Recent debate over the Credit Cardholder’s Bill of Rights Act of 2009, which just passed the House, reminds me of an issue I think is widely ignored or misunderstood by the media and political commentators: Does it matter whether the preferences and arguments advanced by political actors are sincere or strategic?
I think it matters less than we often think, and the pro-credit industry arguments are a good example. The bill restricts credit card companies from a variety of practices that hit hardest on those likely to miss payments. For instance, creditors have to send you your bill at least 21 days before it is due, so you are less likely to run out of time in sending in your payment. That sort of thing.
The bill seems good for consumers, but some argue that if the bill passes, credit card companies will have to pull some of the benefits given to good debtors (who pay their bills on time) to make up for the lost revenue they can no longer pull in from bad debtors. See for instance GOP Whip Eric Cantor, as quoted by the New York Times.
“While perhaps well intentioned, this bill will make credit less available to hard-working families, small businesses, and consumers who are already struggling,” said Representative Eric Cantor of Virginia, the No. 2 House Republican. “Simply put, the bill forces good actors who have managed their finances responsibly to subsidize the bad actors that did not.”
Do you suppose Cantor really thinks that? I don’t. The idea that credit card companies need tricks and traps (like morning due dates that pass before the mail is delivered) to make "bad actors" pull their share of the load doesn’t fly. It probably is true that, ceteris paribus, anything that makes the credit industry less profitable could make credit less available. But that doesn’t mean that those who get caught in credit traps were "bad actors."
But whether he believes the argument or not, it is a very clever rhetorical device. It echoes the complaint that any interventions in the housing market mean that those who pay their mortgages on time have to subsidize those who cannot. It clearly conveys who they think is on their side, and who they want on their side.
So it’s a bad argument, but that’s not my question. My question is, does it matter that no one could seriously believe it, that it’s merely a strategic argument? I think no. It’s clearly such a bad argument that almost no one in the House or Senate seems to have taken it seriously. The bill appears popular enough with voters that even donations from the industry didn’t stop them from voting for it. Meanwhile, supposing it were a good argument, would it matter if the people making it were making it for merely strategic reasons? Someone has to have an incentive to think through possibly bad implications for an otherwise popular policy. So I’m not making the case that this is all cheap talk, or that the arguments themselves don’t matter at all. Only that their sincerity doesn’t matter.
I want to build on this idea tomorrow, and claim that the sincere preferences of elected officials matter even less than the arguments they use. But first, I want to know what you think. Does it matter if the policy advocates don’t even believe their arguments. (And, just to be fair, am I right that it’s hard to believe Cantor believes this one?)
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The WSJ includes this description of a provision in the bill: “One of the toughest provisions: Cardholders won’t see interest-rate increases on existing card balances unless they are 60 days late on payments. And if the customer pays on time for six months after that, the prior rate must be reinstated.” Certainly there’s a reasonable case that the person who misses a payment due to a trick isn’t a bad actor, but someone who is 59 days late?
Another WSJ article describes the anticipated effects: “Expect to see more of what we’ve reported: less juicy reward programs, more annual fees, higher APRs, earnings caps, shorter expiration periods and more. The proposed rules actually jump-started these changes and will most likely get more strict before legislative limits go into effect.” The bill is designed to limit the ability to discriminate based on credit risk, and so everyone who relies on the cards as a source of credit will now pay the same. For some, it will be more and for others less.
Thomas: Most of the provisions in the bill are not that ambiguous. I’d argue that missing one payment (which is what 59 days is) does not make one a deadbeat, but I would have concede that that conclusion is not obvious, and that a reasonable person might sincerely believe that it does. In which case, the argument might be sincere. As to the anticipated effects, however, this is what the credit industry is threatening. And it is true that that the effect will be leveling. What is less clear is that the people who pay less are higher risk, or just easier to gouge. But again, this suggests that reasonable people might sincerely believe the argument.
All of which says this isn’t the best example for the general observation that sincere arguments are irrelevant.
Hans, by my count, it’s missing two payments, not one. Payment due today, next (2nd) payment due 30 days from today, both payments made 59 days from today, no change in interest rate.
Whether or not making payments late makes one a deadbeat or not, certainly it isn’t irrational discrimination for a lender to prefer customers who pay on time, and to believe that those who pay on time are better credit risks. In fact, I bet there’s strong evidence that they are better credit risks, taken as a group.
I’m sorry if I’ve taken this off topic–I look forward to the discussion of the more general point.
will we ever know the “sincere” preferences of elected officials?
You’re right, two. But you are also right, still not a deadbeat. And I still think there is something disingenuous about extrapolating from a provision like this to a conclusion that the thrust of the bill is to force good debtors to subsidize bad ones. In fact, under the current regime, all else equal, a sometimes-late debtor will generate more revenue (from the permanent higher interest rate) than an always-prompt one. So who is subsidizing whom? Indeed, there is evidence that credit card companies seek out these sorts of “bad credit risks,” something the bill also tries to curtail.
But what is clear from our exchange is that a sincere argument _could_ be made by focusing on these aspects of the bill over the other aspects that I focused on. And that’s Kim’s point: Can we even know? My argument is that it doesn’t matter. There are plenty of times when we might think a politician is being disingenuous. Republicans accuse Democrats of wanting to “buy off” voters with social programs, rather than sincerely wanting to help. Democrats accuse Republicans of caring more about oil than democracy in the Middle East. I think these charges of insincerity — including the one I raised in the post — are a distraction.
I started commenting… then I kept commenting, and commenting, and commenting, and eventually my response to this turned into an entire blog post all on its own. Summary: insincere arguments matter sometimes, because they keep private information out. Plus lengthy defense of same.
Paul,
Brilliant. Your post is great, and I’ve commented more over there. (Meantime, I think it sets up the second part of what I wanted to say, coming soonish over here.)
If the credit card companies respond as some predict, perhaps a significant number of credit card holders will drop them and start dealing with cash/checks or “house” credit cards of some large retailers. Perhaps the “good” customers will rebel. And customers, good and bad, may pause before they leap with a purchase.
Hans, good to see you in the Cage. I’ve been wondering a lot about this topic, too. We see examples all the time. I don’t think Terry McAuliffe and Lanny Davis really believed what they were saying last year about how Obama couldn’t win in big states. I don’t think Senators Udall and Bennet really believe that Gitmo detainees are too powerful and evil to be held in Colorado’s Supermax prison. But they make these arguments for political reasons (they preferred a Clinton nomination and they don’t want to take the political heat for an unpopular decision about terrorism, respectively). But why say things they know to be untrue and which others around them can easily see to be untrue? A few possibilities:
1) Institutional: In politics, you can’t say nothing. That gives the impression that you’re ignorant or you’re hiding something, both of which are dangerous reputations to have. Moreover, in the media (presumably the avenue of immediate accountability for politicians), patently false statements are usually given equal treatment to demonstrably true ones. Reporters rarely tear politicians’ arguments apart on TV or in the newspapers, but they will criticize silence.
2) Psychological. We’ve all been in arguments where we get carried away with our points and eventually say things that aren’t really supported by fact. The cost of losing that particular argument comes to seem higher than the cost of saying something untrue. It might be a form of temporary insanity, but I think it’s pretty prevalent.
Seth: The Gitmo example is probably even better than the credit card example. Here, though, I think there is something much more dishonest going on. Udall and Bennet (and Cheney) don’t think the detainees cannot be held in your Supermax prison, but they also don’t even mention the prison. The interpretation of the plain meaning of their words is a claim that Obama wants to set them free in your neighborhood. That’s strategic, and I think the hope is that people will be confused. This is harder to justify on the grounds I raised over at Uncommon Priors, but it’s also pretty easily combatted with sunshine, I suppose.
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