The economy, both at home and abroad, needs stimulating. Governments have been trying to do this since the 2008 recession, without full success. Is it time to just... give everyone some money?
When everything went to hell in 2008, you may have noticed that the most prominent way that the government and the central banks tried to get the economy going again was to pour money into banks. The idea was: recapitalize the banks, make them healthy again, and they will start lending that money again, and the economy will get moving again.
[THIS IS A SIMPLIFICATION, YES, IT’S OKAY.]
But—and I apologize for the utterly disgusting simplicity of this question, coming as it is not from an economist or Wall Street Guy but just from A Guy—did you ever wonder why, if the goal was to get the economy going again, they didn’t just give the money directly to you and me and your broke ass friends and neighbors and everyone else? Instead of to the banks? Because banks do not in fact lend all that money out. They tend to keep a nice chunk on their balance sheets. But you and me and regular people, by contrast, who do not have a lot of money, would tend to go out and spend that money, which would do exactly what the goal was in the first place—stimulate the economy.
Of course, if you ever wondered this, you probably thought to yourself, “I’m sure there is a good sophisticated economic finance-y explanation for why this staggeringly obvious idea is not done,” and then went along with your day. Because who wants to be the ignorant fool that asks the dumb questions, such as “Why not give the ‘stimulus’ money directly to humans?” It might make you feel better, though, to know that some real live economists also believe that such a plan could be a good idea! So don’t be so hard on yourself.
Give... people... money... to spend. A wild notion. But too wild for reality? Not at all. Advocating a universal basic income or a big new government jobs program is really just another way of advocating direct transfers of government money into the pockets of regular people. These sorts of ideas are regarded by many economic policy makers and even by a hefty portion of regular people (particularly those on the right) as socialist tripe, right up until they are put into place, at which point they become regarded as indispensable quasi-rights. Hence the people waving those famous “Keep Government Out of My Medicare!” signs.
I bring all this up because in our current global economy—shaky, fearful, in need of some sort of increase in demand to get everything moving again, but hobbled by the fact that central banks have already used almost all of their traditional tricks—the idea of just giving people money seems... almost... realistic? Behold this column from Martin Wolf in the trusty establishmentarian FT!
The OECD argues, persuasively, that co-ordinated expansion of public investment, combined with appropriate structural reforms, could expand output and even lower the ratio of public debt to gross domestic product. This is particularly plausible nowadays, because the major governments are able to borrow at zero or even negative real interest rates, long term. The austerity obsession, even when borrowing costs are so low, is lunatic
[THIS MEANS THAT A BIG GOVERNMENT STIMULUS PROGRAM LIKE oh I don’t know REBUILDING ALL OUR FUCKED UP ROADS would be a good idea right now]. And there’s more!
If the fiscal authorities are unwilling to behave so sensibly — and the signs, alas, are that they are not — central banks are the only players. They could be given the power to send money, ideally in electronic form, to every adult citizen. Would this add to demand? Absolutely. Under existing monetary arrangements, it would also generate a permanent rise in the reserves of commercial banks at the central bank. The easy way to contain any long-term monetary effects would be to raise reserve requirements. These could then become a desirable feature of our unstable banking systems.
[THIS MEANS THAT GIVING MONEY DIRECTLY TO REGULAR PEOPLE WOULD NOT ONLY INCREASE ECONOMIC DEMAND, THEREBY STIMULATING THE ECONOMY, BUT THAT THE MONEY WOULD ALSO FLOW BACK INTO THE BANKING SYSTEM AND WE COULD MAKE THE BANKS HOLD ONTO MORE OF IT TO MAKE THE BANKS LESS PRONE TO BLOWING THE FUCK UP, NECESSITATING A PUBLIC BAILOUT.]
We’ve tried giving money to banks and letting it trickle it out to the rest of us. Now give us money and let it trickle back into the banks.
And stay there!!!
It seems crazy but it just might work. “How will we pay for all this??” you fret? John Maynard Keynes, motherfucker.
[Why yes, I would love to hear your more learned discussion of this issue complete with economic jargon in the comment section! Photo: Getty]