American consumers are keeping their wallets in their pockets, which has prompted a novel suggestion from an economics professor to give everyone a $2,000 federally backed credit card.
Miles Kimball, a "supply-side liberal" from the University of Michigan, says a federal credit card for every U.S. taxpaying adult would stimulate consumer purchasing and, in turn, generate more demand — and jobs — in the manufacturing, wholesaling and retail sectors.
People could use the $2,000 now and not repay the loan, at a low interest rate, until the U.S. economy has fully recovered, Kimball explains. It would be similar to — only more potent and less expensive — than the Federal Reserve loaning money to banks to loan to average Joes.
Kimball says his idea is the fastest — and maybe only remaining — way to stimulate economic growth as Congress is high-centered in political gridlock and President Obama is on the campaign trail. He adds that a federal credit card would be more effective than tax rebates or credits — and less costly. The card only benefits people who use it and they eventually will pay back what they borrow, plus interest. Since the credit cards would be issued by the Federal Reserve, they won't deepen the federal deficit because the Fed operates on its own, separate balance sheet.
Amid a rehashed partisan debate over extending Bush-era tax cuts and the nation's fiscal cliff, Kimball's suggestion has a fresh air about it. And the idea carries a lot of appeal for average, cash-strapped Americans struggling to pay the rent, a mortgage or a large medical bill and tired of listening to a flood of political ads.
"A big advantage of national lines of credit," Kimball told William Greider of The Washington Post, "is that once triggered, the details of spending are worked out through the household decision-making process, which is relatively nimble compared to corporate and government decision-making processes." In other words, individuals and families would have a better idea of what to do with the money, if they chose to use it, than elected officials.
The conservative side of Kimball believes using tax policy to stimulate the economy winds up creating economic distortions, which might have the unintended effort of reducing economic output. His liberal side recognizes income redistribution can work sometimes. "Whenever it can be done without shrinking the overall size of the pie," he says, "a dollar in the hands of the poor is socially more valuable than a dollar in the hands of the rich.
His idea may be well-timed for the Fed itself, which appears divided over what to do to nudge along economic recovery after trying just about every trick in its bag of monetary policies without much success.
Kimball admits traditionalists may recoil in horror from a suggestion that involves the Federal Reserve in something other than pure monetary policy. But he traces the legacy of his concept to President Abraham Lincoln, who issued greenbacks to finance the Civil War while building the nation's industrial base.
Radical remedy or not, Greider says Kimball's federal credit card deserves national attention. The first step is having someone take notice of his idea in the barrage of charges and counter-charges over who is to blame for the anemic economy.