Keeping debt profitable

In a line of investigation which runs backward from contemporary credit-card regulation to the Constitutional rights-of-contract, to the Fourteenth Amendment curtailing some of those rights to Depression-era milk price regulation, to Progressive-era grain-elevator regulation, I stumbled again-as befits an amateur in history and economics-on a couple of U.S. Supreme Court cases which I had earlier found interesting for wholly different reasons.

One is the 1877 Munn v. Illinois dispute, in which politics made strange bed-fellows, as the National Grange farmer organization teamed up with the then-new Progressive movement (which claimed that high-intellect technical experts like them should run things, not a bunch of stupid voters) to demand government regulation of grain-elevator crop-storage prices.

They got what they wanted, establishing the principle that some aspects of private business are too important to be entrusted to private businessmen.

The other is the 1933 Nebbia v. New York dispute, in which State government, fearing that low milk prices would drive too many dairymen out of business and thus generate higher milk prices for the then-new urbanite-majority of voters, established minimum retail milk prices.

These were then resisted as "too high" by exactly the consumers and retailers they were designed to protect. SCOTUS approved the price-fixing at 9 cents per quart (which would translate, inflation-adjusted, to $5.98 per gallon today) establishing the practical principle that government regulation must include enough built-in supplier profit margin to keep them from quitting. It's that same principle which requires state public service departments to guarantee public utilities a return-on-investment in the 10-to-12 percent range when setting retail ratepayer costs. Dairymen have no such guaranteed ROI, but that's another story entirely.

Given this history, you can see why government has dealt with the range of consumer-despised practices of the credit-card industry as superficially as it has.

Once upon a time, the practical consumer response to business practices they didn't like was to take their trade elsewhere, no government involvement expected, but that sort of libertarian politics has vanished. Now, consumers demand that government regulate, and so there are some new constraints on the industry-required delays in interest-rate changes, for example-which seek voter approval by placating consumer angst while keeping the industry quietly and comfortably profitable.

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