Recently, Liberty Nation’s, Tim Donner penned a stupendous and pertinent article that asked the question: “Are 2020 Democrats Blind to History?” Ostensibly, the theme of the 2020 Democratic platform is to try what failed in the past and expect different results.
The United States Postal Service is billions in the red, faces a significant pension shortfall, and has become inferior to private-sector options. So, of course, it would make sense for several Democratic presidential candidates to turn the USPS into a financial institution as well! Those vying for the White House in 2020 are trying so hard to portray themselves as sticking it to Wall Street, despite accepting plenty of campaign contributions from these pillars of international finance, that they want to defy common sense and contradict conventional wisdom by giving the post office banking authority.
This might be a symptom of Trump Derangement Syndrome. Who knows?
Sen. Elizabeth Warren (D-MA) has a plan to rein in Wall Street corruption, target private equity “vampires,” and address income inequality and tie it up into a neat little package. Writing in a Medium blog post, Warren proposed a “21st century Glass-Steagall Act” that would reverse deregulation, apply a real-time-payments system backed by the Federal Reserve, and impose executive compensation rules for bankers. It is being described as the biggest overhaul of the banking industry since the Dodd-Frank Act of 2010.
But the funniest scheme emanating from the mind of Sen. Warren is postal banking. Wait a minute. Banking at a post office? That is not a typo.
Because one-quarter of all US households do not have sufficient access to a simple bank account – 18% are underbanked and 8% are unbanked – Warren believes that the answer lies in postal banking. This is when post offices provide checking and savings accounts, bill payment services, debit cards, and online banking features to customers.
Warren asserts the concept would make the economy start working for the rest of the country:
“Wall Street has rigged the game in its favor — and it’s not working for the rest of us. Rather than giving Wall Street what it wants and hoping that its big profits somehow benefit the broader economy, we should recognize what the actual purpose of the financial sector is and rein in Wall Street so it starts working for the rest of the economy again.”
But Warren is not the only Democrat to recommend this policy prescription.
Last year, Sen. Kirsten Gillibrand (D-NY) unveiled legislation that would offer banking services at the post office. In May, Rep. Alexandria Ocasio-Cortez (D-NY) and Sen. Bernie Sanders (I-VT) advocated postal banking, stating this scheme would extend “decent banking opportunities” to low-income communities.
You might think that this is a novel idea, some new progressive cause du jour emanating from the collective thinking of the Socialist Squad. But postal banking was first conceived back in 1908 during the Republican National Convention, shortly after the three-week Panic of 1907. At the time, the public lost confidence in the banking system following a collapse in market liquidity, a 50% crash on the New York Stock Exchange, and runs on trust companies.
In June 1910, the 61st United States Congress, led by the GOP in the House and Senate, voted to hand out $30 million in aid to the financial community and launch the US Postal Savings System. The Democrats disagreed because they wanted a version of the Federal Deposit Insurance Corporation (FDIC) that would later come about through the New Deal.
Both parties practiced bad economics during the Progressive Era.
That said, the Republican scheme was backed by “full faith and credit of the United States government.” This backing did little to prevent its demise 50 years later. Perhaps proponents of this structure will blame Wall Street by claiming that the big banks swooped in and purchased scores of politicians to remove the post office from the finance industry. But what happened was the government’s own doing.
First, the post office was offering a 2% annual interest on deposits, compared to the 3.25% provided by the banks. Second, when the FDIC was introduced, it made deposits in private banks guaranteed by the government, creating an exodus from post offices that continued to pay a putrid 2%. Third, during and after the Second World War, there was immense interest in United States Savings Bond, which, again, prompted Americans to withdraw their funds from the Postal Savings System. Fourth, those who ran it were bureaucrats and were appointed by other bureaucrats who took their marching orders from politicians.
Market Solutions to the Unbanked
For the most part, people who choose to abstain from participating in the banking sector do it of their own free will. Financial institutions are not actively denying consumers – the more, the merrier! There is a myriad of reasons: They distrust of the system, they are here illegally, or they dislike the red tape.
That said, if politicians are genuinely concerned about Americans who do not have a bank account, then they could submit market-oriented proposals. One example could see A-O-C explaining that the federal government could remove barriers to entry and eliminate burdensome anti-privacy laws and regulations to boost banking competition. Another idea might be Sen. Sanders fighting legislation that concentrates banking services to only a handful of financial institutions.
Instead, Warren and her allies keep supporting efforts that hurt the very people they aim to help.
Everyone Gets a Bailout
Democrats want the post office to do more than lose packages and cost taxpayers billions of dollars a year. They want it to lend to consumers, too! This means underwriting standards would be low, interest rates would be below what the market would recommend, and it would become politicized – for instance, to show the benevolence of the government, low-income people would be given mortgages they could not afford, akin to the housing crash, eh Sen. Kamala Harris (D-CA)?
Today, the results of a USPS-run bank would be as predictable as the Democratic debates: Costs would balloon, revenues would be low, the bureaucracy would reign supreme, customer service would be putrid, privacy would be threatened, and employees would take three-hour lunch breaks.
In the end, the banking industry would eventually metastasize into an episode of Oprah: Wall Street gets a bailout, the USPS gets a bailout, and everyone gets a bailout! Perhaps the American people need to be inspired by Kramer in Seinfeld and just opt out of the already dilapidated USPS.