Everything’s coming up inclusive these days.  Indeed, any policy anyone wants to pass is inevitably dubbed inclusive just as any pair of jeans is said to be slimming.  However, genuine inclusion isn’t any easier than a fashion silhouette.  Thus, to understand which inclusiveness claims are compelling and thus which policies warrant pursuit, one has to look past the label to see if it really fits.

As just one example – policies on CBDC and the payment system – makes clear, any judgment about inclusion must start with an understanding of who’s being included into what on which terms.  Just because something is ubiquitous – a major rationale for both CBDC and Fed ownership of the payment system – doesn’t mean it’s inclusive.  Think for example about check-cashing stores or payday lenders – they’re often ubiquitous in the areas seen most as in need of inclusion, but this ubiquity of course comes at a high cost to economic equality by virtue of the price demanded for these financial services.

Ubiquity is anti-inclusive if it comes at cost to those using a service, those with an idea for a competing and better service, or those for whom the seemingly-ubiquitous offering is inaccessible due to barriers erected by income, age, or ability.  That something is present for most people and even cost-effective for them still doesn’t mean it’s ubiquitous unless it’s also right for the most vulnerable and present for those who need it most.

Indeed, ubiquity can be achieved at considerable cost to equity.  Facebook, Amazon, and other tech-platform firms are ubiquitous and even inclusive in that at least some of them have made efforts to enhance accessibility to those for whom digital access is problematic.  They are also way, way inclusive measured by price because access is free – one needs no ticket to ride these digital rails.  However, there is an array of costs that, while hard to monetize, are real and sometimes even present dangers to these ubiquitous services.  As is well known, these affect consumers, small businesses, and small-scale media.  Bottom-line judgments about inclusion are thus misleading because they don’t account for critical factors such as conflicts of interest, “dark” marketing, and the overall impact of concentration on economic growth.

Further, do we really know the taxpayer subsidies inherent in the current payment system or FedNow?  Sure, the Fed is subject to a “private-sector adjustment factor” for its pricing, but if you believe in that, I’ve a large bridge just right for you.

Has anyone ever calculated the inclusion costs of all the years in which competition might have made the payment system faster and cheaper?  Could the sums the Fed fails to transmit to Treasury due to payment-system subsidies have been better spent in other forms of social or economic welfare?

And, of course, it’s important to know not just how much a policy truly costs, but also who pays the direct and indirect price.  When the Financial Stability Board calculated the “social costs” of post-crisis bank regulation, it judged this in terms not only of the subjective odds of another financial crash – a common, if problematic, quasi-metric – but also by the extent to which bank compliance costs went up.  This was supposed to be a proxy for increased cost of credit, but it’s of course anything but.  As I noted in a comment letter to the FSB, bank compliance costs only reduce social costs if improved compliance at a lower cost to the bank still protects vulnerable consumers or increases financial stability.  And, even if bank-compliance costs go down and seemingly score as a social benefit, the cost of credit might not also go down because banks reallocate their exposures and new forms of credit from unregulated entities raise inclusion obstacles all their own.

Finally, like many other factors used to buttress spurious claims about inclusion or economic equality, many factors used to argue for inclusion are based on average or other forms of aggregate data.  Using cost data to support inclusion claims is a particularly persistent tactic, but it’s often pernicious.  The FSB for example also found no social costs due to post-crisis rules because the cost of bank credit on average around the world didn’t go up much.  Of course, the allocation of credit changed a lot, especially in the U.S.  And, how you measure cost also matters – looking only at interest rates at a time of ultra-low rates will surely give misleading results about real costs evident only after considering ability to pay and the terms on which credit is provided.  As a new EconomicEquality blog post shows, financially-vulnerable and at-risk Americans pay as much as thirteen times more for financial services than those who rank as financially comfortable.  Average data on financial services would suggest affordability; reality is of course very, very different for those most in need of genuine inclusion.