Tuesday, January 27, 2015

How to run a currency Part V: Restoring hope

We come to the final installment in this series on how sovereign nations should run their national currencies. The focus has been on restoring the primacy of good "fiscal" policy; understanding its vital role in balancing the economy and developing national capital. State-money was created for the very purpose of a people "affording" those things that are in the public interest and might be otherwise unattainable. 

We will save for another day the topics of central banks, interest rates, and financial institutions (the realm of "monetary policy"). They are deliberately left out of this story because they already get too much attention! When countries have returned to running their sovereign currencies properly, they will find that they don't need to rely on them nearly as much as they want us to believe. But we can still find some small useful roles for them to play in serving the needs of a productive society. (Banks can actually play a remarkably beneficial role if they are kept on the tracks, helping evaluate good investments and creating the money for real productive assets to become reality).

Building a hope-filled future for the next generation

Just as we did with taxation, we begin should always begin discussions of government investment or spending with the setting of objectives. What do we need or want? What are we trying to achieve? There's plenty of room to debate and let our democratic process sort out what rises to the top, but let's make sure we're debating with the same fiscal rule book - the one that says "we can afford it" - then we can analyze the effects on the economy, and whether these are things we want to be financed via new injections of government money or whether they are best left to the private sector.

We should also keep reminding ourselves that government "funded" does not have to mean government "run". We can have local governments manage job programs or cities decide on their utility needs but still choose to have funds issued from the Treasury to pay for it if so desired (e.g. to lower the debt burden of cities and the tax burden of their inhabitants). 

So, are you ready to allow yourself to hope in our nation's future again? Are you willing to say to our children that they can have it better than us? I am. In fact, I'll go so far to say that this generation is the generation of hope. I am convinced that they will rebuild and restore and regenerate and reinvent: leaving the world a better place than what we gave them. I suggest we get our old flawed paradigms out of their way because they have their priorities heading in the right direction! 

What follows is a starter list for investing in a great future. Add your own ideas. Start the conversations and begin to influence the influencers. Ask your elected representatives what investments they think are important for their children and whether they are willing to begin promoting them. That's what national currencies are for!

Let me add here that I reject the Conservative-Liberal, Republican-Democrat bifurcation of issues and solutions. I don't belong to any political party. My desire is to promote solutions that are based on shared human values and that achieve our stated objectives. For me, they are heavily influenced by the life and teachings of Jesus (Isa or Yeshua to some), but each of you will have your own. We will find that there is much in common when we get the understanding of sovereign money right and then put people and our natural environment at the fore as we sort out our objectives and priorities. 

What follows is not a political party message but simply what makes sense to me as the right way to run a national currency. I've grouped them into two categories: developing human capital and developing other national capital. 

I'm sure many of you will have even better ideas - let's hear them!

Developing Human Capital
  • It's always starts with the youth - they are our future. Fund education and make it work for all. Train our future work force; our future scientists, physicians, musicians, teachers, and entrepreneurs. An educated people is essential to the progress and sustainability of any nation. Ensure we attract good educators with good pay and good schools. Remove the financial barriers so any aspiring person can learn what they need to succeed and contribute without going into debt. Let's get every mind we can educated and every skilled hand trained.
  • Invest in research and costly, long-term development of technologies and knowledge. Nations should employ every research scientist they can. By closing labs and de-funding research, what is the cost in terms of delayed medical breakthroughs, un-invented productivity gains, lack of solutions to energy and other sustainability challenges, and lost first-mover advantages for our workers? 
  • Provide work for all. A fully employed nation is a productive and learning nation, building knowledge, skill, and passing it on to others. There is never an excuse to have people being unproductive and losing employable skills through long-term unemployment. A well designed job guarantee is essential to avoid the disastrous waste of human lives and potential good they would otherwise do for the community, not to mention the positive impact it has on lowering welfare dependency, crime, and a host of other social ills.
  • Help working parents, especially those raising children alone or on low-incomes. Funding childcare makes a lot of sense to help the "working poor" and single parents to earn a good living and hold down a job while also providing their children with an opportunity for early pre-school development.
  • Fund medical care for all. Health is essential to the pursuit of happiness and the advance of productivity and prosperity. Why would we reserve it for only those of means? We don't say only the wealthy can drive on the roads or appeal to the courts. Investing in the health of our people should be a priority for all. There are ways to do it without degrading the level of care.
  • Fund the arts. Creativity, beauty, and free expression enhance the sciences and protect democracy. S.T.E.M. to S.T.E.A.M. (adding arts to science, technology, engineering and math) is proving to be a wise approach to education and innovation. The greatest civilizations advanced the arts and the arts advanced knowledge and enriched the people. 
  • If it starts with the youth, it ends with the wise. Provide for the elderly. Period. Everyone has a mother, father, grandparents. It is a shame to any society not to care for their elderly. What an amazing resource they can be for a society: mentoring the next generation, advising businesses, volunteering in not-for-profits, supporting the arts and public facilities. We have made a promise to provide income to them in their retirement years, but there are always those seeking to undermine this promise and give the financial industry control over it. Social security should be provided at a living wage along with adequate provision for housing, health services, quality food, and personal care. We can afford it. We are morally obligated to protect it. And it is a wise investment in our future. 

Developing National Capital

Banks create money when they lend, ideally to enable the creation of new productive assets. The requirement for bank lending is that there are future cash flows generated by the asset or borrower that will be sufficient to repay the loan plus interest. But what about capital assets they banks won't fund but are still valuable for a nation? What if the risks are too high or the rate of return too long or the cash flows non-existent or insufficient? Do we just live without? 

Gladly, no! Again, this is why we created sovereign currencies. We have the ability to simply create (issue) money to develop the kinds of national capital that private equity and banking won't finance. In some cases we simply deem such investments undesirable for the private sector to fund and own (perhaps because doing so would support monopolistic rent-seeking). 
  • Research and development. 
    • Governments that fund labs and research centers can invest in lengthy and expensive research projects that are beyond the ability of profit-seeking firms and their investors to manage. 
    • An incredible amount of scientific and technological breakthroughs have occurred via the government sponsorship of research, and it should be high on the list of any nation to create an environment for their best and brightest minds to stay home and advance knowledge that can become part of a nations capital.  
  • Infrastructure. 
    • What separates nations that advance and those that don't, aside from political stability and the rule of law? 
    • It is always in the national interest to build and invest in ports, navigable rivers, roads, bridges, rail, airports, electricity, communications fiber, hospitals and schools: all the real physical capital that enables the most efficient forms of productivity, expands the boundaries of commerce, and facilitates the transportation of goods and people. 
    • There is no reason sovereign nations should let their infrastructure degrade. 
    • Nor should developed countries think they can't afford to invest in the next generation, state-of-the-art infrastructure that will move their economy forward or benefit their people. 
      • National high speed rail networks? 
      • Fiber communications in every city and town? 
      • Updated water purification? 
      • Mass transit for our cities? 
      • It's only a question of whether it is beneficial to the people, and whether the nation has the labor and real resources to build them.
  • Environment. 
    • People are part of nature: markets are man-made. 
      • It seems strange to even say those words, but we've lost touch with the way all life is sustained by the planet we share. 
      • We've come to think of the economy as a "natural" force and nature's resources and unlimited production inputs to be consumed. 
      • The toll is mounting and it's not a game we can win. 
      • Our job as stewards of the remarkable gifts of life, knowledge, and consciousness is to be deliberate in designing our economy in a way that ensures all our life-giving systems are maintained and even rejuvenated. 
    • But here's the good news: we can afford to change. 
      • We can afford to invest in different forms of energy production, transportation systems, and recycling systems. 
      • We can afford to set aside national parks on land and in the oceans. 
      • We can reshape the incentives in our economy to maintain economic growth while reducing consumption of resources. 
      • Investing in a our environment is building national capital: clean water, fresh air, diverse wildlife, healthy soil. 
Of course, we've only scratched the surface here. We could expound on each of these, and go on to designing the future of livable and sustainable cities, national defense, distributed clean energy infrastructure, energy-efficient building codes, and more. 

And we should. 

This is what a nation's fiscal planning process should look like. Political debates should be over what investments are most in the interests of the public they represent, and what most helps the growth of the economy and the health of the land. 

Putting it all together

So now we know that to run a sovereign currency, we should: 

  • understand how it works and then get the language right so we know what we're doing;
  • establish a tax system that creates universal demand for our sovereign currency;
  • implement other taxes as desired to achieve objectives in our economy and for the good of the people, environment, and economy;
  • determine what investments in people and other capital are needed or desired for our shared future; and
  • direct our government to issue whatever money is necessary to effectively and efficiently meet these objectives.

This isn't about "big government", but about using the nation's money for the good of the people, the economy, businesses, and the environment. 

Whenever we have unemployed people, underutilized capital, and businesses aren't investing, it is evidence that the the private sector is experiencing insufficient sales. Businesses in the aggregate are not selling all the output so they can't keep paying for all the inputs (including labor) and don't see a reason to invest in growth.

Since all national money is connected on a giant network of balance sheets (literally through the banking system), and every transaction has two sides to it, we realize that just as exports increase sales in the private sector, so too can reducing taxes (if some of the money not taxed is then spent domestically), and also increasing government investment (people are given incomes through direct employment or businesses have increased sales). 

It becomes very clear that the ability to balance our economy and help the private sector thrive is completely within the control of a sovereign currency-issuing nation

There are no more excuses. 

We can certainly choose not to use the system well, but let's not pretend then that we also care about ending unemployment, reducing poverty, providing for the needs of our elderly, or caring about the impacts of climate change. By not adding flows of money into the economy when its needed, we are deliberately affecting human lives and futures. 

There isn't an alternative way, despite our decades of failed attempts at finding one. 

Let's also not pretend that we really want a robust economy, with thriving businesses and entrepreneurs if we leave the private sector in the sorry state we have for the past seven years, doing nothing to fill the massive gap in incomes and spending.

If we did, we'd do something about it because we have the ability to do whatever we have the human ability and real resources to do. And in reality, most of us do care. Most of us do hope. Most of us do seek for a prosperous and healthy future for all children. 

The incredibly good news is that mankind has innovated a most remarkable solution to compliment capitalism for the benefit of all: a sovereign currency that is of and for the people. 

Let's use it!