Q: How much would mandatory savings take out of incomes?
A suggested mandatory savings withholding formula might be the following:
- W = 4 T x I x (B + 5 x R)
Where
W = the amount withheld from each person's income biweekly
T = the personÕs income tax rate
I = the inflation rate
B = the personÕs biweekly income
R = the personÕs increase in biweekly income since the same date two years earlier.
Formula (10) makes the percentage of the average tax payer's income diverted into savings roughly equal to the annual rate of inflation. For persons with rising incomes, the percentage of the increase diverted into savings would be significantly higher. If the inflation rate were 4% per year, a person in the 25% income tax bracket would be subject to a 4% savings tax. A person earning $1500 every two weeks would thus be subject to $60 per pay period in mandatory savings. A person with the same income who had just received a 10% raise would be subject to an additional $30 per pay period in mandatory savings.
For example, if it were decided that 6% economic growth rate was desired, formula (8) suggests that this could be achieved with an increase in investment of about 12% of GDP. An increase of 12% of GDP in investment would produce an increase of 4% in economic output, leaving an inflationary impulse of about 8%. About half of this would be absorbed by mandatory savings. According to formula (10), a 4% inflation rate, would produce an increase in savings of about 4% of GDP. Thus, 12% of GDP increase in the investment rate would raise the economic growth rate to 6%, raise mandatory savings to 4% of GDP, and cause 4% inflation. If a lower inflation rate were desired, a higher mandatory savings rate could be put into effect without impact on the desired rate of economic growth.
Q: How would it be managed?
The rate of mandatory savings would be set by a formula established by law. The collection of mandatory savings could be accomplished by the Internal Revenue Service through a surcharge on personal and corporate income taxes.
The NMF would be managed by a Board of Governors, consisting of nine persons with demonstrated wisdom, integrity, experience, and success in the business of investment banking. These Board members would be selected by a process starting with nomination by the President of the United States; followed by public hearings and confirmation by the Senate of the United States; and finally, standing for national referendum, with a simple yes-or-no vote by the public. If the referendum vote is yes, the candidate is elected to a nine year term. If the vote is no, the process would begin again, with the President nominating another candidate.
The goal of the NMF Board would be to make policy that would guarantee the best possible investment decisions (i.e. that maximize dividends for the stock holders (i.e. the public)). In order to to assure that the NMF Board takes a long term viewpoint, members would be elected to nine year terms, with only one seat up for election each year.
Like shareholders in any private corporation, every adult citizen would be eligible to vote for the NMF Board. The profitability of the NMF as reflected in shareholder dividends would become the primary measure of performance used by voters in evaluating candidates in these elections. Thus, the NMF would be subject to the same incentives as any for-profit corporation where the shareholders elect the board of directors. Success would be rewarded, and failure punished, by the discipline of the financial and commercial marketplace.
Q: Who would control investment decisions?
The Board of Governors would not make day-to- day investment decisions. Individual investments would be placed through existing institutions such as investment banks and brokers. Both the brokers and the investments themselves would be selected through formal competitive procedures that would be open to public scrutiny. Investments would only be made in proposals that are evaluated by impartial experts for technical feasibility and economic viability, subject to competitive guidelines that include requirements for matching private investment capital. As an added precaution, the NMF would be prohibited from investing in real estate, retail sales, advertising, or marketing.
Q: What are the risks?
- Investments sometimes fail, and economic plans are not always achieved. However, investments can be diversified to reduce risk, and competitive selection practices and experienced expertise can be employed to improve the probability of success.
- Corruption might creep into NMF investment practices. However, competitive requirements and public accountability would minimize the opportunities for corruption.
- Pork-barrel politics may produce misguided investment policies. However, the NMF board would be subjected to strong incentives for economic profitability, and would be largely insulated from other political pressures
Q: How does this plan differ from traditional capitalism or socialism?
It differs from traditional capitalism in that it makes everyone a capitalist. Everyone has an ownership share in the means of production.
It differs from socialism in that it does not take from the rich to give to the poor. NMF dividends are not taken from anyone. They are profits earned on invested capital. Benefits are not determined by need, or by vote of politicians, but by return on investment.
It differs from both capitalism and socialism in that it enforces thrift and assures price stability regardless of how fast the economy is growing.
Q: How likely is it to work?
The surest road to prosperity is to work hard, practice thrift, and invest wisely. The NMF would generate competitively selected investments and would create many new and productive jobs. The MSP would enforce thrift. The likelihood of such policies producing rapidly growing economic prosperity is very high.
Q: What are the benefits?
The benefits would be rapid economic growth with low inflation. Unemployment would fall, salaries would rise, and incomes would soar. Savings would accumulate and everyone would begin to experience financial security. Average per capita real income would double every 16 years.
There would be much more capital available for investment in research and development, producing more efficient production technology, new and better materials, new cures for disease, and more effective ways to preserve and protect the environment. More efficient industries, transportation and communication systems, and consumer products would produce less pollution.
Productivity growth would cause corporate profits to be larger, and dividends higher. Economic growth would increase federal tax revenues. The budget deficit could be eliminated, assistance to cities and state governments increased, and needs for education, environmental protection, social security, and health care could be addressed. Instead of the federal treasury being empty, there would be money available to finance health insurance, crime prevention, public housing, unemployment insurance, and a variety of programs to reform welfare. Tax rates could be reduced while tax revenues increase. Local communities could afford better schools, hospitals, roads, bridges, and law enforcement -- with lower tax rates.
Finally, NMF dividends would provide income to homeless, abandoned, and abused people, and eventually would raise everyone out of poverty.
Q: What kind of a world would emerge if the MSP and NMF were implemented world wide scale?
A Mandatory Savings Program (MSP) and a National Mutual Fund (NMF) could be established in virtually any country in the world. A national investment bank for industrial development that paid dividends to the general public, together with a nationwide mandatory savings plan to contain inflation, is compatible with almost any form of government except totalitarian dictatorship. The NMF and MSP could function in a socialist economy, like Sweden or France, just as well as in more capitalistic countries, like the United States, West Germany, Japan, or Great Britain. The MSP and NMF could also promote rapid economic growth in less developed nations like Egypt, Brazil, India, Jordan, or countries of the former Soviet Union.
In the short term, NMF investment spending would create employment, encourage the modernization of industry, and promote economic development. Meanwhile, mandatory savings would keep disposable income from rising faster than newly constructed plants could produce more and better goods.
In the long run, the sale of goods produced in newly built plants by newly purchased machines would generate NMF dividends. These dividends, together with the redemption of MSP savings, would give consumers the additional income to purchase the additional output
Over the longer term still, rising NMF dividends would allow many persons to voluntarily leave the labor force. This would eliminate the threat of long-term unemployment caused by major advances in computer-based automation. The overall result would be a degree of personal economic prosperity and financial security far beyond what the world has ever known. Within every nation that adopt them, the MSP and NMF could provide financial security for all individuals. This would virtually guarantee political democracy and assure personal freedom from economic or political coercion.
Growing prosperity and equitable distribution of benefits would generate conditions favorable to international peace and domestic tranquility. Nations with rapidly expanding economies tend to be preoccupied with domestic prosperity. Equitable distribution of wealth tends to ease domestic political tensions and frustrations, even under conditions of sacrifice. When prosperity is growing rapidly, a sense of fairness leads to the degree of civility that is characteristic of the rare golden ages of civilization. Average citizens that are visibly succeeding in achieving prosperity for themselves and their families are rarely influenced by radical religious or political movements. The certain prospect of a better life through peaceful economic development makes armed conflict seem unpromising to all but a few.
Blood feuds, like those in the Middle East, Northern Ireland, Ruwanda, or the former Yugoslavia thrive mainly in areas where economic conditions appear hopeless or where progress seems possible only at another's expense. Where prospects for the future seem bright, people typically become too engrossed with improving their financial condition to waste much energy on fighting.
Q: What would be the effect on the world population?
It is well known that the highest rates of population growth occur in the poorest nations. This is because the poor tend to view large numbers of children as their best hope for achieving economic success, as well as for insuring against destitution in old age. In more affluent societies, the cost of rearing and educating children becomes a significant financial burden, while pensions and social security reduce fear of poverty in old age. Therefore, in prosperous nations, a large family tends to be viewed more as a economic liability than as an asset.
NMF dividends would be paid only to adults, causing each new child to dilute the familyÕs per capita income. NMF dividends would provide additional economic security to the elderly over and above pensions and social security. Thus, in a world made prosperous by rapid economic growth through the mechanisms of the NMF and the MSP, there would be no financial incentive for large family size. It seems quite likely that population growth rates would slow dramatically.
Q: What about Environmental Pollution?
It is widely believed that the development of worldwide affluence rapidly on a massive scale would in itself constitute a peril to human well-being. The planet Earth is finite. There are limits to the levels of pollution and wasteful consumption of natural resources that can be supported by the environment. If poverty were eliminated simply by increasing the disposable income of the entire population so that everyone could engage in wasteful consumption on the scale presently practiced by the affluent minority, the results could be catastrophic.
This is a dilemma that pits the interests of the "have" nations against the "have nots". This problem is virtually insolvable within the paradigm of classical industrialization. Industrialization requires urbanization. Factories and mills cannot be operated without a large, well-trained labor force. Workers must be recruited from rural areas and concentrated in cities where they are homogenized into disciplined production workers.
The NMF provides an alternative to the classical scenario of industrialization. If the NMF were a primary source of investment capital, economic development could be accomplished through highly automated industries without the need for significant increases in urbanization. Automated factories do not require a large labor force, so there is no need to uproot the population from the countryside and concentrate it in cities. An NMF would enable economic development to occur without the social upheaval which ordinarily accompanies industrialization. Public dividends would distribute the benefits of industrial technology directly to rural farmers, even tribal nomads, without requiring them to become members of a wage economy.
As industries of the future become more automated, the requirements for a highly centralized labor pool will decline. There will be less need for people to structure their lives around the needs and requirements of factories and offices. The NMF would allow non-industrial cultures to share in the wealth from modern industrial technology without going through a phase of urbanization and industrialization.
The NMF and MSP provide means by which Ênon-industrialized countries might completely leapfrog the first industrial revolution. NMF financing and income distribution would make it possible for emerging nations to develop from technologically primitive non-wage economies to post-industrial non-wage economies without the cultural dislocations and environmental disasters caused by conventional industrialization.
Economic development in the third world could thereby be achieved much more rapidly than by conventional methods. Increased economic wealth would become available as soon as automated industries could begin production. There would be no need to spend long years educating and training a generation of workers. Education would come, but as a result of increasing affluence, rather than as a precondition.
Summary and Conclusions
In order to end poverty, a much higher rate of economic growth must be achieved. Rapid productivity growth is the only means by which a high rate of economic growth can be made compatible with the environmental constraints of a finite planet. A massive increase in investment is required to produce the necessary productivity growth. Mandatory Savings and a National Mutual Fund provide mechanisms by which the needed investment capital could be generated, and by which the benefits could be equitably distributed.
This paper suggests how the NMF could be used to increase the investment rate by 12% of GDP (from 17% to 29% of GDP), thereby generating 6% real economic growth. With MSP savings in the amount of 4% of GDP, the resulting inflation rate would be less than 4%. At 6% economic growth and 1.5% population growth, per capita income would double every 16 years. NMF distribution of public dividends would reduce the need for welfare, and make single salary families economically viable once again. 6% economic growth would create a high demand for labor, and unemployment would be low. Because productivity growth would the be primary engine of economic growth, environmentally unsound industrial development would no longer be a prerequisite for economic growth anywhere in the world.
The plan presented here offers realistic hope, not only for ending poverty, but also for resolving the fundamental conflict between environmental preservation and the legitimate desires of human beings everywhere for participation in the good life.