Another bad economic stimulus proposal
by Rod Van Mechelen

A very bad idea
How much will the bailout cost? Bottom line estimates range from $4 trillion to $8.5 trillion. That's far more than the $2.6 trillion in total American consumer debt reported by the Federal Reserve. So why not just pay off all of that consumer debt, instead?

It's a very bad idea, but where the current stimulus package will only make things worse, this will actually work. It will cost less, jump start the economy and if we couple it with sound credit regulation lead to a period of sustained prosperity. Unlike the current proposals slithering their way through Congress, which will simply perpetuate the boom-bust cycle.

Another boom and bust?
One problem with the various economic programs and stimulus packages we've seen during the past several administrations, as some pundits on both sides of the aisle have noted, is that there has been nothing to sustain the middleclass. Including this one.

As a consequence, another bust will follow. Like the Great Depression.

World War II bailed the nation out of depression because the "industrial" part of the military-industrial complex was located in America, where it put American women to work. After the war, they were pink slipped in a very sexist but also very effective maneuver to put the returning men to work supporting their families.

The ranks of the middleclass grew like never before. Feminist author Betty Friedan attacked the wealth and leisure of this sprawling middleclass, fabricating fictitious accounts of women enervated by a life-sapping malaise she called the "feminine mystique."

Much later, toward the end of her life she admitted it was all a lie when her ex-husband, Carl, revealed the violent side of her personality. Feminists quickly quashed the news that one of the left's most revered icons of victimhood had crucified the truth: war, home grown industry and moderately patriarchal institutions led to a golden age for the American middleclass.

Forward into the Past?
No, I do not want to go back to a time like that. Sexist double standards are and should continue to diminish for both women and men.

Nor is war the answer to our economic problems today. So much industry has been outsourced or relocated to other nations, that gaining prosperity through war is no longer an option. But for any economic stimulus to endure it has to raise the middleclass.

The middleclass has taken it in the shorts during the past 30 years. As I noted a few months ago, the government stole half of the middleclass wealth by underreporting inflation.

And through the series of bubbles that were enabled by Alan Greenspan's policies, the illusion of economic growth masked the flow of valuable work out of the country and the growth of an almost European aristocracy in America: a gilded few who live it up while the American middleclass creeps ever closer toward poverty.

That is why I believe that the time has come for this immoderate proposal.

An immoderate proposal
According to the Federal Reserve, current total consumer debt in America stands at about $2.6 trillion. That's less than the amounts that the current stimulus package is expected to cost.

Why should the nation go deep, deep, deep into debt for programs that will take a while to work and won't solve the underlying problems when, for 1/2 or maybe 1/3 the price the government can simply buy out all of the consumer debt?

Now I think this is a very bad idea. No, seriously, it's horrible economic policy. But so is what our government has already done and is preparing to do. The difference is that it will unleash a cash-strapped middleclass.

Foreseen consequences
Won't that be bad? Yes and a qualified no. It would be bad to set loose unrestrained spending by formerly debt-laden consumers. Credit would have to be severely restricted by the imposition of regulations that make sense, like caps on the amount of debt, requirements for down payments, etc. No more reckless abandon.

The good that will come from this won't be more credit, but more cash. Freed from mountains of debt but restricted from diving back into debt, American consumers will start to spend cash and maybe even start saving, again. That will stimulate the economy, and elevate and grow the middleclass.

Lenders will be paid off so they will recover, retail sales will pick up, although at a subdued rate, and the economy will begin to grow, albeit at a slower pace than during the booms and bubbles.

Understand, this is simply a transfer of debt from us as consumers to us as taxpayers, but the plans in place now call for leaving the credit debt in place while adding far more taxpayer debt. So the overall debt load on the economy will be much less under this proposal.

Like the past and present economic stimulus packages, it also rewards vice and punishes virtue. That's what I hate most about it. It's utterly unfair to people who have managed their finances wisely. But it will work, and that will be good for everybody.

Banks and many employers teetering on the brink of bankruptcy will un-teeter and recover. And as long as this consumer debt relief plan is coupled with sound credit policy, the economy will recover, the taxpayer debt will be paid off and the chaotic markets will stabilize.

As bad ideas go, it's not that bad
Many can, will and should poke this proposal full of holes. It's a socialist sieve and I hate to even suggest it, but it's the least bad alternative redeemed by the facts that it will work, it will provide both a short term jolt and long term stability, unlike current proposals it will benefit almost all Americans, it will also help to stabilize international markets, it will cost less and be less inflationary.

In addition, I would also couple it with huge tax breaks for small businesses, tax credits for home buyers, and tax credits for home investors: current code discourages investors from buying houses and turning them into rentals, and the market really needs that service right now. We also need tax breaks on capital gains and in a lot of other areas. What can I say, I'm a Republican, so of course I like tax cuts!

Tax cuts or not, this proposal will cost less than anything else on the table and it will work to reset the economy.

You need to know
A lot of squawking heads claim that they never saw the meltdown coming, nobody saw it coming. Hogwash. In 2005 my dad and I were talking about the coming bust of the real estate bubble, and on June 15, 2006, I testified before federal officials at the Skyview High School in Vancouver, Wash., that "a severe recession is coming."

You can download the video of that under the title, Cowlitz Indian Tribe Casino Project 6-15-06, at http://www.cityofvancouver.us/cvtv/cvtvarchive/default.asp?subfolder=Community_Events/2006_Events. If you just click on it you'll be waiting for it to stream. It's faster to download it and watch it on your computer. My comments are at 1 hour, 25 minutes and 26 seconds into the video.

How did I know? My background is in business, economics and politics and it was obvious to me. But I also read and strongly recommend NewsMax. Their CEO, Christopher Ruddy, has been exactly right about the economy.

Afterword
When I first thought of this consumer debt relief proposal, I felt sure that others had thought of it, too, but was not aware of any. This evening as I scanned through about 300 links in Google News to find the related articles, below, I saw that I'm far from the only one to come up with an idea like this.

Comedy Central's Jon Stewart (The Jon Stewart solution, by Phil Hoskins, Capitol Hill Blue, January 28, 2009), and Congressman Paul Broun (Congressman's Amendment Would Give Each Taxpayer $9k, by Chris Sweigart, WXIA-TV, January 28, 2009) have made similar suggestions, and there are many others.

I think this is one of those ideas that falls into a "Democracy is the worst form of government except for all the rest" category. That is, a consumer debt relief proposal is the worst form of stimulus package except for all the rest. A lot of people probably agree.

The economic meltdown seems absurd because it was so obvious and so unnecessary, and the proposed remedies seem even more absurd. It would be academically interesting to argue whether we ought to bail out the economy, but since it seems to be a foregone conclusion then we should do what delivers the biggest bang for the buck. In my opinion, a consumer debt relief plan will do that.

Related Articles
New Bank Bailout Could Cost $2 Trillion, by Deborah Solomon, David Enrich and Jon Hilsenrath, Wall Street Journal, January 29, 2009
Money for nothing won't grow the economy, By Jeff Jacoby, Boston Globe, February 1, 2009
Schumer: bad bank estimates go up to $4 trillion, Reuters, January 29, 2009
Bank bailout could cost $4 trillion, by Colin Barr, CNNMoney, January 27, 2009
The stimulus plan fails the swimming pool test, by Walter E. Williams, Union Leader, January 31, 2009
An overoptimistic stimulus plan, by Jeff Jacoby, Boston Globe, January 28, 2009
Analysis: Stimulus bill that's not all stimulating, by Andrew Taylor, The Associated Press, January 30, 2009
Economist Paul Krugman says it's worse than we think, by Barry Johnson, The Oregonian, January 30, 2009
Obama trillions: boom then bust, by Diane Francis, National Post, Canada, January 28, 2009
Fiscal stimulus too small…, by Brian Butler, EconoMonitor, January 28, 2009
Why not just give everyone $3000?, by Linda Chavez, Tucson Citizen, January 29, 2009
The Upside-Down Logic of Obama's Stimulus and Merrill's Depression Call, Kip Herriage, Seeking Alpha, January 28, 2009
Biden Says US Will Wait to See if TARP Money ‘Unclogs’ Credit, By Hans Nichols, Bloomberg, January 29, 2009
What's Wrong with the Populist Stimulus Plan, Greg T. Spielberg, BusinessWeek, January 25, 2009
Dollar worries a theme in Geithner hearing, By Tom Curry, MSNBC, January 21, 2009
Congressman's Amendment Would Give Each Taxpayer $9k, by Chris Sweigart, WXIA-TV, January 28, 2009
The $8 trillion bailout, By David Goldman, CNN, January 6, 2009
Stimulus Packages: Conceptually Flawed and Historically Unproven, by Rakesh Saxena, Seeking Alpha, January 28, 2009