For my entire working life the conventional wisdom seems to have been that only a mug would pay their full share of taxes, and that it was every citizen’s duty to reduce their responsibilities in this area to a minimum. Those who succeeded in paying the least amount of taxes have generally been lauded as heroes.
We need to occupy our communities and demand less money, rather than occupying corporate spaces and demand more money.
More money for banks. More money for governments. More money for small businesses. More money for social services. More money for everything – who could disagree with that!?
Apparently the US and the UK are so short of money that their central bankers have had to print trillions more just to keep the wheel of society turning. Banks whose capital base consists of nothing more than bits of paper have apparently run out of the ability to write more bits of paper and now need others to print paper for them. Whole nations that voluntarily gave up the right to print their own pieces of paper are apparently on the brink of collapse without someone else lending them more bits of paper.
This situation is evidently insane. The problem is NOT too little money! The problem is TOO MUCH MONEY!
We talk of not being able to provide for our old age security without money… horse shit! You’ll only need money if no one else will help you. We talk of unemployment, when there is evidently so much basic work to be done around us building and maintaining and improving our communities. We have come to conceptualize ourselves as living in a world of individual separateness in which transactions can only occur when greased by the flow of printed pieces of paper. But this concept does not withstand even the merest scrutiny, in fact it requires deliberate denial all the time. We all know that we are people, living with others and largely dependent on each other to get through any single day. We are dependent on each others good graces, compassion, empathy and generosity – even for the most basic restraint of not running us down with their car in the carpark!
We have not run out of money, we have just run out the capacity for money to substitute for reality.
The frail reality of the theater set we have built to act out our life-play in is upon us. Soon it must surely become too obvious to ignore: neither we, nor our world, are built from money. We are flesh and bone progeny of the earth beneath our feet, and “our world” is but a social construct designed by us to support our huge number.
Money has a role, an important role, but it is just a role in the wider context of our society. Enterprise is a natural aspect of human society, and business is a good thing. But lack of money and lack of economic activity are not what ails us – there isn’t enough money in all the world to fix our social disconnectedness. Money cannot be used to pay for everything, it is an instrument for the exchange of surplus value and if we try to use it as a substitute for the value of life it loses its value, and its role collapses. This is the lesson of our times: we must learn to see the reality of our mutual interdependence and lose the illusion of separateness that our plunge into industrial capitalism pulled over our eyes.
We need to occupy our communities and demand less money, rather than occupying corporate spaces to demand more money. When we start giving ourselves the right to live in the reality we are already in we will not need to protest others to give us permission.
Special edition of LIFESPAN : A LIFE Plan for Europe.
LIFE SPAN 2011.08.20 – Europe’s Future
Situational Policy Analysis & News from LIFE
Situation – Debts and Dangers
Like the rest of the industrial world, the only way forward for Europe is to “grow” its economy, otherwise it cannot sustain repayment of its debts. Those debts in the short past are national debts, that were inherited in the medium past from profligate banks and governments, and in the long past belong to everyone in Europe because in the aggregate everyone was supping at the same table and gave their permission to those that sat at the head of the table.
While the discussions now are centered around the €uro as a currency and how to prevent individual countries inside the €urozone from going bankrupt; the real, underlying, critically important issue is how to foster growth. By “growth” what is meant is an increase in the economic activity that creates wealth, because if the interest on what you owe is greater than your rate of wealth-growth (which it is in pretty much every European country) you can never get out of debt.
All of these currency and growth issues are exacerbated by the fact that today’s practice of the European social model in not yet fully mature (see Policy below for the mature model) and so the European countries are continuing to rack up more debt every year!
If your situation looks like this (which it does in pretty much every European country), you’re in serious trouble:
- Debts are already > 80% of your annual output
- Interest on your debts is > 2.5%
- Growth is < 2%
- Annual additional borrowing is > 5%
But what comes next is the REALLY dangerous stage for Europe. This is not a prediction of what will happen, but it is a picture of what could happen if we don’t work to change course soon:
- In order to stave off the collapse of regional economies that would result from the failure of the Euro currency: the larger, more export-orientated countries will have to assume responsibility for the debts of all EU countries.
- Ironically, because the EU was not built on firm democratic ground there will be political backlash across the continent against a political class making fundamental decisions about what Europe looks like and works like, without gaining the support of their citizens for such moves. The “leaders” making the decisions lack the legitimacy of pan-European democratic representation.
- Despite the best attempts of Europe, America and China to maintain the financial world order, they will fail to achieve sufficient growth to make the system financially sustainable; never mind the fact that they aren’t even focussed on making it socially sustainable.
- European politics will polarize and degenerate to reactionary stances with insular perspectives, all the while sucking on the teat of petro-energy and destroying each other and the planet.
The situation is serious and dangerous. Serious because without growth in demand, there cannot be growth in the economies; and without economic growth pretty much every nation’s debts are unserviceable and, therefore, so is the entire world financial system. Dangerous because the collapse of the world economic order will result in conflict, and distract everyone from the urgent task of reaching sustainable balance. If we don’t want the middle of the 21st C to look like the middle of the 20th C, bathed in the added stench of climate rot, we need to come to grips with the situation we are in, and devise a path out of here that serves our most civilized intentions. The European model MUST succeed, and show the rest of the world the path away from conflict, towards sustainable prosperity – this is Europe’s responsibility and opportunity.
Policy – The LIFE Plan for Europe
The LIFE plan to get us from where we are now to where we want to be, consists of three major milestones:
- Re-establish the proposal for “Europe”, with a clearly laid out structure and schedule that leads to voluntarily unified social, political, fiscal and monetary union(s).
- Stabilize the short term, by defining the intermediate status of the currency, the nation states and all debts.
- Initiate the rapid re-democratization of regions and nations on the continent with the goal of being able to have pan-continental elections of voluntarily associated states within 7 years.
This ambitious plan is substantially more achievable than you might at first imagine. The nation states that make up the vast bulk of the European content already have well established democratic systems that allow their populations to make informed choices, so they can all reasonably conduct their normal democratic schedules and elect representation that can express their desires for or against specific unifications with other nation states, and do so within the given timeframe.
The dire need to stabilize the current situation makes a clear annunciation of intention in everyone’s interests, including all of the bond holders. The proposal is not complicated, it is simply that: the communities, regions and states that comprise the continent of Europe will freely choose their association, and in so doing create one or more transterritorial, integrated socio-political-fiscal entities which will in turn assume the assets and debts ascribed to them under the constitution, Section 1.
In the meantime, all existing bonds will be guaranteed in full and attract interest at their current rate or 2.5%, whichever is lower. Any bonds falling due between now and 7 years will be automatically rolled over for 5 years from their date of maturity. This protects the interests of the bond holders while removing the Sword of Damocles from the existing sovereign states.
The proposal for “Europe” shall be the creation of one or more Transterritories, each comprised of no less than 3 States, each of which shall be comprised of no less than 3 Regions. A skeleton Constitution will be universally adopted at the outset to provide the framework for the formation of the new, freely-associated memberships. Upon the election of each transterritorial Assembly, that Assembly will be at liberty to amend their constitution according to the wishes of their citizens.
Crucially the new Europe will be based on a new citizen contract in which the social welfare model is transformed into a wellfair model that provides comprehensive and universal social services, instead of the cash grant system in place today. That every citizen is endowed with access to basic services that support life and opportunity is maintained, but that such support is a mutual gift provided to the extent that it is affordable for all. This maturation of the empathic social model resolves the fundamental unsustainability of the cash welfare system by absorbing the hygiene portion of labour costs into the society and liberating the commercial economy to deliver on its full potential.
The growth that will make the inherited debt burdens sustainable will come from the unleashing of the latent microeconomic potential that industrial capitalism stifles. This large engine of wealth is obscured by the immature practice of both economic and social policy that is the norm in current European societies. It will require effort and diligence for Europeans to meet their obligations, but it is most definitely an achievable task within the standard timeframe for sovereign debt (i.e. 20 to 30 years). And at the same time that Europe is proving that it understands responsibility, it will also be proving that sustainability is achievable.
Analysis – A Light for the LIFE of the World
Change is not an option, it is a requirement. The truth is that the situation in Europe is not merely a circumstance that provides an opportunity for change, it is the eventual destination of all societies with immature social and economic systems. The confusion at the root of the industrial economic model and the arrogance of early democratic models means that they were fatally flawed from the outset. They were never capable of being permanent structures for a sustainable world, and yet we have persisted in their agenda beyond the end of their useful remit. Now we must face our responsibility to refine and develop our social and economic structures, to advance them beyond the visions of our ancestors, to fashion human civilization that honors, justifies and respects the influence over all life on Earth that the development of our species has imbued in us.
The achievement of a civilized and peaceful resolution of Europe’s problems, through the creation of freely-associated populations, working peacefully together for our mutual prosperity, while laying a sustainable foundation for our societies and our economies, will provide a shining beacon of light to the whole world that progression out of the darkness of conflict and the misery of crony industrial capitalism is not only dreamable, but is also practical. The whole world looks to Europe to show what they know is possible, and the people of Europe are ready to meet the challenge and shoulder the responsibility of demonstrating that sustainable peace and prosperity are the inalienable rights of all.
All of the great civilizations that proceeded Europe have enjoyed extended periods of peace and prosperity, some lasting for 100s of years. Europe has not competed a single century in the last 2,000 years that wasn’t defined by conflict and war. The modern world is a cake largely baked by Europeans, and now it is time to complete the process and ice the cake. Talk of Europe’s fading relevance and ossification are but excuses, it is plain to see that people in the rest of the world look to Europe to prove that the model they are adopting can be made to work.
News – LIFE Party launching in the UK in 2012, and the rest of Europe in 201… ?
Starting next year the LIFE Party will launch in the UK to run for the 2015 General Election. We can start LIFE Parties in every European democracy during 2012 to bring responsive politics to every corner of the continent that is the cradle of democracy. To make that a reality and be part bringing sustainable prosperity to your part of the world, send an email to firstname.lastname@example.org and we will help you get started with tools, frameworks and campaigns.
This the third issue of the newsletter from LIFE: Situational Policy Analysis and News (SPAN). LIFE SPAN is published online and provides more in-depth coverage of situations at the forefront of public policy at the current time.
To keep information flowing we encourage you to sign up for direct delivery of LIFE SPAN to your mailbox, so that any disruptions in the availability of Facebook, the blog site or the web wiki site do not affect your ability to get the latest news and updates from LIFE. Just subscribe to this website, you can always unsubscribe at a later date if you want to. We will never share your email with any other organization.
LIFE SPAN 2011.08.10
Situational Policy Analysis & News from LIFE
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Situation – No Growth without Fire
The industrial world is trapped, surrounded by a ring of fire. The only way forward for them is to “grow their economies”, but they are finding that they cannot grow. They cannot grow for two reasons, a double ‘liquidity’ trap:
- Their economies are based on oil, and every time it looks like growth might be picking up, the price of that liquid shoots up and sucks the gas out of the engine, so to (s)peak.
- There is insufficient ‘demand’ (i.e. people can’t afford to, or won’t, buy).
Today’s industrial economies everywhere are hydro-carbon economies: they are reliant for the majority of their power on oil, gas or coal (except France at 78% nuclear – see SPAN 2011.05.01). The supply of these non-renewable resources is constrained and possibly dwindling, so whenever the expectation is that industrial economies will grow the price of these energy resources goes up, the higher the expectations are for growth the higher the price of the energy. Basically we are in a trap, the cost of growing is too high and any wealth generated by growth is syphoned off to the sellers of oil, gas and coal.
Demand growth is non-existent because wealth-creating production has been separated from wealth-spending consumption. Production is now located in economies that cannot afford to consume the output, and the proposed consumers are located in economies that are no longer producing sufficient wealth because the production has been relocated to somewhere where people can afford to consume even less. This is true of Germany, USA and just about every other industrial “economy”. So, on top of the heavy debt burden that people (aka “consumers”) in the developed nations have assumed, their means of wealth generation has been removed.
There are two options proffered by the old, left of center traditions: increase government spending and borrowing to increase aggregate demand, and increase the supply of money so that money is so cheap it will be worth investing in almost anything rather than have it lying idle. Both of these have been tried in the current situation and both are failing. Governments and people are already so debt laden than they cannot borrow any more without reaching evidently beyond their capacity to repay, so they cannot spend any more without raising taxes, meaning that they would not be increasing aggregate demand. The second option of increasing the money supply has already been done as much as it possibly can be, and now central banks are tapped out and in a ‘liquidity trap’ (where printing more money does nothing, and interest rates cannot be lowered because they are already at 0%).
The situation is terminal. Without growth in demand, there cannot be growth in the economies; and without economic growth pretty much every nation’s debts are unserviceable and, therefore, so is the entire world financial system. This is a serious situation: for the last 100+ years we have been investing the security of our civilizations in the development of an internationally and intercontinentally accepted trading system (aka ‘finance’). We need a way out of this before too many people notice the emperor has no clothes, otherwise our common advances in civilization will be set back by more than a few riots. This is not to say that we should save the bankers, far from it! But we can transition peacefully to sustainable prosperity, if we decide to – it takes more work and greater courage than sitting back and watching it all burn down, but that’s what being civilized is all about.
Policy – Fighting Fire with Water
There are two ways to grow without running straight into the fire:
- Unleash the internal markets in our local and regional communities.
- Decarbonize our infrastructure.
Deliberate policies focused on these two objectives will deliver wealth-producing growth in the economies and societies that have the foresight to enact them. And the industrial societies are best placed to engage in them.
The water that will nourish our local communities is symbolized by water itself: water is a natural resource that everyone recognizes as being the free entitlement of everyone else, to procure in sufficient quantity to sustain their life. Through this easy example we reveal to ourselves that we all believe that everyone else has the right to the bare necessities of life. Now if we take that insight as a principle, we can easy develop a social structure that embodies it as policy, and in so doing we unleash the natural microeconomic potential of our societies to generate wealth. There is no such thing as unemployment, there is only wasted time.
The most urgent task in front of us is also where we will be able to generate the greatest wealth: developing and modernizing the infrastructures on which our civilization stands. We have much work to do to simply achieve the basics of clean water for everyone and renewable energy for all; these two endeavors will keep a generation busy in productive work.
But both of these simple turns require that we deliberately develop policies in our societies that make them a priority and a reality. That means having governments aligned with them, and that means electing representatives who will ensure they are the priorities. Are you waiting for someone?
Analysis – A Bonfire of the Polities
The riots in London, the student protests in Chile, the drug wars in the Americas, the uprisings in the Middle East and the protests in China all point to the same chasm separating the ruling polities and the politics of the people. Even in the most established democracies we have disjointed the interests of the ruling classes and the interests of everyone else. To see the politicians consistently and continuously act against the interests of the great majority of the people they purport to represent, you’d think that they’d have to lie to get elected!
Here’s a sampling is widely held opinions in the populaces of today’s industrial ‘democracies’ that the elected politicians don’t seem be able to bring themselves to enact:
- we shouldn’t be imprisoning people for taking drugs
- better quality education needs to be more widely available and more accessible by all
- nuclear power is just too dangerous and too badly managed to be better bet than renewables
- we need to do big things to decarbonize our infrastructures now
- the banks should be working for the people, not the other way around
- banks that go bust, should go bust
- there should be more social services universally available, especially medical care
- more local control
- more responsive, accessible and accountable politicians
- no wars, no arms trading, no nuclear weapons
- more freedom and better information
There is a basic disconnect between the people and their politicians, and lot of that has to do with scale – the world’s population has multiplied many times over and we are still using the same government structures we were 100 years ago. Without multilayered democratic structures we cannot have accountable representation.
Fixing the disconnect is going to mean making big changes to the way we organize ourselves and our politics, so we have to be prepared to make big changes. We are going to have give up on our “not as bad as the other guy” voting, we are going to have to accept that we are all in this together and we are going to have to grow into our full responsibility for each other and the planet that homes us. Many of our tired attachments will have to go onto the bonfire if we are to escape the backdraft. Burn, baby, burn! It’s OK, it wasn’t working any way… time to try something new.
News – LIFE Party launching in the UK in 2012
Starting next year the LIFE Party will launch in the UK to run for the 2015 General Election – to win! We will be looking for strong local candidates to stand in every constituency on a LIFE Party ticket to bring responsive politics to every corner of the land that is the grandmother of democracy. To be part of the movement that will bring sustainable prosperity to the UK and then the rest of the world, send an email to firstname.lastname@example.org and we will keep you informed of developments as they happen.
This the second issue of the newsletter from LIFE: Situational Policy Analysis and News (SPAN). LIFE SPAN is published online and provides more in-depth coverage of situations at the forefront of public policy at the current time.
To keep information flowing we encourage you to sign up for direct delivery of LIFE SPAN to your mailbox, so that any disruptions in the availability of Facebook, the blog site or the web wiki site do not affect your ability to get the latest news and updates from LIFE. Just send an email to email@example.com and we will add your email address to the distribution list, you can always do the same to unsubscribe at a later date if you want to. We will never share your email with any other organization.
LIFE SPAN 2011.05.01 – First Edition of the new LIFE newsletter – subscribe now!
Situation – Nu-clear Power. Policy – No Alternative to Voting. Analysis – The inflation tiger is out of it’s cage and walking around the world economy with a gaggle of central bankers holding onto it’s tail.
Situational Policy Analysis & News from LIFE
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Situation – Nu-Clear
Even before you factor in the pollution, proliferation and profligation of nuclear power, the most important thing to understand is the distraction that nuclear power represents.
The situation at Fukushima in Japan has brought the world’s attention to one aspect of the dangers of nuclear power generation, without even touching on the dangerous pollution resulting from mining and producing the nuclear materials in the first place, or dealing with the storage, recycling and disposal of nuclear waste at the other end of the cycle. But these dangers are not even the most dangerous thing about nuclear power, the most dangerous thing about nuclear power is that it distracts us from investing in the development of really sustainable renewable power generation.
Every single dollar invested in nuclear power could be used more productively invested in renewable power or improving efficiency. Every single physicist researching nuclear power could be more productively researching sustainability, deep chemistry or efficiency. The time for stop-gap measures has passed, we must aim straight for the finish line now.
Last month the world also committed to spending $1Bn on putting another protective cap over the leaking Chernobyl nuclear reactor. That has to be done, but it is just another example of time, money and effort that cannot now be spent on developing the sustainable energy infrastructure we need. Will we need to the same thing to Fukushima in 25 years from now?
A new clarity is developing in which we can see that any power source that is not re-newable is going to have insurmountable waste problems providing the energy we need to run a planet with 6, 7 or 8 billion prosperous people on it.
Now we can see Nu-Clear – we don’t want nuclear!
Policy – No Alternative to Voting
This week the UK will hold its second national referendum ever to decide whether to change the vote counting process used in national elections from decrepit to deprecated. It’s a miserable choice that incorporates almost nothing learned from the last 100 years of democratic practice. If the “no” camp wins it will probably be the end of the Liberal-Democrat Party in the UK, but, other than that, either result will make almost no discernible difference to the quality of democracy in the UK. Minority political parties will still be able to win elections, safe seats will remain safe and the diverse, multi-layered needs of citizens will remain unrepresented.
Citizen empowerment through democratic process is at the root of dealing with the most pressing issues we face, and apathy about how our votes are counted and who gets to vote for what betrays a complete failure to grasp the importance of this subject. Voting is not a dry subject for “policy wonks”, it is the most vital issue at the heart of our evolution! Efficable democracy that harnesses the collective wisdom of everyone’s input is the vital building block on which we can make the changes necessary to move to a sustainable prosperity. This is too important to be be left to the whims of incumbent politicians, so the citizenry must take the lead on moving to the best available models for voting and representation.
If we are to retool our civilization for sustainability, the extent, depth and breadth of the changes we need to make to our economic and social structures will require us to have a massively more participatory and effective political structure than we have today. The politics we need must include:
- self-selected constituency boundaries defined by the resident citizens, not by the politicians
- multi-layered, multi-constituency, multi-member democratic structures that reflect all the glorious diversity of humanity spread across the surface of the planet
- bottom up power structures that allow jurisdiction to originate at the bottom and move up and back down the layers, locating decision making power at the appropriate layer for the scale of the decision
These are not difficult structures to imagine or implement, but they will only come about when we, the citizens for whom democracy is supposed to work, take control of the agenda and require proper, modern and comprehensive change. A referendum proposed and framed by incumbent politicians is not the way to change this properly, real change will come as part and parcel of the policy framework of a government specifically elected to make the changes. Over to you, citizens.
Analysis – Tiger Tails
Inflation. Inflation is the increase in prices without any corresponding increase in value, i.e. when the same thing costs more. There are three possible causes for an increase in price: an increase in the underlying cost of producing the thing, an increase in the demand for a thing that is constrained in supply, or an increase in the price just because there’s so much money lying around. The first two cases are not within the control of bankers or politicians and are simply a fact of life as materials, products and services become more or less available, and demand for them falls or rises. The important thing about the first two types of price changes is that they represent real changes in wealth, in other words the price changes are aligned with the change in the value of the thing. It is the last case, the one where the price of something changes without any change in its value, that presents a real problem for capitalist economies and politicians. This kind of inflation can only occur in a “capitalist” economy because the value of the currency in a capitalist economy is not based on anything real – the money supply is managed by special banks called “central banks” who are also responsible for minting the paper/coin money we use to pay for things and controlling the credit which commercial banks use to lend out.
The job of a central bank is manage the amount of money that is flowing around the economy such that it is roughly equal to the amount of value, or wealth, that is recognized in the economy. As you might imagine, this is a pretty tricky thing to get right because the central bankers have to have a really keen grip on the state of the economy, the quantity of transactions and the amount of wealth being generated. If central bankers print too much money, or allow commercial banks to lend too much money, and that money is not matched to real increases in wealth, then the wealth that does exist simply gets revalued in terms of how much money is available: this is called “inflation” because the price of the same thing gets inflated over time without any real change in the value of the thing itself. If the central bank doesn’t print enough money or allow commercial banks to lend enough money, then the economy cannot grow at its natural pace and the lack of money can gum up the works. Not having enough currency can even lead to the strange situation where the price of a thing goes down even though its value remains constant, because the currency has gone up in value to reflect an increase in wealth that has not been matched by an increase in the supply of available currency. In fact, to stop this kind of problem happening, central bankers err very slightly on the side of extra money and allow for a minimal rate of inflation as normal, typically this inflation is considered controllable when it is less than 2% a year.
There are two tools in the central bankers’ briefcase that have proved invaluable for getting this tricky balancing act right: caution and confidence. Normally central bankers are very cautious about increasing the money supply and spend most of their time trying to make lots of small changes over time in response to continuous monitoring of the state of the economy, changes in wealth, and keeping a really keen eye on what the commercial banks are up to. The central bank controls the commercial banks by forcing them to keep a certain amount of cash on hand, as a deposit against what they are lending out – these are called “reserves”. Also, because in a capitalist system the commercial banks can lend more money than they have taken in deposits, there is always the risk that they might get asked by their deposit customers for the return of more money than the bank has on hand; so commercial banks can always turn to the central bank and borrow the money they need at an interest rate set by the central bank. This interest rate, that a commercial bank may at any time have to pay for money they borrow from the central bank, effectively sets the floor on interest rates charged by the commercial banks on loans they make to their borrowers, and in this way the central bank controls the “cost of money” in the marketplace. If the central bank is cautious in managing the supply of money, and keeps the commercial banks on a tight leash, then everyone’s confidence in the ability of the whole system to properly represent their real wealth in paper money is maintained and everyone stays calm.
Now, if things start to go wrong they can head south pretty quickly: prices inflate, depositors loose confidence in the value of their savings, they withdraw their money from the banks, more customers get worried about the ability of the banks to give them their money back; traders lose confidence in the ability of the currency to represent their wealth and start jacking up their prices, or start asking to be paid in other things that they think will maintain their value, like gold or some other country’s currency. It can get really messy really quickly and will cause an economy to collapse with wholesale destruction of wealth and confidence. It is the job of central banks to stop this from ever happening, and that’s why they typically operate independently of politicians so that they don’t get asked to do silly things like just start printing money to pay for things the government wants but doesn’t have any real wealth to pay for. Caution and confidence, caution and confidence: the watchwords of effective, modern, monetary management.
When caution is defrayed, confidence is sure to follow at some point, and that is what happened in 2008. After a couple of decades of deprecated caution, a sudden fall in the perceived value of assets on which the commercial banks had staked their reputations led to an almost complete collapse of confidence overnight. The commercial banks were bankrupt and the central banks were on the hook for keeping the whole system running – the massive fall in real wealth was absorbed by the taxpayers, in the form of loans and gifts to the commercial banks, to stop the commercial banks from actually going bankrupt. At this point in the debacle there was a choice: recognize the loss of wealth and reorganize the banking system, or try and cover the bases until the loss of wealth was regained. The central bankers and politicians chose the latter, and that is the world we live in now. Money was printed and credit expanded on a massive scale to shore up commercial banks around the world, especially in the US and Europe, on the grounds that the depreciated assets would regain their value and any permanent loss in asset value would be made up for by increases in wealth derived from other activities in the economy. In the meantime there shouldn’t be an inflationary risk because all the extra money printed was just going to be absorbed by the balance sheets of the commercial banks and wouldn’t leak out into the rest of the economy. In theory, as assets values recovered and economic activity picked up, the commercial banks would re-establish their balance sheets and the central banks would simply draw back in all the extra money they had printed, so that some time down the road the total wealth and the total amount of money sloshing around would be back in equilibrium again. Neat, tidy and easy, eh? Not quite so much.
In other parts of the world, like China, that weren’t directly affected by a collapse of their commercial banks, they did still feel a pinch from the slow down in economic activity that occurred. In those places they increased the money supply by letting their banks lend out tons of extra credit so that people and business could spend lots to make up for the lost demand that previously came from the economies that are now having banking problems. In these countries they figured they could control the inflationary risk of printing all that money by making sure that the money went into activities that resulted in real increases in wealth, like railways and other infrastructure investments. The trouble with that plan is that real increases in wealth only occur naturally with the development of better things and ways of doing things, wealth does not simply increase in response to expanded cash spending. Just boosting the amount of cash in the system leads to people making silly decisions about what to spend that money on, and too often those decisions fail to generate any real increase in wealth; so the money is wasted and sloshes around looking for a quick bet, like the “inevitable and certain” rise in the price of property or other assets like gold.
Now its 2011 and here’s a summary of where we have ended up. The commercial banks have taken all the cheap money the central banks gave them and used it make huge “profits” using activities that do not create any additional wealth, often by lending the money back to the government at a higher rate than they borrowed that same money from the central bank. There has been no re-appreciation in the value of the assets that lost their value in 2008. The extra money injected into the system by the central banks has found its way into “quick bets” on assets around the world, jacking up the prices of property in Asia and raw materials in developing countries. One intended consequence of the rescue plan has come true: there has been relatively little fall in overall demand, a few percentage points here and there but nothing like the 20% revaluation that the other choice in 2008 would have required. Lastly, we live in a very financially orientated world because we are trying to use money to provide for the future security of our old age, and that means that we have a lot of wealth tied up in financial investments we call pensions. All these investments are effectively part of the overall money supply, and in places like the US the total of these investments is greater than the total annual GDP of the country – that’s a lot of free-floating money in the system.
Now, before we bring the strings of this story together, I want to remind you of the other types of price increases that occur naturally in markets: increases in the demand for constrained things (‘materials, products and services become more or less available, and demand for them falls or rises’). We live in a world where demand (population x aspiration) is increasing faster than we are developing new ways of meeting that demand, so the demand for the materials that drive our current way of life (food, oil, metals) is increasing without a commensurate increase in supply. This means that we are living in a world where the price of basic inputs is rising naturally, and will continue to rise until we retool for sustainability. The more successful we are at raising living standards (aspirations) the greater the increase in demand, and the higher the prices go. It is important to recognize this because the effect on the economy of naturally rising prices is the same as the effect of inflationary price increases: workers demand higher wages to allow them to maintain the same standard of living. This is the “price-wage” spiral that central bankers have learned to fear, because once it starts it stokes inflationary price rises through cyclical reinforcement, and it is really difficult to control without severely affecting living standards, which often results in social unrest and upheaval.
Think of money supply management as the tiger than drives the incredible development of wealth in a modern economy; so long as the tiger remains in a cage, or at least on a leash, the economy grows and wealth can appreciate naturally as a result of everyone’s efforts to add value to each other’s lives. The growth in wealth is not constrained by the availability of some fixed material, like gold, and every contribution by every participant can be recognized at the point when value is created. But if the tiger gets out of its cage and off it’s leash, it marauds around the economy spreading destruction and fear. Then it becomes the problem that has to be dealt with, instead of the enabler of greater good.
The inflation tiger is out of it’s cage and walking around the world economy with a gaggle of central bankers holding onto it’s tail.
While we would all like to wish the central bankers the very best of luck in their attempts to hold on to the tiger’s tail, the following factors suggest that they will not be able to hold on for long:
- demand for finite resources is increasing naturally (outside of their control) and that will result in price increases
- price increases will lead, and has already, to demands for increases in pay
- the imbalance in the ratio between available cash and real asset values remains uncorrected from 2008
- the socio-political system of attempting to provide social security using financial instruments (i.e. pensions) means that there is a lot of money floating around the system that cannot be controlled without degrading the social security that that money is supposed to provide; i.e. in a capitalist economy where social security is provided by pension investments, it becomes politically unacceptable to properly manage the money supply in line with real asset values if the value of those assets falls, effectively quashing the independence of central banking and degrading the ability to keep the true value of monetary investments in line with wealth
- democratic politics and capitalist economics both require processes for orderly failure, a “permanent” political power structure cannot accept failure so it will inevitably intervene (unsuccessfully and counterproductively) in monetary management to preserve its political hegemony
- the money in the current system is controlled by a very small percentage of the population who are already wealthy and who do not see the need to maintain the ratio of money to wealth, they simply seek to increase the quantity of money they have; remember that money affects the human brain the same way that sex and drugs do, it acts on the most primitive reward structures of our brain, overriding the newer “thinking” parts of our brains
The benefit of a capitalist economy is the near universal and instant recognition of value added as wealth; the condition of that is the requirement to carefully manage the money supply. If the social security of the people or the political power of the rulers is dependent on the preservation of wealth, then the necessary leeway to control money supply in line with wealth will be degraded and the economic system will collapse. Capitalist economics requires the ability to recognize wealth destruction, and that in turn requires a political system that allows for the destruction of power and a social system that survives the destruction of wealth.
In the end the only way to maintain monetary credibility is to be able to adjust money supply in line with wealth, both up and down, and that will require that we decouple social security from financial investments. In the meantime we/they will try and make the current system work for as long as we/they can, and so we are in for a spectacle of monetary gymnastics over the coming years as the bankers of the world try and keep the tiger from running loose.
News – SPAN gets wings, fly with us!
This the first issue of the new newsletter from LIFE: Situational Policy Analysis and News (SPAN). LIFE SPAN is published online and provides more in-depth coverage of situations at the forefront of public policy at the current time.
To keep information flowing we encourage you to sign up for direct delivery of LIFE SPAN to your mailbox, so that any disruptions in the availability of Facebook, the blog site or the web wiki site do not affect your ability to get the latest news and updates from LIFE. Just send an email to email@example.com and we will add your email address to the distribution list, you can always do the same to unsubscribe at a later date if you want to. We will never share your email with any other organization.
Euro Tour 2011: if you are in Europe and would like to meet up to discuss starting a Local LIFE group, we are scheduling events from June 13th to July 7th. Email firstname.lastname@example.org if you’re interested in hosting an event.
Sleep-walking would be a particularly tragic way to go. After all that evolving, developing and civilizing, to just sleep walk into oblivion would hardly seem to do those millennia justice. The good news is that there some fairly sharp jabs to the collective ribcage happening, and there seems to be some awakening.
America makes for a good example because its big, and when a giant is sleepwalking, you can see the others in room scurrying to get out of the way. Mr Obama is a nice enough guy, and that guy Ryan looks decent, but they are both selling a load of twoddle. A 10% cut or a 20% cut? Either way the giant’s pants will fall down, and he’ll trip. Last week Obama warned the good people of the USA that in 14 years from now (2025) the amount of taxes paid would only be enough to cover pensions and medical costs for the poor and the elderly. Wow! Except that: the taxes paid today (2010) are only enough to cover pensions, medical costs for the poor and the elderly, interest on the debt and the other mandatory programs – the entire military and discretionary budgets of the US are uncovered! No education, no transport, no infrastructure, no defense! See for yourself.
This economic model doesn’t work, it simply cannot add up; no matter how many cuts are made or how many taxes are raised. Total Economic Awareness (TEA) is bust – not everything can be priced in dollars and paid in dollars. The TEA Party are the only honest ones about this: their solution is to disband society, every dog for itself, and devil take the hindmost. That’s the only economic model in which TEA works, and it’s not a world I want to live in, do you?
“Can’t we just go back to where we were a few decades ago?” (Old liberals ask some version of this simple question, born of a lifetime fatigue of fighting the good fight and a nostalgia for less urgent times.) No, we can’t. We can’t because we no longer live on borrowed infrastructure, with swollen productive demographics, and easy exploitation of a ‘third world’. Sorry, those times have expired and now we have to deal properly with billions of people, a finite planet and honest respect for everyone’s rights.
We didn’t pay for what we’ve got.
We’re not paying for what we’re using.
We haven’t saved for what we need.
This not a budget balancing problem, this is a philosophical realignment problem.
If we don’t want to live in a TEA-dog-devil world, what’s the alternative? The only real option is a universal-social-love world. It so happens that that is also the cheapest, most sustainable and funnest world to live in!
Let’s get some clarity about the world we do actually live in, so we can be clear about why TEA economics doesn’t and won’t work. We live in relative peace, with fairly good healthcare and decent nutrition: that means that our society has a “balanced demography”, in which less than half the population is out of school, able bodied and under retirement age. We live on a warming planet, on which the next 50 years of climate instability are already locked in by our actions during the last 100 years: a healthy, sustainable society has to have the kind of infrastructure that we will have to work really hard for several decades to build. In a multi-polar, mutually-respecting world, a prosperous economy cannot be dependent on the exploitation of other people, stored energy or the waste of resources: that is going to require a really fundamental reorganization of our society and its economy. We need to be able to rebuild our global infrastructure for sustainability while we support a majority of our contemporaries, without exploiting each other or the planet.
Is it starting to get clearer now? Are we going to get to where we need to go, in the time we have available, with spending cuts and tax rises? No, tinkering with the percentages simply won’t do it. Universal Social Awareness (USA) is the route to understanding how we can rearrange our social and economic structures to achieve what must be done in the coming decade or so. As we wake up we will start to see that our mutual promise of social support is not properly represented in a cheque, and when it is delivered in kind instead it liberates our economy, empowers our democracy, and liberates our nature.
Go to the wiki and read about how simple changes to the way we deliver social security, organize our democracy, and pay for it all, provide a path to a future we want to live in.
Peace, love and awakening.
If you think that social security is the generous expression of care for others in a civilized society, think again.
This may come as a surprise to many Americans, even a few Europeans: a functional social security system is a vital underpinning for a capitalist economy. Without functioning social security, there is insufficient society to support a vibrant economy; social security systems actually catalyze economic activity, and the prosperity it generates.
There are other vital reasons for maintaining a functioning social security system (a basic social “safety net”): maintaining social peace, elevating confidence, satisfying our natural empathy and improving sustainability. But even without those reasons, our economy simply cannot prosper without social security. It’s serious business – social security is really important. It isn’t a policy “option”, social security is the imperative at the root of all the things we cherish about our peaceful and prosperous life.
In the face of massive debts and monetary instability, our “Total Economic Awareness” (TEA) delusion jumps up and we make the kind of mistake that everyone makes in a panic: we grasp for simplistic, obvious solutions. No money left: OK, stop spending it. That’s the kind of reaction you get to apologize for later, in your personal life (so long as you didn’t destroy something or do something unforgivable) but when you’re a sophisticated, modern society, that kind of reaction just won’t do. We didn’t come this far, or get to this point, without a lot of careful attention and wisdom gained from many experiences – we need to remember that, and cultivate the poise that allows us to make sensible decisions about serious matters at important moments.
The current fashion for degrading the social security of our societies, as a means of supporting huge debt burdens, is extremely dangerous and very short sighted. And this is happening just as we enter the times when climate instability is likely to test us all.
The reasons why social security is an absolutely essential foundation of our society include:
- Our social cohesion is fundamentally dependent on the maintenance of basic life services for everyone
- The health of our economy is dependent on broad economic participation, both as producers and as consumers
- Innovation requires risk taking, and social security encourages risk taking
- Situations and circumstances change: our societies and their economies need to transition as smoothly and quickly as possible
- The rule of law and the control of crime are dependent on broad participation by all
- The quality of our democracy is dependent on an educated, informed and involved citizenry
- Our ability to withstand shocks and natural disasters is heavily dependent on our social cohesion
Social security is not an optional, luxury expression of generosity, that we can afford to do away with when money is short. Social security provision is an absolutely essential, basic building block of a peaceful, prosperous and sustainable society – without it, peace, prosperity and our survival are all endangered.
How do we square that essential nature of social security, with the budget dilemmas and economic weakness of these times? To resolve this conundrum we must revisit what it is that makes up the essential nature of “social security”: it is the provision of personal security from the elements, hunger, sickness and depravation to each and every member of our society. This is not a monetary transaction, it is a social intention. We will not make our way out of this until we fully grasp the proper nature of social security.
In the Standards of LIFE we have modeled the impact of delivering social security as a set of universal services, and found that this not only fulfills the essential nature of social security, but has positive knock-on effects across the economy and budgetary process that address the concerns of fiscal responsibility and fosters sustainable prosperity. We must solve our budget problems, resolve the monetary dilemma and build sustainable societies, all at the same time – and the only way to do that is with the parallel adoption of universal services and micro-economics.
Read more and find out how to fix our problems without breaking our societies at www.standardsoflife.org.
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.
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.
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.
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.