Economists Unconnected to Reality

You know the ones, the "fresh water" economists, the free-market mousketeer conservatives for whom the rational actor acting in an unconstrained laissez-faire system is king.

It is a matter of faith, completely unsupported by reality, that regulating a market will always be counter productive.

As it pertains to consumer protections for credit cards, to paraphrase the Bard, "There are more things in heaven and earth, than are dreamt of in their philosophy.

Much to ths shock of right wing economists, adding consumer protections to credit cards worked:

Four years ago, Congress decided to force down the hidden fees that credit card companies collect from their customers. It passed a law called the 2009 Credit Card Accountability Responsibility and Disclosure Act — a name chosen so the law would be known as the Card Act.

When Neale Mahoney, an economist at the University of Chicago’s Booth School of Business, set out to evaluate the effect of that law, he was confident he knew what he and his colleagues would find: It didn’t work.

“I went into the project with this sort of conventional wisdom that well-intentioned regulators would force down fees and that other fees and charges would increase in response,” he told me this week, comparing hapless rule makers to the carnival visitors playing the game known as Whac-a-Mole, where a mole springs up somewhere else as soon as one is knocked down.

But his expectation was wrong. The study came to a conclusion that surprised Mr. Mahoney and his colleagues: The regulation worked. It cut down the costs of credit cards, particularly for borrowers with poor credit. And, the researchers concluded, “we find no evidence of an increase in interest charges or a reduction to access to credit.”

The study, whose other authors are Sumit Agarwal of the National University of Singapore, Souphala Chomsisengphet of the Office of the Comptroller of the Currency and Johannes Stroebel of New York University’s Stern School of Business, estimates that the law is saving American consumers $20.8 billion a year.

There are a number of theories as to why this occurred, but the most likely is that regulation, when properly executed, simply works, though an argument could be made (though probably not by the credit card companies) that this worked because much of the credit card companies' business model is parasitic, and as such they are unwilling to walk from "free" money.