Proposal for a different method of funding

government operations suitable for a technology

based economy

This short proof of concept was finalized in 2015 after years of working on
better ways to control government spending. Economics is a subject I have
the qualifications to write on since I took every economics course offered at
Ohio University before graduating in 1965. I had 30 semester hours of A
and 3 hours with a B in economic history because I mistakenly thought iin
1965 that what could all those, old guys, from 200 years ago know about
today’s. Keynesian Economics was the current theory we were all studying
back then. The General Theory of employment, Interest and Money was
published in 1935 and written by John Maynard Keynes However, I do
know better now. After serving in the army in the 1960’s I got into corporate
engineering and management but always kept up with economics.

During the 90’s and into the 00’s I started to get some ideas about how to
control government spending. And I even went back and read the old guy’s
books, which did take a while as they really were very smart. I also a lot
more on the forms of governments which resulted in this idea described in
the following discussion. And while all of this research was going on, the
spending got totally out of hand in the America and the European Union so
I updated this paper in December 2021.
Page 1 of 9
An Alternative method of funding the Government

Funding the Government has always been a source of problems as

politicians are always trying to give money or services away to buy votes.
What is proposed here is a major change in the source of the government
revenue. Traditionally governments got there funds from: fees, taxes,
tariffs, borrowing, and debasement. Today we added to those various
forms electronic or digital currency.

Governments have always played games with the money supply. The use
of silver or gold coins replaced barter many centuries ago but it didn’t take
long for the governments to start lowering the silver or gold percentage
which deflated the real value of the coins making goods more expensive by
the amount of the reduction in silver or gold. Once started, this process
would eventually make the coinage worthless by inflation and the
government would collapse.

When paper money came out it was initially based on gold being held in
storage by the government at a certain percentage of the issued paper
money. But that didn’t last long and so today’s dollars’ are worth less and
less as more and more dollars are printed. Today printed just means the
electronic transfer of digital dollars from the Treasury to a bank. So what
we have today is fiat digital currency with small amounts of paper currency
floating around.

The core problem was the government always needing more money to buy
votes. And there are major problems with doing this for as money is spent
to buy votes which meant it is often spent on things we don’t really need, or
it was spent on contracts given to friends that owned or ran companies that
were probably not the best provider of the service or goods.

These systems are inherently unstable and because of the current social
programs, being proposed especially the Built Back Better programs and
the need for massive amounts of money. To justify what they are doing
they have created a new monetary system called the New Monetary
Theory NMT in the EU, developed by, I believe, Thierry Malleret a French
communist economist. This system is 100% digital with no coins or paper
money. Therefore, money can be created in any amount the Government
wants and no one has to work.
After the Great Rest and Build Back Better, starts all the citizens will be
given a “guaranteed basic income” which means they don’t have to work.
But then if they don’t have to work why would they? Therefore, if no one
works, there is no one making anything, and therefore there is nothing
available to buy and the system collapses.

The point to this discussion is that all government have issued money and
then debased it to the point that the government collapsed; and it didn’t
matter the form of the government when this process started. A possible
economics solution to the problem is now presented.

This paper was first written in 2015 using 2014 data and I decided at the end
of 2021 to bring it back and post on my blog. Since the justification concept is
not dependent on any particular years economic, data there was no reason to
redo the numbers to those more current. So the first thing we do is get the
government data.

First the Facts for 2014:

Number one, The federal government currently spends almost $4.0 trillion a
year ($3.885 trillion) of which some is derived from taxes & fees ($3.096
Trillion) and some is borrowed ($789.5 Billion). More on this subject later
since the official GDP figures are different; so we use $3.2 Trillion here
instead of the actual $3.9 Trillion, to be consistent with BEA numbers
(explained later). In essence we are assuming that all government spending is
Federal here to simplify the discussion.

Number two, There are some 151,012,000 people working for a living
including ALL categories (the BLS does not count farm, self-employed and the
military). This figure is the average for the calendar year 2014.

Number three, we assume there are 2,000 hours worked per year per person
that equates to 302 billion hours worked per year. This is the only assumption
used here and since many workers are part time this maybe an overstated
number. Whether it is or not doesn’t matter to the discussion of the concept. It
would only matter if implemented.

Number 4, therefore, if we divide the $3.2 Trillion spent by the Federal

government by the 302 billion hours worked by all the citizens, that gives a
ratio of $10.56 of federal spending per hour worked.
Now here is the concept:

The idea is based on an economic principle that my advanced econ

professor taught me my senior year at Ohio University which is, just a form
of a thought experiment. The principle is that if we make a change and the
result of the change shows a result that is the same as before the change,
then there was no real change in the output only a change in how we got
there. The assumption then is that it makes no difference which method is
used the result is the same.

What follows is based on federal revenue, state and local could also be
added to this but that is too complex for this brief overview and it wouldn’t
make that much difference anyway. This does include “all” revenue going
to the federal government no matter the reason or program including social
security.

Change on, We eliminate ALL personal federal taxes and fees and ALL
business taxes and fees as well the result is that this reduces the
governments’ income to zero (all borrowing is also eliminated).

Change two; simultaneously we reduce individual pay rates by the exact

amount of the taxes they pay. For example if you were making $25.00 per
hour but only taking home $20.00 per hour the change we make would be that
you would now be making $20.00 per hour but paying no taxes so your take
home would be the same as before $20.00 per hour (no change).

Change three, Businesses would be required to reduce prices such that their
income would be unchanged in a similar manner. So the net economic effect
on the economy from this change (initially) would be zero since private and
corporate spending would be exactly the same (no change).

Change four; we develop a new system outside the government to give the
Federal government the money they need by modifying the existing Federal
Reserve Bank by creating fiat money. (Developed later in paper)

Change five, To compensate for this loss of revenue the federal government
would get fiat money from the FED (no real change from what they do now) at
the rate of $10.56 per hour worked by the citizens. And since there would still
be 302 billion hours worked by the citizens (no change) they could spend $3.2
trillion dollars (no change).
The result is that there is still the exact same amount of money in the
economy in both the current system and the new system. All we did is change
the method of how it got from the worker to the government.

Clearly we have made changes but nothing has changed, we just changed the
method of how we got from there to here. Therefore we are in accordance
with the economic principle we started this section with being true.

I think you can see the benefits to this kind of system and, of course the devil
is always in the details; however I believe I have considered most of them and
they are not major obstacles. I do agree that this would take a lot of re-
education to the public but I think it could be sold especially after 2024
assuming the sovereign debt bubble has started to show major problems by
then

The major benefits are:

Benefit one; the federal government can only spend more money when there
are more people working more hours. That is an incentive to promote growth
not dependency.

Benefit two, No one has to worry about paying federal taxes so all purchasing
and investment decisions are based on economics not tax avoidance. This
makes for a much more efficient economy.

Benefit three, the federal budget is always in balance. No need to borrow

money and this also forces international trade to be in balance since the
government doesn’t need to borrow from foreigners.

Benefit four, Lower prices (from no taxes) for products produced here would
make the US more competitive and since the take home income is the same
internal growth would be immediate.

Benefit five, we end up with a labor based currency which is an improvement

over what we have which is debt based. It also takes gold out of the equation
except possibly for international trade since the current system we have of
pegged rates does not work. However, that is a different subject for other
papers.
Benefit sex; there are no downsides other than some federal agencies would
no longer be required, such as the IRS and the FED. So actually the federal
government would need less money.

The Equations:

The equations shown after this discussion are used in national income
accounting to calculate Gross National Product (GDP). To show how this
works we present an example using the real numbers for 2014. Again this is a
simple macro model and the details are much more complicated then what is
shown here. However, that doesn’t matter since the principle is valid and all
the details can be worked out.

Note the BEA does not count borrowed money and transfer payments are not
shown as growth. The BEA’s G also includes state and local spending much
of which is transfer payments from the federal government. This means that
the BEA figures for “government” used to calculate the GDP are not the same
as shown by the United States Treasury for federal spending and borrowing.
We will use the BEA figure of $3.2 Trillion instead of the actual $3.9 trillion
pulled from the economy by the federal government for 2014 in this exercise.

GDP = Y = C + I + G + (X – M)

GDP = Y = $17.7 = $12.1 + $2.9 +$3.2 + ($2.4 – $2.9)

Where C (consumption net of taxes CN) can be defined as gross income (Cg)
less federal taxes (TF) or CN= CG – TF

Where I (investment net of Federal borrowing or IN) can be defined as gross

investment (IG) less federal borrowing (BF) or IN = IG – BF

Where G (government) can then be defined as government taxes (TF) +

government borrowing (BF)

X is exports

M is Imports

Y = CN + IN+ G + (X – M) or
Y = CN + IN + TF+ BF + (X – M)

After the proposed change

CG = CN

IG = IN

G = Hours worked (HW ) * $10.56

GDP = Y = CN + IN + G + (X – M)

GDP = Y = CN + IN + 10.56 * Hw + (X – M)

GDP = Y = CN + IN + (10.56 * .302) + (X – M)

GDP = $17.7 = $12.1 + $2.9 +$3.2 + ($2.4 – $2.9)

Obviously nothing has changed since in either the old method or the new
method The GDP = $17.7 trillion. Properly packaged, presented and sold by
someone would solve many of our problems and doesn't hurt either
conservative or liberal principles.

The only issued left is how would this work? The simplest way would be to
take over the Federal Reserve and convert it to a private corporation with
no connection to the federal government. Directors and Vise Directors will
be elected in their districts from recommendations by a selection of private
sector groups and they will pick the top three to be voted on voters. The
terms of the directors and vice Directors will be six years and staggered to
two per year with an overlap of 3 years between the Director and the Vice
Director. This would make 12 directors and 12 Vice Directors.

The FED already collects economic data and banking dada relating to the
GDP and money supply. So this proposal, although a change in direction
for them, is well within their existing skill set. For simplicity, we are
discussing federal spending. Adding the state and local governments adds
complexity but works just as well at the state and local levels. We are not
going to consider which department or agencies are going to be cut or
eliminated other than there will be no need for the IRS. But again, in this
presentation we are not considering any change.

The FED will supply the treasury $10.56 for every hour work by a “citizen”
in the country. It is then up to the congress to decide where to spend it. In
this case, they would have gotten $3.2 Trillion dollars and the only way they
can get any more money is to aid the private sector to hire people.

I should add here that government workers at all levels will not count in the
total except for the military. One last item I’ll throw in is that there really
should be no public sector unions. There is no incentive not to give the
union everything that they want in their contract.

Once implemented there will be a reduced need for accountants and

attorneys dealing in taxes. Offsetting this reduction there will be more need
for these people in private business which will experience high growth. It’s
also reasonable to assume that other not for profits organizations will
disappear as there are no taxes to write off.

Notes and Comments:

Federal Spending is very different from what is generally shown or known, for
example: The Monthly Treasury Report for 2014 (adjusted to a calendar year)
Shows the Federal Government spent $3.585 Trillion dollars derived from
$3.096 Trillion from taxes and fees and $667 billion from borrowing. However
the National Debt during the same period went up by $789 Billion so there
was additional cash needed for changes in payables and obligations and
capital projects of $122 Billion. Therefore the federal government actually
spent/used $3.885 Trillion in 2014 or 21.95% of the GDP.

Also as previously mentioned transfer payments to the states and cities i.e.
block grants do not show as being Federal spending in GDP analysis. That is
unfortunate since the federal government has strings attached which give
them control of the money and that will get much worse after 2016 when the
full force of the Affordable Health Care Act goes into effect.

The purpose of the quick review of my idea is to show that economically and
monetarily this system works. It works because economics is about people
and what motivates them. In one sense Karl Marx was right labor is the
ultimate source of value, he was wrong in how to use that principle and that
wrongness has lead to much suffering in the world as we tried to absorb his
idealist thoughts (socialism) into the real world.

This proposed system is a method of merging both Adam Smith and Karl
Marx while rejecting John Maynard Keynes completely.

David J. Pristash, Independent Researcher

BBA, EMBA, Graduate GE management program
Captain US ARMY 18A (WIA Retired), Seven issued patents
Member Beta Gamma Sigma
Brecksville Ohio 44141
Email David.Pristash@gmail.com
Blog http://centinel2012.com/
Face Book https://www.facebook.com/david.pristash
Twitter https://twitter.com/Centinel2012
Cell 216 272 4583