SHADES OF GREEN: Economic solution

In my last column, I outlined something I consider to be a sustainability issue as much as anything: The increasing economic distress among more and more people due to declining income, unemployment, and resort to personal and public debt. A major cause of all this is the hollowing out of our manufacturing sector and the sending of many jobs offshore to low-wage parts of the world.

However, there is another, more fundamental trend at work: Mass labor for wages is just going away, period. Ever since the beginning of the industrial revolution productivity has been going up, but the labor portion of the cost of production has been becoming smaller. Today, many goods and services are provided with hardly anybody being involved, from robots welding and painting cars to business transactions being done by automated systems you encounter when you call a company. (“Please choose from the following options.”)

We depend on employment, work, for money. But many jobs are going away, never to return, while the goods and services available continue to grow. That’s not entirely a bad thing. Much of routine physical or desk work is drudgery. It’s nice that there is not enough drudgery to go around any more, but the problem is “no work, no income.”

What to do? Think of all those systems, many of them developed long before we were born, as a kind of heritage. We today develop a lot of clever machines and software, but it’s all based on centuries of genius and enterprise. We don’t strictly own this stuff, unless we have shares of stock in the relevant company, but we do, every person without exception, have this as a heritage.

The automated systems don’t buy food, clothes, cars, housing, insurance, vacations. Only people do that.

Therefore, if there is to be a market for all this stuff, money, purchasing power that matches the value of all this productivity, must be in the hands of people, who do buy things.

How would this be done, if not exclusively by wages? Here’s how: The sovereign government looks at the value of the unsold goods on the shelves at the end of a year, say. In a country with some 300 million people and a slow economy, that’s going to be a big number. Let’s say the number comes to $7.2 billion. In one version of something called Basic Income Guarantee, the government gives one half of that to every citizen in the form of a check every month. That would be $1,000 a month, more or less. The other half of the $7.2 billion is held back. Every merchant of consumer goods would be invited to join in a program in which they would agree not to raise prices over last year and, in addition, to sell at a 10 percent discount. At the end of the year the government looks at their sales documentation and pays the merchant the 10 percent difference. This last mechanism is called “Compensated Price,” and is designed as an additional control on inflation.

Every citizen gets the money, enough, probably, to take care of basic needs. They reliably spend this money. Producers of goods and services don’t lay people off, don’t stop buying raw materials, leasing equipment, etc. Recessions become a thing of the past, and demand stays steady, especially for the basics.

Social problems generated by the tribulations of more and more desperate people largely vanishes. People are freed up to be creative and innovate, not only in strictly economic terms, but in the arts and programs for general welfare now confined to government agencies or charity.

It is important to understand that this “Social Dividend” money being paid to people is not charity, not the “dole,” not welfare, it is our heritage.

The obvious objection to this is, “Where is all this money going to come from? We already have staggering public debt. We don’t want more taxes.”

No taxation and no borrowing is involved in this system. The money comes off the printing presses. That’s right, the government just prints the money!

“But, but, that’s inflationary! What could such money possibly be worth?”

It’s not inflationary, not only because of Compensated Price, but because the money is not madly printed; the amount corresponds to the value of goods that are already in existence (or near potential in the case of services) and have already been paid for.

The U.S. Constitution says that the government has the right to issue money and establish its value. In practice, our money supply is largely generated by the banks, in the form of loans. When they make loans, they have only a fraction of that money on hand, (called Fractional Reserve). They lend money they don’t have and eventually get paid back in actual money, plus interest, because of the value that is added to the real economy by the borrower, who has been busy creating new goods or services. That’s how money is created, but chronically not enough of it.

The result of this scarcity of money is competition for it as a commodity, and that results in a huge, wealthy financial “industry.” Today that industry, finance, is the tail wagging the dog. Wealth is concentrated in fewer and fewer hands, the middle class contracts, the economy falters, and that is a downward spiral.

President Abraham Lincoln, who issued unsecured dollars, “greenbacks,” and just spent them into existence during the Civil War, once said that “If the American people knew tonight how the banking and monetary system worked, there would be a revolution by tomorrow morning.”

Money should not be a commodity at all. It should be a “ticket,” a way of conveying buying power to entities that buy things, i.e. people. A Basic Income Guarantee society would be different from what we think of as the natural order of things, but it would not be Communism or socialism. The means of production would not be in government hands, and the total responsibilities of governments would contract, not expand.

It’s not a “welfare state,” it’s just a needed balancing mechanism. It is not a threat to the business community. Markets for goods would be more robust and steady, not the scary chaos we have now.

Does all this sound crazy? Let me tell you, when I first encountered the ideas of Social Credit, Social Dividend or (today) Basic Income Guarantee, it took some time for me to get my head around it. On the one hand, the essential problem, lack of buying power in a declining-wage society, is obvious. It’s right here in our faces, and it is corroding our culture.

On the other hand, we are so drenched in traditional ideas about work and pay for work, the “work ethic,” and mistaken notions about what money actually is, that we are resistant to the plain solution to the problem. President Richard Nixon saw the need for this coming, but in subsequent administrations the idea in nearly any form disappeared from view.

One U.S. exception is the Alaska Permanent Fund, in which the state funnels oil royalties directly to each resident every year. But that’s a small program and is based on a special circumstance.

What is required is a full-blown system along the lines above, one that actually balances purchasing power and productivity.