A Modest Proposal to Solve All Our Biggest Problems in a Single Blow

In the Financial Times today (May 24, 21013), a leading columnist discussed fears at the Federal Reserve that inflation had dipped so low -- under one percent --that the dreaded specter of deflation had begun to raise it's head.  That such an outlook could be possible after five years of what conventional thinking must consider the most recklessly inflationary monetary policy conceivable compels me to openly dare to posit the ultimate solution to our present historical situation -- or at least the ultimate thought experiment for Americans.

Why not amend to the U.S. Constitution to:
 1. Eliminate all federal taxes
 2. Limit federal expenditures (including service of pre-existing debt) to a fixed percent of current GDP, and
 3. Pay all federal expenditures with new money that is permanently created each year?

Before you choke or chortle, please reflect on the following:

 -- This proposal addresses the fundamental "size-of-government" issue through our constitutional procedures, revitalizing the central role that this document should play in defining the fundamental nature of  the American state. By fixing the proportion of the federal public sector in the overall economy, the constitutional process compels the nation to arrive at a true consensus on our fundamental national character -- defining the precise balance of capitalist-socialist compromise in the most intensive, deliberative and permanent manner. Just posing the question as a constitutional amendment represents a sort of ultimate in democratic governance, allowing the public to decide directly the essence of our national character.

 -- The proposal acknowledges the reality that all prior debt financing of government expenditures is permanent. There is no way that we can actually pay down the our 17 trillion dollar accumulated balance, and we will simply continue to refinance it forever, as it continually grows. Any other premise is self-deception, unworthy of a self-governing people. Thus why not stop accumulating any further debt and simply carry the current balance forever by periodic refinancing at then-current rates, with all interest paid with newly-created money as part of budgeted annual expenditures? This assures the infinite continuation of a substantial volume of no-risk, dollar-denominated fixed income assets to undergird our national (and global) financial system. 

 -- Eliminating Federal taxes, especially income taxes, would free economic behavior from politically-motivated distortions and simply remove the entire cost and hassle of tax compliance. This might have a profound and permanent economic stimulus effect

 -- The proposal acknowledges that our all our more recent experience has undermined long-standing belief in a rigidly deterministic connection between money supply and inflation. It is entirely possible that the benefits of the proposed system would outweigh the risks of inflation -- or even the actual costs of inflation, should they arise. The truth is that we cannot pretend to know the inflationary impact of the kind of money creation here proposed, considering that the process would be permanent, regular, fixed at a percentage of GDP, and limited to government expenditures. Our present brush with near-deflation proves that we have little or no idea what really causes inflation. Naive monetarism is as dead as Marxism (another pseudo-scientific economic theory ultimately driven by non-scientific motives).  Maybe inflation is impossible or even controllable under current conditions, or perhaps it has simply disappeared forever to be replaced by new evils (like polio and smallpox replaced by AIDS, etc). When one thinks that we have built the entire world economy on principles of fiat money and fractional-reserve banking that "common sense" and "moral principles" initially rejected as fraud or fiction (even by the most intelligent and sophisticated prior minds) we should be willing to consider pressing the alchemical nature of credit to the limit. Courage to re-imagine reality and risk the consequences has been rewarded in the past on the greatest scale.  Think Christopher Columbus.

Notice how this proposal completely derails the traditional left-right ideological continuum. The right gets their wildest dreams in the complete elimination of federal taxes and a constitutional limit on the size of government. The left gets the ultimate fantasy of government money creation. Just breaking the ideological headlock on productive thinking is worth the exercise, just to prove that it's possible.)

I have created this blog as a place for serious, good-natured and independent minds to comment on and otherwise discuss this modest proposal, perhaps mostly as a springboard to any kind of fresh thinking about the major issues we face at this juncture in time. I have no idea whether this is a dead match or the start of a wildfire. But it is, above all, an exercise in intelligence, creativity, and an honest attempt to learn from each other through dialogue. If you are an ideologue, right or left, you have come to the wrong place.