What a BHAP!

Latest reports reveal that in December the U.S. job market was even worse than predicted (693,000 job cuts), which sent stock prices tumbling and prognosticators spewing negative news that is fueling the crisis. According to Macroeconomic Advisers Chairman Joel Prakken, "The U.S. economy is now slipping into what will prove to be one of the worst downturns since World War II." Thanks Joel.

It's no wonder that the consumer confidence index is below 40 (down from 90.6 a year ago), the lowest in the 41-year history of the gauge. Richard Moody, chief economist at real estate investment firm Mission Residential, says, "It's hard to really see (confidence) turning around until the job market improves." Huh? Think about that for more than a minute or two and you'll want to shove a pencil into your ear to stop the confusing noise. How can jobs return unless confidence and spending returns?

We have one Big Hairy Audacious Problem (BHAP) on our hands with this one. And since I slept through most "macro" classes on my way towards earning a degree in Economics (I've always been more interested in individual behavior and its affect on the marketplace) I would never presume to have "the" solution. But one particular one does seem obvious to me.

Consumer spending accounts for roughly two-thirds of economic activity, so the job market won't improve in any meaningful way until people start spending. But that won't happen until people "feel" like spending; until "confidence" returns. That's going to take a hell of a lot more than a Federal tax cut or cash rebate, and I don't think we can wait for consumer spending to trickle down from the government putting people to work fixing bridges and roads.

The reality is that many consumers:

  1. Have lost a huge amount of net worth;
  2. Are anxious about large, impending expenditures (e.g. college tuition, health care, taxes, etc.);
  3. Are saddled with high interest loans and are unable to to get additional credit; and
  4. Are now worried about their jobs and future income.

Why would anyone spend money on discretionary purchases at this particular time? They won't. Not unless their debt gets reduced, their home values appreciate, their 401(k)s go back up, their health care is subsidized, their kids decide to join the Peace Corps, and/or they hit the lottery. Or . . . they are compelled to spend.

So here's the wacky idea: The federal government should act like a desperate marketer. I'm not kidding. As soon as Obama takes office, his administration should mail everyone a big, fat coupon that expires on April 1st. Not cash, that can be used to pay down debt. A debit card with an expiration date; an incentive to spend and to spend now. They can even exclude particular products and services, just like all savvy marketers do. 

Is your car or refrigerator making strange noises?  Are your faucets leaking? Does your furnace need a tune up? Is your old suit fitting a little tight? Do your teeth need cleaning? Does your computer keep crashing? Don't wait for the inevitable to happen. Use your card today. I can almost visualize the funny PSAs and viral videos. Can't you?

Posted January 11, 2009
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Comments

Indy

Tom - two cents:

The only problem with your solution is, short term infusion of spending won't stimulate longer-term hiring (i.e. job creation). That's why a tax cut (which is a long-term increase in discretionary income) is usually more stimulating than a $1200 check or a limited time / limited use debit card.
For businesses to hire with the long-term in mind, they need market stimulii that will make expansion viable.

Posted by: Indy | January 13, 2009 at 01:27 PM

Tom Asacker

That does seem to make sense Dan, but I'm truly not sure this time. "Long term" consumer confidence may be a very difficult mindset to restore without short term movement of the markets.

Posted by: Tom Asacker | January 13, 2009 at 05:52 PM

Dan Cote

Great idea Tom...seriously, please send it to Barack Obama for implementation.

Posted by: Dan Cote | January 13, 2009 at 10:11 PM

Tom Cunniff

Fun, audacious idea. Can I suggest a tweak to it? Make the debit card usable only for clean energy. Targeting it for use for solar panels or geothermal heating or something else would have multiple positive effects. It would improve the long-term value of people's homes. It would improve the prospects of businesses that we need to thrive in the future. And it would improve the long-term health of the planet. We've already had a long stretch of unenlightened consumer spending, and much of it wasn't positive. Targeting the stimulus for both short and long-term gains, in my opinion, would send the right message.

Posted by: Tom Cunniff | January 16, 2009 at 07:58 PM

Tom Asacker

Right on the mark, Tom! Stimulate the right movement.

Posted by: Tom Asacker | January 17, 2009 at 11:00 AM

Ben Kunz

Brilliant idea. Simply brilliant.

So if we are going to use basic marketing structures to stimulate the economy, why stop at coupons? How about additional incentives:

- Include a $1 million sweepstakes, one for each state, in which everyone who spends the coupon on new goods is automatically entered.

- Or better yet, the government provides a rechargeable debit card, with the first $500 a stimulus package. Then for every time the consumer recharges the card and uses it again, they are re-entered into the $1 million sweepstakes. Thus we have a long-term incentive for consumers to spend money and juice the economy.

- Set up a competition for business grants in each industry category. A business who hires new employees gets entered into a competition for the grant. Hire more employees, more chances to win!

I'm not a fan of gambling but it works so well for state lotteries, why not use the risk-greed incentive to get back on track?

Posted by: Ben Kunz | January 17, 2009 at 12:43 PM

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