…Every economy is planned. This traditionally has been the function of government. Relinquishing this role under the slogan of “free markets” leaves it in the hands of banks. Yet the planning privilege of credit creation and allocation turns out to be even more centralized than that of elected public officials. And to make matters worse, the financial time frame is short-term hit-and-run, ending up as asset stripping. By seeking their own gains, the banks tend to destroy the economy. The surplus ends up being consumed by interest and other financial charges, leaving no revenue for new capital investment or basic social spending.

This is why relinquishing policy control to a creditor class rarely has gone together with economic growth and rising living standards. The tendency for debts to grow faster than the population’s ability to pay has been a basic constant throughout all recorded history. Debts mount up exponentially, absorbing the surplus and reducing much of the population to the equivalent of debt peonage. To restore economic balance, antiquity’s cry for debt cancellation sought what the Bronze Age Near East achieved by royal fiat: to cancel the overgrowth of debts.

In more modern times, democracies have urged a strong state to tax rentier income and wealth, and when called for, to write down debts. This is done most readily when the state itself creates money and credit. It is done least easily when banks translate their gains into political power. When banks are permitted to be self-regulating and given veto power over government regulators, the economy is distorted to permit creditors to indulge in the speculative gambles and outright fraud that have marked the past decade. The fall of the Roman Empire demonstrates what happens when creditor demands are unchecked. Under these conditions the alternative to government planning and regulation of the financial sector becomes a road to debt peonage.

Hudson gives a democratic rationale for governments to tax rentier income or ‘economic rent’ especially that of the value of land…

Democracy involves subordinating financial dynamics to serve economic balance and growth – and taxing rentier income or keeping basic monopolies in the public domain. Untaxing or privatizing property income “frees” it to be pledged to the banks, to be capitalized into larger loans. Financed by debt leveraging, asset-price inflation increases rentier wealth while indebting the economy at large. The economy shrinks, falling into negative equity.

 

 

He ends with this …
Part of the reason this may be so hard for progressives to wrap our minds around is that not only does it upend conventional wisdom about the role of money, government spending and taxes — it also requires that we rethink our views regarding the economic “success” of the Clinton administration.

Getting back to the quote from masaccio at the top of the post… The old structures (policy prescriptions from orthodox economists, either saltwater and freshwater) haven’t worked and aren’t working. Recognizing that is step one. Step two is learning to think away from the formal structures learned in school. Yes, it may be hard… but we are lucky: We have a community of heterodox economists who are in the business of developing a new macroeconomics, who have a track record unmatched by orthodox economists and who want to teach us, all of us — from Paul Krugman to a random pseudonym on the web — what they know.

We ordinary citizens have no standing to complain about the blindered and ignorant ideology of our country’s economists and politicians if we are unwilling to take off our own blinders and consider, with an genuinely open mind, these new ideas…

Too much is at stake not to try.

Progressives in Ireland will get to hear three MMT stars, Randlall Wray, Marshall Auerback and Stephanie Kelton in Dublin on the 9th of May 2011.  Conference title; ‘Learning from the Crisis’, Croke Park Conference Centre.   Details on this site and on TASC soon.  The visit was instigated by Smart Taxes and partnered by TASC.

The Builders’ Manifesto

Dear World Leaders,

This relationship isn’t working out. Its time for us to explore other government opportunities. We’ve tried to make it work. But it’s not us — it’s you (really).

I’ve been thinking a lot about leadership lately. Specifically: why, today, when a wave of crises is sweeping the globe, does leadership seem to be almost totally absent?

The answer I’ve come to is, ironically enough, leadership itself. I’d like to advance a hypothesis: 20th century leadership is what’s stopping 21st century prosperity.

Let’s face it. The very word “leader” feels like a relic of 20th century thinking. And it just might be that the case that instead of aspiring to be (or train) more “leaders,” we should be seeking to reboot leadership. Why? When we examine the economics of leadership from a 21st century standpoint, we see that:

Leadership was built for 20th century economics. It’s a myth that leadership is a set of timeless skills. Is it? Abraham Zaleznik famously defined leadership as “using power to influence the thoughts and actions of other people.” Influence is the key word. The textbook skills of the “leader” — persuasion, delegation, coalition — aren’t universally applicable. Rather, they fit a very specific context best: the giant, evil, industrial-era organization.

Leaders don’t lead. How did this particular skillset emerge? Influence counts because the vast, Kafkaesque bureaucracies that managed 20th century prosperity, created, in turn, the need for “leaders”: people who could navigate the endlessly twisting politics at the heart of such organizations, and so ensure their survival. But leaders don’t create great organizations — the organization creates the leader. 20th century economics created a canonical model of organization — and “leadership” was built to fit it.

Leadership can be a bad. Organizations are just tools — and leaders are just more proficient users. When would a tool need a more proficient user — a leader — most? When the opportunity cost is greatest: exactly when that tool is about to be outcompeted by a better tool. Leaders are created when organizations are threatened to ensure organizational survival. But sometimes organizational death is the optimal outcome. That’s exactly what we see in the real world: leaders unleashing bailout after bailout, horse-trade after horse-trade, to ensure the survival of yesterday’s malfunctioning machines. The economics suggest that 20th century leadership lets dysfunctional organizations thrive at the expense of prosperity.

Here’s the problem in a nutshell. What leaders “lead” are yesterday’s organizations. But yesterday’s organizations — from carmakers, to investment banks, to the healthcare system, to the energy industry, to the Senate itself — are broken. Today’s biggest human challenge isn’t leading broken organizations slightly better. It’s building better organizations in the first place. It isn’t about leadership: it’s about “buildership”, or what I often refer to as Constructivism.

Leadership is the art of becoming, well, a leader. Constructivism, in contrast, is the art of becoming a builder — of new institutions. Like artistic Constructivism rejected “art for art’s sake,” so economic Constructivism rejects leadership for the organization’s sake — instead of for society’s.

Builders forge better building blocks to construct economies, polities, and societies. They’re the true prime movers, the fundamental causes of prosperity. They build the institutions that create new kinds of leaders — as well as managers, workers, and customers.

Who’s a Builder — and who’s just a leader? Here are some Builders contrasted with mere leaders: (link to full article)

See this the intro to the Chairman’s summary below..

THE WAYS OUT OF THE CRISIS AND
THE BUILDING OF A MORE COHESIVE WORLD

Chair’s Summary
Jean-Paul Fitoussi and Joseph Stiglitz

This year the G’s are meeting at a critical moment in history, at least
economic and social history. They will confront the gravest economic and
social crisis in almost 80 years. To paraphrase Keynes, the destiny of the
world is in the hands of the members of the G’s. They could act in such a way
that would allow us to get out of this situation, creating a future where
growth is more sustainable, friendlier to the environment, and where its fruits
would be distributed in a more equitable way, both within and among
countries. Otherwise, they will bear an enormous responsibility before
history, that of not having done the duty which has been delegated to them by
their people, despite having been in exceptional circumstances that gave
them much more room for manoeuvre than they would have had in ‘normal’
times.

That is why a group of ‘experts’, with no commitments other that of being
citizens of the world, decided to meet to reflect on what could be done,
hoping that from their reflection some useful recommendations to the
powerful of this world would emerge. This group, which christened itself the
Shadow GN, has been constituted under the leadership of Joseph Stiglitz and
Jean-Paul Fitoussi, thanks to a partnership between Luiss and Columbia
University.

…I think there are three main positions in this debate:

• A1: The banking system is broken. Banks need to get rid of their toxic assets and they need more capital. The solution is for the government to buy their toxic assets at a high price (or insure those assets) and to give them lots of cheap capital.
• A2: The banking system is broken. Banks need to get rid of their toxic assets and they need more capital. The solution is for the government to take them over, transfer off their toxic assets, recapitalize them, and (when possible) sell them back into the private sector.
• B: The banking system is basically sound and will recover if we give it some time. In the meantime, the government should give the banks just enough money and intervene as little as possible to keep them afloat until asset prices recover…. Link to article

Introduction

Systemic Fiscal Reform is a radical programme for the reform of taxation, subsidies and welfare.  It is designed to stabilise economies, improve quality of life, and facilitates the transition to full environmental sustainability.

The principles of Systemic Fiscal Reform are widely applicable.  Not only can they be applied to well established globally-scoped economies, such as those of the United States, Canada and the members of the European Union, but they can also be used by more bespoke or evolving economies such as Venezuela and South Africa.

The reforms mainly comprise the abolition of cumbersome and wasteful tax, welfare and subsidy systems, together with abolishing the bureaucracies which implement them.

In their place, a simple integrated tax and welfare system is introduced. This includes a number of existing taxes which have been found to operate effectively where they have been tried.

The wasteful burden of personal and corporate tax returns is generally eliminated.

Systemic Fiscal Reform Policy

No Income or Corporation Taxes – Replaced by a Land Value Tax

Income Tax and Corporation Tax are to be abolished (along with all payroll taxes, National Insurance payments and Gains taxes). In their place a Land Value Tax is levied on landowners, equal to the value of their land, but excluding any buildings, crops or other improvements. The land values are calculated using a standard procedure applied by local assessors. Landowners generally pay the annual fee in regular monthly instalments to their local government.

No Value Added or Sales Taxes – Replaced by a Carbon Tax

VAT and sales taxes are to be abolished. In their place, a uniform Carbon Tax is levied on all extraction and importation of fossil fuels. This Carbon Tax is in proportion to the pollution and climate change potential of the fuel when used in the normal way.

No Estate (Inheritance), Gift, Transfer or Stamp Taxes

Estate taxes such as Inheritance Tax and Accession Taxes are to be abolished. All Stamp Duties are to be abolished, including those on share and real-estate transfers.

No means-tested welfare benefits – Replaced by a Citizens’ Income

Welfare benefits based on poverty and joblessness tests are to be abolished. Any welfare payments based on disability are retained.

Universal Welfare: A Citizens’ Income

All resident citizens and lawful residents are entitled to claim a Universal Welfare payment called the Citizens’ Income. Such payment is made monthly by the local government, and may be directly used by home owners and their families to offset or cancel out their Land Value Tax obligations. Citizens’ Incomes for those in prison and state-funded care are retained by the state to help pay the costs incurred. Those in state-funded education will have an amount deducted from their Citizens’ Incomes to help pay for the education costs.

Other taxes

Most other taxes, such as “Sin Taxes” (alcohol, tobacco and gambling), road and fuel duties can be retained.  These remain operated on the principle that they reflect the differing effects on society and public costs which have to be paid for through health and other spending.  Fuel duty should include aviation and shipping, rather than retaining the existing subsidy those transport modes receive.

For resources, a  Landfill Tax is retained on the landfill disposal of refuse, reflecting the scarcity of suitable sites and the environmental harm.

An increased Insurance Premium Tax is levied on mandatory vehicle and other liability insurance to help pay for the police, fire protection, legal and social costs related to the insured activity.  This replaces the fire and police component of Council Tax.

The TV license is abolished, with Public Service Broadcasting paid for through general taxation or a radio spectrum charge on commercial broadcasters.

Subsidies abolished

Many tax-based subsidies cease to exist with the abolition of Sales, Value, Income and Corporation taxes. For example, tax exemptions on aviation, fuel, public transport, education and food simply disappear. Business subsidies such as investment relief, tax rebates, pension relief also disappear.

Explicit subsidies including those on energy and carbon emissions trading schemes should be abolished. Banking subsidies are withdrawn by removing banks’ rights to create new money in the economy (seignorage) in exchange for increases in debt.

Effects of Systemic Fiscal Reform

General economic effects

Widespread effects are certain, because Systemic Fiscal Reform addresses core economic issues, such as the costs and benefits of business activity, land ownership and employment.

Effects on housing, homes and land

The Land Value Tax has far reaching and revolutionary effects: property speculation ends; new and second hand houses become a comparable market to second hand cars reflecting their size, efficiency, condition and quality; urban land values fall, encouraging regeneration of poor and derelict land and housing; property price inflation becomes similar to that of other goods; housing becomes and remains affordable, contributing to a drastic shift in social mobility.

Effect on poverty

The universal welfare payment virtually eliminates poverty. All in society benefit from the “social dividend” created by a thriving society and effective government. The poverty trap becomes a thing of the past, with financial barriers to employment removed. Elderly home owners with insufficient income to pay their Land Value Tax will be able to “roll up” payments secured on their house value, while others will choose to move house.

Universal welfare is as significant a step forward for society as universal healthcare or universal education has been in most developed nations.

Effect on oil prices

By imposing a rising Carbon Tax on imports and production of oil, coal and natural gas, demand will be progressively reduced, improving the balance of payments (trade deficit) considerably. Suppliers will be forced to accept lower prices or reduce output (or both). If this policy is implemented by the major energy consuming nations, a substantial fall in international fuel prices will occur.  A Carbon Tax is particularly attractive to nations such as the US or the UK with rising dependence on fuel imports.

Effect on politics

At present, government spending on local amenities brings direct windfall benefits to owners of nearby homes and land. The spending is mainly taken from workers’ taxes. This misalignment of taxpayer and beneficiary is at the heart of many political conflicts and failures. Systemic Fiscal Reform ensures the beneficiary of local spending (i.e. landowner) is the taxpayer, eliminating this fundamental conflict. Any excess benefit over spending is returned through the Citizen’s Income.

Conclusion

Systemic Fiscal Reform answers the challenges of today and of the future. It resets the creeping state control and interest in every aspect of household and business life while ensuring an efficient, equitable, stable and free society.

4th March 2009

There is growing faith in the ‘wisdom of crowds’ in both its sophisticated ‘swarm’ version in business applications such as Amazon and Google, and its simplistic translation into political ‘participation’.  Participation is the uber goal of the community development movement; President Obama is a practitioner.  The force is strong too in the Irish environmental movement, locally and nationally.  Social Partnership is a highly evolved expression of the participation gene.  After all, it is only common sense that ‘participation’ – and its big brother ‘consensus’- properly implemented, will deliver the best decisions and action to benefit the irish people.

Or will it?  Could it be that fervent desire for consensus is what is retarding progress in facing up to this crisis; that participative decision-making that values everybody’s  opinion equally, where every idea is given equal weight could strand us in limbo, a nowhere place?

Could it be that the salt of leadership, or the spice of a grand narrative (much derided in the new dispensation) is required to lift the consensus hodge-podge into meaningful action.  Kevin Kelly reports on an interesting study.

…In 1990 about 5,000 attendees at a computer graphics conference were asked to operate a computer flight simulator devised by Loren Carpenter. Each participant was connected into a network via a virtual joy stick. Each of the 5,000 copilots could move the plane’s up/down, left/right controls as they saw fit, but the equipment was rigged so that the jet responded to the average decisions of the swarm of 5,000 participants. The flight took place in a large auditorium, so there was lateral communication (shouting) among the 5,000 copilots as they attempted to steer the plane. Remarkably, 5,000 novices were able to land a jet with almost no direction or coordination from above. One came away, as I did, convinced of the remarkable power of distributed, decentralized, autonomous, dumb control.

About five years after the first show (this is the update), Carpenter returned to the same conference with an improved set of simulations, better audience input controls, and greater expectations. This time, instead of flying a jet, the challenge was to steer a submarine through a 3D under-sea world to capture some sea monster eggs. The same audience now had more choices, more dimensions, and more controls. The sub could go up/down, forward/back, open claws, close claws, and so on, with far more liberty than the jet had. When the audience first took command of the submarine, nothing happened. Audience members wiggled this control and that, shouted and counter-shouted instructions to one another, but nothing moved. Each person’s instructions were being canceled by another person’s orders. There was no cohesion. The sub didn’t budge.

Finally Loren Carpenter’s voice boomed from a loudspeaker in the back of the room. “Why don’t you guys go to the right?” he hollered. Click! Instantly the sub zipped of to the right. With emergent coordination the audience adjusted the details of sailing and smoothly set off in search of sea monster eggs.

Loren Carpenter’s voice was the voice of leadership. His short message carried only a few bits of information, but that tiniest speck of top-down control was enough to unleash the swarm below. He didn’t steer the sub. The audience of 5,000 novice cocaptains did that very complicated maneuvering, magically and mysteriously. All Loren did was unlock the swarm’s paralysis with a vision of where to aim. The swarm again figured out how to get there in the same marvelous way that they had figured out how to land the jet five years earlier.  Link to Kevin Kelly’s website.

…The most common question that comes up time and time again after the initial questions is ’should we bailout the banks and companies or let them go bust?’ This is my favourite question that seems to divide the nation. The question is much more about identity then anything else. It is loaded with many previous thoughts and philosophies and is never as straight forward as the question first appears – the free market v. the welfare state and government intervention, the left wing v. the right wing, classical economics v. Keynesian economics, the conservative v. the labour, Capitalism v. socialism, Jim Rogers v. Gordon Brown, Ron Paul v. Barack Obama. Bail them out or let them go bust. My response – neither will work.” Link to article

1st published February 2nd

…..So here it is – to obtain the additional revenue our economy needs to make up for its lack of purchasing power, and upon which the economy is completely reliant, the government sells IOUs which increase in value with time. And when the time comes for them to be cashed, the government sells even more IOUs and uses this money to pay off the old ones. The government operates in an absurd system of debt-stocks which constitute a meaningless and utterly un-repayable debt to the future. This provides the government with a small amount of money now on the condition that they repay a much larger sum in ten or twenty year’s time. The government then proceeds to flood the market with these meaningless promises to pay, which can only be redeemed by the issue of yet more promises. The government draws on money already created as a debt, and relied upon for future payments on insurance claims and the pensions of the elderly, and allows banks and other lending institutions to purchase their bonds, conceding to these private institutions the right and power to create additional money, which is then loaned to the government at interest. Meanwhile, we must all work harder and harder, and the economy must become ever more productive and efficient to try to compete with other nations operating under the same lunatic structures, whilst the national debt inflates like a balloon…. Link to full article

From EndTheRecession.org

February 20th, 2009

The following may seem to be a brain teaser, but if it clicks in your mind, you will suddenly have a very different perspective on the world, and in particular, the current crisis. Enjoy.

There is one need in society that will always exist. No matter how much certain individuals believed that they couldn’t live without their Porsche, they will find that there is only one thing that really matters. That one thing is food.

Society is held together on the basis of one commonly held assumption – that when you walk into a certain designated buildings and hand over a piece of delicately printed paper, you will be given food in exchange.

This might seem a little like stating the obvious, but this highlights the absurdity of our current position.

When all is said and done, we know that the computers, cars, designer clothes, foreign holidays and other trappings of luxury mean very little in a near survival situation. Anyone who has spent any time in a near-death scenario will understand what little value you really place on such physical things. What really matters to us, in moments of clarity, is that our loved ones and ourselves are fed and safe from harm.

Now, we’ve come a long way over the last few hundred years. We know that we can, without a doubt, organise ourselves in such a way that everyone in our society is provided for, with at least a shelter and adequate food to stay alive.

In fact, we can do much better than that – we can provide everyone with food, clothing, heating, internet, telecommunications, mobile phones, public transport – the list goes on. We have made enough progress in technology and in the art of organising ourselves that we can ensure that everyone is provided for.

Except, that is, in a recession.

Take money out of the equation

Forget about money for a short while. Doing so will help you see the absurdity of the situation we are in.

A few hundred years ago, you would most likely spend your time working on the farm, producing the very food that you eat.

In modern times, you work away from the fields, producing various things that people want. In return, you are given tokens – gold coins, printed paper sheets, or more commonly now, numbers in a database. You take this coin, paper or numbers and exchange them for food.

You work, you contribute to society, and in return you are given tokens that you can redeem anywhere in society.

We can see that there is a voucher system in place. In the UK, the vouchers are called pounds. In the US, they are called dollars.

Now imagine, one day, somebody realises that we have all been using more vouchers than we have been earning. You get your vouchers in return for contributing to society (the genuine value you contribute is an issue for another debate, but let’s just look at the monetary value). If you are using more vouchers than you have been earning, then you are taking more than you give. Naturally, someone else, somewhere, must be giving more than they take. The real, physical economy can only be a zero-sum game.

Would it be possible that everyone was taking more than they give? Everyone was simultaneously eating more food than they produce?

Of course not – the food would run out within days.

The absurdity of the current situation…

So when we find ourselves in a situation where the vast majority of people are in debt, and the total of their debt far exceeds the value of everyone else’s savings, who exactly is under-consuming?

How is it possible that we are all taking more than we are giving?

It isn’t, neither mathematically nor logically.

If you understand this, the complete absurdity – and the complete illegitimacy – of the current monetary system should become apparent.

After all, how can we all simultaneously be ‘borrowing from the future’ when everything that we have borrowed to buy exists NOW, in the present?

What would happen if we were to cancel all our debts right now? Literally wipe the slate clean, forget about money completely. (This is not necessarily a proposal – just a mental riddle).

What are we left with?

If we removed money from the equation, what would we be left with?

We would be left with everything that we currently have.

We would be left with an ample supply of housing, machinery, office space, computers, food, and people with time on their hands.

In other words, we have everything we need to continue living the way we have been living for the last few years.

Everything we consumed in that period was created in that period – not in the future – so why do we need to ‘pay for it’ in the future? The idea of ‘living beyond our means’ works applies to some individuals, but can not apply to everyone collectively. It’s true that a 20 year old may have spent more on credit than they have earned in their lifetime, but how is it possible that we have all spent more than we have earned?

It’s all about the numbers

This current recession is all about a defective monetary system and a currency that is nothing more than numbers floating around in a computer system. It has no basis in reality.

Big decisions

It’s time for us to make some big decision about how we organise ourselves as a society. If we were starting from scratch, would we really design a system like this? Would we design a system whereby our decisions about what we produce and how much we work is determined by the numbers created in a computer system? Would we design a system which inevitably results in a shortage of those very numbers every 7-10 years? When we are sat here, looking for work; when businesses are sat there, looking for consumers; when banks are sat there, looking for customers; and no-one can make the first move simply for the lack of electronic numbers?

This is a crazy system. A recession is an absurd idea, and can only happen in a society that has become too wrapped up in the numbers and statistics to see the reality and common sense behind the situation.  It’s time we started again.

But the beauty of the solution is that we don’t even require a revolution – it’s very simple to get out of this depression. Find out just how simple it is by reading The Solution.