This is the first half of the annual year-end news round-up. We’re bringing it out today as Friday is Christmas. Next week’s will also come out on Wednesday, as New Year’s also falls on a Friday. This year, instead of editing items from past News from the Network blog postings, we put them in as they originally appeared. Thus, you should substitute “Economic Democracy Act” for “Capital Homesteading,” and adjust mentally for other things that might have turned out slightly differently than anticipated. . . .
January 2020
• The Just Third Way and EWTN Live. Although the appearance on EWTN Live was focused mostly on the book Ten Battles Every Catholic Should Know (2018), the last segment of the program did get into the Just Third Way and the message that “If you desire peace, work for justice.” This was a theme in the book as well, but not as explicit as it might have been had it not been a book on military history! Unusually, half the studio audience said that the last few minutes of the show were the best and most important, a judgment expressed by a number of others afterwards as well. This is significant, as in conversations before and after the show CESJ’s “take” on social justice was explained briefly and found a very receptive audience. That is, social justice does not replace individual justice and charity, but makes it possible for individual justice and charity to function once again.
• Clash of the Paradigms. It might be the most graphic recent and micro example of how a financial tool designed for one purpose can be so easily diverted to another that has the opposite of the intended result. The principal example on the macro scale, of course, is the central banking system of the United States, the Federal Reserve. Intended in part to convert the inelastic reserve currencies backed by government debt into a single elastic reserve currency backed by private sector hard assets, the Federal Reserve was quickly converted into a means whereby government deficits could be monetized virtually at will. Now we have the latest example of the misuse of the Employee Stock Ownership Plan (ESOP) invented by Louis Kelso as a means of turning non-owning workers (and eventually everyone) into owners of capital without using past savings or taking cuts in pay or benefits. Fat Tire Maker New Belgium Brewing has announced that it is selling 100% of the soon-to-be-former 100% worker-owned company to Lion Little World Beverages, an Australasian subsidiary owned by Japan’s Kirin Holdings. Naturally, the news reports gush on at great length about how much the workers made by selling their ownership, but none of them mention the fact that they thereby cease to be owners. They sacrifice all future benefits of ownership for a one-time gain. In microcosm, the transaction represents the difference between being an owner and being a dependent of an owner. As the slogan goes, “Own, or be owned.”
Amity Shlaes
• Bad Beer Story II. In a not incompletely unrelated story, Dr. Neil Reid, a professor of geography and planning at the University of Toledo (Ohio, we presume), noted in an article in the Wall Street Journal (“America’s Bad Taste in Beer Is Prohibition’s Legacy,” WSJ, 01/17/20, A-15), opines that the watered down pseudo Viennese lager that passed for beer prior to the rise of craft brewing in the U.S. was purely the result of the thirteen-year hiatus in brewing due to Prohibition. There’s a good deal of merit in that, but let’s look at another possibility. Dr. Reid says that America’s tastes changed in a little over a decade to the point where people refused to buy a beer with “body, aroma, taste and flavor” (Brewers Digest article, 1938). Maybe, but as Amity Shlaes notes in her book on the Great Depression of 1930-1940, The Forgotten Man (2008), the New Deal had a definite bias in favor of Big Business and Big Government. To compete with the large breweries that had no trouble getting financing, the smaller fry tried to duplicate the watered down androgynous product of the national breweries. With a depression on, price was a big factor, and the cheaper a beer was to make, the better chance for the smaller brewer to compete on price for a similar product. It might not have been changing tastes so much as changing incomes. The way around this sort of thing, of course, is to make capital credit available in ways that 1) do not discriminate against enterprises on the basis of anything other than financial feasibility, and 2) that build consumption power into the customer base so that they can afford to purchase the quality products they really want . . . as the craft brewing movement amply demonstrated.
• Indian Ghost Towns. No, we’re not talking Crazy Horse’s condominium, but the failure of developers in India to secure sufficient financing for pre-sold dwellings in upscale developments that are left incomplete. This is a huge problem, as described in the Wall Street Journal (“India “Ghost Towns” Leave Middle Class in Debt,” WSJ, 01/17/20 A-16). Lack of adequate credit to finish the job has left buyers hanging and standing to lose their down payments, while the developers may go bankrupt. This is the problem with using existing savings to produce a marketable good or service. The market can exist, the product is salable, the customers can even put down cash . . . but without credit, everyone stands to lose everything. Unfortunately, throughout the world today, capital projects are starved for credit, while speculators, gamblers, and government get all the credit they need.
• Entitlement Cuts? President Trump has announced that he is willing to consider cuts in Social Security benefits and other entitlements. Presumably this is a great step in reducing the massive federal debt, but it is not the right way to go about the business. Simply cutting benefits does nothing to solve the underlying problem, which is inadequate income when people can no longer work or can’t find work to begin with. The whole notion of income and retirement needs to be rethought. Linking income irrevocably to a wage system job — the underlying assumption of the entire Social Security system, in fact, of Keynesian economics — does nothing to change the fact that advancing technology continues to replace human beings from labor at an accelerating rate. The only solution to growing deficits as well as the income problem for those who cannot work for whatever reason is to shift from labor to capital as the predominant source of income. This will not only ensure as far as possible that people have adequate income, it will restore that tax base and ease the strain on Social Security and other entitlements. Capital Homesteading is one possibility (possibly the best one) for solving these problems.
Charles Fourier
• The Real Sexual Revolution. We recently obtained a copy of Charles Fourier’s masterpiece and founding document of socialism, The Theory of the Four Movements (Théorie des Quatre Mouvements), first published anonymously in 1808. After looking through what is generally acknowledged as the theoretical framework for one of the most influential forms of socialism in the United States, we concluded that Fourier’s theories were based almost completely on unfulfilled adolescent sexual fantasies and a virulent hatred of Christianity that Fourier saw as interfering with the redemptive power of free and uninhibited sex. As the Introduction to the Cambridge University edition summarizes Fourier’s thought, “Whatever the extravagance and eccentricity of its detail, The Theory of the Four Movements provides an invaluable insight into the origins of socialist criticism. Conventional scholarship still tends to attribute the origins of ‘socialism’ to a heightened concern for equality arising from the French Revolution and to the economic changes consequent upon the ‘industrial revolution’. In Fourier’s case, it is clear that these were not his preoccupations. Conceived at the end of the revolutionary decade, this text is most immediately a reminder that the French Revolution had involved not only the transformation of the state, but also the attempt to replace the Church. Fourier’s economic criticism, so influential in shaping the subsequent socialist tradition, began in this context. The Theory of the Four Movements is a reminder that ‘socialism’ began as an attempt to discover a successor, not to capitalism, but to the Christian Church.” (Gareth Stedman Jones, “Introduction” to Charles Fourier, The Theory of the Four Movements. Cambridge, UK: Cambridge University Press, 1996, xxv-xxvi.) Furthermore, it appears evident that beginning with Pope Gregory XVI the leaders of the Catholic Church were fully aware of the fact that what became known as socialism and communism (differences are only semantic) was intended to abolish traditional forms of Church, State, and Family, first by attacking private property, then marriage and family.
February 2020
William Greider
• William Greider. It is with regret that CESJ learned of the recent death of economic writer and journalist William Greider (1936-2019), who included information on what we today call the Just Third Way in his bestselling book, Secrets of the Temple: How the Federal Reserve Runs the Country (1988). Our understanding of commercial and central banking has greatly expanded since Greider published his book, but his identification of the key role the Federal Reserve plays in today’s confused and confusing financial system and challenge to mainstream political and economic thought remain valuable, if only to focus attention on the desperate need for reform. We do not have to agree with the prescription to acknowledge that a disease exists.
• Student Debt. The forgive-student-debt movement has been gaining momentum, although a few voices are being raised about the possible dangers such a massive debt forgiveness might have on the economy, as well as on Academia itself. We’re not aware of anyone who holds student loan debt as investments, but even if it is “the corporations,” those corporations have shareholders, and the shares are often traded on the exchanges. According to Forbes, there is total outstanding student loan debt of approximately $1.5 trillion in the U.S. The question is, if that debt is forgiven, who pays? One unforeseen problem: the IRS includes forgiveness of debt as income . . . fully taxable income. Can a former student with $250,000 of outstanding loans afford a sudden addition of non-cash income of that much? At a 30% tax rate, the taxes due — and due at the time the debt is forgiven — is $75,000. You can get into big trouble if you default on student loans, but you won’t go to jail unless you disobey court orders about rescheduling, etc. You can go to jail for not paying your taxes. And what about the value of the shares of the companies holding non-government student debt? The taxpayer is going to get stuck for that. The government cannot order a private company to forgive debt without compensating the company. And the debt held by state and federal government? The taxpayer gets stuck for that, too. At one stroke, over $1 trillion could be added to the deficit. And that probably means the full hit of $1.5 trillion would be assumed by the federal government since no state could take that kind of write off. Now, about that “free tuition” movement . . . in Europe, all that has meant is that other charges to the students go up. The total cost remains about the same and in some cases actually increases. The problem doesn’t go away. It gets worse.
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| Michael Bloomberg |
• Saving Social Security. This past Sunday former New York City mayor Michael Bloomberg announced his plan to save Social Security and revamp America’s retirement system. Part of the billionaire contender’s proposal is to raise the minimum benefit to above the poverty line. Which poverty line does not appear to have been specified, nor the effect of increasing demand without a corresponding increase in production, but doubtless these details will be revealed in the future. Bloomberg is “consider[ing] options for preserving and strengthening Social Security’s long-term finances, while maintaining and enhancing benefits for the neediest recipients.” His plan includes a “supplement” to lower-income retirement options with a public savings option with automatic contributions for all income earners. Unfortunately, Bloomberg was a trifle vague about funding the increased benefits. He does not appear to have considered something along the lines of Capital Homesteading, which would help people meet their needs through their own efforts instead of relying on redistribution or cutting current consumption to save for retirement. (This item was obviously written prior to the debates on Wednesday night and might be moot at this point. . . .)
• Ukraine Privatization. The rather gloomy picture of the Ukrainian economy painted by the International Monetary Fund is actually a golden opportunity for the country. Ukraine is faced with privatizing 1,500 SOEs, but with only the usual suspects — rich domestic investors and rich foreign investors — as potential buyers. What they should do — according to the late Walter Reuther, president of the United Auto Workers union — is to sell existing SOEs to the workers and keep fixed costs low by taking future increases out of profits instead of adding to costs. For future growth, institute a Capital Homesteading program to make every Ukrainian an owner.
March 2020
Leland Stanford
• Leland Stanford. It turns out that the “Robber Baron” Leland Stanford, railroad magnate, organizer of the Republican Party of California in 1856, eighth governor of California, U.S. Senator, and founder of Stanford University, was also a supporter of worker ownership! It seems that Stanford was a fairly typical, if also fairly honest, member of the wealthy élite of his day. Something of a hypocrite in racial issues (he disparaged Asian immigration as allowing inferior people in while at the same time importing workers from China to build his railroads) he nevertheless supported worker ownership (albeit on a small scale, i.e., not cutting them in on a piece of what he owned) for more than thirty years before giving them expression in his plans for Stanford University, proposals as a U.S. Senator, and interviews with the press. Still, nobody is perfect, and Stanford’s proposals warrant further investigation. There appears to be no relationship between Stanford and his near-contemporary, Judge Peter S. Grosscup, who advocated the “people-ization” of U.S. corporations through a national law of corporations and widespread ownership in the early twentieth century.
• The Real $1 Trillion Stimulus. What should be done to stimulate the economy if just printing money and handing it out or investing it in the stock market will only make the problem worse? The answer is astonishingly simple once you understand the true nature of money and what commercial and central banks were originally designed to do. Instead of printing $1 trillion and trying to figure out what to do with it (and ending up pouring it into the stock market), give $1 trillion (or however much is needed) in commercial loan guarantees at a nominal charge, say 1%. That way, the worst case scenario is completely neutral with no inflationary effect. If the government guarantees $1 trillion in loans to businesses, and every cent of every loan goes bad, the government prints up $1 trillion of new money which is paid to the commercial lenders . . . and cancelled. This is because if operating properly, a commercial bank doesn’t make loans out of reserves, that is, out of cash on hand. Instead, commercial banks create money by making loans, and cancel money when the loan is repaid, for which they charge a service fee, often erroneously called an interest rate. Now, it is highly unlikely that all loans made by commercial banks will go bad. Historically, between 3-5% of loans in the U.S. have been bad loans. In South Korea, the default rate has been around 1½%. Assuming that 5% of all loans made go bad, a $1 trillion loan guarantee package would cost the government $50 billion — a lot less than $1 trillion! But that’s not all. If the government charges 1% for its guarantee, it will take in $10 billion, reducing the loss by that much. If the program is turned over to the private sector for commercial insurance companies to handle, they will charge a premium for the guarantee set by the projected default rate plus some extra to cover expenses and allow for a profit. Instead of a loss of $1 trillion in the form of added government debt, there could be a net gain to society in the form of insurance company profits.
April 2020
• Volatility-Linked Exchange-Traded Products. “Exchange-Traded Products” first appeared in the United States in 1993. As the stock market became increasingly volatile in response to massive money creation for speculation (e.g., bailouts of companies “too big to fail,” stimulus, the current panic printing of money, etc., etc., etc.), new “Exchange-Traded Products” appeared that took advantage of the volatility of a market completely unrelated to any reality of the productive sector. These “Volatility-Linked Exchange-Traded Products” are so incredibly complex that it is virtually impossible for even a Certified Public Accountant to understand them, much less use them, even if they appeared to be ethical, which is extremely questionable. They are also, unfortunately, evidently incredibly profitable. In a sane world, of course, the values of shares on the secondary market (“the stock market”) would represent the fair market value of the company based on its anticipated future production. Period. Of course, a sane world assumes the Just Third Way of Economic Personalism, which also assumes a broad distribution of capital ownership, such as would result from Capital Homesteading.
Adam Smith
• Try This On Your Economy. People are worried about rebuilding the economy after the Covid-19 pandemic, as they should be. Let’s consider the purpose of an economy, however. Is it to bolster political aims? No. Is it to make stock speculators rich? No. Is it to protect some economic or political or religious theory? No. The purpose of economic activity is to meet human wants and needs. Period. Adam Smith built his theories of political economy on that principle: “Consumption is the sole end and purpose of all production.” Given that, a country’s first objective is to ensure as far as possible that all its citizens can be productive. In a modern economy that does not mean access to wage system jobs or welfare, even in the form of a Universal Basic Income. It means access to ownership of the capital that is producing the bulk of marketable goods and services today.
• Japan and China. Japan appears to be pulling back on its economic ties to the People’s Republic of China, and putting its retrenchment efforts into domestic projects. This would be a good move in any event, as the domestic economy should have the primary capacity to produce the basic needs of citizens. Exports should be products that the country has a comparative advantage in producing. Except as a last resort, no country should have to depend on another for its basic needs — and that includes the United States as well as Japan.•.
• Paid in the U.S.A. Approximately 12% of U.S. GDP is exports of domestically produced goods and services. China accounts for less than 8% of that, or approximately 1% of total U.S. GDP. What would happen if the United States moved all production from China back to the U.S., automated production as much as possible, and gave every child, woman, and man in the U.S. the opportunity and means to become owners of domestic productive capacity as described in the proposed Capital Homestead Act? By increasing consumption by an average of 1% across the board, the increase in domestic consumption would offset the loss of everything China purchases from the U.S., per capita disposable income would increase as U.S. citizens received labor and ownership income, and the monetary and tax reforms alone would enable the U.S. to redeem all the U.S. debt held by China within a generation.
• Chinese GDP. As noted above, exports to China account for 1% of U.S. GDP, and overall are 12% of the U.S. economy. In contrast, exports account for 40% of China’s GDP. Clearly this is unsustainable. As has been known for centuries, such trade imbalances endanger the sovereignty of debtor nations as well as their economic stability and strengthen the position of creditor nations . . . and China is becoming the single largest creditor nation on Earth. Neither individuals nor countries can consume without producing for very long, but that is exactly what a trade imbalance is. The temptation for creditors is always to eliminate those who consume without producing (the Nazi “liquidation” of “useless eaters” and “life unworthy of life”) or take over the debtor, which can go from economic warfare to the more usual kind.
• Impossible Finance. The Small Business Administration reports that it has run out of money less than two weeks into the program, running through almost $350 billion in 13 days. This graphically illustrates the immediate danger associated with relying on existing money to finance growth. Operated properly, any economy with a commercial banking system backed up with a central bank cannot run out of money, as money is created by the banking system by loaning it out for financially feasible projects. This is why commercial and central banks were invented: to provide “adequate accommodation” so that there need never be a feasible project that could not be financed. To say you’ve run out of money for business is like saying you’ve run out of inches for measuring. It simply doesn’t make sense. If the SBA had, instead, offered loan guarantees or even arranged for private sector capital credit insurance and reinsurance to collateralize standard commercial bank loans rediscounted at the Federal Reserve, it wouldn’t have had to spend any money at all until and unless there was a loan default, and then it would be far less than making the loans in the first place.
• Executive Gravy Train. A short article in the Wall Street Journal “Companies Revamp Executive Pay With Less Cash, More Stock,” 04/21/20, B-1, B-2, says just what the title suggests, that executives are getting an ownership stake instead of more moolah. Why, however, is this only offered to “executives” instead of to the people who actually “execute” the orders of the executives, i.e., the workers? Why not give workers a stake in the company’s future, too, especially since executives will usually sell the shares for a one-time gain, while workers should retain the shares for the dividend income as described in this recent CESJ paper.
May 2020
• Free Money for All? Why Not Capital Credit for All? As reported in the Huffington Post (“New Bill Would Give Americans $2,000 Per Month Until Coronavirus Pandemic Is Over”), a proposed bill in Congress would . . . well, hand out $2,000 monthly to folks to help out in this time of crisis . . . and make them dependent on the federal government. As stated in the article, “The Monthly Economic Crisis Support Act, introduced Friday by Sens. Kamala Harris (D-Calif.), Bernie Sanders (I-Vt.) and Ed Markey (D-Mass.), would provide a monthly $2,000 check to every person with an income below $120,000 throughout the public health crisis and for three months after it officially ends.” Of course, who is to say when something “officially ends”? . . . but that’s not what we’re questioning . . . okay, we’re questioning that, as well as wondering where the money is supposed to come from, but we’re also wondering why CESJ’s proposed “Capital Homestead Act” that originally suggested $3,000 (up to $7-12,000 now, why be stingy?) in capital credit extended in a non-inflationary way to allow people without savings to purchase newly formed capital and become productive without past savings (Capital Homesteading uses “future savings”) isn’t being discussed. After all, if you’re really interested in putting the economy on a sound footing, doesn’t it make sense for every child, woman, and man to participate to the fullest extent possible as producer, consumer, and owner?
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| Social Security Shell Game |
• Free Repayable Stimulus! According to the Motley Fool financial analyst website, the proposed $5,000 stimulus for “seniors” is actually a hidden loan from future Social Security payments. This, of course, without the Fool (we mean that in a nice way) knowing it, is the best argument for Capital Homesteading as a way of “saving” Social Security by creating a stream of ownership income that replaces the current system as the primary source of income. We’ll repeat that, for we would leave Social Security in place and meet all current promises, but be careful about making new ones. Social Security should be “means based,” so that people who have nothing else can be secure (as the name says), but it should not be an across the board entitlement. If Capital Homesteading were in place, a $5,000 non-repayable advance out of Social Security would 1) make sense, 2) not put a strain on the system, and 3) probably not even be necessary, as Social Security payments would be larger, anyway, with fewer recipients, and with more “seniors” having ownership income, there would be less financial need in the first place.
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| Mark Cuban |
• Mark Cuban Speaks. According to the bulletin of the National Center for Employee Ownership in Oakland, California, Billionaire investor Mark Cuban has come out strongly in favor of employee ownership. As the NCEO reports, “Cuban also said, ‘if you’re running a company now and you need help from your employees, give them equity. Give them stock in a meaningful way, because you’re going to need them to grow your company. We’re all going to need them to grow this country and this world back to where we were economically.’ He argued that stock ownership can increase economic security and help reduce social inequality.” Now, we agree with most of what is said, but we have a quibble with the word “give” and, later, in a quote we didn’t quote, “reward.” Ownership is a right, not a gift. As Pope Pius XI reminded us (even if you’re not Catholic or even Christian), “no vicarious charity can substitute for justice which is due as an obligation and is wrongfully denied.” (Quadragesimo Anno, § 137.) We have a hunch Cuban is not really giving shares away, but is selling them, but it should be made clear that, while current owners have every right to keep what they own (and can give it away or sell it out of charity), everyone should have the opportunity and means to become an owner of the future growth of the economy.
June 2020
Rodney E. Hood
• Part of a Good Idea. In today’s Wall Street Journal there is an opinion piece by Rodney E. Hood, Chairman of the National Credit Union Administration, charged with oversight of the country’s federally insured credit unions, “How Banks Can Help America Heal” (WSJ, A-15). As Mr. Hood says, “I have called upon regulators to make inclusion a major priority in the financial industry.” Nor is that all. He also states, “Private industry should support inclusive growth.” Bravo! Right on (the mark)! He then lists the sort of things that financial leaders should be doing: “giving more working class families access to tools that help them achieve financial independence, providing more young people with the educational and vocational they need to succeed, and nurturing the material conditions that allow people to prosper and thrive.” Modified rapture! This is all very well, but while Mr. Hood’s intentions are clearly good, and what he says is necessary is critically needed, he left out widespread capital ownership as the surest way of establishing and maintaining inclusive economic growth. True, Mr. Hood’s expertise and position relates to banks of deposit that cannot create money, but his connections and position could easily open the door to politicians interested in reform of the whole financial system for the benefit of everyone.
Peter Navarro
• Too Prosperous to Hate? Another piece in today’s Wall Street Journal opined (or op-eded, since it was on the presumably “opposed editorial page” opposite the editorial page . . . we bet you didn’t know that’s what “op-ed” originally meant, did you) that working on making America prosperous would heal racial and other tensions. (“Let’s Make America Too Prosperous To Hate,” A-17). Another good idea. Bravo . . . but still no bravissimo. The author of the article, Peter Navarro, assistant to President Trump and Director of the Office of Trade and Manufacturing Policy, speaks only in terms of jobs for all that make other people prosperous. If Dr. Navarro really wants to make America prosperous, he should focus on making Americans prosperous . . . and that means making Americans — all Americans — into capital owners. If Dr. Navarro (or even President Trump) really want to “Make America Great Again,” they might consider urging Congress to pass the Capital Homestead Act. After all, Abraham Lincoln’s 1862 land-based Homestead Act resulted in one of the greatest economic expansions in history . . . and it only directly benefitted a relatively small proportion of the U.S. population, and had some flaws. A Capital Homestead Act would benefit every child, woman, and man in the country directly. Forget about making America great again. We need to make Americans — and everyone else — great again.
• Academia in Peril. Financial peril, that is. Academia long ago slid into the abyss of educational failure long ago. With the pandemic shutting institutions of higher (and lower) learning for who-knows-how-long, however, a number claim to be thinking about shutting their doors for good. Given that many colleges and universities have degenerated into ideological kibbutzes and job training for jobs that no longer exist, it might be time to think of a genuine reform or two, such as teaching sound principles of natural law and other philosophical subjects that have been dropped, such as what is justice, law, sovereignty, virtue, and all that — you know, what people used to consider the meaning and purpose of life: becoming more fully human. Perhaps something like “Justice University” might show the way to the rest of Academia.
• The Defund the Police Movement. It’s not entirely clear what they think is going to happen, but the “Defund the Police” movement seems to be gathering momentum. Effectively, whatever the intent, it seems to be a euphemism for “Abolish the Police.” If so, it would seem to be an extraordinarily silly — and extremely dangerous — thing to do. A cartoon originally published in September 2017 as part of an “Abolish the Police” movement has been circulating, purporting to show how a world without police would be a virtual Heaven on Earth. One is tempted to wonder how well these people thought any of this out. Reports coming out of the recently established police-free “Autonomous Zone” in Seattle suggest that the self-policing being enforced might be far more rigid and rigorously enforced than is usual in that city, with residents of the Zone being required to show IDs to enter the Zone and on demand. The park in the area is being dug up and planted to crops of some kind, although it might be a little late in the season for that. According to unverified reports, the homeless people invited into the Zone grabbed as much food as they could and left before it could be taken back, and a “warlord” has taken control, with plans to enlarge the borders of the Zone and commandeer essential supplies to keep the Zone independent.
• Paying the Debt. People are starting to ask how governments are going to pay down the enormous debt accumulated as a result of the Coronavirus. One thing nobody seems to be considering is how debt is usually paid off: you produce a marketable good or service and provide it to customers, selling it at a price sufficient to meet your costs and compensate you for your time and effort. Part of the cost of what you produce now is what it took to keep you going and bring you to the point that you can be productive. True, there are accounting rules and tax laws that restrict what and how much you can charge to costs, but that’s not what we’re talking about here. The problem now is to turn non-productive people into productive people so that they can help repay the debt incurred to keep them going up to now and generate enough to keep them going in the future. If people can’t be productive by employing their labor, then they must be empowered to be productive through the ownership of capital. To repay the “Coronavirus Debt” (and all accumulated debt, for that matter) something on the order of a Capital Homestead Act is required.
"Don't worry. It's not deflation!"
• Japanese Deflation Fears. Yes, we know that “inflation” and “deflation” are generally meaningless concepts in the Just Third Way. They only make sense when considering what Currency Principle economists call “cost-push inflation,” that is, the price of something starts to rise because the cost of producing it increases. From a Banking Principle perspective, however, that really can’t be called “inflation” as it is simply the normal operation of the laws of supply and demand. “True inflation” — which we define as “too much money ‘chasing’ too few goods and services” — is not a valid concept under the Banking Principle except for those relatively rare occasions when the backing of the currency becomes valueless, disappears, or never existed in the first place, i.e., when a presumably “real bill” turns out to be what used to be called a “fictitious bill.” This means that the money created backed by that bill is inflationary, creating demand without a concurrent creation of supply. When the opposite occurs, that is, when there is creation of supply (production) without a concurrent creation of money, you don’t have “deflation.” Yes, we know that deflation is defined as “a general decline in prices for goods and services, typically associated with a contraction in the supply of money and credit in the economy,” but that’s wrong. When your money buys more because more is produced and not because the amount of money is reduced (there’s a poem in there, somewhere), that is “currency appreciation,” NOT deflation. Anyway, according to the Wall Street Journal of 06/17/20 (“Japan Is Facing The Return of Old Foe, Deflation,” A-10), the economic and political mavens in the Land of the Rising Sun are convinced they’re facing Disaster with a Capital D unless they can inflate the currency. Of course, they might get wild and crazy and link money creation to existing inventories and future new capital, and ensure adequate demand by implementing an aggressive program of expanded capital ownership like Capital Homesteading . . . but where would the world be today if we actually implemented solutions that worked instead of burning more incense to the genius of Lord Keynes?
• A Long Recovery? The economic mavens seem to be generally pointing in the direction of gloom and doom for the chances of a recovery that benefits everyone, and how long it’s going to take to have any at all. They all seem to forget their history. The only reason the Great Depression of 1930 to 1940 dragged on twice as long as the two previous Great Depressions (1873-1878 and 1893 -1898) was that the New Deal policies followed the Keynesian prescription of manipulating the currency and trying to attain “full employment.” Both of the previous Great Depressions were triggered by problems with the financial system (ultimately, that is; certain specifics could be isolated, but not very easily from the badly structured system of finance), as was the Great Depression of the 1930s. What brought an end to all three Great Depressions was production for which there was demand. To oversimplify somewhat, the enormous demand for beef in the east stimulated the cattle industry in the west, while the opening up of the west with the Homestead Act created a market for eastern manufactured goods, bringing an end to the Great Depression of the 1870s. In 1897 and 1898 the American west had bumper crops of wheat while Europe experienced widespread crop failures, creating an instant market for American wheat and ending the Great Depression of the 1890s. The Great Depression of the 1930s was ended by the increased demand resulting from the need to prepare for World War II. To have a (relatively) quick recovery from the current “downturn,” three things are essential: 1) a reform of the money system to restore a stable and asset-backed currency to supply financing for private sector development, not government, 2) a reform of the tax system to restrict it to raising revenue for government expenditures and encourage private sector growth, not “social engineering,” and 3) an aggressive program of expanded capital ownership, such as Capital Homesteading. A crude estimate of how long recovery would take under these conditions would be 18-24 months to return to what passes for “normal” these days, and 3-7 years to reach “full employmen.t” “Why?” you ask? Simple: 18-24 months is a conservative estimate for how long it will take to get the most advanced capital instruments in place and up and running; 3-7 years is the typical “payback” period for most new capital, i.e., when the gross revenue equals the cost of the capital. (N.B.: “Payback” can also mean the time required for the net profit to equal the cost of the capital, but for our purposes the gross revenue is the figure to use.) With full payout of earnings as dividends that are tax-deductible at the corporate level, and ordinary income at the personal level, the increase in demand will stimulate economic growth to the point where production will equal income — if all new capital is financed in ways that create new owners, and government stops emitting bills of credit. As a bonus, as government expenditures go down and it stops monetizing deficits, the national debt can be paid off. A very conservative estimate for how long this could take is sixty years . . . but keep in mind that with an all-out national and patriotic effort, France was able to pay off an indemnity specifically intended to destroy the country economically in less than three years.
• Financial Reality Check?. It starts to get a little surreal (or a lot weird) when on the front page of today’s Wall Street Journal it announces that “the banks” face a potential loss of almost $1 trillion due to bad loans . . . which they wouldn’t be concerned with if 1) Capital Homesteading was in place and 2) loans were secured with capital credit insurance. (“Fed Sets Caps on Bank Payouts Amid $700 Billion Loss Threat,” Wall Street Journal, 06/26/20, A-1, A-7.) That was bad enough. Then we turned to page B-11 in the same issue . . . and discovered that “Banks Ignite Late Turnaround for Stocks.” The DJIA ended up 300 points higher, “led by shares of banks.” Entering the Twilight Zone, a few minutes ago as of this writing, the DJIA was down 555 points (at least it wasn’t 666) due to a poor showing by banks on “stress tests.” Comment at this point would probably be superfluous. And completely unnecessary.
• Volunteers. CESJ has been getting a remarkable number of volunteer applications, which attribute in part to the fact that CESJ has a proposed solution to the current economic and social malaise that doesn’t rely on redistribution or the hidden tax of inflation by issuing massive amounts of new government debt. This is hard on the heels of a record seven Fellows at one time, and one of the best interns CESJ has had since the last one.
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| John Moorehouse |
• New York Times Editorial. According to an editorial in the New York Times of June 24, 2020, “The Jobs We Need,” the world will be saved if fixed wages and benefits are increased to a level beyond the dreams of avarice of a century ago. The irony that the higher fixed wages go, the worse off workers become seems to escape them as the price level rises more than the wage increase, and workers get replaced by less expensive machinery.
• John Moorehouse. We continue to urge people to visit the GoFundMe campaign page for John’s family and make a contribution. As regular readers of this blog are aware, a good friend and supporter of the Just Third Way, John Moorehouse, Acquisitions Editor for TAN Books (an imprint of Saint Benedict Press), died recently. We shared some thoughts in our posting of Wednesday, December 9 (“‘Farewell to a Father’”). The tribute from Inside the Vatican magazine can be found here, while the Sensus Fidelium video “Tribute to John Moorehouse” with Charles Coloumbe should definitely be viewed.
• Economic Personalism. When you purchase a copy of Economic Personalism: Property, Power and Justice for Every Person, be sure you post a review after you’ve read it. It is available on both Amazon and Barnes and Noble at the cover price of $10 per copy. You can also download the free copy in .pdf available from the CESJ website. If you’d like to order in bulk (i.e., ten or more copies) at the wholesale price, send an email to publications@cesj.org for details. CESJ members get a $2 rebate per copy on submission of proof of purchase. Wholesale case lots of 52 copies are available at $350, plus shipping (whole case lots ONLY). Prices are in U.S. dollars.
• Sensus Fidelium Videos, Update. CESJ’s new series of videos for Sensus Fidelium contrasting economic personalism and the Great Reset is off to a good start. The latest is “Economic Personalism v. The Great Reset.” Last week’s intro video can be found on the “Playlist” for the series. The previous series of sixteen videos on socialism is also available by clicking on the link: “Socialism, Modernism, and the New Age,” along with some book reviews and other selected topics. For “interfaith” presentations to a Catholic audience they’ve proved to be popular, with more than 72,000 views to date. They aren’t really “Just Third Way videos,” but they do incorporate a Just Third Way perspective. You can access the playlist for the entire series The point of the videos is to explain how socialism and socialist assumptions got such a stranglehold on the understanding of the role of the State and thus the interpretation of Catholic social teaching, and even the way non-Catholics and even non-Christians understand the roles of Church, State, and Family, and the human person’s place in society.
• Shop online and support CESJ’s work! Did you know that by making your purchases through the Amazon Smile program, Amazon will make a contribution to CESJ? Here’s how: First, go to https://smile.amazon.com/. Next, sign in to your Amazon account. (If you don’t have an account with Amazon, you can create one by clicking on the tiny little link below the “Sign in using our secure server” button.) Once you have signed into your account, you need to select CESJ as your charity — and you have to be careful to do it exactly this way: in the space provided for “Or select your own charitable organization” type “Center for Economic and Social Justice Arlington.” If you type anything else, you will either get no results or more than you want to sift through. Once you’ve typed (or copied and pasted) “Center for Economic and Social Justice Arlington” into the space provided, hit “Select” — and you will be taken to the Amazon shopping site, all ready to go.
• Blog Readership. We have had visitors from 28 different countries and 39 states and provinces in the United States and Canada to this blog over the past week. Most visitors are from the United States, Canada, India, the United Kingdom and Australia. The most popular postings this past week in descending order were “Christianity in Action,” “Are Some More Equal Than Others?” “News from the Network, Vol. 13, No. 51,” “JTW Podcast: The Act of Social Justice,” and “Social Justice IV: The Characteristics of Social Justice.”
Those are the happenings for this week, at least those that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we’ll see that it gets into the next “issue.” Due to imprudent language on the part of some commentators, we removed temptation and disabled comments.
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