Thread by @GeorgeSelgin

@dandolfa How are you defining "public good" here? The fact that something _might_ be supplied by a public authority doesn't itself suffice. What evidence is there that provision of payment services is either non-excludable and non-rivalrous? 1/2

@dandolfa Nor does the Fed have any clear technological advantage I can think of. Yes, it monopolizes the final settlement media. But provided it makes its settlement services available to others, they can (and for the most part already do) handle the "retail" side of payments.

@dandolfa The Fed also monopolizes hand-to-hand currency. But here again, it doesn't follow that it must. Technically, private institutions could supply such media, as they once supplied their own paper banknotes. Today...

@dandolfa ...they might allow digital credits to be held and transferred outside the banking system, via dedicated electronic wallets, cellphones, or stored value cards.

@dandolfa Nor are real time payments beyond the private-sectors' abilities. On the contrary: TCH's RTP system is a step ahead (actually, a minimum of 7 years ahead!) of its planned Fed rival, and just as capable of becoming ubiquitous. Smaller real-time networks also continue to grow.

@dandolfa Indeed, I don't think there's any area in which private-sector innovations have been more impressive lately than in payments! That despite this many continue to encourage the Fed to step in, if not take over the field. I frankly don't get it. ...

@dandolfa True, there is a natural monopoly element to certain kinds of payment services--and clearing and settlement services are an example. So I understand worries about RTP. But there is plenty of scope for "monopolistic competition" in payments, and there could be a lot more.

@dandolfa For example, if the Fed would get Fedwire and the NSS operating 3 windows/day 24/7, we'd have ubiquitous same-day payments on the old payment "rails." That would itself limit how much rent RTP could possibly extract for its real-time service, even absent other controls.

@dandolfa There are also plenty of options, apart from Fed service provision, for regulating private payment service suppliers to keep them from abusing their positions. There are, in contrast, precious few ways of sanctioning the Fed itself when it engages in unfair pricing practices.

@dandolfa The biggest danger of Fed provision, though, consists of its potentially stifling effect of further private-market innovation in any market the Fed enters. Who wants to compete against a rival that also serves as their regulator, and that can take as long as it likes....

@dandolfa ...to recover its fixed investment costs and yet can still claim to be meeting the requirements of the 1980 Monetary Control Act?

Israel Kirzner has a great essay, "The Perils of Regulation," that alas isn't available on line.

@dandolfa The gist of it anyway is that regulatory solutions to supposed market failures have a tendency to be sticky or "static," ruling-out future, potentially better solutions that are as yet not practical. A short-run solution can thus become a long-run burden on society.

@dandolfa It seems to me that direct government provision of supposedly desirable services is similarly perilous. But in the present case it isn't just a question of its being risky, for we do not even have an obvious market failure in the first place.

@dandolfa We have some things the private market isn't allowed to do (inadequate arrangements for allowing commercial enterprises to offer limited banking services come to mind); and we have the Fed's own failure to supply some services adequately (limited Fedwire and NSS operating hours).

@dandolfa But it is not obvious that we have any bona fide market failures w.r.t. those payment services the Fed is now either planning to provide (FedNow) or being urged by some to provide ("digital currency" or individual Fed account balances).

@dandolfa To wrap-up: let's think hard about economists' definition of "public goods," and ask in light of it just what the private market is capable of delivering before we hastily invite the Fed to further increase the already tremendous scope of its powers and responsibilities.