On the 11th April the former San Francisco Fed chief, and now Ben Bernanke’s top lieutenant in Washington, Janet Yellen gave a speech saying the Federal Reserve is “quite willing and committed to take whatever actions are necessary” to achieve its economic goals. To date this has involved two bond-buying programs totalling $2.3 trillion to stimulate the American economy – a process known as quantitative easing to economists or simply ‘Operation Twist’ to everyone else. Essentially the Fed prints more money to buy long term government debt held by the banks, which in turn gives the banks liquidity (more cash) to lend to businesses so they can grow and employ more people.
Many economists have deemed Operation Twist a success, and a third round of quantitative easing may actually be avoided if steady economic growth continues. Well if Operation Twist has stimulated the economy, could a similar state program stimulate a stronger society? Stronger societies are built through increasing interactions between individuals that in turn fuels evermore opportunity for reciprocal exchanges, that then allows individuals to bond, support and thrive together. So the primary focus of an Operation Twist for society would be on stimulating more social interaction.
Operation Twist for the economy involved giving newly minted money to the banks to stimulate the economy. We need an institution equivalent to banks that could be given money. If we take the golden state of California as our test bed, then the immediate contender would be the 58 counties, the local administrations, as they could administer the stimulus for us. So let’s say (in a dream world!) the Fed Reserve printed $580m to be divided equally among all 58 counties in California (let’s keep this simple and avoid per captia allocation) each county now has $10m of new money to blow on strengthening society, how should it do it?
Well here’s a counterintuitive answer: it should bank it! That may sound oxymoronic, but when you stop and think about US bucks you realise that they’re highly porous (spend where you like) and highly fungible (spend on what you like) with little regard for the impact on social value and cohesion. Sure a bundle of free money can be great at stimulating exchange for a short time within a county community but that money often doesn’t stay circulating within that community. We know if often leaks out to other places leaving individuals with no physical credits in hand to go and interact with others working in their community (the true impact on society of a ‘credit crunch’). Money on its own, as a stimulator of interaction between people, is often not a self-sustaining mechanism so bottom line is its true potential to strengthen our community bonds is severely limited sadly.
But that $10m stimulus now sitting in the bank could still serve a very significant purpose. It could now act as underwriter (‘a promise’) for 10 million county IOU vouchers that a county and its public employees (i.e. law enforcement officers) could issue to its residents in return for continued or additional pro-social actions (i.e. driving kids to a midnight basketball league game). All IOU voucher transactions could be electronic and done between mobile phones.
Now here’s the strengthening society part: for individuals to convert that IOU into a real $1 (which they could spend themselves, give to friends or family, or donate to a local group) that IOU needs to have been earned and exchanged at least three times between individuals before. (Theoretically the more times a single IOU voucher is earned and exchanged the more valuable it could become relative to real money: so if exchanged 6 times it could be worth $2, if exchanged 12 times it could be worth $4, and so on up until the voucher is cashed in. But given the stimulus has a limited reserve of $10m, there could be a greater draw to cashing in vouchers almost immediately for fear of the reserve disappearing before being able to cash-in greater value vouchers) This provides an incentive for everybody to pro-actively interact and exchange promises with each other (a kind of social bartering) in our neighbourhoods so that we can unlock the real cash.
In short this version of Operation Twist is an explicit financial challenge set by the state to society: if individuals effectively collaborate together then they can unlock an additional $10m for themselves. However, in reality Operation Twist is an implicit mechanism to build more relationship capital within communities that will long continue and strengthen society even after all the $10m is unlocked and spent. I’m sure there are many other and better versions of this kind of Operation Twist to consider, but regardless of this, a first order question to address is: do the innovators in the state and society have the vision and courage to consider a stimulus for society? That is very much an open question!