Expanding the Mandate of the Central Bank within a new Legal Framework
The Central Banks'/Federal Reserve’s power to create new money ‘out of thin air’ can be applied to create it specifically for ‘knowledge work’, as part of its mandate to keep unemployment in check x region.
The question is: ‘how much’, ‘to whom’ and on ‘what conditions’?
These questions are answered by looking at the role of each party in the 'creation' and 'allocation' process.
To ensure the ‘knowledge work’ is of value to the community, under the proposed legislation, every business, arts, sports and research representative body that wished to participate, would be required to survey its members (and use other data from the market) to determine the need and content for 'learning jobs' in their sector, in each region.
The representative bodies would also be charged with ‘aptitude’ testing of prospective candidates and agreeing progress goals with those appointed. They would also be responsible for paying the students (with the money provided by the Federal Reserve).
The cost of operating the scheme (excluding the knowledge wages) would have to be met by the representative bodies. This requirement is to demonstrate ‘industry commitment’ to the need for the ‘knowledge jobs’.
The operation of the scheme could be outsourced.
Central Bank/Federal Reserve
The data gathered by the representative bodies (by sector by region), would be made available to the Federal Reserve, to set the initial number of ‘knowledge jobs’ to be advertised in each region - having regard to the regional unemployment rate.
For example, if ‘unemployment’ indicated capacity to absorb only 1,000 ‘knowledge jobs’ in a particular city/region (vs say 1,500 requested by all the bodies in the area), the 1,000 would be allocated in proportion across the sectors seeking funding within that region.
As the money to pay the ‘knowledge income’ is created out of thin air, the only constraint is that the amount be set by the market.
To achieve this, the 1,000 ‘learning jobs’ would be advertised at differential pay rates set to attract the required number of suitable applicants… in each sector, by region.
If the total number of learning jobs on offer led to a tightening of the labour market. The Fed could restrict the total amount of money available for ‘knowledge work' in any particular region. They would not cut back on pay to those already appointed. They would simply reduce the number and pay rates of new jobs on offer at the time.
If the 'applied economy' was losing jobs (say due to automation, including automation of services), the Fed could release more money to pay for additional ‘knowledge jobs’… until the excess labour was absorbed. Again, this could be done sector by sector & region by region.
If unemployment was particularly severe in a region, it may be appropriate to extend knowledge jobs beyond the numbers needed in the immediate area. This would allow the Fed to soak up the unemployment, while developing more people with new skills that are in short supply elsewhere, even globally… encouraging re-location, or more likely, work on-line.
These institutions (physical and on-line) would advertise their offerings and cost, as now.
In the ‘Knowledge Economy’, the only true ‘knowledge workers’ are those paid to create new knowledge (not to apply it).
Individuals (employed, or not, in the applied economy) would be free to apply for the available knowledge jobs at an agreed pay rate, and would be assessed as suitable or not.
The 'knowledge worker' could choose their own education provider(s), perhaps under advice from their employer body, and would be required to pay their own education costs out of their ‘knowledge wage’.
As with any job, knowledge workers must meet their performance goals, or get the sack (unless there are mitigating circumstances, as determined by the employing body).
Payment for ‘knowledge work’ (learning) could be used for all tertiary education, trades and professional development, including internships, with all knowledge workers buying their education services out of their ‘knowledge work’ income.
The proposed system ensures competition for knowledge jobs, and competition in the provision of education services that are designed to meet the needs of business, research, arts, sports, etc.
By targeting short courses that aim to meet specific needs, we could create a dynamic society where people spend their whole lives moving back and forth between the knowledge and applied economies, or part-time in both, depending upon life’s circumstances.
By offering a market salary for all knowledge work (learning), we also create signals to improve the allocation of our human resources… subject to the overriding requirement that it is the ‘applied’ economy that drives the overall demand for labour.
The primary risk is that the additional money created for ‘knowledge work’ creates inflation.
The secondary risk is fraud and corruption, as well as ‘pork barrelling’.
Risk Mitigation: Inflation
First, the circulation of the new money paid as ‘knowledge wages’ may reduce the need for borrowing, partly reducing inflationary pressures, as well as ‘debt’ pressures… not a bad thing.
More importantly, it is proposed to give the Central Bank/Federal Reserve additional powers to keep unemployment and inflation to a minimum, namely: to create new money to pay for ‘learning work’, and to levy a ‘Money Supply Tax’ (MST).
The MST would be a variable % on all transactions made for consideration (eg. it would not apply to loans or gifts, but it would apply to interest, and to the price of any securities, goods or services).
The MST would not go to the Central Bank, or to the Government. It would be simply ‘written off’ to reduce the amount of money in circulation.
If inflation starts to take hold because too much money is in the system, the MST rate could be increased gradually from zero.
The MST can be collected through normal taxation systems (including GST). Collection will be made easier, the more transactions go electronic.
Through this mechanism, any excess money created for ‘knowledge work’ can be sucked out of the economy - to reduce inflationary pressure in a way that does not distort asset allocation.
As soon as the cycle begins to turn, the MST rate could be progressively dropped to zero.
If that is still not enough to absorb unemployment, the amount made available for ‘knowledge work’ can be increased. This could be adjusted region by region and sector by sector to ensure full employment (of all capable people).
It would be like a rifleman aiming at a target and adjusting his aim based on the result of preceding shots. It is how the Central Bank/Federal Reserve decides on the amount of money to print, or adjustments to the cash rate.
Risk Mitigation: Fraud, Corruption and Pork Barrelling
By separating the ‘money printing’ and ‘money allocation’ roles, there is no one person deciding to allocate money for a specific project... removing the opportunity for ‘pork barrelling’.
Regulatory oversight would be necessary of course, but by using market forces as the basic drivers, the opportunity for fraud and corruption should be no greater than in any other part of our economy. And, as with any other fraud and corruption, it would be dealt with by the police and the courts.
Money flows up. The new money issued ‘out of thin air’ to pay for ‘knowledge work’ will be spent on ‘education resources’, and all the other things and services people need to support a decent life.
That is, all the new money will quickly flow to the businesses that provide the goods and services demanded, and thus to the owners of those businesses, enabling us to:
Improve the lot of the poor, without taking from anyone else
Grow the customer base for all businesses, without expanding population or export markets.
Improve the productive capacity of a large section of society.
Create a real ‘Knowledge Economy’ that supports life-long learning.
Make the rich, and the poor, both richer… at the same time.
Cut back taxes, by reducing the need to fund education and welfare.
Enable those engaged in 'Knowledge Work' (learning) to share in the outputs of the (increasingly automated) applied economy.
Doubtless, the Central Bank/Federal Reserve, and everyone else, will take time to understand the operation of the ‘knowledge’ economy. So, we could start small, with just a few hundred paid knowledge jobs.
We only need a single industry body willing to determine the numbers of newly qualified people required in a certain city; to set the content for qualification; and the processes for selecting candidates, monitoring performance and certifying completion.
Industry could offer internships as part of the learning process, with the ‘knowledge work’ component paid under the scheme, and the company picking up the portion based on the value of any work done for the company by the candidate.
Initially, the Federal Reserve can create money using traditional processes to fund the ‘knowledge wages’ required to attract sufficient applicants. In keeping with traditional economics, any government bonds issued to fund the wages would be regarded as part of the government’s deficit that has to be funded through tax.
When the benefits of 'paying people to learn' are proven, we can go the next step to change the law to recognise that 'new money' may be created to recognise 'new work' (ie learning)... without creating a government or personal debt.
The only ‘debt’ is by society, which is obliged to provide goods and services equal to the value of the knowledge work… as it is obliged to recompense people for all paid work.
At this point, all money paid as ‘knowledge wages’ can be taken off the government’s books. It would remain indefinitely on the books of the Central Bank/Federal Reserve as ‘money in circulation’ – unless written back through a MST.
It would not have to be ‘funded’… just as new money first issued by Kings did not have to be ‘funded’, or money that is today created by commercial banks for loans is not 'funded'.
The scheme can be progressively expanded across the country, as the systems and expertise are developed. It does not need to be rushed. Making sure all participants are properly schooled in the system is more important than speed.
What can you do?
If you are still uncertain... participate in the debate. Ask questions.
If you agree that 'paying people to learn with new money created to recognise the value of their work' is a good idea... discuss it with people in your network. Write to your representatives and to the press. Link this site to other sites. Post on LinkedIn, Facebook, Google+ and other Social media...
To make it happen, we only need to get the idea into the minds of a few leaders in Government, Industry and the Financial Sector so they believe that it must happen. Once they believe, it will happen.
Difficult, but not impossible.
I'm busy working on my blog posts. Watch this space!