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Letter: Power of household spending

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If the economy is 80 percent dependent on household spending, what if the government gave the money to people instead of the very banks that drove the world economy into the dirt?

About two trillion dollars ($2,000,000,000,000) have been committed to saving the economy. The March 2008 Current Population Survey shows there are about 116.5 million households. If $2 trillion were distributed among households, that would amount to $17,167 per household. For the wealthy this amounts to less than a few weeks' pay but for many it represents nearly a year's income.

What would people do with that money? Would they pay down debt (particularly credit cards) and so increase their monthly cash flow and decrease the risk of future financial difficulties? Would they spend it and create jobs? Would they save it and recapitalize banks? Distributing money to households would be efficient and not require additional bureaucracy. Of course this is simplistic and can't happen.

Instead of propping up failed banks, whose leaders' compensation was clearly misaligned with their business acumen, what if the government would allow creditworthy people and businesses to borrow directly from the U.S. Treasury at affordable rates? Let banks then decide if they want to engage in responsible lending or let them go bust as they cling to worthless CDOs and other failed assets of their own making.

Instead of creating impossibly complex instruments whose risk is impossible to determine, what if that energy were channeled into creating and financing new business models where risks and returns are quantifiable and advance objectives in our common interest? What if, like Tom Friedman proposes, a business was created to upgrade a home's energy efficiency at no cost to the owner? The business would make the investment and be repaid by splitting the energy savings with the home owner. The banks, the business, the providers of the energy-saving materials and appliances, the homeowner, and the environment all win and the demand creates incentives to invent more energy-saving technologies which when commercialized create even more employment.

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