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 outcomes

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.

Who loses

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.

6 thoughts on “The Democratisation of Government Spending

  1. Um, where does the $30 billion come from? If the government borrows and lends at 0% to individuals, then the interest rate spread is a cost to government (probably ~5%, or $1.5 billion/yr).

    If the government prints money and lends, there there is the opportunity cost. The government could print and buy treasuries of other nations, corporate bonds, common equity, etc. and potentially earn more than 0%. So lending at 0% has an opportunity cost.

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    1. The $30Billion comes from the banks creating credit money. At the moment the banks have to now “cover” this money they create by setting up loan facilities – but they do NOT have to do that if the government guarantees the money.

      As from late last year the government guarantees ALL bank deposits. That is they guarantee the money that has been created by the banks. They can do the same with money created from the issuing of zero interest loans. The government does not have to borrow any money to guarantee the bank deposits as they have illustrated.

      The critical part of the system is making sure the money from the loans is spent on productive purposes. That is the real issue and the system proposed will ensure that that happens.

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  2. Money is a fungible commodity. Greatest update will be among those who would make such investments anyway. They take the free money for this investment, and take the $1500 they would have spent on energy upgrades otherwise and go to Fiji.

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    1. Almost 100% will take up the right to a zero interest loan and it will be invested in renewables. People and organisations are simply NOT making the investments needed – that is the whole point of the exercise and is why we have schemes such as Emissions trading being introduced as a way to get investments in renewables.

      As a society (90%+) we agree that we want to do something about climate change but it the cost of money and the fact that we do not have $1500 that prevents us investing. Your statement that people will make investments in renewables is demonstrably untrue as it is not happening. For the minority that may have made the investment anyway the fact is that they tend NOT to do it even if they could because they see everyone else as “free loading” so they do not make the investment and they go on their trip to Fiji instead.

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