Robin Hood Carries a Credit Card
The “reverse Robin Hood” hypothesis is back, wearing a fresh econometric hat and carrying a very large number. The claim is familiar: credit card rewards programs let affluent cardholders pick the pockets of poorer consumers who pay with cash or debit. The new estimate is punchier. In a recent working paper, a group of academics argued that U.S. consumers who pay with cash and debit cards transfer roughly $30 billion annually to credit card users. Of that total, the authors estimate that $9.2 billion flows from households earning less than $150,000 per year to households earning more than that threshold.
Unsurprisingly, proponents of the Credit Card Competition Act, the Illinois Interchange Fee Prohibition Act, and a growing slate of state-level proposals have seized on the paper as fresh evidence that credit card rewards programs redistribute wealth upward. But the claim rests on some heroic assumptions about where people shop, what they buy, how merchants set prices, and whether cash is actually cheaper than cards. This post takes a more skeptical view.