A few details and the problem of inflation

A few details and the problem of inflation

 

“The greater the proportion of a population that fully participate in the economy the stronger and more stable that economy will be.” Aside from needing to clarify and define some terms, I assert this is a testable hypothesis.

Clearly “fully participate” is in need of clarification.   For example is a person who is completely dependent on others for care a full participant? Is a retired person a participant? I would argue that both can be participants. Their level of participation is strictly a function of their abilities to engage in voluntary economic transactions. This may well boil down to their access to money. Indeed, it may be as simple as having an income stream.

Fully participating in the economy involves a person’s participation not being limited because of a lack of resources, read money, because of, say, poverty.   I understand this is vague for in America we tend to blame a person if he or she is poor. A lack of ambition, failure to stay in school, being lazy, addicted to drugs, lack of faith in God, or even moral turpitude are all reasons we use to blame someone for being poor. We almost never ascribe a person’s poverty to the circumstances of birth.   By the same token we, in America, all assert our individual financial status is a function of our hard work. Almost to a person we do not seem to give credit to our circumstance of birth or others who made our successes possible. While most people cannot point to a lump sum inheritance, they can point to parents or family providing the support, education and a helping hand. Shame on us for claiming we achieved what we have through our own efforts and not give credit to those whose shoulders upon whom we stand (built our success).

So, what then qualifies as a lack of resources? First an undependable or unpredictable income stream is a lack of resources. So, how much of an income qualifies a person to be considered a full participant in an economy? Minimally a person needs sufficient income flow to afford a place to live (home), adequate nutrition, clothing, medical care, sources of transportation, entertainment, and education. That is the income needs to put a person over the poverty level.   In the current American culture programs exist to “assist” “qualified” persons with some access to shelter, food, clothing and even education. However that assistance is normally provided in a voucher form of some sort. Then the assistance is removed given even a minor change in his or her qualifications (read “income”). Hence these programs do not provide a dependable income stream. The programs are predictable if the recipients don’t demonstrate initiative and earn money (engage in productive economic transactions). It seems we are afraid people will “misuse” what we give them. Or, more likely, we want to decide how they use those resources. Then too, we perceive what they receive somehow comes out of our pockets. While we were taught to share we don’t really want to share.

Another indicator of a lack of resources is constraints on the individual’s existing resources that inhibit his or her use of them. We have already addressed vouchers which at best are dedicated resources.   Dedicated resources are not economic transactions to which the holder of a voucher is a participant. At best the holder of a voucher has a ringside seat to a rent transaction between the voucher provider and the dwelling owner. Leans and garnishments or tax judgements on income streams are not voluntary economic transactions. While earlier economic transaction are in all likelihood through the reason. For if a person’s resources or income stream is eaten up by taxes and/or liens that person does not have the option to engage in voluntary economic transactions and should not be considered to have resources or an income stream. Thus, uncomfortably, people can place themselves in a position through bad economic decisions.

It is not clear how to prevent people from making bad economic decisions such as excessive credit purchases or failure to pay taxes. However, it is possible to make others less willing to help they get into irresponsible decisions. If, for instance, if income received from the Federal Reserve for doing one’s civic duties-voting, jury duty and the like – will not be taxable as taxing that income would be a poll tax and not constitutionally permissible. So while a stretch, placing a tax lien on that income should, by the same logic not be permissible.   To obviate credit and mechanic’s liens on that income one can do two things. First make the inclusion of income from the Federal Reserve for doing one’s civic duties not part of the income calculated in granting credit or financial responsibility.   Second, simply exempt income from doing one’s civic duties from income that can be attached.

While we blame the poor for their poverty, we fail to punish banks for helping them maintain their poverty. Here I reference the catastrophe of sub-prime loans which were the root cause of the recent economic unpleasantness. So, by making income from the Federal Reserve for doing one’s civic duty not part of the income calculated in granting credit or financial responsibility perhaps we will remove temptation, or a small part thereof, from credit granting firms of all types.

While it is not clear that these approaches to keeping people from going under will work. It is clear that without some mechanism to insure that people can’t be put under water completely because of credit kinds of traps – unrealistic borrowing limits – that the financial flexibility afforded by income from performing civic duties is obviated. Remember that purpose of financial flexibility is to include the greatest proportion of the population in the economy -that is involved in economic transactions.

Historically cash (gold, silver and all forms of convenient and portable money) has been manipulated by various actors in the creation and placing it in circulation. For example, the Roman emperors systematically debased Roman coinage to try to avoid taxes. Governments ranging from post WWI Germany to recent Zimbabwe have attempted to print their way to paying their bills. Indeed, when private banks in the US printed their own bank notes they took less than a conservative approach to the amount printed.

The forgoing examples are but a drop in the bucket. However, they serve to start the dialogue. Wealth tends to attract money.   The problem then is to attempt to insulate new money creation from doing one’s civic duty from manipulation by anyone, particularly those in charge and those with wealth. Just as the proposal to have the Feds deposit new money in citizens and units of governments’ accounts can be viewed as a schema, some caution needs to be in place to avoid schemes to manipulate it.

Then there is the issue of inflation. Regardless of the kind of money in circulation–gold, silver, fiat or commodities–excessive new money tends to cause inflation. So the criticism of this proposal to regularly issue new money is that it will be inflationary. Perhaps, however, an examination of the growth of the US money supply over the past 100 years or so demonstrates that, ceteris paribus, a growing money supply is not only needed but necessary for growth. And as this set of essays has discussed elsewhere a predictable and steady supply of new money will eliminate the boom and bust cycle we have experienced under the present system of creating new money based on debt instruments.

Further, the inflationary reaction to new money occurs when new money is not anticipated by the market. Announced and predictable large increases in new money do not seem to result in inflationary pressures–witness quantitative easing. So, expectations that basing new money creation on citizens doing their civic duty will, prima facie, not be inflationary.

This is not to say there will not be clamoring for increases in the size of each individual’s payments. Clearly checks must be put in place to prevent these pleas from turning inflationary such as criminalizing votes by congressional representatives for such increases. But, again, this only scratches the surface of the potential problems for managing the rate of creation. But, inflation would be a result of manipulation or perhaps attempts by demigods to curry favor for power.

Advertisements

2 thoughts on “A few details and the problem of inflation

  1. A great summation of the ongoing problem of how the poor people are made poorer. Loan companies charging up to 1000% on small amounts of money, sucking in the needy to become even needier. Blaming lack of ability or ambition on those who end up in minimum-wage jobs, then keeping that minimum wage down to a subsistence level, just enough to make sure that those unfortunates keep doing them.
    At the same time, huge corporations have back taxes written off, loans deferred indefinitely, and make huge payments to executives and shareholders. They claim that they need the money to invest in more infrastructure, to provide more of those minimum-wage job opportunities for the poor.
    And the circle continues, indefinitely.
    Best wishes, Pete.

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s