Sunday, September 20, 2020

What The World Needs Now

When I look out my window and see the ocean in front of me I often think about those days a few hundred years ago when people thought the world was flat and sailing into the unknown would lead to falling off the edge. It was common sense after all just like night and day was because the Sun god rode across the sky by day and through the Underworld by night. It was also common sense to accept that the Sun and all the planets revolved around the Earth and to suggest otherwise could have you imprisoned or put to death. There was no such thing as bacteria because common sense said if you couldn't see something with the naked eye it didn't exist. 

Slowly but surely observations were made that confirmed the world was in fact a sphere, night and day was because every 24 hours the Earth rotates on its axis while facing the Sun, and all the planets including Earth rotate around the Sun. Inventions like the telescope and microscope expanded the limits of what we could see and allowed us to make all kinds of important discoveries even if at first they were disbelieved. And, as science took control over common sense and superstition, we started making rapid technological progress in all sorts of fields, particularly in health and sanitation.

However, this hasn't prevented groups of people from still believing in a flat Earth, the voyage to the Moon was a hoax, and that vaccinations are harmful. Spurred on by conspiracy theorists and social media, false rumours are being spread that link the COVID outbreak to a plot by Bill Gates and others to control the world or that the electromagnetic fields of 5G technology have caused COVID. No matter how modern we become the willingness of people to believe in common sense ideas never ends.

But, while we have made so much progress in the fields such as health & medicine, transportation, and consumer goods there is still much to be done in the field of economics where we live in a world where 2% of the population controls 90% of the wealth. Common sense myths continue to constrain any meaningful change and they range from a belief in the gold standard, to cliches that anyone can make it if they just work hard enough and unemployment is a poor work attitude, all the way to the notion that a household's finances can be compared to that of a sovereign nation. Fortunately these myths are being challenged by a new school of economic thought, though they are facing the same sort of criticism from the establishment that Galileo did from the Church.

Just because a household should live within its means doesn't mean a government has to be constrained by the amount of tax money it has to spend. This is an old common sense argument and a false analogy because, while a household has to borrow to cover any monetary shortage, a government can simply print more money to purchase what it needs. As long as the government issues and controls the money it taxes and spends it can never run out or go bankrupt so it doesn't even need to issue bonds or debt. To avoid inflation, if there is too much money in the economy, it can simply raise taxes to cool things down. It also controls the interest rate.

Modern monetary theory or MMT as this is called offers governments a chance to create programs that will offer full employment to its citizens, upgrade its infrastructure, and improve the social health and safety net with little or no concern for the cost. Rather than try to dismiss this new thinking with old common sense arguments that are perpetuating a system benefiting the wealthy, perhaps a more scientific approach should be taken. Japan for example has the highest public debt ratio in the world yet it also has a zero interest rate, no inflation, 2.5% unemployment, and a very healthy public bond market.

Debunking common sense myths allowed those early explorers to find new lands and ultimately connect the world. Maybe it's time we started to examine some of our modern myths around economics and took a chance on making the world a little less unequal. We never know what we might find but our continued progress depends on it. It's what the world needs now.

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