Newconomics

A PROPOSAL FOR A WORKABLE ECONOMY

BACKGROUND CONSIDERATIONS:

For centuries, the world has doggedly kept experimenting with one or another political solution along the left-right, communist-capitalist continuum.  Unhappily, none of these countless attempts has worked very well.  The far-leftist policies of the Stalin Era were responsible for the deportation and massacre of millions of Russian kulaks while the far-right policies of the Pinochet Era, though less bloody, resulted in the “disappearance” of thousands of dissenting Chileans and the torturing of other tens of thousands.  Between these ideological extremes, countries have stumbled into one form of economic failure after another, be it inflation, bankruptcy, depression, financial panics, deflation and the like.  Not surprisingly, the result of these traumas has been flip-flop political change as disillusioned populations seek succor in alternative economic arrangements.  Having learned from experience the crippling disadvantages of socialism, they turn to capitalism that just as surely disappoints and returns them, a naïve generation later, to another try at socialism.

It’s time, I believe, that the countries of the world own up to reality—i.e., that there can be no solution to their economic woes until they abandon the present irrational, over-simplified monetary system that underlaid all of their past attempts.  It’s time they recognize that an entirely new economic system, let’s call it “newconomics,” is called for—one that, upon initial examination, is bound to appear “radical” as perforce it must if we are to break from the past.

When that realization dawns, hopefully some open-minded economist will consider a legitimate system such as the one hypothesized here by an engineer went astray.  It goes without saying, he would have to overcome the temptation to automatically negate its provisions on the grounds of its assumed impracticality whilst ignoring the proven impracticality of the present system.  Were that to lead him to a favorable opinion, he might endeavor to model it mathematically and put it through virtual tests, the results of which, I am confident, would prove positive.  Should his confidence lag along the way, he might keep in mind Niels Borh’s response to a fellow physicist’s proposal at a quantum-mechanics colloquium, We are all agreed that your theory is crazy. The question which divides us is whether it is crazy enough to have a chance of being correct. My own feeling is that it is not crazy enough.

If our present man-made economic system doesn’t work, what does?  The answer, of course, is those designed by nature.  Thus newconomics wisely models its fundamental principles on those of that inventive and talented mentor:

1) Its rules are applied universally.  Artificial distinctions such as geographic, size related, income differentials, and social considerations are prohibited.

2) The so-called property of our present currency mislabeled “store of value” does not enter into newconomics because its illusional and ultimately dangerous.   No human institution can run paper through a printing press and then legitimately contend that it is possessed of a substantive characteristic any more than a scientist contend that he has magically conjured matter out of thin air.

3) In newconomics, money acts as a catalyst that assists in transactions but afterwards returns to its original state.  Money, under certain circumstances, can also act as “capital,” that is to say, an ever fluctuating depository of funds within a circulatory monetary system much as a lake within the course of a moving river or a condenser within an electrical current.

4) The mechanics governing an optimum commercial sector are incompatible with those governing an optimal private sector.  For example, an accumulation of capital is desirous in the commercial sector whereas it is deleterious in the private sector.  In the first case, the advantages of large pools of available capital are self evident.  In the second case, the disadvantages of large sums of money floating about are evident as well: indolent lifestyles, ostentatious luxury, income disparity and class conflict among them.  In other words, money must act differently in the commercial sector than it does in the private sector.  An analogous natural phenomenon is the change-of-state transition from steam to water to ice.

5) The range between individuals in such matters as motivation, personal attributes, talent, and natural intelligence is so broad that an unbridled economic system tends to reward individuals so disproportionally that it is socially unacceptable.  Incentives are, of course, a requisite in any workable system, but their utility is not enhanced above a responsible level.  Were the bar set so that the range between incomes is in the multiples of ten, say, or even multiples of a hundred, incentives would be just as compelling as those in the range of multiples of thousands.

Before getting into the nuts and bolts of newconomics, let me set forth its objectives to give the reader a better idea of where newconomics is headed.  These are not pie-in-the-sky notions dependent upon arbitrary, and often contradictory, governmental interventions, but rather realistic outcomes that are naturally inherent in the natural workings of newconomics itself.

1) to reduce the impact of boom/bust, inflation/deflation cycles

2) to enhance the vitality of the free market

3) to reduce income disparity and class envy without discouraging incentives

4) to tax the only financial asset that can be assessed without weakening economic activity

5) to create an economical, ultimately fair tax collection system that imposes no paperwork burden on the payer

6) to eliminate the possibility of tax cheating

7) to keep the planet’s money supply constant

8) to prevent budget deficits

Based on the above, newconomics erects a Chinese wall separating the commercial and private sectors and provides each with its own currency called “yen” and “dollars” respectively.  A brief outline of each sector is given below:

THE WORKINGS OF THE COMMERCIAL SECTOR:

All commercial activity ranging from mom-and-pop stores to large scale enterprises is conducted by employee-owned corporations.  There are no public shares and, consequently, no stock market.  During their employment, workers acquire non-transferable shares for every year on the job.  Upon leaving a company, workers must liquidate their stakes at book value.

Salaries are paid in yen which cannot be used for personal expenses.  However, workers can direct their salaries to the private sector by converting their yen to taxable dollars.  Alternatively, they can accumulate untaxed yen savings in the commercial sector in the form of bank savings accounts or as investments in corporate bonds.   Should they wish to divert these savings for personal use, these yen too must first be converted into dollars.  In all cases, yen-dollar conversions are irreversible, one-way transactions.  By regulating the rate of flow of yen-dollar conversions, government can smooth out the amount of currency entering the economy and thus dampen economic cycles.

Larger corporations are run by professional managers selected by the workers.  Typically management teams serve renewable three-year terms but, in the case of gross mismangement, can be forced out at any time by worker initiative.  Management under these conditions tends to be conservative eschewing mergers and risky initiatives outside the firm’s expertise.  Bankruptcies are not unheard of but rare.  Unions, needless to add, are superfluous.

Executive salaries and bonuses are restrained under the watchful eye of worker committees.  More surprisingly, worker compensation is also restrained by the predominant votes of the more senior workers whose priority is job security as opposed to immediate benefits.

Commercial banks operate in a manner similar to those in the United States handling savings accounts, lending money, distributing corporate bond issues, and, in general allocating capital to where it can be put to its most profitable use.  Loans can be made to individuals provided the proceeds are used exclusively for business purposes.

Bank’s can invest only in corporate bonds and then only up to a set percentage of their equity.  And banks are required to maintain a conservative ratio of outstanding loans-to-equity.  Finally, to prevent institutions that are too big to fail, they are restricted to one physical location and cannot exceed a fixed size.

Corporations participate in a free, highly competitive, highly innovative marketplace unhindered by any form of taxation.  Government regulations set standards but leave it up to the companies as to how those standards are met.

 

The Central Bank is charged with the maintenance of a steady supply of money based on its initial arbitrary ratio of $20,000 per inhabitant.  Adjustments are routinely required to accommodate population changes in accordance with this same formula.  The bank must also regularly replace the yen that are extinguished by the yen-dollar conversions.

Commercial banks and private banks operate independently of one another.

THE WORKINGS OF THE PRIVATE SECTOR:

Every individual is provided one and only one lifelong bank account.  There being no cash, all transactions—both income and expenses—must flow electronically in and out of this one account whether it be the purchase of a newspaper or the deposit of salaries earned in the commercial sector.  Obviously, all transactions are accompanied by both the sellers’ and buyers’ identification numbers as is the case with our present credit card transactions.

Governmental income is derived entirely from a single tax—an assessment of private wealth.  The tax is collected mechanically every month by skimming a percentage off all bank balances.  There are no exceptions to this procedure whether out of consideration of income, age, profession, or any other sort of other favoritism.  The percentage amount is determined by simply dividing the previous month’s budget deficit by the sum total of the assets on deposit.  Thus public indebtedness is extinguished as quickly as it arises.

Were the assessment to average 1.5%, for example, then bank balances would be reduced by roughly one-half every four years.  Thus a million dollar fortune left untouched in the bank shrinks to little more than one-hundred thousand in a dozen years and to about $15,000 twelve years thereafter.  Needless to add, most depositors elect to promptly expend their savings rather than see them ground down by the government’s remorseless machinery.  The typical effect, then, is to incentivize people to earn good, steady incomes in order to achieve the highest standard of living possible for as long a period as possible.  Nothing prevents wealthy parents from giving their growing children every advantage they can afford, but the wealth tax prevents them from passing on hefty inheritances to their grown progeny.

Any temptation to hide wealth by buying fixed assets is thwarted by an equally taxed subaccount containing those assets.  To ensure tax compliance in this area, every retailer must sell either consumables or non-consumables—never both.  For example, were an individual to purchase a yacht, its seller’s identification would automatically alert the bank’s computer as to the asset nature of the purchase and the yacht’s selling price would accordingly be accumulated in the buyer’s subaccount leaving his tax liability unchanged.  At the same time, a depreciation schedule would be appended to the purchase.

CONCLUDING REMARKS:

A careful reading of the above should satisfy the reader that newconomics can meet the listed objectives that began this piece.

In operation, the apparent harsher aspects of newconomics could be mollified.  For example, individuals could be permitted to buy a limited amount of annuities to protect themselves against unforeseen circumstances and provide for their retirement.  Upon leaving their company, workers would likely invest the proceeds from the shares of stock they acquired into this type of insurance.

Newconomics is meant to be only part of a coherent governmental system that would necessarily include political and social components not covered herein.

Dan Hurwitz

June, 2012

 

 

 

 

 

 

 

(Visited 69 times, 1 visits today)

Leave a Comment


nine − = zero