Enough to keep the value stable
This is critically important and a guiding principle.
How will we decide how much?
We do not want to privilege special interests – whether the interests want to make more money for themselves or remain in office or a government job. And, however much we believe that a small group of professionals can make an unbiased and professional decision for us all, any small group will have bias and their own interests. The more they are experts, the more likely they will fall into groupthink.
Good decision-making theory says we do NOT want to consolidate information gathering and analyses into one agency. It is better to have redundancy and more than one method of calculating the stability of our money. Having multiple perspectives strengthens our ability to make the best decision.
So having a small group of elites become a monetary authority that decides for us is not a good idea; it would result in an inferior decision. However, we can have a Monetary Authority that aggregates the perceptions, suggestions and choices of many, and reports a consensus decision.
WE must design a process that gives us the best estimate from a broad range of professionals and incorporates full civic participation. Here are some suggestions about how we could do that.
Aggregate from the many
We want our decision grounded in research, data collection and the analysis of professionals who have experience, knowledge and insight. They have the ability to collect, critically review and understand a great deal of economic data. We want their best guess as to how much new money we need, or how much needs to be removed to keep the value stable.
Inevitably, the questions they ask determine the data set, which then has a perspective and some bias. So, how can we do our best to remove the impact of bias? We aggregate diverse, independent and informed estimates from multiple perspectives.
Many government agencies collect and analyze data: The Bureau of Economic Analysis (BEA) within the Department of Commerce; the Bureau of Labor Statistics (BLS) within the Department of Labor, which maintains the Consumer Price Index; the Fed; the Census Bureau; and, State government offices. This is a rich trove of economic data, collected from differing points of view.
We will get the best guesstimate of how much new money to create by having these many agencies submit their recommendations, including their supporting facts and analysis, and then find the average. Please read James Suroweicki’s Wisdom of Crowds (2005). It’s a foundational read about why democratic decision-making gets the best results.
For example, the Governor’s Office of every State, the Boards of the regional branches of our Bank of the US, the BEA, and the BLS can all submit recommendations. Their findings must be publicly distributed and open to review.
We can also invite private groups to submit estimates, similar to the way our Supreme Court allows independent parties to submit briefs on a case. These would fall under the same requirement for publication and public review, and could give us the perspective of private bankers, businesses, labor unions, and wage-earners.
For the broadest and best possible estimate, we can include a single-line question on every individual and business tax return: How stable have overall prices been this year for you on a scale of 1–10? The answers can be totaled and averaged, and, included in the average for the final decision. How these various estimates are weighted can be a formula decided by Congress. For example: Individual tax return estimates – 30 percent; Business tax returns – 30 percent; Our professional data collectors – 40 percent. How would you like to see the suggestions weighted, and why?
Monetary Commission or Authority
We need a central body to gather and review the recommendations from all of the above. Using a formula determined by Congress, this commission will aggregate, weight and average the recommendations, present the outcome, and prepare a summary justification for Congress. This report would include the recommendations from each perspective as well as the aggregate.
Under ordinary circumstances this recommendation is final. Congress can establish and alter the formula, but Congress will not have the authority to alter the decision about how much money to create, with- out a sound justification and a super majority.
The law can require a set aside for emergencies, such as a massive natural disaster. If that set-aside is inadequate for the size of the emergency, a super majority of Congress could make an exception and create additional money. But, in ordinary circumstances the Commission would set the amount of new money to be created.
We will have to consider how this commission should be appointed, what the job requires of members, how long their terms, and where in the structure of government this commission should reside. It does not need to be independent of government oversight. In a democratic republic, we should be wary of creating seats of power outside the oversight of our Constitutional balance of power. The Government Accountability Office can be funded to review the Monetary Authority periodically to assure they are doing their task well and without corruption. If the requirement for transparency and publication of all data and analysis is upheld, corruption will be much less likely. But, oversight is always useful.
Some money reformers are suggesting a weekly assessment and recommendation by a Money Authority, and weekly new money creation to match. This is not a good idea. It would be attempting to micromanage our enormous economy, without giving the market a chance to settle into any adjustments. It would be a recipe for needless volatility, crazy making and crisis management. We’d be changing course mid-step. Tasking a small group of people with making this sort of judgment so frequently only produces poor results. It takes time to gauge how a trial is working and it takes a broader and more diverse group to get best decisions. Maybe in 30 years we will have enough data to create algorithms that track, assess and manage the money supply. But, we do not have this data now, and it will take time and some experimenting.
A three-year interval for making a policy change is a good choice. In my experience there is a three-year cycle to most new learning: the first year one scrambles to figure out the new and how best to learn mastery. The second year one practices and learning is comfortable. The third year mastery develops. In economic terms, this means the first year will be a bit chaotic as individuals, institutions and businesses scramble to figure out what the change means to them. In the second year, things settle down as business climbs a learning curve. And, in the third year we make a reasonably sound assessment of how we are doing and how we need to adjust the rate of new money creation. We could extend unemployment benefits for these first years while the economy adapts.
We could certainly set aside a percentage of the three-year plan’s new money creation, to be available not only for emergencies, but for tweaking and experimenting with the general plan – keeping in mind too many tweaks and it will be impossible to assess how and what is responsible for the results.
Our data gathering institutions can continue to publish weekly, monthly and annual reports on how we are doing, just as they do today. We can ask them to make annual reports on how they think the current money creation strategy is working. And, every third year, their report will make a definitive recommendation for the following three years.
Is the money value stable?
The overriding assessment criteria for how well we’re doing with our guesstimate of how much new money to create will be: is the value of our money truly stable?
On the first day of this new system the amount of money in the system will not change. But, the banks have been increasing the total supply by about 8 percent on average every year for the past 100 years. Some people credit this expanding money supply with being the driver for innovation, new development and a thriving economy. Remember a thriving economy has been defined as a growing-in-size economy. This intermittent boom-bust growth has been responsible for improvements and declines in the quality of our lives, the shrinking of our middle class, and the destruction of our planet. So, can we have the improvements without the destruction?
What is the just right amount of money in an economy to keep the value stable, keep innovation happening, maximize the number of people living healthy and prosperous lives, and provide good stewardship to all life on our small blue planet?
We will have to experiment and find out.
It will take a little trial and error to achieve truly stable value money. In addition to discovering how much new money creation maintains a stable value, we want good information on the impact of how new money is entered into the economy. This means we need a way to isolate how new money is entered into the economy from how much new money is created.
Weaning off the growth imperative
The best way to isolate how new money is entered is to maintain the same average increase of new money creation for a couple years with only the change in who has the power to create it. If the increase remains the same, then changes can be more accurately attributed to the new ways money is entered into the economy. That will help us learn what works best.
We are accustomed to growing the supply substantially every year – by nearly 8 percent. It would be helpful to deliberately plan to slowly wean ourselves from this rate of increase. For example, the first three years of implementation our government would create the same average increase the private banks have been creating for the past 100 years. This would make it easier to see the differences in the economy due to the change in system because changes could not be credited to a change in the amount of new money. The predictability of the increase would also support an easier transition.
The increase in 2017 under our old system is expected to be $941 billion. This could be added to the pot of new money that the government gives, spends, lends, or invests into circulation.
We could then decrease the rate of increase by one percent every three years…7% – 6% – 5% – 4%. For the past 100 years, while the average rate remained relatively steady at about 8 percent the rate swung wildly from negative one percent to 11 percent. When everyone expects and plans for a gentle slowing down of the increases, it should introduce a new level of stability to the economy. Within 20 to 30 years, we will have mastered how much money is required to maintain a stable value and prosper. This may seem like an overly long time, but, it will be in time for your children and grandchildren to survive and prosper on the planet. And, a slower pace of change will support wiser choices and the ability to navigate past inevitable mistakes.