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Because Federal infrastructure projects create new National assets, they increase the net worth of the nation.  When the net worth of any sovereign nation increases, it is possible for it to increase the money supply without inflationary risk. The increase should be exactly equivalent to the construction cost of the projects, and the new money should be used to fund the construction.  Tax dollars, or borrowed funds, need not be used for any of these "hard asset" projects.

In this way, the nation creates new money in direct synch with national asset creation--which is not inflationary.  This is the way out of the box we are currently trapped in.  Because infrastructure projects, specifically, can be funded by "printing money" without inflation risk, there is no innate limitation to the funding that can be responsibly provided for such projects.  (Of course, eventually one runs out of construction labor, but this is a problem we might like to have in America today as we slowly recover from the Great Recession.)

Literally, within the limits imposed by the size of the relevant labor force, the government could safely green-light all proposed infrastructure projects concurrently, and simply issue new funds to pay for them, without delay or triage.  The resulting benefit to the economy, and to the capital strength of the nation, would be historic and revolutionary.

This may be nonintuitive, because corporations and individuals can't fund construction in this way.  Corporations and people have to save, and/or borrow funds, to pay for projects.   But sovereign nations operate at a higher level and have the unique ability to issue currency, to print money, to increase the money supply electronically.  It is narrow, foolish, and wrong to think that we should limit the nation to the financing models that apply to individuals!

So the nation may provide limitless bounty for constructive activity, without collecting taxes, without borrowing, and without inflation, as long as the end result is a set of new, tangible national assets corresponding closely in value to the new money created.  Of course, in such a system, depreciation must also be recognized by a regular, perhaps annual, reduction of the money supply in correspondence to the slow aging of dams, bridges, roads, and buildings.

This does not require a completely asset-based money supply.  It only requires that one component of the money supply be locked in step with the increasing (or decreasing) value of hard national assets.

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Comment Preferences

  •  I've always understood that since we do not (1+ / 0-)
    Recommended by:

    match our money supply to gold or silver
    or any item that has some theoretically intrinsic value,
    I've always thought that the money supply
    or should have been,
    simply regulated to match
    the gross domestic product,
    the value of all work done by Americans,
    whether unloading goods made in China,
    as they come in on a big ship,
    loading them on trains and trucks,
    sorting them,
    sending them to the next distribution center,
    until the goods end up at Walmart,
    where I work.

    I've always looked at it that way.

    when I work some hours at Walmart,
    the Federal Reserve
    should issue money
    to match the money
    Walmart has agreed to pay me.

    How could it be any other way?

    I don't see the difference
    between infrastructure
    and my hard work.

    The only thing that confuses me,
    is that most economic activity
    seems to flow in such a way
    that seems similar to the water cycle.

    Water falls from the sky,
    later evaporates back into the sky,
    and falls down again later.

    People use the water,
    plants use the water,
    fish use the water,
    and it just travels around in that cycle.

    I feel as if
    some folks feel that money is like water,
    since it also travels around in a cycle.

    But money is not a real thing,
    like water,
    but only a placeholder,
    symbolic of work and items,
    and the supply can change a lot.

    The supply of water does not change.

    Bottom line,
    it seems to me
    that if folks would simply accept what we say,
    and not panic,
    we would never need to have taxes to match work done by the government,
    which is what you are saying.

    We could have some taxes,
    but there is no need to match it exactly;
    much government work
    could be funded by simply
    increasing the money supply to match.

    Bottom line,
    (I know, I said that already)
    I think you're right,
    but I think it could go farther
    than what you say;
    if American workers do more work,
    or government does more,
    the money supply
    can simply increase,
    without borrowing,
    without increasing the national debt.

  •  While we need infrastructure investment (2+ / 0-)
    Recommended by:
    UntimelyRippd, Roger Fox

    this does not seem true:

    So the nation may provide limitless bounty for constructive activity, without collecting taxes, without borrowing, and without inflation,
    If we borrow to put 10 million people to work on infrastructure (greening public buildings, repairing road networks, building electric rail corridors, public transit, parks, etc ...) (things that are needed), those 10 million will receive salaries -- and use them to buy things.  Demand for labor goes up and, hopefully, this means that salaries go up.  Demand for goods go up and that will mean prices can go up.  At some point -- whether it is 100,000 jobs created, 1 million, 10 million, 100 million, or 1 billion, the additional demand in the system will drive inflation.

    Blogging regularly at Get Energy Smart NOW! for a sustainable energy future.

    by A Siegel on Tue Jan 15, 2013 at 03:00:39 AM PST

    •  Quite so. (1+ / 0-)
      Recommended by:
      A Siegel

      Which is why the solution to the "problem" is to tax the money away from the rich and spend it creating real national wealth (infrastructure) rather than phony national wealth (bombs and Cayman Islands bank accounts).

      The US could so easily solve about half of its economic problems by the simple expedient of raising taxes on the wealthy and on our corporate overlords, and using those revenues to force the production of both social essentials (health care), and some things that are simply social "good things" (post-secondary education for all who want it -- university, tech college, apprenticeships, whatever).

      Most of the other 50% of the country's economic problems have to do with the scarcity of energy, so they can't be solved "easily" -- although more than half the people on dKos would argue forcefully that the scarcity of energy can be dealt with, either by investment in renewables, or investment in nukes, or both.

      Finally, of course, there's the fresh water problem. For that, I have no good solution -- the only solutions involve a rather heavy-handed and intrusive array of government regulations regarding the pumping of water out of the ground. No more green lawns in Phoenix. No more private artificial lakes. No more dairy and rice agriculture in a Mediterranean climate zone. No more millions of acres of water-hungry corn grown, basically, "because it is there". Etc.

      To put the torture behind us is, inevitably, to put it in front of us.

      by UntimelyRippd on Tue Jan 15, 2013 at 05:48:15 AM PST

      [ Parent ]

  •  Um. (0+ / 0-)

    Yes, the new money is inflationary, because the new hard assets are not goods that become permanent commodities in the marketplace, competing for dollars with other goods. Moreover, the new money will inevitably, and very quickly, find itself into the bank accounts of the rich, contributing to the ever spiraling vigorish that us proles are expected to produce in slavish service of those bloated bank accounts.

    There is no good reason not to fund the creation of such hard assets through taxation. We need higher taxes, desperately, and particularly on the wealthy and super-wealthy.

    To put the torture behind us is, inevitably, to put it in front of us.

    by UntimelyRippd on Tue Jan 15, 2013 at 05:32:45 AM PST

  •  the way you reduce (2+ / 0-)
    Recommended by:
    UntimelyRippd, Roger Fox

    the money supply is to tax.  In this case, if certain sectors of the economy become overheated, you tax them.

    Loyalty to petrified opinion never yet broke a chain or freed a human soul in this world--and never will. Mark Twain

    by whoknu on Tue Jan 15, 2013 at 05:40:52 AM PST

  •  SO how much is this going to do? (0+ / 0-)

    How much money will be spent on infrastructure? AS a % of GDP per year.

    FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

    by Roger Fox on Tue Jan 15, 2013 at 09:07:58 AM PST

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