Obviously this is asking for disaster. The mind-freeze imposed by those in power creates additional variables of a partitular vicious nature to our problem. To match these we must apply a Gaussian variant of the Tinbergen principle to add to the number of variables in our solution. This we can do by reducing the scope of certain of our variables for better targeting these new variables of the problem. By breaking up our solution into stages, and reducing the dosage of chosen variables of our solution, we can by-pass the mind-freeze that has added to our problem.

Balanced budgets have been elevated to a supreme piety, and running a government deficit even when it is needed to fill the void left by a depressed private sector is seen as a vice. One can waste a great deal of time debating the point with the ideologically motivated. That debate of course should go on, but it would be advisable to circumvent such icon fortresses of dogma and get on with the world's business. That can be achieved in a simple way. We choose two variables that influence a chosen target � say the public treasury � in inverse ways. For example, reducing taxation, and reducing the need for government spending. We do this in offsetting dosages of the two � to have a paired zero effect on the treasury. In themselves � other things being equa � most people would prefer to see taxes and interest rates lower, if the net effect on the public treasury were zero. Let us choose ways in which this can be achieved by balancing the dosages of the two inverse variables of our solution.

Another possible choice of such a pair is the abolition or phasing-out of the Goods and Service Tax, a regressive sales tax on everything except unprocessed foods, and prescription medicaments. It could be balanced by transferring an amount of bonds from private banks to the Bank of Canada. That could be calculated to reduce the interest payments of the government in the amount of the loss from the reduction of the GST When a central bank holds government debt, the interest paid on that debt-less a contribution to the central bank's overhead � returns to the government. This may be because the central government is the sole shareholder of the central bank (the case of Canada or Britain), or, even when the central bank is privately owned. The latter is the case of the US Federal Reserve. That is due to the sovereign's ancient monopoly of seigniorage � the coining of precious metals, represented today by the creation of government debt which is the only legal tender. Government debt has long since replaced coined gold or silver as the sole legal tender in the world, so seigniorage has not only gone on but increased in importance. The profits to the crown for recoining gold or silver might amount to anywhere between 0% to 25% in normal times. The cost of issuing new government debt is usually less than 5%.

That balanced dosage of two variables of inverse effect on the treasury will circumvent what has become an ideological fortress � the supposed need of a balanced government budget. But the effects of those two reductions will not stop there. Having introduced the notion of vectors instead of just scalars to economics. we are in a position to track the vector effects of these two reduction, through other subsystems of the economy. Obviously they will be beneficial to the household economy, where by reducing the mortgage rates they will lower prices on most items by 7%. They will also bring down interest rates across the board, because the average rate paid by government bonds is an important benchmark for all interest rates. This may make it possible, if they choose to, for wives give up their outside jobs to look after their families. Or buy a home.

It would reduce the cost of protective measures for the environment.

But on top of the improvement of the finances of the non-market subsystems these ripple effects of our initial balanced reduc�tion of taxes and interest rates would feed back to the treasury in the form of more in�come (raised from an expanding economy) and reduced obligations. We will have cir�cumvented an ideological pill-box by intro�ducing a tactical balancing of initial dosages. One of the advantages of this combination of the Tinbergen Test, systems theory, and Gaussian technique combination is that it produces immediate, verifiable ones. That would be in contrast with the promise that D&G makes of "long term" benefits for all that in fact have brought in nothing but disaster. As the positive feedback comes in, the dosage of the initial balanced reductions can be increased.

The same technique can be used by balancing other variables with inverse effects on a given target.

Well-intentioned people may shy away at the very suggestion that we apply some elementary mathematical logic in designing our policies to get the economy out of its deep trouble. But they are confusing mathematical skills with some basic concepts of mathematics accessible to any literate person. These provide powerful, time-saving economies, for getting where you want to. It should not be taken as a hangup of Economic Reform that it is engaged in pioneer work in this field.

William Kehm �from Economic Reform November 2001

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