The exact opposite of a smart idea to prevent economic collapse: Print money to pay the Wall Street terrorists
Steve Randy Waldman thinks Washington should give you cash. Not just you, of course, he would also give it to your neighbor, your cousin Stella, and Paris Hilton (Lord knows she needs the money). Everyone would get some cash. It would be deposited in their bank accounts, or otherwise handed over in order to address the absence of demand that is now wreaking havoc on the economy.
Here’s my proposal. We should try to arrange things so that the marginal unit of CPI is purchased with “helicopter drop” money. That is, rather than trying to fine-tune wages, asset prices, or credit, central banks should be in the business of fine tuning a rate of transfers from the bank to the public. During depressions and disinflations, the Fed should be depositing funds directly in bank accounts at a fast clip.
The idea is just silly enough to work — we guess. In the bizarro world of capitalist political-economy printing large quantities of money and then handing it out on a street corner may be no more dumb than giving money to General Motors to layoff thousands of workers on the pretext that it SAVES AMERICAN JOBS.
And, it is an outrageous proposal that should draw howls of derision from nearly everyone who reads his post. But, this is what is to be expected when someone thinks outside the narrow box of mainstream economic policy options. In fact, we suppose Steve offered this idea in order to generate some original thinking in his all too hidebound, inflexible, narrow-minded field.
As the title of this post suggests, we do not think this is a smart idea, but we do think it is the exact opposite of a smart idea. Without quibbling, we merely note for the moment that “the exact opposite of a smart idea” is not a bad idea, but, rather, a good idea turned on its head.
There are, Steve admits, problems with his proposal: Just printing cash and handing it out might cause worried holders of American debt to fear for the solvency of the Federal Reserve. But, he notes, the problem with insolvency is not that Washington will have a huge red bottom line; it is that it will be unable to pay its obligations. But, since it can always print cash to pay any obligation, he assures us this is not a reasonable objection.
We will have to take his assurance on this for the sake of argument, but we do note that the United States has defaulted on its debt obligations twice in the last 80 years: domestically, in 1933, when it took the currency off the gold standard; and, internationally, in 1971, when it refused to honor its obligations under the Bretton Woods agreement to pay its debts in gold. (Economists, of course, choose to ignore these events, but, just to keep the discussion honest, we need to note it has happened at least twice now.)
Then there is the problem of “fairness”. Steve proposes that a flat cash gift be given to everyone, without regard to their income — Paris and Stella will both get the same amount. Since your cousin Stella has less wealth than Paris, she is more likely to spend what she is given. And, since Stella’s husband — Phil — was laid off from General Motors in a vain attempt by the Messiah to SAVE AMERICAN JOBS, he will, undoubtedly, make use of his paltry sum to pay the mortgage that has been bundled into the mortgage backed securities in Paris’s portfolio.
Somehow, in all of this, Steve assures us that this will narrow the income inequality between Paris and Stella. We take his word for it, but we do wonder what it will do for home values in Paris’s neighborhood when Stella and Phil — flush in their new found wealth — begin hunting for an upscale site for their double-wide.
But, what about Phil? As a result of his sudden fantastic wealth, will he not become converted into another lazy mouth pulling on one of the 300 million tits of the nation’s cash cow? Well, yes. Phil might just be a little more particular about which McDonald’s job replaces his previous assembly line position. And, employers might just have to raise their wage bid a wee bit. But, a fixed and set dole might just be a way of countering the loss bargaining power Phil experienced when his union was demonized and broken by Washington, as well as the loss Stella experienced when her job was summarily transported to a WalMart owned factory in Guangzhou, China.
As we said, not every “exact opposite of a smart idea” should automatically be labeled dumb simply because they are exactly the opposite of what someone with a certain minimum of intelligence, but lacking a degree in economics, might choose. Sometimes the exact opposite of a smart idea can open our eyes to the possibilities existing beyond the tiny cube within which mainstream economics places all of its most valued stuff — dogmas, eternal verities, stereotypes of human behaviors, hidden assumptions, and meaningless self-delusions.
For instance, implicit in Steve’s assumptions regarding our current difficulties is the idea that the underlying and massive chronic overproduction which is driving the global economy into a black hole can be fixed by digitally enlarging our bank accounts. This, of course, assumes that the problem is the lack of money in our pockets.
We could call this the lump of price fallacy. In this fallacy, you have four variables: output (all the stuff being produced), prices, employment and currency. Prices, we are told, can never fall because this would be deflation; and, deflation is bad since it would lead to the fall in employment and output. If prices are assumed to be fixed, the only other changes possible are to output, employment and currency. Since, we don’t want to suffer a fall in output or employment, the amount of currency in circulation must increase to support prices — lots of new Federal Reserve Notes have to be pumped into the economy. If this new currency is not pumped into the economy, economists warn prices will fall, output will drop, and unemployment will get worse.
A reasonable question in this scenario is, “Wouldn’t falling prices make all this stuff we are producing more affordable? Wouldn’t that increase demand for all the stuff we’re producing, both here at home and internationally? Wouldn’t that boost employment?” (Okay, that was three questions.) The economist would answer that companies resist dropping their prices and would rather reduce their work forces and output than cut how much they charge for their stuff.
And, frankly, since they are sitting on an ungodly amount of cash right now, they can wait longer than you can stand collecting unemployment. If you could hold out long enough, eventually companies would have to cut their prices to what you can afford to pay. But how long would that take? And, how long can you feed your kids hamburger helper mixed with a tin of cat food? Their pricing power rests on the fact that you and your kids will starve long before they run out of cash.
Hence, the reasonable thing to do, economists argue, is to pay the extortion.
A good negotiator, however, always has a fall back position. In your case, all the reasoning by Steve and other economists rest on the belief that prices should never fall. If we decide not to negotiate with these economic terrorists but to ruthlessly break them and pound their faces into the dirt until they learn it is uncivilized to threaten your neighbors with starvation in order to make a buck, it is possible they may be convinced to act in a more civilized manner in the future.
We don’t promise this, but stranger things have happened. (See, for instance, the continuing use of the royal “We” in this blog, as well as in Brian Williams’s NBC’s Nightly News broadcast, despite the fact that this tick is evidence of marriage between cousins so popular among the European aristocracy.)
So, in answer to Steve’s exact opposite of a smart idea, we offer a smart idea:
Force deflation — force companies to cut their prices; do this by reducing hours of work by 25 percent. A 25 percent reduction of hours of work is the same as a 25 percent reduction in the labor force. If this reduction is not enough, keep cutting hours of work until unemployment disappears. When businesses, who are sitting on a pile of unemployed capital, complain, cut it again until they are forced to employ every dime of their idle capital by employing people.
Choke off credit until all the money sitting idle in the economy is pulled into circulation; and, then, keep it choked off until governments have difficulty raising debt to fund their operations, and countries have problems raising debt to fund trade deficits. When governments have difficulty raising credit for public debt, they will begin taxing properly instead of borrowing otherwise taxable income from Paris Hilton and paying interest on it. When the US can no longer live on the credit of other nations, it will be forced to reindustrialize its economy.
So, yes! Let us think outside the box, and the first box to go should be the cubicle too many workers sit in all day reading and answering useless email.