Canvassing for Obama, I encountered many reluctant converts who chose to vote for “hope” and “change” despite their long-standing cynical conviction that “politicians never fix anything.” If the new administration fails to deliver substantive change, we will see a terrible resurgence of cynicism. We must immediately confront the reality that our "good intentions" will be very difficult to deliver on. On issues like cleaning the environment, alternate energy, etc., we know the political pincers that are already expected to crush our good intentions: Either we must increase the national debt by deficit spending, or we must pay as we go by increasing taxes. Neither of these alternatives is a good one. Both threaten to crush the economic engine that is needed to move innovation. Consequently, we need to identify a new long-term funding mechanism to pay for our expensive, hopeful ambitions.
I want to float an idea.
Rather than taxing people who are already struggling or increasing an already bloated national debt, why not sell a modern equivalent of war bonds? People could be encouraged to sacrifice and contribute in much the same way our parents were encouraged to do during WWII. Those who can afford can invest small or large amounts in bonds. Those who cannot afford to do not have to. Such a voluntary process increases the savings rate, provides some long-term savings for individuals, and creates a sense of proud participation without the resentment of coercion. It provides substantial initial investment (What if 3 million of us invest $1000 each?) and continuing steady funds (What if 5 million of us subscribe to a $100 bond per month?).
I am a classicist, not a businessman, so the details would need to be worked out by people with professional knowledge, but I can imagine such bonds offering a competitive interest rate with (let’s say) a 20-year maturity. It seems to me that these funds should not be given away (as the government has traditionally done). Instead, they should either be loaned at a profitable interest rate or (better) used to purchase equity in companies developing new and promising products. If those investments prove successful, the bondholders could be repaid not only their promised minimum interest at maturity, but also a bonus based on the earnings of the investment pool. In this way, the citizen investors obtain a temporary (20 year?) stake in corporations as they develop revolutionary energy products, and then automatically disinvest at the time of bond maturity, returning the company entirely to the free market. Assuming that the investments are wisely made and generally successful, there is little actual cost to the Treasury. And (most important), we get our clean energy, our dynamic economy, and protection for our environment.
In its broad outlines, a plan like this strikes me promising and worthy of further consideration, but I lack the expertise to know what I’m talking about. If you think the plan has some merit, please recommend this post in the hope that some of the insiders to Obama’s campaign/administration will take note of it—just to put it on the table as a possible mechanism.