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PaperclipPerfector  7d ago (text post)   29367 thread views

Culture War Roundup for the week of January 12, 2026

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There was a twitter debate on Trumps plan to limit credit card interest rates to 10%.

In my view this is an interesting exchange between bad academia (fed paper), expert (Patrick Mckenzie), MBA logic, populists (Trump).

Trump proposed a policy of capping credit card interests rates at 10%. That set up a twitter folly of the high rate people are subsidizing low rate people with rewards backed by a fed paper.

https://www.elibrary.imf.org/view/journals/001/2023/054/article-A001-en.xml

Ackman backing it: https://x.com/billackman/status/2009976076559077844?s=46

Personally being a dumb MBA I feel like I can perfectly segment pnl between subprime borrowers and rich people. If I make money on subprime and lose money on rich people I can just shutdown the rich people business and deploy more money to poor people. So the academia people are most likely wrong based on simple logic?

I can’t find it now but somewhere he did a longer post on how all cc are segmented https://x.com/patio11/status/2010185232159518904?s=46

I think for culture war attributes there are: Academia can do bad research. Ignore basic (or a price) and find a conclusion that seems smart but does not pass a logic text.

Honest experts can give full market breakdown.

MBA and idiots can give a logic that makes sense and is more correct than an academic trying to make a paper.

And then there is the Trump 10% interest rate cap. Maybe most borrowing above 10% interest is bad? I might compare this to online gambling where the people doing it and are profitable it’s bad for them. Or legalized weed.

If I didn’t make it clear above. Most of the rich people rewards are paid for by the high interchange fees of 3%. It’s not credit risks. It’s not subsidized by poor people.

Edit: as a high income high fico. I would prefer we limit credit card fees. And rewards go to zero. Then the store I go to doesn’t pay a processing fee. So they cut prices. And it probably saves me more money than getting 2% cash back.

That set up a twitter folly of the high rate people are subsidizing low rate people with rewards backed by a fed paper.

I see in your edit that you understand that rewards are funded almost exclusively by interchange. So what does limiting the rate/fees accomplish?

Then the store I go to doesn’t pay a processing fee. So they cut prices. And it probably saves me more money than getting 2% cash back.

Well sure, if you essentially appropriate the credit card networks and force them to operate it nearly for free, then we can all enjoy the enormous benefits it confers without paying the owners. This is not a sustainable equilibrium though.

Also, you should look up or ask your most trusted LLM what the average cost to a retail business is for accepting/processing cash. The interchange for electronic payment (plus the benefits of immediate settlement) is competitive to the labor/logistic overhead of processing cash, especially for smaller businesses.

We have been regulating natural monopolies like water and power companies for decades. One of the key test would be rather the product degrades when you fix price. It’s unlikely we would would see worse transaction processing unlike housing where price fixing leads to shitty housing.

The price of processing cash is not what the interchange should be. That basically assumes the CC company can take 100% of the surplus which implies a monopoly exists. In a lower barrier to entry market that doesn’t have monopoly power (shale oil, airlines) the businesses themselves will run at basically costs and have zero economic profit. These are the type of businesses we want to create in society.

It’s unlikely we would would see worse transaction processing unlike housing where price fixing leads to shitty housing.

We would surely see reduced rewards, reduced perks and reduced consumer protection (e.g. worse chargeback terms), worse settlement terms (today it's ~daily, you'd see net-90).

The price of processing cash is not what the interchange should be. That basically assumes the CC company can take 100% of the surplus which implies a monopoly exists.

The price of a good is determined in part by the price/substitutability of substitute goods. This is a feature, not a bug.

It's not that they should be exactly equal, but the cost of processing cash is a good marker by which to understand the value provided by interchange to the merchant.

Moreover, the counterfactual here isn't giving any surplus to the merchant anyway -- in the absence of credit card companies they would process cash and be approximately equally well off.

Sure the terms would be worse. But I don’t get back in rewards what I pay in fees. And it’s a huge time dump to play credit card reward games.

Sure substitutes matter. I would pay infinity dollars for oxygen. But the market price is not infinity dollars for oxygen. That alternative is just one of a thousand metrics for setting prices. Europe actually does have fixed fees. Their payment system works fine. You can just fix these fees and CC firms still make more than enough profit to stay in business (this is a strong sign of monopolistic pricing power)

The European payment system works fine because it appropriated the property of US multinational firms.

Americans could have very cheap Louis Vuitton handbags if we mandated that they license it to American manufacturers for a $10/piece licensing fee.

There are a lot of things that do not work fine with price fixing. Actually very few markets work fine with price fixing. Venezuelan Oil production collapsed when the expropriated. Housing of course is well studied.

Anyway whether we should limit interchange fees isn’t the primary subject of my posts. That was mostly to facilitate discussion on Trumps 10% interests cap and the debate on whether poor people subsidize rich people benefits. Which they don’t. And what I thought was interested that there is a well-respected Fed paper on the subject saying they do. There is a false economic paper on everything I guess.

The Fed paper you cited does not say poor people subsidize rich people benefits. It says people with poor credit subsidize people with good credit at similar income levels. It's still a bad paper, but it doesn't come to the conclusion you object to.

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