In a an amazing display of economic illiteracy, the Dutch Labour party proposes a new law that would force banks to maintain branches in rural areas. The wave of rationalization and consolidation means that many smaller branches are being closed by the big banks. In a mind-boggling display of statist thinking, the Labour party want to force banks to keep a minimum of branches open, with at least one branch per three kilometers or 10,000 inhabitants. I am not sure what they mean by three kilometers, since they're unlikely to be strung along a line, but I suppose three square kilometers might work. The plan is to force banks that leave an area to pay a subsidy to the bank that does stay. So we'll end up with transfer payments from one bank to another. Once the system is established, it is sure to create perverse incentives for maintaining branches in weird locations to siphon money from their competitors.

It also shows a fundamental misunderstanding of how the economics of doing business work. The banks are closing the outlets because they're losing money on them. That means there is not enough demand locally to justify having a branch in the area. If there really is pent-up demand after the disappearance of all bank branches from an area, a competitor will step in eventually, perhaps with a leaner, meaner structure. Yes, in the interim there will be misalignment of supply and demand, but that is nothing new. There has been an oversupply for decades. But the cost of forcing banks to maintain unprofitable branches is higher in the long term than the pain of not having a bank branch around. The proposed cure will depress profitability, distort incentives and make the banks more inefficient. Worst of all, it adds yet another layer of government interference to the economy. If the costs of doing business weren't so high in the first place, if the fixed costs of employing people were lower, then a lot of these branches would not have to close in the first place. So the socialist welfare state is exacerbating a problem it created.

The sad thing is, there is a majority in parliament for this. The Labour party, the Christian Democrats, the Green Left Party, the D66 (the Vague Party) and the stalinist Socialist Party all will vote for this. Not exactly surprising though.