Friday, February 27, 2009

Public Resources Corporation?

Heh, it was only a few days ago I was looking at my old posts on this subject and was like, "PRC? Where have I seen that before? Oh, right. Doh!" Totally not intended.

My previous, most radical suggestion is that there should be some entity that collects the rent, and only the rent, and then turns around and distributes it back to the People on a roughly one-to-one basis. This was designed to satisfy my desire for economic justice, my distrust of the state in whatever form, and, let's face it, my desire to justify personally living on the government dole, in some fashion. I've called the position "market geoanarchism".

It also included (tentatively) an elaborate scheme in which each individual at the time of institution was given a share (like corporate stock, only with some extra restrictions), which was then passed down and divided through the generations. This was initially included to satisfy what remained of my faith in Thomas Malthus' ideas regarding population growth, and then retained to render my ideas palatable both to others who still believe in these ideas (who would like the aspect of the plan that penalizes having large families), and to nationalists (who would like the consequence that only existing citizens and their children could take part in the system). It would also appeal to family-centered types, since, after that first generation, the shares would largely be concentrated in society's oldest members.

As I said before, I am re-reading Progress and Poverty; I'm nearly finished. On this re-read, I realize how much of this elaborate scheme of mine, while it rests upon Henry George's ideals, it is also shaped by the assumptions he spends a considerable amount of time debunking... effectively, I might add. However, what follows are not his musings, but my own.

My desire for economic justice has always been hampered by my mistrust for the packages in which it so often comes. I am not a Communist, a Socialist, or any other kind of "ist" which calls for the enslavement of all to all (or rather, the oligarchs that represent the "all"). I grew up thinking I would be a Republican. I had in me the notion that poverty was caused, not by any kind of injustice, but by indolence, sloth, stupidity—all manner of vice. The rich were rich because they deserved it; the same with the poor. The size of the gap between the richest and the poorest bothered me... but if that was the result of the operation of a free market, who am I to argue?

Of course, our market is not free, and even some of the institutions people assume are a necessary part of a free market are neither necessary nor just... which Henry George has helped me to see.

Then there is my mistrust of the State. It begins with the dawning recognition of stupidity on the part of representatives and bureaucrats that anyone who is paying attention must see, moves on through the recognition of the fact that our "democracy" is not. Then I hear the complaints about "too much money" in politics. The rich purchase the government, and then use it to trod upon the poor... mostly the poor of other countries, but here, as well. Then there are the government schools I attended as a child... only one out of the three was actually decent. The environment in which I grew up colors my view of the state as an only somewhat mitigated evil.

However, there is a second feature of the single tax system I had missed is that, not only does it free the laborer and the capitalist from the burden of all manner of taxes in addition to the rent they must in any case pay (income, payroll, capital gains, tariffs and excises, not to mention the bookkeeping necessary to keep all these straight); it also siphons off for public use that excess, unearned wealth which is currently used for the monopolization of mass communications (among other purposes). Those who justly earn their money would, of course, still be able to use their money to influence a democratic process... but the increasingly oligarchic character of this competition for airtime would be shattered. With wages and interest up and the revenues of land ownership in the hands of a democratically shaped government, the tendency of democratic forms to produce oligarchic results would be greatly lessened. Perhaps we could trust such a government.

As to my desire to live on the dole... well, I guess not. A good part of my goal was to see the money that presently makes oligarchs and dilettantes out of a small portion of the people spread among the whole population, with the belief that it would only produce a whole population of dilettantes when the day came that producing wealth was so easy that a very few could produce the material needs of an entire population, voluntarily. (Star Trekonomics, I called it.) A democratic government could still decide to distribute their funds that way... but it doesn't necessarily have to be that way.

The agrarian equivalent, an even distribution of agricultural lands with free public access to woodlands and pasture, still requires the people to work to get what they want from that land. To simply distribute land rent among the population would likely have every bit as much of a checking effect upon progress and productivity as the current waste of resources engaged in continual efforts to overthrow the oligarchy, and the counter to those efforts... whether it be the enormous resources poured into mass media to decide elections in this country, or the extraordinary wastes of life and wealth in other countries. It wouldn't be as bad as conventional socialism, which either pays people to be poor (my system would have continued paying regardless of how much money you actually earned) or takes not only the rent, but the whole reward of labor; but there would still be plenty of people who would take the opportunity to be lazy... like me. ^.^'

Finally, there is Malthusianism. I no longer believe that there can be such a thing as "too many people". Malthusianism rests upon the idea that the cause of poverty is simply too many people to too few resources. However, George's investigation of three cases generally thought to be poverty resulting from population pressure (China, India, Ireland) were, in fact, cases of poverty caused by rapaciously unjust regimes, with lower population densities than those seen in England and Western Europe. The problem was not that the land was incapable of supporting the population, but that no accumulation of capital was allowed... since any savings would quickly be taken away by the authorities. Without savings, any bad harvest becomes a humanitarian disaster, and no production enhancement can occur.

I'm pretty sure this principle is universal: poverty, even mass starvation, is the result not of "population pressure" but the mass theft that is the complex of taxes and rents (if not outright rampant banditry) that afflicts any advanced society. As it is so often said, the problem with world hunger isn't production, but distribution. There's plenty of food, even more could be produced, and with more people comes an ever greater variety of products and services. Production is not insufficient, but is rather diverted to both the service of and the opposition to an oligarchy.

Thus, there is no need to regulate population by any means. Opportunity costs relative to the bearing and raising of children increase as wealth increases. This keeps population in check quite well (evidenced by the fact that the richer the family or society, the lower the birthrate, generally speaking)... and there is no justice in penalizing the descendants of those increasingly few that do keep the population up. In addition, treating it as stock with all kinds of special restrictions on who can buy and sell and when to prevent the accumulation of the stock in an aristocracy simply complicates the plan unnecessarily. Thus, the hereditary stock portion of the plan is both unnecessary and undesirable.

Additionally, I see no reason to disenfranchise the young in an effort to artificially buttress the authority of elders. In an earlier stage of society, the eldest may lead, but the land belongs to the whole family or clan... not to the individual. I would still include a mechanism by which a group as small as a family could (temporarily?) secede from the centralized system, to allow for other public services to other subgroups... but i no longer feel the need to have membership determined by heredity.

This leads me to the nationalist aspect. The nature of the single tax ensures that everybody living in the country is contributing to the system (since no production can occur in a mature economy without a portion of that production being distributed out via rent), which means that the specter of the "illegal immigrant" who mooches off public services while paying no tax is eliminated. To work requires access to land, and to access land is to be taxed... period (whether or not the government is collecting this tax). The only question that remains is who is allowed to vote... and that, I think, can be safely delegated to the legislature, provided the initial enfranchisement is broadly constructed on the ideal of universal suffrage. With both oligarch and pauper reduced if not eliminated, legislative power becomes considerably safer.

In other words, I'm pretty much scrapping most of the ideas for the Public Resources Corporation.

Thursday, February 19, 2009

Weekly Ramble Greatest Hits

Right now, I'm going through my old posts looking for something specific to refer to in a new post... and as I do, I'm discovering ones I'm enjoying reading. I figure now is as good a time as any to link what I consider to be my own "hall of fame;" or rather, posts I do not feel embarrassed about when I re-read them. So I guess I'll link them here:

I can't help but notice that I get the most comments from people I don't know in resp0nses to posts in which I advocate the public collection and distribution of rents. That's a good sign, I think.

Saturday, February 14, 2009

Saving Part 4: The Federal Reserve System

The stated purpose of the Federal Reserve is to prevent industrial depression. It does so not by sober management of the supply of money and credit, but rather by allowing the inflationary boom to occur, and then attempting to prevent the resulting deflation by shoveling new money into the economy faster than it can disappear. In doing so, it transfers wealth from those who have earned it to a few favored parties who are "at the spigot" so to speak.

There are three basic ways the Fed increases the money supply.

It is most commonly done through the purchase of government securities: Treasury notes, that is. Banks may find themselves unable to lend due to the fact that previous lenders are defaulting on their loans... and the assets forfeited are not worth as much as it was appraised to be when the loan was first made. This is the problem the banking industry found itself in when house prices began to collapse: the economy began to slow, debtors walked away from their houses, which were worth significantly less than the loan at this point, and the banks no longer have sufficient reserves to open up new loans.

The Fed comes to the rescue by buying government securities (bonds) from the banks, thus giving the banks the liquidity needed to return to making loans. (Thus, banks are relieved of the duty of making sure their borrowers are people who can actually repay.) The money the Fed pays for the bonds does not come from any reserve they've been holding for such a purpose; rather, they simply declare it into existence. This is an increase in the money supply, which increases the wealth of the people who receive it before prices rise, at the expense of those who must pay the higher prices before they receive the new money.

The second way is to change the size of the reserves banks are required to keep on hand, enabling to make more loans against fewer deposits. The third is to lower the rate at which the Fed loans money directly to member banks. These two options were not used as often as the first under Alan Greenspan, though Bernake has made extensive use of both.

The first is of greatest interest to me because, in addition to increasing the money supply to the benefit of well connected speculators at the expense of the common man; it also enables the government to appropriate revenues indirectly through inflation. This is how it works:

The Treasury issues bonds to cover expenses in excess of tax receipts. Various private parties (as well as the central banks of other governments) purchase these. If the buyers hold these bonds, they receive payments of "interest" over time. This, in itself, represents a government transfer of wealth from the working class to the creditor class. It doesn't stop there, I think I'll stop here a moment to illustrate one of the consequences of a system like this.

The United States Treasury issues Treasury notes, and sells them to the general public. At the same time, trade is going on between the United States of America and the People's Republic of China. If they chose to do so, the Chinese could use those dollars to purchase goods exported from the United States. However, their government keeps the money for the most part, and their people are not in any position to demand a greater share of export revenues. At any rate, they have another option: They can use it to purchase Treasury Notes, and as a result, receive "interest" on those notes.

So you have the Chinese government, which returns US Dollars to the United States by way of the government, rather than in standard trade, creating what to the rest of us feels like a trade imbalance. On the one hand, poorly compensated Chinese workers send goods to the United States, but don't get as much in return as they could. On the other hand, American workers find industrial jobs migrating to China at a faster rate than would otherwise occur. So at the top of this scheme, you have the United States Government giving future American tax revenues to the Chinese Government in exchange for past Chinese tax revenues. (This is not to mention the rest of the world's creditor class, which subsists to a significant degree off tax revenues.) At the bottom, you have both American and Chinese laborers, both suffering a grave injustice.

But as I said before, it does not stop there. If this were the end of it, and they were borrowing the money that arises naturally from society, there would be a limit to how much can be borrowed. For the more the government borrowed against future tax revenues, the less that would be available for private businesses, with the interest rate rising in response to the government's contribution to the overall demand for loanable funds. This would slow economic growth, "crowding out" business finance in favor of government finance.

Thus, the Federal Reserve steps in to save the day, by inflating the supply of money and credit, artificially lowering the interest rate.

As I said before, they do this by purchasing government securities. So the circle is complete. The Treasury sells them to the general public. The Fed then buys them from the general public. The middleman, generally the Wall Street investment bank, obviously won't sell unless they're going to make out better than they otherwise would; thus, they make a "profit" off the exchange. And the the Federal Reserve Banks are required by law to return 3/4 of the interest they receive on government securities to the US Treasury... relieving the government of much of the interest they would otherwise have to pay.

Thus, new money is issued, with the Government getting to spend some of it, and the "investors" (or should I say "fences?") who act as middlemen between the Treasury and the Fed getting a cut, as well. Wealth is transferred to both parties, at the expense of everybody else. The second spenders, of course, are the government's workers and suppliers, who maintain corps of lobbyists to ensure they retain this privilege. Their workers and suppliers are the third spenders, benefiting less, until the money finally crosses the line into the hands of those who saw prices rise before they saw the new money come into their hands.

Hence, inflation IS a tax, which employs bankers and speculators as well paid tax collectors. It is also a highly regressive, as the poorest of workers also tend to be furthest from the government money spigot, while those who are closest, if they aren't already wealthy, will be pushed in that direction. And it occurred to me as I was writing this that, given the state of the US Dollar as the "World's Reserve Currency", nobody is further from the spigot than the poorest of the poor in a third world country. This dynamic may go far to explain third world poverty. I shall have to explore the issue further in the future.

Monday, February 09, 2009

New Name!

Rummaging around in my old posts, I ran across a name: Eugene Plawiuk. I decided to check out what he's been up to in the world of blogging, and (re?)discovered Carnival of Anarchy, a left anarchist site. It seems there's something going in in Greece, that has a lot of energy and little direction. But I was more interested in this post, in which Marja E briefly touched upon her journey from state socialism to more of a true anarchism, or "anhierarchical libertarianism." Stories like this make me happy. It tells me that we are, truly, aiming at similar ends; that it is merely the means and flavoring where we truly differ.

I've had an image in my mind for some time, a roughly two-dimensional political spectrum model with the usual "left" and "right", but circular, and inverted, like a Moebius Strip. Those who go far enough Right (like a Rothbardian conservative), or far enough Left (like an anarcho-syndicalist), find themselves, if they bother to look, occupying very similar territory. My image has us, who have journeyed to this point from Left and Right, unaware of our proximity since each of us stands on the opposite side of the strip (I may have to make an icon to show this). But if we would but look over the edge, we might see the other staring back, close enough to touch.

I am one who started out by journeying Right, along the path laid down by my fathers before me, both my physical father, and my political fathers... those we call the Founding Fathers. But the further right I went, the more I found myself in the company of others who journeyd from positions I once considered implacable enmities. Now I look over the edge to the side, and I call out to my fellow travlers... from the Dark Side of the Mobeius Strip.

Sunday, February 08, 2009

Excerpt: Progress and Poverty

I am reading through Henry George's Progress and Poverty a second time, and am currently in the chapter in which he examines various proposed remedies to the problem of the expanding wealth gap and the extreme poverty of the lowest classes, pointing out their deficiencies. On passage in particular jumped out at me, since it tears down a current practice that many accept as an article of faith. In Book VI, Chapter 1, page 277:

As to the truths that are involved in socialistic ideas I shall have something to say hereafter; but it is evident that whatever savours of regulation and restriction is in itself bad, and should not be resorted to if any other mode of accomplishing the same end presents itself. For instance, to take one of the simplest and mildest of the class of measures I refer to—a graduated tax on incomes. The object at which it aims, the reduction or prevention of immense concentrations of wealth, is good; but this means involves the employment of a large number of officials clothed with inquisitorial powers; temptations to bribery, and perjury, and all other means of evasion, which beget a demoralisation of opinion, and put a premium upon unscrupulousness and a tax upon conscience; and, finally, just in proportion as the tax accomplishes its effect, a lessening in the incentive to the accumulation of wealth, which is one of the strong forces of industrial progress.

I just wanted to share that. Note that the work, itself, is not simply a bashing of socialism, but rather a book that examines the problem of the link between progress and increasing poverty, and ends by proposing a solution simpler, more economically sound, but also more radical than socialism.

Sunday, February 01, 2009

Saving Part 3: The Banks

Last week, I asked, where does the new money come from? Where does the wealth it procures go? I'll start with something I think all agree is not a beneficial practice: outright counterfeiting.

It's simple: just print something which can pass for the things printed up at the US Bureau of Printing and Engraving, and then use it to buy stuff. Who loses? If it's a particularly bad forgery and they spend it in through particularly foolish marks, probably that first victim: this person then takes it to the grocery store or something, which uses their methods for detecting counterfeit bills, and they refuse to take it. The counterfeiter has conned only one person, and stolen from only that one person.

But there are very likely better counterfeiters whose creations might circulate through considerably more hands before they are discovered... if ever. No one person is defrauded in this case, though obviously, someone has been. In truth, everybody has been; the ill-gotten wealth is taken not from any individual particularly, but from the common stock of wealth generally. Every false bill that enters circulation withdraws something from this stock, without first adding anything to it. Every false bill that enters circulation makes everyone else just that much poorer.

Fact: the number of "dollars" circulating through the economy in one form or another (mostly electronic) increases over the long term, and it very rarely decreases in the short term. Where do the new dollars come from? In the following paragraphs, I will describe the mechanics of monetary expansion, and leave the judgment as to whether or not this is justified to the reader.

One agency that introduces new money is the banks. Banks are permitted by law to loan out more money than they have on deposit. The amount the bank must have either in their vault on on deposit with a Federal Reserve Bank is determined by the Federal Open Markets Committee, but for the purpose of this illustration I will assume a 10% reserve requirement. What this means is that if you deposit $100 at the bank, they are now allowed to loan out an additional $900. They do this by simply creating an account that says "I have $900 in me." There is, of course, only safe if the depositors do not attempt to withdraw more than 10% of the amount the bank owes them... which is what happened to IndyMac last July. There was a time when such a failure would destroy not only the bank, but the money the depositors thought they had. These days the FDIC, backed by tax dollars should they run out of money, ensures that the depositors do not lose their money.

Now, the banks' contribution to monetary expansion is not uniformly upward, but rather somewhat cyclical. Were it not for the business cycle (economic growth and recession), the money supply would grow, plateau, and then not grow any more. Who would benefit from this growth? The answer is that those who borrowed and spent money earlier in this growth would benefit more than those who borrowed and spent it later, with those not borrowing getting the shaft. Much like the counterfeiter, the early borrower gets to spend the money before knowledge of the existence of this new money is dispersed through the market... that is to say, before prices rise (or slow their decrease) in response to this new money being spent in. Unlike the counterfeiter, the borrower has to pay interest on this new money, and must pay it back, but he gets to spend it when it is worth more, and pay it back when it is worth less... meaning he gets more out of it than he puts back in. He gets it from later borrowers to a later extent, and non-borrowers to a greater extent. Additionally, the banks themselves get to collect another portion of the increased productivity that can result from additional investment in the form of interest, some of which goes to depositors, some of which goes to the bank's investors.

Note that this serves, during the increase, as an incentive to borrow and a disincentive to save.

The reality of the business cycle, however, ensures that the banks' contribution doesn't plateau, but rather cycles. During the boom, they lend out more money. During the recession, they concern themselves primarily with getting loans paid back, and are less inclined to loan (because people seem less likely to pay them back). And just as lending against a fractional reserve adds more money to the economy, that same loan being paid back removes it. So long as loans are being made and paid back at the same rate, the overall quantity of money does not increase. But the reality is that there are times when there is more lending than repayment (the boom), and times when there is more repayment than lending (the bust, or "recession"). (I won't be talking about the cause of the business cycle here, but for my preferred explanations google "Austrian Business Cycle Theory" and "Land Market Cycle".)

So our economy goes (or rather would go, if the Federal Reserve allowed it) through periods where the banks expand the money supply, and periods where they contract it. Those who exploit this system wisely can profit from increased money, and avoid the dropping prices that result from reduced money (as those who got out at the top of the recent housing boom did) at the expense of those to whom they sold it. It's rather like an exceptionally successful counterfeiting ring who manage to unload large quantities of exquisitely crafted fake money onto suckers, enjoy what they've already bought as everyone else's prices rise in response... then sell their stuff for real money right as the forgeries begin to to be discovered and removed, but before the prices begin to return to their original levels in response... and THEN buy yet again, at the lower prices.

These days, however, the money supply is rarely allowed to truly decrease (though money is continually injected into and removed from this speculative market or that as the fads change, causing volatile price changes over the short term... as was the case when the banks significantly loosened criteria for lending against real estate... and then suddenly tightened them again). The Federal Reserve System also has ways of manipulating the money supply, by manipulating the base against which the banks lend. And while, given a fixed base, the banks could theoretically plateau at a new level and never increase again; the Federal Reserve has ways to constantly increase the base... and does, to the benefit of a different set of parties.

The Federal Reserve's role will be next week's topic.