Grantham - Tax Rich And Corporates, Pay Poor More, Debt Forgiveness

[R K]

Danger Children at Play

https://www.gmo.com/...dtK1eGLq9UrU%3d

http://ftalphaville....tham-manifesto/

Opening remarks

My worst fears about the potential loss of confidence in our leaders, institutions, "and capitalism itself" are being realized.

We have been digging this hole for a long time. We really must be serious in our attempts to resuscitate the "average hour worked" and the fortunes of the average worker

. Walking across the Boston Common this morning, I came to realize that the unpalatable (to me)

option of some debt forgiveness on mortgages looks increasingly to be necessary as well as the tax changes I discuss here

.

To go further, if we mean to prosper long term, I am sure we need to act to make debt less attractive to everybody: it really is a snare and a delusion.

The problem

Productivity has been very high – remarkably so compared to the rest of the developed world average –

but the U.S. continues its odd and long history of fl owing all economic gains to corporations and the very rich and basically none to the average hour worked

. Therefore, it should come as no surprise that we are facing weak demand.

For 30 years to the year 2000, consumers compensated for their lack of progress in hourly wages partly by working harder and longer and in greater numbers (i.e., a higher participation rate) and partly by borrowing. But in the 10 years after 2000, the participation rate in the workforce has dropped dramatically (see Exhibit 2) and hours worked per person has flattened

so that the only way for individuals to grow their consumption more recently was by borrowing even more and, to some extent, by speculating in housing

.

Rising house prices provided the (apparently) real backing for more debt and, even where that backing did not exist, the ingenuity (and, we must admit, greed) of the financial system still supplied the debt. And all of that has gone.

The solution.

If we want to dig out of our current morass, don't we have to change this equation and isn't the most direct way of doing this to divide the pie more evenly?

That would mean lower income and sales taxes for the bottom 75% of earners and higher taxes for the top 10%!

We have allowed the vagaries of globalization and the plentiful supply of cheap Chinese labor to determine our income distribution, which has become steadily steeper, to the point where we have become one of the least egalitarian developed societies

.

Wouldn't it be better for us to decide deliberately and by ourselves that income distribution which creates the best balance of social justice and incentive to work?

I am not suggesting that we become some goody two-shoes Scandinavian country.

But how about going back to the levels of income equality that existed under the Presidency of that notable Pinko, Dwight Eisenhower (see Exhibit 4). And don't think for a second that this more equal income distribution somehow interfered with economic growth: the 50s and 60s were the heyday of sustained U.S. economic gains.

More and more people are 'getting it'.

Grantham and Gross are influential and have a platform at least in the investment and funds management world.

Tax the rich, tax the corporates, cut taxes and increase wages on the less well off and create jobs at home. He's also in favour of debt forgiveness which I realise is less palatable to many here, but nonetheless makes sense.

This is the new black.

Sadly Cameron and Osborne are stuck in the shadows of Thatcher with the nutters and assorted obbballs who would hand more money over to the rich and see even lower wages for the poorest.

This is straightforward and simple and it's great to see it being more widely articulated.

Edited August 10, 2011 by Red Knight

[newbie]

Interesting, but has the realisation come too late? Perhaps soon it will not be a case of the rich being prepared to give a little more to the poor, but the poor taking it for themselves? As per the last few nights in the UK.

[Fishbone Glover]

Tax the rich, tax the corporates, cut taxes and increase wages on the less well off and create jobs at home. He's also in favour of debt forgiveness which I realise is less palatable to many here, but nonetheless makes sense.

The problem with debt forgiveness is the massive moral hazard that it potentially entails. If people were let off large proportions of their mortgages, and got to keep their houses, then I would feel royally f*cked over having been sensible and prudent over the last few years.

If, however, debt forgiveness came in the form of a cash gift to each UK citizen/household, with the conditions that if you have any debt then it has to go towards that, rather than being spent on what you want, then I could could support that.

The problem is going to be extracting this extra tax from the mega rich. Philip Green and the like have already proved to be extremely adept at avoiding their tax responsibilities, (despite being quite happy to have the police force around to protect their shops), which they will most likely continue to do. Land value tax, and possibly some form of citizens income (cf. Mark Wadsworth), would solve the problem, but I don't think the politicians have the balls to introduce it.

[WageslaveX14]

Danger Children at Play

More and more people are 'getting it'.

Grantham and Gross are influential and have a platform at least in the investment and funds management world.

Tax the rich, tax the corporates, cut taxes and increase wages on the less well off and create jobs at home. He's also in favour of debt forgiveness which I realise is less palatable to many here, but nonetheless makes sense.

This is the new black.

Sadly Cameron and Osborne are stuck in the shadows of Thatcher with the nutters and assorted obbballs who would hand more money over to the rich and see even lower wages for the poorest.

This is straightforward and simple and it's great to see it being more widely articulated.

I find it difficult to see how anyone can honestly disagree with this. I know why people do publicly disagree with it, i.e. because they do very well out of the system as it is, thank you very much. However, when Notting Hill-based financiers start seeing the have-nots looting their streets, they might start to realise that huge income inequalities are not actually in their interests either.

[Fishbone Glover]

Interesting, but has the realisation come too late? Perhaps soon it will not be a case of the rich being prepared to give a little more to the poor, but the poor taking it for themselves? As per the last few nights in the UK.

If the rich have any sense, they'll start thinking about what they can do before it gets to that stage.

[bobthe~]

Danger Children at Play

https://www.gmo.com/...dtK1eGLq9UrU%3d

http://ftalphaville....tham-manifesto/

More and more people are 'getting it'.

Grantham and Gross are influential and have a platform at least in the investment and funds management world.

Tax the rich, tax the corporates, cut taxes and increase wages on the less well off and create jobs at home. He's also in favour of debt forgiveness which I realise is less palatable to many here, but nonetheless makes sense.

This is the new black.

Sadly Cameron and Osborne are stuck in the shadows of Thatcher with the nutters and assorted obbballs who would hand more money over to the rich and see even lower wages for the poorest.

This is straightforward and simple and it's great to see it being more widely articulated.

It is interesting and I am peturbed that it would be considered over here, where hard working and saving are so richly rewarded.

But who would be doing the forgiving? The banks aren't really in a position to issue notes of forgiveness, so it would probably be a government money printing initiative.

[pl1]

How likely do you think debt forgiveness is RK?

[Democorruptcy]

How likely do you think debt forgiveness is RK?

Debt forgiveness is already going on.

It was mentioned in a thread on here recently in a thread about the Repossessions program on ITV. The bank knocked the woman's debt down by £20k.

It's why mortgage saving rates are so poor and mortgage rates are still relatively high compared to the base rate. Somebody has to pay for it and it won't be by a drop in banker's bonuses will it?

[LJAR]

you can't really tax "corporates" the money comes out of wages, pensions or pushes up prices one way or another.

In the case of someone being overindebted because their mortgage is too high. I wouldn't support debt forgivness entirely. I would prefer that the house was reposessed and the entire debt washed away even if the value of the house didn't cover it. That way both parties share the loss.

and this:

Wouldn’t it be better for us to decide deliberately and by ourselves that income distribution which creates the best balance of social justice and incentive to work?

I disagree with on every level.

Tax rates are low on the rich and they have neer paid more tax ot a higher proportion of the total tax take than they do now.

lower taxes on the rich and eliminate them for everyone else. But personally I prefer the "fair tax" - a flat rate VAT style tax that replaces all payroll taxes, thus it encourages saving over expenditure.

[R K]

How likely do you think debt forgiveness is RK?

I guess it depends on the scope, the scale, the type of assets/debts, individual v corporate v sovereign, moral hazards and technical/price difficulties.

Sceppy tells me it would cause all sorts of bad shit, to which I'd argue the situation extant is causing all sort of bad sh1t too. I guess we as a society have to decide what sort of bad sh1t we want and who has to 'pay' for it.

Giving more money to the 1% clearly doesn't work. It's been tried for 30 years and it's failed. Imo that's what Grantham and Gross are saying. 1% paying more tax and 75% paying less is hardly communism! The nutters really need to get a grip rather than trot out laffer, tax havens and socialism like a pavlovs dog at every turn and get serious. I believe the US will act like grown ups - eventually. I have less confidence in British politicians. They don't have a very good track record.

[ingermany]

I caught a snippet on SKY yesterday, a guy from UBS saying that current debts in US and Europe are just so massive that debt forgiveness for individuals and governments is the only way out, and that inflation should be allowed and even encouraged. I think I am quoting accurately. The words are seared into my brain.

[shipbuilder]

Debt forgiveness is already going on.

It was mentioned in a thread on here recently in a thread about the Repossessions program on ITV. The bank knocked the woman's debt down by £20k.

It's why mortgage saving rates are so poor and mortgage rates are still relatively high compared to the base rate. Somebody has to pay for it and it won't be by a drop in banker's bonuses will it?

Indeed, debt forgiveness has been a fact of life for a long time. If you're in trouble you call up the bank and they may help, deals are routinely struck between individuals, businesses and countries so that the lender can continue to make a return on their loan, rather than getting nothing.

[easy2012]

The problem with debt forgiveness is the massive moral hazard that it potentially entails. If people were let off large proportions of their mortgages, and got to keep their houses, then I would feel royally f*cked over having been sensible and prudent over the last few years.

If, however, debt forgiveness came in the form of a cash gift to each UK citizen/household, with the conditions that if you have any debt then it has to go towards that, rather than being spent on what you want, then I could could support that.

The problem is going to be extracting this extra tax from the mega rich. Philip Green and the like have already proved to be extremely adept at avoiding their tax responsibilities, (despite being quite happy to have the police force around to protect their shops), which they will most likely continue to do. Land value tax, and possibly some form of citizens income (cf. Mark Wadsworth), would solve the problem, but I don't think the politicians have the balls to introduce it.

Cash distribution is a good idea but make this not exactly convenient so that those with the means won't bother collecting it. E.g. mail out coupon to exchange for £1000 per adult/£500 per kid and that has to be collected at post office within 30 days (do it in batches). The superrich obviously won't bother collecting it, and that will get some maybe £40bn or so (1/5th of QE money) to the public which can be used to pay down debt/spend. Some inflation will entail, but that is offset by the cash receipt for those who are middle class or below and that act as an inflation tax on the upper class (thought it could go inflate real asset prices - so there is a chance the upper class will still benefit). (the money that used to pay down debt

just cancel the private credit money, so inflation effect may not be as much)

This is not that much different from Clegg idea of distributing bank shares.

Anyone fancy starting such as epetition at http://epetitions.direct.gov.uk/ (when it works properly....)

Edited August 10, 2011 by easybetman

[19 year mortgage 8itch]

Parasites in don't kill the host shocker

[Monkey]

If the rich have any sense, they'll start thinking about what they can do before it gets to that stage.

sod all for the UK, they'll just pack up and go somewhere else, a tax haven (if they havent already)

[wonderpup]

but I don't think the politicians have the balls to introduce it.

They have balls- but the bankers have a tight grip and a long reach.

Sooner or later the top 10% will work out that owning a stack of IOU's written on the income of people who have no income is not exactly the smartest place to be- but the funny part is that having utterly cowed the political class they themselves do not in fact constitute a coherent force capable of executing complex social change.

They are simply an aggregate of hungry mouths gobbling up the availaible capital in a mindless and unstoppable feeding frenzy So expecting the money junkies to organise a fairer distribution of wealth is laughable- that is just not what they do.

The truth is that no one is in charge here- the top 10% are in their way just as trapped as everyone else- they may have built this machine of wealth extraction but have no idea now how to turn the bloody thing off.

Edited August 10, 2011 by wonderpup

[okaycuckoo]

Debt forgiveness is already going on.

It was mentioned in a thread on here recently in a thread about the Repossessions program on ITV. The bank knocked the woman's debt down by £20k.

It's why mortgage saving rates are so poor and mortgage rates are still relatively high compared to the base rate. Somebody has to pay for it and it won't be by a drop in banker's bonuses will it?

Careful now!

The write-off of bad debts is standard. But we have extraordinary debt management plans for unsecured debt (in the 100,000s), where people pay off short term debt over ten years at a tiny fraction of their original instalments. With each payment of £1/5/10 a month the liability refreshes AND (debtors don't know this) the ENTIRE interest can be claimed at the end. On a compounding basis that goes wild. Tick tick tick. Who will pay the interest in the end? Not the debtors.

On secured debt, the forgiveness is also temporary - conversion to IO or arrears capitalisation. Again, watch out for compound interest. Who pays that?

RK raises a serious prospect, but doesn't say who will pay (unless it's the get-the-hell-out-here rich). As far as I understand, Scepticus reckons the CBs can absorb the cost of forgiveness.

I really doubt a good outcome from either proposal because people will kick off if they think they're getting screwed. In the end it's all politics.

Saw this on bloomberg today, Tom Keene's show, from a former Goldman guy - mentions debt forgiveness at about 4:10:

http://www.bloomberg.com/video/73790866/

I don't agree with all he says. Lots of cross currents. Worth watching, views appreciated.

[StainlessSteelCat]

They have balls- but the bankers have a tight grip and a long reach.

Sooner or later the top 10% will work out that owning a stack of IOU's written on the income of people who have no income is not exactly the smartest place to be- but the funny part is that having utterly cowed the political class they themselves do not in fact constitute a coherent force capable of executing complex social change.

They are simply an aggregate of hungry mouths gobbling up the availaible capital in a mindless and unstoppable feeding frenzy So expecting the money junkies to organise a fairer distribution of wealth is laughable- that is just not what they do.

The truth is that no one is in charge here- the top 10% are in their way just as trapped as everyone else- they may have built this machine of wealth extraction but have no idea now how to turn the bloody thing off.

Exactly right. Bar the odd psychopath who actually enjoys it all, I suspect the masters of the universe feel compelled to play by the rules as anyone else. A look around the average very rich person's house or yacht reveals the real truth. Often they are full of fugly tasteless sh*t that no sane person would give room space to if they weren't brainwashed into thinking it was a symbol of status and some of them are carrying more personal debt - guaranteed by paper - than a small town.

I think some form of rebalancing is inevitable but it has the potential to get a lot worse first. Perhaps it needs a mass movement of people with debt to start negotiating their debts down before things get too bad for them. A place like MSE could share tips on what had worked.

Edited August 11, 2011 by StainlessSteelCat

[fluffy666]

sod all for the UK, they'll just pack up and go somewhere else, a tax haven (if they havent already)

The Ultra-wealthy (top 0.1% or so) already have, by and large.. or at least their money has.

The next 1% don't realistically have that option, kind of by definition. The whole City of London can't up sticks for Switzerland, there just isn't the supporting infrastructure (and government backstop). And since every other major economy has stronger regulation and even puts white collar criminals in prison (The Horror!)...

[fluffy666]

They have balls- but the bankers have a tight grip and a long reach.

Sooner or later the top 10% will work out that owning a stack of IOU's written on the income of people who have no income is not exactly the smartest place to be- but the funny part is that having utterly cowed the political class they themselves do not in fact constitute a coherent force capable of executing complex social change.

They are simply an aggregate of hungry mouths gobbling up the availaible capital in a mindless and unstoppable feeding frenzy So expecting the money junkies to organise a fairer distribution of wealth is laughable- that is just not what they do.

The truth is that no one is in charge here- the top 10% are in their way just as trapped as everyone else- they may have built this machine of wealth extraction but have no idea now how to turn the bloody thing off.

It's a classic composition problem (tragedy of the commons). Although it applies to less than the top 10%, more like 1 or 0.1%.

It is best for the rentier class generally if society in general is peaceful and prosperous, because then the total amount of wealth they can skim is maximised. However, this means that on an individual level they have to give up a greater percentage of their income/wealth in the form of taxes or higher wages.. and since generally they are ideologically opposed to both taxation and collective action, they can't do this.

Proof would involve the way that large corporates are now sitting on gigantic piles of cash which they cannot invest profitably, because no one has any money to buy new products, yet the heads of those same corporates scream and whine about the need to cut taxes on business - presumably by lowering the incomes of their remaining customers even more.

And at least those corporates function in the real world.. the shadow banking system, which also lobbys against any taxation or oversight, could be wound down tomorrow with no once outside the world of finance noticing.

[PopGun]

The nutters really need to get a grip rather than trot out laffer, tax havens and socialism like a pavlovs dog at every turn and get serious. I believe the US will act like grown ups - eventually. I have less confidence in British politicians. They don't have a very good track record.

+1

Another problem is over production.

[Traktion]

They have balls- but the bankers have a tight grip and a long reach.

Sooner or later the top 10% will work out that owning a stack of IOU's written on the income of people who have no income is not exactly the smartest place to be- but the funny part is that having utterly cowed the political class they themselves do not in fact constitute a coherent force capable of executing complex social change.

They are simply an aggregate of hungry mouths gobbling up the availaible capital in a mindless and unstoppable feeding frenzy So expecting the money junkies to organise a fairer distribution of wealth is laughable- that is just not what they do.

The truth is that no one is in charge here- the top 10% are in their way just as trapped as everyone else- they may have built this machine of wealth extraction but have no idea now how to turn the bloody thing off.

Funnily enough, if the government hadn't got in the way during the first wave of this crisis, those paper IOUs would have been vaporised long ago. Additionally, the taxpayer would have been left off the hook and 'debt forgiveness' would have been dished up via the courts (bankruptcy) as it has done for decades.

Instead, the politicians got involved, loaded up the taxpayer with debt and now they are flailing about looking for complex solutions to some how redistribute this money back again. They make their own problems and then force the rest of us to pay for it!

EDIT: reworded

P.S. If anyone is in charge, it is the wealthy and influential types, who lean on the government. It's further evidence of the failure of democracy.

Edited August 11, 2011 by Traktion

[mightytharg]

Cash distribution is a good idea but make this not exactly convenient so that those with the means won't bother collecting it. E.g. mail out coupon to exchange for £1000 per adult/£500 per kid and that has to be collected at post office within 30 days (do it in batches). The superrich obviously won't bother collecting it,

I think you'll find that the super-rich didn't get that way by turning down free money. They'll be first in the queue at the post office.

Your scheme would be a hand-out to the buy-to-let crowd and a kick in the teeth for hard-working savers who would see their savings devalued.

A better idea would be to take £1000 from each adult (leave them kids alone) and destroy it. This would go towards undoing some of the damage from quantitative easing and make things fairer. Might not be as popular as you scheme though.

[wonderpup]

Funnily enough, if the government hadn't got in the way during the first wave of this crisis, those paper IOUs would have been vaporised long ago. Additionally, the taxpayer would have been left off the hook and 'debt forgiveness' would have been dished up via the courts (bankruptcy) as it has done for decades.

Instead, the politicians got involved, loaded up the taxpayer with debt and now they are flailing about looking for complex solutions to some how redistribute this money back again. They make their own problems and then force the rest of us to pay for it!

EDIT: reworded

P.S. If anyone is in charge, it is the wealthy and influential types, who lean on the government. It's further evidence of the failure of democracy.

The political class are now just rabbits in the market's headlights- they have neither the will nor the understanding to take effective action.

In bailing out the Banksters they were simply acting on the advice of the Banksters, with dire predictions as to the outcome of disobedience.

But what we have now is a situaion analogous to a bunch of kids who have taken over the local sweetshop, gorged themselves silly and are now starting to feel sick and looking for an adult to step in and save them from themselves.

Every day now I see one banker or another bleating on radio or TV about how the 'goverenment' should step up to the plate and 'take control'- It seems the bankster boys are looking for their daddy- the same daddy they claimed not so long ago was just slowing them down on the way to the sweetshop.

Edited August 11, 2011 by wonderpup

[okaycuckoo]

Funnily enough, if the government hadn't got in the way during the first wave of this crisis, those paper IOUs would have been vaporised long ago. Additionally, the taxpayer would have been left off the hook and 'debt forgiveness' would have been dished up via the courts (bankruptcy) as it has done for decades.

Debt forgiveness is about allowing the forgiven to continue to own their property.

Bankruptcy is a different approach - I reckon there are millions of people in the UK who qualify for bankruptcy, but they do have the choice to go for it themselves and escape out the other side in a short period.

What's stopping that I think is the temporary forgiveness that's on offer, with a nasty compounding interest problem kicked into the future.