economic revolution

[3blake7]

I am working on a science fiction universe but I didn't want it to be all vague about humanity's progress, I wanted a specific plausible scenario. This is what I came up with:

 

I am calling the plan, Jumpstart the Economy.

 

I took that GDP Per Capita for the United States and estimated that if everyone in the world lived a quality of life similar to Americans, that the world GDP would be around 370 trillion dollars. Currently it is only 75 trillion dollars. That is a huge potential for growth. I think we would eventually achieve it without changing anything but I want to accelerate the process. I was thinking if all the "first world" nations got together and created a single world currency that they could print money and invest it into impoverished communities around the world without causing inflation. From my understanding of economics, you can print money without causing inflation as long as the demand for money is increased, basically by increasing supply AND demand, by raising the quality of life of impoverished citizens of the world. If the "first world" nations of Earth printed the right amount of money and invested it by building infrastructure, like power lines and solar cell farms, vocational schools and offer guaranteed loans to graduates; they could increase their quality of life, increase their value as entities in the economy, which means they would receive more money, they would spend more, increasing demand AND supply. You could analyze existing economies to figure out the ratio between different types of jobs, like pizza delivery, electrician, nurse, etc; then only have the correct amount of openings for each job type in the free vocational schools. In two years, you could artificially create a new middle class. I am not sure exactly how much money you could print and whether it would be enough but you could also get the investors of the "first world" nations to invest in businesses in the "economic development zones". The rich would get richer and the poor would get richer, like how we are all got richer compared to one hundred years ago. The "first world" nations that invested, most of which are probably indebt, could eliminate their debt. Tax revenue would increase because of the economic growth which could also eliminate deficits.

 

There is no legitimate reason for there to be a billion plus super poor people in the world, we have the raw materials, we have the man power, we just have bad economic policies that don't get the snowball rolling. Even food production isn't really a problem because we are already capable of much higher productivities. Like hydroponics using indoor grow lights can be 12 times as productive per square meter of area and after that you can go with hydroponic skyscrapers, and increase it even further. The grow lights would cost more but with current solar cell efficiencies, the deserts are more than big enough to support a population 10 times what we already have.

 

I personally think most of the world's problems could be easily solved but there is one problem that prevents them from being solved, educating everyone and getting everyone to agree on a solution.

 

I am a layman and I've only taken 1 course in economics, so if this idea has already been explored or there are some concepts I should read up on, please feel free to contribute!

 

Thanks,

Blake

Edited May 27, 2017 by 3blake7

[KipIngram]

Hi Blake. I think what you've proposed could reasonably work. I'm not sure that it requires a single world currency; we have currency exchange markets that do arbitrage and serve to make the currencies interchangeable. But that's ok - your approach there is also fine. Currency itself has no innate value beyond that which people believe it to have - it's their faith in the currency as a store of value that literally gives the currency its value. So stability in the currency value, measured as the amount of real wealth (goods and services) that it represents, is important. If that value changes slowly, it generally doesn't cause a problem. Here "slowly" means slowly enough for the amount of currency everyone has to adjust along with the value per unit currency. We all know that stuff costs more than it did when we were kids, but we don't really care because we also earn more money and so on - it's "balanced out" in a way that doesn't make us feel harmed.

 

On the other hand, when you have situations where the currency value changes rapidly, the effect is that people are holding more or less the same amount of currency but now it's worth less (or more, but it's usually less in real-world problem situations). Faith in the value of the currency is shaken, and people flee from it, and you wind up with a hyper-inflation spiral. So it's ok to "print more money," as long as you're careful about how much and what you do with it. If you're appropriately modest with the rate at which you do this, and if you use the newly printed money to expand economic output along with the supply of money, you've got the potential to succeed.

 

The stuff you mentioned looked like the right sort of things to me - infrastructure, education, etc. Those are the things that then lead to expanded production of goods and services, which will tend to cancel out the inflationary effects of the new money.

 

So to summarize, I think key ideas I recommend for keeping your concept real would be for your fictional people operating this process to 1) have given thought as to how fast they could safely work toward the changes you're in pursuit of and 2) have given thought to applying the new money in ways that would lead to expanded output in the parts of the world they were working on as quickly as possible.

[3blake7]

I think it's interesting that you bring up that money has value because people believe it has value. Some politicians want to go back to the gold standard but that isn't really any different. Gold doesn't really have that many uses, except for tiny amounts in high end electronics. Gold is actually pretty useless and it only has value because people believe it has value. A currency being backed by gold really isn't any different. If culture changed and people stopped wanting gold for jewelry, the value of gold could easily drop. Backing money with something in the beginning can be beneficial, because it could help people believe in it and accept it as a value place holder. Like if a guy wanted to buy a chicken but he only had bread to trade and the guy with the chicken only wanted whiskey, the guy would need to find someone with whiskey that would trade it for bread. That's inconvenient. If there was something that everyone wanted, like a currency, then it would have 100% demand because it could be traded for anything. Once everyone in the economy believes in it because everyone in the economy accepts it as a value placeholder, then it being backed by something doesn't matter.

 

As far as the negatives of inflation, it's really not inherently negative, the only real downside is that there may be adjustment lag (is there an official phrase for this?). If the government doubled the amount of dollars in circulation then the prices of everything would double, the products and services and the workers too. Nothing really changes, you get paid twice as much and everything cost twice as much. The downside is that the economy won't instantly change, so it's possible that some corporations would adjust their prices sooner and some workers would ask for raises sooner, so there could be a period in time where some workers are getting underpaid and some corporations are lowballing themselves.

 

The demand for money has been increasing so most governments of the world have been printing money to prevent deflation. At first, not every person was using the currency, they were still bartering and in some places of the world, poor people still don't use a currency. As more people come into the system, you need to print more money or there could be a money shortage and that would defeat the whole point of having money. If there isn't enough money, then employers would be like, "I can't find any dollar bills but I can give you these chickens". You need to have a minimum amount of money in circulation or it defeats the point. As there are more products and services, like cable television, cellphones, websites, hospitals, cars, plane trips; a higher quality of life, an increasing population, more corporations, people with skills that make them more valuable, more bank accounts, more value in the economy overall, you need to print more money (value place holders).

 

I was thinking it could cause temporary inflation, but you might be able to contain it by regulating trade between the "economic development zones" and the "first world" economies. Eventually, as you increase the value of impoverished people, giving them more money, them buying more, increasing demand, creating jobs, which they have been trained for, I think the inflation would be undone.

 

For a world currency, I think you are right, that isn't necessary and would probably make the plan harder to accomplish because not all the "first world" nations would want to give up control.

[KipIngram]

The "gold standard" really accomplishes nothing more than a promise to the people that the government will let the amount of gold available dictate the amount of currency in circulation. It's a phrase that possibly increases the trust that the people have in the stability of the currency. It's that trust that is critical - not the gold itself. So I don't think that the value of the underlying gold is really relevant - it's the scarcity of the underlying gold that's relevant. This is why something like bitcoin is able to work at all - bitcoin has scarcity built into its algorithm. It's faith in that scarcity that makes it a usable medium of exchange.

 

Yes, I agree with you that the downside of inflation is the adjustment lag. When the value of a currency is changing "too fast for people to keep up with" you get problems. It's the speed of the change, and the absence of adjustment, that cause the problem, not the inflation itself.

 

The phrase "demand for money" bothers me a little - "demand for money" is really "demand for goods and services, which you need money to obtain." Governments that print money just to win favor from people by putting more money in their hands are not really making those people better off (except during the aforementioned adjustment lag - right when you get the money you will feel better off, so act fast). The key thing I saw in your OP was the application of the printed money to productivity enhancement. Say you print money and use it to install an electrical grid in an impoverished region. Ok, you are immediately increasing demand for wire, metal for towers, and so on - the actual stuff you build the grid out of, and you are also increasing demand for anything the laborers you employ go and buy with their earnings. So to a small extent you are going to drive up prices of those things, to whatever extent the new demand is a "factor" relative to the total size of the market for that particular thing. But you're hoping that people will use the new electrical grid to become more productive and very quickly you will get increased output that will keep the new money from resulting in nothing but inflation. The same goes for setting up a school. You will briefly perturb the market for building materials in the region, and then you will permanently inject currency into the local economy via teacher salaries. But you hope that in a few years the people you educate will act to boost world (and local) output, and things stay in basic balance.

 

On the other hand, you can't stop famine by simply airdropping currency into a region. There simply isn't enough food in the region to feed everyone. If you just put currency in the hands of everyone, the price of foodstuffs will immediately leap upward and you will have accomplished little to nothing. Famine relief can only be achieved by air dropping food into a region - you have to address the supply, not the currency-backed demand. And that type of aid doesn't directly increase future output. It might have some benefit, in that you give the people of the region hope and reason to keep trying. But the kind of things you mentioned in the OP would have a much more direct effect on output. So there are really two very different issues here, the short-term "people are dying right now" problem and the long term "regions X, Y, Z, etc. aren't properly deploying their potential for wealth production." I took your OP to be aimed at the latter.

 

Yes, I think you would see some short term inflationary effects, perhaps limited to particular regions and markets, and that's why the pace of change would have to be intelligently chosen - you'd want the remainder of the economy to be able to absorb those effects without them causing a global crisis of faith.

 

I agree with you about a lot of first world nations not wanting to sacrifice their currency control. US pride in the dollar and particularly UK pride in the "pound sterling" come to mind. But that gives you opportunity to inject further realism into your writing - you could include elements of opposition that your protagonists had to deal with. Another thing that occurred to me for that sort of realism is that often the people in the regions being assisted wouldn't "get it" (after all, you've speculated that education is one of the things they lack) - they'd be clamoring for "immediate help we can use now," whereas the people running your program would be focused on the long-term infrastructure improvement.

 

Sounds like it could be good - I look forward to seeing how it goes.