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Updates to the book Global Development:
August 2000: The need for a global development program, financed through money creationSeptember 2001:The economic downturn and money creation for sustainable development
Money creation for sustainable development in an overheating economy
Global Development's proposal for sustainable development through the execution of a global development program, paid for by taxation and money creation, remains as valid as before. The only reasonably valid argument against a global investment program is, at present, that with close to full employment in the U.S. and several other rich countries, the increased demand created by such a program would overheat these economies even further. Demand for goods and services would be likely to drive up wages, which could push up inflation to unacceptable levels. Still, there would be several ways to deal with this problem. The first would be to focus, at least initially, on those parts of the program that require little or none of the goods and services that currently, are in short supply. The second would be taxation. At a point where many economic experts, including the directors of the Central Banks of several rich countries, warn that the U.S. and other economies are in danger of growing too fast, it is surprising that no mention is made of the most obvious measure for reducing the demand that fuels the expansion: a tax increase. Apparently, the urge of the well-off to favour themselves has now arrived at the extreme that even this orthodox economic measure is eliminated from the agenda of economic policy. That politicians do not dare to touch the topic is understandable, but that those not subject to the whims of voters hardly mention this option is incomprehensible. Higher taxes in the overheated economies of the US and other rich countries could serve both to bring down economic growth to more sustainable levels and to generate funds for investment in sustainable development - thus killing two birds with one stone. Unfortunately, though, many politicians in the countries involved propose, in view of sustained budget surpluses, to lower rather than raise taxes - with unfailingly, most of the benefits going to the highest incomes.
A last word on increasing taxes on the rich. I have had several negative reactions to this proposal - and it continues to surprise me how even people who would not be affected but who would benefit from sustainable development take up the cause of the wealthy. In doing so, they tend to disregard both the arguments underlying my proposal and the fact that I suggest it as part of a broad range of measures. Basically, two arguments are used against more taxes on the rich. One is that it is "unfair" to have the rich pay "even more" of their wealth in taxes. The second is that we need the rich to be rich because this will allow them to make the investments needed to keep the economy growing. As for the unfairness: even apart from the fact that of the wealth generated over the past two decades, the rich have received a disproportionate - not to say unfair - share, for me taxing the rich is not a goal in itself. Rather, it is a means to an end: generating funds for financing sustainable development. Sustainable development will require capital, and the money has to come from somewhere. As I say in my book, with everything that has gone their way since the early 1980s, I don't think it's unjust to have the rich, for this purpose, share some of their riches with the rest of society. I certainly would not want to suggest the alternative, i.e., of the middle and lower income groups having to foot the bill. As regards society's need for the rich to supply investment capital for the regular economy: there is some truth to that. Yet even today, much more investment comes from institutional investors which, for an important part, manage capital deposited by the middle class. Even more important, though, is that the rich, even if allowed an even greater portion of society's wealth, will not invest in sustainable development. The reason is simple: such investment is unlikely to generate the rapid returns that today's economy and capital owners demand. Therefore, the rich - as well as other private and institutional investors - will sink their capital mostly in the unsustainable activities that yield short-term returns: production of consumer goods and services for those who can afford it. Investors can't be blamed for this: it's how the system works. But it does mean that the only way to invest in sustainable development is through the State. As indicated in Global Development, part of the required capital can be obtained through savings on current expenditure, and another part through money creation. And part will have to come from taxation of those who have the most to spare. My proposal, then, is to take only a minor proportion, perhaps an additional 15% of what is added to the wealth of the rich each year, to help finance investment in sustainable development.
The economic downturn and money creation for sustainable development
With the economic downturn and possibly, recession that has set in during 2001, the update of August 2000 has become less relevant again: today there would be much less danger than a year ago that large-scale investment in a global investment program for sustainable development would cause economies to overheat. On the contrary, the original argument of Global Development is becoming increasingly valid: that such an investment program, and the money creation for financing it, may be crucial for economic recovery.
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