"In fact, while transactional credit provision is a perfectly good business, it might be reasonable for the state to offer basic transactional credit as a public good. This would be very simple to do.Every adult would be offered a Treasury Express card, which would have, say, a $1000 limit. Balances would be payable in full monthly. The only penalty for nonpayment would be denial of access of further credit, both by the government and by private creditors. [...] Unpaid balances would be forgiven automatically after a period of five years. No interest would ever be charged."
He spells out more details of his idea here.
Matt Yglesias responds: "At any rate, I think that this—or something close to it—is probably a good idea. Our notions of what kind of services should be provided by the state and which should be left exclusively to the private sector have more to do with path dependence and tradition than anything else."
Um, no Matt. Ideas for what services are inherently governmental and what should be provided by the public sector come from a belief in the best use of taxes (i.e. services that can justly be funded by the collective property of others), and from a philosophical understanding of what the public sector, with misaligned incentives, is capable of doing well (backed by historical evidence). The old DMV argument is updated to the Medicare covering the cost of orthopedic shoes for amputees example. Of course that is a pretty standard libertarian response, but that's what you get here. It also happens to be true. It's not path dependence, it's a perspective of human nature, what drives human action, and the knowledge problem that exists in civilization.
At any rate, I imagine a government program like this would be run similar to unemployment, but would also need to deal with getting the money back. Given the slow rate at which the IRS works, I can imagine a few problems. Considering that we can't keep our voting rolls accurate, we're sending stimulus checks to dead people, and social security fraud is a consistent battle, there would be a number of complications. Of course they could outsource running the program, let the private sector do a good job of granting credit and collecting repayment. But then why wouldn't the private sector do this in the first place? Probably because 1) it's rife with opportunities for fraud, and 2) they couldn't make money without the interest. Lost cost, low lines of credit are available because a small market for them exists--but the recent credit card regulations pass might wipe that out of the private sector.
Ultimately, while the idea has merit, I disagree that credit is a public good. Being in debt is not a public good. Letting someone spend $1,000 and walk away--however trivial that amount may seem--is not a just use of taxpayer money.