Transcript The financial crisis for dummies

The financial crisis
for dummies
Main causes – main solutions
sodahead.com
Richard Parncutt (Uni Graz, Austria)
Special session , ICMPC 2012, Thessaloniki, Greece 28.7.2012
Sometimes a theory is too simple
…so we make it more complex
• Economics: Communism
Eliminate poverty by sharing everything
…but who will want to work?
• Psychology: Reification of
emergent properties
de.wikipedia.org
Universal grammar (Chomsky)
…or statistical learning (Saffran)?
mobilemoms.wordpress.com
Sometimes a theory is too complex
so we simplify it
• Cosmology: Pre-Copernican theory
Ptolemy: Earth = centre of the universe
• Any area: Truth distortion
Confusing each other with jargon
Solutions:
• Ockham’s razor
• Transparent terms and arguments
mlahanas.de
Is the economic crisis really too hard for ordinary people to understand?
My bias
Regulated free enterprise to achieve
“greatest happiness for greatest number”
1. Prices determined by supply and demand
2. Equality of participation
3. Legal regulation (transparency, contractual
fullfilment, debt repayment…)
All three points need serious repairs!
The wealth gap: The main problem
Enormous wealth gap both within and between countries
(in both cases, skewed distribution  “wealth per capita” is misleading)
Richest 1% owns 40% - poorer 50% owns 1%
Source: World Inst. for Development Economics Research of the UN University (2000)
The inherent bias of economic theory
The idea-generators
(economists, accountants, actuaries, politicians…)
benefit if their ideas benefit the rich
(source of personal income)
Example:
“Trickle-down” is no better for “economy” than “trickle-up”.
But we hear more often about “trickle-down”.
Categories of truth distortion
in media discussions of the “financial crisis”
• Complexity
– Financial crisis is complex  only economists can understand it
• Abstraction
– When “the economy” is happy, everyone (who?) is happy
• Generalisation
– Rags to riches stories (if Bob Marley can do it, so can you)
• Secrecy
– Tax havens are ok (confusion of privacy and secrecy)
• Emotion
– Widows should not pay wealth tax ( wealth tax is bad)
• Nonsense
– Wealth tax will make little difference to national budgets
– The rich are getting richer, but we need “austerity”
– We need growth, but growth is impossible (climate change)
Reasons for rising national debts
Different “free lunches” – at enormously different costs
Working class
Welfare abuse
Middle class
Tax evasion
Costs billions
Global rich and mega-rich
Diverse tricks (tax evasion, derivatives, futures
trading, short selling, subprime lending…)
Costs trillions
ClassWars.org
Costs millions
A simple model of the financial crisis
Main general cause: Economic globalisation
1. New opportunities for rich to invest and evade tax
2. Reduction of democratic power of governments
3. Power vacuums  dangerous practices
 Rich get richer, poor stagnate
 Collapse of financial institutions (governments, banks)
 Breakdown of free enterprise
Obvious solutions
1. Tax the rich
2. Develop global democracy
3. Regulate global markets
Steps to sustainable recovery
The problems and solutions are moral - not economic
Government: Stop borrowing private money
 End national debts
– Origin of problem: Politicians trying to stay in power
– Solution: Taxation not loans
Future generations should not have to pay our debts!
Banks: Stop lending non-existent money
 End fractional reserve banking
– Origin of problem: Earning interest by trickery
– Solution: Honesty not trickery
Banks should return to serving lenders and borrowers!
 End dependence on growth
Global wealth tax
A logical response to:
– Economic globalisation
– Expanding wealth gaps
Why global?
Why wealth?
Why tax?
Prevent tax evasion
That is where the money is
Legitimate government income
1% tax on all wealth
Why 1%?
• Typical rate in France, Switzerland,
Netherlands, Norway, and India
• Goal: End global poverty & climate change
Would apply to:
• All wealth incl. companies and trusts
• Individual assets above US$ 1 million
Implementation:
• Negotiated by UN, IMF, G20, World Bank
• Collected nationally (existing mechanisms)
A possible financial plan
Total world market capitalization = US$ 60 trillion
= most of global non-household private wealth
1% of that = US$ 600 billion/year
Half for poverty (300 b$/yr):
• Eliminate poverty in 15-20 years
(cf. Jeffrey Sachs: The End of Poverty)
Half for climate (300 b$/yr):
• Limit temperature increase to 2°C
• Recover from climate disasters
Reasons for doing nothing
3 urgently needed taxes:
• Global wealth tax
• Global transaction tax (Tobin)
• Global emissions tax
3 reasons to do nothing:
• Greed
• Dishonesty
• Arrogance
The main problem is not legal or technical
- it’s political and moral
1% Global Wealth Tax
Special requests:
• Sign the petition at change.org
• Give me suggestions about
– content
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