While waiting for more of your emails (they come in via the Online NewsHour in Virginia), I’ve been fielding a few from friends and neighbors. I thought I’d share them, and my answers, this afternoon. First, from my earliest friend:
Paul, I have a question. What would happen if the government gave every American one million dollars so people could pay off all their mortgages and bills? I know it’s not a real solution, but why not? Does it have to do with the devaluation of the dollar creating a situation where a loaf of bread would cost thousands?
Paul Solman: Now my dear friend was never real good at math in his head so I had to set him straight (and I checked with a calculator): $1 M per American would be $300 TRILLION which well might, yes, inflate the dollar into oblivion. $700 billion, by contrast, is about $2300 per person – in a $14 trillion economy where annual income per capita (i.e,, per person, per “head”) is $40,000+. No trifle, but not enough to break the bank – or the dollar.
My friend raises an important theoretical point, however. Why NOT just put money into people’s hands and spend our way out of this?
One answer is that it might simply postpone the inevitable. What happens when THAT spending ceases?
On the other hand, I’ve been quoting England’s great Great Depression economist John Maynard Keynes a lot recently, and he had a version of my buddy’s idea back in the 1930’s:
“If the Treasury were to fill old bottles with banknotes,” Keynes wrote, “bury them at suitable depths in disused coalmines…and leave it to private enterprise…to dig the notes up again…, there need be no more unemployment and…the… income of the community, and its …wealth also, would probably become a good deal greater. [It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.]”
With serious proposals out there these days to BULLDOZE houses, so as to eliminate the overhang in the housing market and boost prices accordingly, there might be even more “political and practical difficulties in the way of this” – “this” being the building of housing with, in effect, public funds.
But – and this is the key point – there is no reason for government NOT to spend on when the nation’s resources are being underutilized, if only to get people off their involuntarily idled duffs.
Let’s take a step back to consider Keynes’ great insight: the economy can get caught in a whirlpool. (Talk about “giant sucking sounds”!) Banks become more and more afraid to lend; people, more and more afraid to spend. Business slows; layoffs start; people are even LESS willing to spend and banks LESS willing lend. Welcome to the maelstrom of depression, perhaps written with a capital D.
Meanwhile, it seems so weird, because what’s changed? The economy’s resources are at least what they were in the boom times, and almost surely greater. That is, there’s just as many people as before, and thus just as much LABOR (aka “human capital”). LAND hasn’t vanished. NATURAL RESOURCES are unchanged. As for the great driver of economic growth over the past few centuries – TECHNOLOGY – it’s presumably ADVANCING.
What has changed, as I’ve often pointed out here lately, is BELIEF. FAITH in the system. What Keynes variously called “spontaneous optimism” or “animal spirits.” Whence come credibility, credit and the spirit of enterprise itself.
Any solution then, from a homeowner bailout to a bank bailout, is aimed at restoring confidence. Thus my friend’s intuition that putting money in people’s hands would at least get the ball rolling. That’s what the stimulus checks were about, of course. Unfortunately for the short run, people are using them to pay down debt or save. And as Keynes also famously said, in the long run, we’re all dead.
Keynes would also have said – DID say, in fact, as you read above – that we’d be better off with spending to some purpose rather than none. This is what in recent decades has been called “infrastructure” spending: the much-talked-about bridges and such. We still have with us the post offices of the 1930s and the publicly commissioned murals that adorn them. (My own artist dad worked on the WPA “mural project” of the 1930s for a brief bit with, among others, Jackson Pollock.)
But regardless of the merits of the spending, the point is simple: to put idle resources back to work. Yes, we have at least as much today as yesterday. But wealth is what people MAKE of it. Resources in the ground do us no good; nor does land that lies fallow; nor does technology that is put to no use. And it all starts with people – human capital. If it is listless, it is worthless. So all it really takes is getting us back to the grindstone. Putting money in people’s hands is one way to do it.
ncG1vNJzZmivp6x7sa7SZ6arn1%2Bjsri%2Fx6isq2eVmLyvu8yyZrCgkal6uLvUpZtmoJGlvaa6jKKdZqyYmnqou9WeqQ%3D%3D