Shouldn't We Be Saving?

Let's start with a great graphic:

This is a hugely informative piece for comparing consumer spending during past economic crises. The 'Peak' line intersects with '1' in the middle, so anything to the left is before the worst of the recession, and anything toward the bottom reflects less spending. That sagging red line shows our current decline.

Now it's clear: recessions deepen until spending picks up.

That makes sense. What employer wants to hire more workers without more customers?

Once answer to that question could be 'the government,' when suggesting that federal money be used to build more bridges, upgrade the electrical grid, and improve schools. All those will indeed create jobs and ease the recession.

But if we want more jobs in the private sector, we need consumer demand, and as long as it keeps falling, we're going to lose more jobs. 

Don't take those jobs lightly. One reader responded to the above graphic by saying, 

'So what if it gets worse? Standard of living is all relative, anyway. You don’t mind not having as long as your neighbor can’t have it, either. Find other things to enjoy in life besides more stuff.'

But we're not just talking about the amount of 'stuff' you have. We're following people's ability to earn a living. Before we start telling others how they ought to handle their money and values, let's reverse the loss of millions of jobs.

Maybe you think people shouldn't be buying junk, but while they refuse to buy anywhere, America will continue to lack jobs.

So do you have to run out and spend? No, do what you see fit: no one knows your needs better than you do. But don't feel guilty for spending when you do, and above all, join me for a cheer when that red line starts to rise.

The Guilt-Free Stimulus

Do we really build debt when we move to increase spending?

In my column in today's Washington Post,  'Stimulating our Inner Consumer,'  I propose that we can use human nature to encourage consumer demand, easing the loss of jobs until longer-term stimulus projects take root.

If people find it easy to spend with a $2000 prepaid American Gift Card, we're likely to see such a boost, as convenience is hard to resist. People are likely to eat more when seated by a bowl full of chips, and many diners wave away bread to remove that very temptation.

But some people still wonder how much new spending a gift card would encourage. What if consumers ended up buying the same groceries as usual and saving more of their paychecks?

The answer is: that's fine. Doing so costs nothing, and it doesn't build real debt.

If you save the equivalent $2000 then repay it through taxes years from now, there's no cost to you or the government.

Even interest on the debt goes to you and back. When the government borrows money, it issues Treasury bills mainly to Americans; only one in six is held abroad. That means it borrows from you before loaning that same money back. If you save all the money, the result is exactly the same as if you got a $2000 IOU and then returned it a few years later.

In such a case, issuing the Gift Card truly does cost nothing (save administrative costs, which have tended to be low for past rebate checks), as it does nothing.

Fortunately, such absolute saving is unlikely, and we can expect real results. If you hand $2000 to the man on the street, he'll have a strong incentive to spend at least a portion more than usual. The 'marginal propensity to consume' varies with income - a gift card may have less influence on Bill Gates than on me - but it's always more than zero.

We really can encourage more consumer demand, just as surely as people will eat from a bowl of chips.

Making Sense of Really Big Numbers

Pundits had laser-like criticism of Louisiana Gov. Bobby Jindal and his televised address on Tuesday.

They focused on his "folksy" style and his wobbly command of facts when criticizing parts of the stimulus bill, particularly those for 'volcano monitoring' and 'magnetic trains.' Of course, here in the Northwest, we don't find monitoring of volcanoes any more wasteful than a hurricane watch in the South, but much worse than Jindal's ridicule is his math.

$140 million for volcano monitoring is less than one tenth of one-percent of the spending bill. It doesn't deserve any greater portion of our attention.

Then what about the 'MagLev' train in Las Vegas? Its aim of linking working-class neighborhoods with jobs deserves better than Jindal's jibes, as you might expect given its support by the chairman of California's portion of the long rail line, Quentin Kopp.  Kopp, who served for years as San Francisco's most conservative council member, is whip-smart and one of my favorite politicians. He's been called a lot of things, including "biting," and "a force of nature," but he's never been accused of being a dreamy liberal.

And again, the best perspective of all comes from looking at the numbers. $8 billion for the train is just over 1% of the spending package.

When is the last time you saw any large project, public or private, that was more than 99% efficient?

Does Jindal really mean to imply that he agrees with nearly all of it? If not, why doesn't he address the big-number items?

I expect it's because it is hard to disagree with most of the stimulus package (whose components you can see clearly laid out in my earlier post, Components of the Stimulus.

Complaining about waste in 1% of the bill is like complaining about "pork" in politics. Yes, it's there, but only as a small fraction of the total (see my earlier post,  Where Do Taxes Go? ).

Let's call a spade a spade: $785 billion in stimulus is a lot of money, no doubt. But it's not too much to keep in proper perspective.

One Port in a Storm

Where do we run in a crisis?

Home, of course. Under fire, people fall back on beliefs they have long held, and that's exactly what they're doing in this economic crisis.

The same people who cried out for lower taxes three, five, and ten years ago say that's exactly what what we need now. And the same people who have long demanded more government entitlement programs say that's just what we need today.

They may or may not be good ideas in themselves, but that doesn't make them the right medicine for the current problem. There's a strong tendency to use a crisis in support of an agenda. As Mark Twain noted, 'To a man with a hammer, everything looks a nail.'

We're far more likely to get out of this mess if we focus on the actual, live problem in front of us, the collapse of consumer confidence and the resulting jobs lost.

We may never agree on who caused the crisis - subprime lenders? eager homeowners? profligate consumers?  greedy bankers?- but we'll know it's behind us once consumers buy without fear, allowing businesses to add the jobs that provide all goods and services.

That should be our aim, breaking the cycle of fearful retreat. From there we can move forward, toward whatever agenda we please.

Next Monday's post will be on Making Sense of Really Big Numbers.

The Smartest Spending of All

So why not boost spending with $2000 gift card for each American?

Here are the most common objections and questions I've received about my article in this weekend's Washington Post:

  - Didn't spending get us into this mess? We need jobs, not cash!

We do need jobs, and the gift card helps us get there, during the months that job programs get underway. This week and next, there's only one thing that keeps businesses from folding, and that's consumer demand.

To help in the short-term, the Senate has proposed nothing but tax cuts, and that's disingenuous. While some other problems may be averted with appropriate breaks, like expanding exemptions from the Alternative Minimum Tax, we shouldn't confuse those with immediate stimulus.

When your house is on fire, there are things to do before choosing a new sprinkler system. The 600,000 jobs lost last month represent only one sixth of the the total losses since the start of the recession. We need relief soon, while all other plans take root.

The $2,000 gift card isn't a full solution, but it's a strong tool we can put in the hands of every American right now, this week.

   - What if I just save the money?

Fine. If people save every penny of it, the program carries no cost: $2,000 goes to you, then back to the government years later. Even the interest goes to you and back. The Treasuries used to finance our debt are sold overwhelmingly to Americans. Despite the huge foreign reserves of Japan and China, we borrow mainly from ourselves.

But while rebate checks were saved at too high a rate to help boost the economy, the American Gift Card can do better, as it never sits in a bank. In our house, grapes get eaten a lot faster when they're out on a plate than when they sit in the bottom drawer of the 'fridge.

   - Won't the money just go to China?

Amazing at it seems, given that half the things on my desk were made in China, well over 80% of dollars are spent on domestic goods and services. Even without restrictions on the card, it really will help Americans.

   - Why not $2 million, so we're all rich?

$2000 is a good figure: $200 is too little and $20,000 is excessive. It's also the right amount to replace the $275 billion in proposed corporate and other tax cuts, some of which have merit but none of which have a stimulus effect with the promised speed.

$2000 per taxpayer provides a solid short-term stimulus while other programs begin, even though the mere issuing of a card doesn't create wealth. It is indeed money we're borrowing from ourselves, and for these next few months, that's a good thing. While there may be benefits to a higher rate of saving in America over the long term, the sudden drop in spending is causing substantial pain.

We can start cheering about reduced consumption after people stop losing their jobs.

- Can't we keep the government from telling us what to do or giving handouts?

Unlike other spending projects, the Gift Card program doesn't rely on the government to decide which business or industry should receive the money. You do.

There's no handout. Stores still have to attract your business if they want a boost in their bottom line. The difference between this an industry bailout is that you get to decide where the money goes.

And that's the smartest spending of all.

Boost the Economy, Today

Thanks for the many positive notes about my article in today's Washington Post, suggesting a short-term stimulus through a $2000 federal Gift Card.

It's a short-term boost, not a fix for all the long-term problems with the economy, nor to replace useful infrastructure spending or appropriate financial regulation.

Tax cuts can help avoid some problems, particularly if we wisely expand exemptions from the misguided Alternative Minimum Tax,  but we shouldn't confuse tax breaks with immediate stimulus.

The store on the corner struggles when there is a fall in consumer demand. That's true whether taxes are high or low, whether subprime lenders are spinning their evil ways, or whether or not the financial markets need more regulation.

And so do the store employees. The 600,000 jobs lost last month are most remarkable in that they represent only one sixth of the the total losses since the start of the recession. We need relief now, while all other plans take root.

The $2,000 gift card isn't a full solution and isn't meant to be. It's a tool we can put in the hands of every American, right now, this month.


On Monday, I'll post answers to the most common questions about the idea, plus a response to some objections. Or you can read hundreds of differing opinions on the idea at several blogs including that of MadDogMedia, Reddit, Scott Loftesness, and The Washington Post comment board.

The Truth, Plus Distortion

There's no reason for news media to treat Americans like dunces.

This week's shameful partisan spat over the stimulus plan is shocking enough. “Not one person felt his or her district needed to have any of this assistance?” Representative Rosa DeLauro, Democrat of Connecticut, asked of Republicans. “That can’t be.”

Even papers that generally keep a high standard have played loose with the facts in their summaries of the stimulus bill.

It's misleading to overlook the huge scope of proposed tax cuts, which even if they were reduced by half would still be the largest portion of the package. See the previous blog for details). The only programs mentioned there are $50 million for the NEA, $335 million for family planning, $70 million for a supercomputer for a weather facility, and $75 million for smoking treatment.

Let's put that in proper perspective. Added together, all of those programs total less than one percent of the proposed package. In fact, they aren't even one-tenth of one percent of the proposed package. That's right: 99.95% of it passes without criticism.

There's simply no need to distort a bill to emphasize old grievances like funding for the National Endowment for the Arts. That money isn't even one-thousandth of one-percent of the proposal, so it deserves no greater proportion of our attention.

We Americans can handle the truth. Give us the facts in proper perspective and we'll make our own judgments. If a party, or a paper, can't win our approval without tricks, they don't deserve it.

Components of the $825 billion stimulus package

Item                                                 Amt ($billion)

Tax Cuts                                        275

  $500/person, plus expansion of business loss writeoffs

Aid to States 119

   $87bn Medicaid, $25bn public safety, $7bn law enforcement

Education                                 117

   $41bn low-income support, $39bn secondary, $22bn college

Unemployment Aid                  106

  $43bn  jobless benefits extension, $39bn health coverage

Infrastructure                                                                  90

  $30bn highways, $31bn building repair, $19bn water, $10bn transit

Energy Investments                     54

$32bn grid upgrade, $22bn housing weatherizing

Investments in Science and Technology 16

  $10bn research facilities, $6bn rural broadband Internet expansion

Other 48

You can see more detailed figures in the actual proposal (.pdf document hosted by the Wall Street Journal).

Note how conservative this is - 'conservative' in the political sense. Tax cuts are not only the largest portion of the package, they're twice the size of the next largest item. More than twice the size.

And look at where the other big expenditures are: public safety, law enforcement, infrastructure. Even some of the liberal-sounding titles actually house conservative projects. 'Energy investments' isn't going toward solar-powered smiley buttons. It's primarily for upgrading the nation's electrical grid.

Good for President Obama for reaching across the aisle. Let's see how it works.