Who decides?

This is the last of a series of eight articles by Neva Goodwin; her conclusions.

As was noted earlier, there are relevant models to draw on, of countries where sensible tax and welfare policies give governments the means to achieve the first requirement in the ideal economy: To support everyone, especially those who are unable to work, or cannot find work. However any welfare state I know of still needs to give more attention to work that is not done through the formal job market. There is movement in this direction in countries where governments provide support that allows parents to care for their own children. The alternative – to pay only for day-care that permits parents to do other market work – is hugely inefficient, ignoring the tremendous value to society of good parenting by the actual parents. (My feminist friends have a number of different points of view on this.)

In last month article, I proposed two specifically work-related types of programs that could either provide more paying jobs – a public works program; or support the essential, unpaid work that is done in homes – a basic income program. The latter could be designed to replace much of the very leaky state and federal system of safety nets now in place in the United States.

Modest amounts of support for other unpaid or volunteer activities could enable the non-profit sector to add a great deal more to the quality of life. An example is time banking, a system of exchange in which time, not money, is the currency that allows the connection to be made between unused capacities and unmet needs. Time banking systems have generally been most successful in retirement settings, where there are many human capacities with no good outlet; but Edgar Cahn, a prime inventor and mover behind such systems, has recognized that if they are to endure they require a consistent manager, who probably needs to do this as a paid job. [1]

Not everything we want to achieve can be done by just adapting existing models, but a great deal can be. Taxation is a well-known way to change prices. Those who don’t want to admit that government is or should be in the business of changing incentives will defend taxes, if at all, only as a way to raise income for the government. But whether or not we like the current regime we might as well admit the reality, and work to use taxes to bring about the results we want, rather than the results we don’t want. Constructive examples would include sumptuary or luxury taxes set high enough to help discourage status consumption [2]; and graduated income taxes that would begin at a high level and could be designed to bring the compensation of the highest paid executives into some reasonable relation to the compensation of average wages in, for example, the lowest-income 20% of the economy [3]. While we’re at it, capital gains taxes should be set at a high level, to get away from the present situation, where unearned income is taxed at a substantially lower rate than income from work. Proposals for taxes on carbon emissions are especially important in a time where the release of greenhouse gasses pose a severe threat to the future.

There are plenty of other existing government programs that could be reformed to align better with ecological realities and human well-being. Subsidies are a good example. A Grist commentary on an IMF report on global fossil fuel subsidies [4] notes that global direct subsidies that promote consumption of fossil fuels, such as below-market gasoline prices, amount to $480 billion a year, while implicit subsidies, including un-internalized externalities, may be as high as $1.9 trillion a year. These numbers dwarf the global renewable energy subsidies. Again, this exemplifies the current situation where prices are being very effectively manipulated, but since the dominant economic theory/ideology doesn’t believe this should happen, it is done without due public attention towhose values are being served in the manipulation. Even if we did not increase the degree to which prices are now skewed by government action, we could move much closer to the ideal world by shifting that effort toward the real values that need to be expressed.

Much is said about public-private partnerships. A critical area for making this work in the public interest is investment in research and in productive activities that will most benefit society while respecting nature’s limits. Suppose we were to start from a concept of restorative development: not just keeping us where we are, as in the notion of sustainability, but rebuilding the health of ecological and social systems that have been damaged over the last century. Perhaps there needs to be an academic discipline of restorative development, or some organization, similar to the IPCC, that can outline ways of identifying activities that will promote restorative development. Such activities would presumably include implementation of renewable energy, infrastructure, education and health, as well as research in all of these areas.

The price of capital – the expected return that can attract it to one place rather than another – is not the only thing that decides where it flows: the existing distribution of wealth, fashions of thought, expectations, egos, all play large parts here, as in other areas of price-setting. The Bank of North Dakota is a successful example of an alternative approach to the ownership and investment of capital. It holds state funds as well as deposits from individuals and institutions; it invests these in ways that are good for the people of the state, and that have turned out to be much more secure than the investments of strictly profit-oriented banks. [5]

On a range of scales, both much smaller and much larger than the state of North Dakota, there is a need to prioritize constructive investments. An urgent question is how to attract investment funds into these areas, and away from destructive activities. Rich Rosen at the Tellus Institute in Boston suggests using public utility commissions as models for how to better target and direct the use of new capital investment. As he has noted, the world cannot rely on traditional capital markets to properly prioritize the future need for capital among and within key industries. (Rosen, 2009) Rosen’s colleague, Paul Raskin, has described the situation we should be moving toward as one where “Publicly controlled regional and community investment banks, supported by participatory regulatory processes, recycle social savings and tax-generated capital funds. To receive funds from these banks, capital-seeking entrepreneurs must demonstrate that their projects, in addition to financial viability, promote larger social and environmental goals.” (Paul Raskin, 2012 “Scenes from the Great Transition” at http://www.thesolutionsjournal.com/node/1140) This would be good news for cooperative worker ownership systems, which have often faced difficulties in raising capital.

I have given just a few concrete examples of areas where some of the knottiest problems can be solved through conscious attention to how prices are set. These examples include:

- implementing a more well-being oriented welfare state, including, importantly, a guaranteed basic income;
- enhancing support for the non-profit organizations that help to make it possible for people to do the work needed by society;
- supporting public works programs where neither the private sector nor non-profits are able to undertake tasks that are needed by society;
- shifting taxes to be more progressive, and to discourage consumption that is bad for the environment as well as for consumers and others who are negatively affected by the composition of consumption;
- aligning government subsidies with social and environmental priorities; and
- recognizing that investment is a public good, which should prioritize sustainable well-being and restorative development.

It becomes possible to think about these options when we recognize that prices are not set by God or Nature: they are a result of human decisions. Those human decisions can be made on a strictly individual basis, in a market context, in which case the results are skewed toward the decision-makers with the most money and the most power; or else they can be made communally.

The question behind all of these questions is: Who decides? To the extent that the answer lies in the political arena, we need to figure out how to elect people whom we might trust which means getting money out of politics. Trust is a significant driver of human affairs. We should withdraw our trust from corporations that purely seek profit, to the exclusion of the social good. Markets can be an important part of many solutions, and governments are never perfect; but we should not trust the economists who tell us that markets have all the solutions. It is also important to provide for governments public scrutiny along with the support they need in order to do their work better than is at present possible for the underfunded, understaffed and demoralized public sector in the United States.

When we focus solely on the knotty issue of economic scale and growth, the problems seem virtually impossible to solve by design – we’ll just have to wait for disaster. But when we have untangled the knot, pulling on the price-theory thread and the work thread, we can begin to see the paths we must take.

Footnotes

[1] See New Economics Foundation 2008

[2] See Robert Frank, 1999, Luxury Fever. (The Free Press)

[3] This is a better approach than tying wages of management to the lowest or median salaries in their own companies, for in the latter case it is possible to manipulate the system – e.g., outsourcing low-wage jobs – to raise the company average while not actually improving workers’ income. Tying wages of management to the incomes of low earners would instead create an incentive to improve the condition of the poor.

[4] to be found at http://grist.org/climate-energy/imf-says-global-subsidies-to-fossil-fuels-amount-to-1-9-trillion-a-year-and-thats-probably-an-underestimate/ (downloaded 3/20/14)

[5] Since the success of the Bank of North Dakota in riding out the Great Recession about 20 states have introduced bills to create their own state banks.

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