America's economic engine is faltering; the wealth divide has become so extreme that some estimates suggest the bottom 50% of earners in the USA control only 2.5% of the nation's wealth.

How did we get to this point, and how can we fix this broken system?

This article points out the most pressing issues in the American economic system, then offers a radical alternative that solves these issues in one fell swoop.

Here are some foundational viewpoints we’ll explore:

• Money trickles up, where it becomes isolated in low-risk assets

• The creation of new money devalues Americans’ savings

• The IRS is inefficient, unfair, and unnecessary

Look, I'm not a critic for the sake of it! America's economy has been strong for the most part, but as time progresses, we're observing the trends and long-term impacts of a few miscalculated economic design decisions... and at the end of this article, we'll discuss a solution that may address all three of these issues.

money trickles up

Money trickling up is a factor of fair economics. The largest value providers will always attract the most money, and this is a healthy part of any economic system. The failure is in the stagnation of that wealth; value providers are not necessarily knowledgeable capital allocators, typically prioritizing risk-minimization in their investments. This leads to a small pool of ‘blue chips’, investments that command a respectable premium due to their assessed durability.

This increasing stagnation of funds is an economic system failure. As time goes on, the capital allocated to these blue chips rises continually, sometimes beyond logical justification. One of the best metrics of a company’s value is the P/E Ratio, or price-to-earnings. A P/E of 5 would mean that a company earning $100k a year is valued at $500k. Here are the current P/E ratios of some of the largest companies in the world:

• AAPL Apple : 31.15

• AMZN Amazon : 74.56

• GOOG Alphabet : 26.61

• META Meta Platforms : 29.74

Here’s the recent history of Apple’s P/E ratio:

At the same time, money is becoming historically stagnant. Money Velocity tracks how often a dollar gets spent. A higher value is better, indicating a healthy exchange of money in an economy. Here’s the Fed’s analysis:

This is an indicator of an ailing economy. A low money velocity means reduced economic activity and increased saving/hoarding. Money velocity is one of the two contributing elements of inflation, and as the velocity increases, we’ll see the cost of goods and services increase at a corresponding rate.

the money printer is stealing from you

You already know this. When the Federal Reserve creates money, your savings become less valuable. Again, every time the Federal Reserve creates money, they devalue each and every American’s savings.

The Federal Reserve typically creates money to give to banks, which are the primary beneficiaries of an increased money supply. (That’s an oversimplification which ignores the intent of the money issuance, but it’s true.)

delete the IRS, insert the new era of taxation

Taxes are used for:

• Revenue Generation for Public Services

• Infrastructure Development

• Redistribution of Wealth

• Behavioral Incentives and Disincentives

• Funding for National Defense and Security

• Environmental Protection

• Administrative and Regulatory Functions

• International Obligations and Aid

I can suck it up and agree that we need some kind of tax; after all, how would we fund all of this great stuff without the tax authority’s regular colonoscopy?

Taxes have been implemented for thousands of years, from ancient Egyptian pharaohs demanding 20% of grain yields to the Romans adding a 1% sales tax. The Rosetta Stone, our key to unlocking the meaning of hieroglyphics, was mostly a tax document that explained new tax laws decreed in 196 BCE. There’s clearly something about the tax system that works, but does it have to be so complicated?

Nah. We’ve been continually refining humanity’s best guess at taxation. It mostly works, but the current evolution is a bit of a cobbled-together mess.

Governments need a new taxation architecture:

The digital money supply (DMS) is a digital currency. The DMS is managed by a smart contract which enforces a regular money issuance. With the DMS, we print money at a steady rate, say 4% of the current supply of the DMS per year. This would result in a 4% steady inflation rate. Some of this newly-created money will be distributed among all adult citizens equally. Most of this money will fund the government’s budgetary requirements. This means that we skip the banks profiting during money issuance and we skip the need for manual taxation. 

Governments wouldn’t be able to arbitrarily devalue citizens’ savings by creating new money. Economic forecasting would be much more predictable with a less-variable interest rate. Wealth hoarders would be encouraged to invest more aggressively in higher-yield, higher-risk assets as engineered inflation continually erodes unusual distribution of wealth. This results in a higher money velocity, thus a healthier economic system.

Sure, there’s more to consider, more to build, but this could be the economic framework of the future.