Friday, April 26, 2019

Unusual economic idea

From Axios:

How depreciating money could save the global economy

Some explanation:
Central banks have unloaded trillions of dollars of stimulus in efforts to push inflation above 2% in countries from the U.S. to Japan and across the eurozone, but nothing seems to be working.

Driving the news: One radical idea that could boost spending and help resuscitate moribund economies is Silvio Gessell's proposal for depreciating money, writes Stephen Mihm, an associate professor at the University of Georgia, in an editorial for Bloomberg.

What it means: Money, if not spent, would lose its value by 5% a year. That would encourage people to spend, rather than hold onto it. Such a plan would radically boost the "velocity" of money, giving a major boost to developed economies where services account for a hefty majority of economic growth.
  • "In Gesell's formulation, money became a 'hot potato' that note holders tried to use before it lost value," Mihm writes. "As far-fetched as they seem, his writings had practical implications because they pointed a way out of the impasse the world confronted in the Great Depression."
Context: The idea has been tried before. The mayor of Wörgl, Austria, used the town’s funds to put Gesell's depreciating currency into rotation and managed to stimulate a minor boom in the midst of the Great Depression.
Um, not sure how you make money depreciate by a set figure in the current system...

1 comment:

GMB said...

Its not a novel idea. Its just monetary crankery. Same old stuff. We practice this idea everywhere and it leads to asset price booms, busts and unemployment. This sort of monetary crankery comes out of the problem of having to soft-pedal the practice of usury. There is a tribe that has done the human race immense damage, and they don't like it when we talk honestly about usury. This prohibition leads to all manner of stupid suggestions.

If we are a country that is under a great deal of personal, business and governmental debt we are all like heroin junkies waiting for a new burst of inflation to make our debt a bit more palatable. The idea is to have public policy which brings people off the hammer. Gesell went the wrong way with it. The problem is one of too much debt in relation to the amount of cash. We want to improve the cash-to-debt balance. Fractional reserve banking always thwarts this goal because the new money supply comes to us in the form of debt. So its the fractional reserve banking that is at the root cause of our junkie economy and at our constant felt need for high monetary growth.

If we have a program of having more cash than debt it follows that we want to stop the banks from pyramiding on the new cash that we introduce into the country. But as it turns out our reserve bank is under covert restrictions on this matter. Its not clear they could serve our interests even if they woke up feeling daffy and with goodwill to their countrymen.