In a scene that perfectly captures the weirdness of American politics today, President Trump, a billionaire and self-described champion of corporate America (at least the ones he likes), was all smiles during a visit to the Oval Office by Zohran Mamdani, the democratic socialist and mayor-elect of New York City.
For months, the two men exchanged the harshest of words. abuse. Mamdani was a “communist” and a “radical left-wing lunatic”; Triumph a “fascist” and a “despot.” However, once the New York mayoral elections were over and the cameras clicking, the insults were put on hold. The men praised each other as “rational” and “productive.” Trump even joked that Mamdani could “surprise Some conservative people.”
Give them points for their collegiality, but don't be surprised. Trump and Mamdani are just the latest example of the convergence of the right and the left on economic issues. One likes minimum pricesthe other likes rent control. “They are both struggling with the same thing.”price war“, as Ryan Bourne of the Cato Institute calls it. And this war enjoys growing bipartisan support.
Carry legislation introduced earlier this year by what would once have been an unlikely duo: Sens. Josh Hawley (R-Mo.) and Bernie Sanders (I-Vt.). His “10 Percent Credit Card Interest Rate Cap Law,” which also reflects a trump idea of the 2024 campaign, sounds compassionate. Who likes paying 25% interest?
In practice, price controls of any kind are disastrous. Credit card interest rates are high because unsecured consumer loans are very risky. They are the price the lender pays for taking a risk with a person. If the government artificially caps rates well below market rates, banks will stop lending to riskier borrowers. That doesn't just mean broke shopaholics. It includes single working parents who use a last financial resort before payday.
Just as rent controls can create a housing shortage by reducing the attractiveness of supplying it, interest rate caps can create a credit shortage. They put millions of working-class Americans (the people who are supposed to protect proposals like these) at risk of being “unbanked.” Stripped of their credit cards, some will turn to payday lenders, loan sharks and pawn shops, whose charges are much higher.
It gets worse. Such a low limit would not only reduce the availability of credit; I would invest it. At 10%, banks would lend only to the safest borrowers with the highest income. Credit cards would become a luxury product for the rich: a financial advantage while everyone else would be relegated to the financial shadows.
Then there's the fact that millions of small businesses rely on credit cards. According to a Federal Reserve small business surveyhalf of employing companies use them to finance operations. The cards serve as unsecured working capital lines for businesses that lack collateral or a long credit history. A 10% limit would push them towards much more expensive and risky alternatives.
And forget about travel miles or cash back. Those programs are funded by interest charges, which a 10% cap would eliminate. When lenders can't price risk through market rates, they pass the cost on to higher fees, shorter grace periods, and more hidden fees. Consumers don't necessarily pay less; They simply pay in a different and more opaque way.
Finally, because credit cards are the main way tens of millions of Americans build credit histories, a limit would destroy a crucial ladder into the financial mainstream.
It would be comical if it weren't so harmful. A policy sold as pro-worker could lock millions of workers out of the modern credit economy and transform a household staple into something available only to those with the least need for consumer credit.
Hawley and Sanders criticize credit card companies as “loan sharks” for charging 25% interest. As Domingo Pino pointed out A few months ago in National Review, many of your closest political allies in the union sector offer their own members brand name credit cards at 15%, 20% or even 28%.
At that time, the AFL-CIO's “Union Plus” Mastercard was up to 25.15%. The National Education Association card reached 28.24%. SEIU members could get a card at 28.99%. The Teamsters card charged 27.49% and Capital One paid the union more than $4 million in royalties to promote it. If 10% is the moral limit, it's not just the credit card companies that are to blame.
The strange new alliance between democratic socialists and nationalist populists is not a sign of political healing. It is a sign that people have lost control of the basic economy. They have decided that markets can be bullied, risk banned and prices forced into submission. But magical thinking still fails in the real world when put into practice.
If this is the new bipartisan consensus, the worst thing that is being limited is common sense.
Rugy Veronica He is a senior fellow at the Mercatus Center at George Mason University. This article was produced in collaboration with Creators Syndicate.
