One of my favourite books of the year was Randall Munroe’s What If? 2, which like its predecessor offers serious scientific answers to absurd hypothetical questions. For example, “What would happen if the solar system was filled with soup out to Jupiter?” The short answer is nothing good.
Munroe’s extensively researched answer begins simply with “Please make sure everyone is safely out of the Solar System before you fill it with soup.” Or, what would happen if you installed a large iron cube cooled to absolute zero in your livingroom? (If you can avoid the risk that liquid oxygen collects like dew on the cube’s surface and then sets your house on fire, you’ll be fine. Just don’t lick the cube.)
Inspired, I took to Twitter to ask people for their absurd hypothetical questions about the economy, to which I might attempt serious answers. This column is too short – and this columnist insufficiently gifted – to do justice to Munroe’s books. Yet I must try; those absurd hypothetical questions aren’t going to answer themselves.
What does the world look like if all monetary transactions are now conducted with only penny coins? – Stuart Langridge
The obvious problem is that your purse would become rather heavy. The British penny weighs 3.56 grammes; put another way, £2.81 weighs a kilogram. Most products would weigh substantially less than the coins required to buy them. A supermarket shop costing £100 will require 35.6kg of pennies, so make sure you park next to the shopping trolleys.
All this would be inconvenient. People might start to figure out workarounds. What might they do?
History offers a clue. About a thousand years ago, the citizens of Sichuan, China, were ordered to use coins made of iron. (Sichuan was a frontier province, and China’s rulers didn’t want gold and silver circulating around Sichuan, possibly leaking into foreign lands.) Sichuan’s citizens immediately faced the penny problem, namely that hardly anything weighed more than the iron coins you would need to lug around to buy it.
Rather than pushing around wagonloads of iron coins, merchants would write IOUs, promising to settle their bills later when it was more convenient for everyone. Then – this step is obvious in hindsight – people started paying for things by passing around the IOUs.
If the widely respected Mr Zhou bought something from my shop and wrote me an IOU, then when I went to your shop later, I could write you an IOU in turn. But you might prefer it if I gave you Mr Zhou’s IOU instead. After all, we both know that Mr Zhou always pays his debts.
Now you and I, and Mr Zhou, have together created a kind of paper money. It’s a promise to repay that has a marketable value of its own that can be passed around from person to person without being redeemed with those tiresome iron coins. I suspect that if we were forced to adopt Stuart’s “pay in penny coins” system, we would invent paper or digital alternatives just as the Sichuanese did, and be back where we started.
What if we had not a minimum wage but a maximum wage? – Rachel Wrangham
The perennial concern with a minimum wage is that it might destroy jobs. Oddly, the maximum wage could have the same effect. In both cases, workers and employers need to find a sweet spot in wage negotiations: a wage that is high enough to attract the worker, but low enough to be profitable for the employer. A problem with both minimum and maximum wages is that the sweet spot may be illegal – in which case the job won’t exist. Either it is unprofitable for employers, or unattractive for the workers. Oops.
Wage rules also change the power dynamic in the workplace. Minimum wages put more bargaining power into the hands of workers. A legal wage maximum would put more bargaining power into the hands of employers. It might well increase corporate profits while reducing superstar salaries.
I suspect that highly paid workers would try to find loopholes, for example, in the form of self-employment. But then self-employment has been a loophole for avoiding the minimum wage, too.
What would happen if tax wasn’t a thing? – John Cronin
The immediate consequence would be that we’d have to find another way to pay for, or go without, things such as the army, the police, roads, the NHS, schools, state pensions and repaying public debt. For a hint at what this might look like, pick up a British newspaper this month.
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Of course it would be more intense than that. UK government debt would be repudiated, pensioners would go back to work or beg for alms, and healthcare and schooling would be paid for in the same way as food and housing – out of people’s own pockets.
Many people might be surprised at how little difference such a radical change made to their lives. What they saved in taxes, they’d pay instead on visits to the doctor or school fees. But a huge amount of redistribution is quietly conducted through public spending, so the country would be full of people who couldn’t afford healthcare, schooling, road pricing, pensions or much of anything else.
And some things just don’t lend themselves to user fees. The Meteorological Office could probably pay for public weather forecasts through voluntary contributions, but it’s unclear that you could pay for the army, navy and air force simply by having a whip-round.
A radical alternative is to pay for public spending by printing money. This would cause inflation, and eat away at everyone’s spending power.
At a first approximation, it should cost citizens about as much as their taxes would have done. The burden would fall differently, though. People with large cash holdings or nominally fixed incomes would lose most. Those who held tangible assets or were easily able to hold their wealth in foreign currencies would lose the least.
Trying to pay for all existing public spending by printing money would be disastrous fairly quickly. In the UK, the government is responsible for about half of all spending in the economy, so firing up the printing presses would soon cause chaotic hyperinflation. But if public spending were dramatically reduced, and health, education and other services were provided on a fee-for-service basis, then perhaps the printing presses could solve that nagging question of how to pay for the army.
In summary: make sure everyone is safely out of the country before you abolish all taxation.
What would happen if everyone in Coventry was given £1m on condition they didn’t leave Coventry? – Neil Pattinson
Coventry would become the Qatar of the West Midlands. With everyone in Coventry suddenly becoming a millionaire, it would be hard to persuade anyone to do unpleasant work. However unpleasant work would need to be done.
That would mean persuading a new class of non-resident workers to commute into the city to do it – an arrangement that is likely to prove inefficient and expensive. Within the city’s boundaries, it would be absurd to try to produce anything other than Michelin-starred restaurant meals or luxury spa treatments for Coventry’s original residents. And the whole thing would end in tears if the money ran out. On the upside, Coventry would host a fantastic World Cup.-Copyright The Financial Times Limited 2022
