Recession idea #1: Should the government pay every man, woman and child £1000?
Brett Alegre-WoodChairman, YPC Group
Hey guys,
I had lunch today with my publisher and two of her lifelong friends. Julian is an economist by trade and we chatted about the recession and in particular his thoughts about solving the problem based upon a number of proven models. First, let's look at the present solution that the government has tried: the 'top-down' model.
The Top-down model involves the government investing (or throwing) billions of pounds into banks (Â?27 billion so far) and waiting for the banks to pass this on in the form of loans to businesses and individuals who will then go out and spend the money in the streets. This theoretically creates demand and reverses the downward spiral since it's the banks' job is to lend money. Right?
Hmmmmm, well a year on and it doesn't seem to be working...
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Julian's idea is the 'bottom-up' model.
This model involves the government giving every man, woman and child a Â?1000 cash payment directly into their bank account - no strings attached. That adds up to Â?61 billion, which is a third less than they're predicted to spend on the second round of bank bailouts.
For my family this would bring in a tax free Â?2000 into our household and if totally spent, the government would get at least 60% (if not 80%) of this back in taxes and hidden taxes. The rest would mean that the bars, restaurants, supermarkets, mortgage companies and petrol stations would be a little better off with my added spending.
Of course, the bottom up model would never be tried since the government believes people wouldn't spend the money, instead putting it all under our beds.
Or something.
For some reason Gordan Brown believes that banks are the better bet, being more likely to lend it out than keep it. But so far - surprise surprise - the banks have chosen to line their own balance sheets rather than lend, which would help us out of the crisis.
So we continue to wait and see, hoping and praying that this won't get worse and that someone, somewhere knows what they are doing...
I spend probably a hour a day reading about the recession and various opinions and economic models and so far no one, not a single expert, knows the solution and with interest rates at 1%, the normal monetary policy solution just doesn't seem to be working.
It just might be time for some more creative solutions, don't you think? Why not put the money into hands that it will most likely use (or spend) it?
Live with passion,
Brett Alegre-Wood
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