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TinotopiaLog → Unpredictability As A Drag On The U.S. Economy and Society ( 5 Jan 2005)
Wednesday 05 January 2005

Unpredictability As A Drag On The U.S. Economy and Society

You hear quite a bit these days about the importance of the rule of law and of property rights as necessary precursors to development and the emergence of a healthy society.

One of the more common examples is that of the ability to get clear title to land or other property. If you can be sure that your control of a piece of property will be secure in the future, you’re more likely to invest in it — you might build a house, for instance.

If there’s a good possibility that some day, someone might come along and tell you that you have to leave, you’re more likely to build a shack, thus somewhat reducing your exposure to this risk. It doesn’t matter whether you’re squatting on land that its rightful owner might someday want vacated, or whether you run the risk of the Ministry Of Central Planning kicking you out: the effect is much the same.

You can even see this at work in the United States in those few situations where property rights are not secure. In a part of central St. Louis County, Missouri, a couple of small cities have, for the last twenty years or so, been seizing property though eminent domain and selling it to shopping mall developers. To be sure, the result has probably been an improvement. The area in question has turned into a hub of sorts, with a number of major highways and roads coming together there; it’s much better suited to shopping malls than it is to the small factories, derelict warehouses, and one-bathroom houses that were there before.

Since they started seizing this land, the local property values have gone way up, and the sales tax generated from the shopping malls have allowed the cities — mainly Richmond Heights — to lower their property taxes while at the same time providing more and better services. But even as the property values have risen, the area has become seedier. The properties that haven’t been redeveloped are mostly going to pot: the parking lots are full of holes and weeds, the paint is peeling, and the signs are missing letters. None of the people who own houses and retail space around the giant mall are willing to make any investment in their property, because there’s no guarantee that they’ll be able to realize a gain on that investment: in that small part of a small suburb in the middle of the United States, the free market in real estate has been replaced by a command economy, and the people there are reacting rationally to their condition.

So you need what you might call macro-predictability in your society in order to avoid turning into something like Zimbabwe or, for that matter, most of sub-Saharan Africa.

But what applies at the macro level usually applies at the micro level, too, and this is what disturbs me: American society seems to be becoming more and more unpredictable on a micro level, and I think that these thousand cuts are adding up to a significant drain on our culture and on our economy.

I plan to write about this regularly, because I see this problem everywhere. But to begin with, and as an example of what I’m talking about, I’ll tell the story that got me thinking along these lines:

I have a lot of money lodged with the Bank of America. The Bank of America is one of the largest banks in the United States, but they don’t have a branch anywhere near where I live. This isn’t a problem — or it wasn’t, anyway — because I did everything by calling them on the phone.

Last week, I had a Bank of America CD mature, and I needed to have the funds paid into another account there, rather than having the CD roll over at an interest rate of something like 1%. This happens about every month, so the procedure is pretty straightforward by now: I call the branch that the accounts are tied to and tell them what needs to happen, and a few days later I get some receipts in the mail.

This time, though, it turned out that the person I’d been dealing with for the last year had transferred to another branch. The person now handling my calls told me that the Bank of America did not, and had never, redeemed CDs into checking accounts over the phone.

I explained that this hadn’t been a problem thirty days ago, and that I had in fact visited that very branch of the bank — 700 miles away — last April, specifically to sign their forms and file with them the documents that would allow me to do this stuff over the phone. I was told that ‘for liability reasons’ they didn’t keep any of that on file (?!), and that the only way to do this was for me to come into the bank in person.

The branch person said, then, that maybe the people at the B of A’s 800 number could help me. I tried that, and was told (after a long wait on hold, of course) that they do keep that stuff on file, but that none of my stuff was on file, and that therefore they couldn’t help me.

I called the branch back and talked to the manager, who grudgingly — she was actually sighing — told me that, this one time, she’d make an exception and allow me to do this over the phone, provided that I faxed fifteen pages of documents to her. I did, and presumably my transaction took place. I can’t say for sure, because I still haven’t received the receipts in the mail.

This is a horrendous customer service failure, of course, but the bigger problem is that I still have no idea what the procedure here is. There are four candidates here:

  1. You can do this over the phone — that’s what the CD-maturity-notification letter the bank sends you says, and in any case what the effective policy for me was until last week;
  2. You can’t do this over the phone, no way, no how: the version from the branch;
  3. You can do this over the phone if you’ve filed the proper papers (and if they bank doesn’t lose them): the 800-number version;
  4. You can do this over the phone if you argue long enough with the branch manager and have a fax machine handy, without filing anything in advance.

I understand that the bank wants to make sure that random people are not fiddling with other people’s money. But one would think that if that were the goal, the bank would institute some means of positively identifying people over the phone: passwords, or challenges and response pairs, or something beyond the current social-security-number and mother’s-maiden-name system in place now, a system that they (rightly) don’t even trust.

Instead, the hapless customer runs up against shifting requirements and contradictory information from different parts of the company — a company, no less, that wants me to trust them with my money.

It’s nuts. I’ll solve my problem by withdrawing all the money from the Bank of America, and putting it somewhere that seems more competent. But where’s that? As absurd as my experience with B of A has been here, it’s not too far off par for the whole banking industry. (See here and here for previous experiences of egregious bumbling on the part of Suntrust Bank.)

At a bare minimum, Bank of America’s inability to act consistently cost me (and them) an hour of phone calls the other day. Ultimately, it’s going to cost me the trouble of moving that money to a bank with a branch that’s local to me, and in the future it’s going to keep me from being willing to do business with banks that aren’t local unless it’s really worth my while.

Thus because Bank of America cannot act in a predictable manner in this one small area, I am reduced to banking pretty much the way I would have in 1905: by walking into a building that says ‘Bank’ on the front, and sitting down at a desk.

Add these little inconveniences and inefficiencies up, and multiply them by millions of people, and you probably have a significant drag on the economy. I’ve already got a list of five more examples in my pocket: watch for them in the coming days.

Posted by tino at 15:25 5.01.05
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