naked capitalism

By Marshall Auerback, a fund manager and investment strategist who writes for New Deal 2.0.

In 1729, Jonathan Swift wrote an essay — “A Modest Proposal” — satirically suggesting that the impoverished Irish ease their economic troubles by selling children as food for rich gentlemen and ladies. In that spirit, we would like to assist all governments who claim to be broke and therefore cannot deal with the persistent problem of unemployment.

Last Friday, President Obama warned his fellow citizens at a jobs summit that the government had “limited resources” to deal with the problem. It now appears that this “problem” is not unique to the US. On Sunday we learned that the British Chancellor of the Exchequer (its Finance Minister), Alastair Darling, has warned UK government departments that the money has run out and they face a three-year cash freeze on spending. The cash freeze will mean a “real” cut of nearly £40 billion in spending over three years, according to the Sunday Times of London.

Don’t you just hate when that happens? Governments running out of things they create out of thin air. Never mind that a sovereign government issues its own currency under monopoly conditions, which means it should never run out of that currency. Our friend Bill Mitchell has a theory about this strange phenomenon:

Perhaps all electronic cables between the government and non-government sector might have been cut so that the Government keyboard operators couldn’t credit bank accounts any more…I hadn’t read anything about that in the papers. So perhaps, there has been a terrorist attack on the cables and the Government is keeping it quiet to avoid scaring the population. Then again perhaps all the keyboard operators have quit. But then why wouldn’t they just post cheques directly to the non-government sector. Perhaps they have run out of paper to print the cheques on?

Like Bill, I came to the conclusion that the disease of deficit terrorism has metastasized globally, rendering it virtually impossible for governments with free floating non-convertible fiat currencies to construct adequate demand responses to the mounting crisis of unemployment. Certainly we don’t want any more government spending because, as my critics persistently remind me, that way leads to hyperinflation and Zimbabwe.

Channeling my inner Jonathan Swift, I therefore concluded that our only hope was to devise a sensible supply-side response, so that today’s currently insufficient spending power is more closely aligned to the 85 percent of us who are gainfully employed.

Perhaps we can take a page straight of the UK’s historic playbook. In the old days of the British Empire, many of the country’s criminals were either forcibly press-ganged or deported to Australia. Seeing that Australia today is a vastly more prosperous nation than the UK, it’s highly unlikely that they would readily accept any more convicts. But perhaps we can find some nice island in the South Pacific for the purposes of reducing our national unemployment problems. After all, we’re a civilized people, so we certainly don’t want to resort to the drastic (though cost-effective!) expedient of mass extermination. (Having said that, British Prime Minister Gordon Brown’s plea for “deeper cuts” in the country’s National Health Service caused me to fear that he might go literal and have the nation’s surgeons make deeper cuts on their patients to ensure that more of them die on the operating table to help reduce health care costs).

In any case, our proposal seems both “modest” and in keeping with the current fiscal aspirations of governments globally. We can start with the long-term unemployed. Then the orphans. And maybe empty our prisons, if need be, to create huge savings in our criminal justice system. If the government has truly run out of money, best if it starts pursuing a supply side final solution of reducing their citizenry until the ratio of money to citizens is much more appropriate.

And in the meantime, we can “reward” those who are deported by allowing them to construct a sensible policy: they get to create their own new currency. They will soon learn that their new government, as a sovereign issuer of its own currency, will have all the capacity it needs to create jobs and prosperity. Freed from the shackles of their deficit terrorist leaders, hopefully they will soon learn that their government can provide all of the fiscal resources required to create full employment and prosperity.

It’s a “win-win” for both the deporters and deportees. The logic is Swiftian: my modest proposal will help poor people everywhere “from being a burden to their parents or Country, and For Making Them Beneficial to The Public.”