Posted in Rants on December 1st, 2009 by Ed

Mike has an interesting thing up on Atlantic about the contribution of credit cards to income inequality. It is not really debatable that credit card issuers make very little money off of the wealthy. For people with ample resources who pay their balance monthly, the only way a credit card company is making money is from an annual fee (which is a drop in the bucket to the wealthy) and merchant fees for purchases, usually 3%. There's no reason to give a rich person a credit card beyond the hope that they will buy a lot of expensive things and rack up fees at the point of sale – fees that are paid by retailers and are invisible to consumers. No, rich people with $250,000 credit limits aren't of much use. Giving a bunch of poor people a $2,000 limit and then assholing them with late fees and 28% APRs is where it's at. This is common knowledge.

What is not as widely recognized is the redistributive effect Mike points out. Exorbitant interest rates on high-risk borrowers effectively subsidize the prime interest rates paid by the more affluent (not to mention the benefits to wealthy consumers' stock portfolios when the financial industry rakes in profits). Perhaps that is why we are starting to see stories in the Wall Street Journal about how 90s-style conspicuous consumption is returning to Wall Street – albeit a bit more quietly than before, lest the people who provided the bailout/handout six months ago take offense – alongside New York Times stories about how one in four children in America is receiving food stamps. One in four. Don't worry, though, the right wasted no time reminding us that this is merely evidence of how food stamps are too easy to get.

Yes, our financial industry does a hell of a job of extracting money from plebeians and passing it up the food chain to their social betters. It's not limited to banks and credit card companies, of course. Here in Georgia we have a particularly egregious legislative "fuck you" to the poor called the HOPE Scholarship program. It essentially provides any Georgia high school student who graduates with a 3.0 (which, if I recall high school correctly, is real hard to get) with four years of free tuition at state universities. It is contingent upon maintaining a 3.0 in college, but the vast majority of students I see are paying no tuition. So where does the money come from? A Harvard-sized endowment? Hardly. A generous state legislature? Perish the thought. No, it comes from Lotto tickets.

I'm sure there are some legitimately poor students for whom the HOPE program is the determinative factor in going to college. Overall, though, the program sends a phenomenal number of white kids from the suburbs and from middle- to upper-middle class households to college on the backs of people buying Lotto tickets. In other words, on the backs or poor people, including a disproportionate number of black people, with little to no formal education. Yes, in Georgia as in every other state the vast majority of Lotto sales – thanks in no small part to aggressive targeted marketing – are among low income minority consumers. What is ostensibly a magnanimous scholarship program is a weakly disguised plan to suck money from the poor and give it to suburbanites by paying for Billy's four years at Tech. You have to admire the sheer amount of balls required to propose such a scheme let alone to pass it.

It will be nice if the broader discussion about credit and debt addresses income inequality. What would be really nice, however, would be a passing nod in recognition of the structural and institutional causes of inequality rather than a simple descent into a patronizing moral argument about personal responsibility and meritocracy. These people get screwed because our social, financial, and political institutions are carefully designed to screw them. It's all remarkably effective.