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Should the Government Give You a Credit Card?

This is sort of a brilliant idea:

In fact, while transactional credit provision is a perfectly good business, it might be reasonable for the state to offer basic transactional credit as a public good. This would be very simple to do. Every adult would be offered a Treasury Express card, which would have, say, a $1000 limit. Balances would be payable in full monthly. The only penalty for nonpayment would be denial of access of further credit, both by the government and by private creditors. (Private creditors would be expected to inquire whether a person is in arrears on their public card when making credit decisions, but would not be permitted to obtain or retain historical information. Nonpayment of public advances would not constitute default, but the exercise of an explicit forebearance option in exchange for denial of further credit.) Unpaid balances would be forgiven automatically after a period of five years. No interest would ever be charged.

Let's think about how this would work. For most people, access to various forms of credit — transactional credit, auto and home loans, unsecured revolving credit, whatever — is worth more than $200 per year. Although people might occasionally fall behind, for the most part borrowers would pay off their government cards, simply because convenient participation in the economy is worth more than a once-in-five-years $1K windfall. However, people with no savings and irregular income (for whom transactional credit is a misnomer, since they haven't the capacity to pay) might well take the money and run. The terms of the deal amount to a very small transfer program to the marginal and disorganized, and a ubiquitous form of currency for everyone else. People with higher incomes would want more transactional credit, or revolving credit, which they would acquire from the private sector.

That comes from Steve Waldman, who's written a post on the credit market that's so clear and so brilliant that really the only thing I can do is tell you to go read it.

By Ezra Klein  |  May 22, 2009; 2:00 PM ET
Categories:  Economic Policy , Solutions  
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Next: The Credit Model

Comments

I am not sure that I want the government to have records of individuals' financial transactions. I mean, as it is they can access CC records without a warrant. While there are valuable things to do with this data it really needs to be anonymized to some extent.

What is wrong with cash? Visa runs ads trying to make you feel guilty for using cash which slows down the transaction process. But it doesn't always! If I am in the express aisle, the grocery clerk is able to scan all my items before I can (a) swipe my loyalty card, then (b) swipe my credit card, then (c) hit "Debit/Credit", (d) swipe my card, (e) wait for the approval, (f) sign or enter my pin. Handing the clerk a twenty is much faster. Small transactions are almost always faster via cash, unless the majority of customers don't need to sign and don't want the receipt.

Posted by: NicholasBeaudrot | May 22, 2009 2:18 PM | Report abuse

So I can get one of these, run up $1k on it, not pay it off, go back to paying for things with my regular credit card where I get a bonus, and every 5 years I could do it again? Sign me up!

Posted by: Drew_Miller_Hates_IDs_That_Dont_Allow_Spaces | May 22, 2009 2:39 PM | Report abuse

Pretty much every science fiction story since the 1920s has had people paying with electronic credits. Considering Congress's failure to give me the flying car, they at LEAST owe me my government credit card.

Posted by: tomveiltomveil | May 22, 2009 3:01 PM | Report abuse

Drew_Miller:

You seem to have missed one of the details of the proposal: if you don't pay off your government credit card, then you are banned from using private credit.

Posted by: tomveiltomveil | May 22, 2009 3:02 PM | Report abuse

Why doesn't the Government just provide us with all of our goods and services? All politicians would love it because then they would have the power to allocate everything. The population of DC would expand exponentially as people lined up to beg our wise leaders for preferential treatment and what else would they have to do since the Government would do everything.

Posted by: fallsmeadjc | May 22, 2009 3:34 PM | Report abuse

It's an excellent idea, for all the reasons that Waldman brought up. Access to credit cards is very necessary these days, and it's a shame that it's tied to such predator practices.

Indeed, I'm not seeing a problem with the people who "take the money and run". Those marginal consumers are the most likely to be living hand-to-mouth, and they aren't going to be paying down debt with it because they'll lose access to credit to begin with. A thousand dollars of guaranteed consumer stimulus is nothing to sneeze at!

Posted by: DemosthenesofPaeania | May 23, 2009 2:41 PM | Report abuse

It's a nice idea, but it won't work because 1) the credit card companies would never let it happen and 2) the working poor who most need relief from rapacious lenders also need revolving credit. See my post at http://dougsingsen.blogspot.com/2009/05/can-credit-system-be-reformed.html for a full explanation of point 2.

Posted by: dougsingsen | May 23, 2009 3:00 PM | Report abuse

Having read your entry, doug, I think you've mixed things up a bit. You're right in pointing out that the credit card industry would be opposed to it. But they'd be opposed to it precisely because the poor are being victimized by the way revolving credit works. Your contention that the poor need revolving credit because their income is so low seems just wrongheaded, too: if their income is too low, that's a case to be made for either a higher minimum wage, more social assistance, better unions, a minimum income scheme, or any/all of the above.

Revolving credit isn't income; it's treating it like that that's part of the problem.

That said, I would like to see Ezra address this issue of likelihood. It smells like one of those things that bounces around the blogs for a week and is then forgotten.

Posted by: DemosthenesofPaeania | May 23, 2009 6:29 PM | Report abuse

The comments to this entry are closed.

 
 
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