Payout Vs. Bailout

In My Humble Opinion
1

My brother-in-law (who is absolutely flat broke with no income) recently decided that the federal government would better stimulate the U.S. economy if they simply gave one-million dollars to each and every adult American citizen, rather than bail out financial institutions.

He doesn’t agree with the argument that doing so would create chaos when about 90% of the people who got their million-dollar payout would either:
A. Never show up for work.
B. Show up only to tell their boss to “take this job and shove it.”
C. Show up so they could gather up their personal stuff and give their employer a (maximum) 2-week notice that they were quitting.
Any thoughts?

2

There are about 200 million adult American citizens. This scheme would cost $200 million million or $200 trillion, which is more money than there is in the world.

The bailout was $1 trillion. Divided equally that would be $5000 each. That’s wouldn’t change too many lives.

There are a trillion other reasons why this would be a terrible idea, but I’ll stop here.

3

Which of Cecil’s columns is this about?

4

Maybe it’s tied into the one about “Would it have been cheaper to pay off everyone in Vietnam than to fight the war”?

If it ain’t that, I got nuthin’

5

<mod>

Got me. I can’t find a column about this.

Moved to IMHO.

CCC > IMHO

</mod>

6

A million doesn’t go very far nowadays, and on top of that, you would probably have to pay some of that in income taxes. Imho, a million dollars is basically an hourglass. It’s too small to invest safely (1-2% per year) and live off the interest income. So, if you divide it over say 40 years, you only get like $25k per year to spend. And, lets say you need a big expenditure right away (like a house.) Then, you have 500k to spend over 40 years.

7

IANAn economist, but my guess is that if every American were suddenly a millionaire, employers would have to pay people a lot more to keep them at work, and then of course the price of just about everything would go up proportionately.

So everybody would have more dollars that are worth less, and we’d eventually end up right back where we started, just on a different scale. Except that the U.S. dollar would be ridiculously weakened in the world market.

So, probably not a good idea.

8

Well, since the millionaire thing is out - as Exapno notes, the government couldn’t give us each a million dollars unless it printed them just for the occasion - we’ll use the $5,000.00 figure.

What would this do? Well, as we learned from the Bush stimulus, not a great deal. Only one fifth of the households which received early tax “rebates” in 2001 spent the money on stuff; the rest used it to pay down existing debt, or saved it.

Now, saving is, on the whole, Good For America - an economy in which savings are higher than debt is a strong one - but it doesn’t do much to boost short-term economic growth.

The 2001 recession was relatively shallow, unlike this one. It stands to reason, IMHO, that people would be more likely to pay down existing debt had the Administration tried a direct stimulus payment this time around. A significant chunk of that money might go to mortgage payments, and it’s likely that we’d see a short-term drop in foreclosures. That would be a Good Thing.

On the other hand, homeowners not in arrears might also have used the money to pay down mortgage debt, which would be a Bad Thing, at least in terms of short-term economic growth; that money would simply go back to the banks, and thanks to tighter lending restrictions, some of it would probably stay there.

This particular phenomenon would actually result in deflationary, rather than inflationary, pressure. The same goes for people paying down credit cards. Now, 22%

The recent homebuyers’ tax credit and refunds are better in terms of targeted growth, but they’re also regressive; people in the lowest tax brackets, by and large, can’t afford to purchase homes.

9

During the bank bailouts you’d see a lot of those “Why don’t they just give each American $X instead…” comments going around.
What they failed to mention is how the banks have already paid most of that money back… with interest.
If the government were to give each American $X how many of them would really be ready to pay it back a year later with interest?

10

The banks have paid some of that money back, with interest. They were only required to repay about a third of it, IIRC.

11

They’re required to pay all of it back. Some already have. Some haven’t. (The government also owns “warrants” that it can convert.)

A lot of the banks didn’t really need the money all that much and the government pushed it on them, in an effort to stimulate lending. Then the gov turned around and imposed strict requirements on anyone who got the money, and many of the banks fell over themselves trying to give it back.

[On a related note, as part of Health Care Reform, the gov is giving $5B to employers who have retirees with catastrophic medical claims. A lot of financial services companies are being extremely cautious about taking the money, due to the strings attached.]

I believe what you’re saying might be true of the automakers, though.