Wednesday, December 31, 2008

So what to do

In my previous post I suggested that what has happened to the economy is that we have discovered that we have been victimized by a massive Ponzi scheme. The fact that we victimized ourselves doesn't make it any better. The fact is assets we thought we had don't exist. So now what do we do?

Replace those assets! Let's assume that a total of about $3 trillion has been lost—or never really existed. What if we essentially printed that money and spread it evenly among the citizens of the US.

Here's one way to do that. Three trillion divided among 300 million people is about $10,000 apiece. Let's distribute it over a period of 7 (biblical) years. If I did it right, at 5% interest the present value of $200/month for a year followed by $150/month for 3 more years followed by $100/month for 4 more years (making a total of 7 fat years) is a bit less than $10,000. (This is what I put into my XL spreadsheet (=PV(0.05/12, 12, 50) + PV(0.05/12, 48, 50) + PV(0.05/12, 84, 100)).

Since this makes spending decisions bottom-up it is the purest market based approach to stimulating the economy. Money is not aggregated and then allocated top-down; it is spent bottom-up. Spending decisions are made at the lowest possible level by individual agents.

Each person would make his or her own decision about what to do with the money. People could spend it or save it. They could vote to increase taxes to pay for public works. Or they could let the infrastructure crumble. All the decisions are made by "the crowd."

One must hope that the citizens of the country (who form "the crowd") have learned enough from this experience to make wise decisions. And certainly it would be a good idea for public minded citizens and politicians to take this opportunity to attempt to teach the crowd whatever lessons we think should be learned. But ultimately, we have to trust the citizens to make wise decisions, or the country will always be dependent on rulers rather than its citizens.

1 comment:

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