The Economy is a Non-Zero Sum Game

The Economy is a Non-Zero Sum Game

“The greater the proportion of a population that (fully) participate in the economy the stronger and more stable that economy will be.”  Aside from clarifying and defining some terms, I shall assert this is a testable hypothesis.

Clearly (full) participation is in need of clarification.   For example, is a person completely dependent on others for care a 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.

The concept of “full” I have put in parentheses.   Here I conceive of 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.

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, entertainment, and education.  That is the income needs to put them 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 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 legitimate, productive economic transactions).  It seems we are afraid people will “misuse” what we give them.  Then too, we perceive what we give somehow comes out of our pockets; and, while we were taught to share in kindergarten 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.  Leans and garnishments or tax judgements on income streams are not voluntary economic transactions.  While earlier economic transactions 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 or avoid people from making bad economic decisions such as excessive credit purchases or failure to pay taxes.  However, 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.   Obviating credit and mechanic’s liens on that income 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 for financial responsibility.   Second, simply exempt income from doing one’s civic duties from income that can be attached.

While it is not clear that these approaches to keeping people from going clearly 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 Zimbabwe have attempted to print money for 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, the expectation is that basing new money creation on citizens doing their civic duty will not, prima facie, 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.

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3 thoughts on “The Economy is a Non-Zero Sum Game

  1. As for inclusion or participation in society, it could be argued that the portion of the population that is retired, unwell, or unemployed, actually contributes a great deal. They create a need for infrastructure to maintain and assist their situation. This in turn creates jobs; in the care industry, hospitals, and even the unemployment office. If everyone was in a well-paid job, and there were no demands to be met, those currently working in those fields would no longer be necessary, and would become unemployed.

    Long-term inflation also appears to be unavoidable. If it didn’t exist, I could still live well on the £40 a month I received as a salary, in 1969. Raw materials increase in price. Oil and commodities increase in price, all driven by the nature of their funding, and gambling on the stock markets. As the prices go up, the money in your pocket buys less, and you ask for a bigger salary. And the snowball begins to grow larger. Your free money would probably also be affected by these outside forces, so might well have to be inflation-proofed, by regular increases as required. The concept remains sound, nonetheless.

    Best wishes, Pete.

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    1. About two months ago, after a visit to a pomologist, the doctor prescribed oxygen for me while I sleep. A nice man came to the house and showed me how to use it. I asked about cost and he needed cash or a check for about $27. As far as I knew there was no mention of the monthly charge other than a bill to my health insurance company. Then a month later a bill showed up and I deduced it would be a recurring charge of about $13 a month. The doctor ordered the oxygen from the company. I did not choose the company. Put it down to my lack of hearing (more likely an omission from the nice young man who brought the equipment out), but I did not know there was a monthly charge when I signed for receipt of the equipment. So, the question is was I a normal participant in the economic transaction? Or is this a variant of my being a beneficiary to an economic transaction among a doctor, a medical device company, the health insurance company which covers me and the state of Michigan which contracts for my health insurance under a retirement system? While the $13 a month is only a nuisance, I do not feel as if I am actually participant of a voluntary economic transition (for one thing, this is not terribly portable equipment so I would not have chosen it myself). So, in the context of deciding if that part of my income is being used by me or by parties acting for me does this example fit the encumbered funds or money notion developed in arguing for this new money creation system in this blog?

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  2. Thank you, Pete.
    Yes, those retired and infirmed are part of the economy. I was attempting to make a distinction between those who make decisions and those who do not because of vouchers or the like. I’ll rethink that point.
    Some mechanism will indeed be needed to adjust for inflation. Again, that one I have not worked out yet.
    Again, thank you for your comments.

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