In addition to converting bank-held government debt to bank-held government money, Friedman advocated government creation of its own ongoing additional money (adding at least 2% per year to the total accumulated money supply) to fund its deficit spending. In the tradition of Keynes, government deficit spending would automatically rise (to pay unemployment, social security, a negative income tax to put a floor under personal incomes, and other automatic stabilizers noted by Friedman) when the economy fell, and would automatically fall when the economy rose.
Tax rates could be held steady, but tax revenues would rise and fall along with personal incomes. Deficit spending fills in the holes -- levels out the valleys -- with its countercyclical increases and decreases. The trend can still be upward (economic growth). Or it can be flat (steady state economy). Or it can be downward (de-growth: less production and consumption). The direction is a political choice. But whichever direction is chosen, under Friedman's program the ride would be less volatile.
{Traders get rich -- or get broke -- betting on the direction of price gyrations in volatile markets. But I don't think the goal of monetary and fiscal policy should be to provide a high stakes rollercoaster ride for traders. In 1948 Friedman assumed "stability" was the consensus policy goal. I think today the "adults" would agree.}
Friedman advocated a comprehensive and progressive tax on personal income: to suppress large scale hoarding of money, and to leave money in the hands of people who are inclined to spend rather than hoard it. Via his negative income tax, the government would actually give money to poor people, to bring their income up to the guaranteed minimum.
Automatically variable government deficit spending would stabilize the quantity of money being "spent" in the economy; which would stabilize personal money incomes; which would stabilize consumption spending; which would stabilize business production and sales; which would stabilize employment. Hence Friedman's solution to economic in-stability.
But unlike Keynes (and Koo) -- who didn't challenge the bank-debt money monopoly -- Friedman's deficit spending would not be accompanied by an increase in government "debt". Rather than issue bonds to borrow from money-issuing banks, the government would simply issue "the money".
It is that simple.
Who would have thought that less than 70 years ago and continuing into the 1970s, an "arch-conservative" like Milton Friedman cared what happens to poor people? And advocated the elimination of poverty by establishing a guaranteed minimum income, funded by (holy hyperinflation, Milton!) government-issued money? And advocated heavily progressive taxation to discourage and prevent money hoarding by rich people, aka plutocrats?
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