Friday, January 30, 2009

The $9B Path to the $0.99 Economy

Virtually everybody has the means to buy something for less than a dollar. Whether it's a soda or an iPhone app, most people can manage to buy something small that makes their life more pleasurable or more efficient. That's the key to repairing our economy.

Through the past fifteen years or so the economy has been bolstered by a combination of large purchases (homes) and consumer spending on the part of the middle class. The credit crisis had the capacity hamstring growth because the ability of the middle class to spend was directly connected to two things: 1) the willingness of the banks to accept risk, and 2) the willingness of the middle class to pay interest for instant gratification. The market's collective realization that this culture of absurd excess and instant gratification was based on a fantasy led to the current crisis.

The bailout package that is presently on the table is both good and bad. It has the classic hallmarks of Congressional incongruity. It's loaded with provisions that don't seem to have a lot of direct bearing on anything. It ignores the reality that government spending creates inflation. It spends money on things that sound nice, but probably don't incur a lot of economic return in the near term. It's lavish government spending at its finest.

The bailout package, however, isn't that bad. It contains some wonderful provisions to build infrastructure, including electrical infrastructure. Expanding our nation's capacity to engage in commerce and eliminating inefficiencies in transport could generate untold billions. Improving the electricity transport infrastructure while wind power generation overtakes coal in job creation could ensure more jobs in the Midwest and reduce our dependency on unsustainable power sources.

The big winner, however, is the $9B for broadband expansion and some bold moves on the tax credit front for the same purpose. The package includes $9B for broadband expansion, a %10 tax credit for any company building out rural broadband, and a 20% credit for any company building next-gen broadband in an existing market. This recognizes two fundamental truths of market economics. 1) Lots of consumer spending is good. 2) Diversification is great.

No one knows better than Obama that lots of people spending small sums of money can accomplish amazing things. More people on faster internet connections means both more consumers and more products making connections. Harnessing the power of more people to create and purchase more goods and services will revolutionize the American economy.

The perfect example of the capacity of braodband to change the economy is the iPhone app. Masses of users and developers come together to create a semi-open economy that is primarily rooted in the $0.99 product. Everyone can participate, and there is something for almost everyone to want. What isn't there, is a golden opportunity for a developer to make money. Every dollar put into broadband infrastructure ensures that many, many more dollars will flow through that infrastructure.

That's the bailout.

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