Growth-matched new money

Every year the U.S. economy grows, and every year the quantity of money grows with it, or prices would have to fall. The question is never whether new money is created; it is where it enters. Today it enters when banks lend and when the central bank buys assets. The first channel reaches borrowers, the second reaches asset holders. Neither reaches a household that has no debt and no portfolio. This piece moves one slice of the new money to a third channel: the pool that pays every adult.

The rule

New money credited to the Public Income Pool in a year equals (real growth minus 2 percent) times M2. At 5 percent growth and M2 of 73 percent of GDP, that is about 2.2 percent of GDP: $660 billion in 2027, rising with the economy to $1.6 trillion by 2045. At 2 percent growth it is zero. It cannot be negative, and it cannot be raised by a vote; the growth figure comes from the national accounts and the formula is in the statute. The 2 percent gap is the margin of safety: it leaves room for the normal channels and for measurement error in growth itself.

This is the hardest piece to enact, and the design says so. It needs a Treasury-Federal Reserve agreement, or legislation, that lets the central bank credit the Treasury's pool account against nothing but the rule. Central bank independence is a real thing worth protecting, which is why the amount is a formula and not a discretion. The rollout puts it last.

Why it is not simply inflation

Inflation is too much money chasing too little output. If output grows 5 percent and money credited to households grows 3 percent of M2, the household money grows slower than the goods it can buy. That is the entire argument, and it holds only as long as the rule holds. The model's inflation path, built in piece 11, has prices rising about 2.6 percent at launch and under 1 percent a year by the mid-2030s, because the cost of goods, paperwork and knowledge work is falling under automation at the same time. By 2060 the price level is 17 percent above 2027 under the system, against 80 percent under today's rules. The 2020-21 direct payments⁴ are the cautionary precedent: large, debt-financed, into an economy with supply constrained, and inflation followed. This rule is small, growth-matched, and into an economy where machines are expanding supply.

What it replaces

Nothing is taken away from the central bank's tools. Interest rates, reserves and asset purchases work as before. What changes is that a defined slice of monetary growth is routed to people rather than to balance sheets. The design treats this as a fairness correction, not a stimulus: the growth dividend of a society that automates its work belongs, in part, to everyone in it.

What we are unsure of

The formula uses real growth measured by GDP, and this series is openly skeptical of GDP and CPI as measures of the good life. We use them here because the rule needs an auditable number and no better one exists yet. The 73 percent M2 ratio is today's; a system that pays every adult weekly will change how much money people hold, and the ratio with it. And a formula cannot anticipate a supply shock; a wartime or pandemic year of 5 percent "growth" measured in a distorted way could credit money the economy cannot absorb. The statute should let the rule be suspended by supermajority, and only downward.