What Steps Should the New Administration Take to Improve Economic Performance?

Tyler Cowen:

The Mood Always Matters, So Restore Confidence First, by Tyler Cowen, Commentary, NY Times: ...President-elect Barack Obama faces the very important task of restoring confidence in our nation’s economy. ... Rebuilding confidence might seem a small matter, but it is not. ... Americans are not used to losing and Americans are not used to panic. ...

Very bad events can cause a panic..., which translates into subsequent bad decisions. For a classic example of a negative policy dynamic, look at 9/11. The United States lost 3,000 lives and a great deal of wealth and confidence. The government then took actions, most of all the Iraq war, which led to even greater losses.

We are in danger of getting stuck in another negative dynamic, but this time in the realm of economics. We might follow up the financial crisis with some worse responses and policies. ...

The notion of a downward spiral of ideas and events is not unprecedented. Starting in the early part of the 20th century, the West experienced one awful event after another, including a world war, a flu pandemic and a major depression. The response was a global spread of totalitarian ideas, a loss of confidence in democracy and capitalism and, eventually, another war.

While today’s world is far from this point, there is a small chance that we will move in an unstable and worsening direction. Steering away from it should be a priority for the next president. ... We need to avoid overreaction at the same time we need to return to feeling in control.

Robert Shiller:

The Real Mandate Is to Bridge the Wealth Gap, by Robert J. Shiller, Commentary, NY Times: The new president will have a clear mandate to redress economic inequality. During the campaign, John McCain made sure that voters clearly heard Barack Obama say “spread the wealth around,” and they elected him anyway.

Indeed, there has been a significant, decades-long trend toward greater inequality that needs to be corrected. ... The best way to battle gratuitous inequality is to make our financial institutions better embody the true principles of risk management. ...

Traditional mutual funds and retirement saving plans, as well as insurance plans for loss of one’s home due to fire or flood, or of one’s income due to disability, are actually risk management vehicles that help reduce inequality. The new president’s important mission should be to broaden these plans. ...

[T]hree areas of action that would democratize finance — make it work better for the people — and help prevent future crises. We must improve the information infrastructure, encourage broader and more robust risk markets, and develop better retail financial products. ...

A fourth and more radical step would be to index the tax system to income inequality. The system would automatically become more progressive if inequality became more acute. ...

In short, the best thing that President-elect Obama can do is to set up permanent new structures to harness the innovations of finance to improve people’s lives on Main Street. ...

Greg Mankiw:

It’s a Time to Listen, and to Obey the Laws of Arithmetic, by N. Gregory Mankiw, Commentary, NY Times: It was a good campaign, and a historic victory. As the president-elect gets ready for new responsibilities, here are four ways to become a reliable steward of the economy:

LISTEN TO THE ECONOMISTS...

EMBRACE SOME REPUBLICAN IDEAS...

PAY ATTENTION TO BUDGET CONSTRAINTS...

RECOGNIZE PAST MISTAKES...

Alan Blinder:

Remember That Capitalism Is More Than a Spectator Sport, by Alan S. Blinder, Commentary, NY Times: Among the daunting set of tasks ahead for the president-elect, perhaps the most basic is to restore a sense of fairness to and faith in our economic system — much as Franklin D. Roosevelt did in the 1930s.

For too many years, too many Americans watched helplessly as ... top dogs prospered, and their national government either sat by passively or intervened to help the “haves.” No wonder trust in the system ... has been destroyed.

An economy isn’t supposed to work that way. ... So the new president’s most fundamental job is to restore the people’s confidence that the economy will perform — for them. ...

Barack Obama will have to begin with the troubled Troubled Asset Relief Program... [which is] in danger of becoming the most unpopular use of public money in the history of the republic...

If it’s not already too late, the new president must convince Americans that the bailout is being managed for their benefit, not for Wall Street’s. ... Quick changes in the bailout program ... are necessary. ...

Next up, after reforming the bailout plan, is the Economic Recovery Act of 2009... Regarding objectives, I’d suggest sticking to two: creating jobs by creating new spending, and alleviating the misery that accompanies deep recessions. ...

These ... programs are often referred to as the “social safety net,” and America’s is in tatters. But we need both repairs and a new metaphor. Lyndon B. Johnson had it right when he called upon the government to provide a “hand up, not a handout.” The Obama administration should seek to create a new “social trampoline” that not only catches people when they fall, but also propels them back into productive employment. ...

Robert Frank:

Just What This Downturn Demands: A Consumption Tax, by Robert Frank, Commentary, NY Times: ...[W]ith the country sliding into what promises to be a sharp and protracted economic downturn, it is imperative to increase spending over the short run, regardless of how we pay for it. ...

In the long run, though, it will be necessary to raise enough tax revenue to balance the budget. One of the most effective ways to do that is by changing what we tax. ...

The first reform that Barack Obama should consider is replacing the progressive income tax with a progressive tax on consumption. ...

Such a tax could raise more revenue than the current system, yet would be far less burdensome for families at nearly all income levels. Because of the large standard deduction, middle-income families would pay less..., and high-income consumers could limit their tax increases by saving more. ...

Other changes in what we tax could further reduce the revenue shortfall while producing positive side effects. Energy and climate specialists, for example, have long advocated taxes on carbon. ...

Imposing new taxes is never easy. ... To overcome this hurdle, Congress could vote to increase future taxes — a strategy that happily coincides with current fiscal imperatives. ... Higher taxes could be phased in gradually, after income growth resumes. As long as each year’s tax increase is smaller than the corresponding growth in income, painful reductions in consumption will not be necessary. ...

Comments

[fusion]

A consumption tax is a terrible idea, at least for those of us who had to endure income taxes while setting aside sufficient savings for retirement. A consumption rather than an income tax would have saved us a vast amount. Now that we can live off our portfolios, our spending would be taxed? Hardly seems fair.

[calmo]

fusion, no grasshopper but a life-long ant, wants no part of this new consumption tax.
But none of those carefree grasshoppers did anything but dance and drink away their savings.
So they will need to be supported now by the more thrifty, the more prudent, the more taxable...the not-so-fun ants.
That and/or indentured service...the funster grasshoppers as aphids.

[Too Much Fed]

1) MORE currency/income for the lower and middle class AND LESS DEBT

2) "“spread the wealth around,” The question is how. How about getting rid of cheap labor free trade agreements, end illegal immigration, and limit legal immigration. In other words, do it by tightening the labor market EVEN IF it raises interest rates.

3) "high-income consumers could limit their tax increases by saving more." Like paulson needs to save more money. That's part of the problem. People like him want to recycle their savings into producing debt to get richer and richer. How about a special BIG tax for people making 5 million or more a year?

4) Greg Mankiw "EMBRACE SOME REPUBLICAN IDEAS"

OK. Outsource Mankiw's job!!!!!

[Too Much Fed]

greg mankiw "RECOGNIZE PAST MISTAKES..."

That would be just about everything mankiw and greenspan believe in!

[Too Much Fed]

"A fourth and more radical step would be to index the tax system to income inequality. The system would automatically become more progressive if inequality became more acute. ... "

Good! Let mccain sell a couple of his houses if he has to!

[a]

I think an interview by Shiller is a little more interesting.

Shiller: "Ultimately I think economic forecasting is more guess work than people realize. In times when you don't have a fundamental change, you can exrapolate curves, and people do that pretty well. But right now I don't trust extrapolation."

"No one really knows what to do to make banks lending again."

"In 2003 Bernanke expressed a great deal of confidence that that kind of monetary policy [spending money on long-term bonds, etc. to forestall deflation] will work, but it's a little bit unknown." A little bit! Hardy har har.

[a]

Sorry, I got that from Calculated Risk:

http://calculatedrisk.blogspot.com/2008/11/shiller-worst-times-ahead.html

[a]

"How about a special BIG tax for people making 5 million or more a year?"

If you want BIG money, you'll need a wealth tax, not an income tax.

[calmo]

I confess to sharing *Too Much Fed's* view of Professor Mankiw and glad I don't have to bother now.
I like Shiller here (and largely because of his work on housing --the conspicuous element in this debacle), mostly.
But I am distracted mightily by Blinder's headline which seems to capture the current economic and political state of the country/globe and the coming transition ("the steep climb" as Obama narrates it) as the country is weaned from a 70% consumption based GDP. I don't like his following text as much, you?

[mmckinl]

We need a progressive tax on interest, dividends and capital gains for individuals. The guy that gets a couple of a hundred bucks selling some stock pays the same capital gains rate that CEOs and Hedge Fund Managers do.

Some consumption taxes are good ... A tax on oil to keep the price rising gradually over time to pay for infrastructure and lure more alternative energy investment would be appropriate. The same goes for a carbon tax. These taxes could be phased in over time so that everyone would know that they were coming and make the adjustments.

We need to close loopholes while simplifying the tax code. A simple format would be that no deductions are allowed unless specifically authorized by the tax code. There are over 12,000 companies in a small building in the Caymans. This tax shopping has got to stop.

David Cay Johnston has two excellent books out on the tax code :Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense and Stick You With The Bill, about hidden subsidies, rigged markets, and corporate socialism. It follows his earlier book Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich--and Cheat Everybody Else, a New York Times bestseller.[1] wiki

Senator Byron Dorgan has one as well : Take This Job and Ship It: How Corporate Greed and Brain-Dead Politics Are Selling Out America Thomas Dunne Books (July 25, 2006)

[hari]

MT is trying to avoid the obvious by selecting a few who sort of espouse some of his own convictions on the way forward.

Like all post-industrial (OECD) countries, America will inevitably follow what we call *social democracy* or *social market economy* in which society at large (finally) accepts responsibility for its weakest links and does all within its power to reinforce their capacity to manage a minimum-economic existence based on national average.

So it will go with American capitalism - a la long!

[Lafayette]

Extraordinary times merit extraordinary means.

NYT (9 Nov.): Mr. Obama’s transition advisers studied how past presidents used their first months and concluded that even if various agencies moved forward in many directions, a new chief executive must husband his time, energy and political capital for three dominant priorities at most. Several Obama advisers cited Reagan, who concentrated his early efforts on tax cuts and military spending.

There are things he can do and things he can’t do.

He can come up with an economic rescue package, that includes spending, but that will increase the debt. He can’t repay the national debt. So what? Extraordinary times require extraordinary means.

Debt holders will want the US to maintain the debt, not just repay it. To do so, the US Treasury revenues must be bolstered by a better economy. For that to be provoked, more debt is absolutely necessary. (NB: When has any developed country EVER repaid its debt? Country debt is a good investment!)

Part of that economic rescue package, nonetheless, should be how to pay for it. And, increasing the debt that all Americans must pay through taxation means, in a linear fashion, the rich should pay more of it. So, increasing marginal income tax becomes necessary -- to levels it was before Reckless Ronnie cut it off at gut-level from 84% down to 50% and since reduced to 39.6% (see here).

It should be increased to 95%, where it was during WW2, and the threshold starts at 1 MegaBuck. Extraordinary times merit extraordinary means. Once we are out of the mess, it could be reduced to 85%. (But, only an upper-level cap at 100% will prevent the Golden Boys from going for the Golden Ring of commissions that bring in hundreds of MegaBucks.)

More importantly, loop-holes should be closed to obtain some “real revenue”.

Shiller: The best way to battle gratuitous inequality is to make our financial institutions better embody the true principles of risk management

Yes, that’s one way. And, this month, Europe is coming knocking on the door wanting to know what Global Financial System is necessary for the New Millennium. Risk Management is top on their lists – especially the whacko incentive salaries earned that induces traders to use borrowed money to speculate. Or, rating agencies to employ fraud in noting Toxic Waste as triple-A debt.

Uncle Sam is the main culprit in the Great Credit Mechanism Freeze of 2008, which we will be talking about for decades to come. It will take Uncle Same some death-defying somersaults to regain the confidence he once had amongst his principal economic partners.

So, what are the “true principles of risk management”? Frankly, prudence is one of them. I suggest that the high marginal income tax rate mentioned above - one that takes the sex out of speculation - is just such a principle. Wall Street’s Golden Boys will do well enough with a low six-figure salary.

Just do it. The results on Wall Street will speak for themselves. And the world will be a safer place to live in.

[bakho]

Restoring confidence means restoring jobs. Restoring jobs at this juncture will require economic transformation. What to do about the auto industry. A short term commitment to making high efficiency cars would help, but longer term, autos are not an expanding sector of the economy.

[baileyman]

This is all on the economy, but there are justice items to deal with, too. War crimes or constitutional crimes, with a few bad guys in the dock, confidence in justice would feedback to confidence in the rules of our economy.

[baileyman]

A grievous omission is Peter Bernstein take in the same NYT section.

http://www.nytimes.com/2008/11/09/business/09bernstein.html?ref=business

[Beezer]

Tax, spend, inflate, deflate. We've still got that oh so sticky property bubble to unwind. What would happen if the government, by fiat, demanded that all property debt be reduced by some percentage? Say 25%, for starters.

[yamada]

We must first remind of the cause of this financial crises. It's the specific price of a asset(real estate) that nosedived. The depreciation of the asset inflicts the balance sheet of quite a few economic entities, mostly through derivatives. So the government and the central bank must provide an implement that enables to reconstruct each balance sheet, without bolstering specific assets's price.
The following "Yamada Model" include the debt forgiveness to the debtor, which may be morally unacceptable. But as far as it is executed under the rule, it should be permitted. We must also take it into mind that debtors, who cannnot repay their entire debt, which include the bubble portion, are in a sense not responsible.

"Yamada Model" is as follows:

Why not make use of FRB’s profit generated by their printing dollars? In this model, it won’t cause inflation. In this model, the printed dollars won’t be withdrawn, because each economic unit(including bank) legally forced to write-off next economic unit that they hold credit.

Bubble is caused by peoples’ expectation that the price of asset(real estate) will soar in future, with pouring high-powered money to the asset side of economic units’ balance-sheet. So, to solve this problem, such asset bubble on economic units’ balance-sheet must get ridden of, by the new system as below. Though it may be seen contradictory, high-powered money enables to work this new system. Please remember, no one has ever invented the solution in history.

1. Every economic unit’s(including banks) assets that caused the bubble(real estate or CDO et al) on balance sheet should be evaluated on mark to market basis by the authorization of a third party(maybe auditor), which brings about some insolvent(i.e. debt section surpasses asset section on balance sheet) economic units.
2. FRB decide to write off a certain amount of the loans to the banks, which amount distributed to each bank according to the amount of each banks’ insolvency, calculated on 1.
3. Every bank that gets profit from written off should next enforced to, by using the profit from written off as original fund, write off its loans to its each debtor, according to the amount of insolvency of each debtor. If the bank is unable to use all the written off profit it earned, the remainder is taxed all.
4. Other economic unit that gets profit from the written off by the bank should next enforced to, by using the profit from the written off as original fund, write off it’s loan(or trade claim) to its each debtor, according to the amount of insolvency of each debtor. If the economic unit is unable to use all profit it earned, the remainder is taxed all. These processes are to be repeated operationally.
5. In consequence, the bubble portion of the targeted asset is extracted from the economy, and is transformed to tax.
6. The tax claims is finally assigned to FRB. It’s up to FRB how they dispose of their above claims, considering the situation of economy, of each bank and of each economic unit. Talking about the latter two, as a option the FRB should examine the possibility of the bank’s and economic units’ turnaround, together with the other creditors, remaining desirable debt to the bank’s and economic unit(empirically it's ten to fifteen times annual earnings before interest, taxes, depreciation and amortization, known as EBITDA, of the economic unit), writing off the rest debt, with taking into account the value of disposable collateral(that do not accrue earnings), of guarantor and of consolidated basis.
7. Every write off must be supervised and tracable by centralized function of the system. So every write off must be executed through this function. Every write off may be done through this function, which exist on internet for access.
8. For cross-border. For each non-residential economic unit, the amount of write off should also be calculated in the same way as 4. , on the only cause from specific asset depreciation in the resident country. Economic unit that will be written off should next write off in the same booked currency. In case profit of the written off exists on the non-residential economic units, it's taxed and absorbed by the foreign(=non-residential) government and handed over to the sovereign(=residential) government of the currency, based on treaty.
9. In case inflation expectation exists, the system enables FRB to on one hand raise benchmark rate to cope with inflation expectation, on the other hand restructuring the balance sheets of economic units.
10. FRB should carefully watch the rate of the number of insolvent economic units to the number of all economic units in the US, when deciding the amount of the loans(trade claim) written off on 2.
11. FRB print greenbacks(which bring about profit) correspond to the write-offs, which return to FRB as tax claim, so these greenbacks could be stored to the safe in FRB forever.

For further details, please see the blog as below:

http://reversewealtheffect.blogspot.com/

[hari]

G-20 officials are meeting this weekend in Rio de Janero, Brazil, under Da Silva, President, and his opening statement on behalf of BRICS was crystal clear - more transparency in international finance and regulatory oversite/controlm + overall of IMF infrastructure to deal with such crisis.

US is represented by a under-secretary of Treasury with apparently no authority to make policy remarks.

BTW Bernake/Fed and Zellik/IBRD are present at the Rio meeting.

By 14-15 Nov-> G-20 dinner at WH/followed next day by a plenary session will sort out the mist surrounding the way forward on Bretton Woods II. Bush/Paulson will be confronted with a joint EU-27 mandate under Sarkosy.

[I've the doc here but don't know how to post it]

[hari]

China unveiled a huge stimulus plan of $586 Billion today to basically stimulate domestic demand, according to CB.

Knowledgeable experts are discussing the impact of *zero* interest rates possibly in UK and may be also ECB.

This is a new ball game for policy makers, me thinks.

Monetary policy manifestly will have little or no traction in this recession going forward next 18mths or more.

[groucho]

What Steps Should the New Administration Take to Improve Economic Performance?

Real simple, abolish existing legal tender laws. If the founding fathers were alive today that would be their #1 recommendation.

With today's technology, citizens money/mutual credit systems are a no-brainer. "Unemployment" for all except the disabled goes immediately to zero, since there are ALWAYS needs and wants not being met in society. The present money/credit political system has to maintain a "citizens check" through unemployment to put a lid on income demand and keep it's seigniorage business alive. In a private money system YOUR value as a producer ALWAYS clears the market.

Govt then becomes the servant of the people...it's really that simple.

[robertdfeinman]

The next change we can believe in is a change at the NY Times. Their dependence on the same stable of pundits who keep repeating the conventional wisdom (from both sides) and distributing it via the dying dead tree technology is telling.

What is needed is for new voices to be heard, I'm sure they are out there. Not only are the ideas the same old, same old, but the entire business section is insular and ignores the fact that the most dynamic development ideas are occurring elsewhere in the world. Notice that not a single voice from the new wave of business magnates is to be found.

They might have gotten a hint that this current crisis is not a US only problem, and that Obama isn't going to be able to solve it on his own, from recent international developments, however, the Times' management remains myopic to the end.

[Hank Roberts]

Herman Daly delivered the keynote address to the American Meteorological Society’s workshop on Federal Climate Policy. The text is reproduced there in full.
http://www.climatepolicy.org/?p=65

Economists who don't understand ecology don't understand this.
More should. The change in the world has changed what's happening.

Climate Policy: from “know how” to “do now”
Herman E. Daly

"... As we transform natural capital into manmade capital the former becomes more scarce and the latter more abundant—an inversion of the traditional pattern of scarcity. This inversion is furthered by the fact that manmade capital is often private property while natural capital frequently is an open-access commons.

In the empty world economy the limiting factor was manmade capital; in the full world it is remaining natural capital. For example, the annual fish catch used to be limited by the number of fishing boats; now it is limited by the remaining stocks of fish in the ocean and their capacity to reproduce. Barrels of petroleum extracted used to be limited by drilling rigs and pumps; now it is limited by remaining deposits in the ground, or alternatively by capacity of the atmosphere to absorb the products of its combustion. There seems to be a race between peak oil and global warming, between source and sink limits—but both are natural capital so for my point it does not matter which proves more limiting. Economic logic stays the same—it says invest in and economize on the limiting factor. But the identity of the limiting factor has changed, and we have not adapted. We continue to invest in manmade capital rather than in restoration of natural capital. This further depletes natural capital and eventually drives down the value of complementary manmade capital, while spewing external costs all over the place....
...
if we go for “frugality first” (i.e. sustainable level first) as our direct policy variable (for example, a carbon tax, or a cap-auction-trade system) then we will get “efficiency second” as an adaptation to more expensive carbon fuels. “Frugality first gives efficiency second, not vice versa” should be the first design principle for energy and climate policy. Efficiency is an adaptation to scarcity that makes it less painful; it is not the abolition of scarcity, the so-called “win-win” solution beloved by politicians.

The second thing wrong with our misleading question is its assumption that we need to maintain current growth rates in GDP. There is a lot of evidence that GDP growth at the current margin in the US is in fact uneconomic growth—that is, growth that increases social and environmental costs faster than it increases production benefits, growth that accumulates “illth” faster than it accumulates wealth. I know that there is still poverty in the world and that GDP growth in some countries is still economic—all the more reason to stop uneconomic growth and free up resources and ecological space for truly economic growth by the poor! That should be the second design principle.

You will not find the term “uneconomic growth” in the index of any economics textbook...."

[Larry]

The most important missing piece at the moment is a credible narrative about what to do. Someone needs to figure out and then get the leaders to say "if we do this, we'll be fine". Otherwise, all they can do is put out fires and try to soothe us with words.

Here's a thought: Enact a refundable tax credit for 2009 for paying down your mortgage early. Maybe $20,000? Phase it out for higher income earners. Reduce the long-term damage to the budget by making the homeowner repay the credit over the life of the mortgage or when the home sells, possibly even charging some interest. It would of course be unbelievably expensive, but consider these advantages:

- puts a lot of underwater mortgages back above water
- demonstrates government's commitment to individuals rather than corporations
- avoids deciding which homeowner is worthy of a bailout
- avoids the unbelievable complexity of unwinding/rewinding syndication structures, 2nd mortgages, equity lines, etc.
- puts help where it's needed, in the housing market.
- puts money in the financial system
- doesn't help speculators
- long-term, doesn't hurt the budget (much)
- same effect as the government giving a mortgage, but without the administrative overhead of appraisal, creditworthiness assessment, title search, etc.

@fusion - "A consumption tax is a terrible idea, at least for those of us who had to endure income taxes while setting aside sufficient savings for retirement. A consumption rather than an income tax would have saved us a vast amount. Now that we can live off our portfolios, our spending would be taxed? Hardly seems fair."

You're being taxed on your income now. Frank wants to dump the income tax in favor of the consumption tax. "Progressive" means that there's a deductible, and that rates increase along with consumption, so high-livers would pay a higher rate.

@a - "No one really knows what to do to make banks lending again."

It's about confidence. The first step it to put together a story that makes sense and that predicts something that then happens, other than Armageddon.

"If you want BIG money, you'll need a wealth tax, not an income tax."

A wealth tax is a one-time thing. It doesn't get the economy back on keel. If you keep taxing wealth, pretty soon there isn't any left. Then how do you create jobs?

@mmckinl - "We need a progressive tax on interest, dividends and capital gains"

There aren't any capital gains this year! And if you pump up tax rates, there won't be any next year. Frank's proposal has the effect of switching from taxing incomes which are very volatile at the high end where most of the income tax revenue comes from to taxing much more stable consumption.

"Some consumption taxes are good ... A tax on oil to keep the price rising gradually over time to pay for infrastructure and lure more alternative energy investment would be appropriate."

Raising oil/carbon taxes at the same time that you're spending 50B to bail out Detroit seems a bit contradictory.

@Laff - "It should be increased to 95%, where it was during WW2, and the threshold starts at 1 MegaBuck."

The economy on average has done better with low rates than with high ones. We're in trouble now, but not because of deficits.

"Uncle Sam is the main culprit in the Great Credit Mechanism Freeze of 2008, which we will be talking about for decades to come. It will take Uncle Same some death-defying somersaults to regain the confidence he once had amongst his principal economic partners."

That's not born out by the price of the $, which is the most straightforward way to measure the world's confidence on US policy. The world is voting with its money, and it isn't voting for "social market" economics.

@bakho - "A short term commitment to making high efficiency cars would help"

Detroit loses money on every one. How does losing money help?

@hari - "China unveiled a huge stimulus plan of $586 Billion today to basically stimulate domestic demand, according to CB."

I'm sure this is in response to my call for the rest of the world to "go shopping" and I think it is critical to rebalancing the global economy. The world's willingness to lend and our willingness to borrow kept the party going for a long time. Now we need a new balance...

Hank Roberts - "if we go for “frugality first” (i.e. sustainable level first) as our direct policy variable (for example, a carbon tax, or a cap-auction-trade system) then we will get “efficiency second” as an adaptation to more expensive carbon fuels. “Frugality first gives efficiency second, not vice versa” should be the first design principle for energy and climate policy. Efficiency is an adaptation to scarcity that makes it less painful; it is not the abolition of scarcity, the so-called “win-win” solution beloved by politicians."

How do we keep everybody working? What do they produce? We're talking about billions of people!

[Peter Whiteford]

I think that practical and effective steps to address inequality are of crucial importance for the US. For example, see http://www.oecd.org/dataoecd/47/2/41528678.pdf

"The United States is the country with the highest inequality level and poverty rate across the OECD, Mexico and Turkey excepted. Since 2000, income inequality has increased rapidly, continuing a long-term trend that goes back to the 1970s. Income inequality and poverty continue to increase, especially since 2000.

 Rich households in America have been leaving both middle and poorer income groups behind. This has happened in many countries, but nowhere has this trend been so stark as in the United States. The average income of the richest 10% is US$93,000 US$ in purchasing power parities, the highest level in the OECD. However, the poorest 10% of the US citizens have an income of US$5,800 US$ per year – about 20% lower than the average for OECD countries.

 The distribution of earnings widened by 20% since the mid-1980s which is more than in most other OECD countries. This is the main reason for widening inequality in America.

 Redistribution of income by government plays a relatively minor role in the United States. Only in Korea is the effect smaller. This is partly because the level of spending on social benefits such as unemployment benefits and family benefits is low – equivalent to just 9% of household incomes, while the OECD average is 22%. The effectiveness of taxes and transfers in reducing inequality has fallen still further in the past 10 years.

 Child poverty – that is, children in a household with less than half the median income – has fallen since 1985, from 25% to 20% but poverty rates among the elderly increased from 20 to 23%. Both of these trends are in the opposite direction to those of the other countries in the OECD.

 Social mobility is lower in the United States than in other countries like Denmark, Sweden and Australia. Children of poor parents are less likely to become rich than children of rich parents.

 Wealth is distributed much more unequally than income: the top 1% control some 25-33% of total net worth and the top 10% hold 71%. For comparison, the top 10% have 28% of total income."

Looking at the full study - http://www.oecd.org/document/53/0,3343,en_2649_33933_41460917_1_1_1_1,00.html#COUNTRY_NOTES - what is obvious is that for the past 30 years, the US - and Canada to a lesser extent -have been the only OECD countries, where real earnings have fallen for a substantial proportion of wage earners below the median.

The rise in earnings of the top 1% of earners is a fairly common pattern, but the US has been more extreme than most.

Put another way, the rise in prosperity before the current crisis may have been higher on average in the US than in a lot of other countries, but the distribution of gains has meant that many households have not shared in rising wellbeing except through increasing their work effort, including becoming two-earner families, or possibly by borrowing beyond their means.

One of the most striking findings of the study is that in 2005, the US had the most progressive system of direct taxes in the OECD - not only the most progressive but the most redistributive. But as noted in the quote above, the US has one of the least effective set of spending programmes in the OECD, mainly due to low levels of spending, but also due to declining progressivity in spending, probably in part because social objectives have been increasingly pursued through the tax system (the EITC, child tax credit etc).

I interpret this as meaning that the solution to reducing inequality is not in simply increasing the progressivity of the income tax system, although obviously that is part of one possible set of solutions. Rather, a broadening of the tax base - including a broad-based consumption tax - even if that is less progressive than current taxes - can be helpful if the money raised is spent on progressive programmes, both strenghtening safety net mechanisms in the short-run and improving education and training and infrastructure in the long-run. The challenge is to make households and voters see that increased taxes have produced things that make them better-off at roughly the same time.

Increasing the minimum wage also seems important. In this context, it is worth noting that the UK and Australia have unemployment rates below the USA and employment to population ratios that are about the same or higher, even though their statutory minimum wages are close to twice as high as the US relative to the median wage.

[Massimo GIANNINI]

Maybe there are too many cooks and too many recipes. Yet, "The philosophers have only interpreted the world, in various ways; the point is to change it (Karl Marx (1845), Theses on Feuerbach (Thesis XI)). This is to say that now we have to be more pragmatic and pay more attention to practical activities to change the world and way of thinking. We do not have to interpret according to ideas, but to interpret ideas according to material practice. The latter needs a radical change because we cannot continue to bail out banks and businesses (for instances automotive) while putting together fiscal stimulus based on borrowing.
Let's put priorities and make more and better cost-benefits analysis e.g.:
a) Invest in high-yielding sectors. For instance green energy while saving on defense
b) Tax speculation and financial short-termism by revamping the Tobin Tax at world level. It's a fact that financial institutions have not allocated money efficiently with due regard of risk/return ratios.
c) Take care of climate change adopting the polluter pays approach and tax accordingly;
d) Get on board with Europe on all the above to bring more peace and stability around the world.

[Too Much Fed]

yamada says... "We must first remind of the cause of this financial crises."

Yes.

"It's the specific price of a asset(real estate) that nosedived."

No, it is TOO MUCH DEBT that in this case went into housing prices AND NEGATIVE REAL EARNINGS GROWTH that convinced people the only to get a better standard of living was to invest/speculate in housing.

The housing bubble was only a symptom.

[Too Much Fed]

EDIT: only WAY to ...

[groucho]

"How do we keep everybody working? What do they produce? We're talking about billions of people!"

Larry, I think you skipped my post or you don't understand the ramifications to citizen created money/credit.

As you point out their are "billions of people". Now don't you think with billions of people it's really not that hard to find someone or group that may want what any specific person might have to offer?

Any two entities can create money and credit. I supply you with a good or service. The information of that transaction is money. I created it by producing something in demand. You purchase my good or service, you just created credit, an IOU that says you promise to do something of value in the future.

With today's technology keeping track of who created what and who owes a future production is easily reconciled.

The state had their chance to provide an honest, fair and equitable distribution monetary system. They failed massively. It is up to private citizens to take matters into their own hands and create the means to supply each other with the goods and services they rightfully deserve in a fair and honest manner.

This is far easier than almost anyone can now imagine. The burden of interest on debt backed money will soon be relegated to the dustbin of history.

[FDR]

So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance. In every dark hour of our national life a leadership of frankness and vigor has met with that understanding and support of the people themselves which is essential to victory. I am convinced that you will again give that support to leadership in these critical days.

In such a spirit on my part and on yours we face our common difficulties. They concern, thank God, only material things. Values have shrunken to fantastic levels; taxes have risen; our ability to pay has fallen; government of all kinds is faced by serious curtailment of income; the means of exchange are frozen in the currents of trade; the withered leaves of industrial enterprise lie on every side; farmers find no markets for their produce; the savings of many years in thousands of families are gone.

More important, a host of unemployed citizens face the grim problem of existence, and an equally great number toil with little return. Only a foolish optimist can deny the dark realities of the moment.

Yet our distress comes from no failure of substance. We are stricken by no plague of locusts. Compared with the perils which our forefathers conquered because they believed and were not afraid, we have still much to be thankful for. Nature still offers her bounty and human efforts have multiplied it. Plenty is at our doorstep, but a generous use of it languishes in the very sight of the supply. Primarily this is because the rulers of the exchange of mankind’s goods have failed, through their own stubbornness and their own incompetence, have admitted their failure, and abdicated. Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men.

True they have tried, but their efforts have been cast in the pattern of an outworn tradition. Faced by failure of credit they have proposed only the lending of more money. Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence. They know only the rules of a generation of self-seekers. They have no vision, and when there is no vision the people perish.

The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit.

Happiness lies not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort. The joy and moral stimulation of work no longer must be forgotten in the mad chase of evanescent profits. These dark days will be worth all they cost us if they teach us that our true destiny is not to be ministered unto but to minister to ourselves and to our fellow men.

[Larry]

@Peter - "the rise in prosperity before the current crisis may have been higher on average in the US than in a lot of other countries, but the distribution of gains has meant that many households have not shared in rising wellbeing except through increasing their work effort, including becoming two-earner families, or possibly by borrowing beyond their means."

Isn't alot of this because of the explosive rise in health care costs? They have truly become the "giant sucking sound" that has stripped government and individuals of the marginal resources to do anything else, like live better.

"the US has one of the least effective set of spending programmes in the OECD, mainly due to low levels of spending", but also due to declining progressivity in spending, probably in part because social objectives have been increasingly pursued through the tax system (the EITC, child tax credit etc)."

What's the problem with using tax credits to do things? It's true that we don't count the refundable/welfare/redistributive part of that as income, nor do your numbers include any of the tax expenditure as "spending". The counting rules significantly distort both comparisons.

"Rather, a broadening of the tax base - including a broad-based consumption tax - even if that is less progressive than current taxes - can be helpful if the money raised is spent on progressive programmes, both strenghtening safety net mechanisms in the short-run and improving education and training and infrastructure in the long-run."

Broadening the base means less progressive, almost by definition. Consumption taxes, however, can be as progressive as we want them to be. As above, I like the idea.

"The challenge is to make households and voters see that increased taxes have produced things that make them better-off at roughly the same time."

Now you know why taxes are relatively low.

"Increasing the minimum wage also seems important."

In a time of declining employment, this seems demented. Hiring is done at the margin...

More generally, another cause of inequality is that our educational levels flatlined 30 years ago, while the rest of the world made enormous gains. Our relative loss of competitiveness explains a lot of flattening of wages. It's also true that immigration at the bottom has torn a hole in the bottom of the wage distribution. These new workers compete directly for entry-level and low-skill jobs, lowering wages all around. Ironically, immigrants are reducing the pain of the recession, because many of them are the first-fired, and return home rather than collect unemployment.

@groucho - "Now don't you think with billions of people it's really not that hard to find someone or group that may want what any specific person might have to offer?"

At the offered price, it can be quite difficult. Such imbalances are why we have recessions. Needless to say, this is not a propitious moment for alternative currencies. Such ideas were tried during the early years of the great depression, but quickly faded, in part because it was difficult to build and sustain confidence in their value.

[dd]

Obama must utter and emphasize the two most feared words in law, economics and finance: Fiduciary Responsibility.
Those words are the key to the solution and when he begins to utter them with great vigor, the world will change.

[calmo]

Well dd, I'm practicin already.
"Fiduciary" especially...we don't want to get swamped by some little thing like "nuclear" right at the start, do we?

I'll be able to kiss snakes by the end of the day, I'm sure of it.

"with great vigor" izatall? no bulging eyes? no elevated eye brows even? no gnashing of teeth?

Ok, my lips are numb after 10 reps. I leave the world changin to real action heroes lips.

[calmo]

I hereby appoint myself as Press Secretary for bakho and apologize for missing his entry (5:23am) where he belts it out of the park: Restoring confidence means restoring jobs.Blunt and prescient. Come back here in a month and see if it ain't so. Recall peewee tyro banker Walsh tried "liquidity means confidence" aiming for the Nobel maybe.
Put your feet on the ground with bakho and know where this is going.

[Lafayette]

Yamada, I'm long-winded in my posts.

But, I concede to you the Performance Oscar for Blowin' in the wind ...

[calmo]

Yammy, I believe, Laffy, has this other common characteristic (unarguable feature....not bug) that he shares with you: English is not his first or only language.

We could all refer to ken melvin and see if we can't get out of our Cadillacs and barefoot it, yes?

[Lafayette]

cal: ... see if we can't get out of our Cadillacs and barefoot it, yes?

OK by me. First, I gotta git me a Caddy.

Can't find no one to buy my '61 Beetle ... ;^)

[groucho]

Alternative currencies are springing up all over. The current financial collapse will only supercharge the trend. The WIR bank has been around for over 70yrs, through thick or thin.

"If you live in the Bavarian region of Chiemgau, you can exist for months at a time in a euro-free zone of hills and lakes with a population of half a million people. Restaurants, bakeries, hairdressers and a network of supermarkets will accept the local currency: the Chiemgauer.

Notes are exchanged freely like legal tender. You can even use a debit card. Petrol stations are still a problem, but biofuel outlets are signing up. Dentists are next.

The Chiemgauer is one of 16 regional currencies that have sprung into existence across Germany and Austria since the launch of the euro five years ago.

Another 49 regios are in the pipeline. They are outside the control of the political authorities, mostly run by activists, farmers, eco-enthusiasts, anti-globalists, and citizen committees.

Some are rural, others circulate like underground money in Berlin and Bremen. Hamburg has two: the Alto and the Hansemark. Italy has its version in the Valchius Valley, in the Alps.

The phenomenon, not seen since the Great Depression, has left experts scratching heads at the Bundesbank. The mighty reserve bank, which issues euro notes and coins worth €146bn for a third of the eurozone economy, is relaxed about the risk of monetary anarchy. But it is sufficiently puzzled to publish a 63-page report probing the eruption of this movement.

Entitled "Regional Currencies in Germany, Local Competition for the Euro?", it concludes that the tiny scale of this bizarre Schwundgeld - scrip, or specie - poses no threat to the orderly management of the euro system.

The rise of the regios dates exactly from the abolition of the D-Mark, replaced in turn by a stateless technocrat currency ever further removed from local life.

A pure coincidence, said Prof Gerhard Rösl, author of the Bundesbank paper. "The assumption that this springs from a general scepticism towards the euro is not valid."

Rather, the movement is a rejection of "capitalist globalism", pushed by idealists fighting to save regional cultures. The currencies are "luxury" scrip that flourish most in areas with the lowest unemployment. They offer users a "prestige gain" in their neighbourhoods, and a glow of good feeling.

School teacher Christian Gelleri launched the Chiemgauer, with the help of pupils, as an experiment in January 2003 at a rate of 1:1 against the euro.

Four years later, it spans two districts and is accepted by 550 shops, firms, and companies, including eight supermarkets and four co-operative banks. It has 40 issuing offices, and usage is expanding by 70pc a year. Monthly turnover is still a miniscule €135,000 (£88,000) - or rather C135,000.

"People have taken to it because it is a way of supporting good causes," said Mr Gelleri.

The Chiemgauer is designed to lose 2pc of its value every quarter, generating a profit for the issuing body as shops claim back the euros. Some 60pc of the profit is used for local charities, sports clubs, kindergartens and such.

Shops accepting the money take a loss of up to 5pc, akin to interchange fees paid when credit cards are used. "Merchants pay the cost, but they go along because they don't want to lose business," said Mr Gelleri.

The idea stems from the century-old writings of Silvio Gesell, a German economist who believed that interest and rent charged on capital is pernicious. He argued that usury aggravated economic downturns because the wealthy began to horde cash.

Austria's Tyrolean community of Wörgl launched a scheme based on his theories, in 1932, reputed to have slashed unemployment at the height of the Depression. It was watched by Keynes and Irving Fisher, who saw a fast-depreciating currency as a possible answer to the 1930s "liquidity trap".

"I came to the idea by studying Keynes and Fisher, but for us it is more a way to build regional strength. We're not enemies of Europe," said Mr Gelleri.

The Wörgl experiment was declared illegal by Austria's central bank when a further 200 other communities launched copycat currencies, threatening the authority of the state. Though article 35 of the Bundesbank's founding law forbids the circulation of "quasi-currencies", the experiments are being treated as a harmless eccentricity.

However, they are a remarkable expression of people power, and a subtle threat to the established order. Would they be sprouting with so much energy if the Germans still had the D-Mark in their pockets? One suspects not."

[anne]

http://www.telegraph.co.uk/finance/2802861/Germans-get-by-without-the-euro.html

January 18, 2007

Germans get by without the euro: There will soon be 65 regional currencies in operation alongside the EU's, but the financial authorities are not worried yet
By Ambrose Evans-Pritchard

[References make a difference.]

[Lafayette]

groucho: Another 49 regios are in the pipeline

And they would all collapse tomorrow were there no real money, namely the Euro.

It is amusing to witness a weird German bent for marginalization. Just like blocking trains carrying treated atomic fuel, another refusal to face reality.

There are New Age Peter Pans throughout Germany in collective denial, mostly on the Left admittedly. Maybe it's due to the long days without much sunlight?

Go figure.

[BJ Feng]

The currency is designed to lose 2% of its value OVER the inflation loss already embedded in the Euro, plus merchants have to lose up to 5% in exchange costs yet interest and rent charged on capital is unfair? Are these people taking LSD?

Only on acid would something so senseless make perfect sense.

There should be some distrust over fiat currency, especially when trillions are being pumped into the world's economy. Of course this isn't fair to those who aren't able to access those trillions, or borrow at the low interest central banks make available to their favored enterprises.

I've seen a rise in gold and silver acquisition for savings purposes recently. It's the only money that doesn't depend on someone else's promise to pay or guarantee. Supply is strictly limited to mine production and can't be increased easily. I wonder when some of these niche currencies will collapse due to corruption and mismanagement, there is always temptation to steal by secret printing.

[Larry]

"49 regios"

Well that's interesting! I applaud the vigor of the currency entrepreneurs, but aren't these fiat currencies, also? Where is the benchmark? But hey. what's a bit more chaos, given all the rest?

[groucho]

"The Worgl Schillings

In the early 1930s the small town of Worgl in the Austrian Tyrol, suffering like every other town in Europe and America from the Great Depression, took the unlikely step of issuing its own currency.

Its burgomaster, Michael Unterguggenberger, faced an empty treasury, because the unemployed citizens could not pay their taxes; roads and bridges needed repair and parks needed maintenance, for which the town could not pay; and idle men and women earned no wages.

He recognised that all three problems could be solved if he could find the connecting link.

That link was money. The three problems coexisted because no one had any of it, and his simple solution was to create money locally.

He issued numbered 'labour certificates' to the value of 32,000 schillings, in denominations of 1, 5 and 10 schillings, respectively. These became valid only after being stamped at the town hall, and depreciated monthly by 1 per cent of their nominal value.

It was possible for the holders to 'revalue' them by the purchase, before the end of each month, of stamps from the town hall, in the process creating a relief fund.

'The small town of Worgl in the Austrian Tyrol, suffering like every other town in Europe and America from the Great Depression, took the unlikely step of issuing its own currency'

The depreciation not only encouraged rapid circulation, but also the payment of taxes, past, current and upcoming. These taxes were used to provide social and public services.

At the end of each year, it was required that the notes be turned in for new ones. No charge was made for the transaction if the required stamps had been affixed. Subject to a 2 per cent deduction, the town also undertook to convert the labour notes into Austrian schillings.

To facilitate this conversion at any time - and thereby provide a cover for the relief certificates - the trustees deposited at the local Raiffeisen Bank (credit union) an amount in Austrian currency equivalent to the issued local currency.

The money was loaned out to trustworthy wholesalers at 6 per cent interest. Interest thereby flowed back into the town treasury, yet further facilitating transactions with the 'outside' world.

Wages paid in the new money

The burgomaster put this money into circulation by paying 50 per cent - later raised to 75 per cent - of the wages of the town's clerical and manual workers in the new money.

The workers found that all businesses in Worgl accepted the currency in payment and at face value, and the notes returned to the parish treasury as dues and taxes. Economically, there was no inflation, and politically, the money was unanimously acceptable to all the municipal parties.

'Because it was a depreciating currency, it circulated with rapidity, boosting the local economy. Further, many paid their taxes in advance because it was financially advantageous'

Because it was a depreciating currency, it circulated with rapidity, boosting the local economy. Also, not only did people merely pay their current taxes in the currency, but also discharged their tax arrears. Further, many paid their taxes in advance because it was financially advantageous.

Apart from the obvious employment benefits, physical assets were created. These included improvements in the main street and its drainage system, street lighting, new road construction, manufacturing of kerb stones and drainage pipes, construction of a ski-jumping platform, and fencing and construction of a new water reservoir.

Although the Worgl money was unanimously accepted at the local level, there was great opposition from two centralist forces - the Tyrol Labour Party and the Austrian State Bank.

In both cases, there seemed to be the fear of the experiment spreading, for the idea was copied by the neighbouring town of Kirchbichel. The town monies were valid in both places. Other towns in the Tyrol also decided on issuing depreciating money, but did not proceed because of threats from the State Bank.

The experiment curtailed

Ultimately, the State Bank threatened legal proceedings and on September 1st 1933, the experiment was terminated.

In an analysis, Unterguggenberger concluded that depreciating currency fulfils the functions of money much better than unvarying nationalised currency. He noted that no difficulties or complaints had arisen in making payments in the new currency or in affixing stamps, and that the local currency was accepted by all businesses very shortly after starting the project.

He also suggested that, not only did it work at the town level, but it could also be applied in larger entities including regions, provinces and the state.

Although the experiment was terminated in Austria, it was noted and tried elsewhere. In Canada, for instance, the government of the Province of Alberta set up a provincial depreciating currency in the mid-1930s in the form of Prosperity Certificates.

The 'danger' of its success prompted the central government to ban it.

What lessons?

What lessons can be learnt? First and foremost, that there is nothing sacred about the 'national' money with which we grew up.

Money - as information technology, metal chips, paper slips and electronic blips - is what people will accept in payment for goods and services and taxes.

'It was the fact that the community or regional money could be used to pay taxes, and also exchanged for familiar national currency, that made it acceptable and successful'

If they will accept community or regional money, then it is as good as Ls or $s or Dms. It was the fact that the community or regional money could be used to pay taxes, and also exchanged for familiar national currency, that made it acceptable and successful.

'A depressed community in an apparently hopeless situation found a way of ending the seemingly insoluble problems of unemployment'

The most important lesson, however, is that a depressed community in an apparently hopeless situation found a way of ending the seemingly insoluble problems of unemployment, local decline and lack of a reliable tax base, symbiotically through the use of community-owned currency.

The prime candidate for the cause of community and regional decline is the centralised banking and money system. By definition, 'national' money is political.

The banks are also political in as much as they make policies to siphon off local wealth and value into their central financial vortex.

'The centralised banks collect money from the regions in a nation and invest in a booming area'

This vortex is well described by Myrdal's 'cumulative causation effect.' The centralised banks collect money from the regions in a nation and invest in a booming area, creating a further boom, which demands more national money from the regions, which creates...

Conversely and concurrently, the communities and regions are deprived of their wealth - via the national money - to feed the voracious appetite of the centre. Even if some of that money is re-imported into the community or region, it is as externally controlled capital.

In the process the communities or regions lose control of their economy, and also their political systems, becoming dispensable 'Regions of Sacrifice'. Scotland is a prime example.

A duplication of the process is now evolving in the push for a European central bank and a single European currency.

From observation and experience, there is no doubt that the European Monetary System will be used to enhance a corridor of centralised financial power running from London to Zurich and connected to the other major financial centres of Europe, including possibly Moscow. The centralisation of power has always created problems, and its abuse comes as no surprise.

The appropriate decentralisation of power, known as the Principle of Subsidiarity, can and should take place. This principle states that the priority for decision-making and action-taking should be at the most decentralised level possible. Only when those decisions and actions impinge upon the well-being of the next larger communities or regions, should those too have an influence.

'It will require authorisation to be given to local and regional governments to create their own currency in the form of non-interest bearing local bonds to be used as money'

In practical terms, it will require authorisation to be given to local and regional governments to create their own currency in the form of non-interest-bearing local bonds to be used as money.

Community Barter

In discussing these ideas, it is also important to understand the difference between community currency and community barter systems.

A community barter system - like the LETSystem, which is not community currency - is usually based on voluntary organisational sharing of information about goods and services available from individuals in an area. The accounting is usually based either on time or the nationalised currency (pounds, dollars, etc).

Such a system has three basic weaknesses:

- It tends to be limited in scope to a handful of dedicated practitioners, usually in largely rural or semi-rural areas.

- It does not cater for transactions outside the community.

- It encourages hoarding, rather than the circulation of wealth and energy, and can only expand by recruiting new producers - there are no 'built-in' inducements to encourage the circulation of goods and services.

A community currency, on the other hand, can be used by anyone in the community as a 'means of payment' for any commodity or service.

The only limit to the expansion of its circulation is its acceptability, so it encourages all forms of economic activity. If suitable provision is made for 'convertibility', it can facilitate transactions with people and organisations outside the community, and indeed encourage community 'import replacement'.

Also, of course, communities may agree - as they did in the Tyrol - to accept each other's currency at par.

Workable now?

The example of Worgl suggests several prerequisites for success:

- The currency be accepted by local government and other 'official' organisations in payment for taxes, rents, licences, etc, and be used by them for their own local payments.

- It must be exchangable into national currency, though some deterrents to conversion - a discount on face value, perhaps - may be needed to prevent the whole issue from disappearing from circulation.

- It is essential to encourage the circulation of community money and to discourage 'hoarding', through automatic depreciation.

The demise of the Worgl experiment has its lessons, too. It will be necessary to amend the present situation under which only the state - English or European - can issue money - pounds or ECUs - as legal tender. Otherwise the issuers of community currency, and perhaps even its users, will face state sanctions.

It will also be necessary to persuade workers that they are not being cheated if part or all of their pay is in community currency.

The experiment is surely worth trying, and the growing strength of the regional movement in Britain and Europe suggests that there would be political support in many places"