Those who reduce the talks at the World Economic Forum (Davos) to bloviations evidently haven’t witnessed the last two speeches by Argentina president Javier Milei, or for that matter the commentary of JP Morgan Chase CEO Jamie Dimon. In Davos last week, Dimon pithily explained how legislation in the U.S. should be crafted.
Though properly critical of President Trump’s decision to join Bernie Sanders and Elizabeth Warren in legislation meant to cap credit card interest rates at 10 percent, Dimon added a slight but crucial wrinkle to Trump, Sanders and Warren’s allegedly compassionate efforts to achieve affordability by decree. In Dimon’s words, “Force all the banks to do it in two states, Vermont and Massachusetts, and see what happens.” Yes, precisely!
The founding fathers would surely approve. That was a major driver of the 10th Amendment they wrote at the U.S.’s creation. As a way of clarifying the Constitution’s primary purpose of severely limiting the power of the federal government, they created the 10th amendment to ensure that “any powers not specifically given to the federal government, nor withheld from the states, are reserved for those states or the people.” Translated, leave most legislation to the states.
The founders’ thinking centuries ago was rooted in choice. By leaving lawmaking to the states, the American people could migrate to the kind of government they wanted, while migrating away from the kind of government they didn’t want. Yet there was more.
In leaving legislation to the states, inevitable errors related to politicians substituting themselves for the people, the markets or both would be limited to the states in which the errant legislation took place. The thinking was to make states “laboratories” of good and bad ideas, all the while keeping a fence around them in a policy sense assuming what was logical: that some states would pass bad legislation. If and when, localize lawmaking so that its negative effects are minimized.
Bringing it back to Dimon, that’s what he was plainly saying. In Davos no less (!), Dimon was implying that the founders, in their substantial skepticism about politicians, were quite wise. Precisely because politicians are prone to errors, limit the reach of their errors.
Though basic economics tells us that that placing a price ceiling on a market good or service will result in scarcity of that good or service, it seems politicians more than anyone need to re-learn simple economics and human nature over and over again; that, or they need to acutely suffer the effects of their desire to choose politics and posturing over what they secretly know to be correct.
All of which speaks to the genius of Dimon’s thinking. If Sanders and Warren really think their legislation is so great, and will do so much for affordability, let them secure President Trump’s signature not for all the U.S., but for the states Sanders and Warren serve.
Let’s see what happens if credit card interest rates are capped at 10 percent for the citizens of Vermont and Massachusetts. If the legislation results in abundant credit cards and low borrowing on same for Sanders’ and Warren’s constituents, the rest of the U.S. will follow. If not, as in if this price control on credit cards fails as all price controls have, let Vermont and Massachusetts serve as a warning.
Originally published on Real Clear Markets.
