Doughnut Economics Way #8

[Updated April 15, 2019]

The most excellent folks associated with "Doughnut Economics" are having a competition to determine "What’s the 8th Way to Think Like a 21st Century Economist?". I thought about not entering - let the young people do it, plus, I am totally a dilettante - but decided I needed to go on and put my $0.02 worth in. I put up these 5 thoughts a few weeks ago, and, after some more thought, have decided to go with #5 - with #4 thrown in as well.

1. Abundance, not economy.
2. Needs, not wants.
3. There's not enough to go around - false.
4. Who's going to pay for it?
5. Money is software.

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MONEY IS SOFTWARE, so never worry about money; worry about real resources, both sources and sinks.

The world went from the gold standard to fiat currencies in the 1970s. Central banks like the Federal Reserve System in the US create money as directed by their governments via the funding bills passed by their legislatures.

The principles of monetarism are increasingly being replaced by those of modern monetary theory (MMT). One of the most important of these is that the only thing that drives inflation - the bugaboo of expansionary monetary policies - is a lack of real resources, aka supply-side shortages. [1] Inflation, a bad thing in large quantities, is not normally connected to the amount of money in circulation. [2]

When you are writing software, everything is possible. I worked in software development for 40 years and 1 of my mantras was, "Don't ever let anyone tell you it can't be done." It may be too expensive or time-consuming (the 24 hour weather forecasting program that runs in 48 hours) now, but Moore's Law will eventually have its way, and sooner than you might think. [3]

Software, like language, is generative. You can always add another adjective or clause to a sentence; you can always add a new feature to your software package, or write another program to monitor the (monitor) programs you already have running.

Money appears to be generative in a completely analogous manner: you can always create another derivative financial instrument. The study referenced below [4] estimates that the value of derivatives is 5-10x the value of ALL other forms of money put together. MONEY IS SOFTWARE.

So the eternal conservative question of "who is going to pay for it" is completely irrelevant. If we really want to do something, the money can be created.

The question that should be asked instead is, "do we have the real resources, both sources and sinks, to do this?" This, of course, assumes we have the knowledge and technology needed to reach our goal - or the real resources to develop the needed knowledge and technology. Resources are real, finances are imaginary [5].

Smaller countries with their own currencies might have to worry about currency devaluation if they attempted aggressive money supply creation. It is then up to the larger countries like the US to prop these currencies up. Central bank purchases of bonds in these currencies seem like a simple way to do this.

Alternatively, the larger countries could create the money in their own currency and transfer it to the smaller countries as foreign aid. Either way, the developed world shares the wealth.

MONEY IS SOFTWARE. The design goal of this software should not be about keeping score. [6] It should be about creating a safe and just space for all.

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[1] In my lifetime, the only instance of real inflation came following the Arab Oil Embargo of 1974, when the price of oil grew by 3x, creating an artificial supply-side shortage. It took 10 years for this price jump to ripple through the world economy. Tragically, this black swan event gave credence to Friedman's "Stagflation" theory, which helped to promote the disaster of Thatcher-Reagan austerity economic policies.

[2] This was demonstrated when the Fed's 2009 QE program increased the money supply by 3x, and, in direct contradiction to "an open letter to Federal Reserve Chairman Ben Bernanke signed by several economists, along with investors and political strategists, most of them close to Republicans" in the WSJ issuing dire warnings of "currency debasement and inflation", 0 inflation occurred. In fact, deflation continued to be the more pressing concern.

[3] It looks like weather forecasting might be plateauing at a 2 week forecast. Too much chaos theory after that.

[4] http://money.visualcapitalist.com/worlds-money-markets-one-visualization-2017/

[5] This statement started as a complex numbers joke. Then I wondered, could there be any useful math treating economic quantities as complex numbers, with the real resources the real part and money the imaginary part? Sorry, physics degree ;->

[6] Current score (estimated): 1%, +$1,000,000,000,000,000 ($1Q); the rest of humanity, -$100,000 (-$100K) per capita. Can we each get our $100K back, please?

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[Added April 15, 2019]

I read in an interview with Kate Raworth where she emphasized the importance of the before and after images for each of the 7 ways. I had no images, oops. So I added them. I was going to update my entry, but the submission deadline was April 12. Oh well no worries. Here are the images.

Old money. This icon comes from the Noun Project.

New, 21st century money. I could not figure out how to do this in Gimp or Inkscape, so I went old school cut & paste - scissors & Elmer's. Ha ha, Luddite!

I explicitly did not include the euro (€). It is not a good currency - ask the Greeks about that.

[/Added April 15, 2019]