Guest Opinion

Individual Estate Accounts

by John Gelles

It combines many features of an Individual Retirement Account (IRA), a Social Security account, an inflation protected government bond, the Social Security Trust Fund, unemployment insurance, and "an end to Welfare as we know it".

The IEA has two beneficiaries: The United States, (or any government that uses it as a financial tool to foster prosperity, satisfaction of public and national needs, and to prevent both inflation and deflation. The second beneficiary is the individual citizen who will own the account and enjoy its inherent economic rights.

What are those rights? -- The right to sound money, work that may earn a fair return, and serious governmental effort to accomplish the promise of the preamble to the Constitution of the United States (or similar promises by other nations and cultures).

As you know, the preamble to the Constitution promises people who govern themselves that their government will promote the general Welfare, Liberty, and freedom from governmental tyranny. The Constitution allows the use of money and contract law to serve as tools to make good on these promises.

From the beginning, money inflation and deflation have been foes of the general Welfare. As of now, we have evolved a system of:
(1) High interest-induced slowdowns to fight inflation -- in spite of the latter's heavy penalty against decent people thrown out of work and businesses backed to the wall.
(2) Government spending, lending and bailout to fight deflation.

From the beginning, as well, the few who accumulated great capital, and the many who did not, have been asked to pay taxes -- taxes, that for certain, those without great capital could ill afford.

The IEA substitutes deposits in a government account for taxes formerly assessed against those who could ill afford to pay them.

Contributions to all IEA's, (which government holds in trust), substitute, in the fight against inflation, for the reduction in purchasing power, in an overheated economy, that high interest rates (and sometimes high taxes) try to effect. (The old and cruel remedies, as mentioned above, first choke off business then put people out of work.)

Because government can issue money, (as well as tax back what it previously issued), the only real reason it collects taxes, (where no gold standard prevails), is to prevent inflation. Government does not need our money if it chooses instead to issue new money.

The IEA will allow government to continue with its choice to issue new or reclaim old money -- but when it reclaims old money from ordinary citizens, (who lack great accumulated capital), it will hold that money for future return to them or their heirs.

Return of contributions would be in installments and free of tax, as fear of inflation vanishes. (Fear of inflation would vanish in the wake of technology induced growth in the output of things that money can buy).

With hated taxes out of the way, the disaffection of many citizens who resented redistributive taxes will markedly subside. People may once again see government as the friend it is when social security meets their needs in old age -- (it does do this for some; and with larger checks it might do it for all.)

It will be seen that an IEA could absorb related federal accounts that aim at individual security. Details on this are emerging at the IEA / Justice website: http://www.myturn.org

In the current age, 200 years after the Constitution, over- production of what used to be scarce necessities is possible. This has made price and profit, that are necessary for full employment, vulnerable to a shortage of purchasing power.

Although it is not possible to create enough money for people to buy everything others want to sell them, it would be possible to direct IEA balances, (and loans or IEA overdrafts), to people out of work. This money could prevent poverty and create jobs and self-employment.

If the money so directed appears to cause inflation, the rate at which IEA contributions are required would be raised. Resistance to higher rates would be minor in comparison to resistance to higher tax rates. Moreover, voluntary IEA contributions could be sought through persuasion. Forced unemployment would not ever again be necessary to cool down an overheated economy.

If incipient deflation is on the horizon, the pent-up purchasing power in IEA's (and overdrafts where necessary) could be loosed for consumer satisfaction and general prosperity.

With experience, IEA administration will allow all balances in the accounts to be protected from inflation by annual or more frequent cost of living adjustment.

The balances would also earn a modest rate of interest to reflect growth from technology no longer stifled by limits on the output of environmentally desirable products that our out-of-date financial systems impose.

If ever there were a time for capital and labor to listen to each others needs, this is it. Modest capital accumulation cannot afford to be taxed.

Labor cannot afford less than a living wage or less than full employment. If wage demands are too high to be met, business cannot and will not meet them. Workers will be forced to take the lower amount provided by their IEA (or overdraft) and possible self-employment.

The IEA represents tax and employment reform. If it replaces income tax and unemployment, (both hated and unnecessary), it will prove its worth in the post Cold War economic order.

As a part of post-gold standard money systems it can encourage the creation of private estates that result from private saving. For this purpose, contributions to an IEA will not be limited to those required to prevent inflation. All amounts will be accepted.

As inflation is contained, public needs for great educational and cultural institutions, as well as for defense and the maintenance of peace, will not be sacrificed to the need for frivolous consumption to create a tax base. In effect, there will be no taxes.

If instead of the above or alternative reform, we continue to allow taxes to divide us, poverty to spread in the middle class, and unemployment to create a permanent underclass, all the benefits of technology will be lost. Liberty, itself, will be at risk.