Archive for the ‘Economics’ Category

Land tax.

October 12, 2018

Land tax (LVT) may be the best way of taxing capital and reducing house prices and economic instability. But the introduction of LVT will be disruptive and unfair, so it should be done slowly. In the short term, rent controls or expensive housing benefits are probably inevitable. “The housing crisis”, in Land tax, November 2017.

The price of land is determined by its earning potential. An increase in land tax would cause a decrease in the capital value of the land, so that the annual cost to the landowner, paid as tax plus interest, stayed the same. Land tax, September 2017.

The tax rate on the capital value of land should be kept within the same range as interest rates, so that no more than half of the annual value is collected as tax. Land Tax, Summer 2010.

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Monetary policy.

November 7, 2017

The cost of borrowing remains extraordinarily low. Normalisation is an unprecedented challenge. The crash of 2008, June and November 2017.

Before 2006, to meet their inflation targets, central banks created excessive liquidity to balance the deflationary effects of Chinese trade. The Crash of 2008, December 2012.

The stagflation of the 1970s called into question the effectiveness of government intervention in the economy. “Inflation”, ammpol.wordpress.com/ammiim.

The Positive Money campaign isn’t targeting the kind of banking which was a factor in the 2008 financial crisis, and won’t stop the creation of money by private banks. Monetary sects, March 2014.

Boom and bust.

May 8, 2015

Ideally a country’s economy should have the household sector as net savers and the corporate sector as net borrowers, with the government budget nearly balanced and net exports near zero. “Foreign exchange”, Inflation, interest, and the supply of money, May 2015.

A k-wave downturn, driven by demographic change, may have been a factor in the global financial crisis. Other factors were Chinese exports, American mortgage law, and financial deregulation. “Back in the downwave”, The crash of 2008, January 2012.

After the 2007-8 crisis, banks took big losses on securities based on US mortgages. The widespread existence of ‘non-recourse’ loans in the US may have been an important factor. Lenders may recover debt from defaulting borrowers’ homes, but not from their other income or assets. The crash of 2008, July 2009.

To reduce economic instability, land tax, better management of protectionism, and better understanding of demography are my suggestions. The search for a stable economy, 2011 and 2015.

European election.

June 10, 2014

For me, in all the thousands of words I saw about the European election campaign, one sentence stood out. It was in the Manchester Friends of the Earth’s list of 10 policies:

” a new EU economic strategy . . . which shifts the tax burden from labour to resource consumption . . . ”
( http://www.manchesterfoe.org.uk/eu-election-survey-response-peter-cranie-green-party/ ).

Environmental taxes on resources and pollution could be better than income taxes, not only for the environment, but also for reducing inequality.

( ” Progressive tax and inequality”, in “Citizens incomes and progressive tax”,
https://ammpol.wordpress.com/ubiprog ).

I think this policy should be a major feature in the 2015 Westminster election campaign.

Going round in circles, again.

February 1, 2011

The monetary reformer quoted some of my last lot of replies out of context, and didn’t put the rest on his blog. So I’m not sending him this lot, I’m just posting them here. I hope there won’t be any more.

X: For you, economics seems to be about money. For us, economics is about life.

A: That’s not fair.

You wrote: “Economic growth requires (at least in part) increasing loans. If loans do not increase, the economy, as it is presently structured, fails.“

That’s a purely monetary definition of economic failure. Also I think its wrong, from a monetary point of view as well as from a Green one.

I wrote “Economic growth or decline is about GDP, in other words, money. Sustainability is about resources, climate, population, and other species, as well as money.”

That definition of economic growth is not just my opinion. Wikipedia says: Economic growth is the increase of per capita gross domestic product (GDP) or other measure of aggregate income, typically reported as the annual rate of change in real GDP. (en.wikipedia.org/wiki/Economic_growth)

And we agree that there is more than just money to the definition of a sustainable economy, but I said it before you did.

X: I take it you standardised the figures for a generation according to the life expectancy at the time you were measuring?

A: Its about age at reproduction not life expectancy. I used lognormal distributions to model age-specific fertility rates, and let the computer find the numbers which fitted the data best. For more details, see “Couples and the K-wave” on my website.

X: If it is not created at the point a loan is made, where and when is it created, in your view?

A: You‘re arguing with yourself. I’ve already agreed that money is created when a loan is made.

X: One cannot sustainably borrow in order to provide for daily living needs.

A: As I’ve already commented, the mortgage system is an example of sustainable borrowing to meet daily needs, and its also an example of sustainable investment, usually, with exceptions, as in the last decade.

X: A: I have shown that [debt does not necessitate ever increasing production and productivity.]

A: The bit in square brackets was added by you. Its confusing without a hyphen after “ever”. You had written “Hoogendijk has shown that debt necessitates ever increasing production and productivity.” I replied that I had shown that it doesn’t. My opinion is that debt does not always make it necessary to increase production and productivity.

X: Two manufacturing firms . . . They are now in competition as before, but now they have to service their debt. How can this fail to drive both to boost throughput of materials?

A: You’re talking to yourself again. I didn’t say it would fail, I said they probably wouldn’t get into debt if the economy was unfavourable, because they wouldn‘t get a loan.

X: This system is an important driver of economic growth, since the real economy is burdened with the necessity of paying back interest.

A: Now you’ve gone full circle right back to where we started.

1. The real economy also benefits from the interest, which is paid to the depositor, from the borrower, through the bank.
2. The real economy is also burdened with the necessity of paying wages. Nobody thinks that wages should therefore be abolished.

I don’t want to go round this circle again so I hope there won’t be any more replies.

Banking system and economic growth.

January 29, 2011

I sent some replies to a discussion about monetary policy on another blog, but they haven’t appeared. So I’m posting them here instead.

X: Economic growth requires (at least in part) increasing loans. If loans do not increase, the economy, as it is presently structured, fails.

A: This still says that equilibrium in the economy, as it is presently structured, is failure. Zero economic growth is statistically very improbable in any economic system, but a stable balance between small amounts of economic growth and decline is possible in the economy as it is presently structured. For me economic failure is what was happening in 2008, extremely negative growth.

Economic growth or decline is about GDP, in other words, money. Sustainability is about resources, climate, population, and other species, as well as money.

X: A possible factor in economic cycles is engagement and disengagment with reality. There is an analogy to be drawn between bipolar illness and the market.

A: Bipolar illness doesn’t have the regularity of the long Kondratieff cycles (K-waves). Goldstein wrote that “ the relatively fixed length of a generation” is like “a clock that links long waves to calendar time.”  My demographic explanation has this regularity, its wavelength is 1.7 generations.

X: To clarify, I agree that the interest is paid with money that is in circulation. The new money is created at the point that the bank enters a loan into the account of the borrower. This new money is spent into circulation.

A: It doesn’t really matter whether the credit or the debt is defined as new money, as they are equal amounts of money. One is new money, the other is old money, one circulates, the other doesn‘t.

The debt doesn’t circulate, it stays in one place until it disappears when it is cancelled by the repayment by the borrower. Meanwhile the credit could more appropriately be described as “continuing to circulate”, not “being spent into circulation”.

X: My model of businesses A and B holds, because the only valid reason to borrow is to invest. One cannot sustainably borrow in order to provide for daily living needs.

A: Yes one can. Mortgages are an example. They are a way of transferring housing from old people to young people, while the interest on the mortgages transfers money in the other direction, to pensions.

X: Alison, will this cover it?

4 To pay back the interest means that the borrower either has to invest the loan to make a profit on the market, or from earning wages.

A: No, there is interest from other investments, or unearned money such as the scandalous capital gains in the last house price bubble, or pensions, or winning the lottery. Any of the money that is already in circulation may be used to pay the interest on a new loan.

Anyway I don’t see the point of line 4 unless you are wanting to prove that interest is unsustainable, and I don’t believe it is.

X: We need to sort out the impact of debt on growth. . . Hoogendijk has shown that debt necessitates ever increasing production and productivity.

A: I have shown that it doesn’t. Total debt may increase, decrease or be stable. I don’t know who Hoogendijk is, but he wouldn’t be the first expert who has been wrong.

X: Increasing productivity implies increasing unemployment, which entails increasing SS payments, which increases the country’s deficit. . . In order to attain a steady-state economy, which is what ecology requires, we need to ground our economics on ecological reality.

A: Yes, I agree. A Green tax shift from labour to resources and unearned capital gains from land is what is needed.

X: Interesting point from Atlanta Fed. If booms and busts cancel each other out, there has to be a better way of arranging things.

A: Its good that they cancel each other out but we need to make them smaller. Land tax, better management of protectionism, and better understanding of demography were my suggestions.

X: In the UK, they routinely produce 97% of new money.

A: This was your reply to my comment that the banks haven’t got a monopoly. . . See my next comment.

X: Leaving whether “Bank Monopoly” is precisely correct or not, the substantive proposal is that the ratio should move from 97/3 to ~50/50.
Does this meet with your approval?

A: Not really.

1. I wonder how enforceable a required reserve ratio is.
2. The most appropriate level of the ratio probably varies depending on whether stability or a boom or a bust is happening.
3. 50/50 may be too extreme. Between 2006 and 2009 the money multiplier, defined as “broad money relative to central bank money” or “the link between central bank money . . . and money in the economy”, was highest, at about 64, in early 2007, and lowest, at about 25, in late 2008. (Financial Times, 6 March 2009)

So the ratio of broad money to the total of central bank money plus broad money varied between 25/26 and 64/65. That‘s between 96.2% and 98.5%, in three years in which there was a transition from a major bubble to an exceptionally large crash. So a reduction to 50% might be too revolutionary.

A: So in the last 2 days we have found lots more disagreements, about growth, cycles, money creation, sustainable borrowing, interest, debt, cycles, broad money, money multipliers.

Its been interesting but I need to get on with the rest of my life, and don’t want to get involved in the wiki.

Economics, environment, welfare.

July 10, 2009

All the other pages on this site are listed in ammpol.wordpress.com/about, with a brief description of each page following its title and link.

They are grouped into five categories: Boom and bust, Monetary policy, Welfare, Environment, and Summaries.