Tuesday, October 4, 2011
I didn't get to the comments on Waldman's post, yet. (On purpose.) But in his post, Waldman seems not to have a feel for how much money the economy needs. He knows it's on the low side and has been for a while; and he's right about that. But printing money is a dangerous thing. And not knowing when to stop is even more dangerous.
Waldman's paragraph 10 is dreamy. He presents a vision of an economy where the central bank provides us with money -- and all is right with the world. His plan could "reshape society," he says.
Paragraph 10 reminds me of the economy of Star Trek. But Waldman never gets to the numbers. It's all sleight-of-hand -- again, either because Waldman himself does not know (which I find mighty hard to believe) or because he is presenting a simplified version for his reader. But the numbers are not difficult.
Let's say we have a $14 trillion economy. And -- based on the "Camelot" years of the U.S. economy, the early 1960s -- say we have between 20 and 25 cents of M1 money for every dollar's worth of GDP. Go with the high number. Call it 25 cents. Let's figure M1 equal to 25% of the $14 trillion GDP.
So then we have $3.5 trillion in circulation. (By way of comparison, before the crisis in 2008, we had less than $1.4 trillion in circulation. And a $14 trillion economy.)
And say we think our economy can sustain growth at a rate of 5% per year. (Again, on the high side. But just say.) So then we expect our economy to grow about $0.7 trillion (or $700 billion) the first year out of the gate.
The "helicopter drop" will have to be 25% of $700 billion, or $175 billion. (And that's based on the high numbers, remember.)
And say we have a population a little over 300 million people. Call it 300 million. So how much money falls from the sky, per person?
About $583 per person.
Disappointed? Don't be. Waldman's paragraph 10 is unrealistic. He should never have presented the idea that way.
A helicopter-drop of $583 per person. We had something like that under President Bush, remember? Half that, I guess; the wife and I got a check for $600, back in the summer of '08. (But that added to the government debt, of course.)
The talk at the time was: Did it stimulate the economy? Some analysts said yes. Others said people paid off debt with the money, rather than spending it. Yeh. People did what needed to be done, to fix the economy.
When are policymakers going to catch on? When are policymakers going to stop trying to get us to start borrowing more again? And when are policymakers going to adopt a strategy like Waldman's or mine, that adds money to the economy without creating more debt?
Put finance people in charge of the economy, and they cannot see debt is a problem.
Waldman never gets into the numbers. As for myself, I don't know how you could come up with a post like his without getting into the numbers. But I'm starting to think maybe that's what Waldman did. In paragraph 12 he talks of what would happen "if government transfers generate income" that many workers "could get by on without employment."
But sir, we're talking $583.33 per person. Two thousand three hundred thirty-three dollars and 33 cents for the year for a family of four. It would make a nice birthday present, to be sure. But it doesn't get you through the year. It's not enough to get by on. It's outrageous to suggest that it might be.
Fortunately, Waldman provides us with an alternative to his underfunded Star-Trek economy. In paragraph 13 he suggests a lottery. This is something that occurred to me (independently) so I'll call that a good idea.
If we're gonna do this, if we're gonna fix the economy with nothing but bright ideas and fiat money, then the ideas have to be damn good ones. There can be no dancing around the issues. There can be no half-assed arguments, designed to sound good to people who are already liable to opt for such a plan. The arguments have to be so good they convince people who oppose them. Convince people who think it's wrong. That is what must be done. That is the only way to achieve the kind of victory that is needed today.
After all, we all live in the same economy.
Posted by The Arthurian at 4:00 AM