Thursday, June 09, 2016

The Plan

After I retired close to 4 years ago, I decided to study (slowly) economics. I probably should have taken an online course of "Introduction to Macroeconomics", rather than reading Adam Smith "The Wealth of Nations", Keynes "General Theory", Piketty "Capital in the 21st Century", etc. I downloaded the MIT OCW open-source courseware & textbook and never did anything with it. I bought a used hardcopy of Samuelson, ditto. I think I have a basic understanding of most of the concepts, but no skills with any of the tools of economists.

The reason I decided to study economics was to figure out, how can we live in a post-scarcity utopia? How can we live in an Iain M. Banks Culture novel? Goddam it, I want my grandchildren (currently 2.7), and everybody's grandchildren, to live in a bright shiny future, not the past, and not Hunger Games!

My 40 years as a software developer/architect/manager/executive/geek left me with the certainty, deep down in my gut, that money === software. So, we just have to figure out how to tweak the system parameters to get us where we want to be. Yes, the more compulsive/sociopathic of us want to rack up logarithmically larger scores than most of us, but, no worries, just pay your taxes, it's all good!

I have not found where or how to do economic modeling, it's still a WIP.

Meanwhile, nevertheless, here is My Plan The Plan to transition the world to a post-scarcity utopia, postcapitalism, Star Trek economy. Ha ha, or more accurately, to Universal Basic Income (UBI), generally considered a good 1st step.

  1. The Fed has been way below the 2% inflation target for years. The 2008 recovery programs including QE increased the money supply by 3x. Conservative economics have ever since then been howling "Hyperinflation tomorrow" - but meanwhile, back in reality, deflation is the real problem.
  2. We are currently in a demand subrecession (not quite a recession). Of course, according to conservative economists, demand recessions are impossible because of Say's Law. My opinion of the root cause of this is, the gouging of middle class wages and the middle class in general, beginning with Reagan/Thatcher in 1980.
  3. So, let's increase demand via helicopter money. Helicopter money has been lately appearing in the economics blogs 1/week at least. The Fed increases the money supply again, but this time, instead of giving the money to banks, who largely just sat on it, we give it to each and every US citizen, regardless of current wealth.
  4. When Bernie proposed free college for all, people griped, "I don't want to be paying for {random oligarch}'s child's college". It's a dumb argument. Applying the program to the 1% increases the cost of the program by 1%. Creating a bureaucracy to means test and administer eligibility concerns increases the cost by who knows how many %?
  5. The helicopter money payment is $1-3K/month. Say we start at $2K/month. The Fed then monitors the inflation rate, with a target of 2% +/- 0.1%. 1.9-2.1%. If inflation hits 2.1% then decrease the helicopter money by 1/4, 1/2, 3/4 per month, whatever algorithm is deemed best.
  6. If inflation stays below 1.9%, increase the helicopter money by an appropriate algorithm.
  7. As that stabilizes, add a 2nd system goal besides 2% inflation: 3% +/- 0.1 growth. That would mean 1% net growth. Maybe, as we get a couple decades down the road, we could look at tweaking that upwards. But meanwhile, let's control growth, to try to let the planet cope with the climate crisis, hopefully with our help.
  8. So if inflation is < 2.1% and GDP growth is < 2.9% the helicopter money goes up, etc.
  9. Given that the system stabilizes, you then rename it from "helicopter money" to "Universal Basic Income (UBI)". (So, UBI == open-ended helicopter money?)
  10. OH NO HOW DO WE PAY FOR IT??? Well, if you feel compelled to pay for it, then, let's return to that decade most loved by conservatives - the 50s - and restore top income tax rates of 92%, and have corporations paying 30% of the nation's taxes instead of 6%.
  11. But, the totally more enlightened & elegant solution is, don't pay for it! Just print the money! Call it seigniorage if you need to, but you don't have to call it anything. The $ is the de facto currency of the world (for maybe another decade or so), if we charge a 2% or 0.2% or 0.02% seigniorage fee on every $ we create, who in the world is going to complain?
  12. Didn't the latest budget plan (no idea where it is in the morass that is our do-nothing Congress) include the Fed creating money from nothing to fund infrastructure? So the precedent may have already been set.
  13. Please correct me if I am wrong: I believe the only problem anyone talks about with helicopter money is inflation. So if we build a system with a helicopter money / inflation feedback loop, how can inflation hurt us?
  14. Problems. The greatest tragedy in economic thinking of the 20th century was when Milton Friedman's prediction of stagflation following the Arab Oil Embargo of 1974 gave his theories credence, leading to Reagan/Thatcher, supply-side economics, austerity, and the rest of the clueless conservative economic crap.
  15. The system sustained a huge 1-time shock: oil prices go up 3x due to the embargo. Inflation snake just swallowed a watermelon and did not deal with it well.
  16. So I guess the point re problems is, if some crazy weird crap happens, all predictions/bets are off. But when is that not true?
Note, we are retasking the Fed from its normal jobs of controlling inflation & producing full employment. They have raised interest rates 1 time in the last 8 years! So their current tasks seem to be no-ops. I think this is a sign of being in the liquidity trap. And, as our dysfunctional Congress will not ever carry out the 2nd tool of Keynesian economics, fiscal stimulus, let's give the Fed something to do to get us out of secular stagnation!

Where to implement The Plan? There are 3 requirements for a country to implement The Plan:

  1. Must be in a demand (sub)recession.
  2. Must be in the liquidity trap.
  3. Must have its own currency.
The country that screams for this is Japan. They have been in the liquidity trap for over 3 decades. Abenomics appears to be a failure. Try The Plan! My concern tho, is that I'm not sure that the liquidity trap is Japan's real problem. Their horrible demographics, coupled with their aversion to immigrants, might be their real problem. The question is, can Japan's condition be characterized as a demand (sub)recession? Do they meet requirement #1?

Meanwhile, the EuroZone is pretty much screwed. Until they add EuroBonds and EuroTaxes to the Euro and create a complete Euro-based economic system, I don't see how they can do much. Meanwhile, Greece in particular continues to get screwed.

But, the EU countries that are not in the EuroZone (not on the euro) potentially meet the requirements. 9 countries (Bulgaria, Croatia, Czech Republic, Denmark, Hungary, Poland, Romania, Sweden, and the United Kingdom) are EU members but do not use the euro. The more recent EU entrants like Croatia have been totally smart and kept their own currencies (kunas!). They've joined the EU but not the EuroZone. At this point, joining the EuroZone is like inviting Germany to have its way with you - see, "Greece". :-(

Switzerland is not in the EU or the EEA (European Economic Area) & still has its own currency. Switzerland voted down UBI 77-23 on June 5. Maybe their economic slump is not as much as others? A country as prosperous and egalitarian as Switzerland is not the best 1st place for UBI.

Australia also meets the requirements.

The US meets the requirements. How can we make this happen?

Any country who meets the 3 requirements above that is not the US - owner of the world's default currency - has a additional implementation detail added to their system: the helicopter money/inflation feedback loop must also include the valuation of their currency against the standard currencies - $, euro, yen, (yuan) - in the feedback loop.

I would love to see The Plan tried in African, Asian, and South American countries. But, I have no idea where they are on the above 3+ requirements. Basic income trials in a few African countries have been very successful.

Wow, easy-peasy, yes?

On a personal note, my wife & I visited Croatia 2x, while our youngest daughter & her husband were living and teaching in Zagreb for 3 years. My grandson was born there. We visited 4-5 other places in Croatia, it is a beautiful country! And that comes from someone who lives in the most beautiful state in the US, KY!

And, I will note that, in what may be a glimmer of professionalism, I sent this post off to my friend since college Charles G. St. Pierre aka Greg, who blogs as Another Accidental Economist, for review. Thanks, Greg, for your help.

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