“Revenue-Positive” Fiscal Stimulus

Give a too-big-to-fail financial institution $1 of taxpayer money, and what do they do with it?

As best I can tell, one of two things: 1) lend it back to the government for (risk-free) interest; or 2) borrow $10 more against it, then bet all $11 in the credit derivatives market.

Of course, that’s after paying themselves $3 in compensation.

(You’ll notice that there is no third choice, i.e., lend it out to creditworthy businesses and individuals.)

Housing Multiplier

By contrast, give $1 in taxpayer subsidies to a prospective home Buyer, and what do they do?

Buy a home.

Then, often times . . . buy new carpet, furniture, and appliances; hire a painter; get new landscaping, etc.

Add up all the foregoing, and you get something like $6 in downstream spending for every $1 of housing subsidy. That’s what economists and accountant-types call a “revenue-positive” fiscal stimulus — and a whale of a multiplier effect.

No wonder Wall Street doesn’t understand it . . .

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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