Living in France, we are proud of our numerous economists with Nobel prizes (Gerard Debreu (1983), Maurice Allais (1988), Jean Tirole (2014).This morning, I was listening to France Inter (the state broadcaster with top ratings for its morning show), and the guest of honour was the latest on the list : Estelle Duflot - one of the three people who recieved the 2019 "Nobel" prize in economics "for her experimental approach to alleviating global poverty". I was really looking forward to some real insights. But when she was asked where the money would come from to pay the trillions that it will cost to fight the current war against the corona virus, her reply demonstrated that she doesn't seem to understand the real nature of the problem. Specifically, when a listener asked how, since there is no "magic money", it will all be paid for, she replied - "In the end, it is us! - it will have to be paid for." If you can understand French, check out the program here (it's around 23 minutes).
I would just love someone with a Nobel prize to explain to me how, when there is already 2.5 times more debt than there is money, it could ever be possible to pay that debt off. Even if all governments imposed total austerity, stopped spending at all (closing all hospitals, schools etc), taxed all income at 100%, and imposed a wealth tax where people had to hand over 100% of everything they have, there would still not be enough money to pay off the debt! Increasing that debt by $5 trillion (which is what our governments are planning), will simply make the situation even worse.
Now, I may not have a Nobel prize, but I think that I can see when an economic system is completely unworkable. Maybe my analysis of comparing the total money supply in the world with the total amount of debt is stupid, but I think that someone should be prepared to stand up and defend the system as it stands.
Interestingly, I am aware of the fact that a large amount of debt can be cancelled out with relatively little money. You may know the parable about a visitor who arrives in a small town and checks into the hotel (see here and here for examples). He pays for his room in advance with a $100 bill. The hotel owner uses the note to pay off the garage who had repaired his car. The garage owner then uses it to pay the $100 he owes to the decorator for decorating his kitchen. The decorator then uses it to pay off the $100 he owes to the gardener for redoing his garden. The gardener uses it to repay the music teacher for his daughter's music lessons. The music teacher uses it to pay the doctor, and then the doctor uses it pay off the bill at the hotel. $700 of debt cancelled in one day. Later on, the guy who booked the room says that, in the end, he didn't need the room, and the hotel owner hands him back the $100 bill. That single bill was able to cancel a total of $700 in debt. And the punchline is that having got his bill back, the visitor realises that the bill he had used was a forgery!
So, yes, you can cancel out lots of debt with a small amount of real money. Does that mean that having 2.5 more debt than money is OK? Well, no. The reason is that in my little parable, the debt is spread around, and goes in all different directions - the actors all owe $100 to someone, but there is someone that owes money to them too. They have no net debt. In such a situation, you can indeed find loops that can cancel out - a little money can cancel out a lot of debt. But the problem with today's economic system is that the debt is almost all undirectional. The money is owed by governments, businesses, and people like you and me to the organisations that are given the power create the money themselves - commercial banks. If you pay off your debts to commercial banks, there is no loop that allows the money to continue to circulate. In fact, the money just disappears into thin air - the reverse process of the money creation process that was used to create it in the first place. You could indeed pay off $100 trillion in debt by giving the banks all the money in existence, and that money would disappear. But you would be left with roughly $150 trillion of assets held by the banks and the 1% who own half the planet.
We need an alternative, debt-free, way of putting money into the economy. And, if we are to survive the global pandemic, we need it now! The good news is that once we have discovered that the money we owe to the banking system is a con, and there are more sensible ways to do things (see Positive Money, for example) we might be able to go forward and find the $50 trillion needed by 2050 to save the planet (according to Morgan Stanley's analysts).
By the way, I was also disappointed by some of the other replies from Estelle Duflot. When someone asked about the idea of introducing a Tax Tobin, her reply was unbelievably vague - "it is one of the things that could be discussed." Why not just say that it's a good idea?
And when asked about the need for a Basic Income, she said while that an "ultra-basic income" was absolutely necessary in the poorest countries, in rich countries, we essentially already have everything we need. It is better to redistribute to those in need, presumably using means-tested welfare payments. I'd love to know what she thinks is the problem with my proposal of combining a basic income payment with a flat rate tax on all income. It actually does pretty much the same thing in terms of distribution, but is just way simpler, avoids poverty traps, and removes the stigma of receiving money from the state, since everyone is treated the same.
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