Interbane wrote: The problem with modern capitalism is that it's difficult to see moral deviations. If Bank of America charges 99 cents for something due entirely to leverage and not at all to consumer benefit, does that 99 cents get multiplied by the millions of people it's leveraged upon? No, we each forget the small slight. It's not as obvious as a single tribesman hoarding all the protein. This moral deviation due to leverage would exist even without rents or government tampering or any other negative influence. It exists as part of the algorithm.

I'm not sure I understand this. If BoA is charging 99 cents for something, then presumably consumers are benefiting from it. In what plausible way are they monopolizing some resource? Charging for banking services is not some inherently bad thing. However, rents and government tampering is precisely how a bank or other company would amass power that the market would not otherwise give them. It is government protection and bailouts that allowed banks to push risk onto the taxpayer.

I'm not sure I understand this. If BoA is charging 99 cents for something, then presumably consumers are benefiting from it.

Overdraft fees are a good example. Is the fee worth the benefit? What about the $5 fee charged by banks for cashing checks if you don't own an account there? They claim it's a service, but it's a $300 an hour service. What about swipe fees, hidden to most consumers? So many people use cards, that it's almost like a second tax on every purchase. In these examples, the true value of the service is not reflected by what's charged. The charge is much larger than the benefit, likely more than 99 cents. This is not something that has been evened out with competition. Instead, competitors adopt the same practice. These are also not examples that government intervention makes worse. Only government intervention can alleviate the leverage.

Overcharging for a service is easy, because neither you nor I nor anyone else can pinpoint what such a service is worth. Presumably the free market algorithm would cause the correct price to be found over time. But that simply hasn't been the case. There is leverage that institutions such as banks have that is difficult to pin down. It's sort of like a casino. In many of the games, it's difficult to see how the odds are in favor of the house. But a small amount of leverage, in aggregate, goes a long way.

The overhead for swiping your card, on aggregate, is less than a penny for the bank. Yet they charge a percentage of the transaction. In most industries, it's a common practice that to determine profit, you double overhead. The more specialized the service, the greater the gap, reflecting specializations gained from education and infrastructure. Yet a single card swipe can net a profit of ten thousand percent of overhead. Multiply that by how many transactions happen every day.

However, rents and government tampering is precisely how a bank or other company would amass power that the market would not otherwise give them.

A laissez faire economy would have some of the same issues, and many other issues. Yes, rents and many varieties of leverage would go away without government, but others would fill the void. Government causes issues, but lack of government would have different issues in the same category. Did government tampering lead to the trading of toxic derivatives?

Pushing for a smaller government is great in theory. In practice, it's a feint. Our government shrinks in ways that benefit the rich. People see these issues and blame the government, but in reality is a toxic mix of social darwinism and government. The more we push for a smaller government, either indirectly or through elections, the more we have representatives that shrink the government to benefit the rich, due to the influence private interests have in DC. Stop pushing for a smaller government, it's like throwing a racquetball at a wall, our efforts keep coming back to smash us in the face.

The only real solution is campaign finance reform. But we're at a point now where the reform is going in the other direction. Private interests have more and more power to donate in various ways to the representative of their choice. Meanwhile the populace doesn't mind, because they see this as a black and white dichotomy of private vs public, and the public(government) is the issue, so allowing more freedom to the private(which actually only means the rich) appears to be a good solution. All this does is allow the private interests more control over what the government tampers with. Sometimes, by ensuring the government only 'shrinks' in the right ways to benefit the rich.

Interbane wrote:This is not something that has been evened out with competition. Instead, competitors adopt the same practice. These are also not examples that government intervention makes worse.

I beg to differ. The government has explicitly protected banks from competition only for about the last 200 years.

Interbane wrote:Did government tampering lead to the trading of toxic derivatives?

There is debate about this, but it is more than you might think, and the left-wing story that it's all about deregulation does not hold up. A lot of people don't bother asking the question why banks, who like to have their loans paid back, were able to make what were apparently bad loans. OK, they are able to sell them to someone else. But why? Some people are always the "dumb money" but that's not enough.

http://cafehayek.com/2011/12/fannie-and ... risis.html

http://online.wsj.com/news/articles/SB1 ... 3454435452

There is debate about this, but it is more than you might think, and the left-wing story that it's all about deregulation does not hold up.

I agree that the hands of government mucks things up. I might not all be about regulation, but some of it is. That portion, the necessary portion, is mischievously difficult to achieve due to the influence private interests have in our government. Cause and effect goes full circle here, and the solution is not to increase regulation nor to shrink government. Pushing for either of these things sounds good to people on both sides, but the direction of change occurs under the supervision of misguided interests. Push for increased regulation, and it ends up benefitting the regulated, or is impotent, or has unintended consequences. Shrink the government, and it shrinks in all the wrong ways. Until we remove the carrot dangling in front of our representative's faces, the direction of change will always be where the persons holding the stick want it to go.

I beg to differ. The government has explicitly protected banks from competition only for about the last 200 years.

Do you have something I could read to bring me up to speed on this?

Interbane wrote: Do you have something I could read to bring me up to speed on this?

I have to think of other sources, but this might give you an idea, they make some of the same points:

http://www.foreignaffairs.com/articles/ ... d-and-fail

http://people.terry.uga.edu/selgin/files/cj9n2_9.pdf (pdf file)

That first one was long. I can't open PDF's at home, so I didn't read the second. Thanks.

"Indeed, not until the 1990s was the U.S. banking market completely opened up to competition. A steady process of liberalization that had begun in the 1970s culminated in 1994, when Congress passed the Riegle-Neal Interstate Banking and Branching Efficiency Act, allowing banks to open up branches within states and across state lines. The new law sounded the death knell of the populist coalition that had shaped U.S. banking institutions since the 1830s and permitted a wave of mergers and acquisitions that created the megabanks that now have branches in nearly every city and town in the United States."

It looks like opening the banking market up to competition indirectly lead to things such as overdraft fees, and gave the banks more leverage than they had before.

An overlooked aspect of increasing wealth polarization. Jobs are crappier.

http://www.huffingtonpost.com/robert-ku ... 86389.html

If you want a comprehensive overview of how wages have shifted over the last half century, here is a great article. The data is analyzed from a variety of fronts.


http://www.epi.org/publication/why-amer ... ge-growth/

Key findings include:

-The vast majority of Americans have experienced disappointing living standards growth in the last generation—largely due to rising inequality.
--Between 1979 and 2007, more than 90 percent of American households saw their incomes grow more slowly than average income growth (which was pulled up by extraordinarily fast growth at the top).
--By 2007, the growing wedge between economy-wide average income growth and income growth of the broad middle class (households between the 20th and 80th percentiles) reduced middle-class incomes by nearly $18,000 annually. In other words, if inequality had not risen between 1979 and 2007, middle-class incomes would have been nearly $18,000 higher in 2007.

Interbane wrote:If you want a comprehensive overview of how wages have shifted over the last half century, here is a great article. The data is analyzed from a variety of fronts.

Data on income is very sensitive to assumptions.

They appear to be using wage income and not accounting for benefits for at least some of their data, I noticed the productivity/wage gap. Once you account for benefits, the gap between wages and productivity disappears.

http://www.nber.org/papers/w13953.pdf

If you're going to use household income, you've got to look at the changing size of households.

And maybe they're using some panel data, but a median measure may be a misleading picture of how actual households are doing over time. If lower income people enter a population, it can drag down the average even if everyone's income is higher.

Pulled from the article I linked earlier:

Data are for compensation of production/nonsupervisory workers in the private sector (who comprise over 80 percent of the private-sector workforce) and net productivity (growth of output of goods and services less depreciation per hour worked) of the total economy. Hourly compensation is derived from inflating the average wages of production/nonsupervisory workers from the BLS Current Employment Statistics (CES) by a compensation-to-wage ratio. The compensation-to-wage ratio is calculated by dividing the average total compensation (wages and salaries plus benefits) by the average wage and salary accruals of all full- and part-time employees from the Bureau of Economic Analysis (BEA) National Income and Product Accounts (NIPA) interactive tables. The 2013 compensation-to-wage ratio used in the calculation of hourly compensation was estimated using the growth rate of the compensation-to-wage ratio from 2012 to 2013 from the Bureau of Labor Statistics (BLS) Employer Costs for Employee Compensation (ECEC).

I understand immigration and household size affects the data. I wonder if indirect benefits from rents and offshore investments was taken into account.

It's easy to paint an agreeable picture. The truth is much more slippery.