Nine Ways To Increase The Size Of The Economy And Make Everyone Better Off — Turbo Economics (3.0)
June 13, 2021 (version 3.0)
Avraam J. Dectis
trillionstrillions@outlook.com
A. The Problem
A very common dynamic across all societies is the acceptance of customary practices as though they were sacrosanct and unquestionable. Quite frequently, however, mere random accidents of history are responsible for those practices and they are, in fact, quite questionable.
Viewing such customary practices as unquestionable results in a failure to adequately assess and improve those practices. This dynamic can affect everything and, not least, economic systems.
Economic systems are continually evolving because the underlying environment and technologies of economies are evolving. As a result, there should be a continual evaluation of economic systems and a regular list of suggested improvements.
This continual improvement is called Turbo Economics because, just like a motor turbo, it takes mostly existing processes and reorders them for better performance.
Turbo Economics is independent of any social or governing philosophy. It’s thrust is merely greater economic output, which, by definition, will most likely improve the lot of the average citizen.
B. The current Turbo Economics list
There has not been much effective effort to improve the fundamental workings of the economy for over half a century. Thus, there is a comprehensive list to consider.
This is the list. Their explanations follow in the next section.
1) Abolish the income tax and instead tax consumption. This is supported by the Theorem of Proper Taxation.
2) Implement Capital Transfer Securities — To support domestic production and control capital flows.
3) Implement Central Bank Dividends — To provide emergency stimulus when needed and not forthcoming.
4) Progressivity Restoration Mechanisms — to compensate for the regressive effects of abolishing the income tax.
5) Ambition Supporting Inheritance Taxes — To support the formation of economically useful wealth.
6) Reduce Fear of Employment — To prevent unnecessary growth reduction.
7) Parent Accounts — To increase widespread economic wellbeing and restore birth rates to above replacement.
8) Remove plastic containers from the food supply — To reverse the economically damaging effects to our health.
9) TOP UP — A process to increase the income of the submedian wage earner
C. The supporting arguments for each of the nine Turbo Economic arguments:
1) Abolishing the Income Tax is supported by the Theorem of Proper Taxation, described here: https://medium.com/@trillionstrillions/optimizing-growth-theorem-of-proper-taxation-and-why-we-should-prefer-consumption-taxes-over-4e39d746a079.
The key takeaways are:
— Income tax is unnecessary and counterproductive. Relying on a consumption tax allows capital to remain in the economy for a longer period, where it may support investment and thus greater GDP.
— Accounting costs for many private entities are reduced, thus saving even more.
— Central Bank, through control of the consumption tax, gains another powerful level to control economic activity. This lessens the over reliance on interest rates and provides a powerful dynamic tool to support consumption in recessions.
2) Capital Transfer Securities, described here: https://medium.com/@trillionstrillions/promoting-growth-how-to-support-domestic-industries-and-control-capital-flows-with-capital-22c3c74cb552, keep capital flows tending toward balance, but in terms of GDP enhancement, they also support domestic manufacturing. This support will increase manufacturing and manufacturing employment, both of which will increase GDP. National Security is also enhanced with greater domestic production. Capital Transfer Securities also give the Central Bank another powerful economic control lever.
3) Central Bank Dividends, described here: https://medium.com/@trillionstrillions/central-bank-dividends-a-mechanism-for-addressing-effective-lower-bound-and-undershot-inflation-97a6ed40ebaa, in low inflation environments like those we are currently experiencing, will ensure that we do not leave GDP on the table. It is one of the greatest responsibilities of any government to not fail to garner all the healthy growth that is possible. This alone could add one to two percent GDP in low inflation environments with inadequate fiscal support. It also gives the Central Bank a new control lever.
4) Progressivity Restoration Mechanisms
If we implement a consumption tax, we must be careful to avoid regressive effects. Income earners in the lower income brackets pay little income tax. Removing the income tax and taxing consumption would be a terrible tax increase for them.
The solution is transfer payments to those making the smallest hourly wages equal to the effective tax increase.
There is no genuine cost to the treasury since poor people do not save and therefore the transfer payments will very quickly arrive back at the treasury.
For simplicity and elegance, the transfer payments should be based upon each hour’s wages, not weekly, monthly or yearly income. This means a person working 100 hours per week for ten dollars an hour would receive a transfer for each one of those hours while a person who worked four hours at two hundred and fifty dollars per hour would receive nothing.
Further progressivity can be implemented by having a higher consumption tax on more expensive items.
5) Ambition Supporting Inheritance Taxes
Inheritance taxes are driven by concerns of fairness, social justice and so forth. That all distills to psychology.
The current inheritance regime is to extract a large lump sum percentage of the inheritance that is above a certain exclusion. This is both unfair and not useful. It is not fair if someone inherits, pays the tax, dies the next year and the next inheritor must pay the tax again. This would effectively wipe out the fortune. It is not useful because, despite their bad reputations, fortunes are useful because they are generally put to work creating companies, creating foundations and otherwise invested into the productive economy.
Large lump sum inheritance taxes may also force the liquidation of illiquid assets, sometimes in a down market, which can be very costly for the seller and, if prices are consequently suppressed, the rest of the market.
Conversely, inheritance taxes can be justified because wealth is frequently not taxed during its creation, if it resulted from asset appreciation. (Thus, in environments with income tax, the exclusion should be at a minimum the sum of income that was subject to income tax, which would leave only asset appreciation.)
Wealth taxes are frequently suggested for the above reasons, but they are difficult to implement without undue burden. They may also hinder the company creation and investing that some wealthy individuals do.
A solution that promotes growth while addressing all concerns is needed.
That solution is for the inheritance tax to request a much larger percentage of the inheritance but to spread out the cost over a number of years.
For example: If the inheritor were given a choice of paying an immediate lump sum of forty percent, as is currently the case, or paying ninety-nine percent of the inheritance, spread out over 33 years, (3 percent per year), it is very likely they would choose the latter.
The spread-out payments plan would release the inheritor’s estate from the remaining payments if they were to die before all the payments were made. During recessionary years, payments could be delayed, to reduce liquidations in a depressed market. As the estate grows in value, the three percent will become relatively smaller, providing relief to the inheritor.
This solution meets everyone’s psychological needs.
The inheritor would likely reason that the present value of those payments over 33 years would likely be less than the lump sum and most fortunes grow by more than three percent, so they would only be sharing profits with the government, not becoming poorer, which is psychologically repulsive.
The social justice warriors would be pleased with the headline 99 percent tax number.
The economy benefits by not destroying a productive fortune and effectively putting it to work for the citizens.
The economy would also benefit by not driving the wealthy to tax havens where they will pay no tax and be less inclined to invest in the USA.
6) Reduce Fear of Employment
One of the key indicators of economic overheating and, therefore, a reason to slow down the economy by raising interest rates has been the levels of employment and unemployment.
Historically, employment levels were a good indicator of possible inflation. If employees were hard to find, wages would be bid up, costs would increase, and those costs would be passed on. This was how it worked when the USA had a relatively closed economy, importing little in terms of goods or talent.
Today, if we have a shortage of talent, we merely run off millions of work visas and import the talent — thus sparing our citizens the appalling indignity of taking a couple of college courses and a better paying job.
Also, today, with free trade, whenever costs get too high, entire factories can be offshored, as has happened to tens of thousands of manufacturing plants and their newly unemployed employees.
Future trends emphatically indicate that robotics will be replacing many more jobs, from fast food to truck drivers and likely many more.
Therefore, because employees are now expendable replaceable commodities and will be even more so in the future, policy should lean toward maximal employment and never consider employment levels to be an indicator to raise rates. Maximum employment means maximum business which means maximum GDP.
The situation we want is for every citizen who wants a job to have a choice of good jobs. This will force employers to compete and increase the likelihood that productivity gains will be shared with the employee. It will also be psychologically reassuring to the average citizen and enhance social cohesion.
Charmingly, The FED has adopted elements of this policy between the first version of this document and this version. Other central banks seem to be considering it.
7) Parent Accounts — The USA economy suffers birth rates that are significantly below replacement and declining. This makes the USA a dying society. The bottom economic half of the population suffers from a lack of savings. We can both improve the economic wellbeing of the population and improve the birth rate with Parent Accounts. Currently there is a widespread consensus to provide a monthly sum to parents to help keep children out of poverty. Since that will happen, and can be considered an existing fixed cost, all the benefits described here are free: A Free Way to Increase the Economic Well Being of Most Citizens and also Reverse the Decline in… | by Avraam J. Dectis | Feb, 2021 | Medium
8) Remove plastic containers from the food supply. This sounds like a health measure, but it is also an economic measure. We now have substantial evidence that plastics in the food supply are causing immense harm. For an example, see here: Humans May Not Be Able to Reproduce Naturally Much Longer, Scientist Warns . A society that is sick and unable to reproduce is unlikely to be economically vibrant.
As a first quick cut at the problem, plastic food containers should be banned with the manufacturers given two years to switch. Glass jars and paper cartons have served adequately in the past and still do. We do not need plastic jugs of milk and the like. This is easy to implement and can have immediate effect. The FDA should be given the task of rooting out other plastics from the food supply and other exposure vectors.
9) TOP UP — Top Up is a mechanism that supports the incomes of submedian wage earners, giving each a small boost toward but not over the median wage. Besides increasing the material well being of the sub median wage earner it does wonderful things for the economy and, not least, provides an immediate significant boost to economic output. Details: https://trillionstrillions.medium.com/top-up-how-to-help-the-lowest-wage-earners-59042c54236e
D. Costs and Risks
There are some costs and risks to the above suggestions.
Capital Transfer Securities would increase the cost of imports, although not by much, most likely. This is a very fair trade off for greater domestic manufacturing and employment.
Anything new that has not been implemented before may not work as expected and require modification or reversal. That is not a great risk, but it is still a risk.
E. Further Rationales
The USA has been suffering declining economic growth rates for decades. The average worker has not had a real raise in decades. These trends must be reversed.
The list of recommendations offered above are unlikely to be universally accepted. Some may reject some of them. Some may want to change some and some may want to add some. That is all fine, since nothing will be accomplished without a reasonable consensus. Those are useful and necessary discussions.
What is not useful is a paralysing fear of anything different or the idea that everything is all right and we should do nothing.
In another third of a century, given our disparate growth rates, we may find that the Chinese economy will be twice the size of the USA economy. That very likely scenario would make the USA irrelevant in everything. We need to up our game.
