A Conservative Revolutionary Economic Proposal: Transition (And After That) 

By Stephen Yearwood
Guest Columnist

After the changes this proposal would involve were fully integrated into the economy, it would be the smoothest-functioning, most stable economy any nation ever had—including stable prices of goods and services. The transition from ‘what is’ to that state of affairs is the tricky part. 

For sure, constantly flooding the economy with money would present a threat of inflation. There are, however, several protections against inflation present in the proposal. Those protections along with one common-sense precaution—making the transition a gradual process—would also prevent inflation during the transition. 

Even during the transition, the only danger would be inflation. Other than withdrawing money from the economy, which is the opposite of inflationary pressure, the only two changes this proposal actually requires in the functioning of the economy are a change in how money, as currency, gets created and how much of it is created. We have to consider those in the context of each of the two areas where money would be created: funding a democratically distributed income (DDI) and funding (all) government. 

For the DDI, the first of those issues, how currency would be created (i.e., no longer involving debt in that process), would affect many individual actors within the economy, but it would not affect the economy as a whole, systemically. While all things are ultimately connected in the economy, that wouldn’t have any measurable effect on prices of goods and services in general. 

There is a common inaccuracy that gets bandied about, even by many economists: ‘inflation is too much money chasing too few goods.’ More accurately, inflation occurs when demand exceeds supply. That can be the result of an increase in incomes, which to be sustained must, indeed, at some point be accompanied by an increase in the supply of money. The point is, it is income that is the prime variable in demand. [Inflation can also result from a fall in supply while incomes remain the same (or don’t fall as much, even).] 

Regarding the DDI, it could start at the current minimum for all three groups. That way, it would not be increasing income for anyone, so it would not create inflationary pressures on prices. As it was increased it would in the same way be replacing existing incomes for many of its recipients. As long as it were being increased gradually enough, supply would have a chance to adjust accordingly, so demand and supply could stay in sync. That way, inflation would still not be a problem. If inflation did start to appear, increases in the DDI could be paused. 

We do still have to take into account benefits. One question worth asking is how inflationary increased benefits would be. That would largely depend on the particular distribution of them among the recipients. Here, the general inflationary pressure of increased compensation as a whole is the issue. 

It is generally considered that something like $15/hour ($600/week) is the minimum reasonable income in this country these days. If we split that between pay and benefits, that would be a DDI of $7.50/hour ($300/week). That is $.25 hour ($10/week) more than the current official (federal) minimum income. A minimum-pay DDI starting there could hardly be inflationary. Indeed, it would allow many people to replace borrowing to ‘get by’ with actually being able to pay for what they need. For them, its effect on demand would be absolutely zero. The DDI could then be increased at a slow, (hopefully) regular pace until it reached whatever its maximum would be. 

In the funding of government, doing away with taxes would also be a source of inflationary pressure, since that would increase the amount of money people had available to spend. Like increasing the DDI, decreasing taxes would have to be done gradually (possibly paused at times). 

This proposal would do a lot of good things, such as eliminating unemployment and poverty for adult citizens and (possibly) no taxes/public debt. Stabilizing the economy would be among them. That stabilization would include prices. Indeed, if a nation adopted this proposal and it had no imports at all, it would have no source of inflation. (That tells us that the DDI could be adjusted if a nation that had adopted this proposal did experience inflation that was imported from the global economy; that could not cause an ‘inflationary spiral’ because it would not increase employers’ costs—nor would it increase spending by government.) The DDI and the funding of government would create a huge supply of currency, but its amount would be strictly determined by demographics and only that, with no person, committee, or organization being able to alter the amount of either of those. The result would be, I like to say, an economy about as stable as the surface of the moon, where mere footprints in the dust can last forever.