A Modest Proposal

The solution to the nation's financial problems and its potential drift back to recession came to me this morning while having breakfast and staring at the gloomy face of Ben Bernanke in the NY Times under the headline "Bernanke Offers No Clear Sign of New Action".

Most people agree that there is plenty of money around but the problem is that people are fearful and unwilling to spend. The problem, in short, is how to stimulate the economy (Democrats) without increasing the deficit
(Republicans). An additional problem is how to get any stimulus bill through Congress, especially in an election year, where a prime goal is to stymie any solution that might make President Obama look good. The Republicans' control of the House ensures gridlock.

My proposal is that the Federal Reserve or other appropriate government authority establish a voucher program, under which every man, woman, and child living in the United States on a specified date would be entitled to receive a counterfeit-proof voucher for $100. This would be a bearer certificate, with unlimited transferability like a regular $100 bill, which would expire in one month. Each holder would have an irresistible motivation to spend the voucher, lest it expire worthless in their hands. Multiple transfers would occur in 30 days.

The result of this program would be an immediate explosion in spending which would produce a tremendous boost to the economy. In other words, the basic problem is that money needs to keep moving in order to stimulate any economy. Money in the form of retained earnings by corporations or kept by banks as deposits or unloaned funds does no good, as present practice demonstrates.

My proposal would automatically produce a myriad of "shovel-ready projects" without any fear of earmarks, prolonged debate about which projects are preferable, or costly studies by so-called experts. We would leave it up to the people to decide. The immediate benefactors would be retail stores, restaurants, gas stations,and the like.
On expiration, businesses could deposit in banks, which could get an orderly credit from the Fed. The cost of this program would be about $30 billion (300 million Americans x $100), a small sum compared to our multi- trillion dollar federal budget.

I know---this has never been done before and is contrary to handing out free money to the banks as a way to cure our ills. Let me say that the current approach ( lend billions to the banks at near zero percent and then sell them risk-free treasuries issued by the Fed at higher interest rates) has worked for no one but the bankers. Keynesian and supply-side economics were also once novel and untested theories. So far nothing has worked. The worse that happens here is that the national mood is lifted, modest relief is afforded to some truly needy fellow Americans, and in the end the banks redeem the vouchers at the Fed for another cool $30 billion to add to their coffers. On a macro-economic level, this would be a blip, no worse than the Pentagon's new naval vessel costing billions more which is deemed unsuitable for combat conditions. Seriously, the multiplier effect of this proposal, however unorthodox, might actually work and do the country some good.