Friday, July 10, 2015

What the hell was that all about? Tsipras offers creditors same--no, worse--deal than he was offered on June 26, pre-referendum.


I don't even have words to express how pathetic this is.

WTF is wrong with this guy?

So after calling for this grand show of democracy and decrying that he would let the Greek people decide and that they were done with austerity, what does he do? He sells them down the river and agrees to an even harsher package of austerity.

Tsipras basically has offered the same package of pension cuts, tax increases (VAT and income) and expanding primary budget surpluses WITH NO REDUCTION IN THE DEBT.

Here is the end of austerity. Read it for yourself. The Greek government's full proposal to the Euro group.

What a pathetic moron.

I am done with the Greeks. Done.

121 comments:

Ignacio said...

Schauble is going for a kick anyway. This is Greece Versailles moment, massive emigration will take place along impoverishment of Greece to terrible levels, but this is a massive blow to the lefties and a boon for Le Pen and other nationalist right movements.

If deterioration of Europe economy continues it will then get interesting.

P.s: bigots in Baltic states and north-central Europe will be happy.

mike norman said...

It may be a boon to Le Pen and other nationalists, but they have no economic plan either. They'll almost certainly take power, but then come under the thumb of creditors, too, out of their own stupidity. Shows you, in once sense, how smart Hitler really was.

Anonymous said...

The 21st Century purpose of "left" governments is to sell their voters out to the right once in power.

This can be more simply expressed as: anyone running on the left is a liar.

Matt Franko said...

Take the lousy deal and then launch a parallel currency to screw them...

If you read the Greek scriptures you can see Herod running the localized drachma system in Judea right along side Caesars wider ranging Roman denarius system it was working just fine.... No reason same set-up couldn't work again...

Herod got a lot done on his own... Rebuilt the Jewish temple, built Caesarea, etc...

Dan Lynch said...

Mike, Le Pen and Golden Dawn want to leave the Euro and print their own currency, so yes they do have an economic plan.

Agree that this is a total capitulation by Syriza in return for some lame "debt relief" that won't make much difference. As Warren pointed out, the Greek debt is mostly long term and at low interest rates so it's not their immediate problem.

Malmo's Ghost said...

This deal is actually worse than the June 26th EZ offer. Even if it somehow goes through, for all intents and purposes the EMU will likely not be recognizable in the years going forward, as its program is one of self cannibalization. Regarding Greece, Tsipras and Varofaukis, especially in light of their collective schizoid/spineless leadership, will surely go down in the annals of leftist politicos as two of the worst.

Anonymous said...

None of the media reports are complete. They are only reporting on the Greek side of the deal and have not yet said what the Europeans are doing. There is more to come.

Marian Ruccius said...

It is hard to see why Syriza folded: it had the Eurogroup and Troika on the run, given current world conditions. If the creditors take a 50% write-off, it might be worth it.

NeilW said...

I'm sure it all makes sense in Greek.

Anonymous said...

The haircut side of the deal is yet to be announced. That's what Tsipras was asking for before the referendum that he wasn't getting. Everything seems to have started moving yesterday when Schauble admitted there was going to have to be debt forgiveness and restructuring.

Malmo's Ghost said...

Greece proposes no debt relief, but the creditors will ignore the Greek request and offer it anyway? Don't think so.

Ignacio said...

Dan no one knows if there will be a haircut (!!!) the Greek government delivered a plan which included haircuts to their national parliament to vote, and an other which didn't include any haircut to the eurocrats. Which one is the valid one!? The incompetence of this government, which called a referendum expecting the YES camp to win to give them cover for cuts, as reported by AE-P, has reached new levels.

Kakfian.

P.S: And Schauble was right about one thing: "amateurs".

Dan Lynch said...

@Dan Kervick, the so-called debt forgiveness seems likely to be longer maturities and lower interest rates, rather than writing down the principal.

As Warren Mosler has pointed out, debt relief will make little difference in the near term.

Roger Erickson said...

How does one say "Quisling" in Greek?

Anonymous said...

Ignacio, you may be right. But what I'm saying is that so far the reporting is incredibly incomplete. Obviously there has been a great deal of international negotiation and back-channel dealing over the past few days. It is surely the case that there is a larger deal in the works, and that it is going to be released and announced in stages. Until we see the whole picture, it is hard to evaluate the result. Reporters are rushing to press with various documents they have obtained and racing to pronounce judgment on the deal. But they are operating in a fog of incomplete information.

Anonymous said...

"As Warren Mosler has pointed out, debt relief will make little difference in the near term."

Well, we'll have to see whether he is right, or whether that's just one more thing to add to the huge list of things Warren Mosler has been wrong about.

Dan Lynch said...

Fiscal tightening is fiscal tightening, debt relief or not.

Anonymous said...

Also the report last night said the restructuring might amount to more than 30% of Greece's GDP. That is a lot.

I know a lot of you guys are on some kind of nationalist crusade to smash up the eurozone, have every country re-claim "monetary sovereignty" etc. But that is not the aim of most Europeans - including the European left.

Once Greece is back on a sustainable debt path, most of the troika leverage over them disappears, and they can do all kinds of progressive things with their economy that they cannot do for as long as they have to go begging.

Ignacio said...

The debt servicing hasn't been problematic with all the refinancing and restructuring done, is the lack of income and small taxbase which has been the problem. The real debt when accounting for maturities and inflation is much lower than the nominal.

Even if they, once more, do some restructuring the impact won't be that large. Without expanding the taxbase though cracking down the oligarchs and increasing activity, reducing imports (though tariffs or bans of some sort, which will be impossible inside the EU) and increasing investment on a national level to fix the trade unbalances, while supporting internal demand running deficits, nothing will improve.

If they are determined to social cuts and running a surplus they will only improve as long as the euro becomes more worthless and they have increased turism (what is happening in Spain now for example) with low value added activity which is completely volatile and subject to external shocks of all sorts.

lastgreek said...

The incompetence of this government, which called a referendum expecting the YES camp to win to give them cover for cuts, as reported by AE-P, has reached new levels.

Basically confirmed by James K. Galbraith

http://ineteconomics.org/ideas-papers/blog/the-greek-revolt-against-bad-economics-threatens-european-elites

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Anonymous said...

Once they are on a sustainable debt repayment path, they can do whatever they want with their tax system. The only reason the troika is in any position to impose demands on Greek domestic economic arrangements is that Greece has to keep going begging for special loans and relief. Once that is no longer the case, then Greece can do what it wants. If the troika says, "We want you to do A, B and C," Greece can say, "We're paying our debts on schedule so it's none of your business. Fuck off."

lastgreek said...

"An orderly, negotiated, non-contentious" Grexit -- SYRIZA MP Costas Lapavitsas

Stay in the EU, get out of the Eurozone. Best of both worlds. What's wrong with that?

Had SYRIZA been upfront from the start, that the other side refuses to budge from it austerity-for-like position, except for the occasional crumbs, I sincerely believe they would have had the backing of the Greeks for what Lapavitsas proposed.

Dan Lynch said...

Tne Maastricht treaty's 3% deficit limit guarantees that there will be endless austerity in the absence of a debt bubble.

Malmo's Ghost said...

"I know a lot of you guys are on some kind of nationalist crusade to smash up the eurozone, have every country re-claim "monetary sovereignty" etc. But that is not the aim of most Europeans - including the European left".

Nice swipe, Dan. What is your "crusade"? Fiscal union? That would be a workable alternative for sure, but the only problem is is that isn't going to happen, and not simply because everyone on the right stands in the way of that end. It's the monetary union itself that is creating the so called bad nationalist sentiments you so loathe. And all this fear mongering of the European right, Hitler reincarnated if the EZ goes down, is hard left propaganda.

NeilW said...

"and they can do all kinds of progressive things with their economy that they cannot do for as long as they have to go begging"

No they can't - because they don't have the money in the economy to force round. It has a tendency to leak elsewhere and to savings, and has been shown numerous times to run out of steam very quickly.

Pump priming doesn't work - other than to feather the nest of the perennially middle class lefty.

The main feature of the Eurozone is that if you try and tax people they move elsewhere in the Eurozone where that doesn't apply.

The progressive nature of things only comes into being when you realise you have to satisfy both the rich and the poor at the same time. And that requires something rather more sophisticated that the same 'soak the rich' mantra that has been chanted for 40 years to zero effect.

Anonymous said...

There is no demonstrable historical connection between economic growth rates and the size of the deficit. Greece can achieve full employment and healthy growth with a more assertive socialization of national investment and more government planning - small deficits or no.

NeilW said...

The left has become completely degenerate in Europe. In their quest to crush nationalism they have merely created a European Nationalism.

Dan Lynch said...

@Dan, that is because the deficit goes down when the economy booms, and the deficit goes up when the economy shrinks.

But last I heard "G" was still part of GDP.

Random said...

Dan, for sure you can have deficits or surpluses with growth. It all depends on the situation. But now Greece needs larger deficits.
"Greece can achieve full employment and healthy growth with a more assertive socialization of national investment and more government planning - small deficits or no."
So you basically have the Job Guarantee and extremely tight fiscal policy? So a lot of JG workers?

Random said...

"The main feature of the Eurozone is that if you try and tax people they move elsewhere in the Eurozone where that doesn't apply. "
That's doesn't have to apply though does it.
Neil, I know we have spoken about this before but this is why I think there is a need for land value tax.
Tax property and have the military show up if it isn't paid.

Malmo's Ghost said...

"The left has become completely degenerate in Europe. In their quest to crush nationalism they have merely created a European Nationalism."

European Nationalism only has teeth within a fiscal union, which was never in the cards, because like it or not European countries are still parochial, much along cultural and ethic lines, and this reality isn't going away any time soon no matter how many times people like Dan K hurl the racist invective.

Anonymous said...

Run a parallel currency that (for the present) is only good for 100% Greek-sourced goods and services. Tell pensioners they can have 1.5 of the (Drachma, etc) for every Euro. Try to minimize imports that aren't paid for via value-add, with tax/regulation breaks for companies that achieve this. Look for other ways to keep employment down, production up without sending more Euro across the border.

NeilW said...

"Tax property and have the military show up if it isn't paid."

The Greeks can't tax property in Spain.

Anonymous said...

That should have been "keep unemployment down"

Anonymous said...

"But last I heard "G" was still part of GDP."

Sure it is Dan. And you can have very high GDP with G-T relatively small or relatively high.


Random:

Not just a job guarantee. If a job guarantee consists only of Warren Mosler's meaningless minimum wage "starter jobs" that don't "interfere" with the economy, then it is just a pump-priming transfer program. That's nice, but not really what is needed in Greece.

Greece's economy is massively wasteful and inefficient. It produces far, far less than it's potential - both now and pre-crisis. It needs a much more involved and activist government and a commitment to genuine full employment. By full employment, I don't just mean that everyone has a paycheck. I mean that the vast productive potential of the Greek people is effectively organized and made use of to build the national wealth of Greece. I'm not just talking about a government that pays people pensions and kickbacks for doing nothing, but that creates serious, productive state industries and works to allocate people and resources to those industries. All hands on deck. Everyone who can work, should be working. Greece needs to think more like China.

The deficiencies of the Greek economy are not primarily a monetary phenomenon. They reflect more fundamental failures of economic organization. They can be addressed through better organization, better planning, harder work and a much more effective tax system that doesn't leave so many loose resources lying around and inefficiently utilized.

Dan Lynch said...

@Random, the rich would LOVE replacing the existing tax system with a LVT. They would put all their money into financial assets and business assets (which is where most of it already is) while the serfs would have to pay taxes on their homes.

There are lots of things you and I would do if we were running Greece, but we're not. The people running Greece are either idiots or sellouts, or both. Greece is screwed, and eventually Europe will be destabilized, but that could take years to play out.

NeilW said...

"There is no demonstrable historical connection between economic growth rates and the size of the deficit"

It really is time to get over your hang up about deficits. Deficits just are. They happen or they don't depending upon the saving desires of the non-government sector.

The problem is that without access to an overdraft you can't maintain the circulation sufficient to engage the production system fully.

In other words Greece lacks 'working capital'. Sufficient money to spend to keep all those plates spinning.

Yes in theory you can engage the entire economy with one €10 note if you can make it go around fast enough. The problem is - you can't.

Anonymous said...

" If a job guarantee consists only of Warren Mosler's meaningless minimum wage "starter jobs" that don't "interfere" with the economy, then it is just a pump-priming transfer program. "

No, it guarantees a minimum flow from "the pump", along with other features that benefit private business.

Random said...

"while the serfs would have to pay taxes on their homes. "
Must explain why land value tax is in place all around the world and the elites decide to tax economic rent instead of earned income :b
What about us serfs who don't yet own our own homes?
Land value tax is always paid for, either you want it collected privately or publicly.

A said...

Tom Hickey:

http://www.mediapart.fr/journal/international/080715/we-underestimated-their-power-greek-government-insider-lifts-lid-five-months-humiliation-and-blackm?page_article=1

Ignacio said...

A dual currency is what they had/have in the Balcans and it works fine. That would be one of the less painful initial solutions to implement 8at least to get the economy going), but:
1) the Greek govt is unimaginative and incompetent to do it
2) the eurocrats will oppose it with all their strength

Unfortunately that leaves little option, would love to be wrong though and this could be taken as a first steep to fixing the economy. It would naturally impose a sort of imports rationing without writing a single law which is always good (and one of the reasons the surplus nations would oppose it, ofc).

Matt Franko said...

Dan and Neil I think you two are saying basically the same thing...

imo Dan is technically correct when asserts the subtraction "G-T" from the NIA framework can be measured ex post and seen to be a smallish number and we can have a very robust economy during the period in question... rsp,

Ignacio said...
This comment has been removed by the author.
Ignacio said...

Most of the high income is generated by the scam of intellectual property and derivates nowadays. Georgism doesn't work in a modern world, scratch it. The best you would achieve is to screw the top 9% of the population, the oligarchs wouldn't still care.

Anonymous said...

If the size of the deficit just "is what it is", there there is not point in arguing about any particular policy with respect to the size of the deficit.

Matt Franko said...

Dan tell it to the MMT people....

mike norman said...

Dan Kervick,

"Well, we'll have to see whether he is right, or whether that's just one more thing to add to the huge list of things Warren Mosler has been wrong about."

Here is one thing I can agree with you on!

A said...

Dan Kervick:

"The deficiencies of the Greek economy are not primarily a monetary phenomenon"

True, but if they were still on the drachma, then their problem might have been high inflation (like they used to have) rather than the total economic disaster that they're currently experiencing.

Anonymous said...

I think savings gets a mention in there too, that variable being influenced by pro-cyclical forces.

A said...

Dan Lynch:

"the rich would LOVE replacing the existing tax system with a LVT. They would put all their money into financial assets and business assets (which is where most of it already is) while the serfs would have to pay taxes on their homes."

I'm sure you could organise it so that the tax falls on landlords/ large landowners rather than on small individual households.

Unknown said...

The Lithuanian President (speaking for Germany I presume) says that the current proposals are not sufficient for a deal, but may be sufficient to reopen negotiations.

Just as I would have expected.

The game continues - hopefully the ECB will increase the ELA levels. If not, parallel currency (IOU's), otherwise IMO the probability of Grexit is still very high, but gets pushed out a few months.

See also - How much financial help might Greece need under Grexit?

Open Europe estimates that, in terms of bare essentials, Greece could need between €18bn and €33bn in transitional funding to help support its economy after Grexit.
.
.
.
This money is unlikely to be provided entirely by the Eurozone. Open Europe expects it could be split equally between the Eurozone, the EU and the IMF.

Dan Lynch said...

@Philippe, landlords pass their taxes onto their tenants.

Large landowners usually get agricultural exemptions, there is no reason to believe that would change under an LVT.

In any event, if you are a large landowner and your property tax bill goes up, you simply sell your land and buy financial assets instead. You and I are tied to our homes by jobs and family, but the rich have more freedom to move not only themselves but also freedom to move their money from one type of asset to another.

Matt Franko said...

"if they were still on the drachma, then their problem might have been high inflation"

Phillipe, only if the govt agreed to pay more for things or if they let their fiscal agents lend more against things....

rsp,

Tom Hickey said...

Thanks, Phillipe.

Promoted.

A said...

in a competitive market landlords wouldn't be able to easily pass the tax on to their tenants. If they are able to do that then you are dealing with a monopoly type situation, in which case rent caps could be introduced to correct the market failure.

A said...

^ Dan Lynch

Tom Hickey said...

A prosperous economy can be run with a relatively balanced budget since top line is the bottom line. It just means redistribution of rent from the top to the bottom and middle to maintain circular flow. The issue is demand leakage to saving and the government can address this through taxing away rents. Michael Hudson has written quite a bit on this. High marginal tax rates have been consistent with growth and prosperity in the past.

Deficits go mostly to funding accumulated rent at the top, which is what constitutes a large portion of national saving in net financial assets in aggregate. This means being able to impose sufficiently high taxes at the top and being able to collect them. So far Greece has not been able to do this. To the degree it cannot offset needed top line spending, the government would have to run deficits and this is limited under the EZ rules.

The government also has to aim at managing buffer stocks in such a way that all real resources are continually being used as optimally as possible. The JG is one such buffer stock. Government generally keep buffer stocks of vital resources.

Anonymous said...

"A prosperous economy can be run with a relatively balanced budget since top line is the bottom line. It just means redistribution of rent from the top to the bottom and middle to maintain circular flow."

I understand that MMT addresses this somewhat in terms of procylical savings desires, but the accumulation of saving at the top is still a huge problem, if for no other reason than the ability of the rich to skew policy that much more.

Greg said...

@Dan

"Also the report last night said the restructuring might amount to more than 30% of Greece's GDP. That is a lot."

Well it might not be as much as it sounds depending on how it is structured. I've seen some of the touted "savings" by our own CBO that don't hold up to unbiased scrutiny.

What exactly is being restructured BTW? As I understand things the "problem" the troika is trying to solve is the 420 billion in debt payments the Greeks owe bondholders ( I get that number from 175% of a 2014 GDP of ~240 billion). So I could structure a deal that saves 2.6 billion a year for the next 30 years and say I have saved Greece 80 billion dollars or 30% of last years GDP and all Greece would be getting is 2.6 billion dollars more to spend this year, which at a population of 11 million is about 250$ per person or 20$/month. Whoop de fuckin' do

Even if I double all that by doing it all over fifteen years its doesn't give Greece much room

Tom Hickey said...

The sectoral balance approach that MMT uses is a rough guide to what is possible given accounting identities. But it doesn't say much about any particular economy or any particular period. For that the numbers have to be deconstructed.

Who is saving? What does "saving" mean in terms of earned income and unearned gain. What is the contribution of profit from actual competition and what is the contribution from rent resulting from market imperfection. Whence does this imperfection arise? Cui bono?

It is necessary to actually analyze income statements and balance sheets to understand what is going on.

What MMT says in general is that the sectoral balances show where the trends of domestic private sector and external sector balances are leading contingent on the government balance with all three necessarily summing to zero.

Government's goal is optimizing use of real resources including human resources while growing the economy in line with population growth and hopefully increasing productivity through innovation, and also maintaining a relatively stable price level for good and services, wages and assets with a stable real interest rate close to historical norms.

Government does this through functional finance — spending and taxing. Government also has the option of setting the own rate of the currency through the policy rate and it can manage liquidity. Government can also use buffer stocks to manage real resources.

The most powerful tool that government has is top line spending and where it is targeted. That determines the "bottom line" in terms of how the country is doing.

Tom Hickey said...

I'm sure you could organise it so that the tax falls on landlords/ large landowners rather than on small individual households.

Most of the big gains come in real estate prices in cities, especially large cities where expansion is up instead of out, and it peripheral areas through development. Most of the gains in the case of both are unearned.

Dan Lynch said...

@Tom and in those booming cities, real estate is monopolistic and landlords can charge whatever the market will bear. LVT does not change that though it may divert money from landlords to government, depending on whether the landlord is able to pass the increased tax onto his tenants. Government would then use the revenue to give tax cuts to the rich or to subsidize sports arenas for the rich, etc.. :-)

The landlord is not necessarily raking in monopolistic rents, depending on when he purchased the property. If he purchased the property recently then the rent was "baked in" to his purchase price. The landlord may even have negative cash flows. He's gambling that property values will eventually appreciate.

One side effect of an LVT-only tax system might be to discourage affordable rental housing and encourage gentrification.

Joe said...

"There is no demonstrable historical connection between economic growth rates and the size of the deficit. "

@Dan Kervick, really? What about how the US has ran a couple percent deficit almost the entire time. Or Wray paper showing the inverse correlation, that every time the US engaged in aggressive deficit reduction / surplus, then a depression followed.( http://www.rooseveltinstitute.org/new-roosevelt/federal-budget-not-household-budget-here-s-why)

Steve Keen also had an interesting article recently about it. It's not quite a perfect correlation, but interesting none the less http://www.forbes.com/sites/stevekeen/2015/06/18/are-surpluses-normal/

Anonymous said...

Joe, Dan's read plenty of MMT, but he wants to tax the rich anyway, so you may as well not bother to remind him because he will just start back at the beginning of his argument over and over again. MMT isn't a complete heat 'n eat answer to Life, The Universe and Everything, so it isn't worth shit to him. So it's back to taxing the rich.

Matt Franko said...

Joe, if you increase the rpm/output of an electric motor via the motor controller, the motor can be seen to get warmer (thermal loss)... however, if you think that turning a heat gun on a motor to increase its temperature so as to increase its output will work you are sadly mistaken...

"correlation is not causation, etc..." rsp,

Tom Hickey said...

@Tom and in those booming cities, real estate is monopolistic and landlords can charge whatever the market will bear.

Government can tax away rent by limiting the ability to pass it on in several ways. The market way is to limit incomes to pay price increases by making the currency scarce and credit tight by increasing lending standards.

Governments have the power to do what they want to the outcomes they want, as the Chinese understand.

It's a myth that the free market is self-organizing and self-regulating to produce optimal outcomes and just deserts.

As the arbiter of institutional arrangements, governments are thoroughly in control regardless of whether most realize it. TPTB do and so they strive to capture government and run it in their interest.

A said...

"but he wants to tax the rich anyway"

Nothing in MMT says that you shouldn't tax the rich.

Tom Hickey said...

There's no reason not to tax in order to redistribute wealth as long as circular flow is managed to optimize resources use. MMT says nothing about that being impossible.

MMT holds that the purpose of the fiscal balance is to offset the non-government balance, which is a function of changing saving desire. There is nothing in MMT that says that accommodating saving desire should include rents.

continued

Tom Hickey said...

continuation

Recall Keynes:

I feel sure that the demand for capital is strictly limited in the sense that it would not be difficult to increase the stock of capital up to a point where its marginal efficiency had fallen to a very low figure. This would not mean that the use of capital instruments would cost almost nothing, but only that the return from them would have to cover little more than their exhaustion by wastage and obsolescence together with some margin to cover risk and the exercise of skill and judgment. In short, the aggregate return from durable goods in the course of their life would, as in the case of short-lived goods, just cover their labour costs of production plus an allowance for risk and the costs of skill and supervision.

Now, though this state of affairs would be quite compatible with some measure of individualism, yet it would mean the euthanasia of the rentier, and, consequently, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital. Interest today rewards no genuine sacrifice, any more than does the rent of land. The owner of capital can obtain interest because capital is scarce, just as the owner of land can obtain rent because land is scarce. But whilst there may be intrinsic reasons for the scarcity of land, there are no intrinsic reasons for the scarcity of capital. An intrinsic reason for such scarcity, in the sense of a genuine sacrifice which could only be called forth by the offer of a reward in the shape of interest, would not exist, in the long run, except in the event of the individual propensity to consume proving to be of such a character that net saving in conditions of full employment comes to an end before capital has become sufficiently abundant. But even so, it will still be possible for communal saving through the agency of the State to be maintained at a level which will allow the growth of capital up to the point where it ceases to be scarce.

I see, therefore, the rentier aspect of capitalism as a transitional phase which will disappear when it has done its work. And with the disappearance of its rentier aspect much else in it besides will suffer a sea-change. It will be, moreover, a great advantage of the order of events which I am advocating, that the euthanasia of the rentier, of the functionless investor, will be nothing sudden, merely a gradual but prolonged continuance of what we have seen recently in Great Britain, and will need no revolution.

Thus we might aim in practice (there being nothing in this which is unattainable) at an increase in the volume of capital until it ceases to be scarce, so that the functionless investor will no longer receive a bonus; and at a scheme of direct taxation which allows the intelligence and determination and executive skill of the financier, the entrepreneur et hoc genus omne (who are certainly so fond of their craft that their labour could be obtained much cheaper than at present), to be harnessed to the service of the community on reasonable terms of reward.


GT, 24, II

That has not happened. So either follows Keynes's prescription of making capital abundant, or tax away rent. These are not mutually exclusive because Keynes is not dealing with all the sources of economic rent here. Nor is taxing away rent sufficient. A lot of rent extraction result from institutional arrangements resulting from government capture.

What's needed is a real left that knows how to analyze and recommend remedies, as well as to articulate a fresh vision and a plan for implementing it as the good society.

Tom Hickey said...

BTW, any sound solution for the global economy is going to have to internationalist rather than individual countries competing in a an environment of economic liberalism that assumes floating rate will sort everything out. It won't because of different country size, geography alliances, and the other factors that have influenced world history. This is "the case for concerted action" that Ramanan has been advocating and BRICS is now talking about as an alternative world order to neoliberal globalization.

There needs to be more union while acknowledging and respecting diversity. This is a matter of raising the level of collective consciousness globally in a way that increases the heart value. This is in fact an ancient teaching that conventional thinking ignores in focusing on methodological individualism, rational choice theory, and utility maximization, for example, as well as international "competitiveness."

It should be evident that cooperation reduces social volatility and is therefore an evolutionary trait. Humans managed to conquer their environment to the degree they have more as a result of cooperation and organization than through individual competition, which is no surprise since humans are social animals that don't survive well hunting on their own.

The apex of volatility is explosion and this manifests socially as conflict leading to war.

NeilW said...

"but the accumulation of saving at the top is still a huge problem,"

It is. Which is why MMT - via the Job Guarantee, alteration of the injection mechanism to favour the lower end and concentrating on making markets competitive - stops the rich from earning until they provide the real output people need.

Always remember that taxation is natures way of telling you that your distribution system is broken. Make sure they earn the money the hard way in the first place.

You shouldn't tax to equality, you should distribute to equality. You don't do that by trickling down and hoping you can ram people into job shaped holes that might have something vaguely to do with infrastructure if you squint hard enough.

A said...
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A said...
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A said...

Neil:

"alteration of the injection mechanism to favour the lower end"

That doesn't make sense. How is creating a minimum wage job program within a capitalist economy 'favouring the lower end (i.e. the poor)?" It's much better than a reserve army of the unemployed, but the idea that it 'favours the lower end' is nonsense.

Tom Hickey said...

"optimize resource use" means don't leave available real resources lying around idle due to "lack of money."

With a buffer stock of unemployed and stuff to do, not doing stuff is just wasteful and owing to the arrow of time — "time marches on" — it can't be fully recouped later. It's gone, down the tubes. Not only is it economically wasteful, it's socially wasteful. We're taking about real people's lives.

A said...

yes that's what I thought you meant, thanks.

Anonymous said...

Government does this through functional finance — spending and taxing.


Unfortunately, functional finance is vulnerable to failure when faced with non-spending induced inflation as described by Lerner.

Anonymous said...

Phillipe,

Implemented as conceived, a JG establishes a wage floor independent of a minimum wage. Increasing the wage forces employers into competition to lure workers out of the program which by necessity means a shift in capital/labor income ratio.

Anonymous said...

The deficiencies of the Greek economy are not primarily a monetary phenomenon.

That depends entirely on one's perspective and morals. An old man unable to buy insulin is not a "deficiency." A woman starving on a pension of 400 euros per month is not a deficiency. Fifty percent unemployment among the young is not a deficiency. These things are an evil which can and should be eliminated by one of those darned pesky monetary phenomena called spending.

The Greek economy is only "deficient" for someone locked in the mindset of industrial fetishism and competitive clap-trap. There is no reason the Greeks cannot live a more pastoral, less industrially "efficient" life if they so choose; other than the spite and sadism of those demanding the country transform itself into a German waste dump.

Tom Hickey said...

Unfortunately, functional finance is vulnerable to failure when faced with non-spending induced inflation as described by Lerner.

Right there's demand-induced inflation and supply-induced inflation. They have to be addressed differently.
Bill Mitchell, Modern monetary theory and inflation – Part 1

Modern monetary theory and inflation – Part 2

Recent inflations have been supply induced.

Asset price level increases are not called "inflation" but "appreciation," even in bubble conditions. This rise is generally credit-induced and occurs typically in the Ponzi stage of a financial cycle as set forth by Minsky. It's due chiefly to over-lending on collateral. According to Warren Mosler, this is best handled by regulating the asset side of lenders balance sheets.

Anonymous said...

Tom,

Yes, but in all honesty I'm not sure a distinction between supply and demand induced inflation is sufficiently sophisticated to be of much use. In going back over Lerner's work in this area I see a robust description of no less than three distinct forms of inflation, their tendencies to interact with each other and policy responses to bring them under control. It is the psychology of inflation that must be addressed and, strangely given its foundation on Lerner's work in functional finance, MMT largely accepts the thoroughly mundane mainstream depiction of this as a matter of spending (or monetary phenomenon which is really the same thing.)

Calgacus said...

Ben Wolf: Not clear what you mean by Lerner's 3 forms. Inflation is a matter of spending & money - what else could it be? To quote Lerner making fun of, but assenting to Friedman, "the price of potatoes is a potato phenomenon". There is no magic cure to inflation even conceivable - there isn't any magic definition of inflation that is conceivable even. There are reasonable things to do that will prevent it, above all zero unemployment, a JG. Next, buffer stocks of scarce stuff that might inflate. Then all the bright ideas (ZIRP, MAP, controls, austerity etc) people including Lerner have had through the ages. But it really isn't and hasn't been a major problem for any MMT/FF country or world, and psychology is only a problem after the real world has created real ones that should be mainly addressed by real means.

Calgacus said...

Tom Hickey: BTW, any sound solution for the global economy is going to have to internationalist rather than individual countries competing in a an environment of economic liberalism that assumes floating rate will sort everything out. It won't because of different country size, geography alliances, and the other factors that have influenced world history. This is "the case for concerted action" that Ramanan has been advocating and BRICS is now talking about as an alternative world order to neoliberal globalization.

The world was very lucky to have FDR, Keynes, Lerner who disagreed. Who clearly understood that "concerted action" almost always means concerted welfare for rich banksters, concerted oppression of nations by falsely convincing them of their own impotence. Infantilizing peoples this way, suggesting that they cannot do it all by their lonesome is ignoring the crimes committed against them. People bleeding in the streets don't need do-gooder handouts. They need not to have been beaten within an inch of their lives in the first place. MMT/FF/Floating rate will sort everything out much, much better than any concerted action of the welfare-for-the-rich kind that Ramanan proposes, any concerted action of the type likely. All these "factors that have influenced world history" that people obsess about are trivial, a joke in comparison to their oppression by the nonsense that they believe. If neoliberal globalization meets a decent sized country - France, or even smaller ones like Austria or Argentina or Australia that halfway practices sane FF economics - neoliberal globalization loses.

We have the only internationalist solution needed already - the UN Charter. A universal peace treaty. Gunboat diplomacy, war for finance - is illegal, and just doesn't happen any more. But it is horrifying how ignorant ordinary people are of the legal situation and the clear and genuine restraints it puts on their "leaders" - who most certainly DO understand these constraints.

Tom Hickey said...

As I have said previously, we disagree on this because I don't see it as fundamentally an economic issue but a political one.

I can just as easily counter with asking for an example of any country in which the powerful have not been in control and run the country in their interests and where all economic interests were served. There aren't any. FDR's America was not even close.

The UN Charter is a nice idea, but it remains an ideal that is nowhere near being realized. Same goes for the Universal Declaration of Human Rights.

A said...

Ben Wolf:

"Increasing the wage forces employers into competition to lure workers out of the program which by necessity means a shift in capital/labor income ratio."

Sure. But you're still creating a structure in which capital is dominant over workers, and low wage JG workers are at the bottom of that pile. You might argue that such a structure is necessary, and a JG is certainly better than a reserve army of the unemployed, but don't pretend that you are 'favouring' those that you are placing at the bottom of the capitalist hierarchy.

Jake C said...

Again,lvt is already paid by small households,either through rent or mortgage borrowing costs.lvt will socialise the land rent,the loss of income stream will prevent it from being capitalised by banks.its the surest way of creating demand for national currency.
And it discourages speculative investment,encourageing productive investment and real capital development.-by eliminating rentierism.

So the rich putting their money into business assets wouldn't be a bad thing ,and financial assets are usual debt instruments which collect land rents or other economic rents through interest-which would be void under lvt.
Anyway tspiras has been a disappointment.

I have no problem with European nationalism or local nationalism;I just would rather live in an economic unit which had control over its own currency and fiscal and monetary agency.

Turns out Golden Dawn is against reaching an accommodation with the creditors under these terms....

Unknown said...

Come one people, lets not let our thinking get sloppy. The foundation of all market based economic systems is spending. The spending can come from a variety of sources, it can be income based (1950's-70's USA) it can be debt based (post Post-Reagan USA) or it can be Govt based (WWII USA). An income based full employment spending program requires less deficit spending by the Govt to reach full output utilization then does the low income high debt levels model of the neo-liberal era. You cant have a low income\high debt model of full output utilization without either large demand inflows coming from foreigners (net exporters like Norway) or the Govt. These things are on a pendulum, each case requires a different size deficit, but the one thread tying them altogether is spending. You cant grow the economy without more spending, its literally impossible. Which btw makes Dan Kervick's entire thesis inoperable, the eexisting debt is irrelevant to Greece's economics situation, its the spending that is missing, and nobody outside of the currency sovereign crowd (of which I am one) has demonstrated or even discussed at all where the necesary spending to grow Greece back to where it was 8 years ago is going to come from.

Unknown said...

Phillippe-

The most powerful force that accompanies a JG program would be psychological. Once the bond is broken between employment and starvation, the entire worker\capitalist leverage calculus changes. The choice offered now to low wage workers is "work for my private corporation or starve" (hyperbolic) introducing a JG would change that to "pay me better or I'll work for the JG program". The importance of this distinction cannot be underestimated. The JG completely upends the current economic employment framework.

You cannot find a period in history where real wages for workers did not go up when unemployment got below 5%, so what would you expect to happen when unemployment is capped at 2%:??? (a possible percentage of the people who are unemployed that would not take JG job?:???)

Calgacus said...

I can just as easily counter with asking for an example of any country in which the powerful have not been in control and run the country in their interests and where all economic interests were served. There aren't any. FDR's America was not even close.

This is a silly request - by definition, the powerful are in control. Utopia is nowhere, sure. FDR's USA was a close enough answer to your request by ordinary human standards - which is real movement in the right direction. The whole world during the postwar era was another example. Diminishing the difference between that world and the current one - by poor memory, by fanciful ideas - say that there was homelessness in the USA (or Europe) back then the way there is now - by comparison to a utopia which has never and will never exist, is not fruitful.

Political, economic, whatever. France, say, practices Keynes, FF/ MMT to the extent that the New Deal did, to the extent that scores of nations did in the postwar era. Forget about it being in the Euro. What do the paper tigers of global neoliberal capitalism do? They know that their only weapon is deceit. But it sure fools almost everyone else!

The UN Charter is a nice idea, but it remains an ideal that is nowhere near being realized. Same goes for the Universal Declaration of Human Rights.

So obtuse, that I'm suing for philosophical malpractice. :-) Not thinking this way is a major part of the philosophers job! The UN Charter etc is SPECTACULARLY SUCCESSFULL. The successes are so enormous, that as many have commented they're entirely invisible. They're the air we breathe.

The idea was "to save succeeding generations from the scourge of war, which twice in our lifetime has brought untold sorrow to mankind." They weren't talking about two-bit wars like Korea, Vietnam, Iraq. The point is that keeping to the schedule of the first half of the century, we should have had World War 3, World War 4 and World War 5 by now. That they didn't happen is an enormous, invisible elephant in the room. And the giant success entails and is entailed by a multitude of smaller successes. Only war or UN level sanctions like against Iraq have real effects, lower level economic war can be levied by the US alone, against small, weak nations. And this just isn't going to be imposed against, isn't going to work against a New Deal French Revolution.

Impatient, sophomoric cynicism may not notice the reality, the real power of the nice ideas in the world, in the future, in the past. But careful observers do.

benj said...

@ Dan Lynch

I don't think you've really thought this LVT thing through properly.

1. The rich hate LVT with a passion and pay vasts sums of cash to political parties/media/eduction to stop anything like it ever happening. The reason for this is pretty easy to understand. In the UK for example, the top 1% of households own three times more land (by value) as a ratio of current tax paid, compared to the other 99%.

So, under a LVT system, they would be liable to pay an extra >£80bn each year, or lose economic welfare/income of the same value if they sell up and downsize/emigrate.

The point being, anyone who does leave because of LVT must be a net burden anyway, and we are better off without them.

LVT flushes out the economic parasites. If they sell up and put their money into productive assets (instead of Land, which merely transfers real wealth from producers to non-producers) this is what is known as " A Good Thing".

2. No, landlords cannot pass increased costs onto their tenants (speaking as a professional landlord for over 25 years), because rents are not set by capital costs. They are only set by demand for land i.e affordability only.

Put it this way. Why are central bankers so concerned with how rises in interests rates will affect BLT investors?

Because they know rises in interest rates fall squarely on landlords.

Selling prices are merely capitalised rent. If higher interest rates (or any other costs like taxes) put up rent, then selling prices would go up too. But the opposite happens doesn't it?

3. Just because you buy a share in a monopoly, it doesn't make it less of a monopoly.

Land has a value but no cost of production. That is the purest form of monopoly that exists. Buying a freehold title gives the title owner the right to the income/economic welfare that comes from land, but that doesn't make it any less of a monopoly.

4. Tenants pay taxes, that pay for State services, whose value is capitalised into land rents. Currently, they are paying for the same thing twice. Under LVT they are only paying once.

So, what ever else, renting will not be less affordable. There may be less rental properties, simply because housing will become much more affordable for first time buyers. I'd certainly expect a rationalisation of the property rental market, with rental portfolios owned by larger, more professional companies. A good thing.

5. Yes, there would be more gentrification. A sign of a functioning market. We don't expect the poorest to drive Rolls Royce cars. Why would we expect them to occupy Rolls Royces locations?

http://kaalvtn.blogspot.co.uk/

Hope this helps.

Tom Hickey said...

WWI and WWII were historical aberrations. The norm is lot of smaller wars, and we are still embroiled in that and it looks to be the future. If we have WWIII, it will be the last war.

"I know not with what weapons World War III will be fought, but World War IV will be fought with sticks and stones."
— Albert Einstein., in an interview with Alfred Werner, Liberal Judaism 16 (April-May 1949), 12. Einstein Archive 30-1104, as sourced in The New Quotable Einstein by Alice Calaprice (2005), p. 173. Wikiquote

As far as the Universal Declaration of Human Rights is concerned, the leader of the "free world" just admitted, "We tortured some folks."

Dan Lynch said...

@Ben Jamin, the rich may own more land than the rest of us but most of their wealth is in financial assets and in business equity. For most of the working class, their biggest asset, if not their only asset, is their home.

Productive assets: you assume that idle land is non-productive. Mother nature strongly disagrees. In any event, very little privately owned land is idle in the U.S.. Nor is there any shortage of money for productive ventures, since money can be created out of thin air. Money is not finite.

I guarantee you that every landlord in the U.S. passes on his property tax to his tenants. It cannot be any other way. The cost-plus-markup theory of pricing is a basic assumption of post-Keynesian economics.

Land most definitely has a cost of "production." Wilderness has to be cleared, leveled, destumped, irrigated etc. before it can be farmed. Land has to be maintained -- the grass has to be cut, weeds have to be sprayed, trees planted, flowers planted, etc..

Land is only monopolistic where it is scarce relative to demand -- like booming cities. Land is not scarce in economically depressed areas. I.e., there are plenty of vacant homes for sell for cheap in run down parts of Detroit.

Re: "renting will not be less affordable." It will be less affordable if the landlord, faced with an LVT-only rather than the current tax on both LVT plus improvements, decides to bulldoze his affordable housing and replace it with gentrified housing. His LVT is the same either way so why accept the lower rental income from affordable housing?

If gentrification is a sign of functioning markets, then maybe markets are a bad idea?

Dan Lynch said...

What is the goal of an LVT from a functional finance perspective, bearing in mind that functional finance does not require revenue to "pay for" spending.

The logical goals:

-- to control inflation by reducing consumption. Well, any tax will reduce consumption.

-- to redistribute income and wealth. If the goal is to redistribute income and wealth, wouldn't it make more sense to tax income and wealth?

-- to keep housing affordable in monopolistic markets. Well Germany has some of the most affordable rental housing in the world, and they do the opposite of an LVT, taxing homeowners at a higher rate than landlords. Germany relies on regulations and government planning to control housing prices, rather than taxes and market forces.

In the U.S. we already have an LVT, only we call it a "property tax." Typically the land value portion is about 1/3 to 1/2 of the total property tax bill. So whatever miracle an LVT is supposed to perform should already be performed by the existing property tax.

In practice the property tax is highly regressive because, as already discussed, property is a bigger % of the working class's wealth than of the rich's wealth. Plus large landowner usually qualify for the most exemptions (because the rich write the laws !).

Dan Lynch said...

Another argument against the LVT -- in monopolistic markets like San Francisco, the supply of housing is limited by regulations, not by tax incentives. An LVT would not change that.

Dan Lynch said...

Another argument against the LVT -- it has been tried and it didn't work well.

Calgacus said...

I'm trying to speak in a practical, common sense way, not measuring reality against utopia.

My point is that utopian economic "concerted action" is almost always like the EU/EZ; the TPP etc., almost necessarily so. The Marshall Plan, Bretton Woods are vanishingly rare exceptions. And it is not at all necessary. National-level postwar/ New Deal/ JG / functional finance / MMT plus Lerner's "doing absolutely nothing" / "free trade" floating rates internationally is more than enough to create real, practical "utopias".

As so often with well-intentioned dreams that strain hard to not see what is in front of everyone, what people have truly done right, what is present and active already - like modern international law - the UN Charter, human rights - sentimental utopian "concerted action" that caricatures tending ones own garden as neoliberalism is worse than the reality it attempts to "improve".

Matt Franko said...

Calg,

With the Marshall Plan we didn't establish foreign financial claims against the nations receiving the product... so that one of course worked out...

Over there these days, the surplus nations (Germany) are establishing foreign financial claims against the deficit nations receiving the product so we see the poor financial results...

If Germany hates the Greeks so much they shouldn't send the product there in the first place... that would be the rational course but the brain damaged spawn of Nazis and products of East German type "nurture" people running things over there right now are just too f-ed up to think this way they are really screwed up ... these disgraced pieces of human refuse are going to have to die off and then things will probably be able to get better under the EUR system.. rsp,

Tom Hickey said...

The BRICS are already showing the way with concerted action. Not "my way."

Noe of them are being altruistic and noble, either. They realize that cooperation beats competition through return on coordination.

Of course, they don't have a lot of choice either faced with the hegemon breathing down their necks.

BTW, where the world really needs concerted action is wrt to climate change. That's now a pipe dream with an new arms race on, and emerging countries realizing that they need to industrialize ASAP to escape the eagle's talons.

Tom Hickey said...

If Germany hates the Greeks so much they shouldn't send the product there in the first place.

This is neo-imperialism and neocolonialism, which are aspects of neoliberalism.

Calgacus said...

(1/2)
Matt: With the Marshall Plan we didn't establish foreign financial claims against the nations receiving the product... so that one of course worked out..

In that era, the USA already had great financial claims in dollars against everyone else. By ordinary standards in international affairs, by standards before the war, including some blinkered behavior by the USA after WWI, by the standards of German & other creditor & IMF behavior today, the US behaved very well and wisely then. And that is why things worked out.

This dollar shortage period lasted until the late 50s - not so coincidentally, just when the USA position lost a vote for the very first time in the UN General Assembly (on Lebanon). And as some wags (Harry & Elizabeth Johnson) pointed out, just long enough for people who wrote about an eternal dollar shortage to receive tenure before their theories were disproved. Unfortunately somebody assassinated Alfred Herrhausen & today's German bankers have forgotten or never learnt his wise rule.

Of course I agree with concerted action on climate change. Against war. On obviously international matters. But these are not what is meant, they are ignored in favor of mythical benefits to artificial "Multilateral Man" economic "cooperation". The basic FF, MMT insight, shared by and deriving from FDR & Keynes is that economically, nations can and should look out for and look to themselves mainly. Tend your own garden, return unemployment to the natural rate of zero, and fx etc will take care of itself.

As FDR said "The sound internal economic system of a Nation is a greater factor in its well-being than the price of its currency in changing terms of the currencies of other Nations." in his Wireless to the London Conference, his "magnificently right" USAExit message to another bunch of "so-called international bankers" engaged in "concerted action" to plunder and destroy. Obsession, OCD are not too strong words for the focus in Europe & elsewhere on such peripheral matters, to the exclusion of common sense, direct solutions and thinking.

Keynes, National Self-Sufficiency: "I sympathize, therefore, with those who would minimize, rather than with those who would maximize, economic entanglement among nations. Ideas, knowledge, science, hospitality, travel--these are the things which should of their nature be international. But let goods be homespun whenever it is reasonably and conveniently possible, and, above all, let finance be primarily national."

Calgacus said...

(2/2)
They realize that cooperation beats competition through return on coordination. The point of MMT & FF is that so many who so wrongly think that the theory needs something "extra" to cover foreign relations, open economies - are reasoning very badly (actually backwards). And are empirically blind to another invisible elephant.

International trade, done the sensible and natural way with floating currencies of nations practicing functional finance is a form of cooperation and coordination. As Neil succinctly has expressed it, floating rates are a "capital control" in and of themselves - and tend to express & "train the plant" toward a beneficial Keynesian national self-sufficiency. There just are no purely economic externalities, bad effects to speak of, as there most certainly are to the kinds of "concerted action" almost always proposed & really existing in today's EZ, IMF or TPP, which in turn have no benefits to speak of either.

The invisible elephant is, as MMTer Mat Forstater's teacher Heilbroner puts it in his "perspective of future-related understanding" in 21st Century Capitalism: "the remarkable fact that although Japanese, Swedes, Americans, Canadians, or for that matter, the French, the Germans, the English, and Italians, do not have the same habits or customs, do not agree about many political means or ends, largely lack a common sense of humor or even of civic duty, they can nonetheless carry on an extremely important, demanding, and complex common task with surprising unanimity of understanding and purpose: they can do business together." This invisible elephant provides what returns on international coordination there are for the taking. Not artificial schemes.

Anonymous said...

Calgacus,

Lerner divided inflation into three "types":

Inflation I: spending beyond available capacity. $120 seeks $100 in production and the price level rises to reflect total spending.

Inflation II: aggresive administered inflation. Wage administrators and price administrators as groups seek to increase share of national income by bidding up their shares. Inflation increases without any additional spending.

Inflation III: defensive administered inflation. Wage and price administrators holding inflationary expectations seek to preserve their existing shares and prices increase without additional demand expressed by spending.

Lerner speculated a combination of II and III were responsible for the failure of functional finance during the late 60s and early 70s as evidenced by the continuing state of inflationary depression (price level rise and mass unemployment.) Spending could not have been the cause of such but administered inflation was capable of causing this seemingly contradictory combination.

Anonymous said...

Sure. But you're still creating a structure in which capital is dominant over workers, and low wage JG workers are at the bottom of that pile. You might argue that such a structure is necessary, and a JG is certainly better than a reserve army of the unemployed, but don't pretend that you are 'favouring' those that you are placing at the bottom of the capitalist hierarchy.

Well, I suppose that depends on one's interpretation of the word "favour." In the existing political context I define it to mean those who work increasing their share of national income and by extension, wealth. As an absolute you're right that ownership is still being favoured over labor because owners still receive a share disproportionate to anything they produce.

Tom Hickey said...

Nice sounding words, Calgacus, but I don't buy it. In the first place, nations in general are not going to adopt the Keynesian-Lernerian, Post-Keynesian, Minskyan, MMT program to make everything work out domestically and internationally. If we wait for that we'll all be dead. Not a single nation is doing this, and even the people proposing it — a handful with no power of influence — are not in agreement among themselves over it.

We need concerted action right away. The rate of warming is increasing and promises to accelerate as the ocean heat sink fills up as polar ice melts and heat is absorbed from the atmosphere. There is almost no concerted motion to do anything globally and now with global competition increasing the pollution is guaranteed to increase. Meanwhile, the world is slouching further in the direction of war(s).

Much of the present global economic problem stems from the GFC, which was caused by Western financial fraud that has gone not only unreformed but also unpunished. The door is open wider if anything. All shoes haven't dropped yet, either, and there are still bodies in the closet.

The US is proposing agreements specifically to divide the world into blocs, both economic and military. These blocs are facing off economically and militarily.

The only actual evidence of concerted action is coming from BRICS and allied countries in the emerging world. The US and its vassals are viewing this as hostile and rattling sabers.

The idea that this can be addressed through international liberalism based on the above influences is laughable in light of existing conditions.

If nations don't set their national interests and agendas aside and come together internationally to coordinate and cooperatively address emerging challenges then this planet is toast. The window is closing.

Random said...

"landlords pass their taxes onto their tenants. "
No they don't. If landlords could charge you more they would already. The tax incidence is always on the landowner.
Land is a monopoly. It is widely owned, yes, but an analogy is shares in a water company. Doesn't make the water company any less of a monopoly.
MIRAS subsidies were not passed onto tenants.

Random said...

See:
http://kaalvtn.blogspot.co.uk/2013/01/g-lvt-would-benefit-rich-and-hurt-poor.html?m=1#1

Dan Lynch said...

@Random, if a monopolistic market will bear $X, then the rent (or mortgage payment) will still be $X after an LVT is implemented. The working class is no better off.

The conditions that determine whether taxes (or tax cuts) are passed on to consumers were explained by Beardsley Ruml. To the extent that it is a competitive market, as housing is in many part of the U.S., price will be driven down to cost plus a reasonable markup. If it is a monopolistic market then it depends on who has bargaining power.

Again, what is the point of an LVT in a world where government does not require revenues to "pay for" spending?

If the goal is to reduce wealth & income inequality, then why not tax high wealth & high income, which would include, but not be limited to, rental income and land ?

If the goal is to make housing affordable, then why not regulate housing and finance as Germany has successfully done? Or nationalize housing, as Keynes suggested?

Why do you oppose the existing property tax that taxes LVT in addition to the mansion or the oil well that is built on the land?

Why do you want Bill Gates and Steve Jobs to pay less taxes?

benj said...

@ Dan Lynch

1. If the rental value of land your property occupies (as a % of total land rent) is greater than the amount of tax you pay (as a % of total tax), you are a net burden on the rest of society.

As the top 1% own >40% of all land by value, but pay <20% of total tax, they are a net burden. So under a LVT system their net contribution must rise.

By how much is open to debate. But the fact they pay more really isn't.

2. By definition, in economics, Land is all that is not produced by human effort. So, it's value capitalised into rent/selling prices can only represent a transfer of wealth and welfare from producers to non-producers.

In this sense it is not "productive" wealth. Quite the opposite. Again, not really open to debate.

3. For goods and services that are inelastic in supply, prices are not set by cost. The incidence of changes in costs are thus born 100% by the supplier.

Please do not continue to embarrass yourself by "guaranteeing" this most basic fact of life and economics is wrong.

4. As above, BY DEFINITION, Land has no cost of production. Everything else is Capital.

Basic stuff.

5. Anything that has a capitalised value but no cost of production, can only be a monopoly. Each land title is unreproducible, so each title is an individual monopoly. Exclusive ownership of Land by definition is monopolistic, Not open to debate.

6. Landlords improve the value of their capital a bad thing? Rents go up in one area, down in another. Aggregate rent doesn't change. It's owner occupiers that cause (property)market dysfunction (overconsumption/mis-allocation), not private landlords.

7. If poor people not driving Rolls Royce cars (at the expense of others) is also your idea of a bad thing, then I suppose a functioning property market may be too.

benj said...

@ Dan Lynch

8. Taxes on produced factors, income/capital, distorts incentives. So we end up poorer. LVT is not technically a "tax". It is a user fee, thus it aligns incentives, so we all end up better off.

So no, not all "taxes" are the same.

9. The idea is not to re-distribute income/wealth. It is to have a fair economic system. Because a fair economic system=fair distribution of the factors of production=aligned incentives=optimal economic efficiency.

Thus by sharing Land rent equally and not taxing income.capital, not only do we reduce inequality but increase prosperity. Natural resources are used more efficiently, and by aligning incentives we can live more peacefully and share this planet as equals.

The poorest own little or no Land by value. To say a LVT is regressive thus flies in the face of logic, and factual evidence.

Simple calculations show that in the UK, the average household would be £11,500 better off in their pocket under a LVT system.



10. The type of rent controls applied in Germany are a sort of inefficient LVT, insofar as they cap the amount of land rent pocketed by landlords. This does however mean some overconsumption of property services.

Housing in Germany has to be taken in historical context. When German wages were very high, so were it's house prices. Housing there is now catching up with the rest of us.

11. All taxes are "land taxes" they only differ in their efficiency (and thus fairness). Although the US has relatively high property taxes, they still only make up a small proportion of total revenues. Even so, areas in the US with high property taxes tend to have more affordable housing and a better gdp per capita.

See how California has slipped down the ranks since prop 13.

12. LVT works because people pay it by choosing where to live. Thus if they are happy paying more for the regulatory environment, that means housing (% of discretionary income) becomes more affordable for the rest of us.

With LVT all the externalities in the regulatory and economic environment are internalised.

Which is sort of the whole point. The State/planners would be incentivised to produce an economy/environment that people demand, else they'd vote with their feet=Lower revenues.

13. Yep, and there's even more empirical studies that show that it did work in Phili.

Irrelevant anyway as a small property tax in one small US city tells us almost nothing.

Singapore and Hong Kong are much better examples of the direction a LVT would take us, although they are closer, they are both still a long way off.

benj said...

@ Dan Lynch

14. If under LVT working class renters now own an equal share of the total rental value of land + their existing income, how can they not be better off?

Come on. Think this though just a little, it's not hard.

15. Simple supply/demand curves tells us the incidence of changes in cost. Although, I'd have thought it was pretty obvious anyway.

Do increased interest rates raise or lower house prices, which are merely capitalised rent.

Not hard to understand surely?

16. LVT is not about "State spending". It is compensating the community for the burden caused to those excluded from occupying/owning valuable Land.

What we do with that compensation is a separate topic. Pooling it together to pay for shared services seems ok to most people though.

17. The goal of LVT is not to reduced wealth/income inequality, although it achieves that anyway far more effectively than damaging and counter-productive taxes on income/capital.

18. Simple calculations show that housing becomes four times more affordable as a ratio of discretionary income for the average UK household under LVT.

On top of this, we get an efficient use of existing property resources. So no more land banking, vacancy, or under occupation. Less building on marginal land=better economy=more economic welfare=better environment.

Rent controls are better than nothing. LVT is the optimal solution.

87% of people live in State supplied accommodation in Singapore = LVT lite. Good, but not nearly as good as the real thing.

19. While taxes on immovable are relatively efficient and fair(compared to other taxes), only shared land rent is both 100% fair thus 100% efficient.

Tax Capital, you get less capital produced. Not so Land.

So, of course high property tax is better than high income/capital taxes. But it's still second best.

20. Without knowing their tax/property affairs, it's impossible to know how Gates would fair under a LVT. We do however know with absolute certainty, the top 1% as a whole would be paying far more than now.

Proponents of LVT also think that IP and Patent laws work against the interests of the consumer, and productive efficiency. Like Land, another form of monopoly privilege.

So, perhaps Apple and Microsoft wouldn't be creaming off quite the billions they are now under the economic system most Geoists would like to see.

Dan Lynch said...

@Ben Jamin: over 50% of the land in my state is owned by the Federal government -- otherwise known as "we the people" -- not by the 1%. Most of that Federal land is undeveloped and I hope it stays that way.

Furthermore in my state development decreases the value of adjacent land, opposite of what Georgist assume. Land bordering Federal property sells at a premium because the buyer assumes that Federal land will remain undeveloped.

Most private land in the US is owned by the resident, not by a landlord. Georgists talk a lot about rents, but the US is a nation of homeowners, not a nation of renters. That's probably why Georgism never caught on here. Georgism would make more sense in a nation of renters and serfs -- Ireland back when it was largely owned by absentee landlords, Vietnam when it was largely owned by the French, or Greece when the TPTB get done looting it.

If you object to homeowners paying interest to a private bank there is a simple solution -- public banks.

Land does have a cost of production and I expend quite a bit of time, money, and effort maintaining & improving my land. This was explained by economist Henry Carey.

Land is not monopolistic in areas of the world where land is readily available.

Land was not given to me, I had to buy it with money that I EARNED through my labor, so I feel I EARNED my land just as much as anyone earns anything in this world. I fail to see the moral or economic justification in taxing me for owning non-monopolistic land while Bill Gates would not be taxed for owning monopolistic intellectual property, if Georgists had their way.

Cost plus markup pricing is widely accepted in post-Keynesian economics. MNE is a post-Keynesian blog. I'm not seeing the controversy, unless you reject post-Keynesian economics?

Re: incentives. Georgism is a variation on free market economics, which assumes that humans are motivated only financial incentives, and that government policies should be limited to tweaking those financial incentives and letting the invisible hand do the rest. This ignores other possibilities like regulation or socialization.

IMHO, inequality is the biggest economic issue of our age, not "aligned incentives."

benj said...

@ Dan Lynch

1. By value, not area.

2. Highest land values are where there is the most development. ie City centres. Easily observable fact.

You are merely looking at an individual tile over a short time frame, rather than the bigger picture.

3. All land has a rental value, even if it is owner occupied.

4. Singapore not only leases out >85% of all residential property, but has a public bank to lend on those leases. Good policies, but not LVT.

5. You are confusing land, with Land in the economic sense.

Land is by definition, all that is not created by human effort.. Your maintenance and improvements are Capital.

Many economists put a lot of effort into not knowing the difference between Land and Capital, because it would prove their beliefs false and immoral.

6. As pointed out many times already, something that has a capitalised value, but no cost of production (which BY DEFINITION land doesn't), it can only be the purest form of monopoly there is.

Each land title is an individual monopoly.

7. Buying stolen goods out of earned income doesn't make them your moral property.

Slaves were legally bought property out of earned income..

8. You didn't produce land, so you have no moral right to the value derived from it. Which is why "taxing" away it's value produces no deadweight losses. In fact, by ensuring land is only ever occupied by someone prepared to outbid others for exclusive use, it is always put to it's highest productive use.

So, what is morally correct is economically efficient.

9. As I already point out, Geoists are against IP and Patent monopolies as they harm consumer interests and stifle economic growth.

Didn't you know this?

10. Land doesn't have a cost, so the mark up is pure demand. Or does post-Keynesian economics deny monopolistic pricing?

11. Excess inequality is caused by misaligned incentives.

Incentives are the rason-d'etre of politics and economics.

Aligned incentives means what is good for you is also good for me,

Which is why, capitalism works. It aligns incentives.

Unfortunately, capitalism is often mistaken for monopoly privileges. Like those in Land, IP and issuing currency to name but a few.

Geoism is a political philosophy that a fair economic system, fair distribution of the factors of production, aligned incentives and optimal economic efficiency are all one and the same thing.

Good things happen when we align incentives.

The key to a fair, prosperous, peaceful and sustainable World really is as simple as that.











Dan Lynch said...

@Ben Jamin, if I plant and maintain trees, that is not legally considered capital, it is considered land. If I pick up litter, that is not capital, it is maintaining the land. If I chase the neighbor's cattle off my land to protect it from the damage they do, that is not capital, it is maintaining the land. Ditto for other land maintenance and land improvements.

ensuring land is only ever occupied by someone prepared to outbid others for exclusive use, it is always put to it's highest productive use.

Said no Native American ever. My personal value is that wilderness is the "highest productive use" of land, and that development is a "bad," not a "good."

Land doesn't have a cost,

The land that I own was once homesteaded as part of the Homestead Act. The original homesteader had to "earn" his claim by occupying and "improving" the land, which involved tilling and leveling the soil, removing rocks, guarding the land from trespassing livestock and squatters, and other forms of labor. So land does have a production cost. Space may not have a production cost, but land does.

"Which is why, capitalism works. It aligns incentives."

Capitalism has been a disaster for the environment. Socialized land, while not perfect, has been much better for the environment.

Land taxes are bad for the environment because they discourage idle land.

Can you name one country or one civilization that has achieved a "fair, prosperous, peaceful and sustainable World" by LVT-only?

Sorry, but I disagree with you on Georgism. We have different values and operate from different assumptions.

Tom Hickey said...

For me, these points are crucial.

1. The commons. Land, like other natural goods such as water and air is naturally a public good — non-rival and non-excludable.

2. Ownership. Exclusion and alienability are imposed artificially, either through consent or power. Primitive accumulation has been chiefly through power historically. Locke's use argument is bogus. In the first place, it is imaginary and non-historical. Secondly, there is counter-example: Fishermen don't get to own the area that they regularly fish.

3. Distribution. A very small percentage of the population owns most of the land. Historically, this group is a subset of the power elite.

4. Compensation. In very few cases has exclusion from the commons been compensated at all, let alone adequately.

5. Free rider problem. "In economics, the free rider problem occurs when those who benefit from resources, goods, or services do not pay for them." Exclusion resulting from primitive accumulation initiates a free ride that is transmitted through alienability and transfer. This group benefits from rising land values owing to increasing scarcity and adjacent improvements not contributed by the owner.. This extends the free ride in perpetuity.

Some of us think that compensation is in order.

A similar argument is being mounted for compensating exploitation of slaves in the US and of comfort women by the Japanese military.

There is enough money in the world to pay adequate compensation for all this, but allowing rent to continue to be extracted seems ridiculous.

Roger Erickson said...

All these economic arguments, from Georgism on to LVT, go away from a bigger and temporally longer perspective. We've got bigger issues to deal with, if everyone will just stay relaxed, reduce frictions, and use their imagination to focus on the future we leave for our kids & their grandchildren.

I'll try to restate Tom's (shorter) list this way:

1. [Future aggregate options]. Where we can go from here, supersedes all other, petty, arguments.

2. Ownership. Exclusion and alienation are mal-adaptive concepts for an aggregate. Historical accumulation has been achieved through imposition of policy biases and the resulting power of compounding interest. Evolution accelerates by smoothly overriding past biases with newly imposed policy biases, so as to tamp down & smooth out, not over-correct past biases. Our constant goal is to explore our emerging options, and by default, to stay alive in order to do so.

3. Distribution? Ask any team or aggregate faced with a survival challenge whether they argue over adequate provisioning of teammates.
Do surviving armies argue very long over distributing ammunition?
Do surviving cultures argue over mandatory, free education?
Do your heart, lungs, liver & pancreas argue over distribution of energy use, when the goal is to get your ass to the dinner table?
Similarly, did the ancestors, 7 generations back, of any surviving human culture argue EXCESSIVELY over adequate provisioning of the entire aggregate, when the #1 goal was to get aggregate asses still recombining 7 generations out, regardless of unpredictable contexts?
(Of course they all did. Those that just adequately didn't, inevitably survived with better odds than those that did excessively.)

4) Adequate provisioning. Instead of hoarding, payback or extraction ... what about the question of where do we go from here? Who's minding the entire ship, not just the tiller?

5. Free rider problem is just one of countless variables to manage. "In evolution, the free rider problem matters only to the extent that it slows net exploration of aggregate options." Every systemic variable, from exclusion to hoarding to distribution operates with two, flexible tolerance limits. We either tune the entire polynomial of all our systemic variables just enough to survive aggregate challenges ... or we get replaced by some culture that will, and does.


Calgacus said...

Tom: Nice sounding words, Calgacus, but I don't buy it.
In the first place, nations in general are not going to adopt the Keynesian-Lernerian, Post-Keynesian, Minskyan, MMT program to make everything work out domestically and internationally. If we wait for that we'll all be dead. Not a single nation is doing this,
We need concerted action right away.


Tom, of course I am for "concerted action", for all those Good Things. But there are 200 countries in the world. "Concerted action" of 200 is a lot harder than concerted action of one! If it is a long wait to get one nation to readopt MMT/FF, how much longer is it for concerted action of 200? This argument for "concerted action" is utterly absurd.

The point is simply that MMT/FF needs no special "concerted action" to succeed in one country. That is what the MMT thinkers say, that's what Abba Lerner said & they are right. People who say that it needs modifications to cover open economies - which it covers already - don't understand MMT. The add-ons always turn out to be welfare for the rich. And all the evidence is that people in a more prosperous country will be more likely and better able to act in concert with other people and countries.

Waiting for "concerted action" = GODOT and belittling ones own and ones society's capacity for action is a pernicious but very popular recipe for apathy and failure. Whether fatally or not, who knows, but such absurd illogic clearly has infected Europe and some of even the good guys in Greece.

and even the people proposing it — a handful with no power of influence — are not in agreement among themselves over it.
They are in agreement. They have knowledge. Knowledge is power. Recall: "And who will lead this revolution? Perhaps Mr. Bronstein (Leon Trotsky) sitting over there at the Cafe Central?"

Calgacus said...
This comment has been removed by the author.
Calgacus said...

Ben Wolf - Thanks, though I don't recognize what work of Lerner it is from, haven't been reading him much recently. That's what I thought, more or less, that's what the MMTers, people like John Kenneth Galbraith etc too. But I don't think Lerner would say, or anybody should say that FF failed in the 70s. Lerner wrote about the real possibility of "stagflation" decades before that.

On your dispute with Philippe, I think the right way to say it is that the JG is a right. Of course one is "favouring" people who want to work in a JG by giving them that option in one sense. In exactly the same way that if a society had prevented red-headed people from voting, it would be "favoring" them when this social lunacy ended. The existence of a JG is morally, logically imperative in a money-using society and is independent of how much goes to "capital" however defined.

Tom Hickey said...

My point is that the world is going to coordinate to meet emerging challenges based the pressure of those challenges, or not. If not, disaster is baked in. Even deciding to coordination is a daunting task given the magnitude of the challenges and the uncertainty involved in emergence.

I don't think it's going to happen, even with the wheels starting to come off. In fact, the direction seems to be opposite, other than the cooperation among the BRICS.

BRICS is faced with the same problem as Russia was immediately after its revolution was taken over by the Bolsheviks. The West starting trying to undermine them with the result that the Russian leadership realized it had to industrialize and arm up as soon as possible.

That's now happening again.

It's not lost on Russia and China that the economic war again Greece is really against a socialist country with a socialist government. Germany especially is determined to make an example of Greece by destroying it economically this time instead of occupying it militarily. But the objective is still to occupy it by installing a technocratic government "supervised" by eurocrats.

Calgacus said...

Yes, but in the modern world, against a country like Greece - the key to, really the only possible "economic war" is to persuade a country to destroy itself. War is out of the question. Economic sanctions short of those imposed by the UN, or US v Cuba say - just don't work. They aren't going to happen. Everything else is a load of BS. Leaving the Euro has fixed, finite, temporary costs. After that, it's all good.

There isn't any coordination in particular that a country has to or can engage in to prosper, outside ordinary international trade. The only thing a small or medium sized country can do that would affect worldwide coordination on major problems is providing the threat of a good example, as a robust domestically-led recovery in Greece after Grexit would do to the EU & elsewhere.

The way the negotiations are going, I think Tsipras will offer the Greek Islands to stay in the Euro. Germany will refuse and insist that Greece get out, and take Bavaria with it. To show they mean business, the Germany will invade Denmark & Greece will move on Egypt.

Tom Hickey said...

Yes, but in the modern world, against a country like Greece - the key to, really the only possible "economic war" is to persuade a country to destroy itself.

This is the neoliberal, neo-imperialism, neocolonial model that many people are jusst waking up to now that the Europe is being colonized as well as the middle class in developed nations like the US and UK. No one noticed when it was happening to non-whites but now that it is coming closer to home, at least some people are beginning to connect the dots.