to the Pre-Bush-Tax-Cut (year 2000) 4% Unemployment Rate


This note is to solicit your input and support for a basically new approach to achieving rapid economic recovery. The traditional Keynesian approach to recovery involves large quantities of politically difficult deficit-financed government outlays and increasing government debt. This new approach avoids these problems by jump-starting real recovery through the replenishment of our depression-depleted national money supply (M1) by means of debt-free, interest-free, non-bank-credit new money, as was done successfully under Lincoln during the Civil War.

Goals of the Proposal -- The proposal has three primary goals:

  1. to enable the economy to recover rapidly from the present continuing depression,
  2. to provide immediate concrete aid and hope to those individuals, businesses, and levels of government hardest hit by it, and
  3. to prevent a historic and disastrous Democratic loss (or anemic victory) in November.

The lack of a jobs recovery since Fed Chairman Bernanke's 2008 monetary jump-start and Obama's 2009-10 fiscal stimulus is due in part to the initial mindset of the President's Wall Street bank advisers -- oriented toward creating business/financial confidence -- and in part to the right-wing insistence on fiscal austerity as the highest economic priority. As long as one or both of these factors continues, there is virtually no chance that unemployment will drop sufficiently rapidly to assure the needed Democratic victory in November.

The New Approach -- is based on three key facts about our economy:

  1. money is the basic medium of exchange in all economic transactions, and
  2. new money "created out of thin air" is the primary driver of economic growth --
  3. therefore, replenishment of a depression-depleted money supply (chart, above) is essential for a fast, full recovery

To accomplish this, the proposal calls for a change in the method of money creation -- from profit-oriented bank credit to planned government management of fast but non-inflationary M1 monetary growth. (The conceptual reasoning behind this is available here.)

Distribution -- Two primary guidelines for the distribution of the new money for fast recovery are:

  1. it should address first the needs of those hardest hit by the recession/depression, who will be most likely to spend it, and
  2. it should get the money into circulation as rapidly as possible, including, but not limited to:

Administration -- The proposal calls for the President to establish a relatively small coordinating agency, run by a high-level director. The agency would determine the level of need for help in the various recipient sectors, establish priorities, and determine an initial issuance of newly-created money according to these priorities. The distribution should be handled as much as possible through existing channels for spending and transfer payments. The coordinating agency continually monitors the distribution for effectiveness and efficiency and to avoid potential inflation.

Advantages -- The proposed recovery approach described above avoids many aspects of the present system that tend to impede or prevent a rapid recovery -- private bank avoidance of "unprofitable" investments, unnecessary accumulation of federal debt, and paranoia over budget-deficit-inducing stimulus spending.

The Starting Point -- The success of this proposal clearly depends on the President's political determination. To communicate a message of optimism and hope to the nation, the President should publicly proclaim that the level of personal, social, and material destruction caused by the present depression constitutes a national emergency that requires measures beyond business as usual.

So the starting point of the proposal is an open letter to President Obama urging his immediate support for the proposal and signed by knowledgeable people whom the President respects. I would appreciate your earliest possible response to the proposal, including any insights that would help to improve it, operationally or politically.

Thank you.

John Atlee, (PhD Economics, Columbia University, 1956)
Institute for Economic Analysis

Note: the relationship between the Money Supply Gap and the Employment Gap (excess unemployment) is described here.

A more complete look at the conceptal framework underlying this proposal can be seen in brief in Completing the Keynesian Revolution, and more fully presented in Toward the Integration of Economic Science.