Miles Kimball on Federal Lines of Credit

At his newly-minted blog, University of Michigan economist Miles Kimball floats an intriguing idea. Targeted tax cuts are often deployed as fiscal stimulus measures. One potential problem, however, is that households will often save the money, particularly if they are pessimistic regarding their future economic prospects. While this might be seen as a good way to help households repair their balance sheets, any stimulative impact is greatly reduced. And of course the cuts reduce revenue. As an alternative, Kimball calls for “Federal Lines of Credit” or FLOCs:

Imagine that the economy is in a recession and the President and Congress are contemplating a tax rebate. What if instead of giving each taxpayer a $200 tax rebate, each taxpayer is mailed a government-issued credit card with a $2,000 line of credit? ($4,000 for a couple.) Even though people would spend a smaller fraction of this line of credit than the 1/3 or so of the tax rebate that they might spend, the fact that the Federal Line of Credit is ten times as big as the tax rebate would have been means it will probably result in a bigger stimulus to the economy. But because taxpayers have to pay back whatever they borrow in their monthly withholding taxes, the cost to the government in the end—and therefore the ultimate addition to the national debt—should be smaller. Since the main thing holding back the size of fiscal stimulus in our current situation has been concerns about adding to the national debt, getting more stimulus per dollar added to the national debt is getting more bang for the buck.

One of the cleverest aspects of Kimball’s proposal is that it can be reconciled with fiscal consolidation even in the near-term:

[I]t is perfectly possible to combine an immediate or relatively-quickly-phased-in austerity program with the issuance of large national lines of credit to counteract the negative aggregate demand effects of the austerity program.

FLOCs merit close consideration. The proposal reminds me of Steve Randy Waldman’s (very different) Treasury Express concept, which reinvents basic transactional credit as a public good. 

P.S. Wait a second, Reihan. Haven’t you argued that the federal government should get out of the consumer credit market? Yes, I definitely have. FLOCs are best understood as a second-best alternative to counter-cyclical transfers, not as an ideal solution. 

Reihan Salam — Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

Most Popular

Politics & Policy

Students’ Anti-Gun Views

Are children innocents or are they leaders? Are teenagers fully autonomous decision-makers, or are they lumps of mental clay, still being molded by unfolding brain development? The Left seems to have a particularly hard time deciding these days. Take, for example, the high-school students from Parkland, ... Read More

Romney Is a Misfit for America

Mitt’s back. The former governor of Massachusetts and occasional native son of Michigan has a new persona: Mr. Utah. He’s going to bring Utah conservatism to the whole Republican party and to the country at large. Wholesome, efficient, industrious, faithful. “Utah has a lot to teach the politicians in ... Read More
Law & the Courts

What the Second Amendment Means Today

The horrifying school massacre in Parkland, Fla., has prompted another national debate about guns. Unfortunately, it seems that these conversations are never terribly constructive — they are too often dominated by screeching extremists on both sides of the aisle and armchair pundits who offer sweeping opinions ... Read More

Fire the FBI Chief

American government is supposed to look and sound like George Washington. What it actually looks and sounds like is Henry Hill from Goodfellas: bad suit, hand out, intoning the eternal mantra: “F*** you, pay me.” American government mostly works by interposition, standing between us, the free people at ... Read More
Film & TV

Black Panther’s Circle of Hype

The Marvel Cinematic Universe (MCU) first infantilizes its audience, then banalizes it, and, finally, controls it through marketing. This commercial strategy, geared toward adolescents of all ages, resembles the Democratic party’s political manipulation of black Americans, targeting that audience through its ... Read More