As the final installment of our essay contest, finally, here are the winning submissions. We recommend checking them all out and subscribing to the authors’ respective publications — they deserve more exposure!
1st Place — Quy Ma
Incentives, incentives, incentives.
That is what Ma’s grand-prize-winning essay flagged as the real root cause of the fiscal trap the US finds itself in. He argued that forty years of accumulated tax architecture has taught capital to pool idly in appreciating assets rather than circulate throughout the productive economy, where it would generate higher taxable wages and profits along the way.
The solution put forth is what Ma dubbed “productive deployment weighting” — taxing idle assets harder than working ones to produce real output gains by spurring capital reallocation. It’s a fairly novel idea. A deep survey of the economic literature yields just one formal cousin: a 2023 paper in the Quarterly Journal of Economics, "Use It or Lose It" by Guvenen et al., which largely corroborates Ma's conjecture.
Overall this was just an exceptional essay, and it was the only one in the field that truly answered the question of how America, the wealthiest country in the world with the deepest capital markets, could possibly have a debt problem:
"America is not running out of money. It is running out of circulation. Debt is a symptom."
2nd Place — S.B. Orson
We’ve argued throughout the sprint on debt and deficits that big spending cuts are (more or less) politically impossible in the US — at least with the current composite of electoral interests. This essay directly challenged that premise, positing that spending cuts are only impossible if those interests aren’t economically (or directly financially) placated.
While there were a few “buy our way out” submissions in the essay contest, Orson’s proposal was hands down the most cleverly constructed and completely worked-out. The logic runs like this:
Every American gets a one-time payout funded by new government bond issuance → Social Security and Medicare end → The payroll tax that funded them is scrapped in favor of a smaller tax dedicated to paying off the bonds → Most workers see an immediate raise
The kicker here is that the bonds matter enormously. A promised benefit and a government bond are legally different animals — the former is a promise that can be reneged on while the latter cannot be cut, as it is a debt contract protected by the Constitution. And unlike the current system, which owes money forever, these bonds are paid off in 25 years and it's over.
Now, the biggest open question is how trillions in new bond supply gets plopped into the markets without rates blowing out. But as far as political-economic engineering goes, this essay was spectacular. Imagine the stump speech:
"The future is unknowable, I just want to put tens of thousands of dollars into your bank account before it all falls apart."
3rd Place — Nathan Smith
Another banger from Nathan, who took the top prize in our housing sprint, and who recently became a regular writer for Cato’s HumanProgress.org!
The longstanding caveat to the economic argument for pulling the immigration lever for growth is that immigration-driven systems can reach a Ponzi-esque failure mode when new entrants generate more benefit claims than government revenue. Milton Friedman warned of this half a century ago — "It's just obvious you can't have free immigration and a welfare state." — and America today is unequivocally a welfare state. Nathan’s proposal addresses this head-on.
Specifically, the argument made here was that immigration should be priced at the door. $5,000, roughly the “coyote” price, except it buys legal status — as well as licensing surcharges, extra property tax on non-citizen purchases, a substantial citizenship fee, and income surcharges of 30-50%, collectible because the penalty for evasion is deportation.
And for the econ-brained folks, Nathan showed his work with a model and data to boot. He even tilted it against himself — in his model immigrants never fully close the human-capital gap. Wages dip, then recover almost entirely as investment floods in behind the new labor; in practice the capital moves faster than the people, so natives likely never feel the dip.
Of course anti-immigration populists aren’t often keen on hearing the economic arguments, but this essay made the imperative clear:
"We do not have to accept a future of managed decline, crushing taxes, or a closed society. We can escape the fiscal trap. It is time to welcome the talent of the world, price the privilege of participation, and build a solvent, dynamic America."
Stay tuned for our announcement of the upcoming sprint topic and essay contest — some changes are brewing!
I was so pleased to have come across this post. It was very thought provoking and amazing as it ties into my theory.
Of course, you are correct. Velocity is at the heart of the problem. And although I am in the UK and I have little knowledge of the US tax system and figures I am presuming it’s not too dissimilar to our problems here in the UK. Only on a different scale.
So I would like to share my thoughts with you and him in the hope that some of my views may provoke thought in what you have to say.
As said I concur, velocity is indeed at the heart of our collective problems. But the type of tax on assets, albeit it very carefully thought out is far too complicated to make the deficit disappear and put our governments back into surplus.
Money is as we know a token of exchange. And must be fair and in full to give the implied contract of money as a token of reward for the velocity to flow unfettered. And crucially it must be exchanged in the same time frame as received. By SPENDING.
Money is a token then. And we see paper and coin as a worthless commodity. It’s just a vehicle for that exchange. In essence a way to gain production in a swap for my production.
So my understanding of money is just a tool to enact a full and fair exchange of work for work. We need paying this week and so do others to get money to pay bills each month.
Once we realise that fact that, money is a baton to be passed on then and only then can we see the need for exchanging our combined efforts in the same time frame. To fulfil the implied contract of receiving and giving money to fulfil the need to exchange our work with each other.
Now, I’m no communist! I’m all for earning as much as we can. To be rewarded for skills or danger or even popularity. It’s a free choice of the SPENDERS of the money earned to buy what they want. Spend with who they want but spend they must. Goods services assets whatever.
But unless the recipients of money, not wealth money itself is SPENT then how can we all be assured of getting it back again in the future? We can’t be sure. And as we all need a constant perpetual flow and resupply of money then we need a simple system that ensures money flows in a constant tsunami of SPENDING to give us the growth in money supply and resupply that we need each month from the insufficient now to the sufficient required.
Without money returning to the productive pot we will always be devoid of it. That’s why money gets short and recessions occur.
You see, at present our economies are underfunded. We know that because we are underpaid and as a result we present insufficient tax take collected to pay the way of our governments but, crucially instead of free flowing money, being freely SPENT and filling the pockets of citizens it’s not being SPENT! It’s being withheld. By those who don’t spend all they receive and by the ever greedy and needy banks. Who leverage money deposited to earn money from our hard work not theirs. They produce money from thin air. A job I say must be the job of the national government not banks. We don’t need leveraged money full of debt we want freely spent un-indebted money! Passed by SPENDING.
And because the banks need to produce so much money it’s plainly obvious that our pot needs more money! Not leveraged money produced by lending but, more currency that must be freely supplied by our governments. Freely SPENT by them and us. Not hindered and sidelined by banks wealth funds etc.
We are democracies yet, we allow a system that allows the few to hold massive sums of our much needed money outside of our reach. Not just that the rich who hold money in Banks aren’t even taxed for holding onto that money! The few dictate to the majority. That’s not right.
So the author is correct. Too much money is not being taxed nor does that massive idle sum contribute anything towards the needs of other citizens who pay taxes by SPENDING all their incomes. They restrict money bring spent freely and are not taxed for holding money beyond the time frame received.
You see there is a very distinctive misunderstanding of tax.
You see, ALL taxation is triggered by SPENDING. Or more precisely money changing hands or having to change hands.
For example, income taxes and here in the Uk Nic are both calculated on wages. The worker is liable for the amount. ‘Income’ is in the heading and a pay slip is produced for the worker saying he paid it but, in fact they didn’t pay it or TRIGGER the tax.
The tax was paid by the employer! The tax wasn’t paid by the employee. It was triggered by the business employing that worker as a package to pay as a cost. Wages and taxes. And the money that pays those amounts are born from the income stream of their patrons consumers and customers of that business. So it rely’s in their SPENDING to give the money to pay wages and taxes. In fact all taxation is a result of someone else SPENDING. Thats the trigger!
Here in the uk we have a sales tax Vat. And we too have Duty on things like alcohol tobacco and fuel. So again when a recipient of money SPENDs then tax on that spending is triggered.
Despite a wage slip saying something has been paid it’s more a kin to a Bernie Madoff style of monetary statement. As it wasn’t paid by the employee but by the employer! Ask any business owner who employed staff and ask them who pays taxes!? They will all say they pay for wages and taxes. So it’s the businesses that supply wages and tax payments.
If we accept that all taxes are a result of money moving by order or by choice and the vehicle to do that is exchange is SPENDING then it’s easy to deduce that both economies here and in the USA need more SPENDING! More spending that begets more and increased tax take. You can’t get more growth or more tax unless there is more SPENDING with more money that hitherto hasn’t been SPENT.
Now for us the people to SPEND more we have to receive more in wages. If we receive more money then and only then can we SPEND more than now from our present underfunded pot. We can in fact SPEND from an increased sufficient pot of money only if we make ALL money move ALL of the time! Including the vast sums withheld that at present isn’t being SPENT.
And to do that we must accept that holding money is bad and SPENDING money is best.
Withholding money itself doesent contribute to the need to pass on money by SPENDING. Keeping money doesent trigger any tax either! No tax is triggered on money unspent.
So those who can hold most money pays nothing in tax on all that unspent money and by not spending, contributes nothing to the needs of others in our society.
Thats the problem we both have. A lack of SPENDING. A lack of velocity. By increasing velocity we should start to have government surpluses. Not deficits.from all that increased spending.
Banks, wealth funds and pension funds etc all withhold money. They drip feed it back selectively. And hold onto it too long. Sometimes never exchanging it via SPENDING it at all!
We are told to save! Why? If we knew we would get four times more wages each week we wouldn’t need to save! If the money already out in the aether were to be SPENT in full, each month we should all earn more! So much more SPENDING that, more tax is inevitably triggered! More than now. More can be spent on all the things we need. All from money already out there.
Money, economically speaking, cures all ills. That’s a true fact. So why allow vast sums of our money, not wealth bought with money but, money itself to be withheld by those who don’t SPEND it? Leaving it idle unspent unused and out of reach? That’s unfair and undeniably undemocratic.
I suggest we can now do better.
I suggest we swap all money, coin paper and digital for a new currency based on population and heed. A new digital only currency. We have to have sufficient money to go around our population! That’s not being considered. If we need to borrow trillions then surely we just need that amount from the beginning? If it’s our currency then surely sufficient must be in play? L
Keep that currency in house in nation. Use the bank system to only facilitate flow. Not hinder it. We can at last track and trace every penny. It need not go abroad.
Once done a ‘spend by date’ can be placed on all or part of that money. Spend it if lose it by direct debit to the government. By all means earn more, but unless you spend it ALL back with the rest of us then, our system fails. We need money to be a baton constantly passed on in the same time frame. Not withheld from us.
Here in the UK we have a government in debt to £3-4 trillion pounds our government spends about £1.5 trillion per year. And take back tax of say £1.1 trillion pounds. There has been this deficit situation since 2000.
Apparently there is £19 trillion pounds out there in cash coin and digital money. I don’t know if that’s true but if not it should be!
If that money were to be SPENT just once in one whole year, not millions of times per second but, just once in one whole year our sales tax Vat, would bring in £3.8 trillion pounds per year! Over twice our present spending and nearly four times our present tax take from all spending and taxes now! From just one tax! No other taxation is needed at all. If all money has to be spent to fulfil the exchange then, vat is a great tax to take. Easy accurate and autonomous.
Thats the power of money moving in a tsunami of SPENDING with tax and revenue streams exponentially producing more to us and our governments, all from full spending.
We should all be well paid each month not underpaid and underfunded. No wonder we are borrowing. Like our government does, borrowing from the very people who withhold it all from us! They can’t be sustained and shouldn’t.
We end up paying loans back to people who don’t have to spend their money! Interest sustained their income whilst not ever having to spend that money. Wrong. Very wrong.
The idea in the winning essay reminds me of the single tax proposal of the late 1800s. As for the third place option, increased immigration is a non starter for me and I suspect for many other Americans.