I strongly agree with Matthew's foundational statement: "I can’t tell you how frustrating I find it that we see so little of that genre of thinking big in American politics today. It sometimes seems like everyone wants to either do nothing or else totally overthrow capitalism or something. But the best way to shore up sensible politics is for establishment-minded people to show that basically technical improvements can in fact deliver large improvements in people’s lives. That goes for non-leftist Democrats, but also for Republicans who don’t want to be totally plowed under by QAnon fanatics."
This kind of useful technocratic suggestion is completely my jam, so I really have just two questions and a suggestion:
1: why zero interest? Obviously right now it’s moot since most money—market checking accounts pay less than 1% interest, but that presumably will not be the case forever and paying zero interest on a service that pays rich people interest is not really distinguishable from a tax on poverty.
2: why the fed and not the post office? Being a retail bank means providing retail services and one of those, ESPECIALLY for poor people who are often paid under the table, is accepting cash deposits. You need brick and mortar for that.
And the suggestion: as long as we’re risking pissing off the banks, why go small? Offer a 401k through the fed! Only one fund, and it’s a whole-market index with zero fees. People with greater risk tolerances could still go out and find dumber investment vehicles, but destroying the market for the shitty high-fee retirement accounts that are inevitably offered by small companies (if they offer them at all) would only be to the good. If we want the LFIs inside the tent pissing out, pay Vanguard and Blackrock to actually administer the funds.
This would help cities with parking operations as well, as mobile payment options become a thing, the unbanked are the major reason cities can't (or won't) abandon costly meters and pay stations.
I think there are two main issues with this; (1) the Fed is not going to be able to do it and even if they could (2) we would see mission creep and crowding out.
1) The Fed won't be able to do it.
This falls into the classic policy trap of thinking that it can all magically appear and work. Pass a bill and boom the Fed is a retail bank.
Retail banking is a wildly complex business (regulations, know-your-customer, anti-money-laundering, core banking systems, websites, mobile apps, ATMs, cheque processing, integration with payment rails, etc, etc).
To deliver on these requires a ton of people. Some are front of house - even if you outsource to the Post Office that still means putting way more money into the USPS. But there are a ton of back office people needed as well. The wage bill at the big banks is all in the tens of billions.
Then there's the technology required to stitch it all together. And it's very different technology to what you need for corporate banking. Look at the big banks and you see huge annual technology spends across the board; Wells Fargo ($2.7b), Bank of America ($4.6b), Citigroup ($7b), JP Morgan ($9.8b). All of that is mostly just to keep the lights on.
Establishing the Obamacare website cost around $1.5-2b (depending on the figures you believe) and was a complete debacle. Establishing a bank would be orders of magnitude more expensive and complex.
2) Mission creep
Sure this is a slippery slope argument - but people in the comments have *already* been advocating for it.
If the bank was (against all odds) somehow successful in getting up and running then it will immediately face mission-creep and start crowding out the private sector. Sure the initial position was 'no frills, no interest' transaction accounts. But there would be pressure to start delivering 'no frills' services across the banking stack.
- Basic mortgages; save people from predatory lenders and hey the government is already underwriting them through Fannie Mae and Freddie Mac
- Credit; let's just extend the overdraft and allow people to smooth their consumption... yeah that's a credit card in all but name
- Retirement/investment accounts; provide a default option which just tracks an index
We already have this in Canada. It is a govt agency called Service Canada and they administer Employment Insurance, Child Allowance benefit, energy credits etc. And through direct deposit, the money is sent right into your bank account that you have linked. We have a very strong banking system with branches in almost every community and now with online banking companies, there are banks that solely exist on the internet so if you have a phone you can setup an account. This at least separates your grocery purchases from the govt ledger which is a nice added element of privacy. The privacy-invasive state argument is the best counter to Fed account for every person, imo. I don't need the Fed seeing what I bought at 7-Eleven etc.
Also ties to our version of the IRS (CRA) which has your tax history and other program information the equivalent of 401k programs as well, again tied to direct deposit. All leveraging the sign-in security of your bank card. You can setup a seperate key with Service Canada so you wouldn't need online banking to still see your EI claim for example if you didn't use online banking, but the online banking key is extremely user friendly.
Works very nicely and govt was able to use infrastructure in crisis to get cash out to people's accoounts. Lots of incentive to signup.
One the hand, I think if Biden were to propose this now the GOP would crush him on it and stoke fears people have of the government and the Fed similar to what happened in 2010. On the other hand, I wonder if these rounds of stimulus checks have softened the ground and he could say "We want to make it easier for people to get their checks" and put it on terms people would understand.
Though I do think the GOP would put up a huge fight. They have to be looking at how easy, effective, and popular having the government just send people money is and be completely scared that's where we're headed and do everything possible to not make that easier.
Seems like one of those good ideas that feels kooky because in high-school I had a day where we learned "the Fed isn't exactly a normal bank"
On an a tangentially related note, a buddy of mine in finance tried to convince me that the Fed was being too loose with monetary policy and that this is driving an economy wide securities bubble because all these financial institutions are debt financing securities purchases.
This sounded a bit like finance bro bullshit to me, like he wanted me to buy crypto coins or something, but he's a smart guy and one who I normally respect his opinion on stuff. I asked him to point to the inflation and he said that it was specifically in financial markets because there was no "useful fundamental investment" for the money to go so all of it got spent on securities.
I've seen this sentiment among finance types elsewhere. Am I missing something here?
First, I strongly oppose the push towards a cashless society. There's a lot of benefit to financial anonymity. Let's look at a couple of scenario's
1. Maybe you are visiting a store that you don't want our corporate overlords (or your wife) knowing you visited.
2. Maybe you live in the many states where cannabis is still illegal and you partake.
3. Maybe you are an undocumented immigrant and need to be paid under the table.
4. Or maybe you just don't like the idea of your entire financial life being tracked.
Moreover, say we give all these unbanked people bank accounts. What happens when they start bouncing checks? Do you hit them with fees, do you take away the bank account, or does the US treasury just start covering all those bounced checks.
Matt, I'd like to see you push harder on the "IRS-does-my-taxes" thing. I think it could be a massive victory for the Democrats! And if Biden pitched it well, would Republicans really attend in its way?
Here's my list of law's I think the Dems could pass with little or no GOP cooperation, but also that would incur little opposition: https://link.medium.com/qjgSaygE8db
One interesting angle to having the Fed manage checking accounts for everyone is privacy.
Ten or twenty years ago I would have reflexively balked at the government having access to all my banking records.
Today, I might prefer the Fed having all that information compared to private companies that routinely sell everything they know about me to the highest bidder.
Heya, have huge fan of this basic idea for years: universal gov-provided checking accts.
Just to say it's not quite as easy as it seems. "Give people a debit card and ACH access, problem solved."
Two key examples: chargebacks, and legal garnishment/attachment of account balances. Both require a significant administrative and adjudication bureaucracy. May seem like edge cases, but they necessarily implicate all accounts. It's the hardest thing that Visa, for instance, does.
Also, aside: there's no need to even mention digital/electronic "currency." Your checking balances are digital currency. Nobody needs to hear that to understand how a checking account works. It's just a completely separate wonky issue (Bitcoin: run screaming) that clouds the waters.
Wish you’d talked more about why some people are unbanked. It doesn’t seem to be minimum balances bc there are plenty of online banks that offer free checking accounts with non minimum balances and it’s not super obvious that it’s lack of branches for online banks either because here in the DMV there are plenty of unbanked people but also an online bank with a fair number of physical locations (Capital One).
And I think Matthew is correct to link fed accounts to revamping our preposterously complex tax reporting/return system. The USG should make a substantial block chain investment, so that the IRS captures every 1099, W2, etc in the most efficient manner. A dramatic simplification of the Tax Code would be helpful too, including elimination of deductions. (Please allow me to thank all of the less wealthy taxpayers who, preposterously, are subsidizing my mortgage.)
I strongly agree with Matthew's foundational statement: "I can’t tell you how frustrating I find it that we see so little of that genre of thinking big in American politics today. It sometimes seems like everyone wants to either do nothing or else totally overthrow capitalism or something. But the best way to shore up sensible politics is for establishment-minded people to show that basically technical improvements can in fact deliver large improvements in people’s lives. That goes for non-leftist Democrats, but also for Republicans who don’t want to be totally plowed under by QAnon fanatics."
This kind of useful technocratic suggestion is completely my jam, so I really have just two questions and a suggestion:
1: why zero interest? Obviously right now it’s moot since most money—market checking accounts pay less than 1% interest, but that presumably will not be the case forever and paying zero interest on a service that pays rich people interest is not really distinguishable from a tax on poverty.
2: why the fed and not the post office? Being a retail bank means providing retail services and one of those, ESPECIALLY for poor people who are often paid under the table, is accepting cash deposits. You need brick and mortar for that.
And the suggestion: as long as we’re risking pissing off the banks, why go small? Offer a 401k through the fed! Only one fund, and it’s a whole-market index with zero fees. People with greater risk tolerances could still go out and find dumber investment vehicles, but destroying the market for the shitty high-fee retirement accounts that are inevitably offered by small companies (if they offer them at all) would only be to the good. If we want the LFIs inside the tent pissing out, pay Vanguard and Blackrock to actually administer the funds.
This would help cities with parking operations as well, as mobile payment options become a thing, the unbanked are the major reason cities can't (or won't) abandon costly meters and pay stations.
I think there are two main issues with this; (1) the Fed is not going to be able to do it and even if they could (2) we would see mission creep and crowding out.
1) The Fed won't be able to do it.
This falls into the classic policy trap of thinking that it can all magically appear and work. Pass a bill and boom the Fed is a retail bank.
Retail banking is a wildly complex business (regulations, know-your-customer, anti-money-laundering, core banking systems, websites, mobile apps, ATMs, cheque processing, integration with payment rails, etc, etc).
To deliver on these requires a ton of people. Some are front of house - even if you outsource to the Post Office that still means putting way more money into the USPS. But there are a ton of back office people needed as well. The wage bill at the big banks is all in the tens of billions.
Then there's the technology required to stitch it all together. And it's very different technology to what you need for corporate banking. Look at the big banks and you see huge annual technology spends across the board; Wells Fargo ($2.7b), Bank of America ($4.6b), Citigroup ($7b), JP Morgan ($9.8b). All of that is mostly just to keep the lights on.
Establishing the Obamacare website cost around $1.5-2b (depending on the figures you believe) and was a complete debacle. Establishing a bank would be orders of magnitude more expensive and complex.
2) Mission creep
Sure this is a slippery slope argument - but people in the comments have *already* been advocating for it.
If the bank was (against all odds) somehow successful in getting up and running then it will immediately face mission-creep and start crowding out the private sector. Sure the initial position was 'no frills, no interest' transaction accounts. But there would be pressure to start delivering 'no frills' services across the banking stack.
- Basic mortgages; save people from predatory lenders and hey the government is already underwriting them through Fannie Mae and Freddie Mac
- Credit; let's just extend the overdraft and allow people to smooth their consumption... yeah that's a credit card in all but name
- Retirement/investment accounts; provide a default option which just tracks an index
- etc
We already have this in Canada. It is a govt agency called Service Canada and they administer Employment Insurance, Child Allowance benefit, energy credits etc. And through direct deposit, the money is sent right into your bank account that you have linked. We have a very strong banking system with branches in almost every community and now with online banking companies, there are banks that solely exist on the internet so if you have a phone you can setup an account. This at least separates your grocery purchases from the govt ledger which is a nice added element of privacy. The privacy-invasive state argument is the best counter to Fed account for every person, imo. I don't need the Fed seeing what I bought at 7-Eleven etc.
Also ties to our version of the IRS (CRA) which has your tax history and other program information the equivalent of 401k programs as well, again tied to direct deposit. All leveraging the sign-in security of your bank card. You can setup a seperate key with Service Canada so you wouldn't need online banking to still see your EI claim for example if you didn't use online banking, but the online banking key is extremely user friendly.
Works very nicely and govt was able to use infrastructure in crisis to get cash out to people's accoounts. Lots of incentive to signup.
One the hand, I think if Biden were to propose this now the GOP would crush him on it and stoke fears people have of the government and the Fed similar to what happened in 2010. On the other hand, I wonder if these rounds of stimulus checks have softened the ground and he could say "We want to make it easier for people to get their checks" and put it on terms people would understand.
Though I do think the GOP would put up a huge fight. They have to be looking at how easy, effective, and popular having the government just send people money is and be completely scared that's where we're headed and do everything possible to not make that easier.
Nothing in this explains why the Fed would be particularly good at running a retail bank.
Seems like one of those good ideas that feels kooky because in high-school I had a day where we learned "the Fed isn't exactly a normal bank"
On an a tangentially related note, a buddy of mine in finance tried to convince me that the Fed was being too loose with monetary policy and that this is driving an economy wide securities bubble because all these financial institutions are debt financing securities purchases.
This sounded a bit like finance bro bullshit to me, like he wanted me to buy crypto coins or something, but he's a smart guy and one who I normally respect his opinion on stuff. I asked him to point to the inflation and he said that it was specifically in financial markets because there was no "useful fundamental investment" for the money to go so all of it got spent on securities.
I've seen this sentiment among finance types elsewhere. Am I missing something here?
This is a bad idea on so many levels.
First, I strongly oppose the push towards a cashless society. There's a lot of benefit to financial anonymity. Let's look at a couple of scenario's
1. Maybe you are visiting a store that you don't want our corporate overlords (or your wife) knowing you visited.
2. Maybe you live in the many states where cannabis is still illegal and you partake.
3. Maybe you are an undocumented immigrant and need to be paid under the table.
4. Or maybe you just don't like the idea of your entire financial life being tracked.
Moreover, say we give all these unbanked people bank accounts. What happens when they start bouncing checks? Do you hit them with fees, do you take away the bank account, or does the US treasury just start covering all those bounced checks.
This is just a REALLY bad idea
"typically because they don’t have enough money to meet the minimum balance thresholds."
Is that accurate? My local bank offers no fee checking accounts with no minimums and looking online many other banks and credit unions do as well.
https://www.cnbc.com/select/best-no-fee-checking-accounts/
I'm well aware he doesn't want the job, but am I totally wrong in thinking Yglesias would be a good fit for OMB?
Matt, I'd like to see you push harder on the "IRS-does-my-taxes" thing. I think it could be a massive victory for the Democrats! And if Biden pitched it well, would Republicans really attend in its way?
Here's my list of law's I think the Dems could pass with little or no GOP cooperation, but also that would incur little opposition: https://link.medium.com/qjgSaygE8db
One interesting angle to having the Fed manage checking accounts for everyone is privacy.
Ten or twenty years ago I would have reflexively balked at the government having access to all my banking records.
Today, I might prefer the Fed having all that information compared to private companies that routinely sell everything they know about me to the highest bidder.
Heya, have huge fan of this basic idea for years: universal gov-provided checking accts.
Just to say it's not quite as easy as it seems. "Give people a debit card and ACH access, problem solved."
Two key examples: chargebacks, and legal garnishment/attachment of account balances. Both require a significant administrative and adjudication bureaucracy. May seem like edge cases, but they necessarily implicate all accounts. It's the hardest thing that Visa, for instance, does.
Also, aside: there's no need to even mention digital/electronic "currency." Your checking balances are digital currency. Nobody needs to hear that to understand how a checking account works. It's just a completely separate wonky issue (Bitcoin: run screaming) that clouds the waters.
Wish you’d talked more about why some people are unbanked. It doesn’t seem to be minimum balances bc there are plenty of online banks that offer free checking accounts with non minimum balances and it’s not super obvious that it’s lack of branches for online banks either because here in the DMV there are plenty of unbanked people but also an online bank with a fair number of physical locations (Capital One).
And I think Matthew is correct to link fed accounts to revamping our preposterously complex tax reporting/return system. The USG should make a substantial block chain investment, so that the IRS captures every 1099, W2, etc in the most efficient manner. A dramatic simplification of the Tax Code would be helpful too, including elimination of deductions. (Please allow me to thank all of the less wealthy taxpayers who, preposterously, are subsidizing my mortgage.)