Daily Kos:  The Economy: "No Return to Normal" - Galbraith UPDATED

Nice Diary, NB Books, we could use it to spice up EuroTrib tonight!

Humpty Dumpty is definitely broken, and can't be put back together again.

The first point is that most of the capital that underpinned the Mother of All Bubbles didn't come from banks, it came from investors, many of them overseas, through the mechanisms of securitisation, credit derivatives, credit insurance, and toxic cocktails of these three.

So while recapitalising Banks might treat the visible wounds, it won't stop the invisible internal bleeding of credit from the shadow banking part of the economy, and the further collapse of asset prices and disappearance of jobs.

The second point is that pumping capital into banks, and providing them with more liquidity through buying up their holdings of debt will not make their potential borrowers any more creditworthy than they have now become.

So the shortage is not of credit, it's of creditworthy borrowers. Monetary solutions are IMHO doomed to failure. and the Fed is utterly powerless.

The only solutions are fiscal.

The effect of the existing system of financial capital - a toxic combination of leverage and private property in commons - has been to transfer wealth from the 99% to the 1% who are even now clamouring that the 99% are to blame and should bail out the 1%.

This is the effect of what Jerome calls the Anglo Disease.

Apart from the stimulus of investment in public assets - a Green New Deal etc - and massive investment in public services, I believe that Systemic Fiscal Reform is necessary.

Simply put, we should tax Privilege and not People.

All taxes on earned income and profits, and transaction taxes should be abolished, as should means-tested benefits.

To replace them I advocate:

(a) Location Benefit Levy - a tax on the rental value of land.  This is a tax on the privilege of exclusive occupation of the Commons of land;

(b) Carbon Levy - a tax on the privilege of the exclusive use of the commons of non-renewable energy;

(c) Limited Liability Levy - a levy on the GROSS revenues of Corporations - this is a tax on the privilege enjoyed by investors of limitation of liability.

From the proceeds I would pay a National Dividend - as of right - to all citizens, and provide decent education and health services to all within a framework of what Dr Yunus of Grameen Bank calls "Social Business" operating on a "Not for Loss" basis.

The savings in the operating costs of the existing fiscal system - both in the Public and private sectors - would be phenomenal, and those involved would be far happier doing something socially useful, I suspect....

There we are. Solved the problems of the World. ;-)

Now back to ET....