Monthly Archives: June 2014

An open letter to Helen Clark UNDP re climate and the economy

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searching-blindfolded-man

Late last night I engaged with you in 140 character tweets on the topic of climate and the economy. You were expressing the strong desire that we can have economic growth at the same time as halting climate change. And I pointed out that unless and until you reform the money system you are going to get a growth imperative built into the economy.

Helen, I believe the future of life on the earth depends on people like me pointing this out to people like you. There are a great many people wanting the same thing – a thriving economy AND a liveable climate. We need it desperately.

I see that your current meeting is another high powered one. Called The Global Commission on Climate and the Economy it has on it the Chairman of the Bank of America and the former chairman of the China Development Bank, the Vice Chairman of Deutsche Bank Group, as well as someone from the International Energy Agency with the UN Special Envoy on Climate Change. Nicholas Stern is there and so is a trade union representative as well as many ex Prime Ministers.

I see the purpose of this Commission is to “analyse and communicate the economic benefits and costs of acting on climate change.”

It looks as though the plan is to go down the path of green growth, to change towards sustainable energy sources. That is what economist Nicholas Stern and many others want. It is a good goal but not enough. It is just too limited.

But that is like mopping up a leaky pipe without stopping it leaking. It doesn’t get to the core of the problem.

What the bankers on your committee won’t tell you is that the function of banks is to create money and create it as interest bearing debt. You must know that having been Prime Minister of New Zealand for nine years. The country’s money supply comes into existence every time a bank makes a loan and disappears every time a loan is paid back. But it must keep on increasing. That’s the design of it.

What you have probably never had time to find out in your busy life is that when a bank creates the principle but not the interest, there is not enough total money in the system to pay off the debt and the interest. So someone has to get another loan. This increases the money supply and the money supply can’t be bigger than the number of trades in an economy. So the economy has to grow. See the Parable of the Eleventh Round for a story to illustrate this.

That is the growth imperative. It is built in to the current dysfunctional money system. You can’t have a thriving economy without growth in this system. All the time there is pressure to grow the total number of exchanges in the economy. And it can’t be done on a finite planet. Christchurch is helping our GDP grow because it had an earthquake. The economy grows when tobacco consumption or gambling rise. The economy grows when dairy farmers pollute the rivers with their runoff. Stupid.

This is not just debt money but it is interest bearing debt money. There is a world of difference. The latter has many other damaging and negative consequences like rising debt, instability and wealth concentration.

But let’s concentrate on the growth imperative.

Over the last couple of years there have been two excellent articles written by economists from the IMF and by economists from the Bank of England. Michael Kumhof of the IMF subsequently talks at a January 2013 seminar on Financial Reform for a Sustainable Economy here. Economist and former money trader Bernard Lietaer co-author of a Club of Rome book called Money the Missing Link in Sustainability speaks at the same seminar.

Gosh it is sad. Here you are at this high powered meeting of bankers, ex and current politicians, energy experts, CEOs of multinationals seeing if you can stop climate change without damaging economies. You are trying to find a way to get a thriving post fossil fuel economy and yet you are still working blindly. The paradigm of creating money is just not within your vision. The idea of radically reforming the tax system is probably far from member’s minds. Sad.

Look around the room and think “Who among you know that if we go on blindly allowing banks to create money as interest bearing debt we are never, never going to get sustainability?” Tragic.

And whatever decisions you make at this Commission, I hope you get on to the issue of tax policies. Can we in fact have a sustainable economy while we fail to tax the monopoly use of the commons – land, natural resources and the cultural commons.

So it won’t be any use having a series of indicators on green growth (as does the OECD). They want to monitor the natural asset base. Well if there aren’t tax policies that protect that asset base that base will just deteriorate. Measuring is good, but you might as well implement tax policies that are going to protect that natural asset base in the first place.

Government Superannuation, Basic Income, Duplication and the Housing stock

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1280px-Eureka,_California_two_yellow_housesUp till today I always thought the Government Superannuation was the nearest thing we have to a Basic Income for over 65s. It was unconditional and was given to all in that age group.

But I was wrong. Today I heard from a friend on Government Superannuation who has just had to pay for a second toilet (she chose a compost toilet), a new letterbox, a second electricity meter and a new shower. She had to do this because otherwise Work and Income would have cut her Government Superannuation.

Why? Because she is retired, drawing Government Superannuation and owns a biggish house near a shopping centre. A few months ago a recently retired friend came to live in her back building and is doing it up. They have known each other for zonks and being sociable creatures, just wanted company. They both enjoy the same movies and books, both cook well and their conversation is stimulating.

My friend’s superannuation is $366.94 a week living alone but the single, sharing payment is $338.71 a week. Both of them would be deemed sharing if they shared a toilet, letterbox, electricity bill and shower. So the house will now have two of each.

Furthermore, there is a third category from Work and Income and that is married, civil union or de facto and that is $282.26 a week.

What message does this send our society? That the government will not encourage friendship and sharing of facilities, and certainly not sexual intimacy, or even, dare I write it love.Old Couple

And if you think it doesn’t have housing implications, think again. The said male friend could well have taken up a whole house and section by himself and had a full single superannuation. Two houses, two sections, two letterboxes, two electricity meters is better than one? Of course not.

I think of the retired single people living in Christchurch where the rentals are horrendous and people live in garages. I think of the Auckland housing bubble, exacerbated by this illogical Work and Income policy. So not only do we have more houses than we otherwise would have had, but this puts up the demand for houses and so house prices rise.

This has been happening of course with younger beneficiaries for decades. Two single parents get together. Both are on the Domestic Purposes Benefit and there is a major financial disincentive to share a single house, a single washing machine, car etc etc.

So not only does the lack of a Basic Income (unconditional, whatever your living arrangements are) discourage intimacy and thrift, but it expands our cities towards ever more green fields, costs us in infrastructure of sewerage, water and stormwater, but it leaves the poor to fend for themselves in caravans and garages or to share with other families.

Why not create a national currency at local level?

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upmapOver a period of two years or more we have proposed:

1. A second national currency. The currency to be issued by Treasury, spent into existence to buy land. The new currency will have no other taxes than land rents, natural resource rents and taxes on bads. We aim to move to a tax system that taxes the monopoly use of the commons rather than labour and sales. Some revenue will be distributed as a Citizens Dividend to all citizens who have lived there for a year or more, the rest will be shared by all levels of government. We advocate a Land Rental Index to be set up in each area, with land rents being adjusted annually according to the index. Land rentals are relatively very stable over time. It is only when there is a major event like and earthquake that they decline or when a railway is put in or a labour intensive business arrives that they rise more than just a tiny bit. The new money would be good for the payment of rates and taxes. No further rates would be payable.

2. We have occasionally advocated a Christchurch currency and an Auckland currency created by spending it into existence to buy land. This would require complete cooperation from the central government as legislation would be needed to make it free of income tax, GST and company tax as before. Rents would be shared as a small Citizens Dividend. The rest would be shared with central government. So a similar design but a city currency as well as a national one.

3. Then very recently we went a step further and suggested that Local Boards (the Auckland supercity calls them this and there are 21 Local Boards as shown on graphic) create the currency, spend it into existence to buy land. A monetary authority will have to be set up to ensure there is no inflation. Revenue from land rents and some natural resource rents can be gathered by Local Boards and first distributed to the local citizens then the rest used at local board level and then sent up the line to supercity and to central government. Supercities would have power to impose taxes on water pollution e.g. leaching of nitrates that uses the commons of the aquifers and rivers. (and to tax the use of water for commercial purposes.)

This option 3 would require several currencies to co-exist. The usual NZ dollar, the new NZ dollar, the supercity dollar and the Local Board dollar. We had considerable difficulties and confusion when discussing exchangeability of currencies.

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4. Option 4 arrived a couple of days after I spoke to a meeting at a Motueka ecovillage in response to the questions and problems. This one is simpler and is like the formation of a river from the small streams to the river to the sea. Create the new national currency at Local Board level and pass it up the line. Local Boards would set up a Land Committee to decide which land should be bought first. Each local board might decide differently in consultation with its community. Every decision has the right to be vetoed by the local hapu or iwi and where applicable the Maori Land Court should be involved. You would also need a local committee (perhaps the same one) to administer a Land Rental Index or where appropriate because of different desirabilities of sites e.g. Wellington hill suburbs for sun. You would also need a local Monetary Authority to monitor inflation. It would work closely with the Supercity Monetary Authority and the Treasury Monetary Authority to ensure there is no inflation and that no local board would issue too much or too little new money. These are such important entities that they would have to be voted in.

There are so many issues to comment on here, it would be really good to have a general discussion. Then we can perhaps divide up the discussions. Option 4 finally gives real powers to the local economy, which is in line with our policy. The land board may, after consultation with the local community, choose a local business which needs capital, or choose undeveloped land owned by absentee speculators or the local iwi may have very strong preferences.

For instance, if the local committee chose five sections each valued at $200,000 it would create $1m of national currency. If the committee chose to purchase the land of a speculator, that speculator, seeing no future, might sell the lease and thus release the land for genuine use. Many with mortgages will want their mortgage reduced and, because the new currency is legal tender, the bank would have to accept it for paying off a mortgage. Or the committee may be persuaded that a local business needed capital to employ local labour and grow. A community land trust might ask for their land to be bought so they can take land out of the market. This would enable them to sell houses to younger people to join their village, as otherwise the cost would be unaffordable. They could then use the considerable injection of capital to develop their labour intensive businesses and the ones that use local materials.

Then the monetary authority, in conjunction with the monetary authorities of the supercities and the government would make sure the local board did not issue more money than it was allowed, as inflation must be kept strictly under control.images-1There could be problems with certain rogue local boards. Either they issued too much money and wouldn’t cooperate with the monetary authorities elsewhere, or their leadership was questionable. In that case there should be provision in law to instal a Commissioner until the Board’s administration improved.

In models 1-3 we have designed in a circulation incentive in the form of a dated currency. However perhaps in model 4, since all money flows downstream from local to central, there may be no need of this.

My questions are (and you will raise plenty too):

  1. Exchangeability with the national currency NZ dollar? We had it as they are issued at par and redeemed at par and in between the value changes according to the market. Some have argued there should be no exchangeability with the old national currency.
  2. Will the creation of a second national currency at local board level stimulate the local economy?
  3. How does this all line up with the Maori Land Trust boards and Incorporations situation?
  4. How would the public be protected from local board that go rogue and how would the wider public ensure that local boards representatives can deal with this level of responsibility?

Now there is one more thing that comes before any of this. Councils and Government should never sell land. The idea of the government buying up the land in the Green Frame and then selling it off into private hands is unacceptable. They should keep it and auction the leases to the highest bidder, then share that revenue with the public (via a Citizens Dividend) and the central government. This should be entrenched in law somehow.

Meanwhile a private bidder Auckland City Council has been offered $75,000,000 for a council car park. What a dreadful thing that would be if the council sold off this prime city land for cars to park and for a private enterprise to gain, both in car parking, and in capital gain. As they said in a The Nation programme on TV3, they are developing around traffic hubs. Of course. That means the public pays for the transport infrastructure and private land “owners” benefit from rising land values. Not fair, all wrong. Let logic prevail!

Reservations about Crown Leasehold Land. There are many who will have reservations about the government or the local board buying up their land. The alternative we used to have was that the Government pays you for your land, and the title of your property then bears a covenant, an obligation to pay a ground rent from then on, whoever owns the land. While it is more difficult to explain to the public, a covenant of this nature would give much more peace of mind when it comes to secure tenure of the land. “Leasehold title” has such a bad reputation that it is difficult to explain there are no sudden rent rises if the rent is linked to an index and that the tenure is for a lifetime, with rights that your descendants can get the next lease. No matter how much this is explained it may be better to have a covenant.