A Better Plan to Boost American Economy

Y. B. Karasik,
Thoughts Guiding Systems Corp.,
Ottawa, Canada.
e-mail:karasik@sympatico.ca

Bush administration pushes Congress to pass the stimulus package: give every taxpayer a few hundred bucks ($150 billion in total, or 1% of GDP). What are the objectives of such a "stimulus" ? As usual they are blurry and multifold:

Of all these, only delaying (rather than averting) recession would be the most likely outcome. Indeed, since recession is expected to be shallow, GDP will hardly contract more than 1%. By increasing spending by 1% this contraction (and recession) can be easily offset. If this is the plan, then it will work perfect (provided contraction will not exceed 1%, of course). But for some reason, nobody mentions the above simple argument as the rational behind the stimulus package and its size. Probably because it would reveal its real nature: kinda accounting trick rather than a serious cure of the dire economic situation. That is why people think that the rational is different: boosting manufacturing etc. But then they start think in earnest and realize that most goods are now manufactured in China and the plan would boost the Chinese rather than American manufacturing (and economy). This makes them completely bewildered with the "stimulus".

I have a better plan to spend $150 billion and really address the root cause of the current crisis. As everybody knows the root cause is the tumbling housing market (which caused credit crunch and huge losses by the banks, which sent stocks south, etc.) Surprisingly the stimulus package is not aimed at targeting this root cause at all. So, let's think how $150 billion can be better spent to boost real estate market and pull all the economy from the morass rather than equally distribute it amongst taxpayers.

The only way to cure the housing market is to bring demand in line with supply. To this end multitudes of new buyers have to be brought to the market. Some think that after years of giving money away to anyone it is no longer possible, that demand was already pushed to the limit. But thanks to senator John Edwards we learned that not all Americans with poor credit were given loans to buy a house as yet. There are still reserves - 200,000 American veterans that every night go to sleep under bridges and on grates. Why would not make them homeowners ? Are they worse than those who were lended money to buy a home despite they were known to be unable to repay it back ?

Let's do a simple math:

$150 billion / 200,000 veterans = $750,000 for each veteran.

For this money it is possible not only to buy a house to every homeless veteran but also rehabilitate him or her. This would immediately send housing market upward and eliminate the current crisis. Thereby all the above objectives would be attained as well: the recession would be avoided, the stocks would soar, the American manufacturers would breath easier (for washing machines and dryers needed for new homes are still manufactured in America), etc.

But the administration would likely ignore this plan. They would go with distribution of $150 billion equally to all taxpayers. Since ancient Rome equal distribution of small sums to everyone was proven to be politically beneficial. Nobody tried the opposite. At least publicly and openly. But why would not try ? In the world of inequality equal distribution does not solve any problem. At any rate throwing $150 billion at real estate is much better than throwing it to the wind.