Our current banking and financial system has transformed politics in favor of the rich, debilitating democratic institutions, destroying the common good and hurting the poor in the process. In this context, the challenge we face is to end plutocracy and restore democracy.
It is this challenge that world-renowned progressive economist Gerald Epstein brilliantly elucidates in his pathbreaking book Busting the Bankers’ Club: Finance for the Rest of Us and which he discusses in this exclusive interview for Truthout.
One possible way to accomplish this dual feat is by creating an alternative banking system that democratizes finance. In fact, the movement for public banking — a system where banks are owned by the people rather than the wealthy elite — is gaining momentum in many parts of the country. Just this month, a blueprint for the implementation of a public bank in the state of New Jersey was submitted to Gov. Phil Murphy.
In the interview that follows, which builds on our previous conversations about how “SEC’s Approval of Bitcoin Markets May Set the Stage for Financial Disaster” and how “A Growing Number of Economists Are Joining the Fight to Rein In the Big Banks,” Epstein addresses the issue of democratic finance, including the advantages that it offers as well as the challenges that it faces in a society where money dominates politics. Epstein is a professor of economics and co-director of the Political Economy Research Institute (PERI) at the University of Massachusetts Amherst.
C.J. Polychroniou: Jerry, in your recently published book Busting the Bankers’ Club you highlight the need for changes to the current financial system that go beyond regulation. As you write, “we need banks without bankers.” You propose public banking as the best way toward creating “a financial system that works for all of us.” What are the advantages of public banking, or having banks without bankers?
Gerald Epstein: There are numerous advantages to having more public banks in our financial ecosystem. But before I discuss these advantages, let me explain what I mean by public banking or “banks without bankers.” Many public banking advocates and activists define “public banks” as banks that are owned by governments — federal, regional, state or local — and that are tasked with serving a public mission.
This is a fine definition but when I use it, I mean something a bit broader: I include government-owned financial institutions, but I also include any financial institution for which maximizing profit is not the main goal. These banks must have a main mission that entails pursuing social goals such as community economic development, the promotion of environmental justice or promotion of cooperative economics. These banks might be purely government owned, but they might also be public-private partnerships. The key is that the “mission orientation,” not profit, has to be dominant.
As Thomas Marois has shown, there has been a resurgence in the creation and use of public banks around the world. There has also been a strong public banking movement in the United States, especially since the great financial crisis and the Occupy movement. As my former graduate student Esra Nur Ugurlu and I discovered when we did a survey of public banking activists, they pursue a number of goals in their attempts to establish public banking institutions: to provide affordable banking services to underserved communities, to invest in key social goods such as affordable housing, to provide more credit for cooperatives and small business, to promote environmental sustainability and fight against climate change.
The potential contributions of public banking to help solve these problems are many. First of all, private banks avoid making investments in these areas because they are perceived to be too risky or not profitable enough. It will largely take financial institutions with a public mission and mandate to make significant progress on many of these challenges.
Second, public banks can provide an alternative to overcharging, speculative mega banks such as JPMorgan Chase and Bank of........