20 February 2009

An Alternative Stimulus Package

I have finally come up with an alternative to Obama's stimulus package. (I apologize to my faithful readers for having taken so long to arrive at this.)

The point of any stimulus package, it seems to me, should be to create jobs quickly and then - longer term - actually expand the economy. Tax cuts and government programs might help with this, but these seem to me rather old school. As it is, we've pumped about a trillion dollars into banks and are wringing our hands, fretting that banks are not making loans. And some of the big programs that are being funded will not even start until 2010.

The finance industry has just lost hundreds of thousands of employees. These people need jobs. And, generally speaking, they are specialists in assessing the value of assets and translating business plans into funding. I say that we employ these people first and use them to create millions of jobs. Here's how.

Set up regional boards all over the country. Run competitions for business start up ideas. Bias the approval towards businesses that will create good-paying jobs. And start funding business start ups. Quickly.

Make the criteria a little different than the usual banker filter. Act more like venture capitalists than bankers. That is, don't worry so much about whether 95% of the businesses succeed and are able to pay back their loans at 10%. Rather, play it more like a portfolio, hoping that at least 1 out of 10 or even 1 out of 50 succeeds and goes on to become a big employer.

The businesses that qualify for these start ups would be ensured two years of operating expenses. After this time, they could either fold or get a new round of financing from traditional sources or simply be self-sufficient.

The GI Bill after World War 2 created a great many careers by funding education for people who would not have otherwise become professionals. Just think of how much bigger a deal this would be - a wave of businesses that might not otherwise get started continuing to employ citizens and generate returns for decades.

This would stimulate innovation, create jobs, give a boost to the economy, and provide unpredictable results - combining the best of government largess and market dynamics.

Rather than a stimulus package that funds banks to provide loans, why not go directly to the point of funding corporations to provide jobs? Why continue to funnel money through an intermediary that costs us trillions? And why just stimulate consumption? Why not production? Imagine a trillion dollars in new business financing - or even a mere $500 billion. Just think of the potential impact.

The original stimulus packages were bold enough to stimulate banking activity that would not have occurred without government financing or incentives (such as low interest rates). Why not stimulate corporate activity that would not have otherwise occurred?

It is a new century. It is worth considering the use of new techniques.


Anonymous said...

hmmm. not a bad idea.

Anonymous said...

I don't think corporate America is going to be too pleased with this idea. Right now they're making an insane amount of money and wielding an insane amount of power, and this would dilute that.

I don't think it can happen without a fight.

Ron Davison said...

Thank you.

I think that you are spot on. The special interest group that is always under-represented is the one for potential. I still think that a pro-business agenda is healthy but we don't have one. We have administrations that make it a hassle to create and run businesses and we have administrations that make it lucrative to own a business and be friends with people in office. It's not obvious to me that we have much policy that just helps with start ups.

Big Al said...

Corp America may not initially like the idea, but let's say that somehow Obama or Congress got wind of Ron's idea and said to themselves, "Hey . . . this may WORK!". Guess who would 1st in line to run those Regional Boards?

The bonds running between our elected officials, lobbyists and Corp America are so strong when any one of the three entities passes gas, the other two immediately blush and say "Excuse Me!"

I gotta' believe before Corp America execs go before Congress in the public thrashings there's a private, closed-door pre-meeting where our elected officials go over the script with the CEO's, reminding the CEO's how they're going to get grilled and scolded in public, but not to worry 'cause it's just a game and the CEO's will be treated to a private, sumptuous feast afterward. In other words, "Boys, we need you to take one for the team!"

There's more slime in Washington than in all the 'Ghost Busters' movies combined.

Ron Davison said...

I think that you're right. If this plan got put into action, it would suddenly have lots of qualified to work on it supporters. Funny how actual government funding brings supporters out of the woodwork.