The entire point of giving people money in the form of a stimulus is to get them to spend the money and actually stimulate the economy. Many people have argued against the idea of giving people a stimulus check simply because most of the money will just be saved or used to pay down debt, things that don’t stimulate the economy.
I am not sure that having the government give away money is the best solution but it is what the current powers like. So what is there was a way to basically force people to spend the money, I think that would work much better. For all of the various stimulation that is planned it adds up to over $10,000 for every household in the US. They mostly gave it to banks, and these banks did what was in their best interest, they saved it. The government is trying to figure out a way to force the banks to lend out any new money they receive. I predict that this will also fail.
The government knows it needs to spend money to stimulate the economy. I think that this is correct. They are planning on spending some money on some infrastructure projects, that is nice but not enough. So they have the option of giving money to the banks or mailing out check. Both options will not have a large effect. So here is my idea. DON’T give people check, and DON’T give the money to the banks. Just simply change the format of the money, send out the stimulus in the form of Debit Cards. This means that they have to spend the money, they can’t use the card to pay off their debts, they can’t save it because it will expire in 120 days. Also the money will not go the massive hidden black market, they won’t gamble with it, they won’t spend it on drugs. They will buy stuff with it. This helps the legit businesses stay afloat, and they will pay taxes on the sales and profits.
This idea even has more benfitial effects. First people with out bank account will be able to use it with out having to go to a check cashing store. It also allows the government to track where the spending goes.
This is not a new idea. I first heard about it because of a story about the stimulus in Hong Kong, they used this method and it wored really well. After writing half of this blog I did a search for it and found out that Glenn Beck on CNN also talked about. Even FEMA used debit cards to help the katrina evacuees.
Of course people may spend it on stupid things. And I am sure some landlords will quickly figure out how to collect rent from a debit card, and of course some people will simply pay 3% and transfer the money to their PayPal account and then transfer it back to their checking account and use the cash, but the majority of people will simply spend it normally.
So the bottom line, is if we must be sending money out in bulk to the population then this is the best way to do it. I still think that this is not an effective stimulus and really should not be done