THE Global Justice Movement Website

THE Global Justice Movement Website
This is the "Global Justice Movement" (dot org) we refer to in the title of this blog.

Thursday, September 14, 2017

Stimulus and the Global Financial Crisis

Every now and then we get some questions or comments to which we can respond.  Oh, we don’t mean like the troll who, in response to our comment about how it’s better that government should go to the people for its money rather than the other way around, shrieked that there should be no government at all, that it’s a thief, that anarchy is the only ethical system!!!!!!!

This is called "missing the point about social justice. . . ."
So, how do we get rid of government and institute anarchy?  Why . . . we get organized, of course, overthrow the government, and have chaos until somebody strong enough takes over and imposes his or her will on everybody else . . . until they get organized to overthrow the dictator, institute their own dictatorship, and the cycle continues.
Or (as we noted in yesterday’s posting about flawed institutions) you get organized and carry out acts of social justice designed to reform the flawed institutions and bring it into material conformity with the natural law so that it once again meets human wants and needs in a morally just manner.
No, the question we got for today is related to the right way to reform institutions, which must always be within just parameters.  No one is permitted to do what is inherently wrong even to bring about the best result in the world.
And the question?  Our correspondent (the polite one) noted that banks around the world have been withdrawing from the stimulus packages that were implemented in reaction to the Global Financial Crisis.  There are at least two signs of this: 1) the increase in interest rates, and 2) the increase in tax rates and other forms of payment to government, e.g., energy prices where fuel is a State monopoly.  This is particularly the case in the countries around the Indian Ocean, Australia, New Zealand, Japan, South Korea, and China.  What are our thoughts on this subject?
Should the government control the economy?
Right off the top of our head, the first thing that occurs to us is to ask what governments are doing setting interest rates, energy prices, or anything else that should be determined by the market?  And what is the government doing owning fuel?
Now, obviously we’re not going to agree with the troll who declared that all government should be abolished, but the modern Nation State has gotten a bit too big for its britches.  The solution is either to get a bigger pair of trousers (too expensive, and simply continues the same mistake, only more so), or put the State on a diet . . . so to speak.
In other words, the State is a very useful, even essential tool, given that (as Aristotle said) “man is by nature a political animal.”  The problem is that the State, by its nature, is a monopoly.  A particular state may (and should) divide up functions so that the system of government has internal controls (“checks and balances”), but the one single control that has the most effect and is absolutely essential to the running of a just system is external: control over the source of funding for government.
Henry Carter Adams (1851-1921)
Any government that figures out a way to finance its operations without taxation, first destroys the sovereignty of its own people, and then its own sovereignty.  As Henry C. Adams pointed out over a century ago,
The facts disclosed permit one to understand how deficit financiering, carried so far as to result in an interchange of capital and credit between peoples of varying grades of political advancement, must endanger the autonomy of weaker states unable to meet their debt-payments. Provided only that the interests involved are of sufficient importance to make diplomatic interference worth the while, the claims allowed by international law will certainly be urged against the delinquent states, and the citizens of such states may regard themselves fortunate if they succeed in maintaining their political integrity. Henry C. Adams, Public Debts, An Essay in the Science of Finance. New York: D. Appleton and Company, 1898, 28-29.
Translation: debt slavery applies to nations as well as individuals.  Sooner or later the bill comes due, and if the creditors aren’t paid, they tend to “take steps” to ensure repayment.  Greece right now is the Poster Child for public fiscal irresponsibility, but the debt that is swamping Greece is only different in degree, not in kind, from that assumed by virtually every country on earth.
The fact is, any government that floats debt to finance its operations endangers its own existence.  The only good debt is one that is “self-liquidating,” that is, consists of credit used to purchase capital that pays for itself out of its own future profits.  Government debt is by nature “bad debt” because the loan proceeds are spent on consumption, not investment, and the government can only retire debt by soaking the taxpayer, or floating new debt that shifts the burden off on to future generations.
And that’s the “good” kind of “bad debt,” or at least the less harmful: government borrowings out of existing savings.  What about when government actually creates money by emitting bills of credit, and uses that to meet expenditures?
Richard III: got the government out of debt.
In the first type of government debt, how much the government can borrow is limited to the amount of savings in the system . . . and then only if the owners of those savings agree to lend the government the money.  At one time governments raised money by means of “forced loans” called “beneficia,” that were usually just a polite way of confiscating money and not repaying it.
Want to know why Richard III was so popular as king, despite what you might read in Shakespeare’s play?  He repaid every penny of his brother’s forced loans, and started working to rebuild the economy so the government could raise enough revenue through taxes without borrowing.  The merchants of London and York loved him.  The nobility who had to come up with the back taxes they owed did not . . . so they backed Henry Tudor, “the Welsh Milksop,” thinking they could control him . . . and found out they couldn’t. . . .
So what’s the bottom line here?  The same as we’ve been saying for some time.  The so-called “stimulus packages” stimulated consumption, when (per Say’s Law of Markets) what they should have been stimulating was production.
And not just any production.  The only way to get an economy back on its feet is to make as many people as possible productive through labor, capital, or (preferably) both.  And that means widespread ownership of the new capital financed with real “stimulus packages” consisting of private sector loans extended to finance capital formation, not more government debt to increase consumption without production.
Once that happens, government won’t have to worry about raising interest rates, taxes, or having monopolies to raise money.  People will have sufficient income to meet their own needs and to pay taxes, which won’t be as high as a result of the shrinking of social welfare and transfer payments.