IS IT TIME FOR "TRICKLE-UP" ECONOMICS?

Ronald Wilson Reagan is generally credited with coming up with the phrase "Trickle Down Economics" but it was actually coined by humorist Will Rodgers decades before. The Nobel Prize winning economist Milton Friedman is also well known for being a proponent of this style of economics, which is based in deregulation and advancing the interest of companies verses the people. The theory goes like this; If the richest among us do better, then some of that wealth will "trickle down" to all of us through job creation and advancement. In theory, I would agree with that. After all, jobs are not created by the poor, they are created by the entrepreneurs, the risk takers among us, who invest their fortunes and thereby create products and jobs for all of us. The problem is that I view CEO's much like Dictators. Without regulation, they will all gravitate toward whatever benefits themselves the most with little regard for the future, the environment, or anything else. Trickle Down theory has been put to the test lately as the American taxpayer has shelled out billions to companies, make that over a trillion, in bailouts, bridge loans, help, investment, whatever you want to call it. The problem is, these companies are not "trickling" the money down. What they are doing instead is using the money as an insulator against the tough times ahead rather than loaning the money out or investing in new ideas or products. You can hardly blame them. Loaning money out to people who, in great likelihood, will out of a job next year is a hard sell when you can sit on the money and weather the storm. But isn't that why we gave them the money in the first place?

The TARP (Troubled Asset Relief Program) was passed hurriedly through Congress to stem the panic that had set upon Wall Street. Credit markets had frozen as financial institutions began to realize the extent of the downturn. Without credit, homes could not be purchased, cars couldn't be bought, appliances couldn't be sold and an economic death spiral had begun. Money had to be injected into the system quickly to prevent a total meltdown and as much as I hate to say it, I had to support it. In the rush to get money into the system however, not enough restrictions were put on the billions that were handed out. The end result is; the money we hoped to put in the people's hands is now being used to right accounting books and insulate the companies against more loss. This does very little to help our problem. Perhaps now is the time to try a new approach.

The numbers involved here are staggering to say the least.

To put this in perspective, a billion seconds ago I wasn't even alive, and I'm 48 years old. That's how big a number a billion is. The amount now handed over to the Treasury and Treasury Secretary Henry Paulson is well over one trillion dollars, or said another way, over a thousand billions. Some theorize that it may end up topping $7 trillion before this is all said and done. A huge sum to be sure.

What else could be done with this kind of money? Here's a few thoughts.

The United States has approximately 50 million mortgages on file (estimates range from 44 million to 50 million). If you took the one trillion dollars already allocated, and divided it among the people who owe the mortgages, you could give every single one of them $400 off their bill per month for over 4 years! Not just the ones that made bad investments or selfish choices, every single one of them. Hard to believe that wouldn't stimulate the economy and stem foreclosures. To date, hardly any money has been sent to the consumer. The American Housing Rescue and Foreclosure Prevention Act gives a $7,500.00 interest free loan to new home buyers, but that money won't start hitting the hands of the consumer until they fill out their 2007 tax forms. The Bush Stimulus package sent out $600 to each taxpayer (and lesser amounts to some people who pay no taxes) in an effort to stimulate buying, but that was a drop in the bucket for people who were several times more than that behind on their debts. Refinancing through lowered interest rates (now around 5% despite the Federal Rate at near 0%) has helped a little but financial institutions are creating a huge spread (5%) out of fear of future job losses. That's simply not low enough.

Here are some ideas I have for righting our situation.

First, through Fannie Mae and Freddie Mac and even HUD, the government should be in direct competition for the refinancing dollars. This will help drive down the interest spread, which is too high, and will benefit everyone. Second, we have to except a certain amount of attrition on the business side. We can't continue to save every company by increasing our National Debt while our GDP shrinks. That's a recipe for disaster. Third, I like the idea being floated by some that foreclosed houses be turned into rentals by the financial institutions instead of kicking the families out. This would reduce the number of vacant houses (which are driving all of our property values down) and would give the owners a reduced payment that they can afford. Additionally, I would outlaw ARM (Adjustable Rate Mortgages). The problem is that they prey on people who don't understand them and put people at risk when the country can least afford to have people defaulting; during a downturn. Finally, we should encourage purchasing, by those that can afford it, by giving tax breaks for cars, housing, or big ticket items. If the guy that owns a refrigerator company sells more refrigerators, everyone gains. The money "trickles up". Trickle down theory has it's place, but when fear on Wall Street is met with hoarding taxpayer money by these corporations, it may be better to give the money to the people who will spend it, not hoard it. H.C.