Modern product development involves large corporations using crowdsourcing websites like Kickstarter or Indiegogo as the modern version of the focus group. They develop, or have someone develop, a prototype then post a campaign, and if the campaign takes off they roll out the new product. The whole process is cheaper and more reliable than a focus group and has helped companies save money, make money, and roll out more products.
It is a great system and has helped countless entrepreneurs, inventors, and large corporations.
The problem is that our government is now mimicking this system. However, they are doing it by having private companies invest millions (and sometimes billions) of dollars, and only when the method and market have been proven then does the government move in to do it themselves.
Unlike crowdfunding, this con job hurts the economy.
One example is how the Federal Reserve is currently threatening to do this with real-time payments. Real-time payment means the delay between a transfer between banks is eliminated — yes, even on the weekend. It doesn’t seem like a gigantic leap in today’s digital economy, but a real-time payments solution is forecast to help everyone from banks and small businesses to those living on a fixed income. Real-time payments are good and long past due.
As Veronique de Rugy wrote in May:
The Federal Reserve understood this need and called on banks/payment operators to act back in 2017: “We are calling on all of you to come together to make this faster payments vision a reality. We ask you to support this effort by: … Taking steps to make your own organization faster payments ready by 2020” [emphasis in original].
By and large this is better than we should expect from any government agency. They recognized a problem and called on the private sector to solve the problem. The private sector heard their call, invested billions, and has several solutions up and running. However, earlier this year the Federal Reserve announced it was now planning its own real-time payment solution: FedNow.
The Federal Reserve got what they wanted out of the private sector — they proved the market just like a cool set of playing cards on Kickstarter. But, moving into the market themselves is troubling on several levels.
As Phil Kerpen with American Commitment reacted, “The regulator will also be a competitor, creating an inherently unfair playing field, and the systems are unlikely to be interoperable.” Additionally, if the government calls on private businesses to invest in market efficiency in the future, private companies are less likely to take the bait. In fact, with FedNow not scheduled to be operable until 2023-2024, the banks and payment operators that have already invested in their own real-time payment solutions are already considering whether or not they should continue throwing money at their solutions, and banks that haven’t already joined are considering their options and fewer are signing up for the real-time payment solutions that already exist.
Maybe Federal Reserve Chairman Jerome Powell could have explained the Federal Reserve’s reasoning when testifying last Wednesday before the Joint Economic Committee. However, there is likely no answer that can justify the con job that was pulled over on these banks — and nobody asked him a question about it.
This isn’t the first time that the federal government is taking over a private market (they have done the same in healthcare shopping) to disastrous effect. The role of government has definitely grown past its usefulness when it is competing both in banking and healthcare.
Charles Sauer (@CharlesSauer) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is president of the Market Institute and previously worked on Capitol Hill, for a governor, and for an academic think tank.
