The Synthetic Economy enables the Federal government to continue to run vast deficits every year without having to worry about the usual consequence of price inflation. But as wonderful as that is for the government, it’s paradoxically even better for the banks. For they have made trillions in loans to foreign countries and others that, as a practical matter, can never be repaid. Some of these came up as an issue in the 1980s, but through the magic of ‘extend and pretend,’ and some ‘aid’ from the Federal government, the banks have managed to sweep them under the rug. The banks would like to very much go on sweeping, as the politicians would very much like to go on spending.
Under the Synthetic Economy, the government and the banks (the Big People’s economy) work to balance the amount of money going into the Synthetic Economy that the vast majority of us live in. Too little, and people get angry, and there are riots and other civil disturbances. Too much, and there is widespread price inflation, which could ultimately lead to riots and other civil disturbances. Meanwhile, in the Big People’s economy, inflation is, indeed, out of control. But since the inflation manifests itself in the stock market and the price of real estate (at least in the places useful to the Big People’s economy), people think of it as prosperity, rather than runaway inflation.
So what does the government have to do as its part of the deal?
- As I noted earlier, the first rule of the Synthetic Economy is that we do not speak of the Synthetic Economy. So no politician can say that this is how we solved the deficit problem. (On the other hand, the former cliffhanger drama of the debt ceiling has become tiresome, so we can quietly ditch that. Never mind that the debt ceiling was the practical implementation of the Constitutional requirement for Congress to authorize Federal borrowing.)
- We also don’t want to tell the Little People that money isn’t finite anymore: first, because it is contrary to the experience of their lifetimes, and second, once they came to understand it, they would demand a piece of the action, and they vastly outnumber you. No politician will propose a vast new spending plan, to be paid for by borrowing. Instead, the propose ‘taxing the rich.’ And their plan goes off to die, because nobody likes tax increases. (And in any event, a 5% or 10% tax increase won’t change the overall situation.)
- But perhaps the most important thing is that the government needs to maintain policies that discourage money from circulating in the Synthetic Economy. This isn’t to say that money doesn’t circulate at all: it does. But we want the money paid into the Synthetic Economy (government spending, wages paid by Big Economy players, payments for exported goods and services) to come out (through taxes, payments to Big Economy players—like one’s mortgage payment—and the purchase of imported goods) as quickly as practicable. When someone buys a domestic manufactured item, they pay the factory owner, who pays his employees, who go out and buy the things that they want and need. This used to be the virtuous cycle of capitalism. It’s now bad news, because it can’t be readily controlled. We must stop it, as much as we can.
- A corollary of discouraging circulation is that saving and investing need to be curtailed, as well. If the denizens of the Synthetic Economy have their own productive assets, they can function independently of the Big People’s direction, and that’s bad. And if people do have assets, and can be encouraged to liquidate them, so much the better. (Anyone for a home equity loan?)
What happens when the politicians carry out these tasks? What about effects on the politicians themselves, or the political system? Tune in next week….