Monday, February 10, 2014

It’s Called a “MyRA”, III: A Better idea

In this brief series we’ve seen that the “MyRA” is a step . . . but in the wrong direction.  Aside from the fact that the whole idea is to get people to save more at the same time the government is making it more expensive to live (and then raising costs by increasing wages without a corresponding increase in labor productiveness), everything relies on an outdated and, frankly, failed understanding of money, credit, banking, finance . . . and power.

There are two ways to see that people’s material needs are met.  Either they take care of themselves through their own efforts, or somebody else takes care of them.  The MyRA, at least, pays lip service to the idea that people should take care of themselves.  It’s so trivial as to be a meaningless noise, but it’s at least a noise.

The problem is that the MyRA is geared toward encouraging people to set aside something they don’t have: savings out of inadequate consumption income.  We haven’t checked recently, but the per capita non-mortgage consumer debt in the U.S. has been in the neighborhood of $8-10,000 for some time.  That’s per capita, not per family.

The MrRA is supposed to help people save up to $15,000 on “easy” terms.  If people are already $10,000 in debt to make ends meet, subtracting an additional $15,000 from consumption income for retirement savings would, logically, put them $25,000 in debt.  Exactly how this helps people prepare for retirement is not exactly clear.

Adam Smith
Of course, the whole problem (and a bunch of others) would go away if the United States would go with a Capital Homesteading program.  There is no need to restrict consumption in order to save for retirement or finance new capital formation.  Both can be done not by decreasing consumption in the past, but by increasing production in the future.

This makes sense.  If, as Adam Smith insisted, the purpose of production is consumption, then diverting current income into saving for either retirement or financing new capital diverts production (supply/income) from its proper purpose.  Further, reducing consumption means there is less demand, and thus less need of new capital, and fewer if any new jobs created.

Dr. Harold G. Moulton
As Harold Moulton explained quite a few years ago in The Formation of Capital (1935), consumer demand drives the demand for new capital.  The demand for new capital drives the demand for new jobs.  If people stop consuming, or even if they reduce consumption by what seems like a moderate amount in order to save, the economy stalls, and can even go into a tailspin.

If every child, woman, and man became an owner of new capital financed out of future increases in production instead of past reductions in consumption, no one would have to worry about reducing consumption in order to save for retirement, nor would those concerned with economic growth have to worry about the rate of past savings.  Both could be taken care of out of future savings, and by the same operation.

Own or Be Owned
It’s really very simple: own or be owned.  Either people take care of themselves by means of their own capital and labor, or somebody takes care of them.  In the former case, people own.  In the latter case, people are owned.

Any questions?



Baseball Billy said...

Yes, I have a question. What are the steps proposed to make the structural changes (changes to laws and institutions) that will allow people without savings to obtain credit for the acquisition of capital assets on free-market principles? Have we covered this recently?

The man who never returned.

Michael D. Greaney said...

The steps are laid out in the "Capital Homesteading" proposal. The book is available as a free .pdf, but of course we'd prefer that you buy it by the caselot.

Also, there's a lot of material on the website about Capital Homesteading.