September 8, 2010
The phrase "unintended consequences" has been used a lot in the last year. It is often used to refer to the mostly negative impacts government laws and regulations have on people and businesses. These unintended consequences were not foreseen when the legislation was passed but they ended up making something negative happen to you and me. A private citizen may ask how could this happen, how could our government produce and pass a law that would do negative things to us? Don't they do the research? Isn't this why we elect them and pay them, to do the work necessary to author and pass good legislation? These are certainly reasonable questions, but before we're too hard on our civil servants, we should remember how complicated the world is now, how interrelated our economy has become, within our country and throughout the world. Almost every piece of legislation that our government passes and enforces these days has unintended consequences. The more complicated the legislation is, the greater the chance for big unintended consequences. The impact of these unintended consequences is multiplying and now influences some of our basic freedoms and even the overall fairness of our country to its citizens.
My concern today is focused on older Americans and the impact of the unintended, and sometimes intended, consequences of laws that our government has passed. These are consequences that go to the very roots of the basic freedoms and individual fairness that we have enjoyed in this country for over 200 years. To highlight this growing problem I want to focus on three different laws; two that have just been passed and one that has been around for decades.
The first example is the recent financial reform bill that has just been signed into law. While the band wagon to blame Wall Street, banks, and mortgage brokers for our fiscal problems is crowded, the clamor for a solution has produced a bill that touches almost every American. Our government was quick to regulate private banks and security firms but they did nothing to rein in the two quasi government mortgage institutions, Freddie Mac and Fannie Mae. These government-supported entities are now costing us billions of dollars a month and were, according to many financial experts, big contributors to the financial crisis. They exacerbated our problems by encouraging and financing many of the bad sub-prime mortgages. We don't know all of the unintended consequences of this law yet, but let me tell you of one that is already taking effect.
The lawmakers of our country decided that the charges for overdrafts, late payments, and credit card charges above maximum limits were too high, so they capped them. They also decided to limit the swipe fees on credit cards. Credit card companies seem like a good scapegoat to attack but let's breakdown what really is going to happen. How do private banks, already pummeled by recession driven defaults on credit card balances, react? They begin to raise fees for responsible borrowers.
A recent Washington Times article highlighted the problem, it said in part;
Polina Vlasenko, a research fellow at the American Institute for Economic Research, as quoted in a Washington Times article this week, said what irks her the most is that responsible borrowers are becoming the new victims under Congress' "law of unintended consequences." She noted:
Borrowers with solid credit and a history of paying off their credit card charges on time are treated exactly the same as those with poor credit and a history of late payments, because banks are no longer allowed to differentiate fees and rates for customers based on good or bad behavior.
People who always paid their bills on time and never went over their credit or checking account limits are now being hit with higher interest rates and fees, the reintroduction of annual card fees, fewer bonus features such as rebates and airline miles, and the refusal of some merchants to accept credit cards without minimum purchases.
It sounds like the fiscally sound people are paying for those who are not fiscally sound. Most older Americans pay their bills, and many of them only have a credit card because they need one to rent a car and maintain a good credit score. So now the cost of having a credit card will go up for the responsible people, and what do responsible people do? They go back to using checks and cash. These are much more expensive ways to pay for goods and services from a business standpoint, especially from an internet business standpoint, an increasingly popular shopping choice for the less mobile older Americans. Does this unintended consequence help businesses recover from the recession, and does it seem fair to those who kept their fiscal house in order?
My second example is the healthcare reform law that was just signed. The impact of this law is massive and the unintended consequences are sure to be surprising and without end. I want to focus on one specific consequence that is already happening and is a great example of both the short term impact and the long term direction of this law, one that could spell big trouble for our country. Insurance companies have begun to raise their premiums and cut benefits on Medicare Advantage. They are cutting payments to suppliers and raising the cost for devices and service. They are taking the money from these programs and setting it aside to help finance the previously uninsured patients that they have been mandated to accept by this new law. While the cut in services and the rise in the price of insurance is bad enough, the long term implications of this type of public policy are frightening. Through the regulations included in the healthcare reform law just passed we are financing healthcare for younger generations on the back of older Americans. We said a year ago that this new legislation was going to do that and it has already begun. It's not fair to those who paid into Medicare their whole life to suddenly find out their services will be cut and it's not right for public policy to create intergenerational tension.
My last example is an "intended" unintended consequence. Let me explain. Our government through action and words promised that if we put money into Social Security each payday that when we retired they would do two things; they would send us a check each month and they would make sure that the purchasing power of that check would not be reduced by inflation. Early on the government realized that the calculation used to maintain the purchasing power was flawed, that it did not reflect the profile of older Americans because it used the profile of urban and clerical workers. As the impact of this error became bigger and bigger the government didn't have the will to correct their error, so they let this error perpetuate for decades. The impact has been that year after year older Americans notice that even though they have received a COLA increase almost every year, their purchasing power has not stayed constant. Almost without fail every senior I talk with tells me that the money they get from Social Security doesn't go as far as it used to go. The consequence of this policy is that the promise made by our government decades ago is being broken every month. While we have tried over the years to get this error fixed, it has finally been necessary to back the introduction of a bill, HR 5305, to correct this problem once and for all time. Any discussion concerning Social Security should include the use of accurate information so that the government can truly keep its promise to seniors.
As you can see unintended and intended consequences have a real impact on older Americans. Government is not efficient, and it is foolish of us to think that we can, or should, rely on government to resolve all of our problems. How have we allowed our government to own car companies and financial organizations and to tell us that we must purchase a service? How have we allowed our government to saddle us with these onerous unintended and intended consequences? I think it is time that each of us step back and evaluate what we feel is the correct role of government. A good guideline on this correct role is our Constitution, which identifies the legitimate duties of our government. Once we've decided what the correct role should be, then we need to exercise one of the most basic rights we enjoy and vote. It is one of the most effective ways to voice our feelings and be heard