What we all know and don’t
like to say is that when all the federal fiscal balancing is done, now and for
future years, we will still wind up with both austerity and increased
debt in a recovery that will take a long time in some areas and very, very long
time in others. Sustained growth would
yield higher tax revenues, lower safety net costs and tolerance for the 15% or
so increase in payroll taxes that would make our Social Security and Medicare
cost problems “go away” without reductions in benefits. How can we get there?
OUR PRESENT PLAN – “PUSHING
A WET NOODLE”
Wary of public debt for Keynesian-type stimuli, we have resorted to
experiments in creating artificially low interest rates. We should know better. A little lower rate won’t reverse basic
business judgment. The problem has never
been that there is not enough money lying around, it’s that not enough is being
used productively. To accomplish that
goal, we must draw the money out by creating some better lending and
investment opportunities.
BETTER INGREDIENTS – THINGS
THAT HAVE WORKED!
·
The Federal Reserve system – a good idea, keep
it.
·
Federal Reserve Notes – keep them, for the vast
majority of our currency needs.
·
United States Notes were issued as a currency
between 1862 and 1971, paying for the Civil War and a plethora of expenditures
that built the American economy. Some remain
in circulation today. They have circulated side-by-side with Federal Reserve
Notes since 1913. These are both Legal
Tender Notes, value resting solely on their status as “Legal tender for all
debts, public and private.” Circulated in too great a quantity, they can
equally well cause inflation. When the
government needs money, it can sell Treasury Notes to the Federal Reserve Bank
to obtain Federal Reserve Notes.
Alternatively, it can simply print US Notes, and skip the
debt-creating.
·
The government can spend money into the economy,
lend money into the economy or lose money into the economy and in any case
accomplish Keynes’ basic stimulatory objective.
·
State economic development banks and agencies
have proven effective underwriters, creating investments like economic
development bonds and industrial revenue bonds that sell readily to private
sector investors as conservative investments without any form of public
guarantees.
·
Several nations have successful national
economic development banks.
·
A national economic development bank in the US would not be a federal agency and would not
be burdened by restrictive mandates like the Fannie Mae, Freddie Mac, the Post
Office or Amtrak. The whole point of
having such a bank would be to identify tomorrow’s profitable industries and
facilitate their development as a lead lender, attracting other lenders and
investors.
·
Is Solyndra a good example? No. A
national economic development bank would be based on the best underwriting
practices of private banks…no, even better than that, the best underwriting
practices of state economic development banks and agencies.
·
Why a national economic development
bank? Because only it could be
capitalized by the use of a limited issuance of United States Notes. It could also attract capital into the poorer
states.
·
What else would be special about it? The abilities to use zero-cost up-front
money, to concentrate investments so as to create transformed investment
environments, and to be transformative for local economies. Think Silicon Valley, or the transformation
of areas like the Jersey City, NJ waterfront.
WHY BOTHER?
This opportunity for the suffering won’t come about without institutional
study. With political pessimism and
cynicism now all the fashion, it is easy to lose sight of the fact that a
little effort can actualize our power to do good. Policy question: If it is within our power to do good, shall
we refuse to do so?
