Just Say Yes–To Public Banking!

These are heady times for progressive economics. One of the fallouts of 2016 is that DLC-style economics are dead. All sorts of great ideas are now floating around as serious policy proposals, as potential Democratic presidential candidates realize they only way they can win the nomination is to define themselves as further to the left than other candidates. This is very good for the nation–and very good for someone like me who has advocated for many of these ideas for a long time.

One idea that I know very little about but that has also come out of nearly nowhere in the last few weeks to get on the radar screen is public banking. Gillibrand’s endorsement of postal banking the other day was a huge step forward. Dayen has a great piece exploring public banking in more detail.

The needs are certainly great. Most private banks in the United States are reluctant to finance projects with perceived risk like affordable housing. Their investors don’t see the return on replacing water pipes. The American Society of Civil Engineers estimates that the United States needs to spend $4.6 trillion to rebuild and maintain the nation’s infrastructure. Donald Trump has promised to do something about it, but via a plan that offers only $200 billion in federal funds over a decade and expects local governments to pick up the rest. That would require stretching scarce local dollars for infrastructure investment. Public banks, by virtually eliminating financing costs, are well-positioned for this task.

Public banking carries appeal for politicians of different constituencies. Conservatives like the cost savings from the financing model. Liberals like the social responsibility aspect, with local needs taking precedent over Wall Street. And public banking offers a way out of a box that bedevils practically every political campaign. “Candidates have to hit a sweet spot, in which they have to promise they are going to spend more on priorities without people paying more taxes,” said Jette of Public Bank LA. “This is fixing a problem that’s been intractable.”

Continued financial scandals and outsize bonuses and salaries on Wall Street have spurred calls for cities to divest from national institutions like Wells Fargo and Bank of America. But community banks and credit unions lack capacity and often face legal hurdles and onerous collateral requirements to handle public funds. A public bank offers an alternative, with deposits serving the local community. And it’s become even more appealing because of the desire to evade the threat of federal marijuana enforcement: Californian cities such as Oakland and Santa Rosa have used that as a way to advance public banking. Now more than 40 cities and states are calling for similar institutions.

Phil Murphy, New Jersey’s Democratic governor and a former Goldman Sachs banker, campaigned on creating a public bank. “This money belongs to the people of New Jersey,” he said in an economic address introducing the concept. “It’s time to bring that money home, so it can build our future, not somebody else’s.” Murphy won, taking an idea on the political fringes into a state capitol for the first time in the modern era. There’s now a bill in the state legislature to charter a state bank of New Jersey.

Some of the most vibrant advocacy is happening at the local level. The Public Banking Institute, founded in 2010, has affiliates nationwide. San Francisco has convened a task force to create a workable blueprint with a rigorous business plan.

PBI held a weekend conference in Denver in March, bringing together candidates and officeholders, climate and homelessness activists, and even former bankers. “We’ve got to have some new alternative,” said Walt McRee, PBI’s chairman emeritus, on a conference call before the Denver event. “The current system of private capital is only more debt, more taxes. It’s a downward spiral that is unsustainable.”

Public banking could reimagine the role of finance as more than just blind profit-seeking. A bank built to serve the public can channel its resources to actual public needs. It can give the American people a defined voice in the direction of their money. Instead of being at the mercy of financiers, they’d be participating in a fundamentally democratic process: Their money would be theirs.

Dayen frames this in terms of solving the banking problems of the legal marijuana industry, which is a real deal as it grows bigger and in more states. We have a gigantic multi-billion quasi legal economy that presently transacts only in cash, which is completely nuts. State-owned public banks would solve that problem, or at least protect the money from Jefferson Beauregard Sessions III.