Tag: financial crisis

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

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

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

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

So, tell me how this works again?

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

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

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

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

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

So if that won’t work, what will?

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

Just two moves? Really?

Yes.

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

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

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

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

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

Whatever happened to the European social model?

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

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

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

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

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

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

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

The Unified Theory of People in Action

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

G20: coordinate, stimulate, regulate?

Leaders of 20 nations meet this weekend in Washington, united in their discomfort with their position in the world, their victim status and their common sense that something else is possible.

Together they represent:

  • 100% of the responsibility
  • 90% of world industry
  • 80% of world economic output
  • 70% of the world’s population
  • 60% of the world’s land mass
  • 50% of the world’s resources
  • 40% of the world’s ethno-bio-diversity
  • 30% of the world’s AIDS population
  • 20% of the world’s good intentions
  • 10% of the world’s good ideas

Together, they will produce 0% of the answers and actions capable of leading us all to a sustainable, peaceful prosperity.

On the surface their desires are simple, they want to live long and prosper. They understand in their guts that it would be fair if they could just chop wood and carry water to make ends meet, and have a decent chance at pursuing happiness. Underneath, their goals and ambitions are complicated by a vision tinted by separateness, hearing muffled by unholistic understanding and feeling anesthetized by their knowledge of their own unrepresentativeness.

The features of a group that could deliver solutions would be

  • wholesome representation (integration)
  • common purpose, process and practice (intention)
  • holistic world view (inspiration)

This is a good test run because it represents exactly the kind of coordinated decision-making and action planning that is going to be necessary if we are going to change course from the fate looming over the world in the coming decades, towards our destiny of sustainable peace and prosperity. Achieving the challenging changes that will be required to avert environmental and social degradation, will require inspiration integrated with intention, that stimulates action across the world.

What the G20 leaders could do to start in the right direction:

  • agree to form trans territorial alliances that will allow representatives at the next meeting to represent 100% of the worlds population
  • recognize that national currencies are no longer useful in a globalized economy and yet we are not ready to adopt a global currency, so there must be consolidation towards trans territorial currency units, each managed by an independent central bank
  • define the role of a central bank as an apolitical organization charged with responsibility for management of the money supply, and therefore banking regulation, interest rates and value stability
  • resolve to prioritize their own humanitarian support systems so that coordinated action in the future is about moving forward, not rescuing from past miss steps
  • stimulate microeconomic activity by reforming their tax systems, establishing micro marketplaces, deploying information access networks and implementing basic social security systems
  • advance the Doha round of trade talks by focusing on these two factors:
    • establish the right to food sovereignty
      • remove international recognition of biogenetic patents
      • promote sustainable self-sufficiency
      • ban the export of subsidized agricultural products to stop rich subsidizing blocks contorting the real market for food; if the need is humantarian then give it away
    • establish a carbon tax framework
      • establish unified rates of taxation
      • agree standards governing the use of funds raised from carbon taxes

True capitalism requires social security

True capitalism actually requires a proper system of social support to avoid the unhelpful intervention of governments in the form of corporate welfare.

The trouble with capitalism as a political philosophy, is that it isn’t one. Capitalism is an economic principle and mechanism, but it is not politic. That is that it does not concern itself with the many, nor does it have any interest in the well being of people. In capitalism people are resources, in politics people are people.

One of the lessons of the recent financial turmoil is the recurring reminder that, in the end, governments, on behalf of the people, bear the final responsibility for the welfare of people, and thus must act as the ‘backer of last resort’ for the economy. Without social support this inevitably leads to corporate welfare. There is no other choice: if one believes that the welfare of the people is dependent on the merchants of capitalism, it follows that maintaining the welfare of the people requires the support of the merchants.

The trouble with this is that the merchants are not innately directed by the welfare of the people, and they make very ineffective distributors of social security. It is not in their DNA, and nor should it be. Give a bank a billion and they will use it to make money, what else would you expect from a bank?

If you really want to let capitalism have free reign then you have to make sure that social security is there first. That way corporations can rise and fall according to the laws of the market without having to be rescued by the tax payer, this is the ideal that market fundamentalists espouse. The mechanism of capitalism is dependant for its long term health on the death of unsuccessful ventures, and so society must isolate itself from such deaths, as much as it can.

By providing the social infrastructure detailed in the Standards of LIFE, one can let the market go. When the fates of corporations are not a threat to the basic fabric of the society they thrive in, then they are liberated to pursue their raison d’etre. Furthermore, the micro economic enablement at the core of the Standards of LIFE further isolates the welfare of the public from the failure of any particular enterprise and from the natural cycles of specific industries.

True capitalism, it turns out, actually requires that there is a proper system of social support in place, in order to avoid the unhelpful intervention of governments in the form of corporate welfare.

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