A More Modest Proposal

by Wayne Spencer - September 23, 2008

People who know me know that I have spent a good part of my life studying macroeconomics. In college I was totally fascinated with the scientific approach to macroeconomics and continued reading and following the subject ever since. I have watched our economy slide from one based upon solid scientific principles to where we are now. Today's economy is based upon a carefully crafted mythology often referred to as the "Chicago School."

The purpose of this mythological sudoscience has been to divert public funds into the hands of large corporations and wealthy individuals. This is commonly referred to as "trickle down" economics. In effect, there is so little trickle down that the whole notion is as ridicules as intelligent design. Adam Smith is often quoted as if he wrote the economic bible. We have come a long way since Adam Smith wrote the five book works called The Wealth of Nations.

The gurus in the White house who have steered us on such a wonderful path of peace and prosperity are now set to give us the "grand finale" as they depart from power. This "grand finale" is in the form of a blank check for nearly a trillion dollars to spend in any way they wish without oversight. We are told that there just isn't time to wait, that if we do not give them this money the world as we know it will come to a crashing end. Ah, the new WMD.

I submit a more modest proposal which will have a much more positive effect on the economy then their proposal will. First a brief lesson in macroeconomics. Federal money which is spent at the top end of the economy has a multiplyer of near one. That is, this money will not circulate much in the regular economy.

On the other hand, federal money that is spent in the lower end of the economy changes hands an average of five times. For this reason it is said to have a multiplyer of five. As this government money circulates through the economy on its way to the top it helps to provide the funding for goods and services and therefore incomes and taxes. This kind of spending often produces as much or more revenue in taxes for local, state and federal governments than the original expenditure.

So according to scientific macroeconomics the proper way to bailout Wall Street is to bailout the general economy. The process of this bailout can include infrastructure rebuilding and mortgage refinancing.

Imagine what can be accomplished with nearly a trillion dollars. We can begin rebuilding our crumbling cities, improve our educational system, begin building a high speed rail system, like other modern countries have, secure our Social Security System and provide "Medicare for All." (Incidentally, this latter item can be self-sustainable. For anyone interested in knowing how the Medicare for All proposal works, drop me an e-mail. This is the same proposal that Dennis Kucinich made during his presidential campaign.)

In this modest proposal, the federal money of $700 billion will actually produce a bounce of $3.5 trillion to the general economy and the GDP. The major corporations and the wealthy will still receive the benefit of the bailout since all money eventually rises to the top. But, instead of a $700 billion dollar bailout it will become more like a $3.5 trillion dollar bailout. This is a win, win proposal that can benefit every sector of our economy.

In the meantime we will have many unemployed Wall Street people. It so happens that the nearby Borough of Brooklyn has an antiquated sewer system where all sewage and water run off all go into the one system. When it rains in Brooklyn, the water overwhelms the system and the raw waste goes directly into the ocean. This needs to be fixed and it could provide work for the unemployed Wall Street workers. For many it would be the first productive work that they have ever performed.

Probably the most tragic outcome of the present proposed bailout of Wall Street is that it will do nothing to help the ailing underlying economy. It will not avert a recession or worse. It will not provide any relief for those losing their homes. It will do nothing to help our growing unemployment. It will do nothing to stem our balance of payments problem. It will do nothing to stop America's economic slide to a third world status.

What do you think?

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Copyright © 2008 by Wayne Spencer - This article may be freely distributed with this copyright notice attached.