Seven Trillion Into the Breeze

Frank deJong

[ GroundSwell, November-December 2008]

Desperate to appear decisive in the face of the deeper then usual cyclical economic downturn, the U.S. government is shoveling $7 trillion of public money (probably far more when the dust settles) to private banks and corporations. Most world governments are following suit. Their concern is touching; no speculator will be left behind. Amazingly, the left and right are united in reviving this until yesterday discredited Keynesian interventionist economics. But it will do no good.  All this wealth, too, will sublimate away in the continuing collapse.

The world economy will recover only after the speculative wealth built up throughout the boom years has evaporated and the productive economy reemerges.  Nothing can stop this process.

Bailouts to banks or corporations will only delay the recovery, and in the process reward people who hold signed bad mortgages and companies who gambled on earning speculative profits. As Naomi Klein describes in her book Shock Doctrine, bailouts are disguised transfers of public wealth into private hands.

Instead of bailouts or fast-tracking infrastructure to attempt to boost the economy, governments should instead free up capital by untaxing incomes and instead fund services by capturing the unearned income, also know as economic rent, or the societal surplus, which now goes mostly untaxed to those who hold monopoly ownership of land, resources and other finite assets. 

Governments could then fund services like health care and education without taxing the earned incomes of the entrepreneurial sector and at the same time encourage resource efficiency, reduce sprawl, and spur local, value-added production.  Since most speculation is on the control of land and resources, disallowing speculative wind-fall profits would help green the economy by right-pricing the use and abuse of the global commons.

Collecting the speculative earnings (economic rent) out of the recovering economy would even out the economy, preventing future booms and busts, since the resulting wealth could not be used to re-inflate the prices of real estate and other finite assets and start the cycle over again.

And economies would become more efficient since the dead weight taxes would be lifted off production, and since people and businesses would be encouraged to invest creatively in the productive economy, as there would be no unearned profits to be had through speculative investing.

Warranted infrastructure should be built, of course, however it should not be funded by government indebtedness but rather by collecting the up-kick in land values that the infrastructure generates over its lifespan.

This economic collapse should be viewed as an optimal time to repair the economic system flaw that equates speculative profits with entrepreneurial profits. Unearned income should be collected by the community which creates it, while earned income should be untaxed since it belongs to the entrepreneurs who generate it.

This long overdue accounting change would precipitate multiple benefits to humanity and the other species with which we share this planet.