The Chatterbox

Bailout or Stimulus?

So here in the US there's this huge debate about what the Fed's are talking about doing to infuse a ton of money in hopes of spurring an economic recovery. That's all well and good as far as I'm concerned, since frankly it was the Fed's fault things got as bad as they have. (I could go on and on on that subject, but it's too late to change the past so why bother.)

Now there's this debate about whether the current proposal is a bailout, or a stimulus. Proponents are calling it a Stimulus plan. Opponents are couching it in terms of a Bailout.

I consider the current plan a Bailout, though for reasons that are entirely different than others.

Here's the deal as far as I'm concerned.

1. You can't call it a Stimulus when all you're doing is handing money to other government bodies and some quasi-governmental entities.
2. It's not going to create the jobs President Obama wants to see. For several reasons. One of the main ones being the time frame restrictions being put on the funding. (For those unaware, the plan as it's currently being discussed says the Fed's have to distribute all of the money within 60 days, and the recipients have to have their project "in the dirt" as it were within 120 days.

   Anybody who has ever paid attention to how government works knows it usually takes more than 120 days for the planning stage of most larger, more significant projects. Heck, it can take 60-90 days just to get a city council to agree to go ahead with a project. At which point they still need to go out to bid to find an architect, who then needs another 3 months to create the plans.

   What does this mean? Governments will be using the money to pay for projects they already had planned and on the books. Not much new will happen. It'll just be that someone else is paying the bill for already planned projects.



3. The planning part is going to quickly become a weak link. There are only so many architects, and it's not like those firms can magically ramp up their staffing 500% to service all of these new client projects they're going to have. Architects have to go to school and be licensed, remember?

   So as I pointed out above, if the drawings haven't already been completed, or at least started, there's no chance to meet the 120 day requirement. Does this mean the Fed's are going to change the requirement? Or what happens to money that is devoted to a project that isn't "in the dirt" in 120 days.



4. We all know the initial 750 billion bailout of the banks was basically wasted cash. They got the money with no strings attached, and in large part didn't do anything with it to help the economy or the failing credit market. Sad but true. Instead they used it shored up their own companies.


5. What makes anyone think state and local governments are any more trustworthy than the banks? They're not. They're going to look out for themselves and their friends first and foremost. And are used to making large sums of money disappear in a puff of smoke.

   Hell, here in Missouri the other day our new Governor proposes to use $809 million dollars he expects to get in this bailout (no clue where he gets that figure!) to balance the state budget! No new roads, no new bridges even though we have several hundred that are falling down, no new programs unless you count reinstating some programs that were cut back a few years ago as being "new". Tell me how that $809 million is going to create new jobs? Oh and he's talking about cutting 10% or so of the state's employee's at the same time too. The budget after all has to be balanced (it's a state constitutional requirement here) and he made a lot of campaign promises. (Hey, I voted for the guy, so I've got a right to complain! LOL)



6. The only new jobs this money is going to create as it is currently structured is in the construction industry. But these aren't going to be sustainable jobs, because as soon as the jobs are done the construction companies are going to be forced to lay people off again. Apparently nobody is looking to see what's going to happen a year or two down the road.

Okay, okay, so I should stop complaining since it's the only plan out there, right?

Well, I typically don't bitch about stuff unless I have a solution. Or at least an idea for one. ;)

I do in fact have a stimulus plan. It's basic, but it would work. And further it would not only create the 2+ million New Jobs the President has set as a target, but would stand a lot better chance of succeeding over a much longer time frame.

In a nutshell, instead of giving that trillion or whatever amount they end up doling out to government or local industry, invest it in People and their dreams. People are simply more trustworthy than either government or large corporations.

Here's Randy's Stimulus Plan

Take applications from People who want to start their own small business. Don't limit the type of business, as long as it's legal, but do make it a requirement that it be a New Business. So no corps get a penny. Nor do current small businesses. (Though I wouldn't freak out if these were allowed to apply as long as you put an upper valuation limit on the applicant. Say maybe 2 million cap.)

Don't invest in the company. Invest in the person wanting to start a business. Give each approved applicant $1 million dollars to get started. This gives us somewhere between 835,000 and 1,000,000 brand new businesses, depending upon the final funding figure. Then set a few, logical and quite attainable restrictions.

1. The applicant must be able to start their new business, at least ready to open the doors, within 60 days of funding.
2. The business must rent or buy some type of office or warehouse space. This also has to be accomplished in the first 60 days. Home businesses are nice, but we're looking to stimulate the economy here. And influx of 835,000 to 1 million new offices would have a drastic effect on the current malaise in the commercial real estate market.
3. Each new business must employ at least two people. Full time. With a wage of at least $50,000 per year, but not more than $100,000 for the first two years. Again, this must be done in the first 60 days. One of these wages can be paid to the applicant. The other has to be someone who is not an immediate family member. No nepotism. Both (required) employees must work at the registered office to make sure nobody pulls anything too funny. If there are additional employees they can telecommute, but at least two need work out of the office space.
4. All 1 million of startup capital must be spent within 5 years. There are no restrictions on how it can be spent, as long as it's a legitimate business expense.
5. Throw a little money at the US Small Business Association in the 2009 budget to help these new, first-time business owners plan a budget, work out a marketing plan, etc, etc. Encourage the successful applicants to make use of public and private Business Incubators that may be available in their area. And of course to get involved with their local Chamber of Commerce.

And that's about it. Pretty simple, hunh?

American's throughout time have always had this dream of owning their own business. Some attain it. Most do not, even though they could. Usually because they do not have the kind of capital available to them to get started. A million is a nice little nest egg that the vast majority of small businesses never had the luxury of starting out with.

The big initial advantage is that you'll get an immediate infusion into local economies. Not only in the commercial real estate with those 1 million new office leases. But also in all of the office desks, computers, filing cabinets, phones, etc that will need to be purchased. Several industries, all of which already exist and are hurting, will get a piece of the pie.

You also immediately get your 2 million new jobs. Simple math. One million new businesses with a requirement that each have at least 2 employees. That's 2 million jobs if everyone only does the minimum. And it happens within 60 days of funding. And each employee is guaranteed at least a living wage. Not extravagant by any stretch of the imagination, but lots of folks are working 60+ hours per week and bringing home less than $50K per year.

Better yet, these are not Temp jobs, like would be the case with the way the current plan is structured. As long as the businesses survive there will always be at least 2 employees. For the applicants that are more successful, there will be a lot more than 2 employees a year or two down the road.

The local, state and federal governments get an influx tax revenue, starting with the 2009 tax year. From the business taxes, personal taxes and sales taxes as the new business makes sales or the employees buy stuff at their local store. Schools get more tax money to spend too.

In effect you tap into the ideal of the American Dream, giving it wings and an excellent chance to succeed. You Empower people to become their own boss and own their own business, then you get the heck out of their way and let the do it!

Sounds simple doesn't it?

Okay, let's let the naysayers have some input.

They'd say:

We're never going to get that money back since it's basically a grant to a few (1 million is a few?) individuals.

True. But are we going to get back any of the money in the current plan? I've not seen where anybody is going to be repaying anything to the Feds.

You can't trust people to do the right thing with that much!

Well, true up to a point. On the other hand it's a certainty that you can't trust Big Business or Government entities to do the things that would actually help the economy. Just like normal people they're going to help themselves first.

That's the beauty here. We want the people who get the money are totally selfish. Because the more selfish they are, the more they're in it to get themselves set for Life, the better everything will turn out. They'll work harder to make their business a success.

Are you nuts? People will take the million and disappear!

Some might try. That's fraud though, isn't it? So when you catch 'em you put 'em in jail. As a side note, we've already seen the financial system bailout money used that way. But I haven't seen anybody being charged or going to jail.

Do you know how many new businesses fail?

Yes I do. Though the old figures of 50% failing in the first year and 95% within the first five years isn't exactly true.

The SBA statistics show that 66% of new employer establishments survive at least two years. 44% survive at least four years.

Still that's not great. Slightly less than half will be here four years from now by the stats.

But...and it's a big BUT, riddle me this. What is the #1 reason for small businesses to fail so early?

Yep, you guessed it. Being severely under-capitalized from the get go. They don't have a million dollars to work with to get things rolling. So the owner spends the first several years bootstrapping, living paycheck to paycheck, both on a business and personal level.

With proper assistance from the SBA, Chambers of Commerce and hopefully also from business incubators across the country, I'd be willing to bet that the failure rate for these special companies would be closer to 20% or less during the first five years. And five years down the road the economy, heck the world itself, is likely to be quite different from today. Hopefully better, but there are no guarantees in life.

And for every one that fails it's a reasonable expectation that two others would have been successful enough to expand and make up the difference.

So tell me Mr. President and our leaders in Washington DC. Why are you making this bailout/stimulus so convoluted and difficult? Especially when the answer to all of the things on your wish list is right here, and is something everyone could get behind.

Empower your people, and encourage the Dream!

You can ping this entry by using http://www.randycullom.com/chatterbox/mt-tb.cgi/49 .