I was so excited on October 13, when the
emminent French economist Thomas Piketty published an article in Le Monde [that I picked up through his blog] which included the following statement:
As it is unlikely that the ECB or the Fed will ever decide to put these securities back on the markets or to demand their repayment, the decision to no longer count them in the total public debt could be taken now.
So, take the computer entry for >~= $2T in debt, and set it to 0!
Finally! A fellow traveler! Money is just numbers in computers, it has nothing to do with objective reality. Piketty gained worldwide fame for his 2014 book "Capital in the 21st Century", blogged here, which was the seminal work on economic inequality, how Thatcherism/Reaganism destroyed the 30 years of progress post WWII by the middle class, in which they clawed 15% of GDP back from the top 10% - all gone now. Oh, and BTW, the bottom 50% still got <~= $0.
I tweeted that morning:
Piketty is not 100% cool with all this new debt, because
The orgy of money creation and the purchase of financial securities in fact leads to an increase in stock and property prices, which contributes to the enrichment of the richest. For small savers, zero or negative interest rates are not necessarily good news.
Here's the last 2 paragraphs of the Piketty. I was disappointed that he did not say what might cause inflation to "
become substantial again".
It would be different if monetary creation, instead of fuelling the financial bubble, were mobilised to finance a real social and ecological recovery, i.e. by assuming strong job creation and wage increases in hospitals, schools, thermal efficiency and local services. This would alleviate debt while reducing inequalities, investing in sectors useful for the future and shifting inflation from asset prices to wages and goods and services.
However, this would not be a miracle solution either. As soon as inflation becomes substantial again (say 3%-4% per year), we would have to put a stop to money creation and use fiscal means. The whole history of public debt shows this: money alone cannot offer a peaceful solution to a problem of this magnitude, because it leads in one way or another to uncontrolled distributive consequences. It was by resorting to exceptional levies on the better-off that the large public debts of the post-war period were extinguished and that the social and productive pact of the following decades was rebuilt. Let’s bet that the same will be true in the future.
Somehow this prompted me to revisit another finding that I believe totally validates MMT.
I'll repeat my mantra, "Money is Software". And currently, that software has been hacked and is owned by the financial sector aka "Wall Street". I mean seriously, what value do hedge fund managers and most other financial sector species contribute to the human race as a whole? 0! Absolutely 0! They produce nothing real! They have hacked the system to keep generating money to line their and their clients pockets - period. And the rest of the population buys into the "money is real" myth, and lets them get away with it.
In 7 months of pandemic Jeff Bezos's wealth has grown from ~$133B to $200B - is that a sound economic system? Or is that rather an incredibly buggy economic system?
Robert Reich just agreed with me!
So, mental exercise, gedankenexperiment: if we were somehow able to wrest control of the monetary system away from Wall Street, how would we use it create a post-scarcity utopia, the world of Star Trek, where everyone realizes that money is imaginary? Here are the basic principles & constraints we must deal with:
- Money is not real, it is imaginary. Resources are real. How do we develop an accounting system that recognizes this? My "money is software" post threw out there the concept of maths with all economics numbers as complex numbers, with a real (resources) part and an imaginary (money) part. Or maybe just a tuple, a 2-dimensional vector. I seem to keep coming back to that. How do we do all economic calculations with resource #s in place of or parallel to $$$?
- We give every person in the world an account with their country's central bank.
- We presume that Congress/EU/... gives The Fed/ECB/... the power to print money on demand and distribute it however the models say it should be distributed. The goal of the models is to have 0 poverty, and Universal Everything.
- Things to worry about 1/2: inflation. My contention is: inflation is caused only by supply-side shortages aka not-enough-to-go-around. My contention is: since the 1950s, we are in a post-scarcity economy (Capitalism 2.0 per Peter Barnes). So for most things, particularly digital, zero-marginal-cost things, there is plenty to go around. There will still be constraints, on McMansions, McYachts, McMercedes, etc.
As Piketty says, if inflation kicks up, then money creation models might have to ramp down. We have lately actually seen the 1st signs of inflation in decades due to pandemic-related spot shortages.
- Things to worry about 2/2: exchange rates. The entire world has to buy into the concept. If just 1 country starts printing money as needed to meet the needs of its populace, other countries might say "you're cheating", and punish that country by lowering its exchange rate. The only real measure that matters in the world economy: money being created does not exceed real resources.
- If the 99% are getting provided for this way, the main purpose of taxes is to agressively relieve the 1% of as much of their wealth as is possible. 1 thing about the wealth of the 1%, it has a very low velocity. It just sits in their bank accounts and doesn't place any demands on real resources. So we should not think about redistributing their wealth. Let's distribute wealth from scratch in an amount that doesn't exceed resources, much easier. Let's just destroy the wealth of the 1%, and the power that comes with it, via taxes.
- Currently-rich countries must help currently-poor countries, how? By propping up their currencies via maintaining a high exchange rate? I think that possibly the Chinese may already be onboard in opening the doors of their manufacturing cornucopia - I love that word, picture to follow - to Africa and anywhere else in the 3rd world that needs more stuff?
- We need to do this ASAP before climate change destroys significant amounts of the currently accumulated capital. I believe that there is enough to go around now, but every climate crisis, whether flooding, fires, hurricanes, ..., destroys some of that.
8 principles/constraints. That seems like enough for now.
I feel pretty good we could make this work for the developed world. Hopefully the concept of "tumbrel insurance" will obviate the need for real tumbrels. The main gedankenexperiment that needs to be performed now: let's take a poor, populous African country, run the numbers, and see if it works.
In My Conclusions on Wray's MMT book, I did a cost estimate for this world. You are creating a fixed demand by having Universal Everything that might help stabilize the economy [Stability Economics FTW!]: to smooth the economic boom and bust cycles caused by the latest financial scam falling through. I estimated $$$ 19% of GDP , 90% of annual budget (2019). So that seems big enough to create a stable economy - as long as real resources aren't exceeded.
We are soooo close on this ...
Further thoughts ...
So much of the wealth of the 1% is in the form of stocks. The ROI on raw capital is now essentially <~= 0%, so where else are you going to invest your money? I don't think that stocks are particularly amenable to destruction via taxation. So maybe we do go on and do redistribution instead. Maybe what we do is, everyone with a net worth > $1B (or $100M?), every year, we transfer 50% of their holdings > $1B into the World or US Common Wealth Trust. That trust every year redistributes 1/2 of its gains into a Universal Dividend [you know, at this point, any program that doesn't start with Universal is BS] Program, distributed evenly amongst all citizens, and lets the other 1/2 ride. Or maybe 1/3 to citizens, 1/3 to Universal Capital Access Fund, and let 1/3 ride.
Or, you could use this to pay off national debts. In his book, Piketty estimated that the US national debt could be retired by a 3% wealth tax for 5 years. Of course, that was before the latest tax cuts and pandemic relief programs. I guess I'm talking about a 50% wealth tax. But, going back to where we started with this post, WHY BOTHER? Just set those cells in the spreadsheet to 0! Easy-peasy! MMT FTW!
One other random thought. 1 completely outside-the-box idea from Wray's MMT book was the elimination of corporate taxes. These have 2 bad side effects:
- They create a race to the bottom, with countries like Ireland and Liechtenstein leading the race by offering minimal corporate taxes.
- They encourage bad corporate behavior, such as advertising and borrowing, and anything else that can be taken off of the bottom line.
Yes, maybe corporations are people, but they really don't care about how much money they have. So, as they are on some level morons, give corporations a free ride. Attach the fiscal liabilty to the stockholders based on the value of their stock, which hopefully should reflect the success and profit of the corporation. Ban stock buybacks and set the tax rate on dividends and capital gains to 70% or so. Force harvesting of capital gains, what, annually? Every 3 years? And definitely don't let them get wiped out when stocks are inherited. But again, the whole world must buy in.
Speaking of inheritance. I find it hilarious that all the conservative types who insist everyone must earn everything from scratch and pull themselves up by their bootstraps still want to leave fortunes to their children. Why exactly shouldn't they want those children to start from scratch, work hard, create businesses or whatever, and bootstrap themselves? How is it that trust-fund kiddies get a free pass on all that?
[There was a point rant on Libertarianism here, moved to a new post.]
.
