Telling the Truth About Debt, Austerity and Taxation

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

by Richard Murphy

Corgi Books (2015)

Book Review

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

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

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

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

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

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

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

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

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

Originally published in Dissident Voice

The End of Growth

End of Growth

The End of Growth: Adapting to Our New Economic Reality

by Richard Heinberg

(New Society Publishers Aug 2011)

(This is the sixth of a series of posts about stripping private banks of the right to issue money. It stresses the link between our debt-based monetary system and the drive for perpetual economic growth.)

The basic premise of The End of Growth is that the world economy has flat-lined. Not only is it contracting, rather than expanding as most politicians claim, but there are important reasons why it will never return to pre-2007 growth levels. The reason? The last two centuries of continuous economic expansion were only possible due to the ready availability of cheap fossil fuels. Growing fossil fuel scarcity has caused energy costs to skyrocket. And this, according to Heinberg, is the main reason for declining economic growth.

As well as making an strong case that economic expansion has ended, Heinberg also writes about far-sighted governments (Japan, Sweden, Denmark, Norway and Finland) that are enacting policies to ensure the welfare of their citizenry as they confront new economic realities.

Heinberg and others in the Peak Oil/climate change movement have always argued that infinite economic expansion is mathematically impossible on a finite planet with finite natural resources. The End of Growth highlights the massive ecological devastation caused by this reckless obsession with economic growth, while warning that we are depriving our children and grandchildren of natural resources (fossil fuels, water, industrial fertilizers, fish stocks, top soil) that may be needed for basic survival.

In Heinberg’s previous work, he predicts it will take a decade or more before fossil fuel scarcity causes the capitalist economic system to hit the wall. In The End of Growth, he argues it already has: in October 2008. While a few countries can claim an occasional quarter of increased GDP, aggregate global economic growth is either stagnant or slowly contracting. Even China’s so-called economic “miracle” hasn’t been sufficient to generate a genuine increase in total global wealth.

The Ultimate Ponzi Scheme

Heinberg goes on to explain how private banks use the fractional reserve system to invent money out of thin air. In a global economic system where money can only be created by issuing bank loans, there’s never enough money in the system to repay all the debt. This means the global economy can only function via continual creation of new loans. And continuous economic growth is essential to make this happen.

Heinberg’s analysis of the 2008 meltdown starts with an introduction to classical economic theory, and a discussion of of the “financialization” of the US economy that occurred in the 1980s. There’s a detailed discussion of the risky financial derivatives that led to a decade of speculation and “debt” bubbles. The largest was the subprime/derivative boom, in which massive amount of borrowed money was speculated on derivatives and subprime mortgages that couldn’t be repaid. The debt bubble created was so large it plunged the entire world economy into depression when it burst.

The End of Growth in China

Heinberg also presents a painstaking analysis of why the China’s current phenomenal growth rate (7-8% per year) and somewhat slower growth rates in India, Thailand, Malaysia and Vietnam also represent “bubbles” that will eventually pop and trigger recession. China is pursuing the identical economy strategies that caused the Japanese economic miracle to collapse in the 1990s – resulting in a two decade long recession.

Life in a Steady State Economy

Obviously the end of economic growth, and continuing job, wage and benefit cuts mean that people in most industrialized countries will be forced to massively downsize their lifestyles. Outside the US, some far sighted governments are intervening in ways to make this transition less painful. Heinberg gives examples of countries (Japan, Sweden, Denmark, Japan, Norway) who openly acknowledge the reality of their steady state economies and pursue policies that make it easier for their citizens to adjust.

Sweden, for example, has transformed depressed industrial towns into “ecomunicpalities,” by “dematerializing” their economies. They have made them into fossil fuel-free towns with organic farming, public transportation and alternative energy projects – while simultaneously fostering social equity.