Thursday, July 19, 2012

One Size Does Not Fit

Those Type A personalities can be fun. They are energetic, outgoing, and hard-working. They are a little crazy. A little sociopathic. But they can also be very, very productive. Every workplace should have a few to help keep the others moving.

Type A personalities tend to do better than most. Capitalists love them and many capitalists are Type A themselves. Things might be easier if everyone in the markets were like them. Of course, very few are like them.

Participation in the markets varies widely. Some people cannot change their own clothes, much less trade in the markets. Disease and accident can make anyone totally dependent on society. Infancy and extreme age have the same effect – we all come full circle if we live long enough. As far as money is concerned, we all fit somewhere along the line between those who need someone else to act for them and the very few who are geniuses with money.

We do not expect one size of shoe to fit all of us in our diversity, but somehow we have come to believe that one currency does. We say that the social safety net is necessary but we look down on those who receive aid even in currency substitutes, such as food stamps, subsidized housing, or progressive taxation. The ideal is still to earn your living by competing successfully in the private markets.

The trouble is that the money geniuses end up with all the money. It is what they do. Even when they make mistakes, they still end up with all the money because they find ways to make others pay for their mistakes. The Great Recession is an example. The rich were able to coerce the U.S government into saving them and helping them pay each other bonuses. While the rest of us were losing our jobs and houses, our own government took on trillions more debt in our name to save the rich.

Printing money and transferring some wealth from the rich to the poor has helped, but it is only a partial solution. All it does is prop us up again so that we can be exploited in the market again. The rich like that and they support it.

The rich really are powerful. We have to acknowledge just how powerful they are before we will understand the need for better solutions. The results of the Great Recession should make it clear that the U.S. government is almost powerless against them. So long as the rich can hold the economy hostage against government action, all the talk and new regulations are just fairy dust in our eyes to keep us from seeing just how little is really being done.

One reason why the rich can hold the economy hostage is that one currency tightly links every part of the economy to every other part. The rich have enough economic power to make a mess of one part of the market and the trouble spreads freely to all the other parts.

The other reason is that governments and central banks cannot focus their economic power tightly enough. One might expect that they have the final say over the currency, but that is not true. They represent everyone, even the rich, and the rich have the most influence over economic policy. Also, those in the government get paid in the common currency just like everyone else. Individually, they are as subject to economic pressure and exploitation as anyone else. Finally, governments have obligations to other countries and their economies. Even if they see the exploitation and want to help, they may be unable to do so because they are pulled in so many directions at once.

Suppose instead that the government had at least two currencies, one being a national internal currency and the other being an international external currency. Government policies would control the relationship between the two. Other countries and the rich would not be allowed to own the internal currency or anything denominated in it, but would have to work only with the external currency. Those in the internal economy would generally not own any external currency or anything denominated in it.

It may not be obvious to the reader right away, but this division automatically creates capital controls. A rich person would not be able to simply lend money directly to a poor person any more. These transactions would have to be approved according to government policies. Essentially, the rich person would be lending to the government on behalf of the borrower. The government would act as a cutout in the process of paying for the house and from that position, it would be better able to deal with exploitative behavior on anyone's part.

Furthermore, this division would allow the central bank to better focus its efforts. The government would have more flexibility and could apply different policies to the different currencies as needed. That is not possible with a single currency.

The rich would not be able to damage the internal economy directly, either intentionally or not. The government would be able to deal with the rich separately and not be influenced so easily by the threat of a ruined economy and a starving population.

The poor could work and build wealth without fear that unexpected and sudden economic crashes would cause them to lose their jobs, their savings, and their homes to the benefit of the rich. There would still be economic blows, but the government could focus its internal policy efforts toward cushioning those blows and helping the people keep what they have earned.

All this would only be possible using the best money technology and for the most part, electronic money. A rich person could buy a hamburger in the internal economy using a debit or credit card, but only at an exchange rate determined by government policies. Furthermore, there would be limits. The rich person would not be allowed to buy all the hamburgers in town. Cornering any internal market would be prevented automatically by the computers and software that handle the transactions.

Doing that might be as simple as exponentially raising hamburger price exchange rates as more hamburgers are bought. Bankrupting a rich person on that last trillion-dollar hamburger purchase would be a far more effective deterrent, and a more fitting punishment, than any fixed law or regulation could provide.

If two currencies are good, three might be better. As has been pointed out before, perhaps we need as many currencies and markets as is needed to keep them all balanced. People would be assigned to markets and moved between markets depending on their economic competitive power. Just in terms of the stages of a person's life, the young would be placed in less-competitive markets and then moved to more-competitive markets as they gain experience and capability. Then as they enter extreme old age, they will return to less-competitive markets that are more suitable to their energy level and mental capability.

One size does not fit all and one currency does not fit a complex and diverse economy. We now have the money technology tools and information processing capability to manage multiple currencies at once. This will give strength and focus to monetary and fiscal policies that governments have never had before, allowing them to keep capitalism working at top speed and also keep it from flying apart due to the pratfalls of the rich.

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