THE NEOLIBERAL EXPERIMENT – LOWER TAXES ON THE RICH, DEREGULATION OF LABOR AND PRODUCT MARKETS, FINANCIALIZATION, AND GLOBALIZATION – HAS BEEN A SPECTACULAR FAILURE.
Review of the policies in “Rational Policies” by Prof. Steve Keen
Hon Professor, UCL & ISRS Distinguished Research Fellow
Prof. Steve Keen was one of the few economists to forecast the Great Recession of 2008. His latest book is “Can we avoid another financial crisis?”. In it he forecasts that Canada will face a crisis and will, unless policies change, join the group of countries he classifies as the “Walking Dead of Debt”. He bases this on Canada’s private debt exceeding 250% of GDP (which it has reached since the book was published) and on a shrinking resource sector. Professor Keen is now solely devoting his efforts to reform of banking policies and macroeconomic management to foster a more vibrant capitalist market economy.
His review of “Rational Policies” does not support all of the policies suggested therein, but thankfully provides some hoped for openings for debate. The unwillingness, or inability, of candidates and Members of Parliament, and all Canadians, to debate such issues and policies must be overcome. Please read, and urge others to read, his comments and then “Rational Policies”. Apply rational thought and add those thoughts to the debate that, hopefully, will follow.
Professor Steve Keen August 26, 2019
The following comments follow my review of “Rational Policies”:
Of all your policy ideas, the one that I think is most worth pursuing is the criticism of income tax and the search for an alternative based on transactions, both real and financial. My perspective here commences from agreement with MMT and functional finance that the government doesn’t tax to spend, but spends and then needs to withdraw excessive money from circulation to avoid runaway inflation. This stems from the rise in the size of the government sector from 5-10% of GDP before the Great Depression to 30-50% after it.
Financing that level of expenditure out of money creation alone would cause hyperinflation, so it has to be withdrawn somehow.
That somehow became income tax, initially at much higher levels and with a progressive bias. It worked in its early days, but the rich can evade it in ways that are not open to the middle class or poor, leading to most of the burden of withdrawing money from circulation falling upon them these days, and the rich actually accumulating more wealth by their evasion of income tax.
An alternative is needed, and these could be transactions taxes, luxury consumption item taxes, land taxes, etc. I doubt that income tax could be completely eliminated this way, but we need to shift the burden of taxation from income tax to other forms that (a) don’t directly aggravate people as much as income tax does and (b) aren’t easily evaded by the wealthy. I’m strongly in favour of a transactions tax on financial speculation.
On money creation, I am an academic advisor to “Positive Money”, as you know, so I am sympathetic to the idea that more of our money supply should be created by the state. But I see reasons for a private bank capacity as well, though directed at the real economy rather than speculation as now. The reason is that I can’t see government created money getting to entrepreneurs (though private banks won’t fund them either now). If the banking system were constrained so that lending to finance speculation was no longer an option, then I can see banks lending to small business while still using debt, and lending to entrepreneurs if they can take an equity position in them rather than a debt lien. But I remain a critic of a pure government money creation system.
I support the idea of a revived Post Office Savings Bank: this again could be a good thing to campaign for. The concept would be a safe place to store money, and it would be a means of payment that would be unaffected by failures of the credit system.
I also support the idea of a “Universal Basic Income”, though more substantial than you’re proposing. This could be allied to the POS Bank idea, and also the debt jubilee–which of course I support.
As you know, I believe that we have to drastically reduce our energy consumption, and moving away from frivolous consumption will be part of that. However, I am so pessimistic about our prospects of doing that in time that I don’t think market mechanisms, or taxation, are likely to be effective. The scale needed to reverse our current course would be so great that these policies would be politically toxic, and blamed for the downturn they cause–when the real cause of the ultimate downturn will be our excessive energy consumption in the first place. Unfortunately I feel that we’ve gone so far past the sustainable point that the only way out is to experience the consequences–and then realise that rationing is justified once it is imposed.
As for discussing your ideas with the objective of putting some of them into action, there it comes down to who are the relevant actors in each country. I really don’t know anyone or group in Canada. However, I think that ultimately Extinction Rebellion may provide that political channel.
I’m not enthusiastic about your ideas on a rate of return on savings of 3%, I think that harks back to a time when private debt was low, and economic progress thanks to innovation was high. As I emphasise in my monetary analysis using Minsky, in the aggregate, savings are zero: one entity’s accumulation of money comes at the expense of the rest of society’s dis-accumulation by precisely the same amount. The issue then is who can afford to dis-save, with the answer being the government sector–the only sector that owns its own bank.
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