Everybody
seems to have fun trying to solve the problem of grotesque inequities plaguing
our time. The latest is Tim Worstall who wrote an article to respond to
something that was said by Representatives Rashida Tlaib and Pramila Jayapal.
In so doing, Worstall mentioned L. Randall Wray who formulated a theory of his
own some time ago. In any case, since no one came up with a good solution while
having fun, it behooves us to get serious and see where that will take us.
Like
Tim Worstall says (in the article he wrote under the title: “Stop telling the
government to make money out of thin air,” published on April 21, 2020 in The
Washington Examiner) Zimbabwe and Venezuela tried to solve the problem by
printing more and more money, but look where that got them. In fact, long
before those two, there were other countries that faced the same problem and
tried the same solution ... the most prominent being the Weimar Republic. What
they all had in common, however, is that after going through a number of
difficult years, they recovered and did well economically.
How
did this happen? Simply put, what happened is that an economic Armageddon was
triggered by the grotesque nature of the existing inequities, and destroyed the
system that was maintaining the bad economy. The result has been the opening of
the door for the rise of a new economic system. In practical terms, it meant
that those who had little or nothing to lose, lost little or nothing. On the
other hand, those that had much to lose, lost most of what they had. This is
how the field was evened out, giving everyone the chance to start from scratch,
with all of them having to deal with the same advantages and disadvantages.
Does
that mean we should prepare our institutions for the worse, and root for an
economic Armageddon to happen, then sit back and wait to see what develops? No,
it does not mean we should do anything like that, because we can achieve the
results that we want by controlling the process from start to finish. To do it
right, we recall a lesson that nature has forced on us, and what we did in
response. The lesson is to the effect that, when left to themselves, the
forests accumulate too much fuel and burn out of control. To mitigate the
danger of forest fires, we burn some of the trees from time to time, thus put
ourselves in control of the process. We can do the same thing with an economy
that has developed grotesque features. Here is how that will work in practice
for a country like America:
There
are approximately 110 million households in America that are not millionaires.
There are approximately 20 million that are millionaires. And there is
something like 550 billionaires. All together, they own wealth estimated to be
worth 100 trillion dollars. If that wealth were distributed evenly among all
the households, each one would be worth 770,000 dollars … and there will be no
millionaires or billionaires.
The
Treasury, the Fed or both working together, will first create a new currency
called the new dollar. They will instruct the banks and brokerage houses to
open an account for every household, and deposit in it as many new dollars as
the household has old dollars in its old account, but only up to 770,000
dollars. This will not change the worth of 100 million households but will
reduce the worth of the other 30 million. For example, those that had 10,000 or
50,000 or 600,000 dollars in cash or securities, will still have that much in
their new accounts. But those that had more than 770,000 will see their worth
diminished to that value.
The
treasury will then create a holding company called “Sovereign Fund,” and
temporarily take into it the 4,000 or so publicly traded companies while
leaving untouched the 30 million or so small businesses in America. Meanwhile,
the Central Bank will cancel the old dollar and designate the new dollar as the
official currency of the country. For now and for a while, there will be no
millionaires or billionaires.
What
is left to consider is what to do with the 4,000 publicly traded companies and
the 40 million Americans who live below the poverty line. Well, the government
should reassure the owners/executives of the large companies that there is no
intention on anyone's part to punish them or discriminate against them. In
fact, whether they decide to remain on the job or retire –– out of the
sovereign fund, the government will work out a compensation package for them
and their families, as far into the future as three generations.
What
the government wants the executives to do, however, is imagine that the 40
million poor Americans are citizens of a Third World country whose leaders have
asked the American executives to help them develop their country and raise the
standard of living of its people. The executives have done it many times before
with countries around the world, and there is no reason why they cannot do it
in America.