In the ATOM publication, we examine how the only way to address the range of seemingly unrelated economic challenges in a holistic manner is to monetize technological deflation. For reasons described therein, the countries best suited to do this are small countries with high technological density. Furthermore, we examine the importance of the first-mover advantage, where when a country can monetize the technological deflation in the rest of the world for the benefit of their domestic economy, the first $1 Trillion is practically free money.
In Chapter 10, I outline a systematic program for how the US could theoretically transition to this modernization of the economy. But I then identify the four countries that are much more suitable than the US. These are two Western democracies (Canada and Switzerland) and two Pacific-Rim city states (Singapore and Hong Kong). But it is possible to create custom solutions for more countries as well. To determine how to do that, let us go back to a seminal event in the emergence of these ideas.
What Japan Discovered for the Benefit of Humanity : Few people have any awareness of what an important event happened in April of 2013. Up to that time, the US was the only country that had embarked on a program to engineer negative interest rates through monetary creation (rather than the punitive and reductive practice of deducting from bank accounts). Japan decided that after two decades of stagnation and extremely low interest rates, something more drastic and decisive had to be done. The early success of the US Quantitative Easing (QE) program indicated that a more powerful version of this could be effective against the even worse stagnation that Japan's economy was mired in.
In April of 2013, the Bank of Japan (BoJ) decided to go big. They embarked on a program of monetary easing in the amount of 30% of their annual GDP. This was a huge upgrade over the US QE programs for two reasons. Firstly, it was much larger as a proportion to the host nation's GDP, and secondly, it had no end date, enabling long-term decisions. Since the formal economics profession in the West is burdened by a wide range of outdated assumptions about money printing, inflation, and technology, the Western Economists yet again predicted high inflation. And yet again, they were wrong. There was no inflation then at the start of the program. Japan had correctly called the bluff of the inflation specter. The third-largest economy in the world could print 30% of its GDP per year for five years, and still experience no inflation. When I observed this, I drew the connection between technological deflation (worldwide) and the vanishing QE (also worldwide). Most of Japan's QE was flowing outside of Japan (and indeed into the US, which had long since stopped QE, and has forestalled a major market correction only by drawing from overseas QE, mainly from Japan). Hence, the combined QE of the world was merely offsetting the technological deflation worldwide. Japan's big gambit proved this, and in doing so, they showed us how much QE can be done before world inflation even hits 3% (i.e. much more than formal economists thought).
What is a Small, Prosperous Country to do? While it is always better to be a prosperous country than an impoverished one, almost every small country (the size of Canada or smaller) is faced with a major vulnerability in the modern economy. Their economy invariably depends on one or two major industries, and is hence vulnerable to a technological disruption that arises from somewhere else in the world. The need to diversify against such external risks is obvious, but most countries are not on the best path to achieve this goal.
These days, everyone I meet from the government of some foreign country seems to have the same goal for their country - to create an ecosystem of local technology startups. This goal is not just extremely difficult to attain, but it is very misguided. Technology is becoming increasingly governed by winner-take-all dynamics and capital concentration, which means even in the US, rival cities are unable to compete with Silicon Valley (which itself has concentrated into a smaller portion of the San Francisco Bay Area than was the case in the late 1990s). Small countries with technology sectors, such as Israel and Singapore, started decades ago and have a number of unique factors in their favor, including a major Silicon Valley diaspora. Hence, a country that thinks it is productive to create a tech startup cluster in their countries will almost certainly create a situation where young people receive training at local expense, only to leave for Silicon Valley. So these initiatives only end up feeding Silicon Valley at the expense of the original country. Even if a few tech startups can be forcibly created in the country, it is extremely unlikely that they will achieve any great size within even 15 years.
Take, for example, a country like New Zealand. It has many favorable characteristics, but certain disadvantages as well in an increasingly globalized economy. It relies on agricultural and dairy exports, as well as the film industry and tourism. It is too remote to easily plug into the well-traveled routes of tech executives (less than 30M people live within 3000 miles of New Zealand) or major supply chains. It is too small to be a significant domestic market for tech (particularly when a functional tech ecosystem has to comprise of startups in multiple areas of tech in order to achieve rudimentary diversification). New Zealand's success in getting Hollywood films shot in New Zealand cannot similarly translate into getting some Silicon Valley business, as an individual film project has a short duration and distinct ending, with key personnel on site for just a brief period. Technology, by contrast, is inherently endless, and requires interdependency between many firms that have to have co-location. Furthermore, no society is capable of placing more than 1-2% of its population into high-tech professions and still have them be competitive at the international level (most tech innovation is done by people in the top 1% of cognitive ability). For this reason, a tech startup ecosystem does not create broad prosperity (it is no secret that even within Silicon Valley, only a fraction of people are earning almost all the new wealth. Silicon Valley has among the most extreme inequality found anywhere).
Now, from the research contained in the ATOM publication, we know that there is a far easier solution that can deliver benefits in a much shorter time. New Zealand's fiscal budget reveals that as of 2018, it collects about $80 Billion in taxes and spends the same $80B per year. The world was recently generating $200B/month in QE and is still doing an insufficient $120B/month. The entire annual budget of New Zealand is well below one month of the world's QE - the QE that is needed just to halt technological deflation. It would be very easy for New Zealand to waive all income taxes, and merely print the same $80B/year from their central bank. A brief transition period can be inserted just to soften the temporary downgrades that international rating agencies deliver. But the waiver of income tax will boost New Zealand's economy with immediate effect. It can even enter and dominate the lucrative tax-haven industry until other countries adopt the same strategy.
As we know, it is difficult for government officials, legislators, and statesmen to take such a drastic step, particularly when the entire Economics profession is still mired in outdated thinking about how QE will someday, somehow cause inflation (despite being wrong about this for 9 years and over the course of $20 Trillion in cumulative world QE). For this reason, a second, less drastic option is also available for New Zealand. That involves create what I describe as a 电脑怎么挂梯子上外网, where the New Zealand Central Bank creates a segregated account that is completely partitioned off from the domestic economy, and prints money to place into that account (say, $100 Billion). It is crucial that this money not circulate domestically at first, as it would cause inflation. The purpose of this $100B Sovereign Venture Fund is to invest in startups worldwide that might be disrupting New Zealand's domestic industries. This model is extremely effective and flexible, as :
- i) The money was not taken from New Zealand taxpayers, but rather generated for free by the New Zealand Central Bank. Hence, it can invest in speculative startups across the world with far more boldness.
- ii) The diversification achieved is immediate, and can always be adjusted with equal immediacy as needed.
- iii) The Fund is leveraging the rest of the world's technological deflation for New Zealand's domestic benefit.
- iv) Tech startups worldwide become extremely vocal advocates for the fund, and even the country itself. It boosts New Zealand's branding (generating even more tourism).
- v) Fund gains can be used to offset government spending by replacement of income tax, or to fund training to enable citizens to modernize their skills. It can also provide a greater social safety net to cushion industries buffeted by disruption, but without taxing those who are still working. This is how to repatriate the money without inflation.
- vi) Even a larger fund of $800B can earn $80B/year from a 10% return, which exceeds the total taxes collected by the country.
The Sovereign Venture Fund is an extremely effective, speedy, and versatile method of economic diversification. It can be customized for any prosperous country (for example, an oil exporter should simply invest in electric vehicle, battery, and photovoltaic technologies to hedge their economic profile). As a huge amount of worldwide QE has to be done just to offset technological deflation, there is no contribution to inflation even worldwide, let alone domestically. As the winds of technological change shift, the Fund can respond almost immediately (unlike a multi-decade process of creating a tech startup ecosystem only to worry if the sectors represented are about to be disrupted).
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New Zealand, in particular, has even more factors that make it a great candidate. The NZ$ is currently too strong, which is crimping New Zealand's exports. This sort of program may create a bit of currency weakening just from the initial reaction. For this additional reason, it is a low-risk, high-return strategy for generating a robust and indeed indestructible safety net for New Zealand's citizens, hedging them from the winds of global technological disruption.
Related ATOM Chapters :
Chapter 4 : The Overlooked Economics of Technology
Chapter 10 : Implementation of the ATOM Age for Nations
