Reimagining Government Responses to Great Recessions

Potential Advantages of Decentralised Economic Decision-Making

I argue that my proposal successfully draws attention to, and prioritises, everyday citizens who require help during Great Recessions, rather than white-collar bankers. [7] I agree that sometimes the “eat the rich” mentality and class warfare can go too far, but I am staunchly against the doublethink that permits people to rationalise big corporate payouts for the few, when most of a nation’s population is suffering economically. As Obama and Geithner have compassionately articulated in their respective books, everyday citizens should not have to bear the brunt of the Great Recession, when it was a narrow group who were feckless in abetting risky mortgage-backed securities, ruining the financial economy, and leading it to wreck the real economy. [8] This assault on one’s sense of justice, as well as the unwritten social compact, is particularly egregious when the narrow few get away scot-free legally, and with fat paychecks, in the throes of a Great Recession.

I acknowledge that my proposal has flaws. In particular, if the US government had not directly saved banks and financial institutions, then small businesses in the real economy would have suffered too, such as by being denied loans. This would have had knock-on effects on the jobs and incomes of everyday citizens, if employers started retrenching workers and freezed recruitment, R&D, innovation, and job creation.

This also explains why, during economic crises, Singapore’s government has consistently been adamant about deploying fiscal firepower towards helping employers pay their workers’ salaries, so that employers can retain their workers, even while waiting out the storm. [9]

However, in the name of encouraging us to consider the outward edges of the possibility cone,[10] I invoke Schumpeter's theory of creative destruction. Imagine that you are an everyday American citizen experiencing the depths of a recession, where business sentiment, investor sentiment, and consumer sentiment are at all-time lows. However, via the American equivalent of Singpass, PayNow, and CDC Vouchers, you receive $20 per day, every day for two whole years. What would life be like for you?

I agree that your employer may have retrenched you by then, and that there may be sparse openings for white collar jobs amidst a financial crisis, hence my proposal would result in some economic pain for you. However, if your former employer was not profitable nor resilient enough to weather this recession, then was there much of a future for that business anyway? If consumers do not choose to spend their $20-per-day welfare cheque on that business, would it have collapsed to Schumpeterian forces of creative destruction anyway, sooner rather than later?

Admittedly, many might think that it is sensible for government funds to be used to keep some private sector companies on life support, such as how the Singapore government's financial backing of Singapore Airlines, during the Covid-19 pandemic, is generally viewed as a good decision that enabled the national airline to cash in on the pent-up demand once borders started reopening. [11]

However, the age-old debate between Neo-Luddism and Schumpeterian creative destruction informs us that there are longer-term benefits from letting old firms die out, even while acknowledging the immediate downsides.

Furthermore, in the classic microeconomics discussion of “vouchers versus cash”, we are taught that cash always benefits consumers at least as much as vouchers do, and that giving consumers cash sometimes benefits them more than giving them the same amount in the form of vouchers, but never the other way around. This tells us that there are benefits that emerge when consumers get to choose what to spend their dollars on, rather than being constrained on the items they can buy due to restrictive vouchers. This partly explains why my proposal is for all citizens to be given $20 in cash daily, via digital banking. You could choose to spend these twenty dollars on the real economy, or the financial economy, or both, or save it up — importantly, it is for you to decide, not the federal government to dictate. Each citizen would make their economic decisions in a decentralised manner, thereby generating, via their purchasing decisions and price signals, a higher volume of useful information on which businesses are more worth saving in the midst of a recession. This is contrasted against the government using the funds to make economic decisions in a centralised manner, which would generate less information.

This would mean that private sector companies of national importance might not be able to receive the critical mass of funds needed to weather the economic downturn, but would enable individual citizens to use their funds in the manner they believe is most productive for themselves.

Rather than let the federal government attempt to pick winners (and likely fail to do so productively), why not let everyday citizens decide with their dollar votes which businesses are worthy of being saved from the ongoing Great Recession, and which businesses are due for a Schumpeterian revolution?

Finally, some have argued that President Biden’s inflationary policies caused Vice President Harris to lose the 2024 election. Pursuing this thread of inflation, I agree that a stimulus of $20 per day, per citizen, would risk being inflationary. However, policies do not operate in a static vacuum — just as there is a possibility that there are too many dollars chasing too few goods, there is likewise a possibility that implementing my proposal improves sentiments across the board (what Keynes called “animal spirits”), and galvanises greater investment in domestic productive capacity, thereby tempering inflation.