Which of these two plans will fix the problem?

There are some issues in our economy that need to be addressed.  One, perhaps not the most urgent, but certainly one reason for the sluggishness is lack of investment money in the stock and bond markets.  Let's look at a couple potential government programs and evaluate their possible effectiveness.

First, there are many poor people in America who just can't afford to invest in the stock market, or have lost their life savings through investing in the wrong place at the wrong time.  If each of them put $100.000 into publicly traded equities, the market would soar.  The government could assist these folks by a combination of gifts and loans so they could get in the game.  This would help many people who are unemployed and underemployed with no other way to invest.

Second, there are many Americans who have lots of cash that is not earning them hardly any appreciation.  It may even be losing a little value through our low but present inflation.  They hesitate to invest for various reasons ranging from fear of loss to uncertainty about where the government will take individuals and businesses. The government could offer some incentive, like indicating that long term capital gains and qualified dividends will remain taxed at a lower rate for, say the next ten years.  Maybe even short term gains could be taxed at a lower rate than ordinary income.  Maybe offer a deduction for contributions to Roth IRA's and Roth 401k's for a year or two, and a deduction as well as the tax deferral for traditional 401K and IRA accounts for a couple years.

These are obviously not perfectly crafted proposals, but they illustrate two distinct possible efforts at increasing the total amount of investments in our economy.  I think most would agree that the second proposal would have more effect on the overall strength of the equity market.  The wisdom of such a plan is debatable, but the results is relatively predictable.

I think there's some similarity between my mythical proposals and the way the housing depression is being addressed.  We are still focused on doing all possible to help people who can't afford to own a home, own a home.  We are doing almost nothing to help people with well-performing loans that are underwater.  There is a relatively large pool of potential home buyers who could afford a higher monthly payment, who have always made their monthly mortgage payments on time, and who desperately want to move up to a home more suitable to their families' needs.  We're ignoring the key to an improved housing market, while coming up with program after program to help ultimate renters delay the return to a more normal life with less stress on their emotions and their finances.

We need good incentives to help people with performing loans to either accelerate their equity buildup, and/or to transfer their debt from one home to another.