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The financial crisis for dummies M ain causes – main solutions

The financial crisis for dummies M ain causes – main solutions. Richard Parncutt (Uni Graz, Austria) Special session , ICMPC 2012, Thessaloniki, Greece 28.7.2012. s odahead.com. Sometimes a theory is too simple …so we make it more complex. Economics: Communism

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The financial crisis for dummies M ain causes – main solutions

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  1. The financialcrisisfordummiesMain causes– mainsolutions Richard Parncutt (Uni Graz, Austria) Special session , ICMPC 2012, Thessaloniki, Greece 28.7.2012 sodahead.com

  2. Sometimes a theoryistoo simple…so wemakeitmorecomplex • Economics: Communism Eliminate poverty by sharing everything …but who will want to work? • Psychology: Reification of emergent properties Universal grammar (Chomsky) …orstatisticallearning (Saffran)? de.wikipedia.org mobilemoms.wordpress.com

  3. Sometimes a theoryistoocomplexso wesimplifyit • Cosmology: Pre-Copernican theory Ptolemy: Earth = centreoftheuniverse • Any area: Truth distortion Confusing each other with jargon Solutions: • Ockham’s razor • Transparent terms and arguments mlahanas.de Istheeconomiccrisisreallytoohardforordinarypeopletounderstand?

  4. Mybias Regulated free enterprise to achieve “greatest happiness for greatest number” • Prices determined by supply and demand • Equality of participation • Legal regulation (transparency, contractual fullfilment, debt repayment…) All three points need serious repairs!

  5. The wealthgap: The mainproblem Enormous wealth gap both within and between countries (in both cases, skewed distribution  “wealth per capita” is misleading) Richest 1% owns 40% - poorer 50% owns 1% Source: World Inst. for Development Economics Research of the UN University (2000)

  6. The inherentbiasofeconomictheory The idea-generators (economists, accountants, actuaries, politicians…) benefit if their ideas benefit the rich (source of personal income) Example: “Trickle-down” is no better for “economy” than “trickle-up”. But we hear more often about “trickle-down”.

  7. Categories of truth distortionin media discussions of the “financial crisis” • Complexity • Financial crisis is complex  only economists can understand it • Abstraction • When “the economy” is happy, everyone (who?) is happy • Generalisation • Ragstorichesstories (if Bob Marley can do it, so canyou) • Secrecy • Taxhavensare ok (confusionofprivacyandsecrecy) • Emotion • Widowsshould not paywealthtax ( wealthtaxisbad) • Nonsense • Wealth tax will make little difference to national budgets • The rich are getting richer, but we need “austerity” • We need growth, but growth is impossible (climate change)

  8. Reasons for rising national debtsDifferent “free lunches” – at enormously different costs Working class Welfareabuse Costsmillions Middleclass Taxevasion Costsbillions Global richand mega-rich Diverse tricks (taxevasion, derivatives, futures trading, short selling, subprime lending…) Coststrillions ClassWars.org

  9. A simple modelofthefinancialcrisis Main general cause: Economic globalisation • New opportunities for rich to invest and evade tax • Reduction of democratic power of governments • Power vacuums  dangerous practices • Rich get richer, poor stagnate • Collapse of financial institutions (governments, banks) • Breakdown offreeenterprise Obvioussolutions Taxtherich Develop global democracy Regulate global markets

  10. StepstosustainablerecoveryThe problemsandsolutionsaremoral - not economic Government: Stop borrowing private money  End national debts • Origin of problem: Politicians trying to stay in power • Solution: Taxation not loans Future generations should not have to pay our debts! Banks: Stop lending non-existent money  End fractionalreservebanking • Origin of problem: Earning interest by trickery • Solution: Honesty not trickery Banks shouldreturntoservinglendersandborrowers!  End dependence on growth

  11. Global wealthtax A logicalresponseto: • Economicglobalisation • Expandingwealthgaps Whyglobal?Preventtaxevasion Whywealth?Thatiswherethemoneyis Whytax?Legitimategovernmentincome

  12. 1% tax on all wealth Why 1%? • Typical rate in France, Switzerland, Netherlands, Norway, and India • Goal: End global poverty & climatechange Wouldapplyto: • All wealth incl. companiesandtrusts • Individual assetsabove US$ 1 million Implementation: • Negotiatedby UN, IMF, G20, World Bank • Collectednationally (existingmechanisms)

  13. A possiblefinancial plan Total world market capitalization = US$ 60 trillion =mostof global non-household private wealth 1% of that = US$ 600 billion/year • Half for poverty (300 b$/yr): • Eliminate poverty in 15-20 years • (cf. Jeffrey Sachs: The End of Poverty) • Half for climate (300 b$/yr): • Limit temperature increase to 2°C • Recover from climate disasters

  14. Reasonsfordoingnothing 3 urgentlyneededtaxes: • Global wealthtax • Global transactiontax (Tobin) • Global emissionstax 3 reasonsto do nothing: • Greed • Dishonesty • Arrogance The main problem is not legal or technical - it’s political and moral

  15. 1% Global WealthTax Special requests: • Signthepetitionat change.org • Givemesuggestionsabout • content • publicity • fundingfor a studentpublicityofficer

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