A Common Sense Economy to Stabilize the National Debt
By John Suter, March 2021
There are two types of money. Money that does Not have to be paid back (N) and money that must be Paid back (P). If you do not know the difference maybe it can be more clearly explained by someone from the Mafia. Even a Mafia hit man, however, may donate money to the church and not expect repayment. A lot of money is given away with no expectation of repayment – gifts, grants, allowance, and philanthropy – and so too with Modern Monetary Theory (MMT) which has yet to gain wide acceptance. Here we offer a different way of thinking about MMT and the economy.
Money is not quite the same as currency, a point repeatedly made by Mike Maloney, writer and producer of Hidden Secrets of Money. Money has value in itself and retains it over the years, even during fluctuations in the exchange rates. Money touches reality and real things like “real” estate or gold or even a loaf of bread which helps sustain life.
Currency is an agreement among many people, written in digital form or on paper, about the value of some item today. It is actually a promissory note. Currency may be more powerful than money in helping to create more interaction and transactions resulting in sales of goods and services. Currency can be transfer across the world in an instant. It also requires more control to prevent others from printing counterfeit currency.
As long as currencies can be exchanged they will tend to stabilize each other since traders will trade to avoid the collapsing currency. At least one of these currencies must be real money such as gold or that loaf of bread, and so all of the currencies in some way touch reality. Casino coins, on the other hand, might run in the billions inside the casino, but outside the walls of the casino they may be worth nothing.
Money and currencies need each other and can only work if they are mixed together with the same representation of paper or digital symbols. Even the words “money” and “currency” are used interchangeably. We need both money and currency in order to grow an economy, money because it touches reality, and currency because it can be spread faster in order to create jobs.
Whether or not we are talking money or currency, the questions still arises: “What is the optimum ratio of N to P?” How much money can just be “given away”? The Old Testament suggests that we give away 1/10 of our wealth. This would be real money. Could this ratio go higher? What is the optimum ratio to get people out of bed (GOOB) to produce goods and services? Henry Ford paid his workers a good wage so they would have money to buy his cars. By paying them more than other business owners he also injected extra currency into the local economy, allowing other businesses to grow as well.
Sovereign governments can print N-currency and give it away. Both private banks and governments however can create P-currency for individuals or businesses who want to increase their wealth since P-currency can be borrowed, invested, and paid back.
The two major concerns are 1) Inflation and 2) Spending on the Right Stuff (SRS).
Inflation
For everyone who measures their wealth in currency, inflation eats away at their wealth by requiring more currency to purchase an item this month than last month. Milton Friedman described inflation as “too much money chasing too few goods and services”. This could be amended to say “too much money in circulation chasing too few goods and services”. Giving lots of money to large banks does not cause much inflation for this reason. Whether or not it creates jobs is another question, but the Inflation Expression is still valid. Money is in the numerator. Goods and services in the denominator.
If I have a bike to sell for $100 and then, all of a sudden, my neighbors have extra cash, they may bid my bike up to $200 or even $300. The numerator of money in circulation has gone up, resulting in higher inflation. The true value of the bike is unchanged but the spending power of each dollar is shrinking. Not wanting to be left behind, neighbors and other business people will increase the price of their goods to whatever the market will bear. Inflation may take off and become difficult to control. For this reason, even supporters of Modern Monetary Theory don’t want to get rid of all taxes, even though theoretically the federal government could print enough N-currency to pay all taxes. By the same token, the federal government could pay all its bills with N-Currency too.
Group Currency (GC) – Who creates value?
Henry Ford built factories and brought in steel, but the real added value (most of the value of an auto) was created by workers, craftsmen and designers. An economy grows when there is an increase in the number of people who get out of bed to create Goods and Services.
You may have seen pictures or heard stories of the Amish who can construct a house within a few days. They have the skills and communicate well with each other. The labor cost to build a house might run a hundred thousand dollars. So as a unit of currency, One “Amish” could be quite valuable.
Another unit of group currency could be the “Maloney”. Mike Maloney got a degree in electrical engineering and has designed some award winning stereo systems. When it comes to house building one Amish might be equal to a hundred Maloneys, maybe more. But when it comes to building stereo systems, one Maloney might be the equivalent of a hundred Amish. So Group Currencies (GC) are task dependent. Any group that is able to organize to get things done, however, can create wealth or something of value.
Individuals and Corporations keep their books closed for good reason. Group Currencies, on the other hand, will do better with open books. One group might have 3 Amish and 5 Maloneys that can be traded on a Group Currency Exchange (GroupEx) where they can also be exchanged for other currencies. Traders with good knowledge about the value of these Group Currencies might facilitate the trade and help to make connections.
Flexible Basic Income (FBI)
One thing which can be very helpful in growing an economy without inflation is the Flexible Basic Income (FBI), a monthly amount paid directly from the federal government to individual accounts. In contrast to Universal Basic Income (UBI), FBI is not universal but regional. Being flexible means that it can also increase or decrease. The amount given out each month depends on whether people in a given region can keep their regional Consumer Price Index (CPI) at the same level or lower. To keep the CPI stable under the pressure of N-Currency grants, they must avoid bidding wars over existing goods and services. Instead they must attempt to increase the denominator of the Inflation Expression by creating more, or creating a wider variety of goods and services.
The measurement of CPI itself must be upgraded, reflecting true cost-of-living expenses in a timely manner on a weekly or monthly basis. An App could be developed, allowing citizens in a region to see, almost in real time, whether costs are going up and in what sector. This is price discovery and is part of what makes capitalism run.
Group Spending (GS) – Spending on the Right Stuff (SRS)
Former Fed Chairman Alan Greenspan has said that we can print as much money as we need. The real question is how we set up a system which assures that real resources are created. If climate scientists are correct, we have a lot of work to do and we have to spend it on the right stuff (SRS). No more investment in coal and oil.
Groups can also be used to make decisions about spending, especially at the local level. As an example, an N-Currency Grant of $1 million might add to the inflation if the money is spent to buy everyone a bike. But if the money is spent to start a bike manufacturing company, it is less likely to cause inflation. Some of the parameters can be written into the grant themselves, i.e. who will decide where the money will be spent? Participants of the group spending decision might be those with a January birthday. Those born in February might offer feedback or even nix the project unless it is modified so as not to stimulate inflation in that area. It becomes critical to Balance the Bias.
Significant sectors of advanced economies rely on gathering and organizing information. Like group currencies, useful information is not easy to quantify but still has value. Like the value of goods and services, we can also look at the value of Useful Information (UI) as something that can be gathered and organized by groups of people. It beomes a factor in the denominator of the Inflation Expression and can be used not only to create value, but to provide downward pressure on inflation. In this sense, inflation can be viewed as a measure of efficiency or inefficiency.
In the search for Useful Information (UI) it is the receiver of the info who determines whether or not it is useful. Does the info help complete a task or change behavior?
Some UI can be found by cooperation among people who know and agree with each other, but for other more difficult issues, UI will not be discovered without the use of team competition and games with a Balanced Bias structure.
N-Currency grants can be used for these information games as well, increasing the UI factor in the denominator and leading to decreased inflation. Even low income neighborhoods can create value by finding and organizing useful information. This information is not the secrets of intelligence agencies, but practical and useful information, such as finding the best ways to teach a 3rdgrader how to read. This can be done primarily for their own neighborhood but if found to be useful, it can be shared or sold to other neighborhoods. Democracy demands interaction of its citizens and cannot function without a substantial amount of direct interaction. Authoritarian governments discourage and even fear this type of interaction.
Stabilizing the National Debt
How do we handle trillions of national debt but still produce useful stuff – without inflation? It can be done with a combination of N-Currency Grants from a sovereign government plus the Flexible Basic Income that is inversely dependent on the CPI for each region. People will take an active part in controlling inflation and in making group decisions about where to spend the N-currency grants because they each have something personal to gain or lose. If inflation is kept under control by a FBI-CPI mechanism, then sovereign governments can pay off Treasury Bills with N-Currency as the bills come due.
A stable US Dollar will help to stabilize other currencies as well. We want a stable dollar and a functional government that has enough power and resources to do what they are elected to do. Stability and predictability encourage investment in new business. If the stimulus checks currently being printed end up stimulating the economy too much and lead to inflation, then that stimulus money could instead be injected as N-Currency into the economy via group spending with an FBI-CPI mechanism.
In the absence of N-Currency, Group Currency can make some of the connections to Group Spending and finding Useful Information that will move the economy forward. For example, people at the local level can help to find were we are wasting energy. Find houses that could use solar panels or houses that could benefit from more insulation. Group currency is not limited to climate issues but could be applied very broadly.
An economy can also be viewed as a network of gradients created by wants and needs. With the right structures in place, it becomes a dynamic economy and money is simply a tool to facilitate the trading, the pushing and pulling of goods and services to where they need to be. But how much gradient is needed to drive an economy? If people are struggling at the Maslow level with insufficient food or shelter, it is difficult to build a healthy economy, especially with jobs going overseas or going to robots. We can create new reasons to get out of bed, even for those who may not fit the forty hour work week. At the same time, we must engage people at the local level to think about inflation and help to control inflation by their individual and group spending choices.
Summary:
The two goals of 1) creating a growing economy without inflation and 2) investing wisely can be done with N-Currency grants through an FBI-CPI mechanism. This involves both local groups and individuals at a regional level. Local groups that make decisions about where to spend N-C Grants must be balanced. Group Currency and Group Spending can both help in this endeavor but the accounting books for both of these must be open for anyone to examine. The FBI-CPI structure also allows the federal government to stabilize and manage the national debt.
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