Apple Pay Can Make You Fat

(Money image)

Economist writer Tom Standage says cashless payments are causing him to put on weight (no, it's not from not having to pull out cash from his wallet). The logic is simple:

People spend more when they use credit cards and other non-cash forms of payment:

the most widely cited fact, from a study conducted by Dun & Bradstreet, is that credit cards make people spend 12-18% more, on average, than they would using cash.

Mr. Standage says that it's too easy to wave his smartphone in front of the Starbucks scanner: "I now buy a coffee every day, rather than once or twice a week."

More lattes = more pounds.

When the "pain" of paying with paper money is removed, spending goes up. But that's not a new revelation. Gambling houses knew this decades (centuries?) ago when they extend credit---just initial a marker (IOU) and $500 in chips appear in about 30 seconds (your humble blogger speaks from personal experience).

I'm so old that I used to do payroll by hand (Intuit image).

Perhaps the most significant example of weight-gain by not paying cash is the government itself. During World War II a young economist named Milton Friedman was on the Treasury team that devised payroll withholding to help pay for the war.

Milton Friedman reflected in 1995:

I played a significant role, no question about it, in introducing withholding. I think it's a great mistake for peacetime, but in 1941–43, all of us were concentrating on the war.

I have no apologies for it, but I really wish we hadn't found it necessary and I wish there were some way of abolishing withholding now.

Every self-employed individual and/or those with significant investment income already feel the pain of paying quarterly estimated taxes. Eliminating payroll withholding would sensitize a much larger population to the size of government without changing tax rates or tax brackets. Already a few voices have called for such elimination:

To build the necessary political support for otherwise unpopular spending cuts, [Speaker Paul] Ryan should quickly move to end federal income tax withholding. If American households would stop viewing their tax refund checks as happy windfalls from politicians and instead better understood how much big government is costing them every year, one would expect to see louder demands to bring runaway spending under control and to downsize the scope of federal programs and operations. The GOP honeymoon will be over in a few months. Ending federal withholding will help build support for spending cuts over the next few years and perhaps beyond.

Paying cash will cut the fat, but some ideas are too big and too bold.