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kottke.org posts about Jamie Lauren Keiles

Free As In Frequent Flyer Miles

posted by Jason Kottke   Jan 05, 2021

Buried deep within Jamie Lauren Keiles’ NY Times article about frequent flyer miles and The Points Guy is this economic observation:

A major reason points-and-miles trips exist is because airlines turn a more stable profit by minting their own currencies than by selling actual airline seats. The flight seems almost ancillary to the financial transaction it enables — a trend across the whole economy, where the selling of goods or services serves to enable the collection of data, the absorption of venture capital funds or the levying of hidden transaction fees. In this scheme, posting to social media, or collecting points and miles, or ordering a taxi or a gyro on your phone, is merely a gesture to keep the whole process in motion. The real moneymaking happens behind the scenes, driven by a series of exchanges where value seems conjured from nothing at all.

But of course, value always comes from somewhere. If you trace the thread back on any one of these businesses, it’s always the same deal: The poor underwrite the fantasies of the middle class, who in turn underwrite the realities of the rich. When credit cards charge high interchange fees, they pass the cost of loyalty programs on to merchants, who in turn pass it back to customers by building the fees into their sticker prices. Those who pay with credit can earn it back in points. Those who pay with debit or cash wind up subsidizing someone else’s free vacation. According to a 2010 policy paper by economists at the Federal Reserve Bank of Boston, the average cash-using household paid $149 over the course of a year to card-using households, while each card-using household received $1,133 from cash users, partially in the form of rewards. It remains a regressive transfer to this day.

Emphasis of the second to last sentence is mine.