Comparing the great success of the clunker program to the very slow take-off of other parts of the stimulus package teaches important lessons. The clunker program, Part I, was done in less than a week. It helped individuals, car dealers, besieged auto manufactures, the general economy, and the environment. Other parts of the stimulus package have been months in the making. Only about 10 percent of the funds have been spent so far. And many have fattened the banks, which have used a good part of the money to buy other banks and to pay outrageous bonuses rather than extend lending, the purpose for which they were given the funds.
Hence the merit of a previous suggestion, that we should bail out the people, and only indirectly the financial institutions.
Late last year, we suggested that Congress should instruct the U.S. Treasury to issue to each American household a mortgage reduction voucher worth $7,500. There are about 100 million households in the U.S.A., so the total cost would have been roughly the same as the bailout of Wall Street investors and banks. Because these vouchers could have been used only to pay off mortgages, these funds would have greatly alleviated the financial crisis which was caused by people unable to make their payments. Thus, these vouchers would have helped the banks by helping the people, rather than hoping that by saving the banks the people would be bailed out. Think about it as trickling up, instead of down.
One may ask, why suggest issuing these vouchers to people who have no mortgage? For fairness’ sake. Given that that a Congressional bailout uses tax payers’ money, all tax payers should benefit from the program. People without mortgages could have either used their vouchers as part of a down payment for a house—thus helping restore the housing market to good health and stopping the downward spiraling of the price of houses, one of the causes of the current crisis—or they could have sold these vouchers to others who could have used them to further reduce their mortgages. (That is, these vouchers would have been tradable.)
Should crisis ever strike again, Democrats should love these vouchers. They benefit all of us, and not primarily those who own shares in irresponsible banks or the banks’ reckless management. Republicans should love these vouchers, as they are akin to the school vouchers libertarians have long favored on the grounds that such vouchers leave the choice to each individual.
Hopefully we will never have to face such an economic crisis again. But just in case, if it ever hits again, bail out people, not Wall Street.
Amitai Etzioni is a University Professor at The George Washington University, and the author of The Moral Dimension: Toward a New Economics. He can be reached at email@example.com