Thesis Number: #6 (Page 7 of 8)

Democratising the Public’s Finances

Full-cost pricing is not a neutral fiscal policy, a pure revenue raising tool. It is biased. It favours expanded employment prospects, and it diminishes the stresses generated by the pathological defects in the economic system. These benefits are achieved by untaxing earned incomes, and deterring land speculation which necessarily ends in busts.

By phasing in the democratic form of public finance, incremental changes would occur in the character of the Tax State. The scope for “nose in the trough” deal making in the corridors of power would be eliminated (because transparency and accountability are intricate features of full-cost pricing). Adjustments would automatically emerge in the structure of the social system, and in people’s behaviour. These include enhancement of the psychological health of the population.

When the political system is sensitive to people’s wishes, power is diverted away from corporate lobbyists. The sole price for these gains is agreement to pay for services based on (a) what you want, (b) where you want it, (c) when you want it, and (d) in the proportions that you want.

Recycling rents back into the public’s infrastructure is the financial system’s automatic stabiliser at work, operating as a feed-back mechanism. The growing, dynamic macro-economy is kept on an even keel, enabling people to create the living patterns that fit their needs at the local, regional and global levels. That feedback mechanism does not currently exist, which is why the capitalist economy is cyclically torn apart by booms and busts.

Learn, or Lament?

The economics of full-cost pricing are well attested in the economic literature. But economists choose to present the theory in narratives that favour the status quo. Alan Greenspan, for example, continues to shape perceptions about the future. His qualification for pontificating is his malevolent contribution to the US economy, which collapsed at the end of his tenure as Chair of the US Federal Reserve. On TV, and in Press articles, he claims that there is great uncertainty about how to recover from the depression which he helped to create. He notes that firms are clinging to their cash instead of investing it. This, at a time when there is a desperate need to ramp up investment in America’s infrastructure (Box 2).

Greenspan vindicates his failure to anticipate the financial crisis by claiming that “herd behaviour” did not feature in forecasting models. He now claims that it is possible to make financial sense of “animal spirits” and anticipate future asset booms. Nowhere in his latest analysis (Greenspan 2013) is there any indication that he has learnt the real-world lessons of his mismanagement of America’s financial system.

Some fiscal experts, like Vito Tanzi, say that the economic role of the State is changing. Tanzi, who directed fiscal policy at the International Monetary Fund, sub-titled his latest book The Changing Economic Role of the State (2011). On the issues that are relevant to a sustainable economic future, no such change is occurring. Post-classical economic doctrines prevail.

The great fear, now, is that “secular stagnation” will afflict the trans-Atlantic economies. The Economist is typical in urging more investment in infrastructure without explaining that, under the current pricing system, the primary effect would be to redistribute income (The Economist, 2013: 15). Increases in production and consumption would play a supporting role: necessary, to generate the rents that are the focus of public policy.

Banks and sovereign wealth funds based on oil-rents are lining up to offer cash to western governments that promise them super-profits over the next 30 years. Taxpayers will get the raw end of the deal. Not only will they fund the infrastructure through taxes, but they will also pay an additional cost in the form of “austerity” policies. People below the super-rich category will endure a reduction in real incomes over the next few decades as their governments slash budget spending to cope with increases in their debts.

This outcome is aided by international agencies that advocate policies which misalign costs and benefits. That is happening in Tunisia, for example, where the OECD and the African Development Bank is helping to shape a new law on public-private partnerships (PPPs). The outcome will not be a partnership of equals. Private capital will ensnare future governments in deals that will yield huge rents for banks and higher taxes for the people of Tunisia.

As things now stand, infrastructure will be deployed in the 21^st century as a weapon of mass destruction, to protect the predatory rites of the culture of rent-seeking.