The Only Real Solution

Saving the Economy

Published on November 9, 2008 By Phil Osborn In US Domestic

Actually, Obama is not being radical enough:

Here's the real solution, meeting the criteria of political possibility, practical economics and maximization of actual justice:

Give every U.S. citizen $1million. ... ~$300trillion total Just roll those presses.

This bypasses the whole "credit-crunch" debancle and gets the cash into the market to get production demand rolling again. It takes care of most of the mortgage problems. It takes care of most of the welfare and homeless cases for the foreseeable future. It doesn't "eat the rich," as they will only lose some percentage of the value of their dollar holdings, based on the decline of the dollar due to the increased supply. They will likely lose much more if we slide into a real depression.

Is it fair? Is it fair that the banks were able to use the discount rate to loan out money they never had, thus sucking the value of the actual dollar right out of people's wallets without so much as a "by your leave"? Is it fair that the banks and other corporate (state) entities were able to systematically loot the value of the currency to play their ponzi games? Is it fair that our government has hocked the country to the Chinese state? Is the income tax fair? Is the corporate bailout fair?

This hits the bad guys - the various corporate creatures of the state who got us into this mess - where they live, while minimizing the collateral damage.

Most people, after a couple of quick binge purchases to grab items that will quickly be bid up in price, will be looking to invest the money in productive businesses or real property. Sure, we'll see inflation, but isn't the high value of the dollar, as the big money sits on the sideline waiting for fire sales, part of the real problem? Food prices and prices for other basic necessities would likely be some of the least inflated, as the demand is fairly stable, regardless of price. Luxuries would probably jump and then level off. Credit cards would be paid off and then shredded by many people.

And many of the people locked into unproductive lifestyles and dead-end jobs due to the structure of legal privilege built into our facist corporate system would have a second chance to move to a better, more fulfilling, more productive life.

So, is this a fix or not?

When I posted the above on the Rebirth of Reason site on October 25th, the funny thing is how few people responded, perhaps because, while completely counterintuitive - especially from an objectivist or libertarian standpoint, it makes altogether too much sense. The current "solutions" - the bailout, etc. - are completely kleptocratic, simply pure economic fascism at its most corrupt, and that won't change, as the people in power are the ones who created the mess and they just want to (1) save their asses, (2) cash-in on the problems they created, (3) continue the looting, and (4) find someone to blame.

The democrats, who are and will be for the next 4-8 years calling the shots, are riding this horse for all its worth, as they are painting themselves as the innocent victims of this debancle, and so the free market, which was never the problem, and capitalism, of course, are going to be their fall guys, despite all the analyses published over the past several decades by libertarian and conservative economists and investment gurus who predicted this mess.

There is NO HOPE that the actual miscreants will be tried and convicted and pay restitution (with WHAT?). But so long as they or their spiritual kindred are still in power, the problems will not get fixed. Instead, the Empire of Pull will dominate and whoever has more pull will get more bailout. This will be an economic Hobbesian war of all upon all. Which banks will get the money? Which home-owners? And, hey, what about ME? Am I now going to subsidize the crooks? (Short answer - YES.)

The closest thing to fairness that I could come up with in 30 seconds of concentrated thought was the plan I outlined. I am sorry about all the honest, productive wealthy people who would lose proportionately due to the dollar being dumped in huge quantities into the market. However, they are going to suffer the equivalent and likely much worse if the current scenario of a mad scramble to grab the money and run is enacted by a congress that lives by keeping one step ahead of the polls. It won't be the honest, productive rich who are bailed out, in general. Rather, they will pay along with the rest of us for the criminality of others.

Or, let's short circuit the whole process and just give everyone the same cash and let the natural laws of the market work out the details. Of course, my particular solution isn't written in stone. Maybe make it $80,000 per month over 12 months... Or $8,000 per month over 10 years, or $1000 per month, adjusted monthly for consumer inflation, for ones lifetime... Untaxable, not considered part of ones income for any tax purposes.

This lower end proposal, while still achieving probably 90% of the upside of the original proposal, would slash the downside caused by a sudden influx of cash drastically. The only bad part would be that its impact on the bad guys would be comparatively minimal, and they would likely stay in power and continue with an even worse version of their business-as-usual kleptocracy. Maybe make the first payment a lump $10,000? Not enough to panic the world currency market (only about $2Trillion) but enough to wipe out a lot of the ponzi schemers, and thereby seriously impact their political power base and ability to pass even more damaging legislation.

And, if we get down to the $1000 level, it seems fair and reasonable to include minors - all U.S. citizens.

<Actually, the optimum that I came up with finally was $10,000 twice yearly for life, adjusted for inflation, which comes to an average of right around the $1million that I first suggested, but drastically reduces the possibility of triggering massive inflation due to a panic bidding war, while having 99% of the positive impact on the general public - saving mortgages, enabling health care, financing educations for the poor, etc. - and still significantly shifting resources away from the crooks.>

I think that a lot of the problem that objectivists and libertarians have with this is that they implicitly assume that somehow our economy is actually fundamentally a free-market capitalism, and that somehow the dollar is primarily an honest, free-market currency. WRONG! This is whistling Dixie. The dollar has LONG been in the hands and control of fascist financial manipulators, and big business in the U.S. has long had a high percentage of pure corruption.

And a high proportion of the people who are in dire financial straits - for whom $1000 per month would mean the difference of losing their homes or having enough to eat - did not get there via personal irresponsibility or moral defects, but rather because they naively trusted in the good name and reputation of the U.S. Should THEY be bearing the costs now, as opposed to those who did the crimes.

Or, if I'm wrong, then it must be that the collapse of the stock market, the banking sector, the housing market are all just illusions spread by those nasty leftists and anarchists. And if we all pray to the dollar sign at dawn and dusk, more money will gently waft down from the sky upon the houses of the faithful.

(The objection was raised by a frequent contributor on the RebirthofReason site, Michael Marottat, about debts being essentially nullified, which would happen under hyperinflation, certainly.)

Who said anything about the instant nullification of debts? Yes, with more money in circulation, each dollar would buy less, but that doesn't matter so long as the net effect is to shift the balance of power away from the crooks and into productive people's hands. Lenders will take a net loss in comparsion to what they were expecting before the crash of the market, but, in comparison to getting $NOTHING!!!, they will be well off.

However, what is it that we ARE doing? Instead of giving the money to the victims, we are giving it to the criminals, as a REWARD for being criminals! No matter what scheme these jerks in Washington come up with, it boils down to a calculation of who is the most likely to vote them back into office - or, more precisely - who it is that will fund them in the next election cycle. And the more complex and Byzantine and inherently unfair the allocations get, the better off the policitos and their host of bureaurats will be.

Imagine how this shreds out on the personal level, when they do get slammed by the public's loathing of the ripoff that is now going down and have to come up with a plan to appease Joe the Plumber....

Let's see, Michael, do you own a car AND a house? OK, is the car paid off? Ooops. Sorry, we only give money to people who HAVEN'T paid off their obiligations. But, were you a hired killer in Vietnam? Oh, that makes a difference. Our hired killers get a pass to collect $bucks... And, by the way, which race do you belong to? Oops... And you're a male, right? Ooops...

So it will go, with everyone fighting over getting their piece of the action on the basis of NEED.

Instead, my plan reverses the whole situation. The crooks will suffer, and the victims will be compensated. Oh, but some of the people who suffer will be good people? Sorry. And some of the victims will never be set right? Sorry, again. Who has a better plan? One that could actually fly politically? Every other plan that I could think of is either politically unfeasable or puts us back into the realm of the Empire of Pull, with everyone fighting everyone else for state largess. Mine has four main virtues:

1> It's simple enough that anyone can understand it and see that they would benefit, and it doesn't hurt anyone so badly that it couldn't fly politically.
2> It is overwhelmingly fair, especially compared to the evil policies now being implemented. It takes wealth from the crooks who stole it and puts it back into the victim's pockets instead of rewarding the crooks.
3> It doesn't allow for a monster bureaucracy to allocate who gets what - everyone gets the same. (And that's going to be the hard polical hurdle, as politics is about stealing from Peter to give to Paul in return for votes. But if we go that route, we are right back in the ball game that is destroying us. So, hold our noses and give the money to the serial torturer on death row, the evil banker who bet on government bailout when he signed off on ridiculous home loans, etc. Every breathing U.S. citizen. Otherwise, this isn't going to work.)
4> It substantially takes care of all of the major problems in the financial/economic structure in one fell swoop, freeing up credit, boosting purchases accross the board, taking care of the immediate emergencies that people are faced with right NOW.

Comments

MasonM

on Nov 09, 2008

This was proposed weeks ago, you're late to the party

CharlesCS

on Nov 10, 2008

So the only solution is to give a ton of money to a bunch of irresponsible people so that everyone can have everything necessary (so long as they are smart enough to invest the money wisely)? There are 2 things I always love about these kinds of solutions:

1) The idea of throwing more money to a financial problem without actually correcting the root problem is like driving across a bridge that has a hole in it and people keep falling thru it so we raise the speed limit in the hopes that people will jump across the hole and not fall in it.

2) Where will the money come from to pay for this? Oh yea, rich people, they have enough don't they?

EL-DUDERINO

on Nov 10, 2008

This type of solution has been tried, and failed, before. Look up the phrase "Not worth a continental" and you'll find a similar story from when our nation was still a collection of English colonies. The problem with your solution is that it wouldn't just cause inflation it would cause hyperinflation where the value of the dollar would drop to nothing almost overnight. You think things are bad now just wait until it costs a few thousand dollars to purchase a gallon of milk. You want a more modern example, I forget the name of the African Country that had to actually print a denomination of money that was in the hundreds of millions of their dollars because their money is worth so little. It only happened a few months ago you could probably find it in CNNs archives somewhere.

Throwing money at this problem is like fighting fire with gasoline sure if you're lucky you might happen to have just enough gas to squelch the flames out immediately but if you are off at all you end up with an out of control problem becoming many, many times worse.

Phil Osborn

on Nov 10, 2008

Thanks for the comments. However, I'm not so ecomically illiterate as to not have thought of the objections raised. The issue is not one of inflation or hyperinflation.

The amount involved would likely cause prices to jump in a few areas where bidding got really hot over a limited supply of something from people who normally would not have any discretionary income, but not in terms of staples, rent, etc. There's just so much that you will eat. At about $6trillion per year, it's just not big enough compared to the total economy. $20,000 per year per individual is not much above minimun wage or half a year's income for the average person, but it's enough that the pressure to increase entitlement programs like SS would be lowered.

In fact, we could see SS actually reduced due to the inflation of the dollar, but the reduction would be more than offset by the extra cash, so who could complain? Same thing for Medicare and the proposed socialist health programs from the Dems. The extra cash on hand would be less demand for government services in general.

Another benefit, however, would be to force dollars out of hiding. Right now, a lot of people are holding dollars - such as yours truly - waiting to see if the market will really tank, and assuming that cash will be king for the immediately forseeable future. I've set my limit options low on the hope that I will buy at the bottom, etc.

Problem is that when everyone does this, the economy goes into a total tailspin. No credit is like no gas for the economy. So, if people's expectations change to an inflationary mode, you better believe that people will be jumping back into the stock market and looking for ways to spend. However, you don't want to go overboard - which my original preliminary specs would have done. Everyone dumping dollars will cause hyperinflation. So, you limit the amount and the impact, such that people or institutions with cash on hand or in secure accounts will perceive the need to invest, while at the same time keeping the lump sum big enough to actually deal with a bunch of problems, while sucking the wind out of the crook's sails.

EL-DUDERINO

on Nov 11, 2008

Thanks for the comments. However, I'm not so ecomically illiterate as to not have thought of the objections raised. The issue is not one of inflation or hyperinflation.

But what you aren't taking into account is greed. If everyone instantly became millionaires because of a government hand out, or even just getting an extra 20 grand a year from a government hand out, don't you think companies are going to jump on that to get more money? Don't you think farmers are going to start charging more for their crops or livestock simply because they know that people can afford it at a higher price now? The price of an item at the store is based on supply and demand as well as what the people are willing to pay for the item, if everyone instantly has more cash it will be easier to convince them to pay more for those items. Once the prices start going up the effect of the influx of money becomes nullified and we end up right back where we started only now we depend on the government hand out to survive because the price of goods and services has gone up.

I will admit that your solution will help pull people out from under their current mortgages (assuming they use their influx of money to pay down their mortgage) but at the same time because of the influx of money the value of homes will start to rise again and we will end up in another real estate bubble that is bound to burst at some point in the future.

Throwing money at our current problem might help a little in the short term but the long term effects are going to more than cancel out any benefit. Like I said it'll be like fighting a fire with gasoline, you might temporarily douse some of the flames but if you leave just one ember around it is going to ignite all that gasoline and make your problem much worse than it was before you acted.

Phil Osborn

on Nov 13, 2008

"The price of an item at the store is based on supply and demand..."

There are always psychological factors, such as the one in play now, the idea that anyone who invests anything is likely to lose it, which has proven to be true for a whole lot of people, but competition sets prices in general.

My goal is not to "throw money," but rather to upset the whole cartel that caused the problem and is now in line to collect their handouts. Money is power. Their entire power structure is based on concentrated wealth. Moving to a new economic balance in which the people who have run us into the ditch lose proportionately, while the victims gain proportionately is simply justice, and would produce the effects I describe.

To coin a phrase, without justice you cannot have peace. And the warfare that is going on right now, while leaving no immediately identifiable bodies in the streets, is just as real, and just as deadly as if fought with guns. Justice means restoring the balance that the crooks destroyed.

Business as usual in Washington means making the negotiation process as complex as possible so as to get as many of your cronies under the tent, while finding some excuse to exclude those other people, which probably includes you and me, certainly me.

What is happening now is a politician's dream. The entire economy is collapsing and they have carte blanc to play savior while picking and choosing who deserves saving. People who struggled to maintain mortgages on upside down properties will be excluded, while those who are nearing forclosure or are behind a couple months will be rescued. In the name of "practicality."

The same paradigm - reward the irresponsible and the crooks at the top, because we have to in order to "save the economy" - is being played out on every level and it will get a whole lot worse, ending only when the master thieves of the world, the Chinese oligarchs, make their move with the $3trillion U.S. bucks they are sitting on.

That's $10.000 debt for every man, woman and child in the U.S., BTW. When you turn around and discover that we don't own our own country anymore and that the shots at GMC are being called in Beijing, then you will regret that we didn't undercut that whole thieving ethos via what I'm calling for.

EL-DUDERINO

on Nov 17, 2008

When you turn around and discover that we don't own our own country anymore and that the shots at GMC are being called in Beijing, then you will regret that we didn't undercut that whole thieving ethos via what I'm calling for.

And who exactly is going to pay for what you are calling for? Our national debt is owned by other countries, China being one of them. The other countries already own us and could very easily cripple us if they were call in their chips. The way out of our economic hole isn't to dig it deeper by handing out volumes of cash but to cut spending dramatically. We as a nation need to cut back and start actually living within our means. A market correction of this magnitude is going to be painful, but after it is over our economy will be much stronger for it.

CharlesCS

on Nov 17, 2008

The problem is people have gotten use to safety nets on everything, including gambling. No one wants to lose, everyone wants to avoid pain. But life is not fair and life will bring pain when it sees fit and we will not be able to stop it from happening. Right now, the pain we will endure will be very painful, but nothing we can't handle and something we can learn from and come outs tronger on the other side. To supress this pain in order to avoid it and make it seems as if it never existed will only make the pain worse and inevitable. I say cut me now when I can take it than later when I am already in pain.

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