Land Value Taxation: True Economic Salvation For Nations?

by Jerry Alatalo

“Let no man imagine that he has no influence. Whoever he may be, and wherever he may be placed, the man who thinks becomes a light and a power.”

– HENRY GEORGE (1839-1897) American economist, single tax proponent

aaa-18Alphabet The concept of land value taxation (LVT) is largely sourced from Henry George’s 1879 book “Progress and Poverty”. American educator Henry Steele Commager said the following about George’s most famous book: “Few other American books and certainly no other economic treatise exercised a comparable influence in the world at large”.

It’s somewhat embarrassing to admit not having read “Progress and Poverty”, but Mr. Commager’s statement and very positive quotes about Henry George from historic figures Leo Tolstoy and Albert Einstein have certainly increased interest in doing so. Equally embarrassing is having to admit less-than-average awareness of perhaps the most relevant economic strategy for today that Mr. George proposed some 130 years ago: land value taxation.

Given that decades of extensive tax evasion by corporations and wealthy people, facilitated by the world’s largest accounting, legal and banking firms, has led to a worldwide combined loss of tax revenue by governments estimated at $1 trillion annually, it was exciting to learn that, since land is immovable and can’t be hidden in offshore accounts, any nation which establishes land value taxation completely eliminates tax evasion. For that one reason alone, politicians from nations around the Earth need to very seriously consider studying and implementing LVT.

Workers in any nation which begins a LVT system can expect to pay a much lower amount in taxes, perhaps eventually paying zero income taxes at all. Such a transition would clearly benefit economic conditions when most people have a significantly greater amount of money for purchases or savings. Implemented LVT systems replacing most nations’ complicated, time-consuming tax laws would be fairer, more efficient, and simplify everyone’s life to a great extent.

Having an embarrassingly low, less-than-average awareness of LVT we’ll let the rest of this post, consisting of information re-posted from websites run by men and women with much higher-than-average knowledge on land value taxation, get into more detail. Let us just say that the concept of LVT seems to have a profound potential for truly creating beneficial societal results, is a “win-win” proposition, and, even after only getting one’s toes wet, has resulted in becoming a big fan.

Let’s put it this way. If the man responsible for the idea of land value taxation – Henry George – received great respect and admiration from the giants Tolstoy and Einstein, well, isn’t that about all one needs to know? 

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Cross-posted from www.taxingqofland.org – producers of the 30-minute documentary “The Taxing Question of Land” (video below).

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Today’s blog focuses on a variety of journalists from all sides of the political spectrum who have written in favour of Land Value Tax and also considers the barriers inherent in party politics.

Simon Wilson highlights the case for LVT in Money Week

There are Left wing notions that LVT is fair and just. This is important, but what about the economic arguments?

Free-market capitalists and mainstream economists, such as the FT’s Martin Wolf and Samuel Brittan, have both argued the case in favour. Whereas left-liberals argue for land/wealth taxes on grounds of fairness and equality, free-marketeers tend to argue that the rapid accumulation of unearned property wealth over the last 15 years has made us all fat, lazy and unproductive. Tax wealth, so this theory goes, and we will be spurred into competing with fast-growing emerging markets. Right-wing libertarians also argue that wealth taxes are the least bad option because – paradoxically – they do the least to distort or depress wealth-creating economic activity.

We have here a policy that highlights the valuable elements of our political landscape. Left wingers highlight equality and fairness, while Right wingers value wealth creation and economic activity. If Land Value Tax achieves this then why is there a lack of political will to bring this forward?

Sam Brittain, of the Financial Times and an advocate of LVT, explains that party politics stands in the way of genuine reform that betters society:

Many chancellors have said that they would jump at a tax that had no disincentive effects on work or enterprise but had a strong redistributive element. The problem was that the amount of preliminary work required would take more than one parliament and any credit for the measure would redound to their successors.

If politicians really want to think about the unthinkable, as they sometimes claim, here is a place to start.

Surely it is time politics grew up or is the UK really being held hostage to the inability of our parties to be able to congratulate and thank each other for what they agree on?

It is worth highlighting exactly what we are discussing and I’ll turn to Martin Wolf, also of the Financial Times, who explains Land Value Tax in terms of infrastructure. Martin Wolf explains we should finance infrastructure costs by raising revenue from the people who benefit, the beneficiaries. In the case of infrastructure this will be landowners:

Consider a simple example. In a busy town the average house price is £300,000, of which half is the cost of building (or replacing) the house and the rest the value of the land. Some way away is an isolated village. Here the identical house costs £200,000, of which just £50,000 is the land value.

Consider what would happen if a road were built, for the first time, between the town and the village. Residents of the town would want to move to the village to take advantage of the cheap houses and the amenities. Assume, for simplicity’s sake, that the benefit of the village’s amenities to the marginal movers offsets the cost of the extra time they would spend travelling. The price of village houses must jump by £100,000.

Owners of the village housing will capture the benefit of taxpayer-funded road-building. To them this will be a massive windfall gain. In general, the rise in the price of land will account for most, if not all, of the capitalised value of the surplus of benefits over costs to users of the infrastructure.

Thus, increases in land values give not only a good indication of the benefits of infrastructure investments, but also provide an efficient and just way of financing their costs. It is efficient to tax these values because the tax would reduce the size of a windfall, while other taxes used to pay for infrastructure reduce effort, penalise the division of labour or discourage capital accumulation. It is also just, because the chief beneficiaries would bear the cost.

He goes on to discuss the benefit to local authorities:

A simple way of financing local infrastructure would then be via a tax on site values. The revenue could go, in whole or in part, to the relevant local authorities. If the latter were also deprived of the right to vary the rate, they would have an incentive to make investments that raise land values and increase their revenue.

At present, however, the lack of any easy means of raising finance is proving a huge obstacle to desirable investments. Then, when investment does take place, as with the Jubilee line, it merely pours vast windfall gains on landowners at the expense of taxpayers. The result has been a long history of inadequate investment and undue reliance on inherently damaging and unjust taxation. The UK is choking on the inadequacy of its own infrastructure. The time to make a change is now.

With thanks to Martin Wolf, this highlights another important argument of our times. How do we give power to our local authorities and give them the tools necessary to create and raise their own revenues to deliver and develop public services? The localism agenda is at the forefront of politics today, well known for the reforms in social housing over the last few years but also is at the heart of Conservative politics. Heseltine himself writes in ‘No Stone Unturned’ October 2012:

2.14 For the UK to face up to the challenge of increasing international competition, we must reverse the long trend to centralism. Every place is unique. Local leaders are best placed to understand the opportunities and obstacles to growth in their own communities. Policies that are devised holistically and locally, and which are tailored to local circumstances, are much more likely to increase the economy’s capacity for growth.

Another current discussion about land and property taxes is the mansion tax. As there has been no discussion about revaluing our properties, the Mansion tax will still be based on the outdated Council Tax valuations made in 1991. As such, money raised will be small and will still be regressive. Regressive taxes means that poor tax payers subsidies rich tax payers. While Progressive taxes mean that neither the rich nor the poor subsidise each other.

Will Hutton writing for the Guardian in March 2012 suggests that Osbourne bring in a land value tax at 0.6% on every property which would result in homeowners with homes of up to £250,000 paying less than they do now– which will create something truly progressive. He also argues the case for business rates:

The British pay council tax on property values unrevised since 1991 – with New Labour typically never finding the political courage to launch a revaluation and thus higher, unpopular council tax bills. A mansion tax is all very well, but if it is based on 1991 valuations it will hardly bring in any revenue. Instead, Mr Osborne should announce a revaluation of the country’s entire housing stock and levy a tax paid in proportion to the new valuations; council tax should be renamed as the housing services tax. To raise sufficient revenue, it would be pitched as an annual 0.6% tax on every property; as a result, homes below £250,000 would pay less tax than now, taking the political sting out of the revaluation.

He should also introduce a land value tax on business and agricultural property; the principle is that as land becomes more valuable because of its business use, so it should attract more taxation. As a partial quid pro quo, suggests Mirrlees, the chancellor should abolish both stamp duty on property transactions and business rates. Business would thus pay tax on the genuine increase in the value of the property and land it is using; home owners on the real value of the housing services they consume – and the Treasury would still be ahead.

The Institute of Fiscal Studies published the Mirrlees Review – Reforming the tax system for the 21st Century. It is well worth a read. In the conclusion we are told to consider what a good tax system should entail:

  1. We should consider the overall system – elements can be more or less green, progressive etc but The overall system should encompass all of these.
  2. Neutrality, treat similar economic activities in similar ways to make the tax system simple and transparent.
  3. Achieve progressivity as efficiently as possible

The report also highlighted 7 major flaws in the current UK tax system, number 6 is:

Taxation of land and property is inefficient and inequitable. There is a tax on business property – a produced input – but not on land, which is a source of rents. Taxation of housing involves both a transaction tax and a tax based on 20 year old valuations.

The report goes on in section 20.2.5 to talk about how to deal with business taxation. They propose replacing the current system of business rates with a land value tax.

“Business rates are not a good tax – they discriminate between different sorts of business and disincentivise development of business property.”

To read more about the benefits of the tax please turn to Chapter 16 – The Taxation of Land and Property

To summarise,

We have the words of a variety of columnists who support Land Value Tax. We can see that this issue fulfils the Left wing value of being progressive, the Right wing value of incentivising wealth creation and also the Economists value of efficiency. Surely the best tax reform policy for our nation is the one that is supported by both Right and the Left, and also by the greatest Economic minds in the country? If this is true, then what will provide the political courage?

Will we be stuck behind the immaturity of being unable to credit our political opponents with the courage to do what is best for us all? Or perhaps we are at the dawn of a new age, a mature age where we can work together to achieve what we already agree on?

I say, let us focus on what we have in common; together we can educate ourselves and raise awareness. Let us stand together and say proudly, “this is our time and together we will bring about fundamental change that will benefit us all.”

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Cross-posted from: –  ‘about’ page at www.henrygeorgefoundation.org

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The Henry George Foundation of Great Britain

Dedicated to promoting principles expounded by Henry George in the conviction that they offer the only true basis of Economic Freedom and Social Justice, and that their application will remove involuntary poverty, promote industrial and international peace, and make all other reforms easier of accomplishment, and generally contribute to the welfare of humanity.

People do not argue with the teachings of Henry George; they simply do not know it . He who becomes acquainted with it cannot but agree.
Count Leo Tolstoy

Men like Henry George are rare, unfortunately. One cannot imagine a more beautiful combination of intellectual keenness, artistic form and fervent love of justice. Every line is written as if for our generation.
Albert Einstein

The Foundation was established in January 1929, to administer a Trust Fund for spreading a wider knowledge of the social and economic teaching of Henry George as set forth in his books – Progress and Poverty, Social Problems, Protection or Free Trade, The Condition of Labour, A Perplexed Philosopher, The Science of Political Economy and other writings.

The motive for establishing and maintaining the Foundation is the conviction that the principles expounded by Henry George offer the only true basis of Economic Freedom and Social Justice, and that their application will remove involuntary poverty, promote industrial and international peace, and make all other reforms easier of accomplishment, and generally contribute to the welfare of humanity.

The Foundation supports educational courses, meetings, research, and publications directed at promoting a better understanding of George’s ideas and developing them to address the economic issues of the day. Details of our current programme may be found on the web site and by leaflets available at 11 Mandeville Place, WIJ 3AJ or by telephone: 0800 048 8537.

Our main publication is the journal Land & Liberty which has chronicled world events for over 100 years and aims to explore how our common wealth should be used – and to demonstrate that this is the key to building the bridge of sustainability between private life, the public sector and our resources – between the individual, the community and the environment. It aims to put the laws of nature and people at the heart of economics. Land & Liberty is made available free of charge to anybody who registers interest with us on this web site where you can also read recent articles and the latest edition of Land & Liberty.

The Foundation depends upon the voluntary efforts of members, supporters and friends to provide the publications and services we offer and active participation is always welcome.

For more context, perceptions on Land Value Taxation, see the following in-depth article by LVT advocate Fred Harrison:

http://www.sharetherents.org/thesis/mortal-taxes-life-liberty/

(Thank you to TaxingQofLand at YouTube)

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GOP Senators’ Plan Ends Capital Gains Taxes: ‘Good For The Economy’?

Cross-posted from, thank you to:  www.jacobinmag.com

(Comment: In response to the proposal by U.S. Senators Rubio and Lee to eliminate capital gains taxes completely, how about zeroing out taxes on the first $50,000 of income, and taxing capital gains at the same rate as wages? Wouldn’t the effect on the economy be more positive than Rubio and Lee’s plan, because those with incomes up to $50,000 are more inclined to spend it into the economy, rather than bank money like those who enjoy large capital gains – exacerbating an already record high level of wealth inequality?)

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The Next Great Treasury Raid

A new proposal to eliminate capital gains taxes would realize a dream the Right has had for decades.

Sen. Barry Goldwater accepts the Republican presidential nomination in San Francisco on July 16, 1964.

Sen. Barry Goldwater accepts the Republican presidential nomination in San Francisco on July 16, 1964

The latest craze in conservative circles is to see who can heap the most praise on the tax reform plan that Republican Senators Mike Lee and Marco Rubio released earlier this month.

Bloomberg’s Ramesh Ponnuru called it “the most pro-growth tax reform since Calvin Coolidge’s presidency.” Veronique de Rugy gushed in the National Review that “it’s just about impossible not to be happy with the plan.” The Mercatus Center’s Scott Sumner even went so far as to argue that, if enacted, the Lee-Rubio plan would “easily be the best thing the Federal government has done since the civil rights laws of the 1960s.” And they were far from alone in their enthusiasm.

Insofar as those on the Right quibble with the plan at all, they object to the so-called “reformocon” elements of the proposal, like the increases in the child tax credit and the maintenance of graduated income tax rates (instead of flat rates or a national consumption tax).

Why such conservative love for Lee-Rubio? As de Rugy put it, the plan packages a variety of ideas that “the free-market movement has highlighted for years.” Lee-Rubio is the culmination of more than four decades of conservative assault on the taxation of capital income.

Though they’ve never wholly escaped taxation, throughout the history of modern federal tax policy capital gains have usually been taxed at lower rates than labor income. In the decades after World War II, however, many policymakers and tax experts viewed the capital gains preference as a flaw, rather than a virtue, of the federal tax code. When they spoke of capital gains tax “reform,” most meant eliminating this special privilege and instead taxing capital income at the same rates as ordinary income.

By the early 1970s, most mainstream political forces agreed that addressing the capital gains loophole had to be part of any significant revision of the federal tax code. President Nixon’s undersecretary of the treasury, Edwin S. Cohen, called the preferential treatment of capital gains “undoubtedly the single most important source of complexity in the law.” Philip Stern — the author of The Great Treasury Raid, a 1963 bestselling loophole exposé — spoke for many on the Left when he called the capital gains preference “the greatest single cause of both inequity and complexity in the American tax system.”

The Treasury Department put hard numbers behind these objections when it began publishing estimates of the federal tax expenditure budget in the early 1970s. This data demonstrated that the capital gains preference not only accounted for the single greatest revenue loss among all tax loopholes, but that it was the rich who reaped its benefits, with more than half of all capital gains accruing to those making more than $100,000 per year in 1972 (more than $550,000 in today’s dollars).

With the Treasury hemorrhaging revenue, the rich escaping taxation, and tax accountants expending needless energy devising complex schemes to convert their clients’ earned income into capital gains, few objective experts seemed to support the capital gains preference anymore. Harvard tax economist Richard Musgrave summarized the conventional wisdom of the early 1970s when he told Congress that there were “no valid grounds” for continuing to tax capital gains at lower rates than earned income.

When George McGovern challenged Nixon in the 1972 presidential election, he ran on an anti-capital gains preference platform, declaring, “money made by money should be taxed at the same rate as money made by men.” McGovern also linked the issue of tax loopholes to rising economic inequality, calling unapologetically for “redistribution of income” by closing federal tax loopholes and lowering taxes — not only at the federal, but also state and local levels — for low- and middle-income taxpayers.

Despite McGovern’s sweeping loss to Nixon, both Nixon’s internal polls and public surveys showed that tax reform was the only issue on which McGovern consistently bested Nixon, a fact pollster Louis Harris called “remarkable.”

Indeed, the erosion of the progressive federal income tax, combined with steep increases in regressive state and local taxes, had squeezed the pocketbooks of most Americans and stoked public resentment at the loophole-filled tax code. By the early 1970s, two-thirds of Americans agreed that the “tax laws were written to help the rich and not the average man.” As a result, many in the press predicted that the capital gains preference would meet its end by the mid-1970s.

But the rising consensus around eliminating the capital gains preference elicited a sharp backlash from the Right. This pushback fit within a larger movement in the 1970s by business and the Right to reassert their strength in politics, perhaps best exemplified by Lewis Powell’s famous memo, “Attack on American Free Enterprise System.”

Business, Powell argued, needed to “launch a counter-attack” against those on the Left who criticized pro-business provisions like loopholes. General Electric CEO Reginald Jones agreed, arguing in the Harvard Business Review that “antibusiness attitudes” were “rotting out the very foundations of our economy.” What the Right needed to do, Jones said, was challenge not only proposed hikes in capital gains taxation, but also the existing “discriminatory tax treatment” of capital income.

Newly founded or reinvigorated right-leaning, corporate-funded groups like the Heritage Foundation, Business Roundtable, the Cato Institute, and American Council for Capital Formation, among others, now called for cuts to — or the elimination of — capital gains taxes.

While reducing the taxation of capital income would disproportionately benefit the wealthy individuals funding these foundations — such as Richard Mellon Scaife, John Olin, Joseph Coors, and David and Charles Koch — proselytizers for the tax cuts cast them as both indirectly beneficial for average Americans and morally just.

By encouraging “capital formation” with capital gains cuts, those on the Right argued, inflation would fall, employment would rise, and prosperity would flow down the income ladder, benefitting the “poor as well as the rich, and labor as well as management,” as the Chamber of Commerce’s Walker Winter put it in 1973. The American Council of Capital Formation portrayed the idea of taxing capital income as an attack on the “American Dream” itself.

The upper-income taxpayers who received capital gains were not beneficiaries of loopholes, conservatives argued, but were instead victims of oppressive tax rates and inflation. Just weeks after being sworn in as chair of President Gerald Ford’s Council of Economics Advisers, Alan Greenspan elicited boos and catcalls from a crowd of grassroots groups when he argued that “Wall Street brokers” were “really hurt the most” by inflation — an assertion contradicted by a Joint Economic Committee study that had been released earlier that year.

These anti-tax conservatives finally found their political opening when California voters approved Proposition 13 in 1978. Prop 13 cut taxes on the only significant capital most Americans owned — their homes. However, many Republicans and right-leaning activists portrayed Prop 13 as a call for cuts to all taxes on capital.

Crisscrossing the country aboard a plane dubbed the “Tax Clipper,” Republicans from Greenspan to Ronald Reagan pitched a previously moribund capital gains tax–slashing bill authored by Wisconsin Rep. William Steiger. In speeches, Reagan argued that the Steiger bill, like Prop 13, embodied the public’s demand for low taxes and economic growth. A capital gains cut, Reagan added, would actually raise revenue, thanks to its stimulating effect.

Many, from Ralph Nader to the AFL-CIO, opposed the Steiger bill, and President Carter initially criticized it as “huge tax windfalls for millionaires and two bits for the average American.” However, rhetorically linking the Steiger proposal to Prop 13 proved to be a stroke of political genius by conservatives. Democrats quickly folded, giving the bill overwhelming majorities in the House and Senate and leaving Carter to reluctantly sign the bill.

This 1978 victory proved to be a watershed for anti-capital gains tax proponents. Mark Bloomfield, the current president of the American Council for Capital Formation, proudly displays in his K Street Office a comic book-style cartoon depicting the ACCF’s role in the passage of the Steiger bill. Indeed, with the temporary exception of the Tax Reform Act of 1986 — a compromise that taxed capital gains at the same rate as ordinary income in exchange for slashing the top income tax rate from 50 percent to 28 percent — the notion that capital gains deserve special tax treatment has rarely gone unchallenged.

Today, aside from Vermont Sen. Bernie Sanders, few policymakers advocate the older definition of capital gains “tax reform” — taxing gains the same as ordinary income. At most, some Democrats, like President Obama, support modest increases in capital gains rates.

The case for the old definition of reform remains strong, however. It has wide support among left-leaning economists like Paul Krugman, and numerous studies, both governmental and academic, have questioned whether low taxes on capital income either lead to significant job growth or bring about income gains that trickle down to low- and middle-income Americans.

In contrast, cuts to capital gains taxes undoubtedly have helped drive rising income inequality. Since the 1970s, capital income has become more concentrated. The top quintile of households now receive 90 percent of all capital gains and dividends, with the top one percent alone collecting nearly 70 percent.

Both the Congressional Budget Office and the Congressional Research Service have documented the outsized role that capital income has played in the soaring inequality evident in recent US history. Over the past decade, as the CBO put it, capital gains “accounted for about four-fifths of the total increase in [income] concentration.” The Right, however, remains undeterred in its push for zero capital gains taxes.

The Lee-Rubio proposal is the culmination of anti-capital gains tax arguments honed by conservatives since the 1970s. Echoing the “capital formation” claims of that decade, Lee and Rubio have touted their plan as eliminating the “bias against capital investment,” while the business-backed Tax Foundation has predicted that Lee-Rubio would super-charge growth and even pay for itself in the long run, despite the fact that more traditional estimates have found that it will cost the government trillions of dollars over the next decade.

What is certain, though, is that Lee-Rubio will tilt its benefits toward the richest taxpayers, just like the 1978 Steiger bill did. If it became law, Lee-Rubio would eliminate taxes on capital gains for the first time in the history of the modern US tax code. This would be not only a sweeping conservative policy victory, but also a redefinition the very meaning of “tax reform.”

The tides haven’t turned against taxing capital because there’s overwhelming evidence of its fairness or efficacy, but because the Right has gained more political power. The task for the Left is to organize to revive the older vision of “reform” as ending the preferential treatment of capital gains, shifting political power away from the wealthy and making at least some inroads against income inequality.

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Congress’ Sellout Of The American People.

Posted on December 16, 2014

by Jerry Alatalo

(Originally posted on counterpunch.org – An article written by Norman Pollack)

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keyboard7

December 15, 2014

Political Counterrevolution

Gluttony of American Finance

by NORMAN POLLACK

Query: Can you have a counterrevolution without a revolution? In logic, perhaps not; in America, now illustrated by the pending $1.1tr Appropriations legislation, emphatically yes. The pressure is on, and to focus exclusively on Republican opportunism (lateness, threat of government shutdown, blackmail) is to misread and misjudge the wider forces at work: the financialization of American capitalism, Democratic party’s equal complicity in serving and advancing banking interests, the ever-Rightward progression of the political-ideological spectrum on bipartisan lines, and, in this case, confirmation of the acceleration of ruling groups’ dominance as if a one-way street. Yes, the crippling of Dodd-Frank by again freeing-up derivatives trading, government obligingly backing-up this species of big-time gambling with depositors’ monies through bailout-guarantees should the bets turn south.

But that is not new, the replay of 2008 only a replay given the (again) bipartisan desire to serve as the House—how envious Las Vegas must be—in this gambling enterprise. Not new: Clinton had already set about dismantling Glass-Steagall in the mid-90s by bringing to power at Treasury, Council of Economic Advisers, direct legislation, etc., the Rubin-Sommers crowd of regulatory dismantlers, leaving, under liberal auspices, the banking system easy prey to the megabanks circling the wagons. Republicans today are merely validating and completing the work of Wall Street’s enhanced power in world politics and its role in the domestic economy, i.e., the larger policy-context, which affects the fusion of militarism and capitalism in America. Nothing is left to chance. I say this, not as one enamored with conspiracy theory but only following out the trends, as in the decisions promoting intervention, confrontation, hegemonic claims to unilateral global supremacy.

Not coincidentally, the new Appropriations legislation devotes practically one half ($490B) to defense, no cutting there—in contrast to the skilled paring down of the social safety net. But why should it be any different, when this perhaps-new stage of capitalism is intended to place finance capitalism itself on a permanent war and/or expansionist footing? Go back with me ten decades, to Rudolph Hilferding’s Das Finanzkapital (1910) to see the direction we are heading (or have already arrived), a dangerous or qualitative jump in capitalist development carrying with it militaristic prospects and consequences, and the regimentation—“soft” or “hard,” manipulation and a taste of the goodies as so many crumbs from the table, or, now, into a twilight zone, massive surveillance, the conjuring of a universal/ubiquitous Enemy, The Terrorist, necessitating the National Security State—of the American people. The US has been hatching this structure at least since the time of Hilferding, with Red Scares and Palmer Raids, to McCarthyism, to the NSA assault on civil liberties—curiously, in these cases mostly under Democratic administrations.

So, briefly, here is Hilferding for some guidance (and my guidance to him, largely via Paul Sweezy’s The Theory of Capitalist Development) in understanding today’s events, a good starting point being how the role of imperialism and militarism, in superseding and partially destroying laissez faire, paved the way for finance capitalism, which, more than the industrial phase of capitalism, fosters underconsumption and widening class differentials (where, I think, we’re presently at!). Internal controversies among Marxian economists of World War I vintage, on the importance of underconsumption and falling rate of profit, are too arcane for me to follow, but I see Hilferding recognizing the expansibility of capitalism in its financial form—monopoly and militarism its natural accompaniment. (This conclusion, vouchsafed in practice, doesn’t take a Marxist to figure out; the American leadership and power system have acted on the assumption of militarism and monopoly as the sine qua non of American capitalist development for at least a half-century plus.)

Hence, no automatic breakdown theory of capitalism, which I take to be the motivating factors, with the structure of consolidation in place, for imperialism and militarism—the system will not dissolve of its own (Hilferding, the Social Democrat, giving unintended credence to the necessity of revolution). The US not having the foggiest notion about such fine points of Marxian disputation, we see the system nonetheless at work on the course of permanent counterrevolution (a Reactive societal formation, even from Day One—Louis Hartz, The Liberal Tradition in America, on the taking-over of Lockean philosophy, remarked, America was born mature, it did not have to make itself so), attempting permanent capitalist expansion at whatever cost.

Consolidation, in the rise of the modern corporation as the groundwork for industrial capitalism, had within itself the next phase, finance capitalism, in which all the chicanery comes bursting out as the entrepreneur becomes divorced from production and devotes his being to profits, influence, deals, short-cuts, phony stock issuance—why blame Bernie Madoff as an exemplar of the falsification of a political economy transitioning from industrial to financial concentration, when his type has been around for years? Penetration of markets, of course, but financial jugglery, pyramiding international financial controls and schemes through American-led organizations, not all at once, not in the 1920s, nor Bretton Woods, but now, IMF, World Bank, a match in heaven for US capitalism (even the outsourcing of US manufacturing to remove some clutter), or more specifically, Morgan Chase et. al.

“Promoters profits” is Hilferding’s generic case, to be elaborated, amplified, twisted to bring us to where we presently are. “Market controls” sounds better, but even that may be gradually lost from sight as sheer manipulation of the financial system becomes an end in itself—my reference to gluttony. Profits in the old-fashioned way through production, why bother, especially when the American political system is at the beck and call of the Goldman boys, Jamie, Bank of America, all leading the charge for scrapping the safeguards to derivatives trading, such as they are, in Dodd-Frank. I think we can leave Hilferding here (I have barely gotten started, still less having done him justice), but we have a beautiful illustration before us, this very moment, of finance capitalism run amuck, Obama, for one, greasing the way. Don’t make the mistake of structural determinists (Hilferding didn’t), capitalists and their lackeys—how else characterize Obama and all but a few Democrats, Republicans, it goes without saying, the few opposing the legislation on extraneous rather than principled grounds—have actively to continue the progression of business/banking favoritism, not sit back and let it just happen.

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I begin with Ed O’Keefe’s Washington Post article, “House passes $1.1 trillion spending bill,” (Dec. 12), the 219-206 vote coming hours before government shutdown. By now, we’re familiar with the details, my concern, the clash between Pelosi and some House Democrats against Obama, his cowardice and treachery revealed for all to see. When a procedural motion to begin debate was finally passed, it was Obama, Biden, and White House officials, in “a concerted lobbying effort,” who “helped secure enough support” for that to happen, he promising to sign the legislation if passed. A cave-in of the first water, except that Obama was already in Wall Street’s pocket. Pelosi rightly charged blackmail (government shutdown) and in words bespeaking her finest hour (there have been few such indeed), she said: “’I’m enormously disappointed that the White House feels that the only way they can get a bill is to go along with this [the this being rescinding Dodd-Frank safeguards on trading derivatives].”

Democrats were unhappy. Obama & Co. did the arm twisting to support the bill: “In addition to Obama and Biden, Jeffrey Zients, chairman of Obama’s National Economic Council, and Shaun Donovan, the White House budget director, phoned wavering Democrats. So did Democratic members of the Senate Appropriations Committee [Barbara Mikulski, its chair, and Christopher Coons].” Denis McDonough, White House chief of staff, also pushed hard, “an in-person plea for support during a closed-door meeting in the basement of the U.S. Capitol on Thursday night [night of passage].” Throw in the drastic loosening of allowable campaign donations—and the Obama record is dismal, to me, par for the course for him. 139 Democrats voted against the bill, 59 in favor, including minority whip Steny Hoyer. To give House Democrats backbone, Elizabeth Warren made a courageous speech in the Senate the day before, to which James Moran House Democrat (Va.) resorted to old-school red-baiting: “’That’s what you do when you run for president. You get out front knowing that there are a whole lot of people who are not going to let anyone get to the left of them.’” So much for Democratic party progressivism.

But Obama and Co., and fellow Senate Democrats, are not the only callers. Steven Mufson and Tom Hamburger’s Washington Post Workblog article, “Jamie Dimon himself called to urge support for the derivatives rule in the spending bill,” (Dec. 12), in its heading says it all:

Democrats, especially Congress freshmen, are either so weak or so opportunistic, in either case, slobbering over wealth and standing in awe of the major bankers—the revolving door perhaps beckoning—as to go over lock, stock, and the people’s barrel to Big Finance. One suspects that a call from Dimon would be sufficient, Obama hardly mattering where one’s bread is buttered. The reporters write: The acrimony between Obama and his party “largely pivoted on a single item in a 1,600-page piece of legislation to keep the government funded: Should banks be allowed to make risky investments using taxpayer-backed money?” Bad enough, an attack on a key provision of Dodd-Frank, but, they say, “even more outrageous to Democrats was that the language in the bill appeared to come directly from the pens of lobbyists at the nation’s biggest banks, aides said. The provision was so important to the profits [we tend to neglect how much, for the banks, is riding on this–mine] at those companies that J.P. Morgan’s chief executive Jamie Dimon himself telephoned individual lawmakers to urge them to vote for it, according to a person familiar with the effort.”

Josh Earnest, Obama spokesman, stated, “’The president is pleased,’” and that he doesn’t like “’a specific provision in this omnibus that would be related to watering down one provision of the Wall Street reform law,’” still, “’on balance, [he] does believe that this compromise proposal is worthy of his support.’” Anyone attuned to the special language of Washington knows that “compromise,” far from signifying shame is used to proclaim Victory, as though much had been gotten in its place. Fortunately, Mufson-Hamburger see through the phony rationale: “But ‘that provision’ isn’t just any provision. It’s one that goes to the heart of the Dodd Frank reform because it would let big banks undertake risky activities with funds guaranteed by the federal government and, hence taxpayers.” Pelosi, recognizing what was at stake (now, FDIC protection for the riskiest investments, whereas Dodd-Frank ordered them, credit default swaps and all, into separate entities, outside that protection), superbly noted in her speech: “’[The amendment went] back to the same old Republican formula: privatize the gain, nationalize the risk. You succeed, it’s in your pocket. You fail, the taxpayer pays the bill.’” Irrefutable logic, except to the bankers (or perhaps they fully know the score, and therefore go on the offensive).

The American Banking Association (ABA), in the person of James Ballentine, its executive vice president of congressional relations and political affairs, has all the answers. Setting up separate entities “’to engage in derivatives and commodities trading isn’t practical.’” Besides, it limits banks’ ability to extend credit to their clients. Most telling, and heart-rending, “’[Setting up separate affiliates] makes one stop shopping impossible for businesses ranging from family farms to energy companies that want to hedge against commodity price changes.’” Let’s give Simon Johnson of MIT the last word in this account. Why the change? “’It is because there is a lot of money at stake. They want to be able to take big risks where they get the upside and the taxpayer gets the potential downside.’” Johnson is no flaming radical. He is former chief economist of the IMF and professor at the MIT Sloan School of Management.

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Not surprisingly, banks were active in pressing for this revision of Dodd-Frank for some time. I haven’t mentioned Citigroup yet. Here it is important to go back to May 2013, Eric Lipton and Ben Protess’s New York Times article, “Banks’ Lobbyists Help in Drafting Financial Bills,” (May 23), as the preparatory ground for what lies ahead in the Appropriations bill now moving to the Senate, and with Obama’s blessing (along with that of Harry Reid, in stark contrast to Pelosi) certain passage. We think of legislation as the creation of legislators—silly us. Lipton-Protess write: “Bank lobbyists are not leaving it to lawmakers to draft legislation that softens financial regulations. Instead, the lobbyists are helping to write it themselves.” Citigroup authored “one bill that sailed through” House Financial Services which “would exempt broad swathes of trades from new regulation.” Its recommendations “were reflected in more than 70 lines of the House Committee’s 85-line bill…. Two crucial paragraphs… were copied nearly word for word.” Not bad for an independent Congress, immune to regulatory crash.

This is on Obama’s watch, and the reporters can state matter-of-factly, “The lobbying campaign shows how, three years after Congress passed the most comprehensive overhaul of regulation since the Depression, Wall Street is finding Washington a friendlier place. The cordial relations now include a growing number of Democrats in both the House and the Senate, whose support the banks need if they want to rollback parts of [Dodd-Frank].” I confess to giving little credence to campaign contributions in explaining legislative behavior—yet here it is, and I’m reminded of V.L. Parrington’s description of the Great Barbeque after the Civil War. Lipton-Protess: “And as its lobbying campaign steps up, the financial industry has doubled its already considerable giving to political causes. The lawmakers who this month supported the bills championed by Wall Street received twice as much in contributions from financial institutions compared with those who opposed them…. In recent weeks, Wall Street groups also held fund-raisers for lawmakers who co-sponsored the bills. At one dinner.., corporate executives and lobbyists paid up to $2,500 to dine in a private room of a Greek restaurant just blocks from the Capitol with Representative Sean Patrick Maloney, Democrat of New York, a co-sponsor of the bill championed by Citigroup.”

Oh, the soul-searching on conflicts of interest. Jim Himes, third-term [at time of writing] Democratic congressman from Connecticut, head of the party’s fund-raising in the House, member of the Financial Services Committee, former Goldman banker, and “one of the top recipients of Wall Street donations,” said, no doubt anguished, “’I won’t dispute for one second the problems of a system that demands immense amount of fund-raisers by its legislators. It’s appalling, it’s disgusting, it’s wasteful and it opens the possibility of conflicts of interest and corruption. IT’S UNFORTUNATELY THE WORLD WE LIVE IN [my caps.].’” In a nutshell, the Democratic slogan for rationalizing everything from gutting Dodd-Frank to armed drone assassination to massive surveillance to confrontation with Russia and China, the present instance of banker favoritism part of the same fabric justifying intervention, militarism, imperialism—again, on Obama’s watch (building on predecessors, but also intensifying policies in critical areas). It is as though Wall Street recognizes that it’s easier to work through Democrats, who afford an appearance of liberalism and reform in pushing the whole Reactionary agenda. (This of course tells us something about liberalism and reform—completely perverted since the New Deal, if not earlier.)

Jonathan Weisman’s NYT article, “Furor Over Move to Aid Big Banks in Funding Bill,” (Dec.12), adds little to the discussion, but he does have a good point made by Simon Johnson on the repeal of the Dodd-Frank derivatives provision: “Mr. Johnson said the evocation of family farms and mom-and-pop banks [referring to the Ballentine quote above] was specious. The four largest banks conduct more than 93 percent of all derivatives trading in the United States. The repeal push is for them, he said.” And finally we have fellow Times reporters Ashley Parker and Robert Pear’s article, “House Narrowly Passes Bill to Avoid Shutdown; $1.1 Trillion in Spending,” (Dec. 12), which makes clear Obama’s support and that of much of the party. Steve Israel, NY Democratic congressman, however, echoed Pelosi’s criticism: “’This bill is a one-two punch at middle-class voters. It weakens financial regulation on big banks and rewards Congress for doing so by increasing campaign donation limits of big donors. This is exactly why middle-class voters have a contempt of Congress.’” I am not comfortable with the middle-class designation to describe opposition, working class, working poor, minorities, all seem more pertinent. But in a storm of counterrevolution one takes what one can get—even an Elizabeth Warren candidacy (riding the wave of that designation), even though her foreign policy still needs to be smoked out.

My New York Times Comment on the Parker-Pear article, same date, follows:

For Democrats, a Night of Infamy. The party deserves to go down the tubes: cowardly, attuned to Wall Street, supportive of war and intervention, difficult to distinguish from Republicans.
Pelosi’s shining hour, her first courageous stand after years of accommodation to the Right. Hopefully, the Pelosi-Obama split will widen, the few progressives left in the country now alerted to the Obama Treachery, from Barack Wall Street Obama to Barrack Drone Assassination Obama is only a baby step.

Let the US One-Party phenomenon continue. With Republicans in control and a miniscule, feckless opposition, we should see Corporatism-Militarism so far in the ascendance as to be described in a single word: to wit, fascism.

Wealth is in the saddle. Derivatives are back. Hatred toward the world (Obama already has increased tensions with China and Russia) now to be expressed without restraint. We’ll see demonstrable social change within a decade, an irreversible trend toward global warming, increased military spending, heightened wealth concentration, all of which have been in progress for decades.

Perhaps the only good thing about the present fiasco is the exposure of Obama as a fake, and the Democratic party as UNWORTHY of its past. FDR is turning in his grave at Hyde Park.

Norman Pollack has written on Populism. His interests are social theory and the structural analysis of capitalism and fascism.

Straight Talk From President Sanders.

Posted on December 14, 2014

by Jerry Alatalo

ocean55Alphabet Vermont/U.S. Senator Bernie Sanders said during a recent interview on a FOX business show that he was thinking about running for President of the United States in 2016. Perhaps one is putting the “cart before the horse” in referring to him as President Sanders at this stage, but then again there’s the other cliché about being “careful what you wish for”.

During her introduction of Senator Sanders before the brief FOX interview, FOX’s female host referred to him as being in the “far, far left” of the political spectrum. The senator responded to that characterization by noting that each of his twelve points for action for America are perceived positively by a large majority of the people. One could observe that, since the political mix in the United States Congress has shifted so far to the right on the spectrum, that Mr. Sanders is actually center left – now the “new” extreme among today’s politicians in Washington, D.C.

Bernie Sanders and Elizabeth Warren both opposed Citigroup’s own preferred language in the trillion-dollar omnibus spending bill provision that leaves taxpayers on the hook when the largest Wall Street megabanks mega-gamble and mega-lose mega-dollars in high risk derivatives trading. On the other hand, neither have taken a “far, far left” stand in the case of Israel-Palestine, in other words going so far as to call for a Palestinian State like Sweden, Britain, Spain, and France have done recently, joining many other nations around the world.

If members of the U.S. government were actually “far, far left” on the spectrum, they would have denounced Israel as a terrorist state as the Bolivian government did after the Israeli massacre of over 2,100 Palestinians in Gaza over the summer, instead of going along with a virtual unanimous vote to continue sending arms and economic aid to Israel of some $3 billion/year.

Given that John F. Kennedy, Robert F. Kennedy, Martin Luther King, Paul Wellstone and other leaders died by assassination for their political, economic, and societal views, it is possible that today’s politicians are painfully aware of the extreme negative consequences for being a person in the public limelight espousing certain “taboo” positions which threaten the status-quo interests of the world’s most powerful.

Other issues where today’s Washington politicians dare not go are in the areas of monetary reform/public banking, a real investigation of the events on September 11, 2001, taking on in a powerful way the decades-old – enabled by the world’s largest banking and accounting firms – trillion-dollar/year tax haven industry, prosecution of high level politicians for financial, war, torture, and/or other crimes, plus others.

So, Bernie Sanders and Elizabeth Warren are not members of the “far, far left” branch of the political spectrum, but are two people among others now holding elected positions in Washington, D.C. who have exhibited integrity and morality to some extent and spoken to issues which are important for the American people. Bernie Sanders speaks to the, what he considers, overly large amounts in the nation’s spending going to the military. After Dwight Eisenhower articulately warned of the misplaced power and disproportionate influence of the military industrial complex in his farewell address, one could reasonably think that all 535 of America’s elected officials in Congress would speak out as well, so Mr. Sanders’ concern here is nothing really extraordinary.

When he speaks critically about the middle class disappearing and the extreme wealth/income inequality in the U.S., he touches upon an issue that has persisted for decades, so there is nothing new or special there. If memory serves, a book written around the year 1970 titled “The Rich and the Super Rich” by an author whose name escapes, described how many years ago powerful Hollywood producer Louis B. Meyer somehow ended up the only person in the entire nation whose situation pertained to a single-line provision in the tax code – so Citigroup’s self-written provision placing American taxpayers on the hook for extremely high risk swaps/derivatives betting inserted into the omnibus bill is nothing surprising.

What is truly astonishing is that – in particular referring to the Citigroup renewed taxpayer liability language in the bill; the provision which has the most potential by far to severely damage the economy and living conditions of Americans, perhaps to an even more profound, multiplied extent than 2008 – all 535 elected men and women in Congress were not unanimously opposed.

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(Thank you to Bernie Sanders at YouTube)