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matrixx8

Joined: 17 Jun 2005
Posts: 1193
Location: Amsterdam

Posted: Thu Mar 05, 2009 11:11 am Post subject: Thinking Outside the In-Box

In a much neglected post on this thread,

MX2 wrote:

The 20th Century AD has seen the spread of democracy, the power of the corporation, propaganda to keep corporates safe from democracy, will the government come back from retreat?
Who will take the little person's corner, or that of half the world's population that lives below USD/$2 per day? After all, the ownership society that the political right is so fond of, seems to have resulted in the super rich owning ever more of the planet, while feudalism is back at the mom-and-pop shareholder level, with depleted retirement savings, ...

Recently, around the world, we have seen numerous attempts to "fix" the system -- mostly efforts to inject borrowed government funds to re-float capital markets and get the banking system back on track. Borrowing as a cure for a borrowing crisis, as it were.

Economists seem to disagree as to whether that tactic will work -- either in the short or the long term.

MX2, however, raised a more essential question. What has gone wrong with the global economic system and what will it take to fix it?

It seems to me that, more than ever, this is the time to start thinking outside of our In-Boxes, which tend to feed on standard commentaries, technical adjustments and (often) time-worn cliches.

Here, in my view, is a truly provocative commentary on what has gone wrong with our economic system and one step we could take to put it back on track. (And possibly answer MX2's above question, or at least point us in the right direction.)

Credit as a Public Utility: the Key to Monetary Reform[/url], by Richard C. Cook. (Written before the recent crash).

Quote:

We live in an era of deregulation, where economists and politicians speak of “the market,” not government, as the appropriate vehicle for economic decisions. President Ronald Reagan said in his 1981 inaugural address, “Government is not a solution to our problem, government is the problem.”

This attitude has defined the U.S. approach since then, including the Clinton years, when even a Democratic administration cut the size of the federal bureaucracy and tried to reduce its impact. The laissez-faire attitude has continued under President George W. Bush, though resistance is appearing from the Democratic majority elected to Congress in 2006 with respect to selected issues such as the high cost of student loans.

But if market-based economics is so wonderful, why do we have stagnating employee incomes, rapidly increasing control of wealth by the very rich, a middle class in decline, growing poverty, collapse of our manufacturing job base, a bursting housing bubble, resurgent commodity inflation, soaring but shaky stock prices, a trillion dollar war in the Middle East financed by runaway deficit spending, and capital markets dominated by predatory equity and hedge funds? Why and how has “the market” done so much damage to the many while enriching the few?

On top of everything else is the exponential growth of debt. American households today are deeper in debt than at any time in history. So is the federal government. So are state and local governments. So is business. The only ones not in debt are the financial institutions and their controllers to whom everyone else owes money. Maybe this is what is really meant by “the market.”

Total U.S. societal debt has been reliably estimated at $48 trillion dollars and growing. If we assume, on the low side, that the cost of this debt is six percent interest per year, that’s about $3 trillion per year in interest payments alone. This is equivalent to almost a quarter of the entire U.S. gross domestic product. It doesn’t even count the repayment of the principle on the loans where repayment reduces the available purchasing power, thus making new loans constantly necessary.

Debt is an albatross around the neck of every citizen and resident, every man, woman, and child. Things have become worse since 2005 when Congress passed a much more onerous bankruptcy law at the urging of the financial industry. Some types of debt, such as student loans and taxes, can never be forgiven.

And as the debt ripples through the economy it makes everything else more expensive and turns individual financial problems into crises. It affects people’s health, keeps them up at night with worry, and even drives many to alcohol, legal or illegal drugs, or even suicide. Worldwide, economic stresses and the need to constantly work harder and find new sources of income just to survive contribute to tension among nations and increase the chances of war or terrorism.

Is this really the legacy of the most highly developed and productive economy in the history of the world? Hasn’t something gone terribly wrong?

Read Mr. Cook’s interesting proposal.
_________________

Quote:

"The true triumph of reason is that it enables us to get along with those who do not possess it."
-Voltaire

johnwilkins

Joined: 15 Apr 2002
Posts: 4862
Location: West Coast

Posted: Sat Mar 07, 2009 2:51 pm Post subject:

This is more of a polemic than anything else. The system is not hard to understand. China wanted to industrialize and still does. The US wants cheap goods. So the US ran a trade deficit with China of massive proportions. The Chinese used their surpluses to do two things--1. finance American consumption of Chinese-made goods, and buy US manufacturing businesses and move them to China. Of course, that's oversimplifying it a bit, as they also buy commodities and inputs from around the world too. It was an unsustainable mutual free ride. America gets goods for cheap, China gets a steady but huge market to sell its goods.

The problem for China is that it cannot overtake the global economies of the EU and the US on exports--something they don't seem to understand. The problem for the US is that it cannot enjoy the free ride forever, because debts have to be paid with income. The problem with the two is the bilateral imbalance. China has to invest in US income producing industries if it doesn't want to see a devaluation of the dollar and the end of its export markets.

Why are incomes going down? Jobs go offshore, and goods come in for much less. That's why living standards are higher too. It's also why we have a bit of a crisis of confidence, as no one can quite figure out why debt-loaded subprimers and their enablers ought to be bailed out.

As for Cook's commentary, market-based economies and warfare with terrorists are an apples-and-oranges comparison. Cook should also note that the very rich control most of the worlds assets. With asset price deflation, the rich are getting hurt worse than anyone. The cost of the debt is not a conservative 6%. In fact, much of it was financed or originated at 5% or less and defaulted immediately as rates increased. Repayment does not reduce purchasing power on balance in a deflationary environment. That's what China buys you--a $500 laptop with 250GB hard drive, 3GB ram, 15.9in monitor, built in speakers, web cam, CD/DVD RW, built in wireless, etc., etc.

Franklin (perhaps an early monetarist) was right about paper money. The limited supply of gold and silver unnecessarily limited market exchanges.

Cook also says that the US abrogated Bretton Woods. In fact, it fell apart. Germany and Switzerland left before the US closed the gold window. Germany was the second largest economy in the world, which effectively made the system a farce.

Cook wrote:

It is extremely important to understand that most of these transactions are essentially non-productive in an economic sense, involve gigantic sums of money created from “nothing” through the bankers’ fractional reserve privileges, and have little in common with the type of investment in the producing economy that takes place through the capital markets.

Again, straight forward socialist commentary. Social security is entirely a non-productive transaction in an economic sense too. It actually destroys wealth for the tax payer. But for the corporation, it increases aggregate demand, thereby financing the high fixed cost of mass-production and making it difficult for small producers to compete.

Cook wrote:

The history of credit shows its power to draw forth work on the part of men and women who need to exchange goods and services among themselves in order to live. But as this report dramatizes, credit can be used for divergent purposes. Like electricity, it is neither good nor evil. It can be used or misused. Electricity can electrocute prisoners or bring light to cities. Credit in the wrong hands can start wars but used properly can accomplish miracles of science.

Unfortunately for the idealists, they are one and the same. Nature does not abhor war. Its victims do. Its victors love it. Military machinery is a miracle of science too.

Cook wrote:

We should spend sufficient credit into existence to supply the basic operating expenses of government at all levels without recourse to either taxes or borrowing. At least ninety percent of all taxes could be eliminated.

Printing money. They're doing that big time right now.

Cook wrote:

One would be a cash stipend paid to all citizens which would also serve the purpose of eliminating poverty by providing everyone with a basic income guarantee. The remainder of the National Dividend would consist of an overall pricing subsidy, whereby a designated proportion of all purchases, including home building expenses, would be rebated to consumers. The average National Dividend per person would probably exceed $12,000 per year under today’s economic conditions. It would be a calculated value charged against a government ledger but would be off-budget, with no need to finance it with taxation or borrowing.

Subprime lending by another name...

Cook wrote:

Once these major steps were taken, other measures could be instituted that would also reflect the status of credit as a public utility. These include the ready availability of low cost credit for consumers, small businesses, and students; the ability of capital markets to function without the destructive overhang of predatory financial methods;

Subprime lending IS predatory lending...

Cook wrote:

What we need now is for the public to wake up to the urgent need for change and for the political leadership at all levels of government to step up and make it happen.

Any system that requires universal adoption is doomed to failure from the outset in a competitive political system.
_________________
"A designer knows he has achieved perfection not when there is nothing left to add, but when there is nothing left to take away."
--Antoine de Saint-Exupery

matrixx8

Joined: 17 Jun 2005
Posts: 1193
Location: Amsterdam

Posted: Mon Mar 09, 2009 10:21 am Post subject:

johnwilkins wrote:

I think MX2's point was that, as economics is a political activity, the outcomes should provide a win-win result for those who participate. The current economic crisis shows that some people can manipulate the system to the detriment of other investors, employees and employers. Something is clearly wrong. Better oversight -- democratic accountability -- regulation springs to mind.

johnwilkins wrote:

Why are incomes going down? Jobs go offshore, and goods come in for much less. That's why living standards are higher too. It's also why we have a bit of a crisis of confidence, as no one can quite figure out why debt-loaded subprimers and their enablers ought to be bailed out.

Circular reasoning. Jobs don't have to go offshore. Isn't this just a matter of tax incentives?

johnwilkins wrote:

As for Cook's commentary, market-based economies and warfare with terrorists are an apples-and-oranges comparison.

See the comment below.

johnwilkins wrote:

Cook wrote:

Again, straight forward socialist commentary.

Is this an argument of some kind, sort of like saying that infidels will be punished in the after-life?

johnwilkins wrote:

Social security is entirely a non-productive transaction in an economic sense too. It actually destroys wealth for the tax payer.

Okay. And waging war is not? Both, it seems to me, are examples of the "broken-window" theory. So are losses due to natural disasters. If voters have choices in the matter, which activity would seem most likely to be eliminated (except when faced with a direct attack)?

johnwilkins wrote:

But for the corporation, it increases aggregate demand, thereby financing the high fixed cost of mass-production and making it difficult for small producers to compete.

Generalization. Some economic activities are zero sum. Investment banking, for example. That and eliminating compound interest through public credit are the key arguments that Cook is making. Putting aside economic dogma, what is wrong with that idea?

johnwilkins wrote:

Cook wrote:

Unfortunately for the idealists, they are one and the same. Nature does not abhor war. Its victims do. Its victors love it. Military machinery is a miracle of science too

But voters have the last say in democratic societies. War is no more inevitable than allowing business executives to claim golden parachutes, even when they have failed to make companies profitable. The US did not have to go to war in Iraq, as we now know. The public, I think it is fair to say, was deceived into going to war by the Bush administration.

johnwilkins wrote:

Cook wrote:

Printing money. They're doing that big time right now.

Cook was ahead of his time, it seems. Smile

johnwlkins wrote:

Cook wrote:

Subprime lending by another name...

You seem to equate lender fraud with predatory lending policies. You might want to take note of this distinction.

Quote:

Fraud for housing represents illegal actions perpetrated solely by the borrower. The simple motive behind this fraud is to acquire and maintain ownership of a house under false pretenses. This type of fraud is typified by a borrower who makes misrepresentations regarding his income or employment history to qualify for a loan.

The defrauding of mortgage lenders should not be compared to predatory lending practices that primarily affect borrowers. Predatory lending typically effects senior citizens, lower income, and challenged credit borrowers. Predatory lending forces borrowers to pay exorbitant loan origination/settlement fees, subprime or higher interest rates, and in some cases, unreasonable service fees. These practices often result in the borrower defaulting on his mortgage payment and undergoing foreclosure or forced refinancing.

johnwilkins wrote:

Cook wrote:

What we need now is for the public to wake up to the urgent need for change and for the political leadership at all levels of government to step up and make it happen.

Any system that requires universal adoption is doomed to failure from the outset in a competitive political system.

You mean like Social Security, Medicare, Medicaid, the Federal Reserve System, UniversaL Health Care, Public Education, Universal Suffrage, Inconme Tax, Public Roads, National Park Systems ...

America's latest Nobel Prize winner in economics favors nationalizing the banks. Alan Greenspan has suggested a similar approach, advocating temporary nationalization. Doesn't that make sense in the current crisis? Cleaning up the mess and then privatizing them again? There is evidence that temporary nationalization works: Nationalize the Banks – We’re All Swedes Now
_________________

Quote:

"The true triumph of reason is that it enables us to get along with those who do not possess it."
-Voltaire

johnwilkins

Joined: 15 Apr 2002
Posts: 4862
Location: West Coast

Posted: Mon Mar 09, 2009 7:58 pm Post subject:

matrixx8 wrote:

Something is clearly wrong from a normative perspective, because you don't like recessions and depressions. Of course, neither do I, but I don't like drug addiction either. Drug addiction is a win-win transaction for the junkie and the dealer in the short- to medium-term. The druggie gets his fix, and the dealer gets his profit margin. In the long run, it's bad for both.

The long run problem with the US-China relationship is that the US continues to buy Chinese-made goods when China is undermining the income-producing activities necessary to serve the debts Americans incur. That's bad in the long run for both the Chinese and the Americans--not unlike a drug dealer relationship, where China is the drug dealer and America is the addict. China's perspective is that they are gaining hard currency and a major creditor status. But if they undermine their debtor's ability to repay, all they end up with is bad debt--i.e., worthless heaps of paper. They have plenty of anti-American enablers who sell them on this idea that it is better to be a creditor than a debtor.

matrixx8 wrote:

Circular reasoning. Jobs don't have to go offshore. Isn't this just a matter of tax incentives?

No. Labor arbitrage is a huge part of it. Eliminate the tax incentives if you like, but that will not eliminate the labor arbitrage. I recall vividly saying to a senior executive at Bank of America that the net effect of undersea fiber optics (e.g., global crossing) is that it would enable US corporations to outsource entire divisions. How would you stop this? Are you saying that costs you incur overseas are not deductible for tax purposes? It's not hard to change the nature of corporate shells to outwit tax authorities.

matrixx8 wrote:

Is this an argument of some kind, sort of like saying that infidels will be punished in the after-life?

No. It's simply acknowledging that this is part and parcel of Critical Theory. Whatever the US does must be criticized, or so it seems. The fact of the matter, as I've pointed out to you many times now, is that you cannot have a welfare state without an elastic monetary system and a graduated income tax. The two go hand in hand. Yes, they do have powerful warmaking capabilities too.

matrixx8 wrote:

Nice try. But if faced with a direct attack and you aren't prepared, it is a significant risk that you will lose substantially in the encounter. So funding warmaking machinery, would, as you might put it when talking about other subjects, be characterized as risk mitigation.

matrixx8 wrote:

Some economic activities are zero sum. Investment banking, for example.

Why do you think investment banking is zero-sum? A classsic zero sum game is gambling for its own sake. Investment banking aggregates capital, and places it in the most productive hands. The purpose is that it is a win for the individuals with surplus capital, a win for the investment banker, and a win for the capitalist--and to achieve all those wins, it is a win for the consumer too. Who loses? Older, more inefficient means of production. That's who.

matrixx8 wrote:

That and eliminating compound interest through public credit are the key arguments that Cook is making. Putting aside economic dogma, what is wrong with that idea?

I'm not sure if you can put aside the economic dogma. What capitalism tries to do is maximize returns. If you extend capital credit to a productive person and to an unproductive person, you misallocate resources. Part of why I think you don't understand why some of these supposed innovations haven't come to pass is that you don't understand who is meant to benefit from them. People like Gates and Buffet favor graduated income taxes because it makes them more money. They're not asking to be taxed at a higher rate in real terms. Some degree of wealth redistribution means that mass production capitalism returns higher profits.

matrixx8 wrote:

But voters have the last say in democratic societies.

We'd like to think so... that much is true.

matrixx8 wrote:

War is no more inevitable than allowing business executives to claim golden parachutes, even when they have failed to make companies profitable. The US did not have to go to war in Iraq, as we now know. The public, I think it is fair to say, was deceived into going to war by the Bush administration.

This is sort of a slippery slope. My first instinct is to ignore it, but my worst instinct usually prevail and I bite as usual. I understand there is a deep desire on your part to make Bush wrong for the Iraq War. My point before the war, and before you started posting here, was that war was in fact inevitable. I actually made that point when Bush was elected, although I was harboring the illusion that it would be in Central America over the Panama Canal again. I had no idea he'd go into Iraq.

However, deception isn't something you can apply exclusively to Bush. You can apply it to Hussein, US adversaries, and people whom you feel share your political views but don't in actuality. Did the Democratic Congress stop the war in Iraq? No. In fact, they are the ones who funded the surge, while at the same time calling General Petraus "General Betray Us." Those little bits seem to escape you. The reason you will never be able to do anything to Bush is that the people who condemned him publicly are the same people who supported him privately. You may think John Kerry was fooled when he gave his pre-vote speech. I don't. Who was deceived by Bush? Not me. There were a number of people on this board who argued endlessly before the war that war was not inevitable. Of course it was inevitable. They also think that because they could never disabuse me of that idea that somehow me and people like me made it happen because we wanted it to happen. Personally, I don't like war at all. But I dislike America's enemies even more, which is why I'm willing to entertain the thought of it.

In the lead up to the Iraq War, people knew that Hussein had been a terror sponsor, a seeker of WMDs, a 12-year violator of UN sanctions, and one who seemed to jump for joy while holding public celebrations at the parade grounds with those ridiculous crossed-sword arches. People don't need to see too much b-roll footage of that sort of activity to develop a negative opinion of Iraq and its regime. Well over 70% of Americans supported the war at its inception--a fairly healthy majority. So in the end, the people have the last say. They also have the first say. If they can be mislead, that's all it takes to control public policy. That's why so much time and money is spent on propaganda.

matrixx8 wrote:

Cook was ahead of his time, it seems.

To a degree. Spending money into circulation debases the currency. It is in fact a tax, and it is the most regressive natural taxation--with the possible exception of deliberately levying taxes only upon the poor.

matrixx8 wrote:

You seem to equate lender fraud with predatory lending policies. You might want to take note of this distinction.

Fraud is the superset. Predatory lending is just a qualified case of fraud and cheats. At any rate, an off budget stipend that comes neither from taxation or debt would necessarily come from currency debasement--unless you know something I don't know.

matrixx8 wrote:

You mean like Social Security, Medicare, Medicaid, the Federal Reserve System, UniversaL Health Care, Public Education, Universal Suffrage, Inconme Tax, Public Roads, National Park Systems ...

Only the Federal Reserve System qualifies in this instance as inherently universal. Social Security, Medicaid, etc. are all qualified. We don't allow non-citizens, minors or incarcerated felons to vote. Income taxes are graduated and riddled with so many loopholes, that it is anything but universal. Public roads are pretty close to universal.

matrixx8 wrote:

America's latest Nobel Prize winner in economics favors nationalizing the banks. Alan Greenspan has suggested a similar approach, advocating temporary nationalization. Doesn't that make sense in the current crisis? Cleaning up the mess and then privatizing them again?

It's sort of cute to see you become such a passionate defender of the rich. The reality is that they don't want to put them into bankruptcy, because what we're really doing is bailing out rich bondholders. That's why we don't put GM into bankruptcy either. It's not like we haven't had bankrupt utilities, municipalities, airlines, and so forth that went into and came out of bankruptcy. What happens in bankruptcy that's so horrifying? A stigma? No. Debts get discharged and creditors cannot collect. So what do you really think this is all about? We're bailing out the rich. As long as the aristocracy is invisible to you, you will never know the difference. And as you said, in the end, it's up to the masses--who seem rather easily deceived, don't you think?
_________________
"A designer knows he has achieved perfection not when there is nothing left to add, but when there is nothing left to take away."
--Antoine de Saint-Exupery

matrixx8

Joined: 17 Jun 2005
Posts: 1193
Location: Amsterdam

Posted: Sun Mar 15, 2009 7:34 pm Post subject:

johnwilkins wrote:

matrixx8 wrote:

LOL! You're analogy plays right into my hands! Like investment banking, the drug dealer - addict relationship is zero sum as long as drugs are illegal and addicts are criminalized. To pay the high prices of illegal drugs, addicts usually have to steal. Many end up in jail in the US. There's no win-win situation on the horizon until drugs become legal.

johnwilkins wrote:

matrixx8 wrote:

Circular reasoning. Jobs don't have to go offshore. Isn't this just a matter of tax incentives?

I wasn't suggesting eliminating tax incentives, but rather providing them to corporations that do not outsource jobs.

Your obsession with labor arbitrage is a bit like saying that, if we restrict human rights, our ability to conduct war increases substantially. All the US would have to do, if the political will were present, is to demand that US companies apply US laws to their international hiring, terms of employment etc. to foreign-based workers. I see no reason why that couldn't be done, do you?

You might argue that such companies would then simply move their businesses to sweatshop countries, where they could incorporate without being subject to US law. They could, but the chances are that they would also lose their advantage in the US market in one fell swoop.

johnwilkins wrote:

matrixx8 wrote:

Is this an argument of some kind, sort of like saying that infidels will be punished in the after-life?

Unless, of course, we adapt Henry George's economics, based on Ricardian rent.

johnwilkins wrote:

matrixx8 wrote:

I made direct attacks an exception. Funding war, whether it is for good or bad reasons, is still a zero sum economic activity. That was the point I was making.

johnwilkins wrote:

matrixx8 wrote:

Some economic activities are zero sum. Investment banking, for example.

Why do you think investment banking is zero-sum?

Here's one reason:

Quote:

Unlike almost any other business, investment banks make money at the expense of their customers. Indeed, a core element of their operations is built on a conflict of interest that they manipulate to their own advantage. It’s a business model that deserves to die, and with any luck the Panic of ‘08 will bury it.

Here's another:

Quote:

"Deals" will, because of the financing, allow entrepreneurs to create wealth (positive sum). But the deal itself is pretty much zero-sum: the higher the interest rate the more the bank gets, the less the payer has.

Also, in bidding for a deal -- the more the investment bank gets in fees, the less that is available for the investment.

johnwilkins wrote:

matrixx8 wrote:

That and eliminating compound interest through public credit are the key arguments that Cook is making. Putting aside economic dogma, what is wrong with that idea?

What capitalism tries to do doesn't interest me as much as what policymakers actually do. In Europe, I have seen much fairer distribution of wealth than in the USA. Your philosophy seems to be based on the idea that accident of nature, privatization of natural resources and lack of regulation should result in some people having more than others.

I agree. However, having more than others ought not to mean that 1 percent of the population owns 99% of the wealth. The people who utilize the largest share of natural resources should pay economic rent on such resource use. It's as simple as that. If people were taxed only on unearned income, economic activities would be non-zero sum.

I'll leave your hawkish remarks for they are: apologies for American aggression.

johnwilkins wrote:

matrixx8 wrote:

Cook was ahead of his time, it seems.

I don't think you read Cook's article very closely. He simply advocates replacing private credit with public credit. There's no reason to assume that unproductive people will get priority over productive people. Any expertise that banks have can be bought by the government. Printing money to provide loans for manufacturing goods and construction adds wealth, whether it comes from government or private industry.

johnwilkins wrote:

matrixx8 wrote:

I don't think this is about bailing out any specific group (that may be a consequence), but rather about fixing the system.

The future of capitalism -- that's another topic altogether.
_________________

Quote:

"The true triumph of reason is that it enables us to get along with those who do not possess it."
-Voltaire

johnwilkins

Joined: 15 Apr 2002
Posts: 4862
Location: West Coast

Posted: Mon Mar 16, 2009 12:35 am Post subject:

matrixx8 wrote:

You are only looking at the dollar-sum of the addict-dealer relationship. There are significant negative externalities for the dealers too. In zero-sum terms, only medical professionals really win. Addicts and dealers both lose. If drugs are legal, pharmcos and medical professionals win while everyone else--except tax authorities--generally lose.

matrixx8 wrote:

I wasn't suggesting eliminating tax incentives, but rather providing them to corporations that do not outsource jobs.

That's a very strange sentiment. I could swear at one point you were arguing for the free movement of labor. The free movement of capital is much more efficient. So outsourcing is the best way to ensure more economic equality around the world. Why would you oppose that?

matrixx8 wrote:

Your obsession with labor arbitrage is a bit like saying that, if we restrict human rights, our ability to conduct war increases substantially.

That went right over my head. What do you mean?

matrixx8 wrote:

You might argue that such companies would then simply move their businesses to sweatshop countries, where they could incorporate without being subject to US law. They could, but the chances are that they would also lose their advantage in the US market in one fell swoop.

If the US erected trade barriers to non-US companies, sure. But that sparks a trade war. Look what happened to Obama when he put the "buy American" provision into his stimulus bill. Your Euro buddies had their panties in a bunch.

matrixx8 wrote:

Unless, of course, we adapt Henry George's economics, based on Ricardian rent.

We already have property taxes. If you aren't productive, land is stripped from you.

matrixx8 wrote:

I made direct attacks an exception. Funding war, whether it is for good or bad reasons, is still a zero sum economic activity. That was the point I was making.

Gambling is a zero sum activity. War isn't necessarily Pareto efficient. It usually involves losses to both sides, and usually results in a reallocation of resources. Whether that reallocation results in a Pareto improvement depends on the outcome. I'd say the long-term outcome of WWII and the Korean War was a Pareto improvement. Vietnam wasn't. Iraq may still turn out to be an improvement.

matrixx8 wrote:

Here's one reason:

Investment banking is all about Pareto improvement. Without Pareto improvement, investment banking would die by itself.

matrixx8 wrote:

"Fairer" is an arbitary concept based on some presumptive benefit to a more equal distribution of resources. Capitalism tries to allocate resources to improve returns.

matrixx8 wrote:

However, having more than others ought not to mean that 1 percent of the population owns 99% of the wealth. The people who utilize the largest share of natural resources should pay economic rent on such resource use. It's as simple as that. If people were taxed only on unearned income, economic activities would be non-zero sum.

The problem is one of assessment. What happens if someone stumbles upon a great discovery and makes a fortune with it? Part of the patent process is to give entrepreneurs an incentive to teach and disclose their method to the public record in exchange for a limited-term monopoly. Is it any wonder that countries with IP systems generally outperform countries that don't?

matrixx8 wrote:

I'll leave your hawkish remarks for they are: apologies for American aggression.

I'm not sure what you mean. I'm neither an apologist for or against American aggression. If anything, I'd be better characterized as an apologist for aggression on the grounds that nature and evolution imply competition. I'm also a critic of left-wing demagoguery, which is only concerned about peace if America and the capitalists are on the march. Darfur, Rwanda, the Sri Lankan war, human rights in China, etc. mean nothing to these people.

matrixx8 wrote:

Printing money by itself destroys wealth. It is a forced tax, and if spent by the government, a forced reallocation of resources. Too often, that reallocation is basically political corruption and nothing more. The problem with your theory is that it requires people to be "good" or "noble" when holding public office. Look at how the Republicans behaved after Newt Gingrich and Dick Armey left Washington. They became as bad as the Democrats, who could rightly lament Republican spending. Now that they're back in power, the spending is greater even than the Republicans. The problem is that you have to have good public officials. We don't. That's why many of us so-called conservatives prefer smaller government.
_________________
"A designer knows he has achieved perfection not when there is nothing left to add, but when there is nothing left to take away."
--Antoine de Saint-Exupery

matrixx8

Joined: 17 Jun 2005
Posts: 1193
Location: Amsterdam

Posted: Thu Mar 19, 2009 5:57 pm Post subject:

johnwilkins wrote:

The source for Cook's argument comes from Stephen Zarlenga, the driving force behind the American Monetary Act

You may be unaware of this monetary reform movement. Zarlenga is best known perhaps for his refutation of Carl Menger’s ‘Origin of Money’, which Austrian School advocates have, in turn, tried with some difficulty to rebut.

Others on the right are not satisfied with either theory.

Quote:

“The basic flaw in the logic of modern socialists (Montagne, Cook, Zarlenga, etc.) is confusion between motivation and capability. ‘He’s privately controlled!’ the socialist sneers at the Federal Reserve chairman, the unspoken assumption being that, were the socialist put in charge, he would immediately open the floodgates of wealth and prosperity for us all. It would be a veritable socialistic paradise, if only the Benevolent One were given the authority to print money! But, the fact is, the Fed is in a box. If a socialist were put in charge, he would be in the same box.”

Nevertheless, Zarlegna's arguments have a firm basis in empirical fact, providing a logical and realistic alternative to the current failed monetary system.

Quote:

The Need for Monetary Reform*
Under the Constitution, Article I, Sec. 8, our government has the sovereign power to issue money and spend it into circulation to promote the general welfare through the creation and repair of infrastructure, including human infrastructure - health and education - rather than misusing the money system for speculation as banking has historically done. Our lawmakers must now reclaim that power!
Money has value because of skilled people, resources, and infrastructure, working together in a supportive social and legal framework. Money is the indispensable lubricant that lets them “run.” It is not tangible wealth in itself, but a power to obtain wealth. Money is an abstract social power based in law; and whatever government accepts in payment of taxes will be money. Money’s value is not created by the private corporations that now control it.
Unhappily, mankind’s experience with private money creation has undeniably been a long history of fraud, mismanagement and even villainy. Banking abuses are pervasive and self-evident. Major banks and companies focus on misusing the money system instead of production. For example, in June 2005, Citibank and Merrill Lynch paid over $1.2 Billion to Enron pensioners to settle fraud charges.
Private money creation through fractional reserve banking fosters an unprecedented concentration of wealth which destroys the democratic process and ultimately promotes military imperialism. Less than 1% of the population claims ownership of almost 50% of the wealth, but vital infrastructure is ignored. The American Society of Civil Engineers gives a D grade to our infrastructure and estimates that $1.6 trillion is needed to bring it to acceptable levels.
“
Infrastructure repair would provide quality employment throughout the nation. There is a pretense that
government must either borrow or tax to get the money for such projects. But it is well known that the
government can directly create the money needed and spend it into circulation for such projects, without
inflationary results.

Monetary reform is achieved in three parts which must be enacted together for it to work. Any one or any two of them alone won’t do it, but could actually further harm the monetary system.

First, incorporate the Federal Reserve System into the U.S. Treasury where all new money could be created by government as money, not interest-bearing debt, and spent into circulation to promote the general welfare. The monetary system would be monitored to be neither inflationary nor deflationary.
Second, halt the bank’s privilege to create money by ending the fractional reserve system in a gentle and
elegant way. All the past monetized private credit would be converted into U.S. government money. Banks would then act as intermediaries accepting savings deposits and loaning them out to borrowers. They would do what people think they do now.
Third, spend new money into circulation on infrastructure, including the education and healthcare
needed for a growing society, starting with the $1.6 trillion that the American Society of Civil Engineers
estimates is needed for infrastructure repair. This would create good jobs across our nation, re-invigorating local economies and re-funding government at all levels.
[…]
Discussions:
The false specter of Inflation
Why the government should be in the business of credit, not debt and why such an approach would saving billions in Federal outlays, reduce taxes and avoid the dangers of inflation or deflation.
Why private credit leads to war and undermines a nation’s ability to provide for defense and the general welfare.
It details or references much empirical evidence for the success of public credit versus the inherent problems of private credit
As the late Congressman Wright Patman, Chairman of the House Committee on Banking and Currency for over 16 years, said, "I have never yet had anyone who could, through the use of logic and reason, justify the Federal Government borrowing the use of its own money....I believe the time will come when people will demand that this be changed. I believe the time will come in this country when they will actually blame you and me and everyone else connected with the Congress for sitting idly by and permitting such an idiotic system to continue.”

THE AMERICAN MONETARY ACT (Extract)
An Act to restore the Constitutional power to create Money to
the Congress of the United States
Be it enacted by the Senate and House of
Representatives of the United States of America in Congress
assembled,
SEC 1. SHORT TITLE
This Act may be cited as the American Monetary Act
SEC 2. FINDINGS
The Congress finds that –
(1) The Federal Reserve Act of 1913 effectively ceded the
sovereign power to create Money delegated to Congress by the
Constitution to the private financial industry.
(2) This cession of Constitutional power has resulted in a multitude
of monetary and financial afflictions, including a growing and
unreasonable concentration of wealth, an uncontrollable
national debt, excessive taxation of citizens, inflation of the
currency, drastic increases in the cost of public infrastructure
investments, excessive un- and under-employment, and erosion
of the ability of Congress to exercise its Constitutional
responsibilities to provide for the common defense and general
welfare.
(3) The issue of means of exchange by private financial institutions
as interest-bearing debts should cease once and for all.
(4) The power of Government to create Money and spend or loan it
into circulation as needed is similar but different in nature from
the power to create and market instruments of indebtedness; it
eliminates the need to pay interest charges to financial
institutions and removes their undue influence over public
policy.
(5) Direct disbursement of United States Money can be readily and
easily implemented, including replacement of Federal Reserve
Notes and retirement of debt.
(6) The Federal Reserve System shall be retained as a central bank
of issue, a national fund processing clearinghouse, and a fiscal
agent for the Government and should be incorporated within the
US Treasury. It should no longer be utilized to introduce
liquidity into the currency system through interest-bearing
debts.
(7) Government policy with regard to monetary supply should be
based on the principle of furnishing sufficient liquidity to
support the reasoned sustainable expansion of the physical
economy, providing for the common defense and general
welfare of the United States, and full employment of the
nation’s working population

_________________

Quote:

"The true triumph of reason is that it enables us to get along with those who do not possess it."
-Voltaire

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