The oft-sensible, always-reasonable Reihan Salam thinks that Postal Savings Accounts for the poor might be a swell idea:
But a public option for prepaid debit might be a reasonable, cost-saving idea.
Here’s one conceptual approach: Mitch Daniels has advanced the idea that government should work to increase the net disposable income of households. That implies focusing on tax restraint, delivering value for money in public services, and seeing to it that transfer to the poor aren’t wasted. When astroturf groups pop up to oppose the expansion of Walmart and other chain retailers in urban neighborhoods, they’re not just attacking the interests of Walmart shareholders and low to moderate income households that could use the lower prices. They’re also working against the taxpayers who transfer resources to low income households to keep those households out of poverty. The dollars skimmed by higher cost retailers were meant to make it easier for poor households to channel resources towards economic advancement.
I certainly don’t have a settled view on this. But I do wonder if a “public option” on prepaid debit is preferable to a command-and-control ban on payday lending, to name just one example of an anti-usury initiative.
This proposal seems to fail in a number of ways under standard economic scrutiny.
First, by any reasonable measure the market for issuing such cards is fully competitive. In other words, there are any number of existing private financial institutions which could issue such cards with little or no barrier to entry.
So why don't they? Perhaps there is some obscure regulation that prevents it. If so, let's just repeal that regulation and be done.
Much more likely they don't because it would not be profitable. If you at the same time believe that (a) banks can do it, (b) it would be profitable, but (c) they don't do it because they are so greedy, please have the nearest professional check you for other symptoms of high-level cognitive dissonance.
Second, just because it would be unprofitable doesn't mean the federal government can't do it, heavens knows. But why should it? Why not just give the cash to the poor directly and let them decide whether they want to spend it on fees for prepaid debit cards or something else they value more highly?
Third, the only plausible response to that argument is that the poor are foolish and would spend the money on something much less valuable to them than prepaid debit card fees.
That is conceivable, but I have my doubts. Most (generally non-poor) advocates who make that argument seem to have a very difficult time distinguishing between what they think poor people should value more highly and what the advocates subjectively value.
Moreover, most of these advocates don't really seem to believe in that premise itself. If they did, they would certainly support paying for a new specific poverty program (like government subsidized debit cards) out of the budgets of existing poverty programs granting cash or cash-like benefits to poor people (like food stamps).
After all, if these advocates really believe that poor people are too foolish to spend their own cash as well as the government can do it for them, that would be a net gain and, if these advocates—as they claim—really have the interest of the poor at heart, they would favor the specific program even if the funding came out of the budget of a cash-like program.
Instead, they almost never do which, on their premises, seems unexplainable.
One plausible alternate set of beliefs for these advocates is that they do not really believe in the unequaled advantages of the specific benefit for the poor they argue for or that the poor are too foolish to recognize this advantage. They just believe in greater redistribution to the poor. That argument often being unsuccessful in the public sphere, they instead resort to elaborate arguments for various specific in-kind benefits and focus on the details on why just this benefit would be particularly wonderful. While I disclaim the power of reading men's mind, that set of beliefs is at least consistent with observed behavior.
And, unfortunately, the trick sometimes works to sprinkle fairy-dust even in the eyes of well-meaning, reasonable conservatives like Reihan Salam who sometimes are overeager to display their reasonableness to the other side.
PS: He is of course right on Walmart. That is one reason I said that he is reasonable and well-meaning.
