Random debt relief

I my last post I pointed to some research which suggested that random selection of a proportion (not all) of politicians led to greater efficiency, and that a similar model might be useful in the allocation of research funds. 

I'm not an economist, so I expect to be mocked for the next proposal, but here goes anyway. A similar approach might be a more effective means out of the financial crisis than straightforward austerity. This is based on two assumptions:

1. Individual debt relief is more effective at generating growth than bank bailouts - the reasoning here is that banks don't actually distribute the money very far. Individuals will spend more if their debt is relieved. They act as a more effective conduit to get money into the system in a distributed manner than banks.
2. A random element introduces a level of unpredictability into the system, which can prevent stalemate.

So instead of giving £50 billion here, or €100 billion there to banks, a sustained programme of individual debt relief is established. It works like this:

• A useful but not excessive amount is determined. Let's say it's £100,000. Not a lot to a bank but to an individual a substantial amount.
• A 5-year programme is established of a set amount per annum, say £50 billion (that may be too much, it may be not enough)
• The money is allocated at random to households, in a lottery fashion. Crucially there is no quality filter, people do not bid for the money, or put in proposals. There might be a few simple rules in place, eg you can't have it twice, maybe convicted serious offender are ruled out, etc. But largely it's a random process with a high chance over the 5 years of being successful.
• There are no restrictions (apart from existing laws) on how it is spent.

What would happen would be that it would be spent in a variety of ways, each helping the economy. So many people will clear debt. This helps banks, but also benefits the local economy since those people have more to spend on meals out, shopping, etc. Others may decide to start up that business they've always dreamed of, while others still will use it to retire early, thus freeing up a job for someone else, etc. Undoubtedly some people will spend it in ways we wouldn't like (on becoming an alcoholic, emigrating or buying Katie Price books), but you just have to accept this.

Over a sustained period enough people would have received it for it to have a significant impact in most areas, without leading to rampant inflation as it is still a minority. And before the argument that the way out of debt is not more debt argument is raised, this isn't really increasing overall debt. A nation's debt is made up of the government's debt, individual households, financial institutions and non-financial institutions. Currently we are swapping some of the financial institution debt for government debt, but creating no growth. This plan swaps some of the individual household debt for government debt, but would, I suggest create growth.

I'll go back to being an educational technologist now.

 

Comments

[Sukainaw]

I'm even less of an economist than you are, but this sounds good to me. Stories of winners would provide enough fodder for the Daily Mail though (which is a downside) as well as spawn a whole industry trying to predict or game the system of allocation along with the possibility of public disorder or huge sudden shifts in local economies. And there's a novel in here somewhere - 'The Money Games' :-)

[kobe]

Debt has a good hold not only on the individuals but on the every single country. It’s all just due to improper management of finance that brings loads of debt. If taken care from starting no one would have to face that load.
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