November 1, 2008 by Patrice Ayme


Abstract: Economic stabilizers and infrastructure spending go hand in hand and have to be added to the US economic arsenal. New taxes will help with the stabilization (contrarily to plutocratic mythology). An example is an immediate tiny tax on each financial transaction. By itself it will more than pay for Obama’s health plan (besides having the other good effect of hindering rapid fire speculators: a win win tax except for Pluto). Time to grow up, children, and stop parroting the plutocratic sirens.

Some United States opinion makers are splurging into pessimism about the US economy (see for example Paul Krugman, New York Times, 31 October 2008 ). The sadness arises from the retrenchment of the American consumer, making a bad economic situation worse, the sad ones claim. In recent years, Americanus Consumericus Vulgariswas pulling the entire world economy with his insatiable demand for goods. But now, no more: Americanus Consumericus is vulgarly exhausted. So Nobel Laureate Krugman deplores that “consumers were going to have to pull in their belts. But the timing of the new sobriety is deeply unfortunate. One is tempted to echo St. Augustine’s plea: “Grant me chastity and continence, but not yet”.”

Yes indeed trust that old hypocrite Augustine: “da mihi castitatem et continentiam, sed noli modo” (Confessions. 8.7.17). Indeed that “Saint” did not believe in what he preached. Augustine was a civilizational class disaster, one of the advocates of the Apocalypse, of Anti-Judaism, and other serious mental diseases. Augustine was such a dissipated character, that it was natural for him to ask God to help him indulge in orgies. A perfect American Saint.

Mr. Krugman overlooks the origin of the present crisis. The crisis started precisely with the rebellion of average Americans unwilling, and increasingly incapable, to pay banks through their noses. The crisis was caused by the retrenchment of the suffering middle class. It’s now in full retreat. What else do you expect, with all the jobs gone overseas to the point Boeing is unable to build its latest plane, as it tries, futilely, to bring the parts from all over the world?

Looked at it that way, namely that the present financial crisis arose as a long delayed rebellion of the overexploited American sheep, the situation of the USA is not as bad as it looks. It was high time! The situation is perfect to change the entire socioeconomic set up, and make the USA regain its natural civilizational status, that it used to have: strong, independent, intelligent, self sufficient. Quite the opposite of hysterical, ignorant, superstitious, shallow, hubristic and erroneous (enjoy the allusion!).

One has to think out of the box enclosing naive American economists, and look at the hard numbers, in the context of a worldwide view, and the full weight of history. The verdict? The USA has simply to augment the part of the State in its society, to introduce MORE RATIONALITY IN ITS ECONOMIC AND SOCIAL ACTIVITIES. Yes, “New Trade Theory” has been wrongly interpreted and applied: it does matter where the factories are. Yes, it does matter what people spent their money on, and what they direct their energy towards. Yes, it matters if a fraction of one percent of the population lords over the increasingly destitute and despondent rest. But the point is that the numbers show that the government has a lot of leeway to do what needs to be done (more than European governments do, because their State sector is already close to maxed out).

Last week, the ex US Central Bank chief, Mr. Greenspan, one of the sad clowns of American finance, discovered to his “shocked disbelief” that the financial markets are not self regulating (!). Well, neither is the economy. That’s one of the main reasons why we have governments: to regulate the economy. More deeply, in a democracy, the government decides what the economy will be about: governments direct the actors to do what their parts will be. It’s not to the actors to tell us what the house (”eco”) shall do, and how to manage it (”nomy”). This attitude, of putting the horses before the cart, has nothing to do with socialism, or, a fortiori, Marxism. (Nobody is confusing das Kapital with blood here, whereas Marx naively did.)

In the USA, in recent decades, it’s the people with the money who took all the decisions: Rubin and Paulson, two hyper influential Treasury Secretaries (especially Rubin) were both chairmen of Goldman Sachs, and plutocrats in their own right. Rubin, with Greenspan’s help put the Clinton administration on the firm path to financial engineering and plutocracy. Real engineers went to China. Bush was an afterthought.

The State controls about 36% of the GDP in the USA (Federal State plus local states), but the State controls much more in all European nations. Government spending is 45% of total GDP in France and Great Britain (more exactly 44.7% in the later case, with the latest, 2007 numbers). The State portion of GDP is higher in Sweden, above 50% (see P/S).

Social programs kick in Europe, as automatic stabilizers in case of recession. They provide a spending stimulus, with the forced spending of welfare. This sounds paradoxical: higher taxes stabilize Europe in case of recession, in absolute contradistinction to the US mantra that one should lower taxes in case of recession (a mantra making the USA economically unstable, see the comparison with Chernobyl in the P/S).

The astute observer will notice that Japan, mired in waves of chronic recessions for 18 years, has a much smaller portion of its GDP from the State than the USA, roughly half (GDP from the Japanese government has been increasing in recent years up to 20%, from a depressed 15%, a low point reached just when the recessionary waves started to roll.)

The retrenchment of the US consumer is just what the doctor should have ordered. What did the consumer do so far? The consumer went to Walmart and bought stuff made in China. Fine for what is necessary, but a lot of it is not. The American consumer has been consumed by consumption (”consumption” used to be the old euphemism for tuberculosis). Some of this consumption is indeed adverse to health: Americans eat out too much, and become obese, because restaurant fare is partial to fat and sugar. Thanks to the recession, Americans have now an excellent occasion to save while learning to cook wholesome foods at home, as if they were fully grown up adults. A fully grown adult should be able to prepare his own food.

A lot of the consumption has to do with buying things made overseas, that should rather be made at home. Car making, plane making, or rocket making, or electronic chip making are strategic industries, they cannot be located overseas as much as they are getting to be now without endangering the engineering supremacy of the USA. That later endangerment compromises in turn world security (even leftist socialists with anti-American tendencies will recognize this, to their dismay).

Most European countries run better economies, with, and because the States are spending more as a percentage of GDP. Some of the right wing will scream, because they made such good money in the old system. But they should address their whining to the old Roman republic, or even to the Athenian democracy, 25 centuries ago. Those first democracies invented massive public spending. And that reached new heights in the (fascist) Roman empire that followed. The Romans did not just build a giant infrastructure with public money (roads, ports, lighthouses, aqueducts, theaters, baths, public health spending, public buildings, fortifications, enormous spending on the military and security and justice), but also invented food programs and welfare. And nobody will accuse the Roman empire to have been too left wing, and not conservative enough (deep down the Roman republic, and the later empire died of conservatism, the failure to not react to changing circumstances). Public spending was extended to health care in the European Middle Ages (for example, anonymous drops were organized for people who wanted to get rid of their infants, instead of throwing them in the river; lepers were treated so well, leprosy disappeared, etc.).

Clearly, the time for a new extension of the public economy has come in the USA. Just like US financiers could not self regulate, US consumers could not self regulate. That’s actually why consumers instituted government, 9,000 years ago, or so, in the first cities; to regulate themselves.

It could be objected that 100% government spending is Stalinism. That is true, but not the subject here. Stalin’s State was not a democracy, or even a State of Law. It was just a fascist regime preparing and making total war.

It could be objected that an astronomical taxation did not help Byzantium. And that is entirely correct. But, even then, sometimes it did. After all, Constantinople was imperial capital of the “Pars Orientalis” for 1,125 years, about 11 times longer than the much celebrated Arab Caliphate.

It is true that government spending does not react as quickly to changing conditions, but that is exactly why it should be directed to rather unprofitable huge infrastructure projects. Such projects do not allow short term profits, so they are inappropriate for individual profit seeking (people, after all, even capitalists, need to have a life!)

The largest private project ever may have been the chunnel between France and England. Unsurprisingly, the early private investors got wiped out. The tunnel had to be constructed for long term political and economic reasons, but short term profit should not have been one of them. Now the chunnel has an operating profit. Super giant tunnels presently under construction in the Alps to carry high speed train lines are now financed by the Swiss, French and Italian governments: no more make belief that the little private guys associated in companies can do it all, and live happy forever after. These are public-private entanglements, since private companies get the construction contracts, but (some, or most of) the financing is public.

So a strong State means a well financed State. That means crafty taxes.

Half an hour after his inauguration, the next president should sign a DECREE instituting a tiny PERCENTAGE TAX ON EVERY SINGLE FINANCIAL TRANSACTION. At the rate used in Europe, that would bring in at least 200 billion a year, more than is needed by Obama’shealth plan. And so on. Small (but expanding) taxes on energy will do wonders to introduce rationality in the US energy economy.

Sycophants persist in proclaiming the supremacy of Harvard, Yale, and company, where the (now revealed to be) ruinous American elite is coming from, but, meanwhile the average US education is on its way down, as surely as the unsinkable Titanic. Even in pure science, Europe has pulled ahead of the USA. The solution for the USA is to spend more, in other words to redirect economic activity from buying somewhat useless products in China, to schools, research and energetic efficiency, inside the USA.

Funds could be directed to the deployment of the green economy. Apparently profitable solar, wind and (CO2 absorbing) algae power plants can be built in the Western USA, with existing technology, but there are not enough lines to carry the power (clearly a public, not a private, project). High speed rail should also be built: the latest French technology would allow to install efficient 250 mph lines all over, but they will require a lot of effort and capital. So there will be work.

The old economy is dead. The new economy has to be reborn in a more rational way, that’s all. The last thing to do is to re-ignite blind consumption.

Patrice Ayme

P/S 1: Most US economists feed at the through of the plutocracy, and so they subscribe to the well known platitude that the economy of the USA has been growing its GDP at an amazing rate, ever since the Messiah Ronald Reagan brought morning to America again. Never mind that the US middle class has been going backwards, surely and steadily, all what the US economists looked at was GDP, most of the augmentation of which was skimmed at the top by the richest million Americans. Thus, the economists insist that their masters are right: the richer the rich, the richer the poor (never mind this was disproven for more than a millennium during the Middle Ages).

Meanwhile, according to the rich American economists, the dismal European economy was going down ever more, proving once again how right their masters were. This is, of course, in truth, a complete lie. According to official numbers, of the stunning US GDP growth rate, the USA should be many times richer than France, but it’s far from the case.

Europe is not going down, far from it. It is very clear for those who are familiar with Europe, that it is the other way around: the top economies there have been getting ever richer than the USA. How come such a big discrepancy between official US truth and reality? Well, it’s easy to lie with statistics. GDP calculations involve deflating the nominal GDP by substracting inflation (and inflation can be whatever one wants it to be, within, say 10%). The CIA and company also use Purchase Price Parity calculations upside down, to make the USA look better… In other words American lying in finance and economics is not limited to the subprime/credit crisis. In economy, perception is reality: one lends only to the rich. If the USA revealed itself to be as poor as it is, less lending. But the USA is still rightfully trusting in God, because this continental sized country is intrinsically very rich with huge reserves of (sometimes rather dirty shale) oil, and gas, and coal…

P/S 2: Sweden had an overall tax rate of (a bit more than) 50%, from 1995 to 2005. Much higher, nearly double than that of the USA over the same period. But Sweden grew at a higher rate (2.5%) than the USA (2.1%). And that is compounded by the fact that the USA experienced a huge gain in immigration during that time (so the real US growth per person was more depressed). This is typical: high taxes do not imply low growth rate (although we claim a somewhat related converse, namely that insufficient government spending leads to low growth rate, through infrastructural failures (as happened in imperial Rome)).

P/S 3: Gas nuclear reactors become unstable at lower power, and that makes them very dangerous. That is why the Chernobyl reactor in Ukraine exploded; there was a (voluntarily engineered) crisis when it was running at very low power. The economy of the USA is a bit similar. At lower power, that is, during a recession, taxes have to be reduced, but that, in turns, makes the US socioeconomyeven more unstable. In other words, the USA IS AN ECONOMIC CHERNOBYL IN WAITING. This has to be changed, because the crash of a large economy always end with massive war. So economic stabilizers similar to those in Europe have to be introduced in the USA, for world peace’s sake.

P/S 4: A recent rise in the German Added Value Tax caused a sort of consumer recession there, which was part of a carefully engineered retargetingof the German economy towards more industrial and engineering proficiency, with everybody sacrificing (and employers engaging themselves not to relocate to developping countries). It worked, and the German economic redeployment towards higher capitalization of the industrial effort left the rest of Europe behind, including the sister country and reference frame, France (which found herself with a sizable trade deficit, although France, a huge exporter by herself, exports half in total value of what the USA does (!)). Germany is again the world’s number one exporter, with about 1350 billion Dollars in exports in 2007). The USA should get inspired! (The French have noticed the German effort, and the fruits it bore, and opinion making there is oozing towards doing the same, and that is part of Sarkozy’s program.)

P/S 5: Some will object that a tiny tax on each financial transaction will decrease “liquidity”. Well, “liquidity” is a much abused concept, and a very abusive practice. The plutocrats have been using the money of “We The People”, that they found in the banks, to leverage themselves in obscure and should-be-unlawful ways. That is what “liquidity”, in practice, means. In general, there is plenty of evidence that there has been too much “liquidity”, and velocity of money, in the wrong hands always circulating. In other words, liquidity and velocity, just like leverage, have been tools of the plutocracy. Time for “We The People” to control them. Controlling with a tiny tax will require no bureaucracy, it’s a very efficient, streamlined financial brake.

Tags: Economic Stabilizers, Transaction Tax Posted in Economy, Finance |