The future will be very different from the past

This is more of a sci-fi type prediction of some dystopian society and hence hopefully very unlikely to play out for real! Here is how events may play out.

  1. There is a need for massive fiscal and monetary support whilst the virus is spreading;
  2. Governments and central banks work together to stimulate spending, round after round;
  3. Central banks introduce digital currencies through which governments can quickly inject fiscal support;
  4. Such changes do nothing to add to productivity;
  5. Governments rely on digital fiscal injections to control consumer behaviour and maintain power;
  6. The electorate is torn between 'free money' and being 'tracked and traced' through their spending;
  7. Society breaks up into those who are paid under surveillance and those who are free but chose to live in enclosed private economies.

Hopefully, we will have a government which is open and transparent in how they use a digital currency to track and manipulate consumer behaviour. The converse would be a totalitarian state which controls and punishes bad behaviour through how much digital money it supplies on an individual level.

If viruses proliferate, one can imagine a world where individuals are fined for moving outside of zoned enclosures or even where their currency is not accepted.

The concept of a decentralised digital currency, such as Bitcoin, which can be used amongst people as a medium of exchange and is not under the control of government is an obvious benefit when considering the alternative. Whether governments will allow the transfer from the official digital currency into a Bitcoin type store of wealth will be a major talking point. It would however still be possible to hold Bitcoin and exchange the official currency via some intermediate transfer system.

Wealth will continue to move into decentralised-custodied assets and away from centralised custody whose supply is under government or other private-corporate control (that includes centralised digital currencies).

Inflation

Whilst under QE, inflation can be generated with ease via MMT, such a move has the drawback of creating expectations of free money, ad infinitum. It does not encourage work or productivity which is needed to provide the goods and services an economy requires.  Governments will therefore try and 'ignite' a reaction in the economy by stimulating spending and hoping that second round effects of entrepreneurship and productivity enable the economy to grow.

We don't need inflation, but we do need jobs.

As we move toward elections over the coming years, we will likely still be in this low growth economy (after the 2021 bounce).  Governments will stimulate nominal growth but without plans to improve productivity, this will be mostly inflation. This will be a catalyst which divides the 'haves' from the 'have nots'.

Technology

The saving grace will as ever be technology. Technology creates new desires which encourages a society's demands. Such desires create a will to work.

Advances in AI and quantum computing in the coming decades will be the equivalent of another industrial revolution creating new jobs and demand. Governments need to do their best to encourage these conditions.

The alternative view is robots do the work; mostly labour intensive but also considerable cognitive-based functions. This has mass productivity benefits but gains will go mostly to those who control the means of production. Government's role will therefore be to design a system which encourages production but looks after those who are displaced by robots and AI.

Governments and central banks add no benefit from controlling fiscal or monetary policy, they can however regulate industry and control the conditions for technology to thrive.

The risk to society and social cohesion will therefore be how governments are chosen and influenced.

Blockchain voting systems

The need for a fixed term parliament may appear redundant with the technology to vote on major issues digitally from home. The virus may encourage remote voting just as it has remote working.

Blockchain technology also allows the issues upon which we vote to be decided by those who contribute most to society. We will not have an elected parliament. Laws will be decided upon and documented digitally and civic agencies will receive their instructions and be monitored by AI.

Many of the current governance arrangements of digital coins require a certain amount of coins to be pledged at risk of loss in order to take part in the governance decision and command positive behaviour. Whilst a decentralised and popular currency reduces the risk of any one or few bad actors working together; it still requires wealth as the determinant of who gets to vote. Clearly, this would not be good for society governing for the good of the people as a whole.

One can imagine a governance system where currency is accumulated through work or other valuable contribution upon which society has attached a price. Currency can either be pledged to run the political system or vote or simply spent.

Obtaining members' trust in the AI which governs them will be paramount in securing sufficient take-up of the technology. It won't happen overnight and how we get there will be a bumpy ride, but I am sure life will continue on this digital path (though we may exist in two different states permanently!).