I’m recycling this video because we have a potentially very unfortunate example of bipartisanship developing in Washington.
Some very left-wing Democratic members of Congress want to impose price controls on credit card interest rates.
But who is the Republican who also supports this idea?
Ironically, even though he accurately observed that “communist inspired price controls… have never worked,” the answer is Donald Trump.
As you might expect, many leftists politicians are saying that they will be more than happy to help Trump turn this bad idea into reality (just as they were happy to support Trump’s first-term spending binge).
Needless to say, anything endorsed by two of the worst senators is not a good idea.
A September article for CNBC by Annie Nova explains some of the adverse consequences of this type of intervention.
Trump…says that if he is elected president in November, he will cap credit card interest rates at around 10%. …Trump’s proposed rate cap, if enacted, would have a huge impact on both consumers and on the financial industry. …said Ted Rossman, a senior industry analyst at Bankrate. “A 10% cap would completely upend the credit card market…” Despite his recent campaign trail promise, even if Trump were in the White House, he would not have the authority to alter this landscape, Rust said. “A president cannot set a cap on credit card interest rates,” said Rust. Nor can the Consumer Financial Protection Bureau, the U.S. government agency tasked with protecting consumers from financial abuses. If Trump wants to impose a nationwide interest rate cap, “it will take congressional legislation,” Rust said.
In a column late last year for the Hill, Joel Griffith of the Heritage Foundation elaborated on the downsides of price controls.
…a recent proposal to cap credit card interest rates will inadvertently deny temporary financial resources to families dealing with price hikes that outpace pay increases. Expect more defaults, bankruptcies, ruined credit histories, and reliance on disreputable black-market lenders — that is, loan sharks — as government moves to dry up the supply of credit. Price controls on capital — or any other good or service — ultimately result in shortages. They limit supply while stoking demand. …interest rate price caps are hardest on the intended beneficiaries — lower-income and poorer-credit borrowers. …an 18 percent cap will price nearly four of every five subprime borrowers out of the market, and many prime borrowers as well. Expect denial rates to climb even higher. …A government-mandated interest rate cap presents a dilemma to lenders: Either extend credit at a rate that doesn’t include all the default risk, or deny credit to a large swath of potential borrowers. …For more than 2,000 years, from ancient Egypt to 18th century France, “usury laws” have failed to accomplish their stated objective. Similar price controls on credit card interest rates will fail as well, even as they sever a financial lifeline to many families.
The good news is that this nutty idea probably won’t happen unless Trump makes it a big priority. And I think that won’t be the case (let’s hope my policy predictions are better than my political predictions!).
The bad news is that he favors – or at least is willing to endorse – Kamala-style, AOC-style economic illiteracy.
Dan Mitchell is co-founder of the Center for Freedom and Prosperity and Chairman of the Board. He is an expert in international tax competition and supply-side tax policy.
