The search for a stable economy.

Alison Marshall.
Land tax, better management of protectionism, and better understanding of demography are my suggestions. (March 2011). Also, Green taxes with citizens incomes. (October 2014 and May 2015).

Land tax.

In the last boom there was unjustified faith in inflation targeting. This was made more unrealistic by the fact that house prices were excluded from the inflation index. I think land tax would have been more effective for stabilising the economy.

Unlike most other taxes, land tax doesn’t increase prices. It should be phased in slowly, to avoid a sudden large decrease in land values.

Protectionism.

The international trade and capital imbalances that lay behind the financial crisis of 2008 are still an unsolved problem. It is not a new dilemma. The elimination of trade imbalances was discussed at length at Bretton Woods in 1944. (Currencies and trade, 2012).

Nations should be able to act unilaterally on controlling capital flows, said the president of South Korea. He declined to define what the limits to unilateral action might be. (Pilling and Oliver, 2010).

Protectionist policies could steer nationalised or recapitalised banks towards investing only at home, and close Western markets while allowing emerging markets to be flooded with cheap subsidised products. (Weber, 2009). Protectionism has been seen as a factor in the 1930s depression, but it has never been stopped, may be unavoidable, and may just need to be managed more fairly. (Stiglitz, 2006).

Imports may cause more problems, as current account deficits, than government spending, as fiscal deficits, or the level of GDP growth. To improve the current account, a Green tax shift would be relevant. (Sectoral balances, 2015).

Demography.

Since the late 19th century there have been four long-wave economic depressions, in the 1880s, the 1930s, the 1970s, and the 2010s. After each downturn new economic theories become dominant and are credited with the achievement of prosperity and stability until the end of the next boom.

Balanced budgets, free trade, Keynesian public spending, and inflation targeting have been dominant theories (Chapple, 1981). But an explanation for longwave Kondratieff downturns may still be a major missing link in economic theory. Why do they occur about twice every century? My demographic explanation is on my website. (Couples and the K-wave, 2008).

Green taxes.

To include environmental costs in prices, taxes on resources and pollution should be much higher. The average cost of living could remain stable if these Green taxes replaced income tax.

The transition from income tax to Green taxes should be announced immediately, but could be phased in slowly, to minimise economic disruption. A commitment to predictable future prices for renewable energy is more important for investors than a patchwork of unreliable short-term policies. (International energy investment, 2014).

It’s not clear whether the transition to a sustainable economy would cause economic growth or decline, but it’s not important, as long as welfare is properly looked after, there is paid employment for people who want it, childcare is properly paid for, including the work of mothers at home, and the financial system isn’t carelessly destroyed. (Red and blue reasons for a Green tax switch, 2007).

Citizens incomes.

Citizens incomes would be needed to compensate for some of the Green taxes, or in other words, to make the Green tax system progressive.

But they need not be delayed until the Green tax switch is complete. Citizens incomes should replace the current welfare system right now. They would be more efficient, less judgmental, and no more expensive than the current system. (Welfare policy in the 2010s, 2013).

References and further reading.

Land Tax. Stop the high house prices, inefficient taxes, and speculative fevers which have destabilised the entire global economy.

“Currencies and trade”, December 2012, in Inflation, interest and the supply of money: Currencies.

David Pilling and Christian Oliver, Financial Times, 29 October 2010. In “Resistance”, The crash of 2008: Recovery.

Dire warnings about protectionism, Tim Weber, 28 January 2009.

Joseph Stiglitz, “Making Trade Fair”, in “Making Globalization Work”, W.W.Norton and Company, 2006, and Penguin Books, 2007, and in “A way forward” in Green taxing and spending, 2006-2012.

“Sectoral balances”, May 2015, in Inflation, interest and the supply of money: Currencies.

Geoff Chapple, NZ Listener, 23 May 1981, in The crash of 1987.

Couples and the K-wave, March 2008. Long wave economic depressions may be caused by birth-rate cycles nearly two generations long.

“International energy investment”, February 2014, in Green taxing and spending, 2013-2015.

“Red and Blue reasons for a Green tax shift”, November 2007, in Green taxing and spending, 2006-2012.

“Welfare policy in the 2010s”, February 2013, in Welfare reform for the 21st century.