Thursday, December 11, 2008

£1000 for every person in the country

Far from saving F.A., Gordon Brown has simply given the banks what they wanted. Simon Jenkins in the Guardian has a better idea. A £1,000 voucher for everyone would jumpstart spending.

When Gordon Brown announced that the country's banks were going to be showered with £50bn and that a few extra hundred billions were going to be used to part-nationalise some of them, some wondered why the same money couldn't be given directly to struggling mortgage-owners. Banks would benefit, a few thousand family tragedies would be spared, and extra money would immediately be made available for spending. When your mortgage tinges your balance sheets in red and your credit card is maxed out, you're hardly going to indulge in shopping sprees.

It's from the same angle that Simon Jenkins in yesterday's Guardian wrote one of the most interesting (and factual) articles seen for a while. "Better to hand us all a grand than hurl billions at banks", he writes.

Far from saving the world (like Gordon Brown announced yesterday in his pathetic Commons slip-up), hurling "a staggering £500bn in guarantees and £50bn in real money" at banks has done nothing. The only beneficiaries so far have been the banks themselves who, in turn, are refusing to do what they were requested to do in the first place. And understandably so, because, happy lending is what "caused the credit collapse in the first place". The £50bn package "is aimed at making them lend to people and businesses which, with each passing week, are ever less able to pay them back".

Did you know, as Jenkins points out, that the billions thrown at banks are the equivalent of "some £1,000 for every man, woman and child in the land"? The Government is at pains to design indirect measures that can jumpstart the economy. Irrelevant VAT cuts, interest rates slashed every two weeks, financial incentives. Nothing is making a difference. Banks aren't altering their behaviour, people aren't spending, staff are being laid off, shops and chains are closing down (Woolworths have started closure sales yesterday).

And this is where Simon Jenkins' proposal makes sense. The best way to stimulate the economy is to "[g]et people to spend by giving them money, and just stop them saving it. Give them non-cashable vouchers for domestic goods and services that expire in three months. Drive them to the high streets, supermarkets, restaurants, entertainments, garages, anything that is not saving and has an employment multiplier effect. Only firms should be able to bank the vouchers". Imagine that. A £1000 voucher for every person in the country. Imagine the wave of optimism. The increased transactions on the high street or any retail park in the country. The need for staff, the increased productivity - albeit in the short term.

Alas, this won't happen. "The authorities are too hidebound to tolerate eccentricity or simplicity", Jenkins concludes. "Giving people money (or borrowing to give it) suggests a loss of competence and control. It is crude and unsophisticated, without the jargoned nuances that have given macro-economic policy its specious intellectual beauty."

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