Austerity or Communism

by Glen Wallace

If we don't transform into more of a resource based economy in the form of a libertarian communist, socialist system, we will inevitably, gradually, slump into a global recession of austerity where the masses will be spending the bulk of their monetary funds in paying off debts to the rentier class. 

People are constantly working for free.  In fact, it could be argued that the new internet economy is largely built on the backs of individuals gladly toiling without remuneration.  It is through the efforts of the so-called users of Facebook with their millions of updates from millions of unremunerated man-hours of labor writing status update posts and uploading photos and videos that has drawn visitors to view the ads that generate the ad revenue that has made Zuckerberg one of the wealthiest individuals on the planet.  It is also difficult to calculate the massive amount of value added to Amazon through all the in depth product reviews provided by the site visitors -- also without remuneration.  Many of the top rated product reviews on Amazon read like something a professional writer might post as a magazine article.  But I don't think those reviewers are secretly professional reviewers, rather, I think they really enjoy the ideal of sharing their insights and helping their fellow humans.  I have written a couple of in depth product reviews myself without any remuneration just because I wanted to help other consumers. 

We need  to look into how we can build an economy that harnesses that innate desire to create and help the world.  The collectivism could be used to pool the resources necessary for the makers of stuff to make and invent. 

Hoarding for the purposes of financial gain and hedging could become a thing of the past.  There are whole warehouses around the world used for the sole purpose of storing copper in pallet sized sheets that are stacked on pallets.  The copper is stored as financial investment in the form of physical copper -- it is treated as investment just like many people invest in gold or silver by owning physical gold or silver.  I'm not necessarily disparaging the practice of hoarding metals, precious or otherwise, on the contrary, doing so is very understandable.  In the current world of economics there is all sorts of volatility that could threaten the value of traditional national currencies.  Ownership of metals can provide a hedge against such volatility.  The problem is that our current global economic model creates a demand for the hoarding of natural resources.  In a resource based economy, those resources, like copper, could be put to good uses instead of sitting in some remote warehouse.  We need an economy where there is no demand to hoard the supply.

The Government Redistribution Fund

The following is  a comment I posted in response an article by John Mauldin

By Glen Wallace

As a partial solution, let me suggest a whole new type of stock market fund: The Government Redistribution Fund or GRF. The GRF will be the result of a hefty asset tax on the ultra wealthy -- those with assets ranging from ~100 million dollars on up. The tax rate will be progressive with those with, for instance, 100 million in assets might only face a one percent rate, while those with close to 100 billion in assets would face more like a 99 percent tax rate.

The potential problem with such an asset tax is that many of those in such a tax bracket have much of their wealth tied up in the stock of the corporations they head or used to head.

If they all sold their stock all at once to pay such a tax, that would flood the markets with a huge supply, potentially crashing the price of not only the stock being sold but could have a negative knock-on sell-off effect on the market as a whole. The solution I came up with is to set up a fund where the payment of the asset tax would be in the form of stock being transferred into the fund, the GRF.

Initially, the only revenue the government would derive from the GRF would be in the form of dividends. But it would also be an open fund where the general public and institutional investors could buy shares. Once an investor bought a share, the share purchase price would be revenue for the government, but then of course the investor would enjoy any dividends entitled to the shares purchased and could also turn around and sell the shares to someone else, just as they could with shares owned in any other stock market fund.

Democrats need to embrace good regulations and progressive taxations to lure the Republican vote.

by Glen Wallace

We need a strong central government imposing regulations to protect the common man from the tyranny of the wealthy.  While, as a leftie progressive, I'm willing to admit that some regulations are onerous and unnecessary, I never seem to hear from a right wingnut regressive admitting that some regulations are helpful and needed to protect the worker, the consumer and the environment from harm or exploitation at the hands of a ruthless businessman.  It seems like the free market set want to create a social political environment where we return to the days of company towns where the residents are considered to have freedom because they aren't physically restrained from leaving -- never mind that the company town is in the middle of nowhere and none of the residents own a car or have a dime to their name that could be used to move out.

Let's remove the income tax and put in its place a federal property tax on the wealthy that covers not just real estate but any and all assets held by the top one tenth of one percent.

Good regulations are proactive whereas, any competitive marketplace without any regulation, is, at best, reactive in dealing with problems.  I say 'at best' because some business can go on harming customers, the environment or workers for years or decades before, or if ever, they get punished in the marketplace for their actions.

The Democratic Party could gain their biggest strength by undermining or outright removing the biggest rallying points for the political right wing.  Democrats could start by eliminating income tax for most, if not all, the 99 percent.  The loss of revenue could be compensated for by increasing the income tax on the top one tenth of the top one percent.  Additionally, there are a great number of other sources of potential revenue the could, and should be tapped -- high frequency trading machine tax, VAT tax, where resource extraction on Federal lands is a given, the transaction should be designed with a fiduciary responsibility towards the owners of that land -- the citizens of the U.S.

Additionally, the power over the ability to create money needs to be returned entirely to the people and taken away from the private Federal Reserve Banking system.  I'm not saying "end the Fed".  If they want to continue as a industry association where banks can voluntarily join, that's fine.  But monetary policy should be set by the US Treasury.  While supporters and representatives may claim that the Fed is audited and nothing untoward has been found, I would counter that there still could be something untoward going on with the Fed and its relationship to the American people it is supposed to be looking out for.  While the Fed may have only one set of accounting books, it may have two sets of strategy books.  That is, it may have a public strategy that complies with the Congressional mandate it is supposed to follow, it may have a private strategy that it instead follows that is directed at aiding the Fed's shareholders at the expense of the American people.  For, instance, had Fed insiders known early in the 2000's where the housing crisis was heading they could have made some strategic shorts, thus benefiting from the Fed's strategy to blow up the housing bubble.  Then when the bubble burst, Fed insiders could have had inside knowledge of the QE program and how it would be used to boost commodities and the stock market for which the insiders could take a long position ahead of the rise.    

But regardless, Democrats need to look at what is motivating the populist base of the Republican party that leads them to vote the way they have.  And then have an answer that might just persuade them to switch sides.  Remember, most of those Republican voters are not rich.  Hired disinfo agents may try to fire up that middle to lower class Republican base by complaining about wealth redistribution.  But I find it hard to believe that base will get worked up into much of a lather when hearing about how some sherry swilling, tailored suit wearing, manicured men with soft hands that never have seen a callous in its life, with a sixty thousand dollar Patek Philippe watches sitting just above those soft hands, has to fork over more in taxes -- especially when that would mean those working class Republicans get to avoid paying income tax altogether.

Additionally, where regulations are concerned, show how good regulations protect the consumer, the environment and the worker from unscrupulous business owners and how a strong government acts as a measure against such businesses.  Without a strong government there is a power mismatch between the little guy and the tycoon.  But where there is unnecessary, onerous regulations, Democrats should be seen working hard to end such bad regulations while continuing to strengthen, tweak, enhance good existing regulations while enacting new good helpful regulations.

Michael Hudson, how do we extricate the economic parasites from the main street host?

Comment I posted following the above youtube video speech by economist Michael Hudson.

by Glen Wallace

I still have some questions.  I guess my main question, from which all my other questions or concerns regarding Michel Hudson's philosophy, revolves around how to safely extricate the parasitic elements of FIRE (finance, insurance and real estate) from the main street host.  I  say, the parasitic elements of FIRE, because I think it oversimplifies things to imply that all of FIRE is a parasitic malevolent force on society.  But reading and listening to Mr. Hudson, it isn't entirely clear to me whether he thinks all of FIRE is parasitic or for what aspects are so, how do we go about the extrication process safely.  It would seem to me that we living in a much more complicated situation insofar the parasite and the host are sharing the same 'blood supply', so to speak.  Therefore, just yanking off the parasite could be very hazardous to the health of the host.  While the top 5 percent may own the bulk of stock equities, I think a lot more than 5 percent of the population own a significant amount of stocks, usually through their 401k's or 403b's and IRA's.  So any actions that has knock-on effect of crashing the stock market and a lengthy trough could be financially devastating to much of the remaining middle class population.  While maybe the markets and the economy could have let Citibank fall, I'm not so sure about AIG.  While lending may be currently tight, correct me if I'm wrong, but I believe there is still a great deal of small business lending going on with banks and credit unions providing loans for businesses very frequently.   However, if that lending were to really dry up completely as we were warned could have happened if not for the infusion of stimulus cash into the economy soon after the fall of Lehman Brothers, then wouldn't we be facing an economic crisis on a scale severe enough to lead to a civil emergency similar to a natural disaster?

Further complicating matters, isn't that there is a legitimate element to each area of FIRE.  How are we going to, in any parasite extraction process, separate any legitimate actors from the malevolent ones?  I'm not saying it can't be done, but we need to make sure we aren't throwing the baby out with the bath water, so to speak.  To take an analogy from the movies that I think has some realistic relevance to main street finance -- let's make sure we don't take measures that bring down the Bailey's Savings and Loan of the world while trying to go after the Potter's empire of the world, from the movie 'It's a Wonderful Life'.  And to take examples not from the movies but straight from today's economic realities -- in terms of a mass discharging of debt, that sounds nice for the students facing mounting student loans but it doesn't sound so nice for the current and future retirees expecting municipalities and corporations to meet their highly underfunded pension debt obligations.

I don't mean to be a naysayer but we need to come up with a plan where we have covered all the bases so that we can not only answer the tough questions, but also to get to where we are to trying to go.   Indeed, I'm concerned that if we were to implement a plan, for instance, that did crash the markets and dry up small business loans, then the parasitic malevolent elements would sweep in like the Potter character from the movie previously mentioned, and say to the effect "see, you were wrong all along, so from now on let me do the thinking and planning while I buy up all of your land and shares for pennies on the dollar."

I have all sorts of ideas myself for how to go about the parasite extraction process.  I think Bernie Sanders has some good ideas that are a good start, but I think we can safely be a lot more aggressive with progressive reforms than even he is suggesting.  For instance, I haven't heard Sanders even mention what I think we need to delve into and that is Federal asset taxes on corporations and the top one tenth of one percent of individuals.  That, and we need to access revenue from other novel sources as well such as a Wall Street high frequency trading machine transaction tax.  We can also get revenue from increased Tariffs and Excise taxes.  We should also be better leveraging revenue when natural resources are extracted from federal lands.  Personally I would rather Federal lands be preserved as much as possible in their natural state, but if it is already decided to sell some of the land's resources, we might as well do so in a financially responsible manner.  So, instead of selling off the rights to all the timber in a tract of Federal land in a no-reserve auction, sell the timber for the going rate per board foot just as a private landowner would.  Additionally, the US Treasury could bypass the private Federal Reserve, and increase the money supply by minting more coins in larger denominations.  Then all this new revenue and money could be used towards instituting an FDR type of civilian conservation corp like program to rebuild our nations infrastructure.  Additionally we will be needing a lot of revenue if we are to have any chance of making up for the looming pension shortfalls that, if not remedied, will be hard on not only the pensioners, but also the overall economy due to the resultant lowering of aggregate demand from retirees have much less dollars to spend in their pockets.  

Wealth Redistribution to Lift All Boats

The dwindling middle class indicates that the only boats rising are yachts sitting in the torpid pools of wealth amassed by the capitalist sharks. Meanwhile, the middle class tributaries are running bone dry, leaving the middle class row boats sitting on dust. Therefore, the only logical solution is to install pumps in the form of asset taxes into those stagnant wealth pools to insure that the wealth gets rerouted and redistributed back into those tributaries. Trickle down economics has been proven false time and again. However, getting money into the hands of those who will in turn put those funds back into circulation by spending it, the middle class, has been shown to have a tremendous positive knock-on effect throughout the overall economy. But to keep the economy booming you need to keep those tax pumps going to insure money doesn't start stagnating again and rotting in those torpid wealth pools.

Everything is pointing to Hayek being completely wrong -- in fact he had everything backwards. Instead of a free-market being the road to freedom, it turns out that the term 'free-markets' is just a rebranding of the term 'laissez faire'. And laissez faire has always been and always will be the direct route to serfdom -- and with the struggling middle class we are seeing that first hand in the form of the handywork of Hayek's intellectual descendants, the Chicago School of economics. And despite the clear evidence that the Chicago school's laissez faire or freemarket methods of hands-off through repeal of Glass-Steagall and lack of oversight and control of the derivatives market lead directly to the great recession, there has been little corresponding acknowledgment or recognition of the evident refutation of the Chicago School's economic paradigm.

We can get the middle class back on its feet again, but we need judicious government oversight and regulation along with a good amount of wealth redistribution. One excellent means of redistributing the wealth would be through programs similar to FDR's programs involving the Civilian Conservation Corp. A massive government program to repair, rebuild and reinforce our nations infrastructure would go a long ways towards getting money back into the economy and refresh and enhance the conduits of commerce. It would be a win win for everyone, including the much more heavily taxed very wealthy who didn't even know what to do with all that they had, but with such a program, could be proud that their tax dollars were put to such good use; rebuilding a great America.

In the future we will need wealth redistribution more than ever

By Glen Wallace

In regard to the Bloomberg interview with Ron Paul posted below, I don't think the citizens have ever expected the government to do as much as Paul says.  Congress and the president just keep on acting separately from the public and then just hold a popularity contest every 2 years to see who gets to stay or join up with the ivory tower that is capitol hill.  Who among the citizenry, after all, has demanded we have several hundred overseas military bases?  Not many, but the politicians go ahead and fund those bases, give out foreign aid and farm subsidies that most citizens are blissfully ignorant of, much less advocating for.

Also, I highly doubt that we are not as productive as we used to be.  I'm quite sure instead that we are much more productive than we ever have been.  It is just with every improvement in productivity, the fruits of those improvements have been going into fewer and fewer hands.  Unfortunately that regressive trend will likely continue where every job lost to technology will only represent a loss of income for the worker replaced by the machinery while the owner will just hang on to all the increased profits due to the total cost of ownership of the machine being less than the cost of the employee.  I don't see any other way to reverse the trend other than with the help of the government to force a fair redistribution of the nations wealth and bounty.

We are living in a fundamentally different time from when the constitution was written.  There was no such thing back then as the computers, robots and artificial intelligence that now or in the future could potentially replace the modern day equivalent of the colonial blacksmith, cooper, cobbler and every other position that was once held by a human being.  Without a government enforced fair distribution of wealth, how will a human be able to have any income in a world where there are no no longer any jobs that provide an income for humans?