המתת השור

Links New Year’s Eve

Posted: 30 Dec 2011 11:20 PM PST

Diseased Alaska seals tested for radiation have abnormal brain growths, undersized lymph nodes — Environmental cause indicated — Also found in Russia, Canada — Bacteria becoming blood borne — White spots on liver — Walruses next? ENENews (hat tip reader MK) 😒

Carleton Watkins and the photographs that saved Yosemite Guardian (hat tip reader Buzz Potamkin)

Organic Agriculture May Be Outgrowing Its Ideals New York Times

Hospice Turns Months-to-Live Patient Into Addict Bloomberg (hat tip Buzz Potamkin)

Verizon Drops Plan for New $2 Fee Wall Street Journal. Yeah! Score one for customers! Now if we could only get banks on the run about servicer-driven foreclosures.

U.S. court upholds telecom immunity for surveillance Reuters (hat tip Buzz Potamkin)

A History of Wall Street’s Women: Echoes Bloomberg (hat tip reader Steve Milm)

Sweden’s citizen-run Twitter account Aljazeera

Demonstrators brave violence in Syria Financial Times

The EU And IMF Watch In Horror As Everything Goes To Hell In Hungary Clusterstock

Occupy Beijing? Diplomat

China manufacturing activity falls again Financial Times

Lure of Chinese Tuition Squeezes Out Asian-American Students Bloomberg

OOPS! 9 Monster Mistakes That Almost Broke The Whole Damn Financial System In 2011 (BAC, RIMM) Clusterstock

Occupy activists prepare to take message to Rose Parade McClatchy (hat tip Lambert Strether)

$6.3tn wiped off markets in 2011 Financial Times

Occupied Media: Interview With Dean Baker Plutocracy Files (hat tip reader rjs)

Community encouraged to participate in Federal Foreclosure Review and Claims process Stamford Plus. Headline of e-mail message from reader Deontos:

Noooooooo I am not making this up. It is enough to make me THROW UP. A State AG herding his constituents (with the help of a State Banking Comm.) into the Independent Foreclosure Review Slaughter A REAL PIGS-ASS

The Unraveling of MF Global Wall Street Journal

Final 2011 Thoughts: Homeowners Drowning, Banks Soaring Michael Hirsh

Antidote du jour:


Extreme Predictions 2012

Posted: 30 Dec 2011 11:00 PM PST

I tend to avoid the year end retrospective/forecast blizzard, although some of the more creative compilations can be fun.

However, some 2012 forecasts crossed my screen, and two were such striking outliers that I thought I’d call them to your attention and seeing if readers have come across other Extreme Predictions for the new year (aside from the Mayan end of the world sort).

The first come from Matt Yglesias, “Happy Days Are Here Again!
Don’t believe the naysayers: An economic recovery is right around the corner.” No, this is not a parody, this is a real article. And whoever came up with the title at Slate has a subversive sense of humor. The song, “Happy Days are Here Again,” was an end-of-Roaring 20s confection (published and first recorded in 1929), and made famous in a 1930s movie and as the theme song for FDR’s 1932 presidential campaign. Needless to say, happy days (at least on the material front) proved to be far more remote than that standard promised.

Yglesias’s argument is (basically) that with interest rates super low, consumers will start “investing” again in cars, durable goods and housing. He relies on the idea of the natural rate of interest of Knut Wicksell. Yglesias claims it is “so fundamental that people sometimes forget to return to it.” Huh? This is the old loanable funds theory; it has been debunked repeatedly, recently and rather decisively debunked in an critically important BIS paper earlier this year by Claudio Borio (who with William White of the BIS called the international housing bubble in 2003) and Piti Disyatat. This paper makes an key conceptual contribution to economics yet does not seem to have gotten the attention it deserves (certainly not in the econoblogsophere, no doubt because it is too threatening to orthodox ideas).

To give you an idea of how far Yglesias has to stretch to make his case, his argument that the US has a housing shortage refers back to a recent Slate article of his own, which in turn refers back to another article of his that argues that we merely had a bubble in home prices, not home construction.

He ignores the overhang of unsold properties and shadow inventory (we have a post from Michael Olenick on that tomorrow that suggests it may be much larger than most people think), or what Calculated Risk calls “the distressing gap.”

Per CR:

Following the housing bubble and bust, the “distressing gap” appeared mostly because of distressed sales. The flood of distressed sales has kept existing home sales elevated, and depressed new home sales since builders can’t compete with the low prices of all the foreclosed properties.

I expect this gap to eventually close once the number of distressed sales starts to decline.

Let’s put this more simply: Japan has had 20 years of super low interest rates, and banks competing so desperately to lend to corporations that credit spreads are razor thin. People and businesses are not going to borrow and invest if they are not confident of their future. With short job tenures, over 30 years of stagnant real worker wages (and falling in the most recent 12 months), exactly what is there for the bulk of the population to be optimistic about?

We’ve had a very successful three decade effort to break the bargaining power of labor, and covered that up with rising consumer debt levels. That paradigm is over, but no one in authority seems willing to go back to an economic model where rising worker wages drive economic growth. Until we get policies that address that issue, I don’t see a reason to be expect robust growth levels.

On the other end of the spectrum, Max Gardener, a bankruptcy lawyer better known as the informal leader of a large group of effective foreclosure defense attorneys, has published his predictions for 2012. He manages to be more pessimistic than I am (well actually, I find his forecast for unemployment a bit cheerier than mine).

Admittedly, his ones on housing are realistic, which makes them sobering, For instance:

Home Values: Home values will continue to decline during 2012 and I do not expect the bottom of the real estate market to be reached until the 3rd Quarter of 2014. My best guess for any type of sustained recovery in the housing market is no sooner than the 3rd Quarter of 2021. The number of homes in foreclosure will double or triple from 2011 levels and home values will drop by another 15% to 20% by the end of year. I do not expect to see any real recovery in the housing market until at least 2022. A massive number of bank-owned homes (Real Estate Owned or REO property) will be turned into rental properties by the banks and/or mortgage servicers and many more foreclosed on homes will be sold in bulk sales to investors for the same purpose.

And we have this:

Nuclear Nightmares: Early in the New Year, Israel, with technical and logistical support from the United States, will launch a major military strike on all Iranian nuclear facilities and Iran will respond by deploying massive world-wide terrorist attacks and will engage in efforts to cut off all sea routes for the shipment of oil from the Gulf Region. The uncertainty of all out war with US troops on the ground will be present throughout the year and active US military intervention is at least a 50-50 bet.

Eeek!

I suggest you read his Top 12 Predictions for 2012 in full.

Steve Hansen, who did well with his 2011 forecast, wisely choses to duck this year as much as he can (2012 Predictions: Just a Dice Roll). But I have to believe that readers know of other pundits who have made Extreme Predictions. Which are your favorites?


Public Money for Public Purpose: Toward the End of Plutocracy and the Triumph of Democracy – Part VI

Posted: 30 Dec 2011 09:56 AM PST

By Dan Kervick, a PhD in Philosophy and an active independent scholar specializing in the philosophy of David Hume who also does research in decision theory and analytic metaphysics. Cross posted from New Economics Perspectives.

I will conclude by proposing six social tasks for the rising generation – six challenging tasks whose successful pursuit will help us achieve a more just, equal and democratic society. It is my view that the resulting society will not only be fairer and more decent. It will also be more economically productive, and will better promote human happiness and flourishing by more effectively distributing the goods and services we produce. Most of us will be happier in such a society as well, because the practices of democratic equality do a better job satisfying the human desires for cooperation, solidarity, trust, stability and fellowship that are the foundation of the social life for which human beings are naturally framed.

Extreme laissez faire capitalism of the kind extolled off and on over the past two centuries, and increasingly preached by economists, financiers and conservative thinkers over the past four decades, is a perverse distortion of human nature, foisted upon us by cold and demented thinkers captivated by inhuman notions of efficiency and domination. In the end, it is a system that reduces each human being to an object whose value is nothing beyond what it is worth in the market. We need to restore a social balance, in which private property, entrepreneurialism and commercial activity do not dominate our lives and set all the rules for our existence, but function within a democratic social order framed by a politically coherent and effective commitment to the public good. In a democratic social order there exists an activist public sector controlling a substantial store of social goods, and channeling democratic energies and intelligence into the ambitious perfection of such goods.

The six proposed tasks are not intended to be in any way exhaustive. They all pertain to the economic sphere of life alone. But the realization of a genuinely democratic society will require efforts that transcend the economic sphere. We need to rejuvenate the democratic spirit in America, educate ourselves and our fellow citizens on the unfulfilled potentialities of democratic existence, recapture the salvageable institutions of our threatened but still existing democracy, and further expand the institutions and habits of democratic practice. There is much to be done, but the prospect of doing it is exciting.

Task One: Full Employment

The first task is to employ all of our people and end unemployment as we know it. We must commit our societies to the goal of full employment, and build an economic order in which a job is always provided by either a public or private sector enterprise for everyone willing and able to work. We must be willing to invest continually in human development in order to provide everyone with the skills and knowledge they need to contribute meaningful work to our productive activities, and participate meaningfully as fellow citizens in our democratic society.

Unemployment should not be regarded as some sort of inescapable curse visited upon us by the mysterious providence of the invisible hand and the hard tutelage of the business cycle. It is not an essential economic medicine or purgative that we are required to swallow for the sake of our long-term economic health. It is a social choice that we have made. And it is a bad social choice. Yes, private sector enterprises rise and fall, and their employment needs are constantly shifting. But we have it within our power to organize the public sector to absorb workers who have been released from their private sector employment, and employ them immediately in useful public enterprises. Then as private sector activity picks up and generates a demand for more workers, we can release public sector workers back into the private sector economy. Human needs and desires always far exceed our capacity to satisfy those needs and desires, and that means that there is always plenty of work to be done.

The system of persistent unemployment we have now is a bad social choice, but it is the social choice many plutocratic power-brokers prefer. So long as mercenary private wealth is permitted to call the shots in our economy, many of those at the top will find it preferable to dispose of unwanted human beings and their labor by jettisoning surplus workers from the active economy from time to time, just to put them on a low cost dole. The alternative – in which a democratic government is permitted to exercise its organizational power and pool social resources in order to employ the unemployed – is a threat to the power and wealth of plutocrats. By preserving a permanent pool of unemployed workers, the plutocracy ensures a permanent buyers’ market for labor, keeping wages down and worker bargaining power at a minimum. This allows the owners of private sector enterprises, working together with their most well-paid executive employees, to steer a greater portion of the revenues of the enterprise into the hands of the owners and top executives. A full employment economy, on the other hand, would restore bargaining power to workers, and permit those workers to retain a greater share of the firm’s revenues as wages.

The plutocracy also wishes to preserve the myth that if there is work that could be done, but that some private sector firm is not performing already, then it must be unprofitable work that is just not worth doing. But that’s an error. For one thing an immense amount of the goods in this world are owned by the public at large or by nobody at all. Private capital will be invested only when it can bring about improvements in someone’s private property, the property of those who are investing their own capital or investing capital they have borrowed from others. This usually generates a surplus that can then be sold on the market. That’s the only way the investor can profit from those improvements and productive processes, and that means that private capital has no interest in investing in those things from which no private individual or firm profits. But the public owns or draws value from a great many goods that lie outside this sphere of profitable private investment. It can add substantial, usable value to the world by organizing public investment in these goods.

Look around and ask whether or not there is valuable work to be done. Of course there is. There is always far more work to be done than there are people to do it. Human beings are mortal and limited, and when we succeed in achieving something new, that only frees us up to move on to something else that we were not able even to begin to address before. When we fail to employ ourselves in doing that work because of our ideological commitments to an existing system of private enterprise, we stupidly deprive ourselves of the productive efforts of many unemployed people who are willing to work. The existence of needless mass unemployment within the present system only shows that the existing system is incomplete and inefficient, and that it is not the full answer to the satisfaction of human needs.

Adam Smith, a much more moderate and reasonable man than is sometimes painted by the crazed disciples of laissez faire who have adopted Smith as their patron, also recognized that the system of private enterprise is not sufficient to satisfy all social needs. He recognized the need for public employment, because he recognized that there are ends we can pursue that, “though they may be in the highest degree advantageous to a great society, are, however, of such a nature that the profit could never repay the expense to any individual or small number of individuals.”

We always possess the capacity to do what we need to do in order to employ the unemployed. The monetary system should never stand in our way. Since the public’s money is only a tool, and since these monetary tools can be produced and wielded by a democratic society in whatever quantities are needed to pursue public purposes, it is absurd to argue one cannot afford to generate real value in the world because of a lack of money. As we create additional real value in the world, we can concurrently create the additional money we need to measure that additional value, to efficiently manage the entry of that added value into the existing economy, and to pay those who produced the additional value. Since the process adds new goods and services to the economy, rather than simply creating more money to chase existing goods and services, the additional money we bring into existence in this way does not exert significant inflationary pressures and destabilize prices.

Unemployment has tremendous social and individual costs. It leads to the loss of skills and capacity over time as a changing economy moves further and further ahead of the workers who have been jettisoned from it. These abandoned workers are then increasingly transformed into a burden on others. Unemployment also leads to psychological depression, shame and humiliation, and creates invidious social caste distinctions between the employed and the unemployed. Our current social practice of deferring all employment decisions to private sector entities, and permitting massive unemployment for long periods of time, is not just unnecessary. It is cruel, barbaric and stupid.

It is notable that during the current economic crisis, the national government in the United States decided early on to turn its attentions away from employment and toward the plutocratic agenda of public debt reduction. The government was willing to tolerate official unemployment standing between 9% and 10%. That, of course, is only the misleading official number. That this national policy direction of forced and recession-intensifying austerity was partly set by a Democratic administration, which rammed a deficit and debt reduction agenda down the throat of the national debate by appointing a “Deficit Reduction Commission” headed by committed conservative deficit hawks from both parties, is an indication of just how deeply both major national parties are now embroiled in the game of protecting the interests of the wealthy and neglecting the interests of tens of millions of desperate Americans.

So the young Americans who take on this first task of employing all of our people can expect to face a broad and bipartisan front of resistance from politicians in the employ of private corporations and financial interests. There are, to be sure, good people in government as well. But they are in the minority, and will need the kind of support that only a mass movement can provide.

Task Two: Public Investment in Our Future

The second task is actually an extension of the first task, and further develops the insight from Adam Smith quoted from the previous section. The private sector does a good job with the day-to-day management of, and innovation in, productive processes that make new goods and useful technologies and services available to markets. Entrepreneurs who want to develop these new products, or make old products in a better and more efficient way, can very often work out the means of creating a viable and sustainable business operation around their production, and can thus attract the private sector financing they need to build those businesses and market the products. We all benefit from much of this entrepreneurial creativity and industriousness. But we need to recognize that many of the larger scale investments a society needs to carry out in order to sustain progress and build prosperity do not just happen by themselves through the hubbub of entrepreneurial innovation. They often possess a scale, scope and degree of organizational thoughtfulness and planning that cannot or should not be carried out by private sector business enterprise.

Even if some of these major national-scale infrastructure projects can be carried out by private sector corporations commanding massive supplies of private capital, it might not always be a wise social decision to allow those corporations to assume those responsibilities. Note that what Smith said is that some highly advantageous social ends cannot be carried out in a way that brings profit to some small number of individuals. But of course, if we allow large oligopolistic private corporations to acquire ownership and control of everything that is important to us, then those corporations might be able to profit by investing in the satisfaction of large social needs. Yet any enterprise with the power and capital and political muscle to build, say, an entire national infrastructure for electric car use, or a national electrical grid or a system of mass education maintaining national standards, will possess too much power to place in corporate hands. Allowing such vast quantities of economic power to flow into oligopolistic or monopolistic corporations is likely to bestow on those corporations the power to dominate politically the democratic communities they have been chartered to serve.

Note that there is an inherent tension between the corporate form of organization and the organization of a democratic society. Corporate decision-making structures are indeed the very antithesis of democracy: They are hierarchical, secretive, and profoundly undemocratic command systems. It is arguable that we need to permit such institutions to exist on smaller scales. Or perhaps we don’t. But in any case, if hierarchical corporations as we know them must exist, limiting the degree and scope of corporate power is in itself an essential public purpose for a democracy.

Vigilant preservation of those limits requires that democratic communities at the national, state and local level deliberate in an open and rational way on the future shape of their communities and on their desired way of life. They should atempt to achieve a broad consensus on those desired forms of life, and then retain sufficient control over real decision-making power so that they can carry out the plans that will determine the long-term shape of their community’s future. Democratic communities must also seek to retain ownership of substantial amounts of public land and infrastructure within their communities. In the end, the world is governed by those who own it. Building a decent and just future requires substantial public command of resources and a commitment to democratically organized public investment of those resources.

But it is not enough to invest in physical infrastructure alone. We also need to invest in our people. We are still making do with an antiquated education system in which we devote a great many resources to educating our youth, but then leave our citizens on their own for the rest of their lives to provide for any desirable remaining education. We should consider the possibility that such a system is no longer viable in an era in which technological and intellectual changes are constant and rapid, and in which fewer people are employed in types of work that do not require the continual improvement of knowledge and knowledge-based skills. We should consider moving to a system in which people are given periodic paid furloughs from work, say every five years, to return to school for six months for additional publicly-delivered education. There is no reason at all that a public education needs to be pigeonholed as a purely K-12 system. 21st century people require educational services spread across the lifespan.

We need to reaffirm community responsibility for most forms of education. Although some forms of education might be of benefit only to the individual who receives the education, most forms of education benefit all of us directly or indirectly. A prosperous and enlightened democratic community will develop the talents and unexpressed capacities of its citizens, and distribute these human development costs widely. And the more equal our society becomes, the more those human development costs pay off for all of us. In a society organized to preserve broad social and economic equality, the benefits of higher education aren’t all poured into generating extravagant incomes for the privileged class of high earners who happen to have received that education, and who profit from it individually, but are directed back into the community as the educated contribute the value of their enhanced skills and knowledge to generally beneficial production and activity.

These enhanced education programs can be integrated with the full employment commitments discussed in the first task. For all of our people – at certain stages of their lives, at least – we should regard teaching or learning, or both, as that person’s job. There are many useful things we can pay the unemployed to do, but among those things are the jobs of teaching others the things that these unemployed people already know, and of learning something from someone else so that new knowledge can be brought back into the world of productive activity to create value that couldn’t have been created before. Those people for whom the private sector is not providing employment represent a large treasure trove of unutilized skill and knowledge. We need to create the institutional frameworks in which those skills can passed onto others, while new skills are acquired at the same time, and in which these citizen educators and learners are then able to draw an income to support their participation in this vital area of public investment.

In thinking about the needs for public investment in our physical infrastructure and our people, we should never allow ourselves to be overwhelmed and dazzled by the complex instrumentalities of money and monetary tools. The only thing that ever stands between our desires for the world we want and the realization of that world is the existence of real resources. If the resources exist, we can always create whatever additional monetary tools and financial instruments are needed to command those resources and organize their allocation. We can adjust our monetary policies to give democratic communities the monetary powers they need to better direct their communities’ resources into the channels in which they desire them to flow. And besides additional monetary policy tools, there remain the traditional tools of taxation. Private sector systems for distributing income are sometimes wasteful and crude in the aggregate, and do not adequately reflect social needs and values that are not manifested in the marketplace by purely self-seeking customers. To advance such values, the public sometimes needs to take surplus savings that exist in wasteful and unnecessary abundance on the monetary scorecards of the most fortunate individuals, and direct those savings toward public purposes. Critics sometimes claim redistributive taxation of this kind is a mere zero-sum shift of productive economic activity in one sector of the economy to productive activity in another sector. But that is not true. In some cases it is a positive net shift of idle low-productivity savings into highly productive activity.

Task Three: Public Stewardship of the Financial Sector

The third task is to reassert public authority over the financial sector of our economy. The late economist Hyman Minksy persuasively argued that financial instability is not just an anomalous blip of temporary dysfunction in generally stable and self-regulating financial markets. Rather, Minsky said, a tendency toward financial instability is inherent in the normal functioning of a capitalist economy. Periods of financial stability, in fact, lie at the roots of instability. Robust systems of finance naturally evolve into systems characterized by higher and higher degrees of risky, speculative lending, and ultimately higher degrees of what Minsky called “Ponzi lending”. Stability is itself destabilizing. Preventing instability therefore calls for regulation, since a system that is inherently prone to instability does not regulate itself.

Few people these days are in need of further convincing that financial professionals are not always the sober and steady managers of money and investment funds that their defenders sometimes like to present themselves as being, or that they effectively regulate themselves through the discipline of market forces. The US financial sector blew up a bubble of overleveraged and toxic debt based on liar loans and runaway home prices leading up to the crash of 2007 and 2008, a bubble inflated by a combination irrational exuberance, irresponsible management and outright fraud. The banks and shadow banks crashed our economy into the ground.

Human beings come in many varieties. But there will probably always be among us those who seek to steal, defraud, scam, swindle, manipulate, chisel, plunder and exploit. The quantitative mazes and fine print of financial transactions and contracts provide fertile ground for such activity. The financial world is full of very clever people who devise increasingly clever ways of inserting taps into our society’s massive flows of money and siphoning off some of the flow for themselves. It is essentially money for nothing, but it can generate huge short-term rewards for some of the lucky investors, and huge compensation packages and bonus for the clever engineers of the leaky ductwork of money streams. Sometimes the complex movements of money and value are so mathematically complicated that even relatively sophisticated people who have had millions and billions stolen from them can’t even say for sure if they have been robbed, or if they just made bad decisions in purchasing legitimate services. To imagine that these dens of greedy money pillagers can be self-regulating if left to their own devices, and that market competition generates all the information that is necessary to enable investors and savers to make prudent decisions with the funds for which they are responsible, is naïve in the extreme. And in a modern economy, we are all entangled in the maze of money. Even the most frugal, modest and cautious people are dependent on the behavior of the guild of financial engineers. So in the end, not only do the schemers and scammers exploit individuals. Their destabilizing pyramids of monetary liabilities collapse and destroy whole economies.

The University of Missouri, Kansas City economist and regulator William K. Black has commented on the “three dees” – deregulation, desupervision, and de facto decriminalization – that helped bring our financial system to the ground:

Deregulation occurs when one reduces, removes, or blocks rules or laws or authorizes entities to engage in new, unregulated activities. Desupervision occurs when the rules remain in place but they are not enforced or are enforced more ineffectively. De facto decriminalization means that enforcement of the criminal laws becomes uncommon in the relevant industries. These three regulatory concepts are often interrelated. The three “des” can produce intensely criminogenic environments that produce epidemics of accounting control fraud. In finance, the central task of financial regulators is to serve as the regulatory “cops on the beat.” When firms gain a competitive advantage by committing fraud, “private market discipline” becomes perverse and creates a “Gresham’s” dynamic that can cause unethical firms and officials to drive their honest competitors out of the marketplace. The combination of the three “des” was so criminogenic that it generated an unprecedented level of accounting control fraud, which in turn produced unprecedented levels of “echo” fraud epidemics. The combination drove the crisis in the U.S. and several other nations.

I will leave it to people like Black and other experienced financial sector sleuths and regulators to recommend the specific regulatory policies that are needed to bend the financial sector back toward the public purposes it is supposed to serve, and to make sure large and risky financial ventures are not allowed to escape the regulatory watchdogs – perhaps by moving into the “shadow banking” sector. But I do want to suggest one specific item. We should take a close look at creating public options for banking: not-for-profit, public savings and lending institutions that provide low-cost, low-risk alternatives to private sector banks, and that can be used when appropriate to administer and subsidize programs of local public investment through the targeted issuance of low interest loans – and perhaps sometimes even negative interest loans.

Task Four: Reorganize Monetary Policy

The topic of banking naturally leads us into the fourth task: the reorganization of monetary policy. Under our present system, a quasi-independent and weakly accountable central bank is supposed to be responsible for all aspects of monetary policy, while Congress and the Executive Branch handle the fiscal policy operations of taxing and spending. The system has been with us so long that it is difficult for many people to conceive of alternatives. But such alternatives can and should be considered.

The division between fiscal and monetary policy is actually somewhat artificial. It is an analytical distinction useful for understanding different dimensions of macroeconomic policy. But in practical terms it is difficult to separate fiscal operations from monetary operations, and the fact that they are institutionally separated in our current governmental framework keeps economic policy makers from acting in as coherent and efficient a manner as they could. The institutional separation between monetary and fiscal policy also creates needless confusion in the mind of the public, and manufactures pseudo-problems from the needlessly complicated manner in which Treasury spending is partially funded by Fed purchases of Treasury bonds through private intermediaries. This puts relatively meaningless debt on government books, leading to public fears of budget crises, bond vigilantes and insolvency. The austerity mongers, doomsayers and enemies of progressive government then call out this debt in their endless attempts to manipulate public fears and crush public sector activism. These prophets of public penury are contributors to the plutocratic effort to subordinate democratic governments to corporate rule.

We have already discussed how this situation can be changed. Fiscal policy need not rely to such a high degree on the issuance of debt to the private sector. Instead, we should enact monetary reforms that provide for the direct crediting of Treasury Department accounts by an amount to be determined each year, as economic conditions warrant and demand. We can expand deficits through purely monetary means when necessary. No added debt; no additional taxes – just money directly created by the sovereign monetary power of the United States government and the American people. But this is not a reform the Fed can enact on its own. Only Congress can legislate these changes. Activists need to take the case for monetary reform directly to Congress.

There are certain public purposes that are always best served by the public sector, no matter what else is happening in the economy. But there are other public needs which arise cyclically, and some which are entirely unpredictable. In a deep recession or depression, government needs to expand its spending dramatically. The most efficient and least confusing way to do this is through direct monetary operations: clean, unconfusing money creation without the complex dance of bond sales mediated by private sector dealers and auctions.

Elitists and ant-democratic central bank enthusiasts have usually argued that these kinds of reforms would put too much monetary policy power directly in the hands of a democratic rabble, and that reckless populist politicians wielding this kind of power would inevitably destroy our economy and spawn hyperinflationary chaos by succumbing over and over to the irresistible allure of free money. Bunk. These pessimistic warnings are only a stale replay of similar charges that have been levied against democratic government in generation after generation. Elitists and aristocrats in every era have always said that democracies can’t handle anything important: they can’t handle civilian control of the military; they can’t handle religious and political liberty; they can’t handle the selection of leaders; they can’t handle the legislation of laws; they can’t handle the writing of a budget and the management of public finances. They have always been wrong. Democratic countries around the world perform these tasks routinely, and the consequence of the rise of democratic government over the past century, and the defeat of aristocratic and authoritarian alternatives, has been a spectacular surge in global prosperity.

So now the question is the reform of monetary policy, and the elitists are wrong again. Decisions about the orderly creation, destruction and employment of the public’s money are no less amenable to routine democratic debate and thoughtful legislative decisions than are any other economic decisions carried out by a legislature. Despite the political ups and downs, democracies generally do a perfectly creditable job managing the public finances and the public treasury. Monetary policy is a matter of public policy and should be debated and carried out via the political process just like any other public policy in a democracy. We will surely make bad decisions from time to time, just as we do in other areas. But over the long run, democracy will do a much better job with monetary policy than do secretive central bankers, who answer mainly to the plutocratic elite, and who during a crisis quickly sacrifice the public interest to those elite interests.

Task Five: Promote Equality

The fifth task is to take significant and deliberate steps to promote equality of economic condition. Economic inequality rots the foundation of a democratic society.

For too long we have been told, or tried to tell ourselves, that democracy can coexist with profound inequalities in wealth and income, and that we can erect a wall of institutional structure that will protect democratic institutions from the encroachments of plutocrats. We have been told, or tried to tell ourselves, that even in a world in which a single wealthy person can buy more than can be purchased by a million of his poorer fellow citizens, that unpleasant fact does not keep us from adhering to a rigorous principle of one person, one vote. We have been told, or tried to tell ourselves, that even a society with gross inequalities in wealth can sustain a system of genuine equality of opportunity.

These are absurd and preposterously naïve views. And it is a real mystery how any significant number of mature and worldly people could ever have been induced to believe them.

The things in the world that we call “wealth” consist of all of those things that are produced either by nature or by human effort, that can be transferred from some persons to other persons, and that people desire to possess either individually or collectively. Wealth consists in the objects of human desire, and the value of these objects is measured in the end by the degree to which people desire them. Those who control wealth thus control the objects of desire; and those who control the objects of desire control people, since people are beings filled with desire. In other words, wealth equals power.

No system has ever been devised, or could be devised, in which a few participants in society are permitted to control most of the ultimate sources of human power, in far greater amounts than other people, but in which that privileged few does not succeed in exercising the power they possess to seek their preferred ends in the political sphere. Those who are permitted to own the lion’s share of wealth will always own the lion’s share of decision-making power. Since democracy consists in the equal distribution of decision-making power throughout the whole body of a self-governing people, no real democracy is possible in the presence of gross inequality of wealth. Inegalitarian democracy is a delusional doctrine; as unrealistic as the dream of a harmonious symphony orchestra consisting of 99 dog whistles and one tuba.

Similarly, no system can be devised in which people possess anything approaching a real equality of opportunity unless that system at least strives to create something approaching a real equality of condition. Opportunity in life depends on the resources with which one begins life. But inequalities of wealth and condition are passed on from one generation to the next, in one way or another, both among individuals and within communities. Unless we take steps to limit the grossly unequal accumulation of resources throughout a lifetime, we cannot prevent gross inequalities in the resources with which people in the next generation begin their lives.

There are many things we can do to promote a more equal society: We can restore income balance through redistributive taxation and much higher marginal tax rates; we can prevent those inequalities from arising in the first place by enacting maximum wage laws or wage ratio laws; we can restore the bargaining power of workers through a national full employment program and a revitalization of organized labor; we can reform corporate governance so that companies are chartered to exist primarily to provide incomes for the people who work and produce in them every day, not for the absent and invisible owners who do nothing but buy and sell pieces of those corporations; and we could reform inheritance laws to prevent inequalities arising in one generation from being propagated and multiplied in the next.

Task Six: Public Stewardship of the Environment and Our Common Wealth

The final task is to affirm and secure public stewardship over things of inestimable value that profit-seeking commercial enterprises are always threatening to ravage, exploit and destroy.

We have discussed a great many things that pertain to the goods we produce and exchange, the things of value that we make out of what already exists, and whose production and distribution is organized through the medium of money. But it is important to remember that the most supremely valuable things in life were made either by no living human being or by no human being at all, living or dead. The sublimities of the natural world; the beloved natural human habitants in which we make our homes and feel ourselves at home; the marvelous and diverse fellow creatures with whom we share our world; the ancient and powerful seas, mountains, forests and winds; and the innumerable products of human art, industry and intellect that have been passed down to us from earlier generations of earnest and optimistic human beings, and that are now the common inheritance of every one of us – these things comprise the all-too-frequently ignored foundation of value in a meaningful human existence. They usually cost us little or nothing to acquire; but the cost of destroying them is immeasurable.

The pursuit of the good requires not just the creative production of new forms of value from the resources we possess; but the preservation of those sources of great value that already exist. These springs of value speak to us and comfort us in voices that transcend the capacities of our very finite and predominantly instrumental everyday intelligence, and they are the ground that brings forth and nurtures all of the myriad objects of everyday use. These fundamental goods are as irreplaceable as they are beloved. Human commerce has contributed greatly to the improvement of our life on Earth. But the commercial life and its exigencies can also reduce us to a mean, blinkered and mercenary relationship with the things and beings that surround us. Commerce thoroughly unleashed, commerce that is not directed by wise and deliberate stewardship and foresight, can result in the thoughtless destruction of what is great in the manic production of what is merely transiently useful. The primordial goods belong to all of us, the great democratic community of humanity. Part of the task of democratic reform, then, must be to preserve for ourselves and our fellow citizens what is sublime and great. We must ensure the equal and sustained access for all human beings to the common inheritance of all human beings.

This is the sixth and final part of the essay. Previous installments are available here: One, Two, Three, Four, Five