This article first appeared in the St. Louis Beacon, Feb. 16, 2009 - Jon Stewart of "The Daily Show" has a simple solution for stimulating the U.S. economy and solving the nation's financial crisis: Forget the banks. Put those trillions of dollars directly into the hands of the consumers to pay off their mortgages and consumer debt.
Stewart reasons that the money will end up in the banks anyway, taxpayers will know where all their dollars really went -- and everyone gets a clean start.
"It's a trickle-up theory of economics,'' he told Gwen Ifill, host of PBS' "Washington Week," on his Jan. 27 show. "They'll have the money. We'll have no debt, and the world will be made up of unicorns and rainbows."
What Stewart said
Jon Stewart introduced his "trickle-up" theory on "The Daily Show" which aired on Comedy Central on Jan. 27. Here's a link.
Ka-ching! The comic's "trickle-up economics" plan became an instant hit on the Internet.
But could fixing this now-global financial mess really be that easy?
True to Ifill's promise, Stewart's theory was raised several days later during a web cast of "Washington Week," although Greg Ip, who writes for the Economist, pooh-poohed the idea as too costly.
"Total consumer debts are well north of $10 trillion, and even in this environment where people don't seem to bat an eyelash at a trillion any longer, that's a lot of money,'' Ip said, adding that Stewart's plan really wasn't that new.
"You know who came up with this idea before? John McCain during the campaign over the debate over TARP [the government's Troubled Asset Relief Program]. He said let's take the TARP money and give it directly to the homeowners. Buy the mortgages at 100 cents on the dollar. And he was roundly ridiculed for the idea at the time,'' Ip said. "Just goes to show in politics everything that was old is new again.''
Or, perhaps it depends on where you sit in the trickle. Consider this exchange during President Barack Obama's town hall meeting on Feb. 9 in Elkhart, Ind.:
"We are truly tired of the economics that we have been getting that has got us into the position that we're in. That theory has been a 'trickle down.' We need to 'trickle up,' '' a man in the audience told Obama. "Send that check to our mailbox. ... So we can take it to the bank and pay that mortgage.''
Obama replied that shoring up the nation's financial system was vital to getting the credit markets moving again, and he promised to hold Wall Street executives accountable to the taxpayers. While there was no promise of a check in the mailbox, Obama did assure the man that his stimulus package would include tax cuts for working families.
"That is not only good for those families, it's actually good for the economy because when you give a tax break to working families who are struggling, they will spend it on buying a new coat for the kids or making sure that, you know, they get that car repaired,'' Obama said. "When you give it to the wealthier families, they just put it away somewhere. And so it doesn't circulate into the economy. So tax cuts targeted to working families are the most effective means of stimulus that we can provide to the economy.''
In other words: Bottoms up.
Remember Reaganomics?
Economist Bill Emmons of the Federal Reserve Bank of St. Louis says Stewart's idea to put money into the hands of individuals, rather than banks and big corporations, is really not crazy at all.
"The basic idea makes a lot of sense. It's just demand-side economics as opposed to supply-side economics,'' he said.
In fact, Emmons explained, "trickle-up economics" is a form of Keynesian economics that was the conventional wisdom in the United States until Reaganomics -- or supply-side economics -- became popular in the 1980s.
John Maynard Keynes was the 20th-century British economist who argued, among other things, that during a business downturn governments should aggressively step up to the plate and keep people employed because the private sector wouldn't invest enough. Keynes theorized that individuals in the middle and lower-income brackets would spend more of a given extra dollar -- the propensity to consume.
"Trickle-up'' economics is the conventional wisdom behind the nation's progressive tax code, for example, Emmons said.
"What Jon Stewart is tapping into is this pre-1980 view of the way government and the tax system should work -- and that is to actively redistribute wealth from higher to lower income levels,'' he said. "The Reagan so-called supply-side revolution was all about trying to strip out that aspect of the taxation debate -- to argue that it's bad to redistribute from high to low earners.''
As simple as Stewart's "trickle-up" plan sounds, Emmons argues that such a direct payout to taxpayers would be tactically difficult.
"The simplest way I've been saying, is just mail everybody a $20,000 check -- but then you're going to have people saying, 'Why should you mail a $20,000 check to Bill Gates? Why should this family with eight children get that number of checks and this family of two only get this number of checks?' And even just finding people. What about people who don't have valid immigration documents? Do they get checks? The logistics are not trivial. What we often do is a tax cut or tax credit or Social Security tax holiday. Well, not everybody pays any taxes, or those taxes. So, what about those people? So it gets very complicated. It's just not that simple to do something that people will consider fair.''
In addition, Emmons says, such a massive payout would set a bad precedent - and someone would have to pay for it.
"Where's the money going to come from? Well, you're going to have to borrow. So actually what you're doing is taking the money from future generations and giving it to current generations. Is that fair? And suppose you don't just issue a trillion dollars of debt to pay for this. What if you actually raise taxes? If you're going to tax people with wealth and with capital -- and if they believe this is going to happen every time there is some kind of downturn -- they'll hide their wealth overseas or not invest as much. Or somehow put it in forms that are not necessarily as productive. And that hurts the economy over the long run.''
That said, Emmons concedes that similar questions are being raised about the administration's economic stimulus plan and the next phase of the Troubled Asset Relief Program for the nation's financial institutions.
"Any spending today has to come from somewhere,'' Emmons said.
No matter how it trickles.
Defined
Trickle-down theory: An economic theory stating that investing money in companies and giving them tax breaks is the best way to stimulate the economy. Also known as "Reaganomics" or supply-side economics.
Keynesian economics: An economic theory stating that active government intervention in the marketplace and monetary policy is the best method of ensuring economic growth and stability.
