Deeply Superficial

There's an old joke about advanced ("post graduate") degrees that is expressed in a number of ways. One way — the way we first heard it — is that the BS stands for just what you'd expect, the MS is more of the same, while the Ph.D. is "Piled Higher and Deeper." Another way of putting it is that goal of modern education is to know more and more about less and less until you reach the ultimate goal of knowing everything about nothing. Just as in politics.

Today's politicians and economists are, according to those criteria, the best-educated people in the world. Knowing everything about nothing, and having piled their nothingness as high and as deep as it is possible for people to take (and, in an increasing number of places throughout the world, so deep that people are swimming in it), the best that any of them can come up with is to engage in an endless back-and-forth (or, for variety, forth-and-back) within the extremely limited current paradigm.

"You must cut spending and increase taxes!" insist those on one side. "You must increase taxes and cut spending!" trumpet those on the other side. Without first having settled whether they need to cut spending and increase taxes, or increase taxes and cut spending, the discussion devolves into how much of either they aren't going to agree on. As the "supercommittee" demonstrated, this gets you nowhere at a very slow pace.

The answer is not to decrease State spending or increase taxes, although both may be necessary in the short run (although sometimes not quite as necessary as those who want to spend the money would have us believe), but to rebuild the tax base. Fiddling with government spending and taxes puts the cart before the horse. You can't reduce spending from what you don't have in the first place, and you can't tax what isn't there.

So much for the clichés. Not to sound too simplistic, but indications are that the situation could be reversed relatively quickly by focusing on three institutions that, in their current flawed state, inhibit and (in some cases) actually prevent economic growth. Stop me if you've heard this:

1. Methods of Corporate Finance. The economy must be freed from what Louis Kelso and Mortimer Adler called the slavery of past savings. New capital formation should be financed out of "future savings," meaning the profits realized from the increase in the production of marketable goods and services in the future, not reduction in consumption in the past. The present value of future savings can be monetized and used to finance new capital formation by drawing bills and discounting them with other merchants or businesses, or at commercial/mercantile banks, and rediscounting the bills at the central bank. This is a sounder basis for the money supply than the mortgage on future (possible) tax collections that are represented by backing the money with government debt.

2. Reform of the Tax System. All taxes are disincentives to production, but some are worse than others. The VAT is a strongly regressive tax, falling most heavily on those least able to pay. The progressive income tax is even more of a disincentive, as it encourages non-productive government spending, and discourages spending income on consumption. Worse, from a financial point of view, it encourages the rich to reinvest their income in order to gain whatever tax breaks are available for that, which reduces the consumption demand that, ultimately, drives the economy. Switching to future savings instead of past savings to finance growth removes the need for reinvestment, while a single tax rate on ALL income above a meaningful (i.e., enough to meet common domestic needs adequately) income level would walk the middle ground between regressive and progressive taxation.

3. Expanded Capital Ownership. Most important of all, people who currently own no means of production other than their own labor must become owners of a capital stake sufficient to generate enough income first to pay for the capital itself, then to provide consumption income to supplement and, in some cases, replace wage and welfare income.

Of course, all of this (and much more) is available in the book, Capital Homesteading for Every Citizen. You can get it for absolutely free, or (if you insist) it can be purchased on Amazon or Barnes and Noble. And it (and other CESJ publications) are available in the U.K. and Australia, so there's no excuse for not reading it.

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