After the Black Death had killed half of his peasants,
one of the French dukes of that time found that his hearth taxes had
also been cut in half. Collecting even that much might seem cruel
given the horrors and social dislocations of the time. Still, it is
mathematically reasonable to collect only half the previous taxes
since there were only half the workers left to earn them.
Governments are not even that reasonable, however. It
is said that in order to maintain his income, the duke simply doubled
the hearth taxes. At the very time that the people had lost half
their parents, half their children, and half their communities to the
Black Death, they were ordered to pay twice as much in taxes.
Governments can rarely resist trying to put the tax boot in when one
is down.
This kind of government "reasoning"
still goes on today, even in the U.S. Banking analyst Meredith
Whitney covers this ground in her 2013 book Fate
of the States. (We also mentioned this
book in our previous companion post, Deer
in the Headlights II.)
See her Chapter 5, "The Negative
Feedback Loop From Hell." She explains that the economic crisis
has led to lower house prices and therefore to lower tax revenue.
Lower tax revenue has led to budget deficits. Then can come that
hellish feedback loop: "... budget deficits beget tax hikes and
spending cuts, which drive away jobs, further eroding the tax base
and deepening the budget crisis that the hikes and cuts were intended
to fix. Look at what happened in the actual Greece."
Some states have indeed raised taxes.
Illinois raised its income tax by 66%. It is not clear whether the
French duke actually maintained his income by raising taxes and it is
not clear yet whether the State of Illinois will be able to gain
significantly more tax income by raising taxes, either. Ms Whitney
does say what happened in Greece when it raised income taxes.
Unemployment went up to over 24% and GDP declined 6% a year for two
years. Now Greek individuals and businesses who can do so are
leaving Greece and taking their economic activity to friendlier
economic environments.
The same kind of thing can happen even
if governments do not raise taxes, however. State governments have
to make their bond and pension payments before any others. Therefore
if state revenue cannot be raised enough, budget deficits have to be
paid for by cuts in services. As Ms Whitney says, the money comes
out of education, libraries, parks and recreation, trash collection,
and fire and police protection. As we said above, higher taxes will
drive out invididuals and businesses, but so will poor education,
trashy neighborhoods and parks, and poor public safety. As much as
anything else, these things sank Detroit.
While we appreciate Ms Whitney's
analysis, her thinking remains stuck firmly on the old, outdated side
of capitalism. She does not really have solutions because she
accepts poverty and accepts the fate of the states that have suffered
from poor financial decisions. Just like she accepts the fate of
Detroit. Aside from privatization, which has its own problems, her
basic solution for our financial problems appears to be smarter
decisions, time, and hard work. At most what she does is just
describe the differences between the states that she thinks are
improving versus those she thinks are declining. She is very smart,
but as far as our current financial troubles are concerned, she is
just as a much a "deer in the headlights" as any other
person in business, or politician.
Tosoc.org does not find financial
instability and poverty acceptable as "just the way things are."
Ms Whitney says in chapter 2 of her book that people in 1940 were
"... motivated by the goal of moving up the ladder of financial
stability." We may have gained national wealth since then, but
we have made no progress on national financial stability. For rich
individuals, their wealth has meant individual financial stability,
but national wealth has not meant national financial stability.
National financial stability now should be the goal.
Ms Whitney also takes for granted the
new, increased velocity of capital (or money). The advantage of it
is that resources can be allocated more quickly to more productive
uses. The danger is that people can be impoverished faster than ever
before. That means that capital controls are more important today
than they were in the past when it was quite difficult to move
capital around the world. Yet we have fewer capital controls now
than in the past.
We need more capital controls, but we
should be careful with them. The advantages of rapid capital flows
must be preserved as much as possible. Capital controls cannot be
blunt instruments like they have been in the past. We need to
distinguish between capital flows that have positive effects and
those that have negative effects.
Capital controls today should focus on
the effects of job movement. As things change, jobs will be lost and
others created. Take Detroit for example. If automobiles can be
manufactured cheaper elsewhere, then there is no point in investing
in Detroit. It would be wasting capital. In fact, capital should be
moved out of Detroit. The employees of auto manufacturers in Detroit
will and should lose their jobs. In fact, they did lose their jobs.
The problem is not so much the job
loss but the instability that comes with it, financial and otherwise.
Houses were lost, communities were destroyed, families broken up,
and worst of all, a culture of poverty was created. When money stops
working for you, you stop using it.
Things would have been different if
the employees had been members of a less competitive internal market
and if they were paid in an internal currency. Under the full tosoc
program, their homes would have been guaranteed as well as the other
basic living requirements. There would have been jobs available, if
not as good as the auto manufacturing jobs. Plenty of internal money
would have been available to keep Detroit's local markets going.
Note that the regulation of the
relationship between the different currencies in the tosoc program
automatically imposes capital controls. The rich could not so
quickly impoverish an area by moving capital around because they
could not own the internal currencies.
Therefore under the tosoc program,
many people in Detroit might have lost their higher auto
manufacturing incomes and become poorer, but no one would be in
poverty. Society would still have revolved around making money and
choosing how to use it rather than living on welfare benefits. In
the culture of poverty, most everyone is a loser with no real hope
for the future. In the market culture, the attitude is about
winning. That is why even the worst job that earns any kind of money
is better than living off of charity.
Finally let us take a look at Walmart
in relation to the tosoc system. Walmart is a huge disruptive
influence in local markets because it displaces local businesses.
Our critique of Walmart is not precisely that, however. It is that
Walmart suppresses the local entrepreneurial spirit. Small
communities with a Walmart find it harder to retain talent because a
Walmart store restricts the kinds and quantities of business
opportunities and jobs available. A rural town can be a nice place
to grow up, but it has nothing to offer its brightest offspring.
That is true to some extent of all small towns, but the problem is
worse with a nearby Walmart.
One way to view Walmart's role in a
community is that Walmart sucks dollars out of the community. The
money is not invested locally. That is the point, after all, because
each store is supposed to make a profit that is controlled by the
company leadership and invested elsewhere. Everybody in the
community knows that they cannot compete with Walmart, so they do not
even invest in one another. Many townspeople work outside of town.
The town sees only a very little of the money they earn because the
workers shop at Walmart, too.
There is a risk in this trend, and not
just because of Walmart, that wealth in the lower population areas of
the country will be "strip-mined" away to the point where
what remains is essentially valueless in price terms, even the land.
At that point, when local prices have deflated enough, the rich will
start buying everything in the rural areas and creating latifundia in
the nation's heartland, displacing everyone else into the big cities.
This might be similar to what happened in the Ancient Roman
Republic, and it is not consistent with the survival of freedom and
democratic institutions.
In the tosoc system, Walmart as a
whole would definitely fall in the category of an external business
and be required to use the external currency. Many Walmart customers
today would be converted over to an internal currency. Presumably
the local Walmart stores would also be converted and incorporated
differently than the main company. Much like AT&T, Walmart would
be broken up. The core company would be a large-scale buyer in the
external markets, getting the best deals and distributing the results
to internal markets under government supervision.
It might be that all of the core
Walmart's sales income would come from selling goods to local,
internal-market Walmart stores at a profit. However, under
government supervision, it might be that some profit would also come
from conversions of internal currency profits into the external
currency. However, since the point would be to keep Walmart from
unbalancing local markets with its enormous economic power, then its
ability to "strip-mine" an area of cash would be regulated.
The difference between the external currency and the internal
currencies in the tosoc system provides a natural way to do this.
To the extent that Walmart has
unbalanced local markets it has been a source of financial
instability and poverty. That is, large companies can create urban
pockets of poverty like Detroit, but they can also create rural
pockets of poverty. Walmart contributes to that using our single
currency and the free flow of capital, limiting the growth of small
communities by transporting their wealth out.
Therefore stopping the process of
poverty creation necessarily requires that a minimum of local wealth
be retained locally rather than transported to areas where it will be
used "more efficiently." The case can be made that we are
recommending our own creation of poverty in the tosoc system by not
supporting the most efficient use of capital. The problem with this
opposing view is that one's view of economic efficiency depends on
the breadth of one's vision. Since the automobile companies do not
have to pay for the cost of Detroit, then they feel that they were
quite efficient in their use of capital and that they are not
connected with Detroit's problems.
Similarly Walmart sees itself as just
an economic competitor, and if small-town businesses cannot keep up
in the free market, that is their problem.
This denial of accountability for the
messes the rich make or the messes that are made for them is no
longer acceptable. We no longer accept that pollution is an
acceptable public cost in the pursuit of manufacturing efficiency.
We are coming to the point where we will no longer accept that
mountains of eternal trash are an acceptable public cost in the
pursuit of packaging efficiency. We must come to the realization
that financial messes are no longer acceptable public costs in the
pursuit of maximum private economic efficiency.
In each case above we have been or
ultimately will be willing to hold private businesses accountable for
the public messes they leave behind. Strip-mined areas and peoples
of any type must be restored. That must become a cost of doing
business, too. Tosoc.org has some of the tools we need to make that
work and is devoted to solutions, not just hand-wringing descriptions
of the problems.
The way capitalism
should be.
Socialism for the
socialists and capitalism for the capitalists.
TheOtherSideOfCapitalism
(admin@tosoc.org)
Copyright
© 2013 TheOtherSideOfCapitalism
