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The coming depression blog | July 25, 2017

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Give $500 per month to each U.S. Citizen as a Resolution to Our Economic Problems

In this essay I want to propose that the U.S. Treasury should give every U.S. Citizen $500 per month indefinitely. This view is very similar to the Social Credit ideas proposed by economist C. H. Douglas (1879–1952).

The dominant economic theme in the U.S. and the world economy today is: Factory over-capacity and lots of willing, and able labor which goes unemployed. I propose that we use this idle factory and people capacity by stimulating demand. I propose we give $500 per month to every U.S. Citizen indefinitely without regard to their current income or anything else. Rich, poor, young and old would receive this credit (i.e., cash). Even those currently on public assistance would receive this benefit. This rule also simplifies the implementation of this idea. The rich and the well-to-do may not even spend most of the cash given to them which is ok because the middle class, the poor and the unemployed are likely to spend most of the benefit.

The cost of this benefit would be about $1.85 trillion a year (about 12.5% of forecasted 2010 GDP). I am not proposing taxes be raised or other spending be cut. So where will the money come from? The money is already there in the form of idle capacity. This idle capacity consists of world manufacturing capacity running at record low utilization rate and hoards of healthy, willing, able, disciplined and educated labor (i.e., the unemployed).

Of course, the money would have to be newly created (i.e., printed by the FED). Inflation will not result until the world economy bumps up against capacity constraints. Energy prices may rise (especially oil prices and other fossil fuel prices) but we can let them rise to a certain extent. The increased energy prices will spur energy conservation and spur innovation in the development of alternative fuels.

Another valid criticism of this approach to stimulating demand is that much of the new money may end up stimulating demand in China and other exporting countries using “currency pegs” and not so much in the United States. If this occurs this situation will not last too long as “currency pegs” will cause inflation in the exporting countries. Eventually exporters will have to raise prices in dollar terms which will be ok because it will then make manufacturing in the United States more attractive.

The newly printed money will be spent directly by the middle class, the poor and the unemployed thus stimulating employment. This way the public decides how excess capacity (factories and idle labor) is to be used through their money vote (instead of government allocated stimulus spending or the central bank stimulus actions).

If and when inflation ensues the benefit can be reduced and/or taxation increased to balance supply and demand.

The additional income to consumers will stimulate demand and counter deflationary forces currently occurring due to global wage arbitrage. This will also help consumers pay their debts and help stabilize the banking system.

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