Major banks are so glutted with cash that some of them are now charging corporate depositors fees to park their money. So says the Wall Street Journal in an article titled “Big Banks to America’s Firms: We Don’t Want Your Cash.”
For example, State Street Bank in Boston, which specializes in large institutional investors, has been charging fees for large dollar deposits, and J.P. Morgan Chase, the country’s biggest bank by assets, has actually driven away more than $150 billion, partly by charging fees, partly by refusing to accept the deposits.
The underlying problem, as the Journal puts it, is that “many businesses have large sums on hand and opportunities to profitably invest it appear scarce.” The banks have no better opportunities to profitably invest the corporate profit glut than their depositors. They’re “struggling to generate returns for investors.” And much of this cash is “hot money,” such as hedge fund deposits that move in and out instantly, potentially destabilizing bank balance sheets and drawing the attention of bank regulators. In bank lingo, these are “non-operational” deposits; in other words, idle money, money that doesn’t have anything to do.
How much are we talking about? Says the Journal, “the globe is awash in cash.” The article doesn’t try to estimate the global cash pool. Just the U.S. section of it, domestic deposits at U.S. banks, hit 10.59 trillion — that’s with a ‘tr’ — in the second quarter of 2015, and rising.
A Wall Street Journal wit, Joe Queenan, offered his assistance in this quandary. Just put your excess trillions into my savings account, he wrote. Even at 0.75 per cent interest, a few trillion would be very helpful to his household budget. Note that Queenan is astute to get 0.75 per cent on his savings. Wells Fargo and Chase pay 0.05 per cent and below.
I have a better proposal: Tax the idle money away. The basic model is the excise tax. The excise tax traditionally is society’s tool for disincentivizing sins such as tobacco, alcohol, narcotics, gambling, and prostitution (where legal).
It’s easy to show that idle profits are a far greater evil. Idle profits produce idle workers. Profits not reinvested in productive activities such as industry or services are an abortion of jobs, and lack of jobs destroys families and corrodes the social fabric as surely as alcoholism and other drug addictions. Profits not reinvested also pronounce a death sentence by suffocation on the country’s infrastructure: bridges and highways not repaired, parks not maintained, railroads that are slow and unsafe, air and water not cleaned up, garbage not recycled, sewers and water supplies not maintained, an electric grid not modernized, a housing stock badly skewed toward the high end and dilapidated on the low end, and much else. Profits not reinvested devalue the country’s human capital: school districts outside the affluent suburbs starved for funding, higher education increasingly shut to lower-income students, students graduating with life-long debt burdens, misallocations of training to job openings, college teaching staffs reduced to adjuncts and part-timers, health care unaffordable, child care unavailable, and much else. And I haven’t even touched on the corrosive influence of idle profits on the political process (Citizens United), the incentive idle profits give to mega-mergers and monopolization, and the disruption of whole nations’ currencies and budgets by violent cross-border capital flows. Idle profits are the crack and methamphetamine of the political economy.
As a modest beginning, the idle profits excise tax should confiscate 100 per cent of cash assets not invested productively within one year. There is no lack of socially productive uses for surplus cash, and ten trillion dollars is a life-changing amount. Income taxes on the wages and salaries of 90 per cent of the population could be cut to zero. We would have full employment at a living wage for everyone. Our infrastructure would be repaired and upgraded, our educational, housing, and health care systems raised to world-leading standards, our politics demonetized and the world economy stabilized. Or at least a good head start in that direction.
And, last but not least, the idle profits tax would save the big banks the embarrassment of having to turn away or charge parking fees for huge cash deposits. There’s no worse PR for the financial system than banks complaining that they have too much cash already. It all rings of Pete Seeger’s Depression-era song about the bank vaults stuffed with silver:
I’ve traveled round this country
From shore to shining shore.
It really made me wonder
The things I heard and saw.
I saw the weary farmer,
Plowing sod and loam;
I heard the auction hammer
A knocking down his home.
But the banks are made of marble,
With a guard at every door,
And the vaults are stuffed with silver,
That the farmer sweated for.
Oh, and the Wall Street Journal also reported that 55 per cent of Americans think that under capitalism, the rich get richer and the poor get poorer. Sixty-five per cent think that most big businesses have dodged taxes, bought favors, or polluted.
The idle profits tax would go a long way toward correcting that leftward drift of opinion. So, what do you say, Washington?