Tax Reform Economic Science 301.

Posted April 4, 2014

by Jerry Alatalo

“Nature is the art of God.”

– Dante Alighieri (1265-1321)

cumberland 7Treason 3: The Temple of Doom is part 3 of a three-part documentary “Treason”. It covers various aspects of environmental issues surrounding climate change, including critical looks at “cap-and-trade” (CAT) measures meant to reduce emissions of greenhouse gases. Treason 3 begins by declaring that the Green Agenda has been hijacked; climate change has turned into a movement to make private corporations the land barons of the 21st century.

Bankers have found a way to get in on the act of carbon trading, gambling on the price of permits.

Scientist James Hansen believes that “the dirtiest trick governments play on their citizens is the pretense that they are working on clean coal“. The world’s largest coal-burners are the United Kingdom, United States, and Germany. CAT legislation was guided through the U.S. Congress by Senator Tim Wirth, legalizing a money-making scheme which became the model for European CAT – it basically takes the public air, water, and land and turns it into private property. Unfortunately it is the universal pattern. Mr. Hansen believes “CAT is a cop-out, driving the world to a dead-end, to a social and ecological disaster”.

A letter sent by the British Economic Association’s president to all member economists told them that the climate change issue is going to become very important, we have to understand it, and then we have to suggest policies that will enable us to capture this issue for our profession. Economists talked about CAT being a market-based approach, but it’s not a market at all – it’s created by legislation. CAT will create a gigantic bureaucracy. A real market approach would be a carbon tax which is very simple.

There is something worrisome coming down the highway, and that’s carbon trading. CAT is based on neoclassical economics and likely shaping up as the mainstream solution to the climate problem. Europe spent $50 billion on trading the pollution permits, the largest permit went to a German coal-burning facility, then their carbon dioxide emissions actually increased.

The global carbon market was worth US $126 billion in 2008

The second part of CAT is offsets, a supplement to CAT. Offsets allow corporations to use cleverly thought up equivalents to emissions like tree plantations in the global south, or iron filings in the ocean to absorb carbon, etc. to avoid and/or delay improvements to equipment and other measures to reduce emissions.

The global carbon trading market has become very large, the number of permits are expected to decrease, so the price of permits is expected to increase a lot. Permits now trading for 50 euros per ton of greenhouse gases are forecast to be selling for over 100 euros in 5-10 years. The income stream should be quite large – a trillion-dollar market by 2020. It will become the world’s largest commodity market and is looked upon by Wall Street and the City of London as the replacement for the giant derivatives market which resulted in the 2007-8 economic crash the world is still suffering with today.

Carbon trading is predicted to become worth $3 trillion by 2020

According to one man in the film, many people have concerns about the carbon market actually leading to a bubble similar to the property/housing bubble which had a huge effect on the crash. He finds that the problem is how people will value the assets – the commodities that are getting traded. Under the United Nations agreement known as the Kyoto Protocol, most of the offset credits, most of the carbon credits produced by offset projects under the clean development feature of Kyoto, are actually being bought every day. Not by polluters to offset their pollution, but by Wall Street firms like Goldman Sachs, Morgan Stanley, Deutsche Bank and others.

They are buying up the credits, not to deal with their own pollution problems, which aren’t nearly as serious as mining and manufacturers – they’re buying permits to gamble with them. To speculate. If they increase in value you can make money off that. If they crash or go down in value you can short them and make money from that. You can make money from volatility, when they go up and down in price, like hedge funds do.

Climate policy is being passed into the hands of Wall Street and the City of London. One of the dangers is that this will drive a bubble in carbon credits, and nobody knows about these new commodities. They have been packaged, sliced-and-diced; credits from a windmill project get combined with a plantation project with an efficiency project, securitized and so on…

It’s an extremely complex market of assets, nobody will know what they are, nobody will understand them, the price goes up and up and up until someone asks, “what are we trading in?” People lose trust and the bubble market crashes. A lot of money gets traded on Wall Street and City of London where they trade those carbon derivatives between each other, but very little carbon gets taken out of the air.

An alternative to massive bureaucracy, financially dangerous CAT/carbon trading is then illustrated. A carbon tax on gasoline of $1 per gallon would raise an estimated $670 billion per year. It would be inaccurate to call it a carbon “tax” because the $670 billion would be returned directly to citizens – around $3,000 per person. Scientist James Hansen agrees with such a “tax” to incentivize both reduction in gas usage and innovation in auto technology. Other benefits include people moving into higher miles-per-gallon vehicles, automakers’ understanding their products need higher mileage per gallon plus new hybrid/electric product development, and a more intense renewable energy consciousness, accelerating creativity for solar, wind, biomass and other green energy options.

Treason 3 then touches on Iceland and its fishing industry. International Monetary Fund established a conservation fund which apparently was a cover for speculating in the money markets. Corporations with factory-sized fishing vessels had the financial muscle to buy the fishing permits. Iceland didn’t charge enough for the full rental value of the fish. Fish quotas became a major instrument of funds for the banking industry speculators to make money. After Iceland’s banks collapsed, Icelanders realized they had to charge substantial rent to fish their coastal waters.

Narrator Fred Harrison then points out that many wars will be fought in the future over drinking water. Rivers are running dry, droughts are turning once fertile farmland into semi-deserts. Viewers learn that in California the super-rich are at the head of the pack for getting scarce water supplies.

Finally, the film asserts that those who have benefited from natural resource extraction had gotten off the hook with regard to damage done to the environment, including human beings, animals, and plants. Incentives are necessary to counteract the culture of greed and the harmful pollution that has happened, and is happening. John Perkins gives the example of Ecuador, whose new constitution just ratified gives land, forests, rivers, animals and plants inalienable rights. He sees this as a subtle, yet very important statement for Ecuadorans in their respect for the nation’s natural resources.

The woman closing the film goes one step further than Ecuador, calling for a Universal Declaration of Planetary Rights. She believes such an agreement is necessary to deal with the crisis, and has the added benefit of creating a seismic shift in consciousness.

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(Thank you to theIUorg at YouTube)

Tax Reform Economic Science 201.

Posted April 3, 2014

by Jerry Alatalo

“It is wrong to say that God made rich and poor; he made only male and female; and he gave them the Earth for their inheritance… The Earth, in its natural uncultivated state was, and ever would have continued to be, the common property of the human race.”

– Thomas Paine (1737-1809)

blogger7-1By separating people from their land, the foundations of whole communities were destroyed, setting the stage for suicide bombings in London and Madrid. Perhaps suicide bombers and desperate, unemployed young people who turn to violence are not fully understood in regard to their motivations. Exclusion of historical events where outside nations killed their ancestors to confiscate land and natural resource wealth results in an incomplete analysis of reasons “terrorists” do what they do.

This is by no means meant to present an apology for people who commit violent acts, but concern that a full look at the real reasons behind certain violent acts is necessary to find solutions that end such violence.

In this post the second of a three-part documentary – “Treason” – delves into the economic history of nations where young people have come to extents of hopelessness and disillusionment leading to outbursts of violent behavior. “Treason 2: The Crucible of Terror” gives viewers the circumstances in Pakistan, a country at the frontier of the fight against terrorism and fanatics. Until independence, Pakistan had been a colony of the British Empire. The British colonial government would grant those Pakistanis who sided with them large tracts of land or its tax-free occupation and use.

Pakistan today has one of the most highly concentrated land ownership situations on Earth. The vast amount of land there is either owned or controlled by very few people. It came as a surprise to learn that Pakistan’s army controls a large fraction of the nation’s agricultural industry and farmland. Mr. Mason Gaffney of the University of California talks about recent decisions by the Obama administration to send $7.5 billion to Pakistan to “improve living standards” for poor Pakistanis. Mr. Gaffney viewed the multi-billion dollar aid as an action that “will do nothing, and could be worse than nothing”.

He describes the aid as “taking money from poor people in rich places to subsidize rich people in poor places”. The Pakistani government, instead of reforming the nation’s tax system to raise revenue through land value taxation, has taken aid from America which will result in higher rents for most Pakistanis who hold no land of their own. This degradation of the financial well-being of Pakistan’s citizens increases the possibility that dissatisfaction will lead to violence in pushback to government decisions.

Fred Harrison, who wrote, narrated, and directed “Treason”, relays a Taliban movement which took large amounts of land from landlords that was eventually taken back when Pakistan’s military drove three million people off the land. Mr. Harrison notes that many of those people ended up in Karachi in conditions that he calls “hornets nests” of drugs, money-laundering, kidnapping, and other criminal behaviors.

Another economist is heard suggesting that debt relief and land reform are necessary to improve the lives of Pakistanis, pointing to the obvious negative consequences of highly concentrated land ownership.

The film goes back in history to look at England’s Henry the VIII, who is described as the person responsible for launching predatory capitalism some 500 years ago, and which has since infected the rest of the world. Henry the VIII grew fat off the land he took and sold to fellow aristocrats, eventually owning 50 stately homes in England. Other nations followed the model provided by him to begin their marches to other regions to take land, natural resources, etc. Portugal, Spain, France, Italy, and other countries joined the colonialism game, killing original residents along the way.

Africa is then discussed in the context of British-Dutch warring over land where diamonds were buried in the 1890’s. Britain gained the upper hand in the war by pushing over 100,000 Europeans into 47 concentration camps, where 250 people per week were dying – an estimated 20,000 people, including women and children died in the camps. Nobody knows, according to Mr. Harrison, how many Africans died in their concentration camps.

At any rate, DeBeers mining company owners paid 1/3 of the price of extracted diamonds for labor and capital, and pocketed the remaining 2/3.

Given the world’s history since Henry the VIII five centuries ago, including wealth inequality where 85 people have as much wealth as the world’s 3.5 billion lower half, it should come as no surprise that violence breaks out. Land value taxation, along with other beneficial reforms, offer humanity real options that can reduce violence and war while enhancing the lives of men, women, and children across the Earth.

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(Thank you to theIUorg at YouTube)