10. Implementation of the ATOM Age for Nations

 

If a man is proud of his wealth, he should not be praised until it is known how he employs it.

– Socrates

 

(Video).  Given how recently the world economy has entered this situation of accelerating technological deflation, only the most prosperous and technology-dense countries currently have the ability to generate central bank money in a perpetual and rising stream, and in turn divert it to fund their government spending.  Sometimes, a country is closer or further from this threshold than countries of similar prosperity.

While the transformation is a continuum, in general, a nation has to cross a threshold where technological products are approximately 2% of its GDP, which the US has recently surpassed.  At the 2% threshold, there is a sufficient buffer against inflation upticks in the early incubatory period, where critics still have followers.  For example, the nations of Northwestern Europe could embark on this restructuring right away, but the nations of Southern and Eastern Europe are not quite there yet.  The EU cannot easily blend the varying ATOM levels of different countries into one and expect ECB monetary expansion to diffuse evenly.  Similarly, while China as of 2016 is still a bit poorer than most of Latin America, the technological depth of China’s economy makes China fewer years away from this transformation than Mexico and Brazil are.

There was a time when vast reserves of natural resources (such as oil) were seen as the most fortuitous stroke of luck for a nation to have.  In this age, the tables are turned, where having significant ATOM density is an even more profitable resource, and unlike oil, is self-reinforcing and ever-expanding.  Ironically, the countries that were the most deprived of natural resources (such as Japan and South Korea) had to rely heavily on technology to further their economies, which has now made them among the most ready for the marriage of the ATOM with central bank monetary creation.

While the US has reached a point where it can implement this only now at $55,000 per capita GDP, China could implement this upon reaching a mere $20,000 per capita in the mid-2020s.  This is simply due to the percentage of Chinese GDP that will be composed of ATOM-derived deflationary products approaching 2%, despite being merely at a similar level of prosperity as the US was in the 1970s.  Even impoverished, low-tech India can implement this by the 2030s, despite still being much poorer at that point than the US is in 2016, due to the same 2% threshold.

Each country has to do an ATOM assessment to determine if their central bank can generate money without generating inflation, and if not, how many years away they might be from such a capability.  I have detailed data and algorithms that can help each country estimate where it is on the progression towards the ATOM threshold, but for the purposes of this whitepaper, I will discuss a few select countries and their specific characteristics, starting with the United States.

 

How the US Can Inaugurate the ATOM Age :  I repeat that there is virtually no chance that these topics will be researched, the ideological barriers overcome, the Federal Reserve’s powers expanded, and an ATOM-ready DUES program implemented before the 2017 crisis forces such a program to be fast-tracked under duress around 2018-19.  I am also relatively certain that the US will not be the first, second, or even fourth country to implement such a revamp of its monetary and fiscal paradigms (more on those other countries later).  But if the US were to hypothetically start this program by 2017, one attractive avenue (as an alternative to starting with the flat $5000/year to all US citizen adults) to ease into it is through that venerable old program, Social Security.

As of 2015, Social Security (SS) collected about $1 Trillion in taxes, and distributed roughly the same $1 Trillion sum out to recipients.  The tax is 12.4% of the employee’s income, up to $120,000 of income, after which there is no tax.  While there is an illusion that this 12.4% is split between the employee and employer, this is obviously money that would otherwise land in the pocket of either if not for the tax, and is certainly a contributor to angst about the ‘lack of wage growth’.  The SS payout formula calculates payments with some correlation to how much a worker paid into the system, but the correlation is not exact.  There are other complicated calculations for spouses of workers, immigrants who were in America for a period but never became US citizens, and so on, all of which are often gamed and exploited.  There is the additional cost incurred by the fact that millions of households would not need to file tax returns at all if not for SS, which adds volume to the already-bursting IRS processing system.

There is a great deal of apprehension about the future of the SS program, since US demographics are far less favorable than they were in the first 70 years of SS.  The age at which a person can receive benefits was set when US life expectancy was itself around 65, and now, the powerful senior lobby prevents the government from indexing the eligibility age to rising life expectancy.  This means that the average duration of receivership has increased from 2-3 years to 12-15 years, or roughly six times longer, even though the duration of working-age payments into the system has not increased.  The ratio of intake to payouts has thus been very adversely affected by what should be celebrated – rising life expectancy.  This in turn leads to a rather peculiar and morbid opposition to rising lifespans in some quarters, as if the fear of updating a government program from another era is more important than the single most comprehensive indicator of societal well-being.

Instead, since we know that the Federal Reserve will soon have to permanently generate well above $1 Trillion/year, it would be appropriate to directly fund all SS obligations with that very monetary influx, making good use of this established distribution channel.  Simultaneously, the regressive SS tax can be the first income tax to be eliminated.  The recipients see no change in their payment amount, but gain the eventual benefit of their SS money now being exempt from income tax (unlike today) due to the commencement of the income tax phase-out.  Note that the monthly increases in the ATOM stipend are far more granular than the annual SS increases, to facilitate dynamic responses to inflation changes.

Meanwhile, working-age people and their employers immediately get more money in their hands to the tune of 12.4% of their paychecks up to the first $120,000, which creates a huge surge in consumer spending and job creation.  Debt servicing becomes easier for individuals, and since all other types of income tax are still in effect, those tax collections rise as a ripple effect.  The US enjoys a win-win all around, all because the Federal Reserve has to produce that much money anyway to offset technological deflation.

Old and NewAfter the inaugural year of funding a government spending program with Federal Reserve QE proves that neither the inflation rate nor fiscal budget was destroyed in the process, it is time to increase this disbursement by the annual 16-24% to match the higher degree of technological penetration in the economy.  This should be done by merely extending the payout down the age brackets to people younger than the SS recipients, one age cohort at a time.  By 2020, every US citizen over the age of 18 is receiving their payout, while the Federal Reserve is now dispensing over $2.2 Trillion per year ($10,000+/year/person), with broad recognition that Federal Reserve QE has to permanently rise at 16-24%/year.  Inflation is no longer a serious concern, since the expansion is within the aegis of the ATOM.

As the DUES is extended to all US citizens, other government wealth transfer programs should be steadily and proportionally phased out.  The order in which this is done has to be decided by policy researchers, but over the 3-5 years that it takes to extend the stipend all the way down to age 18, every Federal payment program from Medicare to the Pell Grant to food stamps should commence the retirement process.  This achieves the goal of replacing the 75% of US government spending comprised of payments to individuals with the vastly more efficient and fair DUES.  The stipend will rapidly become large enough where it can allow anyone to purchase private health insurance of varying coverage.  This retires the system of the government paying healthcare providers directly, thereby distorting prices, reducing efficiency, and throttling innovation.

Simultaneously, the rest of the income tax code can follow the SS tax into the pages of history.  This is best achieved by sequentially eliminating each category of tax one by one, based on how similar to a payment program it already is.  After the SS tax, perhaps the Medicare tax can be next, followed by the AMT, the capital gains tax, the corporate income tax, and finally, the ordinary/individual income tax.  Note that as each tax is eliminated, the collections from each remaining type of tax balloon from the economic stimulus created by the absence of the previous tax.  This cushion should not give pause to the plan of systematically phasing out every one of these taxes, since humans are already handicapped relative to the untaxable and borderless output of AI.

State and local governments do not have their own central banks and cannot run budget deficits, so will have to continue to fund themselves with existing methods of taxation, which vary greatly by location.  Some states, like Texas, Florida, and Nevada have no income tax, while others like California have top bracket rates as high as 13.3%.  Some cities have no income tax, and property taxes also vary greatly.  High-tax states might see the vacancy created by the absence of Federal income tax as an excuse to greatly increase state income tax, but this would be a blunder, as the absence of Federal income tax will greatly widen the spread between states with unequal business friendliness.  Furthermore, states with income tax rely on the Federal 1040 for a verification of taxable income, but once the Federal 1040 is gone, states will have to do their own auditing and verification.  The competition between states and cities will become more direct, which, in a way, was the original intention of the Founding Fathers over two centuries ago.

The remaining 25% (and shrinking) of US Federal spending not in the form of payments to individuals can also be funded with money originated by the Federal Reserve.  Just as with state and local governments, the real test with this component of government spending is whether the voters and officials can keep these expenditures contained, or succumb to the urge to overspend.  Maintenance of the ATOM economy, as described earlier, will be a key determinant of competitiveness between nations, with societies that fail to maintain this resource swiftly incurring the penalty of seeing others surpass them.

Lest there be any confusion about the speed at which such a transition could be managed, I emphasize that the full expenditures of the US Federal government cannot hypothetically be funded as soon as 2016 by central bank action alone, as the ATOM is just not broad and deep enough yet to produce enough deflation.  Rather, the transition has to be structured to intercept the ATOM at a point a decade away, and staged accordingly.  By around 2025, the previous calculations predict that the ATOM will be advanced enough to metabolize a level of perma-QE where every US citizen over age 18 gets a stipend that by then has grown to $25,000/year in current dollars and keeps rising each year, pushing ‘Real’ GDP growth rates higher despite low inflation.  The Federal income tax, now entirely phased out, is recognized as a relic of a bygone age.

A vision of this 2025 America presents itself.  The economic climate at all levels of American society is fundamentally transformed.  Careers are plentiful and compensation is more closely aligned with productivity than before.  Entrepreneurship has become more widespread and lucrative, and is now the largest occupation, with clusters of tech startups sprouting in all cities.  Inflation is minor, and many products cost the same or less than they did in 2016, particularly when adjusting for ATOM impact on product quality.  Debates about living wages, minimum wages, federal tax hikes, and two-income traps have vanished into the dustbin of history.  Even if state, local, sales, and property taxes still exist, the burden seems minor, and governance in most state and city governments has improved, partly due to a reduction in some categories of crime, and the government resources freed up through this.

At the highest macroeconomic level, the US National Debt, which has recently crossed the psychologically significant threshold of 100% of GDP for the first time in a non-war economy, ceases to grow since government spending no longer generates a deficit funded by US Treasury debt.  The $19 Trillion of existing Treasury bills, notes, and bonds will shrink as each individual debt contract matures and expires without being replaced with new debt contracts from a new deficit.  This eventually makes the entire debt, which is going to be a major factor in exacerbating the pain of the 2017 crisis as previously described, gradually shrink and disappear.  Thus, the supposedly ominous National Debt and budget deficits become a non-factors in future fiscal policy structuring under this model.

Not every problem dwindles away, of course.  If America of 2016 has proven anything, it is that some people just cannot handle prosperity.  When serious problems recede away, they devote their lives towards inventing new ones, as the endlessly mutating victim-chic culture demonstrates.  Some people will always concoct new grievances as a cloak through which they resentfully harass others, and most of the tired old shibboleths will continue.  What may be different is that AI may greatly empower the efforts of factseekers, enabling them to obstruct the grievance extortionists more effectively than is possible now.

As I have stressed, no country will even begin to implement this plan before the next fiscal crisis, and even then, the US will definitely not be the first to embark on this path.  But there are four countries with unique attributes that enable them to be the first to reap the benefits of this approach to fiscal and monetary governance.  These four countries, which happen to be four of the best-managed economies in the world, consist of two single-party Pacific Rim city-states, Hong Kong and Singapore, and two Western democracies, Canada and Switzerland.

 

Hong Kong and Singapore :  Hong Kong and Singapore have shared origins that led them to become  city-state tax havens with small, efficient governments.  Both have per-capita GDPs that are manifold higher than the countries they were separated from (China and Malaysia, respectively), and their economies have high ATOM densities.  Both are routinely ranked within the top four financial centers in the world, despite having been quite poor as recently as the 1970s.

Each of these city-states has a government budget of about $50 Billion/year.  As small nations with very high interconnectedness to much larger economies, they could each fund their governments with central bank money, waive all of their already-low taxes, and still be just a rounding error in the world monetary and inflation data.  In fact, the inflation rate of Hong Kong and Singapore is more determined by whatever monetary expansion is done by the big central banks of China, Japan, and the US.  As a result, both Hong Kong and Singapore can proceed with the full knowledge that their money creation will not cause any significant local inflation or currency devaluation.  Once they fund their existing government budgets, they can proceed on their own program to phase out taxes and disburse a DUES, which itself can rise at a faster rate than a larger country could manage.

Hong Kong and Singapore are not democracies, so their political process does not double as an entertainment genre.  Hence, the sequence of decisions involved in this sort of restructuring can be made and executed quickly.  Due to currency pegs, a currency flight is not a risk.  The stipend may have to start small, but can rapidly scale up at speeds a large country could not manage.  The stipend could reach $50,000/year within five years, without triggering inflation.

Decades of low-tax, business-friendly policies have cultivated a culture of governance that makes them among the least likely governments to get carried away in a frenzy of ‘free money’ gluttony.  Whatever approvals Hong Kong needs from China are unlikely to be a problem given China’s own massive and innovative monetary practices, and inclination to observe how well the Hong Kong experiment works.  Success in Hong Kong and Singapore can clarify a roadmap for other countries in the region that could already implement the strategy (Taiwan, South Korea, and Japan), and eventually, the largest practitioner of ATOM monetization in the future (China).

 

Canada and Switzerland :  Among Western democracies, there are two very different countries that share the distinction of being the best positioned to transition to the ATOM paradigm of fiscal and monetary governance.  Traditional disadvantages can now be converted to advantages, in a historic turning of tables.

Canada is in the unique situation of having a sole geographical neighbor with an economy ten times larger, with which Canada conducts most of its trade.  Given the high ATOM density of both nations, the inflation rate in Canada can never deviate significantly from that of the United States.  At first, it may seem troubling that a major aspect of the Canadian economy is predominantly pegged to how America performs on the same measure.  But from what we have seen about the potential re-direction of central bank monetary easing, Canada is superbly well-positioned.

Most Americans are not aware that Canada’s federal government does not typically run a budget deficit.  The Canadian government, as of 2015, collects about $300 Billion in tax revenue, and spends the same $300 Billion in an impressive demonstration of political restraintThere has not been a cumulative net budget deficit since 1995, a trajectory quite the opposite of the one the US is currently on.

If the Canadian Parliament were to authorize the Canadian central bank to merely create the entire $300 Billion of federal expenditures and waive all federal income taxes, the amount of monetary expansion is negligible relative to the broader US money supply.  This ensures that there is no possibility of any Canada-specific inflation.  It really is that simple, amidst Canada’s favorable conditions (Canada also happens to have a more skill-based immigration policy and better regulatory philosophy than the US at present, all of which strengthen the ATOM levels in the country).

Canadian provinces have taxes and budgets of their own, of course, but the entire federal government is already well within the zone where taxation of Canadian citizens is no longer necessary.  Due to this, a DUES program can be constructed in short order without generating any discernible inflation in either Canada or the US.  For any Canadian reading this, perhaps you should send this reading material to your elected representatives and start urging them to examine these ideas.

Switzerland, by contrast, has arrived at this juncture along a very different path than Canada.  Few countries have done more things correctly for as many centuries as Switzerland, which built an economy entirely around high-margin industries and is synonymous with an elite image of wealth and sophistication.  Switzerland is not part of the Eurozone currency block, but is completely surrounded by it.  The Eurozone economy is about 16 times larger than the Swiss economy, and most of the Eurozone’s GDP is generated within 300 kilometers of the Swiss border, representing a huge ATOM-deflationary sink.  This guarantees the Swiss central bank’s ability to generate an almost unlimited amount of money without causing any domestic inflation.

Above and beyond the extremely suitable geographical location, Switzerland has already considered experimenting with the idea of a universal stipend (as has Finland).  The only missing piece is to have the stipend paid with money created by the Swiss central bank, rather than by the large tax increase they were considering.  As the stream of money increases, the rest of the government budget can draw from this source, while all Swiss income taxes can be gradually eliminated.

Excellent governance, high technology density, their own central banks, and proximity to vastly larger economies with low inflation will hopefully lead Canada and Switzerland to become the first to undergo the legislative and political process of implementing this solution, setting an example for the larger Western democracies to follow.  The US and Eurozone will only implement such a program when they already see it succeeding in a smaller Western nation.

Continue to : 11. Implementation of the ATOM Age for Individuals

 

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