Mike Hooligan made a surprise trip last week to the gates of the eternal retirement community. He was met by St. Peter, who asked in a dialect easy on Mike’s ears, “Aren’t you here early, me lad?”

“Sure’n it be true,” Mike said. “I be looking at the real estate development opportunities, if ye not mind.”

“Ah, real estate,” St. Peter bemoaned. “Not much activity there in these hard times, laddie.”

“So I be hearing,” Mike said, “but the speaker of the Indiana House has proposed repairing bridges in the state to stimulate the economy.”

“I not be hearing that,” St. Peter replied. “Most of the news from the Indiana General Assembly is reported down below, not up here.”

“Yet ’tis true,” Mike said. “The idea is to put Hoosiers to work while making needed investments in our state.”

“A noble thought,” St. Peter said. “Yet be there much excess capacity in the Indiana road construction industry? Will the contracts go to firms with workers in other states or drive up the bids for highway projects?”

“Now that be a subtlety new to me,” Mike said. “Sure’n I be wondering about these stimulus programs for some time now. Are they not just recycling the people’s money?”

“Ah,” St. Peter exclaimed, “and I be thinking you had studied economics at Notre Dame, or were you focused on theological conundrums during those classes?

“The federal stimulus programs are based largely on borrowing, not on taxation.”

“And that puts us at risk that foreigners will dump our debt, causing a total collapse of the U.S. economy,” Mike offered.

“The risk is small,” St. Peter said. “Foreign governments, banks and individuals own 29 percent of the total U.S. government debt, laddie. What do they gain by selling off so that the value of their investment falls? All that blather about dumping is nothing more than scare talk.” 

“But our debt must surely be repaid?” Mike asserted.

“Oh, really now?” St. Peter asked. “And what gives you that idea, me boy-o? The debt of the U.S. government is highly desired because of ‘liquidity,’ which may not mean what you think it means.”

“I know well about liquidity,” Mike replied. “It’s about how easily you can sell what you own. Houses, now there’re assets that be hard to sell quickly and are classified as illiquid. But stocks and bonds are generally easy to sell, so they be called liquid.”

“Right you are, sonny,” St. Peter said, “and U.S. government debt is among the most liquid of all assets. Thus, as the world’s economy grows, or as world anxiety increases, so, too, does the demand for U.S. debt, which keeps its interest rates low and not much of a burden on the taxpayers. Although all that might change in time.”

“But this stimulus spending should be going to households, to families,” Mike said.

“What would families be spending on?” St. Peter chuckled. “The unemployed and hard-pressed might be paying for necessities, but most households are not truly suffering these days. Most families would be taking the money and buying high-definition TVs made in China, clothing from Sri Lanka, wines from Chile and vacations in Spain. If we could be assured that consumers would be spending on beauty parlors, barbershops, dental implants and plastic surgery, giving them money would keep those dollars in the United States.”

“And if I might be asking,” Mike said, “how would you be having money spent?”

“Now that’s something you’ve read before,” the venerable one answered. “Hire the literate unemployed and teach them to tutor illiterate youth and workers.”

That thought was somewhat familiar to Mike, and its simplicity meant it was unlikely to happen. This made him uneasy, finally bringing him fully awake.•

__________

Marcus taught economics for more than 30 years at Indiana University and is the former director of IU’s Business Research Center. His column appears weekly. He can be reached at mmarcus@ibj.com.