I propose a specific use for the Treasury-issued ‘Digital Greenbacks’ (“DGBs”) and associated system of TreasuryDirect Digital Wallets that I have proposed elsewhere. I propose that these be issued as equitably distributed ‘Treasury Growth Dividends’ (“TGDs”) under normal circumstances, and deployed as a countercyclical policy lever under abnormal circumstances of deepening deflation or heightening inflation. This use of DGBs offers three highly attractive prospects: first, an equitable distribution of the proceeds of capital and labor investment nation-wide; second, a far more efficient, ‘leak-proof’ monetary policy transmission belt for countercyclical money modulation; and third, a mode of such countercyclical action that is ‘debt-free.’
As the global coronavirus pandemic continues to elicit record levels of new public sector spending to fill-in for curtailed private sector earning, Cassandraesque warnings about debt and deficits are once again looming.1 I would accordingly like here to preempt these cries with a quick ‘out of the box,’ ‘debt-free money’ proposal. This proposal both complements and presupposes implementation of the ‘Digital Greenbacks’ proposal that I have been pushing for a while now.2
While it is a contemporary exigency that occasions my offering this proposal right now, it is not only short-term needs that justify it. Rather, what I propose is a new policy practice that we have very good reason to adopt permanently going forward. For it is a means by which (a) to share national economic growth henceforth more equitably than we do now, and (b) to counteract both inflationary and deflationary pressures—hence ‘market bubbles’ and ‘great recessions’—henceforth more efficiently than we do now. All in a manner that does not add to public or private sector debt aggregates.
I will begin with a brief reminder of the institutional backdrop that my proposal here presupposes. I will then briefly sketch the proposal—what I will call the ‘Treasury Growth Dividend’ proposal. Then I will briefly catalogue the advantages offered by my proposal and conclude.
The institutional backdrop is essentially that which I have pushed for some time now.3 Thus we assume the following: Treasury administers a system of both vertically and horizontally interoperable P2P digital wallets, into which it has converted the TreasuryDirect system of transaction accounts that it has long made available to all.4 The currency that it ‘puts in’ to those wallets is what I call the ‘Digital Greenback,’ in honor of our nation’s first paper currency—the Greenback—which Treasury issued and administered for the fifty years that elapsed between 1863 and the Fed’s establishment in 1913.5
The Digital Greenback (“DGB”) is identical, in respect of all characteristics save its issuer, to the ‘Federal Reserve Note’ that is our post-1913 dollar bill—just as the latter is identical in respect of all characteristics save its issuer to the original Greenback once administered by Treasury through its suggestively named Office of the Comptroller of the Currency.6 That is to say, it pays no coupon or other form of interest, is a perpetual, and is deemed legal tender, good ‘for all obligations public and private’ like the Fed dollar itself.7 Citizens, businesses, and legal residents transact in it through Treasury-administered digital wallets.8
Against the institutional backdrop just sketched, we establish the following Fiscal-cum-monetary policy regime: In normal times, Treasury issues new DGBs to individuals’ and businesses’ wallets in proportion to the monthly growth of our Macro-economy.9 In so doing, Treasury will effectively be conveying a sort of dividend—call it a ‘Treasury Growth Dividend’ (“TGD”)—to all who participate in our growing national economy.10
We must of course limit the ‘dollar amount’ of these dividends, lest they induce dollar inflation when added to those ‘dividends’ which are private sector wage, salary, and shareholder dividends in normal times.11 But since these sources of ‘normal’ growth find their monetary expression in a publicly accommodated—that is, ‘dollarized’—money supply growth via Fed monetary policy in any event, it should not in theory be difficult for the Fed and Treasury jointly to calibrate the size of pro rata distributed TGDs.12 Nor would it be difficult to soak up any excess post hoc in the usual manners of macroprudential tax and interest rate policy.13
Assuming the latter belief is not overly sanguine, TGDs in normal times will be plausibly interpretable in at least three ways of interest to policy, all of them warranted by the system-characteristics just summarized.
Dollars as Dividends
First, TGDs will be in the nature of returns on equity (“ROE”)—‘dividends’—in a quite literal sense. All citizens, businesses, and legal residents will be sharing in the growth-return on aggregate monthly investment of capital and labor economy-wide.14 Because the dividends are paid out in spendable Treasury dollars (again, DGBs), in turn, TGDs will function quite literally as pro rata claims on the national product—money to purchase what we have produced.15
Dividends as UBI
Second, TGDs will amount to a form of non-inflationary Universal Basic Income (“UBI”). They will be ‘non-inflationary’ thanks to the calibration prescribed above. They will be ‘basic’ because they will be capped at sufficiently low percentages of aggregate growth as to allow for non-inflationary private sector raises, bonuses, and shareholder dividends of the usual sort, as also prescribed above. And they will be ‘income’ because they are income—money returns on aggregate national capital and labor investment and consequent growth of the national wealth.
Treasury Dividends as ‘Debt-Free Money’
Finally third, TGDs will amount to a ‘debt-free’ mode of money growth accompanying, and thereby accommodating, actual wealth growth. This point will be subtle to those unfamiliar with how fiscal and monetary policy function under present arrangements, but it is straightforwardly comprehensible when made in ordinary prose rather than jargon.
In essence, central banks and monetary authorities like our Fed administer what are called ‘elastic’ currencies.16 These are currencies whose supplies central banks modulate in proportion to supplies of real goods and services (including labor services) to avert inflation (‘too much money, too little production’) and deflation (‘too little money, too much idle productive capacity’).17 The way our Fed does this now is primarily through indirect ‘open market’ purchase of new Treasury debt instruments, meaning that debt grows as money grows.18
But debt growth can in some circumstances prove financially problematic, and in other circumstances at least politically problematic.19 These ‘problematics ’ are avertable through the simple expedient of Treasury’s issuing equity instead of debt, as I am proposing here.
A regime like the one I have schematized lends itself to a number of advantageous deployments. These are more or less isomorphic to the three characteristics of DGBs used as TGDs that I have just rehearsed.
Equitable Growth Sharing
First, then, in normal times Treasury will deposit new DGB-cum-TGDs into TreasuryDirect wallets in proportion to normal monthly GDP-growth, thereby ensuring that what is newly produced can also be newly purchased.20 We can think of this as a means of making ‘Say’s Law’ (‘supply creates its own demand’), which is not true, truly true.21 This is attractive both as a matter of justice—fair shares in the national product—and as a matter of growth and efficiency—no more crisis-fomenting ‘over-production’ or ‘under-consumption’ of the type familiar to 19th century political economy.22
This form of what I elsewhere call ‘automatic Keynesianism’ will render most of the abnormal times with which we are familiar—that is, hyperinflationary and deflationary episodes—a thing of the past.23 But just in case, two additional uses of a DGB-cum-TGD regime can work counter-cyclically in the event that deflationary or inflationary pressures ever emerge.
Efficient Deflation Prevention
Second, then, in the face of deflationary pressure, Treasury can simply make ‘helicopter drops’ into DGB wallets.24 This can be done either in ‘blunderbuss’ fashion, when the danger is widespread and extreme, or in more pin-pointed fashion, when the source of the deflationary pressure is isolable.25 If flagging consumer demand is the source of the problem, for example, simply credit consumer wallets.26 Do that either across the board or more narrowly among those whose flagging demand is the more particular source of the problem.27 If flagging producer demand not rooted in flagging consumer demand—a rare thing—is the more proximate culprit, do the same with producer wallets.28
It bears reminding that this form of helicopter money is ‘debt-free’ money, and far more counter-cyclically effective on that account. The rather sluggish efficacy of Fed monetary easing during the last great recession, after all, is attributable to two factors—first, that ‘middle man’ institutions with agendas of their own were made part of the transmission belt, and second, that what was to be ‘transmitted’ were cheaper loans, not grants.29
The first factor made for leakage in the pipeline from Fed to citizen, since private sector banking institutions often—and in this case did—find it more profitable and hence individually rational to speculate on price movements in commodity and secondary financial markets than to lend to consumers in the midst of a slump.30 The second factor of course buttressed and in part even underwrote the first.31 Consumers who are ‘underwater’ on previously accumulated debt during crisis are not interested in—indeed they reasonably consider it individually irrational to take on—yet more debt.32 And it is unjust to require that citizens ‘pay back’ their own central bank for stimulus paid during a slump that is not of their making in any event.33
Direct stimulus conveyed through TreasuryDirect, in the form of direct money grants rather than loans, of course ‘plugs’ the two aforementioned leaks. Hence it will make for more just and efficient stimulus policy.
Efficient Inflation Prevention
Finally third, in the face of inflationary pressure, Treasury, still in coordination with the Fed, can do something akin to the opposite of what it would do in the face of deflationary pressure.34 It can, for example, temporarily suspend TGB payments.35 Or it can temporarily impound portions of accumulated past TGB payments, after the manner proposed by Keynes in his ‘How to Pay for the War’ pamphlet of 1940.36 As with the helicopter drops, moreover, Treasury can again proceed in either across-the-board blunderbuss or more narrowly targeted pin-point fashion.37
If, for example, hyperinflation in the stock, secondary mortgage, or commodities markets is the principal culprit—as it was during the amusingly named ‘Great Moderation’—target those.38 If, on the other hand, some other sector or sectors are the source of the problem, target them.39 And bear in mind also that TGB wallets would be only one policy lever. Targeted leverage regulation, taxation, and other familiar tools of macroprudential money modulation still can be used either additionally to or instead of TGB wallets for counter-inflationary action.40
A simple new policy tool, multiple new policies—policies that make for a more just and efficient national economy. All share in wealth growth. All share in the money modulatory task that averts long-term efficiency-undermining inflation and deflation. All by affording ourselves free digital banking and a ‘People’s Treasury’ that knows how to use it.