We are often told, and we tend to internalize, the idea that scarcity is a natural condition of humankind, and the planet. While it is true that natural resources are finite, the specter of scarcity has recently been extended, in many nations’ grand narratives, to include finance. We are told there’s no money for public schools, public safety, and public transportation. We are told that everyone needs to tighten their belts, practice “shared sacrifice,” and give up our “entitlements.”
In fact, our present economy exists in a state of artificial scarcity. America is not broke, resources exist to fund public goods, and the implementation of a few brave but entirely feasible ideas could lead to a healthier, more dynamic economy, without forced choices between essential public services. Public banking is one such idea, and perhaps the most salient one, because public banks can be chartered and managed to lend locally, refrain from risky speculation, and return millions of dollars per year to states’ and municipalities’ general funds.
The existing private banking system imposes artificial scarcity on the public. Private banks do this by withholding loans to small businesses, moving money out of the communities that do business with the banks, and being beholden to shareholders rather than local customers. Monopolies of any resources create artificial scarcity. In the case of money, that scarcity results in inequality that hinders common folks’ purchasing and investment power. Simply put, money is limited by bankers as if it were a precious metal, when it’s more like a simple metric, like inches — something we can never run out of.
So we are left with a nation where there is plenty of work to do, but no jobs. There is plenty of demand for services, but no investment targeted where it will do the most good. When you combine this artificial scarcity with a federal government ideologically committed to austerity, the result is the slow death of local communities’ vitality, and an anemic national government with no effective plan to restore that vitality.
Public banking is one way to transcend this malaise. Since their primary mission is financing development in the communities where citizens democratically own the banks, there will be no diversion of public money, or private deposits, into speculative instruments and foreign industries that compete with domestic industries. There will be no unreasonably high interest rates holding the financing of public goods hostage to private lenders. All of these benefits, and more, will offer a way out of the artificially imposed scarcity of the private banking monopoly. As Marc Armstrong, Executive Director of the Public Banking Institute, recently put it:
"This approach would serve our communities as we seek to reverse the artificial economic scarcity imposed on us by the existing private banking system. Affordable loans to fund the new economy, a simple idea with its roots being local, not centralized on Wall Street or in Congress. The Public Banking Institute envisions public banks as the organizing entity for the development of this market. Public banks can be the provider of debt capital to businesses and, by issuing corporate bonds, serve as the investment vehicle for people who wish to take a portion of their retirement funds to invest locally."
And, as David Brodwin of the American Sustainable Business Council expresses, public banks can create abundance in public coffers where, now, there is the construct of scarcity:
"Public banks magnify the money the state can deploy for economic development and infrastructure investment. Because of the way our system of “fractional reserve banking” works, each dollar the state sends to a public bank can support at least two dollars of investment in loans for local business, and potentially more . . . The public bank charges interest to borrowers and generates earnings. Since it doesn’t have to pay dividends or show earnings to outside investors, it can give its earnings to the state (after retaining some earnings to support growth.) Or, it can offer the state below-market borrowing costs and forgo earnings."
This is why interest in public banks is growing across the nation. People from all sides of the political spectrum are fed up with private financial institutions’ imposition of scarcity when there is an abundance of human ingenuity and individual capital. It’s time to put the word “scarcity” back where it belongs – referring to resources which are actually scarce, rather than imagining that we lack the banking resources needed to enable public policy.