The Brief Case Against Government Banks
By David Henderson
(Pun intended in title above.)
My letter to the local Monterey County Weekly was the lead letter yesterday. Here it is:
Bank On It
A bank owned and run by government is a bad idea (“Efforts to establish a public bank for the Central Coast are underway,” Feb. 27-March 4). There is no reason to think that a government owned bank would have lower costs. In fact, the opposite is the case. A large body of economic evidence has established that for-profit companies are more efficient than government-run ones.
The reason has to do with incentives. When a bank sees a way of cutting and reining in costs, it is more likely to do so than a government owned enterprise. Indeed, a for-profit bank, to remain competitive, must find ways to rein in costs. But a government-owned bank has no such incentive. If a government-run bank gets established, one danger is that it will get bailed out by other parts of the government. It will look successful, but will not be successful. David R.Henderson | Pacific Grove
Editor’s note: Henderson is an emeritus professor of economics at the Naval Postgraduate School.
And here’s the news item I responded to that I referenced in my letter.