The Mosler Way
A solid plan for the economic revitalization of Afghanistan.

Tom Nugent is Executive Vice President & Chief Investment Officer PlanMember Advisors, Inc.
December 11, 2001, 8:00 a.m.

 

As the war in Afghanistan comes to a quick conclusion, a new interim government is being created in Bonn, Germany. Participants/warring factions who have been responsible for carrying the war on the ground to the Taliban forces are now forging ahead with plans to rebuild a nation that has, for decades, been wracked by war and political upheaval. Many Western diplomats fear that it won't be long before the country disintegrates into regional warring factions with the accompanying death of innocent civilians and destruction of whatever goods and property are left after the current bombing and fighting are over. An innovative economic policy is necessary to avoid such a calamity.

Westerners have gained a new respect for the Afghan people because of modern communications technology and the brave reporters who remain in Afghanistan, not too far from the bombing and fighting. Recently, one of the major networks took us on a "tour" of Kabul, the capital of Afghanistan, and pointed out the remnants of freedom that once characterized an otherwise backward third-world country.

But now that liberalization has come, there have quickly emerged innovators and opportunists who profit from providing goods and services to the people. Beauty parlors and movie theatres are reopening after being banned under Taliban rule. Women who were, at best, relegated to third class citizens, are now able to live a less restricted life style. Female doctors and lawyers can now practice their trades, adding value to their local communities where before, under Taliban rule, they were forbidden to work or even go to school past the equivalent of the eighth grade. And two women have been appointed to senior positions in the transitional Afghan government.

The revitalization of a conflict-hardened nation and a suppressed culture is in the offing. So, how can we make sure that Afghanistan serves as a model free country that survives and prospers after the blight of terrorism?

The Right Design
At the outset of a new Afghanistan, the interim government appears to have little to work with except limited economic support from the outside world. Foreign aid should help minimize short-term economic crises that befall the people of Afghanistan as the new government finds its way to rebuilding the country and the economy. Progress in this regard will also be influenced by the reaction/cooperation of the various regional tribes that characterize the Afghan nation.

Of course, there will be a plethora of economic plans offered by various factions to rebuild the country. Maybe it's time for the new leaders of Afghanistan to consider an option that probably has the most appealing characteristics among the competing programs.

The best type of plan would be one that combines the attributes of a free market society with the "referee" functions of a central government. Solutions that appear "right" from successes in developed nations are probably not right when an economic infrastructure is nonexistent. What we do know is that most governments act to survive while individuals generally act in their own self-interest when it comes taking care of their families. There must be some methodology that takes advantage of these two characteristics and blends them to achieve both the goals of government and individuals.

Past economic plans have focused on how government spends money and levies taxes (fiscal policy) or how it creates money and manages credit (monetary policy). Plan author Warren B. Mosler, however, has centered on employment as the driving factor in designing a functioning economic policy in particular, public service employment.

An integral part of society is public services. The judicial system, educational facilities, transportation, water and sewer infrastructure, defense, and environmental standards characterize any modern economy, and are critical to establishing a new economic order. The Mosler Plan presents an institutional framework for implementing a paid, national service program that will both provide essential public services and foster private-sector development and growth. The plan has been designed to be internally stable and it requires no external finance.

The Mosler Plan empowers the national government with the means to provide paid public service jobs to anyone willing and able to work. By providing a means for the government to employ all available unemployed labor in the public sector until private-sector demand for labor increases, public infrastructure is developed and a peaceful and prosperous environment is promoted. A government that can provide full employment and prosperity has always commanded the respect of both its citizens and the world at large.

The Mosler Plan is built around the idea that residence owners are required to submit receipts for a minimum number of hours of government employment. In effect, the government requires that a certain number of receipts be submitted for hours of qualifying national service. To obtain the required receipts, the residence owners can either work themselves or otherwise obtain them from someone else willing to work for the government. So, a farmer who owns his home, for example, could exchange his produce for needed receipts with someone who decided to work for the government and be paid in the receipts that the farmer demands.

The initial impact of this national service requirement is that residence owners will need public service receipts. This allows the government to offer jobs to any and all workers who demand to be paid only with official receipts for their time.

Once this mechanism is in place, home/residence owners WILL EITHER seek GOVERNMENT employment so that they can earn the REQUIRED receipts OR OFFER REAL GOODS AND SERVICES FOR SALE WHICH WILL INCENT OTHERS TO SEEK GOVERNMENT EMPLOYMENT TO EARN RECEIPTS.

 Since the government is offering employment to everyone, these individuals can WORK AND EARN the receipts necessary to BOTH FULFILL the quota AND TRANSACT WITH EACH OTHER.

Under this plan, Afghanistan will no longer have real workers who are unemployed. In this framework, there is neither government debt nor interest paid on debt. Instead, the government uses the receipts as a self-funding mechanism. There is no need for the fledgling Afghan government to borrow money and pay interest. The receipts gain value as a medium of exchange and a unit of account. The value of the receipts is independent of the quantity issued or received by the government, providing that the government issues the receipts for public-service labor and does not refuse to hire anyone willing and able to work.

One can see that, in short order, it is likely that many other goods and services will be offered by businesses and individuals in exchange for these receipts. Once introduced into the private sector, the economy will flourish. Obviously, there are OPERATIONAL CONSIDERATIONS AND THE USUAL POLITICAL PROBLEMS with such a plan but the basic idea makes sense for a new economic order.

There is much more to the Mosler Plan than mentioned here. These are the basic tenets of a plan that contains the essential elements of a free society that values hard work, incentives, and responsible government policies to improve standards of living. With a financially independent government able to establish and maintain full employment, Afghanistan will experience unprecedented economic progress and prestige, while remaining far removed from financial burdens and instabilities that most emerging nations experience. More importantly, a sound Afghan economy will help eliminate the threat of renewed terrorism in the country. As a blueprint for an emerging economy, Mosler makes a lot of sense.