Am I wrong in being unable to suppress my enthusiasm for the largely European Catholic supported alternative economic theory of distributism? I believe I’ve linked the Front Porch Republic – the American outlet for this point of view – more than once before… but go read this, and tell me where it [...]]]> … economic and government theory?

Am I wrong in being unable to suppress my enthusiasm for the largely European Catholic supported alternative economic theory of distributism? I believe I’ve linked the Front Porch Republic – the American outlet for this point of view – more than once before… but go read this, and tell me where it is wrong.

My concerns are largely non-economic. This is a fully developed government, economic, and moral system devised according to the tenets of Catholicism. So, on principles of civic justice, I have some questions. Given that this system is supposed to devolve power back to localities, will the Federal government maintain it’s authority to guarantee equal rights and liberty for all citizens? Setting that aside, though… Tell me why I shouldn’t be enamored of this system?

Some choice quotes from today’s article, boldface and ellipses added by yours truly:

Discussions of what to do about the current crisis commonly take the form of an argument between “socialism” and “capitalism.” However, such a discussion is flawed in both of its terms. Real socialism collapsed in 1989, and few would want to return to that horrific system. What is less well understood is that pure capitalism itself collapsed in 1929, never to rise again anywhere in the world. There are few citizens with any living memory of real capitalism, and the memories they have are generally unfavorable. Capitalism collapsed for the same reason as communism, a victim of its own internal contradictions that caused chronic instability. Workers found the system unacceptable, to be sure, but so did the capitalists themselves, and few were very sorry to see it go. Pure capitalism had proved itself toxic to both capital and labor, just as Belloc predicted it would in 1913.
The first task in reforming the system to understand the system that we have, the system that is in full failure, and understand apart from the ideological terms commonly used to describe it. The system that replaced capitalism was first a hyper-active Keynesianism, brought about by World War II and which lasted until the late 70’s; Keynesianism itself was then replaced by a pure mercantilism, the system which combines private privilege with public power and which so incited the wrath of Adam Smith. It is this mercantilism which finds itself in the midst of a full-blown collapse. Both the Keynesianism which replaced capitalism, and the mercantilism which replaced Keynesianism, depend on massive government controls and subsidies which are no longer practicable or sustainable. Nor can we go back to the capitalism of the 1920’s without reliving the instability of that turbulent period.
[...]
Critics of distributism often charge that the theory is no more than a variety of socialism. This charge is odd for two reasons: One, socialism is the theory that there should be no private property, while distributism is the theory that property ought to be spread as broadly as possible; the two are precisely opposite. Two, the actual practice of distributism, in Mondragón and other places, is more “libertarian” than anything the libertarians have been able to accomplish. Nevertheless, the critique cannot be passed off lightly because the very term “distributism” conjures up the specter of “re-distribution,” the idea that some committee of bureaucrats will decide who will, and who will not, own property.
But in the main, distributism is not so much about what the government ought to do as about what it ought to stop doing. The claim of the distributist in this regard is not much different from the claim of the pure libertarian: It is government which fosters the accumulation of property into fewer and fewer hands. Indeed, without the aid and protection of government, the piles of capital could not have grown as high as they have. And the higher the piles of private capital grow, the thicker the walls of public power necessary to protect them. Big government and big capital go together, and this is a simple fact of our history, beyond all reasonable dispute.
[...]
And then there is the case of the entities deemed “too big to fail,” or more accurately, too big to succeed without generous drafts from the public purse. It is quite legitimate to break up such companies and to distribute them either to the local or regional banks or to the employees. The same principle applies to the failed industrial giants that require public life support. They can be broken up and turned over to the workers through the simple expedient of placing contractual obligations for pay and pensions on the same level as the contractual obligations to the bondholders. Then we can see if the workers can run these factories any better than the geniuses in Detroit. If the similar experience in Argentina is any guide, they might do very well indeed.
[...]
Building an ownership society involves both political and economic goals. The political goals are based on the principles of subsidiarity and solidarity. The economic goals are built on the principle that justice is intrinsic to economic order, and not some added extra or exogenous feature.
[...]
In order to implement subsidiarity in government, we must also have subsidiarity in the funding of government. That is, funding must start at the local level and be dispersed upward, rather than the other way round. Further, we must tax that which has no economic value, that is, the tax should fall primarily on economic rent and externalities. Economic rent can be confiscated with no negative economic consequences (except for the rentiers) and many positive ones. Externalities (the costs of a transaction charged to a third party not involved in the transaction, e.g., pollution) should be charged with the full cost of their mitigation. With any luck at all, the government will be sufficiently inefficient at mitigating externalities that businesses will prefer to perform the mitigation themselves and not pay the tax.
Economic rent is primarily embodied in ground rents. Treated as a tax, ground rents are most efficiently collected at the local level, and indeed the bureaucracy to do so already exists. Obviously, there has to be national agreement on the methods used to value and assess ground rents and on the “split” between local, state, and the federal governments. But lower levels of government will then have an incentive to accept more responsibilities, rather than kick problems upstairs, because this justifies claiming a larger portion of the revenues, revenues which they themselves collect. Politically, the problem with a “ground rent tax” is that it sounds like a “property tax,” and that scares people. However, once it is understood that we are trading off the income tax for the ground tax, most people, I suspect, will see the advantage. They will have a tax easily predicted, easily collected, local, and all without the government prying into the details of their lives.
This would not entirely eliminate labor taxes, since there are still the social taxes. However, these taxes should be used solely for direct services to workers and their families, mainly unemployment and medical insurance, welfare, and old-age pensions. They should not be, as they are now, over-collected and used to subsidize the general fund, which requires that in a very few years the general fund will be required to subsidize the social funds, and this will prove to be impossible under the current system; the general fund is already broke and destined to get broke-er.
The social taxes are efficiently collected (at least in regard to wages) because they are a flat tax paid by businesses in behalf of the employees and which require no complex filings. The income limitations ought to be removed, and the tax made steeply progressive for the top 2% or 3% of incomes (since there is an implied economic rent in these cases), but otherwise, there is surprisingly little that needs to be done. The problem is a bit more complex when dealing with non-wage income, but I believe those problems can be solved efficiently.
[...]But the largest line item, after the defense budget, is the interest on the debt. No real progress can be made if this debt is not eliminated, or at least substantially reduced. In thinking about the debt, one has to think about money itself. In Chapter VII we noted that the creation of money is the private monopoly of the banks. This money is created out of thin air, and represents no prior savings or production. Yet, it forms a claim against things that have been produced. In the case of government debt, the banks lend money they invent, but demand payment in the equivalent of real goods and services. Hence, the government must tax real goods and services and turn over the money to the creditors. But this will become increasingly less of a possibility in the near future.
About 41% of the debt ($4.3 trillion) is owned by agencies of the government, mainly the Social Security Trust Fund. This portion of the debt can simply be monetized over a ten- to fifteen-year period. That is, the government will print the money to pay off the debt to the trust funds. Some may be shocked by the suggestion that the government be allowed to simply print money into being, but this is certainly preferable to having the banks lend it into being. Will it be inflationary? It might be mildly so, but if done over ten to fifteen years, it will be no more than simply converting the current interest payments into principle and eliminating both.
There isn’t much else that you can do with this debt. The only alternatives (other than just reneging on the commitment) are to raise taxes or increase borrowing. Up until now, the social security taxes have formed a vast subsidy to the general fund, with IOUs being placed in the fund. But in just a few years, the cash flow will go the other way: from the general to the trust funds; but the general fund does not have, and will not have, enough money to pay the trust fund. In order to pay off these IOUs, there would have to be a vast tax increase over and above the high social security taxes we now pay. Our children—and the economy—simply cannot tolerate that burden. Or we can simply borrow more money, but that is problematic, to say the least.
The next portion is the 29% owed to foreign governments, banks, and individuals. This portion of the debt could be monetized, but likely shouldn’t be. My belief is that paying this debt should be the responsibility of the financial sector. A small tax, about 0.25%, on the transfer of financial instruments such as stocks, bonds, CDOs, CDSs, etc. should be levied and placed in a sinking fund to pay the interest and principle on these debts. Such a small tax would be sufficient to pay off the foreign debt over a term of five to ten years.
That leaves only the 31% of the debt held by American citizens and institutions. This portion of the debt could be partially monetized (as financial conditions dictate), partially paid off by the sinking fund, or simply left in place and allowed to shrink as a proportion of the economy. What is critical, however, is that the debt not be allowed to grow. And this requires abolishing the Fractional Reserve System, whereby the banks get to create money for nothing. This is the fiat money that is “lent” to the treasury. Its origin is thin air and a legal monopoly, a monopoly that must be abolished.

I find myself “excerpting” far too much. And I haven’t even gotten to the sections on industrial reform, agrarian reform and trade reform … the most important ones.

But seriously – I’ve dragged my feet every way I know how about raising my hand and saying “sign me up”… but I’m out of resistance. Can anyone give me a reason for renewed caution about this program other than the reservations I already mentioned?

Could a Distributist party (or parties!) come to power in the U.S.? Ummm… please?

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Another [...]]]> At the end of the day, there’s probably a very huge gap separating me & these guys… They invoke the words of various Popes in support of their arguments, after all. And European racists invoke their theories. But they certainly have a keen eye for the difficulties in modern economics. Some teasers from Part 5:

Another way to state this theory is to say that wages determined by free market bargaining will be “just wages,” and equilibrium conditions will be satisfied.
[...]
In the last thirty years, productivity has exploded for each and every category of labor, but the median wage has stagnated. Indeed, it is lower today in real dollars than it was in 1973. Hence, the standard theory is falsified in practice. Clearly, workers are producing more, but they are not getting any of the benefits; the rewards of increased productivity are going to a few people at the top, while the mass of men have seen no improvement. However, it is obvious that if people are producing more but earning the same, they cannot from their earnings consume all that they produce, and hence the economy will have to rely on the non-economic sources of demand; usury and welfare will replace economic justice as the means to equilibrium.
[...]
In other words, [Adam] Smith recognized that it was power, and not productivity, that determines the outcome of wage negotiations, and power will generally favor “the masters.” But if it is power that is arbitrated in a wage contract, then the solution is to redress the balance of power between the parties. To do this, we must look at the primary source of economic power, namely property.
[...]
Before the reign of Henry VIII, property tended to be a wide-spread condition throughout society. Technically, only the king was a property-holder, in our sense of the term, while nearly everyone else was tenant, either a tenant-in-chief (a duke or other great lord) or a sub-tenant. We associate “tenants” with “renters,” people who normally have only thin, contractual, and precarious rights to the property they occupy, and who pay for these limited privileges the highest amount that the market will bear, an amount called “economic rent.” But this was not so then. Rights in tenancy were nearly as strong as outright ownership is today, and rents were not “economic,” but customary. That is, they were not related to the economic value of the land, but to the value of the services provided to the land: defense, improvements, courts, etc. They were more like a tax than a rent, and did not vary from year to year. We tend to think of a 15th century peasant as powerless and perhaps starving, a mere serf (slave). But that was not the case. Wages were, in fact, quite high. An artisan could provision his family with 10 weeks of work, while a common laborer could do so in 15, wage levels that were not seen again until the late 19th century.
[...]
This brief history shows the power of property to completely change wage relationships. Men who have property—that is, the means of production—are free to negotiate a wage contract, or not, as they wish. But a man with no other means of support must accept the terms offered. In this latter case, the wage contract becomes leonine, that is, based on the inequality of the parties, and leonine contracts are always about power. The CEO does not earn 500 times what the line worker does because he is 500 times more productive, but because he is 500 times more powerful; the seamstress in a sweatshop does not earn a pittance because her productivity is low, but because her power is pitiful. Power, not productivity, is the issue in labor negotiations, and you cannot change wage relationships without changing power relationships. And the key to economic power is productive property.
[...]
The primary justification for private property is that it ensures that each man gets what he produces. As R. H. Tawney put it, “Property was to be an aid to creative work, not an alternative to it.” But when property becomes aggregated into a relatively few hands, when only a few control the means of production, property loses its proper function, and “ownership” becomes divorced from use. In our day, “ownership” is frequently in the form of a corporate share, which losses most of the qualities of actual ownership to become attenuated to a mere lien on a certain portion of the profits, or not, as the managers decide. Oddly enough, this puts not only the worker, but the investor at a disadvantage, as power passes to a new group, the über-managers, who sit on each other’s boards and set each other’s salaries. As John Bogle, the founder of the Vanguard investment funds, notes, the managers take an increasing share of the profits, leaving scraps for those who actually put their money at risk. The result is that the returns to both kinds of labor, actual labor and the stored-up labor of capital, are reduced, while “management” and speculation get the lion’s share of the profits.
[...]
If economists took their own assumptions seriously, they would be the first to protest in front of firms like Wal-Mart or Exxon. But they do not take their own theories seriously, because if they did they would become distributists or something very like it. Indeed, they would note the obvious: that the modern corporation has collectivized production beyond the wildest dreams of any Stalinist bureaucrat.

The final installment promises to explain the “how” of turning a society into one where-in the people are propertied, wages are a just reflection of productivity, and the markets are cleared by sufficient demand without an ever-growing leviathan government. My guess – there-in lies the rub.

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Then my boss sends me this link via email this morning telling me how terrifying it is.

Sometimes you are just so much better off when you don’t understand shit.

I am living proof that ignorance is bliss.

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Feed enhanced by [...]]]> This pretty much explains it to me.

Then my boss sends me this link via email this morning telling me how terrifying it is.

Sometimes you are just so much better off when you don’t understand shit.

I am living proof that ignorance is bliss.

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Whatever the merits and hazards of the .gov offering GM solvency in exchange for the head of their CEO, my inner torch-bearing mob is kind of happy [...]]]> Well, it looks like we have our first Captain of Industry going ‘Galt’. And we all thought they were bluffing. Only, Rick Wagoner doesn’t seem especially happy about it.

Whatever the merits and hazards of the .gov offering GM solvency in exchange for the head of their CEO, my inner torch-bearing mob is kind of happy to see a demonstration that the sense of entitlement held by and on behalf of the Grand Poobahs of commerce isn’t universal among us. So, to be clear, I’m not endorsing or criticizing the move. I’m just, you know, gloating over the fact that someone else gets a turn in the position.

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Also-very-smart Brad DeLong shares a less popular but sunnier outlook and offers an FAQ. He also reassures us that if toxic assets are not already fundamentally under-valued, “then we have worse [...]]]> Nobel Prize-winning Paul Krugman despairs over the plan as he understands it now (we’ll see if that changes now that we have an “official” unveiling”).

Also-very-smart Brad DeLong shares a less popular but sunnier outlook and offers an FAQ. He also reassures us that if toxic assets are not already fundamentally under-valued, “then we have worse things to worry about than government losses on TARP-program money–for we are then in a world in which the only things that have value are bottled water, sewing needles, and ammunition.”

By bottled water, I presume he means gallon jugs, not the little land-fill fillers that are edging out beer in consumption to the dismay of others.

Calculated Risk (who also seems reasonably bright) sums things up, and gives another take: “It is pretty clear the administration opposes nationalizing insolvent large banks, and is instead willing to have taxpayers subsidize shareholders of the banks. So the question isn’t “Is this the optimal solution?” (it isn’t) but “Will it work?” Maybe, but at what cost?”

I’ll be back when I finish my Garden of the Apocalypse and make an ammo run.

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Posted in: D's, Economics, Politics
Post tags: Bank Bailout 2009, Brad DeLong, Paul Krugman, Tim Geithner, Toxic Assets

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