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.
To support super-democracy, super-security and build a thriving super-economy we to need to make substantial investments in our societies. To make those changes to our infrastructure we will have to leverage the strengths of private enterprise to help us reach our public policy objectives.
We struggle with the interface between public initiatives and private enterprise, and the debate tends to be rather crudely proposed as pitting right intention against effective action, as if they were incompatible. In fact they are mutually complimentary, and both absolutely necessary if we are to reach our goals.
The conundrum of the Occupy movement’s “missing list of demands” is the key to understanding what has to be done.
Protest in a democracy represents a conundrum. Do we want change or do we want to complain?
Who doesn’t realize that our modern world is not serving the majority of us? Probably not even 1% – do you know anyone? We all know the banks have gotten away with theft. We all know politics has been, and is being further, corrupted by money. It’s not difficult to understand that burning millions of barrels of oil into the air every day and dumping tons of man-made chemicals into our waters is affecting our environment detrimentally. Let’s not do ourselves a diservice: we all know that “things ain’t right, and something’s gotta change”.
Our predicament is not in dispute. The solution is.
The fundamental obstacle to a solution is complexity. The reality of our modern world is that it is complex: the banking system is complex, sovereign accounting is complex, the interdependencies of our environment are complex. To understand why writing down half the value of some debts in one of the smallest economies in the modern world could affect the political stability of the largest country in the world is complex; to understand why the largest country can’t just step in a fix that problem is even more complex.
There’s a perfectly natural resistance in the Occupy movement to adopting a “simple set of demands” because, consciously and unconsciously, we all understand that our predicament will not yield to a simple solution or short list of demands. Matt Taibbi, one of the most dogged and brilliant journalists on the financial beat, recognizes this even as he offers a short list of key changes that could be made to address the specific problems resulting from casino capitalism in our overweight financial sector; but, good as his list is, it does not address why we have an overweight financial sector in the first place.
The Occupy movement is a protest movement. It takes its name and its inspiration of the occupation strategy employed by the revolutionaries in Egypt this spring, and it is stirring the wider public to more open consideration of changes that seemed inconceivable only a few years ago. But the difference is that the Egyptians were revolting against a dictatorship and they could coalesce around the simple demand that the dictator be removed; in contrast the Occupy movement is almost exclusively active in wealthy democracies, and cannot reasonably demand the removal of a government chosen by the people a few years ago and available for replacement in a few years time.
The lack of a simple set of demands is not a purposeful tactic of the Occupy movement, it is the manifestation of an understanding that the problems are more complex than a simple list could address. Housing, healthcare, tax policy, the environment, social security, employment and inequality are all prevalent issues expressed in the Occupy protests, and such a broad agenda does not lend itself to a simple list of demands. The protestors can point to the simple manifestations of the problems in their lives, but they also know that any real solutions are going to be complex.
To move forward we need to remember that what appears as complex is in fact just lots of simple things seen at once. And while you cannot solve a complex problem with a simple solution, you can solve a thousand simple problems with a thousand simple solutions. This is the key to system change: it’s not one big solution, it’s a million small solutions.
Self-evidently: every aspect of human society has been created by us, and so it can be re-created by us. But we did not arrive here in one stroke, we are where we are as a result of the culmination of millions of small and simple decisions taken by people like us. When democracy arose it was the next vital step in enabling the broadest possible collective application of decision making to complex problems; and it lies before us now with the same urgent potential that drove its early advocates with such zeal. The short list of demands can be replaced with one: “Occupy the Ballot Box!”
We do not need anyone’s permission, we are not dependent on anyone else’s favors or attention – we are the ones who can bring about the changes we need, one decision at a time. We already have what the Egyptians in Tahrir Square died for: the right to select our own government.
If you support the Occupy protests you must take the next decision and vote for real change. If there’s no one to vote for, you must stand for change yourself – you don’t have to be perfect, you don’t have to know it all, you just have to care enough to be one of a million decision makers who will contribute to the long list of solutions. If you want to stand for election but need a broad platform that fills in and addresses the complex issues raised in the Occupy protests, take what you want from the Standards of LIFE and make it your own. We will vote with you, we will stand with you and we will bring change to our world together.
The economy, and implicitly the development of wealth, is a core issue that too often suffocates the debate about our options for change. Many of us come to the table with assumptions about the relationship between wealth and prosperity. We need to reevaluate these assumptions if we are to develop solutions to our problems. In this section we will revisit the basic constructs of economics and wealth creation, to make sure we are operating from a realistic and accurate foundation when we formulate the framework for our economies.
The typical policy debate today is about the balance between the social ills of the free market, and economic ills of a state-controlled economy. This suggests a built-in assumption that we must compromise our social security to let markets be free.
Why is that true? Why is it that market freedom is a function of social insecurity? What is it about economic theory that stipulates a need for the population to be prepared to pay a piece of their personal freedom, in order to get to a piece of the market freedom pie? The conventional answer to this is that the labor force needs an incentive to work, and that sometimes the appropriate incentive is survival. Apparently, without the threat of destitution, people will not take the jobs on offer in a free market!
Which leads to the next question: why would a free market create work that only those threatened with starvation would want to perform?
Oh I see, a free market doesn’t necessarily create undesirable jobs, it’s just that the free market rewards low cost, and low cost means work and reward conditions that only the potentially destitute would agree to work in.
This cyclical assumption that low cost requires undesirable work, which demands an insecure workforce, is fairly deeply embedded in our current cultural psychology, especially in the West. In fact it isn’t really challenged, because it is so widely held and so subtly integrated.
As I will show, the opposite is actually true. Secure populations, working voluntarily in jobs of their choosing, is the most productive economic model available. The “market” is not a policy model, it’s only a mechanism; it is no more an economic, or political, model than the explosion in a cylinder is a car.
Our desired outcome is prosperity. That is the destination everyone understands we are aiming for; everything else is just a means of achieving prosperity. The free market is not the destination, any more than collective bargaining is. So the first link to unhinge in our minds is that the “free market” is what we need. Keep your eyes on the prize: prosperity.
The “market” is a set of mechanisms that naturally directs resources to meet needs. While its principles are simple, in operation it accommodates a bewildering array of inputs, influences and outcomes. It’s like our brains: we know the principles on which they work, but that doesn’t mean we know how to work them.
Cost is a significant input to market mechanisms. When all else is equal, cost drives decisions to the most efficient outcome; that is the raison d’être of the market. But we should note that, almost always, cost is the last criteria in the decision tree; the item has to be fit for purpose first, and affordable second.
What about trade? Within a given market, does the locality need to be the lowest cost producer of the good or service? If trade is possible the answer is no, because if equal and lower cost items are available through trade, then trade will fill the need. Unless… unless the item is so vital to the survival of the population or the basic functioning of the society, that a breakdown of trade, for any reason, would be a strategic threat to everyone. There are certain items that are so strategically important that higher cost is not a barrier to local production, and the market must necessarily be modified in order to accommodate the higher priced, locally secured items.
This leads us to an important place on our journey and we would do well to stop and clearly annunciate our conclusions:
- The market is a great system for almost everything.
- The market is not an appropriate mechanism for the most important things.
Whoa! How did we get here? I’m a freemarket capitalist and I’ve been around for a while so I know a thing or two about the world I live in, and this doesn’t sound right at all! I’m going to have to go back and read those last few pages again. You’ve used some crazy commie logic to trap me into believing that the free market won’t solve these problems. Wait here while I reread.
Okay, back again. Well, um, I can’t see where I could disagree. It’s not like it’s complicated, right? There’s just some stuff in the world that’s too important to outsource. I can see that.
Now the other news: if there is no strategic imperative, there’s no reason to interfere in markets. This is where some get caught up in a different false linkage: they think that we can intervene in markets to make them produce social welfare and justice. In fact, the basic social welfare of our societies is not an output of markets. Markets do not have “well-being” as an output in any of their functional logic. Markets efficiently direct resources to fill the needs of consumers, that is all they do. The welfare of society and our quality of life have to be outputs of human endeavor, they are a function of choice. We do not have to choose the common good or a high quality of life, and we certainly won’t get either if we wait for markets to deliver them.
Let’s be fair to markets while we’re here: they don’t know how to benefit society, and it’s extremely unfair to ask them to do so. Markets, especially those catalyzed by modern banking systems, are good at creating wealth; but wealth is not the same as prosperity. Prosperity is a mixture of wealth, peace and freedom that delivers a high standard of life. So if we want prosperity, we have to mix the output of markets, with the output of our choices to promote peace and freedom.
When we can clearly see these distinctions, and the properly differentiated roles for economics and politics, we can formulate more coherent policies that are more likely to deliver our intended outcomes.
Economic policy should concern itself with:
- the maintenance of markets
- the management of the monetary system
- the administration of strategic resources
Political and social policy should focus on:
- the cessation of hostilities
- the protection of liberty
- the general welfare of society
Let’s look at each of these policy areas in turn, so that we may more clearly demarcate their boundaries. Once we have separated them in our minds, we will be better able to act in the right places to produce our desired results.
The maintenance of markets involves trying to ensure that they function as freely as possible by correcting naturally occurring defects as much as is possible. The two most common defects in market function are the imperfect distribution of information and the exclusion of external costs.
- Making as much information as possible available to consumers, with the lowest barriers to acquisition, is the best we can hope for; you can take a consumer to information, but you can’t make them know.
- External costs, “externalities” in official parlance, are those costs that can be directly attributed to the lifecycle of a product or service, but for which there is no one to demand payment during that lifecycle. Nature is a good example of a non-payment-demanding party to many transactions. When these externalities are recognized, the proper maintenance of market function requires that these costs are imposed on behalf of the non-paymentdemanders, usually in the form of some kind of tax, duty or other loading of the item’s cost profile.
The management of the monetary system is primarily about preserving the value of the currency. Given that there is no real basis of tangible value in a modern currency unit, it is important that the quantity of money in circulation be managed in line with the output of the economy. Furthermore it is essential that the banking system charged with the care of private deposits, debts and equity be regulated for stability. Modern economies based on monetary systems require a trusted banking function in order to operate, and so the maintenance of that system’s stability is paramount. (Banking is entirely different than investment management, which is not really a banking function at all, and should be kept separate from banking. In fact, the term ‘investment bank’ should be abolished.)
The third leg of economic policy is the administration of strategic resources. As discussed earlier, there are resources that are so important to the sustenance of a society that trade cannot be relied on for their procurement and distribution. These resources must be identified and their supply purposefully managed, such that their availability is as guaranteed as it is possible to achieve. Chief amongst these resources are shelter, food, healthcare, education, transport, energy, information and the legal infrastructure of democracy (the same services that form super-security). In most situations only a subset of the total market for each of these resources is strategic, and only that subset need be the subject of public policy. For example, the availability of clean drinking water is a matter for public policy but this does not need to extend to the bottled water market. Similarly the provisioning of primary health care as a public service, does not preclude the availability of specialized procedures in the private market.
Those are the elements of economic policy and maybe you’ve noticed certain absences that you might normally expect to be part of contemporary policy portfolios. Before going further, let’s do a quick review of the complementary political policies that accompany our economic policies, to shed some light on those absences.
We have said already that political policy should concern itself with the establishment of peace, the protection of freedom and the provision of welfare. As regards the economy, the establishment of peace and the rule of law are precursors to enterprise and trade. The freedom of the people is necessary for proper market function, the development of business and the fostering of innovation. Indeed, the freedom to choose and the freedom to fail are essential to the fluidity and effectiveness of market mechanisms.
The provision of public welfare is commonly understood to be the primary function of government, but the policy framework to deliver effective results has eluded most, if not all, to date. Public welfare policy has been colored by our history and has yet to free itself from the shackles of our legacy perspective. During the last century or so we have developed levels of efficiency and productivity that have created the capacity to provide universal welfare. The capability of the population to sustain itself, without reliance on the grandesse of a ruling elite or the magnanimity of magnates, means that we can truly deliver the bare necessities of life to all, at a reasonable cost to all.
The cost of universal shelter, sustenance, healthcare, education, transport, information and democratic freedom is about one third of the total output of modern economies. That’s right, for about 30 cents on the dollar we can afford basic housing, a healthy diet, primary health care, reasonable education, local public transport and universal digital information access for everyone. Not everyone is going to want or need every service, but if they did, we can afford to provide them today; with the same tax rates we are already paying.
So why aren’t we doing it? The primary reason goes back to the starting premise of this section: the idea that the provision of such welfare would fatally undermine the economy, the very system that produces the wealth that makes it all possible. And we’re back to the same logic we questioned at the start. Do we believe that the motivation to work, to innovate and to be more productive will disappear if we aren’t afraid of starving to death in the gutter? This is not reality. It misunderstands human nature, and the meaning of “welfare”.
Human nature is full of aspiration; that is what has driven our development over time. Once we have filled our bellies we desire taste; once we have rested we desire comfort; once we have seen color we desire lights and once we are satisfied we wish to contribute. The religions of the world are the ultimate examples of our capacity for aspiration, far beyond the mundane practicalities of life. Providing a roof, a bed and a bowl of soup does not satisfy the aspirations of anyone. Would it satisfy you? Wouldn’t you still want to see a movie, eat some chocolate or wear different clothes? Perhaps you’d rather own a mountain bike, become a photographer or grow some vegetables? To believe that providing the bare necessities of life to someone will blunt their motivation and dull their aspirations, is to negate what you know about yourself. It’s simply not a reality, not of anyone, anywhere.
So what should public “welfare” policy actually provide? The policy should aim to satisfy a basic, mutual social contract between neighbors: that no matter what fortune befalls you, you will have the bare necessities of life, and as much opportunity to make the most of your life as can be afforded. Viewed in this light, welfare policy is not a benefit that anyone is entitled to, it is a service delivered to the best of their neighbor’s ability.
Public welfare policy is really about delivering personal security and opportunity. As such it does not involve the transfer of payments, instead it delivers services that fulfill the social contract. Housing is made available to provide secure shelter, food sufficient to maintain health and medical services as can be afforded for all. Think of them as services, not dependent on the largess of some individual or group, but provided universally, as a birth right of citizenship. No cash, no luxuries and only what can be universally afforded from a reasonable tax.
Now start to imagine the impact of such a public welfare system on the economic system. No need for a minimum wage. Everyone has their basic sustenance taken care of, so they are free to provide or pay for labor at whatever rate they choose. On almost every level required for a flourishing market economy the situation is improved: workforce mobility, propensity for risk, innovation capacity, skills development, productivity, confidence and satisfaction. The implementation of universal personal security will have a dramatically beneficial impact on economic output, at the same time that it enables “low cost” production.
Because delivering universal services frees labor to be priced according to its marginal value added, the “cost” of labor throughout the economy is significantly reduced, especially at the lower skill levels. This in turn, has the knock on effect of reducing the nominal cost of delivering the universal services themselves, because a high proportion of the cost of delivering those services is labor related. In effect, providing universal services reduces the cost of delivering those same services.
A fundamental and progressive effect of universal personal security will be the stimulation and expansion of micro-enterprise. Freed from the pursuit of mere survival, the population will be able to use their more unique skills and interests to create micro-services and products that meet the needs of very small markets. This micro-economy has the ability to boost general satisfaction by allowing specific needs to be met more directly, at the same time that it further enhances the economy by dramatically increasing transaction volumes and efficiency. Child care that allows bicycle repair, that saves resources, that are diverted to power buses, that get people to work faster, that allows more family time. The feedback loops that reinforce the productivity, efficiency and diversity of the economy are endless. Additionally, as more needs are satisfied more directly by micro-suppliers, the dependence on mass production and long-distance transport is lessened, the resilience of local economies is strengthened and production becomes more environmentally sustainable.
When we can separate and distinguish between economic and political policy, we can make effective choices that will lead to the prosperity we desire. We don’t need an economic policy that creates jobs, we need a political policy that allows jobs to be created. We don’t need economic policies that encumber businesses with social responsibility; we need political policies that deliver real social security.
For our economy we need economic policies, and for our welfare we need political policies; each, unto their own. Far from economic growth resulting in social ills, or social growth resulting in economic ills; economic and social growth are mutually enhancing. Delivering universal social security will not erode productivity, it will enhance it. Unfettered markets will not drive social well-being into the ground, they will lift it up.
If we can just uncouple our unfounded assumptions about the relationship between enterprise and welfare for long enough to see again with clear eyes, based on what we know about ourselves, we can pave a Path to prosperity for all.
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.
Part 5 in the serialization of the The Path to A Future. Real security.
A new section will be posted every 2 weeks during 2011. Enjoy!
If you want to get a free PDF of the book go to http://www.standardsoflife.org/thepathtoafuture.
To reach our destination we need the full participation and maximum contribution of every person. When we talk about security on The Path to a Future, what we mean is the personal, material security of each person. Our personal participation requires that we are not wondering where our next meal will come from, or if we will have a roof over our heads when we get too old to build a house. If people are insecure about their own futures, they will not lift their sights enough to act in the best interests of everyone and the planet.
Population control, mutual cooperation and environmental management are all dependant on the personal security of each and every person in the world. The cessation of violence and focused attention on transitioning to sustainable economies are also dependent on the personal security of people everywhere. So personal security is a vital component of our Path.
To provide this security, every society will need to provide every member with the bare necessitates of life as a right of citizenship. Everybody needs to be freed from basic need; this is not the same as free from want.
We’re not talking about 20th Century social security benefits here; we’re talking about a 21st Century personal security underpinning for the whole society, what we will call “super-security”.
No cash, just services.
The security we need must come from a mutual guarantee to each other that, no matter what fortune befalls us, we will each ensure that the other has the bare necessities for life, and the opportunity to make what we can of our circumstances. Of course, the extent, breath and quality of the services will depend on the capacity of the particular constituency we live in.
At the most basic level, shelter and sustenance must be guaranteed globally, to all, at every age. Fully implemented, personal security services include healthcare, education, transport and information. These services need to be provided free of payment, at the point of need and universally to every citizen and resident of the constituency, without means testing.
This concept of personal security is, at once, so simple and so shocking. We tell ourselves that of course we wouldn’t step over the bodies of those less fortunate than us as we walk down the street; but we also tell ourselves that we cannot possibly provide everyone with free food and shelter. We think we can’t afford it, and that it would cause our whole system of commerce and labor to disintegrate.
The reality is that we can afford to do it, it’s not expensive and it creates the platform on which to build the most productive society that human history has ever known!
A same basic rate of income taxes we pay today of between 25% and 30% will fund these services, in full, in the average industrialized society. The mechanism that makes providing personal security affordable is linking the costs of the services directly to the tax system; such that an average earner is paying sufficient taxes to pay for the services they receive. Many of us in those societies already pay those rates of taxation (federal, state, local, social security and health insurance), without receiving the benefits of the personal security that could be provided!
Guaranteed basic personal security does not destroy incentives. We all know for ourselves that as soon as our most basic needs are met, our next level of desires arises, and those are every bit as strong an incentive to all of us. The difference is that in the pursuit of our higher needs we make our more valuable and unique contributions, greatly enriching the fabric of our societies, far beyond the desultory contributions we make for mere survival.
As we move forward to describe other aspects of The Path, just keep in mind that we need the maximum contribution and the full participation of everyone, if we’re going to make it to our destination. The personal “super-security” of everyone is the key to unlocking the energy and focus we need to build The Path.
Great civilizations require great infrastructure, and great infrastructure has never been a commercial endeavour. It’s time to face reality and get on with the job.
The great societies, those that have spawned the great advances in learning and development, have been built on great infrastructures. Those infrastructures have never been built by commercial enterprises operating in competitive markets. Great infrastructures (like the Egyptian, Chinese, Roman, Indian, Euro-colonial and American) have been built with public funds subsidized by socialized labour.
The greater Los Angeles area has over 20 million people, with less than 20 days’ food supply – if it were not for the roads and other infrastructure, built with public funds and socialized labour during the Great Depression of the 1930s, the entire LA basin could not survive for long: no food, no water, no power. There would be nowhere in the world to land a jumbo jet, if it were not for publicly funded infrastructure.
Now the world needs to move to a new energy infrastructure that complies with our planet’s laws of thermo-dynamics. This infrastructure, where it does get built in time, will get built by the societies that leverage public funds and socialized labour.
What is “socialized labour”? Socialized labour is labour that is provided at below market rates of monetary compensation, and it is available in three varieties:
- forced – involuntary labour coerced by violence and manipulation, such as slavery and prison labour
- reluctant – marginally motivated by meagre rewards and the threat of ostrification
- cooperative – willing labour provided as part of a mutually recognized common purpose from which all will benefit
Which one of those models for socialized labour is likely to yield the effort required to build our new infrastructure?
Some version of forced labour was the choice of ancient civilizations, and some version of reluctant labour is the option provided by today’s social and economic structures. What we will need is a cooperative effort, and that will require social and economic structures akin to those proposed in the Standards of LIFE.
Our current preference for giving public money to commercial organizations, that operate using market-priced labour, will NOT deliver the infrastructure we need at a price we can afford. There isn’t enough money in the world to pay for the infrastructure we need – this is a fact that would be much more obvious to those of us sitting on infrastructure built by our forebears, if we weren’t. Think about it: we’re broke and we haven’t even invested in maintaining the infrastructure we inherited. This is serious and immediate, we must act now.
Option 0: do nothing
Option 1: fantasize about a different future
Option 2: implement Universal Services and start building our 21st C infrastructure
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.
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.”
“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?
Just two moves? Really?
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.
How cash benefits distort the monetary system, increase our deficits and discourage investment.
When we pay cash benefits we distort calculations of cost, wealth and money supply. If we provide basic social services universally, free at the point of need, we would reduce costs across the private and public sectors, improve the flexibility of businesses and enable more accurate money supply management.
The premise of this argument is that the activities that satisfy the basic human necessities of life are not wealth generating; and that paying cash benefits leads to the inclusion of their purchase price, instead of their output cost, in economic calculations, which distorts the results.
Services delivered between citizens in support of the basic welfare of society are not wealth generating transactions in a monetary sense. To understand this, we must evaluate the content of services such subsistence shelter, sustenance and healthcare. There are three distinct contents for each service: generic labor, value adding labor and capital. Generic labor is that portion of the service that requires no special skills to deliver, and can generally be categorized as ‘manual labor’. Value adding labor is the portion of the labor necessary to deliver the service that commands a premium in the market place, on account of special skills or experience. Finally, the capital portion refers to the content of the service which has to be manufactured or purchased from a external agency. In reality, nearly all labor has some value adding element; but it is important to recognize that in the lowest skilled activities command a very small premium over subsistence wages, and therefore the value added is often less than 20% of the total labor cost. The value added labor and capital portions of the service are truly wealth creating, but the generic labor portion is not. The generic labor used to deliver subsistence services does not generate a return; its value is consumed at the point of expenditure.
This is already recognized in current economic models by separating out the charity and nonprofit sectors. In these cases, it is recognized that the services delivered are not generating wealth; and therefore they are only counted on the basis of the contributions made to the sectors, not the output generated by them. This implicitly recognizes that housing the homeless, clothing the freezing and feeding the starving are not wealth generating transactions that should be included in measures used to measure economic wealth. They are services that undoubtedly contribute to the value of our societies, and they have very similar characteristics to infrastructure investments, in that they establish the basis and groundwork for the development of future wealth, but they are not themselves wealth generating transactions. This is represented in the discussion about the value to the economy of homemakers; the consensus of economists is that including the value of the output of homemakers in economic calculations would fundamentally corrupt calculations of GDP and economic wealth.
If we were to provide universal access to basic social services, free at the point of need, it would have a transforming impact on public finances and the enterprise economy. In an economy where the fundamental social services that make up the bare necessities of life are delivered free of monetary value to everyone, the immediate impact is that the “cost” of labor is dramatically reduced. When everyone in the society has shelter, sustenance and the other basics of life guaranteed to them, they are freed to work in whatever manner they can, for whatever wage that someone else is willing to pay. It is in the nature of humans that they will have desires beyond those satisfied by the subsistence services, and so will be keen to earn some discretionary income that they can use to satisfy their other needs. Because all of the resources in the labor market are guaranteed comprehensive social services, the labor market is freed to price labor using accurate demand and supply criteria, negating the need for a minimum wage.
The minimum wage becomes unnecessary because the basic survival of individuals is not dependant on the market for labor. The primary purpose of minimum wage regulation is to ensure that workers are not exploited in their desire for basic subsistence by ensuring that they are at least paid a living wage. In effect minimum wage regulations are an abstention of social responsibility, and they distort labor markets with clumsy attempts to compensate for that lack of responsibility. Society is infinitely better off simply providing the services that ensure all workers are guaranteed subsistence, and then freeing the market to define labor rates. Workers are freed to take the jobs they want, to work as hard or as little as they want, and employers are similarly liberated – all without damaging the fabric of society. If employers do not offer sufficient reward to attract the labor they need, or if they provide unacceptable working conditions, they will not be able to hire the labor they need.
Universal social services and liberated labor markets allow labor to be accurately priced according to the actually wealth-generating portion of their output, measured as the delta between the subsistence value and the market value. The net result is lower labor rates across the entire economy; proportionally more significant, the lower the skill level or less value added.
Reducing the cost of labor, in cash terms, has obvious effects in the enterprise business market by not only the reduction in cost basis, but also in the improvement of flexibility in the workforce. A workforce that is not dependent for its basic sustenance on specific employment, can react much more rapidly and flexibly to changes in the marketplace. Employers are able to react much more quickly to changes in their markets because they can easily change work patterns without being encumbered with mountains of regulation. This flexibility enables all participants in the economy to be less risk averse and more inventive.
The lower cost of labor also has a significant impact on public finances. Principally the impact is felt in the reduced tax burden of providing the social services themselves, but also in the reduced price assigned to infrastructure investments. Both of these reductions stem from the removal of the subsistence portion of labor cost from labor pricing. The subsistence portion of labor costs is removed from the economic calculations and absorbed by the social fabric, in the form of citizen-to-citizen support services delivered free of monetary value in exchange for the same. The labor is still provided, but the subsistence portion of its value is not monetized.
The monetary cost of providing social services is reduced; because the labor rates for the people who are delivering the services is lowered. This cyclical reinforcement reduces the overall tax burden, and increases the capital proportion of the cost that remains. Because the labor required to deliver the bulk of subsistence social services is low skilled work, the value added portion of the labor cost is a small fraction of today’s total labor charge. Only the value added portion of the labor needs to be paid for from tax receipts and that reduces the tax burden. The labor content of services such as education and healthcare includes a higher percentage of value added, and so the reduction in the costs for those social services is less. Nevertheless, removing the subsistence portion of labor from the overall cost of delivering basic social services will reduce both total cost and the percentage of cost assigned to labor. The result is that a higher percentage of taxes spent on providing social services will be spent on capital investments. Given a stable population, the increased capital allocation will result in a substantial long-term reduction in the cost of social service provision.
Taxes and wealth are expressed in monetary terms; and, in a progressive tax regime, more taxes are levied from the highest wealth generators. So transferring the subsistence portion of social services costs on to the social fabric of the society, reduces the tax burden most significantly for the wealth generating members of the society. In other words, providing free basic social services is in the best interests of the wealthiest members of the society.
If labor rates are substantially reduced, this will also impact the ability of the society to raise tax revenues from income taxes. Income taxes will only apply to the value adding portion of labor, because that is what is expressed in monetary terms. There are two modifying effects that mollify the apparently negative consequences for tax receipts. First, the majority of income taxes are raised from the highest earners, so removing the subsistence portion of income from tax calculations will have a relatively minor impact on overall receipts. In fact, so long as the reduction of total social service provisioning costs contributed by lower labor rates, is greater than the effective income tax rate on subsistence wages, the net result will be a reduction in the tax burden compared to current systems. Secondly, tax revenues could be raised by a comprehensive income tax that is levied on all income, without personal allowances. This will be more politically acceptable because all subsistence needs have already been taken care of by the social services provided.
The impact on the public financing of infrastructure investment is to bring the “cost” of those investments down and, at the same time, more closely match the interest burden on any such investments funded from budget deficits. Because budget deficits are necessarily funded with borrowing, it is important that those funds are spent on performing assets that can deliver a return, to support the interest burden on the debt. By removing the subsistence portion of the labor costs from the price tag of the infrastructure, the amount of borrowing can be reduced. The rate of return on the investment is improved, so repayment schedules can be shorter, and the return rate of the infrastructure investment can be more easily supported without unnecessary expansions of the money supply.
Finally, a beneficial side effect of using input cost pricing for basic social services is that their recognition within GDP calculations at their cost, makes GDP a more accurate measure by which to gage wealth, and therefore manage the money supply. The trouble with a benefits system is that it prices the value of the services at their acquisition cost, because the recipient uses cash to buy services. We pay unemployment benefits as cash, we pay pensions as cash; but what we are really trying to do is deliver services such as housing, sustenance, shelter and healthcare. Instead of actually delivering the services, we find it easier to send cash. This substitution of services with cash is the basis for miscalculating wealth and GDP, because the purchase price of social services is used instead of the provisioning cost.
Changing from cash benefits to universal services reduces labor costs, lowers taxes, makes infrastructure investment more affordable, increases business flexibility and improves money supply management. What more reasons do we need to start owning up to our responsibilities and living up to the social contract we implicitly rely on for a peaceful life?