My Final Answer
(I promise) to, ‘What should we do about the economy’?
Introduction (7 paragraphs)
I began the quest for my own answer to that question by wondering how it might be possible to make the existing economy more just. [For any reader who hasn’t read my profile blurb, I did earn an M.A. in economics along the way, with a (published) Thesis in political economy (where philosophy and economics intersect): Atlanta (now Clark Atlanta) University, 1988.]
I hit upon the idea of a (‘livable’) “democratically distributed income” (DDI), i.e., one for which any adult citizen could become eligible (that a person could actually live on). Further, I wanted to see if I could find a way to accomplish that without involving taxes/public debt in any way — for reasons of political feasibility and Occam-esque simplicity. Such simplicity included the matter of justice: if, as John Locke famously said (and with which I do agree), arbitrariness in human relations is injustice, then any kind of taxation is necessarily rife with injustice because it cannot avoid arbitrariness in distributing the tax burden within society.
The paradigm I ended up developing included astonishing outcomes that I could have never predicted: absolutely, positively no unemployment or poverty for any adult citizen and the possibility of no taxes, together with increased environmental sustainability. Also, the economy would become self-regulating, meaning neither the central bank nor the central government (nor ‘politics-as-usual’) could interfere with those outcomes. It could be adopted by any nation without having to change any of its existing economic system — or its political system, for that matter. (I do use the U.S., where I have always lived, as an example for illustrative purposes).
To be clear, all of those outcomes (except for the elimination of poverty, which a DDI was intended to do) are purely ‘accidental’: wholly unanticipated. Those outcomes are not what make the economy more just; the establishment of a DDI does that, making those outcomes products of a more just economy.
Still, it must be said that trying to pigeonhole this paradigm ideologically would be a waste of time that could only hamper ‘getting it’. For instance, as things stand, it is undeniably the case that to prevent the collapse of the global economy — and therefore civilization itself — there really is a ‘need’ for constant, unending economic growth, an imperative to produce and consume ever more stuff. More technically, as things stand in each nation output/total income must be maximized in order to maximize employment and the collection of taxes (at whatever rates exist). It has now become obvious to many people, however, that for civilization to survive humanity must find a way to transcend that ‘imperative’. The paradigm I developed to make the economy more just would also, it so happens, put an end to that ultimately self-defeating societal “imperative:” neither employment nor the funding of government would be dependent in any way on output/total income. Even better, it would accomplish that while producing only positive effects: it would involve no trade-offs or burdens to be apportioned within society.
On the subject of leaving ideology out of it, one part of the paradigm that is off-putting for many people is that the absence of “trade-offs” and “burdens” would extend to even the richest people and the largest corporations: there would be no redistribution of anything nor any cost imposed on any employer. Yet, there would be no unemployment or poverty for any (adult) citizen at any level of total output and the level of total output would be governed, passively but effectively, by demographics — and only that.
So if we could all set aside our ideological lenses and focus on what is accomplished by the paradigm, that would be great. What follows is a comprehensive sketch of the paradigm.
Similar to MMT (2 paragraphs)
Though I developed this paradigm before I had ever heard of Modern Monetary Theory (MMT), this is somewhat similar to that — in MMT’s normative aspect, i.e., its potential as an instrument of public policy. In both paradigms money is created as needed and there is a mechanism for withdrawing money from the economy. Unlike MMT, though, in this paradigm the uses for such money and the amount of it that could be created at any time are strictly limited. Also, this paradigm does not involve in any way ‘debt’ (in MMT, interest-bearing ‘assets’ created to be ‘swapped’ for money). Finally — again, unlike MMT — this paradigm does not use taxes to withdraw money from the economy. Public debt/taxation might even be permanently eliminated (see below).
In this paradigm no person, committee, or organization would have any means, much less the authority to determine how much money would be created or how much money would be withdrawn from the economy. The supply of money would be fully self-regulating (and would thereby make the economy — the process of producing/acquiring goods/services — self-regulating, with more on that below). Withdrawing money from the economy will be addressed below. The money created to fund the DDI and government would be currency. [Money created when banks issue loans, which is credit-money (credit used to make purchases of goods and services), would carry on as it does at present]. Since creating that money and withdrawing money from the economy are at the same time the most important parts of this paradigm and the ones that people seem to be the most difficult for people to ‘get their brains around’, they will be the focus of this attempt at relating the paradigm.
About the DDI (17 paragraphs)
So the DDI would form a guaranteed — bulletproof, actually — minimum income (GMI). Money (as currency) would be created as needed to fund it. The total amount of the income would simply be the amount of it multiplied by the number of people eligible for it. To avoid inflation, the income would have to start at something close to the current minimum and be increased gradually, but the point is that its final amount would definitely be enough for a materially sufficient life. Whatever its final amount, after its introduction it would be replacing existing incomes as it increased over time (more on all that below).
A democratic distribution of that income (again: any adult citizen — and any number of adult citizens — could become eligible for it) would be achieved by paying the DDI to three groups of people. Heretofore I have routinely written that everyone paid that income would be paid the same amount. It finally dawned on me recently that such a thing need not be the case: the people in the different groups would be paid the same income — whether paid monthly, weekly, or as hourly wages — but there is no reason why it must be the same income for all of those categories of people.
[I must have unconsciously been under the influence of an income being “democratically” distributed. As I have been fully aware, that only means that eligibility for it cannot be arbitrarily restricted: the existence of an income for which any (adult) citizen (and any number of adult citizens) could become eligible makes its distribution ‘democratic’. Still, that word sort of pushes us towards ‘the same for all’ if we’re not mentally alert enough. (Of course, any of the people who have read about this paradigm could have also had that thought about different incomes for different categories of people being paid the DDI and relayed it to me; one benefit of sharing this idea publicly could be other people thinking about it in ways that had not occurred to me.)]
Least shockingly, the DDI would be paid to retirees and adults unable to work. It would replace, in the U.S., Social Security, solving that whole problem. (No conceivable amount of individuals successfully claiming a fraudulent income for being ‘unable to work’ could possibly offset the benefits of this paradigm.) [The Social Security Administration (and its equivalent in any other nation) could be extracted from government to become the Administrator of the Currency — and thus be independent of both government and the banking system (though a nation’s central bank or its central government could administer the currency).]
The third group being paid the DDI would be people employed in ‘minimum pay positions’. That is to say, for people employed in such positions their pay would not come from their employers — a business or government — but would be the DDI (accruing as weekly pay or as hourly wages). [No one in any not-for-profit would be paid the DDI; all their pay(/benefits) come from contributions to those organizations.]
Whatever the amount of the income might be at any time, employers could designate any position to be a ‘minimum pay position’. However, an individual could choose to remain in/accept such a position or not based on negotiated total compensation: in a free market for labor employers would find themselves using benefits (as well as general working conditions) to compete for people to fill those positions. So for those minimum-pay positions the ‘arrow of competition’ (who’s in competition for what) — a neglected but hugely significant aspect of a market-based economy — would clearly favor the workers. It is important that benefits could only be ‘in-kind’ (e.g., insurance, education, transportation, clothing, housing — though that does get tricky — etc.). That is, the money would go directly from the employer to the provider of the good or service: not even ‘designated’ monetary allowances would be allowed (which, even if designated for particular purchases, would still be a supplemental income).
Let’s say that here in the U.S. the GMI (as I tend to refer to the DDI as pay for employees) started tomorrow at $10/hr.; $400/wk. So all employees being paid that amount or less would immediately be paid that amount. At the same time, though, employers would immediately have the amount of money that they had been paying to those employees available to finance benefits (which all people would know full well — and in the future would be publicly published, by law). An employer that had been paying an employee the current federal minimum wage ($7.25/hr.; $290/wk.) would have that amount of money available to finance benefits: $15,080/yr.; $1,256.67/mo. So with a GMI of $10/hr.; 400/wk. an employee who had been making $15,080/yr. could now have a total compensation of $35,880/yr.: $20,800 in pay plus $15,080 in benefits (plus any benefits the employee had already been receiving — if any). That suggests that the GMI could start even lower, at, say $8/hr.; $320/wk.: total compensation = (at least) $31,720/yr. To repeat, the lower the level at which the GMI started, the closer to the existing minimum pay, the better for preventing inflation.
For all that the cost to employers would be zero. So they would have no valid reason to object to the paradigm. (Businesses could be exempted from taxation immediately, since they would have to negotiate individualized benefits among their employees to a much greater extent.)
Taxation of every kind would be going down (see below) — gradually, to prevent inflation, of course, but all the way to zero (potentially). So the discretionary income of people being paid the DDI would be increasing. The DDI could be immediately exempt from income taxes.
[It must be at least noted that the DDI could be the pay for all employees of any business or government, with or without benefits, whether differentiated or not. In any version of this paradigm people could still earn unlimited incomes without being employed in any business or government, such as work in a not-for-profit entity, being in sales (commissions), being in business for oneself with no employees, or earning royalties from intellectual properties (whether patents or copyrights from artistic works such as books, songs, film, etc.) — and there could also be enterprises of all kinds as partnerships with no employees.]
To ensure that there would be no unemployment or poverty, government would be an ‘employer of last resort’, offering jobs paying the DDI without benefits. That would make such jobs essentially free to government (while giving anyone employed in one that incentive to seek a job that included benefits of any kind). Still, even those make-work jobs would need to pay ‘enough’.
It could be the amount of the GMI plus some (decreasing?) percentage of it — (for example, starting out at 125% of the GMI and decreasing to 110% of it when the GMI reached a certain level). Obviously, the lower the initial GMI the higher that initial percentage would be.
Finally, people who had lost a job for some reason could receive that pay for a certain amount of time without having to work for it, to make seeking another job easier. For that matter, a person who had lost a job could continue to receive the same income that person had been being paid (again, without any benefits) for a certain amount of time.
The object is to ensure a materially sufficient life for all, especially among those who have been less well-off. Isn’t that the most important thing for society to accomplish as far as the economy — the production/acquisition of goods/services — is concerned?
Again, since retirees and adults unable to work would not be receiving benefits in addition to pay, logic suggests that they would need a bigger income. Still, it, too, would have to start lower and gradually increase. It might start in the U.S. at, say, $2,000/mo. (very slightly more than the current average Social Security payment).
Like the DDI for minimum-pay positions, the level to which the DDI for retirees and adults unable to work might rise would be a matter to be decided. Also like the minimum pay for employees, after its initial implementation this income for retirees and adults unable to work would only be replacing existing incomes — until the DDI paid to retirees and adults unable to work reached (in the U.S.) the current maximum Social Security income ($4,000/mo.). So those increases in it could not cause inflation. In the case of the employees being paid the DDI, however, with benefits also increasing discretionary income would be increasing, which could contribute to inflation. So increases in the DDI for employees would have to proceed more slowly than increases in the income paid to retirees and adults who were unable to work would have to proceed.
Again, the DDI could be adopted by any nation, though it is obviously most compatible, as presented above, with the most fully developed national economies, given its emphasis on employment and its reliance on benefits as compensation. Other nations (or any nation) could eliminate poverty by paying the income to households rather than employees, however that might be accomplished. For instance, it could be paid to one parent (or legal guardian) of a household with at least one (legally recognized) dependent living there — the same income, regardless of the number of dependents). It could also be paid to a household (with or without at least one dependent living there) as an entity, rather than a specific person within a household. Any form of such an income would have a huge impact on the labor market, but opportunities for employment are supposedly soon to be drastically reduced, making that a serious option.
Funding government (3 paragraphs)
Money (as currency) would also be created as needed to fund government — all government, from local to national — forevermore at the current per capita rate of total government spending: that rate multiplied by the population of the nation each year (including non-citizens who were residents). [I have devised one approach to apportioning that money for the U.S.] That would ensure that demographics would govern output.
That would also put an end to using taxes/public debt for that purpose — unless spending exceeded somewhere the allotted amount, due to a public emergency or whatever. Both could at least be reset at zero.
That would provide a significant increase in disposable income for everyone. Given how regressive the total tax bill is in many nations (including the U.S.), in a relative way the people in such nations with the lowest incomes would benefit the most from ending taxation. To prevent inflation, however, taxes would have to be gradually reduced to zero, with the amount collected in the meantime reducing concomitantly the amount that would be created for funding government.
Withdrawing money from the economy (19 paragraphs)
That brings us to the mechanism for withdrawing money from the economy. A sufficient amount of money would be withdrawn from the economy by collecting it from the ‘excess’ profits of corporations. That is not being ‘anti-business’. It is simply the one place from which the money can come without taking it from any person.
single-paragraph overview (followed by 15 paragraphs of explication)
Corporations would be paying no taxes and no limit would be imposed on revenue, investment in the business itself (plant, equipment and integral intellectual properties), or the compensation of any/all employees (though sans bonuses of any kind, which would be disallowed as compensation for anyone). A limit (based on profits) would be imposed on the accumulation of cash and extraneous assets (i.e., beyond plant, equipment, or integral intellectual properties: so stocks, bonds, real estate, etc.). Say, accumulated cash could equal the annualized amount of the most profitable quarter in the history of the company and extraneous assets would be some multiple of that amount (based on the price paid for them, disregarding any changes in their monetary value over time). Other outlays would be restricted to legitimate business expenses (however those might be defined). In the U.S., the I.R.S., with nothing else to do, would enforce compliance.
With this paradigm in place rates of profit would not be increasing (at least not due to the structure and functioning of the paradigm itself), but money would still be flowing to producers/sellers of goods and services. With no taxes to pay and a steady flow money being constantly created as needed to fund a DDI and all government, corporations would be accumulating huge amounts of profits over time, even though their rates of profit had not changed.
It is important to understand that their revenue would not be increasing, either, as a result of this paradigm (once the transition to the paradigm was complete). A corporation might increase its revenue by traditional means — increasing market share, greater efficiencies, etc. — but those are microeconomic concerns. This macroeconomic paradigm would not in itself lead to increased revenue for any corporation because it would not be increasing the incomes of potential consumers (once the transition to the paradigm was complete).
Still, it is easy to understand the effect that a constant flood of money coming into the economy would have on the prices of assets — things that are purchased that (it is expected) will be worth at any point in the future at least as much money as was paid for them in the present. It’s not just that those prices would be going higher. They would be going up like rockets: they would obtain ‘values’ that put them in economic outer space. Imagine a single share of stock with a price in the millions. And even that wouldn’t be the limit — for the simple reason that there would be no limit. Keep in mind, also, that with this paradigm in place there would be no periodic recessions to ‘correct’ (knock down) the prices of stocks (and other assets, too, for that matter).
Karl Marx saw accumulation as the ‘Achilles heel’ of capitalism. For him, it is the driving force of capitalism while at the same time the accumulation of capital is also capitalism’s greatest internal threat. According to Marx, such ‘overaccumulation’ destabilizes the economy by creating a ‘necessity’ for periodic downturns that destroy capital, so that it might have room to grow (at desirable rates) once again. More prosaically, the accumulation of capital as ‘means of production’ leads to an oversupply of goods/services, when demand has been satiated yet more supply — and yet more potential supply — is still available, meaning production must decrease, if not stop altogether. (One particularly unfortunate effect of that aspect of the economy has been the advent of ‘planned obsolescence’, which has morphed into ‘not repairable’ and just plain poor quality, with all ensuring that replacement will soon be necessary.)
To repeat: in the context of this paradigm stability is not an issue. The goal is simply, again, to keep the prices of assets in some relation to whatever rates of profit might exist among corporations.
We can say, for present purposes, that there are two kinds of businesses in this world. In one type of business the profits of those enterprises become income for the owners of the businesses, i.e., ‘proprietorships’ (which can include partnerships). As is now the case, in this paradigm the profits of proprietorships would be the income of the owners of those enterprises. Here, “corporations” refers to enterprises in which the profits belong only to the businesses. Those are publicly traded corporations, the stocks of which are available for purchase by the general public.
No individual on the planet can have any claim on the profits of any such corporation. Even someone who might own 99% of the stock of such a business could not make any such claim. (Of course, corporations of the kind we are talking about have vastly more dispersed stockholders: it is rare enough for any one person to own more than 50% of the stock of such an enterprise.)
Some corporations do have ‘voting shares’ that are much more limited in number — and possibly access, with only non-voting shares available for sale to the general public. Even then, though, holders of voting shares still have no claim on any of the profits of the business.
Keep in mind that ‘profits’ are ‘revenue minus costs’. Those costs include all disbursements, to include paying for internal investments (including payments on loans from banks or bonds sold to finance internal investments), paying all remuneration — including benefits and bonuses — for all employees, including the ‘senior executive officers’ (e.g., COO, CFO, and CEO) as well as paying out dividends paid on stocks (if any). So “profits” are what’s left over after all of the legitimate claimants to any of the revenue of the corporation have been satisfied.
The brain trust of the corporation decides what to do with those profits on behalf of the business. Most broadly, there is only one thing to do: accumulate; hold some of it in cash and buy ‘extraneous’ assets (assets having nothing to do with the functioning of the business) with the rest.
So, in this paradigm corporations would be limited in the amount of cash and extraneous assets that they could accumulate. At the end of each quarter, profits still there after all other claims on revenue had been met and the limits on the accumulation of cash and extraneous assets had been reached would be collected, to be withdrawn from the economy (to be recirculated, actually, towards funding the DDI and government, reducing the amount of money that would have to be created.)
It is important that no money would be collected from any corporation before it could be used for the business — to include more remuneration of any employees or further investment in plant and equipment. Also, the collection of money would not reduce future revenue or profits: the amount of revenue/profits a corporation might earn following any collection of money from it would not be affected by that collection of money.
How much cash or extraneous assets could be accumulated are details to be worked out if this paradigm were to be adopted by any nation, but both would (presumably) be multiples of the profit in the most profitable quarter in the history of the business. That in turn would mean that there would ultimately be no limit on the ‘wealth’ a corporation could acquire, since making more profit would always be a possibility, which would enable the accumulation of more cash and extraneous assets.
There is one further point that must be made regarding profits. As noted above, the outlays that currently come out of a corporation’s revenue before arriving at ‘profit’ include “bonuses.” In this paradigm bonuses would not be allowed as a form of remuneration for any employee. Again, there would be no limit on how much an employee could be paid, but that pay would have to be in the form of a regular income. The reason for that is economic, not ideological: the functioning of an economy with this paradigm in place would require it. If bonuses were allowed, corporations could simply direct unlimited amounts of money to individuals, raising the distinct possibility that sufficient money might not be withdrawn from the economy, making a hash of this beautiful paradigm, with all of its benefits for both individuals and society as a whole — potentially, for humanity, for that matter.
For the same reason — making sure enough money got withdrawn from the economy(/recirculated) — corporations would also have to be banned from making contributions to any nor-for-profit entity. That would have to include political parties or other political organizations (or individuals), as well as foundations, private schools, etc. One more time: none of that is ideological, but only doing what is necessary for this paradigm to function as designed.
what about people? (2 paragraphs)
There could be a limit as well on accumulation for individuals, with the accumulation of cash based on income and assets as some multiple of that amount. Regarding people, though, delineating “legitimate expenses” to which any person could be restricted would be problematical, to say the least. So individuals who had maxed-out their accumulation of cash and assets could still spend money rather than have it collected.
Even distinguishing between purchases of assets and consumption might require resurrecting Solomon. Still, a limit on accumulating cash and assets, however generous, would establish a benchmark of some kind for ‘enough’. In the end, individuals, however rich or not, would have to be indifferent to have any money collected. (Hopefully that would become a ‘badge of honor’ in nations that adopted the paradigm — though, unlike corporations, individuals could also contribute to not-for-profit entities.)
Prevention of inflation
It has been noted in places above that in the transition to this paradigm inflation could be a concern. As noted, though, the DDI itself could only cause inflation to the extent that it raised incomes. It would only raise incomes to the extent that its initial level exceeded the current minimum income. Beyond that, it would only be replacing existing incomes. To reiterate: the presence of significant benefits would, however, free income for other expenditures, which, again, is why the DDI would have to be raised gradually, to allow supply to adjust to increasing overall demand over time. Domestically, once the paradigm was in place consumption would be stabilized by the size and form of the supply of currency. If ‘exogenous’ inflation of a general kind did occur, as with a significant disruption of supply, the DDI could be increased to account for it with no danger of an ‘inflationary spiral’, due to the decoupling of the DDI as compensation for employees from employers’ costs. If a global economic deflation occurred the number of people being paid the DDI might increase, but there would still be no unemployment or poverty. Its presence (along with the funding of government in the paradigm) would also prevent any possibility of an economic depression. Indeed, falling prices (which could also result domestically from increases in productivity) would be a boon for people being paid the DDI.
Economy being self-regulating
To get a tad more technical, there has been a long-running debate among economists as to whether the supply of money in the now-ubiquitous central government/central bank monetary paradigm is ‘exogenous’ or ‘endogenous’, i.e., (sufficiently) independent of other economic variables or not. This paradigm makes the supply of currency indisputably exogenous, as it would be solely determined by a variable completely outside the economy (demographics). Given, also, the amount of currency and how it would enter the economy (as income for people and funding for government), the economy as a whole would be passively but effectively governed by that variable. Since that variable would be self-regulating, the economy would become self-regulating, with total output governed by demographics. (Regulation within the economy, i.e., relating to the environment, workers, and consumers, would still be a matter of concern in the political process).
Possible scope
The paradigm could be adopted by a group of nations agreeing to share a common currency — without compromising the sovereignty of any nation. It could even one day form a single currency shared by every nation on the planet, with all peoples eventually enjoying the material well-being of the most materially well-off in a global economy about as stable as the surface of the Moon, where mere footprints in the dust can last forever.
Eminently actionable
Here on Earth, the paradigm is eminently actionable: there are plenty of details that would have to be worked out for any nation to adopt it, but it could be implemented anywhere with a single legislative Act. Even if working out the details (perhaps in an ‘economic convention’ composed of elected and/or designated persons) and getting it implemented took a whole year, that would be as nothing. The result would be a sustainable, self-regulating economy with no unemployment or poverty at any level of total output and possibly no taxes or public debt for funding government.
Surprisingly conservative?
Politically, it could help that accomplishing those outcomes would not require any redistribution of anything, would not require imposing any cost on any employer, would not require imposing any limit on income or wealth, and would not require people to act any particular way, whether altruistically or selfishly, competitively or cooperatively, any other. That is to say, this paradigm turns out to be surprisingly conservative (in some sense of that word).
Finish: more about justice (3 paragraphs)
Indeed, in a certain sense it hearkens back to aristocracy. In that paradigm income/wealth, as well as the power that was recognized to attend income/wealth — even political power — emanated from land. Since the amount of land was finite, income/wealth/power was exogenously, if you will, constrained. [Warren J. Samuels all but defined “social power” as the ability to “effect choices” (of any kind): “Welfare Economics, Property, and Power,” Perspectives of Property, Gene Wunderlich and W. L. Gibson, eds. (1972).]
The development of Modern capitalism changed all that. Money replaced land as the primary component of the economy, and an economic system was developed that could provide amounts of money that would be limited only by conditions in the economy itself. Corporate stocks became a form of property with no fixed limit on how much of it could be created. Also, those stocks can endlessly absorb money and thereby increase wealth via ‘asset inflation’ without adversely affecting the economy as a whole the way increases in the price of real estate inexorably do (by increasing costs for both businesses and individuals throughout the economy).
A possibility for boundless income/wealth had emerged. Even though such economic power no longer translates directly into political power, it does indirectly. Beyond even all of its material benefits, then, this paradigm happens to entail an exogenous constraint on power, in the form of income/wealth, in the form of demographics — but without imposing any limit on income or wealth. Justice is, after all, valid constraints on power, is it not?