Tuesday, May 14, 2019

Necessary and Proper?

In my last blog post I wrote about the concerns that Alexandria Ocasio-Cortez has about the United States Postal Service.  She seems to think that its financial struggles are most directly caused by the fact that it must accrue and account for its massive retiree pension and health care costs.

Never mind that this is what every prudent private sector business is required to do based on generally accepted accounting principles. Never mind that this is also a key worker protection requirement.

AOC also teamed up with Bernie Sanders last week to suggest the the USPS should expand its business to include banking services. To that end, Sanders and AOC have introduced a bill to have the USPS offer basic banking services as a "public option" for what they refer to as "underserved Americans"

“Post offices exist in almost every community in our country,” Sanders wrote in a blog post. “There are more than 31,000 retail post offices in this country. An important way to provide decent banking opportunities for low-income communities is to allow the U.S. Postal Service to engage in basic banking services.”
Some of the proposed services a postal banking system could offer include low-interest loans, checking and savings accounts, debit cards, check cashing, bill payment, ATM services, online banking services and electronic money transfers. The measure was framed as a way to prevent lower-income Americans from falling victim to predatory payday lending practices – and from having to rely on Wall Street’s largest institutions.

Credit: The Nation

A government-owned bank competing with private financial banking institutions?

Isn't that a national bank?

We have been down this road before. There are great advantages in the lessons of history.

Alexander Hamilton was the first Secretary of Treasury serving under George Washington. In 1791 her proposed to Congress that the United States form a national bank. He quickly got both Houses of Congress to pass the law.

However, James Madison (a Congressman from Virginia and who many consider "the father of the Constitution") opposed the legislation as did Thomas Jefferson who was serving as Secretary of State for Washington. They argued that the formation of a national bank was unconstitutional and that Washington should veto the bill forming a national bank.

There is an excellent article on this episode in U.S. history entitled "The National Bank: An Exercise in Constitutional Fidelity" at www.thepublicdiscourse.com.

Their dispute turned primarily on the meaning of the Necessary and Proper Clause. The Constitution certainly does not authorize the creation of a bank in express terms. Such a measure could only be justified as an exercise of an implied power of the federal government. The source of such powers flows from that provision of the Constitution that follows the main enumeration of federal powers and authorizes Congress to “make all laws which shall be necessary and proper for carrying into execution the foregoing powers, and all other powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof.”
According to Jefferson, this language could not justify a national bank because the bank was not really necessary to executing any of the government’s enumerated powers. A bank might be a useful or convenient tool for executing, say, the government’s taxing, spending, and borrowing powers. It was not, however, necessary in the sense of being indispensable.
This, Jefferson argued, was the true interpretation of the term “necessary” in the Necessary and Proper Clause: It only authorized those measures without which the federal government’s enumerated powers would be “nugatory,” or without which they would amount to nothing. Jefferson, moreover, contended that any broader interpretation, such as could justify the bank, would be not only wrong but also dangerous, insofar as it would open the door to unlimited government and thus render the Constitution a dead letter. 

Isn't that interesting? I guess we don't have to wonder what Jefferson or Madison would have thought about how "necessary and proper" it is for the USPS to get into postal banking, or for that matter, how "necessary and proper" it was for the federal government to establish Obamacare or taking over the student loan debt market?

In the end, Washington sided with Hamilton who argued that the "necessary and proper" language should be construed more liberally to mean "useful".

Washington did sign the bill into law and a national bank was established in the United States in 1791. However, it was ultimately disbanded in 1836 when Congress refused to renew its charter due to opposition from President Andrew Jackson and complaints from the private banking sector about its federal ownership and control.

Postal banking was actually put in place by Congress in 1911 at a time when there were far less options for banking and a true national economy did not exist-especially for those east of the Mississippi. However, after World War II there was little need for these services as private banking services proliferated and nonprofit credit unions were also introduced to supplement the private banking system.

The fact that most credit unions are now open and available to all potential customers raises an additional question of how "necessary and proper" a USPS bank is as a non-profit public option. A non-profit option already exists for the public. Why is that not sufficient as an option against the evil banks and their profit motive?

There are almost 6,000 credit unions with 21,000 branches in existence across the United States.

This is in addition to 87,700 bank branches in the private banking system.

What exactly is the USPS going to do that is not already being done?

Why do we need additional bureaucracy and costs from a government entity that is already running in the red?

Do Sanders and AOC have any idea of the technology and other costs that would be necessary for the USPS to get into the banking business? ATM machines. Web-based banking services. Back office operations. Retrofitting post offices for the necessary security measures. Where is the added value to the economy? Where does the money come to provide this duplicative services for the American public? How is any of this "necessary and proper"?

I do not understand it.

Of course, there is little that Bernie Sanders and AOC say or do that I understand.

The biggest thing I don't understand is how a guy who never held a real job until he was 40 years old, when he was elected Mayor of Burlington, Vermont, and a woman who was working as a bartender two years ago, believe they can run the United States and its economy better than anyone else.

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