"Bailing Out John Q. Public"

Feb 10, 2009

Murray, KY – First it was 700 billion, now it's 800 billion The price tag for resolving America's economic crisis continues to grow as more and more Americans are losing their jobs and homes. Commentator Doctor Bill Schell suggests a different kind of stimulus package: substantial public funds into the hands of individual householders.

The other night as I sat sat with a number of my colleagues solving the current economic crisis over beers at a local watering hole, I suggested that the best fix was not to bail out of financial institutions but rather to make direct payment to households of say [here I pulled a number out of (what word?) the air] a million dollars each.

Their reaction was immediate. You idiot. That would be 18 times the entire US GDP (gross domestic product) currently put at 14.3 trillion. I was humbled but undeterred.

My logic was sound if my numbers were not. If the public cannot buy the economy cannot recover.

A government remission of 150,000 dollars to each US household would add 17.25 trillion dollars to the national debt. This is a huge amount to be sure but after all current US government liabilities (including Medicaid, Medicare and Social Security) total 59.1 trillion dollars. That's 516,348 dollars for each of the 115 million US households. Perhaps this crisis requires substantial public funds be directed where they can do some immediate good into the hands of individual householders.

Such a payment would be inflationary but that is exactly what we need. Recession by definition deflationary. This money would immediately enter the real economy and so have an immediate stimulating effect because the health of the "real" economy is linked directly to consumer health. It would allow people to keep their homes so avoiding the coming wave of foreclosures currently forecast to hit 6 million or more in 2009. Families and individuals might pay credit cart debt, purchase health insurance or invest in retirement or education accounts. It would be their choice, not the government's which should appeal to Republicans.

A economic philosoper summed up the current political economy as socialism for the rich and captialism for the poor. The government rushed to provide a TARP (so-called) for financial insitutions who have used these government funds to effect mergers, build reserves, and pay corporate bonuses.

This has done little or nothing to restore the economy. Funds pumped into the banks and financial sector simply disappear with no discernible effect. The financial sector does need substantial reform. But while it may be the cause of the current crisis, the crisis it has created can only be fixed by helping the consumer it harmed.

Rather than worry about the cost of direct and significant remissions directly into the hands of John Q. Public as a percentage of GDP, we might better consider the negative impact of a shrinking consumer-based economy. Unemployment is expected to hit 9-percent by May as businesses continue to shed jobs at record rates. The US economy, which GDP purports to measure, contracted about 5 percent last quarter. That's 700 billion dollars. If we optimistically assume that the rate of economic contraction remains at 4-percent per quarter the economy will shed 2.8 trillion dollars this year.

All of a sudden a 17.25 trillion dollar stimulus for John Q. Public doesn't look quite so foolish.

(Please note the views expressed in this commentary reflect those of the commentator and not necessarily the views of WKMS.)