Solving the Mess
by Serban V.C. Enache
A few months ago, I wrote an article (Justice for the WASPI and All Pensioners) in which I proposed a return to the previous (lower) retirement age, for both men and women. I made the argument that as technological progress makes societies more efficient and productive with fewer and fewer labor inputs required – it makes no sense to force people to work longer and retire later.
After seeing what the Labour party has proposed to “fix” the injustice and theft done to the 1950s women, I was gravely disappointed. Especially since the issue of male retirement is completely overlooked, while Corbyn is busy with trivialities like giving people freedom to change their gender arbitrarily by simply signing a piece of paper. If only he would put his name on an actual pertinent and heterodox measure that improves the lives of all citizens, instead of catering to sectional interests.
This article will outline the solution to this mess as I see it: Earlier retirement. Abolition of obligatory insurances. Basic pension for all.
For both men and women, the retirement age shall be 60.
Obligatory insurances (mandatory contributions) shall be abolished. They are regressive taxes on labor that don’t fund anything; but simply take away (earned) income from working people and decrease Aggregate Demand levels in the economy. In contrast, Government spending on national insurance programs adds to Aggregate Demand and to household incomes in a progressive manner.
A sole basic (living) pension for all citizens once they reach the age of 60. No other pension, higher or lower than that, shall be paid. I recommend a figure of 13 thousand pounds per year. This guaranteed basic pension for all will get indexed with inflation. The indexation will be done at the beginning of every year with the inflation rate from last year. Note: It would not be done based on anticipated inflation for the current year. The latter method has been a factor, among others, in countries like Brazil and Argentina, which suffered traditionally from high inflation. The custom of indexing based on anticipated inflation leads to the pernicious effect of wishing / gambling for inflation rise; it becomes a self-fulfilling prophecy.
The Treasury shall cease to issue interest-bearing bonds, and the Bank of England shall maintain perma-ZIRP (permanent zero interest rate policy). The Government, whether it deficit spends or not, shall no longer subsidize anyone, particularly the rich, for moving numbers from checking accounts at the BoE to saving accounts at the BoE. In 1921, Thomas Edison insisted on the same reform in an interview with The New York Times:
“[…] Why then cannot the people have the benefit of their own gilt-edged credit by receiving non-interest bearing currency on Muscle Shoals, instead of the bankers receiving the benefit of the people’s credit in interest-bearing bonds?”
“The people must pay anyway; why should they be compelled to pay twice, as the bond system compels them to pay? The people of the United States always accept their Government’s currency. If the United States Government will adopt this policy of increasing its national wealth without contributing to the interest collect – for the whole national debt is made up of interest charges – then you will see an era of progress and prosperity in this country such as could never have come otherwise.”
Today, like back then, the saying “national debt” refers to the sum of Government interest-bearing bonds – sum of money the Government has to pay the holders of the bonds. When we analyze the semantics, however, and understand that all money is credit/debt, we may categorize Government debt in three forms: cash & coins, reserve (checking) accounts at the Central Bank, and securities (saving) accounts at the Central Bank. One way to look at the national debt is all the money the Government has spent so far without taxing it away. In Edison’s context, however, he is referring to interest-bearing bonds only, that is, saving accounts at the Central Bank.
The next prescription, I believe, is rather unique.
Complete refund of contributions. To my knowledge, advocates of ending regressive taxes like Georgists, MMTers, and Post-Keynesians have never made this recommendation. Since I’m a fan of all three groups, I hope it will get some traction among their ranks. For all the people who paid contributions prior to their abolition, the Government would refund them to the penny on a short term basis. By that I mean 2 years: 1/2 of all contributions collected by the Government prior to the abolition date shall be refunded per year. Recipients shall be prioritized according to age. Elders first, middle-aged people second, youngsters last.
From my (over) simplistic and pessimistic estimates (which are of course subject to a degree of error), we’re talking about a total figure of almost 8 trillion pounds, which the Government has to put into the private sector. It can’t unload it all at once without the risk of causing demand-pull hyperinflation. As such, this extra Government spending shall be accompanied by a 100% Land-Value Tax. The total value of property in the UK is at around 10 trillion pounds, with about 51% of that represented by the value of the land (a natural monopoly, not a man-made thing). Needless to say we can’t have such a large surplus, or a surplus, for the UK Government. On the contrary, the Government needs to run fiscal deficits in order to satisfy the non-government sector’s desire to net save british pounds.
Explosion in the absolute tax obligation leaves a lot of room for abolishing other deadweight taxes, such as the property tax, VAT, income and company taxes – and lots of room for Government investment in public services, infrastructure, environmental conservation, research and development, encouragement of public and cooperative banking etc. I am not a fan of shock therapy in general. But the above-mentioned radical scheme shouldn’t take more than 5 years to implement. If the State levies a 50% LVT in year 1 and a 100% LVT in year 2, the contributions refund of 4 trillion per year will be complete in 2 years time. If the State levies a 25% LVT in year 1 and reaches 100% in the next 3 years, the contributions refund spending per year will be 2 trillion pounds and it’s going to be completed after 4 years.
In this scenario, land-owners shall be better off in absolute terms compared to before; but in relative terms to labor and capital, they will be worse off. Labor and capital shall reap most of the benefits, as is morally just and socio-economically efficient. A Job Guarantee and a Universal Basic Income could be easily adopted. The basic pension for all would or could be replaced by the latter program (UBI), albeit it’s not necessary.
Does a 100% Land-Value Tax scare you? Does it seem unfair? Why not try looking at it from a different vantage point. The rent people pay in aggregate is a 100% privately imposed and privately appropriated Land-Value Tax. This is also true of mortgages. The capital gain in rising house prices is a privately collected 100% Land-Value Tax. People don’t mind it when they get to pocket unearned increment. But why should they? Land-owners and home owners didn’t create the land values. Land has no cost of production; and it shouldn’t be considered as capital (aka spent or dead labor). Nonetheless, mainstream economic theory and state tax codes across the world wrongly conflate the two things (capital and land) as capital.
Those land rents come purely from the (pernicious) right to exclude. If the State allows these values to be privately collected, instead of taxing them in full, the State de facto promotes crass socio-economic injustice, inequality, and inefficiency.
Potential negative effects would be temporary – positive effects would be permanent. In the US alone, capturing economic rent would expand GDP by over 35 percent.
Since the financial crisis of ’08, the United Kingdom recorded a loss of 1.1 trillion pounds (conservative figure) in national output. That means bankruptcies, job losses, social and psychological hardships, lost investment, loss in future yields, and lost time never to be regained. For those who think these proposals are outrageous… don’t make me mad, or I’ll propose a 110% Land-Value Tax. It takes only a few years to achieve a fully rounded Georgist tax code and a strongly enhanced Welfare State in which labor, investment, and invention are rewarded in full – with parasitism actively combated.
Since humans are flawed creatures to say the least, man’s attempt at dealing out justice can only be imperfect. However, it’s much better to take a shot at building a better society, instead of tolerating the present injustice, which grows day by day with no waning in sight…
A dignified retirement age and living incomes (wages and pensions) are possible today. It can be a fact, not just a nice idea. People just need to understand, believe, and fight ardently enough for it.
Serban V.C. Enache is a Romanian journalist and indie author. Though interested in history, politics, and economics, his true passion is for medieval fantasy fiction. https://www.amazon.com/Serban-Valentin-Constantin-Enache/e/B00N2SJD6O/ He can be reached over Twitter. https://twitter.com/SerbanVCEnache