>That model is not analogous to the credit card situation, in multiple ways. Among other things, it's framing this as a "tax" (which isn't inherently the right model), and presupposing that the origin of the "tax" is the credit card interchange, and mapping the "rewards" programs to a discount on the "tax" but not mapping anything else (e.g. free checking or the availability of credit instruments that wouldn't otherwise be available) to that, with a lot of assumptions about which parts of the overall system to include and map, and which parts to leave out. The net result seems like a cherry-picked conclusion to fit an agenda. If you decide in advance what you want the model to show, you can make a model to show it, but that doesn't mean that model is an accurate representation of the system.

That's a lot of words, but I don't see how it refutes the core point which is that "rich" cardholders pay 1% (or whatever) less on their spend than someone paying with debit or cash. All you did is handwave a bit about how interchange fees aren't really like a tax, and how the logic is "cherry-picked".

>Card companies/issuers charge interchange so that the credit card company makes money; they don't do it with the primary goal of funding rewards programs, or free checking, or the other things they do for marketing purposes. That would be like saying "the primary reason this company charges for their product is to spend money on marketing programs". Credit card companies didn't pick their interchange rates on the basis of funding reward programs, specifically; they set their rates to make money for themselves.

Again, this is a lot of words but I don't see how this refutes the claim that rich cardholders get 1% back but poorer people paying with debit/cash do not. Moreover, if you're sufficiently cynical, you can claim that the government levies taxes so they "make money", not "with the primary goal" of funding schools and roads.

>Also, to the best of my knowledge, current law no longer allows credit card companies to prohibit merchants from charging a premium for using credit cards, or for using specific credit cards. (Credit card companies used to do this, which effectively made them a cartel engaging in price-fixing.) e.g. there is nothing preventing merchants from charging less to people with cards that cost less to accept, such as debit cards or less "premium" credit cards. In theory, doing so might create competition for cards with lower interchange, or incentives for people to stop using rewards cards. In practice, however, merchants don't do this. Given that, you could just as easily portray this as a model where merchants are choosing to value the custom of higher-income people (e.g. because they spend more) over the custom of lower-income people. I don't think that's an accurate model either, though.

The fact that merchants are freely choosing to give rich cardholders subsidies doesn't diminish the fact that rich cardholders are being subsidized. It might be better than some imaginary system where they're forced to subsidize rich cardholders, but detractors of cashback/rewards programs oppose such programs existing at all.

>Credit cards make money from both low-income and high-income people alike, and make more money from high-income people, and neither one is subsidizing the other.

You're committing the same mistake that you allege me doing above (ie. "If you decide in advance what you want the model to show, you can make a model to show it, but that doesn't mean that model is an accurate representation of the system."). In particular, you're restricting yourself to only analyzing the revenue/expenses from the card issuer's perspective, and not analyzing how much the customer ends up paying. It's possible simultaneously for a card issuer to be making money off of rich people, and for poor people to be screwed over by the interchange fee system. An overly simple model that demonstrates this would be a population divided into "rich" and "poor", where "rich" people use credit cards with 1% cashback and 2% interchange, and "poor" people use credit cards with 0% cashback and 0.1% interchange. In this model, from the perspective of the bank, they're clearly making more money off "rich" people in both absolute and relative terms (2% - 1% cashback = 1% profit, compared to 0.1% interchange for "poor" people). However the rich would still be paying a lower effective price for whatever they're buying at the stores.

Of course, this analysis leaves out a bunch of details, but neither Patrick's thread nor your comment tries to refute why the model above is wrong, why we shouldn't use "effective price" (ie. price paid - cashback) as the thing to analyze, or we why we should focus on some other metric (eg. card issuer profit) instead. All he did was point out some other metric and say "but these metrics say they're making money off rich people as well, so you're wrong!", without trying to refute the original claim. It's like arguing with a "replace income tax with tariffs" proponent, and having him respond to your claim that tariffs are regressive with "yeah but rich people still pay more in absolute terms so it's not regressive!".

Leaving aside other inaccuracies in the model, and leaving aside insulting non-responses like "that's a lot of words" that inherently penalize analyses of a complex system and favor oversimplified models even when incorrect...

The cherry-picking in question, here, is that you are choosing a model that claims the rewards being paid to richer people are a subsidy of the rich by the poor, by attributing one input to one output, while ignoring everything else in the system. Think about double-entry accounting for a moment: would it be reasonable to point to one inflow and one outflow and say "this inflow paid for that outflow!" as a serious model, without looking at anything else in the system? And in particular, would it be reasonable to claim that as the "core point" and demand that people refute that point while ignoring any evidence invalidating the oversimplified "one inflow, one outflow" model that privileges that point and treats it as the core point?

To draw an analogous argument, which is faulty for the same reason the credit card rewards "subsidy" argument is faulty: if a store offers a "bulk discount", is that a subsidy from poor people (who may not be able to afford to buy or store in bulk) to rich people (who on average can do so more easily)? Using the same modeling you're describing would paint it as such: poor people pay more for the same goods. I would argue that it's more accurately modeled as an incentive offered by the store that they see as on net bringing in more revenue? Do you expect that the store, upon receiving that higher revenue, needs to use it to somehow lower the prices paid by poorer people to compensate? And if they do not use it as such, and instead pocket that additional revenue or use it in some other way, does that suddenly make this a subsidy from poor customers to rich customers?

I am, in general, in favor of the argument of analyzing a system's net effect and not just its intentions. But it's faulty to analyze a subset of the system and then attribute fault or foment outrage based on that simplified model of the system.

If you want to argue that the entire system is not the perfect system, or that it could be improved, you'll get no argument from me. If you want to argue that, in general, "having money is a massive advantage for getting more money", again, that's entirely true right now.

If you want to argue that you've shown a specific subsidy of the rich by the poor, I think you haven't given evidence to support the validity of that model. And in particular (and to my mind the more important aspect of that argument insofar as the point of arguing about systems is to evaluate potential changes to them), if you want to argue that in a different system with no interchange, poor people would pay less for the same goods than they do in this system, I think you'd need more of a model of the overall system to successfully argue that. In particular, among other things, 1) would merchants actually make more in that alternate system rather than making less (which the observation that merchants make more money from higher-income customers calls into question), and 2) would merchants actually pass that savings on, specifically, to lower-income customers, which the observation that they don't currently charge different prices for different customers calls into question, and 3) would some other part of that system change as a result that makes things worse in other ways, such as products like cards or checking accounts (a checking account is a credit instrument) no longer being available to people with lower income or lower credit scores?

I'm not making this argument because I think the financial system is perfect and shouldn't be changed, or that the financial system overall is fair. I'm making this argument because the oversimplified model that foments outrage by claiming a subsidy of the rich by the poor is a bad model for the purposes of reasoning about the system and attempting to make it better. Criticizing that model and arguments based on that model isn't based on wanting to preserve or advocate for the status quo, it's based on wanting to accurately model the world as a step towards evaluating potential improvements.

What are your thoughts on trickle down economics, then? Everything you said above seems suspiciously similar to the reasoning use by advocates of lower taxes to "grow the pie". After all, it's not like billionaires use that much roads, schools, and defense compared to the typical American, definitely not as much in relation to how much more income/wealth they have. Maybe we should give them a "bulk discount" on taxes, in the hopes that it increases the tax take overall? You said something earlier about how taxes totally can't be compared to interchange rates, but your exact reasoning is unclear.

Is this just word lawyering over what "subsidize" means? I can understand how strictly speaking, rich people getting more cashback (or lower taxes) isn't exactly a "subsidy", because they're still paying more than "their share" into the system, but most people would still think the arrangement is unfair. Call it "regressive" or whatever, but I still think it's a valid complaint.

Every argument I made in this thread was about private companies, who have every incentive to only take customers who make them money; that's especially true if they're spending marketing money attempting to pursue such customers. I am making no claim or argument about government spending, which has fundamentally different strategies and goals.

> Is this just word lawyering over what "subsidize" means?

Insofar as words have meaning, possibly. Before arguing that one group is subsidizing another, you'd first have to argue that one group is being subsidized. Leaving aside the original meanings (which only describe public funds in the first place, which this isn't), and interpreting the apparent meaning, the claim is apparently that credit cards lose money on rewards programs for rich customers, and those programs are thus subsidized, and specifically that they're subsidized by poor customers. If that were the case, they wouldn't have those rewards programs. (I'm not claiming that no company in the world has ever spent marketing money they didn't have to or spent it unwisely; I am claiming that an absurd amount of analysis has gone into the finances of rewards programs, in particular, and it is extremely unlikely that card companies are spending more to acquire a class of customers than the revenue they get from that class of customers.)

Now, more broadly, if you want to claim that credit card companies make more money from poor customers than rich customers, that would not be too surprising of a claim. (It's not obvious if the evidence supports that, and it seems like it may not be the case, but let's set that aside for a moment.) That's not a subsidy, and I wouldn't even call it "regressive", any more than I'd call a company that makes more money from rich people than poor people "progressive".

If you want to say that, in general, the practices of credit card companies and the financial industry are not fair to lower-income people, I would agree with you there. I don't think any subsidizing is going on, and I don't think rewards programs are a redistribution program; any such claim would imply taking a loss on a class of customers but keeping those customers anyway. But I absolutely would support a claim that (for instance) credit cards are predatory. Or, for instance, that airline miles programs are deliberately confusing and misleading and to a first approximation no customer "makes money" on those either.

>Every argument I made in this thread was about private companies, who have every incentive to only take customers who make them money; that's especially true if they're spending marketing money attempting to pursue such customers. I am making no claim or argument about government spending, which has fundamentally different strategies and goals.

A government might have different goals than a profit making corporation, but when it comes to revenue generation much of the principles are similar. The demand curve vs the laffer curve, or the idea of giving discounts in the hopes of increasing absolute profit (or in the case of governments, tax revenue less any government services/transfers). Therefore I'm not really sure why you can't compare rich people getting cashbacks to rich people getting tax breaks.

>Insofar as words have meaning, possibly. Before arguing that one group is subsidizing another, you'd first have to argue that one group is being subsidized. Leaving aside the original meanings (which only describe public funds in the first place, which this isn't), and interpreting the apparent meaning, the claim is apparently that credit cards lose money on rewards programs for rich customers, and those programs are thus subsidized, and specifically that they're subsidized by poor customers. If that were the case, they wouldn't have those rewards programs. (I'm not claiming that no company in the world has ever spent marketing money they didn't have to or spent it unwisely; I am claiming that an absurd amount of analysis has gone into the finances of rewards programs, in particular, and it is extremely unlikely that card companies are spending more to acquire a class of customers than the revenue they get from that class of customers.)

I'm not sure how you got the impression that the argument was ever "credit cards lose money on rewards programs for rich customers". The linked atlantic article specifically says that it's not the case:

    “When you talk to rich people who pay off their balance, they think that credit-card companies are losing money on them, and they’re the ones subsidizing the people who carry a balance,” Klein explained. “It’s the exact opposite.”

Moreover the article is pretty specific on what they're against:

   In 2023, these swipe fees amounted to more than $224 billion, driving up retail prices by $1,700 a year for the average family. Everybody pays more for their goods; only fancy cardholders get juicy perks and cash returned to them.

In other words, they're not claiming that card companies/stores are losing money to "fancy cardholders", or that they're even making less money from them. They're decrying the fact that everyone pays the same markup on interchange, but only the rich get "juicy perks and cash returned to them". You might quibble on the use of the word "subsidize", but the article is pretty clear on what's happening, and it's unfair to dismiss it with a "this is false".

>I don't think rewards programs are a redistribution program; any such claim would imply taking a loss on a class of customers but keeping those customers anyway

Defining "redistribution" is non-trivial, especially for businesses with high fixed costs and low marginal costs. For instance, suppose we define "redistribution" to only mean when a customer brings in less revenue than his marginal costs. That sounds reasonable, but it leads to some absurd conclusions. The most extreme example of this would be F2P games, where the vast majority of income comes from a tiny segment of the player base, "whales". The rest either spend trivial amounts or nothing at all. Given the economics of online games (high fixed costs to develop, low marginal costs per player), using the strict definition of "redistribution" above would imply the whales are not subsidizing all the other players. But this description doesn't feel correct, or at least doesn't tell the whole story. If all the whales evaporated there's no way the game would stay afloat, so it's reasonable to argue that in some sense, the whales are paying for everyone else, even if no "subsidy" (in the strictest sense) is going on.