Newconomics Continued

(follow-up on previous article)

FREQUENTLY ASKED QUESTIONS

Doesn’t the manner in which newconomics deprives citizens of their wealth run counter to key precepts of a free-enterprise system: the protection of property and the prohibition against forcible “taking.”  How can such an abuse of governmental power be justified?

Very easily.  What passes for money in today’s economy is considered by practitioners of the new system as having no intrinsic “store of value.”  They regard the pretense that it is worth something as certifiably fraudulent, a scam authorized by corrupt governments for their own venal purposes.  Hence, the accumulation of bogus money cannot be considered “wealth” or “property” as those words are commonly understood.  Depriving citizens of their so-called wealth, then, is no more than disabusing them of their illusions and obliging them to face reality.

An enlightened populace enjoying newconomics would understand that the dollars they hold represent no more than society’s provisional rewards for their past performance—their industry, special skills, enterprise, etc.—and those rewards are for their own personal expenditures and carry an expiration date.  This understanding on the part of the public would naturally preclude any objection to the gradual dissipation of benefits that they never truly owned in the first place.

Lest the reader be concerned that those subject to the rules of newconomics would be somehow short-changed by the system, consider what they would gain in return.  Newconomics would virtually eliminate the class envy that underlies much of the hostility to which the rich are frequently subject.  There would be, therefore, less need to surround their property with high walls, install elaborate security systems, drive about in armored cars, employ armed guards, live in fear that family members would be kidnapped, and take all the other precautions necessary to protect their wealth and safekeeping.  Most wealthy people would, I believe, not lightly dismiss the advantages of such a tradeoff.

On a less tangible note, my cursory impression of the lives of the upper class—gleaned, mind you, exclusively from newspaper accounts—is that there is not necessarily a direct relationship between the amount of wealth one inherits and the happiness provided thereby.  That being the case, those living under a newconomics regimen and never having been exposed to the temptation of inherited wealth, would not unduly suffer from its loss.

Finally, a general comment regarding the legitimacy of a wealth tax.  Since the differential in the wealth of the rich compared to that of the poor is much greater than that based on their corresponding incomes, a tax on wealth is bound to place a greater burden on the rich than would a tax on income productive of the same receipts.  In short, the substitution of a wealth tax for our existing income tax structure is tantamount to raising taxes on the rich—a highly contentious matter in some quarters.

Given past disputes along the rich/poor dividing line, the former is likely to make two arguments: one, they are already paying a highly disproportionate amount of federal receipts and, two, money extracted from their coffers is money that cannot be funneled into the investment needed to promote growth.  But, whereas there is some truth in both assertions, I fail to be convinced they present a complete picture.

It seems to me that in every case of past and present invidious class differences—the English aristocracy versus the common laborer, the Brahmin caste versus the untouchables, the American plantation owner versus his slaves, and so on—the fortunates can always convince themselves that, whatever the appearances, there is a inarguable rationale for maintaining the status quo.  Let one man labor from dawn to dusk for a pittance and another gain a fortune in a five-minute phone call to his stock broker, there will always be a chorus of voices defending the contrast as the most natural and virtuous in the world.

 

How would a typical worker handle his finances?

Let’s say he earns ¥5,000 a month.  The first choice he would face upon receiving his paycheck would be how much to allocate to the corporate sector as savings.  Assuming he is in position to put 15%, or ¥750,  aside, he would convert the remaining ¥4,250 to dollars to cover his monthly living expenses.  He could use his yen savings to buy a corporate bond or simply leave it in his company’s non-interest bearing account—the disadvantage of the former being the penalty exacted if he were forced to sell the bond prematurely.

 

The flow of yen (salaries) to dollars (consumer spending) and back to yen (to cover the operations of merchants, manufacturers, and service providers) seems unnecessarily complicated.  Why not use a single currency?

An essential feature of newconomics is the ability to apply different rules to the commercial and private sectors. Presumably a single currency could be used in conjunction with a system of checks and gatekeepers but that would likely impose greater administration problems than the two-currency option.

 

Without a stock market, how could businesses accumulate enough yen to fund big projects such as the construction of a new factory or the development of a new drug?

In newconomics, businesses could draw from three sources: the companies’ own capital, bond issues, and bank borrowing.  With respect to the first, businesses pay no taxes and therefore profitable ones should be able to accumulate substantial cash hoards provided their employee/owners agreed to moderate their wages in return for hoped-for future gain.  With respect to the second funding choice, businesses contemplating worthwhile projects should be able to float bond issues without difficulty in that corporate bonds  are the only investment vehicles that offer tax-protection.

Despite these funding mechanisms, acquiring sufficient capital to handle very large projects could conceivably take longer in a newconomic system than in today’s economy.  But a more slower-paced introduction of new products might well prove advantageous in that it would give affected parties more time to adjust.  Indeed, it could be argued that the current business climate is too frenetic for the general good.

 

Are sole proprietorships allowed in newconomics?

Not merely allowed but encouraged.  Newconomics places great store in innovation and recognizes that sole proprietorships are vital to a dynamic economy.  A common situation that could be expected is the following: after a number of years, an ambitious and inventive worker in a successful company accumulates enough stock holdings to start a new company.  Possible help might come from friends and family and even, if his business plan is promising enough, a bank loan.  In any case, he will be able to benefit from the government’s policy to exempt him from all but the most critical regulatory and reporting measures during his first three years.  As a result of these policies, a newconomics society need never be at a loss for start-up companies and the general prosperity they create.

In the case of professionals—doctors, lawyers, artists, etc—a single individual may very well have, in effect, dual citizenship—that is to say, operate in both the commercial and private sectors with bank accounts and careful records in each.

 

What is the position of non-profits in a neconomics system?

Non-profits operate in the commercial sector under the same rules as all other enterprises.  Their receipts from charitable individuals and companies are, of course, in yen and their disbursements to their beneficiaries in yen or dollars as appropriate.

 

How are conversions made?

A government-run facility makes the necessary exchanges automatically after verifying the parties involved in any given transaction.  When requesting a dollar to yen exchange, for example, a retailer would code in the identification number of its customer as well as his own  —the automatic procedure being built in his normal cash-receipts system.

 

Would not a newconomics society suffer from the lack of altruistic endeavors that only the very wealthy in today’s economy initiate?

In today’s society, there is no question as to the valuable contribution made by the wealthy in charitable causes, research funding, and idiosyncratic, but often inspirational, ventures.  These same impulses on the part of the rich would just as surely motivate the wealthy in a newconomic economy with, if anything, even greater benefit to society.  To begin with, entrepreneurs would get richer faster in the untaxed commercial sector.  Secondly, rather than allowing their wealth to be eroded by the punitive wealth tax, the very wealthy would be inclined to funnel the bulk of their fortunes into nonprofit ventures designed to fulfill their aspirations.

 

Would not people withdraw cash from their bank account just before the wealth tax sweep and replace it immediately after thereby protecting the withdrawl from normal hit?

The only way an individual could deplete his account would be buying non-assets such as consumables and then selling them immediately afterwards.  Chances are the cost and risk of such transactions would exceed the government’s assessments.  Needless to add, should any such tax-evasion strategy prove popular, the government  would take steps to regulate it out of existence.

 

How can anyone provide for his retirement if his nest-egg is taxed out of existence?

A variety of fixed annuity plans are available to the newconomics community.  Many citizens fund these with the money they receive from their company’s stock buyback on their retirement.  Needless to add, these plans provide a steady income for the beneficiary during his lifetime, but offer no cash value.

 

How could anyone afford to own real estate when it is taxed so heavily?

The short answer is that only the extremely wealthy could afford to do so.  Thus real estate would be almost  universally owned by corporations and rented out to individuals on a month-to-month or year-to-year basis.  Any longer term leases would be treated as the partial purchase of an asset and taxed accordingly.  In the commercial real estate space, owner-occupied buildings would be common.

 

Would newconomics afford the opportunity for illegal activities such as corruption, tax avoidance, and/or yen-dollar arbitrage?

Whereas I would be loathe to  underestimate the inventiveness of the criminal class, they would have their work cut out for them trying to ply their trade in a newconomic society.  Since the elimination of paper money would require all transactions to be recorded, illegal activities would be far harder to cover up under governmental surveillance trawling.  True, small-scale bartering could reduce the bank balance people would normally be required to maintain, but it seems unlikely that such low-level activity would have a significant impact.

 

How big would the wealth tax have to be to pay for governmental expenditures?

Any comparison of the contemporary economic system in the United States with its hypothetical counterpart under a newconomics regimen would involve so many assumptions as to be essentially meaningless.  Nevertheless, just to arrive at some sort of ballpark figure that suggests a sense of scale to an imagined wealth tax, consider the following:

In 2008, the total assets of US households and nonprofits were estimated as $65.72 trillion and government outlays that year as $2.90 trillion.  Assuming a newconomic’s government could assess half the estimated assets—the remaining half locked in the commercial sector—a tax of 8.8% per year or, say, 0.75% per month would yield enough to balance the budget.  Such a tax would cut bank balances in half in about eight years.

 

 

 

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