Senator Bernie Sanders never fails to amaze with misguided economic policy, but his point of view on finance and banking is no less foolish.
The 2020 candidate has uploaded a number of short pages to his campaign website detailing his views on important issues. Many of Sanders’ views on the economy are shocking and could each warrant their own direct response with time. However, the one in most pressing need of a rebuttal is the Senator’s “Fair Banking for All” page, especially considering many Americans are likely unaware of this stance. It displays not only an obvious ignorance of policy consequences, in both the short and long term, but also an attempt at a serious economic power grab.
Until the final two paragraphs on the page, Sanders is clearly on the offensive, attacking banking as it currently operates today. He makes clear his disdain for payday loan interest rates, which, as he shares, are as high as an average annual interest rate of 661 percent in Texas. He does correctly identify that such loans often drive creditors into cycles of debt. However, he fails to recognize that such loans are mostly voluntary, used in most cases to bridge gaps in income and pay “recurring expenses,” according to Pew data. These expenses are the ones creditors would have been aware of ahead of time and should have planned accordingly for. Sanders’ solution to the “loan sharks” offering these lines of credit is to institute a money market price control by capping interest rates at 15 percent.
Undeniably, the interest on these forms of credit is high. All loans are risky and consequently, require an adequate return on investment in the form of interest rates. Short term loans require higher interest rates to make a return on investment because they tend to be riskier than most, with the lenders often not even checking credit scores. When Senator Sanders suggests an interest rate cap of 15 percent, he is, in fact, pricing the payday loan industry out of the loanable funds market. In fact, Sanders recognizes this, saying:“[I]n Vermont, the payday loan industry doesn’t exist. That’s because interest rates on small dollar loans are capped at 18 percent.”
While certainly no fan of payday loan institutions, I find it quite shocking that a candidate would brag about crushing an entire industry.
Consider the ramifications of this. Jobs will be lost as a result of such institutions being put out of business. However, far more important is the shortage of credit this policy creates. By instituting a price cap as Vermont did, or as Sanders would like to do across the nation, there will be an increase in the demand for loanable funds, but a decrease in supply. Current short-term loan suppliers will be crushed, and future investment in that industry will be discouraged by an inability to make returns on investment for short term loans.
Likely, Sanders recognizes the effects of such a price cap, because, in his final two paragraphs, he shifts from attacking loans he disdains to proposing his own form of banking. His plan would involve providing banking at post offices across the nation, as was done between 1911 and 1967 in the United States. What exactly would this entail? Sanders explains: “Post offices would offer basic checking and savings accounts, debit cards, direct deposit, online banking services, and low-interest, small dollar loans.”
The solution to the government actively crushing the short term loan market? Simply step in and take complete control of the market yourself, apparently. Sanders’ policy, both the 15 percent cap, as well as this postal banking, would first price most or all private businesses out of the market, then insert the government in as one of the few, or the only remaining provider of small dollar short term loans, and funnel taxpayer dollars to people in the form of payday loans.
The entire page is one big proposed hostile takeover of a private market.
Again, I am not fond of payday loan institutions, but this policy is undeniably far worse. Essentially, it is a nationalization of credit. Every taxpayer, whether they want to, is being forced to subsidize these small dollar loans and it will encourage more people to take more of them out. It is a taxpayer incentive for debt accumulation. This is, ultimately, a terrible totalitarian financial scheme, and only further illuminates how asinine Democratic Socialist economic policy is.
The views expressed in this article are the opinion of the author and do not necessarily reflect those of Lone Conservative staff.