Yes, but consider who pays the merchant fee in the end. Sure, you might be getting a kickback of that in rewards, but usually less than you pay yourself in fees indirectly.
Yes, that's the problem: Part of people are getting part of the pot of extra money back, through a highly complex coupon collector's version of a Rube Goldberg machine that skews win rates towards those with better credit.
It's really the perfect scheme, as the system creates its own never ending supply of advocates.