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.
The accounts should be administered through the post office, which makes sense because they're everywhere, but ultimately run through the fed, which can create money, manage the economy and do direct stimulus.
Private Equity funds would LOVE this proposal. The takeover premium would disappear overnight, and only the worst businesses would be listed on the exchanges.
Talk to me like I’m a six year old: how would moving a large sum of money out of a large basket of funds into one somewhat larger index fund eliminate the takeover premium?
Could also require every new public offering to allocate some small percentage of shares to the national index fund - and there's your Social Security trust fund...
I'm pretty sure that most broad market index funds have fees that are low enough to be indistinguishable from zero. And actually, some brokerages do have zero-fee offerings as a loss leader for their other products. So I'm not sure that a fed-administered 401k would provide enough added value to be worth the hassle.
The thing is that 401k accounts are generally offered through an employer, so while Vanguard may have a loss-leader account, you're stuck with whatever bottom-feeder your employer decided to go with. And they in turn may have the problem that if they're a small company, the Vanguards, Fidelitys and Blackrocks of the world may not be interested in doing business with them. The point would be to have it universally available.
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.
Oh man, you don't know how hand-to-mouth many people live. There's totally people who drive their car until they run out of gas, park it at a garage, take the bus for a few days or carpool, get paid on payday, take their check to the check cashing place, and use the cash to buy gas and drive for a few days. You can fall behind on getting your car inspected, paying taxes, etc for a long time before it catches up to you. There are lots of old junky cars that you can lease for like $50/month.
It's more the ethics of requiring someone to have private bank account to access the public right of way. If everyone had access as a default, it'd be a non issue.
One of the leading reasons people are unbanked is that they are dodging creditors, child support, judgements, etc. It's not that they can't figure out how to open an account.
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
I think #1 is a fair point but it’s a little maddening. The USPS provided retail banking services in the USA until 1967– in living memory! State-run retail banks are a fact of life in most developed countries including our neighbor to the north. This isn’t the Manhattan project, we’re not proposing developing theoretical technology here, this is a very boring thing that has been done a million times before and in fact was done by us in the era when ledgers were kept in pencil and paper. If our state capacity has degenerated to the point where this is no longer possible, that seems to me to be a serious problem.
To the latter, “it will crowd out versions of these services that rely on gouging and mistreating their customers to remain profitable” strikes me as feature-not-bug in the best possible way.
#1 I kind of get, though it seems solvable. Sure, it isn't cheap or easy to manage a bank. But you don't exactly have to be Citigroup. Plenty of small credit unions and regional banks manage it. And there are plenty of networks (like Cirrus for ATMs) to plug into. The tech numbers you cite are big, but I'm guessing a very small percentage of that goes to basic, consumer, retail banking. I imagine it's even less if you don't have to deal with credit cards, mortgages or other loans.
#2 I flat out don't get. So the Fed offers services that are better, people use them and that's a bad thing? If they aren't better, people just wouldn't use them. It's not like private-sector banking would be illegal, and if it was better for someone, they could use it. You can have both private and public services in the same market – like private schools or insurance that supplements medicare.
I think the problem with #2 is that for deposit banking it makes sense to essentially offer bank accounts for nothing as a basic utility and lose money doing.
But if you start offering loans, that's out the window. You are not going to offer loans with no interest. And a federally run bank is going to have a hard time correctly pricing loans for low income people. Either you have to not offer credit cards/loans to all but the most creditworthy people, or you have to charge really high interest rates to offset the risk. Can you imagine the guy who runs the home mortgage division of the Federal Reserve Retail bank trying to answer congressional questions about the disparate impact of their credit pricing?
The federal government is already in the business of lending money with Fannie Mae and student loans, so it doesn’t seem that crazy to have the fed bank involved in lending.
That said, it shouldn’t be the first thing they do. Creating universal accounts should be enough of a first step. But if down the road they could branch out if it works out.
I guess I don't see why there is an obvious mission creep where the Fed just has to offer credit because that's what commercial banks do. The premise is that this would not be a profit-seeking exercise because that doesn't make a lot of sense from the perspective of the federal government anyway.
Lots of people have a bank account that holds the money that they get paid and a credit card that gives them access to credit if they want it. Sometimes these are administered by the same company, but that's really just a business decision made by the bank that as holders of a lot of money they are in a very good position to also make a lot of money by extending credit.
I guess you can argue that eventually politicians or lobbyists or someone will be pushing to create ways to fund the federal government with usury instead of taxes, but this is also a risk with the current system; having bank accounts run by the post office doesn't change anything.
Number 1 is easily surmountable. It's a complex business, but it's 'known'. There's no secret sauce. It's just procedure and process. There's absolutely no reason that the retail banking of the fed couldn't be set in within a matter of months.
Number 2: so what? Private sector banks don't want all these millions of checking/savings accounts with <50k in them. They're a drain and a pain, and people call them up whining about this and that. They could close up thousands of branches, save hundreds of millions, and concentrate on their core business: rich people and playing the markets. Basic banking can and should be a public service, not a for-profit business.
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.
I wish you are wrong, but suspect you're right. The best approach would be to make it happen quickly, not slow roll it like Obamacare. But lots of people, not just Republicans, distrust the government.
Still, it's worth thinking big even if you can't figure out exactly how to pass it now.
There is no need to explain that because the Fed would not be running a retail bank in any real sense. They would need to provide some basic technical overlays to the account created, as Matt says, on the basis of one's SSN. Much of the infrastructure or the know how already exists in the institution. They provide this service for the Treasury, so it is mainly just an exercise of scaling up what they do for the Treasury. A retail bank has an extensive product offering, an infrastructure for customer acquisition, and much more that are not envisioned for the simple savings account Matt proposes here.
Banking for the treasury is totally different to retail banking. Totally different infrastructure and institutional knowledge.
"Basic technical overlays" means complex core banking systems, machine learning and case management tools (know-your-customer, anti-money-laundering, fraud, etc), websites, mobile apps, ATMs, cheque processing, integration with payment rails, call centres, branch staff, etc etc.
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.
Mate - I am not going to get in a back and forth about this, but the tech spend figures you cite are for systems throughout the integrated bank: wealth management, trading and execution, loan origination, retail & consumer banking, corporate banking, back office, everything. Again, the accounts that we are discussing here will require only a fraction of that spend annually. Comparing an entity that offers a barebones checking account to a global money centre bank is ridiculous.
I'm open to any breakdown you can find. Unfortunately in an admittedly quick look I couldn't see one.
You're right that the figures I cite cover all aspects of integrated banks, but the costs will be disproportionately tilted towards the retail business simply because of the user foot print and inherent complexity.
Indeed the core competitive advantage and whole point of an integrated bank existing is that retail banking is an incredibly expensive and largely loss making business (especially transaction accounts) that no one else can afford to get into at scale. The upside for the bank is up/cross selling higher margin products and giving them a low-cost, low-volatility source of capital for their other business units.
No - Your underlying thesis is incorrect. The reason that integrated money centre banks exist has nothing to do with subsidising the retail bank. The entire raison d'être for gutting Glass Steagall and allowing investment banks to merge with commercial banks was to use the cheap funding from the retail/commercial side of the bank to subsidise the risk taking activities that goes on at the IB side of the venture. It is about leverage. I don't have a breakdown of costs for you as to what is spent on technology to support the retail bank versus the spend on supporting all the other areas of the bank, but I do know that it is a fraction of total spend. The most expensive piece of the technology puzzle is far and away the trading and execution systems development.
^^^no one else can afford to get into at scale.^^^
That "no one else" though surely doesn't include the Federal Reserve. As with most things, it's a matter of costs. vs. benefits (the resources could definitely be found). It sounds like the concept would do a lot of good for the non-rich, and especially the poor. But admittedly I haven't run any numbers.
Obamacare website “Was a complete debacle”- true in the beginning. But seems to work fine now. It seems to me this is a good analogy in FAVOR of the fed bank. Yes Obamacare was expensive infrastructure, yes it was a mess initially. But now it’s one of the most popular govt programs, and arguably a big factor in what gave dems house majority in 2018. Fed bank would feel a need with a govt option for those in which the private sector is not an option.
To be fair the Obamacare website was mostly done for free, because we gave billions to contracting firms who produced an unworkable Lovecraftian software nightmare that met the specs we gave them.
Matt mentioned ATMs! So this seems much more than "just a website". And presumably there will be branches where you can get checks (including cashier's checks), etc. Bank of America has 10k+ ATMs and thousands of retail locations.
Then there is fraud prevention. SSNs are, to put it mildly, not a secure way of authenticating people, especially when access to something like bank account is at stake.
The Fed has no experience running a large consumer-facing business with these kinds of support needs. And it's precisely these sorts of costs that result in unbanked people right now. There is nothing stopping banks from offering anyone a checking account for a monthly fee; people are unbanked because this fee would have to be higher than they are willing to pay, to cover the actual cost of operating these accounts.
the fed already has an amazing login system - login.gov. it was built by 18f, the federal design agency created to use tech co best practices after the healthcare.gov disaster. they are easily capable of managing a login system.
did i mention that all their work is open source as well? gives me infinitely more confidence in the security and quality of the underlying code. compare that to something like chase, whose systems are old enough that their passwords are case insensitive. https://github.com/18F/identity-idp
In the piece he says the Post Office would be where you handle branch banking activities. Seems easy to have a Fed-Only ATM at every post office and the government could even provide a tax break to banks that allow fee-free transactions at their ATMs. Not liking this is okay, but to say that the piece doesn't go into why the Fed should do this or would be good at it is just being a troll.
Literally copied and pasted: "Everyone would have an account; everyone would be able to deposit checks or accept direct deposits into the account; everyone would be able to pay bills through the account; and you could use the Post Office to provide the retail branches of the system."
Because running a retail bank is complex and fiddly, requiring a lot of customer service, but not requiring any innovation. Exactly the sort of thing that the Fed/USPS would be good at. This isn't even a novelty -- we did it up to the sixties, and other countries do it right now!
But that isn't relevant if you there isn't such a thing as a hyper-competent bureaucrat. There's no particular point to churning through the incompetent ones if, as you suggest, there isn't a competent one.
The post office can do the day-to-day administration, something they *do* have experience with, though it's been a while. You can also get on the Cirrus or whoever ATM network, so people can take money out at any ATM for a fee.
I do wonder how much it would cost to operate 330 million checking accounts. I assume it's not cheap -- as Matt says, that's why the unbanked can't get accounts. And if a major goal is to help the >5% that can't get these accounts, then operating 330 million accounts (requiring how many employees?) seems like an inefficient way to do so.
If we want to follow Sahm-type "automaticity" strategies, how critical would these Fed bank accounts be?
If I was a good marathon runner you wouldn't assume that I would be a good sprinter because all exercise or all running is the same.
Running a retail bank is wildly different to what they do and wildly complex in it's own right.
There is every reason to think that asking the Fed to do a complex task they have never done before is going to end in disaster. Setting up Obamacare website was orders of magnitude more simple than retail banking - that cost billions and was a massive mess.
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?
The fact that Elon Musk is now the richest person in the world (on paper) suggests to me that there is something real here. Tesla hasn't been particularly outperforming the other car companies in any especially meaningful way, but it's totally the kind of stock that a middle class person who has cut back on restaurants and travel would think is a good idea to put their money into, and bid up the price on.
Wow, I hadn't actually looked at the numbers, but that's ridiculous! Valued higher than the ten biggest car companies in the world put together! Uber being comparable to one of the biggest car companies is somehow plausible. But Tesla bigger than *all* of them together is not.
True; I think of it as a car company *plus* an online army of starry-eyed fans whose slavish lack of self-respect would make tween-age Justin Bieber stans cringe with embarrassment.
Sure - that means that it could well be worth quite a bit more than a comparably sized car company, and might justify valuation comparable to the large car companies. But why would it be more valuable than the ten largest car companies combined? Is there any plausible story by which it is half as valuable as Amazon?!
Or think of it this way. Apple has a market cap of $2 trillion largely though it's 20% slice of the global cellphone market. Total cell phone sales globally amount to about half a trillion dollars/year.
Cars are an 8 trillion dollar global business. If Tesla controlled 20% of the car market and a large share of the distributed electric generation and storage business the value would plausible.
Here's what I've heard inside the industry. There's three main things going with this tesla vs. the industry valuation framing: (1) EV penetration rates are accelerating globally, (2) Tesla has a massive lead on tech and their vertically integrated EV battery production scale, and (3) the investment required for the other OEMs to catch-up is depressing earnings (e.g., see the $50B strategy VW just imploded) and lowering enterprise value (e.g., Morgan Stanley published an analysis that gasoline vehicles will become money-losers as early as 2030).
The MS analysis is behind a paywall but here's a summary:
Apple has a market cap bigger than all the other computer and phone manufactures combined. And Apple's PE ratio is actually lower than the average of the S&P 500. You wouldn't say that Apple shouldn't be worth more than all the rest combined. That's a meaningless metric.
Yes there's definitely a lot of inflation in asset prices. Home prices too high, that's in part do to the fed. stocks at a PE ratio of 32 (historical average is 16) that's largely do to the fed (same with 2007, and 1999)
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.
No part of this proposal takes cash out of the picture. He says there will be ATMs, for heavens sake. You want cash, you go to the Post Office and use their ATM to get some bills, and then you take them to the store.
I have to admit I instinctively hate the idea of a cashless society, especially due to privacy issues.
Still I think that Matt's proposal would help a lot of people. Would prefer if it were combined with a law requiring all physical retail establishments to accept cash.
What's wrong with pre-paid credit cards (with cash) in this scenario? I understand people might want certain transactions unlogged in the financial system, but it does not automatically follow that these transactions should be as easy as all others. It also does not follow that giving everyone a bank account will automatically grease the skids for a cashless society- being able to pay people, have a safe storage for funds, and have access those funds almost anywhere at no customer cost provides a ton of benefit all on their own.
Online only banks are the best kind (better than credit unions who are often incompetent) but it’s hard to deposit cash with them IME, so maybe not everyone can use them.
The question is whether Sanders fans find him more or less unacceptable than Neera Tanden. I think he doesn't spend as much time insulting them as she does, but both of them are common targets for hate from the same groups.
I think Yglesias has carefully curated a record of bad takes and gratuitous snark in order to make himself unemployable by the government. If he's never up for confirmation, then Congress will never uncover the *real* scandals in his past.
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
Agreed on the IRS part (long overdue!), but, are you contending the "IRS does my taxes" thing could be passed via reconciliation? Because it would need to be, I'm pretty sure (and maybe it is! I haven't really thought about it).
And that's because the idea would clearly generate white-hot GOP opposition for a variety of reasons (general distrust of government by MAGA; fear that it would lessen the antipathy toward the IRS, and toward paying taxes; pressure from the tax preparation lobby; desire by the GOP and its media ecosystem to prevent Biden/Dems from getting a win).
I'm just thinking, what if all Biden talked about for a month was "Make the IRS get off their butts. This April they'll ask you: want us to try doing your taxes for you? Don't want them to? Fine, they won't. Want to save yourself some time and money? Tell 'em yes, they'll go to work for you -- the taxpayer -- and if you don't like it, throw it out. No problem, you can still do it yourself. Vote for the 'Make the IRS get off their butts' bill, because your time and your money matter."
Are you really telling me that the GOP would successfully spin that into a big government grab? I mean they might try, but it's soooo simple. It's the kind of thing I imagine a lot of Republican congressmen would at least stay quiet on.
I think the bigger worry is that the tax prep lobby has some tentacles deep into the Democratic coalition. I seem to recall that San Diego and Detroit have major tax prep lobby headquarters, which might give them control of a few Democratic congresspeople. And I know that with anything financial, you have to watch out for the non-Warren Senators from Massachusetts, New York, and Delaware.
OK watch it, Ed Markey would 100% support this. Schumer and Gillibrand, who knows.
But I agree, my point is that the GOP isn't really the problem with this proposal -- it's Democrats. The Democratic Party simply isn't actually for good stuff that would be good for citizens and make their lives better. I mean it sometimes is, way more than the GOP. But the Dems are bought off suuuppper easily and they don't even keep track of the policies that the base would 100% be behind, like this. It's weird! I think this is free political capital, and all you have to do is piss off like Intuit, who really cares?
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.
Your bank doesn't sell that information or otherwise monetize it, and neither do VISA/MasterCard.
The more interesting angle is related to yours: what businesses are allowed to exist without friction? The government already pressures credit card companies to cut off businesses they don't like. Fed Banking adds a much bigger lever to nuke unsavory businesses.
My banks don't technically sell my information, but I get tons of marketing dumps by their affiliates. If I sign up for some non-banking program referred by my bank, my info isn't covered by banking laws. I think we are all totally exposed either by system failures or by opportunistic malice. I'm hoping we can build restorative methodology that enables us to promptly repair damage. Sometimes we do.
My concern with Fed Bank accounts in this regard centers on the prompt repair of damage for individuals with defrauded accounts. The notions of Prompt and Federal go together like oil and water.
I think your point about government pressuring companies to cut off businesses would cut the other way than you think.
If the government "convinces" a private institution to act, I don't think there's any due process rights for the person cut off (eg first amendment). OTOH, if the Fed cuts someone off, there would likely be more protection.
That wouldn't help the pot businesses that are in violation of federal laws, but it would help a business cut off for having unpopular politics.
This would be a game-changer for the digital pornography industry. Alright Matt, I'm convinced: bring on the OnlyFed! (maybe ButtCoin? We'll workshop it.)
First, are you sure banks and CC companies aren't allowed to sell that info?
I use different email addresses for specific financial institutions (with forwarding) and I often get solicitations to these addresses. Maybe it's leakage of hacked records?
They are definitely monetizing your data. A lot of hedge funds and corporations buy anonymized credit card data which they use for trading or strategic decision-making. To be clear, there's no way it can be traced back to you, but it's definitely quite profitable for the banks and issuers.
I've literally bought data from Mastercard that shows aggregate spend behavior by category (i.e., how did spending at pet stores change over time in a specific area). To be clear, I don't have any problem with this. It isn't hurting anyone, and it does help businesses make smarter decisions.
Well, shit. Too bad there's no edit button. Rather than quibble over details (I'm curious about how detailed the data gets) I'll just delete the incorrect comment.
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.)
The IRS does not know my tax liability. They don't know the ownership status of my LLC, how much I won or lost gambling, whether I added solar panels to my home, my adoption costs, how much I gave to my church, how many miles I drove for Meals-on-Wheels or whether I, as a teacher, spent my own money on classroom supplies. Or a myriad of other things.
The only way for the IRS to know my tax liability would be to dramatically simplify the tax code.
True in theory, but in practice most people (1) take the standard deduction rather than itemize and (2) owe entirely on wages and don’t own businesses. If (1) and (2) are true for you, then the IRS does have everything it needs to tell you your tax liability (or refund) to the penny. And if either is false, every reasonable version of the "the IRS does your taxes" proposal allows you to reject the bill and file your own return—in which case the IRS is still doing you a service by partially filling out your return for you. It’s only if your wage information is wrong that you would need to dispute the IRS bill (which happens now anyway, usually because the employer screwed up).
The statement to which I replied was that “the IRS knows your tax liability. The only reason they can’t simply tell you the number is that they are legally prohibited”. That is just factually incorrect.
OK, gotcha. I think there might've been a bit of miscommunication there, Doctor Memory was probably painting with a somewhat overbroad brush. I don't think there's ever been a serious proposal for "just bill everyone and you have to file a formal dispute if you want to itemize," but I can see how you might see it that way.
Here’s where I get to extend an olive branch to my conservative, tax-hating brethren: I agree that having the IRC calculate refunds would be a strong incentive to simplify the tax code and keep it simpler, and I think that would be a good thing.
That does not follow. How would automatic calculation give anyone an incentive to simplify the tax code? The people doing the calculation wouldn't be the ones writing the tax code.
Maybe you are right -- at least for the vast majority of taxpayers (excluding small percentage with complicated business affairs, e.g., those who can say that they have met 500 hours active involvement threshold in a what otherwise would be a passive activity loss). But if IRS is so omniscient, why has identify theft/false returns/refunds to different address been such a persistent problem?
Ugh... why does everyone want to blockchain everything? It's way less efficient than a secure database because it's designed to work without trusting both parties. But if you don't trust the Fed... We'll I'm happy to take your untrustworthy Federal Reserve Notes.
Despite the hype, the only real use for crypto/blockchain seems to be ransomware.
a centralized blockchain is basically just a weird database. what people actually want is to modernize IT systems, but that sounds hard and boring and costs money. whereas “blockchain” is exciting and modern, making it easier to get internal political support.
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.
The accounts should be administered through the post office, which makes sense because they're everywhere, but ultimately run through the fed, which can create money, manage the economy and do direct stimulus.
A federally administered index fund of every publicly traded US company would give new meaning to the phrase "public company".
Yes. Yes it would. What if the real socialism was all of the whole-market index funds we made along the way? 🧐
But who decides which companies are in the fund? Can see a lot of lobbying and corruption around that.
“Traded on the NYSE or NASDAQ exchanges” would do for a start.
Private Equity funds would LOVE this proposal. The takeover premium would disappear overnight, and only the worst businesses would be listed on the exchanges.
Talk to me like I’m a six year old: how would moving a large sum of money out of a large basket of funds into one somewhat larger index fund eliminate the takeover premium?
Give publicly traded companies corporate tax relief in exchange
So private companies use a public subsidiary to reduce tax burden the way tech companies used Ireland. Hey, it keeps it domestic I guess.
Could also require every new public offering to allocate some small percentage of shares to the national index fund - and there's your Social Security trust fund...
Would nationalisation by any other name smell as sweet?
Or, George Bush and Karl Rice's "ownership society" come back in slightly different clothes
I'm pretty sure that most broad market index funds have fees that are low enough to be indistinguishable from zero. And actually, some brokerages do have zero-fee offerings as a loss leader for their other products. So I'm not sure that a fed-administered 401k would provide enough added value to be worth the hassle.
The thing is that 401k accounts are generally offered through an employer, so while Vanguard may have a loss-leader account, you're stuck with whatever bottom-feeder your employer decided to go with. And they in turn may have the problem that if they're a small company, the Vanguards, Fidelitys and Blackrocks of the world may not be interested in doing business with them. The point would be to have it universally available.
Great question! Why not the Post Office? Postal Banking is an idea whose time has come.
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.
Yes, exactly
How many people have cars but not a bank account - do they pay for their insurance and registration with money orders?
It might make sense, though, if cars were rigged up with toll meters that automatically deducted a mileage toll to support road infrastructure.
It's a small number, surely, but that a dispossessed group is a minority doesn't seem to be much of a motivator these days.
Seems very rare that someone would have the wherewithal to maintain a vehicle yet couldn't get a checking account.
Oh man, you don't know how hand-to-mouth many people live. There's totally people who drive their car until they run out of gas, park it at a garage, take the bus for a few days or carpool, get paid on payday, take their check to the check cashing place, and use the cash to buy gas and drive for a few days. You can fall behind on getting your car inspected, paying taxes, etc for a long time before it catches up to you. There are lots of old junky cars that you can lease for like $50/month.
And all those people are feeding quarters into parking meters all day long? It doesn't add up.
It's more the ethics of requiring someone to have private bank account to access the public right of way. If everyone had access as a default, it'd be a non issue.
One of the leading reasons people are unbanked is that they are dodging creditors, child support, judgements, etc. It's not that they can't figure out how to open an account.
A lot of poor people are dodging creditors because they get into debt, because they’re poor. It’s a vicious cycle!
80% of currency is in 100 dollar bills, and possibly as much as 75% of domestically held currency is being used for illegal activity or tax evasion: https://www.aier.org/article/how-much-cash-is-used-by-criminals-and-tax-cheats/
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
I think #1 is a fair point but it’s a little maddening. The USPS provided retail banking services in the USA until 1967– in living memory! State-run retail banks are a fact of life in most developed countries including our neighbor to the north. This isn’t the Manhattan project, we’re not proposing developing theoretical technology here, this is a very boring thing that has been done a million times before and in fact was done by us in the era when ledgers were kept in pencil and paper. If our state capacity has degenerated to the point where this is no longer possible, that seems to me to be a serious problem.
To the latter, “it will crowd out versions of these services that rely on gouging and mistreating their customers to remain profitable” strikes me as feature-not-bug in the best possible way.
#1 I kind of get, though it seems solvable. Sure, it isn't cheap or easy to manage a bank. But you don't exactly have to be Citigroup. Plenty of small credit unions and regional banks manage it. And there are plenty of networks (like Cirrus for ATMs) to plug into. The tech numbers you cite are big, but I'm guessing a very small percentage of that goes to basic, consumer, retail banking. I imagine it's even less if you don't have to deal with credit cards, mortgages or other loans.
#2 I flat out don't get. So the Fed offers services that are better, people use them and that's a bad thing? If they aren't better, people just wouldn't use them. It's not like private-sector banking would be illegal, and if it was better for someone, they could use it. You can have both private and public services in the same market – like private schools or insurance that supplements medicare.
I think the problem with #2 is that for deposit banking it makes sense to essentially offer bank accounts for nothing as a basic utility and lose money doing.
But if you start offering loans, that's out the window. You are not going to offer loans with no interest. And a federally run bank is going to have a hard time correctly pricing loans for low income people. Either you have to not offer credit cards/loans to all but the most creditworthy people, or you have to charge really high interest rates to offset the risk. Can you imagine the guy who runs the home mortgage division of the Federal Reserve Retail bank trying to answer congressional questions about the disparate impact of their credit pricing?
The federal government is already in the business of lending money with Fannie Mae and student loans, so it doesn’t seem that crazy to have the fed bank involved in lending.
That said, it shouldn’t be the first thing they do. Creating universal accounts should be enough of a first step. But if down the road they could branch out if it works out.
I guess I don't see why there is an obvious mission creep where the Fed just has to offer credit because that's what commercial banks do. The premise is that this would not be a profit-seeking exercise because that doesn't make a lot of sense from the perspective of the federal government anyway.
Lots of people have a bank account that holds the money that they get paid and a credit card that gives them access to credit if they want it. Sometimes these are administered by the same company, but that's really just a business decision made by the bank that as holders of a lot of money they are in a very good position to also make a lot of money by extending credit.
I guess you can argue that eventually politicians or lobbyists or someone will be pushing to create ways to fund the federal government with usury instead of taxes, but this is also a risk with the current system; having bank accounts run by the post office doesn't change anything.
Number 1 is easily surmountable. It's a complex business, but it's 'known'. There's no secret sauce. It's just procedure and process. There's absolutely no reason that the retail banking of the fed couldn't be set in within a matter of months.
Number 2: so what? Private sector banks don't want all these millions of checking/savings accounts with <50k in them. They're a drain and a pain, and people call them up whining about this and that. They could close up thousands of branches, save hundreds of millions, and concentrate on their core business: rich people and playing the markets. Basic banking can and should be a public service, not a for-profit business.
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.
I wish you are wrong, but suspect you're right. The best approach would be to make it happen quickly, not slow roll it like Obamacare. But lots of people, not just Republicans, distrust the government.
Still, it's worth thinking big even if you can't figure out exactly how to pass it now.
Nothing in this explains why the Fed would be particularly good at running a retail bank.
There is no need to explain that because the Fed would not be running a retail bank in any real sense. They would need to provide some basic technical overlays to the account created, as Matt says, on the basis of one's SSN. Much of the infrastructure or the know how already exists in the institution. They provide this service for the Treasury, so it is mainly just an exercise of scaling up what they do for the Treasury. A retail bank has an extensive product offering, an infrastructure for customer acquisition, and much more that are not envisioned for the simple savings account Matt proposes here.
Banking for the treasury is totally different to retail banking. Totally different infrastructure and institutional knowledge.
"Basic technical overlays" means complex core banking systems, machine learning and case management tools (know-your-customer, anti-money-laundering, fraud, etc), websites, mobile apps, ATMs, cheque processing, integration with payment rails, call centres, branch staff, etc etc.
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.
Mate - I am not going to get in a back and forth about this, but the tech spend figures you cite are for systems throughout the integrated bank: wealth management, trading and execution, loan origination, retail & consumer banking, corporate banking, back office, everything. Again, the accounts that we are discussing here will require only a fraction of that spend annually. Comparing an entity that offers a barebones checking account to a global money centre bank is ridiculous.
I'm open to any breakdown you can find. Unfortunately in an admittedly quick look I couldn't see one.
You're right that the figures I cite cover all aspects of integrated banks, but the costs will be disproportionately tilted towards the retail business simply because of the user foot print and inherent complexity.
Indeed the core competitive advantage and whole point of an integrated bank existing is that retail banking is an incredibly expensive and largely loss making business (especially transaction accounts) that no one else can afford to get into at scale. The upside for the bank is up/cross selling higher margin products and giving them a low-cost, low-volatility source of capital for their other business units.
No - Your underlying thesis is incorrect. The reason that integrated money centre banks exist has nothing to do with subsidising the retail bank. The entire raison d'être for gutting Glass Steagall and allowing investment banks to merge with commercial banks was to use the cheap funding from the retail/commercial side of the bank to subsidise the risk taking activities that goes on at the IB side of the venture. It is about leverage. I don't have a breakdown of costs for you as to what is spent on technology to support the retail bank versus the spend on supporting all the other areas of the bank, but I do know that it is a fraction of total spend. The most expensive piece of the technology puzzle is far and away the trading and execution systems development.
^^^no one else can afford to get into at scale.^^^
That "no one else" though surely doesn't include the Federal Reserve. As with most things, it's a matter of costs. vs. benefits (the resources could definitely be found). It sounds like the concept would do a lot of good for the non-rich, and especially the poor. But admittedly I haven't run any numbers.
Perhaps the Post Office would be a better route.
Obamacare website “Was a complete debacle”- true in the beginning. But seems to work fine now. It seems to me this is a good analogy in FAVOR of the fed bank. Yes Obamacare was expensive infrastructure, yes it was a mess initially. But now it’s one of the most popular govt programs, and arguably a big factor in what gave dems house majority in 2018. Fed bank would feel a need with a govt option for those in which the private sector is not an option.
To be fair the Obamacare website was mostly done for free, because we gave billions to contracting firms who produced an unworkable Lovecraftian software nightmare that met the specs we gave them.
Matt mentioned ATMs! So this seems much more than "just a website". And presumably there will be branches where you can get checks (including cashier's checks), etc. Bank of America has 10k+ ATMs and thousands of retail locations.
Then there is fraud prevention. SSNs are, to put it mildly, not a secure way of authenticating people, especially when access to something like bank account is at stake.
The Fed has no experience running a large consumer-facing business with these kinds of support needs. And it's precisely these sorts of costs that result in unbanked people right now. There is nothing stopping banks from offering anyone a checking account for a monthly fee; people are unbanked because this fee would have to be higher than they are willing to pay, to cover the actual cost of operating these accounts.
the fed already has an amazing login system - login.gov. it was built by 18f, the federal design agency created to use tech co best practices after the healthcare.gov disaster. they are easily capable of managing a login system.
Seconded. login.gov is _shockingly_ good. Like, not a single financial institution I do business with has a system even half as good.
did i mention that all their work is open source as well? gives me infinitely more confidence in the security and quality of the underlying code. compare that to something like chase, whose systems are old enough that their passwords are case insensitive. https://github.com/18F/identity-idp
In the piece he says the Post Office would be where you handle branch banking activities. Seems easy to have a Fed-Only ATM at every post office and the government could even provide a tax break to banks that allow fee-free transactions at their ATMs. Not liking this is okay, but to say that the piece doesn't go into why the Fed should do this or would be good at it is just being a troll.
I'm very curious where in the piece you think Matt says the post office should do this.
Literally copied and pasted: "Everyone would have an account; everyone would be able to deposit checks or accept direct deposits into the account; everyone would be able to pay bills through the account; and you could use the Post Office to provide the retail branches of the system."
Mea culpa; I kept ctrl-fing to try to find it and didn't realize I didn't have the post expanded.
Regardless, I do not think the post office is the magic wand people think it is.
Because running a retail bank is complex and fiddly, requiring a lot of customer service, but not requiring any innovation. Exactly the sort of thing that the Fed/USPS would be good at. This isn't even a novelty -- we did it up to the sixties, and other countries do it right now!
Progressivism includes a misplaced belief of the existence of the hyper-competent bureaucrat.
I mean, so does capitalism.
It implicitly does not and constantly attempts to root out incompetence.
But that isn't relevant if you there isn't such a thing as a hyper-competent bureaucrat. There's no particular point to churning through the incompetent ones if, as you suggest, there isn't a competent one.
Employees are all incompetent to one degree or another. Business firms have a clear incentive to sort them out.
The post office can do the day-to-day administration, something they *do* have experience with, though it's been a while. You can also get on the Cirrus or whoever ATM network, so people can take money out at any ATM for a fee.
I do wonder how much it would cost to operate 330 million checking accounts. I assume it's not cheap -- as Matt says, that's why the unbanked can't get accounts. And if a major goal is to help the >5% that can't get these accounts, then operating 330 million accounts (requiring how many employees?) seems like an inefficient way to do so.
If we want to follow Sahm-type "automaticity" strategies, how critical would these Fed bank accounts be?
Why do you have any reason to think they'd be bad at it? Considering everything else they do, this seems pretty simple.
If I was a good marathon runner you wouldn't assume that I would be a good sprinter because all exercise or all running is the same.
Running a retail bank is wildly different to what they do and wildly complex in it's own right.
There is every reason to think that asking the Fed to do a complex task they have never done before is going to end in disaster. Setting up Obamacare website was orders of magnitude more simple than retail banking - that cost billions and was a massive mess.
If by "billions" you mean "two" of them, sure. And, while very buggy in the early going, my impression was they ironed out the kinks.
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?
The fact that Elon Musk is now the richest person in the world (on paper) suggests to me that there is something real here. Tesla hasn't been particularly outperforming the other car companies in any especially meaningful way, but it's totally the kind of stock that a middle class person who has cut back on restaurants and travel would think is a good idea to put their money into, and bid up the price on.
https://www.fool.com/investing/2021/01/09/teslas-crazy-valuation-in-1-chart/
Wow, I hadn't actually looked at the numbers, but that's ridiculous! Valued higher than the ten biggest car companies in the world put together! Uber being comparable to one of the biggest car companies is somehow plausible. But Tesla bigger than *all* of them together is not.
https://www.teslarati.com/tesla-megapack-battery-moss-landing-completion-video/
Tesla is far more than a car company.
https://www.tesla.com/solarpanels
https://www.tesla.com/powerwall
True; I think of it as a car company *plus* an online army of starry-eyed fans whose slavish lack of self-respect would make tween-age Justin Bieber stans cringe with embarrassment.
That seems to bother you a lot. Is it mostly that you have a strong contrarian streak?
Sure - that means that it could well be worth quite a bit more than a comparably sized car company, and might justify valuation comparable to the large car companies. But why would it be more valuable than the ten largest car companies combined? Is there any plausible story by which it is half as valuable as Amazon?!
Or think of it this way. Apple has a market cap of $2 trillion largely though it's 20% slice of the global cellphone market. Total cell phone sales globally amount to about half a trillion dollars/year.
Cars are an 8 trillion dollar global business. If Tesla controlled 20% of the car market and a large share of the distributed electric generation and storage business the value would plausible.
Here's what I've heard inside the industry. There's three main things going with this tesla vs. the industry valuation framing: (1) EV penetration rates are accelerating globally, (2) Tesla has a massive lead on tech and their vertically integrated EV battery production scale, and (3) the investment required for the other OEMs to catch-up is depressing earnings (e.g., see the $50B strategy VW just imploded) and lowering enterprise value (e.g., Morgan Stanley published an analysis that gasoline vehicles will become money-losers as early as 2030).
The MS analysis is behind a paywall but here's a summary:
https://finance.yahoo.com/news/gasoline-is-becoming-worthless-210636353.html
Apple has a market cap bigger than all the other computer and phone manufactures combined. And Apple's PE ratio is actually lower than the average of the S&P 500. You wouldn't say that Apple shouldn't be worth more than all the rest combined. That's a meaningless metric.
"Tesla hasn't been particularly outperforming the other car companies in any especially meaningful way,"
VW spent $50 billion to beat Tesla and the results are crap. The ID.3 and 4 are shipping with many of their features not even working.
Since we can't edit:
https://www.wsj.com/articles/how-volkswagens-50-billion-plan-to-beat-tesla-short-circuited-11611073974
Yes there's definitely a lot of inflation in asset prices. Home prices too high, that's in part do to the fed. stocks at a PE ratio of 32 (historical average is 16) that's largely do to the fed (same with 2007, and 1999)
Does that justify tighter monetary policy? Should rates be higher, should they have been higher in 2019?
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
No part of this proposal takes cash out of the picture. He says there will be ATMs, for heavens sake. You want cash, you go to the Post Office and use their ATM to get some bills, and then you take them to the store.
I have to admit I instinctively hate the idea of a cashless society, especially due to privacy issues.
Still I think that Matt's proposal would help a lot of people. Would prefer if it were combined with a law requiring all physical retail establishments to accept cash.
What's wrong with pre-paid credit cards (with cash) in this scenario? I understand people might want certain transactions unlogged in the financial system, but it does not automatically follow that these transactions should be as easy as all others. It also does not follow that giving everyone a bank account will automatically grease the skids for a cashless society- being able to pay people, have a safe storage for funds, and have access those funds almost anywhere at no customer cost provides a ton of benefit all on their own.
"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/
Online only banks are the best kind (better than credit unions who are often incompetent) but it’s hard to deposit cash with them IME, so maybe not everyone can use them.
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?
The question is whether Sanders fans find him more or less unacceptable than Neera Tanden. I think he doesn't spend as much time insulting them as she does, but both of them are common targets for hate from the same groups.
I think Yglesias has carefully curated a record of bad takes and gratuitous snark in order to make himself unemployable by the government. If he's never up for confirmation, then Congress will never uncover the *real* scandals in his past.
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
Agreed on the IRS part (long overdue!), but, are you contending the "IRS does my taxes" thing could be passed via reconciliation? Because it would need to be, I'm pretty sure (and maybe it is! I haven't really thought about it).
And that's because the idea would clearly generate white-hot GOP opposition for a variety of reasons (general distrust of government by MAGA; fear that it would lessen the antipathy toward the IRS, and toward paying taxes; pressure from the tax preparation lobby; desire by the GOP and its media ecosystem to prevent Biden/Dems from getting a win).
I'm just thinking, what if all Biden talked about for a month was "Make the IRS get off their butts. This April they'll ask you: want us to try doing your taxes for you? Don't want them to? Fine, they won't. Want to save yourself some time and money? Tell 'em yes, they'll go to work for you -- the taxpayer -- and if you don't like it, throw it out. No problem, you can still do it yourself. Vote for the 'Make the IRS get off their butts' bill, because your time and your money matter."
Are you really telling me that the GOP would successfully spin that into a big government grab? I mean they might try, but it's soooo simple. It's the kind of thing I imagine a lot of Republican congressmen would at least stay quiet on.
I love this framing!
I think the bigger worry is that the tax prep lobby has some tentacles deep into the Democratic coalition. I seem to recall that San Diego and Detroit have major tax prep lobby headquarters, which might give them control of a few Democratic congresspeople. And I know that with anything financial, you have to watch out for the non-Warren Senators from Massachusetts, New York, and Delaware.
OK watch it, Ed Markey would 100% support this. Schumer and Gillibrand, who knows.
But I agree, my point is that the GOP isn't really the problem with this proposal -- it's Democrats. The Democratic Party simply isn't actually for good stuff that would be good for citizens and make their lives better. I mean it sometimes is, way more than the GOP. But the Dems are bought off suuuppper easily and they don't even keep track of the policies that the base would 100% be behind, like this. It's weird! I think this is free political capital, and all you have to do is piss off like Intuit, who really cares?
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.
Your bank doesn't sell that information or otherwise monetize it, and neither do VISA/MasterCard.
The more interesting angle is related to yours: what businesses are allowed to exist without friction? The government already pressures credit card companies to cut off businesses they don't like. Fed Banking adds a much bigger lever to nuke unsavory businesses.
My banks don't technically sell my information, but I get tons of marketing dumps by their affiliates. If I sign up for some non-banking program referred by my bank, my info isn't covered by banking laws. I think we are all totally exposed either by system failures or by opportunistic malice. I'm hoping we can build restorative methodology that enables us to promptly repair damage. Sometimes we do.
My concern with Fed Bank accounts in this regard centers on the prompt repair of damage for individuals with defrauded accounts. The notions of Prompt and Federal go together like oil and water.
I think your point about government pressuring companies to cut off businesses would cut the other way than you think.
If the government "convinces" a private institution to act, I don't think there's any due process rights for the person cut off (eg first amendment). OTOH, if the Fed cuts someone off, there would likely be more protection.
That wouldn't help the pot businesses that are in violation of federal laws, but it would help a business cut off for having unpopular politics.
This is a great point -- I'm convinced.
This would be a game-changer for the digital pornography industry. Alright Matt, I'm convinced: bring on the OnlyFed! (maybe ButtCoin? We'll workshop it.)
First, are you sure banks and CC companies aren't allowed to sell that info?
I use different email addresses for specific financial institutions (with forwarding) and I often get solicitations to these addresses. Maybe it's leakage of hacked records?
They are definitely monetizing your data. A lot of hedge funds and corporations buy anonymized credit card data which they use for trading or strategic decision-making. To be clear, there's no way it can be traced back to you, but it's definitely quite profitable for the banks and issuers.
I've literally bought data from Mastercard that shows aggregate spend behavior by category (i.e., how did spending at pet stores change over time in a specific area). To be clear, I don't have any problem with this. It isn't hurting anyone, and it does help businesses make smarter decisions.
Well, shit. Too bad there's no edit button. Rather than quibble over details (I'm curious about how detailed the data gets) I'll just delete the incorrect comment.
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.)
There is no world in which a blockchain makes tax administration _more_ efficient.
The IRS already knows your tax liability. The only reason they cants simply tell you the number is that they are legally prohibited.
The IRS does not know my tax liability. They don't know the ownership status of my LLC, how much I won or lost gambling, whether I added solar panels to my home, my adoption costs, how much I gave to my church, how many miles I drove for Meals-on-Wheels or whether I, as a teacher, spent my own money on classroom supplies. Or a myriad of other things.
The only way for the IRS to know my tax liability would be to dramatically simplify the tax code.
True in theory, but in practice most people (1) take the standard deduction rather than itemize and (2) owe entirely on wages and don’t own businesses. If (1) and (2) are true for you, then the IRS does have everything it needs to tell you your tax liability (or refund) to the penny. And if either is false, every reasonable version of the "the IRS does your taxes" proposal allows you to reject the bill and file your own return—in which case the IRS is still doing you a service by partially filling out your return for you. It’s only if your wage information is wrong that you would need to dispute the IRS bill (which happens now anyway, usually because the employer screwed up).
The statement to which I replied was that “the IRS knows your tax liability. The only reason they can’t simply tell you the number is that they are legally prohibited”. That is just factually incorrect.
The proposal you describe would be fine.
OK, gotcha. I think there might've been a bit of miscommunication there, Doctor Memory was probably painting with a somewhat overbroad brush. I don't think there's ever been a serious proposal for "just bill everyone and you have to file a formal dispute if you want to itemize," but I can see how you might see it that way.
Here’s where I get to extend an olive branch to my conservative, tax-hating brethren: I agree that having the IRC calculate refunds would be a strong incentive to simplify the tax code and keep it simpler, and I think that would be a good thing.
IRS, sigh. Apparently autocorrect longs for the day of text-only chat systems.
/me appreciates this reference.
That does not follow. How would automatic calculation give anyone an incentive to simplify the tax code? The people doing the calculation wouldn't be the ones writing the tax code.
Maybe you are right -- at least for the vast majority of taxpayers (excluding small percentage with complicated business affairs, e.g., those who can say that they have met 500 hours active involvement threshold in a what otherwise would be a passive activity loss). But if IRS is so omniscient, why has identify theft/false returns/refunds to different address been such a persistent problem?
These are all real problems that block chains do absolutely nothing to solve.
Ugh... why does everyone want to blockchain everything? It's way less efficient than a secure database because it's designed to work without trusting both parties. But if you don't trust the Fed... We'll I'm happy to take your untrustworthy Federal Reserve Notes.
Despite the hype, the only real use for crypto/blockchain seems to be ransomware.
People don't realize it uses a ridiculous amount of electricity and takes several minutes to process a transaction. Money of the future!
a centralized blockchain is basically just a weird database. what people actually want is to modernize IT systems, but that sounds hard and boring and costs money. whereas “blockchain” is exciting and modern, making it easier to get internal political support.