I recently read an article right here on Huffington Post that really made my blood boil; it is so full of the usual establishment descriptions about the economy: We are broke! The States are going Bankrupt! There is nothing to be done but to raise taxes and cut spending! We have to tighten our belts! Above all, cut, Cut, CUT!!!
Wrong, Wrong, and WRONG!
We are really talking a tale of two economies here. The official line is that there are strapped states and cities, taking them at their word that this is so. I say it is not only not so, but that there is money, and then some to spare, only it's tied up in several places where the local governments are not allowed to go. More on why that is later, but first:
1. I recently identified some of these places in my presentation to the Trilevel Jobs Task Force here in NYC in October. It shows several pertinent things, but first, start by reading Ellen Brown's article:
The Mysterious CAFRs: How Stagnant Pools of Government Money Could Help Save the Economy.
She -- but not only her -- documents how "the (California) State Treasurer's website says that he manages a Pooled Money Investment Account (PMIA) tallying in at nearly $71 billion as of the same date, including a Local Agency Investment Fund (LAIF) of $24 billion." This is clearly way more than the current $26 billion shortfall! And this is only scratching the surface. Look at this statement form page 17 of the California Annual Financial Report for 2009 (a bad year; things are better now): For the year ended June 30, 2009, the fiduciary funds' combined net assets were $334.3 billion, a $102.8 billion decrease from prior year net assets. The decrease in net assets for these funds was mainly attributable to a decline in investment income that actually resulted in a net loss for the year and a decrease in the fair value of the funds' investments of $113.2 billion (23.9%).
Now, this is just the fiduciary funds, mostly from the pension fund, but other agency funds too. Since ALL agencies must allocate sufficient money to get them through the year at the beginning of the fiscal year, there is always considerable money available to be invested throughout the year. If they don't spend all of it? Well, then it gets carried over into the following year, but politicians only count current revenues against current and often future expenses. What happened to the carry over money? It's as if it isn't there!
So, that kind of puts the $26 billion deficit in perspective, doesn't it? While citizens are being asked to tighten their belts, the managers of these funds have no pants at all!
This kind of mismanagement, and not "extravagant spending" is the real reason for so-called budget shortfalls. Money managers promise 8% a year, which they have profoundly failed to deliver, and cannot realistically make up for now, but one needs to go beyond that and question whether this tail-wags-the-dog fiscal policy is workable any longer (more on that later too).
In New York State, for example, the state spent about net $5 billion on pension costs in 2009, yet they had $110 billion in the state pension fund, down from $155 billion the year before (it has since climbed back to $134 billion in FY 2010, thanks to a booming stock market. And NOW you know why the government, including the Federal Reserves will do absolutely anything to boost the stock market. See, I told you I would get back to that later!
But, if the Federal Reserve can create money at will to boost the financial sector and the stock market indirectly, then why can't Congress, under Article 1, Section 8 of the Constitution, which gives them -- and only them -- explicit power to "coin money" do the same for the real economy? (More on that later too). Click on the links in my petition here:
http://www.change.org/petitions/view/let_the_empire_state_finance_its_own_budget_gap
to see New York's budget and where the hundreds of billions really lie. All CAFRs are online now, making research easier than ever.
But here is the real question: why do we need a wildly fluctuating fund of $155-$110-$134 billion, in just 3 years, in order to pay a relatively steady stream of $5 billion or so in pension costs? The draw-down from the pension fund doesn't change that much -- panicky layoffs like those in New York, California, and New Jersey not withstanding. See the article "Pension shortfall is Wall Street's Doing" by Michael Mulgrew in Crain's which describes the state and city pension shortfalls of $100 million. You can argue that the author from the United Federation of Teachers is biased, but his numbers check out and besides, who is unbiased? Wall Street, which profits in the millions, no matter what the return on the people's money?
2. Okay, now another question: why do we have to have a debt-based economy at all? As I said above, the constitution, Article 1, section 8, gives Congress and only Congress the power to "coin money" (despite this, president Lincoln "coined money" during the Civil War when NY banks wanted up to 36% interest, saving the country by issuing the nation's first "Greenbacks" http://en.wikipedia.org/wiki/United_States_Note). We could pay off our debt in a year by simply issuing money from congress instead of the Fed, which after all, didn't exist until 1913. Think this is a pipe dream? Well, Congressman Dennis Kucinich http://www.kucinich.house.gov/ is about to sponsor the N.E.E.D. Act in the next session of Congress that would do exactly that, based on Stephen Zarlenga's American Monetary Act. Debt is a tool for banks to make money, and as such it is unnecessary in a modern fiat money system. Worried about inflation? Don't be. We have deflation in the sectors that would benefit directly from this act, in infrastructure, education and healthcare (we have deflation in the 20% of Americans who have no health insurance). Inflation there would be a good thing, plus it would put people to work. There are millions of people waiting to work and millions of jobs to be done. The only thing standing in their way is money. Yet money, in a fiat system, is not something we can actually run out of. So, why the self-inflicted pain? Do we secretly like flagellating ourselves?
See some ways we could fix the economy here without severe austerity measures.
We could use the abundant money in the CAFRs, for example, to set up a State Bank, as North Dakota has done (see the balance sheet of North Dakota, and pay attention to how they made money even during the fiscal crisis, by NOT securitizing loans, using derivatives etc. By law ALL state revenues must be deposited in the bank. The Bank of North Dakota has been around since 1919 and is not even FDIC insured, yet is is run far more conservatively than any of the Money Leveraging Institutions (my term for the TBTF megabanks), and has deposits AND assets greater than its loan portfolio.
3. Taxes. Nothing is more certain than taxes, right? Well, what if there was a good tax, a tax that actually stimulated the economy, caused productivity to go up, was green and promoted efficiency while lowering poverty to the ground? There is! It's the Land Value Tax, aka the Single Tax. The Single tax taxes natural resources alone, and untaxes productive activities (wages, sales, capital). By taxing natural resources, you force resource-holders to develop the resource, especially land, or sell it to someone who can. This is progressive because the rich have and use more resources. It is anti-poverty because it frees natural opportunities for people to make a living upon. It is freedom and liberty promoting because it untaxes actual production.
This is what we talk about at the Henry George School, where I am a third year student, and at the other economic reform groups I belong to. I hope you'll join us.
To see how this would work, check out this proposal for a Land Value Tax in California
Set up a Land Value Tax & untax ALL productive activities to make California Healthy, Wealthy, and Prosperous.
There is so much more to discuss. The economy does not have to be the way it is. We do not have to live in scarcity while the elite 1% accrue all the wealth, leading to modern feudalism. Debt-based economies simply cannot endure. Despite the banks' wanting to sell us still more of the only product they really have: debt, there is only so much debt people can withstand.
There are other ways. I've just scratched the surface. Unfortunately, both the Left and the Right have fallen into the scarcity and austerity trap, accepting panicky and deliberately misleading pronouncements by those who keep the books for their own purposes...and keep the money too. We have to unite our forces against the real enemy, the elite 1-5% who control nearly everything, especially what we think.
The only question now is: Will you take the Red Pill or the Blue Pill?
WE HAVE SPENT MORE THAN WE TAKE IN, AND CONTINUE TO DO SO.
The answer, clearly, is to spend less now, and tax more. Where this comes from? Well, you can argue about that.
Please tell me I misread your meaning.
BTW, pension funds that require no employee contributions are usually fully funded by the State or municipality. Each year the gov pays into the fund an amount of money that keeps the fund solvent with respect to current and future liabilities. The fact that in WI State employees are being asked to contribute, means that the Walker wants to offset the State's payment by the employee contributions in order to reduce the State's obligation.
Find out what candidates the Chinese will buy.
but at the references to Dennis Kucinich, I had to stop.
I certainly hope the author, ("Henry George School, where I am a third year student"), takes a governmental accounting course (if he wishes to expound on that subject), and does some homework on monetary policy to round out his leftist perspectives.
Meanwhile, why don't YOU take a look at the links I provided and see if those numbers add up. It is there for all to see. Oh, and laws are made by men, and can be changed by men of conscience.
I think we can be more direct than a land tax. A steady increase in the tax on gasoline (say 25 cents a year for 10 years), would do a lot to secure our future. We can also make stady increases in alcohol and tobacco taxes. Given the problems of obesity and poor physical fitness, there is a real opportunity to raise taxes with a sugar tax and an entertainment tax (video games, cable tv, internet entertainment, etc.).
Sin taxes are a more controversial matter, but I do agree that society should not pick up the tab for people who knowingly engage in behavior that is life-endangering, so a tax on cigarettes, alcohol etc. makes some sense. The question is, where do you draw the line? The other question is, what do we do with, say, someone who rode their motorcycle into a wall and is brain-damaged. Humanity would say we should treat that person, even if they were reckless.
Great idea! I have studied a little bit of the history of banking in the U.S. Actually the very first banks were state owned banks. The were very efficient and effective. Loans were cheap and open to everyone (gosh, no red lining there). Profits from interest went to the state coffers so the people paid very little taxes as a result. Privately owned banks are much different. They have a rather long history of corruption. Their profits do not serve the public. They create recessions and depressions and rip off the public.
As you brush up on monetary history, I recommend "The Great Contraction 1929-1933" by Friedman and Schwartz. Also, Google "Central Banks as Sources of Financial Instability" by George Selgin.
Today, 50% marriages end in divorce; 60% babies are born to unwed mothers. About 50% children drop-out of school; additional 25% out of college. These are results after spending billions on school and undergraduate education. These are direct causes of poverty and unemployment.
Senior citizens die in hospitals and nursing homes (raising health-care costs); because children refuse to care for them at home in their dying days. End-of-life care and treating preventable illnesses cost one Trillion/ year; which is added to cost of goods and services.
Leaders in both parties and all levels of govt., various sectors of business, finance, industry, education, media, health-care, are only interested in their selfish well-being; while robbing society and country of billions of dollars in assets. Corporate CEO's are not interested in shareholder value. They want their annual compensation and bonus.
We have to stop the hype and self-glorification. Let's start accepting facts and speaking the truth. Spin gets us no where. We live high on the hog; with expectations that "sky's the limit" and we are a rich country. Last three decades teach us 'throwing money' at issues don't solve them.
"We cannot have our cake and eat it too!"
If they own the means of producing money, they can always drive me into debt too, for I am dependent on them for the money I need to buy things, and there - conveniently for them - will never be enough. See "The Money Masters" or "The Secret of Oz" or read "The Lost Science of Money" or "Progress and Poverty."
You can blame the unwed mothers and the ignorant masses if you'd like, but that's not where the big numbers are (these days, I don't even look at a solution if it's less than 100 billion).
We are throwing money at something all right, but it isn't the issues.
I agree with your premise that scarcity is a 'myth' as described in another of your articles (last week). I'm out of my depth here, but seek to learn more about finance economics, and look forward to reading more about LVT and the Henry George philosophy.
I do have a couple of immediate questions:
If premium, high value land were taxed at higher rates, wouldn't that cost be passed to tenants and result in higher rents for usage? I know New Yorkers who say that rent control is so effective that even when they moved to California they kept their apartment and sublet it; this is quite common, I think. In Southern California, rents in some areas doubled in the past ten years. Property tax has not. That inequity created millionaires, one of whom sought to buy himself a town in the desert to turn into another Palm Springs, while gouging apartment dwellers. (I'm simplifying the complexities.) These two coastal situations may be very different, as state and municipal laws differ.
Wouldn't an LVT in New York simply encourage relocation, and result in decentralization? Maybe that's a good thing. And please, explain in brief how Land Value Taxation would not put Seniors on fixed incomes out of their homes, if you can. I notice you didn't reply to someone's question about that down the thread.
California with Prop 13 fighting property taxes made California housing very expensive. It had the opposite effect.
Also, as over 200 peer-reviewed studies have shown, if you raise the Ground Rent (i.e. the Land Value Tax), the price of the land must come down correspondingly, because the market won't accept both higher prices and higher rents, due to supply and demand. Right now, I sit a block form the largest undeveloped plot of Land in east Manhattan - 8 acres! Why? Because the developer is paying nominal taxes, while waiting for the Real Estate market to rebound so he can take out a loan and develop the property, just before the next Land cycle peaks. We need to collect taxes on that property NOW, and force him to develop it or sell it to someone else who can, at a loss if necessary. Why are we subsidizing wealthy landowners in a city with insufficient housing? It makes no sense, for the middle class, for the poor, but it make a lot of sense if you are a wealthy landowner and speculator.
Printing money brings on inflation. Its already started as the price of a barrel of oil goes up while the dollar goes down an now there's talk of $5.00/gal for fuel. Its not tax to pay for healthcare that driving that either. You can't just print money to pay for your debts. It doesn't work that way. They taught you that in economics 101 if you took it. I learned it in government class in high school, but that was 35 years ago. They may not teach economics anymore.
The bank of Dakota thing is a good idea.
The single tax would force development off shore. If it were good, it would have been instituted by now. The wealthy have what they have and don't necessarily use that much more in resources. They tend to hoard what they have and get. I don't know what the solution is, but a progressive tax system that taxes wealth without being overly burdensome. There has to be some incentive for the wealthy and the creation of wealth so to tax it too heavily is also bad.
Too much money chasing too few goods and services produces inflation, but the only place that's an issue right now is in the FIRE sectors, because that's where all the Fed money is going (the stimulus money is too small to make a dent, except to keep unemployment stable). The speculators in those parts of the economy drive up commodities as part of their "investment strategy" far beyond actual usage. Commodity usage varies at most 5-10%/year globally, not double or triple at the markets do; the rest is speculation.
We SHOULD pay $5.00/gallon, that's the only way to ween us off fossil fuel. Now, UNTAX actual production and you'll see an explosion of entrepreneurs and new fuels.
Traditional economics has been corrupted since J.B. Clark in the early 1900s. They deliberately conflate Land with Capital - two completely different things - so as to hoard the former w.o. question.
We have a teeny tiny piece of farmland in NE Nebraska that we pay property tax on every year. If all the taxes in that area were to be derived from land value tax, we couldn't afford to keep the land. Land value has exploded in the Central States as the rich have all this money and no where to put it so they are buying land at any price. The land value per acre has exceeded way beyond what can be returned per crop acre.
As it is, the small farmers in that area are a thing of the past. You're a mega-farmer with thousands of acres, a corporate ag. business or a rich person who leases the land to one of those two types.
I don't see how forcing the remaining small land owners to sell to these big ag. types [who get very generous farm subsidies!] helps anything.
The other tax is on the site location (land value). This value is the result of the community paying taxes for: roads, bridges, sewers, tunnels, locks, dams, police, courts, jails, traffic lights, snow removal, schools, etc. It is also dependent on, to a lesser extent, businesses, weather, climate, etc. This user fee on land is a good tax.
What is important to understand is the landlord has no impact on the price of the site location. The wealth from the site location is a transfer from those who pay. If taxes are necessary the LVT should be the first levy.
Morally, land cannot be property in a natural rights sense because no human created it. This concept of law made property is a royal construct rooted in theft from the community.
One has a right to ownership ( a title) to secure improvements (property), not land value. John Locke, French Physiocrats, Thomas Paine, John S. Mill, and Henry George cover this topic in detail supporting a LVT. Law made property has a tradition from kings, queens, dictators, conquistadors, Tories, imperialists, corporations for profit, all based on violence.
What you suggest is stealing money from middle class worker's retirement. Why don't you just take people's 401k money out of bank accounts, it is the same as what you're suggesting.
That is a very radical idea for a nation that has made tremendous strides for workers in this country over the last hundred years only to reject those gains by allowing jobs that benefitted from those gains to be shipped overseas. Now im not saying that American companies or any other companies cant create jobs in these developing nations. Im just saying that cant engage in those behaviors and sell their products here. Creating jobs will put more money in the hands of more people and increase educational opportunity for millions of Americans. Half of our trade deficit is foreign oil,wouldnt it be in the best interest of the nation to invest heavily in technologies that will improve hybrid and electric cars? If these are radical ideas then I plead guilty to being a radical.
Problem solved.