Just over a year ago, MarketWatch's Chief Economist Irwin Kellner recommended that the federal government distribute $3,000 gift cards to every citizen over age 16 to stimulate the economy.
Many people thought the idea was crazy at best, and it's easy to see why. Distributing $3,000 gift cards to all U.S. citizens age 16 and over would have cost $705 billion, and there certainly would have been a chorus of opposition, with critics attacking it as a costly and wasteful welfare program.But in retrospect, Kellner's plan may have been a good idea, providing enough much-needed stimulus to boost the U.S. economy to a sustainable level of growth. Keep in mind that the original stimulus program -- which, along with money for infrastructure projects, contained both tax cuts and supports for automatic economic stabilizers like unemployment compensation and food stamps -- was budgeted at $786 billion and will probably cost more than that once the final tally is in.
Gift Cards: Bigger Bang for The Buck?
The gift card plan offers a major advantage over the existing stimulus program: properly structured, the gift cards would have provided more stimulus, and faster -- as much as a $400 billion would have deployed in the U.S. economy within a couple of months. That would likely have moved GDP more because, all other factors being equal, a $400 billion lump-sum stimulus program provides more GDP 'bang-for-the-buck' than, for example, two $200 billion stimulus infusions spread over a longer time period.
And, unlike some current stimulus money, all of the gift card money would have been spent -- Kellner's idea did not allow for saving gift card funds – providing even more stimulation to the economy. With the current stimulus program, a portion of the money -- for example, the portion of a highway project construction worker's salary that he or she chooses to save -- would not go directly into commerce via purchases, thus lowering the program's overall GDP impact.
Moreover, the greater bang-for-the-buck from gift cards looks pretty good right now when, two quarters into what appears to be an economic recovery, the economy is still in need of more demand. Despite what you hear about huge deficits and large increases in government spending, the biggest problem facing the U.S. economy now is a lack of buying power. That's right: There's still not enough dough circulating in the U.S. economy. There is not nearly enough demand to absorb the excess capacity in the industrial sector, or to buy consumer goods, or to employ the roughly 20 million Americans without full-time work who want it. The gift card program probably would have created more jobs by moving the GDP needle more dramatically.
Creating More Demand
Given the gift cards' macroeconomic advantages, how likely is that the Obama administration or Congress will try the idea at this juncture? Well, the chances are slim to none, and as that old joke goes, slim is out of town.
Even so, the economy needs more stimulus, so Obama administration should move forward with the $80 billion jobs bill currently winding its way through the Senate, or reallocate TARP or other federal money to create a $30 billion fund for small business credit lines. Each is vitally needed, and Congress should not let back-to-back $1 trillion deficits -- or even back-to-back blizzards in Washington -- divert them from these urgent tasks.
A year ago, the $3,000 gift card program was an unlikley idea that would, nevertheless, probably have put the nation in a better place economically than it is today. Here's hoping we won't be saying the same thing again a year from now.
More Stimulus Needed: Gift Cards for All?