The case for fiscal and monetary stimulus has never been greater since the administration of Franklin Roosevelt. The difficult question is not whether but how to structure interventionist federal assistance.

Economic historians have preached for decades that Washington allowed too many banks to fail in the 1930s and did not respond quickly or comprehensively enough to underpin credit and spur private spending. Thus governmental actions in the wake of our recent subprime and derivative-led calamity initially have concentrated on shoring up large financial institutions.

With the quasi-nationalization of Fannie Mae, Freddie Mac, and American International Group, the competition-skewing tax subsidies and Tarp grants, the liberal opening of the Fed's discount window, and the unprecedented decision to allow our central bank to buy commercial paper, Washington has provided a powerful boost to big-bank and big-business liquidity.

For reasons of social justice as well as economic growth, the next and perhaps more important challenge is to devise steps to incentivize small-business lending at community-based institutions where credit has severely tightened. The fairest and most effective approach could be to advance a surge in support for an old-line institution too often taken for granted: the Small Business Administration.

The SBA has historically operated with the injunction to come as close to breaking even as possible, and for prudential reasons it tightened lending restrictions last year. Given the stutter in the economy, a compelling case can be made to reverse approaches and re-energize the institution with a multibillion-dollar infusion of resources.

For instance, if the up-front fees the SBA charges (2.5% to 3.5% of the loan) were markedly reduced or even eliminated for a year or two, and loan guarantees were increased to 90% or perhaps 95% for loans of under $250,000 and 85% or 90% for those of up to $3 million, banks would be jolted with incentives to expand small-business lending.

A surge in support for the SBA will have definitive cost implications for the federal government, but loan standards are unlikely to become excessively loose, because banks will have to keep some "skin" in the game. But even assuming greater governmental losses, an expansion of support for the SBA could, relative to other approaches to stimulating the economy, be both cheaper and fairer.

The fairness issue in particular cannot be ducked. After all, the small-business community is asking how a government can bail out big banks and motor companies and not support the thousands of job creators in smaller enterprises across the country, which neither caused the economic downturn nor sought off-shore tax havens nor sent jobs careening outside America.

The beauty of an SBA approach is that it deals with credit problems from the bottom up, beginning with the loan itself. Whereas top-down Tarp funds in many instances have allowed recipients to maintain flexibility on everything from dividends, salaries, and bonuses to asset purchases, public assistance to the SBA is tied exclusively to loan-making. And whereas governmental assistance to Fannie and Freddie goes to support static use of a habitat, and one often unrelated to recent construction, support of the SBA goes directly to the borrower for dynamic use in commerce.

An additional attraction of an SBA-centric approach is that it is entrepreneurial, supporting business activity and market-based judgment with money derived from private-sector bank deposits. Public funds come into play only when and if failed small-business loans exceed the fees generated within the system. It is hard to fathom a stimulus approach that has a greater prospect of energizing economic activity more quickly or efficiently.

Conversely, absent protective incentives, a prudent banker is likely to loan as little as possible to as few as possible over the next several years, causing a cyclonic downward spiral in economic activity.

The word of the month is "velocity." How quickly money turns is an academic concern that has profound policy ramifications. When credit stultifies and private investment and consumer spending contract, money turns at a slower pace.

In normal times, increasing the money supply a la Federal Reserve initiatives and congressional deficit financing quickly spurs inflation. But when systemic confidence dilemmas arise and money turnover slows, deflationary pressures can continue, at least in the short term, unless the federal government either expands a protective umbrella over financial activity or opens its money-creating spigot.

In reviewing federal programs, the president-elect has signaled that he wants to look at each from the lens of effects on the middle class. Few organizational structures can be considered more middle class than small business. And few ethics are more at the heart of the American economic engine than competition.

Despite and perhaps because of the recent mistakes of Wall Street, the needs of small businesses — that part of the American economy that creates the most jobs — demand addressing. To serve the public, government, like business, must be innovative.

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