On Monday, Ryan Bubb and my friend Alex Kaufman published an Op-Ed in The New York Times in which they argue for “a fairer credit card.”

The credit card act is under fire for limiting a number of fees commonly used in credit card contracts, like the charge for going over the credit limit and the increased interest rate that applies once a borrower has missed a payment. These changes might look like a boon for the average card user, but industry advocates claim that fees on delinquent borrowers subsidize the perks for those who pay on time. Take away the lucrative fees, the argument goes, and credit card issuers will be forced to ax free plane rides, slash generous credit limits and impose hefty annual dues for all.

Some in the industry even say that profitability would require issuers to charge interest from the moment of purchase, thus eliminating the grace period of interest-free lending that borrowers have long enjoyed.

But after surveying credit cards issued by investor-owned banks as well as “fairer” cards issued by customer-owned credit unions, Bubb and Kaufman conclude that the industry is overstating the case. They also suggest that rewards programs might become less generous, but that this is a feature and not a bug.

But is this necessarily a bad thing? While you may be reluctant to sacrifice your airline miles, rewards programs are anything but free for the nation as a whole. Debt-laden and often low-income borrowers tend to pay high fees to subsidize the vacations of those who manage to pay on time.

And I suppose this is what I find so irksome about the proposal. I have a hard time seeing why regulators should make these decisions. The fact that some consumers “manage to pay on time” doesn’t strike me as an incidental fact. Indeed, it strikes me as pretty valuable information for credit card issuers.

Credit unions are, for all the reasons Bubb and Kaufman suggest, terrific. I do think, however, that there is a value in pluralism, and that heavy regulation can stifle useful economic innovation.

This leads me, however, to a heretical thought. In President Obama’s financial reform proposal, he calls for a new regulatory body dedicated to guaranteeing the “safety” of financial products. And the proposal suggests that all credit card issuers offer a “vanilla” product line of heavily regulated financial products. Rather than mandate vanilla products, why not have the government issue a credit card of its own?

Conservatives will recoil at this idea for good reason. The government already does more than it should, so why start issuing credit cards? I see this as a philosophical question: is the government interfering more if it forces private firms to issue vanilla cards or if it chooses to issue its own vanilla card?

A few weeks ago, Steve Randy Waldman at the blog Interfluidity had an intriguing idea.

First, he draws a distinction between transactional and revolving credit. To oversimplify, transactional credit allows you to spend money that you have without actually carrying around cash. Revolving credit, in contrast, allows you to spread out payments, so that you can spend money you don’t have now — and, frankly, that you might not have for a long time. And so, Waldman goes on to explain, transactional credit is like an insurance product while revolving credit is like a traditional loan. Waldman advocates heavy regulation of revolving credit, so that less creditworthy borrowers simply can’t gain access to it. This makes sense for many reasons. For one thing, it might forestall panicked post-hoc regulation. Yet I wonder if Waldman’s next proposal might serve as a good substitute for heavy regulation. For transactional credit, he thinks it is perhaps best understood as a public good that could be provided by the state.

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. (Private creditors would be expected to inquire whether a person is in arrears on their public card when making credit decisions, but would not be permitted to obtain or retain historical information. Nonpayment of public advances would not constitute default, but the exercise of an explicit forbearance option in exchange for denial of further credit.) Unpaid balances would be forgiven automatically after a period of five years. No interest would ever be charged.

What exactly would be the point of this exercise?

One nice aspect of a low-limit, indiscriminate, mechanical public credit system would be educational. Many younger people would spend some period of time modestly in debt and shut out of the credit economy. This would provide a more gentle lesson than the current practice of running up revolving balances in college and working desperately for years to pay them down.

It’s a clever idea. Wouldn’t it be nice if we could leave the private sector alone to issue any kind of credit card they’d like, and allow Treasury Express to scratch the plain vanilla itch?