Money Flows

Hot money flows will not save the bankrupt status quo.

This week two news stories pointed to an issue that, wish it were otherwise, demonstrate the need for fundamental system change. The first story regards the fortune amassed by the Mubarak family during their rule of Egypt and the second concerns the massive scale of the corruption afflicting Indian society. Read the comments after the Indian article to get a real grasp of how this kind of corruption affects the core of a society down to the smallest neighbourhood, and this story that reveals the extent of the theft of public property in Egypt.

Where do these trillions of ‘hot’ currency go? They go into banks in the Western industrialized nations and their lackey tax havens – these three components form a coherent whole, interdependent on each other. This is colonialism by corruption, and the citizens of the beneficiary societies are as guilty of complicity today as they were 100 years ago. If you live in the West, don’t feel bad about it: you’re as much a victim as the citizens of the new ‘colonies’, because the same institutionalized theft is robbing your neighbourhood of resources just as much, through tax avoidance.

Why is this tolerated? Well it’s not tolerated by those who can’t do anything about it, in Egypt and India; they are just in a state of powerless despair. It is tolerated by those of us who can do something about it, because we have been unwitting clients of the system. The availability and use of debt to finance our distracted acquiescence has been the magician’s move that has drawn our attention away from the true play that is being made. In this trick there is a fine balance that the magician must strike, wherein the audience feels like it is getting more than it deserves, without actually getting real benefits. Like any sidewalk hussler, when the opportunity comes along to really cream a willing punter, the escape requires all parties to feel sufficiently guilty that no one feels entitled to recompense. This where the citizenry of the West is: asleep at the table, engorged on the fake food served up by the chefs in the kitchen while they resell the real food out of the back door of the restaurant to their buddies on the black market.

What can be done about it? The complete reorganization of the banking system. Preferably a coordinated reorganization encompassing the US, the EU, the UK and Japan; but even a principled stand by one of those financial centers would put the cat amongst the pigeons enough to disrupt the system and lead to change over the medium term.

What are the consequences? Without the hot, secret money Western banks will not be able to generate the profits they do today, nor would they be able to support the same level of employment. The fall off in tax revenues and employment in the client states would have to be offset, requiring a fundamental reorganization of commercial and social infrastructure. The net effect on tax revenues to Western states might even be positive, as banks pay a smaller percentage of their profits in taxes than the individuals and corporations who use the banks to avoid tax would have to pay on their incomes if they were properly declared. Potential benefits to non-haven states would be massive improvements in social wellfair, but would only accrue if accompanied by a significant democratization of their political systems – that democratization would be much easier to achieve without banking system support for corruption.

When will this happen? When the balance of benefits to the citizens of the haven states falls below even. The citizens of those haven states have already assumed the burden of the 2008 bank bailouts, but they have accounted for that with debt, so the full reality of those costs have not yet been bourn. The “plan” is to meet those debts over the coming decade by leveraging the same financial colonialism and conjuring (the failures of which created the debts in the first place) so that the massive increase in the money supply (aka ‘printing money’) that was used to account for the debts can be matched to grown wealth. This plan relies on the perpetuation of the existing banking system, complete with inflows of hot, corrupt money from all over the world. This is why today’s Western leaders will connive, lie and obstruct as much as they think they need to to protect the status quo, because they do not know how to plan for or adjust to a fundamentally reorganized society – they are not evil, they are just clueless.

The troubles with the “plan” are already becoming obvious. First is that the wealth that is being created is being confined to very small slither of the populations of the haven states, and, in a superb irony, they are using the same financial corruption to avoid adding to the wealth of states they inhabit. Second is that the debts cannot be satisfied with the growth that is available, and must be supplemented by sucking more wealth out of compliant tax payers through ‘austerity measures’. Third, none of the first two plans is happening fast enough to stop the excess money causing inflation, further exacerbated by real increases in the costs of raw materials. These problems mean that the haven states will start, this year, to raise interest rates to combat inflation, and in so doing push the balance of benefits for their average citizen firmly into negative territory. 20% youth unemployment, rising basic living costs and a kleptocratic ruling elite are the perfect ingredients for a revolution – witness North Africa, January 2011.

In the next few years, as real social disruption develops in Western states, a serious debate will emerge around whether completely reorganizing our economic and social frameworks is actually any less disruptive that attempting to maintain the old status quo. If we desire a constructive process of change we need to start thinking now about how that reorganization can manifest positively – that’s the reason to read and contribute to alternative thinking like the Standards of LIFE.

Open letter to the Basic Income community

Dear Citizen

The purpose of this open letter is to invite you to consider whether the goals of Basic Income can be attained more effectively and more sustainably through the provision of Universal Services.

First, let us say that we heartily agree with the basic objective of moving forward to the next evolution of social organization, and that we find the historical precedents that you cite in support for Basic Income are indeed the very same that support Universal Services. There is not the width of a hair between our visions of a peaceful society, in which each individual can fulfill their potential and use their unique skills and abilities to contribute to the whole in a way that honors their freedom. We both recognize that the empowerment of the individual is the basic fabric of our common society, and that it provides the foundation on which to rebuild a new economy.

Furthermore, the distinctions between our mechanisms for achieving the same goals can be seen as quite subtle, even muted. The basic mechanism of providing a structure within which each and every citizen is guaranteed the bare necessities to sustain life is common to both of our approaches, and it is this commonality that drives us to believe that we are sufficiently of one mind as to be able to bridge our differences and join forces in the pursuit of our common goals. Our differences do not separate our intentions, our commonalities define our opportunity to work together.

The primary difference between Basic Income (BI) and Universal Services (US) is whether or not money is provided to citizens. This is not a difference in intention or objective, it is a distinction in the mechanism used to reach the same goals, based on the same principles. We have studied the fundamental economics of modern, monetary systems and concluded that the most important rebalancing that must occur is to return to the social sphere those costs that are social, and that this is necessary to develop a sustainable economy. If we do not socialize our social costs we cannot make the books balance and we cannot preserve the value of currency.

We recognize that the development of our societies and commerce over the last centuries has left us with an unconscious assumption that monetary instruments are the appropriate, and often only, way to measure and account for value. It is a natural extension of this assumption that we think of welfare and opportunity in terms of monetary values. However when we use money to pay for what is actually a social cost we are both devaluing the currency and creating unsustainable accounting, because we cannot monetize the social benefits that would be necessary to balance the books.

In the US model the same objectives of BI are achieved: every citizen is availed of the basic necessities to sustain life, and the opportunity to develop their contributions to themselves and their society. No one is obliged to “work” to receive the services, and they can use the services as they need them. The level of universal services provided is dependent on what that society can afford, in the same way that the size of the BI grant varies based on the wealth of the society. Many of the enhancements to the functioning of the labor market as well as the environmental benefits are the same with both US and BI. However there are important differences in both the practicality and the impact of US versus BI.

The biggest advantage of US over BI is that it is affordable (and therefore more practical) because it “pays” for the “cost” of the services by socializing the labor portion of the cost of delivering the same services. BI does not change the fundamental accounting practices at the base of the modern capitalist system, which are crumbling under our feet as we speak. US removes the subsistence portion of labor costs from the monetary transactions in the economy, and in so doing balances the economic accounting by constraining the use of money to value only economic assets. The impact of BI is the reverse, it encourages the fallacy that monetary accounting can balance the world, that social good can be paid for and that social costs need to be measured in currency.

The second most important reason why US is preferable to BI is that it enables the development and growth of a microeconomy that can supplant capitalist enterprise as the primary economic fabric of our societies, and this is a fundamentally more sustainable foundation for our society. By removing cash payments from the social support system US effectively enables the provision of micro services rendered for micro payments. When citizens seek to supplement their US in order to afford “luxury” items that are not included in the US they can meet those needs by providing services, products or labor according to their skills and abilities at prices that are effectively the marginal value added. This creates a rich ecosystem of micro transactions that creates a micro economy that meets needs more directly and accurately at lower cost and with less waste. With BI the transactional value of any service, product or labor is increased to a level that is defined by the value of the BI grant more than the value added by the service, product or labor.

Admittedly BI is presented as a supplement to social security, not a replacement, but it is inevitably perceived as an alternative and in practice it would be almost impossible to separate the two. This problems leads to many of the structural issues that BI has difficulty addressing, such as:

  • the incentive gap
  • abuse
  • effectiveness (size of BI grant)
  • appropriateness (differentiated needs)
  • and finally the most significant: we still need a social safety net.

The BI community has been extremely inventive and diligent in working to overcome these objections and problems by developing mechanisms that seek to redress these issues through different implementation processes, however this has led to overly complex constructs that further detract from the practicality of BI.

We are fundamentally of one mind regarding the necessity of moving forward to a better socio-economic model that incorporates the unassailable truths of freedom and individuality, and we share the same heritage and the same goals. We hope to unite with such a caring and thoughtful community as you have built around BI, and we would hope that this letter can serve as an introduction to the possibility of uniting forces around a cohesive vision for our common futures that will bring your and our communities together to fight for a better future.

Please consider this an open invitation for engagement and discourse that will yield a common platform incorporating the best of both of our approaches. Check out the framework described in a fair degree of detail at www.standardsoflife.org and let’s get moving forward together.

Yours faithfully,

The Standards of LIFE Community

Forest-re and REDD

The lazy lack of principled rigor in the immature scheming of self-infatuated Westerners and fin-dustrialists needs to be confronted with straight forward thinking based on simple principles, before we all disappear down the evolutionary chute of stupidity.

“Poor, ignorant natives are cutting down our forests and if we expect them to stop we need to start paying them to leave the trees alone.” That is the reason given by the good and the white to introduce a forest-carbon trading program (REDD) that will allow us to buy their forests from them, so we can stop them from destroying their forests, while we continue to destroy the planet. Because this brings “markets” in to the solution (“the way the world works today”) it is automatically brilliant and practical while being eminently sensible.

The reality is that the forests are being destroyed by commercial concerns and need to be protected by the people who live in them from those that would commodify them. The way to save our forests, and all their attendant flora and fauna, is to charge commercial interests an appropriate surcharge for their use of our common resource: the planet. Money raised from these taxes could be ploughed back into the indigenous communities to sustain them as Mother Nature’s protection force, and remediate the damage caused.

The incredible short-sightedness of well meaning but imperially minded white people like Saros and Goodall should not distract us from the obvious illegality of claiming someone else’s land and resources as our own, to do with as we wish. The forests belong to the people who live there and if they want to exploit them then they will have to pay the surcharges necessary to remediate the damage caused to our common habitat: the atmosphere. The politicians at the head of a nation cannot make agreements in their capitals to sell the contents of the trees growing on the land in their communities to some far off entity, and then pocket the money and impose restrictions on the lives of those who live in those communities.

Much better would be BLUU (Bluddy-well Leave Untouched and Uncommercial). The lazy lack of principled rigor in the immature scheming of self-infatuated Westerners and findustrialists needs to be confronted with straight forward thinking based on simple principles, before we all disappear down the evolutionary chute of stupidity. Stop painting the planet REDD and let’s have some BLUU sky thinking – that’s the way forward!

See www.standardsoflife.org for details on principled self-determination and practical carbon loading.

The Minimum Wage is History

At it’s heart the concept of the Minimum Wage accepts the subservience of the social order to the economic order, and attempts to extract a concession from the economic system to maintain the fabric of the social system.

What’s the point of having a Minimum Wage? If the idea is to ensure that an individual’s work effort is not exploited so much that they cannot afford to sustain a basic, minimum lifestyle at that pay level, has it worked? No. Why not? Because it is a basically flawed remedy for a social problem imposed on an economic construct. It doesn’t work, it won’t work, and, in fact, it is polluting our political process by encouraging economic interests to subvert our political systems in order to restrain the impact of Minimum Wage legislation on their operations. (James K. Galbraith, Attack on the Middle Class, Mother Jones, Nov/Dec 2010)

In order for the idea of a Minimum Wage to achieve it’s stated objectives, two preconditions have to exist: people must have employment, and the Minimum Wage must be sufficient to sustain life. But in a capitalist society the availability of employment rises and falls with the business cycle of capital-intensive enterprise, so a Minimum Wage does nothing to help the worst off: the UNemployed. And in today’s capital-democracies the political process is subservient to the capitalist process, meaning that the level at which the Minimum Wage is set is subject to the approval of the largest capital interests (who control the politics).

At it’s heart the concept of the Minimum Wage accepts the subservience of the social order to the economic order, and attempts to extract a concession from the economic system to maintain the fabric of the social system. This ‘world view’ is a legacy of the awe with which we witnessed the incredible rise of capitalist enterprise in the 20th C. The basic flaw in that model is the notion that the economic system is sufficient to sustain the social system, it isn’t and won’t ever be – the economy is a subset of society and to no amount of imagination can subvert that reality. This is part of the structural problem at the root of our perilous rush to oblivion, the economy is dependent on the society, not the other way around. It is only when our social support systems are assumptively included in a picture of our society that it appears to the casual observer that the economy is our master. Belief in the ascendency of markets and capitalist economics is akin to belief in creationism, it requires ignorance of the facts. The facts are that our economy is 100% and inextricably dependent on our the health of our society.

On the other hand, no economist locked in a room with only economic theory could construct an argument in support of the Minimum Wage, it is a basically distorting mechanism that meets no economic goals. And that’s the point, the Minimum Wage is a social construct designed to try and deliver a social end. It’s time we stopped trying, and starting actually delivering the end we mean to. If we believe that a citizen is entitled to a basic minimum lifestyle (and we had better believe that if we value a peaceful, sustainable society), then we need to start delivering that, instead of playing with market mechanisms in an attempt to deliver the same. To quote Morpheous, “Stop trying to hit me, and hit me!”

If we carry on with our current approach, we are just floundering around in a nebulous construct that we know, deep down, is completely flawed at its foundation. It’s time to stop playing cricket on a football pitch and move the game to its home turf. Face it, live up to it, call it out and be proud: “We believe that every single person in our society is entitled to the basic services that sustain life. We’re not asking for permission to deliver on that promise, we’re going to deliver on that promise first and sort the rest out on top of that.” That we is you and me, we aren’t asking business to sort it out for us, we are taking responsibility for sorting it out ourselves. We’ll pay for it exclusively out of our income taxes and we’ll get it done without a single dime in corporate taxes, without a mandated wage and without the involuntary participation of any commercial enterprise. It’s our society, we live in it and we take full responsibility for it.

The minimum wage is history, it’s time for the return of sanity, responsibility and honesty. The minimum wage is an excuse for inaction, an innocent but ignorant attempt to pass our buck to people who can’t and won’t do what we say we mean to do. There’s plenty of income tax to do the job, we just need to do it, and for the sake of preserving a thousand years of civilization, we need to start doing it now!

Fundamental Rethinking Required

Why we won’t make it out of all of this without more fundamental rethinking.

If we think our economies, and particularly our government budgets, are in trouble now, just wait until we wake up to the true costs coming our way in the next decade or two. Balancing our budgets, using our existing system of economics, is about to go from difficult to impossible.

If the only problem the developed economies had to worry about was repaying their massive debts after correcting their budget deficits during a recession, then one could argue that a way forward can be found. However the challenge we face is greater, and we are going to have to fundamentally reform our thinking before we can turn our economics around.

There are clues to why our situation is more complicated in three factors that underlie our already obvious economic dilemmas: infrastructure underinvestment, social support bankruptcy and global resource constraints.

Infrastructure underinvestment
Even without providing for investment in climate mitigation, the WEF estimates that we are running more than a $2 trillion annual deficit in infrastructure investments and replacement. It is likely that the USA, India and China will need to spend $2 trillion a year on infrastructure by themselves, the unfunded deficit across the globe is probably around 2 to 3 times that number.

Social support bankruptcy
Never mind that we aren’t meeting the basic sustenance needs of millions of children every year in the developed countries, the global targets that the UN set itself for “Millennium Goals” are being missed at every turn. On top of all the social support we are failing to provide and haven’t accounted for, we have a massive overhang of known social support costs that we have accounting for. The unfunded pension obligations of developed nations are over $100 trillion and those pension shortfalls will start to materialize in less than 10 years from now – half a dozen states in the USA will have bankrupt pension schemes by 2020, and that’s before the US federal system runs out of money between 2030 and 2040. The published deficits in existing social security systems and pension schemes are not a complete picture of the gap in funding for social security worldwide – that’s probably 10 to 20 times as large again.

Global resource constraints
The third leg of this upside down stool is the inevitable rise in the cost of resources as the supply of raw materials becomes constrained due to increased demand and higher production costs. This will add another $2 trillion or so to the burden of the global economy every year for at least the next 30 years, probably more likely it will be 50 to 100 years. A $65 increase in the price of oil (putting it back at 2008 prices) would add $2 trillion a year to the cost base of the global economy all by itself.

Just fixing the current budget and debt problems of developed nations will mean correcting an annual $3 trillion imbalance, and then attempting to pay back $30 trillion of debt over 30 years. Assuming costs remain stagnant and growth could be accelerated to 3% plus, these seemingly enormous problems could be coped with. But when you add $6 trillion or more of annual cost on top of these numbers, the global economy would have to achieve never before seen (and completely unsustainable) rates of economic growth to make the numbers work out. It just ain’t going to happen–something’s got to give.

What could “give” to correct this impending imbalance of economic mathematics? One or more of the following will have to give: peace and freedom, the global economy and “sound” money or our current, traditional perspective. Indeed, all of these will have to give if we don’t rearrange our relationship between society and economy. Without a reorientation of perspective we can only have one of the first two, and even then only for a short time.

As we think about and plan our societies, we have to carry this understanding with us: if we try and pay for all of our welfare and social services with money, we are trying to satisfy the non-wealth portion of our society with our wealth. Not only isn’t there enough wealth to perform this feat, we’re actually abusing the role of money in our society. It’s like trying to make water out of milk… it’s possible, but you’ll run out of milk before you have watered the cow.

We have become blinded by the amazing rise of the capitalist economy, and in so doing we have dropped the notion of “in-kind” exchange from our thinking and our imaginations; even though we know intellectually and emotionally that “the best things in life are free”. In the real world, the in-kind transfer of social support is a necessary and vital complement to the capital economy.

What we are missing is the very nature and meaning of money. Money is a means of representing wealth. Wealth is material value accumulated greater than material need. You would not hesitate for a moment to profess that the total real value of your life, your family and your community is greater than the sum of your money, and therein lies the truth about why our attempts to value everything in money is doomed to fail the basic test of mathematics. The total value of every society is greater than its total wealth, and any attempt to contain its value within its wealth will wreck on the rocks of reason, sanity and economics. And yet this is what we are trying to do when we provide money in lieu of the social support we intend to supply.

The “traditional” perspective, although it is actually very modern, is that everything has to be valued in currency. The shift we have to make is to revert to a more fundamental understanding that currency is a method of transferring wealth is part of an economic transaction, and not every transaction needs to be, or should be, valued in currency. There are quite obviously enough people to provide all of the required social support services, to build the bridges and to modify our infrastructures for sustainability; it’s just that we can’t afford to pay everyone to do all of these things. Why should we pay each other, in currency, to do these things? Are these activities wealth creating?

The reason we are running out of money is because we, rightly, understand and practice the science of preserving the wealth symbolized by our money, otherwise we’d just print all the money we needed to pay for everything. But we cannot maintain the value of money and at the same time value everything with money, money can only be a symbol of wealth. That portion of human activity that is not wealth creating cannot be paid for with wealth and still preserve the value of money. I do not feed myself with wealth, wealth is what I have left after I have fed myself. The fundamentally distorting spell we have all fallen under is that our society will fit inside our economy. We are so used to using money every day to pay for everything we buy, that we forget to notice all the things we do for others, and receive from others, every day without pay. Our society is bigger than our economy and believing that we can pay for society out of the proceeds of the economy is borderline insanity.

Before we get too heavy, let’s recognize that there is plenty that we should value with money, everything that represents a transfer of wealth, and that’s many things. But there’s a large portion of society that we must learn to value differently, almost like a separate, parallel currency, only without numerical denomination. That portion of society that is what we must have before we can consider ourselves to have wealth, must be paid for in kind, otherwise we will destroy our wealth. The basic necessities of life, without which wealth is meaningless, must be removed from the accounting system we call our economy. The way to do this is to establish a system of universal services that satisfy the most basic universal needs we all have, and without which we cannot consider ourselves to have wealth. When we provide these for ourselves and each other without payment, we integrate the cost of our social needs into our lives, liberate money for its intended purpose and can actually build functioning, sustainable economies that can balance their money books.

Eventually we will have to change our perspective, it’s our choice as to whether we decide to do it now or later. The longer we wait, the greater the pain; but I suspect we haven’t felt quite enough pain yet to entertain such a change in thinking. After all, letting go of our attachment to a concept that we believe makes the world understandable, is one of the hardest things to do. But once we do, the world will make infinitely more sense.

Reimagining our options

Why borrowing, taxing, printing and cutting are not our only options.

Why we don’t have to tax, borrow, print or cut.

Has it occurred to anyone that these are not our only options?

The prevailing logic (we won’t call it wisdom) goes something like this, and I’m sure you’ll find this very familiar.

We understand the need for a social safety net, especially important in urbanized societies where the poor cannot “return to the farm” in bad times, and the value of certain investments in our social infrastructure that sustain our economy and our social fabric, but we cannot afford to pay for them – meaning that our government does not raise enough in taxes to be able to pay for the services.

Here, below, are the reasons and rationales offered for why this problem is only resolvable through austerity measures, meaning reductions in social services and investments.

1) We cannot raise taxes to create more revenue because those taxes will destimulate our economy, resulting eventually in lower tax revenues. In other words, raising taxes is a self defeating strategy that will only require yet higher taxes in the future, until the economy is so deteriorated that it cannot create sufficient wealth to support the burden of the social infrastructure at any taxation rate.

2) We cannot borrow any more because we have already tried that and now carry so much debt that simply servicing the debt we have is the best we can do.

3) We cannot print money, or at least we cannot be seen to be printing money for very long, because that will devalue our currency and create inflationary pressures in our economy. We all know what happened in Germany before the Second World War.

4) We have no choice but to cut our expenditures, and that means reducing our social services and investment in our social infrastructure.

Now, before we go any further, let’s deal with the objections that have already arisen in your mind.

1) “Taxes can be raised.”
It is true, we could be more effective in our tax collection practices and we could probably tax certain activities more than we are. In most countries, that have income tax rates at or above one third and sales taxes of between ten and twenty percent, there is actually relatively little room to raise taxes without deflating economic activity. However, the most important point here is that it would take really high rates of taxation, high enough that almost everyone would agree they were too high, to raise sufficient revenues to cover an even moderately ambitious social investment program. When you do the math you realize that you cannot tax your way out of this problem. If anyone tells you that you can tax your way out and that there are examples of countries that are, you can safely tell them that those examples, and that math, is dependent on borrowing demand from another society, i.e. unbalanced trade. There is no sustainable taxation solution to the problem of affordable social infrastructure.

2) “We can still borrow more.”
As I write, in the Spring of 2010, this only true for an increasingly small number of countries, rapidly dwindling to only one, and soon to be none. There are counties with vast (unsustainably) exploitable natural resources who can borrow, but they don’t need to.

3) “We can print more money, it’s not the bogey man many say it is. We’ve done it before, we can do it again now. We now have sophisticated financial control mechanisms that allow us to control inflationary pressures. A little inflation is not such a bad thing – it will help to reduce our debt in real terms.”
You can take your pick from those arguments but ask any central banker charged with controlling inflation and you’ll hear a real expert tell you otherwise. Liquidity in a modern economy is a difficult beast to control and playing fast and loose with it will get you in trouble, nine times out of ten. You might be able to increase liquidity inside the banking system for a while, but if that gets out into the general economy (which is where social spending has to occur) you’re going to get inflation.

4) “We can cut other expenses, such as defense, instead.”
A favorite of the passionately well intentioned, but unfortunately deeply flawed. The horrible truth is that the necessary social costs greatly exceed any savings that could be wrangled from waste and militarism. This is not to say that waste and militarism should not be targets for reductions in expenditures, just that even if you’re wildly successful in reducing these expenses you simply won’t be saving enough to pay for the social infrastructure required to make your intentions a reality.

And so we are returned to the matter of cutting expenses. It would seem, and indeed it is true, that we have no choice but to cut our expenses. We can only spend what we can raise from reasonable taxes, and the options to borrow or print our way out of our problems are but short term tactics for delay.

Stumped? Did I take you all the way here just to show you that we have no other options? No, I didn’t. We have to cut expenses but we don’t have to cut our social services. In fact we can increase our services and our rate of investment with the same or less money that we use now. How? Let me show you.

Social services aren’t, can’t, won’t and must not be measured in monetary terms. You aren’t paid in money to help an old lady get off a bus, to change your children’s diapers, pick up a piece of litter or care for an elderly parent. So long as you are secure in your own personal welfare you do these things for free. Well, not actually for free, just free of monetary compensation. You do these things because they are part of your social fabric, and you are rewarded in kind by a cohesive and supporting social fabric around you. Inside the appreciation of this simple mechanism lies the key to unlocking the door that leads to the solution to our problem.

As long as our basic social welfare is secure we make spontaneous and voluntary contributions without monetary compensation. Even those who think of themselves as selfish animals are unavoidably and instinctually engaged by this natural mechanism. We do not have to pay ourselves to deliver our social services, we just have to create the basic security that unlocks our potential for social contribution, by guaranteeing that basic services will be available for anyone who needs them.

The solution that we have not considered yet as an option is revealed to us through simple observation of ourselves in action.

There are still costs that must be paid for with money, but the remaining costs are within reach of a reasonable tax on the economic activity of a sustainable economy. To paraphrase a wiser man than I: pay in money what must be paid in money, and pay in kind what can be paid in kind.

The math adds up, I’ve done it, try it for yourself. Take a reasonable tax on people’s incomes and spend it exclusively on social infrastructure that will guarantee every citizen the bare necessities of life. We can afford to guarantee everyone basic shelter, sustenance, education, healthcare, public transport, access to information and legal services. Not everyone will want them all, most will only use some, and a few will use none at all. But a reasonable tax on economic incomes will generate sufficient monetary revenues to pay for the monetary components of a guaranteed basic social infrastructure for all. The enablement of this basic infrastructure removes the monetary cost of its own delivery through the liberation of natural human tendencies.

The mechanisms to enable this solution are already in place: democracy, tax collection and service delivery. All we have to do is subtly reorient our priorities and activities to dedicate income tax revenues to guarantee a basic standard of life. It would take less than three years to be fully implemented in most nations today, and would not require any dramatic upheavals to any of the basic economic systems already in operation. It will require us to reimagine the possible, but that is well within our grasp.

Here’s how it works. I, and you, are guaranteed by our compatriots at least the bare essentials for a reasonable life: a roof over my head, some healthy food, access to a doctor, education, local public transport and the Internet. Understanding that these basic services are available, I am free to seek whatever work I can find to supplement these services with cash, that I can use for discretionary activities like entertainment and comfort. There is no minimum wage because my basic life sustaining needs are guaranteed, and also I am not forced to accept any job just to keep body and soul together. In fact, I only have to work for as many hours as I need to meet my needs for discretionary income; I am free to spend the rest of my time at leisure or helping out in my community, should I choose to do so. “But what about those who choose to neither work nor contribute?” They would have no discretionary income, and everyone has discretionary desires – in time desire will lead to work and contribution. In this situation the monetary cost of our time is reduced and this same reduction makes the provision of the social services affordable from a reasonable tax. In fact, the more I help out voluntarily in my local community the lower the cost of those services and therefore the lower the rate of tax on my income.

Within three years just about any community could build a community center with a canteen and build or acquire sufficient public housing to fulfill the fundamental elements of the required basic social services. This effort is easily within the grasp of most communities in the industrialized countries. While those are being built nothing else needs to change, and when they are completed and in operation the minimum wage can be abolished. Everyone is freed to work in whatever way they can and want to to earn monetary income. For many life will not have changed at all, they still have their job, go to work every day and earn similar incomes and pay similar taxes. For our governments the cost of delivering social services will have been transformed with plenty of workers delivering the services either completely voluntarily or at substantially lower montary cost, enabling them to balance their budgets while still supporting a vibrant and cohesive social structure.

The square can be circled. This is the option right in front of us that we have not seen. This is the solution, an alternative to socially destructive and ultimately self defeating cuts, that does not require unreasonable taxation, unsustainable borrowing or inflationary printing.

Rinse and repeat, until it sinks in.

After that, to find out more go to Standards of LIFE.

Tell me again, how is this all going to work?

The rationales for austerity and expansion fly in the face of the facts. We need solutions, not reasons to carry on doing the same things all over again.

We’re going to cut expenditures so that we can use more of our tax revenues to repay debts, that were based on projections of future growth we are not, and probably cannot sustainably, achieve? We need to do this because we cannot possibly repay our massive debts because they are equal to the total output of our society for about a year?

If we don’t repay the interest and this year’s maturing debt, we won’t be able to borrow more to repay next year’s maturing debt? The only way out is if, by some miracle, we manage to produce and consume more with a less healthy, worse educated, less transported and less informed populace? And even that assumes we can actually grow without causing a global environmental crisis – which would only be possible if we were to invest heavily in retooling our industry and energy infrastructure for a low or zero carbon future?

So, tell me how this works again?

We borrowed so much to buy the house we’re living in that we can’t afford to pay the mortgage without canceling our health insurance? On top of that, the roof is leaking and we’re burning the doors to stay warm. If we all pull together and work really hard for the next month, we will be able to make next month’s payment. Is that it?

“No! No!”, you say?
“It’s really not that bad because you own the mortgage on your neighbour’s home, and so long as everyone just keeps paying their mortgages, it’ll all work out in the end.”
What!?
“You should even consider printing some money and giving to the banks, so you can borrow some more to buy a car. That will stimulate the economy!”

Now wait a minute! Tell me how this is going to work, again!?

… It doesn’t look like this is going to work out at all, if we keep doing what we’re doing now. Everyone has borrowed more than they can repay. The growth that would theoretically make repayment possible is either unachievable or unsustainable or, most likely, both. Forget what the money was spent on, it’s gone now and whether we gave it to bankers, spent it on war or funneled it into the pockets of those who already had too much is irrelevant – this is everyone’s problem now.

Carrying on down the path we’re on now will simply lead to the disorderly and bloody breakdown of the current system, causing misery and chaos to most of us. Most likely the expenditures will get cut further and further, resulting in social unrest and without engendering further economic growth. The debts will eventually be defaulted on or inflated away. In the meantime environmental degradation will accelerate, and the necessary investments for a clean energy future will not be made. Is this where anyone wants to go?

So if that won’t work, what will?

Two moves. Socialize the social infrastructure and price in the environmental costs.

Just two moves? Really?

Yes.

The first, stunningly simple, change is to confine the expenditure of income tax to social infrastructure. The only things income tax revenues can be spent on are: shelter, sustenance, education, healthcare, transport, information and legal services. No debt repayments, no incentives, no foreign aid, no military spending – those all have to be paid for out of sales and corporate taxes. And no borrowing to pay for social costs, you have to raise enough income taxes to pay for all the social costs.

Step two: add a carbon or environmental tax to everything that degrades the environment sufficient to mitigate the environmental damage that thing causes. Not a penny more, not a penny less. Spend that money on mitigating the environment.

Not hard, not difficult. All within the existing capabilities of government accounting, taxation systems and market economics.

There’s more, but that will do for just now. Digest those two simple steps, think about how those two changes would impact your life, your society and the world we live in.

Then, when you’re ready for more, go to www.standardsoflife.com.

Whatever happened to the European social model?

“Can the debt and deficit laden European welfare states . . . rescue their public finances and reform their social market economies?” asks Timothy Garton-Ash in a column in the Guardian this week. Can any of the Western democracies work their way out of their sovereign debt while maintaining their social fabric? Including the U.S.!?

Even before the bank debt crisis was transferred to the public purse in 2008, gaping holes had started to open in the public accounts of every developed society that was unable to exploit fortuitously local natural resources. The full development of the “social market economy” had not actually been possible until the latter half of the 20th century, and then only the most industrialized societies were able to give it a try. And give it a try they did, without employing the same cold, hard analytical skills that they used to develop their burgeoning, ravenous and muscular economies.

The reality in those countries that did look like social market economies was that they had split into two internal realities. Cold, clear market economies on the one side and warm, fuzzy political fantasies on the other. So long as the political reality didn’t infringe on the operations of the market reality, each could live in their own space, peering occasionally with bemusement into the other reality. The deal centered around the political reality being able to sustain itself without imposing too great a burden on the market reality.
You could ask anyone on the market side and they’d tell you that the politicians weren’t living in reality, that their math skills stunk, and that that “it” would never work – but heck, so long as vast swathes of society were happy to be deluded, and those delusions didn’t interfere too much with the “natural” market forces that really made the world tick… who were they to try and correct the fallacies, right the wrongs or destroy the fantasy?
On the other side, in the political reality, everyone was agreed, with great frustration, that the inhabitants of the market reality were just one enlightenment short of recognizing the inevitable self-destruction inherent in a market economy model that failed to recognize that it was supposed to serve the needs of the political reality.

The disconnect was pretty universal and early in life most people picked or found themselves in one reality or the other, which then shaped and framed their worldview thence forward. The actual reality, the real shared universe, got little attention and virtually no recognition.
What allowed these two realities to persist for a century, and what has now virtually collapsed in 2010, was the subtly corrupted accounting on which the market economies were based, and which sustained the illusion of self-funding welfare societies.

At the beginning, the social welfare provided was very meagre and was available to only a few. For instance, pensions were only subsistence and only a few lived long enough to collect them. In the middle, the economies that supported (funded) the slightly better welfare programs of their age were unconsciously over-muscular, leveraging unbalanced trade, resource exploitation, uncosted environmental pollution and unfair competition to generate unnatural wealth (profits) that made the welfare states that relied on them look affordable. In fact, they weren’t.
The collapse of the Soviet communist system mid-way through this period just “proved” to everyone that asserting the political reality over the market reality was a road to doom. In actual fact it proved the necessity of allowing natural markets to operate and the fundamental role of freedom in human society, but it did not help to frame the proper and useful placement of market economies – it just proved that we need them.
The the later stages, as social welfare developed more fully and costs rose significantly, the market economies of the West started to run out of resources and face greater competition from the rest of the world. In response to those pressures a complex system of debt was used to replace real wealth. The political reality encouraged the markets to manufacture a debt delusion that was bound to crash when it ran out of bubbles to inflate. This happened in 2008 and the real reality, that the political reality is dependent on the market reality, came home to roost. The first response, the understandable reaction to the shock, was denial; and the remedy was to repair the debt damage in the market reality by transferring it to the political reality, by bailing out the banks.

Now we must face the fusion of our political and market realities, if we are to forge a path forward for cohesive human societies. We must face the reality that we cannot account for our social needs with the same mechanisms that are appropriate for our market economies. If we are to build sustainable market societies we must recognize the social rewards of social work alongside monetary rewards for market success. The reality is that the market economy is a smaller realm of activity than the social services realm, and the market economy simply cannot produce sufficient monetary wealth to pay for the the necessary social activity with money.
Transitioning to this fused reality is not hard, or far away. The future of the “social market economy” is the “market economy society“. A subtle but profound transition of emphasis accomplished by an equally subtle and profound change of our priorities. The market economy remains but the political reality is profoundly altered by accepting responsibility for itself and transitioning from dependent to independent.
The market economy society establishes a framework within which the market can operate without responsibility for society, because society has assumed responsibility for itself and the market operates within a space created and nurtured for it by the society. The mechanisms that create this reality are simple and universal as well as being accessible and immediately effective.
In a market economy society the monetary cost of labor is only its commercial value adding quotient. This is true because the society provides the basic services necessary to sustain a reasonable life (shelter, sustenance, transport, education, healthcare, information and the protection of the law) for free – the majority of the cost of these services is absorbed by the citizens of the society in return for the reward of living in a peaceful, free, market economy society.

This is the only desirable and feasible human society. The debt bubble has burst, the industrial growth train has run out track and steam and the elevation of social awareness is irreversible.
The looming “age of austerity” being offered up by the old disconnected realities is neither necessary nor acceptable, as we shall see. The measure of our skill as a product of Nature will be our ability to reimagein our actual reality, with clarity of practice and intention.

The Unified Theory of People in Action

How do you pay for a peaceful, socially secure and democratic society with a sustainable economy?

There is a blind spot at the center of modern social-economic thinking to which we are almost universally susceptible, and yet it can be quite easily observed to be false. This is an introduction to that conundrum.

We all want to live in peace, with a certain degree of prosperity. Most of us would like this to be at least inter-generationally sustainable. Our general principles of organization are also fairly commonly established, including the rule of law and the freedom to choose our governments by popular election. That’s a pretty good start, and we all pretty much share these principles.

Within this general context, we have two primary schools of thought, the Left and the Right. The Left tends to believe that the quality of any individual’s life is dependent on the quality of the life of their fellow citizens, and that that quality is achieved through a communal effort to support the basic infrastructures of society, such as public services and social security. The Right tends to believe that everyone is primarily responsible for themselves and the consequences of their actions, and that the prosperity of a society is substantially dependent on the freedom to pursue opportunity and engage in enterprise.

On these basic points each school is right. Left and Right are not in conflict as much as they think they are, they just emphasize different priorities. However at the nexus of their disagreements is a mutually held fallacy: that the “economy” can produce sufficient wealth to “pay” for the society they wish to live in. The reality, the elephant in the room holding a giant sledgehammer and standing next to the mirror that they use to sustain their mutual illusion, is that the economy does not, and cannot, produce enough wealth to pay for the society they want.

The Right believe that a comprehensive social benefit system will result in withering tax rates that will deflate the economy, and that borrowing to pay those benefits is not a viable alternative. They’re right. The Left understand that our modern social civilization depends for its peace and prosperity on a functioning social infrastructure and that poverty undermines the foundations on which we all stand. They’re right, too.

What they are both wrong about is the math. The economy, after all, is just a system of accounting that lubricates the actions of people. The wealth that can be counted in money is the value added output of commercial enterprise, it is not a measure of the total output required to enable and service the whole society.

In developed, democratic, peaceful and prosperous societies children take a long time and a lot of effort to raise and educate into functioning citizens and economic participants. During our lifetimes we need a range of services such as healthcare, transport and access to information in order to participate fully in our society, and we live for a long time passed our age of peak performance and output. In fact, in a modern society, only about one third of the population is gainfully employed in wealth creating (i.e. tax paying) activities — the rest are either young, old or disabled. Yet every citizen at every age is a consumer of, and dependent on, the services and infrastructure of the society, without correlation to their wealth creating capacity or activity at any particular stage.

The elephant in the room is this basic economic math: that we are all greater consumers of social resources than we are contributors of monetary taxes. We do not pay our parents to raise us, nor does anyone else, and nor could any society afford to pay every parent for their services, any more than any society can afford to pay everyone who cares for an elderly person. We understand this intuitively; we know that our families, our communities and our society are dependent on the unpaid contributions of many. We know that to attempt to pay everyone who helps out is a totally impractical idea.

There’s enough expense in simply building and maintaining the infrastructure of a modern society to consume most of any reasonable tax on wealth creation. The naked truth is that every society is completely dependent on the voluntary contributions of its members, in return for rewards that are not measured in monetary terms. What we call “the economy” is not the same as our society, and it only represents and accounts for a minority of all the people’s actions. The economy can never generate enough money to compensate everyone for all of their activities. No society can function without this volunteer action, and yet it is outside the system of accounting that we call our “economy”. Our society is a larger body of action than our economy, and you cannot pay for the larger out of the smaller.

And so the mirror is broken, the elephant having deployed its sledgehammer, shatters the illusions of both Left and Right. We cannot tax our way to equality any more than we can survive as a society without education, transport and healthcare. Yes: corruption, military spending and inefficiencies are terrible wastes of money, but the reality is that even if they all stopped tomorrow we still couldn’t afford to pay for all of the facilities of a functioning, prosperous, democratic society out of taxes on the demand economy. Even if our military spending would pay for universal healthcare, or quality education, or high-speed public transport — it won’t pay for all three. Modern social civilizations require a vast public infrastructure for transport, energy, information and public services, further amplified by climate mitigation needs. And if you don’t provide these facilities you can’t have peace, freedom and security to enjoy whatever prosperity you do have.

The mirages of self-funding, social democracies are often referenced, but do not withstand scrutiny. Those nationstates today that look or claim to be pulling off the trick of tax-funded, socially secure prosperity are taxing so highly that their economies are running below the necessary long-term capacity, unsustainably exploiting finite natural resources or effectively borrowing wealth from another society – all good while they last, but not sustainable. In a sustainable global economy trade must eventually be balanced and local economies substantially self-reliant.

Once the hammer has smashed the mirror, both Left and Right find themselves looking at the same dilemma: how do you fund, account for and maintain a social civilization with a sustainable economy? There are very substantial costs involved and taxes cannot generate sufficient revenues to pay for it all.

One answer is surprisingly simple, cheap and effective. It can be implemented immediately without requiring redistribution of assets and without overly disruptive changes to the basic mechanisms of administration, monetary control or enterprise. Once we accept our volunteer social membership status, the next steps fall easily onto the path in front of us.

The first step is to dedicate all income taxes exclusively to the provision of basic life-sustaining services for all citizens: basic shelters for the homeless, public canteens for the hungry, basic education, healthcare and public transport for all. You make all of these services available to any citizen, on demand at no charge.

Next, you remove any controls on the minimum compensation that anyone can pay or earn for work. Minimum wages are unnecessary because minimum life services are provided instead.

Third, you make income taxes universal and fixed to the cost of providing the services in the first step, and not to exceed a rate of 50%. This creates a cap on the maximum costs of providing the services, and defends the incentives that support a robust enterprise economy.

When implemented in today’s advanced societies and economies, these steps create positive feedback loops that result in full social development, an expansive and resilient economy with average taxation rates on income of around one third. The other activities of government can be funded using local, sales or corporate taxes.

No one gets any cash benefits, everyone is free to take responsibility for themselves and a flourishing economy supports the social fabric of democratic civilization. Not Left, not Right, just unified people in action.

(To see how this all works in more detail go to www.StandardsofLIFE.com)

Oh yes we can (afford it)!

The Economic Effects of Universal Services

In addressing the assumption that providing universal services will (unaffordably) increase the tax burden (compared to the traditional benefits system) it is worthwhile to consider the actual impact on the economy of universal services, because this will reveal that assumption to be false.

Providing universal services actually has the following effects:
– Reduced waste
– Increased efficiency
– Increased output
– Broader tax base
– Reduced unit service costs
– Reduced labor rates
– Reduced pensions burden
– Increased resource efficiency

Let’s look at each of these impacts in a little more detail so that we can understand why it is that universal services are not as unaffordable as may at first appear to be the case.

Reducing Waste
Universal services, as opposed to benefit payments, do not allow for same degree of diversion of social spending to other than intended targets, reducing the wasteful misappropriation of public resources and eliminating the budget back-fill that is inevitably required to replace diverted and wasted funding.

Increased Efficiency
Very significantly, because universal services are not means tested, the administrative overhead, compared to means tested benefits systems, is much lower. This is amplified by removing the need to police the system – an economic efficiency and a social benefit.
Because core and essential services are delivered as public services by public agencies, at least that portion of the costs that would otherwise have been absorbed by the profits of commercial providers are retained to increase the quantity or quality of services for the same budget. For instance a Community Center kitchen can deliver healthy nutrition at cost.

Increased Output
The removal of poverty and benefit traps allow all universal service recipients to work and contribute without penalty, thus increasing production using otherwise immobilized resources. (Current benefits systems effectively force recipients not to work because the marginal benefit of earning small amounts is often negative.)
Further increasing output is the increased provision of marginal services and greater availability of marginal employment opportunities resulting from the reduction in basic labor rates (see below). 

Broader Tax Base
Because otherwise non-contributing resources are able to make marginal contributions to output, the monetized value of their output adds to the available income tax base (as well as wealth to the economy).

Reduced Basic Labor Rates
Universal services allow for the socialization of a significant portion of the basic labor charge, because market participants only value, in monetary terms, the marginal value of their contributions. They accept the value of the universal services as socialized income which delivers the same value to them as they would otherwise have had to demand in monetary form. This effect is most pronounced at the unskilled labor level, but continues to have some effect further up the skill ladder as well.

Reduced Unit Costs for Universal Services
The materialized cost of delivering a unit of universal services is reduced by the socialized value of labor inputs into the universal service delivery mechanisms. Because a significant portion of the labor content in universal services is more demanding of social skills, which are already often socialized (e.g. caring), the impact of reduced labor rates on the labor content of the cost profile of universal services is more marked than it is in the commercial sector, where enhanced skills always have, and will continue to, command very large premiums over basic labor rates.
Any necessary extensions of service will be absorbed by the reduction in the unit cost of delivering universal services that result from the reduced materialized cost of labor inputs, negating any need for increases in tax rates.

Reduced Pensions Burden
Pension recipients accept the value of the universal services in place of their market value without impact to their standard of living. The efficiencies of universal service delivery (see above) allow for the delta between the cost of service provision and the market value of those services to be removed from the tax burden.

Increased Resource Efficiency
The beneficial effects on resource efficiency resulting from the delivery of universal services come from three consequential outcomes:

  • Increased use of resource efficient mechanisms through the aggregation of demand, driven by the removal of barriers to adoption (pricing) and widespread accessibility, increases the scale, efficiency and penetration of those mechanisms, such as mass transport and efficient public housing.
  • The extension of manufactured goods’ useful lifetimes and significantly higher rates of reuse resulting from the wider availability, greater accessibility and low monetized costs of micro-services in local markets for repair, restoration and recovery. By reducing the cost of labor to its marginal rates, the repair of goods becomes a much more competitively priced option in the marketplace and the relative cost of material replacement is significantly elevated in comparison.
  • The wider availability of human energy makes it an attractive replacement for manufactured energy, reducing resource consumption.

Taken together the overall impact of universal services is to socialize some labor costs that would otherwise be monetized, and in so doing to reduce the tax burden of universal service delivery, because the tax burden is expressed in monetary terms. Consequential effects include deeper penetration of services, greater efficiency in service delivery and of resource use.

Astute fiscal observers might wonder what will happen to tax receipts if the basic rate for labor is reduced. The answer is that it will have a negligible, if any at all, impact on tax receipts because revenues from tax payers with incomes at or near today’s basic labor rates (minimum wages) are minimal, due to the current system of “allowances”. In fact the increased output resulting from the motivation of currently immobilized resources will likely result in larger increases in tax revenues than any revenues lost through the reduction of prevailing basic labor rates.

Ultimately the monetized burden (i.e. tax) on the economy of delivering universal services is likely to be similar to that of the benefits system, except with more effective outputs and substantial social and environmental advantages.


See also https://standardsoflife.wordpress.com/2009/03/17/universal-social-services-make-economic-sense/

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