11 Nov 2014

The UK government is on track to pay the bankers yet more interest on public sector debt

Just in case you haven't grasped this yet, here is an official document produced by House of Commons Library of the UK. The report, published on the 7th November, is called "Government borrowing, debt and debt interest: historical statistics and forecasts". It reproduces the set of figures and graphs that I had already seen about the amount of money that UK taxpayers have to find every year to pay the interest on public sector debt. Here it is again with the numbers since 1955. For the full story since 1694 and the creation of the Bank of England, see my earlier post.

It also gives the numbers for public sector borrowing, public sector debt, and public sector debt interest. I'll just show the numbers since 2008 - they illustrate just how well the UK governments efforts at fixing the economy have succeeded.
Finally, there is a graph that shows how the experts predict that the percentage of UK GDP that taxpayers will have to fork out to pay the banks for lending the government "money" will increase in the next few years.

As you can see, there are no plans to derail the Bankers' gravy train. From 2.8% in 2013/14, it's set to ramp up to over 3.5% of GDP in 2018. Now remind me, who is it that George Osborne is working for?

No-one seems to find it in the least abnormal that the Banking system is able to get UK taxpayers to pay them £50 billion a year in unjustifiable interest charges. I think that the image of enormously bloated parasitic tape-worm is quite appropriate. And the government clearly thinks that it is more important to keep the tape-worm well fed using taxpayers money than it would be to provide pointless things like public services.

600,000 soldiers butchered in the first world war. Guess who benefitted?

Today is a sad day. It is armistice day in France - the 11th of November. It's the day we remember the hundreds of thousands who lost their lives in a particularly stupid war that started 100 years ago. Today, the french president François Hollande is inaugurating a magnificent memorial at Notre-Dame-de-Lorette. It is a ring of concrete 328 meters long, with the names of roughly 600,000 men and women who made the ultimate sacrifice. Their names are listed in alphabetical order - all nations together, with no indication of rank. There are 294,000 British names, 174,000 Germans, 106,000 French and other names  from a total of over 30 different countries that include India, South Africa, Australia, New Zealand, Vietnam, Laos... The memorial makes  it clear that everyone loses in the madness of war.

Everyone? Well, not quite. While hundreds of thousands of troops were being subjected to inimaginable suffering in the trenches, there were in fact some people who were presumably very happy to see the ongoing slaughter.

Last week, my blog included an amazing chart showing the interest payments made by UK taxpayers on public sector debt since the creation of the Bank of England in 1694.  I was struck by the fact that those interest payments were always particularly high in the period following wars. One of the clearest examples was the period from 1922 to 1933 when the amount that UK taxpayers paid in interest never dropped below 8% of GDP.

Let's have a look at another graph - also provided by the excellent UKPublicSpending website that provided last weeks figures.  This one shows the level of UK public sector debt as a percentage of GDP, again since the creation of the Bank of England.

You can see that the debt levels rose steadilly thoughout the 18th century to reach a peak at 260% of GDP in 1819 - thanks no doubt to the British Government's string of wars at the start of the 19th Century - there were 21 different wars engaged between 1800 and 1819.

Things actually went pretty well for the rest of the 19th century, with debt levels dropping almost continuously. By 1914, public sector debt had dropped to just 25% of GDP.

But then, the First World War broke out, and public sector debt soared more than five-fold to reach 135% of GDP by 1919. The debt levels remained very high, peaking at 181% in 1923 and were still over 177% in 1934. This was a period that were really boom years for the bankers, who were raking it in - as illustrated in the graph of interest payments as a percentage of GDP.

Debt levels started to drop a bit after 1934, and reached 109% in 1940. But, fortunately for the bankers, World War II stepped in, and public sector debt rocketed again to reach 238% of GDP in 1947.

By combining the graph of Public Sector Interest Payments that I provided last week, with this week's Public Sector Debt chart, I have been able to generate a third graph. This one plots the effective Interest Rates being paid on Public Sector Debt since the creation of the Bank of England. Here it is.

As you can see, the first 30 years or so of the Bank of England, it wasn't yet clear how much the Bankers could get away with. The rate was going up and down, with a whole series of peaks. The highest value was seen in 1715 when they had the nerve to charge a massive 16.8%. Not quite as terrible as we currently have to pay for credit card loans, and nowhere near the 14348% charged by some Payday Loan companies in the UK, but impressive none the less.

After about 1740, the system was clearly well in place, and the interest rates stayed stubbornly at around 4% until about 1870. From that point on, the Bankers edged up the rate a bit every year until it peaked at 9.7% in 1913. The climb looks so linear that I would be tempted to suggest that it was deliberately manufactured that way. At that point, I guess they decided that if they wanted the government to really go into massive levels of debt to pay for the First World War, they better ease off a bit and so the interest rates dropped back to the 4% level that the banks had been charging for nearly 150 years in the 18th and 19th Centuries.

During the rest of the 20th century, you can see that they again were relatively modest in their claims until about 1950. After that, the rates edged up and up throughout the 60s, 70s and 80s to reach a new peak of 12.4% in 1990 - something that the banks hadn't managed since 1715.

Now. Here's the vital thing you have to understand. When commercial banks make loans to the UK government, they don't actually have the money they lend. As the Bank of England has recently admitted, when Banks make loans they literally just create the "money" they lend out of thin air. That's true when they make loans to people like you and me, or when they make loans to businesses. But it's also true when they make loans to Governments.

Yes, that's right David Cameron. There is a "magic money tree". There's one in every single Commercial Bank. And if they can get some gullible politician to take on debt to pay for a war, then they have a guaranteed stream of income - for doing nothing.  It is quite simply breathtaking - and the most mind-blowing con trick ever devised.

Since the creation of the Bank of England, which set the model for all the current banking systems throughout the world, it has become standard practice for bankers to offer as much "money" to governments as they like. The only question is how much they can get the stupid (or complicit) politicians to sign up for.

And if you can get the politicians to start fighting a war, then that is absolutely perfect. Since the banks can create as much debt as they like by making "loans" with non-existent money, the more wars there are, the better it is for the bankers.

Can I prove that the First World War was deliberately started as as racket to allow the Bankers and their friends to suck an even more obscene amount of money out of taxpayers pockets? Maybe not. But I think that we owe it to the 600,000 dead in the First World War to find out the truth.

9 Nov 2014

Could we simply scrap taxes on company profits?

The latest scandal concerning the behaviour of the Luxembourg government under Jean-Claude Juncker raises the question of whether attempting to tax company profits is doomed to failure. The tax deals offered by Luxembourg meant that multinationals could set up a one room operation in Luxembourg whose job was to lend money to other parts of the company, charge interest and declare the profits in Luxembourg where the tax rate could be as low as one percent. It is clearly immoral, even if it could well be legal.

At last week's meeting of G20 leaders, it was suggested that such practices could be limited by preventing companies from lending money and charging interest between different their different operations. But I think that as soon as you eliminate that trick, the tax optimisers will simply find some other option to take advantage of differential tax rates in different countries. And it will always be the case that a small country that can offer very attractive tax rates will be able to grab more than its fair share of the tax revenues.

I've been arguing for over four years that a sensible way to eliminate this problem would be to simply scrap all taxes on company profits, and to replace those taxes with something more intelligent - namely a simple tax on all financial transactions.

How much would countries lose in income if they were simply to scrap taxes on company profits completely? Well, to find out, I've been looking at the data provided by the OECD for 31 different countries.  You can find the original data here. I've taken figures for the percentage of total tax revenue coming from taxes on company profits since 2000 and sorted them based on the figures for 2011 (since the numbers for 2012 are not yet complete).

I find the numbers quite revealing. First, Norway manages to get around 25% of its tax revenue from taxing company profits - presumably oil. Lucky them. Other economically strong countries such Australia, Korea, New Zealand, Japan Canada and Switzerland all manage to get over 10% of their revenue by taxing company profits. But within the Eurozone countries (shown in blue), you can see that for most of them, they only get about 5-6% each. The notable exceptions are, guess what, Luxembourg and Ireland, who have both been accused of attempting to undercut the other countries. That strategy has clearly worked, because the lucky residents have managed to get 13.5% of their tax paid by companies that often have just an office and a desk in Luxembourg. Actually, that rate reached over 20% in 2002.

For me, it seems clear that, since the amount raised by taxes on profits in most European countries is actually quite modest, it might well be a good move to get rid of them completely.

Suppose that the European Union or perhaps just the Eurozone were to make that move. It would provide an obvious and much needed boost to businesses in Europe. Apart from the fact that those businesses would not have to pay the taxes (which would obviously be good news), they would also be able to forget about employing armies of tax consulatants and optimisers, making European produced goods more competitive.

A further advantage is that Europe would suddenly become a really attractive place for companies to set up their headquarters. It would appear that many big multinationals currently have hundreds of billions of profits that they are keeping off shore - simply to avoid having to pay taxes on those profits. Bring that money back into the economy!

Of course, those people who currently make their money by devising increasingly complex mechanisms to allow their employers to avoid paying taxes will have to find something more useful to do. So be it. I really have little sympathy for them.

One other group that will probably moan are the policians. For decades, they have been used to the idea that they can play the system by giving perks to their allies in the form of tax breaks. All that would be a thing of the past.

But, if you were to ask any normal citizen, or any businessman involved in trying to make a good living, I doubt that there will be many who would find it problematic if politicians had a little less room for negotiating with the lobbyists.

Of course, we will need to replace the lost revenue. But, hopefully, if you have been reading my blog you will know what we need to do. Simply put a microscopic tax on all electronic financial transactions. With over €2 quadrillion in transactions in the Eurozone, over £2 quadrillion in the UK, and a minium of $3 quadrillion a year in the USA (although the real figure could easily be several times higher), it is clear that there is enormous scope for generating revenue.  I expect that the FTT rate needed to scrap taxes on company profits may well be as little as 0.01%.

Jean-Claude Juncker  - are you listening? Will you do something to try and recover your abysmal image?

An open letter to Jean-Claude Juncker - president of the European Commission

The world has just heard the full details about how Luxembourg has been providing tax deals that have allowed hundreds and possibly thousands of multinational corporations to avoid paying taxes in the countries in which they make their profits. This has been a major factor in causing the public sector debt crises that have been affecting all European countries - with the possible exception of Luxembour itself.

Before being nominated president of the European Commision in 2014, you were the Prime Minister of Luxembourg from 1995-2013, and its Ministry for Finances from 1989-2009. You were certainly fully aware of the way that your country was deliberately allowing multinationals to reduce their taxes, and quite possibly directly involved in setting up these dubious and secretive deals.

I presume that you realize just how bad this looks to anyone outside the system. We are continuously being told that one of the basic principles of the EUs is to encourage fair and open competition. And yet, thanks to the system that you sent up, multinationals have been able to avoid billions of euros in tax, tax that smaller locally based companies could have no hope of avoiding. Try setting up a coffee shop next to Starbucks store, or a bookshop when you have to compete with the likes of multinationals like Amazon.

I wonder how you can look at yourself in the mirror.

But I'm a reasonable person. And I'm happy to give you a chance to make up for all the damage that you have inflicted on everyone not resident in Luxembourg.

Here's what you should do.

I believe that there is simply no hope of making the current system for taxing company profits fair. As long as there are taxes on company profits, there will always be a veritable army of tax consultants and advisors prepared to work to take advantage of any loopholes that exist.

So, why not do what all businesses would dream of? Why not simply scrap all taxes on company profits? Given that companies will almost certainly devise new ways of getting round their tax obligations if at all possible (arguing that they are simply acting in the best interests of their shareholders)?

Of course, if you scrapped taxes on company profits, you would have to find some alternative way for governments to get the revenue needed to cover the costs of providing public services and the link.

Fortunatetly, there is just such an alternative scheme. It's called a flat-rate financial transaction tax that would apply on every electronic transfer of funds in Europe. 11 countries in Europe are already hoping to introduce such a scheme in 2015. Just make all European countries introduce one and use the revenue generated to allow taxes on businesses to be abolished.

You would make yourself very popular with almost everyone. In principle, all business leaders will be delighted, because it would make life much easier for everyone, and provide a massive simplification.

It would also bring an end to the "tax-optimisation" industry at a stroke. The only thing that a business could do to reduce its tax payments would be to keep transactions low. But for all parts of the economy involved in producing useful goods and services, such effects would be marginal. The only people that would be seriously affected would be those who are currently involved in high-frequency trading and speculation. But I assume that you are not working for them - right?

The other group who might protest are politicians who have been used to being able to use tax breaks as a way to appease lobbyists and win favours. With the change in the system, they would be forced to make direct subsidies with taxpayers money if they want to support a particular group - much less easier than the tax break option.

So, why not make up for all the harm you have done by working to improve the way the tax system works?

2 Nov 2014

The biggest racket in history - how Banks have ripped of UK taxpayers since 1692

I'd already found some figures from the Library of the House of Commons showing that UK taxpayers had been paying around 3% of GDP in the form of interest payments on Public Sector debt since the early 1950s at least. And I had always wondered what the numbers looked like from earlier periods.

Well, I've just found a truly amazing website called UKpublicspending which is absolutely stuffed full of data. One particular dataset immediately caught my eye. It's a table of Public Debt Transactions from 1692 to 2016.

You can see the graph directly, but I've downloaded the raw data, and generated my own Excel Chart. Here it is.


Gulp!

Since the creation of the Bank of England in 1694, UK taxpayers have being paying an average of 4.43% of total GDP as interest payments to the banking system. The scam was most succesful in 1817 (when they managed to extract over 10% of GDP in interest payments), but 1715 was another great year (9.81% of GDP in interest payments). The other golden period was from 1922 through to 1933 when the system never dropped below 8% of GDP.

Now, as the Bank of England has now openly admitted, when Commercial banks make loans, they don't actually have the money they lend. They literally create the so-called "money" out of thin air. That's true when you ask for a loan to buy a house or a car. But it's also true when George Osborne asks to borrow another £11 billion from the "markets" to cover the Public Sector borrowing requirements for just one month - September 2014.  The full gory details of just how much the UK government has been borrowing is revealed in the latest figures from the Office for National Statistics
 
Here's figure 2, showing Public Sector Net Borrowing since 1993.
From this, you can see why total Public Sector Debt has been rocketing - despite the UK's governments so-called economic competence. Here's figure 3 from the same document.



Since Osborne and Cameron took charge of the UK economy in May 2010, they have borrowed a total of £452.9 billion from the "magic money tree" that Cameron claims doesn't exist.

Yes it does.

Banks can in fact generate infinite amounts of debt for complicit governments, because lending to AAA to AA- rated governments like the one in the UK has a risk-weighting of 0%. That means that, according to the Basel banking rules, they don't even need any capital at all.

This is total lunacy. And it is clear that either Cameron and Osborne are totally ignorant and don't realize that we are all being ripped off, or they are actively working for their paymasters. Actually, I think that both statements are probably true.

When will people realise that this scam has been running since 1692? It is time to put an end to it. In my opinion it is nothing short of a criminal conspiracy.

25 Oct 2014

Why Conservatives and Right-wingers should be pushing for an Unconditional Basic Income for all

In my last few posts, I have been trying to show that everyone should be pushing for the introduction of an Unconditional Basic Income for all.

To recap, my starting point is the idea that we force Central Banks to introduce a flat rate financial transaction tax on all transactions denominated in the currency of that Central Bank - wherever they occur in the world. Thus the European Central Bank could impose a tax of (say) 0.1% on all transactions denominated in Euros. I suspect that Euro based transactions are running at a minimum of €2 quadrillion a year (although this can only be an estimate, since amazingly, noone appears to know). But, if that number is correct, we can assume revenues of around €2 trillion a year, enough to provide every man, woman and child in the Eurozone (there are 330 million of us) with an annual revenue of €6000 - €24,000 for a family of four.

All this could be achieved without the need to create any new money... thus completely demolishing the standard argument that giving money to citizens would lead to uncontrollable inflation. Indeed, the mechanism would simply have the effect of  moving money from those who currently have lots of it (in particualar the financial markets and traders who have been the main beneficiaries of Quantitative Easing measures), to those who don't - namely, the average man and woman in the street.

Some Conservatives and Right-wingers might protest that this is some sort of outrageous left-wing plot to rob the rich and give to the poor.

Wrong. While I might agree on the first point, namely that the tax will have a larger effect on those who are currently the ones with the money (i.e. the Uber-rich), the system is not favouring the poor selectively, because every citizen will benefit from the Unconditional Basic Income payments - rich and poor alike.

But there are other reasons why such a plan should really appeal to Conservative and Right-wing voters. One of the most important is that it would allow a massive simplification of state-run benefit systems. Rather than employing armies of civil servants to verifying that all those people claiming unemployment benefits are truly looking for work, the payments would be made without any need for verification.

It would also mean that many of the poverty traps built in to to the current system would disappear overnight. Currently, many people on benefits have the impression that it is not in their interest to go out and work, because they would lose some of their precious benefits.

There is a beautiful illustration of this in France at the moment. Currently, French families all receive a fixed monthly allowance according to the number of children. If you live in mainland France, you get an allowance if you have two or more children as explained on the website:
  • 2 children : 129,35 € ;
  • 3  children : 295,05 € ;
  • 4  children : 460,77 € ;
  • per additional child : + 165,72 €.
Intringuingly, if you live in the DOM (Dominions Outre Mers - such as the Carribean), you also get an allowance for the 1st child too - but it is only  €23.78. The second child "earns" €105,57. After that, each additional child results in an additional €165.72 (whether in mainland France or in the overseas territories).

This is very close to being a true Unconditional Basic Income (except that the first and second children are treated relatively badly), especially since historically these family allowances were not subject to tax. This is something that  could change though - Didier Migaud suggested early in 2013 that including these allowances in taxable income could be a good way to increase government revenue.

But François Holland's government has just pushed through a modification to the rules so that the amount paid will now vary according to income. Starting in July 2015, the amount of the allowance will be reduced by 50% for families earning more than €6000 a month, and by 75% for families earning over €8000.

This is so stupid. It's just going to mean that filling in tax forms will be even more ridiculously complicated. And since the amount of the allowances will depend on taxable income from the previous year, a family whose income is cut because one of the members loses their job, they will be very hard hit the following year.

Please, please, just think about this. Why on earth can't we simply give everyone a universal family allowance and include the allowance in taxable income. That way, people on low incomes will get to keep all the payments. In contrast, those on high incomes will find that the amount they get to keep will be less. There is absolutely no need to modulate the allowance with income.

In fact,  it is the same thing with all benefits. It never makes any sense to make the system complicated by modulating the benefits according to income. Just give fixed payments to everyone, and if you want the effect to more beneficial for lowpaid households, you just need to make the payments subject to tax.

It's true for family allowances, but it is also very true for an Unconditional Basic Income.  Just give the sum to everyone, with no questions asked. But simply make it so that the payments are subject to tax, with the result that the net payments to higher earners will be a lot less - 50% less if the marginal rate for them was 50%.

Few people find the concept of a basic family allowance shocking. It's a cornerstone of the welfare systems of many developed countries, including France and the UK. Nor do people find the idea of providing a basic state pension for all objectionable. The idea of an Unconditional Basic Income simply means that instead of stopping those payments between the ages of 18 and 65, you just keep making the payments from cradle to grave - with no holes.  A vastly more simply system than the one we have now.

As I argued in my earlier posts, this would provide a very intelligent way to provide an effective subsidy for manufacturing industry, because employers would be able to emply people at lower wages than is currently the case. And yet it is at the same time far more palatable than providing housing subsidies to people on low incomes, because those payments are necesarilly cut when the person starts earning.

With the Unconditional Basic Income, people will work if and when they are motivated to do so. There would also be no need to have fixed rules for the number of hours that need to be worked per week. If people only want to work for 10 hours or less, that's fine. And if someone wants to effectively retire from directly paid work at 55 years old, that's fine too.

Surely, you don't have to be a left-wing communist conspiritor to see that all this make perfect sense.  Even for conservatives keen on reducing the involvement of the state, this has to make sense. Let's do it.

21 Oct 2014

Why the entire planet should be pushing for an Unconditional Basic Income for all

What's the biggest threat to humanity? Given my obsession with fixing the economy, you might be forgiven for thinking I believe that our biggest priority should be fixing the way our monetary system works.

Well, sure - the economy  is really important. But even more important is the fact that we are destroying our planet, in part because the numbers of humans on the planet is increasing in an almost totally uncontrolled manner. I'm old enough to remember when the population of the world was 3 billion. But it's now well over 7 billion. And  if things go on at the same rate, we will exceed 10 billion humans by around 2060. Surely, it must be obvious to everyone that this is not viable.

I've just seen Neil Young's new song "We're gonna stand up" (and save the earth). Good to see a real protest song for once. It's not as if there isn't enough to protest about.

So, Neil, here's one suggesiton about how we might save the earth.

Why is the world's population increasing out of control? It's clearly a complex issue. But I suspect that for many people in third world countries, the need to have a guarantee of support into old age is a major factor. In a system where there are no pensions, and no system of social protection, is it surprising that people will try and have large numbers of children, simply to be sure that there will be someone around to look after them in old age? Isn't that a perfectly understandable justification for people in African countires having 8 children or more?? If you had no pension, and no way of saving money for your retirement, wouldn't you do the same?

So, how might that be changed?

Well, believe it or not, I think that the solution could lie in - taxing financial transactions and using the revenue to pay a direct Unconditional Basic Income to people in third world countries.

I've already argued that a minuscule tax on financial transactions could provide enough money to provide a very considerable Unconditional Basic Income to people in western countries. For example, given that transactions in the Eurozone are running at well over €2 quadrillion a year,  a tax of just 0.1% could generate enough money to provide a Basic Income of around €6000 to every man, woman and child in the Eurozone countries (there are 330 million of them).

Add another fraction of a percent, and it would be possible for the Eurozone countries to provide a very substantial amount of money to people in third world countries - money that could be provided directly to citizens in those countries. You wouldn't need to provide much to make a huge difference to someone living in Burkina Faso - €20 a month would certainly transform their lives, but even €20 a year would make a huge difference.

The critical point is that if you could convince people that they could rely on receiving these modest sums throughout their lives, the argument for producing large numbers of offspring simply to feel confident that they would have someway to survive in old age would disappear. Of course, you would have to be convincing. It wouldn't be enough to say that we are going to make the payments this year or next year. People in Burkina Faso would need to be convinced that that paymenst would still be coming in 30 or even 50 years later.

Can you think of any other way of reducing the rate of population increase in third world countries? I'm assuming that compulsory sterilization is something that we would rather avoid.

Providing a guaranteed flow of money to third world countries would make extremely good sense for a number of other reasons. For example, if you provide these countries with some Euros (or sterling or dollars), that would allow them to purchase goods and services from those countries - thus providing a boost to those economies. It's clearly a win-win situation.  This would be infinitely more intelligent than the current system in which organisations like the World Bank lend "money" to third world countires, thus getting them massively in debt and requiring them to spend decades devoting all of their acitivities to paying off those debts. Importantly, the direct payments to third world Citizens would be entirely debt-free. Like the Unconditional Basic Income paid to citizens in the Eurozone, the money paid to citizens in third world countries would be entirely without conditions. That's the way it should be.

Seriously, I think that this proposal could really change the future of our planet. I believe that the rate of increase of the world's population could be brought under control - without the need for any restrictive rules.

To make the system work even more efficiently, you could arrange things so that the Unconditional Basic Income payments are only paid to adults. That would reduce any temptation to have children simply to increase the level of payments. Note that this would be a different strategy to the one used in the Eurozone (for example) where there would be not need to directly discourage people from having children, since many couples will only have around 2 offspring each.

Another useful trick would be to arrange things so that people would only receive the payments if they stayed in their home countries. Thus, people would know that if they moved from their original countries, they would no longer be eligable for the payments - thus reducing the incentive to attempt to migrate to places like Western Europe. If they do, they would only recieve the payment if they are accepted as a legitimate refugee.

So, yes, I do think that an intelligent use of a universal Unconditional Basic Income could provide a powerful way to improve the lot of people in third world countries.

There might even be an additional indirect and unexpected payoff of such a move. If overpopulation is clearly one very serious threat to everyone liviing on the planet, another is the spread of Islamic Extremism. What on earth can motivate people to sign up with fanatical groups like ISIS? I can only think that one factor could be an extreme rejection of the morals of current neo-liberal capitalism. Maybe, if people in the west were to demonstrate that they weren't only interested in maximising profits, it may go some way to defusing the currently explosive situation.

But in any case, I am becoming increasingly convinced that a few simple ideas may provide the keys for a truly ground-breaking revolution - one that could transform all of our lives, and the lives of future generations.


19 Oct 2014

Why Mario Draghi and Mark Carney should be pushing for an Unconditional Basic Income for all

Yes... even the heads of the European Central Bank and the Bank of England should be pushing to introduce an Unconditional Basic Income for all their citizens. It's not just every single entrepreneur, and all the right wing anti-immigration parties like UKIP and the Front National, who should be campaigning.

Currently, Mario Draghi (who is the head of the European Central Bank) and Mark Carney (governer of the Bank of England) are supposed to try and maintain monetary stability, and yet they have very few levers with which they can work. They can set the interest rates at which commercial banks can borrow from the Central Bank, but that is not money that can be put directly into the economy. And the fact is that, most of the time,  a commercial bank doesn't need to go to the Central Bank at all - it can quite happily create new money in the form of bank deposits for its customers with no help from Draghi and Carney.

On the other hand, the Lisbon treaty makes it impossible for Central Banks to provide money directly to governments (a brilliant move by the Commercial Banking lobbyists - who have arranged things so that our governments are forced to borrow from the Commercial Banking sector - who will be quite happy to create huge amounts of debt on demand - and then sit back and collect the roughly 3% of GDP that taxpayers have to spend to keep the banking sector happy - and that's just public sector debt).

I've already pointed out that the Lisbon Treaty actually leaves open another option, since Central Banks could lend to "Publicly Owned Credit Institutions" which could lend on to governments.

But I really do think that there is an even better solution for the Central Banks. If they were to make direct payments into Citizen's banks accounts, this would be a very straight forward way to get money into the system where it is needed. Much better than conventional Quantitative Easing, which essentially involves throwing money at the financial sector and praying.

You may argue that if Central Banks were really to start creating money to pay Citizen's a Basic Income, that this could cause inflation. But I have the solution. It would be to remove the same amount of money from the economy in the form of a flat rate financial transaction tax on all Euro-denominated transactions (in the case of the ECB) or sterling-denominated ones (in the case of the Bank of England).

There's one very nice feature of this convertion process. The Central Bank would effectively be sucking in debt based money from the system (money that has been created as debt by banks when they make loans) and turning it into debt free money in the accounts of citizens. It's a form of money (or rather debt) laundering process.

Currently, something between 95% and 97% of the "money" in the system is in the form of interest bearing debt. M3 money supply (which includes not just notes and coins, but also all the electronically generated debt-based money) stands at just over €10 trillion. At the same time, transactions in the Eurozone are running at well over €2 quadrillion a year. Taxing those transactions at 0.1% and injecting the revenue directly into citizens' bank accounts could allow as much as €2 trillion of the €10 trillion M3 to be converted into debt free money per year - without any real increase in the actual amount of money in circulation.

If I have understood the mechanism, it can be expected that within a few years, it might be possible to eliminate virtually the entire debt mountain.  Surely, that has to be excellent news for everyone (except, perhaps, the people who currently benefit by being paid the interest payments on that debt).

All that would be possible without the Central Banks having to change the actual amount of money in the economy at all. It would simply be a case of moving the money from one place (the financial sector), to another (the real economy), and converting it from debt-based to debt-free money.

Once the mechanisms of the FTT based money removal, and the Unconditional Basic Income for reinjection have been set up, Central Bankers like Draghi and Carney could do even more. They would have all the levers they need to directly control the amount of money in circulation - something that they could only dream of today. If they decide to increase the level of the financial tax on transactions without increasing the amount of money being reinjecting into Citizen's bank accounts, this would have the effect of decreasing the amount of money in the system. Alternatively, the Central Bank could, if necessary, make direct payments to citizens that exceed the amount of money raised by the tax - thus increasing the total amount of money in circulation.

So,  Mario Draghi and Mark Carney, wouldn't you love to get your hands on those two levers? Isn't that really what you need to be able to do your jobs??

If you agree, you could start campaigning with the politicians to allow you to (i) tax electronic transactions in your respective currencies (wherever those transactions occur in the world), and (ii) have the right to create accounts for all the citizens in your jurisdiction, and to have the power to transfer money to those accounts.

Why Marine Le Pen and Nigel Farage should be pushing for an Unconditional Basic Income for all

I'm again following on from my open letter to Jean Tirole yesterday. I am arguing that an intelligent alternative to the current recipe of neoliberal reforms and austerity would be to pay every citizen an Unconditional Basic Income, financed by a minuscule tax on all electronically mediated financial transactions in a given currency - wherever they occur in the world. In the case of the Eurozone, I claim that a tax of just 0.1% on all Euro-denominated transactions could provide a €6000 a year Unconditional Basic Income for everyone of the 330 million citizens of the Eurozone.

In this post, I want to argue that in addition to abolishing poverty at a stroke (hardly a trivial consequence), and being a fantastic deal for business (by providing complete employment flexibility and drastically reducing wage costs - see my last post), it is also a solution for the problem of illegal immigration - one of the major arguments that has been fueling the rise of anti-immigration parties such as  Nigel Farage's UKIP party in the UK, and Marine Le Pen's Front National in France.

So, here's how it works.

Currently, the citizens of a country like the UK are competing for jobs with clandestine immigrants, prepared to work for below minimum wages and with incomplete or non -existent job protection. With the current UK government committed to reducing their involvement in the job markets, they are quite happy to allow employers to use cheap and often illegal labour, on the grounds that it is good for the UK economy to be able to produce goods and provide services more cheaply.

The result is that while the UK economy is apparently booming in that there has been a large expansion in the number of jobs in the economy, those jobs are providing wages that are not even keeping up with inflation. There have been recent reports that the recent squeeze on incomes within the general population is the worst since the 1860s.

When politicians like Nigel Farage point to the hundreds of illegal immigrants swarming through the ferries in Dover every day, and claim that those illegal immigrants are undercutting the native work force and making it harder and harder to get decent paid work, it has to be admitted that they do have a point.

Of course, one option would be to clamp down on employees that employ clandestine workers. But this would be extremely expensive to do properly, possibly requiring thousands of police and other inspectors going round every factory and shop in the country searching for people trying to get round the employment legislation. And, of course, it would turn every non-white person in the country into a potential illegal immigrant that has to be denounced. We could rapidly find ourselves in the equivalent of 1930s Germany.

Why is a Unconditional Basic Income for citizens a way to solve this problem? Well, if you are a legitimate citizen of a country, and are receiving a basic montly payment of (say) €500 for each member of the household, an employer who wanted to get you to work for him would only need to offer enough money to top up your salary. Potentially, this might be a relatively modest sum - and it could be for a relatively small number of hours. There would be no need to work for a minimum 35 or 40 hour week as is currently the case if you are to have a chance of managing to feed, house and clothe a family. Staff could choose the amount of work they want to do.  In contrast, an illegal immigrant who was trying to survive on just the paid employment with no Basic Income, would have a very hard time. It would simply not be worth trying to get through immigration, because you would not be able to survive on just that salary. As a consequence, the UK would no longer be the eldorado for cladestine workers that it currently is.

Likewise, in Eurozone countries like Italy, currently the target for tens of thousands of desperate would-be immigrants from Africa and the Middle East, the existence of a Basic Unconditional Income for legitimate citizens would again prevent local workers from being undercut by clandestine workers prepared to work of substandard wages and with no protection.  And all this without the need for increased police surveillance! Isn't that a much more intelligent was to deal with the problem?  Illegal immigrants would simply not want to come and try and work in a country where they were not able to undercut legitimate citizens.

Let me stress that I would not want to reject legitimate refugees. If someone is under threat of persecution in their home country, I for one would be happy to see their name added to the list of Eurozone (or UK) citizens, and hence be eligable for the same Unconditional Basic Income payments that other citizens receive. But that would be a controllable process - new refugees would be added to the list if and only irf they gain refugee status (and hence citizenship).

But then there are all the economic migrants - the ones who are currently convinced that they will have a better life in the UK or in the Eurozone than they could possibly have back home. It's likely that the vast majority of migrants are in fact in this group. What would happen to them? Well, it's clear that if they are forced to compete with local citizens who already have €6000 a year in Basic Income, it will be a lot harder for them to compete... and that might be enough to stem the flow.

But there is an even better solution. Suppose that the Eurozone countries were to decide that, of the €2 trillion in revenue that the tax on Euro denominated transactions, a substantial percentage should be allocated to pay people in third world counties a Basic Unconditional Income of their own. Obviously, it would not be €6000 a year. But how about €100 a year? I'm convinced that if people in African countries were given €100 a year of Basic Revenue, but that those payments were conditional on just one thing - their residence in their country of origin, wouldn't that fix the current dilemma?

€100 would buy one hell of a lot in Niger or Burkino Faso. It would stimulate the local economy and really make it so that people can stay close to their families. Isn't that what the vast majority of people would choose to do?? Other countries such as the US and the UK could provide similar sums to help support developing countries. Importantly, these payments would not be loans - they would not increase the level of debt in third world countires. It would be real money that could be used to make the local economy work, but also to pay for much needed western technology and services if needed.

I am personally convinced that, given the choice, most migrants would normally prefer to stay close to their own families and in their own cultures rather than risking life and limb to reach the mythical eldorado of Western Europe where they would be like fish out of water. The current situation is just a demonstration of the stupidity of the present system.

And of course, a similar solution would almost certainly fix the immigration crisis faced by the US. Give a reasonably generous Unconditional Basic Income to all US Citizens at home, and give a smaller amount to anyone who stays at home in Mexico or the other Latin American countries and who is currently tempted to try and reach the US as an economic migrant.

So, there you have it. It seems that anyone who could be tempted to vote for a right-wing anti-immigration party like the FN and UKIP would logically be tempted to vote for a party that put the idea of an Unconditional Basic Income into their program. Let's do it.

Why every entrepreneur should be pushing for an Unconditional Basic Income for all

In my open letter to Jean Tirole yesterday, I argued that Central Banks should introduce a tiny financial transaction tax on all electronic transactions denominated in their currency, and inject the revenues directly at the level of citizens using an Unconditional Basic Income. I suspect that, globally, Euro denominated transactions are running at something like €2 quadrillion a year - that's also the volume of transactions in just 5 Eurozone countries in 2013.  If the ECB taxed those transactions at 0.1%, that should generate €2 trillion in revenue, which, spread between the Eurozone's 330 million citizens would mean around €6000 a year for every man woman and child - €24,000 a year for a family of four.

Similarly mechanisms could be introduced by every single Central Bank on the planet. The Bank of England could impose a tiny tax on transactions in sterling, the Federal Reserve (or the US Treasury?) could tax transactions in dollars, the Swedish Central Bank could tax transactions in Krone, and so forth. 

To some, this suggestion may appear like some insane left-wing plot designed to make businesses inoperable - why would anyone work if they were not forced to. But it's quite the opposite. In this post, I would like to argue that every entrepreneur, and every "Pro-business" government (like Manual Valls here in France) should be pushing hard to introduce such a scheme. Why?

Well, if you are running a business, be it in manufacturing or services, you have to keep costs down to a minimum if you want to be competitive. If you are the head of a car company like Renault, it will be very difficult for you to sell cars across the world, if your manufacturing costs are twice those in other countries. The result is that you may be tempted to delocalize your manufacturing plant to other places where conditions are better.

It also means that you will want to keep wage costs down, by paying people just enough to get them to work for you, but not too much, and only employing people when you need them to do the work. We often hear employers saying that they dream of having a "flexible" work force - one that can be called on to work when needed, but that can be laid off easily in the case of a downturn in demand.

Is that true at the present time? I don't think so - at least not in France, where the employment regulations are particularly difficult to deal with for companies and where the costs of employing people are notoriously high.

Now, let's think what would happen if citizens started receiving an Unconditional Basic Income, and let's  assume about €500 per person per month (€6000 a year). For a family of four, this would mean that they could count on  €24000 every year, even if noone was working. (For simplicity, I'm assuming that the rate is the same irrespective of age, although some would argue for smaller incomes for children). Depending on where you live in the Eurozone, this could be enough to live reasonably, although probably not if you wanted to live in a big city like Paris of course.

How much would you, as an employer, now need to offer to get someone to work for you? It would all depend on what sort of work they were required to do, and what sort of hours. You would obviously need to pay more to get people to do unpleasant jobs (like cleaning out sewers), or ones that are dangerous or with health risks.

But sppose that you only need someone to work for 10 hours a week. Currently, this would be very difficult to organise because you would almost certainly have to offer full-time work to make it possible for them to earn enough to survive. The only other option for them currently would be to have multiple jobs, but that would be a nightmare to organize - both for them and for you. And of course, what you would really like is to have staff who can come in at a moment's notice and do the 10 hours that you want them to do whenever you want.  That would not be possible if someone was combining multiple jobs because you would end up in competition with the other employers.

Ensuring that people already have an Unconditional Basic Income that is enough to cover their basic requirements means that they will be probably quite happy to come in to work for 10 hours, 20 hours, 40 hours or 60 hours a week, whenever you need them. They would be free to come in because they are not juggling with some other job at the same time. And earning some extra money to buy that new car, or pay for some holidays, or change the living room suite would be perfectly satisfactory as a way to motivate them. Believe it or not, you don't really need to starve workers to motivate them to take on employment.

And for those weeks when you don't have any work? No problem. You can just tell your staff that they don't need to come in at all... and they can go off and do something else instead, safe in the knowledge that their basic needs are covered by their guaranteed Unconditional Basic Income. It's literally the same thing as the so-called "zero-hours contracts" that have become so popular in the UK. But under the UK system, when the employer doesn't have any work, and their staff has no more income, its the social security that is forced to take over - and the UK taxpayer who ends up paying the bill. This inevitably fuels the idea that people forced to depend on benefits are "scroungers".

The net result of switching to a system with an Unconditional Basic Income is that you will have a happy and contented workforce, prepared to come in and help whenever you need it. And when then have done all the work that they have to do, you can tell them, like Richard Branson just did, that they are entitled to take unlimited vacation time.

But it doesn't stop with flexibility. You will almost certainly also end up with a situation where it will cost you far less to have staff working for you. Since they will already have a reasonable guaranteed income, you will probably be able to get them to work for less that you currently have to pay. It might even be possible to abolish any minimum wage rates. If people are OK to come in and work for a few hours on less than the minimum wage, then that's OK too. Difficult to be better for business than that.

Under the current system, you are really obliged to pay enough so that someone who is the breadwinner with a family can afford to live on the amount you pay. It's pretty stupid that you are legally required to pay the same amount to someone who is single, and living with their parents... but that's the way it is. You're not allowed to discriminate. The result is that your young single employee with no family responsabilities gets paid so much that they will be tempted to go out and blow half of it getting drunk at the weekend, or wasting their income partying in Ibiza. Is that sensible?

And, of course, since the amount that you pay the breadwinner with a family of four is not actually enough to live on (I think we can probably agree on that), the taxpayer then has to step in and top-up your inadequate pay with housing subsidies, free school meals for the children, etc etc. Is that sensible? 

Now, what about pensions, health care and unemployment costs? Currently, you know very well that when you take on staff, you are not only forced to pay them a salary. You also have to fork out large amounts of hard earned company profits to make contributions to pension schemes and to provide for unemployment protection and health care. But if your staff knew that they would be guanteed to get €6000 a year even if they become unemployed, or when they retire, they probably wouldn't insist of getting those sorts of payments in addition.

In other words, having a guaranteed Unconditional Basic Income for all would be fantastic news for all those people running businesses. You would get all the flexibility you could have dreamed of, plus a massive reduction in those additional charges that you currently have to pay, and which discourages you from taking on staff.

So, please, tell the politicians that you want everyone (including yourselves!) to have an Unconditional Basic Income. And tell them that you won't mind at all having to pay around 0.1% on all your financial transactions to pay for it!

One final point. Would you agree that, in any case, employers simply do not have enough jobs to keep everyone busy? If you own a supermarket, you are probably in the process of replacing cashiers at the check out with automatic machines. Even if you are running a hamburger chain, you can now get machines that will flip handburgers more efficiently that a human. If you are running a refuse collection agency, you probably know that you can now buy machines that can collect the trash cans? Google will soon be able to replace taxi drivers with automatic cars. Paid jobs are simply disappearing at a faster and faster rate every year.

So, isn't it about time that we woke up to the fact that you, the entrepreneurial class, are simply not going to be able to provide paid employment  for all our citizens? Isn't it about time to say that, no, it would be more sensible for people to do the things that they are personally motivated to do, without them having to fight for the few jobs that are left.  Giving people the liberty to choose to do other non-paid work would be great for everyone.  Don't you agree that people should be free to do all those other things - like looking after their children, their eldery relatives, the sick and disabled, running charities, looking after sports clubs, studying at university, setting up their own businesses, performing music, creating art, writing books, educating people, looking after the countryside etc etc even if there is no immediate way of justifying such activities as a way of making money?

Yes, there are a lot of things that only business can get done sensibly. And we need those businesses to be able to find well-trained highly motivated staff who are prepared to work flexibly. An Unconditional Basic Income is the way to get there.

18 Oct 2014

An open letter to my colleague Jean Tirole - the new nobel prize winner in Economics

Mon Cher Jean,

First, can I congratulate you on your Nobel prize in Economics. We are all very proud in France, and particularly in Toulouse, that you have received this most prestigious of honours.

As a colleague, and the director of another lab in Toulouse (the Brain and Cognition Research Centre, or CerCo) we have already met on a number of occasions, and I would be very happy to met up again in the near future. I know that you are a very pleasant person, very affable, and clearly one of France's most brilliant minds.

I've just listened to you on the Saturday morning Economics program on  France Inter "On n'arrête pas l'eco". You were asked what would be your four highest priorities to help the French government overcome the current debt crisis and to get the French economy back on track. Your recommendations were (i) reforming the "marché du travail" - the regulations controlling employment (presumably making it easier to hire and fire workers), (ii) reforming the pensions systems (by increasing the duration that people are forced to work in order to cover the costs of the system),  and (iii) reforming government to simplify and reduce the role of the state.  (You apparently didn't have a fourth proposition - it would seem that those three should be enough).

Sorry Jean. Much as I respect your contributions to Economic Theory, there is not much that is new there. It's the same neoliberal story that we all hear day in, day out. Remove restrictions on employment, force people to work longer, and reduce the role of the public sector, and everything will turn out fine. If I was to believe you, it will be possible to solve the debt crisis by a combination of austerity and liberalisation. Sorry, I'm afraid I don't believe you. Is that really the best that one of the most brilliant minds in economics can come up with? Isn't that just pure 100% orthodoxy??

So, how about trying something truly innovative? Can you be sure that we have exhausted all the options?

I would be very happy if you could tell me what is wrong with the following proposal.

For some time I've been pushing the idea that Central Banks such as the European Central Bank could introduce a small flat rate transaction tax on all electronic financial transactions in their currency, wherever they occur in the world. Anyone, anywhere in the world, who wanted to make transactions using Euros, would be legally obliged to pay the transaction tax. I would pay it when my salary from the CNRS arrives on my account. You would pay it when you receive your Nobel prize (if it was paid in Euros). I would pay it when I pay my electricity bill, when I use a credit card - indeed, whenever I or anyone else uses the Euro money system.

If I choose to use Sterling, I would make a payment to the Bank of England at the rate specified by the Bank of England. If I use Swiss Francs, I would pay a small fee to the Swiss Central Bank, and so forth.

Critically, everyone would pay. Citizens like you and me. But also businesses. And, of course, the transaction fee would also be paid by the financial markets who are using our money for literally millions (billions?) of transactions every day. 

The sort of fee that I'm talking about could be absolutely tiny - literally  a fraction of a percent. Perhaps one hundreth of the transaction fees currently charged by Credit Card companies such as Visa, MasterCard and American Express every time you and I use their services. Remember that while you may think that it costs you the same to pay with your credit card as when you pay cash, the merchant will often have been forced to pay between 2 and 4%. And obviously, we all end up paying more because of those charges, whether you use your credit card or cash.

And don't forget that, in addition to a 4% merchant fee, the vast majority of credit cards will also slap on an additional 2.5% or even 2.99% "International charge" when you use your credit card abroad. That fee is simply for multiplying the amount in the local currency by the current exchange rate. So, we all currently pay up to 7% in "Financial Transaction Taxes" to the banking system - everytime you or I go to London and buy a meal in a restaurant. I'm proposing something that could well be less than 0.1% - an amount that is almost insignficant when compared with the sorts of fees that the banking system currently imposes on every one of us.

The only difference is that instead of the transaction tax going to pay the bonuses for those in the financial sector, the transaction tax could be used to finance other more useful projects.

With a minimum of $10 quadrillion in global transactions every year, a tax of just 0.1% could logically generate as much as $10 trillion in revenue. As I pointed out a couple of weeks ago, the correct value for transactions is certainly a lot higher than $10 quadrillion, because major players like the Options Clearing Corportation ($12-16 quadrillion?), the Chicago Mercantile Exchange (also doing roughly a quadrillion per year), and LCH ClearNet Ltd are not even mentioned in the current "official" BIS figures.

So, let's conservatively assume that the tax  could raise at least $10 trillion globally. What could you do with that?

Well, my favorite  proposition is that the money should be directly handed out to citizens in the form of a basic unconditional income. Each Central Bank could simply create an account for all the citizens living in their region, and simply add some amount to that account every month, depending on the amount that has been raised. There would be no conditions attached. You would be paid whether you are working or not, employed or retired.

Note that I'm not proposing the that Central Bank would provide any real banking services, because the only thing that a citizen could do with the money on their account would be to transfer it to a normal high street account. Indeed, they would have to transfer the money to be able to use it. The Central Bank would also not be in the business of making loans - and you could never be negative on your Central Bank account - it would simply be impossible.  In passing, let's note that this would be an absolutely guaranteed place to leave your money - thus removing any need for government guarantees on bank deposits.  It would not earn any interest (you would need to move it to a commercial bank) - providing a useful risk free place for people to keep their savings if they wanted. By definition, a Central Bank could never go bust. People who decide to move their savings to an interest bearing commercial bank account would be forced to acknowledge that they were taking a risk.

Let's assume that the Euros contribution to world trading is 20% (this is guess work, since the actual numbers are unknown, although transactions in just five of the Eurozone countries in 2013 exceeded €2 quadrillion  (that's a 2 with fifteen zeros after it). I would guess that the ECB could reasonably raise close to €2 trillion a year by imposing an extremely modest 0.1% fee on Euro denominated transactions. With a total population within the Eurozone of 330 million, this would mean direct payments of around €6000 per person for every man, woman and child within the Eurozone. That's €24,000 for a family of four. Not bad...

What! I hear you say. You can't give people money for doing nothing! That would be unfair. Why would they bother going out to work?

Well, there are lots of reasons. There are large numbers of people in our current societies that receive millions for doing nothing in the form of inherited wealth. That doesn't seem to upset the neoliberals who claim that only people who work hard should get any money.

Furthermore, the €24000 that a family of four could be given per year might be just enough to get by on, for families living modestly, and in a part of the eurozone that was not too expensive. It would provide a decent minimum lifestyle - no frills. And would eliminate poverty at a stroke.

It would also remove the need for endless means tested state aids for housing, transport and so forth. Currently, those benefits are often only paid to people who are unemployed, making them less interested in going out to work. And it literally costs a fortune to employ an army of civil servants to check that the people on benefits are actively seeking work. All that waste of resources could be ended overnight.

These are all arguments that have been well documented by those people who have been lobbying for a Basic Income for years.

But there are a couple of arguments for such a scheme that I have not heard, and which ought to convince even the most ardant admirers of the free markets (like yourself?)

First of all, consider what would happen if a family of four really did have an guaranteed income of €24,000  a year. How much would an employer have to pay the head of the family for him (or her) to want to go out and work? Well, it would certainly have to be worth their while. They would have no obligation to work just to put food on the table. But they might well be highly motivated to work a bit to increase that €24,000 to (say) €30,000. In other words, even €6000 might be enough to make a difference. And yet €6000 is a mere €500 a month - a pittence compared with the full cost of housing and feeding a family of four.

It seems obvious that providing an unconditional basic income would mean that businesses could actually reduce wages considerably. It would even act as an indirect subsidy for businesses, because they could provide an attractive salary for far less than is currently needed. Today, businesses are effectively obliged to pay salaries that would be attractive for a breadwinner trying to cater for a family of four. They cannot decide to pay people more because they have a family than they would to a single 21-year old living at home with their parents. The result is that governments are required to make endless top-up payments and tax breaks to bias the system in favour of families.

Recently, the French government decided to give something like €40 billion in tax breaks and subsidies to industry - "la pacte de responsablité". Businesses are supposed to reciprocate by taking on more workers. But there is no requirement for them to do anything. And many people in France are thoroughly depressed by the current governments desire to "aimer l'entreprise" with no strings attached.

Likewise, the French government hands out billions in "Credit Impot Recherche" annually - again with virtually no controls whatsover. Why not provide the same boost to industry, but do it by simply making it cheaper to employ people - i.e. via an unconditional basic income?

Under the current system, our governments pump billions into the social security and benefits system. But that expenditure does absolutely nothing to help productivity of French industry. It merely prevents unemployed people from starving to death. Provide the same money in the form of an unconditional basic income and Renault would be able to produce cars cheaper in France than they could elsewhere. Surely, that has to be good news?

Providing a basic unconditional income would thus make it far cheaper to employ people - thus reducing costs, and making industry more competitive. The same thing would happen if the state provided free public transport - it would mean that workers could get to work more cheaply, again meaning that wage costs could be reduced without making workers lives miserable. But the use of an unconditional basic income financed by a microscopic financial transaction tax would be so much simpler.

But there is a second massive advantage. And it's one that would probably appeal to even the most extreme right wing groups, obsessed with the need to kerb illegal immigration. In the UK, the numbers of jobs in the economy has been increasing, and yet the actual earnings of workers has been declining with respect to inflation. What's going on? Well, one explanation is that with large scale illegal immigration in the UK, workers can easily be undercut by some illegal immigrant who would be prepared to work for next to nothing and with little or no job security. And the increasing numbers of people who are prepared to vote UKIP (in the UK) or Front National (in France) is clear evidence that this is becoming a serious problem.

Consider what would happen if a legitimate family of four really did get €24,000 a year of unconditional basic income directly from the ECB (or the Bank of England in the case of hte UK) - it would simply be their fair share of the money raised by the FTT imposed by the Bank on Euro-denominated transactions across the globe. The bread-winner of such a family might indeed be prepared to work to earn an extra €500 a month in order to increase the family's income to €30,000 a year. But an illegal immigrant, with no unconditional income, would have to work for less than €500 a month to undercut the local worker. It simply would not be doable, because whereas the illegal immigrant on €500 could not afford to live - whereas the family of four on €24,000 plus €6000 could live decently.

Hopefully you can see that the idea of giving all bonafida citizens an unconditional income would not only give a major boost to industry, but it would, at a stroke, also make it virtually impossible for local workers to be forced out of employment by being undercut by illegal clandistine immigrants.  Of course, the country would still have the option of giving real refugees citizen status, thus allowing them to also obtain the unconditional basic income.  But the hundreds of illegal immigrants trying to hide on lorries crossing the channel to the UK in the hope of being able to earn a living wage would be a thing of the past. Without the official status of a citizen, it would no longer be possible to survive reasonably - thus eliminating much of the pressure from illegal immigrants.

Exactly the same thing would apply to the thousands of Africans that risk their lives to cross over to the European mainland in the home of being able to scratch a better living than they could at home.

Of course, theres a even better way of convincing all those desperate migrant workers to stay at home. And that would be to give them a (very modest) unconditional basic income in their home countries. A few dollars a month would allow many Africans to live far better in their home countries than they could by joining the ranks of illegal clandestine workers in some other country where they would  not only lose their unconditional income, but  be forced to compete with locals who were being paid their local basic income and could survive on far less.

Now, don't get me wrong. I'm far from sharing the anti-immigrant positions proned by extreme right wing parties across Europe. But my solution would indeed take the wind out their sails.

So, Jean. Sorry, it's been a rather long message. But I just wanted to sketch one of a large number of alternatives that simply never gets discussed - either in the media, or among professional economists like yourself (and there are plenty more non conventional ideas on the 770 plus pages of my blog if you ever find yourself with time on your hands!). Don't you think that there would be a good case for having a look at some of the more interesting alternatives to the sort of neoliberal austerity based economics that you currentlu seem to favour?

If you have a few spare hours in the coming months, I would be very happy to come and talk with you about some of these ideas. I'm convinced that we might well be able to come up with something that could literally change the world.

With very best wishes

Simon Thorpe
Directeur de Recherches CNRS
Director of the Brain and Cognition Research Center
Amateur Economist

5 Oct 2014

BIS Transaction Figures for 2013 : Over €2 quadrillion in just 5 Eurozone Countries

If you download the BIS's excel sheet for the 23 individual countries in their dataset, you can get all the details for each country in the local currency.

I've compiled all the data for the five countries in the dataset that belong to the Eurozone - France, Germany, Belgium, Italy and the Netherlands.  Here's the result, together with the details of where the numbers come from for each country.

As you can see, Germany has really taken off in the last year, to reach a total of over €1.1 quadrillion euros - up roughly 35% on the previous year. They are followed by Belgium at €374 trillion, France at €259 trillion, Italy at €209 trillion and the Netherlands at €84.5 trillion.

Together, those five countries within the Eurozone generated a total of over €2 quadrillion in transactions (€2088 trillion to be precise) - up 16.8% on the previous year, and completely demolishing all previous records.

So, message to Mario Draghi. Why not just impose a modest Financial Transaction Tax on all those transactions? It would be very nice to know just what proportion of the €2 quadrillion are denominated in euros, but I guess that sort of information is currently "nav" (Not Available - like so much that happens in the financial markets). But, in any case, there is clearly massive potential here for generating much needed revenue for Eurozone governments, or - even better? - an unconditional basic income for the Eurozone's 330 million citizens.

BIS Transaction Figures for 2013 : The 50 biggest players

Here's another take on the latest set of figures from the Bank for International Settlements, that came out on the 30th September. I've gone through the various tables in the Comparative Tables. As I just showed in my previous post, the total is close to $10 quadrillion for 2013.

But just for fun, I sorted the various players to get a picture of the 50 largest players - according to BIS. Here's the result - including the place in the BIS file where I got the numbers. All those references to Tables refer to sections of the BIS's Excel spreadsheet.
As you can see, the list is topped by the Fixed Income Clearing Corportation (FICC) in the US, a subsiduary of the Depository Trust and Clearing Corporation  (DTCC), which managed to process well over $1 quadrillion last year, followed by the EUs Target system ($743 trillion), Fedwire in the States, ($713 trillion), Eurex in Germany ($710 trillion), Euroclear Bank in Belgium ($454 trillion, Crest in the UK ($437 trillion) and CHIPS in the USA ($380 trillion).

In fact, I've just read an announcement of a joint venture between DTCC and Euroclear  where you can read that "In 2013, DTCC’s subsidiaries processed securities transactions valued at approximately US$1.6 quadrillion", and that Euroclear group "settles the equivalent of $782 trillion (€572 trillion) in securities transactions annually representing 170 million domestic and cross-border transactions." It therefore looks like the numbers in the BIS data sheets may need to be increased somewhat.

But, as I was lamenting in my last post, there are plenty of players who for some reason are not included. I've already mentioned LCH.Clearnet - which handled nearly $1.6 quadrillion in 2008 (according to the BIS's own figures), but has mysteriously dropped off the BIS's radar since. Then there are outfits like CME Group and the Options Clearing Corporation - who have apparently never registered with BIS at all, but opening profess to handling quadrillions of trades every year.

Can any one help compile the true figures? I'm happy to offer a prize for the person who can find the biggest "invisible" player in the world's financial markets....

BIS Financial Transaction Data for 2013 - Nearly $10 quadrillion, but hopelessly underestimated

The Bank for International Settlements has just published its prelminary release for "Statistics on payment, clearing and settlement systems" for the 23 countries that they cover. You can download the full publication as a 588 page pdf file, or you download Excel files for the Comparative Tables where everything is presented in dollars, or you can get the details for each country, in which case the numbers are given in local currency units.

I've done the hard work of putting everything together to get a picture of the total volume of transactions for the 23 countries. Here's the result.


As you can see, the total has increased by over $700 trillion since 2012. It's still not back to the $10.6 quadrillion seen in 2008, but it's getting there. Interestingly, Germany has moved right up the table, and now accounts for $1.46 quadrillion of the total on its own.

As usual, the numbers for the UK are hopelessly underestimated - which is why I have marked them in red in the table. Just look at table 18 (on page 412 of the document). Apparently there is still no way of the BIS getting any numbers for the London Stock Exchange - it's been nav (Not available) since 2009.













And have a look at table 21 for the UK. As usual, BIS has been unable to get any information about LCH.Clearnet. This is despite the fact that they only have to look at LCH.Clearnet's website to know that they have already processed $512,256,443,251,081 since the start of 2014 (as of the 3rd October). Maybe the guys at BIS who compile this stuff don't know how to use the internet?



The last time I complained to BIS about this, I was told that they relied on data provided by the Bank of England. And, according to page 581 of the BIS document, the guy at the BoE responsible for providing the numbers is someone called David Norcross. David, if you listening, can you try and be a bit more thorough? Please?

One good thing is that the data for the UK now includes a new entry for ICE Clear Europe - which has cleared  £84.3 trillions worth of contracts and transactions in 2013.

So you see, it can be done! Well done David! Keep up the good work!

And of course, in the figures for the USA, it would appear that the BIS has only ever heard about the NSCC, CHIPS and Fedwire.  Here's their Table 21.


There's not even a mention of players like the Options Clearing Corporation, "the the world's largest equity derivatives clearing organization" which handled over 4 billion contracts in 2013, and which might well be doing $12-$16 quadrillion in trades on its own - completely dwarfing ALL the transactions in the rest of the world put together.

They also don't appear to have heard of the Chicago Merchantile Exchange Group (CME). BIS would only have to look at their website to read that "CME Group is the world's leading and most diverse derivatives marketplace, handling 3 billion contracts worth approximately $1 quadrillion annually (on average)."

The BIS document (page 581) says that the two people at the Board of Governers of the Federal Reserve System responsible for compiling the numbers for the US are called Matthew Chen and David Mills. So, Matthew and David, you know what you have to do. For me, so far, it's a C-.

Oh, and while I'm at it, could Darren Flood and Jane Yates at the Reserve Bank of Australia try and get some numbers for ASX Clear and ASX 24? According to you, the numbers are "nav" since 2009. Is it really that difficult to get those figures? Come on... make an effort.

Maybe one day, somebody other that me, who is doing all this in my limited spare time, will get round to compiling the real numbers.

In the meantime, I suppose that we have to be grateful to the BIS for providing at least some fairly reliable numbers. $10 quadrillion is already a pretty large number. And a 0.1% flat rate transaction tax on all of that would indeed provide a lot a revenue ($1 trillion to be precise). Enough to scrap much of the current hopelessly inefficient and unfair taxes such as Income Tax, Corporation Tax, VAT and other sales taxes. Oh, and can I have a basic unconditional income for all at the same time?

28 Sep 2014

Yet another solution to public sector debt - use the Magic Money Tree

I'm surprised that I didn't think about it before. After all, I originally suggested the idea of a sort of public bank that would get the government out of debt back in May 2012 - see my post on "How to cancel all government debt in 10 easy stages".  There the idea was to use the fact that banks have the right to lend out around 10 times as much money as they have in capital to make loans. They could therefore make loans  to people who would reinvest the money in the bank via another person. Do that around ten times, and you can create collosal amounts of "money" out of thin air.

Later on,  I realized that the Basel Banking regulations mean that when banks lend to sovereign governments with a credit rating between AAA and AA-, those loans have a risk weighting of zero, which means that they don't have to have any capital at all - they can effectively loan infinite amounts of "money" to governments with no capital to back it up. I explained that one in my post back in March 2014 called "The biggest Bank scam of them all - Banks lending non-existent money to governments and charging interest". I had even realized that this wonderful system was almost certainly the reason why, despite the Basel banking regulations, the 50 largest banks in the world have $67.6 trillion in assets, but only $772 billion in capital so that, on average, they have around 87 times more assets than capital. Indeed, several banks have assets to capital ratios of over 1000 to one - with one bank - the Wells Fargo Bank having succeeded in reaching an assets to capital ratio of 2647 to 1. Impressive.

But for some reason I didn't put 2 and 2 together to make 4.... trillion.

Why don't we just start a citizen's bank, and use that bank to lend unlimited amounts of interest free money to our governments?

For example, the French government was in debt to the tune of €1,925 billion at the end of 2013 - a figure that has certainly increased substantially. Interest payments on all that debt cost French taxpayers €47.3 billion last year.

Suppose that we start a new citizens Bank that would have French citizens as shareholders. We could sell shares in the Bank for say €100 and get millions of French citizens to sign up. This would give the bank a respectable capital base. France is currently rated AA and so that means that banks that lend money to the French government don't have to include those loans when calculating their exposure - the loans have a risk weighting of 0%. As a consequence, whenever the French government needs to borrow money on the markets, it could go to the French citizen's bank and get as much money as it wants - with no interest to pay. Indeed the Bank could sign a loan deal where the money only needs to be repaid after 1000 years.

In principal, our friendly bank could lend the French governemnt the roughly €2 trillion needed to pay off ALL its debts. But actually, I think that it would be better just to pay off the Banks who have been purchasing French government debt with non existant money. When those sorts of loans are repaid, the money simply disappears into thin air, thus eliminating any risk of inflation.

So, there you have it. A way to achieve "debt forgiveness" without running the risk of triggering a massive revolt from the financial sector. After all, they could not complain. The citizens bank would be doing no more that what commercial banks do all the time - creating massive amounts of government debt by making loans with non existent money. The only difference is that the citizen's bank will not be requiring tax payers to pay the interest charges.