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Demonizing greedy bankers is the last refuge of the poorly polling politician.
President Donald Trump regularly proposes policies that any self-respecting Republican would have rightly branded socialistic only a few years ago: threatening to cap interest rates on credit cards and drugs, banning people from selling their homes to corporations, taking major stakes in companies, creating a state-run “sovereign wealth fund,” taxing foreign goods to prop up uncompetitive union-heavy industries, and blaming greedflation for higher prices.
One of the world’s most enduring conspiracy theories is that cabals of greedy capitalists can control the economy. The notion is especially nonsensical when it comes to commodities traded on world markets such as oil, but it goes for any competitive industry in a free economy — a system we continue to degrade.
And if a person believes that CEOs are puppet masters of trillion-dollar economies in which consumers make billions of decisions every hour, it makes complete sense that they also believe politicians and technocrats can parachute in and start dictating “fair” prices.
As affordability remains a leading issue among voters, the Trump administration has regularly used rhetoric and ideas that mirror those of progressive Democrats. Take Trump’s recent idea for capping credit card interest rates at 10%. Or rather, the idea already proposed in a bill sponsored by Sens. Bernie Sanders (I-VT) and Josh Hawley (R-MO). “They’ve really abused the public,” the president said of credit card companies. “I’m not going to let it happen.”
If you find an APR on a new credit card offer “predatory,” definitely do not sign up for it. You don’t owe the bank, and the bank doesn’t owe you.
An interest rate, though, reflects risk. It is the entry price for obtaining credit. If you have a good credit score, you get lower rates and vice versa. Capping interest rates would likely shrink available money for people who need it most: lower-income and young workers, or anyone else trying to build up their credit. Lots of entrepreneurs and small business owners also rely on credit cards to tide them over for a season or help with up-front capital.
People denied cards will still need funds. They’ll just find other ways to borrow, probably at even higher rates. Maybe they’ll go to payday loans and cash checking places. Maybe they’ll take second mortgages. Maybe they’ll go to the black market.
There are those who argue that the public already borrows far too much and that limiting access to credit would be good for them. These nannies almost surely own their homes and cars — purchases that become even more prohibitive for people unable to improve their credit scores.
Then, there is also the little matter of Trump having no constitutional authority to dictate interest rates between private institutions and consumers. And since the president’s deadline for instituting the change, Jan. 20, has passed, and credit card companies continue to charge rates dictated by the marketplace, we can assume the announcement was just crass populist pandering.
Then again, Trump tends to explicitly threaten or jawbone companies into doing his political bidding. Bank of America is reportedly considering offering a credit card with interest capped at 10% to placate the administration. There’s no federal cap on what APRs banks can offer on credit cards. If providers want to undercut competition, nothing is stopping them. Banks are businesses, after all, not charities. Banks that lose money charging riskier customers higher interest rates to get on the good side of the administration will simply raise fees elsewhere, pull back on rewards, and find other creative ways to make reliable consumers pay.
Price fixing never alleviates cost — it merely displaces it.
Take the socialist mayor of New York, Zohran Mamdani, as he “cracks down,” as one travel magazine referred to it, on “junk fees” in city hotels. “Junk” is just a description of a cost that consumers and politicians have arbitrarily decided shouldn’t be paid. But they will be. Hotels will almost inevitably raise prices elsewhere or decrease services to make up for it.
Economic magical thinking never dies, however, because it’s tethered to envy and anger rather than rational thinking. Thomas Sowell points out that the typically “mundane” explanations for economic activity are “far less emotionally satisfying than an explanation which produces villains to hate and heroes to exalt.” And there is no more convenient villain than a faceless profit-mongering Wall Street “baron.”
Take another policy championed by Mamdani: rent control. Everyone hates high rents. Sure, the practice has been failing to lower housing costs since Roman times, at least. Sure, there are a slew of studies and empirical evidence that find rent control doesn’t work. Sure, the vast majority of economists, both on the Right and Left, believe it’s a bad idea. Most polls find that rent “stabilization” is supported by around 80% of New Yorkers.
Not surprisingly, nearly every industry that has experienced prices spiking has also experienced high levels of technocratic and government interference: healthcare, tuition, child care, housing. The more the state gets involved, the less competitive an industry becomes. Which is why big corporations often don’t mind government compliance costs that freeze out smaller competitors.
There is little political upside in defending free enterprise these days. The new GOP increasingly demonizes capitalism while embracing the leftist bromide that maintains the free market is great but only if it exists for the good of people, not as a cause in and of itself.
PROTEST CULTURE IS ANNOYING AND UN-AMERICAN
While there are no utopias, every shred of historical evidence proves that free markets are the best poverty-killing system for the largest number of people. Nonetheless, every generation convinces itself it possesses the best technocrats and formula to properly control economic activity to make it fairer and decent.
Maybe price controls will work for the first time in history. More likely, though, populist pandering will backfire again.
