Of course we should not have bailed out the financial sector. Fred Foldvary gives a concise summary of what happened when Iceland refused to do so.
And since no fundamental change has taken place, I suspect Americans will have an opportunity to use this lesson when an attempt is made to extort a second bailout.
Suppose you are a king. And suppose you have a restless, mostly young population, high unemployment, with most people having to rent because housing and land are too expensive. Few people can get mortgages, because they involve large down payments and high interest rates. Also suppose that you have a big country, lots of land relative to population, and a huge government surplus. What to do?
You could examine why housing is so expensive, and whether there’s a way to make more land available. Maybe that’s happened in Saudi Arabia, but recent news reports give no indication. Instead, the Saudi solution is to encourage the mortgage industry and expand credit. Will that make housing cheaper? Will that make it easier for an underemployed population to get decent housing? Or will it drive up the price of land and feed what seems to be an already-building bubble? It may be that the Saudi objective is to get more of their people into debt-slavery so they’ll faithfully serve the state. I don’t know.
What really puzzles me is how mortgage interest fits into an Islamic-dominated state. Possibly this is like the “Islamic Finance” offered by some U S banks, where no interest as such is charged, but either the price is inflated to compensate for the fact that it will be paid gradually, or the “homeowner” is technically a renter until enough rent has been paid to cover the cost plus what, to others, would be interest.
Bloomberg says the King pledged more than $82 billion for housing, but does not say whether this comprises direct government grants, or is simply some amount of debt which homebuyers will contract. It also says that
Saudi Arabia’s mortgage law will change the way home finance is regulated, from registering mortgages to prosecuting police officers who refuse to carry out eviction orders.
This will be interesting to watch, preferably from a distance.
More about Saudi housing and morgages:
Prize-winning documentary Inside Job was posted for free download at archive.org a few days ago. It was withdrawn late yesterday or this morning, but in the interim I had a chance to watch it. It was pretty much as I expected: A very well-documented expose of the forces which brought down the world economy, emphasizing that they have been rewarded, not punished, for doing so, and essentially escaped prosecution (some paid fines amounting to a small part of their takings.) It’s well put together, director Charles Ferguson seems to be a skilled and persistent interviewer, getting on-camera answers even from some of the guilty parties. Ominous music reflects our ominous economic future, lots of shots showing the Manhattan skyline, other centers of wealth, as well as foreclosed houses and abandoned developments.
As a documentary with a point of view, this film says “The guys who drove us off this cliff and unpunished and still in charge,” which might lead one to suppose that, if only they could be caught and punished, perhaps our long-term future would become brighter. These guys own the government, of course, so exactly how a prosecution would work isn’t clear. Elliott Spitzer’s experience, reported in the movie, does not make one optimistic.
The problem, as I see it, is that Inside Job doesn’t tell the story from the beginning. I would represent the principal causes of the global financial crisis as the five connected items below
IJ describes 5 quite well, addresses 3 and 4, but doesn’t get into the fundamentals. As long as, and to the extent that, we have private collection of economic rent, we will continue to suffer from economic crashes. Inside Job needs a prequel explaining the root cause of the problem.
Last month a couple of my dependents went to the local hospital for routine blood tests. The hospital sent me a routine bill for an outrageous amount, saying “don’t worry about this, we have asked your insurance company to pay, and you are responsible only for the portion they don’t pay.”
A few weeks later, the “insurance” company, popularly known as “Blue Thieves,” sent me a statement, and the hospital sent a revised bill. These show that the insurance company paid exactly zero, but muscled the hospital’s fee down by 75%. Both parties expect me to pay the difference. In other words, if you are a normal retail customer, the hospital marks up your bill 300%. In my previous experience, lab costs are typically marked up this much or more; for other services the markup is often less.
To reduce your medical costs, then, just tell the hospital that you’ll pay what Blue Thieves pay, 25% of retail.
I put “insurance” in quotes because what they sell is mainly not insurance, in the sense of taking on some of your risk, but protection, in the sense of “we will impose extra difficulties on you if you do not pay us.”
[November 2012 update: Earlier this year, the project got something like the resources it deserves, having been adopted by the Cato Institute. The new link is http://www.policemisconduct.net/, with browsers apparently being forwarded from the old link. The text below is unedited since it was originally posted.]
A very impressive volunteer statistical effort, injustice everywhere simply summarizes and tallies reports of one kind of injustice in one country, specifically police misconduct in the United States. Certainly a big enough category, it turns out. For the first three quarters of 2010, a total of 3814 reports, involving 4966 police officers and sheriff’s deputies. Sounds like a lot of misconduct, tho actually less than 1% of the country’s government-employed law enforcement people.
All information is from published reports, and a link to each (a dozen or more most days) is provided. “National Police Misconduct Statistics and Reporting Project” seems to be the overall project name, but a bit ponderous for a URL.
This is one of those things that somebody ought to do, and fortunately somebody does. It’s really something the government should be doing, or, if you don’t trust the government, perhaps a university. Or, if you don’t trust entrenched university staff, it falls to independent scholars, and that’s what we’ve got.
It really deserves more resources, so that systematic data-gathering, analysis and followup could be done. Those of us with a few extra dollars can help, especially if we do not itemize our tax deductions. Injustice Everywhere hasn’t yet managed to jump thru the hoops to charitable status certification. There’s a donation link near the top of their web site.
A couple of years back I attended a conference where somebody– I think it was a couple of Chicago payrollers– reported on the bus rapid transit system of Curitiba, Brazil. It’s considered by many (and I have no information to the contrary) to be a cost-effective implementation of pretty good transit service (better than we have, anyhow) at modest cost. They actually got to compare notes with the former Mayor who is considered most responsible for the design of the system. He was quoted as saying, “I’m glad we don’t have as much money as you have in Chicago, because surely we would waste it.”
What reminded me of this most recently is this release from Sen. Durbin’s office, anouncing or reannouncing the awarding of various grants. In particular:
Illinois Department of Transportation (Chicago Metro): $341,694 in TIGGER II funding to install automatic shut-down and start-up systems in an estimated 27 locomotives in the Metra fleet, which operates in the Chicago metro area. Metra estimates that by shutting down instead of idling the locomotives, the automatic systems could save an estimated 800,000 gallons of diesel fuel and reduce CO2 emissions by an estimated 80,000 tons per year.
If the information is to be believed, an investment of $341,694 “could save” 800,000 gallons of diesel per year. Now, I don’t know how reliable that estimate is, but let’s assume it’s way too high, really only 200,000 gallons will be saved. And what does Metra pay for diesel, surely not less than $2.50/gallon. On these very conservative assumptions, it would take less than 9 months’ fuel savings to pay for the devices. (And that’s not even considering the savings from not having to go thru the grant process.) And if they lacked the cash, they certainly could have borrowed it, paid extortionate interest, and still come out ahead in a year.
So why didn’t Metra do that? Are they stupid? Or corrupt? Of course I have no way to know, but I think there’s another reason. I can imagine how the decision was made:
Technical staffer: We can buy shutoff devices, pay for them with fuel savings in less than a year. May I place the order?
Manager: Would this qualify for TIGGER funds?
TS: Huh?
M: It’s a grant program. I don’t remember where the acronym comes from, but it’s federal money we can spend on things that save energy and reduce emissions. This sounds like it would qualify. The Board prefers that we use federal money instead of Metra’s “own” money.
TS: I suppose it would qualify. What do I do now?
M: Go talk to the Metra Department of Getting Grants. They’ll take care of it, you’ll just have to get them some pictures, brochures, maybe some other paper. Shouldn’t take you more than a week or two.
TS: Well, OK. Will I get a bonus for this?
I have no idea who will get a bonus, but I know who is spending more and waiting longer than necessary for a cost-effective investment.
Former banker Rudolf Elmer, opposed to use of Swiss bank secrecy to aid evasion of taxes by non-Swiss, has provided Wikileaks with two CD’s of (apparently incriminating) data. Who is right here? Customers were assured the data would remain secret, now it will be revealed. But aren’t governments entitled to collect taxes which they impose on their citizens? If not, why should anyone pay? If so, how can anyone’s financial affairs be private?
The answer is, none of this would be an issue under Land Value Taxation. When revenue comes from the land, government does not even need to know who the owner is. Government need only know sales prices and a few readily-observable characteristics. The tax has been paid or it has not been paid, and in the latter case a process starts which eventually will result either in the tax (plus late fees) being paid, or the land being taken by the government. (And remember, the government is necessarily the ultimate custodian of land records, a natural monopoly.)
Only land value taxation permits financial privacy.
Washington’s blog says:
Virtually all independent financial experts say the size of the big banks is hurting the economy
and fortunately George Washington been keeping (documented) count. It’s a total of 30 (mostly individuals but including a few coherent small groups), of which at least three have received the “Nobel” prize.
So why does “the market” cause such large banks to exist? Perhaps because correlates of bank size include political influence and chief executive salary.
Eight area advocacy organizations have issued “Chicago’s Sustainable Transportation Platform,” recommending public policies for a better transportation system. Since I’m a paying member of at least two of the eight, and on the mailing list of a well-funded third, I had hoped that maybe a few sensible things would be included. You can decide for yourself which of the ideas are sensible (“Design streets that are safe and convenient for all users.”). Pretty much all of them could be construed as “Create additional jobs and funding opportunities for us and our friends,” but that’s true of most public policy discussions.
I’m mainly concerned about what’s missing, for instance:
Other ideas?
Lots of discussion lately about income tax rates, pointing out that individuals reporting high incomes once were subject to marginal federal rates in excess of 90%, whereas today that rate never exceeds 35%. And corporate incomes face federal tax rates of 39.3%, higher than most other countries. Various ignorant or deceptive interests use these figures to make all kinds of arguments, such as that America’s rich are undertaxed, or American corporations are overtaxed.
But the secret, that all lobbyists know, is that income tax rates don’t much matter. When wealthy Americans were subject to 90% taxes, they didn’t really have to pay them. Instead, accountants and lawyers and various other shysters put together all kinds of partnerships, trusts, and other mostly imaginary constructs, which were used to legally hide or redefine income into something else. It was a bother and an expense, but way cheaper than paying taxes.
As for corporations, they have all kinds of manipulations available to reduce their taxes, as I discussed two months ago. (If individuals figured their taxable income the way that corporations do, we could deduct all our expenses for food, clothing, medical treatment, and practically everything else). If a few corporations appear to pay taxes in excess of the federal rate, it is due to state income taxes, local real estate taxes, other nonincome taxes, or special circumstances.
What brings all this to mind is this post, which provides two nice examples to illustrate my point. Read them if you have the patience, but the basic point is that corporations are able to entice many very intelligent, experienced people to devise ways to avoid taxes that legislators intend (or at least pretend to intend) to impose. They are opposed by many very intelligent, somewhat less experienced (and less well-compensated) people employed by IRS and other agencies, many of whom hope in the future to be employed by the corporations. The net result of taxing incomes, especially corporate incomes, is that many of the most intelligent and creative people, who might be providing goods or services that people need or want, are instead playing word-games with each other.
I would appreciate if someone would explain to me how a land value tax could possibly waste 1/10th of the brainpower absorbed by this useless, destructive system.