December 17, 2021

Recently I noticed an interesting policy innovation in the news. Some countries in Asia are experimenting with stimulus payments that have strings attached. It’s an interesting development, and I feel wary about it coming to America.

The idea is to distribute digital cash that has an expiration date, or other restrictions on how and when that money can be spent. This has only become possible in recent years, as fintech has made huge progress.

Economists love clever ideas like this one because they seem to offer new problem-solving tools to policy-makers. But I am concerned that this approach can cross a line.

People know much better how and when to spend their money than the government does. Attaching strings to stimulus money sends a subtle message that the government knows better, and I think that’s a risky signal to send.

It’s best to trust people to spend money in their own best interests. People are generally pretty good at this, although more financial education would help too. Americans aren’t nearly as financially literate as they could be, and improving this situation is one of the best ways we can help people to help themselves.

I love technology and innovation and I want to see more of it in the world. When private companies create something valuable, they get rewarded by the market. If their innovation fails, investors lose their capital and that’s the end of the story.

Government innovation can look a little different. Governments don’t go bankrupt the way private businesses do. If an innovation is unhelpful, coercive, or otherwise disliked by people, it might still persist for a long time, and cost people in a variety of ways.

Policy makers may have all the best intentions in the world, but unintended consequences are as old as time. Government has a lot of power already, so we should be careful with new technologies that will tip the balance even further away from individuals.

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