Summarising our whole system shift for a new economy

Designing a new economy has major challenges politically. We want two major changes that actually aren't politically realistic in the current world where eight individuals own as much wealth as the poorest 50%. There is too much concentrated power.

If we want monetary reform it is unavailable at national level because there are simply too many bank lobbyists in the world's capitals who are spending far too much for any public interest lobbyists to match. Then again, if we want to replace

Then again, if we want to replace income tax with land tax, forget it. Not a goer either from a practical political viewpoint. No self respecting politician will touch it if taxing land reduces its market value and threatens a politician's votes.

What about getting a Basic Income and replacing the intrusive welfare system? Well that depends on how you would fund it. The problem is most of the current solutions are a drag on the economy. You must not fund it from GST which is regressive or from income tax which is a drag on the economy.You must fund it by sharing the rent on land and other monopolies.

Well where do we go then? You have painted a dismal picture.

Most respond by saying "Oh well bring A or B in gradually". That takes ages and moreover when A is implemented it affects B and C. So the idea of just imposing a 1% land tax and bringing it up gradually is quite impractical. We have to think in terms of whole systems. It is a whole system shift we need. Redesign the political economy from scratch.

The fact of the matter is that we must be politically savvy to come up with a solution. Many economists might agree that land tax is the most logical tax, but unless they are standing for office, they don't have to face the public. It is one thing to be an economist and another to be a politician. Victoria University's 2010 Tax Working Group which was stacked with economists from many government departments as well as consultants and academics, proposed a land tax. Did the government listen? Not that I can recall. I don't remember their recommendations on land tax being discussed in the public arena for more than a day.

What about Positive Money and all its followers saying that money should be spent into existence not lent into existence? They make a very good case, you can't fault it. And yes, the British Parliament took it seriously enough to have a parliamentary debate. But do you believe it will go further? You only have to read Nomi Prins book 'All the Presidents Bankers' to get an idea how close presidents have been to the big bankers for over a century. Hilary Clinton's campaign was funded by investment bankers and Trump has six Goldman Sachs bankers in his cabinet. He has already moved to get rid of the weak regulations they now have.

When considering the political feasibility of putting in the idea of Michael Kumhof and Jaromir Benes' Chicago Plan Revisited, a plan making bank debt illegal, Lietaer, Arnsperger, Goerner and Brunnhuber listed five reasons for not recommending it.[1]
"1.Replacing a monoculture with a monoculture is not the way to generate diversity in exchange media.
2. While it is true that a Chicago Plan reform would eliminate risk of widespread banking crashes and of sovereign debt crises, there would still be monetary crises.
3. If governments were the only ones in charge of creating money there might be a risk of inflation. Such a risk is real and demonstrated in 2009 by the hyperinflation crippling the Zimbabwean dollar after President Mugabe instructed the central bank to print its currency by the trillions.
4. The fourth reason can be summarised as ‘political realism’. Any version of the Chicago Plan will be fought to the death by the banking systems because it threatens both its power base and its business model. Even after the excesses triggering the 2007-8 collapse, or in the middle of the Great Depression of the 1930s, the banking lobby managed to deflect the implementation of any significant changes. In 2010, for every elected official in Washington, there were three high-level lobbyists working full-time for the banking system. The financial services industry including real estate spent $2.3 billion on Federal campaign contributions from 1990 to 2010, which was more than health care, energy, defence, agriculture and transportation industries combined." (In USA, according to Gar Alperovitz, in 2010-11 the FIRE section (finance, insurance, real estate) section spent nearly $1 billion in lobbying against bank regulation.)

"5. The final argument is about risk. Nationalising the money creation process cannot be done on a small pilot scale. It must be implemented on a massive, national scale or, in the case of the euro, a multinational scale. Any change always involves the risk of unintended consequences. Logically, large scale change involves greater risk."

Yes, there is a way to go. The ideas came from the permaculture teachers in our new economics movement. Reform the very structure of governance to give quite substantial powers to  local government, turn governance upside down as well and then we might have a chance. The centralised governance structure must be replaced with distributed governance. Then we need to rethink the powers given to or claimed by local governance. In fact central government is not going to give very local government big powers like money creation, land ownership or revenue raising power, so they have to claim it themselves. This is where rebellion must be focussed. 

So we have proposed spending money into existence at the very lowest level of government (in New Zealand that would be the Community Board). That money will gradually buy up land. The Community Board would then receive land rent from the property holder and pay the rates (local taxes) of that property holder. This process happens gradually, while closely monitoring inflation. If there is a sign of inflation, the rate of decay of money can be adjusted or the money spent at a higher level of governance.

So the Community Board claims the right to issue money, to buy land with that money, to receive public revenue. It could also impose certain resource rents to be determined.

With the growing revenue from land rent the Board would be able to distribute regular Citizens Dividends and build and maintain essential infrastructure.

There would have to be participatory budgeting so that the balance between infrastructure and dividends was maintained and the public was behind the Board.

Now if we are going to reclaim the right to issue money, we might as well design it properly while we have the chance. It is there we look to history and read Bernard Lietaer. He cites a period of 2000 years of a decaying Egyptian currency which had huge social, educational and economic benefits, 200 years of European currencies in the central middle ages that resulted in an age of prosperity, equality, high education and more leisure and finally a period in 1932-3 in a small Austrian town during the Great Depression. Each of these had a decaying currency, much as goods decay.

So the new money would be designed to decay. In practical terms, it would keep its face value but attract a regular payment to keep it valid. The local Board would develop a more equal relationship with its local Council who would inevitably end up accepting the new currency for rates. This would eventually pass on to central government who would have to accept it for taxes.

So what we propose is a new currency that soon is accepted by central government for taxes. This means it is a new national currency. They way this works out is that each local board keeps its currency from inflation so all are on a par. They flow into a stream that flows into a river towards central government.

Lessons from Singapore’s political economy

Marina Bay Financial Centre, Singapore

Marina Bay Financial Centre, Singapore

In his excellent TED talk, renowned inequality researcher Richard Wilkinson showed that of all OECD countries, Singapore had the worst inequality, ahead of Portugal, US, New Zealand, UK. Gini coefficients are the standard measure of income inequality. A score of 1 is the worst and 0 is the best. Because it is taken on the average not the median income, extremes of wealth will raise it.

I had always believed that Singapore was a model where there was little poverty and not much inequality. It is commonly cited as one of the more ‘georgist’ places in the world in terms of them shifting burdens on land, socialising its value and untaxing labour and capital.

But there are myths about the “Singaporean miracle”. In the absence of any constraint on the movement of global capital, any billionaire can set up residence and tap into the low tax regime. And they do. High net individuals and multinational corporations hide their wealth there. The tax benefits include a 20% top income tax, and a 17% top company tax. Even New Zealand has a billionaire living there – Richard Chandler.

We have insisted that both the land issue and money issue need to be addressed together, not separately, and Singapore is a clear example of what happens when you do one but not the other. The late Adrian Wrigley of the Systemic Fiscal Reform in Cambridge said, ‘If we just have resource taxes including land tax, where people pay for the privilege of monopolising their part of the commons, but have no monetary reform then money will concentrate with banks. Banks will row the economy between easy money and tight money causing booms and busts. They will put up interest rates for ‘riskier’ loans. They buy patents, radio spectrums, copyrights and trademarks.’ They bribe governments.

Whether Singapore, a country of 5.5 million, has done all this I don’t know, but it is a low tax regime and it certainly featured in the Panama Papers. It has even been labelled as a tax haven. For example, companies like TrustNet, now headquartered in Singapore, has branch offices in 16 other locations. It describes itself as a ‘one-stop shop,’ employing lawyers and accountants who help “high net worth” clients manage their money and business activities. The main product it sells is secrecy. It is easy to set up a company because only one shareholder and one director is needed. There is no need to disclose the beneficial owners of Singapore corporations to the authorities. Hopefully the international crackdown on tax sheltering will do something to change it, but given the nature of the tax regime in most countries, I can’t see much hope. They haven’t yet understood it is better to rely on land as a source of income, as land will not get up and walk away.

Big Australian mining companies have large workforces in Singapore. BHP has more staff there than its Melbourne headquarters. There are about 600 employees and 400 contractors in Singapore. Apart from being a marketing hub, it also has its business information systems based there. Rio Tinto employs more than 300 staff in Singapore. Companies such as Google, Apple, Microsoft, BHP Billiton and Rio Tinto have all admitted in hearings as part of the Senate inquiry into corporate tax avoidance that they are under audit by the ATO for their use of Singapore ‘marketing’ and ‘service’ hubs, where they route hundreds of millions of dollars of income.

So I wonder about Singapore. Could it be a perfect example of what Adrian warned? While 90% of the land is now government owned, the banks have too much power.

Singapore is not just banking hub, it is shadow banking hub. There are about 125 commercial banks in Singapore, only five of which are local. Although banks lend a lot of money into existence in Singapore and their loans go towards construction of capital, rather than simply bidding up the price of land (as we see in Auckland, for example), that is not all that banks do. They sell derivative contracts over the counter – bets on interest rates or other securities. Derivatives leverage up money creation up to 100 or more times. Trading in derivatives contracts happens round the clock. Singapore is a leading global commodities hub with 14,000 people employed and annual turnover of some US $1 trillion in the commodities sector.

The majority of people who live there find Singapore is an extremely attractive place to live and operate from. It is safe, clean, and green with superb infrastructure. The unemployment rate in Singapore is just 1.9% (June 2016), down from 6% in 1986. Bear in mind though, the definition ‘employed’ includes those employed part time, probably as little as an hour a week.

Unlike New Zealand they don’t have a Universal Superannuation. Many of Singapore’s elderly didn’t save enough while working, but they live longer. Some were born when there was no access to education. What’s more, the Singapore language policy marginalised many of them only able to speak languages other than Mandarin and English. While the cultural norm of caring for the elderly seems to have almost vanished, the government still argues that children should take care of their parents. Many elderly are on the government allowance of $450 a month, reliant on charity for food and health care. Living in tiny apartments as small as 30 square metres, they clean tables at hawker centres, collect cardboard for money, scrub apartment blocks or slog in the hot sun as security guards. Security guards and cleaners are among the worst paid.

In response, there is now a plethora of government assistance, making for growing administrative costs of welfare, when it would have been so much better to have shared their land rents with all their citizens in the first place.

So Singapore can only stop its own rent from being stolen by the global elite; it can't stop the global elite from setting up shop there and stealing the rent of other places. Local rent-sharing can only raise the local floor. But Singapore doesn’t do enough rent-sharing, hasn’t controlled its banking industry and doesn’t exist in isolation from the global capitalist economy. Hence its inequality.

So maybe we’ve seen only part of the equation. Taking land into public ownership stops private landowners from pocketing land rent, but it doesn't restore the universal individual right to share the land value. The Singapore government has built great infrastructure and housed almost all its people, but it could easily share the remaining public money with its citizens. The Citizens Dividend enables everyone to collect rent, rather than just landowners. But without democratising the budgeting process, ordinary people are not receiving their fair share.

Singapore has the highest per capita of millionaires of any country. One in six households are millionaire households. The mobility of capital and people across borders means that the borders of the country are constantly being crossed. So it is no good just having one country in the world with land owned by the government while billions of dollars slosh around the globe every hour.

Billionaires can sit in Singapore and draw rent from land in the rest of the world. Aetas Global Markets provides funds for commodities projects. Many international firms are sited in Singapore. Global Capital firms like Knight Frank invest on behalf of what they call Ultra High Net Worth Individuals (UHNWI) in property round the world. Genesis Global Capital appears to choose cities in the early stage of a property boom in Brazil and Germany. The Strait Times reports in March 2016 that the financial services sector is a key driver of Singapore’s growth.

Henry George defined poverty as the ‘fear of want’, the ‘relentless hell waiting beneath civilized society’. He believed that removing this fear would not only help the poor, but transform our culture and society.

Former Singapore resident Zbigniew Dumienski said, ‘The only group that I would consider as poor are the old people with no children. When they worked they didn't have to contribute towards any retirement scheme (CPF) and might not have accumulated enough money to enjoy a peaceful retirement. This is why you often see old people selling tissues or cleaning tables in Singapore. They do receive some support from the state though, plus many of them own their apartments. In fact, I've met income-poor people who would choose to live in a tent/on the streets so that they can live off renting their apartment to other people.’

The situation of the 870,000 foreign workers (Feb 2016) in Singapore is contentious. Many immigrants like the safety and enjoy the food. While it is good if your employer is fair, it is not so good if you are exploited. There are construction workers from India, Bangladesh, China and Nepal and maids from the Philippines, Myanmar and Indonesia who earn much less than an average Singaporean. Some live in dormitory ghettos provided by the government. Migrant workers are not given basic protections such as a minimum wage, standardised working hours and a right to unionise, so this puts a downward pressure on wages, raising inequality. There are reports of maids being ripped off by recruiters, and sometimes being beaten or raped. Live-in nannies are often on 24/7 standby and earn $5 an hour. If they have their passports stolen by their employers they can’t go home. However many eventually earn enough to take back home and live a life with more choices. With 40% of Singapore's inhabitants being foreigners by 2013, immigration is increasingly becoming a big political issue.

So despite the hope of eliminating poverty, the ugly side of global capitalism is becoming increasingly apparent.

A currency for Christchurch taken seriously

John Campbell introduced the piece on RNZ's Checkpoint with the remark, "A separate currency for Christchurch could be real. Is the city serious about it? Are they for real?". He said he had done his own research and found the Bristol Pound in UK. And the Totnes Pound and the Brixton Pound.

Chair of the council's Finance Committee Raf Manji explained there were 2,500 community currencies operating round the world, talked of his preference for the Bristol Pound because of its convertibility. Treasury and RBNZ need to be involved. Our plan is to launch it at the 2017 Social Enterprise World Forum. http://www.radionz.co.nz/national/programmes/checkpoint/audio/201795721/christchurch-could-soon-have-its-own-currency

Did banks apply for a patent to use money?

new-nz-moneySo is money part of the commons?

Money is a clever human invention designed to be a medium of exchange. Everyone agrees to accept money because they know that other people trust it too. Unfortunately many centuries ago, governments started to accept bank credit as money. And when they accepted bank money for taxes, they either consciously or unconsciously gave banks a patent banks didn’t apply for or pay for. Nor did they check whether the invention was a working model. If they had done so they would never have granted the patent.

So we somehow allowed money to be lent into circulation with interest, causing a competitive system and a scarcity mentality where some amount of bankruptcy is inevitable. What’s more the patent had no termination date.

Banks continue this privilege of creating the country’s money supply (in the case of New Zealand it is at least 98.5% of our total money supply). So we gave banks the monopoly on money creation, didn’t tell the people and didn’t charge the banks a bean.

Tax reform or monetary reform? Which is most important?

The meshing together of Georgism with monetary reform remains a challenge, especially for ardent individuals who claim their cause to be the most critical. I have heard monetary reformers say Georgism is irrelevant and I have even heard a Georgist describe monetary reform as "heresy" and declare it must be "exorcised" at all costs. Then there are the moderates who say Georgism is more important than monetary reform but willingly acknowledge monetary reform is needed. Critics come in many varieties. Regrettably there is a tendency for advocates from both sides tend to promise a growing list of wonderful results from their reform. Maybe Henry George School people only see landlords as “the enemy,” and to mention money, credit and bankers confuses them. Do we see people on both sides arguing that the others should just get off their territory?

Recently I heard a Georgist argue that if you transfer land into community ownership then the money issue disappears.

So let's tease this one out. To some extent he is right, but he misses several vital factors. For instance he doesn't appear to understand the growth imperative will still be present, so he needs to work out where the excess money will go, and follow the results to their logical conclusion.

Take the important book Money and Sustainability, The Missing Link, a Club of Rome Report by Bernard Lietaer, Christian Arnsperger, Sally Goerner and Stefan Brunnhuber. The authors say there are five results of creating money as interest-bearing debt – amplification of boom and bust cycles, short-term thinking, compulsory growth, and devaluation of social capital where selfish behaviour replaces co-operative behaviour.

Or take another example of monetary reformers overpromising. While we can't tell if she actually believes it herself or not, monetary reformer Amanda Vickers lists their extravagant promises. She writes in the Otaki Mail, "Sovereign money advocates extrapolate further that the outcome would also be far-reaching throughout our economy and our lives. They say it could also improve: the inequality gap, child poverty, housing bubble control, student debt, state asset sales, job security, local businesses performance (due to the 10% higher output gains), budgets for local community projects and facilities, health care and education."

Positive Money in their little video says money is created every time someone takes out a mortgage. The money doesn't come from someone else's saving but is new money just created. The bank enters your debt as an asset on their accounts then enters the same amount in the liabilities column of their books, your deposit. The entire money supply is on loan from the banking system. When they charge interest on this money creation £200 billion a year is transferred from the public to the financial sector every year in UK. Since money is created as interest-bearing debt, if we all pay off our debts the current economic system would collapse. There would be no money in the system.The debt can never be repaid. The money creating power needs to be transferred to some democratically accountable body and spent into existence instead. He mentioned it has been pumped into property bubbles and financial markets.

They claim it would reduce inflation and that you would also be able to move towards a low carbon society this way.

dscn1459So what I take out of this is that Positive Money people, by not addressing tax reform, may think that if you create money by spending it into existence you will avoid rising land prices. By creating a monetary authority to control inflation they give their new monetary authority magic power to stop money going into a land bubble. It simpley wouldn't happen this way.

So let's go back to the Georgist's claim that when you have land in community ownership the money issue disappears. Not so. If you continue to create money as interest bearing debt, then money still moves from the public to the financial sector. Though there is always the personal desire to pay off your debt the money supply would disappear if everyone did this. Moreover, there is always the mathematical imperative for the money supply to grow in order to pay off the debt with interest. That is what we don't want on a finite planet.

It is true that when there is either no cost or little cost on the holding of land AND money is created without interest or with low interest, you get money pouring into land inflation. Anyone who has paid a mortgage knows that when interest rates decline, there is what they call a housing bubble (it is really a land price bubble). This is undesirable. And if you take land out of the market entirely money won't go into a land bubble, but it will go into some other form of monopoly.

When Karl Fitzgerald of Prosper Australia did his 2013 study Total Resource Rents of Australia, he subtitled it "Harnessing the Power of Monopoly." The list includes Land Residential, Land Commercial, Land rural, Land other, Subsoil Minerals, Oil and Gas, Water Rights, Taxi Licences, Airports, Utilities, Fishing, Forestry, Gambling, EMS, Satellite Orbit Rights, Internet Infrastructure, Domain Name Registration licence, Banking Licences, Corporate Commons Fee, Patents, Parking fees, Public Transport, Liquor Licences, Vehicle Rego Licences, Sin Taxes on Tobacco and Alcohol, Carbon Taxes, Non Tax Revenue (sale of goods). That's quite a list of the things you can claim a monopoly right on. "Land" in its widest sense is actually a list this long and longer.

So if we just deal to land by taking it out of the marketplace, you just put your money into monopolising another part of the commons. You could buy a much desired personalised number plate. The plate "F1" fetched £14 m and the number plate with the number 1 was bought by an Emirati businessman for £7.25m in 2008. Perhaps you could buy a domain name? Sex.com sold in Nov 2014 for $10m and insurance.com in 2010 for $35.6m.

Or the extra money could go into the financial sector including securities, commodities, venture capital, private equity, hedge funds, trusts, and other investment activities like investment banking). Nothing productive here. Yale economics professor Robert Schiller says, "The classic example of rent-seeking is that of a feudal lord who installs a chain across a river that flows through his land and then hires a collector to charge passing boats a fee (or rent of the section of the river for a few minutes) to lower the chain. There is nothing productive about the chain or the collector. The lord has made no improvements to the river and is helping nobody in any way, directly or indirectly, except himself. All he is doing is finding a way to make money from something that used to be free. If enough lords along the river follow suit, its use may be severely curtailed." Yet that is where a lot of money and activity is going.

In June 2015 the Guardian reported that "Adair Turner, the former chair of the Financial Services Authority, gave a memorable critique of the UK financial services industry in the wake of the credit crisis when he said that some of the activities carried out by the City’s finance firms were “socially useless”."

There are many places where the excess money can go if there is tax reform but no monetary reform. We haven't even touched on fishing quotas, art investments, oil and gas, utilities, or forestry. Leaving the growth imperative firmly in place by leaving money created as interest bearing debt will invite trouble and plenty of it.

However there is no doubt that land price inflation would disappear if all land was owned communally and leased from a public entity instead. While the boom-bust cycles would exist for other parts of the commons that remain in the market place, these cycles would no longer be present for land prices.

As Professor Michael Hudson explains "In a nutshell,land rent today is paid out as mortgage interest. Ditto for oil and gas, and monopolies.In terms of reform, financial and tax reform must go together. What is not taxed will be capitalized into bank loans. That’s the basic message."

In one of Michael Hudson's papers he quotes from Tolstoy when discussing the issue with Henry George. "The land cultivator in a bad year, not being able to pay the rent exacted from him by force, would have to enslave himself to the man with money in order to keep his land and not lose everything."
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Nicole Foss talks about why small currencies will help in the coming credit crunch

https://www.youtube.com/watch?v=NjtM8nRv9gU&feature=em-upload_owner#action=share At the recent New Economics Party Unconference in Otaki the participants decided to make their own agenda. This is the group that talked about complementary currencies. Nicole Foss, Kai Hackemesser and Andrew Casey.

The 1-3% inflation target is really a circulation incentive and we need to read Gesell instead

The other morning on the radio I distinctly heard a senior politician say that the economy wasn’t going well ‘because the inflation rate was too low at below 1%’.

I thought I was hearing things. Indeed someone coming to Earth from Mars might ask a few questions. Presuming inflation is a bad thing and it is now near zero, why then is the economy not going swimmingly?

Then I remembered what I had recently learnt – that economists had designed a 1-3% inflation target as an ideal because you had to have some incentive to spend today or the economy would seize up. You didn’t want inflation too high, but a low rate of inflation is acceptable and even necessary simply because otherwise people hold on to their money and nobody spends. They realise that goods will be dearer tomorrow – if only by a little – so they decide to spend now rather than wait.

Goodness, how few people know this. And how it is becoming exposed now that the inflation is below 1% in more than one of the developed nations.

Now land was taken out of the CPI in 1999 as you can see in this graph.inflation NZ

Yes the graph makes good sense. With land safely out of the CPI, economists can brag that their target has been achieved for a consistently long period. And you had the huge land bubble of 2002-2008 never recorded in the CPI and then again the land bubble of 2011 onwards completely out of the graph.

So putting aside this statistical sleight of hand, we also know now that the national currency must have a circulation incentive. (That is under the current currency design of money created as interest bearing debt)

As we collectively head blindly into a period of deflation of unknown length and pain, we must pay attention to the writings of Silvio Gesell, a far thinking German businessman who also lived during a Depression in the 1880s in Argentina. His book The Natural Economic Order has been translated and put online for all to read. Of him Keynes said "The world will owe more to Gesell than it does to Marx".

Gesell realised that a businessman with goods is at a disadvantage from those holding money. While the goods decayed, rotted and generally went out of date as they waited for someone to buy them, the money retained its value. Those in possession of money were better off than those who had goods. He famously wrote: "Only money that goes out of date like a newspaper, rots like potatoes, rusts like iron, evaporates like ether, is capable of standing the test as an instrument for the exchange of potatoes, newspapers, iron and ether."

After decades of having loyal followers, during the 1930's depression, Gesell's theory was put into practice, but only briefly because the banks managed to persuade the government to stop it. It was in the small town of Wōrgl, Austria 1932 that the Mayor put aside 20,000 schillings and used them as backing for notes called Work Certificates. They paid their employees partly in Work Certificates. Each note had 12 spaces on the back and a stamp had to be stuck on every month to validate the note. To avoid paying for the stamp people spent the Work Certificates quickly. The currency was successful at reducing unemployment, so much so that people came from miles around to witness the Miracle of Wōrgl. It was in place 15 months before the government made it illegal and they went back to unemployment.