THE BLOG
of John GellesAugust 23, 2007
ECONOMIC REFORMCopyrighted work, if any, reprinted here is for educational non profit purposes — and at the teachable moment. It was offered free to me on the internet (as a member of a wide audience) and is copied here free to others adding to its value) — it is fair use of the work.
An email forum friend asks: Who should have the right to regulate money as a medium of exchange and a measure of stored wealth?
Should such regulator be a player in the profit and loss sector of the economy, like a private bank, — or should the regulator be a non-profit organization serving the public interest?
His questions may accept that parliament spends money presumed to be in the public interest and, therefore, control over the money (that enables the economic, tax and credit systems) ought to be be in an organization with a degree of independence from such parliamentary spenders.
On the same forum, another friend points out salient facts:
Models of the incredibly complex systems and sub-systems that may guide a nation's economy have not yet been created.
Models, if created, would have to be testable empirically before significant change in our money, tax and credit laws (that relied on the models in question,) would be justified.
And useful models are very rare because so much of an economy's performance reflects events and forces outside the scope of input-output models — agriculture and transportation are so affected by weather their results are not predictable. Industry is so affected by invention and innovation its results are not predictable.
In my view, both friends are correct. But economic reform does not promise predictability. It starts with an economy and laws as they are.
It demands principled change in the laws — to try to improve future results — but not on an engineering model.
(Even engineering is an art, and and cannot be fully predictable — but legal reform of, say, employment, money, taxes and credit, is further away from engineering than legal reform of mine or bridge safety and inspection codes.)
We know for certain that, in principle, money as a medium of exchange is supposed to facilitate production to replace all that is sold that people will need. This means that purchasing power is supposed to track future need not past wages. This demands wage subsidies.
We know for certain that, in principle, money as a store of wealth cannot be constrained by debt — for if it is, many people will be in debt and few will have a positive net worth. This demands inflation adjusted cash savings.
So reform to add a wage subsidy (or national dividend) is indicated.
And inflation protected (indexed) savings accounts are indicated.
[to be continued]