Telling the Truth About Debt, Austerity and Taxation

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

The Growing Coal Train Movement

Momenta

Directed by Andy Miller and Robin Moore (2014)

Film Review

Momenta is about the growing grassroots movement to stop the coal trains that are creating environmental havoc in the Pacific Northwest. The movement owes its diversity to the devastation the trains create in nearly all the communities they pass through.

Hurt by the rapid shutdown of coal-fired power plants (for environmental and economic reasons), the US coal industry is seeking to cut their losses by selling as much coal as possible to China. Coal exported to China via Pacific deep water ports comes from Montana’s Powder River Basin. The coal trains carrying it it follow a circuitous route through Montana, Idaho, Oregon and Washington. They endanger the health and livelihoods of hundreds of communities along the way. Including Montana ranchers facing catastrophic water shortages as the mining companies deplete the Powder River Basin aquifer.

The number of coal trains varies between 18 and 120 a day depending on the community. The trains are uncovered and each sheds 31 tons of coal dust daily. The coal dust contains high levels of mercury and arsenic. This is in addition to the heavy metals contained in diesel particulates given off by the train engines produced by train engines. The latter substantially increases residents’ risk of asthma, heart attack and stroke.

In urban areas, such as Billings, Spokane, Portland, Longview, Seattle and Bellingham, the trains always travel through the poorest neighborhoods. In more sparsely populated areas, they contaminate pristine waterways essential to recreational fishing, water sports and tourism.

The documentary also emphasizes the need to reduce global reliance on coal to reduce overall carbon emissions. The coal industry is indifferent to these so-called “externalities.”

They refuse to cover their trains to reduce the spread of coal dust and are only willing to pay 5% of the $500 million infrastructure necessary to accommodate the increased train traffic. According to one activist, “all they care about is squeezing the last bit of profit out of a dying industry.”

The documentary concludes with a discussion – and a tour of a Marysville solar panel factory – of the beneficial effects of the renewable energy industry on the US economy. The latter creates far more jobs than exporting coal to China and is less dependent on fluctuations in the Chinese economy.

For more information on the anti-coal train movement go to http://www.powerpastcoal.org/

A New Economic Model to Save the Planet

Plenitude: The New Economics of True Wealth

by Juliet Schor

Penguin Press (2010)

Book Review

The main premise of Plenitude is that neoclassical or free market economic theory falls short in addressing the global economic crisis because it fails to account for the negative ecological impacts (aka externalities*) of markets. The author Juliet Schor proposes a new economic model which addresses both environmental impacts and inequality.

Schor’s new “plenitude” model builds from ideas on downshifting and simplified living she introduced in her 1998 book The Overspent American. It’s based on four main principles.

The first involves a new allocation of time away from the market economy and a reduced reliance on money to meet individual needs. By Oct 2009, eight million jobs had disappeared in the US alone. There’s no way these jobs will ever be restored. However by reducing their hours of work (either voluntarily or involuntarily), people can make a conscious trade-off of money for time. With more time, households can increase their social networks and supports and find new ways (other than money) of procuring consumption goods.

The second principle involves diversifying away from the traditional economy by “self-provisioning,” growing and making things for ourselves instead of paying other people to do it. Schor sees distributed production facilitated by 3D printing** as a big part of this process.

The third principle is what Schor calls “true materialism,” an environmentally aware approach to consumption in which people are more aware of the ecological impact of their purchases. Rather than sacrificing a comfortable lifestyle, this might mean paying more for better quality clothes, shoes and consumer goods.

The fourth principle is restoring our investment in one another and our communities. Especially in times of crisis, these connections, sometimes referred to as social capital, are every bit as important as money or material goods.

Government Interventions Required

Despite numerous examples Schor gives of individuals, groups and cities that have already transitioned to the new model she proposes, new government policies will be essential to ensure the planet reduces its carbon footprint in time to avert ecological catastrophe.

Unlike French economist Thomas Piketty, author of the bestseller Capital in the 21st Century, she specifically opposes after-the-fact taxation to redistribute market income. She rightly points out that it fails to increase new wealth. Instead she would support a proposal put forward by Peter Barnes to set up a Sky Trust similar to the Alaska Permanent Fund. The Sky Trust would tax corporations on the carbon dioxide emissions (and possibly their destruction of habitat and discharge of toxic chemicals) and return the revenue earned as a dividend to citizens.

Secondly she calls for the adoption of social program (single payer health care, support for child care and tertiary education and reliable pensions) common in other industrial countries. She cites studies the common misperception that Americas work the longest hours in the world to acquire more consumer goods. The real reason they stick with jobs with impossible long hours and stress is because that’s the only way they can pay for health care, child care, college and a secure retirement.

Third she calls for a change in intellectual property laws to facilitate sharing new techniques and technologies) permaculture, agroforestry, biodynamic farming, cob, earthen and strawbale home construction, alternative technology, renewable energy systems) that enable more efficient use of resources.

Fourth she sees an essential government role in cleaning up toxic waterways and brownfields and restoring forests, which are also fundamental steps in restoring true wealth and reducing inequality.

Finally she would call on government to abandon their growth at all cost policies. She blames the financialization of the US economy for the pressure for constant growth. Although the sale of financial products produces no new wealth, it requires a continuous increase in economic growth to pay shareholders and bondholders.

Reigning in the Financial Sector

The main weakness of Plenitude is Schor’s failure to propose specific policies to reign in an out-of-control financial sector. In European parliaments, the main policies being explored include ending the ability of banks to create and control the money supply (restoring this function to government)*** and a financial transaction tax.****

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*In economics, an externality is a consequence of an industrial or commercial activity which affects other parties without this being reflected in market prices, such as rainforest destruction.
** 3-D printing is a manufacturing process that builds layers to create a three-dimensional solid object from a computer model. Video of houses being printed in China:

***See The IMF Proposal to Ban Banks from Issuing Money
**** A financial transaction tax is a levy placed on financial institution for specific types of monetary transactions.