“The inevitable climate solution” also helps to face structural unemployment, economic growth, and inequality

George P. Shultz and Lawrence Summers sign up completely on a revenue neutral carbon tax proposed by the Climate Leadership Council. “The inevitable climate solution” Washington Post, June 20.

Indeed a carbon tax which revenues are equally redistributed to all is the way of how to align the market signal that will help to face the current environmental challenges, the current concerns about inequality, the current proposals of a universal basic income to face growing structural unemployment, and the current concerns about the lack of sustainable economic growth.

So please, even if this could make Trump to become a greater green hero than Al Gore, swallow it, for the best of our young.

http://ourpiedaterre.blogspot.com/2017/04/solutions-that-share-out-all-benefits.html

@PerKurowski​

Low interest rates, by inspiring laziness, sometimes also act as a determent to economic activity

I just want to add a factor that I feel has been ignored in all the ongoing debate on how low or even negative interest rates can stimulate economic activity.

During my life as a financial and strategic consultant, I have often seen how the pressure of the interest-costs-clock on projects, have really inspired these to get going, to execute fast. In other words, low interest rates can also inspire laziness.

What a great deal! Take loan at negative interest rates... do nothing... stay in bed... repay... and profit!

I fight against inequality, on the side of the opportunity enablers, not on that of the wealth redistribution profiteers

Around the world, government market interferences and many other inequitable arrangements, is  generating a dangerous inequality that will come back to bite us all... innocent or not.

But I come from a country, Venezuela, where a Minister of Education belonging to Hugo Chavez 21st Century Socialism stated: “The campaign against poverty should not help to move up the most needy to the middle class, since that could cause these to become ‘escuálidos’”, meaning opposition. 

In my homeland I now fight for the sharing out of all net oil revenues in equal parts among the citizens. That so that the government who currently  receives 97 percent of Venezuela´s exports, don't use those revenues to enrich itself and torment the citizens.

Thinking back, what got me started on that, was an experience as the first diversification manager at the Venezuela Investment Fund that was supposed to manage oil revenues, 1974,  a post to which I resigned after only two weeks, having convenced myself it was all just a cover up for politicians and technocrats to do what they wanted with our oil revenues.

So, as you can understand, I have experiences which lead me to believe that the worst part with taxes, is quite often not the tax evader, nor the taxman, but the tax revenue abusers. And so, when thinking about the need of fighting inequality, the last thing I want is for that fight to fall into the hands of any wealth redistribution profiteers... be those profits financial or political.

So what could we do? Perhaps all of us citizens could deposit annually 10% of our income and 1% of wealth in a Big Pro-Equality Pot, and thereafter just share it all out in equal parts among all of us citizens. There should be no or absolutely minimum government intervention, and the operations could be contracted out to the debit card company that charges the lowest fees. Any citizen paying into the pot more than what he receives, should of course be able to deduct that difference from his ordinary taxes.

The beauty of that wold be that since the Pot would be strictly a citizen to citizen responsibility, which did not involve any Sheriff of Nottingham taxman, it would be so much easier to apply social sanctions for its avoidance.

But, much much more important than any ex-post wealth redistribution, is the ex ante enabling of opportunities, since only that could  help us all to move forward.

For instance I have been fighting for soon two decades, against the credit-risk-weighted capital requirements imposed by bank regulators that favors the access to bank credit of The Safe, like the “infallible sovereigns”, the AAArisktocracy and housing. And that thereby odiously discriminates against the access to bank credit of "The Risky", like SMEs and entrepreneurs.

What got me started on that was when in the mid 90s I began to suspect that a dangerous credit-risk aversion was being imposed on our banks by the Basel Committee for Banking Supervision. And then reading the following passages from John Kenneth Galbraith’s “Money: Whence it came where it went”.

“The function of credit in a simple society is, in fact, remarkably egalitarian. It allows the man with energy and no money to participate in the economy more or less on a par with the man who has capital of his own. And the more casual the conditions under which credit is granted and hence the more impecunious those accommodated, the more egalitarian credit is… Bad banks, unlike good, loaned to the poor risk, which is another name for the poor man.”

“For the new parts of the country [USA’s West]… there was the right to create banks at will and therewith the notes and deposits that resulted from their loans…[if] the bank failed…someone was left holding the worthless notes… but some borrowers from this bank were now in business...[jobs created… It was an arrangement which reputable bankers and merchants in the East viewed with extreme distaste… Men of economic wisdom, then as later expressing the views of the reputable business community, spoke of the anarchy of unstable banking… The men of wisdom missed the point. The anarchy served the frontier far better than a more orderly system that kept a tight hand on credit would have done…. what is called sound economics is very often what mirrors the needs of the respectfully affluent.”

What could we do about that? Obviously getting rid of those credit risk weighted capital requirements for banks, and just have one single capital requirement, perhaps 10 percent, on all assets.

But unfortunately, when I hear about “we have to fight against inequality”, I hear much too often the voices of inequality profiteers, not at all interested in either enabling opportunities or redistributing efficiently.

PS. There's a world of difference between a redistribution of wealth cost of let us say 2 percent and one of 80 percent.

PS. #WEF #Oxfam #Davos What is the wealth of 62, $1.76 trillion, divided by 3.6 billion? What happens the day after if that inequality is gone? The problem is not that some are wealthy but if how they became wealthy blocks the opportunities of other.

PS. My Tax Paradise

PS. In fact “The wealth of 62 richest equals that of 3.6 billion poorest” is a deviously false and odiously divisive statement 

PS. Universal Basic Income is being studied and the redistribution profiteers will do all they can to have it fail. 

What the World could learn in Sri Lanka

Last week, I heard the presentation of a research paper that studies the impact of migration on growth and spatial inequality in Sri Lanka, titled Can migration be an engine of pro-poor growth?, authored in 2006 by Nobuo Yoshida, K.G.Tilakaratna and Suranjana Vidyarathne. It was a very interesting presentation but; nonetheless, after just a couple of minutes, I could not stop my mind from wandering off into the following reflections. I beg your pardon, Nobuo Yoshida.

Would this study be different if instead of looking at a map of all the very different districts in Sri Lanka we were looking at a map of the world? Can we really research migration from one country to another with the same ease we observe when the analysis is of the internal migration? Do not all the institutional restrictions and emotional biases that arise while analyzing migration from one country to another hinder us one way or another from reaching the real conclusions?

Can we analyze migration from one country to another in a globalized world if we still have to carry the flags from the non globalized world? When we study the migration from El Salvador into the USA, should we instead of looking almost exclusively into their remittances, be looking much more at their gross earnings, salaries; and thereby perhaps conclude that El Salvador, as that nation that is no matter where their people are, might indeed be growing much faster than China. If in China migration might be from west to east, from 50 to 150 dollars of income per month, El Salvador is doing theirs from south to north, from 100 to 1200 dollars per month.

The state of Connecticut showed a per capita income in 2004 of 45,318 dollars while Mississippi had only 24,518, just about half. Does this imply that when deciding upon temporary visa programs the USA should consider more where the temporaries should go? Should they go to the poorer or to the richer states? Can or should the states compensate each other for differences in migration, one way or another? Certainly if we knew more about these issues then we all stand a better chance for rationality to prevail.

Back to the Sri Lanka study, one of its conclusions is that as their internal migration goes mainly to the already congested Colombo Metropolitan Area, this could reduce Sri Lanka’s annual growth rate by 1.5 percentage point, compared with if Colombo were not over-concentrated. Would this be indicating we should start to look at controlling migration flows in the world as London does with its traffic, by officially charging a fee for passing from one area into the other and have market forces decide how much these fees should be.

And we could go on and on this route of analysis, and fight world poverty so much better, if only we could ban the flags. It is clear now that we need many of these internal migration studies, like the one on Sri Lanka, if we are ever to get a chance to understand cross-border migration.

What the world needs now… [is growth sweet growth]

The United States of America is the only economic engine that keeps today’s low world growth rates from degenerating into a horrible global depression. It is no wonder, then, that all eyes are on this country’s economic performance. 

Actual consensus, based on a fiscal surplus, a very low unemployment rate and a basically non-existent inflation rate, implies that this performance is nothing short of spectacular. For those who still doubt, it should be enough to simply analyze the incredibly high acceptance rating garnered by President Clinton in spite of events which in other times, due to their nature, would most probably have resulted in his impeachment.

I would classify all other nations in two broad groups. The first group consists of those countries that have lost the international market’s confidence and who reluctantly or not must accept traditional Monetary Fund style recipes such as the reduction of fiscal deficits and increases in interest rates. 

The second group includes those that still can count on basic strengths. Japan, for example, is one of these. Apart from lowering interest rates to their minimum expression, they dabble (albeit sometimes timidly) with Keynesian measures such as the issue of consumer coupons.

Confusion basically exists only in Europe. There is still much discussion between the European Central Bank, wishing to prove its orthodoxy in the face of the birth of the Euro, and the individual governments, anxious to get their economies back on the road of growth.

You may ask why, as a local columnist, I am writing about the world economy. There are two basic reasons. The first is that Venezuela is a living example that helps us to remember what happened during those times when each country tried to put its house in order individualistically. The accumulated global result was worldwide economic contraction. By striving to adopt measures gleaned from the manual of good economic behavior, our country slowly managed to go from a state of obesity to one of severe economic anorexia, a condition which makes it impossible for companies to pay adequate salaries and for those who receive this meager pay to purchase goods or services from those same companies. The world should pay attention so it can avoid going the same route.

The second reason is simply the need to alert anyone who will listen as to the fact that it is absolutely necessary for Venezuela and the world in general to get back on the track of international growth. In Venezuela’s case, the situation is obvious. Either we grow or we disappear. Simple as that! It is slightly more difficult to perceive the urgency of the situation globally, except for those countries that, like Venezuela, have had serious problems with their debt load.

I am under the impression that due to the abundance of bad news generated by the world today, which in turn promotes belief in wonderful saintly Superman-like saviors, markets have blithely been ignoring the increasingly nettlesome problem of the United States’ commercial deficit. Please do not confuse the message with the messenger. I don’t wish to stoke the fire, but I do wish to remind everyone that this country’s commercial deficit boils down to a whopping US$ 1 billion per day.

Since the United States’ public sector maintains that it’s budget is in the black, the only economic counterbalance to the above mentioned commercial deficit is the private sector’s indebtedness. In other words, the fuel that today’s economic engine has been using to continue on its most opportune buying binge, in the best “its cheap, give me two” tradition, is the funding that the rest of the world pumps into its tank. In Venezuela, we can safely testify to the fact that this source of energy does not last forever.

There is only one way that the world will survive this problem relatively unscathed. It must simply begin to grow again before the problem begins to cause strong increases in dollar interest rates, driven either by the United States’ need to curb its growth rate, contain internal inflationary pressures and control its commercial deficits, or by an international market that will slowly but surely loose its confidence in the dollar’s future.

To grow! So easy to say, but so difficult to actually do. Above all else, however, I believe it is the result of mental attitude. 

Amongst friends I have often said that when citizens of the United States decide to buy goods and services from one another and go out for dinner every evening, the consequence is growth. When Europeans, in a steadfast show of responsibility in the face of hardship decide to stay home, the result is contraction.

Simply put, what Venezuela and world urgently needs, is leadership that knows how to stimulate growth sweet growth.