Thursday, July 10, 2014

The Ex-Im Bank Bafflement, III: Reforming the System


Despite all the baggage and misconceptions that have been loaded on to the term, we can look to the laws and characteristics of social justice for guidance in what to do with the Export-Import Bank of the United States.  First and foremost, of course, the goal of social justice is not the destruction of institutions or the social order, even if we believe with all our hearts and souls that is the only way to build new, presumably more just institutions and a social order.

No, social justice is directed to the common good, specifically the institutional environment within which humanity realizes its individual goods.  Social justice is therefore concerned with removing barriers that inhibit or prevent full participation in the institutions of the social order, so that each person may optimize his or her development as a human being.

With this as our guiding principle, it becomes obvious what to do about the Ex-Im Bank.

One, the government is concerned with the common good, our institutional environment.  It is not supposed to be taking care of individual goods, except as an expedient in an emergency when no other recourse is available.  The Ex-Im Bank, however, is concerned with providing an individual good: access to credit to finance foreign purchases of U.S. exports.

That being the case, it makes sense that in the short-term the Ex-Im Bank should be privatized.  Not in the usual way, of course.  The purchaser(s) should not be people with existing accumulations of savings.  Instead, the employees of the Bank should be permitted to purchase the Bank on credit, and pay the federal government out of future profits.

The Bank’s charter should require that it continue to do exactly what it is doing now and on the same terms, only as a private institution instead of a government agency.  It should also prohibit acquisition of the Bank by anything other than a genuine commercial bank, if it is ever sold.  No insurance.  No investment banking.  No consumer credit, home mortgages, securities investments, or anything other than accepting bills and issuing promissory notes to finance foreign purchases of U.S. exports.  Period.

One advantage to privatization is that it would get the government out of the business of trying to provide individual goods, and get it back to its proper role of looking after the common good.  Contrary to popular misconceptions, the common good is not goods owned in common, or the aggregate of individual goods.  These are not the government’s concern.

Another advantage is that privatization on these terms could lead the way in a reform of the financial services industry — especially if the Bank is at least as successful as a private sector company as it has been as a government agency.  Instead of financial “box stores” and Megalowmarts, the financial services industry by its nature must be specialized.  There is otherwise too much of a chance of conflicts of interest and complete loss of internal control through lack of systemic checks and balances.  The repeal of Glass-Steagall was a disaster, as some people are now finally beginning to understand.

Two, in the long-term a privatization of the Ex-Im Bank must be a part of a comprehensive shift in public and private monetary and fiscal policy and a reform of the tax system.  It would otherwise be unsustainable.

Currently, monetary, fiscal, and tax policy is dictated by the disproved belief that the only way to finance new capital formation (or anything else) is to produce more than is consumed and accumulate the surplus in the form of money savings, and the near-religious dogma that human labor is the only true input to production — the labor theory of value.  Consequently, corporations are given favorable tax treatment in the belief that the savings thereby generated will be invested in new capital instead of being paid out to the owners, which will presumably create jobs.

This unnecessarily complicates the tax code, and diverts what should be income to capital owners to income for labor owners . . . in the unlikely event that it really does create jobs.  It also encourages stock market speculation by retaining earnings, shifting stock valuation from the present value of the anticipated future stream of dividend income to changes in the value per share.

Finally, it virtually guarantees that capital ownership will become increasingly concentrated.  Small capital owners are forced out of the capital markets by economies of scale and the reliance on past savings that are by definition a monopoly of large capital owners — “savings equals investment.”

It is therefore essential that sweeping reforms be implemented at the earliest possible date.  Some of these are,

Reform of the tax system.  Merge all personal taxation, including Social Security and Medicare, into a single rate, levied on all income from all sources above a meaningful exemption, e.g., $100,000 for a “typical” family of four.  Taxes should be deferred on all income used to make debt service payments on loans used to purchase qualified equity shares, with a lifetime limit on the amount of the deferral, e.g., $1 million.  The single rate should be set at an amount required to run the government and begin paying down the debt.  Dividends should be tax deductible at the corporate level, and treated as ordinary income at the personal level.

Phase out all government debt financing except for short-term borrowing out of existing savings to meet temporary shortfalls in tax collections.

Implement an aggressive program of expanded capital ownership financed by commercial bank issuance of promissory notes to discount bills of exchange, which are then immediately rediscounted at the Federal Reserve to establish and maintain 100% reserves of asset-backed currency.

Divest government of all ownership.  Citizens should directly own everything, including land and infrastructure, through for-profit leasing, development, and holding companies.  Deeds can be covenanted to protect national parks and similar resources, but there is no reason why, in an advanced economy, government even needs to own the buildings it occupies or the vehicles they use — rent or lease them from their own citizens . . . putting the people back in charge of everything.

This list is, of course, far from exhaustive.  A much more complete plan can be found in Capital Homesteading for Every Citizen.

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