Yesterday I began a thought experiment that asked the question, would the federal government actually do more good if it simply handed out 37 million $100,000 checks to American households excluding the top 10% each year. I discussed the use of extra charity money to replace government programs, but these people would also have plenty of money to spend to inject into the economy. I think the way that individuals inject money into the economy would actually produce better results than the way the federal government currently does.
The rest of the money that these households keep for themselves will be spent on various things that the people in each household need. This will fuel the economy, but in a better way than the federal government “stimulates” because the decisions of what to do with your money will impact individuals, and therefore they will be more careful about the financial decisions made. Instead of the government pouring half a billion dollars down the drain on “alternative energy” like Solyndra, which went out of business, individuals could make their own decisions to buy a hybrid, buy stock in an alternative fuel company, or invest in solar panels (from a reputable company much less likely to go bankrupt). When individuals could suffer the financial consequences (instead of the taxpayers at large) the money will go to better run companies, which produce better results, and come up with solutions quicker to solve problems like the need for alternative fuel.
Some people might put their money in the bank, or pay off their mortgages. Both of these things will help more people afford housing with banks making informed decisions on who to lend the money to, and how much to lend–instead of Fannie Mae and Freddie Mac wasting the taxpayers money and causing an era of foreclosures and stagnant housing sector growth. If every recipient put $10,000 in the bank, that would mean $370 billion in extra bank holdings to be lent out for various purposes, all of which improve the economy. But the deposits would not be in the form of a bailout to Bank of America, it would be in the form of small deposits everywhere, based on the best banks.
Some people would start businesses with their money. Whether it is a new farm, a restaurant, or research firm, these are all things that will provide jobs, produce, and grow the economy. Maybe someone or a group of people decide to use their money to start a consumer advocacy group which researches products, and publishes the findings online so that people know which products are safe, what is in their food, and which companies are reputable. If done correctly that would be very popular in this age of information, and it would lucratively benefit the producer of the information as well. It would not, however, trample the rights of small farmers as is the current practice of the USDA and FDA.
Some people would use the money to go to college which means they acquire a higher skill level, and can therefore get a better job, or do more with their minds. Or new technology could be invested in, and informed decisions would be made about where the money will produce a greater return. If every household who receives a check puts $2,500 into investments, that is $92.5 billion in extra money to fuel innovation, new products, and new technology. But the success rate of companies answering to investors, instead of the government, is far better.
The government spends a lot of money every year, and much of the time it doesn’t seem like we are getting our money’s worth. With billions going overseas in foreign aide, and billions being wasted on failed investments, the populace should be completely unwilling to stomach more tax increases, yet many still act like the government does not have enough money to work with. Inefficiencies and corruption are what drain the treasury, and I hope this little thought experiment puts the amount of money that the government spends into perspective. Of course the positive effects in this thought experiment could be mirrored by drastically cutting the federal budget, and federal taxes so that the people who earn the money get to keep it and spend it. It would be beneficial to return much of the responsibility for governing to the states, so that people can be more involved in their government, and influence it more effectively as an individual. What the federal government needs in cash to carry out their actual responsibilities is dwarfed by the current level of spending. The economy and standard of living of Americans will not keep improving if we continue to waste money on government programs which add nothing to the wealth or production of this country.