"Friday Afternoon Socialism"
Steve Waldman draws a useful distinction between transactional and revolving credit and proposes:
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 forbearance 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 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.
Since the government is already in the business of withholding from people’s paychecks for tax purposes, you could even modify this proposal so that someone in arrears had $1 a day garnished for 1,000 days rather than Waldmann’s “five years and you’re forgiven” policy.
At any rate, I think that this—or something close to it—is probably a good idea. Our notions of what kind of services should be provided by the state and which should be left exclusively to the private sector have more to do with path dependence and tradition than anything else. Having a government agency deliver the mail made a ton of sense given the communications technology prevailing in the late 18th century. I’m not totally convinced it needs to be such a high priority today. But modern conditions make this sort of credit proposal seem very plausible to me. Somewhat similarly, rather than requiring people to purchase bare-bones car insurance from for-profit providers (who need to take a cut for profits, and spend money on marketing and advertising and sales) we could put a tax on car ownership and provide the bare-bones insurance publicly. People would save some money, there wouldn’t be as many annoying GEICO ads on TV, and administration of claims would be simpler.