Tuesday, July 26, 2016

Helicopter Money in the US: the Case for QSR Giftcards

"Helicopter money" discussions have intensified as global central bankers contemplate what other previously crazy idea to implement.

If the idea were to be implemented in the US, I argue that it should be done through QSR (quick service restaurant) gift cards, distributed via the IRS to 2015 tax-filing households, and accepted at QSR chains with highly franchised systems. The cards should have a 1-year limit.

Here is why:
A regular "helicopter drop" (think about the Bush checks) might incentivize responsible people to save more, pay down their mortgage or credit card, buy gold coins, and other similar future-oriented activities. Central bankers certainly do not want that.

We also do not want people to spend money on AMZN or WMT or drugs because of the high component of imported goods: we want the money to stay in the US.

We also do not want people to spend money at corporate-owned establishments (ie supermarkets or corporate restaurants) because the profits will accrue to the asset owners class, which already has record net worth in the US.

What do we want from "helicopter money":

Get the consumer to spend them.

Get a good multiplier effect from that spend.

Make sure little goes to the asset owner class but stays at the "mom and pop" local level.

This is where a QSR gift card with a hard expiration date comes in.

Everybody eats: it is more universal than, say, tanning salons, and QSRs are everywhere and offer enough variety for everyone.

Standard QSR POS systems make the implementation easier. There is no confusion as to how the card can be used.

Labor in QSR is 30-35% of sales, almost all variable cost, all min wage or near: these are people with very high "marginal propensity to consume" so the additional income will get spent so we get some multiplier effect (while we are at it, increase the soda bottle deposit to 10-20 cents, too). Moreover, restaurant employment is about 10% of US employment: big impact from one program.

Food is 30-35% variable cost: most of that comes from the US so that money stays here, too, some benefiting small farm owners.

QSR chains are highly franchised: the profits would stay at the local level. While some chains have large franchisee organizations, there is still a good number of "mom-and-pop" 1-10 unit operators.

To participate in the program, I would ask the QSRs to reduce their sales royalty for the year (ensuring more mom and pop cash to cover the labor spike). I would leave the ad royalty as it is: this gets spent anyway, and some is spent locally.

To participate, QSRs would have to be 70%+ franchised: this would include McDonald's, Subway, Burger King/Tim Horton's, Domino's, Papa John's, Papa Murphy's, KFC/Pizza Hut/Taco Bell, Sonic, Popeye's, Jack in the Box, Dunkin Donuts, Wingstop. It would NOT include Chipotle or Starbucks (not franchised).

Enjoy your $1,000 TRUMP cards in 2017!

*- blog post does not constitute an endorsement of helicopter money, Kuroda, Yellen, Draghi, Trump, or any restaurant chain