Trickle Up Economics

Is it possible that Jon Stewart is smarter than Fed Chairman Ben Bernanke?

Earlier this week, on The Daily Show, Stewart suggested in an offhand way, that simply giving the $2 trillion dollars in “stimulus” money (or bail-out money… whatever), directly to the American people for the sole use of paying down their consumer debt. Start everyone with a clean slate, or in other words, to use his expression, “hit the reset button” on the economy.

dailyshow

The logic has some merit to it. After all, the banks would get their money and consumers, free of their towering mountains of personal debt, would then head right back out and start spending; thereby doing precisely what the government wants them to do in order to reinvigorate the economy.

Now I know there are lots of reasons to argue against such a scheme (possible creation of systemic “moral hazard” for instance) but Stewart’s “fine idea” isn’t without historical precedent. According to Aristotle, the ancient Greek leader Solon instituted a set of laws called the Seisachtheia whereby all outstanding debts of the Athenian people were immediately forgiven and lands returned to their traditional owners.

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16 Comments

Filed under Economy, Humour

16 responses to “Trickle Up Economics

  1. While I still think government spending to interfere in the economy is a bad idea, because of the distortions it causes, this has merit:

    1) People who most need the money get it.
    2) It could be considered a return of tax money previously taken, money consumers would have spent rather than assuming the debt in the first place.

    Yes, it still has moral hazards attached to it, but Stewart’s idea is far better and more fair, as “bailout” schemes go, than giving money to the same idiots that created the entire problem in the first place.

    Perhaps once the “reset” is done, perhaps the state could then stay out of the way…

  2. Mike — At least with Stewart’s idea we’d all know precisely where the money was going which is a helluva sight better than simply shoveling it into a black hole which seems to be the case at the moment.

    And maybe “post-reset” they could impose some hard-ass regulations (not necessarily more regulation it should be noted, but better and more effective regulatory tools) on lenders that would force them to act more responsibly. Then without such easy credit, people would similarly be forced to get their consumption more in line with reality. After all, the idea shouldn’t be to simply re-inflate the credit bubble, which I fear is what many governments in their panic appear to be attempting to do at the moment.

  3. Tomm

    Wrong clip.

    But that being said, I take it you are suggesting that $2 Trillion (~$20K/33% of American’s) will be enough to right the personal ships of finance.

    This would then allow everybody to dust themselves off and catch their bearings?

    What happens then? Where do they ultimately live? Are they working?

    This might be the ultimate libertarian bailout “bomb”. It would be the opposite of Jack Layton’s massive socially planned spending solution.

    I don’t know…

  4. While it’s a nice idea one major flaw is that it would take approximately $10 trillion ($2.5 trillion in consumer debt + $7.5 trillion in mortgages) to “hit the reset button”.

  5. Tomm — Fixed. Thanks.

  6. Robert — Considering that they’re now looking at creating “bad banks” (more on that later), which would cost approx. $6 trillion or more, plus the $2 trillion (TARP plus the “stimulus package”), the Americans are going to be around $8 trillion in any case…

  7. federalistblogs

    This plan, which may have been tongue in cheek, does show at least one thing not shown by any other plans. That is creativity.

    The Bailout bill went to banks and did nothing for the tax payers.

    I have often thought the best way to help the banks with bad mortgage debt and help the citizens who are paying for it would be something similar. The government should simply pay off the equivalent of say four to six months of mortgage debt across the board. For the behind it would catch them up entirely or in part. If the loan is no longer behind, it is not a bad debt. For those working to stay on top of their mortgages, it either lets you take a piece of the end of your mortgage or frees up money for you to spend by taking a holiday from paying your mortgage since the government picked up your tab for you. Either way the banks also get capital.

    Of course, the other option is to do what some say we need to do and let the market run itself as it is intended….

  8. “And maybe “post-reset” they could impose some hard-ass regulations (not necessarily more regulation it should be noted, but better and more effective regulatory tools) on lenders that would force them to act more responsibly. Then without such easy credit, people would similarly be forced to get their consumption more in line with reality. After all, the idea shouldn’t be to simply re-inflate the credit bubble, which I fear is what many governments in their panic appear to be attempting to do at the moment.”

    Oh, I agree with the idea…easy credit is not a good thing, because it gives credit to those who would not normally (and should not because they are too risky) get it – or who would get more credit than they can safely handle. To me that says, less government action not more – let the bank rate be established by the banks, not by fiat by the Fed or the Central Bank. The banks would only lend to those who were not risky.

    And to help establish credit with those who are risky, use micro-credit, where the individual losses are low, so the risk can be higher.

    And for goodness sakes, if a bank screws up, they go out of business, are bought up by their more successful competitors or have their assets given to depositors (including bonuses paid to incompetent CEOs).

    But yeah, sadly the entire idea to fix the economy right now seems to be to use bailout money to re-inflate he credit bubble. Dumb, Dumb, Dumb.

    Robert,

    I don’t think it would include mortgages perhaps, but other personal debt, which would free up money for re-negotiating of mortgages or re-sizing mortgages – abandoning too large houses and mortgages for smaller more manageable and risky ones.

  9. Actually, most of the Americans I know have no issue with having to pay back their mortgages and would gladly make payments on the principal and reasonable interest.

    It’s just that when the value of their homes dropped so much and the interest rates reset so high, they couldn’t make the payments and pay other debt and their health insurance payments.

    So the total amount could likely be lower if the money was used to help rewrite the mortgages to create lower payments, and pay off the worst of the credit card debts.

    Really, credit card debts and lines of credit have mainly been used to pay health care bills. I know a woman who had sudden heart failure, and could not work while she recovered or afford her treatment. The predator lenders offered her $250K on a line of credit and of course she took it, because she had three small kids and wanted to feed them and you know–live.

    Now she is able to work again, and yet is saddled with this debt, at an insane rate of interest. How can she ever pay it off?

    She’s one of the people I wish they would just give the money too. To hell with the idiots who lived high on the hog with the credit cards…..

  10. Pingback: Posts about Jon Stewart as of January 31, 2009 » The Daily Parr

  11. Now she is able to work again, and yet is saddled with this debt, at an insane rate of interest.

    And to think that these a-holes are borrowing money from the Fed at zero-interest and then charging a usurious 18% or even more.

    It’s criminal. Period.

  12. The Militant Dipper

    ” And to think that these a-holes are borrowing money from the Fed at zero-interest and then charging a usurious 18% or even more.

    It’s criminal. Period. ”
    Like my boy Marx said. ” It’s more criminal to open a bank than rob one.”

    I loved Stewarts idea. You don’t even have to go that far. The Fed could lend people the money to pay their debts and collect the money at much lower interest rates and with terms people could live with.

  13. benalbanach

    In the end…”the same idiots that created the entire problem in the first place” would …again…get all the money.
    That’s the way things work in the USA.

  14. H&C

    Well, this is a great idea worthy of consideration both by dems and republicans. If we all think so (and our friends/colleagues), why don’t we just flood the white house with e-mails asking them to consider it? They can decide after they’ve heard us if its a plan they could implement. Being apathetic right now shouldn’t be one of our options, even if we are a bit disappointed in the Obama admin at this point.

  15. “Is it possible that Jon Stewart is smarter than Fed Chairman Ben Bernanke?”

    Possible??? Hahaha

    G

  16. Mark T. Market

    Nassim Taleb spoke out in Davos about banks and the moral hazard of bailouts.

    He and Nouriel Roubini were both interviewed at CNBC recently, but soundbite journalists are incapable of handling their views sadly.

    Zimbabwe citizens know very well what kinds of horrors hyperinflation can bring, but this kind of phenomenon is considered remote from occuring elsewhere.

    Glenn Beck’s hockey stick makes me think again.

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