[HT: Marginal Revolution and Yglesias] Todd Zywicki has written what amounts to an extremist analysis of the impact of interchange fee regulation. It uses the Australian experiment in a very selective and misconstrued way. For example, Zywicki writes:
A recent analysis of the evidence by economist Joshua Gans concluded that, in fact, there was no discernible reduction in the use of credit cards in Australia after the change.139 If that is true, and if there has been no discernible decrease in retail prices, the net result of Australia’s intervention will have been to simply redistribute wealth from consumers to merchants with no apparent offsetting social benefits.
Actually, that is not what was found. It was found that the capping of the interchange fee likely did have an impact on retail prices and that the net effect was no redistribution of wealth from consumers to merchants. Zywicki argues that, in Australia, the reforms harmed access to credit. But that is clearly not the case. Credit card usage remains undiminished as a result of the reforms. Also credit card debt was undiminished so there is no evidence of a difference in the composition of card users. Instead, it is better to say that the intervention was broadly ineffective. But that also means that big concerns of its negative impact in the US are unwarranted when looking at the Australian example. Basically, the broad conclusions of the paper are flawed.