3% card with rotating quarterly 4% and 5% categories" shit though? Yeah, I agree, ain't nobody got time for that.

Cool. Do what works for you.

For me I just sign up for a new credit card twice a year and then shift my normal spending to the new card, canceling the old one.

I usually get a week’s hotel stay for free or $1000 cash back for nothing more than taking 30 minutes twice a year to find the best card.

Better measurement might be did they go up less after this or did they go up later? As there should be more leeway in delaying increasing prices.

I agree except for the part about monopoly. There are in fact competing card networks.

The bitter pill to swallow is that consumer preferences played a role in evolving this system. Card networks are managing a two sided market, and that means offering value to both the merchant and the consumer. Reward programs are examples of consumer value. If Visa decided to kill its “signature” interchange tier, those customers would move to MasterCard.

As an American, this concept still makes no sense to me. It's public infrastructure of a sort, don't real estate taxes in the surrounding area pay for upkeep and repairs?

See also, subway stations in Japan, which IIRC operate under a similar model.

Public restrooms in Czechia often can take cards now. I imagine it works similarly in Sweden.

What is more intense than nobody taking cash, punishment for even having it?

Ha! I always thought "case in point" meant "the whole case demonstrated in a single point", as in, the small argument that summarizes (and hopefully answers) the whole overall question.

Indeed, thanks, I've been using it wrong for months if not years... never realised I swapped it at some point in my mind.

That's interesting: I've only seen "point in case" being used, never "case in point" (although it does make a lot more sense, now that I think of it).