Introduction: Hey, That Worked

At this late date, this post is an introduction to the articles in this blog: democratizemoney.wordpress

Introduction:  Hey, That Worked

By T. Edward Westen, 2017

(My apologies to all the Economists I malign and misrepresent)

We live in the age of belief.  Entire structures are supported by millions of people believing in those structures.  Without enumerating those structures and embarrassing a lot of well entrenched shaman, I will illustrate what I mean by choosing the most arcane and esoteric of all the structures supported only by belief and only potentially expose one group of shaman—the economy and economists.

Before I start, we need to be on the same page about what a shaman is.  So let’s go to an authoritative source- https://www.merriam-webster.com/dictionary/shaman The authoritative source gives this: Definition of shaman for English Language Learners

  • : someone who is believed in some cultures to be able to use magic to cure people who are sick, to control future events, etc.

Now, clearly economists would object on the basis of “we don’t pretend to cure people.”  However, if we expand the notion of people to collections of people, economists do deal with curing economies (or at least attempting to cure sick economies).  And their objection continues “and we don’t use magic.”  It seems to me the phrase “voodoo economics” from a bygone era would suggest someone once thought they used magic.  However, more to the point, real magic uses unfathomable (not to be understood) words and a lot of waving of hands to work. Have you ever listened to an economist?  Question, if you tied an economist’s hands to the arms of a chair could he or she still be able to talk?  Now if the magic is only illusionary, then the economist fits the bill again—distract folks with numbers and tell an incomprehensible story about them while you pull stings behind the scenes to raise of lower this or that rate and make the patient, er, economy better.  But finally, we get to the real substance of the economic shamans’ tool kit.  Predicting the future to control the present.  “If we increase interest rates now, we will keep a lid on inflation in the future.”  Notice the sleight of hand with words.  They tell you what to do to make a specific outcome in the future happen.  But what they are really doing is getting some to change present behavior with the promise of something better in the future.  Do their predictions come to be?  I leave that to you.  However, we believe in economics.  One last parting shot at the economist’s ability to solve problems.  Ask and economist “If you were stranded on a deserted island in the middle of an ocean, how would you get back to civilization?”  9 times out of 9, the answer will be “Assume a boat.”  Yet, we still believe.

To be fair, the economists are trying to make sense of human activity both individual and collective human activity.  So, since they have tackled a job of understanding more difficult than rocket science (where everything works or goes boom) we really shouldn’t pick on them.  However, the economist’s activities in making sense out of what we humans do in exchanges of goods and services, hoarding and other similar things, tends to perpetuate what we have done in the past.  This is not always a problem until one understands that what we have done in the past in exchanging goods and services has been to, for example, invent money.  Now once out of the box, money takes on the quality of “say that is a neat trick—I give you money and you give me a good or service and I don’t have to give you a good or service in return.” “HEY, THAT WORKED.”   That morphs into “I want to give you fewer monies for that same good or service the next time.”  But, for that to happen, there has to be less money available the nest time so it has higher relative value to the goods or services exchanged for it.  “Yup,” the economist says, “now you are getting into the nitty gritty of what we do.  We figured out that stuff about relative value.”  No, you sold us a belief in relative value.  It turns out money had more value not only when it is more scarce, it has value when one increases the supply of it.  “Wrong,” the economist says, “When the supply of money increases inflation kicks off.”  OK, then why did the economy not blast into hyperinflation when you guys increased the money supply, without printing more bills, I might add, with Quantitative Easing? “Oh, that is easy to explain,” the economist will reply waving his or her hands about.  I am still waiting for that explanation.  But essentially “HEY, THAT WORKED.” 

What really happens is someone tries something, to whit the King of Lydia, had some electrum stamped with his portrait on discs of it and someone said, “HEY, THAT WORKED.”  So, that King and others kept on stamping out coins until coinage was believed by everyone.  Everyone believed gold and silver coins, although silver and copper were poor seconds to gold, was the only way to go.  But gold coins had a problem.  They are heavy.  If you wanted to have a good night out on the town, you could carry enough gold coins to pull it off (unless you got mugged.  Then the thief would be slowed down by the weight, but I digress and that is another, and probably more interesting story).  But if you wanted to buy a boat load of olives from “Oliviania,” you had to have a wheelbarrow or perhaps a donkey or camel to carry them.  One day, a fellow dropped a wheelbarrow full of gold off at his local gold smith and the smith game him a receipt.  As he was walking along feeling foolish pushing an empty wheelbarrow he went past a stall with the tastiest spice he had ever encountered. The stall had a barrel of it.  He enquired and found it was for the amount of gold he had just dropped off at the gold smith.  Holding his receipt up, he told the spice seller “I’ll just take my wheel barrow back to the goldsmith and get the gold.”  The spice seller stopped him. “Say, can anyone turn that in for gold?”  The fellow with the empty wheelbarrow said, “Sure.”  The exchange was made—a barrel of the tastiest spice in the world (and the rest of us have been trying to figure out which one it was ever since) for a gold receipt.  Someone said “HEY, THAT WORKED.” And goldsmiths instantly (OK, maybe a bit slower) became bankers.

Moving around all that gold gets expensive.  So, someone thought to leave it wherever it was stored and just put property tags on it: “France,” “USA” and the like. And, “HEY, THAT WORKED.”  However, people wanted gold in bad times. That posed the problem for the US depository.  If people cashed in their gold certificates for gold, the depository would not have enough gold to cover international transactions.  So, the Congress made owing gold illegal, except as jewelry and collectibles.  The US government called in all the gold.  So domestically, the US was off redeeming the then modern equivalents of former goldsmith receipts for gold.  “HEY, THAT WORKED.”  Then Nixon stopped redeeming foreign government obligations in gold.  “HEY, THAT WORKED.”  Currently the Federal Reserve creates money by purchasing debt, mostly US Treasuries on the secondary market.  “HEY, THAT WORKED.”  To be fair fractional reserves (having actually been invented by those early goldsmiths) has been around a long time.  Indeed, banks use it to create temporary money.  However, the Fed’s open market operations take it to a new level by purchasing securities on the open market with money the Fed orders printed or by making entries on their books against which banks can draw.  “HEY, THAT WORKED.”  Indeed, all monetary authorities around the world produce (create) money this selfsame way.  “HEY, THAT WORKED.” That left only fiat currency as money.  Fiat currency is money because the government says it is.  Read a dollar bill or any bill: $5. $10, $20, $50, and $100.  They all have the same statement: “THIS NOTE IS LEGAL TENDER FOR ALL DEBTS, PUBLIC AND PRIVATE.”  “HEY, THAT WORKED.”

From the King of Lydia having some electrum discs stamped with his portrait  to the  printing “THIS NOTE IS LEGAL TENDER FOR ALL DEBTS, PUBLIC AND PRIVATE.” Each transition  probably involved a line of thinking something this:  if it works this way now, wouldn’t it be better if . . .  None of those logical transitions had a theoretical base such as exist in physics, chemistry or the other hard sciences.  All those transitions had was someone trying a change based upon “if it works this way, and it seems to, why wouldn’t if work if we changed this just a tad bit to make it easier.   Sure, there were issues of control and who benefits along the way, but largely the changes were pragmatic to solve one kind of problem or another with making transactions with money. Just think how much gold Spain would not have lost, if the films are correct, to pirates or ship wrecks if they could have left it in a depository in South America and simply moved passion tags around when needed.  But, sadly for Spain, that change had not been made in the 16th Century.

So, what will be the next change.  I propose that the next change be to democratize money creation.  Presently new money is supplied to the economy through a limited number of “dealers” and financial institutions who sell debt instruments to the Federal Reserve.  Those dealers then buy other debt instruments resulting in some of that money financing of buildings, factories, inventories and thing that generate economic activity.  Eventually some of the new dollars end up in paychecks and get spent by consumers who are workers.  One would not be far off by asserting that new money goes to people who already have money.  Indeed, one would not be far off by asserting that is the same issued that William Jennings Bryan addressed in his 1896 Cross of Gold speech is present today—conflict between the rich and the rest of us (I read somewhere that tight money is good for the rich, but I can neither confirm nor make sense of that.  Regardless the rich seem to be for tight money and the rest of us for a more generous supply). Since the current money creation system is money in at the top of the economic pyramid with some making it down to some of the rest of us, it could be characterized as a trickle-down money creation system.

Arguments for the trickle-down money creation system are: investments in factories create jobs, whne workers have those jobs they spend money causing economic growth.  An interesting fact is that 70% of economic activity in the United States of America is attributed to consumers.  Now think, if 70% of the economy is due to consumer spending why do we spend so much effort to put money in the top that only trickles down and not all of it gets to consumers to spend?  Consumer spending varies wildly due to things like consumer worries about the future, the economy, and sick family members.  When consumers feel relatively confident about “stuff” they spend. When they feel uncomfortable the don’t spend.  They also don’t spend when they don’t have money.  So, if we give new money, regular as clock work, to consumers, they will have a basis for feeling rather comfortable about the future of the economy, their security and being able to care for their sick relatives.

So, if the economy works as well as it does putting money in where less than 30% of economic activity takes place (at the top of the economic pyramid), just think how much more stable it will be if we put it in where 70% of economic activity in the economy takes place.  Not only that, think how much more secure people will be.  This plan, will not increase taxes, will not increase entitlements, will not pit one segment of society against another it will be almost as if “all people are created equal.”

Now it is time to name a name and fairly assign blame for what comes next.   I, T. Edward Westen, (AKA Theodore Edward Westen, but no one ever called me Theodore, so Ed stuck and I became T. Edward as a result)  wrote this.

Two Arguments to Democratize Money: Inclusion and Equality

In rereading Hamilton’s Introductory passage to the Federalist Papers, I am initially struck by two things.  First how much people have changed the way they use the written language over the past couple of hundred years; for a modern reader, Hamilton’s 18th Century, eloquent, and persuasive prose is heavy treading. And second, how accurately Hamilton’s description of the 18th Century political climate in America describes early 21st century American politics. Keep in mind that Hamilton and the others writing as Publius were advocating the adoption of the Constitution.  They saw entrenched interests as wanting to maintain the Articles of Confederation.  They called the opposition to ratification conservatives. What Hamilton and his coauthors realized was that the strongest opposition to change is always from those who benefit the most from the status quo.  Conservatives do not say “I think I will personally loose as you gain because of this change.”  Equally, they do not say “I think this change is bad for me.”  If either of those statements is true they can and do argue any of several, supposedly altruistic positions: the proposal is untried and thus vulnerable to causing harm the status quo is not causing; no other place does it that way; with a few minor  modifications the status quo can be made to work better; or they make personal attacks on those advocating the change and sine the person is bad so is the change the “bad” person advocates; but if all else fails they can utter the most dangerous statement in any language “We have always done it this way. “

Unless those opposed to change specifically present an evidence based argument their opposition is at best suspect.  However, that same logic must apply to the advocates for change.  Change advocates must present evidence based arguments as well.  That is precisely what Hamilton, Jay and Madison did as Publius in 85 newspaper articles in 1786 and 1787 (Independent Journal, New York Packet, McLEAN Edition, and Daily Advertiser).  Equally, it is incumbent upon this author to make an evidence based argument for the proposed changes in how money is created and eliminating private money from influencing the decisions made in governing (public policy) and who governs (elected and appointed officials and bureaucrats).

THE INCLUSION ARGUMENT

Even prior to the Declaration of Independence in 1776 the American states, while still colonies, had a broader base of citizen participation then did the Mother Country or any other nations at the time (and most today).  Indeed, the sovereignty vested in citizens and dependency upon their consent begins in the Constitution argued for by Publius and others: “We the people of the United States.  .  . Do ordain and establish this Constitution for the United States of America. “ (Preamble)

In 18th century America electors, citizens eligible to vote, were determined by the states.  Initially, states designated male, property owners who had attained their majority as electors.  Gradually in the early part of the 19th century  the several states increased the number of citizen electors by including all males.  In the post Civil War amendments black males were included as electors.  Following WWI, women became electors.  And later in the 20th century the poll tax was abolished and age of majority was  reduced to 18, both by Constitutional Amendment.   Both expanded the right of franchise to more Americans.

THE EQUALITY ARGUMENT

I argue that this history of franchise extension represents a systematic historical imperative to include all citizens as electors—participants in the government and governing of America.  Indeed, this imperative to include all citizens as electors is driven by the Creed expressed in the Declaration of Independence “We hold these truths to be self-evident, that all (people) are created equal.  .  .”  Neither the Constitution nor the Declaration of Independence provides any basis for granting any citizens or citizen electors a greater voice than any other citizens or citizen electors in choosing elected officials or determining public policy (laws).  Yet by allowing individuals or corporations to make unlimited campaign expenditures, our laws grant the supremacy of well healed citizen electors or corporations in America regardless of the citizenship of that corporation’s share holders or officers.  This supremacy is possible through a Supreme Court ruling, Citizens United v.  FEC in 2010.  For well over 120 years prior to the Citizens United decision, law makers at both the state and federal level had attempted to impose limits on how much money individual citizens and American corporations could contribute to candidates and political parties.  This even though both individuals with money and corporations maintained lobbyists and made regular and large campaign contributions to lawmakers who voted on campaign expenditures limits.

Political science texts on American government and politics contributed to the fiction that campaign contributions were not quid port quo arrangements.  Indeed, office holders explained in depth that campaign contributions did not and would not influence their votes in legislative bodies.  Yet there are curious correlations between the interests of campaign contributors and the committee assignments of legislators receiving those donations.  In the 1950s Anthony Downs published his Doctoral dissertation with Harper and Row under the title An Economic Theory of Democracy.  One of the deductions Downs deprives from a model of a representative democracy is that public policy in a democracy will have a producer bias.  I would Hazard to amend that to say public policy in a democracy will have a bias towards moneyed interests.

A producer or moneyed interest public policy bias does not smack of the equality of citizens in a representative democracy.

A Reintroduction

Things are awry; and no one seem to know why. However, it is how money is created hat is awry; and it is how money is used politically that is awry.  The way money is created and used politically fundamentally undermines the very equality of Americans.  First, in looking at how money is created, understand that there is nothing essentially wrong with the dollar except how it is created, or more properly to whom it is distributed.  “…[A] long habit of not thinking a thing wrong, gives it a superficial appearance of being right, and raises at first a formidable outcry in defence [sic]of custom. (Thomas Paine, Common Sense, Introduction, 1776).  The customary way dollars are created is by Federal Reserve Bank deposits into the accounts of banks or securities dealers in exchange for assets (normally, but not always, U. S. Treasury obligations) during what are called open market operations.  Banks then can loan more money since they now have currency (money or cash) rather than the assets they formally held.  So, new money is principally issued through banks.   Fundamentally, banks, by their very operation, are choke points in the flow of money.  Banks contribute less than 10% to GDP (https://en.wikipedia.org/wiki/Financialization [July 3, 2016]) where as consumers account for 65% of GDP. (Consumer spending accounts for a majority of spending in all advanced nations . . . In dollar terms, PCE’s share of GDP in the third quarters of 1977, 1987, 1997 and 2007 were 62.5, 65.9, 66.7 and 69.5 percent, respectively. https://www.stlouisfed.org/publications/regional-economist/january-2012/dont-expect-consumer-spending-to-be-the-engine-of-economic-growth-it-once-was [July 3, 2016]).  In effect that leaves 25% of GDP for all other sources of economic activity with the federal government accounting for most of that—20% of GDP. ( https://fred.stlouisfed.org/series/FYONGDA188S  [July 3, 2016]).

Strangely banks are one of the primary means of wealth accumulation and consumers are not primary focal points for wealth accumulation.  Quite the contrary, consumers tend to be creators of debt.  So, as side issue, we create money be depositing it into the accounts of wealth accumulation machines (banks) and not in the hands of people who tend to spend more than they have.  While the obvious conclusion is that creating money in the accounts of consumers will cause them to spend more, go into more debt.  Yes, I suppose so, however, notice that spending will create more economic activity (perhaps, growth) unlike putting money into wealth accumulation machines which tend to be very caution about what that wealth is used to purchase (fewer economic transactions, and then more transactions within the financial sector than anyplace else {note the financial sector accounts for 7% of GDP including banks and even some Treasury activities.  So wealth accumulation has only 11% of the impact on GDP compared to the impact of consumer spending on GDP. https://www.selectusa.gov/financial-services-industry-united-states  [July 3, 2016]}).  Essentially money is created by deposits in to the wrong sector’s accounts—banks’ and securities dealers’ accounts and not consumers’ accounts.  I will adjust “consumers” to “citizens” for reasons that will become obvious to the reader in the flow of this book.

Elsewhere in this book, the section entitled “Banks are Failures” I will argue that indeed deposits of new money into banks’ accounts is one of the reasons for the business cycle (boom and bust or inflation and contraction, or growth and recession/depression).  The reader will see at that point that depositing new money into consumers’ (citizens’) accounts will help to smooth, if not eradicate, the business cycle and replace it with a general upward trending growth line.

While not a normal part of U. S. History or U. S. Economic History, money creation and to whom it is distributed has been a central issue since before the beginning of the Republic.  The History of Money Creation in the US is treated sketchily in a later section of this book under than title.  Suffice it to say that the terms “not worth a Continental” and “a cross of gold” played a role in the history of money creation in the United States of America.

Secondly, the role money plays in politics is every bit as non-egalitarian as the way money is created.  To put it in a nutshell, money is necessary to run a campaign for office or for/against a proposition.  Money comes from donors.  Big donations come from moneyed interests: corporations, businesses, large associations, and even rich people.  Yes, the average citizen can and does donate money to political campaigns.  However, it takes hundreds or thousands of average citizens to match the amounts given by moneyed interests.  So to keep the big money donations coming, elected officials tend to be responsive to the interests of big money.  Big money donors use paid employees, called lobbyists, to keep the elected officials informed of their interests.  Elected officials are responsive or were predisposed to support those moneyed interests at the get go.  Indeed, only those candidates who seek office with a predisposition to support moneyed interests even get nominated or have a fighting chance. Bernie Sanders is an exception to the pattern.  Yes, there are other exceptions, but they don’t get much farther than local offices.  I am not charging that there is corruption.  There is, but that is not the issue.  The issue is moneyed interests are better represented in Congress and in the state legislatures than the voters are.  Former Boss Tweed is said to have said, “I don’t care who has the vote as long as I can choose the candidates.”  At the very least, the choice of candidates is made by moneyed interests early in the nomination process.  The upshot is American public policy has a bias in favor of producers, financers and other moneyed interests.

The US Constitution apportions representatives in Congress by population for the House and two representatives from each state in the Senate.  Nowhere are corporations, producers, labor unions, financiers, and other moneyed interests mentioned.  Yet, the non-mentioned are very well represented.   The simplest way to stop this bias is to make it illegal for anyone to donate to a candidate for office or to give any gift to a candidate for office and to fully insure the prohibition make it illegal for individuals to use their own money to run for office.   It is not a question of talking America back, for the people never had it.  It is a question of implementing the words in our founding documents – equality being prime among those words to implement.

So, this work presents a two pronged strategy for giving American Government to the people: making money creation deposits in citizen accounts and eliminating donations to candidates for office (which means some form of public financing).

To catch up on most of the book go to the earlier blog entries starting back in February. When I started this as a blog, I didn’t really understand the backwards nature of postings, the first come last in the list you see.

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.

Incumbents, elites, will be a very hard sell

Incumbents, elites, will be a very hard sell

70,000 years ago human beings did everything using their own muscles, from digging roots to carrying things.  Sometime in the last 5,000 or so years, human beings domesticated horses and oxen which human beings then used in place of their own muscles whenever possible.  Over the last 300 years human being began to replace horses and oxen with steam and internal combustion engines.  The change from human muscle to power work to horses and oxen and then to machines was an obvious improvement to anyone relying on the older method (save some who claimed to be too old to change or who. would not change for religious reasons or who had too much of an investment in the old approach).  So the movement from human muscles to machines took place because each step was more efficient or productive than the last way of doing things.  (NOTE wind mills were first used about 3,000 years ago and water wheels some 2,400 years ago, electricity less than 150 years ago and nuclear reactors about 75 years ago.   Each source of power was integrated into use fairly quickly. However, these substitutes for human and animal muscle require location and material investments.)

 

 

Change in social, economic, and political arrangements and power, however, haven’t been as quickly embraced because those who exercise power in economic, social or political contexts don’t want change; for change means those in power think they will lose it.  The Queen of Hearts cry “Off with their heads” is all too frequently heard by incumbents during a revolution.  And revolutions are often required for political, social and economic change (and religious change in some cases).  Besides, most economic elites seem to think economies are zero-sum games when in fact the more participants the greater the wealth (goods, services and money) available to be divided among the participants.  Most political elites seem bent on maintaining their control regardless of the costs to their wealth, ideology, religion, or socioeconomic status.  Besides the vast majority of political elites have poorly treated others to the point that the elites fear retribution should they relinquish power.

 

Generally, those with social power have overlapped with those with economic and/ or political power.  Generally social elites have been the bulwark of maintaining the order or the status quo — conservative or reactionary.  What social elites have to loose with change is status and deference by others.  Hence, social elites risk becoming ordinary human beings when social change is implemented.

 

In addition, alternatives to existing social, economic and political arrangements are not easy to envision for there are no examples or scant and ill formed examples to demonstrate the alternatives.  There are, however, a variety of alternatives at any given time in history–socialism/capitalism/communism, monarchy/republic/dictatorship, hierarchical/egalitarian and secular/sacred.  Unlike the replacement of human muscles by horses, machines and even computers there are no examples of working alternatives to existing social, economic and political “arrangements” for people to examine or witness.

 

Compound all of these impediments to changing some social, economic or political arrangement with the fact that human beings are creatures of belief before they are prone to accept and use evidence and well-reasoned argument and one has almost an iron clad warrantee against change.

 

Let’s begin with an assumption about human behavior.  People tend to try to hang on to what they have and try to get more.  That is people are conservative and not satiated with what they have; they always want more.  This largely says the same thing as the economist ‘ s assumption that people’s wants are never filled.   History, generally, shows improvements in our standard of living with both technological and egalitarian improvements.   Yes, in Sapiens: A Brief History of Humankind Harari, among others, presents a strong case for the worsening of the human condition as a result of giving up hunting and gathering for agriculture.  And any number of observers would strongly argue that the revolutions of the proletariat were disasters former Soviet Bloc countries and China.  However even with local (in history) blips the human condition has improved with technology and real inclusion (equality).

 

So, I would argue here that democratizing money creation is, while less than obvious, the next logical step in expanding participation in the economy—improving, on the whole, the human condition by making as many people as possible full participants in the economy.  The existing ideologies-liberalism and conservativism-both approach the way to move forward and improve the human condition as a tug of war involving taxes and government programs.  Unfortunately, that tug of war has led to greater inequalities, discontent, institutionalized poverty and divergence from the equality values proponents of both claim to share:  life, liberty and the pursuit of happiness.

 

As I have presented elsewhere in this blog creating new money by depositing in citizen’s financial accounts will necessitate a smaller government footprint by eliminating the need for most catch-all social welfare programs.  A smaller government footprint will reduce the sheer number of areas in which that tug of war will be played out and the government’s need for taxes.  Recall, the scheme I propose provides governments with new money too.

 

However, as I asserted at the beginning of this installment there are no existing models one can point to as examples.  Hence it will require a massive sales job.   Ironically, in the American context, those in power are the safest from any changes democratizing money occasions.  The average citizen pays little attention to political matters.  The average citizen tends to vote in the next election the same way he and she did in the last election.   Most incumbents enjoy a 95% reelection rate.  To say their seats or positions are safe is a mammoth understatement.  However, it is those incumbents who have to act to make the democratization of money a reality.  If they do or don’t they will be reelected.  They fear primary challenges and opposition party challenges.  Yes, the evidence is neither a same party or opposition party challenger is particularly successful.  So the incumbents who know how to work the socio-economic system to their political advantage will tend to shy away from changing that system.  Ironically, they would probably enjoy a larger rate of reelection immediately after they put forth the change to democratize money.  They would enjoy that increased electoral safety because their potential opponents would be caught with their proverbial policies down—there would be very little for opponents to run on— “I’m a better choice for I never would have given you a safe and secure income flow.  Elect me and I will repeal it.”  Yet, incumbents will be a very hard sell.

The Impact on Immigration Policy

The Impact on Immigration Policy

 

While an over simplification, family unification comprises more than 70% Of all legal US immigrants; and, the US admits 10 times as many resident immigrants as all the rest of the countries in the world combined.  The reasons for immigrating to the United States may be as numerous as the number of immigrants, but the reasons seem to boil down to three: freedom, economic opportunity and family unification.

 

Ironically the main reasons illegal immigrants come are freedom, economic opportunity and family unification.  The difference is the legal immigrant had the resources and time to go through the “process of waiting.”  Generally, the illegal takes jobs for which those already here don’t even apply-agricultural and other “menial” jobs.  For example, in eastern Washington State one apple grower told a news reporter that it had been decades since a non-Latino had applied for a job on his farm.  The implication is that Latino applicants were illegal immigrants.  That is probably not 100% correct.  But it illustrates the point that were there not employment opportunities illegal immigrants would not come in the numbers that they have historically.  Indeed, estimates of the number of Mexican illegals over the past few years, during the current protracted contraction, have declined and even reversed with more Mexicans returning to Mexico that crossing illegally into the US.

 

Given all American citizens would receive new base money in their accounts, America, if possible, would become a more attractive place for immigrants.  But, only if they became citizens.  Illegal immigrants would not have increased reasons for coming unless one thinks that more Americans would choose to live on their base money deposits and more employment opportunities would be available to illegal immigrants.

 

This raises explicitly the question of what motivates people to work or not work?  Economists tend to assume that peoples’ wants are insatiable.  So that chain of logic leads to people with regular base money deposits in their accounts will seek ways to get more money.  Most of these ways involve gainful employment.  Indeed, as I argue elsewhere in this blog, base money deposits in the poorer voters’ accounts may give them the necessary resources to apply for jobs.

 

I know there is a line of thought that the poor do not work because they are satisfied living on welfare, unemployment and other “government handouts.”  Since welfare, unemployment compensation and other income support programs will be replaced by new base money deposits into voter’s accounts, at least those satisfied to live on that resource will no longer be taking transfer payments from tax payers who believe those not working do so because they would rather live on our tax dollars.  So, even if a voter chooses not to work, so what?  The non-working voter costs society only the lost production from his or her laziness and not tax dollars from the rest of us (but, I am retired and would probably fall into that lazy group.  However, after writing all of the words in this blog and more which were edited out, I am tired and need some time to be lazy).

 

So let us return to illegal immigrants.  If they have no hope of receiving base money deposits and welfare is no longer in existence, why will they still come?  They will still come for freedom, economic opportunity and to unify their families.  If you think about it, we provide the freedom and economic opportunity with our capitalist system and our democratic constitution.  Our basic creed is that in America all are free, equal and have the same opportunity.  They believe we mean it.  We do mean it, “kinda.” However, the part we seem to get hung up on is when it comes to sharing our freedom and opportunity.  For we seem to view freedom and opportunity as zero-sum situations.  They are not zero-sum situations for the more people who enjoy freedom with us the more secure our freedom is.  The more people who enjoy opportunity with us, the more opportunity and wealth there is for each and all.  So, if we really meant that everyone is free and has opportunity we would not cry out for fences, deportations, jail terms and the like for people, in the face of massive unemployment in America, manage to do the apple piking and other harvest work for which you, my fellow Americans, and I refuse even to apply.

 

You can have whatever restrictions on immigration that you want.  I would advise an alternative route.  Let anyone who wants to become a citizen go to an American embassy or consulate and apply for citizenship.  Setup a test similar to what is used now and continue with the same background checks.  Then when an applicant meets the qualifications, swear him or her in, get their account information and have them register to vote in the jurisdiction of their choice.  Or set up a voting district for non-resident citizens.  Either way works.  Then those who were immigrating for economic reasons can stay where they are and not have to come.

 

Consider the possibilities for eventual new states.  I should think that the lure of a steady income of base money will drive a majority in most places to become Americans. Then, realizing their strength in numbers, they will take over that country’s government through elections and petition for statehood.  If America is what it says that it stands for, it will eventually encompass the world.

 

A little inclusion can go a long way.

One Reason Private Money should be excluded from Politics

One Reason Private Money should be excluded from Politics

 

I went in for a follow-up visit with my pulmonologist the other day.  As it happens, the conversation took a political twist.  I made the statement that Obama should have pressed for universal health coverage after the fashion of the UK and Canada.  She replied that if we had that people would have to wait for dialysis and other forms of treatment because of the sheer numbers.  She said one would achieve equality but the tradeoff is you would make those who need treatment wait unless they can buy it outside of the system.   So, she asserted that one would have an egalitarian system but the rich would still be better treated because they would get private treatment. She is right.  Universal health care in the US would still be subpar and the rich would still get better treatment.  However, it would not be equal for under the existing system of campaign finance the US “enjoys,” the rich consisting of corporate, union and incredibly wealthy individual donors determine how and what public policy is written—laws—by using their money to pick candidates to their liking and which candidates either will do their bidding (through the use of lobbyists) or who are predisposed to their positions.   She is right because in the United States the rich make the rules, the laws, through their private contributions to politicians running for office or re-election; and, the rich finance public advertising campaigns asserting this or that.

 

Just as campaign contributing donors would write the rules for universal health care, as they have for most policies over the history of the United States, they would write the rules for the plan in this blog for distributing new money to citizens.  The growing concentration of wealth in the US (and other countries for that matter) and the growing disparity between the income of those with wealth and the rest of us, is the strongest evidence to demonstrate the validity of the proposition that if the campaign contributing donors write the rules, there will be more opportunities for them to increase their wealth even further as the plan for distributing new money to citizens is detailed and passed into law.  But what if the rich did not make the rules?  What if we made private contributions to campaigns illegal, all gifts of any kind to candidates for office illegal—call a bribe a bribe?   And we went further and make candidates spending their own money or resources on campaigns illegal?

 

So, step one in implementing the plan for distributing new money to citizens is to reform campaign election financing and take big money out of determining candidates, outcomes and public policy—make it illegal for any use of private money or resources to support an election or reelection to an office or in support of any ballot proposal.  In short, if the US is to achieve electoral equality and not have public policy favoring the wealthy, private money has to be taken out of elections.  So, my digression into campaign finance is not as much of a digression as one would think at first blush.

Economic Policy Impact of an Egalitarian way to Create New Money

Economic Policy Impact of an Egalitarian way to Create New Money

 

US economic policy has three consistent goals (not in the order of importance): growth (or sustainable and increasing productivity), full employment, and a stable dollar (or no to little inflation). While foreign trade, transportation, energy, education, immigration and defense all have major impacts on the economy, these and other policy areas are classically treated as separate policy areas. It is a bit strange that the US House and Senate have committees dealing with most of these policy areas, neither chamber has a committee devoted to the economy and a coherent economic policy unless one considers the two appropriations committees fiscal policy economic specialists. Rather responsibility for nation’s economic policy, primarily monetary policy, rests with the Federal Reserve Banks, the Securities and Exchange Commission, state banking agencies and state and federally chartered banks in all states and territories. Yes, this means that economic policy is primarily viewed as monetary and fiscal policy (monetary policy is essentially under the direction of the Fed and fiscal policy suffers from Congressional inattention).

 

However, regulation of business practices falls in the field of growth, full employment and a stable dollar: bank regulation, environmental regulation, Consumer Protection Agency regulations, Justice Department fraud and other units, drug and pure food regulations, the National Labor Relations regulations and decisions, the Federal Aeronautical Administration, just to name a few types of economic regulations. In a nut shell commerce needs to be monitored least it produce too great a quantity of negative externalities or commit too many out right criminal acts.

 

If the US were to adopt a policy of depositing base money into voter accounts, there is little likelihood that the regulatory aspects of economic policy will chance significantly. However, it is highly likely that the goal of full employment will become moribund for every voter should have the means for securing employment; this is not to mention that producers and retailers responding to a rightward shifted aggregate demand curve will be in a constant state of needing new employees.

 

Growth will be realized consistently over time. Inflation will be “worrisome” to economists trapped in a money backed by debt frame of mind. However, historical bumps in the money supply have not resulted in inflation. So while there will be a great deal of nervousness and anxiety, other than an initial blip in prices, a stable dollar will continue.

 

What the Feds and economists fail to recognize is tastes, technology and other such factors are rooted in the ability of consumers to buy. The larger the share of the population that have the where with all to purchase discretionary items, the shorter the time those items will remain discretionary. So, increasing the consumer base increases demand for everything. Apparently, an opportunity for all to have a higher level of consumption will be the new economic reality.

How the system might work.

How the system might work.

 

The voter registration system maintained by local units of government would remain in place. The only new information required would be a box to mark for direct deposit, an account number and financial institution’s routing number if the voter wishes direct deposit. If the voter does not wish direct deposit, then the voter’s address, already on file will be used for mailing a check to the voter for his or her participation.

 

The local election authority already keep account of voter’s participation. Participation, banking and address data will be forwarded to the regional Federal Reserve Bank which will route money to the voter’s account in a financial institution or send a check to the voter’s home.

 

This will be done on a bi-weekly or monthly basis (weekly would be fine too, as long as the payments are equal and regular).

 

The dollar bill along with higher denomination notes would not have to be modified in anyway shape or form.

 

Initially one would expect a run on voter registration sites as citizens who have not participated (lack a current voter registration) hurry out to register. After the initial rush only newly eligible voters will constitute the traffic at voter registration sites.

 

Ballots will not have to change either. Presently, depending upon one’s state, one can physically go to the polls or mail in a ballot without actually voting in any given contest. Such votes are “votes for none of the above” in every contest unmarked/selected. That feature is essential to maintain freedom of choice.

 

In jurisdictions that require more than a simple plurality of votes to determine a win there may need to be some “rules of the game” modifications to account for large numbers of “votes for none of the above.” As disaffected as large numbers of citizens become from time to time jurisdictions might want to consider if they really want to operate without a judge, sheriff or treasurer (they pay bills). If not some decision rules may need to be changed.

 

As local voting authorities report votes by jurisdiction (polling places), the Feds can determine how much base money to deposit into government accounts on a monthly basis (governments need a regular cash flow, but will not need weekly or bi-weekly cash infusions) based upon the number of voters in each type jurisdiction and the amount allotted for each type of jurisdiction. Supposedly, governments are used to a longer interval between cash receipts. Obviously, local units of government will need to share account numbers and routing numbers with the regional Feds.

 

Under the Constitution individual revenue from voting would not be taxable. Taxing such payments would constitute a poll tax. This is not to prohibit governmental units from taxation altogether. However, it is conceivable that taxes as a source of governmental revenue would become the exception rather than the rule. However, that is an entirely separate issue.

The impact of the new money creation system on government programs

The impact of the new money creation system on government programs starting with Social Security, Unemployment Insurance, and other income maintenance and supplement programs

 

Most, not all, government programs making direct and periodic payments to individuals to maintain or supplement personal income can be phased out or simply eliminated. Since citizens will be receiving around $12,000/year (this figure is not set in stone, it is a first approximation for discussion as invariably the amount will become a stumbling block, so this is just for discussion) as new money is created, all those whose combined receipts from all government programs, say food stamps, rent subsidies, unemployment stipends and the like can simply be switched from those payments to the new system. Since those programs are designed to provide resources for folks who otherwise would have none, receiving newly created money would provide them with needed income.

 

The same is true of Social Security, SSI and the like. The initial impact will be to remove present and future obligations for unemployment insurance, old age pensions, income for workers who become disabled and can no longer work from the federal government’s budgetary obligations. At the same time add no further people to those programs. Hence, what we now know as old age pensions, disability (SSI) and economy caused (unemployment) emergency assistance will no longer be necessary and can be phased out. For every citizen will have an income from their political participation-voting.

 

For those currently on federal income, food and shelter assistance whose combined individual federal payments exceed $12,000/year, simply reduce the existing federal subsidy/welfare payments to the amount in excess of new money creation those individuals will receive. Again, no new people will be placed on the rolls of these programs.

 

Indeed, a government safety net or a social welfare security system, often confused with a socialist approach to government will be a shadow of its former self. Largely, it will remain only necessary to provide assistance for the most extreme cases, for example assistance for those with severe physical, intellectual and emotional disabilities. For most infirmities, programs already exist. It would make sense to examine those programs with an eye to providing the fullest assistance to integrate those qualifying individuals into the greater society; and, with the intent to continue assistance to make sure that these individuals can make the fullest participation and contribution that they wish. However, if these individuals participate politically, vote, they should receive new base money as any other participating citizen.

 

Currently both employees and employers pay taxes to support retirement and unemployment programs. Under the plan to create new money through political participation, neither set of taxes would be required and should be phased out as soon as it is feasible to do so. Indeed, state and federal agencies devoted to food and rent subsidies, unemployment insurance and job searches will be retired as well.

 

Generally what are considered transfer payments will become a thing of the past.

 

Monetary Policy & Fiscal Policy

 

Monetary policy refers to central bank (the Feds) operations to increase and decrease the money supply. Those operations include buying and selling securities (normally US Treasury obligations) from and to banks and security dealers, setting reserve levels for banks, operating a discount window (where banks can borrow funds, normally as a last resort), and setting the interest rate that banks can charge each other on overnight loans. In addition, the Feds make periodic statements that are intended to signal financial and business components of the economy what those components should be doing (jawboning). All of the activities attempt to impact the economy at large in attempts to promote growth and employment and maintain a stable dollar (keep inflation in check and deflation at bay).

 

The economy feels the impact of Fed actions after a delay. It takes months for new base money to impact the economy. Ironically the term trickledown economics applies to Fed attempts to stimulate or dampen economic activity in the economy. The Fed deposits new base money into a bank’s account. The bank processes loan applications and makes loans. The borrower, if a business, undertakes, say, an expansion. Then months later new hires at the business start getting pay checks.   Then, and only then, are the new hires in a position to start spending. Remember, and this cannot be over stated, consumers drive the economy! So until money is in the hands of consumers the Fed’s attempt at stimulating the economy does not actually have any success. The converse is also true if the Fed’s attempt to slow growth by selling Treasuries or calling in bank loans, there is a lengthy delay until consumers feel the pinch with lost jobs and stop or slow down buying. (Notice here that decreasing the money supply costs people jobs. This is not well understood for it is “awkward” to acknowledge the pain and toll of lost jobs (which also means lost livelihoods and abilities for those loosing their jobs to support themselves and their families).

 

The way monetary policy works under the present system is an attempt to indirectly manipulate overall economic activity with a 12 to 18 month delay in the impact for any given manipulation. Monetary policy attempts to manage the entire new base money supply and through it the multiplier of bank money.   It is not clear that the entire money supply needs to be involved to attempt to influence business and financial activity. Rather, marginal adjustments in the money supply might be more appropriate. Marginal adjustments to the money supply might focus on specific uses of bank money. Yes, more regulation of banks. However, the Fed would only regulate new base money after the fashion that banks use to regulate consumers-collateral. Say the Fed wants to stimulate building houses. Then it might require banks to demonstrate, with mortgage contracts that it is making such loans to continue receiving and using new base money supplied by the Fed. On its other deposits the bank would not be so constrained. Hence, the Fed would be operating at the margin in a specific sector of the economy. By the same token, the Fed might require banks to change their loan portfolios (asset mix) to qualify to use new base money. Or, the Fed could use differential rates for loans for differing purposes. If all of this sounds familiar it is because it is close to what banks require of their loan applicants. In short, the Fed would be using monetary policy at the margin and incrementally rather than as the blunt instrument it currently is.

 

Fiscal Policy

 

Fiscal policy in the use of government expenditures and revenues (taxes) to influence aggregate demand in the economy. There are side issues of resource allocation (stimulating home ownership with tax breaks/deductions), and income distribution or redistribution (taxing those with incomes to make direct and indirect payments to those with little or no income-welfare, for example). However, the main focus of the elected branches fiscal policy efforts is attempts to influence aggregate demand in the economy.

 

While aggregate demand should be a goal in an of its self, economists and policy makers muddy the waters by asserting that striving to manipulate aggregate demand is to achieve all or some of other objectives: price stability, full employment and economic growth.   Notice the similarity of the goals of fiscal policy with those of monetary policy. It is important to keep in mind that actual laws that comprise fiscal policy often impact or are intended for other policy reasons. For example a tax deduction for interest paid on home mortgages increases aggregate economic demand (and specifically demand in the housing market) but it also encourages more citizens to have a larger stake in the political system. Let us look at each of these supposed goals in turn.

 

Price stability is a euphemism for near zero inflation. Inflation is deemed to be bad because it erodes savings, is a viscous cycle of price-wage increases and devalues capital resources. If prices decline, deflation, another viscous cycle of price cuts-lay off occurs. Notice that wages plays a central role in these cycles. To put it another way, personal income fluctuations play a central role in these cycles. So, price stability is actually an attempt to maintain wages and their buying powers.

 

Full employment as a goal of fiscal policy manipulation of aggregate demand is a recognition that if all actors in the economic system have income, the system will function better. Full employment is not the goal, citizens all having livable levels of incomes that allow all to participate in economic transactions is the goal.   Since income is simply cash flow, full employment represents the case where almost all economic actors have sufficient cash flow to participate, spend or consume. Full employment also represents a close to optimal production level, holding all other things constant. Optimal production levels are also closely associated with maximizing profit in a firm. Hence, the connection between full employment and profit maximization in firms is understandable to and desirable for the business world.

 

Unfortunately, full employment does not begin to approximate maximum profit levels for firms. However, the greater the proportion of the population that has an income that can support the individual and his or her family (dependents using tax code nomenclature, children using common sense language) and that income is both regular and dependable, the more growth the economy will exhibit. As the proportion of the population has a livable, regular and dependable (predictable) income, firms will experience increasing profits, again holding all other things such as technology and tastes constant.

 

That leaves economic growth as the final justification for fiscal policy to manipulate aggregate demand through government spending and taxing. An economy can grow in absolute number of transactions, the value of those transactions or by the proportion of potential actors taking part in economic transactions. Unfortunately we have historically measured growth in the value of transactions in dollars or adjusted dollars to a given base year-summarized in gross domestic product. While it is true that the value of annual transactions tends to go up-grow-as the number of economic actors increases, it is also true that the value of annual transactions can also increase in real or adjusted dollars by having a fixed number of economic actors engage in more transactions. Further, the value of annual transactions has increased as a result of fewer transactions and fewer economic actors because of “increased productivity.”

 

So growth, per se, is a strange and amorphous goal that can lead to price declines and employment declines. To be a realizable goal of fiscal policy, growth needs a better, more focused, definition. Tentatively growth will become defined in terms of improvement in the least advantaged sector of an economy. The late President Reagan once said “A rising tide lifts all boats.” This phrase was actually popularized by President Kennedy some decades earlier. However, if one does not have a boat, a rising tide can be the event that drowns one. It is strange that economic growth in the present system can be applauded when it causes pain and suffering in some parts of the population.

 

Increasing or attempting to manage aggregate demand is a legitimate goal in and of itself. First let us postulate that increasing aggregate demand involves starting where demand is weakest and increase it there first. Then, increase it where it gets stronger and stronger. In effect we need to increase demand the most where it currently exists the least. In effect that would be to increase demand at the margin. If a person has $5 and he or she receives an additional $5 that person’s demand for goods and services is likely to double. However if a person has $100 and he or she receives an additional $5 that person’s demand is only going to increase incrementally. And if a person has $1 million, receiving an additional $5 has no effect on that person’s demand and is likely to be a bookkeeping nightmare for that person. So, depositing an equal amount of money in every voter’s bank or credit union account will increase both aggregate demand on a regular basis and increase demand differentially. The more wealthy voters become the less aggregate demand will stimulate the economy. Voters’ marginal propensities to consume is a built in break on wild economic growth.

 

This work recommends an income for every citizen of $12,000/year. That may not be sufficient. It may require more. Politically it may end up with less. Some will recommend less. Regardless, it is unlikely a citizen’s income from new base money deposits by the Fed will satisfy everyone’s wants and needs unless economists have been dreadfully wrong about people having unfulfillable wants.

 

Minimum wage laws

 

Since people generally want more, a base income of $12,000/year is unlikely to dissuade many from working. In the State of Washington, at this writing, the minimum wage is just under $10/hour. If a person in Washington were employed full time at minimum wage, his or her annual income would be close o $20,000/year. So, the proposal of depositing $12,000/year in voter’s accounts would mean that a person currently employed at minimum wage in Washington State would double his or her income (recall the $12,000 deposited in a voter’s account is not taxed). However, a person currently working for minimum wage presumably does so because he or she cannot get a higher paying job. The person also presumably needs the income his or her minimum wage job provides for his or her livelihood. So, with the cushion of $12,000/year in base money deposited in his or her account, would the person work for more, less or the same wage he or she is presently earning? I, quite frankly, do not know. What about you? What would be the practical impact on you wage or salary demands in the market place? However, I will speculate further.

 

Minimum wage laws protect the worker from some exploitation by employers. Since the median worker is dependent on his or her income, he or she could be coerced into taking less; or, he or she could simply be terminated and replaced with someone willing to work for lower wages. Essentially, minimum wage laws set a floor on wages that minimizes coercive labor practices by employers. So, would those laws need to remain on the books as currently written? I suspect not. But, they will become superfluous; for, employee’s base income from voting will make it possible for employees to walk away from employers using predatory practices. Indeed, with the elimination of unemployment premiums and social security taxes, it is likely that employers will be more willing to pay slightly higher wages initially.

 

Then too, since every citizen has a “cushion” it is likely that wages will have to increase to entice citizens to enter (reenter) the work world. Indeed, given the stimulus to aggregate demand, employers will need to find ways to attract and retain employees. So, minimum wage laws will go by way of the blacksmith–become a small and seldom used part of the employment environment.

 

At this writing (2012) the US economy is in the fourth year of a contraction. The unemployment rate is around 9%. News stories report that employers with job openings are asking only people currently employed to apply! It is as if unemployment were contagious and if one hired a formerly unemployed person the hiring firm would go out of business because of the contagion. Could it be that employers are afraid that the unemployed workers caused their former employers to go out of business? This is an interesting way to dodge management responsibility.