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Feb 5, 2009

A Tested Stimulus Plan

Here is my idea for a stimulus plan. It will inject $trillions into the economy, employing people again in the hardest hit industries, such as restaurants, entertainment, travel, construction, and finance. This is an idea that has been implemented and tested in the past. It will work, unlike the speculative "trickle-down" stimulus bill now under consideration. It would place vital cash into the hands of consumers.

The government should guarantee any borrowing against houses, autos, and even future earnings, with low credit requirements for granting the loans. This would apply to both new and existing housing and autos, and the estimated future earnings of hopeful couples and serious singles. Building new houses would employ construction workers and materials suppliers. The borrowings against existing houses, autos, and earnings would be spent immediately for consumer goods and services.

Stop shouting. Keep it down out there. Yes, I know that this was the basis for what nasty people call the "housing bubble". The housing bubble was great! It worked well up until just recently. It was a period of prosperity and rising employment.

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Our only problem is that the housing bubble was killed by having to pay back the loans. A few too many houses and pfft! the price of houses sank. We don't have to make that mistake again.

So, I will modify my suggestion just a little. We won't rely on personal credit. We will have the government borrow the money. The government will loan the money to the people as "tax rebates", to companies as "bailout" and "stimulus" loans, and to companies that will build new technologies that are "government guaranteed" to pay off within 5 years or so. It is not "trickle-down" when the technology is new, only when it is old. Government investments usually work out great and earn lots of money, I think. I should find some examples.

This time, the government will be doing the borrowing, so they can pay it back. They can get the money from the rich, who have so much that they won't miss it. If that doesn't work so well, I have heard that they can print up the money, so they don't have to pay it back.

Another thing is the multiplier on government spending. Obama says that this multiplier is 1.5. He says that $150 in goods and services is created whenever the government spends $100. Yes, it is a little hard to believe, that when the government buys 2 widescreen TV's, the government gets 2 TV's and someone else gets one for free. I like that deal. I'm a believer. I just think it is great that this works. I am waiting for the explanation to appear on BarackObama.com.

Let's do all of this quickly before those nasty people can shout "bubble" at us again. On to Victory!

OK, I don't believe.

We have just emerged from a 5 year experiment in giant stimulus. The housing bubble WAS a stimulus bubble. The government borrowed through Fannie Mae and Freddie Mac to loan to people to buy houses (construction, consumer goods, appliances) and to re-finance housing to buy everything.

The $2 trillion in sub-prime financing in the last five years delivered dollars to the people who spent it immediately on all types of stuff. That was a $2 trillion stimulus.

We are living now in the "post stimulus" economy produced by that giant stimulus. How do we like it?

That was the result when people promised to pay it back. What will happen now when the money is being handed out, with no hope of repayment? We have only the prospect of higher taxes on productive people, or high inflation, and probably both. Tax the rich, tax the middle class, and tax the poor.

Let's Counterfeit Our Way to Wealth
The Deadweight Loss of Taxes
Why Spending Stimulus Plans Fail
Posts on Stimulus

1 comment :

Unknown said...

This is the best explanation of the fallacy of the stimulus package (and other Keynsian Huey) I've seen. Along with your analysis that we are in a post stimulus economy and the question "how do you like it?" which you posted in the Powerline forum. Great stuff.

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