Equitable Capitalism

It’s an interesting time to be a political and economic news junkie, but also a frightening and confusing time. As I write these words it looks like the arrogant, opportunistic, narcissist and unpredictable Donald Trump is going to be the GOP candidate for President of the United States. His Democratic Party opponent will probably be the most unpopular and distrusted woman in American politics, Hillary Clinton, although she is being strongly challenged by the proud and popular socialist Bernie Sanders – a moderate social democrat from a European perspective, but a left-wing radical in the United States.

This political upheaval isn’t confined to America. In the United Kingdom the traditional, soft-spoken and surprise winner of the Labour Party’s leadership election, staunch socialist Jeremy Corbyn, faces a Tory government across the aisle that is collapsing from internal contradictions. In France Marine Le Pen is rising, in Spain Podemos, in Ireland Sinn Fein, and on and on it goes around Europe. In Canada the fresh and radical Justin Trudeau becomes Prime Minister, in Greece Syriza enter government. Everywhere in the western world every election throws up a surprise, as if the political landscape itself were altering. Electoral surprises happen so frequently they are no longer surprises. It’s as if the rules of the political game are changing.

All this political instability and uncertainty clearly stems from the economic problems we see everywhere: financial instability, weak economic growth, austerity, debt, inequality and the raw, visceral and ever-present anxiety of low, stagnant and insecure incomes up against rising core, unavoidable costs (especially housing). Life is becoming financially harder and more stressful for more and more people and those they care about. Good, well-paying jobs are harder to get. So are good, affordable apartments. More and more people commute, sacrifice and work long and hard hours in difficult jobs at minimal pay – and remain in poverty at the end of the week.

And over it all hangs the spectre of climate change and the dramatic collapse of the natural world in the face of our numbers, our ingenuity, our technology and our appetites. Unless we dramatically reduce our carbon emissions quickly, we risk the possibility of creating locked-in and runaway climate change that will destroy our present, modern social and political order. And climate change is far from our only environmental problem. We seem headed for the dark dystopia of so many Hollywood Sci Fi movies – environmentally destroyed and grossly unequal.

It shouldn’t be this way. Never before in human history have human beings been so educated, so knowledgeable, so healthy and so secure. Never before has so much food, clean water and information been so easily available to so many. Never before have so many been so easily able to travel and communicate around the planet. Today we take for granted knowledge, opportunities, comforts, healthcare and technologies unimaginable even to the kings and emperors of the relatively recent past. So what’s gone wrong? Why, at a time when we have never been so smart, so knowledgeable and so rich, at a time when we have never had such wondrous technological abilities – why then does life, especially economic life, suck for so many people in the present, and look so dismal for so many more in the future?

This is my attempt to answer that question, and to participate in the growing discussion about these problems and what we should do about them.

Despite vast technological and human progress, global humanity faces three deep, systemic, structural, fundamental problems that each cause immense human and market pain in the present – and that are each potentially catastrophic in the near to medium future. Each of these problems stems from a flaw in the market, each of them is destabilising, each is unsustainable, and each is accelerating. I call these problems the Debt Problem, the Income Problem and the Environment Problem.

• The Debt Problem is that, because money is created by bank debt, and because money is destroyed by repayments, savings and defaults, the total amount of new debt must always grow if the economy is not to be starved of its medium of exchange. Conventional QE (and it has become conventional) is a recognition of this fact. Ever-increasing debt relative to income is increasingly destabilising and ultimately unsustainable, and so

  

  more debt crises like the 2008 crash are inevitable unless we change. The market flaw here is that the market for debt is creating the most fundamental infrastructure of the entire market – i.e. the medium of exchange. And the interests of these two markets are not aligned.

• The Income Problem is that automation, globalisation, offshoring, outsourcing, internet disruption and other technological and global forces are weakening the value of labour and thus of wages – and this will only accelerate in the near future. A large and growing proportion of the population live lives that are financially stressed, trying to reconcile low, stagnant and insecure incomes with rising, unavoidable core costs, particularly housing. These people are hurting and they are angry,

  

  especially at well-paid and often out-of-touch bankers and politicians. The market flaw here is not only that the market is failing an increasing number of its human participants, but that global, technological market efficiency is destroying its own economic demand.

• The Environment Problem is best illustrated by its most serious, urgent and important issue – the stability of our planet’s climate. The effects of climate change are with us already, and global temperatures are already flirting with the 2C threshold, after which it could accelerate out of our control. Yet most of our energy still comes from fossil fuels and, despite spectacular advances in solar power, it is difficult to see a path to rapidly

  

  decarbonise our economy in the time we have left. And it is even more difficult to see a path that does not involve substantial government control. The market flaw here is that the costs of climate change are not internalised in the price of the carbon that causes it, and so the market cannot even see them, never mind respond to them.

These three problems – with Debt, Incomes and the Environment – threaten us all. Anger, instability, pessimism and despair are everywhere, with more and more of it being politically expressed at every election. There is a clear and present danger to the current global financial, political, social and environmental order, to our lives as individuals and families, and to our children’s future.

That’s the bad news.

The good news is that three radical but practical solutions to these problems are emerging. Each of these three ideas has already been implemented to some degree in some jurisdictions and experimentation is possible for each, i.e. they are evidence-based. Each of them has deep historical, philosophical and moral justifications and protect and enhance the values of freedom and equality. Each has been tested and studied by leading governments, international institutions and economic thinkers. Each can be introduced gradually, incrementally and responsibly, in whole or in part, together or separately, and each is flexible and variable to accommodate unique national and local situations. Each of these three ideas also has established and growing political support from both the right and the left of the political spectrum.

These policy solutions to our most serious and urgent problems are People’s QE, the Basic Income and Fee & Dividend.

• People’s QE is an umbrella term for a variety of proposals that involve the same essential element: instead of relying on bank debt to create money, responsible and independent central banks should create it and spend it into the economy in socially and economically productive ways. Specifically, this policy involves gradually increasing bank and shadow bank reserve ratios, while at the same time creating money for direct

  

  distribution to people (‘Helicopter Money’) or for spending through government, preferably on investment. The decision of how much money to create is made, not by private bankers for self-interested motives, as it is now, but by an independent central bank targeting a specific inflation rate and with a prime mandate of maintaining the integrity of the currency. People’s QE directly addresses the Debt Problem.

• The Basic Income is an old concept whose time has come, and it has exploded in popularity in recent years, with tests or implementations planned or underway in Finland, the Netherlands, Canada and elsewhere. Also called the Citizen’s Income, Citizen’s Dividend or Negative Taxation

  

  it is the idea that every single citizen receive an equal and regular payment from government sufficient for a basic but dignified life with real choices and social inclusion. It would replace most spending on welfare, state pensions and other social programs, reduce huge welfare bureaucracies, remove barriers to work and enterprise, subsidise low-earners, and fund caring, community work, entrepreneurship and other valuable unpaid work. Experiments also show that it reduces crime and health costs and that overall people worked more, not less. The Basic Income directly addresses the Income Problem.

• Finally, Fee & Dividend is a response to climate change in which a meaningful fee is levied on fossil fuels coming out of the ground or entering a port, and the proceeds of that fee are distributed to all citizens equally. Prices of goods and services burning carbon would go up, but everyone gets a regular payment. For those using more than the median amount of carbon, the payment would not cover the increase in prices. But those using less than the median amount of carbon (i.e. approximately two thirds of people) would find themselves with a bonus. Redistribution would happen from heavy polluters to lighter polluters, with the government getting none. Fee & Dividend would powerfully

  

  accelerate market innovation and activity in the direction of a low-carbon world. Most importantly, Fee & Dividend is the only politically possible way to put a meaningful cost on carbon, and it directly addresses the climate and, if extended, much of the wider Environment Problem.

Each of these three policy directions directly address one of our three most serious, deteriorating and urgent problems, and each is valuable and important in its own right. But it’s not difficult to see how they could work together. People’s QE addresses the financial instability, austerity and weak growth of the Debt Problem, but it also relieves the Income Problem and could help fund the Basic Income. Fee & Dividend puts a real price on carbon and addresses the Environment Problem without expanding government, but can also help fund a Basic Income. In other words, the solutions to two of our most serious and urgent problems can fund the solution to the third. In funding and in many other ways, these three policy directions work together to relieve our most serious problems and to make life much better for most people. Together they can form the backbone of a new economic paradigm and social contract fit for the high-tech, knowledge-based, global, rapidly changing, 21st Century world. I call this inter-connected, self-reinforcing and coherent combination of three emerging policy directions ‘Equitable Capitalism‘.

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