This topic come up every once in a while. I think the fallacy is in the concept that points/miles have any "value" at all. To me, they are just stackable coupons that allows someone to purchase travel at a discount (sometimes a deep discount), if the airline or hotel chooses to offer the discounted price.

The problem with directly purchasing miles/points from an airline or hotel is that it is part of the "gotcha" game. If a person has 98,000 miles (coupons) and needs 2,000 more, the price is very high but might be worth it if he needs 100,000 miles to get the discount. But the "gotcha" price does not set any value to the points/miles.

In the past few years, the ability to use the coupons has declined. Fewer unused seats and hotel rooms are available, so fewer opportunities are provided by the suppliers for discounts. Also, true deep discounting is also becoming rare, as the trend toward passing on made-up fuel and convenience fees catches on. The increase in the number of miles/points required is just a technique of lowering the discount on the coupon.

The biggest source of these coupons in the past few years has been credit card companies sharing a small portion of their profits to consumers by passing out these coupons to those who sign up for, and use, credit cards. The credit card companies pay something for these miles and points, which makes some people believe that represents "value" in the hands of the ultimate consumer. It doesn't, since the ultimate consumer has no ability to do anything with these coupons if discounting is not offered. It is not surprising that the number of miles/points passed out by the credit card companies has declined at the same time that cash-back rewards have been reduced by credit card companies. It is part of an overall deflationary environment in marketing rewards.

I guess we have the bloggers to blame for the silly proposition that miles/points have value. Buying something, such as travel, that you do not have to buy, even at a discount, does not save you money - a great concept to consider on Black Friday. You have less wealth after buying it at a discount than you did if had simply not purchased it at all.

Of course that does not mean that you should not buy it if you enjoy it. As Steve Jobs pointed out, there is no sense in trying to be the richest guy in the graveyard. But it does mean that a coupon (such as points/miles) does not have any value. Perhaps a coupon for toilet paper has value - but not these coupons.

Once you change the analysis to one in which 100,000 miles/points have $0 value, but might allow me to buy something fun for $100 in fees that would have otherwise cost me $2,000 (and I never would have bought), then it all makes sense. But if a person goes at it with the attitude that those 100,000 miles/points are worth $1,500, and he is dissatisfied because those 100,000 miles/points can't be spent like $1,500 cash, he is going to be unhappy.

Of course, that is what makes Manufactured Spending so difficult. A person may well truly spend $500 in real money to get those 100,000 miles/points, and the airlines/hotel could care less that he did. And when an account is closed, and all the reward points are lost (which really does happen), then a true economic loss occurs and it is painfully obvious that reward points have no value and are owned by the issuer until redeemed.