The Finch Formerly Known As Gold

23 February 2008

Prolonged stimulation

Not that I'm going to turn down a check for $600, but there might just be a better way, says Dalton Conley:

What if instead of giving rebates we helped create an investor society by seeding universal investment accounts? This would not only pump cash into the economy, through the slightly more indirect route of investment, it would also help us correct some of the near-fatal flaws in our long-term economic landscape.

The recent slowdown in gross domestic product growth is only a symptom of recession, not the cause. While there are many things to blame for the current crisis — most notably the subprime mortgage mess — one factor that has received little attention is America's low savings rate. In 2005, net private savings in the United States were negative. In other words, we were spending money that we didn't have, chipping away at our national wealth.

How this might work:

The simplest approach would be to seed universal mutual fund accounts for low-income Americans. The best way to do this would be through a so-called refundable tax credit deposited directly into a special investment account for each taxpayer. In future years, the government could contribute an additional 50 cents for every dollar the taxpayer deposited into this account. Think of it as a universal 401(k), but one that could be used not only for retirement but also for things like a down payment on a house, college expenses or unexpected health costs.

Such investment incentives would do more than just help stimulate business growth by providing new capital. They would fundamentally change taxpayers' lives. Some research suggests that asset-holders behave more responsibly and are more civic-minded than those without wealth. After all, they have a stake in the future of the economy and their community.

I suggest the following refinement: if you overpaid your Federal taxes for the year, as I did, by $400 or so, allow the option of having the refund plus any governmental matching funds, or any portion thereof, deposited to this investment account.

If this sounds like a variation on a theme by Hillary Clinton, it's certainly on a smaller scale: Dr Conley is not proposing a full-fledged (or even semi-fledged) retirement system, but a simple savings vehicle which can, but need not, be used for retirement income. But both these plans acknowledge the same fact: we've gotten out of the habit of saving money.

(Via Jeff Shaw.)

Posted at 2:14 PM to Political Science Fiction

While I'm certainly not going to against the fact that we need to move back towards being a "saving society," is a government subsidized plan the smartest move?

Overlooking other concerns (how do you decide when is ok to remove savings?), just the bureaucratic overhead of such a project would be a huge drag, and eventually just a source of friction (matching funds doesn't come free).

If you're going to pay out and encourage savings, I'd say the best way is to not match how much money is deposited, but match (to some degree) interest earned. Or better yet, give banks some percentage of interest if they open up and keep savings accounts for certain groups. Say, pay 1% out of a 6% rate, making these groups more lucrative.

The private sector generally has a much better time of publicizing and selling, so we just need to incentive the selling of socially positive things (savings accounts) while disincentive socially negative things (unhealthy financial practices), which can then be used to subsidize the health practices.


Posted by: Michael at 3:47 PM on 23 February 2008