However, I had sent the link to Bill Still who very kindly came back with a mail to say that while he liked what I was proposing, he couldn't recommend it as it was because it contained a fair number of factual errors and inconsistencies. In fact, he sent me a detailed list of 15 different points!
So, I've done a new version that takes into account Bill's points and which I think works even better. A big thankyou to Bill for helping me improve the presentation. The original version has been removed - together with the 8 comments that has been added... sorry about that.
I'm really quite excited about this. I think that I may just have hit on a way to combine debt free money creation by goverments with my fetish subject - namely, variable rate Financial Transaction Tax that makes real sense.
Unless I've missed something, the resulting system would have a number of really interesting features.
- The government would be able to fund all projects that receive overwhelming support from the population - I propose a minimum threshold of 90% to be sure that only the most clear cases get funded
- Any possibility of the money creation leading to inflation would be eradicated by having an automatically varying Financial Transaction Tax that would remove any excess money in the system. The optimal level of money supply could be determined by a fully independent commission, but that commission would not have the power to block public expenditure. It would only be able to change the FTT rate up or down to eliminate inflation or deflation.
- Under the current arrangement, governments are effectively required to balance tax income and expenditure. If they don't, they either have to borrow from commercial banks, and end up paying massive interest charges, or they borrow from citizens with savings schemes. But if they chose the latter option, this removes money from the economy and leads a slump - precisely what has happened in Japan where the government is massively in debt to its own citizens.
- With my new proposition, there is no need for governments to borrow. Indeed they don't even need to have taxes - they just create the money to finance the activities that their citizens want. Taxes are only needed to remove excess money from the system in order to prevent inflation. And, interestingly, the money taken out of the system by the FTT doesn't even go to the government! It is just taken out to the system. The system is thus total stable - even if there is a lot of public spending.
- Perhaps the most amazing thing is that public money can be injected to take up the slack in the economy. Thus, if there are large numbers of unemployed, or if there are factories that are not being fully used, the public can vote to provide jobs and orders with government money to get out of a recession. No more boom and bust. The so-called business cycle that we are supposed to believe is an inevitable feature of all economies would no longer exist.
I hesitate to say it, but this could just be a recipe for a Utopian society.
I look forward to hearing your comments. And don't forget to click on "Like" and send it to your friends if you approve!