Because of changes to health care, the credit card industry, personal savings habits, and other parts of the economy, observers say that in the near future the U.S. may not look like the U.S. as we now know it. Instead, it may look a lot like … somewhere else.
Will the Credit Card Scene Be Australian?
The monumental credit card reform legislation that passed last summer was meant to help consumers. And indeed, new laws require credit card companies to give customers fair notice about bill pay-by dates and changes to card terms. But the reforms have also resulted in a fair amount of upheaval, with the widespread rise of interest rates and more and higher fees, along with the virtual disappearance of fixed rate cards. Industry experts predict more and more fees in the days to come.
If the trend continues—and if the government steps in again and imposes limits on interchange fees, which are paid by merchants to credit card companies with each purchase—the credit card landscape in the U.S. may look a lot like that of Australia. Years after similar reforms took place Down Under, here’s the situation, per the NY Times:
Since the government policies went into effect, Australian banks have cut credit card perks and shrunk rewards programs, like frequent-flier miles. While it used to take 12,400 Australian dollars of spending on Visa or MasterCard from one of the country’s four biggest banks to earn a 100 dollar shopping voucher, for instance, now it takes 17,000 dollars.
Banks now also require customers to pay their bills faster. Interest starts accumulating on many cards 33 or 44 days after the start of a billing period, instead of the previous 55 days. Annual fees have also climbed for credit cards with reward programs, to 140 Australian dollars a year for gold cards that carry rewards, up from 98 dollars before regulation of interchange fees. Basic cards without rewards still carry on average an annual fee of 29 Australian dollars.
Perhaps more vexing, Australian merchants, including retailers, restaurants and airlines, are imposing surcharges for each credit card transaction, even though fees the merchants pay card companies have fallen.
Reform or no reform, the credit card companies will not be denied in their quest to make money. And how will they make their money? By getting it from you, dear consumer, in one way or another, as Australia’s cautionary credit card tale shows. From a WSJ op-ed:
Credit cards are essentially a closed economic system: A reduction in interchange fees will have to be offset by increased revenues elsewhere or a reduction in costs. For example, issuers could try to increase the revenue generated from consumers through higher interest payments, higher penalty fees, or reinstating annual fees…
Critics object that interchange fees impose costs on merchants and force cash purchasers to pay more for goods and services to subsidize credit card users. But there is no evidence that Australia’s cap on interchange fees resulted in lower prices for consumers. When allowed to charge credit card users, some Australian merchants imposed surcharges that exceeded the costs incurred and expressly refused to reduce prices for noncredit purchasers.
Will Health Care and the Jobs Market Be European?
Bonjour universal health care, along with high unemployment and a stagnant economy. Cross ObamaCare with a stalled jobs market that never fully recoups and what we may very well have is a scene comparable to the social democracies of Europe.
In terms of jobs, here’s the big concern, voiced by a WSJ editorial:
The long-term danger is that the U.S. labor market becomes more like Europe’s, with workers who have jobs doing fine while millions of others can’t get full-time work.
Actually, Paul Krugman says, an economy that resembles those in Europe wouldn’t be so bad. He would say that, wouldn’t he? They gave him the Nobel Prize. Anyway, here’s his analysis of why our economy may appear more European, and why that’s OK:
Even calmer conservatives have been issuing dire warnings that Obamacare will turn America into a European-style social democracy. And everyone knows that Europe has lost all its economic dynamism…
But the story you hear all the time — of a stagnant economy in which high taxes and generous social benefits have undermined incentives, stalling growth and innovation — bears little resemblance to the surprisingly positive facts. The real lesson from Europe is actually the opposite of what conservatives claim: Europe is an economic success, and that success shows that social democracy works.
Will You Save As If You Were Living in China?
Despite its economic boom, China has remained largely a nation of savers. Really, really good savers. The average Chinese household saves more than 25% of its disposable income. Saving in such whopping proportions does not help the economy nearly as much as Chinese leaders would like, which is why the government has been trying to transform a “Nation of Savers Into Spenders,” as the WSJ put it:
The government is spending substantial sums to get consumers to buy manufactured goods. China budgeted three times as much as the U.S. on subsidies for car purchases in 2009, notes Thilo Hanemann, an analyst for Rhodium Group.
The U.S. set aside $3 billion for its “cash-for-clunkers” program and $1.7 billion for a tax deduction on car purchases, but China planned $14.8 billion on tax breaks and subsidies for car purchases. The response has been dramatic: Sales of cars eligible for the break are up 63% this year as of the end of October. And a trade-in program to subsidize home-appliance purchases has had $1.3 billion in sales by the end of November.
U.S. consumers, on the other hand, have become better at saving in recent times, and that has nothing to do with incentives from our government. The government actively encourages us to spend, or at least sends us the mixed message—that the individual should save, but we collectively must spend to get the economy pumping along. Mostly, since the recession hit, we’ve become better savers. The national savings rate was measured at over 4% in December and at around 6% at various points in 2009. That’s up from a rate of zero a few years back.
Will the trend continue? Could we challenge the Chinese for the savings champ crown? Most likely, we’ll meet somewhere in the middle. We will save a little more like the Chinese, while at the same time they’ll be spending more like us.
Or Will You Live in the Brave New World of Perma-Templand?
BusinessWeek reports on the dawn of the era of the “Disposable Worker.” The disposable worker, or “perma-temp,” receives no job benefits, no job security, and meager pay:
… some economists predict it will be years, not months, before employees regain any semblance of bargaining power. That’s because this recession’s unusual ferocity has accelerated trends—including offshoring, automation, the decline of labor unions’ influence, new management techniques, and regulatory changes—that already had been eroding workers’ economic standing.
The forecast for the next five to 10 years: more of the same, with paltry pay gains, worsening working conditions, and little job security. Right on up to the C-suite, more jobs will be freelance and temporary, and even seemingly permanent positions will be at greater risk. “When I hear people talk about temp vs. permanent jobs, I laugh,” says Barry Asin, chief analyst at the Los Altos (Calif.) labor-analysis firm Staffing Industry Analysts. “The idea that any job is permanent has been well proven not to be true.” As Kelly Services CEO Carl Camden puts it: “We’re all temps now.”
Maybe we already live in Perma-Templand?
