Are governments going the right way about bailing out the economy? Let’s see. They are spending lots of money (lots so big that I am not entirely sure how many digits the total figure has got!), on banks and car manufacturers (mainly). The rationale being (as I understand it), that if the banking system fails, the whole economy fails, and that car manufacturers employ so many people (directly and indirectly), that the economy would badly suffer (not to talk about all the votes lost for the next round of elections) if the industry didn’t get help.
This way however many people feel cheated, as they see the banks being given lots of money after they have made a mess of it, often on our backs, and the car manufacturers get help even though they got stuck making cars people don’t want, and that are bad for the environment. And what about all those working in viable businesses, who have applied best practices over the years, but who don’t get any bail out help during this recession? I would say there might well be quite a few resentful people out there. Not good for votes. And those people who do not get bailed out, won’t be producing and therefore won’t be helping the economy either.
How about giving the money to the people directly, to spend on paying back their mortgages, and buying new cars? The money could be given in form of vouchers, so that people can’t spend it on holidays and booze (for example), but can only use it for mortgages and cars. This way, a good chunk of the loans gone bad because of falling house prices would be paid back (as well as the good loans, so that everybody can own their own home, and nobody feels cheated), and people could buy new cars. The details could be worked out to try and make it as fair as possible to everybody, but the idea being that the vast majority of people would end up owning their own home, and a new car. Banks would get rid of lots of outstanding loans, thus reducing the uncertainty about their exposure to bad loans, which is at the base of the credit crunch, which is at the base of the recession. Car manufacturers would still receive an injection of cash as people would be buying new cars, and the system could be skewed towards greener cars, so that manufacturers who have invested in green technologies are advantaged.
It seems to me that this would be good for the economy, and for votes.
The main argument I can see, against my solution, is that it would cost a lot more than current bail out schemes. But that is assuming that the current bailout figures are the final ones, and I am not convinced of that.
Why wouldn’t my scheme work any better than what governments are currently doing?
Luca Rastello 