ATOM – Quantitative Easing Goes Mainstream

Over the years I have become a fan of what is called the Singularity. It is a time in the not so distant future when technological progress goes faster than the ability to predict it. Essentially, progress in medical science, computer hardware, artificial intelligence, and nano-technology is exponential in nature and some 30 – 50 years from now, progress accelerates to the point where the curve points straight up.

The notion of the singularity also applies to the financial / fiscal world, though it will manifest itself differently. Once again, it is driven by the introduction of technology into the economy. Here in the US today, that penetration is around 2% of total GDP. Moore’s Law, which predicts that processing power in computers doubles every two years, applies to that technology. And what is that technology? Things like smart phones, apps, laptops, tablets, smart televisions, internet and similar devices.

In short, technology is a profoundly deflationary pull on the economy. The more of it we have, the worse the deflation is.

Economically, I am a Freidmanite, having my initial introduction to the Black Art via his Free to Choose series on PBS in the late 1970s which set the stage for and informed much of what Reagan did in the 1980s. At that time, it worked superbly.

The great economic problem then was inflation and governments were always in terrible fear of inflation which was running rampant in the US at the end of the 1970s. It destroyed the Weimar Republic in the 1930s giving rise to Hitler’s Germany. Robert Mugabe has used it to destroy Zimbabwe and we see it today grinding Venezuela into dust. So, we know inflation is still a potent destructive economic force.

How is deflation dangerous? Essentially deflation destroys capital, destroys investments. For those making fixed payments, deflation makes each payment larger. Deflation makes debt larger over time as the value of money decreases. The Great Depression was essentially a deflationary cycle, during which the total amount of money in the US decreased by about a third. The Lost Decade of Japan was a deflationary decade.

But if the Singularity guys are correct, and the intrusion of technology into the US economy is profoundly deflationary, shouldn’t we be seeing deflation? There is a writer at the Singularity2050 Blog that calls himself The Futurist that believes not only are we seeing deflation but it is accelerating and getting worse. Other than the Obama regime’s meddling in the economy via rules, regulations and crony capitalism (picking winners and losers), it is the deflationary push of technological expansion into the economy that has kept the last eight years an economic disaster. And it is fixing to get worse regardless of who is elected in November.

One of the things that has bothered me about the Obama years has been the Fed’s Quantitative Easing (QE), literally printing of over $3.5 trillion between 2009 – 2015. In a Freidman view of the world, that free money should have triggered inflation. Yet it hasn’t. Why?

The answer is that QE is not the problem. It is the solution. The Fed screwed up with QE, not spreading the money wide enough through the economy. QE went exclusively to the banks and was used for their solvency, opening the entire banking community to completely justified charges from everyone not in the banking community of being banksters – people who caused the problem getting rewarded for their trouble. Well, it wasn’t the banks that caused the last crash and the banks won’t cause the next one. While the trigger may change (housing bubble in 2008), the cause is deflation due to technological expansion into the general economy, estimated today at about 2% of total GDP.

The Futurist proposes expanding QE and paying it to individuals in the form of a monthly check whose value is recalculated monthly based on Nominal GDP. He calls it the ATOM – Accelerating TechnOnomic Medium. Think of it as a dividend paid for technology driven economic growth. As long as the government stays out of the way, technological penetration into the overall economy will continue to accelerate, and with it so will the monthly value of the ATOM checks.

So how would this work? Today, some 75% of all federal spending is transfer payments. Institute ATOM, and those transfer payments start getting supported / replaced by ATOM checks. Over a very short period, so does federal taxes as ATOM payments – printed fed QE money – will no longer require significant income into Washington DC. Remove rules, regulations and taxes and innovation and along with it the overall economy will blast off. Think of ATOM checks as dividends for technological progress. The greater that progress, the larger the checks.

As a conservative, I find the entire idea more than a little shocking. But I think he is right. While individual national governments can and will delay technological progress, there will always be (a)nother government(s) that will not. We will also have individual corporations attempt to use their size and influence to stifle technological progress (Google, Facebook, Oracle), so trust busting will be back in vogue. Today he believes we are some 6 – 7 years behind where we should be, mostly due to the anti-innovation policies of the last 15 years.

He also believes he can work with democrats to put this into place. I believe he misreads democrats these days, for they want to centralize power and in turn their control over the rest of the country.

Final thought. There seems to be phase points where technological penetration into the economy triggers deflationary crashes. 2008 was one such point. 2017 is expected to be another, and things will be very ugly – deflationary ugly – until the Powers That Be in Washington adopt something like an ATOM approach. They are going to find that all the old tools and macroeconomic policies no longer work.
I don’t know if I believe all this stuff. I don’t know if I even understand it. I do know that it appears to be predictive and is an interesting solution to what appears today to be an intractable economic problem. The ATOM is well worth your time to read and consider. As it is an e-book, comments are open and the author answers questions (please no trolling), so have at it.

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