...in a zero-sum contest for relative advantage among producers, abundance becomes a threat when it can no longer be sold for high quality claims. Any alternative basis of distribution would undermine the relationship between previously amassed financial claims and useful wealth, and thereby threaten the pecking order over which wealthier people devote their lives to stressing and striving. From the perspective of those near the top of the pecking order, it is better and it is fairer that potential abundance be withheld than that old claims be destroyed or devalued...Four Futures: "There are therefore four logical combinations of the two oppositions, resource abundance vs. scarcity and egalitarianism vs. hierarchy."
As polities, we have to trade-off extra consumption by the poor against a loss of insurance for the rich. There are costs and benefits, winners and losers. We face trade-offs between unequal distribution and full employment. If we want to maximize total output, we have to compress the wealth distribution. If inequality continues to grow (and we don't reinvent some means of fudging unpayable claims), both real output and employment will continue to fall as the poor can serve one another only inefficiently, and the rich won't deploy their capital to efficiently produce for nothing.
Distribution is the core of the problem we face. I'm tired of arguments about tools. Both monetary and fiscal policy can be used in ways that magnify or diminish existing dispersions of wealth. On the fiscal side, income tax rate reductions tend to magnify wealth and income dispersion while transfers or broadly targeted expenditures diminish it. On the monetary side, inflationary monetary policy diminishes dispersion by transferring wealth from creditors to debtors, while disinflationary policy has the opposite effect. Interventions that diminish wealth and income dispersion are the ones that contribute most directly to employment and total output. But they impose risks on current winners in the race for insurance.
In this essay I propose that the central bank be freed from its role of using interest rate policy to support aggregate demand. Instead, a truly variable public spending program is suggested to regulate aggregate demand. The program should be running constantly in order to minimize the time delay of fiscal responses. The amount of spending is variable and can be automatically computed from the realized nominal GDP so as to target a fixed growth rate for the nominal GDP. In order to gain popular support and avoid the pitfalls of traditional Keynesian stimulus programs, I propose that an electronic national market be set up to give voters direct control over where such stimulus spending is applied.more on 'monetary' policy
One such radical measure is too controversial for any policymaker to mention publicly, although some have discussed it in private: Instead of giving newly created money to bond traders, central banks could distribute it directly to the public. Technically such cash handouts could be described as tax rebates or citizens' dividends, and they would contribute to government deficits in national accounting. But these accounting deficits would not increase national debt burdens, since they would be financed by issuing new money, at zero cost to government or to future generations, instead of selling interest-bearing government bonds.Monetary Policy, Fiscal Policy and Inflation: "the absence of inflation is not just a matter of the market trusting the US government to take care of its long-term structural deficit problems – uncertainty and the 'safe asset' status of the USD greatly diminish the efficacy of the expectations channel" [1,2]
Giving away free money may sound too good to be true or wildly irresponsible, but it is exactly what the Fed and the BoE have been doing for bond traders and bankers since 2009... Suppose the new money created since 2009, instead of propping up bond prices, had simply been added to the bank accounts of all U.S. and British households. In the U.S., $2 trillion of QE could have financed a cash windfall of $6,500 for every man, woman and child, or $26,000 for a family of four. Britain's QE of £375 billion is worth £6,000 per head or £24,000 per family. Even if only half the new money created were distributed in this way, these sums would be easily large enough to transform economic conditions, whether the people receiving these windfalls decided to spend them on extra consumption or save them and reduce debts.
Imagine that the number of dollar liabilities circulating through the system is actually akin to a dollar rationing system. At any particular time, there are either enough dollar rations to match the number of goods, services and assets that can be consumed with those dollars in the system exactly, or too many rations, or too few.more on inequality
When there is a shortage of dollar "rations" (or dollar stores of value), there is a relative abundance of goods, services and assets. This creates a deflationary effect. When there is an abundance of dollar "rations", there is on the contrary a shortage of goods, services and assets, creating an inflationary impact instead. The same logic also applied to gold, when it represented the basis of the rationing system that the world used.
While the rationing system can work very effectively when there is an intelligently matched amount of rations to goods and services, it starts to fail when rations misrepresent the goods and services truly available (because someone has over-issued or under-issued rations relative to goods and services).
It's like having butter, bread and sugar rations over-issued relative to the amount of actual butter, bread and sugar that is out there. In this scenario, the rations lose value as people realise that owning rations doesn't necessarily guarantee access goods. Conversely, when rations are under issued relative to the amount of butter, bread and sugar — the rations themselves gain value and also become much more poorly distributed across society. Since it's only by owning a ration that you can guarantee access to goods (even if the goods are abundantly available), this scenario translates to a have or have-not society.
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