I must admit to being relieved that Obama got through. But given that both the main candidates have been massively financed by Wall Street and the Banks, one wonders how he can take on the financial system. Add to that the fact that the House of Representatives is controlled by Republicans who have vowed to block any increases in taxation, and you might think that there is no way forward.
But wait. Has anyone in the US talked seriously about using a financial transaction tax of the sort being implemented in Europe? With the BIS figures showing that financial transactions in 2011 were running at close on $3 quadrillion, it follows that a 0.1% FTT could generate something like $3 trillion a year. Enough to pay off the entire US national debt in five or six years. Or alternatively, to abolish all the other taxes.
Think about it.....
I’ve no objection to FTT, but I suggest you’ve made a mistake in claiming that the proceeds from it can be used to pay off a national debt.
ReplyDeleteNational debts are of a totally different nature to the debt of a household or firm. It’s extremely unfortunate that the phrase “national debt” even includes the word “debt”. It might as well call it “national savings”.
Far from the proceeds from the FTT enabling a country to pay off national debt, it could be argued that the FTT would increase the national debt. Reason is that imposing FTT would have a deflationary effect, which would require the relevant country to run a large deficit, which in turn would INCREASE the debt (although a deficit can just as well accumulate in the form of extra monetary base as extra debt, as Keynes pointed out).
The above counter-intuitive effects of “fiscal responsibility” are examined in more detailed in “The Economic Consequences of Mr Osborne” by Victoria Chick and Ann Pettifor.
I agree that national debts are very different to household debts. And as others, including Abraham Lincoln, have argued, it is perfectly possible for the US government to create it's own debt free money (Greenbacks in the the case of Lincoln) and use that money to pay off its debt. Now, it could be argued that this could increase the money supply and cause inflation.
ReplyDeleteMy view is that it would be perfectly possible to combine debt free money creation by central banks with an FTT to mop up any excess money in the economy. I really don't think that balancing the money taken out of the system by the FTT with debt-free central bank money is beyond the capacity of some intelligent people who decide to fix the system.
But, yes. It would require that (a) commercial banks lose their monopoly on money creation, and (b) that all areas of the economy contribute. Currently, only productive parts of the economy like manufacturing get taxed. The vast amounts of speculation that are at the heart of the financial system are not subject to any taxes at all. That is stupid and unfair.
Simon