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A Modest Proposal

A Modest Proposal

For members of Congress desperate to avoid recession, the takeaway message that Fed Chairman Bernanke delivered in his testimony this week was that a successful stimulus package needs to be rapid and targeted. By this he meant that money would need to be delivered quickly to those individuals who would be most likely to spend, and withdrawn when and if the need for stimulus ebbs.

For those who believe that this strategy is prudent and effective, the debate now becomes choosing the most effective technique to deliver the cash. Proposals include middle class tax cuts or rebates, extension of unemployment benefits and expansion of funding for public works. However, for those who want to engineer spending, the problem with these ideas is that the people who receive the funds may not decide to spend it immediately, if at all. They may, god forbid, elect to pay down existing debt or most perniciously, actually save it instead.

Fortunately, the government has very modern and effective tools available to deliver funds and micromanage spending. Just recently, the Treasury Department launched a program to streamline Social Security payments through the use of debit cards. The same idea could be used for fiscal stimulus. The Government could distribute millions of “Economic Stimulus Cards??? to citizens, which could function more like retailer gift cards rather than debit or credit cards. Here’s how they would work:

When the government wants a quick, fast stimulus, it authorizes expenditures on the cards which can only be used for consumer purchases and only for a set time frame. Knowing that they must use or lose their newly authorized funds, Americans will run to their nearest retail outlet and spend, spend, spend. The beauty of the system is that the consumers will spend exactly how much the Government deems necessary. What’s more, the government could decide to direct the spending to specific areas of the economy that it deemed particularly strapped. For example, it might target specific types of merchandise that may be purchased or particular retailers where those expenditures would be authorized, with the political benefits being the icing on the cake.

When the economy has been sufficiently stimulated, the government could leave the cards idle with no purchasing power. Better economic micro-management through technology! The minute consumers seemed to be running out of purchasing power we could have a quick fix simply by pushing a few buttons. No need to waste all that money on paper or ink, or fuel for the helicopters!

The only downside to the plan is that it will completely clarify the fundamental component of any and all fiscal stimuli, namely the government creating money out of thin air and giving it away. Of course, the other negative effect would be higher consumer prices with price spikes particularly pronounced immediately following any additional government authorized spending. After all, what rational retailer would not raise prices during those times in which the new consumers were holding exploding gift cards? However, a few more adjustments to the CPI should take care of that problem lickety-split! As Richard Nixon once said, “No politician ever lost an election by creating inflation.”

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