Tuesday, July 26, 2011

My Idea Fixes This Problem

Ezra interviewed Larry Summers today. Part of their exchange:
...If you want to give relief to people that maximizes their capacity to spend, give them a debit card that expires in six months.

EK: That seems like a good idea to me. Why didn’t we do it?

LS: When I first heard that idea, I loved it. Then I thought about it more and decided I only liked it. It occurs to you that if you give Ezra a $500 card he’ll spend that, but on things he would have bought otherwise and he can save the money he’d have otherwise used for those purchases, so there’s little net impact...
My idea is to do this in conjunction with a Fed purchase of citizen debt, specifically student loans. This circumvents some of this problem by giving an additional incentive. The amount that goes on the debit card is equal to how much people pay to their student loan. While this could have the exact same effect (people eschew other spending), the cost would be essentially zero (the Fed prints the money) and the types of people who would otherwise figure out how to save are the same ones who would be most strongly incentivized to put more into student loan debt, which would have to be spent.

There are two necessary things to this: 1) it has to have a time limit (~2 years), and 2) at the end of that time any remaining debt is paid off as normal.

People who would not be inclined to save will spend no matter how the money is distributed. Those who are inclined to save and who are savvy enough to game the system, will game this system as well. The difference is that people who game this system may actually spend more than those who don't because there is actually an incentive here to shift away from savings to extra debt reduction with complimentary cash for buying things (for these folks it would probably be lots of durable goods or home improvement things).

2 comments:

Tarun Kumar said...

you are right... you can also find latest Student Loans news online.

montanna said...

Repayment is asked in two weeks or maximum in a month’s time. So one can surely take a deep breath and relax his issues with guaranteed payday loans.