A curious thing happened on the way to a recent post about the cerebellum. One of its primary theorists was not a neurobiologist, but an engineer, roboticist, and control system designer. It turned out that James Albus, mild-mannered government employee all of his career, had several side projects, another one of which was an odd blend of libertarian and communist economics, which he called peoples' capitalism. It incorporates some unconventional monetary theory, and throws in a proposal for oceanic algae harvesting as a bonus. All in all, Albus is clearly a fellow crank.
This book "Path to a Better World" is not easy to find, probably for good reason. Putting aside its lengthy self-encomiums and visions for a peaceful and problem-free future, the basic proposition is that the government should issue credit to everyone for the purpose of setting up a personal investment fund, which over time would then generate on everyone's behalf a steady and growing stream of income that will replace that lost from the automation revolution to come (and pay back the original loan). He estimates that if the annual increment is $5,000, the portfolio would be worth $1.5 million after 50 years, generating $55,000 of income. This would all be invested in government-approved vehicles like mutual funds, thereby increasing total capital investment. And lastly, to offset inflation, he proposes a payroll deduction-style system whereby some proportion of each person's income could be forcibly diverted to savings when inflation threatens.
One of the core justifications of these schemes is gaining a higher rate of overall capital investment. Albus recounts some of the interesting literature in economics that shows that productivity growth, overall growth, and an increased living standard all come mostly from capital investment. It is capital (as opposed to straight consumption of short-lived items like food and services) that funds the machinery, education, and training that continues to give back, year after year, productive services like roads, new inventions, manufacturing plants, and housing. We all know that the US has had a low rate of capital investment, which Albus contrasts with China's extraordinarily high rate, and thus high growth which is overtaking us.
Albus shows fanciful graphs going far into the future of the US maintaining a 9% economic growth rate, which would enable us to stay ahead of the Chinese indefinitely. The problem is that not all investment is productive. We learned from Japan that the dizzying rates of capital formation and investment in a developing economy that is committed to catching up with the first world do not last forever. As long as one is behind the technological frontier, productive investments are easy to find- just steal them from more advanced cultures. But once one reaches the technological frontier, the search is far more difficult. Much more investment is wasted in exploratory research, and it is less attractive to rip out current sunk investments to keep up with every tiny increment on the slowly advancing frontier. This explains why China's growth will inevitably slow, as did Japan's and ours.
This is not to say that we should not raise our capital investment rate, but that we need to be more judicious than simply shovelling more money into mutual funds. Since the value of the stock market is based on a relatively coherent estimation of future income flows to corporations, pouring in more money on behalf of passive small investors will mostly just nudge out other, more liquid, investors, keeping the overall level of investment stable (with the caveat that price/earnings ratios have indeed risen (perhaps doubled) over the last few decades as a larger pool of investors has flooded the market). This would be a good thing from an economic justice standpoint. One of the points of Albus's plans is to distribute capital ownership more widely, in preparation for the time when none have jobs, but all need income. But it is unlikely to raise net capital investment much or raise economic growth rates.
The ironic thing (given Albus's government career in the highest levels of its research enterprise) is that he is so focused, perhaps due to libertarian leanings, on pumping money into the private capital markets, that he neglects the real capital shortfall- that of public investment. It is now a common mantra that our infrastructure is crumbling, and that education is too expensive. Both are areas where government investment is the most productive way we have to build for future economic and social returns.
Otherwise, there are some positive aspects to these ideas. What goes unmentioned is that the personal investment scheme will have to be heavily controlled by the government, since most people getting that kind of money are going to spend it. That is why so many poor people exist, after all, and so few capitalists. And the inflation control scheme is also rather heavy-handed, if effective, though one has to ask where this savings would go so as to not be inflationary. Putting it into mutual funds would put it into the markets again, and thus be ultimately inflationary. It would probably have to go into newly issued government bonds, which is to say, into a money black hole.
But the idea of spreading around capital and its income stream is very interesting. It is a far better idea than a simple UBI, which is structured as a sort of pittance handed out to keep the jobless from gathering into mobs with pitchforks. As we enter an economic era where capital is ever more dominant, through its comprehensive ability to generate economic value with ever fewer workers, the whole economic system needs to be rethought, with an eye to the middle class, not just the homeless and jobless. We already have vast pension funds and mutual funds, which have spread around the income flows from capital, if not taken effective control of the system from capitalists of the traditional variety. We already tax income and capital gains and inheritances to divert some of those gains to the common good. More of that kind of redistribution, of both capital and its proceeds, needs to happen in order to achieve the economic justice and stable future that Albus seeks.
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