Given: The U.S. economy is in a slump due to widespread failure of the finance, home mortgage and banking industries; and a loss of personal savings, credit worthiness and jobs by the population. Adverse social conditions are aggravated by widening losses of health care, housing and access to education.
Problem (To find): How should we stimulate the U.S. economy, if given an infusion of up to $1T of government money per fiscal year, for an unspecified sequence of years?
Critique of Old Method: The old method was to subsidize the finance and banking industry to attempt to artificially inflate the value of their worthless assets, to try to continue the prior mode of economic activity. This method is a total failure because the assets in question have a market value of zero, there is no money still hoarded and left to spend by the general population, and they are now wary of spending anything on the same types of “products” offered by the fraudulent home mortgage and finance industries (stocks); there is an equal distaste for U.S. equity investment paper on the part of foreign investors (who have been stung with toxic sub-prime “assets”); the current method funds the institutions that created the problem without nationalizing them, expelling their managers and liquidating them at market value, thus forgiving all household debtors. In essence the current method is a subsidy of financial incompetents and criminals to substitute real tax dollars to them in place of now-worthless debt paper they hold and which are formally liabilities to mortgagees in the general population.
New Method: The clear solution is to stop throwing good money after bad, and especially to the very people and institutions that caused such devastation. Nationalize, liquidate at actual current market rates, and prosecute for fraud, as widely as possible, to send an important message and protect the public and its economic future.
However, we remain with the problem of reforming our finance and banking systems, and revitalizing the economy by having money cycle through its many tiers, institutions and individual enterprises, so it can serve basic human needs. By basic human needs, I refer to a system of just compensation in the many exchanges of labor and services for exchangeable value, which is to say money. Financial speculation is simply a greed industry, and there is no need to compensate for gambling losses, nor to assist in the gaming of financial systems for the profit of a parasitic class of investors.
Therefore, consider the following model for economic stimulus.
There are over 116 million households, voters, and filings of personal income taxes; give each a tax-exempt subsidy, as described in a moment. Corporations of all types are excluded; the plan is strictly for actual individual human beings and households (individuals, married filing jointly and/or separately, and households).
Do NOT fund any financial institution by the old method, period. Let them succumb to the market forces they praised so assiduously. Instead take the $1T (per year for several years) and apply it to the subsidy of individuals by this formula:
Award = [($150k – I)/$150k] x $14,562.11
where I is the gross income of the recipient excluding the new award. So, a person at the poverty level (and those who need not file tax forms must be sought out to be given their awards) can receive up to $14,562.11, which is essentially poverty level annual income. As income increases, the award decreases. For incomes at or above $150k, there is no award.
Another component of this recovery would be a tax increase on corporations and personal income above $150k. One possibility is to continue the award formula beyond $150k, and allow the negative number to show the additional tax owed. This may seem too severe, and perhaps would be moderated.
Given the existing distribution of income in the U.S., this plan would distribute nearly $1T to over 116 million households, for a per capita (household) average of $8500.
George W. Bush was fond of saying “It’s not the government’s money, it’s the people’s money.” Alright then, give it back to the actual people, who have an actual need for it (and usually don’t have offshore accounts), and they will stimulate every aspect of the economy. It is from that resurgent economic activity of the general population that the higher tiers of finance: banks, investment firms, manufacturers (remember those?), consumer products industries, construction, housing, the entire corporate structure will be able to prosper from — honestly.
Why not invest our nation’s wealth in our nation’s people? What other choice is really justified?
MANUEL GARCIA, Jr. can be reached at mango@idiom.com