First, I am not an economist so forgive me if the wording is not correct for the discipline. Second, I suspect this may end up being a "discussion" before it becomes an "answerable" question in which case comments may get moved to chat, and that is ok with me. In fact I would open a chat myself but I have no clue how that is done so I am starting with the Question...

Some years ago (maybe around 2009?) I remember reading something someone wrote on a now forgotten blog or discussion website that has stuck with me. The writer proposed an idea that they called "Cold Start Economics" (or something like that) and now that Economics.SE exists I want to ask if that idea is valid (feasible) or is flawed, and why? I am doing this from memory so if anyone else has seen the original forgive me if I have mis-remembered any of it.

There are a couple "sub-questions" that need to be addressed first...

Sub-question #1.

The proposal started with the idea that in an economic down-period people stop spending money and that causes the so-called economic engine to stall for lack of fuel. Is this idea correct?

Sub-question #2.

The proposal also was based on a belief that most retail businesses get ~80% of their sales in the last couple months of the year. I've also heard this described as "most businesses run in the red-ink until after November 1st." Is this idea really true / correct?

and now for the Main Question:

If the two points above are (mostly) valid then could the following proposal work?

Oversimplified Version: To restart the cold engine of the economy give everyone $1000 and make them spend it on tangible goods between Nov-1st and Jan-1st.

Detailed version:

  • No later than July 1st issue a very special "pre-paid" type debit card to every person for which a tax return was filed in the past 2 years, or who did not file taxes but graduated high-school (~age 18), or who registered for selective service (~age 19).

  • Just like any other plastic, the owner would call an 800 number to activate the card. They would be encouraged to do so BEFORE Nov-1st.

  • The quantity of activated cards in each zipcode would be available on a read-only website so that local merchants could anticipate potential sales and order products. Merchants could also offer special sales offers for users of the card.

  • Initially the card will be empty but on Nov-1st a one-time deposit of $1000 would be made for all cards that had been activated

  • The card will expire on Jan-2nd (no further purchases allowed even if there is a balance available).

  • The card can only be used to purchase tangible goods (so not rent or investments), which will create an increased demand for products and a positive subsequent domino-effect on manufacturing. The typical "no booze or tobacco" type limits would also apply.

  • The card can only be used in-person (physical signature required), which will boost the local merchant economy and feed the local tax-base. Not allowing remote (phone/online) purchases will also reduce fraud and allow more small businesses to benefit from the cashflow. Online companies will not be happy but then again these online businesses are (mostly) not collecting sales taxes so turnabout is fair play.

That's about all I remember now, but if I think of anything else I will add it.

  • $\begingroup$ Most businesses use a JUL - JUN fiscal year so when they run in the red till November, it's only 4 months not 10. $\endgroup$ – Hannover Fist Dec 2 '15 at 22:36

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