Sunday, February 15, 2009

Outside the Box: Stimulus Vouchers?

Well, it's too late to consider this idea (perhaps), but a very bright friend raised an interesting proposal during a recent conversation. He suggested that in order to get people spending money again, the stimulus should come in the form of spending vouchers. Under this proposal, the government would send recipients vouchers (in the form of certificates or debit cards) equal to a specific monetary amount. The vouchers would entitle recipients to purchase goods and services at merchandisers. Recipients could not use the vouchers to pay down debt, and the vouchers would expire in a pre-determined amount of time (which would prevent hoarding).

Precedent for this idea exists in other countries. Taiwan has used this process to revive its slumping economy, and some business advocates have recommended that Australia follow the same approach. This proposal could have satisfied conservatives who argue that "people spend their own money best" and liberals who want to help "Main Street" with cash subsidies.

This proposal could also overcome some of the inherent weaknesses of other consumer spending items, like stimulus checks and tax cuts. Many people will simply save the proceeds of stimulus checks, which frustrates the very purpose of the stimulus package. Also, economists tend to criticize tax cuts as a part of emergency stimulus packages because they do not rapidly impact the economy and because higher income individuals benefit more substantially from them. The Tax Policy Center, for example, has harshly graded most of the tax components of the stimulus package.

What do you think about the idea? I have combed through the draft stimulus, and it contains a lot of spending for "programs," but a lot less direct money for consumers. Also, the tax components will certainly lack an immediate effect. But both parties got to pad the legislation to benefit their most influential -- as opposed to most needy -- constituents. Great....


Jason Papanikolas said...

I have heard a few people pass around the idea of stimulus coupons. This idea seems to be a bit more fully fleshed out and I like the restriction on not paying down debt (though theoretically paying down debt should have a similar stimulative effect on the economy). This idea is certainly more stimulative than what Congress passed yesterday.

What do you think of Congressional Republicans' idea of a year-long payroll tax holiday? It's a similar idea and doesn't require the government to print money per se (as I believe that we still have surplus, at least through 2010 in Social Security and Medicare).

Where I think this plan (and other similar plans) fail is in their inability to address the fundamental issue: the bursting of the housing bubble that created so much "feedback" in the financial sector, so as to lock down all credit and stop the economy in its tracks.

Taiwan doesn't have this same problem. Their problems are essentially consumerist b/c they are an export economy. Therefore, temporarily stimulating their own people to make up the shortfall (from Americans not buying) makes sense. I'm not sure that America can spend its way out of this in the same fashion.

Dale said...

I read somewhere that Obama considered this but decided it was unmanageable. They were probably also influenced by Robert Reich's view, expressed on a week ago Sunday's talk show (I think ABC), that the American people would spend money given to them directly (through tax holidays) on foreign-made stuff that would send the money out of the country. Ultimately, the American people end up spending the stimulus as wages, so I don't get the argument.

Decidere said...

I've been disappointed that there seems little thought about our new fast economy, and much more about ancient ways of spurring growth (do we want to emulate TVA? Eisenhower's highway system?). And how much we ignore and spurn our major upcoming trading partner, China, due to racism and protectionism, rather than align ourselves with its stimulus efforts (along with the EU's). Vouchers might be a good idea, but I don't know how that compares in terms of fast, effective money vs. other approaches, and we're needing huge movements of cash (virtual or hard) to make a difference.

Roy Lofquist said...

You are assuming that the Democrats in Congress really give a flying F about the country. They are well bought and now have come to pay the piper.

Kansas City said...

Wouldn't a significant number of people who wanted to pay down credit card debt just use the voucher to buy something that they otherwise would charge and, thereby, reduce their debt?

Darren Lenard Hutchinson said...

Kansas City - to a consumer, the choice between buying something with stimulus funds or simply paying a debt may not seem meaningful. But to the economy, the purchase of funds shifts around money which is what the stimulus intends to do. Paying off a debt has less effect because the original purchase has already been made.

The more important issue, I suppose, is that under the voucher option, people actually have to use the money for spending AND they have to use if quickly. The problem with many items in the stimulus is that they won't deliver an effect until the longrun.

Roy Lofquist - I believe that many Democrats and Republicans say they care about the economy, and I imagine that some of them actually do. I do not believe, however, that either party has a monopoly on politicians who act out of self interest. That seems to be one of those truly nonpartisan traits!

Anonymous said...

I am several time zones to the authort's right; but I would strongly favor this voucher stimulus over the mess passed by Congress.

My sense is that D gains in the last two elections has been driven in large part by disgust with "politics as usual" in the form of back-scratching between the politicians and their moneyed supporters. The President's championing of this bill -- the biggest back-scratcher of all time -- is a blow to the credibility of his promise to chage the way things are done. Of course, no one could effect miraculous change. But so far it's hard to see even modest, feasible changes to business as usual.

Mark G

Kansas City said...


I don't think you understood my point. The person would use the voucher to buy somthing for which they otherwise would have bought with a credit card, which effectively is using the voucher to pay down the credit card and the voucher does not result in additional spending. Or, he would use the voucher and then used the saved cash to pay down his credit care. Either way, no new spending and the voucher effectively is used to pay down the credit card debt.

I don't know how common that would be, but it would be a way to use a voucher to effectively pay down a credit card. The person would not really be using the voucher for any additional spending above what he otherwise would have spent.

Darren Lenard Hutchinson said...

Hey, KC. Thanks for the additional post. I guess that if people buy something with the voucher - which frees money to pay down debt, then this is a "wash," so long as they would have otherwise used credit to make an additional purchase (in the absence of the voucher). The major audience, however, consists of people who would simply pocket the stimulus check or just pay down debt, without making new purchases immediately. I guess the speed of the transactions matter. If the voucher expires in, say, thirty days, the additional spending could occur more rapidly than it would under the current model (even if people simply spend the voucher and then pay off debt).

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