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The Inflation / Money Sink Thing:
Crash Course (http://www.chrismartenson.com/crashcourse) is very interesting, but seems to have a massive anti-inflation, pro-savings, pro-commodity-backed-money standard thing. (I thought economists worth their salt were meant to be laughing at the gold standard, not idolising it?)
Then there's a rather old text on Stamp Scrip http://userpage.fu-berlin.de/~roehrigw/fisher/ which neatly demonstrates that a money sink is good to kick-start an economy.
Edit: This theory is now a bit out of date since![[livejournal.com profile]](https://www.dreamwidth.org/img/external/lj-userinfo.gif)
ilanin poked a big hole in the side of my uncritical 'buying stuff / investment is always good, right?' axiom. The people-backed money one below is still mostly current to my thinking, apart from 'how to control inflation here', though.
My thoughts are:
* Money is primarily a medium of exchange. If you want a commodity-backed store of value then buy some assets - that way your risks due to the commodity properties are more transparent and you have to take on the burden of storage etc etc.
* As a medium of exchange, money is no use in the bank. Savings encourage people to work less. People working less is bad :) that's what kills most socialist systems, after all.
* If you're going to destroy the desirability of long-term saving you also have to guarantee at least one of a minimum standard of living or a constant supply of money to each person. Fortunately there are many systems that can do this in various ways; see below for one...
* Pensions / retirement are an interesting special case - you do want people to be able to save money to have whatever advanced standard of living their productivity has sustained throughout retirement as well (and let people save in order to compete for scarce end-of-life medical interventions, quite possibly - it's a great motivator). But there are ways to deal with this too. You can exempt money that's being locked away in saving accounts that only let you take money out at 70 or so or for direct life-saving medical expenditure from your money sink, for instance.
You also need a wealth tax for this whole thing to work, because otherwise the rich mostly ignore your monetary system and trade in commodities, which they have the wherewithal to do - which does erode the 'save in commodities' thing a bit, but hopefully not too much.
To go with this, I am very interested in the idea of 'people-backed money'.
Instead of controlling the money supply by buying government bonds / interests in insurance and pension schemes / interests in businesses, you control the money supply by giving every individual a certain sum of money every (week/month/year) directly into their account. You can vary the sum of money to control inflation - but you also control inflation by some kind of stamp scrip like method, basically an explicit tax on holding money, so that people are motivated to spend their money instead.
You might say 'everyone would fly to foreign exchange, which they could hold onto' - but you can tax that too, or you can say 'well, yes, some economies are going to be forex-standard whatever you do, it's not a bad idea for a developing economy, but someone has to be the root economy and they need something like gold-backed or debt-backed or people-backed money.'
You don't get the weird thing of debt-backed money where you can massively benefit financial institutions and corps by printing money especially for them, because the money you're printing has to be distributed across the whole population. You don't get the constant-growth-requiring interest treadmill of debt-backed money, because the only 'paying it back' that happens is the anti-inflationary taxation, not an obligation to keep paying it back with interest.
You probably still do fractional reserve banking and end up in the situation where you have more debt than money, but because the liquidity of the system is so insanely high the government can easily fix a round of defaults on debt which threaten to fuck the system up by injecting money which spreads evenly across the economy and bolsters the reserves of all the banks directly (as it goes into the accounts of people some of whom won't withdraw it right away).
I know that this is undoubtedly a stupid idea for many reasons because I haven't seen anyone who isn't crazy advocating anything even similar - so can people enlighten me? :)
Crash Course (http://www.chrismartenson.com/crashcourse) is very interesting, but seems to have a massive anti-inflation, pro-savings, pro-commodity-backed-money standard thing. (I thought economists worth their salt were meant to be laughing at the gold standard, not idolising it?)
Then there's a rather old text on Stamp Scrip http://userpage.fu-berlin.de/~roehrigw/fisher/ which neatly demonstrates that a money sink is good to kick-start an economy.
Edit: This theory is now a bit out of date since
ilanin poked a big hole in the side of my uncritical 'buying stuff / investment is always good, right?' axiom. The people-backed money one below is still mostly current to my thinking, apart from 'how to control inflation here', though.My thoughts are:
* Money is primarily a medium of exchange. If you want a commodity-backed store of value then buy some assets - that way your risks due to the commodity properties are more transparent and you have to take on the burden of storage etc etc.
* As a medium of exchange, money is no use in the bank. Savings encourage people to work less. People working less is bad :) that's what kills most socialist systems, after all.
* If you're going to destroy the desirability of long-term saving you also have to guarantee at least one of a minimum standard of living or a constant supply of money to each person. Fortunately there are many systems that can do this in various ways; see below for one...
* Pensions / retirement are an interesting special case - you do want people to be able to save money to have whatever advanced standard of living their productivity has sustained throughout retirement as well (and let people save in order to compete for scarce end-of-life medical interventions, quite possibly - it's a great motivator). But there are ways to deal with this too. You can exempt money that's being locked away in saving accounts that only let you take money out at 70 or so or for direct life-saving medical expenditure from your money sink, for instance.
You also need a wealth tax for this whole thing to work, because otherwise the rich mostly ignore your monetary system and trade in commodities, which they have the wherewithal to do - which does erode the 'save in commodities' thing a bit, but hopefully not too much.
To go with this, I am very interested in the idea of 'people-backed money'.
Instead of controlling the money supply by buying government bonds / interests in insurance and pension schemes / interests in businesses, you control the money supply by giving every individual a certain sum of money every (week/month/year) directly into their account. You can vary the sum of money to control inflation - but you also control inflation by some kind of stamp scrip like method, basically an explicit tax on holding money, so that people are motivated to spend their money instead.
You might say 'everyone would fly to foreign exchange, which they could hold onto' - but you can tax that too, or you can say 'well, yes, some economies are going to be forex-standard whatever you do, it's not a bad idea for a developing economy, but someone has to be the root economy and they need something like gold-backed or debt-backed or people-backed money.'
You don't get the weird thing of debt-backed money where you can massively benefit financial institutions and corps by printing money especially for them, because the money you're printing has to be distributed across the whole population. You don't get the constant-growth-requiring interest treadmill of debt-backed money, because the only 'paying it back' that happens is the anti-inflationary taxation, not an obligation to keep paying it back with interest.
You probably still do fractional reserve banking and end up in the situation where you have more debt than money, but because the liquidity of the system is so insanely high the government can easily fix a round of defaults on debt which threaten to fuck the system up by injecting money which spreads evenly across the economy and bolsters the reserves of all the banks directly (as it goes into the accounts of people some of whom won't withdraw it right away).
I know that this is undoubtedly a stupid idea for many reasons because I haven't seen anyone who isn't crazy advocating anything even similar - so can people enlighten me? :)
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no subject
Date: 2011-11-03 11:21 am (UTC)From:What you are essentially describing is the equivalent of a system with high inflation and low interest rates - where money being saved depreciates in value rapidly (in your case it's because you are taxing it, but I don't think the actual mechanism is relevant).
The problem with this is that if nobody is saving then nobody can borrow either, meaning that the only organisation which can back capital investment is the government. This puts you on to the road to a planned or a best strongly interventionist economy, and those never work outside of theoretical models.
OK, dial things back a bit. Let's assume your savings tax isn't sufficiently punitive to make savings completely worthless, just to eliminate low-risk low-reward things like government bonds. We'll ignore the question as to how the hell the government is actually going to operate in this case because they will probably be able to do something. The problem with this is that you're encouraging malinvestment - it's effectively the same situation we had in 1928 or 2005, where not investing money is a guaranteed loser, so dubious projects that would never be backed under normal conditions receive funding. This leads to - at best - gross inefficiencies in the economy, but more likely to either rapid inflation driven by spiralling commodity prices (everybody's projects are being funded but there aren't any more resources available) followed by a bust when the bubble created by too-easy access to money is popped (normally as a result of deflationary government pressure on the availability of credit).
Practically, application of this is also impossible because you have to institute it simultaneously, everywhere as it doesn't give an advantage if just one nation is using it - not only will you get flight of capital but probably also of anyone with substantial savings (they have substantial savings, so they can afford to emigrate) which will probably wreck an economy's skills base and also take out a lot of the top-rate taxpayers who contribute about half of the country's tax income.
no subject
Date: 2011-11-03 11:23 am (UTC)From:no subject
Date: 2011-11-03 11:39 am (UTC)From:I have attempted to read up on Austrian School economics, but I always get distracted by the fact that so much of it is mixed up in typical US 'and the churches and local communities will provide the safety net for the poor', which works great if you're of the majority religion and skin colour in the area and terribly otherwise.
no subject
Date: 2011-11-03 12:29 pm (UTC)From:This is a half-decent bibliography to get started on the Austrian school and F.A. Hayek - and if you've not seen the rap video it's trying to explain, that's worth watching too.