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The Upturn Manifesto: Plan B for Term 2 for America

The “upturn manifesto” offers a plan of action to restore vitality, lift livelihoods, create jobs and improve incomes. This plan of action will enable America to accomplish many economic objectives. The employed, the unemployed and the retired will endorse this. Democrats and Republicans in the United States Congress will choose to vote for this plan of action.

America should lend to each household an amount equal to one-fifth of the total Federal income tax that household paid in the years 2003 through 2007. Thereby, America will lend $2.16 trillion to its households. There is another way to construct the program. America should lend a total of $2.16 trillion so that each household borrows a sum in proportion to the Federal income tax it paid in the years 2003 through 2007. Households had paid $10.80 trillion in income taxes between 2003 and 2007.

America has about 78.83 million family households. There are about 31.84 million single-person households. There are another 6.87 million citizens living with people who are not their relatives. These 6.87 million citizens are not part of any family. These data are from the United States Census Bureau.

All three classes qualify as households. The total that qualifies to borrow from the “The Lend, Spend, Tend and Mend Program” is 117.54 million households. The average that each household could borrow is $18,360.

Trustworthy and creditworthy

First, the upturn manifesto puts the people ahead of government. Second, the upturn manifesto puts the people ahead of banks and businesses. It puts them ahead of corporations and financial institutions. Third, the upturn manifesto creates trust and spreads creditworthiness.

The average that each household could borrow is $18,360. This amount – $18,360 – is not a grant. It is not an unemployment benefit. It is not a payout from the United States Social Security Administration. It is a loan from the Federal government to the households.

The United States Treasury will set the period or term of the loan equal to the average maturity of its outstanding liabilities. The U.S. Treasury will then set the interest rate of the loan equal to the weighted average interest rate on its outstanding liabilities.

The U.S. Treasury could choose the opening day of the next Congress – the one hundred and thirteenth Congress – to determine the two parameters.

Zero net debt; zero net interest

The United States Federal Reserve – the Fed – will lend to the U.S. Treasury. The Fed will buy Treasury securities. Thereafter, the U.S. Treasury will lend what it borrows. Hence, the net Federal debt will not rise. The net debt will remain unaltered.

The U.S. Treasury will earn interest from the vital human assets “The Lend, Spend, Tend and Mend Program” creates. The U.S. Treasury will pay out this interest to the Fed. Hence, the net interest on this debt will be zero.

A post-election manifesto

Manifestos are dreadfully dull. Some are very pompous. Most manifestos seek to produce economic well-being from empty prose, taxation and economic redistribution. The upturn manifesto is different. It is a solution aimed at supporting and accelerating the economic recovery.

The Federal government has been a tax collector. It has played this role with consummate skill and ease. In good times, it earns a whole lot of taxes. In bad times, it cuts taxes.

The Federal government has been a generous provider. It gives without expecting anything in return. It spends the tax monies it collects. It gives some to the needy. In good times, it spends well with a lot of comfort. In bad times, it spends a whole lot more at its own discomfort.

The Federal government has been an enthusiastic lender to businesses. It has been a sophisticated investor in corporations and banks. It has bought their bonds and convertible bonds. It has bought their warrants.

However, the Federal government has not played the role of a general lender to households. Student loans are an exception. Somehow, households do not seem to possess the same importance as banks and firms.

The Federal government should begin to regard households as the sole source of its tax inflows. The Federal government should tell the world that households are the principal engines of economic activity and wealth creation. This explains why America needs a manifesto.

The rich and the poor will embrace this. America will put to use the wealth of its rich. America will put to use the capital allocation skills of its entrepreneurs. The rich will serve the people and their activities by allocating capital. They will serve by promoting the enterprise economy. Thereby, the upturn manifesto will make class war seem like a minor episode from a cartoon film.

The sobering truth

This manifesto presents a sobering truth. The human capital of America is the sole producer of all tax revenues. The human capital of America is the sole producer of all business and banking profits.

Households earn every tax cent the Federal government collects. Households earn this cent first and then pay into the Federal exchequer. Households earn every tax cent the state governments collect. Households earn this cent first and then pay into the coffers of the state governments.

Moreover, the tax cents paid by banks, businesses and corporations are also part of the prices paid by households. Households earn first. They then spend on goods and services. The prices they pay include every tax cent the banks and firms pay into the exchequer and the coffers.

Banks and firms are merely agents for collecting and paying in the tax cents. These tax cents are included in the prices of goods and services. The truth is people are the principals that buy governance from government. People buy goods and services from the firms.

The motivation for 2003 and 2007

There is a logical motivation for choosing 2003 as the first year for determining the magnitude of the loan to households. The U.S. Congress passed the Jobs and Growth Tax Relief Reconciliation Act (JGTRRA) on May 23, 2003. Mr. George Walker Bush, America’s president between January 2001 and January 2009, signed this into law on May 28, 2003.

The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) preceded JGTRRA. However, EGTRRA was not too successful. The second basket of cuts – JGTRRA – was effective. Nearly all of the tax cuts — individual rates, capital gains, dividends, estate tax — emerged from JGTRRA. JGTRRA had a significant impact on the economy and Federal tax revenues.

The “Bush tax cuts” began to have a favorable impact on gross domestic product (GDP) growth in 2004, 2005 and 2006. The “Bush tax cuts” worked within a year. Revenues grew by 5.49 percent in 2004. Revenues grew by 14.55 percent in 2005. Revenues grew by 11.76 percent in 2006. The growth continued to possess momentum in 2007. Revenues grew by 6.69 percent in 2007, the year the recession began. Yet, GDP grew by 4.96 percent in 2007. There is a logical motivation for choosing 2007 as the last year for determining the magnitude of the loan to households.

Investing in people

Investing in households will restore the robustness of Federal and state tax inflows. Leaving this capital emaciated will cut the cash inflows to a dribble. That is when assets become liabilities.

So, how should the Federal government invest in the core assets? Lending to households is the only sensible option. The Federal government will lend $2.16 trillion to households. It will lend what it had collected as the average annual tax between 2003 and 2007, when tax inflows were robust. The original providers – the households – will make excellent use of this. They will generate more tax inflows in the future. They will also repay the $2.16 trillion to the Federal government.

Each household will get a slice of this loan in proportion to what it paid. Those that paid more in income taxes will qualify to borrow more than those that paid less in income taxes. There is ethics in this lending program. Every borrower will be a deserving borrower.

A virtuous chain of possibilities

Households with bigger incomes in the past will qualify to borrow more. Ten positive outcomes emerge.

First, the big taxpayers will determine how they would use the bigger part of the loan of $2.16 trillion. These households are more likely to allocate a large part of their borrowing to investments than to consumption. They could lend further with their superior assessment of the credit risk of borrowers within the community. They could also invest in the equity of local businesses and banks. This old-fashioned method built America.

Second, the big taxpayers are likely to have higher credit scores. Hence, the more creditworthy households would allocate their borrowings to investments. This secures the interests of the Federal government as the principal lender.

Third, the less affluent households are more likely to pay off their existing debt. This may include student loans that parents may have incurred to send their children to university. Such debt may carry a higher interest rate. The repayment of existing debt would improve the credit scores of the less affluent households.

Moreover, the loan from the Federal government would most probably have a generous repayment period. The less affluent households would pick themselves, dust themselves off and remake their professional and personal lives.

Fourth, the repayment of existing unpaid debt by the less affluent households to their lenders would restore the creditworthiness of the community banks. The community banks would be eager to lend again.

Fifth, with the crushing load of debt off their backs, the beleaguered and the cautious households would begin to consider higher allocation to consumption. They may go out to eat at the local pizzeria.

Sixth, when more families begin to eat at the pizzeria, it would rehire those employees that it had laid off during the recession.

Seventh, jobs, incomes and the credit quality of the whole community would rise. When households bring back revenues to the pizzeria, its new hires reinforce the community’s vitality.

Eighth, home prices would redeem themselves. There would be some new buyers. There would be a rising demand for homes on rent. The foreclosure process would halt on its own. A market for foreclosed homes would emerge too.

Ninth, the banks in the community would have rising demand for credit and credit products. Their borrowers’ credit scores would be higher and healthier.  Recapitalizing the banks would make sense. The more affluent households in the locale would be eager to invest in the equity of these banks.

Tenth, all components of this revitalized economy would begin to earn better incomes. There would be more jobs. They would pay more taxes. They would repay their Federal government loans too.

Restoring creditworthiness everywhere

Democrats and Republicans in the U.S. Congress should inform Americans that they have immense faith in their effort, discernment and prudence. They should express their faith in the creditworthiness of Americans.

The Federal government should lend to all households so that they begin to mend and revive the economy. These households will generate the millions of jobs lost since the recession began. They will generate millions of new jobs that the weak recovery has failed to produce.

With rising incomes and consumption, these households will pay more taxes. The credit standing of the Federal and the state governments will rise. Rising tax incomes to the Federal and state governments will be the return on investment.

Capitalistic roots and pillars

Households are the roots of capitalism. They are the pillars of capitalism. Banks, businesses and government are dependent derivatives. They depend on households for every cent of their profits and taxes.

First, households work hard to earn incomes on which they pay taxes. The Federal and the state governments use these tax inflows to pay the interest on their borrowings. They use these tax inflows to repay their borrowings.

Second, households borrow from the banks and then pay interest on their borrowings. Banks use these inward receipts of interest to make outward payments of interest to their depositors.

Third, consumers are the rainmakers of every business that serves the domestic economy. Thereby, households generate the profits of firms. They generate the cash flows to pay the interest on the borrowings of these firms. They generate the cash flows to pay the dividends on equity invested. Above all, they generate the cash flows from which businesses reinvest in order to grow.

Households pay for the materials and energy used in production. They pay for the costs related to logistics and distribution. There is more. They pay for the human effort that goes into the production of goods and services. They pay for the salaries of employees. The remainder of revenues after paying for these costs is taxable profit.

Households are the roots and pillars of capitalism. They are the sole justification for the existence of producers. Households go beyond this justification. They provide part of the capital. They augment investments by founders and specialist investors by supplying their own savings. They then generate the profits; these profits are the sources of taxes and reinvested capital.

Households are the causal forces of the economy. They generate the profits and the taxes. Banks and businesses, and the Federal and the state governments are dependent derivatives.

No enforced austerity

The upturn manifesto is the simplest and most effective antidote to the Federal and state fiscal deficits. America will not have to wait until 2020 to restore balance to its budgets. The bounce-back will not require America to live patiently and helplessly with big fiscal deficits and bigger public debt. The upturn manifesto is a solution aimed at accelerating the economic recovery. It will cut the Federal deficit and debt in a hurry.

America will not have to scale back its services to its young scholars at the primary schools and the high schools. America will not have to scale back services to its jobless young, the poor, the old and the sick. The upturn manifesto will make it possible for Federal spending to reach everyone in need of a helping hand. No one would become negotiable in the war against deficit and debt.

Confronting the contradictions

The economic recovery has spawned a few ironies and contradictions. The best efforts of the legislative and executive actions since 2009 have served banks, businesses, corporations and the financial institutions. They have been significant beneficiaries of these efforts expended during the economic recovery. Moreover, the significant efforts of the Fed have preserved and bolstered the wealth of the rich.

For the ordinary and the poor, the recovery has been worse than the recession. The median household income fell by a whopping 6.7 percent between June 2009 and June 2011. Census data released in September 2012 show that the median household income fell further by 1.5 percent thereafter.

The affluent – including the conservatives among them – have gained the most through the recovery. They have been silent in the enjoyment of their preserved and bolstered wealth. They have been noisy when they say the recovery has done no good to jobs and economic growth. They are noisier when they say the Federal debt has grown disproportionately big.

Federal debt is a liability. Where, then, are the assets? The unsurprising answer is that the assets of the affluent have risen strongly during the weak recovery. The big firms alone hold $1.7 trillion in cash.

The liberals and the progressives complain that the recovery has been a non-success[1]. They blame the stubbornness and the selfishness of the conservatives. The contradictions are obvious.

The truth too is obvious. Plan A of Term 1 has not been a great success because it failed to regard households as the central and sole creators of cash flows, taxes and wealth. Plan B of Term 2 should do something different and right.

The first term

It has not been an easy first term. However, the President, the administration and the U.S. Congress have done as much as they could to face the great recession. The great recession had all the viciousness to wash away livelihoods, savings and homes. The financial crisis and the great recession had crushed a few big banks and financial institutions. Many more businesses were about to be destroyed at the time of the inauguration in 2009.

These dangers have dissipated. We heaved a collective sigh of relief when we were sure we had averted another depression. Moreover, the danger of another recession has receded.

There is more hope now at the beginning of the second term than there was at the beginning of the first term. Simmering contentment has displaced despair.

The second term should belong to the people of America, especially the unemployed who have yet to enter the labor market. It should belong to the retired. The savings of the retired look anemic. They are afraid that their savings will be inadequate to serve their needs during their retirement. Therefore, they are working into their eighties.

Declining growth despite favorable conditions

The economy has grown in every quarter since the third quarter of 2009, but at a declining rate. Economic growth in 2010 was the best, when we heaved ourselves from the depths of the depression. Growth in 2011 was not as good as it was in 2010. Moreover, the annualized growth in the three quarters of 2012 has been lower than the growth in 2011.

The growth curve has sloped downwards. This raises many doubts and questions. We need to address these earnestly since our economic recovery had the most favorable circumstances. Moreover, most parts of the policy framework that produced these favorable circumstances are the joint favorites of Republicans and Democrats.

First, the recovery during the first term took place when the tax cuts initiated in 2001 and 2003 lasted their term until 2010. The U.S. Congress then extended these tax cuts up to 2012. Republicans hold the view that lower tax rates and a healthy economy go together.

Second, there was a significant rise in government spending between 2009 and 2012, especially in 2009 and 2010. There was a significant involvement of the government in the rescue of many banks and corporations. Government has been successful in rehabilitating and rejuvenating them. Democrats hold the view that increased government spending expands demand.

These favorable and preferred circumstances have spawned an adverse outcome: the gross Federal debt has grown significantly. It was $9.986 trillion at the end of 2008. The 2013 budget prepared by the Office of Management and Budget states that the gross Federal debt would be about $16.351 trillion at the end of 2012.

The GDP was $14.334 trillion in 2008. The estimate of GDP in 2012 is $15.601 trillion. Federal debt has grown from 69.7 percent of GDP to 104.8 percent of GDP.

Third, the Fed has participated extensively in the tasks aimed at repairing the economy. The Fed began working on its tasks long before the U.S. Congress and U.S. Treasury activated themselves. The Fed caused the first rate cut since June 2003 on September 18, 2007. That was almost a year before Lehman Brothers filed for bankruptcy protection. The Fed rate declined from 5.25 percent to 4.75 percent on September 18, 2007.

Lower interest rates have made it easy for borrowers to service their borrowings. Through the crisis and, thereafter, through the recession and the recovery, the Fed lowered the rate nine more times to save beleaguered borrowers. The Fed rate’s upper limit has been 0.25 percent since December 16, 2008.

The Fed lent very large sums to banks, corporations and financial institutions in order to stop the economy from plunging into a depression. The Fed accomplished this objective.

Moreover, the Fed owns $900 billion in mortgage-backed securities and over $1.65 trillion in Treasury securities. These purchases have released a large magnitude of money into the economy. The assets of the Fed have risen from under $1 trillion prior to the recession to about $3 trillion.

Yet the economy would grow by merely 8.84 percent over the four years ending 2012. The Federal debt would have grown by a whopping 63.7 percent in the same period. The combination of low tax rates, increased government spending, near-zero interest rates and quantitative easing has not produced a Rooseveltian kick[2].

Time now for the knockout punch

Dr. Christina Romer, the chairwoman of the Council of Economic Advisors between 2009 and 2012, has provided an evaluation of the American Recovery and Reinvestment Act (ARRA) of 2009. Dr. Romer states that the fiscal stimulus mandated by ARRA was an important step in our bleak times. It has certainly improved the lives of many. However, Dr. Romer believes that ARRA did not produce the knockout punch the administration had hoped it would. America needs a knockout punch.

The second term needs a plan to accomplish what the first term set out to accomplish. It should provide a knockout punch that restores jobs, incomes, entrepreneurial risk-taking and growth.

The upturn manifesto will produce immense kinetic energy. It will break the logjam that has immobilized the economy. It will restore the vitality of millions of households.

Fiscal cliff, call the bluff

Tax cuts and spending hikes have dominated the economic response to the recession. They have together fuelled a weak recovery. However, this is the only combination – lower taxes and increased spending – that has the highest likelihood of acceptance by both the Democrats and the Republicans.

The impending fiscal cliff – a result of a tax hike and a spending cut – threatens to contract GDP. The upturn manifesto offers a solution that could yet support the continuation of lower taxes and generous government spending. It will nurture political bipartisanship across the aisle.

Economic growth would be diffuse and deep. Tax revenues would whittle down the Federal debt. A higher GDP would produce higher tax inflows to the states too. Growing our GDP is the best possible way to produce an increase in the tax inflows without raising the tax rates.

Growing our GDP and thereby raising the tax inflows would sustain government spending. This is not the right time for austerity. America has produced better traction from government spending and the fiscal stimulus than any other economy. The upturn manifesto will produce more traction. Federal spending will have a bigger multiplier effect on the economy.

Turning on the jobs engine

Jobs growth has been tardy. The year-to-date monthly average of 157,000 payroll jobs is insufficient to keep pace with population growth. Millions of jobs lost during the great recession have not been retrieved.

The real unemployment rate continues to remain high at 14.6 percent. Labor participation rate is at 63.8 percent, down from 65.8 percent in January 2009. Moreover, the average hourly earnings fell in October 2012. The average weekly hours worked fell to 34.4 from 34.5 in September 2012.

The upturn manifesto will reverse these setbacks. It will get more people back to work. This will drive demand. Hence, the Federal government should lend to the unemployed. It should lend to the employed. It should lend to the retired. America’s retirees are important determinants of final demand.

The Federal government should rely on the instinct and self-interest of Americans to spend and invest any part of that money. Households will make up their minds to spend what is necessary for them now. This will stir final demand.

Households will make up their minds to lend to and to invest in such firms that produce the most number of jobs in the quickest possible time. Households will choose such firms that make their lives better. They will choose such firms that will raise their standards of living now and in the future. Moreover, they will choose to invest in such firms that raise America’s global competitiveness.


[1] Paul Krugman, “The Secret of Our Non-Success,” The New York Times, October 21, 2012

[2] Christina D. Romer, “The Fiscal Stimulus, Flawed but Valuable,” The New York Times, October 20, 2012

3 Responses to “The Upturn Manifesto: Plan B for Term 2 for America”

Al RodriguezNovember 24th, 2012 at 1:40 pm

Sounds like another pipedream, specially when over 10% of the population is unemployed and an 30% do not have regular incomes. We need to close our borders to cheap imports create jobs for Americans and find new export markets for high value items, such as Iran or
North Korea, at $ 1.4 million the Tomahawk is one of our best exports.

Robert P. CoutinhoNovember 26th, 2012 at 12:54 pm

This is stupid. The only way it could even possibly have a chance at working is if all the potential borrowers were forced to borrow the money and then pay it back slowly with interest. Given that some of them would die, that makes another problem as well.

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Emre Deliveli is a freelance consultant, part-time lecturer in economics and columnist. Previously, Emre worked as economist for Citi Istanbul, covering Turkey and the Balkans. He was previously Director of Economic Studies at the Economic Policy Research Foundation of Turkey in Ankara and has has also worked at the World Bank, OECD, McKinsey and the Central Bank of Turkey. Emre holds a B.A., summa cum laude, from Yale University and undertook his PhD studies at Harvard University, in Economics.

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