The best of the world’s brains can be found in Washington DC. But given the lack of wisdom which the leaders and law-makers display, it’s clear they don’t use them. The financial model which they oversee is bankrupt, yet the only principle which unites them is the need for more of the same.
America did not cause the global depression. It was the biggest piece in the failure that still puzzles the arrogant economic fraternity that believes it knows why millions of people are being made to suffer. But the debt crisis in the US once again lays bare the rotten heart of an economic system that fails to serve everyone’s best interests.
Following European governments, the Obama administration wants a dose of austerity. His Republican opponents want tax cuts and no increase in the debt ceiling, which would deepen the grief of the people at the bottom of the pile.
The debt of more than $14 trillion testifies to the bankrupt character of the capitalist economy. But there is no mystery about the financial policy that would rescue the US so that it could achieve its unrealised ambitions.
Land of the Free?
A string of US states and municipalities are financially bankrupt. Their lenders are struggling to avoid legal recognition of that default status, but bankrupt they are. The ultimate reason is that their tax policies encourage property speculation while discouraging the value-adding workforce. The result is an accumulated indebtedness stemming from the funding of infrastructure like sewage works, waste incinerators and highways. The crisis struck when the property boom went bust, and the municipal governments saw their property tax revenue ebb away.
The solution is not a mindless rag-bag of policy prejudices to punish the workers or privilege the property owners. Nothing less than a tax shift from people’s wages on to the rental income of land and natural resources will re-balance incentives in a way that would jump-start growth on to a sustainable path.
Strategic thinking is needed in Washington, London and Brussels to pull their economies out of the free-fall. Shifting the tax base would tick all the boxes.
Ethically, this is the fairest way to raise revenue. It would integrate communities around a new ethos that would begin to demolish the social barriers that now divide society.
Economically, public spending would be sustained. The medium to long-term outcome would be a smaller state, as (for example) the need for welfare support diminished with a return to full employment.
Environmentally, the new public pricing mechanism would nurture a shift in people’s behaviour in the direction of working with nature. At present, pricing incentives encourage damage to the natural environment. The tax shift rests on the paying-for-benefits-received principle.
This strategy is grounded in a policy that is validated by the most distinguished classical and contemporary economists. But the people who advise governments today have closed their mind to its opportunities. Doesn’t that depress you?
* Anyone interested in following up on the pedigree of the prescribed policy may consult my publications.