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Linkfest (December 22, 2009)

December 22, 2009 Leave a comment

In other news..

Accept Defeat: The Neuroscience of Screwing Up A very good article that summarizes a lot of what I realized years ago.

Taxpayers Help Goldman Reach Height of Profit in New Skyscraper Surprised?

The Equity Culture Loses Its Bloom I doubt they will stop unless they are made to..

Banks with political ties got bailouts, study shows The sun rises in the east.

China to require Internet domain name registration Legalism and control is hard to let go.

China has issued new Internet regulations, including what appears to be an effort to create a “whitelist” of approved websites that could potentially place much of the Internet off-limits to Chinese readers.

U.S. Economy: Home Sales Exceed Forecasts as Buyers Seek Credit Need I say more?

Sales of existing U.S. homes in November rose to the highest level in almost three years as first-time buyers rushed to take advantage of a government tax credit and lower prices.

Alternative View on Money- IV

December 22, 2009 5 comments

In my previous post on this subject, I had alluded to the need for creating an economic system in which even a person with a minimum standard of living would have enough discretionary income to support a ‘reasonable’ level of consumption. My definition of a ‘reasonable’ minimum living standard (and consumption) is a discretionary income of about 30%. The idea is that a person would have 30% of their income left over after paying for essentials such as food, utilities, decent shelter, transportation etc.

I do not see exponentially increasing medical costs as either inevitable, or possible to achieve. In any case, that issue will be the subject of a future series.

The first objection to my idea is most likely:

How will we pay for this? and why?

The answer to the first part of that question is quite simple, but requires us to reanalyze the reason we ask those questions. Money is still seen as a zero sum game, in which someone has to lose for someone to gain. The real question- Is money a zero sum game? In a world of gold = money, the answer is yes. However in an age of paper/ electrons = money, the answer is no. I propose we create money that is not based in debt, and can be adjusted according to prevailing needs. While some of you are still waiting for the nth coming of gold as currency, I believe that such a move is not compatible with our current technological civilization. While there are many reasons for that statement (which will form the basis of another future series), the most important reason is the fundamental effect of technology on making things and providing services- it keeps on making them less expensive and with fewer employees. However making things and providing services requires consumers who will buy them. A currency that retains its value will inevitably concentrate in a few hands, discourage spending and reduce economic activity –the velocity and flow of money. Without a healthy velocity and flow of money, you get a feudal-type system in which titles and occupations are hereditary, laws are arbitrary, contracts are unenforceable and everyone is trying to screw over everyone else. If you want to take your chances with such a system, go ahead.

The second part of that question, the ‘why’, has been partially answered in one of my previous posts. The most important purpose of money is to facilitate non-violent exchanges of things and services. It is easier (and more desirable) to pay for something than rob/ kill the person who can provide what you want. Given the effect of widespread application of technology on costs and labor intensiveness of products/ services, it is in the interest of producers to make sure that there are consumers for their products/ services.

The next set of objections to my idea are most likely:

How can we motivate people to work and excel if there is no extra reward? How do you prevent the idle from becoming rich in such a system? What about inflationary effects?

The answer to that comes in two parts. First- Those with jobs will keep the money they earn in addition to the basic amount. Essentially, the employed will have much more discretionary income than those on the minimum income. Surely, most people cannot object to such an arrangement, can they?

The second part of the answer is that everyone will have to spend their minimum income by the end of every calendar year. Carrying over any unspent amount to the next year, saving it or investing it will be forbidden. However the money earned in a job can be saved, invested etc. While some people will try to cheat the system, it will be inconsequential as long as the cheaters are kept at levels similar to those who cheat on their income taxes.

It is extremely important that the workings of this system are openly explained to people. The minimum income should not be seen as charity, but as a necessity to keep the flow and velocity of money from going below safe levels.

Inflationary expectations can complicate matters, however they will subside once people understand the system. In any case, paper and electrons can be created and destroyed at will. Moreover technology has been deflating product/services costs and will very likely continue to do so. Inflation is less destabilizing than a deflationary spiral, as the rise of dictatorial regimes in the 1930s can attest. It is easier for people to accept loss of savings than loss of income, food and basic human needs.

I have no illusions that we are going to go down this road willingly. In the end, circumstances and events that will force us to explore the possibility of creating such a system.

I will answer the following two question in an upcoming post:

How can such a system be implemented, given the human tendency to cheat and abuse systems?

What conditions will force most people to go along with such an idea?

The next part: Alternative View on Money- V