As stated, before we can have any real transformation, we first must accept our current reality. We have to be able to work within the institutions we currently have even though they are heavily biased towards neoliberalism and laissez faire capitalism. So the basic idea of what I am proposing is to have a new mechanism for allowing the Federal Reserve to stimulate the economy independently of Congress and the politicians.
Here is the stated purpose of the Federal Reserve:
"The Federal Reserve Act of 1913 established the Federal Reserve System as the central bank of the United States to provide the nation with a safer, more flexible, and more stable monetary and financial system." (6)
And after 1977, Congress gave the Fed a dual mandate:
"Since 1977, the Federal Reserve has operated under a mandate from Congress to 'promote effectively the goals of maximum employment, stable prices, and moderate long term interest rates' — what is now commonly referred to as the Fed's 'dual mandate.'" (7)
It is reasoned by having a separate for-profit Federal Reserve corporation it will produce better economic results when economic policy decisions are free from political influence:
"Experience around the world has also shown that countries with independent central banks that are able to make decisions free from political influence have better economic outcomes for their citizens." (8)
Just like with interest rates, having a separate authority for controlling decisions around stimulating the economy free from political influence will produce better outcomes. Congress takes too long to act when it comes to passing economic stimulus legislation. And often when Congress finally does act the new legislation includes unnecessary and expensive boondoggles. Just consider our latest economic crisis and the recent stimulus acts in response to COVID-19 global pandemic:
"The single biggest tranche of money in the package is a large pot of money aimed at industry rescues, but with no guardrails to ensure that public money is directed toward saving the jobs, wages, and benefits of typical workers rather than the wealth of shareholders, creditors, and corporate executives." (9)
The purpose of stimulus is to stimulate the economy. It should not be a boondoggle for certain political interests. What I am proposing here as a public policy is a way for the Federal Reserve can act immediately and independently when it comes to stimulating the economy. The idea is to have a permanent mechanism for stimulus the Federal Reserve will control in the same way the Federal Reserve controls interest rates. This will eliminate the kinds of boondoggles included in recent stimulus acts passed by Congress.
Here is why this is needed. History has shown our economic system which is built on capitalism has been inherently unstable. See "List of economic crises" (10). Every few years there is a major economic crisis. If someone is not making a killing by gaming the system then there is something like 9/11 or a global pandemic causing an economic crisis. Therefore, we should just assume the next economic crisis will always be just around the corner. For the sake of economic stability it seems obviously prudent to build into our economic system a mechanism for responding to economic crises. Responding to economic crises should be ready to act at any moment once it's agreed upon that it's needed.
Economic crises are usually followed by a deep and long lasting recession. These recessions may take months or even years to overcome before the economy returns back to normal. The graph of the Employment-Population Ratio (11) is a good way of seeing the effects of each economic crisis over the last 30 years. Every time there is an economic crisis the Employment-Population Ratio has huge drop. And sometimes the Employment-Population Ratio doesn't return to it's previous level before the next economic crisis hits.
So by giving the Federal Reserve an additional tool, along with controlling interest rates, the overall length of any recession will be shorten. Just like the way raising or lowering interest rates is used for controlling the velocity of economy (GDP growth), so will a Federal Reserve controlled economic stimulus. The Federal Reserve may decide no stimulus is needed because the economy is overheating or it's a better time to fight inflation. Or, in response to a new economic crisis, the Federal Reserve can immediately authorize stimulus to be given directly to consumers where it will be most effective and in the least amounts needed to ensure economic stability. With Covid-19 had the Federal Reserve been in charge it would have acted sooner and without interruption. This would have saved a trillion dollars and possibly even more.
Here are the details of what I am proposing:
Federal Reserve Dividend Act (FRDA - pronounced Freda)
* Eligibility
- People who filed income tax the previous year
- People who currently receive Welfare checks
- People who currently receive Social Security checks
* Amount of dividend check
- Amount to be set by Federal Reserve (zero to no limit)
- Checks are issued monthly
* Mechanism of payment
- Federal Reserve transfers money to the federal agency cutting the check
- Federal Reserve authorizes the check to be cut
- Federal agency cuts checks using existing equipment
* Source of Funding
- Federal Reserve profits coming from the interest payment on the National Debt
- New money supply created by Federal Reserve
You might be thinking why would the Federal Reserve foot the bill for economic stimulus. The reasons are straight forward. The Federal Reserve is a private for-profit corporation with a profit-based motive for ensuring economic stability. The interest payment on the National Debt in the year 2020 was $376 billion dollars (12). Ensuring the uninterrupted continuation of this interest payment on the National Debt is a question of risk management. The last thing the Federal Reserve wants is a total economic collapse or a successful January 6th like overthrow of our government. This would result in a disruption of profits derived from the interest payment on the National Debt. So it is in the Federal Reserve's direct self-interests to lower the risks of economic collapse or the potential for another, and possibly successful, right-wing political uprising.
And there is also the risk from the rising popularity of cryptocurrencies. As the total amount of Federal Reserve notes in circulation gets concentrated into fewer and fewer hands, the Federal Reserve dividend will ensure the dollar continues to be our nation's most popular and most widely used currency in circulation.
But it's not only risk management as a justification. Risk management falls under the Federal Reserve's original charter or purpose which states, "a safer, more flexible, and more stable monetary and financial system." (6) The other justification is dictated by the language found in the dual mandate, "promote effectively the goals of maximum employment, stable prices, and moderate long term interest rates." (7) You can't achieve maximum employment unless companies have customers. And companies having lots of customers is the best incentive for hiring new employees. Recessions reduce the percentage of the population employed. This results in a downward spiral of economic activity. Today's job losses fuel tomorrows job losses because employees are also consumers. The only way to stop the downward spiral of economic activity is by having massive amounts of economic stimulus.
The US economy is a big ship with a small rudder. Once the ship gets moving in a particular direction, it takes a long time and huge effort to right the ship. This is why having the Federal Reserve immediately inject stimulus into the economy is so important. It will dramatically reduce the overall amount of stimulus money needed to right the ship. Between interest rates and economic stimulus the Federal Reserve would have the tools it needs to achieve consistency with target economic measures. As it stands now, based on the recent years of never ending economic stagnation, the Federal Reserve needs a bigger rudder for steering the ship.
Assuming a $100 per month dividend check, for 12 months, here is what I estimate the cost would be:
154,000,000 times 100 times 12 = $184 billion (People who filed income taxes)
59,000,000 times 100 times 12 = $71 billion (People on Welfare)
70,000,000 times 100 times 12 = $84 billion (People on Social Security)
Total $339 billion per year for 12 months of stimulus.
Based on the $376 billion dollar number, a full 12 months of economic stimulus would result in the Federal Reserve only having a $37 billion profit per year from the interest payment on the National Debt. But this seems like a good value when you consider what the costs would be to the Federal Reserve for not properly managing the risks.
Essentially, our economy would running on interest-free money for a short period of time until our economy got back on track. This would result in having increased levels of economic activity without the associated problems with inflation caused by printing of too much money.
This would also provide an incentive to Federal Reserve board members for doing a better job policing their peers when it comes to gaming the banking system so we don't see another banking crisis like we had in 2008.
So at this point, you might be thinking how does the Federal Reserve controlling economic stimulus has anything to do with the goals of UBI? UBI goals include economic security, human dignity, provide for basic needs, sharing of prosperity, and eliminating poverty. By giving the Rederal Reserve a new tool for achieving target levels for economic indicators, the Federal Reserve would finally be able to achieve its goal of having maximum employment. The benefits of having maximum employment will be key for indirectly achieving the goals of having a full blown UBI public policy.
Just imagine if the Federal Reserve were able to accurately control the velocity of the economy such that we had a solid 3.0% to 3.5% GDP growth rate year after year. We would be able to get back to the 64% Employment-Population Ratio peak (11) we had back in the year 2000. We do not have to imagine too hard what the economic impact of this would be. This is exactly what happened back in the late 1990s:
1996: 3.79% GDP Growth, 2.794 Jobs Created in Millions, -$107.5 Billion Budget Deficit, $7.8 GDP in Trillions
1997: 4.51% GDP Growth, 3.355 Jobs Created in Millions, -$22 Billion Budget Deficit, $8.3 GDP in Trillions
1998: 4.4% GDP Growth, 3.002 Jobs Created in Millions, $69.2 Billion Budget Surplus, $8.7 GDP in Trillions
1999: 4.87% GDP Growth, 3.174 Jobs Created in Millions, $125.6 Billion Budget Surplus, $9.3 GDP in Trillions
2000: 4.17% GDP Growth, 1.948 Jobs Created in Millions, $236.4 Billion Budget Surplus, $9.8 GDP in Trillions
(13)
Poverty Rate 1996: 13.7%
Poverty Rate 1997: 13.3%
Poverty Rate 1998: 12.7%
Poverty Rate 1999: 11.9%
Poverty Rate 2000: 11.3%
(14)
So imagine what our economy would be like if we had 20 straight years of having an Employment-Population Ratio hovering around 64%. Companies would have stability in predicting financials. Although many factors go into what makes a stock do well in the market, having a steady economic velocity would certainly help many Fortune 500 companies achieve their goals. Local, state, and federal governments would have consistent tax revenues for planning budgets. It's almost unimaginable but consider how nice it would be to see 20 straight years of having a Federal Budget surplus!
Having Federal Budget surpluses may sound alarming to some Federal Reserve board members who are interested in maintaining a target level of Federal Debt. But I don't think board members should be too concerned about our government's ability to pay off the National Debt. I am confident that at any point in time Congress would be able to come up with new and creative ways of accumulating more public debt with either additional military spending or additional social spending. It seems unlikely public debt will ever be going away any time soon. Besides, having a high Employment-Population Ratio would most likely result in an overall increase in other forms of debt.
Politicians will continue to have the same levels of power and influence regardless if the Federal Reserve takes over controlling economic stimulus. Besides finding new and creative ways of accumulating more public debt, politicians will have more opportunties to pass new programs when we get back to having budget surpluses that come from having a high Employment-Population Ratio.
So what I am proposing may not seem like it would be the end of poverty. But I have a strong feeling after 20 year of rock solid GDP growth, poverty will be way less compared to the anemic GDP growth we are experiencing now every year. Back in the late 1990s, a rising tide lifted all boats. I've been working for 36 years and the late 1990s were without a doubt the best economy I've ever participated in. Back in the late 1990s, I was able to pay off all my student loans and save up enough money to be able to buy my first home. I can assure you, unlike the recent events of January 6th, people back in the late 1990s were making too much money to take seriously the fringe elements of society who were calling for the overthrow of the government.
In the 1990s, the poverty rate dropped 2% in a five year period. If we interpolate for a 20 year period, we could see an 8% drop in the poverty rate. Getting the poverty rate below 7% would be a banner success for any public policy. Plus raising all boats from a rising tide will help people just above poverty line have better job opportunities and improve their lives. It seems pretty obvious having a stagnating economy is not going to be conducive to creating substantial job opportunties. Companies need customers for the economy to pick up speed.
Next, I would like to address the most common criticisms of UBI and what my counter arguments would be based on assuming the FRDA Act were passed into law. It better pass because I am already working on my acceptance speech for my Nobel Prize in Economics. 
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