I met up around Union Square for a discussion with a friend of mine this week and, as sometimes happens, the topic at hand turned to politics. In particular we talked about the logic behind much of President Obama’s various reforms. After awhile we focused on the credit card reforms passed earlier in his term. The topic seemed noteworthy, and so I thought I would record it in case others would be interested. I’ll call my friend Scot for the sake of his privacy.
I started off by stating my position:
—Well as we’ve seen from the news, the laws regulating credit card transactions were not effective. The credit card companies were able to manipulate the rules and so exploit their customers. The legislation passed by Congress and the President will prevent further incidents like these.
Scot began simply enough:
—Well that is a very confident assertion, and certainly the goal you mentioned, protecting people from the manipulation of credit card companies, is good. You’re sure that the new rules will help consumers then?
—Yes, that’s what I said.
—Okay. If you’ll indulge me I’d like to flesh out my understanding by going through the issue a little more thoroughly.
—Very well, but I’m not sure what you hope to get out of it; the intent of the law is evident.
—Oh I’m not even looking at something so grand as the intent of the law. I just want to look into this little issue of the rules and companies and consumers so I can see how they operate.
—Well then, let’s start by summarizing your argument. You’re saying that the credit card companies took advantage of credit card consumers.
—Yes, I replied.
—And the credit card companies took advantage of their customers because they were clever and greedy.
—Yes. If they weren’t clever they couldn’t have gotten away with it, and if they weren’t greedy they wouldn’t have wanted to get away with it.
—Very well put,” Scot said. And they were able to hoodwink the customers because the consumers were naïve and trusted them.
—That sounds about right.
—Now correct me if I’m wrong, but the last part of your argument was that President Obama’s new regulations are to replace the old, ineffective ones, in order to prevent such exploitation in the future.
—Yes. That is right.
—Okay. Well let’s look into the matter and see if we can’t discover something about it.
I agreed to hear him out.
—So as we were saying, the companies were clever and greedy and the consumers were naïve and trusting.
—It is fair to say that whenever there is an exchange, a greedy person wants to make money, correct?
—Of course—he’s greedy, I said.
—And knowing the rules of the exchange will help him make money.
—At the very least it will prevent him from losing money. That is exactly why greedy people want to be clever, I replied.
—I hadn’t thought of that connection myself, Scot replied before continuing. Now you’d say that a greedy person wants to be clever so that he understands the rules and can make more money.
—Now in contrast to the greedy person who becomes clever to make money, I suppose we can say that a trusting person might not want to bother becoming clever, just because he is trusting, correct?
—It sounds plausible. Although there’s no way to know why he wants to be naïve.
—Well I guess you’re right, Scot conceded.“We don’t know why he’s naïve, just that he is naïve.
—And when we say naïve we mean that he is not clever and does not know the rules as well as he could.
—And so a naïve, trusting person is at a disadvantage because he does not know the rules very well.
—Now I imagine that a greedy person will realize this and will try to make money from someone who is naïve and trusting. By that I mean that he’ll learn the rules and use the advantage of cleverness to make money from a naïve and trusting person. Does that sound about right?
—Certainly, I said. It’s in his nature. I must say that you’re taking the long way around here.
—You’re probably right, Scot said, though I’m just trying to be thorough and make sure that we aren’t assuming that a clever and greedy person has an advantage over someone who is naïve and trusting.
—Of course he does, so long as the other person is naïve and trusting. If the other person is clever and doubtful then his advantage disappears.
—Good point, said Scot. But then aren’t the clever and greedy person and the clever and doubtful person on the same level, so to speak?
—So neither has an advantage over the other.
—Yes, I said, which is as it should be.
—I can only agree, Scot continued. So I think we’ve examined the events up to now well enough, I think, and we can review them.
—If you think you need to.
—Just to make sure that we’re on the same page, so to speak. As we know from their past behavior, the companies are clever and greedy, and we have no reason to think that they’ve become any different. Unlike the companies, the consumers were naïve and trusting. Now it’s possible that they’ve become clever and doubtful, but we don’t know that.
—Sounds good so far, I said.
—We also showed that the rules either benefit the greedy companies at the expense of the naïve customer, or they have no effect at all, as when both the companies and the customer are clever.
—And so the new rules that the President proposed will have no more effect than the last set of regulations.
—How do you mean that?
—Either the customers are now clever and doubtful, in which case the rules will give no one an advantage, or they are still naïve and trusting, in which case the companies will still have the advantage of being clever. This is the same situation as it was before the new laws were passed, and so the new rules can only have the effect of harming a consumer who remains naïve and trusting.