Herman E. Daly: A Steady-State Economy

Simultaneously collect $x from the best resource severance tax we could devise. Next period get rid of the second worst income tax, and substitute the second best resource tax, etc. Such a policy would raise resource prices and induce efficiency in resource use. The regressivity of such a consumption tax could be offset by spending the proceeds progressively, by the limited range of inequality already mentioned, and by the fact that the mafia and other former income tax cheaters would have to pay it. Cap-auction–trade systems will also increase government revenue, and auction revenue can be distributed progressively.Could a SSE support the enormous superstructure of finance built around future growth expectations? Probably not, since interest rates and growth rates would be low. Investment would be mainly for replacement and qualitative improvement. There would likely be a healthy shrinkage of the enormous pyramid of debt that is precariously balanced atop the real
economy, threatening to crash.

Additionally the SSE could benefit from a move away from our fractional reserve banking system toward 100% reserve requirements. One hundred percent reserves would put our money supply back under the control of the government rather than the private banking sector. Money would be a true public utility, rather than the by-product of commercial lending and borrowing in pursuit of growth.

Under the existing fractional reserve system the money supply expands during a boom, and
contracts during a slump, reinforcing the cyclical tendency of the economy. The profit (seigniorage) from creating (at negligible cost) and being the first to spend new money and receive its full exchange value, would accrue to the public rather than the private sector. The reserve
requirement, something the Central Bank manipulates anyway, could be raised from current very low levels gradually to 100%. Commercial banks would make their income by financial intermediation (lending savers’ money for them) as well as by service charges on checking accounts, rather than by lending at interest money they create out of nothing.