Telling the Truth About Debt, Austerity and Taxation

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The Joy of Tax: How a Fair Tax System Can Create a Better Society

by Richard Murphy

Corgi Books (2015)

Book Review

Although the topic is economics, I personally guarantee this product to be totally painless. Murphy describes economics in ordinary comprehensible language – unlike mainstream economists who treat economics like a religion that can only be understood by high priests – and who speak and write in obscure language so you can never be sure if they’re telling the truth or not.

In The Joy of Tax, UK Tax Justice Network co-founder Richard Murphy offers a radically pioneering approach to tax and fiscal policy.  Murphy is one of the first economists to link tax policy to the 400- year-old reality that nearly all money is created by private banks out of thin air.

For political reasons, most economists try to conceal that private bank loans, i.e. debt, are the source of nearly all money in circulation. According to Murphy, the recent admission by the Bank of England (Quarterly Bulletin April 2014) about the true source of our money makes it possible to debunk a number of myths perpetuated by mainstream politicians and economists. Some examples: that investment is only possible when there are sufficient savings in the economy, that government debt is bad and that austerity, balanced budgets and government surpluses are good.

A point Murphy emphasizes repeatedly is that government also has the ability to create money out of thin air. Moreover it has regularly exercised that right to stimulate a stagnant economy. In fact, because all money is created as debt, it’s essential for government to “create” money (by spending it into the economy) whenever private banks fail to create sufficient credit. If this didn’t happen, severe economic recession results.

In Murphy’s view, the primary purpose of taxation is to reclaim the money government creates to keep it from over-inflating the economy. He claims the conservative elites who rabbit on about repaying government debt are really making the case that only private banks should have the right to create money. Aside from making them enormously rich, this makes no sense. Private banks are incapable of acting in the public interest – by law they can only act in the interest of their shareholders.

Citing Adam Smith in The Wealth of Nations, Murphy maintains a rational tax system can deliver other important goals, such as reducing inequality, recovering externalized costs (e.g.  pollution, toxic waste) imposed by corporations and promoting economically and ecologically sustainable growth.

For the current tax system to accomplish these goals, it would need to be far less regressive. At present most of the tax burden falls on middle and low income taxpayers. According to Murphy, the global economy will continue to stagnate until the wealthy shoulder their fair share of tax.

To make our current tax system fairer, Murphy proposes to introduce a number of “progressive” taxes, including a financial transaction tax, a wealth tax, a carbon/pollution tax, a land value tax to fund local government and a special tax on corporations that fail to re-invest their profits. He also proposes to do away with the current welfare bureaucracy by introducing an Unconditional Basic Income (UBI).

Although most of these tax reform proposals are specific for the UK, they would clearly produce similar benefits for the US and other post-industrial economies.

Originally published in Dissident Voice

How European Banks Hijacked the Euro Monetary Union

Buy, Buy Europe

Pieter De Vos (2013)

Film Review

This is a five-part miniseries describing how European banks have hijacked the euro monetary union to vastly increase their wealth. The upcoming Brexit vote in Britain makes this a particularly relevant topic.

Part 1 A Bank Crisis a Week

The series begins by describing the history of the European monetary union. Built at the height of neoliberalism it adopted all the rhetoric of Ronald Reagan, Margaret Thatcher and Alan Greenspan promising that globalized capitalism and free markets would end economic crises, increase prosperity and end inequality.

What really happened is that creating the euro massively increased inequality between northern and southern Europe and between workers and the super rich.

In seeking to make European banks as strong and competitive as US and British banks, Eurozone leaders ceased regulating them. Wall Street is often blamed for the EU’s 2008 meltdown. In actuality, deregulated European banks were equally guilty of risky speculation in derivatives and subprime mortgages.

Following the 2008 economic crash, European banks required massive government bailouts to keep European economies from collapsing. Promised banking reforms to prevent a recurrence of 2008 never happened. And according to the IMF, the global banking system is even more unstable today as it was right before the meltdown.

Part 2 Austerity Till the Grave

The bailouts required to keep their banks (and economies) going virtually bankrupted all Eurozone governments. All borrowed deeply (from the global banking system they had just bailed out) to keep their governments going. As a condition of this borrowing, the banks required them to reduce their deficits via deep austerity cuts. To qualify for further loans, they all cut pensions and benefits and laid off public service workers.

This segment focuses on Spain, where workers are organizing to block evictions, and Greece, where unemployed parents are forced to drop their kids off at orphanages because they can’t get welfare benefits to support them.

Part 3 Tax Haven Europe

This segment begins by profiling the Greek shipping magnates who run the largest merchant fleet in the world and pay virtually no tax. Corporations and the super rich pay far less tax than working people in all the EU countries. This massive tax avoidance forces all European governments to acquire major debt to keep from collapsing.

The documentary offers the example of Belgium, where the average tax rate is 12.5% and the most profitable corporations pay only 5% of their earnings in tax.

The filmmakers maintain that workers create wealth, though I doubt most neoliberals would see it that way. In 1981 Europe, 74% of the wealth workers created was returned to them as wages and government benefits. By 2012 only 49% of this wealth was returned to them and the super rich claimed the rest.

Part 4 Bratwurst, Lederhosen and Minijobs.

This was the most eye-open segment for me. It exposes the punitive conditions imposed on German workers from 2000 with the goal of making German export industries more competitive. Under former chancellor Gerhart Schroeder, massive wage reductions were imposed on all German workers – something IMF chief Christine LaGarde likes to call “labor market reform.”

Among other labor “reforms,” were a massive increase in “minijobs” – low wage part-time temporary positions that pay an average of 400 ($US 448) euros a month. Given Germany’s high cost of living, both parents need to work 2-3 “minijobs” (if they can find them) to cover a family’s basic needs.

The result was truckloads of cheap German imports flooding into southern EU countries (Greece, Spain, Portugal and Italy), shutting down local industries that couldn’t compete.

In this way, Germany’s vicious attack on their own workers forced wages down in other EU countries. This, in turn, forced countries like Greece and Spain to borrow lots of money from German banks to keep their governments going.

Ironically Germany currently has the highest number of working poor (7 million) of all EU countries.

Part 5 What Kind of Europe Do We Want?

It’s vital for people to understand that the mantra EU governments repeat ad nauseum – that saving the euro is essential to strengthening the EU and restoring prosperity – is pure propaganda. Seven years of austerity is massively increasing deficits and debt by putting so many people out of work.

The truth is that the Eurozone has been hijacked by banks and multinational corporations who are determined to use trade agreements to lock member countries into austerity and statutory destruction of Europe’s proud tradition of democratic socialism.

The only solution is a public takeover of too-big-to fail banks. Continuing to bail them out, while allowing them to privatize all the profits, is simply legalized theft of public monies. And a yes vote on Brexit.

 

Corporatization, Globalization and Indian Farmer Suicides

Nero’s Guests

Directed by Dhepa Bhatia (2013)

Film Review

Nero’s Guests is about Indian rural affairs journalist Palagummi Sainath and his investigation of farmer suicides (see The Ugly Side of the Fashion Industry) in India and the neoliberal policies responsible for them.

Sixty percent of India’s population depends on agriculture for their livelihood. Sainath has been one of very few journalists reporting on the brutal effect of neoliberalism and globalization on India’s rural sector – where 836 million people live on less than fifty cents a day.

He specifically blames the corporatization of agriculture, which has driven hundreds of thousands of farmers off their land, and “free trade” policies that allow Europe and North America to destroy local markets with cheap coffee, cotton and other commodities. All to increase the profits of a handful of western corporations.

Thanks to “fair trade” provisions enforced by the World Trade Organization, India exports twenty tons of grain a year to feed European livestock at lower prices than India’s poor are charged for grain.

When Indian farmers are driven off their land, they migrate to the cities for jobs that don’t exist. Since the 2008 economic downturn, more than one million urban jobs have disappeared due to “austerity” cuts.

The film provides poignant close-ups of rural families that have lost family members to suicide. These contrast starkly with cameos of Indian celebrities and their condescending superficiality in addressing poverty.

 

Living the Revolution

Solidarity4All (S4A) co-founder Christos Giovanopoulos is presently touring the US in his effort to grow the international solidarity movement supporting Greek workers. S4A is a collective that facilitates the development of grassroots solidarity structures emerging in response to the humanitarian crisis caused by Greece’s deep austerity cuts. It grew out of the Greek Indignados movement that formed alongside the Spanish Indignados* movement in July 2011. Both would serve to inspire the international Occupy movement that first formed on Wall Street in September 2011.

As of January 2015, there were self-governing 360 solidarity structures, representing 30% of the Greek population. The list includes social pharmacies, social medical clinics, social kitchens, social grocery stores, time banks,* a social collective of mental professionals, olive oil producers who share olive oil and the “potato movement,” where farmers cut out supermarkets and middlemen by trading directly with consumers.

All initiatives are non-hierarchical and hold weekly assemblies where decisions are made. The role of S4A is to serve as a centralized network for information, tools, and skills sharing and to build an international solidarity movement to support Greek workers and to inspire similar grassroots self-governing structures in other countries.

Although most S4A members support the left-wing party Syriza, the two are totally separate organizations. S4A chiefly derives its power from its ability to provide humanitarian services can’t deliver due to the Greek financial crisis. Nevertheless Syriza directly supports S4A by requiring each of their MPs (members of parliament) to donate 10% of their salary.

An International Movement

Already hundreds of international trade unions, community, environmental and immigration groups have signed on to the Solidarity4All movement. Ironically most are in Germany, whose government has been the most staunch in forcing debt repayments and austerity cuts on the Greek people. At present Giovanopoulos is seeking to build S4A chapters in New York, Seattle, Chicago, San Francisco, Oakland and Baltimore.

In the following video, Giovanopoulos speaks to the importance of a strong grassroots movement to counteract the pressure the EU and IMF are putting on Syriza. This is especially urgent owing to the inability of the current Greek government to address the humanitarian crisis. Thanks to Solidarity4All, the immediate needs of workers continue to be addressed. If a Grexit does occur, this will also provide a framework for Greece to look after itself – instead of relying on foreign funders.

For more information, check out the English S4A website at Greece Solidarity

Individuals and groups can join S4A at Join us


*Los Indignados is a grassroots Spanish anti-austerity movement that first captured public attention in July 2011 through massive demonstrations in which they occupied public squares and spaces. An estimated 6.5– 8 million Spaniards have participated in these events.
**A time bank is a mutual credit system in which members earn credits for helping other members and spend them for other services.
***Syriza is a left wing political party that came to power in January 2015 based on a pledge to end the austerity cuts forced on Greece (as a condition of further bailout funds) by the European Central Bank and the International Monetary Fund (IMF).
****Grexit refers to the potential exit of Greece from the eurozone monetary union, owing to its inability to repay its public debt.