> It can't be just a number on a computer in a bank, right?
It's two numbers in computers. It's a number in the computer of the bank that issued the money, and it's a corresponding number in the computer of whoever is holding that money as an asset.
> Otherwise some Russian bank could just increase that number to whatever they like. And say "Look, we own 100 Trillion USD. Now let's go shopping."
It's not possible for a Russian bank to pretend they're holding more USD assets than they really are. The issuing bank knows how much USD is in Russian bank's deposit account. The Russian bank can issue its own USD liabilities (i.e. deposits) which are IOUs for the USD reserves that the bank holds on the asset side of its balance sheet. If the bank issues too many USD liabilities, they risk suffering a bank run that drains their USD reserves and puts them out of business.
> So I guess USD needs to be recognized by the US somehow?
Not exactly. It's possible to have a USD-denominated deposit account at a bank that h deposits at banks in the US. Most of the USD-denominated instruments in the world are not directly recognized by the US. But the international monetary system is hierarchical. Every USD instrument is an IOU for another USD instrument. If you follow the chain of IOUs, eventually, you'll get to the Fed.
> How does the system guarantee that nobody's creating money without notifying everyone?
This is a comment that's not related to SWIFT in particular.
Every asset (including money) is generally someone else's liability. The money that we hold as an asset is the liability of a bank. Anyone can issue their own liabilities, but you can't create money that's a liability of someone else. For example, I can't go to my bank and tell them I have a million dollars more in my deposit account than I actually do. They're keeping track on their end.
Similarly, a bank can't pretend that it has more reserve deposits at the Fed than it really does. The Fed keeps track of everybody's reserve accounts on their end.
> Furthermore, does the system guarantee that the central banks of each country are correctly adjusting their books in consequence?
This isn't an issue. The books of central banks don't need to adjust when other banks issue money (i.e deposits).
> Could it be that there was sexual reproduction first and asexual reproduction came later?
Unlikely. You can't mate with copies of yourself unless there are already multiple copies of yourself floating around.
I like the story they present in the article. For simple organisms, it's fairly inexpensive to let defective individuals die off. As organisms get more complex, it starts to become more costly to allow defects in the genetic code to persist. Then it becomes worthwhile to perform "integrity checks" to correct errors in the data as it's being copied.
If a population of organism is put into an environment conducive to a lot of data corruption, then the ones who are want to perform these checks are the ones who end up surviving.
You could imagine that when higher complexity organisms are exposed to high-stress environments, it would help establish their population's ability to sexually reproduce. The ones who aren't doing it will tend to die off.
Then as the complexity increases further, the genetic complexity itself can be a permanent endogenous source of high stress. The organism then loses the ability to produce asexually because it's no longer needed.
Sexual reproduction promotes genetic complexity because it allows us to survive while having more complicated genes. The recombination and mixing-and-matching only helps further the process along.
> You're confusing the Fed's ability to monetize assets with the Treasury's ability to spend money on whatever it wants.
They're related. There's both fiscal stimulus and monetary stimulus going on here. The monetary stimulus only makes its way to consumers indirectly. On the fiscal side, as you say, Treasury can spend money on whatever they want. And when they do, they transform some of the financial sector's money into assets (treasuries). If the Fed wants to maintain its accommodative monetary policy, they're going to want to re-monetize those assets.
> your statement that our economy has the capacity to provide a decent standard of living to everyone is an article of faith
"decent standard of living" was not crucial to my point.
There's some part of our economy's productive capacity that we have consciously decided not to shut down because we've deemed "essential" to consumers. My point is that it would be a mistake for us not to provide consumers with the means (money) to access that capacity.
What matters isn't the size of the Fed's balance sheet or what it contains. The Fed's balance sheet is "invisible" to the private-sector economy. This expansion of their balance sheet is simply a reflection of the stimulus we're doing.
When the Fed expands their balance sheet, what they're doing is replacing private-sector assets with liquid cash. Given that the stimulus is appropriate for the economy, this is all fine. It's not anything that future generations have to "pay back." And it's not going to cause a collapse of the dollar.
The important thing to keep in mind is that we are intentionally shutting down parts of the economy. But some of those parts include mechanisms (jobs) that we normally rely on to supply spending money to consumers and businesses.
Due to the partial shutdown, the economy's productive capacity has taken a hit. But even so, our economy still has the capacity to provide a decent standard of living for everyone. We don't want to compound the crisis by failing to ensure that consumers have sufficient spending power to activate the remaining capacity.
It would be scary if the Fed's balance sheet weren't expanding like this right now.
Wow. Blast from the past. Greenspun's company ArsDigita used to run free web development boot camps. I did one of the boot camps back in 2000. It was the first time I'd ever heard of such a thing.
Apparently, there was also an ArsDigita University, which ran for a year:
This is a great question. I would say that the "answer from economics" you describe is incorrect. There are some economists who think this way. And they have a term for it: The Quantity Theory of Money.
But the reality is that inflation isn't about the amount of money "in the economy." It's about the rate at which money is flowing through the economy. That flow is the level of spending. To keep prices stable, we have to keep spending balanced with production.
The reason why we can make this distinction is because money doesn't just perpetually circulate through the economy. It flows through the economy like a river from consumers to producers to the financial sector. It's true that money in the financial sector gets "reinvested," but in order for that money to support consumer spending, you have to be able to connect the dots and tell a story about what mechanism is getting money into the hands of consumers.
Basic income is a possible mechanism for that. If we want to, we can continue to use taxes or create jobs to force "existing" money is flowing back into the hands of consumers, but what's the point? Why not just hand them new money instead?
(I'm not an economist either, but I'm also really interested in this)
> What's the difference in theory and practice between UBI and changing the standard deduction/marginal rate? Like if we give out $6k a year to everyone through a $500 check, what is the difference in how that money is spent versus if we increased the standard deduction to where people would pay $6k less in taxes? (assuming that people are in fact paying at least $6k)
You've partly answered your own question. One of the big differences is that people who wouldn't have paid at least $6k in taxes wouldn't get the full benefit. It's also true that the standard deduction is a deduction of your taxable income. Depending on your tax bracket, that's going to reduce the amount you owe by a different amount.
We could instead talk about doing it as a tax credit similar to the Earned Income Tax Credit, but giving it to everyone equally regardless of whether they're working. This would be more like a basic income. If we can pay people the tax credit at finer intervals instead of in one lump sum at the end of the year, that's even better.
The disadvantage is that people would still have to file tax returns. The people who need the money the most are also the ones who are least likely to be able to navigate the system. If it's exactly the same amount of money to everyone unconditionally, then we reduce the bureaucratic burden by not tying it to the tax system.
Here's a video where I answer the question of why basic income should go to rich people. I advocate keeping the complexity separate from the cash benefit system and putting all that complexity on the taxation side.
The interesting questions surrounding UBI are macroeconomic in nature. How does it change the economy? We know that consumers need money in order for the economy to function. The question is whether basic income is an efficient way to provide it to them. Is it even possible to give everyone free money?
These trials are just testing how individual people respond to unconditional direct cash transfers. We already know that people are better off if they have more money. Not super interesting. It's not changing the economy around them.
Not that they would, but even if everybody just spent their basic income on booze and drugs, it wouldn't really be evidence against the effectiveness of basic income.
The choices aren't UBI versus no UBI. The choices are UBI versus all the convoluted ways we currently try to push money to consumers through the labor market. To the extent that we're creating jobs to push money to workers, we're not creating those jobs because there's actually work that needs doing.
If we calibrate the amount of the basic income to the economy's productive capacity, then we can allow the labor market to be efficient. In an efficient labor market, jobs only exist because there's actually work that needs doing and the only purpose of wages is to provide an incentive for people to do that work.
Yes. I don't mention this in the article, but UBI also allows the Fed to raise interest rates. We'll see mortgage rates increase if we get a high enough UBI.
The idea that a tax will prevent inflation is an intuition that a lot of people have, but it's not correct. If your basic income is going to cause inflation, then a tax is not going to help. What matters is the level of consumer spending and the level of production that the consumer spending is chasing.
If you're curious, I've written a few blog posts about this:
A basic income will only cause inflation if the amount is too high.
The problem is that the economy won't produce what consumers don't have the money to buy. So we need a way of getting sufficient spending money to consumers to activate the economy's full sustainable productive potential.
A properly calibrated basic income is exactly the amount that would get us there. It allows consumers to receive the full potential benefit of what the economy can provide for them.
Inflation occurs when the level of consumer spending outstrips production. If you set your basic income too high, then you'll get inflation until the level of consumer purchasing power falls back in line with the economy's productive capacity.
But the full benefits of the basic income are still there. The fact that we underwent a period of inflation doesn't change the fact that the economy would now be producing at its full potential for consumers.
The general price level in the economy is arbitrary. In the end, any price level is just a redenomination of any other price level. What's disruptive to the markets is when the price level changes. So the challenge is to figure out the level of basic income that's consistent with our current price level. This will allow us to transition into the smoothly.
We can't know the optimal amount of basic income ahead of time. It's also true that the economy's productive potential changes over time. So the only sensible way of determining the appropriate level of basic income is to continuously calibrate it algorithmically. You can know you've reached your optimal level of basic income when you get to a point where the central bank won't be able to keep prices stable if you increased it any further. In other words, we reach the limits of monetary tightening.
Is there a way to build character and the grit to succeed without forcing people into extreme poverty?
Or a broader question is what do we want out of people? What values do we want them to have? What's the most efficient way to teach them those values? Poverty is pretty expensive. Is poverty so important to our society that it's worth paying the price?
"For example, sugar tastes sweet because we evolved in a world where calories were extremely scarce. Sex feels good because children are the continuation of humanity. Work seems important because, throughout much of history, we benefited from having more labor. But in modern times, we have artificial sweeteners, birth control, and hobbies."
How can we hack human society to take advantage of what we evolved to feel good about?
Basic income solves the problem of how to get spending money to consumers. This is an important problem. If consumers don't have spending money, then the economy won't function properly.
It is true that, in today's economy, we try to get spending money to consumers in other ways. Are these alternatives somehow more effective than basic income?
For example, should we be making up unnecessary work for people to do as an excuse to give them spending money? Should we be distorting the labor market by "creating jobs" or artificially boosting wages?
A big part of what a properly calibrated basic income does is that it allows the labor market to be efficient.
You're certainly right that we don't want people to become miserable blobs. That's not a happy life. But what's the best way to prevent this? Is it to withhold money from them and force them to work at unnecessary jobs? Or can we do better?
It's two numbers in computers. It's a number in the computer of the bank that issued the money, and it's a corresponding number in the computer of whoever is holding that money as an asset.
> Otherwise some Russian bank could just increase that number to whatever they like. And say "Look, we own 100 Trillion USD. Now let's go shopping."
It's not possible for a Russian bank to pretend they're holding more USD assets than they really are. The issuing bank knows how much USD is in Russian bank's deposit account. The Russian bank can issue its own USD liabilities (i.e. deposits) which are IOUs for the USD reserves that the bank holds on the asset side of its balance sheet. If the bank issues too many USD liabilities, they risk suffering a bank run that drains their USD reserves and puts them out of business.
> So I guess USD needs to be recognized by the US somehow?
Not exactly. It's possible to have a USD-denominated deposit account at a bank that h deposits at banks in the US. Most of the USD-denominated instruments in the world are not directly recognized by the US. But the international monetary system is hierarchical. Every USD instrument is an IOU for another USD instrument. If you follow the chain of IOUs, eventually, you'll get to the Fed.