The Complete ThinkOOB Stimulus Economics Plan

March 9th, 2009 by Al Lewis (alewis)

It’s time to step back and form these ideas into a coherent economic policy.  No, this little blog doesn’t take the place of an $800+ billion stimulus package.  Since none of these items actually cost anything (in the sense of raising the deficit) it’s hard to imagine these examples of creative and thoughtful “Stimulus Economics” being a substitute for the blunt instrument of Keynesian economics.    The latter is about throwing money at problems, the former about fine-tuning, optimizing, and thinking harder about creatively solving them.

President Obama says that crisis is an opportunity.   Indeed it is, an opportunity to question old assumptions and traditions and update them to take into account reality.   Just about every one of the fourteen ideas in the ThinkOOB Stimulus Economics Plan does exactly that.

Restoring Confidence in Government as a Source of Good Ideas

We need to restore confidence in government as a source of creative problem-solving, quickly and decisively..   You can probably name problems which in your opinion the government has solved, but can you name one which has been solved without more (or different) regulations, laws, taxes or spending?  No, you can’t.  It doesn’t happen. 

In sharp contrast, nothing in the ThinkOOB economics plan requires any of the above, broadly speaking (though there is some tax-shifting involved in a couple of cases).     It is all about transparency, efficiency, market creation and encouraging people to act in their own best interest.

The best simple example of this is the penny proposal, pennies from hell/.  Yes, they are only pennies and yes, they don’t amount to what Humphrey Bogart would call “a hill of beans in this crazy world,” but the specific details of the proposal create a win-win for all except the zinc lobby and demonstrate the power of creative thinking.   

This problem may seem trivial in a recession. But the penny is a visible, inconvenient and constant reminder of government waste and the influence of special interests. The executive order proposed in the posting would increase confidence that the new administration can creatively address our much greater and more pressing economic needs.

Next, once this one-line executive order has shown that Washington can solve problems, it is time to move on to some bigger ones.   The next set of proposals can be categorized, oxymoronically, as pure efficiency-creation by the government.    In each case, the solution gets more spending power into people’s hands sooner, without the government spending more money.

Creative Sources of Short-Term Stimulus

One example is the  Stimulus Tax Refund/    It disintermediates tax preparers, who offer “refund anticipation loans” at usurious rates to people for whom they have just prepared taxes.  If a monopoly can be defined as “a business many of whose customers hate them,” then tax preparers fall into that category.  Each tax preparer creates a mini-monopoly for refund anticipation loans once the taxes are prepared.  They and they alone can issue the refund on the spot…and they take full advantage of that market imbalance.   The posting proposes a win-win solution for taxpayers and the government.   Only the tax preparers lose out.

The second is the  Stimulus Payday Loan/   Based on the same concept as the above, it more broadly consolidates and disintermediates the whole usurious payday loan industry, dramatically increasing the payout on conventional payday loans.

The third is the Stimulus Gift-Card/   The site’s most popular proposal, it can be applied to the above, or to any other government payout, to enhance its value and encourage people to spend it, without forcing them to.

Of course, some argue that consumer spending does no good for the US economy because the goods are all made overseas.  Besides being a gross exaggeration, the merits of that point, however tenuous they are, are addressed in  kinder, gentler protectionism/   in which it is proposed that just like appliances have an EnergyStar label, manufacturers should be encouraged (not required – ThinkOOB is not about more regulations) to sport a “domestic content” label, so people can make their own choices about buying American rather than not knowing on one extreme (i.e., today), or being forced to on the other.

Elimination of middlepeople through greater transparency

The United States has way too many middlepeople.  I would know.  I am one of them.  (I am happy to be eliminated once vendors and consultants in my industry learn enough arithmetic that I don’t have always correct theirs with my red pen.)   One could argue that middlepeople exist because they add value, or else the free market would have squeezed them out long ago, such as full-service stockbrokers.  Remember years ago how brokerage firms hade storefronts and you could walk in and nice-looking guy (and in those days it was always a guy) would help you buy 100 shares of Xerox, and he got a 2% commission for doing so because that was the law?  It’s time for many other middlepeople to go, too. 

Why hasn’t the “free market squeezed them out” like it has with stockbrokers?  Because unlike with stockbrokers whose fees just stare out at you, these other brokers have hidden fees, “shrouded pricing” as economists call it.  Plus, in the case of real estate brokers, a de facto cartel.   Oftentimes, you don’t know you are paying these fees if you are the buyer.  As one commenter puts it, “if the buyer had to write a check for their half of the commission, that half would disappear almost entirely within days.”

It’s the Real Estate Brokerage Cartel/  which draw the bulk of our fire, because they contribute more than anyone can imagine to the high foreclosure rate and need for bailouts.  How?  By making the real estate market so illiquid (a buyer takes a 6% loss by moving in, plus about a 2% loss by getting a first mortgage) that people in trouble can’t sell their homes even in a flat market without losing money.  This posting has drawn the most negative comments, invariably from real estate brokers, which means it must be a good idea.

Reducing the drag of healthcare spending

Other middlemen-gone-wild examples are in healthcare.   Small businesses (the majority of all businesses) pay a non-disclosed broker fee to get their healthcare, and they can’t eliminate the fee by going direct because most of the time they can’t see it. We propose  building-fee-transparency-in-healthcare/  In Medicare, taxpayers subsidize hidden fees because seniors need to be “sold” HMOs instead of just being given a list of options and asked to make a choice.    Once again, no heavy-handed regulations are proposed, just more transparency and reducing the need for sales commissions at taxpayer expense.  saving-medicare-advantage/    Once again, this post was mostly opposed by brokers and people who don’t like Medicare HMOs  in the first place, but the latter group missed the point. We are not pro or con Medicare HMOs.  We just want them to be done as efficiently as possible.

While we are on the subject of healthcare, the sector is indeed a drain on the economy, driving up costs and (in the case of Medicare) taxes, with no differentially successful outcomes to show for it.  Unlike many other sectors, this one is not easily addressed because the opportunities to make the sector more efficient are scattered throughout the system.  However, one source of spending which can easily be curtailed is life support for the terminally ill.   The posting  Why Is It So Hard to Die?/   does not deny those who want to keep their loved ones alive the opportunity to do so, but rather it aligns interests so that those who do not believe in ongoing life support (and would not choose it for themselves) do not subsidize those who do.   Those who want this option should be willing to pay for it, just like people who want any other option in any other purchase.

Long-Term Economic Growth through the “green’ sector

No doubt the economy needs something to sustain it in the long run other than Stimulus Gift Cards, a few efficiencies, eliminated middlemen, and slightly less expensive healthcare.   Look at previous sustained recoveries and they were all led by something novel.  Large-scale industrial production powered the postwar boom, along with population growth at a higher level than today.  Technology powered the 1980s.  The internet revolutionized the 1990s.   The betting is on the alternative energy/conservation sector as the one which will perform that function in the next decade.

But as it stands now, it won’t.  Why not?  It seems that the government is throwing money at it and there is news of breakthroughs everywhere.   There are four reasons.

1.      Conventional fuel is cheap.  This is noted by commenters in the posting  What-economists-can-learn-from-the-bates-motel/

2.      Additionally, the price of conventional fuel is heavily subsidized.  This is true even if one does not believe in global warming.  The price of gasoline in particular does not take into account the cost of defending our oil routes or of the extra security measures needed everywhere because terrorists are funded with oil money.

3.      Prices of nonrenewable fuel actually decline over time, relative to most other goods and services.   Oil now costs about what it did in 1980 without even adjusting for inflation.    And there was a Honeymooners episode where Ralph was complaining that the electric bill was $8.  Take that $8 and add 5% compounded annually, and you get the typical electric bill today, powering far more appliances.  

4.      Specifically regarding gasoline, when people make decisions about taking mass transit vs. driving, they are comparing prices reflecting the full cost of the former and only the variable cost of the latter.  Variable costs of driving are so low that it literally costs more to buy a bicycle and ride it to work most days than to simply drive a car one already owns.   (The only exception is commuting into a city and not having to pay for parking.)  See  Raising the Price of Driving without Raising the Costs of Driving/  to redress that imbalance and get people out of their cars without whining

On the other hand, there is also a myth in the other direction, that “going green” is somehow very expensive.  As the “ The Green Dividend/ posting shows, it is essentially free to gently but firmly reconfigure society to use less carbon-based fuel.  Further,  Behind the Green Door/  shows an example of how savings can be immediate, where “immediate” is defined as, “ as soon as  hotel operator with half a brain reads this posting.”

Shining a light on measuring innovation to encourage long-term growth

Those would be the most prominent out-of-the-box “green” ideas.  (We call them “green” because everyone else does, but not one of the three requires anyone to believe in global warming in order to believe in good ideas.  For instance, people over-drive because the variable cost of gasoline is so low, not because the total cost of driving is so low.  That creates traffic and pollution, and is a sub-optimal choice for that reason alone.)  The impact of those green ideas needs to be measured, and for that we’ve created the  Innovation Index/  What’s managed is what’s measured, and a well-publicized index measuring innovation in a state or metropolitan area would focus local decision-makers on innovation, without requiring them to do anything about it.  Human nature will be responsible for the latter.

Creating Some New Demand

Finally, sustained recoveries in this country have also been fueled by population growth, often through immigration.  ThinkOOB is certainly not going to say anything to reignite the refreshingly quiescent immigration debate in general.  However,     How to Solve The Housing Crisis and Jumpstart the Economy/ does point out that simple economics would say, bring in some means-tested immigrants and they will buy the unsold houses and unsold goods now, and create the basis for sustained demand later.  This is NOT about border walls and illegal aliens and amnesty.  It’s about creatively increasingly demand for goods and services.

Your comments and ideas are invited

Many of these ideas originated with readers competing for the $1-million prize.  Others were refined by the comments, or were confirmed by the comments, either explicitly or else, especially in the case of real estate brokerage, inadvertently.  The brokers wrote in to say things like “it’s been proven that owners who use brokers get a better price for their house.”   So then by definition buyers shouldn’t’ be paying half the hidden commission because that same proof requires that brokers are getting buyers a worse price.  QED—commissions should fall by at least half since the buyer is getting no value.  The buyer can’t also be getting a better price through their broker if the seller is.  In the immortal words of the great philosophers Dire Straits, if two men say they’re Jesus, one of them must be wrong.


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12 Responses to “The Complete ThinkOOB Stimulus Economics Plan”

  1. Ken Freeman Says:

    Hey Al,

    A thoughtful column as always. Good point about disintermediation. Why not repeal laws prohibiting direct sales of automobiles while you’re at it? Pretty much every state has laws protecting car dealers from competition by direct sales.

    But that’s minor compared with what you can get by understanding what kinds of economic activity you want to stimulate. IMO, that should be (1) jobs and (2) a sustainable economy. I don’t want to stimulate more spending; overspending (fueled by debt) got us into trouble in the first place. You should read Tom Friedman’s column a week ago at He points out that the bubble was really driven by unsustainable growth: overconsumption of consumer goods and resources, and unchecked pollution. Jared Diamond also pointed out in Collapse that root cause of almost every failed society was destruction or overconsumption of resources.

    So what do we do? Let’s start with jobs. First order is to reduce the cost of hiring. First, have the government pay for medical coverage. This has been debated many times, but the bottom line is that US companies are at huge disadvantage because they have to pay for medical coverage. This is an historical accident: during WWII wage freezes prevented companies from competing for talent with salary, so they started offering generous medical coverage. It’s complicated, lobbyists will scream, but it’s the right thing to do.

    Second, cancel the social security tax. Social security is the biggest Ponzi scheme in history. The only differences between SS and Madoff are that SS doesn’t pretend to be anything else, and Madoff is relatively small potatoes. The government would still pay the benefits, but the money would come directly from the Treasury. (Similarly, Medicare and other employment taxes would no longer be collected.)

    The end result will be companies will pay a LOT less per employee. Employees will also have significantly more take home pay. This kind of tax cut will be progressive, since lower incomes pay a lot more (on a percentage basis) for medical insurance and SS. The Treasury will pay a lot more, but this may be similar to the existing stimulus bill. (In truth, I have no idea.)

    Some of the added expense can be compensated for by a carbon tax. More polical poison perhaps, by this will steer economic activity towards
    renewable energy, less pollution and global warming, etc.

    There are other things I would add to the bill, some of which were present (money for high-speed rail) and some were not: block grants to states, many more H1B visas (a leading source of economic growth), etc.


  2. sacramentosally Says:

    heard your radio interview yesterday. Those people in Washington and Sacramento can’t come up with this stuff? Why don’t you tell them about it?

  3. anothersacramentoguy Says:

    Many good ideas on this site and this guy Ken knows his history. My dad worked at Kaiser and was one of the first people to get employer-paid health care. But I’m not sure it’s realistic to expect to undo stuff which has already been done.

    When will you be back on the radio here?

  4. xyzaffair Says:

    put this side by side with any recovery “plan” coming out from those bozos in Washington. I vote for this one. Very disappointing that the White House can’t think out of the box. I voted for them so blame me

  5. nprfan Says:

    what surprised me about your NPR interview was what a bunch of idiots who called in. Not a decent idea in the lot. You were very polite. I notce that even the ideas which you post aren’t good sometimes. how you do determine what to post?

  6. josephofmanycolors Says:

    It’s harder than you think to come up with these, that’s why. Some things just can’t be solved without a lot of money, like bailing out banks

  7. alewis Says:

    It is not easy to come up with ideas, or people would have already done so and solved our problems. i post some not-very-good ideas which come in because I think, “what if I am wrong and they are good? I should let people comment and decide.” You gotta cut some slack on the NPR interview, though. We can’t expect callers to immediately be able to solve the country’s problems while they’re on hold waiting to get on the air.

    And it’s not like all of my ideas are that good either. If it were that easy there wouldn’t be $1-million on the line.

  8. george c carpenter iv Says:

    Predators Ball meets Powerball: the Toxo Lotto

    Here’s my idea to save the world economy, harnessing the same greed, lack of transparency, and sheer stupidity which have driven this crisis — as forces for good.

    The raw material:

    Think of 1. the comedian who says we needed to build Las Vegas so that we’d have a place to send all the people with poor math skills. 2. state governments who can’t run deficits and have turned to (dirty little secret) the most regressive tax people can’t seem to get enough of: The Lottery. 3. A TARP-load of toxic assets so complicated they can’t be accurately valued, but which in many cases (like CDO’s) continue to fart cash and will continue to for many years to come, soon to be dispatched to “public/private auctions” at which their steep discounts will be subsidized by future taxpayers (i.e. today’s kids).

    The Product:

    Take the toxic assets which don’t win their minimum reserve amounts at auction, write them down, and place them in the Federal Reserve equivalent of a Prize Box/grab bag at a garage sale. Donate these sacks o’ crap to state Lotto authorities in lieu of block grants. Mix thoroughly, shake until frothy, and voila! A stimulus sandwich in which ordinary Lotto tickets are now spiked with extra goodness - a unit or share of a CDO or similar toxic goodie - with the potential to be worth nothing, or to dividend thousands in cash for years.

    The mystery itself is the irresistible attraction — nobody knows what it could be worth — anyone could be a winner. Selling the Lotto has always been about “selling the dream”. What dream could be better than getting back at those sneering Masters of the Universe with a single Lotto ticket? It’s economic justice ala Frank Capra: the little guy lands one right on the nose of Citigroup, winning its own CDOs, just in time to save his house from foreclosure by … Citigroup.

    States win because they attract more Lotto players. Lots more: such a sweetener would be insanely easy to market and generate lotsa free PR. “Tonight on Action News: a local pipefitter scratches to win a $100 Lotto prize, THEN finds out he owns 150 subprime mortgages in Schenectady with an annual cash payout of $2.5 million, net of bad debt. Still, he and his wife say hey have no plans to quit their day jobs.”

    Feds win because they’re at least getting something for these unfathomable wastoids — their “gifts” to state budgets are now producing real value (there’s no gross margin like the Lotto, and big spikes in purchasing [can you say Powerball?] are almost pure profit) out of frankly useless assets, offsetting other real claims on the Federal budget by those greedy states who insist on balancing their check books each year. Show offs.

    Tranche Warfare, Not Welfare

    Yes, Virginia, it’s subversive as hell. At least for some, a regressive tax on the mathematically challenged could — at least sometimes– produce legitimate wealth, and stimulate local economies. And the idea that breathing life and asset value back into some of these zombies can benefit someone OTHER than usual shadowy Wall Street types who are rigging the game offers hope to those who may have given up on the implied promise of good faith and fair dealing in a democratic market economy. Might even build up the business literacy of the Lotto-buying public (Joe, ya gonna finish ya pickle, and, uh, maybe arbitrage some of my backloaded subordinated notes?)

    “All you need is a dollar and a dream”

  9. susanb Says:

    heard your interview too and tried to call in but couldn’t. To Ken’s point, I think the government buys treasury bonds with the social security taxes, which makes no sense because the yields are so low. And they can predict their cash flow needs. Maybe they should be buying long-term treasurieis and getting a higher yield. That’s what I was going to propose

  10. thinkoobfan Says:

    Make George’s comment into an idea. I’m not sure it works but he at least has read the rules and is thinking out of the box. I agree with the comments whcich say that we expect fantastic ideas out of this site because you raised our expectations. That’s why you’re on my “Feed.” Give us more more more of those and less about government subsidies

  11. alewis Says:

    your expectations are way too high. It’s like you people expect every idea to be the next Stimulus Gift Card. These things JUST DON’T HAPPEN. someone’s got to come up with them.

    I like George’s idea too — will rework it into a posting. I do have a candidate for April from someone who works for the government so he can’t post it himself.

    I would like to temporarily refocus the site from trying to find the next next thing to getting what I have out int a book form.

  12. ladydriver Says:

    my favorite part is the Green Dividend. I have never heard anyone make a gas tax sound like a good thing before. I would definitely drive less but feel better off and greener

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