American political leaders are looking for a way for American to start digging its way out of the increasingly grimmer financial crisis. In this Guest Voice post, TMV reader Marc Pascal, an Arizona-based economic psychologist, offers an intriguing idea: move the decimal point. Guest Voice posts do not necessarily reflect the opinion of TMV or its writers.
Easy Economic Stimulus Package: Move The Decimal Point
by Marc Pascal
The financial numbers are so enormous today and no one really can really grasp or understand them. They include everything we purchase, sell, owe, own, and how we conduct our economic, political, social, cultural and governmental affairs. As we have seen over the past three decades, various investment bubbles, steady inflation, and uncontrolled greed have moved once reasonable numbers for consumer products, services, salaries, wages, real estate, education, food, energy, credit, and the costs associated with government and business activities to unreasonable and unfathomable levels.
The sheer size of our financial mess is staggering. The majority of individuals, households, businesses, banks, and all levels of government are simply drowning in debt. A preliminary step in addressing our disaster is to get everyone to speak in financial, monetary and economic terms that we can actually comprehend without fear and trepidation.
If we ever hope to remake our national economic and political system, we have to start simply and aggressively.
On a date certain (i.e. 7/4/09) a new federal law would mandate that everything in the U.S. economy, and in our legal and financial systems, would have the decimal point moved over by one space to the left. Contemporaneously all old cash in circulation would have to be returned and exchanged for new dollars at a 10 to 1 ratio.
How will this help our country in the midst of the steepest recession since WWII? This proposal would work for the most simply and important reason: the positive psychological impact. Then we could honestly and responsibly address all the issues facing us today.
What was once a trillion dollar deficit would be just $100 billion.
What was once a grossly-over-priced home of $500,000 would now be a reasonable $50,000. A typical new mid-size auto once costing $25,000 would run just $2,500. Of course the median family would earn $5,000 annually, not $50,000. Everything would shrink – from the size of government spending to the costs of maintaining a household – down to numbers we would again be able to understand.
If milk and gasoline go from $2.00 to $3.00 per gallon down to just 20 to 30 cents per gallon, we would all feel a lot better.
Yes, everyone’s savings accounts and 401K retirement plans would also be psychologically reduced by this decimal place move. However, the majority of Americans have little or no savings and many others have seen their savings accounts and retirement plans shrink by more than half as a result of the financial crisis. We would not notice much change in these accounts. However all mortgages and debts for autos, credit cards and student loans would also be reduced drastically to numbers we would be able handle over the long haul. This decimal change would work wonders for the now defunct U.S. banking system.
Since we are collectively drowning in debts we cannot every repay with our limited offsetting assets, this is the perfect time to readjust our currency. Essentially a paper reduction in limited assets coupled with a massive reduction in huge liabilities would perk up everyone’s spirits. This is the key element to this proposal. We have to psychologically reduce all the insurmountable personal, household, business, banking and governmental debts so we can collectively manage an economic recovery.
Finally and without any effort, Americans would become competitive globally. Foreign workers – who under our old monetary system were willing to work for less than $1 per hour while we expected from $10 to $20 per hour – would no longer have their enormous price advantage. Psychologically, it will be easier for U.S. employers to hire Americans when the hourly wage of an employee would be $1 to $2 per hour – almost in line with the rest of the globe. Thus overseas outsourcing would seem to be a waste of time and money to business. American workers would finally be able to complete globally on the only measure that really matters to capitalists and employers: price.
Some economics would argue that the various global monetary and economic systems would alter to accommodate the change in the value of the U.S. dollar. Considering the way the major currencies have fluctuated wildly for conflicting reasons over the past 10 years, nothing is really predictable with exchange rates. Since most economists missed this massive economic downturn, their track record is pretty lame for predicting anything.
While waiting for the stimulus package (and probably a few more) to eventually kick in, the best step to immediately restore nationwide confidence in consumers and businesses would be to move the decimal point to the left by just one measly place. History has shown that little changes often have great consequences.
Marc Pascal (JD & MBA) is an Economic Psychologist in Phoenix, Arizona.
Joe Gandelman is a former fulltime journalist who freelanced in India, Spain, Bangladesh and Cypress writing for publications such as the Christian Science Monitor and Newsweek. He also did radio reports from Madrid for NPR’s All Things Considered. He has worked on two U.S. newspapers and quit the news biz in 1990 to go into entertainment. He also has written for The Week and several online publications, did a column for Cagle Cartoons Syndicate and has appeared on CNN.