### Exploding Debit Cards

A Guest Post

by

Bennett Haselton

The government sometimes issues stimulus checks in the hopes that the windfall will induce people to spend and stimulate the economy. Regardless of the merits of this idea generally, the effectiveness is partly reduced because people choose to save the money rather than spending it.

So: What if, instead of issuing stimulus checks, the government issued “exploding debit cards”, which have to be spent in a given time period or the cards cease to work?

This would seem to have several advantages over stimulus checks:

• Rather than cutting checks knowing that some of it will be spent, the government is handing out cards knowing that almost all of it will be spent. This means the dollar amount can be less in order to achieve the same stimulus effect. (Even though this is a political consideration, not an economic consideration.)
• It gives the government more fine-tuned control over when the money is spent — you can issue the cards to different subgroups at different times and require the groups to spend the money in separate time frames.
• Since the card balance is difficult to convert to cash, this reduces the chance that the money will be spent on illicit purchases the government may want to prevent.

Some people would still find ways to work around it — perhaps by buying goods they could re-sell for cash, or selling their cards for cash (if merchants are lazy about doing ID verification), or buying goods and then returning them for store credit — but, given the effort required, the number would be much lower than the number who would simply save their stimulus checks instead of spending them. (Many people would prefer to save, but the goal here is to achieve a specific economy-wide outcome, not to give every person what they would prefer.)

Not everyone agrees with the merits of issuing stimulus checks. But it seems that any argument in favor of stimulus checks would be an even stronger argument for using exploding debit cards instead. Am I missing something?

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#### 13 Responses to “Exploding Debit Cards”

1. 1 1 Zazooba

Fungibility = Problem

2. 2 2 Doctor Memory

The implicit windfall to Visa, Inc, might present an interesting political problem.

Speaking of which: is it actually true that the efficacy reduction of “stimulus” payments is mostly due to savings? I would imagine that using a one-time stimulus payment to pay down consumer debt is far more common. As such maybe having the government occasionally acquire and retire the bottom tranches of Visa’s debt holdings at some discount say 1% higher than they normally recover from debt collection services might be an interesting stimulus method to consider…

3. 3 3 John B Chilton

Check and expiring debit card of the same denomination have the same effect if the consumer would spend more than the check. Inframarginal dollars don’t matter. Suppose you gave me \$100 and that would increase my spending \$40, but my total spending would be \$300. Yes, my savings must have increased by \$60. Now suppose the \$100 will turn into a pumpkin at the end of the period. I simply make sure it’s the first \$100 I spend out of the \$300.

Food stamps work much the same way. It’s the rare case that it makes a difference whether you give people cash or food stamps. Most people purchase more than the dollar value of the grant on food. Of course, that also depends on the size of the grant — just as it would in your stimulus example.

4. 4 4 Steve Landsburg

Doctor Memory: This is just a vocabulary issue but any household income that doesn’t go to either consumption or taxes is defined to be savings. That includes paying down debt.

5. 5 5 Bennett Haselton

John B Chilton,

I agree. This comment now makes me less confident in the idea than I was originally.

On the other hand, I wonder if there’s an auxiliary psychological benefit to the exploding debit card. If the average person is handed a \$300 debit card and told that it will expire in 30 days, will they get that “gotta act now” feeling so that their spending will go up by more than if they had gotten a \$300 check? It’s not rational (as long as they were going to spend \$300 over that period anyway), but I’ll bet a lot of people would.

6. 6 6 Harold

I think the use of vouchers issued to the relatively badly off with an expiry date has been suggested previously. Use of cards is a more modern way to do it but the principle is the same.

7. 7 7 Harold

Politically, handing out something very like cash is always very unpopular with those who don’t get any. Giving to the relatively poor is a means to ensure that they are actually spent rather than squandered or used in some complex fix to extract value later. However, even if this would be the most effective way to implement a stimulus it would not be the most popular.

8. 8 8 Paul

No need to use cards. Just have a rebate program where you send your qualifying receipts in by a date certain to obtain a refund. Has benefit of ability to limit rebate to purchases that have high stimulus effects and has a time limit to encourage timely spending but not need for paying Visa

9. 9 9 Will A

In regards to paying Visa, if the amount of the card was large enough, MasterCard might outbid Visa in how much it pays the U.S. Government for the sole right to issue the cards.

It would also help low income individuals who don’t have a bank account who would need to pay a check cashing facility to get cash.

A check is the worse of both worlds. They need to pay a check cashing facility to get cash. And they buy items at a prices raised to cover the fees Visa and MasterCard charge the stores.

10. 10 10 Mike K

In terms of logistics, the easiest vehicle is to just load or expand EBT cards with cash benefits. This actually seems to profit J.P. Morgan Chase the most.

https://www.thedailybeast.com/jp-morgans-food-stamp-empire

In terms of the psychological advantage of the “gotto spend it now” mentality, which economic models take those advanced psychological considerations explicitly into account? Most discussions I’ve seen here about tax breaks, earned income credits, minimum wage, and so far seem to work with models that assume rationally maximizing self interest. So if we add that consideration into this stimulus calculation I would think all other variables in the overall model should get some equivalent psychology weights.

11. 11 11 Enrique

Why not just impose a moratorium on (or better yet, get rid of) payroll taxes?

12. 12 12 Bill

I’ve always been bothered by such claims as “the effectiveness is partly reduced because people choose to save the money rather than spending it.” This seems to equate saving with hoarding. If Smith receives \$1000 and uses it as a downpayment on a car, how is that more stimulative than if Smith deposits the \$1000 in a bank (i.e., saves it), and the bank lends it to Jones who uses the loan as a downpayment on a car? (I realize the bank is required to meet a reserve requirement regulation.)

13. 13 13 nobody.really

Giving to the relatively poor is a means to ensure that they are actually spent rather than squandered or used in some complex fix to extract value later.

Doolittle: I’m one of the undeserving poor: that’s what I am. Think of what that means to a man. It means that he’s up agen middle class morality all the time. If there’s anything going, and I put in for a bit of it, it’s always the same story: “You’re undeserving; so you can’t have it.” But my needs is as great as the most deserving widow’s that ever got money out of six different charities in one week for the death of the same husband. I don’t need less than a deserving man: I need more. I don’t eat less hearty than him; and I drink a lot more. I want a bit of amusement, cause I’m a thinking man. I want cheerfulness and a song and a band when I feel low. Well, they charge me just the same for everything as they charge the deserving. What is middle class morality? Just an excuse for never giving me anything. Therefore, I ask you, as two gentlemen, not to play that game on me. I’m playing straight with you. I ain’t pretending to be deserving. I’m undeserving; and I mean to go on being undeserving. I like it; and that’s the truth. Will you take advantage of a man’s nature…? Is five pounds unreasonable?

* * *

Higgins: I suppose we must give him a fiver.

Pickering: He’ll make a bad use of it, I’m afraid.

Doolittle: Not me, Governor, so help me I won’t. Don’t you be afraid that I’ll save it and spare it and live idle on it. There won’t be a penny of it left by Monday: I’ll have to go to work same as if I’d never had it. It won’t pauperize me, you bet. Just one good spree for myself and the missus, giving pleasure to ourselves and employment to others, and satisfaction to you to think it’s not been throwed away. You couldn’t spend it better.

Higgins: [taking out his pocket book and coming between Doolittle and the piano] This is irresistible. Let’s give him ten. [He offers two notes to Doolittle].

Doolittle: No, Governor. She wouldn’t have the heart to spend ten; and perhaps I shouldn’t neither. Ten pounds is a lot of money: it makes a man feel prudent like; and then goodbye to happiness. You give me what I ask you, Governor: not a penny more, and not a penny less.”

George Bernard Shaw, Pygmalion (1912), Act II