People have been saying the government should run its own retail bank for a while now, with most proposals saying such a bank should be grafted onto the US Postal Service. Peter Conti-Brown offered an argument against this idea that I think is worth addressing, both because it is relevant to the creation of a public retail bank and to the expansion of state-owned enterprises generally.

Conti-Brown’s argument goes like this:

It is difficult to imagine politicians, citizens, and customers having the stomach to abide the collection on nonperforming loans when the collector is the government itself. Indeed, we have experience with this: The IRS flexes its significant might regularly, to garnish wages, enforce liens, and otherwise make its presence felt in the face of unpaid tax debts. The IRS is the second least popular agency of government (after the Veterans Administration) and a regular political punching bag while the U.S. Postal Service is the most popular agency, by a wide margin. Would the USPS be able to maintain that popularity when its ethos includes wage garnishment and repossession? Do we want the government in this business at all?

The argument here is that collecting on bad debts is an ugly business and so we should not want the state to be involved.

The immediate problem here is that the government is already in this business. Private banks do not have their own police forces (not yet at least). The way they collect bad debts from resistant debtors is that they go to public courts and get the state to apply whatever force is necessary to make them pay up. The enforcing hand of government is always what makes sure private bankers get paid.

Conti-Brown’s failure to see it this way causes him not only to oppose the creation of a public retail bank but also to feel comfortable with what he appears to think is a fairly ugly business, i.e. private debt collection. And this is something a lot of people do. They excuse things private businesses do by compartmentalizing them as separate from the government and separate from the public. Thus, if a payday lender harasses a poor borrower for repayment, that’s something that is ultimately tolerable since that’s just private people doing private things that has nothing to do with anyone else.

Needless to say, this is a dangerous and incoherent posture. If a business is so unsavory that you think the government shouldn’t do it, then you should really ask yourself why the business should be allowed to exist at all. If garnishment and repossession are so traumatic that the government should stay out of it, then why should that same government create and actively enforce a set of economic rules that allow private actors to garnish and repossess?

I think it is totally fair to say certain lending practices (e.g. payday lending) are so bad that we should seriously consider getting rid of them. But this holds whether the creditors doing the lending are publicly owned or not. The same thing is true for any other industry frankly. Hiving off cruel or destructive economic activity into private sector niches so that society and the government can pretend to have clean hands is delusional and cowardly.

If anything, the government should especially get involved in sectors that have socially harmful elements to them, if it is going to allow those sectors to exist. This allows the government to have a stronger grip on those sectors and potentially take steps to mitigate the social harm.

For example, it is not uncommon across the world (and even in the US) for governments to have alcohol retail monopolies and gambling monopolies. These are sectors that are prone to addiction and other socially harmful outcomes and therefore sectors where a state owner can do a better job managing the economic interests alongside the social interests. States that are involved in the alcohol sector often make decisions about when and where alcohol can be purchased that are designed to cut down on some of the associated social harms. States involved in gambling sectors often make decisions about where gambling machines should be located that do the same thing.

If we think lending has similar socially harmful downsides in that it gets people into devastating financial trouble, then it especially makes sense for the government to get involved because the government is more likely to take steps to head off that financial trouble than a private owner. For instance, it would probably not engage in mass mailing schemes designed intentionally to lure poor people into debt traps, unlike Mariner Finance who readily avails itself of the government’s enforcement assistance in district courts across the country.