Professor Alan Blinder, of Princeton University, has another laugher in The Wall Street Journal. This time he wants the Fed to “encourage” private bank lending—in an environment where the intended market is vary chary of taking on debt, new or additional—but without “without interfering in private credit-allocation decisions.”
His idea is stimulated by a scheme (in both the British and American English senses) of the Bank of England’s, itself generated out of the premise that UK banks aren’t lending enough to suit the government suits. Essentially, Blinder wants to ape the BoE scheme of giving private lenders preferential rates on central bank lending according to how much lending the private lenders are doing.
First, Blinder operates from a false premise. It’s impossible for government to “encourage” without “interfering in private decisions.” The whole point of government encouragement to execute exactly that interference. To claim that compliance is voluntary and so not interference is disingenuous sophistry. Banks are out to make money for their owners, just as any business must—its fiduciary duty drives it to—make money for its owners. The offer of a goodie for doing what government wants is no less a cudgel than providing a penalty for not doing.
Second, Blinder gives his game away in the penultimate paragraph of his piece:
Last, but certainly not least, there is the crucial question of what types of bank lending to subsidize.
Of course, the sole purpose of a subsidy is to drive the recipient to a government-desired behavior. The whole point of government encouragement to execute exactly that interference.