"Fix Capitalism"

The next Writing Prompt from Elle Griffin's The Elysian!

Mrs. Griffin’s Idea:

Employee-owned Companies

I can’t but think that Mrs. Griffin’s idea of employee-owned companies¹ is the main pillar. Do you know the Red Mars series? Finally, after years of liberation struggle from Earth, the Martian colonists engineer a reversal. They go to Earth and organize a revolution. The result? Laws are passed giving workers ownership of their means of production. The catch is of course that workers have to literally hold down their positions by moving in to their spot at work. So people are sleeping, eating, and so on at their workplace. For the exact thing, go read the Red Mars Green Mars Blue Mars Trilogy—Blue Mars? Then what does capital do in this new framework?—I suppose the bank workers are also all sleeping on the job, as are the investment bankers—so the work doesn’t go away, just is forced into some other form. Stock ownership disappears, as the law now says workers own the workplace. So instead, financial business supply capital via bank credit only. Again, for the real story, go read the book. Don’t make too much of this, as I just add it to give my essay some atmosphere.

Vermont Senator Sander’s Robust version of the Job Guarantee:

Jobs for All

Now, Bernie Sanders, in his speeches presents his version of the Job Guarantee proposal. Senator Sanders calls it “Jobs for All. He talked about the American economy and its boundless demand for work needing doing.

So that’s my idea. Not the make-work version of the Job Guarantee proposal that says that any real work needing doing should not be part of the proposed Job Guarantee program, as it should be part of the regular public sector, and that the Job Guarantee idea is simply to make people appear employable, keep them from getting rusty, by having them do make work such as picking up glass beer and soda bottles and other litter in the parks.

Supply it with government Capital and bring in Private Industry

And my own idea is we will have to support that kind of Bernie job guarantee. And that will need capital, government capital. And to bring in private industry. Win-win. Back in the nineteen-nineties, the start of the “Lost Thirty,” temporary work firms basically entirely replaced direct company employment, so it gives a bad taste in everyone’s mouth and I hate to mention it as a possibility.

But, in the eighties, once union work disappeared, young people lost the knack for how ordinary work was supposed to. . .work. The eighties was a boom for really good jobs, and with good jobs, no one imagines going to the labor office to go and pick up a replacement for one’s good job. Furthermore, those people who were first hired into good jobs in the eighties, how old were they in the nineties, to twenty-ten’s—basically still in those good jobs thirty years later. The Lost Thirty Years was only a thing among Post-Eighties Youth. The shift from having to actually retire to collect one’s social security checks to being allowed to keep working and still collect keeps the eighties good jobs boomers in the workforce even today, in those same good jobs. So they haven’t passed on the key work skills surrounding “getting laid off” down to their kids. No young people from nineteen nineteen-ninety until 2020 knew a damned thing from their parents about how the unemployment insurance and employment office works. Sure, they never entered stable employment—at first, college grads—everyone was doing a bit of college starting in that era—never eligible for unemployment insurance due to just using odd jobs to fund their “real” job search, or didn’t know how to apply for it, but we certainly never learned about the system of getting work through the associated employment office work assignment system. Now the counter-result was that such employment office staff forgot their old skills and became entirely useless. So basically, the unemployment office staff and work assignment system is as useless as the temporary work companies as solutions.

Still: these are two possible solutions. If the government buys up the shares of these temp companies, such that always paying out dividends doesn’t force the low-wages that are bread and butter to those companies, and then, with the “Good Jobs for All” program basically replacing unemployment insurance, we can say, no wait: redeploy that unemployment insurance/employment office government department, together perhaps with some of the old forgotten methods, towards pulling in the whole private sector into support for the Jobs for All program.

Government Venture Capital

But also, in addition to Jobs for All as a replacement for unemployment insurance, we need to have a program for new graduates, since new graduates just as they never qualified for unemployment insurance, and don’t know what the heck that is, et cetera, need some kind of special program: Government start-ups of employee-owned enterprises, to hire all the new workers graduating from high school that in our lost thirty years² never got the kind of easy move into the workforce that high school and college grads used to have back in the American Golden Age. . . Of course that is quite unfair to we nineteen-nineties grads that still haven’t made it yet. . ., but well I suppose that’s what the Workfare “Jobs for All” program proper is about.

The day after the big Bust. was it

Boom or Bubble?

Well, then, what about Our Endless Rolling Business Cycle and sudden crashes in which the economy never can quite get going before it crashes itself at its peak?

Income tax is an automatic stabilizer: when the economy is hot, it damps it down, and when the economy is cold, well income tax also doesn’t pull much funding out from the weak economy. That fits nicely with the idea everyone suddenly has of the boom from the day of its bust: “It was a very—big— bubble.” Everybody thinks that the income tax should prevent bubbles. The more frothy the economy, the higher the profits, and the higher the profits, the higher the income tax. And the higher the income tax, the more the FROTH is Tamped-Down UPON. In this way, bubbles can be prevented. And if bubbles can thereby be prevented, no bust can occur. And if no bust, then no recession, and if no recession, no long period of stagnation, and ultimately we have produced good old fashioned sound prosperity of the sort we experienced in America’s Ideal Decade: the Nineteen Fifties. So what we need then, to prevent the boom-bust cycle is more income tax. According to this narrative. And it’s the one everyone seems to know to be true.

Yet consider. Just when the economy is at it’s very hottest is when demand for credit and funds is at it’s greatest. And at that very point: the income tax takes the most out!³ Do you know about “sectoral balance charts”⁴ ? The top graph/shaded region is the private sector (and international sectoral) sectoral surplus, and the bottom line and shaded region is the government “deficit.” But note, the “government deficit” represents the issuance of payments into the private sector. While such a chart doesn’t include the bulk of the private sector economy, bank credit, for instance, what it does represent is the real relation between the government and the private sector: a government “deficit” is surplus funding for the private sector, but a government “surplus” is a private sector loss, via the income tax. What people have been pointing out is the timing of deficits—there is an eerie correlation between government drops in spending over receipts and economic downturns. But what I thought about is what causes those bad-for-the economy government near-surpluses and occasional surpluses is the boom in income taxes created by economic boom.

So if we just replace the income tax with some other form of tax, we may have gone a long way towards preventing the regular catastrophic financial crashes that always every single time occur the day after a stock market record high.

So in this framing, we need a tax that isn’t an automatic stabilizer, or at least, not as much of one, if we don’t want to crash the economy at it’s hottest every time.

I suppose the sale tax isn’t going to go up and down as much, since after all people need to eat, pay their daily expenses, and so on, whether the economy is booming or not. Of course, what does this do for the down-swing? Highly regressive, and hardly likely to boost us out of the crash.

Property taxes: it’s a tax that goes on the value of the property regardless of what a particular year’s business income is doing for the businesses that sit on the property. So when business is booming, a property tax won’t leap up as much and thereby break the boom, or if you prefer, “burst the bubble.” Of course, then, we deal with the opposite problem: people pay property tax even when the property owners are having a bad spell. Again, though affecting property owners: highly regressive in the downturn.

The national debt is Too High? Or Too Low?

Another point is this idea that the government debt—now not talking about deficits, but the debt—that the “debt,” the quantity of Treasury Bonds, that is, is way too high. But—albeit its mainly because we force it on them with irrational requirements that banks and pension funds hold “safe” government bonds—for whatever reason, the private sector, and more to the point, the whole international financial sector, depends on holding Treasury bonds as financial collateral. From that point of view, and seeing Treasury bonds as simply money in a savings account, with money kept in the bank being, well, money in demand accounts—just two kinds of money, one would want to be careful about just saying the debt is too high if the debt is a major portion of the economy’s money, and if one realizes that without money, well we don’t have much of an economy, and without the economy, well, where are we—well it’ll be nice to go back to a quieter, better age, back in the beautiful state of nature Rousseau talks about. . ., but I’ll leave that to Mrs. Griffin to write that tall tale up.

But to go back to Treasuries. The “Queen” of MMT, Mrs. Stephanie Kelton proposes unlimited Treasury bond auctions! Currently, we match Treasury auctions with government spending one-for-one, less the amount received in taxes, of course. Now her basic idea is the same as her friend Mosler’s Zero Interest Rate Policy: ending debt issuance by the government and simply spend directly into the economy. Mosler points out that with twenty seven trillion⁵ dollar debt, when the Federal Reserve Board, or actually probably the Federal Reserve Committee that meets in New York, voted to raise interest rates (in Chairman Powell’s own words, to combat employment!), what that did as a side result is gradually increase, as the national “debt” rolls over, the interest rate on Treasuries sold by the public.⁶ And what a higher interest rate on Treasury bonds does, when there are a lot of Treasury bonds in the open market⁷, is increase the amount of money in the economy. The purpose of Treasury auctions is thought to be to prevent people from using their money for productive purposes, id est, to tamp-down on an overheated economy running beyond it’s production capacity—id est, to “sterilize” government spending on the one hand, and to create demand for the dollar when taxes aren’t proportionately enough to do so, on the other hand But if actually, all that un-earned interest income is stimulating the economy, which it will, Mosler argues, to a greater degree than it tamps down upon it, once the national debt grows beyond a certain level, then the central bank is continually doing (thank God?) the opposite of what it is seeking to do. So if the Treasury simply doesn’t auction any Treasury bonds at all, while it is true, the interest rate will fall to zero, what will also happen is gross quantitative stimulus will be lowest if we simply spend directly, as with coin issuance, into the economy without using debt to do so. So this is Kelton’s base idea. But since the private sector simply loves “debt” when it is termed “Treasury bonds,” she says, “Why not just adjust the sale of Treasuries strictly to private sector demand for them.” That means free-issuance of Treasuries. I suppose we end up with the opposite problem from the current “debt crisis,” some vast amount of money in the Treasury General Account, if we still have such a thing in such a scenario, and perhaps a big private sector money shortage? Except Treasuries and money, are roughly interchangeable during periods of steady interest rates—which they would be if the rate was by policy set to zero. Mosler, by contrast, wants to eliminate all Treasury bonds, and as a concession, if necessary politically, to the central bank, issue a few very short term bonds for the central bank to do its open market psy-ops with.

Private Sector Issued Dollars augmented by and Stabilized by Public Dollars

So since much of private sector money isn’t government issued, but rather is bank-issued, as credit, and as such, as credit that has a repayment function that causes it to vanish into thin air upon repayment—hence an instability factor—it might be nice if we make sure we have enough coined money out there to add a backbone of stable money, that isn’t bank-credit based, to the bank-credit driven economy. Enter Quantitative Easing, also known as the Zero Interest Rate Policy. With Quantitative Easing, the central bank buys assets, including debt assets, corporate bonds, and Treasuries, from the private sector en masse, in order to alleviate a temporary shortage. Normally the central bank simply buys-up smaller amount of Treasuries, and limits it to Treasuries, government bonds, out of the open market (private sector). Perhaps it does this to “sterilize” large issuances of government debt, or during tax season to counterbalance the tax money exiting the economy. It then judiciously reauctions them to on the one hand quantitatively remove dollars from the economy to prevent overheating, and on the other hand, to target the price of money, the interest rate, which it is always adjusting it’s target for, a little bit up, a little bit down. It can do this as monopoly issuer of Federal Reserve Notes, paper dollars, and reserve balances, the digital version of a paper dollar. Or so the narrative goes. It’s all a bit different from that, I think, but let’s keep on track with our topic. So with Quantitative Easing, it just buys all the Treasuries the market will sell, and then in another version of QE, moves on to private sector corporate bonds, mortgage-backed securities, and so on, a la the aftermath of the 2008 crisis.

But note, if it buys Treasuries from banks, nothing really has happened to M2, the quantity of money in the economy, because money really is what is in the bank accounts of the non-banks, so buying a Treasury from a bank simply swaps one form of money (Treasuries if you will) for another (money)—but note, it’s not the money in the accounts of the bank customers, but in the accounts of the banks, and it’s just a swap anyhow, with a small premium as incentive for the trade. Only QE that involves the non-banks, Treasury Bond reverse auctions from the non-banks, for instance, actually changes the quantity of bank account money upwards. But then again, if there’s no real demand—no sudden shortage of funds, no financial crisis, it’s likely just a swap of one type of asset for another, no? And if there is a financial crisis, the banks also will benefit from easy money, no?

But Richard Werner, the person who invented QE, says that if it really does get that money into the non-banking sector, and there’s no financial crisis: watch out! We’ve created a bubble, most likely. Devil in the details, of course, though.

What really gets money nicely into the private sector is government spending. It goes to productive uses, and yet helps replace the reliance on debt, since, pending taxes, government-spent money isn’t borrowed by the recipients, but received for services rendered. It’s what I call “hard currency.” Hence the name of my Substack!

Ending the last of Glass-Steagall

Yet one more point is that credit is issued by banks in the form of debt to non-banks. It hardly makes for a well balanced economy, but how credit works successfully is always either by balance, or more usually by achieving balance by moving it around via financial lending of the credit-created money. So:

1. the money is issued as credit.

2. the credit is in imbalance, so

3. an interest rate is charged to re-lend the credit back around to where it needs to go to create fully balanced credit. Fully balanced credit can’t easily crash, it seems to me, as it’s in balance.

But all this secondary moving around again of already issued credit brings the banks into balance, but kind of by definition, all credit is from banks to non-banks. And basically banks are, in turn, dependent solely on non-banks for actually earning the money that pays the interest and provides the return of the loan principal. I think we can improve on that two-way, two dimensional dichotomy that might easily fall into imbalance, by Making all Non-Banks virtually Into Banks, and vice-Versa by removing the last little bits of Glass-Steagall. Not only will that remove this broad one-way flow of credit and strict specialization of real production so as to end the bank/non-bank polarized system, but it will open up a whole field of credit creation in which every business can create its own credit and spend it directly without loans and repayment intervening.

The way this works is that currently dollars are issued from a bank (as a loan) to pay the expenses of a business expansion or other temporary business exigency. My idea is to make each business its own bank such that it makes its own credit for whatever it would have borrowed from a bank for. Conversely, we let the bank set up it’s own businesses and spend directly for expenses.

The hamburger stand that currently gets money issued for it from the bank it gets its credit from uses that to buy frozen burgers, to pay rent, and then returns interest, and eventually principle out of profits in my proposal would: simply pay for things directly, with no loan, the same way a bank does on behalf of it’s client when it issues a loan. The burger sales returns of such a business corresponds to the interest and return on principle that the bank receives from the business. In both bank and non-bank business models: money goes out as expenses, whether funding loans or hamburger patties, and returns.

It opens up a world of opportunity, does it not.

Dr. Richard Werner’s Idea:

Many, many very Small Banks

Small banks are close to their borrowers and the local community: have their finger on the pulse, so to speak. So that’s another idea to “Fix Capitalism.” Of course, the trend is opposite to that. The trend is not this natural trend we shouldn’t oppose because we can’t, yada yada, none of the trends are. It’s intentional! Perhaps intentional by people who think consolidation is better, sure. But listen to Werner: full of self confidence when he speaks, and anyway, it sounds good, right? Small banks, close to their community and their borrowers such that real risk is lower. Now of course their are risks in local banks that are specialized either regionally or in terms of the industry they service in that the downs can be offset with the ups in a wider-area bank, and the larger the bank, or more precisely, the more diversified, and specifically, balanced the bank is, not only the more such risks are offset, but the more efficient the bank is and the more powerful it’s money creation capacity. So there’s pluses and minuses. But Werner likes small banks, so look him up and give him a listen, and I will give him a relisten so I can write this better the next time—not that my Substack is about simply repeating un-redone other people’s ideas.

The Piketty Equation

When r > G

Finally, I want to discuss the problem of the wealth gap. From a “Fix Capitalism” point of view, it’s not whatsoever the question of fairness, and so on and so on, but purely the economic question of the return on capital working in reverse, and through the competitive nature of the market, the portion of r that is greater than G (and remember that G means growth, so it will be hard for the r to beat that one entirely, so just we are talking trends)—that percentage of r that is greater than G: it is what I call “negative money.” That negative money, anti-savings, rather than equating to ever greater reinvestment of returns (r), turns negative and starts to subtract. Hence the merit of tax and spend. Or even, perhaps, just to spend, to redistribute that redistributive value contained in money from the concentrative to the distributive and productive function. Not quite the Modern Monetary theory idea—Piketty is not known among MMTers as an MMTer, but I think it’s an important point. We’ve got to redistribute. I mean, merely as a “Fix Capitalism” point, this not being a “fix society” essay assignment, yes? But if we simply raise taxes domestically, it gives the capital of the dictatorships a competitive advantage. So it has to be done judiciously. Also, in this light, have not the Neo-Cons a point: foreign intervention is not, logically, off the table, in the “Fix Capitalism” genre. Since, the problem of fixing capitalism is really an international question. Perhaps, though, you could write a novel, for boys, about that one. . . one that doesn’t end in the Apocalypse, please.

1. Every Company should be sold to its Employees

2. from 1990 to maybe 2018

3. After I realized this, I came across a Mosler interview with Steve Grumbine in which Mosler suggested the very same thing.

4. Sectoral Balances - The Gower Initiative for Modern Money Studies (gimms.org.uk)

5. the thirty some trillion figure includes debt held by the central bank, as well as internally by the Social Security Trust Fund, Highway Fund, ad-infinitum, and so on.

6. Note that the Fed, aside from exceptions—the recent world-wide Panic, perhaps; the 2007 World Financial Crisis, perhaps; the 2008 Second World Financial Crisis, perhaps—doesn’t fund the government. Bet that’s not in your belief system! But if the government sells a whole lot of Treasury Bonds, that will have an upward affect on interest rates, so the Fed will re-auction Treasuries out of the open market to counterbalance that. But more often, prior to QE (prior to 2008), as the Treasury would auction and spend on a daily basis, the Fed would help sterilize this with overnight loans called “repos”, “repossession agreements,” that use Treasury bonds as collateral. Essentially, though, the higher the debt, the lower the interest rate! “How on earth!”, you may ask. Because the government issues and auctions Treasuries either in response to spending it has done or in preparation for spending it is about to do. Spending out of the Treasury General Account, and into the economy. That increases private non-sector bank account balances, does it not. Leave that for another day’s talk.

7. as opposed to held by the central bank or internally (fake Treasuries?)