Another approach to funding health is to realise that most medical costs do NOT require insurance. That is, we can predict pretty well how much we need on average for the “regular” items. These are things like dental work, regular “check ups”, pre-natal, birth and post natal, injections, minor accidents, treatment for diseases such as diabeties etc.
Major accidents, major unexpected health issues like a heart attack (even that possibility can be estimated), where people do not have the resources for immediate treatment can be covered by treating people when the emergency happens, as we do now, and paying the bills through non recourse loans.
Given this view then insurance becomes unnecessary if people have the resources to cover the predictable.
So instead of health insurance or medicare let us have “medisave” where we give everyone an amount of money each year that they can only spend on health. The money earns interest and can accumulate – but it can only be used for health related matters.
We pay for emergencies when they occur by “automatically” giving people non recourse loans that we repay from the health money we get in the future. We can vary the amount of money each person gets if they have chronic illnesses ( or if they have an emergency). We write off the loans if they die.
Money in a person’s account can be passed on as a normal asset.
We pay for capital works through giving every person in the country the right to zero interest loans that can only be invested in health infrastructure – buildings, machines, etc.. These loans will be paid back from the earnings on the infrastructure. The electorate chooses where they will invest their loans.
This brings choice, frugality, “insurance”, and markets to the provision of health care and can be easily organised as the only change is the flow of monies not the actual physical systems.
To move to the system is easy. We transfer all the “reserves” of health insurance companies to medisave accounts. Insurance companies are now the “banks” where we keep our health money and through which we arrange our zero interest loans. Each year the government transfers from taxes an amount of money to each person’s medisave account depending on their medical condition.
One of the major issues facing governments, for which they get a great deal of criticism, is the spending of government funds on community infrastructure. The free marketers say that leave money with people instead of taxing and let the market decide the provision of goods and services. Socialists tend to agree with this provided those without money are given money, to allow them to participate in the market, or more commonly given goods and services.
Both ideas have merit but both are flawed. The flaw is that citizens, by and large, have little say in the goods and services that are built. They may have choice in what is made available but they have little influence on what services are provided. While-ever the government takes on the details of that role they get bogged down in the minutiae of deciding and administering systems that provide these services. Also systems built this way become extremely difficult to change when new technologies appear and it often takes generations to take advantage of new efficient technologies.
The particular problem of changing technologies we have at the moment is the building of a new sustainable energy infrastructure for Australia. The difficulty is that existing technologies will have to be phased out with associated costs and also new costly infrastructure will have to built and yet we do not know the most efficient ones to develop and so investment is risky.
This problem can be overcome by the democratisation of funding a new energy infrastructure and of sharing the risk of failure of particular technologies throughout the whole community. Democratising infrastructure funding will cost the government nothing and it will spread the risks throughout the community and also spread the gains from the winners throughout the community.
A Way to get to Zero Net Emissions
The government shall decide on an amount of money to be invested by the community. This will be based on how quickly we want to get to zero emissions. Let us say this is $30 billion per year for the next ten years.
Each year the Australian Government will distribute to each individual in Australia the right to obtain a zero interest loan for $1500. Anyone taking up the loan has to agree to invest the loan amount so that the investment will result in a reduction of green house gas concentration in the atmosphere. If a person does not want to take up the loan then they can sell the right to someone who will take out the loan.
The banks will administer the loans but the loans will not appear on the banks balance sheets. What this means is that government takes responsibility for the money created for the loan but does not take responsibility for the loan.
The banks will ask the borrower for a zero interest deposit of 10% of the loan – to satisfy their fractional reserve obligations.
The loan will be paid back from returns on the investments.
The fees that banks will charge, how much of the deposit is returned to the borrower, how much is paid back in total is up to each individual bank.
The borrower must agree to invest the money in a market place of investments that will reduce ghg concentrations. This will be an electronic market place and both sellers and buyers must agree to report the provable amount of ghg saved as the result of the investment. The amount of ghg saved may be used to give more rights to zero interest loans in following years.
The government will monitor the success or otherwise of the investments and of ghg emissions saved or removed from the atmosphere.
The 30 billion will act as a stimulus to the economy but it will be spent in productive ways. The government does not have to take out loans as citizens take out the loans. That is, citizens take on the risks and rewards of investments.
Renewable energy is immediately profitable. If we take away interest and repayments then even solar cells are worth investing in. People however, will invest their money where they will get both the greatest return on investment and the greatest reductions in ghg so they get more interest free loans.
If buyers abuse the system they will be forbidden to participate.
If sellers abuse the system they will be forbidden to participate.
There will other secondary benefits to the system. The main one will be that the country will not have to borrow money to build its own infrastructure. This will in turn start to stabilise the money system because it will increase the money supply without increasing the amount of loans. This in turn will reduce inflation and will stabilise the currency because speculators will not bother with Australian currency because they know the government can increase the money supply if not enough money comes in from overseas and decrease the number of zero interest loans if too much money comes in.
The political outcome will be approval for any government that implements such a system. They will have “solved” the ghg emissions problem for no cost to the government, no extra taxes, and made everyone in Australia a little richer. This is the magic of investment. You get back more than you put in – if the investment is sound.
The National Broadband Network
The method can be applied to any community infrastructure including the NBN. That is, everyone in Australia who wants a loan can get one provided they agree to spend their loan investing in broadband and they agree to sign up to broadband when it goes by their home. That is, the government can supply the NBN to the Australian community for NO COST to the government.
The only losers are the financial industry speculators. Banks win because they can give risk free loans. The community wins because it gets richer. The government wins because it can still control spending but without having to supply the money through loans or taxes.
Money for innovation is very expensive as you have to pay for it with equity. In my experience it is a minimum of 10 times as expensive as a loan to purchase an existing asset. This, of course, is the opposite to what we want if we want to foster innovation. The reason that money is expensive is that innovation of its nature is risky (but not 10 times as risky). This means that people who invest in risky ventures should get a high return – unless we could get the whole community to share in the risk.
The world is experiencing a Global Financial Crisis. It is called a Financial Crisis because it started as a problem with the financial system and has spread to the “real” economy. We can see the symptoms and effect of the crisis but there is little confidence that after we come through the problem it will not happen again. In this article we look at the problem from the fundamentals of money and propose a solution that may stop the same problem reoccurring.
Money has two basic functions. The first is as a measure of value for the exchange of goods and services. The second is as a store of value.
The problem with the first function is that there are many measures of value (such as different currencies) and the measures keep changing because of inflation or in rare instances, deflation.
When it comes to money as a store of value, the issue is equally murky. Credit money is created through loans and is a representation of the value of something else. That is, the abstraction has no value but the thing it represents has a value. So when credit money is described as a store of value what we really mean is that what it represents is of value. “Fiat” or printed money does not represent anything and is used to facilitate trade rather than act as a store of value. Credit money and fiat money are indistinguishable because once they are in circulation no one can tell the difference.
So, despite the fact that we have a money system where, when we take out a loan from a bank we increase the money supply and despite the fact that we can simply print something and say it is money, money itself continues to have value because people will pay interest to gain use of it. And interest in and of itself is not an issue, while ever there is an asset backing money because interest can be viewed as rent of the asset that backs the money.
So what is the problem with money?
The first issue is that we have world wide targeted inflation. Allowing the value of money to change over time is not a sensible idea. It makes it very difficult for people to measure the value of things. Imagine how difficult it would be if the meaning of a metre changed on a weekly basis! This week it is the length of a rod that is kept in France and next week it is the length of a rod kept in Berlin. The week after we cut a bit off the rod in France and that is now a meter. It sounds absurd but this is exactly what happens with money. The measure of value changes minute by minute with random fluctuations.
The second problem is that the world has too much money to act as a store of value. There is more money issued than there are assets to back it and there is much more money issued than is needed for trade. When the sum of money in existence becomes too great the system corrects itself by the money being destroyed or through changing the value of money through inflation. If there is not enough money, the result is deflation, whereby the value of money becomes greater causing trade and industry to contract because there is no longer enough money go keep commerce operating.
This waxing and waning of the amount of money creates the so-called business cycle of economies, complete with the occasional recession and a few crises.
How can we both have too much money yet not enough and why do we have such widely varying and changing meanings of value?
The problem arises because of a quirk in the way we create credit money. Most money in existence is credit money and it is created when a bank gives a loan against an existing or future asset. To do this the bank uses some money that is already on deposit and then creates the remainder (and majority) of the money required by issuing extra money to the value of the loan. This in itself will not cause a problem because when the loan is repaid, the bank destroys the amount of money it created. If the loan is not repaid the bank is required to make up the difference from its reserves. (If the loan is not repaid then the bank is also entitled to seize the assets against which the loan was made and sell those assets to make up the money not repaid.)
This process seems reasonable and sensible except that banks can issue loans that are backed by money itself and this creates more credit money. Also banks are free to use another currency as the asset backing to create money in different currencies. What this means is that we increase the amount of money without requiring an underlying asset to earn enough money to pay the interest on the loan.
Because it is so easy to create extra credit backed by credit most transfers of money are now speculative transfers where money moves to try to take advantage of differing values of different currencies and money moves to take advantage of different interest rates. In and of itself this is useful, but when the main trade is trade in the measure of value then that trade comes to dominate the “real economy” of trade in other goods and services.
What is the solution?
There are many solutions to the problem. One way is to attempt to regulate banks and restrict how they create loans and hence create money. Unfortunately this has not worked very well to date and to improve the regulations requires the agreement of all countries.
A different solution is to create money that we are assured will be used to create an asset that will back the money created. There are various ways to do this. One simple way is for banks to issue zero interest loans that may only be used for the creation of new assets. Banks would be repaid – potentially more than was originally loaned – over the life of the asset providing the asset earns enough money. Such an approach would gradually remove the need to create extra credit money by having enough money already in existence to act as a store of value and to be used for trade.
Will banks do it?
Under existing banking regulations banks may not be allowed to do this because there may be no asset backing the loan when it is first issued. However, if it is highly likely that the money would create a productive asset or an asset that is of value to the general public, then the banking regulator could allow it. So, will the banks be interested? Banks are only likely to support such an approach if they are guaranteed not to have to make up the money from any failed loans from their own reserves. A simple way is that the money created for zero interest loans used for the creation of new assets is backed by the government. We have this already with the recent bank guarantee of deposits which is far more onerous as the government is guaranteeing the money created for all loans created by banks and not just money created for new assets.
And there is a way for banks to cover their risks. They create loans but only if the borrower deposits a sum of money at zero interest that reverts to the bank if the loan defaults. The other way is to build systems that make it highly probable that the money will create a new productive asset. It is the ability of modern information systems to ensure this occurs that makes this approach viable.
Will depositors deposit money at zero interest to get a loan at zero interest?
They will provided the deposit is much smaller than the loan given and depending on how much they have to return to the bank and over what time period.
Should governments be involved?
If governments are going to guarantee the money created for the zero interest loans then they must be involved. Banks can still issue zero interest loans without the guarantee provided they are confident most loans will be repaid and if the system works as expected and the default rate on loans is small. However, in the first instance it is expected that governments will use the approach so that they can direct investment – via zero interest loans – to areas of the economy where new investment is needed but cannot compete for funds used to purchase existing assets.
For example the Australian government could guaranteed the money created for zero interest loans for investments in new assets that would reduce the level of greenhouse gas concentrations in the atmosphere. If the government did this then the cost to the government would be a permanent increase in the money supply equal to the value of the new assets created. Provided the value of the new assets created was in total greater than the money invested then there would be no net loss to the economy.
If, as expected, this method of financing new assets proves successful then governments may be needed to stop the runaway creation of money for zero interest loans. Governments may need to put a cap on how much money is created this way and to determine which areas of the economy should be encouraged with such loans. This is what governments now try to do through diverting taxes to particular areas of the economy or through schemes such as emissions trading. A move to create money through investment in productive assets will mean less need for these other ways of encouraging investment.
If it is done on a grand scale this method will stabilise the money supply because zero interest loans to create new assets will become the preferred method of funding the creation of new productive assets and hence the preferred method of increasing the money supply. Purchasing existing assets will still be funded by credit money but asset bubbles are less likely to occur. Let us take the example of housing. If some new houses were financed through zero interest loans, where the loan had to be repaid immediately the house was sold then it becomes less likely that people will pay inflated prices for existing houses because it will be cheaper to build a new house and live in it for some period of time.
The price of money for loans (interest) will act as prices are meant to act – as a signal to the market to produce more money. If the price rises governments can encourage money and asset production by guaranteeing the money created for zero interest loans for worthy community projects that have little economic benefit but large social benefit.
A major impact is that it will become less attractive for money traders to speculate in money values because the price of money will stabilise and traders will know that the government can easily turn on and off the creation of zero interest loans. Governments will be able to defend their currencies and stabilise value as they have a method of increasing supply if demand increases or decreases.
Doesn’t this require massive changes to the financial system?
It requires NO changes – only the creation and monitoring of zero interest interest loans. Everything else can remain the same.
Where does a government start to encourage zero interest loans?
Any area where a government feels there is a need for investment can use this approach. Perhaps the most pressing example is the need for investment in ways to reduce greenhouse gas concentrations.
But won’t everyone want zero interest loans?
The right to have a zero interest loan is of value. The simplest form of rationing is to allocate the right equally to anyone who wants to apply and to allow the right to a loan to be tradeable. The other form of rationing is to require a higher proportion zero interest deposit before the loan is given or to increase the amount of money to be returned to the bank for the loan.
Are there any examples of this approach?
The whole movement of micro loans is based around the same concept of giving loans to people without assets so they can build more assets.
We can increase the money supply through the concept of Rewards or through the giving away common stock in companies building community assets like the National Broadband Network which will have the same effect of increasing the money supply by the creation of assets.
While giving away restricted money to build productive assets is an approach that will create assets then create money the idea of giving away the right to zero interest loans is more likely to gain acceptance and will be easier to adopt because it can be introduced without government involvement by banks, such as NAB, who already provide micro-loans without the recipients of the loans having existing assets to back the loans.
The banks are not the cause of the Global Financial Crisis but are the solution. They can now, if they choose, solve the problem as they have been given the tool to do so with the government guarantee of deposits. In fact banks have, through their diligence, prevented the crisis from being much worse than it could have been.
Principle 14 – Reputation and Context.
The transmission and accessing of information is more than the transmission of data. It is a communication event. Communication or the transfer of information is a social activity which requires both parties to know the reputation and characteristics of the other party and the context of the communication to be explicit and understood. When information is to be stored, the reputation and characteristics of those permitted to access it should be established and the reputation and characteristics of the person storing the data should be kept with the data and made accessible.
Electronic Social Networks depend for their success on the ability of people to easily share information and ideas with others. The attractiveness of the networks comes from the ease with which people can join and leave groups, and from the ability to remain anonymous if desired. Unfortunately as they become more popular rogue elements take advantage of the openness and pollute the social environment. This pollution takes different forms. Some of these are:
- Bad manners – forums and blog comments can become very confrontational with some people seeming to delight in negative, often abusive comments, attacking others behind the shelter of anonymity.
- Stolen identities – celebrities are a favourite target for frivolous passing-off, but stolen identities can also take a more sinister form particularly amongst vulnerable groups such as those involving children or distressed people.
- Fake identities – these are especially concerning when people pretend to have qualifications or expertise that they do not possess.
- Slander and defamation – where, under the guise of anonymity, people slander or defame others.
- Misuse of the network – people use the network to promote products or services inappropriately.
- Multiple identities – Sometimes people have multiple identities in an attempt to gain an advantage.
- Ill-defined and unreliable information – Some people “spread” rumours, partial, false or incomplete information.
These problems can be addressed if we introduce the concept of responsibility with anonymity. That is, people can participate in some activities without publicly identifying themselves providing they first establish some level of identification with the system and they agree to abide by the rules of the network. The rules depend on the context of the interaction. The context also establish actions that will happen if rules are broken. Examples of possible actions are for the person to be excluded from further activity, an identity shown to an aggrieved party or revealed to the whole community, or it can be given to authorities for civil action to be taken. These actions impact on the reputation of the identity and are reflected in way reputation of the party is evaluated.
To achieve control, where it is required, we need simple ways for people to identify themselves to a level appropriate to the context of the communication. That level of identity could be displayed on the social network site so that people can see how trustworthy the person is – without revealing who they are – and how trustworthy is the information. The person need not reveal anything about themselves (not even their pseudonym) but there should be mechanisms to provide a visual indication of the trustworthiness of both the government officials and members of the public.
If we are going to permit the public to store information in government files, a person must first establish that their reputation is sufficient to allow the storage of the information. The most common case is where a personal data is stored about a person. The person providing the information must either be the person themselves or a person with sufficient reputation in the eyes of the person who is the subject of the information or a person of sufficient reputation as defined by the government. The reputation of the person storing the information, not the identity, should be kept with the data and made available to people accessing the information. For personal data only the person concerned, or those the person explicitly or implicitly approves, should be allowed to access persona data.
Context is the circumstances in which a communication event occurs.
reason is determined by context. When it is decided that information is to be stored, the context of when and how it is to be released should also be established. This means that the characteristics (including reputation) of the person requesting access should be defined. Also the characteristics of any government official who can access or see the data should be defined.
If this is established at the time of storing data it means that if a person can prove they possess the appropriate characteristics access can be automated and there is no need to involve a government
official. The same access mechanism can equally apply for the public and for government officials.
In many circumstances a government official may be granted access to information that is not available to the general public. In those circumstances the public can ask the appropriate government official to access the information and the official may be able to provide an answer to a specific question without revealing any sensitive details. An example of this could be a researcher wishing to access information
that is of a personal nature but not needing to know the identity of the persons involved.