A flexible Government funding system
Introduction
Part of the Zero-sum economics research was creating a system that could operate without recessions. https://www.researchgate.net/publication/321144779_Zero-sum_Economics_How_to_fix_economics_solve_poverty_and_save_the_world
There were 5 requirements to stabilize an economy:
1. Digital Money
2. Create Money
3. Universal Basic Income
4. Tax Money/savings
5. Supercharging
Stabilization allows money to flow through the economy in a more linear fashion, as opposed to the Circular Flow of Money. It allows money to flow in a production-consumption cycle. Products are created from resources and traded to Consumers, who consume them, i.e. they effectively disappear. In an unstabilized economy, money is supposed to circulate, but it does not circulate evenly. The money in a stabilized system is allocated to Consumers and used on Government-approved projects. This money is spent and eventually finds its way into the hands of private enterprises (i.e. Producers). As it moves, the money is taxed and is continually removed from the economy. The stabilization process deallocates money, at a slow rate. This allows the money to be used then removed from the system, much like the products that are consumed.
From the stabilization, a money flow can be established, starting with money being allocated to Consumers or to any projects the Government has decided are necessary. The Government and Consumers can then use private enterprises, i.e. Producers, to meet their requirements.
This model, illustrated below, has a predictable amount of money in the system. Currently, money creation is performed by banks as an incidental consequence of the creation of debt. Banks are private enterprises that do not act in the best interests of the people of the world. Governments are supposed to be organizations that represent their citizens. In theory, Governments should be better managers of the cash flow of an economy, because they are supposed to keep their citizens alive.
Figure 1: Proposed Government funding structure
This structure changes the normal economic system response from this:
Figure 2: CP System with recessions
To This:
Figure 3: Stabilised CPG system response
Notably, in this case, the number of consumers in distress i.e. poverty is reduced to zero.
Figure 3: Stabilised CPG consumer distress
The total strategy of this model does multiple things at the same time.
1 Digital money
This means all money is in banks and can be taxed and taxed efficiently. It means we do not require annual income tax assessments. So no paperwork.
2 Create Money
This is mainly for simulation purposes, it shows in the simulations that using money taxation produces a stable amount of cash in the economy.
Other forms of taxation may still be sensible for other reasons for example:
· Income tax — reducing income disparity
· Luxury tax — reducing the priority for producing unnecessary expensive items.
This also allows the government (hopefully by extension its citizens) to fund any other program feel is appropriate: Education, Environment, Science, etc., etc., etc.
Theoretically, allows us to reduce other taxes. 2–5% cash tax vs 30% income/business tax if you can take that out it allows western countries with high tax to decrease wages i.e. costs and reduce prices to the point where we can compete effectively with China India where wages are 50–75% lower.
3 Universal Basic Income
Implementing a Universal Basic Income ensures that the Consumers are able to purchase their basic needs: Food water Shelter. This effectively eliminates poverty and other research (eg https://basicincome.org/research/) has shown that there are many social benefits of a UBI including:
· Eliminates the “unemployment trap”
· Reduces government bureaucracy
· Guarantees a minimum living standard
· Gives financial independence to all adults
· Increases bargaining power for workers
· Deters undocumented immigration
· Reduces Gentrification
· Reduces the gender “pay gap.”
· Improves mental health and security
· Increases physical health
· Increases the number of small businesses — less reliance on rich people
· Increases charitable work and academic research
4 Tax money “savings”
1 This removes money from the economy to balance money creation. This is the main function that leads to a stable amount of money in the economy.
Combined with part 1 of this strategy Digital money, cash can be taxed on a daily basis. An annual tax rate of 2% is equivalent to a 0.00553% daily tax rate. This means for every $1000 in your bank account you will pay 5.5 cents in tax per day. So who is going to pay more tax you or Google and Microsoft sitting on $100 to $150 Billion dollars?
If savings are constantly decreasing this encourages people to spend which theoretically increases employment.
Repatriate funds: around 2Trillion US$ out of around 20 Trillion is outside the US. If they Tax that it encourages people to buy from the source country.
5 Supercharging
Subtract the universal basic income from the wages paid by Producers. This is what I call supercharging. There are a few effects from this.
We can control inflation, by reducing the cost of Labour.
If producers can reduce prices in line with lower labor costs it benefits everyone in the economy. If we can give a 25% we get a theoretical upper limit of 25% of living cost reduction.
This allows us to balance the difference in cost of living between countries.
Average Wage 2019 $ AU Equivalent
Melbourne Australia $6000
Goa, India $1500
Zhuhai, China $2500
This shows that Australia in a Major city is 2.5 to 4 times more expensive to hire labor than in China or India. So if we can supercharge and reduce wages by 25%. This still makes $4500 to or 1.5 to 3 times more expensive. If we could eliminate taxes from the cost of labor (A total of %50 lower, $3000) then this ratio goes to 1.2 -2. A significant improvement means labor can be sourced locally to businesses which allows more local jobs to be created.
We can examine what happens at each stage of the economy shown in the image below. Producers spend money making a Product and add some extra cost to make a profit. The cost of making the product is the income the Consumers receive. After taking into account tax Consumers have some money left that they can spend on products. However, you can see with this that the Consumer budget is not enough to purchase the products. With an income distribution, some people will be able to afford some things, but we are basically guaranteed that some people will miss out.
When we consider how stabilization works with the Universal income as shown below. The universal income puts the Consumer budget back up to the point where they can afford products. This means that all consumers can afford their products and thus Producers can maximize employment.
Supercharging the economy takes stabilization one step further and reduces the cost of employment. This then allows producers to reduce prices and make as much profit as without supercharging. Further benefits can be made if producers are willing to make the same percentage.
To explain things a bit more specifically, let’s pretend you have a business with 100 employees, who are paid at $50,000 per year. That makes a total of $5,000,000 per year in costs. For simplicity just assume this includes all of the fixed overheads the business needs to pay. The business needs to make a 10% profit, which means it needs to make $5,500,000 to make a $500,000 profit.
So now we can add in what supercharging would do. Let’s say the government starts up a basic income at 20%. This means that businesses can cut wages by $10,000 so they only pay $40,000 per person. This also means that the employees are still receiving $50,000. The total cost to the business is now only $4,000,000 and if they can manage to keep the same amount of sales they still have the same $5,500,000 income. This results in $1,500,000 in profit! Three times what is previously made. However, as the business people are receiving the basic income as well, it means there is less pressure on businesses to make a profit. Alternatively could expand the business and hire 25 more people or cut prices by around 20% or any partial combination.
The multiple effects of the five mechanisms (1 Digital money, 2 Create Money, 3 UBI, 4 Tax Money, 5 Super-charging) means the total strategy is more likely to work. So we need to consider how these features operate in concert.
Now what?
I’m the first to admit that this theory (Zero-sum Economics) is still a theory at this point, and it is quite possible (if not probable) that I have made mistakes. The good news is that it promises solutions to problems that existing economic theories have failed to solve. The theory indicates that the stabilization strategy should work. Perhaps, I’m just being too optimistic. Further research is needed before implementation on a large scale. It looks like it will work, but to be sure, other people need to look at the work that has been done here.
This gets back to why I wrote this book. It doesn’t hurt me to get the idea out. It definitely needs to be examined and investigated further. I encourage others to take this work and expand on it. Every step made to fix problems identified in the theory could take us closer to a stable economy and perhaps a stable world.
Visions of the future
Ultimately the question is: what do we want as a society? If we have the money problem addressed, what will we do with ourselves to keep everyone employed? I made a quick list of things we might or might not want in a future society. Have a quick look and decide which ones you want and which ones you don’t.
Features of the future?
Do we want these things in our future or not? We can choose what we want and what we don’t want. Feel free to create your own list of ins and outs and figure out what is required to create the things you want and what is required to avoid the things you don’t want. These lists can become the ‘To-do lists’ for our society, especially if we find we share common aspirations.
So What do you want and what are you willing to fund?
