What would be the economic implications of a government offering to invest $10,000 in every citizen's professional venture? [closed]

Question

I'm not experienced in politics, but I've been curious about a conceptual policy I've considered (again, just as a citizen, with no formal education or experience in politics). Hopefully this is on topic for this site. Id like to know what the economic pros and cons of this conceptual policy would be:

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Summary

Consider a policy which awards each citizen $10,000 for professional progress that results in a net economic benefit.

The money can only be used for:

• Starting a business
• Investing in a business
• Furthering one's education

Here's the crucial factor:

The money is watched and regulated very carefully, and each method of using the money must first be cleared by a written, precise plan for every dollar spent, justifying and demonstrating that the money will be used in a way that has a high chance of generating profit for tax payers.

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Details

The regulators (a panel) of this policy, in order to release the funds, must interpret that the tax payers (who are funding the $10,000 per citizen as a unified entity) have a high chance of generating profit after this $10,000 investment within the near future (such as within the following 10 year period).

To be totally clear, every dollar spent must be interpreted to specifically have a high (open to judgement of the regulators of the policy) chance of generating some form of financial profit for the economy at a value significantly greater than if the money had been put into any other currently existing government program. In other words, each individual must study existing government spending programs and author a plan in explicit detail of how they will turn that 10,000 dollar gift into a profit gained by the tax payers, greater than the value added by putting the same 10,000 dollars in any currently existing government spending program.

They have to show that they can and will personally use the money with greater efficiency to improve the economy than the government could with any internal program.

For example, a plan that would not technically meet the requirements:

By using the money to develop a way of cleaning vehicle exhaust for the same manufacturing price, the individual could argue that the $10,000 could result in a greater value for taxpayers in the next 100 years, but this would not meet the conditions of returning a profit on the 10,000 dollars in monetary form into the economy in the near future.

A plan that would meet the requirements:

By using the money to develop the technology to produce electricity at a 20% lower rate, and a plan to introduce this technology to power production companies nation wide, an individual could make a proposal with a high chance of introducing a profit for taxpayers far beyond the $10,000.

The individual has to show that he can use the money to generate more money for the economy than the economy would have had if the 10,000 dollars had been saved or spent on any existing government program.

$10,000 is just an example, it isn't a solid figure, but the policy would define a similar figure which would be the same for every citizen. As an an additional thought, a group of people might be able to make a join plan to combine each of their $10,000 into a single plan, with the same regulations collectively.

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Question

What would be the economic implications of a government offering to invest $10,000 in every citizen's professional venture? What would be the economic pros/cons, and would this be a potentially viable solution to improving an economy? If not, what are the flaws in the concept?

Answer 1

No

Most people are not qualified to write out detailed business plans. So most people won't be able to take advantage of this program.

Rampant fraud

Fill out an application form for someone (or multiple people) using a false address. Collect the $10,000. Switch to a new identity and location and repeat. Sometimes the subject may cooperate, although that seems foolish. Pay an application writer $2000 of the $10,000 to shepherd the application through the process. Then just pocket the $8000. Maybe you won't get caught.

More legitimately, a university can fill out the form for a prospective student. Student drops out after the first year. The university already has its money.

Difficult application

Due to the rampant fraud, each application will be scrutinized closely. This means that legitimate uses will require more effort. This is difficult for legitimate users to handle, as they only do this once. The experienced fraudsters will have the advantages of practice. Those using the program as intended will stumble through the process and may drop out before completing.

Note that the better a person's income, the less likely that the investment will be worth it. If you spend more than $10,000 worth of your time to get $10,000, you wasted your time. Even worse, what if you spend only $1000 worth of time but don't get it?

This level of regulatory scrutiny is expensive for the government as well. The greater the scrutiny, the greater the cost. If it costs $20,000 to disburse $10,000, it will be hard for the program to justify itself.

Why worse than bank loans?

Bank loans are not based on potential profitability of the venture. They are based on ability to repay separately. Someone who has a steady, good income can get a loan easily, even for a stupid idea. Someone with a great idea but no income can't get a loan. Fraud in a bank loan means faking the past. Fraud in this program means faking a speculative future. It's easier to fake a future than a past.

Government distortion

Since the government controls the program, they can distort the process to favor their goals. For example, they could change the rules so that environmentally-friendly, morally traditional, or depressed area business plans are favored over others. Again, this favors fraudsters who can tailor their fake plans to match these goals more easily than legitimate users who actually need to carry through on the plans.

Collapse into an educational program

By mixing the educational and business programs, you make it so that people with college educations can't take advantage of the business programs. Colleges will simply require that students get the educational aid before they subsidize an education. So the only way to not participate in the educational program is to pay for the education without financial aid from the school.

People without college educations are generally less qualified to write a business plan than college graduates. Not always of course, but on average. This makes them less likely to complete legitimate applications and increases the fraud. The natural response would be to stop the business portion of the program and concentrate on the less fraudulent educational portion. But there are more effective educational programs for the same amount of money. Rather than give a wealthy teenager and a poor teenager $10,000 each, why not give the poor teenager the whole $20,000 and let the wealthy teenagers pay their own way?

Answer 2

I believe that if we disregard the chance of fraud, then the outcome would be a growth in GDP. Reasons:

1. we are living in a service/consumption based economy
2. the only way to drive the economy is to drive consumption, thus drive demand, jobs etc.
3. to do that, you would need to give the masses of people money to spend.
4. one way of spending is to create their own small business
5. note that starting a business is basically just spending the money too on products and services from vendors.
6. so it would definitely drive the economy.
7. in fact in my opinion this is the only way to get the US out of the current economic downturn that we are in. yes we are in it, and it is just cloaked so we don't feel it. a big part of the nation is unemployed, they just don't count it into the unemployment rate cause they get foodstamps and are not looking for jobs.
8. so the idea is exactly the solution
9. but where would we get the money from?
10. the only solution is to convince the elite to give this money from their bank accounts, and get it back in the next 5 years as tax-deduction.
11. elite are mostly already business owners so they would just give masses of people money to spend on the elite's business's services anyway.
12. so everybody would win. This is what the Keynes model was based on, that was just for products, this way we can make analogy to a service based economy.