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Thursday, 28 July 2016

What the USA needs... in 2020

Now that Bernie has flopped I thought I would that I would make an idealistic series of policy proposals for the good old USA.

They have to abandon the current destructive line of thinking in economics, regulate the banks and recognise government is only constrained by real resources. Until they sort out the material problems nothing else matters really.

It comes down to this. The U.S. government can give direct legal commands to the private banks to create or destroy credit and private banks are required to execute them. They can also impose tax obligations that can be required to be paid in dollars on pain of some punishment (e.g. jail time.)

If there are resources free in Dollars, the U.S. (federal) government can purchase them.

And that's fundamentally all you need. Everything else (Fed, govt bank accounts of its own IOUs, messing with interest rates etc) is smoke and mirrors and stupid voluntary constraints hiding, complicating or crippling(!) this simple operational system.

The general line should be that increased spending is to be ‘paid for’ by increased production, and that any price rises will be treated with ‘competitive measures’ – the state investing to set up competitors that price compete, breaking up cartels or increased corporate taxation in extremis. Get that right and you’ll go a long way before you actually fill anything up. Just regulate the bloody companies and 'stir the pot' via sharing IP and so forth. It is not hard.

If you go to the hairdressers with a newly minted note, do they turn you away or work longer/harder/faster to cut your hair and earn that note?

The resources are generally there. The estimates of output gaps are wildly low because of the way classical economists think, and in fact we run economies practically on tickover because of the way they see things. Certainly in the service sector. And are they really running manufacturing on maximum overtime?

They also need to introduce 'asset side' regulation of banking - basically if you make loans outside of certain very narrow criteria they are unenforceable. So make criteria that serves the public purpose.
In my view the *only* reason we should pay bankers to do anything is if they can demonstrate the skill of underwriting capital projects against a prospective income stream.

In simple terms this means somebody going into a bank with a proposal that requires a certain amount of money. The bank staff considers whether the prospective income stream proposed to repay that money is adequate to repay the loan and pay the wages and costs of the bank.
Note that there is no asset collateral involved in this process.

The way I would narrow banks is to offer them an incentive - an unlimited cost free overdraft. 0% funding costs. In return they must drop all the side businesses and just do capital development lending on an uncollateralised basis - probably in the form of simple overdrafts. In other words they become an agency businesses delivering state money to those that require it.

That way instead of banks not lending to businesses they *only* lend to businesses and drop all the crap. That also frees up a bunch of bright people working in the financial sector and a huge amount of space inappropriate private lending took up for the government.

Finally, they need to offer full employment and universal healthcare. The private sector's job is not to create jobs. It is to automate and get rid of them. To eliminate BS jobs and replace people with machines:

Living wage jobs in local communities by sampling what needs doing. In addition to things such as open source programming.

Zero unemployment and underemployment must be the goal. Anyone who wants a Job must get one. Only frictional (voluntary, between jobs) unemployment must remain.

Further America can lead the way on pharmaceuticals. The state can fund whatever drug research is required, and then issue the results on an open patent.

There is no need for large pharma companies and private intellectual property. In fact as drug development gets more and more risky inevitably it will have to be socialised.

That then leaves manufacturing and distribution of the drugs as the way the private sector can deliver drugs to the medical system.

So who is going to sell it then?