Hughesair (Inflection Point)

Retired physician and air taxi operator, science writer and part time assistant professor, these editorials cover a wide range of topics. Mostly non political, mostly true, I write more from experience than from research and more from science than convention. Subjects cover medicine, Alaska aviation, economics, technology and an occasional book review. The Floatplane book is out there. I am currently working on Hippocrates a Fanciful History of Medicine and Death of the Middleclass. Enjoy!


Sunday, February 12, 2017

The Big Fix

It remains to be seen whether or not the new Administration and Legislature will/can fix the economy.

Ever since Thomas Piketty's work, economists have grasp the meaning of accumulated capital as the cause of recurrent depressions, Simply put, the accumulation of wealth in the hands of the 1% and the 0.1% -- an accumulation of capital, some 6 times greater than National Income -- denies liquidity in the consumer market, which is nearly everything. A historical truth, the hoarding of wealth exactly correlates with the great depressions of the past; furthermore, relief, redistribution, came only in the form of revolution, war, pestilence - the plague was the great equalizer - or depression itself. These disastrous redistributing events correlate also with subsequent resumption of productivity, economic vigor, growth and consumerism.

The solution to redistribution, however, remains a modern day challenge. If the government somehow confiscates the wealth, would we trust them to redistribute it back into the consumer economy? One economist suggested in his lectures, dropping money from a helicopter.

Thomas Piketty, Capital in the Twenty-First Century, proposes a global tax on capital. In truth, we could never expect that level of cooperation, and who could we trust? We can't even trust our own government not to spend it on themselves. Tax is a bad word, so two problem: how to capture the sequestered wealth and how to distribute it. It's like a game of Monopoly, 6 hotels on Board Walk, everyone broke, game over. Speculation follows:

1.Thomas Paine in his book Agrarian Justice, suggested that every person has an equal right to the natural unimproved land and thus deserves a rent for the titled and improved use of that land during each person's lifetime -- makes sense. Thomas Paine if you have not done so, deserves a careful read, ("These are the times that try men's soles, etc." articulating the argument for equality and the American Revolution.) Paine outlines a system for collecting rent from property owners, deposited in banks, accounted for and distributed to every person during their lifetime, property rent, not property tax, thus redistributing capital equitably while avoiding the capriciousness of legislators attempting to, balance the budget after the fact, and the popular resistance to taxation.

2. Social Security struggles as a pay as you go (PAYGO) system, but if funded -- something like the Alaska Permanent Fund -- it would grow at the rate of capital growth, historically 5 or 6 times the rate of National Income and provide an equitable distribution of capital earnings. A funded Social Security could be far more generous, thus shifting capital into the hands of the consumer market and affording greater support for those who need it most including seniors. One might load such a fund through fees assigned to large financial holdings in the hedge funds and shadow banking's trillions. fees rather than tax, once funded it would be self sustaining. Capital growth is far greater than income. One might further prevent a raid on such a fund by removing it from the control of congress and placing it under the judicial system, judicial for protection of the constitutional amendment necessary to establish funded Social Security.

3. Free mandatory education to the age of 21 accomplishes not only an equitable distribution of capital but a game changer for a declining culture. It's nice to think globally, but at the end of the day, if we are to leave anything at all to our children we need to clean up our act here at home. Education probably offers the greatest return for the dollar in terms of driving growth. Furthermore, education to y21 will drastically reduce the unemployment by putting the unemployed back in school regardless of age and putting unemployed youth back in school and better preparing them for the high tech jobs of the future.

4. There are 3.4 million homeless, coincidentally, approximately the number of empty foreclosed homes. One forth of the homeless are veterans, and this is not counting the number of persons living in their cars and trailers. The banks carry the empty homes on their books at full value, not fair. A radical and somewhat dangerous solution might be to judiciously declare the foreclosed mortgages fraudulent restoring the titles to the former owners free and clear. This humanitarian act alone would transfer an enormous ill gained wealth back into the consumer market not to mention restoring housing to massive numbers of people. --- Great care would be needed to separate the investment banking capital from commercial deposits, not to trigger a run on the banks and failure of the commercial banking along with the investment side, doing so in such a way as to allow the investment losses not to affect the consumer side, the taxpayer or require government bailouts.
Commercial banking may once more need to separate from investment banking; there are many additional reasons.

5. Tariff should not be a bad word; it can fund a massive re-capture of capital and allow underdeveloped countries, that have no other source of revenue, to tax imports as well. OK, free trade, but balanced trade, otherwise it amounts to Colonialism. OK, let's also tax the obscene salaries of CEOs and add a high inheritance tax as well. According to Piketty a progressive tax rate above 50% correlates historically with a lower capital to income ratio and greater economic growth.

With enormous wealth, comes enormous power, much of it is used to rig the system, manage perception, the media, political correctness, a legal and environmental structure that furthers the Oligarchy. Globalization is Colonialism by a different name, and we are the colonists, the exploited. Furthermore,  free movement of labor into our country reduces the standard of living within our borders, adding to the exploitation and concentration of wealth -- a return full circle to the class divide of per-revolutionary Europe.

Again, redistribution happened naturally though not painlessly during WWI, the Great Depression and WWII. One way or another redistribution will happen; it will be painful, and nothing less than civilization is at stake.


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