Re: Priming the World Pump

[John Gelles <jjgelles@xxxxxxxx>]

	On Tue, 18 Apr 1995 Bernie Tuchman wrote a lot of stuff
	and asked for assent or comment. It reminded me of my
	first posting on this list. Mine was a plan, by the
        numbers, to do things very similar to what he proposes.

	We have been warned by J. Galbraith to avoid lengthy
	interleaved ramblings. The following have been shortened
	by a factor of ten.

	Bernie writes:
  ...
>      In brief, I propose a re-structuring of the rules of the
  international monetary game.  The principle that debts must be
  paid back as quickly as possible would be replaced with a new
  imperative: that liquidity must be created on an on going basis
  to break the contractionary grip of the present world economic
> order.

	Bernie, you and I and, perhaps, the world, know of the
	New Yorker cartoon -- Two plump gentlemen in their club
	remark -- Everybody loves money. Too bad there isn't
	enough of it to go round. WE INTEND TO PROVE THEM WRONG.
	(But they will get all the laughs until we do.)

	You are proposing money based not on projected cash
	flows of existing money but on cash flows of INJECTED
	money matched to increased economic output of stuff
	people will buy.

	I like it. I think any country can do it, not just
	all countries in concert.

	In effect, Japan has already done it. They did it at the
	end of the war with soft money. They are doing it today
	with one percent super-hard money. (Why they don't just
	buy U.S. firms with enough Yen to push it back to 100 is
	beyond me.)

	Although in theory, multinational money is interesting,
	I prefer to create the fiat money on a national basis
	the way every country does when it goes to war.

	Since the needs of peace are far lesss than the needs
	of war, the extra fiat money, for full automation and
	full employment, and full environmental protection,
	and full national defense, would be less;  and the
	price and wage control expected to accompany such
	money might not even be needed. Contingency plans
	to prevent mass exodus from cash to tangibles would be
	required -- a form of anti-hoarding/anti-speculative
	law.
  ...
>      The only other conceptual framework now available to workers
  in the wealthy countries (now known as "the middle class") would
  lead them down the path of competitive economic nationalisms --
  reactionary utopias which would reinforce the invisible hand with
  the jackboot.

	I do not think competitive economic nationalism has to
	result in facism. It can result in rational economies.
	It can then be followed by the kind of generosity shown
	in relief efforts after natural disasters. If advanced
	economies have put their domestic house in order, with
	workable fiat money, they may be wise enough to help
	other nations do the same. It would help prevent disease
	and make tourism a safer activity.

  ...
>                     A CHANGE IN ORDERS
  ...
>      Is it possible to halt the competitive downward spiral in
  wages, employment, and social conditions that we have been
  witnessing on a world scale over the last twenty years?
  ...
	Yes -- see above.

>      During the Great Depression of the 1930s the national state
  could intervene to "prime the pump", creating the effective demand
  needed to re-start production.  This can no longer be done on a
  national basis.  The benefits to any single nation of monetary
  expansion are dissipated by increased imports.

	Not if you prime hard enough. You must, of course,
	protect strategic skills and industries from imports;
	else, comes another war, you may be in dire straits.
  ...
>      This requires strategic international economic planning,
  effectuated by the creation of a means of payment -- an expansion
  of international credit (not backed by savings but created by fiat).
  Saving capitalism from its own self-destructive logic thus requires a
  political act which transcends the commands of the market.
  ...
	Agree. But "national" or "international" will work. All you
	need is self-sufficient agriculture and a friendly set
	of neighbors.

>      The central questions in controlling the direction of the world
  economy are: Who will receive the purchasing power to make their
  demand effectual, who will decide this question, and by what rules
  will they make this decision?

	Much of the total world economy would continue to
	be "controlled" by consumers. But the fiat money
	should be used to pay for automation and output
	enhancing systems in anticipation of inflation,
	and to pay for environmental and national security.
	If unemployment remains, it should be used as credit
	for jobs and self-employment, including write-off
	of loans when models recommend that option.
  ...
> The need to create increased liquidity in the face of deepening
  stagnation will lay the basis for demanding a new world economic
  order based on the Keynesian model.  There is every reason for
  this to be the demand of a broad constituency -- not only workers,
  but also all those who are squeezed by an austerity that profits a
  smaller and smaller minority.

	Of course, if your advice and my advice were to
	be followed, we would be facing inflation and would
	have to develop clever programs to increase output and
	soak up purchasing power.
   ...
>      What program should we struggle for?  An internationally
  planned allocation of new purchasing power should be geared towards
  meeting the moral and environmental challenge of our time -- the vast
  disparity of wealth between the rich and poor, across all nations.
  The aim should be a long-term convergence of development and living
  standards between two worlds which find that they are in fact one
  world.

	The disparity in consumption ought to be discouraged
	by tax laws and moral teaching. Disparity in wealth,
	represented by ownership of industry, is not bad
	per se. Some of the worst offenders on earth are
	not real people owning industries but large
	corporations and government ministries managed by
	faceless private sector and public bureaucrats.

> We trusted our victories -- the Welfare State, the Socialist
  Revolution -- to be safeguarded by institutions which in fact
  we did not control.  We cannot afford to make that mistake
  ever again.

	This is an unexpected complaint. The middle class
	believed the system it loved would be fair and stable
	and they are now in trouble. They better wake up.

	Socialists, who are using free enterprise in China
	and elsewhere may know the score.

	State capitalists and similar types in Japan,
	Korea, Singapore and Taiwan are ready, I think,
	to keep liquidity and employment high as their
	Asian markets explode. Europe and America may
	follow their lead.

	If not, we in the West may develop something
	like you, Bernie, and I, John, are describing.

	Senator Lougar and other Republicans, may come
	up with a low tax, small federal payroll, high
	high private sector subsidy solution that will
	work.

	Our job will be to keep people in the lower
	90 percentile of the population on their toes
	to ensure that Gingrich and Co. do what he
	promises -- Raise every poor person to middle
	class consumption standards, and raise those
	standards to a very high comfort level; and
	raise environmental protection standards to the
	safest rational and scientific standards. (If
	jobs and livlihoods can be taken out of the
	equations, the environment will be protected,
	because it is where all our children will live.)
	Let the private sector do what bureaucracy
	failed to do -- no matter whose fautl that may
	have been.

    .--------------------.-----------------------------------------------.
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