2008 January 24 Thursday
Peter Schiff Proposes Debit Cards As Fiscal Stimulus Tool

Peter Schiff C.E.O. and Chief Global Strategist of Euro Pacific Capital, Inc. makes a modest proposal for a powerful government fiscal stimulus tool with cash cards.

Fortunately, the government has very modern and effective tools available to deliver funds and micromanage spending. Just recently, the Treasury Department launched a program to streamline Social Security payments through the use of debit cards. The same idea could be used for fiscal stimulus. The Government could distribute millions of "Economic Stimulus Cards" to citizens, which could function more like retailer gift cards rather than debit or credit cards. Here's how they would work:

When the government wants a quick, fast stimulus, it authorizes expenditures on the cards which can only be used for consumer purchases and only for a set time frame. Knowing that they must use or lose their newly authorized funds, Americans will run to their nearest retail outlet and spend, spend, spend. The beauty of the system is that the consumers will spend exactly how much the Government deems necessary. What's more, the government could decide to direct the spending to specific areas of the economy that it deemed particularly strapped. For example, it might target specific types of merchandise that may be purchased or particular retailers where those expenditures would be authorized, with the political benefits being the icing on the cake.

Debit cards would allow governments to translate more of a fiscal stimulus into actual spending. Plus, by controlling what can be purchased the cards could selectively boost demand for domestically produced products so that the resulting sales don't just swell the trade deficit.

Mind you, I don't think that government attempts to stimulate spending are a good idea. The US government is already too in hock to the world. But if the government is going to hand out cash it might as well do this in a way that boosts demand for domestically produced goods and services.

Share |      By Randall Parker at 2008 January 24 07:02 PM  Economics Business Cycle

iaintbacchus said at January 25, 2008 9:11 AM:

That's a pretty good bandaid...in the short term.
In the long term how about restructuring the corporate tax code to make it more profitable to to perform value added activities IN the US rather than out of it? Or maybe farm subsidies that actually encourage farmers to grow what American consumers want to buy? How about college tuition subsidies for students studying an engineering or hard science discipline offset by large surcharges on anybody pursuing an MBA or a degree in economics? And for GODs sake put some teeth back into the FEC. Unregulated financial markets are nothing but a licsence to steal and guess who's getting robbed?

Wolf-Dog said at January 25, 2008 2:56 PM:

"Debit cards would allow governments to translate more of a fiscal stimulus into actual spending. Plus, by controlling what can be purchased the cards could selectively boost demand for domestically produced products so that the resulting sales don't just swell the trade deficit."

This is a very timely and relevant remark. Ultimately, many nations will revert to protectionism, or at least a reasonable attempt to balance trade. There will be a new movement to reward the consumption of goods and services made in the same country.

For several years, the high military spending caused some form of Keynesian stimulation by keeping people employed, to compensate for the high trade deficit and the devastating de-industrialization of the United States. But this kind of military employment was actually FAR less productive and MUCH more harmful than simply giving cash to people for spending. This is because it caused a lot of resources and human talent to become un-available to do more productive things. For instance, in many factories in the United States, the machine tools and instruments are at least 10 years old, and this is simply "stone-age" if you compare the quality of the instruments and machine tools in many European countries like Germany.

One way to save the U.S. from a depression, is to dramatically increase the tax credits to corporations that do technological research and development, and also for new equipment that is purchased, in addition to increase the rights to write off the aging equipment as tax-loss.

Bob Badour said at January 25, 2008 6:17 PM:

What a stupid idea!

I can think of no better way to run an industry out of business than to force consumers to send the wrong signal.

Suppose it's been a warm winter and the government decides it needs to stimulate the winter tire market. They tell me I have until May 15 to buy a set of winter tires. I need a second set of winter tires like I need a second asshole.

So, I don't get a set for my vehicle. Instead, I get the hottest, sexiest, most expensive set the government will let me have for free. Then I turn around and sell them for 10 cents on the dollar. I find out that everybody else did the same thing and I cannot even sell them.

Meanwhile, the tire industry gets a signal that expensive, high-end winter tires are in high demand so they make more of them. Next year, between all the useless tires sitting in people's backyards and the glut of high-end tires in stores, the market has totally skewed inventories and the industry is in even worse condition.

When will people get it through their thick skulls: Central planning just plain doesn't fucking work.

Stephen said at January 25, 2008 8:44 PM:

Spot on Bob. It would also be the fastest way ever invented to bankrupt a country - watch the deficit grow skyhigh as politicians begin promising 'stimulus' to every squeaky-wheel business in their electorate.

NCnLA said at January 30, 2008 12:52 PM:

This idea is not new; it seems sort of similar to the Worgl currency which Austria used in the 1930's to quickly recover from the depression. The goal is to increase the velocity of money, and it is similar to having negative real rates. In a debt-saturated society, the fear is that simply lowering interest rates will not avert a recession, because nobody wants to borrow anymore; the fear is that the Fed will be "pushing on a string", because you can't force people to borrow and spend, even if rates are zero, and so you end up with a long deflation or depression. So a possible solution is to provide money in a gift card form: you have so spend it, and spend it within a certain time frame, or you lose it. This actually seems like a smarter idea than Bush's stimulus package (an idea that will not make much difference, I think -- people may just save the money or use it to pay off some debts, so it's basically just a back door subsidy to the banking industry).

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