UBI as a way to fight the effects of climate change

 In my post last week, I argued that if the COP 28 participants could agree on a number for the amount of funding required to tackle change, and agree to implement two modest new taxes that would have to be paid by everyone, our hopes of making progress would be vastly improved. And we could avoid the endless arguing about who should be paying. 

The answer should be obvious. We should all be paying - in direct proportion to our ability to pay. That's a simple rule that I think we should all aspire to.

It is pointless trying to get elected governments to introduce big tax increases on their populations to pay for this. For obvious reasons, they will get voted out by the next Trump who will say "America First", "Cut Taxes" "Sod the planet".....

That's why my proposals for two new taxes - a 0.02% tax on all financial transactions, and/or a 0.3% annual tax on net wealth seem so sensible - at least to me! The critical thing is that they need to be paid by all parties - individuals, companies, trusts and governments, wherever they occur on the planet. No exceptions. 

 The funds would be sent directly to the United Nations Environment Program (UNEP) or some other global authority that can be trusted to do the right thing. 

Last week, I took the number provided by Morgan Stanley in 2019. That report said that we would need to invest $50 trillion between then and 2050. I didn't question those numbers, but here is a brief summary of the breakdown. The money spent would be needed for five key areas five key areas of zero-carbon technology.

• Renewables will require $14 trillion of investment, and could deliver around 80% of global power by 2050—up from 37% today. As solar energy becomes more affordable, it will become the fastest-growing renewable technology.
• Electric vehicles will become more important than ever in the bid to reduce greenhouse gas emissions from automobiles; $11 trillion will be needed to build more factories and develop the batteries and infrastructure needed for a widespread switch to electric vehicles—the total number of which could grow to nearly 950 million by 2050.
• Carbon capture and storage, which Morgan Stanley says is the only viable option for reducing emissions from coal-fired plants, is another key area and would need almost $2.5 trillion of investment.
• Hydrogen can help provide clean fuel for power, cars and other industries—it will require almost $20 trillion of cumulative investments to help make the gas, increase capacity to power plants and manage its storage.
• Biofuels, like ethanol, will be key for future global transportation and eventually spread to aircraft and other forms of other travel—requiring $2.7 trillion by 2050.

But it is important to realise that those numbers do not include the cost of dealing with the damage that is already caused by Climate Change. What is the cost of failed crop harvests? What is the cost of the infrastructure needed to protect coastal areas from flooding?  How can we help those who are most badly impacted by the climate change that we have already produced? 

 Do you think that you could just increase the funding for UNEP and hope that they would be able to work out where the money should go? 

It's at this point that I would like to suggest that trying to solve problems using top down programs is unlikely to be the best solution. 

As I have suggested previously, and as has been suggested by other groups including EqualRight.org, a particularly efficient way to help out those impacted by climate change is to provide them funds in the form of a Unconditional Basic Income. Rather than trying to pump money into third world countries top down, in the hope that their leaders will do the right thing, I think it would be much more efficient to pump the money into peoples pockets and let them decide what the priorities should be. 

This was something I explained in a YouTube video I posted last year on "AI, Technological Unemployment and Universal Basic Income". Although that talk was aimed at showing how UBI could be useful for dealing with the unemployment generated by AI, many of the arguments I developed are directly relevant for using UBI to help tackle climate change. 

For example, at one point in the video I discussed one of the fundamental problems of trying to distribute aid (money, bags of rice, tents...) to the population. This figure below compares what we would like - we give $20 to someone at the top of the pyramid, and hope that the aid will be distributed equally - with what actually  happens in the real world. Because of corruption, people will be tempted to keep some of the aid for themselves, with the result that the process can be very inefficient. 

Compare that distribution system with a UBI based system. The UNEP could set up digital bank accounts for all citizens and simply credit those accounts every month (for example). In such a system, the people themselves get to decide where the funds go. If people need energy, they could choose to buy electricity. If they are thirsty, they could buy water. And if people are hungry, they could choose to purchase food.

There would be no need for someone in an office in Geneva to decide what people should and should not be getting. The list of goods and services that could be funded in this way would be without limit. If they need medication, let them purchase medications. If they want renewable energy, let them club together to buy some solar panels. If they need to build walls to prevent rising sea levels from wiping out their homes, so be it. 

It's interesting that this is really just allowing market forces to do their work. The problem is that the vast majority of people on our planet don't have any money to influence the markets. A global UBI would give those billions of people a voice. 

I seriously believe that, with a global UBI in place, it may be much less complicated to tackle climate change that with the current attempts to find "top down" solutions. The Morgan Stanley report was arguing that we need to invest $14 trillion in renewable energy. If you say it like that, it sounds like a lot. And hoping that investors are going to invest $14 trillion (which effectively means borrowing the money) is probably naive. But suppose that you were paying  all 8 billion people on the planet $30 a month of debt free money using funds generated by the 0.02% FTT and the 0.3% net wealth tax. It would cost about $3 trillion. 

Anyone like to speculate what percentage of the $3 trillion would end up being used to tackle climate change? Clearly, the longer this goes on, the more urgent the need to tackle climate change will become, and the higher the percentage of the $3 trillion being used for that specific objective. Even if people use the money to buy food, water, and energy, it's still being used to offset the effects of climate disruption. 

I firmly believe that the UBI mechanism is probably the best possible way to get people to change their life styles and give us a chance of combating climate change. 

The COP meeting has to find at least $3 trillion a year of funding to fight climate change. Here's how.

Two years ago, I made three specific proposals for things that could be implemented at the COP 26 meeting in Glasgow

• COP26 - Proposition #1 - Ban all cryptocurrencies
• COP26 - Proposition #2 - Decide how much funding is required and then propose universal FTT and Asset taxes to provide the finance 
• COP26 - Proposition #3 - A global Personal Carbon Allowance (PCA)

 

I can't say that I am surprised that nothing happened. 

But COP 28 starts in a few days, and I am terrified that the whole meeting will be taken up with people arguing about who should be paying for the actions that are so clearly needed. The situation was terrible in 2021. Surely, everyone will agree that things are much worse today. 

 

So I would like to come back to my Proposition #2, and provide some more details about my precise proposals. 

 

First, we need to decide how much we will need to spend. In 2019, a report from Morgan Stanley had said that tackling climate change would need $50 trillion of investment before 2050. On the basis of the UN Environment Programme's Emissions Gap Report in 2019 it was concluded that the cost of fixing climate change was between $1.6 trillion and $3.8 trillion. The recently released Emissions Gap Report for 2023 says that $4 trillion a year is need to stay on track with the net-zero scenario.

 

It's clear that the cost of inaction will be huge.  In 2022, Deloitte’s Global Turning Point Report  claimed that unchecked climate change could cost the global economy US$178 trillion over the next 50 years, unless global leaders unite in a systemic net-zero transition.

 

Last month, the World Economic Forum claimed that climate change is costing the world $16 million an hour, and that the global cost of climate change damage is estimated to be between $1.7 trillion and $3.1 trillion per year by 2050.

 

Logically, this means that $3.5 trillion a year of investment would pay for itself.

 

And yet, nothing will happen if the COP delegates waste their time arguing about who should be paying. 

 

That brings me to the second point. Where can we find  find $3 trillion a year? 

 

Rather than trying to convince governments to find money from their current tight budgets, forcing them to raise taxes, which they are understandably reluctant to do if they don't want to lose voters support, I believe that we should be looking at two radical new sources of funding that are (a) totally fair, (b) simple to implement, and (c) totally independent of national budgets.

 

 The first would be a tiny Financial Transaction Tax on absolutely all transactions, wherever they occur in the world, and whatever the denomination of the currency. The second would be a very modest annual tax on the net wealth of all households, trusts, corporations and governments - again, irrespective of where that wealth is located. 

The funds generated by these two new taxes would be provided directly to the United Nations Environment Program (UNEP) or some other global authority, and that authority would be mandated to use the funds in the best possible way to fight climate change. Simple.

Using a Financial Transaction Tax

So what level of Financial Transaction Tax would be needed to provide the UNEP with €3 trillion a year. 

Well, for the last 13 years I've been using the data provided by the Bank for International Settlements to get one measure of the annual volume of transactions. For 2021, the total was $15.9 quadrillon, up 6.51% on the previous year..As you can see in this graph, it has been going up steadily since 2015.

However, even these eye-watering figures must be hopelessly underestimated. Firstly, BIS only reports figures for a set of 26 countries. But more importantly, BIS doesn't bother to include many major players. The most obvious and glaring absentee is the Options Clearing Corporation, "the world's largest equity derivatives clearing organization". The following graph shows the total number of executed trades per year since 2013, taken directly from their webpage. The number was fairly stable around 4-5 billion a year until 2020. Since then it has sky-rocketed. My number for 2023 is an estimate based on trades up to October, but looks set to be well over 11 billion.

What OCC don't say is the financial value of those transactions. It is not inconceivable that we are talking about trades worth a million dollars each. If so, there could be another $11 quadrillion to add to BIS total. 

Even if we only use the figures that are provided by BIS, it should be clear that to generate $3 trillion in funds, it would be enough to impose an FTT of less that 0.02%. 

Importantly, this tax would not just be imposed on the High Frequency Traders responsible for a large proportion of the activity, it would be imposed on absolutely everyone on the planet, including you and me. When my pension is paid into my account (I retired from my job with the CNRS on the 1st of July) - 0.02% of it would go to the UNEP. Every time I make a payment by direct transfer or by credit card, 0.02% would go to UNEP. 

Would I object, given that I know that the money would be used to help ensure that my grandchildren will have a habitable planet? Of course not. Especially when I know that every time I use my credit card, I am forced to pay Credit card processing fees that can typically range from 2.87% to 4.35% of each transaction - paid by the merchant, and passed on to me. The financial transaction taxes imposed by the banking system are even more outrageous when I use my credit card outside the Eurozone. Those international charges are typically an additional 1-3%. Thus, the FTT required to tackle climate change is hundreds of times less than the transaction taxes imposed by the banks. 

Of course, those same banks will say that while it's fine to clobber each of us with what is effectively financial transaction taxes of 4-6%, imposing even a 0.02% tax on the financial sector's trillions of dollars of trading every day would cause the sky to fall in, prevent efficient price discovery, etc etc etc. Don't believe them. It would certainly reduce the incentive to make trades when the margin is less than 0.02%, but trading would certainly continue. 

One of the standard arguments against imposing an FTT in a particular area (such as the Eurozone) has been that the traders would simply move their activity elsewhere. But, clearly, if the UN imposed tax applied to absolutely all trades, wherever they occur, and whatever the denomination used for trading, such arguments completely fail. 

I think that it would also be vital to include the 0.02% FTT on trading in cryptocurrencies. There are now currently 8847 different cryptocurrencies, with a combined market cap of $1.4 trillion. These are involved  tens of billions of dollars worth of trading every day, but there were days in 2021 when the daily volume exceeded $300 billion.  I see no reason why this activity should not also be subject to the climate change tax, especially since cryptocurrencies  have a huge energy cost - because of all the hardware needed for mining.  Bitcoin mining alone is estimated to consume 127 terawatt-hours (TWh) a year — more than many countries, including Norway. See also my proposition #1 from 2021. 

Using a Net Wealth Tax

 

My second proposition would be to impose an annual tax on Net Wealth - whether held by households and individuals, trusts, corporations and companies, but also governments. I talked about this option recently with respect to the option of eliminating other types of taxation such as sales taxes, income taxes and taxes on company profits. But here, the aim would be different. It would be an additional new tax that would be specifically and exclusively used to finance the $3 trillion needed to tackle climate change. As stated, the tax would be paid by all holders of net wealth, whatever their status or location

 

For individuals and households, the vital information can be found in the latest version of the Credit Suisse Global Wealth Report for 2023, which can be downloaded here. They report that total household net wealth at the end of 2022 was $454.4 trillion, corresponding to an average value of $84,718 per adult. 

 

That wealth is very unevenly distributed, with a small number of individuals holding a massive proportion of the total, as shown in the following pyramid, with 45.8% of total wealth held by the 1.1% of the population who have net wealth of over $1 million. 

 

Of course, net wealth varies enormously between countries, as you can see in the figure below. The highest average net wealth levels are seen for adults in Switzerland at $685,230, followed by the USA ($551,350), but for many countries in Africa, average net wealth is tiny.  It follows that, if a global tax on net wealth was introduced, the contributions of people in different countries would vary naturally, and would automatically produce a shift of resources from highly advanced economies to developing economies. And that with no need for endless arguments at COP meetings about who should be paying.

 

In previous posts I used the figures for the Forbes Global 2000 list to show that those 2000 top countries have assets of $231 trillion, $171 trillion of which are held by Banks and other Financial Institutions. I've not yet managed to find figures for the net wealth of the many other publicly traded companies, but in 2022 there were 58,200 of them, and in principle it would be relatively simple to get the required information about their assets and liabilities needed to calculate net wealth. 

 

There are also large numbers of other companies that also presumably have to file annual accounts. According to Statista  there are 334 million companies in the world. Reporting requirements may vary between countries, but it is presumably the case that with companies with audited accounts, net wealth would be straightforward to calculate. What could the total be? It's difficult to say, but if a global net wealth tax were to be introduced, the numbers would presumably become visible rapidly.  

 

One other type of structure that should be subject to a global net wealth tax are trusts, often located in tax havens.  According to a 2020 study by the Paris-based Organization for Economic Cooperation and Development, at least $11.3 trillion is held “offshore,”. But earlier work in 2012 had reported that the super rich have as much as $32 trillion in offshore havens. One of the advantages of implementing this sort of global tax on net wealth is that such trusts would be forced to pay or risk being put into liquidation. In the end, it does not matter who the final owners of the assets are, or how many different chains of owners are used to dissimulate the owners, if trusts in the Cayman Islands and elsewhere were forced to pay the same amount to the UNEP fund, it wouldn't matter. I don't care who actually pays, as long as someone does!

 

The final group that would be required to pay are governments. As is well known, many of our governments are massively in debt, and so their net wealth is often negative. Such countries would clearly not be in a position to pay the tax. The OECD provides a chart for a restricted set of countries showing that 10 countries actually have positive net wealth - Switzerland, Estonia, Denmark, New Zealand, Russia, Sweden, Korea, Luxembourg, Finland and Norway. But Norway stands out because its government has net wealth amounting to 270% of its GDP.

The reason why Norway stands out is almost certainly because it is a major supplier of Fossil Fuels - which no doubt explains why Russia also belongs to the group. 

Unfortunately, I have not been able to find many figures for the net wealth of other governments involved in Fossil Fuel production. But we know that Saudia Arabia produces 12% of the world's oil, the United Arab Emirates 4% and Kuwait 3%. And the Saudi Sovereign Wealth Fund is expected to have over $1 trillion by 2025 and targets $2.7 trillion by 2030.

 It seems likely that by grouping together Individual and Household net wealth ($454.4 trillion) with the wealth of both Public and Private companies, Trusts and Governments, the total amount of wealth that could be subject to an annual net wealth tax could approach $1 quadrillion. This is a figure that I have seen elsewhere, though rarely with a detailed breakdown. See for example, a youtube presentation entitled "What everyone gets wrong about debt" by the Economics Explained.

 

If true, it follows that a 0.3% annual tax on global net wealth would provide the $3 trillion needed to tackle climate change.

Would I be prepared to hand over 0.3% of the value of my properties and financial assets every year to save the planet?  You bet. 

The fact is that, as demonstrated by the Credit Suisse Wealth Report, household wealth (and almost certainly the wealth of companies) have been increasing by around 6-8 percent every year for the last 20 years - as seen in the following graph - with the notable exception of the financial crash in 2008.

I honestly think that those with wealth might be able to spare 0.3% of their wealth every year, when they get to keep the other 7%.
 

FTT or Net Wealth? Or both? 

 

I think that it should be clear that either an FTT of around 0.02% or an annual Net Wealth Tax of 0.3% could provide the $3 trillion we need. 

I propose that the United Nations should be empowered to impose one or both these taxes as soon as possible. It could easily decide to do both and have  a 0.01% FTT coupled with a 0.15% Net Wealth Tax which would also work. But it could also decide to use one more than the other, if implementation is easier for one. On the face of it, the FTT option seems simpler, effectively requiring simply the addition of one line of code to the software handling all electronic financial transactions. For the Net Wealth Tax, it may be simpler to introduce it first for publicly traded companies, before adding individuals. 

But the fact is that both options are by relatively simple. Above all they are fair, because they can be applied to everything - with no exceptions. There will be no reductions or exemptions. And they would need to be applied everywhere. Anyone cheating by attempting to avoid the payments would have the problem of trying to explain why they should be an exception. And, they could easily be banned from the international financial system.

 

Importantly, if it turns out the $3 trillion a year is not enough, and that we need to double the amount (something that seems to me to be highly plausible), the UN body mandated to impose the two tax systems should have the power to increase the rates to whatever is needed. There can be no wrangling about this. We have to give the final say to people who can be trusted. 

 

And if, as a result I end up having to pay 0.04% on all my financial transactions, or 0.6% of the value of my property, then so be it. I would be truly insane to think that I could find a better use of my money. 

Finally, I would like to point out that while I have largely ended up with these proposals by thinking through the ideas myself, I recently discovered that there are other people proposing essentially the same sorts of ideas. 

I have been discussing with Laura Bannister who is the Executive Director at https://www.equalright.org/. They have three key objectives that are very close to my own. 

• Climate Justice - based in particular on a scheme developed with the Cap and Share Climate Alliance  
• No borders Tax Justice  - that includes the two ideas developed here, namely an International Wealth Tax, and an International Financial Transaction Tax
• Global Basic Income 

I strongly recommend downloading some of their material, such as this presentation of the No Borders Tax Justice idea. 

 

Could this years COP 28 meeting be the moment when people move on from saying that we are not doing enough, to actually doing things and deciding how the actions can be financed.  

A simple 1% tax on net wealth could replace conventional taxes

The more I think about it, the more I am convinced that we could solve a lot of our problems by replacing manycurrent taxes by a simple annual tax on net wealth. 

Calculating net wealth for individuals is really not complicated. Just add up the value of all your assets, and subtract the value of everything you owe (your liabilities). If you possess more assets than debts, then you have a positive net wealth. If you owe more than you possess, you are negative. 

There are loads of apps you can download to help you do it. Here are some of them:

• Empower
• Tiller Money
• Topia
• Mint
• YNAB (You need a budget) 
• Monarch Money

We have figures for the total amount of net wealth for the most of the population on the planet, thanks to the Credit Suisse Global Wealth Report that analyses net wealth for 5.4 billion people. The latest 2023 edition is available here. It shows that Global household wealth in 2022 was $454.5 trillion, which works out at $84,718 per adult. 

Suppose that everyone paid 1% of their net wealth per year to an international agency. For example, the United Nations.  Obviously, this would generate $4.5 trillion a year - enough to tackle many of the challenges we currently face. For example, it has been claimed that we need to find $3 trillion a year to fight climate change every year from now to 2050.  With a 1% net wealth tax, this would be paid for immediately. 

Alternatively, you could use the money to give every adult on the planet $847 a year - about $70 a month. That sort of global basic income would prevent millions of people starving to death, as well as helping safeguard biodiversity. It might also mean that the thousands of people trying to cross the Mediterranean to get to Europe might decide that actually it would be better to stay at home. 

Now the critical question would be to work out who would end up paying the 1% net wealth tax. 

Here again, the Credit Suisse Wealth Report is very useful. Clearly, mean wealth values will vary a lot between countries.  This figure shows the mean wealth for 20 of the richest countries. 

This means that the average Swiss adult would pay $685 a year. In the USA, it would be $551. In France, it would average out at €312, and in the UK it would be €302.

But of course, the amount paid would vary a lot even within a country, depending on a number of factors. 

In the USA, the bottom 50% of the population only accounts for 3% of the wealth. Whereas, the top 1% account for 18.5% of the total net wealth.

Indeed, the percentage of people with no net wealth at all (and who would never be called on to pay a net wealth tax)  can be very significant. According to an OECD report, in 2019, 10.4% of US households had negative net worth. 

And of course, the people with negative net worth are not randomly distributed amongst the population. People in their 20s and 30s are often very heavily indebted, with student loans and mortgages to pay off. In contrast, many people reaching retirement age may have paid off their mortgages and managed to save quite a bit of money.  This is particularly obvious in this graph for the UK from the Institute for Fiscal Studies.

It is clear that, if a 1% annual tax on net wealth were introduced in the UK, the average amount of tax paid would increase almost linearly with age, from around £300 a year at age 30, to £3000 a year at 50, and £5500 a year at 65. Would this be unreasonable? I don't think so. Don't forget that someone who was 65 and living on just their pension in rented accommodation with no savings would pay nothing. It really would be a tax that only affects people who are in a position to pay.

One other very attractive possibility that would follow from a switch to taxing net wealth is that you could scrap inheritance taxes. Since it doesn't matter whether the wealth is held by elderly grandparents, or whether it gets shifted to the next generation(s), there would still be the 1% to pay. 

I've been reading up on some of the discussion about the pros and cons of taxing Net Wealth. The OECD conducted an analysis of such taxes in 2018. They noted that while there were 12 OECD countries with net wealth taxes in 2012, the number had dropped to just four in 2017 (France, Norway, Spain and Switzerland), and Emmanuel Macron scrapped the one of remaining French wealth taxes in 2018. 

Why is this? Well, one problem is that the existing wealth taxes only generate a relatively small amount of government revenue, as shown in the following figure, where you can see that only 0.48% of total taxation in France came from the wealth taxes.

 

 

But the reason for this lies in the fact that these wealth taxes almost always have thresholds and only apply to people with very large net wealth. This also makes it very tempting for rich people to find ways of moving wealth to tax havens to avoid having to pay.  But my proposition is that the 1% tax should be paid by anyone with net wealth. Indeed, if the net wealth tax was to be applied at a global level, there would no longer be any incentive to move wealth elsewhere. 

In my opinion, a simple annual net wealth tax could easily replace many of the existing complicated taxes on income. 

But, even more significantly, I see no reason why the 1% net wealth tax should only be paid by individuals. If we were to apply the tax not only to the $454.5 trillion of wealth held by individuals, but also to the huge amounts of assets held by corporations, then we really would be able to get rid of many of the current tax mechanisms. In my recent posts, I mentioned that the companies in the Forbes Global 2000 list have over €231 trillion in assets, $170 trillion of which are held by banks and other financial institutions. 

So far, I have been unable to find any way to determine the net wealth of all the other companies that didn't make it onto the Forbes list.  According to Statistica, there were around 333 million companies in the world in 2021. I suppose I could try downloading all their company statements, but I can't be bothered! Nevertheless, my understanding is that wherever those companies are located, they are legally obliged to report their assets every year. So why not simply require them to pay 1% of the net asset value in tax every year? 

That way, you could almost certainly scrap taxes on company profits, which are notoriously susceptible to "tax optimisation" by extremely sophisticated accountants. Hiding assets would probably be much harder, and frankly not worth the bother.

And in the same way that I think it makes sense to require young people with student loans and mortgages to pay much less tax than elderly people who have accumulated lots of wealth, I think that it would make sense to tax companies that have amassed lots of assets rather than start-ups. Even a start-up that is making a good level of profit should not be the target of heavy taxation. That start-up will probably want to use those profits to invest and hire new staff. Why prevent them doing that by taxing away all their resources? No, taxation should target those companies that have amassed large amounts of assets.

Here's one final reason why taxing net wealth makes much more sense than taxing income. If you are rich and have lots of assets - properties, shares etc - the current system is designed so that you only pay tax if you sell off those assets. At that point, you get taxed on the capital gains if you made a profit. If you just sit still, you will see the value of your assets increasing by around 8% a year, as demonstrated by another fascinating graph from the Credit Suisse Wealth Report. 

You can see that, except the financial crash in 2008, global net wealth has been increasing by around 8% every year since 2001. This immediately tells you that getting the asset holders to pay 1% in tax per year is hardly going to make them suffer. They will still get to keep the other 7%!

But the other critical point is that if you only tax assets that get sold, this is a strong incentive for asset holders to remain very passive and not to try and actively use their assets to promote useful activities. Why would you sell off your property and shares to invest in a new venture if you knew that you would have to pay 30% tax on the increased value of those assets? If you paid 1% of the value of your assets every year in tax, you would be much more likely to try and swap your assets for ones that produced an even better return. 

Well, I think that's enough for today. But the bottom line is that I find it decidedly odd that so few people seem to have been thinking about the advantages of a universal flat rate net wealth tax.

Assets of the Forbes Global 2000 : $170 trillion held by the Financial Sector

Back in June, I posted an analysis of the Assets held by the companies belonging to the Forbes Global 2000 biggest companies in the world. I had noted that together they held over $231 trillion of assets.  I also noted that virtually all the top 100 in the list were Banks (the first non-bank is the Saudi Arabian Oil  Corporation that comes in at number 62).

More recently, I downloaded a version of the Forbes dataset produced by Databahn that you can find here. One of the nice things about Databahn's version is that they assign each of the companies to 39 particular Industrial Sectors, and this allowed me to select those that belong to the Financial and Banking Sector. I ended up regrouping several of them which seemed to refer to the same sort of thing (Banks, Banking, Banking and Financial Services, Banking and Finance, Insurance....). 

You can see the result of this analysis in the following table. 

As you can see, the 538 different companies corresponding to the financial sector hold over $170 trillion in assets, corresponding to nearly three quarters of the total (73.53%). 

You can look at the other sectors, but none of them exceed 3% of the total. They are essentially all very minor. Even huge companies like Amazon (#87 on the list) only hold 0.2% of the total. 

You may know that I see a very simple way to finance all sorts of wonderful things. Just get all asset holders to pay 1% or less of our net assets into a big pot controlled by the United Nations. That pot could be used to fix climate change, end poverty and starvation, educate everyone, etc etc etc. 

To be fair, I would also be happy to pay 1% of the value of my assets too. Personally, I would be happy to do that if the 568 financial corporations that are in the Forbes Global 2000 coughed up $1.7 trillion a year. And that's just the 568 that made it onto the Forbes list. According to the InvestGuiding website, there are 44,000 banks and credit unions around the world. Anyone like to guess the total value of all their assets?

The cost of interest payments - $13 trillion a year, increasing to over $18 trillion in 2025

I'm continuing with my crusade against the insanity of increasing interest rates "to control inflation". I was impressed by a report in the Economist from February saying that "The world's interest bill is $13 trillion - and rising". They estimated the interest bill for companies, households and governments across 58 countries that together account of 90% of global GDP.  They found that in 2021, the interest bill was $10.4 trillion - or 12% of combined GDP. By 2022, because of increases in interest rates, the number had increased to $13 trillion - or 14.5% of GDP - hence the headline.

Now, the Institute for International Finance, publishes its quarterly Global Debt monitor, which reported that at the end of Q1, debt had increased another €8.3 trillion to $305 trillion. This implies that the average interest rate on that debt is roughly 4.3%. That sounds plausible. It can be less, but can easily be much more - think of the interest rates charged by credit card companies. Current average rates in the US are 24.5% according to Forbes.

But, as we know, Central Banks such as the Bank of England have been jacking up base rates, and while some of the rate changes take effect immediately, others take longer - particularly when fixed rate mortgages with short term periods of 2 or 5 years come up for renewal. 

Back in February, this showed that interest costs are expected to reach around 17% of GDP anyway. But that an extra 1% increase in base rates in 2023 would lead to more than 20% of GDP being used to pay interest charges. Assuming that GDP is around $90 trillion, this implies that interest payments could easily reach $18 trillion a year. 

And that's with a relatively modest 1% hike. The Bank of England has just made its 14th consecutive increase in rates to 5.25%, with 5.75% anticipated by the end of the year. 

Now, the argument is that these rate increases help control inflation by reducing the desire to take out more loans (which, if you know how the system works, means the amount of money created out of thin air by commercial banks). 

But, above all, it triggers a massive transfer of our money to the banks - either because we borrowed money ourselves, or because we have to pay higher prices to businesses whose interest charges are increased, or because our governments have to pay higher interest charges on government debt.  Remember that in 2022, Eurozone interest payments on government debt increased by a staggering 25.3% from the figures in 2021 to reach €227 trillion.  Would anyone care to guess what Eurozone taxpayers will have to fork out for 2023? 

And where does all this money go?

Does it go to cover the cost of health care, education, tackling climate change (or any of a large number of other vital things)? 

Nope. The vast majority of those interest payments go to commercial banks and other financial institutions, allowing them to pay massive payouts to shareholders and bankers.

There's a Youtube site called "Economics Explained" with 2.28 million subscribers that recently put out a video called "What everyone gets wrong about global debt". 

The video contains some sensible stuff - it mentions the $305 trillion figure for global debt, and gives a $1 quadrillion figure for global assets, suggesting that the net worth of the planet is around $700 trillion. 

But when they ask the question of who the $305 trillion is owed to, they say that "95% of all the wealth or the net worth of the world; including the $300 billion owed in debts, is owned by households and the other five percent is owned by governments and businesses that are primarily responsible for creating value". 

They go on to say that "Global debt isn't a problem" and that "on a global scale we just owe this debt

to ourselves"

 

This is the most incredible slight of hand. The critical issue is who owns the $305 trillion of debt - not who owns the $1 quadrillion in assets. And even more importantly, who gets the $18 trillion a year (or more) in interest payments that we will collectively be paying in a couple of years. 

No, we don't pay the interest "to ourselves". We pay it to the financial sector, and in particular, the commercial banks who have the right to create the money supply and charge us all interest. No surprise that the rich asset holders get richer and richer, whereas nearly everyone else spends almost all their lives and time paying off interest. 

If you think that there maybe more useful things that could be done with $18 trillion every year, then maybe you will join me in trying to get this insane system changed?

Note added on 6th August. 

 

I had a look at another recent Youtube video from the people at "Economics Explained" - this one's called "Why inequality starts being a problem now". And they say it again - even more clearly. According to them, 95% of the $300 trillion in global debt is owned by households - we owe all this money to ourselves. Here's a frame from the video

 

And here's the transcript of the narration. 

"The remaining 95% of global debt is owned directly or indirectly by households. Most of this is controlled by corporations like Banks and companies with large treasury Holdings but households own those companies."

 

Come on, guys. I don't know exactly who you are. But can you be serious? It's not because banks have shareholders that they can be described as owned by households.

End variable rate loans now!!

In yesterday's post, I complained about the fact that the UK banks had directly benefited from the series of interest rate hikes by the Bank of England, increasing their first half profit levels by between 24 and 50%. Millions of homeowners in the UK are going to have to find hundreds of pounds more every month when their fixed rate loans come up for renewal. And the effects are going to get worse in the coming months. 

The fact that this is a direct result of the way loans are made in the UK is made abundantly clear from a recent article in The Banker.

I quote:

"While rising interest rates have benefitted most banks’ bottom line in the form of higher net interest income, contributing to higher levels of net interest income for most European banks, French banks have not benefitted as much due to characteristics unique to the French market.

Unlike the UK where mortgages are either fixed, variable or track the Bank of England base rate, in France most mortgages are fixed....

These characteristics of the French market explain French banks’ ‘subdued’ domestic retail banking revenues."

Well said!

I can imagine that the Bankers at the big French Banks will be envious of the massive bonuses that their colleagues in the UK will be raking in at the end of the year. And they might be tempted to argue that Macron should shift to the wonderful UK based system where banks can "earn" massive profits every time the Central Bank decides to ramp up interest rates - "in order to control inflation". 

But firstly, the French should fight any such attempt to further rig the system in favour of bankers. 

And second, I claim that the millions of people in the UK who have to put up with this insane system should be protesting very strongly. Any political party that proposed an end to variable rate loans at the general election next year would probably get a lot of support.

Is anyone with Labour, the Liberals, the Greens or elsewhere listening?

The insanity of trying to control inflation by hikes in interest rates

In the UK, the Bank of England has proceeded to make a series of 13 increases in the lending rate since December 2021, supposedly in an attempt to control the rate of inflation. It's currently at 5%, but it is highly probably that this week will see another rise to 5.25%, and many think it will reach 5.75% by the end of the year.

I challenge any economist or banker to provide a coherent argument in favour of such a policy. 

The standard argument is that if you raise interest rates, people and businesses will be less tempted to borrow money and this will tend to reduce the amount of money in circulation - and this has the effect of reducing inflationary pressure. After all, as the Bank of England admitted in 2014, commercial banks create money - effectively out of thin air - when they make loans. If people hold back from borrowing more because the interest rates being charged are too high, this will indeed tend to reduce the amount of money creation by the commercial banking sector. 

However, there is a glaring problem with this story, linked to the fact that virtually all mortgages in the UK involve variable rate loans. According to Which?, the vast majority of loans have fixed terms that only last for 2 or 5 years. And that means that people can be hit by massive increases in interest charges when those fixed term periods come to an end. This can mean having to find £500 more every month for a mortgage on a home worth £500 000. 

Where does that extra £500 a month go? Well, it obviously goes straight to the commercial bank that made the initial loan. And that's why the Bank of England's sequence of interest rate hikes has been a fantastic deal for the banks. Their profits have soared. 

For example, this morning we learned that HSBC doubled its profits in the first half of 2023 to a very impressive £17 billion. While the bank is clearly a multinational entity, HSBC UK accounted for about 22% of the group's total pre-tax profit in that period. 

• NatWest reported a 24% increase in first half year profits to £7.7 billion.
• Lloyds pre-tax profits also went up 23% to £3.8 billion. 
• Barclays profits were up 24% at £4.5 billion.

So, it seems plausible that every time the Bank of England raises interest rates, there will be champagne corks popping in the City. That is because the Banks can "earn" extra money when they are "forced" to increase the interest rates, despite having done absolutely nothing to merit the extra money. 

Of course, when the banks make bumper profits, it means that they will be able to pay bigger dividends to their shareholders. According to the Guardian report, HSBC's bumper profits means that it is planning to hand out $2 billion in divided payments worth 10p a share, as well as an additional $2 billion share buyback. The bankers themselves will also be expecting bumper bonuses. Indeed, HSBC has put aside an extra $200 million for performance related pay for staff compared with last year, when they paid out £3.4 billion in bonuses to top performers. 

In other words, the brilliant Bank of England policy doesn't remove money from circulation. It simply moves billions of pounds from working people in the UK, and puts it directly in the pockets of bankers and their shareholders. Pure genius. 

The fact is that this situation could be easily fixed by ending the insane system of variable rate mortgages. In France, you can get fixed rate mortgages for the entire term of a mortgage. It can be 20 or even 25 years. And the rates can be very reasonable - even now. For example, one website talks about rates for resident buyers of between 2.8% and 3.1% over 25 years.  But even non-resident buyers can get 25 year fixed rate loans. This means that when you take out a loan, you know exactly how much you will be paying every month until the loan is paid off. There is no way that the bank can be allowed to increase the interest rate. 

Of course, if at some stage, the interest rates drop, you can always take out another loan and pay the first one off. Seem's sensible to me.

For me, it should simply be made illegal to make loans that don't have fixed rates for the entire period. If that was the case, then it would be true that when the Central bank raises the base rate, it would have the desired effect of decreasing the incentive to take out additional loans, without meaning a massive transfer of people's hard-earned cash to bankers.

As it stands, the current system is absurd. When the Bank of England raises the rate, it increases the cost of finance for existing loans not just for individual citizens, but also for businesses. Suppose you have a business with a lot of debt. If the brilliant economists at the Bank of England ramp up the interest rate, that means you will have to pay more to service the loans, and you will be faced with the choice of either increasing your prices to customers, or go out of business.

If it is the first option, then it should be obvious to anyone who thinks about it for five minutes that this will have exactly the opposite effect to what was intended. It will directly lead to inflation.

Of course, there will be those in the banking sector who think that this way of trying to control inflation is brilliant. It is - for them. 

As I say, the solution is actually simple. Variable rate loans should be abolished.

The Forbes World's Billionaires List 2023 - 2638 billionaires with assets of $12.2 trillion

To get some idea of how much revenue would be generated by an annual asset tax of 1%, I thought it would be interesting to have a close look at Forbes World's Billionaires List for 2023 which is available here. As the Forbes website points out, they counted "2,640 ten-figure fortunes, down from 2,668 last year. Altogether, the planet’s billionaires are now worth $12.2 trillion, a drop of $500 billion from $12.7 trillion in March 2022". I'm not sure that we have to feel very sorry for them for the fact that they have lost a bit over the last year.

I downloaded the data set from the website and generated a Google Sheet that you can find here. (It was actually quite hard work, but well worth it I think).

One thing I did was to generate a table of the asset value (Net worth) of the billionaires by country. Here's what that generates

The list is headed by the USA, China and India. But, given that I live in France, it was particularly interested to see that France comes fourth in the ranking, with 43 billionaires who have total net wealth of $590 billion. 

Obviously, that is helped by the fact the world's richest billionaire is Bernard Arnault and family, who are based in France. They have a net worth of $211 billion.  But, if you are interested, here is the complete list of all 43.

My congratulations to all of them. The names at the top of the list show that France is really very important in the world of luxury goods. Nothing wrong with that.

It follows that if Emmanuel Macron were to impose a 1% global tax on Net Worth for all French residents, it would immediately generate a very useful $5.9 billion in revenue - around €5.4 billion - just from the first 43 people on the list.

But, just to be clear, I'm not proposing a 1% tax that would only apply to billionaires (or even those with net worths of €10 million or more). I would apply the 1% to the net worth of everyone - including me! It's called being fair. 

And I honestly don't see why France's 43 billionaires could complain about having to cough up 1% of their fortunes every year if absolutely everyone was treated in the same way. 

A recent study by the French government institute (INSEE) found that 50% of French households have a net worth of over €177,200, meaning that if my proposed asset tax was introduced, they would be paying at least €1772 a year in wealth tax, rising to around $2 billion a year for Bernard Arnault and his family. That's perfectly fair, and easy to implement. This seems to me to be a much simpler system than the taxes that many people seem to want, in which there is a hard threshold for paying an asset tax. 

Indeed, if you look at the decile distribution of wealth in France, you find that the bottom 10% of households have net debts of €4700. Hey, that suggests an extremely simple scheme where you pay 1% of your net wealth in tax per year, but that if you have net debts, you get 1% back as a handout. A simple implement of a basic income scheme.

I also looked at how the wealth was distributed according to the type of industry. Here's the result 

You can see that Tech billionaires are particularly significant, But Fashion & Retail, Finance & Investments, and Manufacturing are also important, with over $1 trillion in assets for each area.  

But, as you can see by comparing these figures with my post yesterday,  all these individual fortunes are totally dwarfed by the assets held by the 2000 biggest corporations in the world. The Forbes Global 2000 companies have combined assets of $231 trillion. That is around 20 times more than all the wealth held by all the world's 2638 billionaires. There's really not much point in picking on billionaires alone.

And, surprise surprise, the vast majority of those assets are held by banks and financial institutions. They should be the number one target of my proposed global 1% asset tax. Sure, there are 371 billionaires who have made fortunes in Finance and Investments - and they have a combined net worth of over $1.6 trillion. But this is peanuts compared with the assets held by banks.

How come nobody ever suggests taxing them? 

Could it be that the banking system manages to avoid anyone ever raising that possibility? Maybe they have a way to influence what the media talks about, what economists talk about, and what our politicians propose? 

Until there is a political party who is prepared to put a 1% global tax on assets on their program, we will effectively have no chance to change the way the system is rigged in favour of banks.

 

 

Forbes Global 2000 - $231 trillion in assets. Time for a 1% global asset tax

 Forbes just released their listing for the world's 2000 largest corporations. Quoting from their headline : it ranks the largest companies in the world using four metrics: sales, profits, assets and market value. As a group, the companies on the 2023 list account for $50.8 trillion in sales, $4.4 trillion in profits, $231 trillion in assets and $74 trillion in market value. You can find the full table here.

 For me, it's the assets' column that interests me most. As Forbes said in their headline report, those total assets amounted to €231 trillion.  But I have downloaded the complete data set and generated a ranked list of all 2000 companies in terms of their assets. I've made a Google Sheet that you can find here. And the conclusions are simple. 

If you look at the top 100 on the list, you get a list that is almost entirely composed of Banks and Financial Institutions. Here's the list

The first non bank is ranked #62 - it's the Saudi Oil Corporation.

The first that actually manufactures something useful is the Volkswagen Group at # 63, with Toyota at #78.  

Amazon, which is a huge company that certainly provides services for many people, comes in at #87. 

There's another Oil company at #94 (Shell), the French energy company EDF at #97 and Telecom giant AT&T at #99.

And that's it. The other 94 are all Banks. 

And if you add up the total asset values for the top 100 companies, you get a total of over  $126 trillion. Of that, less than 2.5% is held by the 6 companies that actually provide anything real. 

I did a similar sort of analysis in 2020 (based on the numbers for 2020), and the total values for assets across the 2000 companies came to $201.4 trillion. So there has been an overall increase of nearly 15%. But I also looked at the increases for individual companies, and in many cases, the increases in assets have been spectacular. 

Freddie Mac, Goldman Sachs, the Agricultural Bank of China, CITIC and ICBC all increased the value of their assets by over 40%, with the Industrial & Commercial Bank of China increasing the value of its assets to an eye-watering $6.117 trillion. Indeed, the top four players are all Chinese Banks with combined assets of $20.9 trillion. 

Anyone who has been paying attention to what I have been arguing recently will know that I have been proposing a flat rate 1% global asset tax on all assets, whoever owns them, wherever they are held. Just taxing the top 2000 companies would generate $2.3 trillion a year - virtually enough to pay the $3 trillion a year that we have to find to have a chance of tackling the climate emergency. 

For more on this, check out my youtube video on "AI, Technological Unemployment and UBI", where I propose four different ideas for financing global projects, including a global asset tax.

Note that my proposal would be that everyone would pay - including me. I own property, and so I would pay 1% - like everyone else on the planet. 

The key is that, contrary to the message that we are being fed by the media, the world's wealth is not held by a handful of tech billionaires like Elon Musk, Mark Zuckerberg and Jeff Bezos. It's not even held by big corporations like Apple (#127), Tesla (#440);, and NVidia (#854). Even Google's parent company Alphabet is only #111. The vast majority of wealth is held by banks, who currently pay no tax on those assets at all.

Taxing assets would have remarkably little effect on innovation - unlike taxing profits, which will really hit new startups.  Taxing assets is, for me, a no-brainer.

I simply don't understand why no-one else is seriously talking about this. 

Eurozone Government debt reaches €12.26 trillion in 2022 ($12.26 trillion) - Interest payments increase by 25.24% to €227 billion

Eurostat has just released the latest figures for public sector debt and interest payments. You can find all the details here. But, as usual, I have downloaded the most interesting information and put it in a Google Sheet that you can find here. And the key results are shown in the following table.

The bottom line is that EuroArea debt has now reached  €12.26 trillion. If you include all 27 European Union countries, the total is €13.27 trillion. In both cases, the increases are roughly in line with inflation at around 3.8%. But, intriguingly, the percentage change varies a lot between countries. Debt levels for Czechia and Estonia both increased by over 20% and Romanian debt levels increased by 15.4%. We could perhaps congratulate Ireland and Cyprus and Sweden, who all actually managed to get their levels down. However, in the case of Sweden, it turns out that this is essentially due to changes in the Euro exchange rate - the debt levels measured in national currency units actually increased. 

But the even more worrying information concerns the cost of paying interest on government debt. Eurozone interest payments have increased by over 25% to a whopping €226 billion. And the increase reaches 28% if we include all 27 countries in the European Union. For my own country, France, interest costs increased by 43.8% to reach nearly €50 billion. For Italy, the total was over €83 billion. 

As I have argued for over 10 years, these payments make no sense. Our governments borrow money from the financial markets. For example, yesterday, the Agence France Tresor announced that they would be issuing an additional €6.488 billion in government bonds. Those bonds are purchased by the following primary dealers (the SVTs), who are the only entities able to purchase them.

• BANK OF AMERICA SECURITIES (BofA Securities Europe SA),
• BARCLAYS (Barclays Europe Plc),
• BNP PARIBAS (BNP Paribas SA),
• CITI (Citigroup Global Markets Europe AG),
• COMMERZBANK (Commerzbank AG),
• CRÉDIT AGRICOLE - CIB (Crédit agricole - CIB SA),
• DEUTSCHE BANK (Deutsche Bank AG),
• GOLDMAN SACHS (Goldman Sachs Bank Europe SE),
• HSBC (HSBC Continental Europe SA),
• JP MORGAN (J.P. Morgan SE),
• MORGAN STANLEY (Morgan Stanley Europe SE),
• NATIXIS (Natixis SA),
• NATWEST MARKETS (Natwest Markets NV),
• NOMURA (Nomura Financial Products Europe GmbH),
• SOCIÉTÉ GÉNÉRALE (Société générale SA).
  

And where do those banks get the money to buy the bonds? Well, they would like us to believe that they simply act as intermediaries for investors - people like you and me who have money to invest and think that government bonds are a safe bet. 

But, in reality, those banks can simply create the "money" used to buy government bonds out of thin air. It's how money is created. And, since they can then sit back and "earn" the interest payments on the government debt and those interest rates are increasing rapidly, things are looking very good for the banks in the coming years. 

Sure, the relatively low interest rates in recent years meant that the amount that Eurozone taxpayers were paying to the financial markets every year had dropped from nearly €300 billion a year in 2012 to a mere €172 billion in 2021. But the 25% increase last year makes it look like the banks will be able to cash in on their generosity with money creation over the last few years. Anyone like to predict what the figures will be for 2023?

If you look at the total amount of interest paid by taxpayers in the Eurozone since the Eurostat figures started in 1995, the amount is a staggering  €7.197 trillion. That's around €20 000 for every man, woman and child in the Eurozone (there are 343 million of us). Personally, I think that money could have put to better use.