Wednesday, June 1, 2011

David Korten - "10 Common Sense Principles for a New Economy"

Principle 6:

Money, which is easily created with a simple accounting entry, should never be the deciding constraint in making public resource allocation decisions. This is particularly obvious in the case of economic recessions or depressions, which occur when money fails to flow to where it is needed to put people to work producing essential goods and services. If money is the only lack, then make the accounting entry and get on with it.

(h/t Clonal)

1 comment:

Clonal said...

An interesting thought on this is as follows. If the Government creates money, and spends on a public purpose, say policemen and firemen for example, and there is no tax revenue to balance, then who pays?

If we think of the flows, the community gets the services of the policeman and fireman, the fire man buys goods from the grocer. So, does the grocer pay for the fireman? No, because he got money in exchange for the goods, which he then spends on other suppliers. So did those other suppliers pay for the service of the fireman? No, because they also spent the money they received. So in actual fact, the community as a whole paid for those police and fire services.

The general answer is that this causes the prices to go up. Did the purchase of goods by the fireman cause the grocer to raise his prices? Not unless there was a shortage of the goods that the fireman bought, and the replacement of the inventory was more expensive than his previous costs.

So under what conditions is there price inflation. Only if the society is unable to utilize that additional money to produce more goods and services to feed and supply the fireman, or in other words, full employment.

That is the case that MMT builds, and which Korten appears to endorse.

What if the Fire and police services were privatized? In that case, only those that paid for the service would be able to avail of them, and we would have more instances like we saw in Alameda.