March 17, 2009

Could the Economy be Super-charged With an Inflation Safety Valve

Dr. James Albus considers whether an effort like mobilizing for World War II could be done to create a fully productive society that targets the enduring problems of poverty and unaccomplished grand goals instead of the defeat of an enemy nation. Ramp up investment and have mandatory savings to prevent inflation.

NOTE: Flaws with the Albus (People's Capitalism and Alternative)
As a commenter rightly points out a lot of Dr Albus' plan details are socialist in nature. So any plan would want to avoid creating inefficient state supported enterprises. There could be ways to achieve some aspects of the plan without screwing up the regular economy of the US or the World. There are also other completely different suggestions.

From Comments: Natural Economic Order.
This appears to boil down to:
* Lower interest rates are stimulative to the economy
* instead of having a zero to 0.5% federal funds (interest rate) like now, create a -5% interest rate via taxation on "idle money". You have to invest it, lend it or spend it.
* At the same time greatly contract the monetary supply to prevent inflation
* the goal would be to greatly increase the velocity of money. Use it or lose it.

The Albus plan has five parts:

1. A National Mutual Fund would be established to invest in private industry
2. These investments would be financed by loans from the Federal Reserve Bank
3. Every adult U.S. citizen would be given a share of the National Mutual Fund
4. Profits from National Mutual Fund investments would be distributed as dividends to the share holders. Everyone would receive dividends
5. In order to control inflation and finance part of the National Mutual Fund, savings would be levied as a surcharge on income taxes. These savings would pay interest and be guaranteed by the government

It is suggested that 6% real economic growth could be achieved in the United States with less than 4% inflation by increasing the current national investment rate by 12% of GDP, while increasing the savings rate by 4% of GDP.

Use savings withholdings instead of interest rates as a means for controlling inflation. Savings withholding rate is indexed to inflation.

Josh Hall at Foresight looks at the Albus proposal as an option to enable early retirement for people if AI and nanotechnology are successful.

The ideas are interesting and if they are for some reason flawed other economists and researchers should find ways to improve them and to simulate what would happen with various proposals. There could be an economic X-prize to find the best system.

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