Focused, precise debit card-based buy-side stimulus:
Fulton Wilcox Febuary 1, 2013
Jobs •
Republicans and Democrats agree on the primacy of jobs –
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However, jobs sit on the “capacity” side of the economic proposition, so demand needs to increase capacity utilization to pull through job growth –
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From the Republican Platform for 2012: “We want a roaring job market to match a roaring economy” “Wages sustain not only workers and their families, but also industry and agriculture, whose products they buy.” Herbert Hoover message to the Order of Elks, July 6, 1930” “We've added 5.6 million jobs over 33 straight months of private-sector job growth. That's progress.” recent Democratic report of progress
Indeed, both Democrats and Republican hope to generate demand by supporting infrastructure – e.g. the Republican platform “A federal-state-private partnership must invest in the nation’s infrastructure…” However, the “center of gravity” of the economy is consumption, while infrastructure is a comparative niche and a slow-motion one as well If you are not playing on center court of the economy, you are not playing.
Neither Party has in its recession recovery tool kit a technologically-based, precisely metered means to inject job-creating demand into our underperforming consumer marketplace – Both Congress and the Federal Reserve can “carpet bomb” the economy using indirect, imprecise tools like tax cuts or interest rate reductions – We live in an age of precision: smarter military weapons, more closely targeted delivery of radiation in treating cancer, more carefully regulated fuel and air management to improve automobile performance – Congress needs access to precision tools to inject demand if and when demand is needed
U.S. Gross Domestic Product 1929 – 2012 in 2005 $ billion: CAGR (compounded annual growth) since 1929 = 3.2%, 1996-2006 = 3.3%)
$25,000 $20,000 $15,000 $10,000
Red solid line = actual annual GDP growth of 3.2% CAGR) Blue dotted line = exponential trend
$5,000
1929 1932 1935 1938 1941 1944 1947 1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010
$0
Recovery requires a first responder “put out the fire” intensity and focus, aimed at putting together a string of “good quarters” (CAGR 3.25% or thereabouts), not ruminations about 2022 and beyond
1991-2012 GDP actual growth in constant 2012 $ compared to a prescriptive budget of 3.25% “Goldilocks� annual growth $20,000 Red line = actual GDP in constant 2012 $ Green line = budget @ 3.25% annual growth
$16,000
$12,000
2012 GDP shortfall compared to achievable budget = $2.5 trillion
$8,000
The $2.5 trillion shortfall costs the Federal Government about $375 billion/year in revenue, @ 15% tax yield
U.S. Employment Annual Average 1991-2012: actual and, for 20062012, “normal” projected based on 1.3 million net hires per year 160,000,000
normal 150,000,000
140,000,000 130,000,000
120,000,000
Employment shortfall = about 9.6 million in 2012
100,000,000
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
110,000,000
The GDP supports jobs, while in return jobs supports the GDP. “Wages sustain not only workers and their families, but also industry and agriculture, whose products they buy.” President Herbert Hoover message to the Order of Elks, July 6, 1930.
America’s Balance Sheet: Households and non-profits •
Congress focuses almost exclusively on the GDP because: – Most jobs and wages/compensation are represented either directly or indirectly in GDP – ‘Stimulus” focuses on adding more transactions to the GDP to drive up employment – When “stimulus” is diverted into the balance sheet by use in paying down loans or building savings, the conventional view is that it is lost, but the balance sheet itself supports non-GDP tracked transactions such as the purchase of existing homes.
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America’s balance sheet is approximated by the Federal Reserves’ household (and non-profit entities ) balance sheet report – Recent dynamics of the balance sheet have been governed by mark-to-market asset value dynamics and “bubbles” with debt being the tail wagged by the asset dog – Precision in stimulus targeting and delivery is needed to “tease out” hoards of cash without setting off new mark-to-market bubbles. – Although the Congressional Budget office routinely projects GDP and its components, it does not forecast America’s Balance Sheet nor the impact of stimulus on that balance sheet presumably because Congress itself has never asked for that projection.
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Following are views of America’s assets and liabilities. – Actuals come from Federal Reserve reports Z.1 reports, in current $ billions – Prescriptive “should be” dotted line projections are presumed “Goldilocks” not too hot, not too cold growth rates of 3.25% (without inflation) and 5.5% (with inflation) – Precision in stimulus is needed to bring into action what Herbert Hoover reported as “timid capital” – Precision also is needed to minimize risk of another asset bubble by too-bold capital
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Stimulus helps pay for itself by improving America’s balance sheet – All stimulus ends up in America’s balance sheet – Improved net worth can create new GDP demands (the “wealth effect’).
U.S. Households (and nonprofits) total assets and net worth in current period $ (“budgeted” is prescriptive, aligned with GDP average growth , not a fitted trend)
Actual net worth $
"Budgeted"
Actual assets $
"Budgeted"
$80,000 Real estate bubble .com bubble
$60,000
$40,000
2012 q3
2011 q4
2011 q1
2010 q2
2009 q3
2008 q4
2008 q1
2007 q2
2006 q3
2005 q4
2005 q1
2004 q2
2003 q3
2002 q4
2002 q1
2001 2q
2000 q3
1999 q4
1999 q1
$20,000
“Budgeted” based on 5.5% average annual growth, matching average GDP growth The Great Recession squeezed down household asset values to “budget”
Need for precision: Demand for durable and non-durable goods since 2005 $ billion in 2005 $ have recovered at different paces $650 Nondurables, target growth @3.25%
$550
$450
Today’s Shortfall = $92.8 B
Nondurables, actual growth Shortfall = $9.1 B
Durables, target growth @ 3.25% per year
$350
$250
Durables , actual growth 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 q1 q3 q1 q3 q1 q3 q1 q3 q1 q3 q1 q3 q1 q3 q1 q3
Demand run rate for durables has recovered to only 2.7% below target, while nondurables demand is running 18% and about 700,000 jobs below target. The need for precision is to focus stimulation on laggards without overheating other segments.
Consumer demand for services - GDP growth since 2005 ($ billion in 2005 $) $1,800
$1,700 Services demand, target growth at 3.25% Today’s Shortfall = $258.7
$1,600
$1,500 Services demand, actual $1,400 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 q1 q3 q1 q3 q1 q3 q1 q3 q1 q3 q1 q3 q1 q3 q1 q3
Demand for services is running about 17.7% or about 5.2 million jobs below target. Stimulating services is the critical catchup need
To address jobs recovery quickly, a highly targetable means of delivery is essential •
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As the above examples illustrate, our underperforming economy is not in recession demanding large, broad-brush stimulus Instead, stimulus is needed in focused personal consumption categories, especially services The delivery mechanism needs to provide direct incentive to consume in a use it or lose it way within a prescribed period The process needed to be highly digitized to provide feedback as to patterns of utilization and need The proposed use of debit cards along with the supporting authorization, tracking and reporting services can provide the needed precision – Modifying Federal tax codes is necessarily slow and complex, with impact not only on IRS systems, but literally millions of private and public sector systems – Altering interest rates and other banking/credit arrangements lacks almost any precision and is very indirect – easier credit enables but does not cause increases in demand
Draft Economic Stimulus Bill – Debit Card • General eligibility and amount : – – – –
Debit card provided to qualifying taxpayers $5,000 per card per joint return $3,000 per individual return Qualification based on gross income upper limits
• Achieving a “Goldilocks” not too hot, not too cold focus – Each card would have a start and end date limit – Need spending to occur gradually rather than big bang – Need precision targeting to stay within capacity headroom
• Secretaries of Commerce and Treasury need to be delegated enough implementation flexibility to optimize precision targeting – E.G., to avoid over-stimulating supply/service chain “speed” limits – To make up for under-utilization