EMV Chips Are A Triumph Of Free-Market Innovation
Left on their own, regulators want to regulate and legislators want to legislate. Politicians win praise and elections for doing things. Bureaucrats gain promotion for expanding their jurisdiction. During the 2008 Financial Crisis, who was telling Congress to do nothing; who was lobbying the Executive Branch to sit still?
No, the political class and crony corporatists were screaming “do something, anything!” The government gave us more stimulus and more borrowing that failed to spur the economy. However, “doing something, anything” did burden our children with added piles of crushing government debt, which as of today is $18.7 trillion. That is $58,062 for every person living in the United States.
Over the years, statists in both political parties have contributed to the explosion of the regulatory state. So, the question is: what are we going to do about the size and scope of government? What is the free-market response to the “do something, anything” approach of Washington’s political class?
To find the answer we have to start at the beginning, and rediscover and advance the Jeffersonian vision of a government that leaves “them otherwise free to regulate their own pursuits of industry.” No industry—no successful industry—is in the business of purposefully injuring or defrauding their patrons. On the contrary, free enterprise expands liberty and rewards entrepreneurship. Free enterprise creates opportunities for all Americans, but its full realization depends on self-government, not Big Government.
As social scientist Charles Murray has eloquently articulated, everywhere that capitalism takes hold, national wealth increases and poverty declines. Everywhere that capitalism is rejected, people remain impoverished and poverty increases. Free enterprise is the only system in the history of humankind to lift people – billions of people – out of poverty. So it follows, the antidote to the failures of Big Government is to expand the hold (and self-governance) of free enterprise.
Government interference is not the only way to deal with economic crises or to manage externalities, i.e., the side effects or consequences of commercial activity. The free market in many cases can solve negative externalities more efficiently (and more equitably) than new laws or new regulations. For example, just in time for Christmas shopping, Americans are receiving in the mail new EMV-chip cards. These leading-edge bank cards are a market response to combat fraud. Unlike the outdated magnetic stripe cards, every time a consumer uses an EMV card the chip creates a unique transaction code that cannot be reprocessed.
Though not a panacea to all card-related cybercrime, they are an important, market-driven shift in the right direction. These chip cards, unlike the magnetic stripe cards we’re all used to, are impervious to counterfeiters.
There hasn’t been any executive fiat from President Obama mandating this new technology. No Member of Congress can take credit for introducing the idea as legislation, and no bureaucrat is busy writing new regulations for its design. In this case, there is no new, tangled-web of new economic rules instructing a government one-size-fits-all solution to the negative externality of credit card fraud. The EMV-chip will not add a single dollar to the $18.7 trillion national debt.
On October 1, there was a change in liability that provides the market incentive—not government compulsion—for banks and retailers to pick up the pace of the EMV transition. For years, a card issuer absorbed the costs associated with counterfeit fraud transactions. Now, liability for fraudulent charges rests on the weakest link in the chain. That means, in case of counterfeit fraud, retailers are responsible if they haven’t upgraded to EMV-enabled terminals and banks are responsible if they haven’t issued consumers new chip cards. It’s the Jeffersonian ethos at work where banks and retailers are “free to regulate their own pursuits” of their industry.
The manner in which the EMV-chip bank card has been introduced into the market-place supports the case for a more constrained government. However, much still depends on how banks and retailers finish the job. While banks are making significant progress in issuing new cards to consumers, retailers aren’t moving nearly as fast to upgrade payment terminals. That’s a shortsighted mistake. Delay may invite government meddling that will not only hinder existing technologies but will stifle future advances we haven’t yet contemplated.
The EMV-chip is an early Christmas present for those defending liberty. Not only will this market-driven and market-regulated technology protect against fraud, but more than that it builds a testimony of the truth that free enterprise is immeasurably superior to government command and control.