Sunday, January 3, 2021

Just Give People Money

I think it's helpful when thinking about economic matters to simplify and imagine a smaller group of people on a deserted island.

Let's imagine 100 families find themselves stranded on a large deserted island.  A cruise ship has sunk and nothing could be salvaged.  A tough situation, but they find that if the heads of household work on the necessities of life and a caretaker at home manages the kids they are able to provide just enough to meet everyone's needs.

The 10% of the smartest workers create some inventions that make work easier.  Now only 60% of the workers are needed to address just the critical needs.  The 10% that created the initial inventions get a privileged status.  They get to be called the "owners" of the machines.  Let's suppose also the 10% invent a system of money that is robust.  They create a sufficient quantity of money and set its value so that the remainder of non-owners are paid a wage.  The 60% address critical needs and the 30% start to focus more on luxuries.  Making spices to make food yummy, creating recipes.  Working on more inventions like stoves and washing machines or ways to make the work of the 60% more efficient.  Everyone is happy because there is more than enough for all, plus some additional wants are being thrown in.  The 10% get the extra awesome life though because they don't work any more.

Time passes and work becomes more efficient, especially with further inventions of the 30%.  The owners realize they could lay off another 10 families and maintain output.  If they lay people off then that's less they need to pay in wages, they can store more money.  So they go for it.  Now they find that their store of money is enlarging.  And also the laid off people are not consuming as much.  So there's a glut of stuff building up.  Which means every now and then the workers can be idled.  But when they are idled they consume less, which creates more idle time because less is produced when there is less demand.  And you end up with a larger and larger amount of people with free time and no job, but with a lot of unmet needs and wants because they are no longer collecting a wage.

One thing that you will see is that the laid off people just try to think of other things that could be created and sold in the market.  And they might achieve a successful product eventually and put themselves back to work.  But it does take time.  The stall is not good, the suffering they and their families endure is a grind, and as this process continues with more and more efficiency gains it does get progressively harder to do this as there is really only so much consumption the employed families and ownership families are going to want to engage in.

What's to stop the owners right after the layoff from just minting some more money and handing it to the unemployed people?  The only concern is inflation.  But inflation happens because there is more money in circulation than there are goods that people want to buy.  The inventors have created a system that allows you to create a book with the press of a button (like Amazon does now, it used to take a whole army of people to create a book).  The inventors have created 3D printers.  With so much efficiency in creating things and so many goods available the truth is the price associated with things is coming down, so if you just hand the unemployed person newly minted coins such that the total money matches what was being spent earlier on wages, I don't think there should have to be inflation.

This is kind of the system we are in.  We're just getting too good at creating things.  So a glut of things builds up, and this causes people to lose their job.  This causes suffering and intermittent contractions in the total amount of goods being produced.

It seems to me that the lack of money should not be an issue.  Money is literally created from nothing.  Money is just a tool that facilitates the activity (work and consumption) of people.  Money can be used to take all those idle people and put them to work doing things that are beneficial, even if they are not being demanded in a market driven by profit.  The money supply needs to increase commensurate with the increase in the number of goods being produced.  It seems to me that if it doesn't then problems are created.

How does China manage to have such high sustained economic growth?  They didn't even slow down in 2008.  The Soviet Union had continuous unbroken economic growth.  In the depths of the Great Depression in the US the Soviet Union was charging ahead and by 1936 they had gone from being the poorest country in Europe to a world super power.  I think they were able to do this because they understand this issue I'm describing.  As things get more efficient and a glut emerges they don't just have homeless people sitting around doing nothing.  They say "Hey, you know that money you used to make growing crops?  Now that we have machines we don't need that same work, but here's the same money as a salary, it's money we just created.  Start helping to build roads, bridges, apartment buildings.  Help build facilities where research can be done.  We'll put even more people out of work due to the gain in efficiency and they can then join you building all these things, and we'll see everyone's life get better really fast."  It's Ok to have more money flowing in the system anyway because more goods are being produced with less every year.  Since there are more goods available for purchase more money in the system chasing those goods does not necessarily cause inflation.  To avoid inflation we just have to ensure that economy continues to get more and more efficient, more and more productive, so that there is an expanding quantity of goods that the money is chasing.  So why not use the creation of additional money as an opportunity to put idle hands to work creating things that the world needs and wants?  Putting the idle hands to work is exactly how you ensure gains in productivity.  The idle hands can work on the things that will make the economy more productive, instead of sitting around in misery and hunger, being homeless.

What this entails is setting aside the system that prioritizes profits and free markets.  That creates giant swaths of able bodied people willing and able to work, but unable to make it happen, or at least stalled in their ability to make that happen.  Plan the economy.  There are plenty of things that need to get done.  People need to get educated.  They need good roads, nice cars, health care.  We need renewable energy, or a carbon free source of energy (fusion).  Put people to work doing things regardless of what the market and what Wall St profiteers think.  The system we have is creating large numbers of people willing and able to do things that would make all of our lives better, but we're acting like the money supply can't be enlarged.  It can be and it must be.  More money is needed to reflect the additional things that humans are creating more efficiently every day.  Just mint more money and put people to work.  There is so much to do, we shouldn't let the fiction that money is limited prevent us from doing it.

That's the way it seems to me.  What am I missing?  Didn't our government just create something like $10T from nothing as stimulus?  And what did they do with it?  Most of it went to the rich.  It has gone to back corporate debt and to fund military adventures, things that don't directly benefit the population.  A bit went to the poor.  So the money supply needs to be expanded and we have a choice about how we stimulate the economy as we do this.  The choice in America is to give it to the rich, who won't spend much more, keep the idle hands idle and give just enough to the poor so they don't go crazy.  This is a recipe for slow economic growth.  It seems to me there is no good reason for it to be like this.

These thoughts were partly inspired by this discussion of Modern Monetary Theory.  Also this one.

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