The economy is "to help the people through the world".It means "to govern the world and benefit all the people".
Interest on debt is a type of unproductive rent.
Over the past two centuries, a focus of economic debate has been whether the income of landlords, bankers, and monopolists should be counted as "income" from the production of goods or services, or as "economic rent" – unearned income that is earned for nothing or provided with no intrinsic value.
Today's real economy is encased in a complex property rights system. Among these rights are land ownership, monopoly patent rights (patent holders earn far more than normal profits, regardless of the actual cost of production), and various official privileges, the most important of which are the privilege of banks to create credit and receive ** support. These rights create the opportunity to collect economic rent. "Economy rent" is the income obtained through privileges. The private sector group that lives on such economic rents, namely the rentier class.
Doubling of debt is a matter of time.
Financial claims are mathematically expanded, and compounding doubles the debt only in relation to time, not to the ability of the economy to pay. The real economy cannot sustain long-term growth that is as sustained as interest on debt. This means that the accumulation of debt over a long period of time will inevitably exceed the ability of the real economy to repay. The rising cost of debt has shifted the economy's profitability from the real industry to the financial system.
Debt deflation, economic degradation.
Ballooning credit and debt are forcing the working population, businesses, and/or localities to pay more in interest and financial fees, leaving less and less personal income, corporate income, and ** taxes that can be used to consume non-financial goods and services. The result is debt deflation: an increasing share of personal income, corporate income, and public revenues is absorbed by debt, plunging the economy into contraction.
In countries where the private sector dominates financial credit, the problem is effectively that 99 per cent of the population owes 1 per cent of the population.
The growth of interest-bearing debt will inevitably exceed the solvency of society, which will eventually lead to debt deflation. The more credit a bank creates, the more debt customers owe, and the more debt deflation will be.
This is despite the mainstream theory assuming that newly created credit is used for goods and services, as well as for new loans to businesses. In reality, the opposite is true, where most bank credit is used to buy real estate or other existing assets, rather than for consumption or industrial production. The impact of this credit on commodities** and economic activity actually leads to debt deflation, because more credit means more debt, and debt repayment will reduce the proportion of income that households and businesses can use to purchase goods and services.
too big to fail
Marx emphasized that the goal of finance capital is to obtain benefits "from the outside" of the production process, independent of the wage labour employed by the industrial capitalists. Industrial capitalism and financial capitalism exploit wage labor in different ways. Industrial capital tries to maximize profits by keeping the wages of labor as low as possible. Finance capital and other rentier capital seek to maximize the use of wages by workers to pay off debts, as well as to purchase basic services that are prone to monopoly rents when monopolized.
The inflation of debt is like a Ponzi**, which needs to be supported by an exponential increase in the inflow of new credit. The logic behind the Ponzi phase of the rentier economy is that as long as banks keep issuing more loans, people will be able to repay the loans, and the assets that are used as collateral will be able to sustain the game due to inflated debt. The point is that creditors have nothing to lose because they can confiscate the debtor's real estate and other collateral if the debtor is unable to repay. In addition, creditors have captured the bank, which has allowed them to be bailed out in the face of a wave of debt crisis.
Although neoliberal textbooks teach students that "interest is compensation for taking risks", banks can avoid risks through guarantees and back-ups. Interest on debt has thus become a steady source of income for the rentier class, stimulating the private financial sector to snowball indefinitely.
The private financial sector captured the working and middle classes.
The Rentier Lobby claims that the middle class and even the working class can benefit from the rent-rentier economy. They try to convince people that a bull market in favor of the 1% of the population is equivalent to an economic boom, even if the net worth of the indebted 99% does not change at all (in fact, it is only the major shareholders who really get the wealth through ***, not the 99% of the market shareholders).
They take advantage of the psychology of the working grassroots who want to become the middle class and share in the income of financial food, rent, and rentier, that is, to buy a house through credit, to obtain retirement income through the growth of the financial market through pension, and to obtain capital gains from the market. They also exploit the psychology of the middle class, eager to move up the food and rent rentiers, and get the middle class to call for the protection of the real estate market and **.
When the ** of financial assets can be artificially inflated by stripping assets, reducing the investment of tangible capital and generating financialized wealth in the form of **inflated** and creditor's rights, the overall economy will be weakened。The most effective way to artificially increase assets** is to continue to issue bonds to buy back listed companies** and continue to borrow money to buy houses.
How can China avoid this financial disease?
The solution lies in reducing non-productive costs and nationalizing public service sectors to prevent the erosion of residents' spending power by various types of "economic rents".
Instead of privatizing natural monopolies and critical infrastructure, China has kept important sectors in the public domain, the most important of which is the banking sector. Central banks have increased credit for tangible investments such as high-speed rail, schools, transportation systems, and research labs, thereby reducing the cost of living and doing business. Boost China's labor productivity through high-quality education and high health standards, so that it can compete with low-wage, low-productivity economies and high-cost rent-rentier economies.
As a socialist economy, China's goal is to liberate the economy from rent-seeking and usury-seeking banking through strong regulation, thereby preventing the emergence of unfettered rent-seeking financial oligarchs. What China has yet to achieve is a progressive tax policy on the income and assets of the rentier class, the most important of which is a progressive tax on land rent
Take the real estate industry as an example: it is possible to tax the rental value of the land and houses that are constantly being sized, which prevents these appreciations from being mortgaged to bank loans and paid to banks as interest. Paying a higher land tax has two huge benefits: on the one hand, it prevents debt from driving house price inflation; On the other hand, the tax brought to ** will offset the income tax and sales tax that the owner currently has to pay.
In order to free the local government from excessive dependence on land finance, it is essential to reform the tax system, because the tax system is ultimately a mechanism for the redistribution of wealth in society. Land finance usually comes at the expense of the transfer of rural land resources to the urban sector. Land*** means that there will be an implicit land tax on the middle and lower classes, as the cost of living and doing business is also a**.
A reasonable tax system should keep the tax rate low on labor income (including wages and manufacturing, business profits) from the real economy. Instead, taxes should be levied on unproductive unearned income (seeking economic rent) and capital gains on the rent-rentier class, such as a property tax or an asset holding tax. Only by changing the tax structure, which is conducive to speculation, can we prevent the hollowing out of the economy and make society develop in the direction of wealth redistribution in favor of the middle and lower classes
Maintaining public ownership of land, natural resources and natural monopolies is the traditional way of minimizing the search for economic rent. Although China is the nominal owner of the land, it does not collect the full amount of rent. That's why China's housing and commercial real estate is going to be so high. If economic rent is not collected and privatized, the cost of the economy as a whole will be raised.
The same is true for the financial sector. One of the big differences between China and the United States is that China's banking sector is publicly owned, while the U.S. banking sector is privatized. As an economic rent, interest flows in different directions under two different systems. The economic rent collected by the public sector with interest on debt can be used to feed back public services (education, health care, infrastructure, etc.), thereby reducing the cost of living and increasing residents' consumption payments. Attributing interest on debt to the private sector would only increase the scale of lending indefinitely, and would do nothing to benefit public service spending. The increase in the size of the debt will indefinitely erode the consumption of the population until the entire income is used to repay the debt. In extreme cases, society as a whole is working for the private financial sector.
Postscript. A harmful system leads people to evil, and a beneficial system leads people to good. The choice of right and wrong is often the result of the guidance of the system, but it is undoubtedly irresponsible to attribute all the responsibility to the people's own choice.
Just like Big A, the cost of violating the law of listed companies is too low, and every punishment of listed companies is like guiding and encouraging listed companies to continue to do evil. The regulatory system is the source of the problem.
It is hoped that China will adhere to the principle of "upholding the common development of the economy under various forms of ownership with the public ownership as the mainstay, vigorously giving play to the important role of the public economy in promoting common prosperity, and at the same time promoting the healthy development of the non-public economy and the healthy growth of people in the non-public economy." Through the world, not onlyRequirements:economic aggregates, moreImportant:Economic distribution.
The ideas in this book are largely derived from Michael Hudson's book The Choice of Civilization.