© Josh Sager – May 2013
The US population is suffering from a legion of economic crises, the most serious of which include an epidemic of joblessness, widespread under-employment (ex. PhD baristas), crippling debt and stagnant wages. Unfortunately, these problems are extremely complex, interconnected and entrenched, thus it is very difficult to solve them with simple solutions.
Fortunately, the United States government has been presented an unusual opportunity to solve several serious economic problems with one very simple solution: by expanding the post office to provide banking services and various loans at cost, we can ensure that all Americans have access to basic banking services, reasonable low-principle loans and low-interest student loans, while ensuring that the post office is not killed by right wing fanatics.
Unequal Access to Banking
One of the most neglected economic issues of our times is the inability of many poorer Americans to access even basic banking services. These basic banking services include bank accounts/cards, short term loans, and the ability to write personal checks rather than relying upon bank checks.
Millions of American families are currently without bank accounts, either due to a lack of funding or easy access to an available bank—this forces these families to rely on check cashing services to cash their paychecks and payday lenders for small loans.
As check-cashing companies charge a percentage of the value of the check that they are hired to cash, the reliance of some poor families on these services drains resources from the most needy. This drain makes these families less able to survive on their already meager income and reduces the buying power for people in entire neighborhoods (taking 1%-5% off the top of an entire neighborhood’s income adds up and significantly reduces the vitality of the local economy).
Usurious Payday Lending
In the modern economy, many Americans have been forced to rely on payday loans to pay their bills between their paychecks. Payday lenders supply poor people with short-term and low-principle loans, at usurious interest rates, and push their customers into a spiral of debt; in order to pay their bills, these customers need to take out loans, which cost them more in the long run and make them less able to pay their bills without resorting to further loans.
To put the exploitation of the payday loan industry into perspective: In some cases, the interest rates on payday loans can exceed 25%, while the base short/medium term interest rate for business loans is approximately 3.3%.
Student Loan Debt
American students are getting crushed under a mountain of student loan debt. Currently, approximately 37 million American students owe over $1 trillion dollars in student loan debt that will never disappear, even if the student declares bankruptcy. Obtaining a 4-year college degree leaves the average student under $29,000 in debt, even when all scholarships and grants are taken into account.
Because of this massive debt, students have their career choices constrained (ex. many graduates cannot afford to go into teaching, simply because they can’t live on a teacher’s salary while paying back loans) and are often forced to move back in with their families. On the economy as a whole, this debt saps the buying power of the American people and reduces the vitality of the entire American economy.
Protecting the Post Office
Starting several years ago, the extreme right wing started trying to kill the Federal Postal Service by constraining their ability to raise stamp prices and loading them up with unreasonable pension liabilities. Currently, the Post Office is suffering under the requirement that it fund its pension program 75 years into the future (a requirement not shared by any public or private institution), and is trying to avoid being forced into an engineered insolvency that would provide the right and excuse to attack the institution further.
In short, the right wing Congress is trying to sabotage the post office with arbitrary and extreme constraints. This attack on the Post Office is motivated by the right wing goal of privatization and is aimed at ensuring that private postal services (ex. UPS and FedEx) have no public competition that would constrain their prices.
Explaining the Solution
By expanding the Post Office’s services to include basic banking services and short-term loans, we can fix the problems of unequal access to banking services and the usury of payday lenders. Interest rates for short-term loans can be set at reasonable rates that produce a modest profit for the Post Office, which can then be used to back future loans.
There is ample precedent that this expansion would be easy, effective, and beneficial to the American population. Other countries, including Japan, South Korea and Germany have already implemented similar programs and had great success.
Once the Post Office has a rudimentary banking and lending infrastructure implemented, I would support moving all federally backed student lending services to the Post Office, while setting interest rates to be profit-neutral. This move wouldn’t increase risk at all, as the federal government already backs student loans, but it would reduce the profitization of student loans, thus making them more affordable.
In 2013 alone, the federal government made $41.3 billion in profit from student loan interest. This is money taken out of the pockets of students and put into expanding the student loan program and subsidizing the general treasury. By moving the student loan program to the Post Office—which operates separately from the U.S. Treasury—we can ensure that student loans are as close to profit-neutral as possible. If they were administered by the Post Office, there would be no conflict of interest that causes student loans to subsidize the Treasury (ex. paying for tax cuts by increasing the interest rates on students).
By setting interest rates at slightly above inflation and offering fair repayment schedules, we can dramatically reduce the drain of student loan debt on our society. Rather than continuing as a profit-making device for the federal government, publicly-backed student loans would become a program which exists solely to ensure that the poor and middle classes have reasonable access to a higher education. While this solution is admittedly less efficient than free public higher education, it is the most effective solution that preserves the current market-based structure of the US education system.
The reduction of student loan debt from this shift would help the economy as a whole by giving graduates more buying power; they would have less debt and would be more able to participate in the consumer economy, thus fueling our economic recovery.
The influx of banking service fees, low-principle loans, and high-volume student lending would further stabilize the Post Office and make it far harder for the right wing to attack. If my proposal is implemented, any assault on the Post Office would threaten the immensely powerful education lobby (all those tuition dollars buy a lot of influence) and would result in large political repercussions that the right wing would rather avoid.
At the end of the day, the transformation of the Post Office into an institution which offers a mixture of mail delivery, banking and affordable lending is a novel solution to several looming problems. It may not be politically feasible given the political climate of division and partisanship, never mind the upcoming 2014 election season, but it is the correct policy to create the most socially positive result.