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Want To Fix Income/Wealth Inequality? Here's How

Tyler Durden's picture




 

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

There is nothing fancy about these three solutions.

I have covered rising income/wealth inequality for many years in dozens of entries. Since Thomas Piketty's new book has catapulted the topic into the media spotlight, it's a good time to list solutions that go deeper than Piketty's proposed global wealth tax--a proposal he characterizes as utopian.

Every solution is utopian, because the Financial Aristocracy and their central bank cronies have democracy by the throat. There is no legislative way to change the Status Quo when political power is for sale to the highest bidder, and central banks are issuing nearly-free money to the financial oligarchy that owns the political machinery.

But listing solutions is still important, because it reveals just how far from democracy, rule of law and free-market capitalism we have fallen. I have been describing various aspects of widening inequality in recent entries:

America's Nine Classes: The New Class Hierarchy
A Critique of Piketty's Solution to Widening Wealth Inequality
Are You an Elitist? Class Warfare and the New Nobility

I propose three straightforward solutions that will systemically rectify wealth and income inequality.

1. Rather than add taxes to fund more social welfare--in effect, placing a Band-Aid over the tumor--let's start by removing the source of rising inequality: the Federal Reserve. I laid out in detail how the Fed's policies have enriched the top .1% at the expense of everyone else in Want to Reduce Income/Wealth Inequality? Abolish the Engine of Inequality, the Federal Reserve (January 28, 2014)

This boils down to the Cantillion Effect: new money is injected into the economy at specific points, creating winners and losers. Those with access to the new money (in the Federal Reserve's policies, those with financial power) gain immensely and everyone far from the free-money spigot loses purchasing power.

There's no mystery here: if trillions of dollars are available at near-zero interest rates to those at the top of the pyramid, they will benefit accordingly.

This chart shows how access to the Fed's free-money spigot causes the very top layer of owners of capital to outpace their less-wealthy peers: while the top 10% has outpaced the bottom 90% and the top 1% has outpaced the top 10%, the real action is at the very pinnacle of wealth holders: the top .1% has outpaced the 1%, and the top .01% has outpaced the .1%.

Were the Fed abolished, the top holders of financial wealth would no longer have access to unlimited sums of free money, and the asset bubbles that are the essential engines of wealth inequality would all collapse, along with the vast majority of the top holders' phantom wealth.

The collapse of asset valuations would impact middle-class holders of IRAs, 401Ks and pension funds invested in asset bubbles, but the real losers would be those at the top who own most of the phantom financial wealth.

2. Eliminate the 6.2% Social Security payroll tax paid by employees and employers, and print the money to pay Social Security benefits in the Treasury. I described this solution in How About Ending Social Security and Paying Retirees with Cash? (November 15, 2013).

The basic idea is this: rather than borrow money into existence via the Federal Reserve, abolish the Fed and print the new money directly. There is no interest to be paid on this new money, and so the financial parasites have nothing to gain from its creation.

This would wipe out the most regressive tax on the working poor, and benefit all employers. Each currently pay 6.2% of wages, so eliminating Social Security taxes would give every worker an immediate 6.2% raise and every employer a 6.2% reduction in labor overhead. (The 1.45% Medicare tax each pays would remain in place.)

The newly issued $800 billion a year would flow directly into tens of millions of individuals' accounts, where the the majority of it will be spent in the real economy.

As for those who claim creating $800 billion a year would spark runaway inflation: the Fed has printed over $3 trillion in the past five years, and inflation is mostly a result of asset bubbles and cartel pricing (sickcare, college tuition, F-35 aircraft, etc.), not new money.

Abolishing the Fed would trigger a deflationary collapse of asset bubbles. Printing $800 billion and distributing it to tens of millions of households would only counter some of this deflationary wave. The $800 billion annual distribution is simply too small to create inflation in a $16 trillion economy that is undergoing a cleansing of trillions of dollars in phantom wealth at the top of the wealth pyramid.

3. Tax unearned income at much higher rates than earned income. The vast majority of the New Nobility's income is unearned income from rents, interest, dividends and capital gains. Taxing unearned income is in effect a wealth tax because only those who own income-producing assets have unearned income.

It would be easy to set up a simple tiered tax structure that reduces income taxes for households with less than $250,000 annual earned income and offsets that reduction by raising the tax on unearned income above some level that enables small entrepreneurs and middle-class households to accumulate capital--for example, unearned income such as interest, dividends and capital gains would be taxed at the same rate as earned income up to $100,000 and then rises to much higher rates above that level.

There is nothing fancy about these three solutions. They shift the incentives away from speculation to earned income/productive work, they lower regressive taxes on the middle class and working poor and they do not restrain legitimate enterprise and wealth accumulation. They eliminate complex systems (the Federal Reserve and the tax code) and put money in the hands of tens of millions of households rather then the top .1%.

Yes, they are utopian, but only because we keep electing the same bought-and-paid-for Demopublican lapdogs of the super-wealthy and vested interests.
 


Want to give an enduringly practical graduation gift? Then give my new book Get a Job, Build a Real Career and Defy a Bewildering Economy, a mere $9.95 for the Kindle ebook edition and $17.76 for the print edition.

 

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Wed, 04/30/2014 - 19:43 | 4714213 CrashisOptimistic
CrashisOptimistic's picture

Can't this goal be achieved more simply via death of the rich and their heirs?

Wed, 04/30/2014 - 19:44 | 4714217 Incubus
Incubus's picture

Think Logan's run, but with net worth as a replacement for age 30.

Wed, 04/30/2014 - 19:55 | 4714250 CrashisOptimistic
CrashisOptimistic's picture

Well, LR didn't go after heirs of the old.

I supposed they can be spared as long as they aren't entitled to any inheritance.

Wed, 04/30/2014 - 20:12 | 4714292 kaiserhoff
kaiserhoff's picture

The ear wig has finally burrowed into Charle's brain.  No productive person wants to "fix" income inequality.  Only the parasites do.  If you want to fix the economy.

Cut government in half and keep cutting.

Chase the illegals out of the country on pain of death or worse.

Abolish the Fed and quit prininting money for any reason, so we can have free markets and free men.

Wed, 04/30/2014 - 20:16 | 4714309 new game
new game's picture

4) double the corp tax on all profits earned in china and outside usa...

the great reverse whooosh...

Sun, 05/04/2014 - 14:12 | 4726206 TheRedScourge
TheRedScourge's picture

This article is about scapegoating the branches so we all unite in striking at the branches, while the root firmly entrenches itself even further. Policy has been tried for thousands of years and it NEVER solves this problem. It seems to only be solved by big government collapsing under its own weight, and people getting by without it for a few generations, sowing the seeds for massive legitimate wealth to be created, to the point that people forget how they got there, and start to go right back to what led up to the collapse the last time.

 

Class envy is how we get to a Marxian dystopia. It is very persuasive, but it is wrong. More information: https://www.youtube.com/watch?v=vrt6msZmU7Y

Wed, 04/30/2014 - 20:37 | 4714356 Incubus
Incubus's picture

I think there needs to be some limit on fucking net worth. 

 

At what point does it become absurd, and ridiculous that you can have a net worth of 15 billion dollars and own 20 fucking yachts and 6 mansions? and have a gold digger waiting at each pad?

 

Shit, seriously.  Ability to amass extreme amounts of $$$$ is moreso indicative of amorality or psychopathic behavior than any sort of greater intellect or ability. Limit that shit.

 

 

Wed, 04/30/2014 - 21:38 | 4714553 lex parsimoniae
lex parsimoniae's picture

Nah; just level the playing field and we'll kick their asses.

Wed, 04/30/2014 - 22:03 | 4714638 Relentless101
Relentless101's picture

It's called socialism dip shit. It's the thing that's near opposite of why the founding fathers started our country. You want 20 yachts, great. Get to work and work harder than everyone else. People are either in or in the way. And you are certainly in the way. Lets just mandate that no one can work more than 8 hour day. I mean, I don't really want to work more. So all I have to do is make it so no one else can and I'm good. FUCK YOU.

Wed, 04/30/2014 - 23:33 | 4714862 Incubus
Incubus's picture

My god, you are fucking daft if you think "hard work" gets you anywhere in a thoroughly corrupt society with no checks and balances. 

 

What, go start my own business and get taxed to death?  Sorry, very few start up businesses are going to get to the point where anyone is going to be able to "buy 20 yachts" by hard work alone.

What you're proposing is just rubbing shoulders with an already corrupt elite class.

 

You're either naive, or some retarded ass boomer who grew up in the easy times and think "hard work" gets you justiably anywhere in current day American Society.

 

And 8 hour shifts are a breeze, you lazy fuck.  I bet I can "outwork" your dumbass any day of the week. 

 

What, let's say a net wealth cap of 15B per individual is too low for you?

 

Wanna know how I know you'd give up your whore ass for the right price? 

Sun, 05/04/2014 - 13:55 | 4726165 TheRedScourge
TheRedScourge's picture

"My god, you are fucking daft if you think "hard work" gets you anywhere in a thoroughly corrupt society with no checks and balances.

What, go start my own business and get taxed to death?"

So what you're saying is, ignore the fact that the taxes in your scenario are the actual thing that's to blame, and focus on the symptom, which is that hard work isn't rewarding anymore?

 

Okay, I'll bite, but rather than saying "here's what I define as hard work so lets tax the shit out of everything else", I'm going to as I already said, focus on the actual problems, no the symptoms, which are taxes which the big guys can afford to pay the fees required to dodge but the little guys cannot, and the ability and profitability of buying the courts and the media, which again, the big guys can afford, and the little guys cannot.

To fix that, you've got to sour the milk, make it no longer pleasant for them to do that, so you have to make it unprofitable. How to do that, you ask? You strip the ability of any court to regulate any industries, and empower the property owners and individuals whose legitimate rights are being stomped on by the big guys with the full blessing of various levels of government. What's the point in buying the courts if doing so no longer grants you any advantages? None, it just becomes an unnecessary expense, raising your prices compared to everyone who doesn't do that.

If you give the little guy thorns to fix to their backs, the big guys will have to constantly have to watch where they're stepping. Empower the civil court system, where the court cases actually have victims who actually have birthdates and where they've suffered material damages from someone else's activities, and neuter the federal court system, which the big guys already own anyway.

Thu, 05/01/2014 - 01:20 | 4715023 Reci
Reci's picture

Your taking it wrong because your taking it literally. His point is to fix the inequality that causes severe income inequality (meaning little to no middle class). He's not saying that everyone should be paid equally or have the same amount of money the way I interpret what was written.

Also, while his points may be considered "utopian", yours are closer to fantasy. You must have been the baby that sprinted out of your mother's womb...crawling be damned. ;)

Wed, 04/30/2014 - 20:00 | 4714265 Stoploss
Stoploss's picture

Where is the man on the street in the chart??

 

 

 

Oh!  I see, we the man under the street..

Fuck i thought we weren't on the chart there for a sec...

Wed, 04/30/2014 - 19:54 | 4714237 Buckaroo Banzai
Buckaroo Banzai's picture

"3. Tax unearned income at much higher rates than earned income."

Well, technically, income is NOT wages. Presumably that's what he means by "earned income." So he is wrong there.

Second, if income isn't "earned" then what the fuck is it? People expect a return on their investments, and since there is risk involved, then it sure as fuck is "earned." So he is wrong there too.

Third, how about ELIMINATING all direct taxes, including all taxes on wages AND incomes, just like the FFs did in the original Constitution? That is the only thing to do that is consistent with Liberty.

So he's wrong there, as well.

THREE STRIKES AND YOU'RE OUT.

PS-- ok at least he is right about the Fed.

Wed, 04/30/2014 - 20:16 | 4714285 ACP
ACP's picture

I totally agree with what you're saying, but "unearned income" is actually a technical term for rent, pensions etc, or better known as passive income.

And I totally disagree with the author's wanting to tax capital gains (and unearned income) at higher than income tax. That is flat out stupid. That would totally eliminate the incentive to build and re-invest in a business for the long term.

 

Wed, 04/30/2014 - 21:36 | 4714546 lex parsimoniae
lex parsimoniae's picture

100 up arrows for stating what should be the basis for any discussion about taxation; LIBERTY.

Direct taxation was forbidden as it was, and remains, incompatible with freedom. There should only be a tax on transactions for several obvious reasons among which are:

1. I can choose to save every last penny I earn if I want to. Doesn't feed me very well and I may not have any stuff. But I'm free to keep my property aka earnings (the concept being that life-energy was expended > my property is an expression of my life > property is sacrosanct).

2. It is transparent, therefore it is throttled by the free market when it becomes onerous.

 

A bit off topic:

I am continually amazed that the proponents of a flat tax on income seem oblivious to this underlying principle.

 

 

Wed, 04/30/2014 - 22:45 | 4714749 Buckaroo Banzai
Buckaroo Banzai's picture

Lex, I have been fighting this battle here for years. I too find it fascinating--and a little disturbing-- that this point is not already completely obvious to anyone who bothers to find their way to ZH-- aside of course from the occasional waves of trolls we get from Huffington Post or similar venues.

Anyways. Always nice to see a new face on the same side.

Thu, 05/01/2014 - 04:41 | 4715149 Reci
Reci's picture

I'm prepared for the many downvotes that are likely to come from the "keep what you kill" reactionists with self serving definitions of "freedom" I often see here among this great community but here it goes anyway...

if income isn't "earned" then what the fuck is it? People expect a return on their investments, and since there is risk involved, then it sure as fuck is "earned."

If your true focus is to stamp out the inequality of income inequality then you must separate in some way the work of the individual from the compounding work of the individuals wealth.  Meaning, the only way that an investment can be considered "earned" is if the increase in value doesn't depend on the price being driven higher in value through a PUBLIC ponzi investing system where all owners are not in control of the price of the investment nor the pertinent timely information that controls the investment's price changes.  Thus, if you want to buy a collectible for an investment then that is fine since the value and sale price is directly determined by the owner's and sellers and it's up to you to find someone else to sell that newly owned investment. 

OTOH, in the stock market, you can purchase advantages that allow you greater abilities to compound your gains and limit your losses.  This means, the more money you have, THE EASIER IT IS TO MAKE MORE MONEY! You can buy BS time on CNBC and the MSM to convince unknowing investors that they should invest their savings among tons of other ways to manipulate the system, hide your assets and bribe Congressman to customize tax and accounting laws to increase your wealth for any public investment.  The fact is that compounding money begets compounding power which begets more compounding money.  This is what creates systemic inequality.  Thus, you must siphon off some of this compounding money that comes through the use and manipulation of large scale public markets.  Now, to make it palatable to the small honest investor, you could exempt a portion of gains up to maybe 100K then start taxing more aggressively but you can't let multi-millionaires and billionaires gain an easy 10%+ on their public investments and expect them not to gain/have complete control over the entire system and it's future in short order (oh wait...that is what happened).

Third, how about ELIMINATING all direct taxes, including all taxes on wages AND incomes, just like the FFs did in the original Constitution? That is the only thing to do that is consistent with Liberty.

What you fail to understand is that "Liberty" was lost when it was allowed/accepted (greed is good) people to gain the level of wealth and power available only to Kings (in our FF's day) that decided they were more special than everyone else and wanted to maintain a class system where only the peasants were required to pay to keep the Kingdom running. That's the benefit of convincing the peasants that the aristocracy billions should be treated no differently than their thousands.  The only difference is the peasant base is so large now that the Kings must use the working peasant money to pay off the non-working peasants to pacify any growing sense of anger that might cause an uncontrollable uprising if not provided something to lose.  BTW, if it's any consolation, the elite ones did eliminate all direct taxes to themselves and their companies so there is that to comply with your request.

PS.  For those that may attempt the lame elite argument that the rich may not pay more on a percentage basis than average people but they do pay quantifiably more and as much as they are legally entitled to then I say thank you for proving my point that fools can be easily manipulated by statistics just as easily as tax laws can be manipulated by corrupt lawmakers and markets by corrupt traders.  The question is "is it right, healthy and sustainable?"  Frankly, I find it shocking when someone attempts to extol the virtues and sainthood of someone like Bill Gates for instance who may donate a large sum (by poor people standards) to some charity but that same person will make no acknowledgement of someone who gives a greater part of their income of which that income is more dear to their survival.  Again, this is due to the manipulation of the peasant mindset that extreme excess is unquantifiable and thus equal in value to critical need resources so they should be compared on a 1-to-1 basis.  What this inherently means then (to those who sadly subscribe to this notion) is that no average person could ever be considered more generous than Bill Gates nor any other 1%'er. Fortunately for the elites, not only do many regular people agree but the IRS has unsurprisingly been convinced of this also.

 

Thu, 05/01/2014 - 05:49 | 4715193 BlauGloriole
BlauGloriole's picture

With 3) CHS positons himself closer to the socialist mindset with more clarity than in most of his other writings.

Wed, 04/30/2014 - 20:48 | 4714423 scottch
scottch's picture

The blogger has laid out the ideal path to world war but usually the rich don't die in world wars.

Sun, 05/04/2014 - 14:02 | 4726189 TheRedScourge
TheRedScourge's picture

Marx was wrong when he predicted a worldwide proletariat uprising, it was limited to Russia. So the response from the Marxists wasn't to admit they were wrong and continue on, it was, predictably, "how do we forcefully acquire fulfilment of our dear leader's prophecy?".

In a rare stroke of brilliance, they concocted the idea of Critical Theory. It was the perfect tool for dismantling the social class harmony that the free market had brought the western countries. Arrange for several decentralized but coordinated attacks from all sides against the culture of the West, until the criticisms become popular and the people willingly dismantle the culture that brought them wealth and happiness. Since the attacks are all decentralized and run in a manner that is apaporently independent of any political origin, the culture cannot easily figure out who is orchestrating the attacks and label it some sort left-wing conspiracy, at least not until it is already too late and the message has rooted itself in a powerful way in the society.

 

Here's a breakdown, in video form, for those without a measurable attention span:

 

https://www.youtube.com/watch?v=vrt6msZmU7Y

Wed, 04/30/2014 - 19:45 | 4714219 DeusHedge
DeusHedge's picture

Yes but what if the Fed was running like it was in the 80's? The reason we can't delete the fed is the same reason we can't get anything done in Congress.

Wed, 04/30/2014 - 19:46 | 4714221 darteaus
darteaus's picture

"...abolish the Fed and print the new money directly."

"Tax unearned income at much higher rates than earned income"

 Nut job.

 

Wed, 04/30/2014 - 19:53 | 4714243 Cugel
Cugel's picture

Right. Shouldn't the first solution be not giving them the free money in the first place?

At least try that before these resentment-as-policy schemes.

Sun, 05/04/2014 - 14:10 | 4726203 TheRedScourge
TheRedScourge's picture

How dare you be sensible and try to strike at the root of the problem, this article is about scapegoating the symptom and turning a blind eye to the root so it can grow deeper while we all unite in striking at redundant branches.

Wed, 04/30/2014 - 19:58 | 4714229 Dre4dwolf
Dre4dwolf's picture

I propose three straightforward solutions that will systemically rectify wealth and income inequality.

1. Rather than add taxes to fund more social welfare--in effect, placing a Band-Aid over the tumor--let's start by removing the source of rising inequality: the Federal Reserve. 

 

 

Yes, that would be the easy way, but we live in a corrupt world, the criminals wont let go of their darling ponzi bank without a fight, and since they have congress, the executive branch in their pocket, not to mention the judicial system bought and paid for, there is little hope of anything like this happening soon, short of a complete collapse, to which I would add if happened, would only open the way for a more barbaric system then the federal reserve, if these chains of slavery fail, they will just forge stricter more tempered chains and the status quo will continue , except this time instead of debt as a tool of enslavement, we will have clubs and riot shields to contend with.

 

You need a monetary model, that does no rely on a central authority (a human one atleast).

You need a currency that is impossible to counterfeit.

Crypto Currency is the "ideal model" but it has the flaw of being centralized via the exchanges.

Gold is somewhat annoying to use, because its very difficulty to spend in an online virtual world (you would inevitably endup needing a warehouse to store your gold and digitize it) which will inevitably endup corrupted and fractionalization of gold will happen.

Paper currency is a joke at this point, we are lucky it lasted as long as it did. . . 

Really

What we need is a cash-less society/resource based economy.

The problem is such a model is only possible theoretically and falls apart in practice.

 

So-far the most promising model is crypto-currency, BUT the flaw is the exchanges, since they just become a digital warehousing system.

The payment system, needs to become self-solving, self-maintaining, self-storing, self transacting, self securing, and exchanges need to be made illegal.

Currency should simply flow from wallet to wallet (without the need of an exchange).

Where you have the opportunity to exchange one currency for another, you inevitably endup with fractionalization of all currency involved.

So such activity needs to be eliminated to free the currency from speculation.

 

The Next Gen currency:

-Must be free from third--party money changer services

-Must be transferable from peer to peer only

-Must be Instant

-Must be secure

-Must be impossible to counterfeit

-Must be free from centralized authority

 

And any and all governments must be free of taxation, you must have no taxation, governments must operate on donation only basis (fund raisers).

If you want to fund a war as a government, you should have to sell war-grants.

If you remove the profit from war, war will cease to exist.

 

When you come to these realizations, you see that money, banking and fraud + governments are responsible for 90% of the worlds problems.

 

Wed, 04/30/2014 - 20:32 | 4714346 withglee
withglee's picture

Very simple:

1. Know what money is: "a promise to complete a trade"

2. Certify trading promises (i.e. traders "create" money)

3. Recover and extinguish certificates (money) on promised delivery

4. On failures to deliver (DEFAULT), recover and extinguish certificates with INTEREST collections.

Result:

1. Money freely available to "all" traders, at all times, everywhere

2. INFLATION of money guaranteed to be zero at all times everywhere (INFLATION = DEFAULT - INTEREST)

3. Irresponsible traders (like governments who just rollover (DEFAULT) trading promises) would be excluded by exorbitant INTEREST charges

4. Responsible traders (who don't DEFAULT) would enjoy zero INTEREST charges.

System is totally objective. Just monitor DEFAULTs and collect an equal amount of INTEREST. No one "profits" from managing the system or being first to touch the money.

Rather than remove the Fed, create this proper management of this Medium of Exchange (MOE) in the Department of the Treasury and make it constitutional. Then let the Fed try to compete. They can't and they will wither on the vine. Also, the Federal Government will have to become a responsible trader (quit rolling over trading promises) or shrink dramatically.

Wed, 04/30/2014 - 22:47 | 4714751 Dre4dwolf
Dre4dwolf's picture

This is indeed an interesting model, its like a demand based loan without interest.

Essentially everyone can create credit for the purpose of performing transactions, but those who never hold up their end of the bargain get barred from transacting any furtherand/or have to pay the defaulted upon money back via interest on their next transaction.

"Ok you can default, but good luck doing it again" essentially.

Its almost like a three strikes and your out kind of system, credit scores would actually mean how credit worthy you are, instead of how ripe you are for exploitation (todays system).

Which would be a nice change.

best way I could describe such a system would be . . . 

A mans word would be his bond, and his bond would be his money.

Thu, 05/01/2014 - 09:27 | 4715588 withglee
withglee's picture

Actually this has always been the case. Its roots are in the three step process of trade itself: (1) Negotiation, (2) Promise to deliver, (3) Delivery. In simple barter, (2) and (3) happen on the spot. Money allows (2) and (3) to happen over time and space. Once a trading promise is certified (i.e. money is created), those certificates (and accounting records of them) trade as items of simple barter. We are all familiar with this.

When we buy a car or a house, a bank certifies our promise. We give those certificates to the seller.  We then return those certificates monthly until we have met our promise. We obtain the certificates we return through simple barter (trading our hours to our employer or customers for certificates). Supposedly, if we fail to deliver, the bank makes good on our promise.

But do they? No ... we as a marketplace of traders do. The banks who certify our trades buy insurance on the transaction and bundle the premium into our trading promise. Then they charge interest, and bundle it into our trading promise. They take a down payment and bundle it into our trading promise. They hold all the collateral (the car or house) in their name so they can take it back any time. And they add their profit into our trading promise. Makes you wonder how they can ever fail.

But what if delivery (3) doesn't happen ... who's left holding the bag. Supposedly the insurance company and the bank. And if they fail, another bank absorbs them and sticks it to the depositors (i.e. depositors get Cypressed), and if they fail ... TARP (i.e. the marketplace takes the hit ... ultimately through INFLATION ... taxpayers don't even cover the government's INTEREST on their junk bonds ... treasuries).

And if it's the government making the trading promise, they just rollover the promise (pay it with a new bigger promise) and go on. Since these rollovers are DEFAULTS, and since governments pay little or no INTEREST, INFLATION results. And INFLATION is paid by the marketplace as a whole ... as is TARP.

So it is the marketplace that's backing these trading promises ... not the government, not the Fed, not the banks ... and certainly not gold (only one ounce ... $1,300 ... per each trader on Earth).

What's worse, governments, the Fed, and the banks are perpetually working against the traders. They arbitrarily manipulate the certification of trading promises (tight or loose money) creating and front running the so-called business cycle, they arbitrarily collect INTEREST (LIBOR), they arbitrarily create money (QE, stimulus, TARP), and they arbitrarily buy support (welfare, insurance for the uninsurable, food stamps, unemployment compensation, open immigration).

Is it any surprise the system doesn't work for the traders? ... it works fine for the international bankers and governments (up to the revolution).

But observe, in spite of all this, money is still "a promise to complete a trade". It always has been and it always will be. The issue is the proper management of the Medium of Exchange (MOE). Address this issue objectively and transparently and all the problems and corruption of the process go away.

 

Wed, 04/30/2014 - 21:42 | 4714570 lex parsimoniae
lex parsimoniae's picture

Your "Next Gen" currency sounds alot like barter.

Wed, 04/30/2014 - 22:12 | 4714672 dizzyfingers
dizzyfingers's picture

Why doesn't your green triangle work?

Wed, 04/30/2014 - 22:38 | 4714729 Dre4dwolf
Dre4dwolf's picture

My post is too l33t to be rated aparantly  ;P

Wed, 04/30/2014 - 22:50 | 4714758 Buckaroo Banzai
Buckaroo Banzai's picture

No, you started your post with text in italics. It is a glitch in the ZH commenting system that you can't use the green arrows under such circumstances.

There is a geek way to do an upvote despite this, it involves viewing the HTML page code and clicking the upvote link in the raw code... Such a bother.

Wed, 04/30/2014 - 19:48 | 4714232 drendebe10
drendebe10's picture

Fat frackin chance, fat frackin chance...

Wed, 04/30/2014 - 19:59 | 4714260 MFL8240
MFL8240's picture

Print more money and make everyone rich till the fat lady sings!

Wed, 04/30/2014 - 20:40 | 4714384 machineh
machineh's picture

'print the money to pay Social Security benefits in the Treasury'

Magic Money Tree alert: advocacy of inflationist fraud.

Where do these statist flakes come from, anyway? This author, if I'm not mistaken, is from Kalifornicate.

IT FIGURES ...

Wed, 04/30/2014 - 20:02 | 4714266 slightlyskeptical
slightlyskeptical's picture

A million stars up! This is exactly the kind of solutions that we need. I posted quite similar on here. It does seem that Zero Hedgers aren't happy with any solution that doesn't include their gold going sky high.

Wed, 04/30/2014 - 22:53 | 4714634 SWCroaker
SWCroaker's picture

I don't think so.  I do believe they prefer fixing the cause of the problem, rather than letting the problem persist and just seizing money and redistributing it after the fact.

Would you fix a persistently flooding basement by just getting larger and larger pumps?  We'd rather regrade around the house and never need the pumps in the first place.

Losing the Fed is a start.  But without also trashing fractional reserve lending, you still have a system that is designed to funnel money over time into the pockets of a few, as well a one that promotes wild swings in the money supply.   Taxing to fix a problem of money winding up in the wrong spot is just theft, even if it claims to be for a good purpose.  

If we had sound money, with no ability for government to play with the supply at all, I defy them to get away with almost any onerous form of taxation.  Stealing when you can't be detected is one thing, doing it upfront and personal is quite another.  And without a fantasy unlimited budget, one would hope that simple reality might finally prevail and limit government to a few key functions, instead of this 33 page list of Gov Grant programs: http://funding-programs.idilogic.aidpage.com/

Thu, 05/01/2014 - 00:30 | 4714962 slightlyskeptical
slightlyskeptical's picture

I believe the author is also advocating getting rid of the Fed and fractional reseve banking, thus the mentioned major deflationary forces. I have always advocated doing so myself 

 

Wed, 04/30/2014 - 20:09 | 4714287 buzzsaw99
buzzsaw99's picture

1. Let it burn.

Wed, 04/30/2014 - 20:11 | 4714291 kchrisc
kchrisc's picture

"Want To Fix Income/Wealth Inequality? Here's How'

End the Fed and the Feds!

The American people's first and foremost weapon is to just quit paying, Let them try to maintain their house of cards ponzi without the stolen labor and wealth of their victims, the American people. They can't. And if one understands how the fraudulent-reserve banks work, they will realize that they stole the money they "loaned" you in the first place.

Then just quit paying, obeying and playing.

The Four Rs
Rejection: Quit paying, quit obeying, quit playing.
Revolution: It is inevitable, so prepare, as they are.
Retribution: Is there really any place for these sociopaths and criminals in a
restored civil and Constitutional society?!
Restoration: Restore the Constitutional republic.

Wed, 04/30/2014 - 20:26 | 4714333 Alternative
Alternative's picture

That's ok but I would hate to end up in jail alone. Or maybe just with a few guys.

Which would make it into useless sacrifice for a bunch of morons, who can't care less.

Wed, 04/30/2014 - 20:14 | 4714302 I Write Code
I Write Code's picture

OK. #1, end the fed, might be a good idea or not, I think simply putting it back in the box it came in before 2008, better before 2001, and best yet before 1991, would be sufficient.

#2, print money to pay SSN, is already being done, I believe Bernanke was very clear on that concept from early on.  You realize that 6.2% is paid by both sides so it's 12.4%, right?  So should that be eliminated?  To make a long story short, I think it would be better to (a) merge it back in with the income tax, and (b) readjust tax rates so EVERYONE pays at least a few percent.  This would make it less regressive and be more or less revenue neutral, and bring half the population back into the game where they should CARE about government spending because they are funding it, however modestly.

#3, tax unearned incomes at higher rates above $250k.  Hey, how about just call it regular income, except you can index it for inflation, so something you hold for twenty years and doubles would show a loss rather than be taxed.

Would the sum of #1 + #2 + #3 be enough?  Nope.  All good moves, but would have virtually no effect on anything.  Our problems are far worse than that.  So do I have any constructive suggestions?  Er, ... not fully worked out, no.  The problem is hard, the solution harder, and none of the old econ books is worth the pulp they're printed on anymore.

But doing nothing, is almost certainly not optimal, either.

Wed, 04/30/2014 - 20:18 | 4714313 Grouchy Marx
Grouchy Marx's picture

Agree with the first item, but you are clueless on the others. Why don't we just take all the money from the producers and give it to the non-producers?

The reason we shouldn't is because it a) is immoral, and b) it won't work - ultimately it will mean poverty for all. Venezuela, Zimbabwe - how many examples are needed? 

If you want wealth in a country, make it a productive country. Protect and support manufacturing, and the markets they serve. Wealth is created by only two general activities: extraction (mining, farming, etc) and transformation: (material processing and manufacturing). If you don't have the mining resources, you better have manufacturing. If neither, join the ranks of the very poorest third world nations. Stealing from the rich is just fighting over the last crust of bread. 

Wed, 04/30/2014 - 20:34 | 4714361 fonzannoon
fonzannoon's picture

I'm just curious, I was emailing back and forth with someone who read this article and this is what they had to say. Any feedback?

"CHS is such a cheapskate, he is going to *ONLY* provide $800bil for households (and abolish SS taxes which will somehow result in money created to be redistributed but nevermind that lol)

 

but there are 115mil households in the US, meaning CHS is proposing relief in the form of a mere $579/month per household lol, like he says, that is nothing...

 

this is bullshit, to really do anything we need at least triple that ($1800/month per household), meaning 2.4 tril, 1.5tril of which will be paid by an 18% VAT to cool velocity, and the other tril to be absorbed by Belgium. That way you are really cooking and both the handout and the VAT become added monetary policy tools for future velocity setting by the Fed. "

Wed, 04/30/2014 - 21:22 | 4714516 acetinker
acetinker's picture

Fonz, I caught this entry at OfTwoMinds before it got posted here and thought to myself: No way Tyler's gonna re-post that.  As usual, I was wrong.

I figured Charlie'd get his ass handed to him for suggesting the 800bn thingy.  He suggests that would be OK cos' current Fed policy has not resulted in substantial inflation.  First of all, he must have servants who buy his groceries and doesn't bother checking the receipts.  The truth is that the Fed's policies have been substantially inflationary for the S&P and DJIA.  Absent Fed policy, those watery eyes traders have would be considerably more red, as in boohoo.

My 2 cents.

Wed, 04/30/2014 - 22:19 | 4714687 Spumoni
Spumoni's picture

Finally a little reason under this article! Constructive thought. Thanks! I believe that the article makes a good jumping-off point for conversation. Killing off the rich is as idiotic an idea as was ever spawned - every society requires leaders. It is useless to say that you will make the poor strong by tearing down the rich. There are among them many who actually earned their money (and some there who use much of it for the common good). There are also many who live in bubbles and who were handed their wealth by others. They are weaklings in powerful positions, which leads to corruption and disaster. But who decides who dies? I think I prefer to leave them alive, to let them watch their ill-gotten gains evaporate.

Turning the money spigot onto the masses instead of the banksters is quite an interesting topic. Had the government given everyone the title, free and clear, to their primary residences in the aftermath of 2009, much pain would have been avoided, and masses of people, with equity in hand, would have rebuilt the economy without the 'genius' we have seen in DC since. The banks wouldn't own outright all the houses and land they have stolen since. 

Wed, 04/30/2014 - 20:43 | 4714391 g'kar
g'kar's picture

"I say we take off and nuke the entire site from orbit. It's the only way to be sure."

Wed, 04/30/2014 - 20:52 | 4714433 Steve in Greensboro
Steve in Greensboro's picture

As usual, Chuck-you ranges from merely retarded all the way to nuttier than a fruit cake.

Wed, 04/30/2014 - 21:39 | 4714558 the0ther
the0ther's picture

And you range from dumb redneck to cornpone Nazi.

Wed, 04/30/2014 - 21:01 | 4714466 tony bonn
tony bonn's picture

charles - your 2 minds are working at top speed today - your ideas are magnificent. thank you!!!!

Wed, 04/30/2014 - 21:23 | 4714520 tahoe1780
tahoe1780's picture

Personally, I'd be OK with the proposed Fair Tax.

  http://www.fairtax.org/site/PageServer?pagename=HowFairTaxWorks

Abolish the IRS and all income taxes.  Everyone with a valid Social Security number gets a monthly "prebate" check and buyers pay a sales tax on new items.  (Citizens get prebates, everyone (drug money, prostitution money, laundered money, skimmed money, etc.) pays taxes on the purchases supporting their lifestyle.  In this era of diminishing resources, I think a consumtion tax is appropriate.

Wed, 04/30/2014 - 21:54 | 4714609 BIHM
BIHM's picture

Those are intersting but honestly if you simply remove the free put option the Fed has established for the market, money would flow out of the financial market and back to risky ventures that result in job creation.  Second fix the tax code to incentivize private sector investment.  All the othe stuff helps but income gap (I fucking hate the term income inequality as it's not inequality if people who are not producing aren't being fking paid well - equal pay for equal production is not what we are talking about) is due to a lack of opportunity to produce i.e. quality jobs.  There are a lack of quality jobs because fixed investment has been reallocated to a riskless high return financial markets.  Make the market risky again and there will be a reallocation back to job creating investments.  Fixing the tax code is an obvious and easy complentary solution.  The real problem with a widening income gap is that it results in low money velocity which exascerbates the cycle downward and eventually even the top of the food chain begin to feel the effects.  And they have in reduced demand depicted through zero revenue growth.  So the income gap problem is much worse than a social matter via collapsing money velocity (which is at an all time low) it is a terminal economic illness. Done and fucking done. 

Wed, 04/30/2014 - 21:59 | 4714622 g'kar
g'kar's picture

Despite just getting a root canal, this seems to make sense.

Wed, 04/30/2014 - 23:36 | 4714876 stopthejunk1
stopthejunk1's picture

It is an old conservative, Reaganesque lie that rich people care about creating jobs.

 

They don't.

 

If they can find a way to hoard more wealth to themselves without conducting any commerce at all, they will do it.  And they have done it, plenty of times; they speculate, and this is the cause of all financial crashes, including the 2008 crash, the 2000 crash, the 1987 crash, the 1929 crash, and everything in between.  Honest people doing honest business is not what created those panics and bubbles.  Nor did the Federal Reserve or any other government boogeyman create them.  It was the greed of the rich speculators, every time.

 

This is why we must not rely on markets, economies, and the generosity of oligarchs in order to secure an income for ordinary people.  We must mandate an income for everyone that allows them to live with a roof over their heads and their basic needs secured.  This is a precondition for real prosperity.  everyone always talks about freeing the rich from all their constraints so that they can innovate and create wealth: well what about freeing the poor from their constraints, for the same reason?  And do not throw Malthus at me: there is plenty of wealth in America to take care of every man, woman and child for eternity, and this will always be the case.

Thu, 05/01/2014 - 00:55 | 4714994 I Write Code
I Write Code's picture

But there is the moral hazard of offering too rich a "safety net".

Or at least that used to be said, and maybe it used to be the case.

Now that there aren't any jobs, well, maybe things are different.

Wed, 04/30/2014 - 22:07 | 4714656 Yes_Questions
Yes_Questions's picture

 

 

A corrected distribution of the currency is in order to address the current disorder.

 

no doubt.

 

It's probably not beneficial now to have accumulated currency drawn from the holders of significant balances, however. 

 

But ending the fed and shifting the issuane of the currency away from a debt-money regime may also be more than the current (however shitty) system could take.

 

I wondering about unintended consequences, but agree its past time for a change here.  

Wed, 04/30/2014 - 22:08 | 4714662 Westcoastliberal
Westcoastliberal's picture

Mr. Hugh-Smith not only do I agree with your idea, I salute you for at the very least proposing a solution.  In a world where we mostly see a chorus of "let me prove the doom we're in"; you air, are shining light on a way out of our predicament.

So if we can accomplish what you suggest, would it be too much to ask to get money out of politics, or is that a pre-requisite?

Wed, 04/30/2014 - 23:30 | 4714867 stopthejunk1
stopthejunk1's picture

"Money out of politics":  Everybody wants that; but nobody knows how to achieve it.

 

I do not think we will have incorruptible politicians until we are governed by machines.

Wed, 04/30/2014 - 22:21 | 4714691 Stuck on Zero
Stuck on Zero's picture

Or ...  we can do nothing and wait till the whole systems crashes and resets.

 

Wed, 04/30/2014 - 22:32 | 4714710 dizzyfingers
dizzyfingers's picture

No Liberty in that plan. Aren't earnings personal property?

Wed, 04/30/2014 - 23:29 | 4714850 stopthejunk1
stopthejunk1's picture

You assume, incorrectly, that all the income that accrues to a person is "earned."

Reasonable people disagree with that assumption.

 

CEOs, for instance, are paid far beyond what they are worth, and they do not "earn" any of it.  The fact that an economic system has been perverted to allow a very few people to hoard a majority of the wealth, does not mean that those people have "earned" anything.  What it means is that the economic system is broken, and is in need of reform.

 

Fully 25% of national income in Belle Epoque Europe was from capital gains on inherited wealth.  We are approaching similar levels in the U.S.  Income on inherited wealth is clearly not "earned."  Picking which hedge fund to put your silver-spoon money in, e.g. Romney, is not "earning" anything.  

 

The top 1% own 50% of the stock market.  That's too much.  Time for change, period.  And not incremental change either: drastic, discontinuous change.  Yes, a lot of blue-hairs will feel their balls shrivel up in their shorts, and clutch at their chests.  But so what?  They do not deserve what they have.  The true nature of humanity is cooperation and sharing.  Our perverse economic system has create monsters among us... but this can be corrected, once enough people understand the truth.

Wed, 04/30/2014 - 22:35 | 4714722 dizzyfingers
dizzyfingers's picture

Might as well add this here, about the concept of private property: http://starvingthemonkeys.com/articles/BundyParadox.html

Wed, 04/30/2014 - 23:00 | 4714771 malek
malek's picture

"Solutions" 2 and 3 are both effectively proposals to steepen the overall progressive tax rate, which is another way of saying we need more socialism.

I have news for you: we have had progressive tax rates for almost a century and they didn't stop this situation from occurring.

Wed, 04/30/2014 - 23:14 | 4714826 stopthejunk1
stopthejunk1's picture

And I have news for you:  In the 1950s, the top income tax rate in America was over 90%; inequality was much less severe, and the economy prospered.

 

Confiscatory, redistributive taxes do not hamper an economy.  They do not discourage innnovation.  They do nothing except make things more equal, which means, less miserable for those at the bottom that do not win the lottery.  Every assertion to the contrary is absolutely contradicted by data, and is nothing but conservative/libertarian propaganda.

Thu, 05/01/2014 - 01:19 | 4715022 malek
malek's picture

Now explain to us why they don't make it equally miserable for all.

Wed, 04/30/2014 - 23:05 | 4714797 Mr.Miffed
Mr.Miffed's picture

Mr. Banzai,
Keep fighting that fight! I was at one time lost in the same thoughtless camp. Uninformed about the Constitution and our freedom from income taxes. It was your comments on many different articles that educated me and changed my position to align with yours. It may seem an endless fight but you are winning victories even if you don't see them.
Thank you.

Wed, 04/30/2014 - 23:11 | 4714818 stopthejunk1
stopthejunk1's picture

#3 is correct.  The other two are hogwash.

 

It's true that the printing of new money benefits the ultra-rich, since they spend it first, before price levels rise.  But this would be the case even if the money were printed outright rather than borrowed.  The interest on the debt is the only difference, and that is not big enough to explain the insane wealth inequality we currently have.

 

Getting rid of the Fed is a distraction.  The only thing the Fed does is exactly what the Congress would do itself if the Fed did not exist.  Nothing would change, except that we'd have a lot more volatility, since monetary policy would be more directly politicized.  

 

What is needed is more progressive taxation.  You keep making the taxes more and more progressive, until inequality is reduced to acceptable levels.  And you do this in a global way so that wealth cannot simply flee one country for another.  This requires treaties and global participation.  

It will never happen anyway, because the rich have bought the politicians.  Until you reform the role of money in politics, all is lost. 

Thu, 05/01/2014 - 02:51 | 4715091 q99x2
q99x2's picture

On Q99X2 we have 12 pyramids that guarantee equality.

Thu, 05/01/2014 - 08:41 | 4715439 headhunt
headhunt's picture

This is a great idea - except it won't work.

Just what we need more government intervention and regs.

Thu, 05/01/2014 - 08:59 | 4715516 headhunt
headhunt's picture

I really like the 'unearned' income part - I have been looking for that 'unearned' income my entire life.

Is that like the IRS agents who don't pay the taxes they owe and still receive bonuses from the paychecks of 'earned' income individuals?

Just asking...

Thu, 05/01/2014 - 10:01 | 4715725 all-priced-in
all-priced-in's picture

Sounds like a redistribution plan to me - where the government is more involved.

This is double failure.

 

Print the money to pay SS?

Isn't the unfunded liability for SS $700 trillion dollars?

 

 

 

 

Thu, 05/01/2014 - 11:43 | 4716189 robochess
robochess's picture

Income inequality... how about a "Footprint Tax" ... the more you consume & the types of things u consume, planes, boats, many homes etc,

Thu, 05/01/2014 - 12:10 | 4716346 zackattack333
zackattack333's picture

Increaing taxes earned from income from rents will do what to housing?????  Please guess

Thu, 05/01/2014 - 14:59 | 4717132 fallout11
fallout11's picture

..

Thu, 05/01/2014 - 15:46 | 4717368 Bemused Observer
Bemused Observer's picture

As much as it hurts me to say this, trying to fix the problem by removing 'excess wealth' from the top is little more than a bandaid. Sure, you'll generate a bit of activity as people have a bit more to spend. But it will be short-lived, and you'll be right back where you were very quickly.

What needs to be done is that the wealth needs to be redirected from its source. It has to be properly DISTRIBUTED in the first place. NOT re-distributed afterwards. One thing I never see is the discussion of labor as a partner in production. Labor is always referred to as a cost, as if the people working were just another commodity to purchase as cheaply as possible. Labor is unique, in that it is both a commodity AND the seller of that commodity...The oil you buy is sold by someone else, as is the wood, glass, copper, etc. But labor is the only commodity that has to also sell itself, and isn't allowed to secure its own profits from the transaction...the employer sets the wage. (Imagine if you told your suppliers that from now on, YOU would set the price you will pay, and they can take it or leave it...)

The problem is the compensation of labor. Labor has gotten the shit end of the stick, because it is still being measured and valued on the hourly-wage, 40-hour work week model. Technology and automation have severed a man's time from his productive output. While that output has grown immensely, his wages have not. So all of his productive output increase went straight to the owner of the facility. One man now does the work of 50...the owner gets the productive output of 50 men for the price of one. One who gets paid AS one. Is it any wonder that all the gains are going to the top? The employment market has 'set' wages artificially low by using an archaic formula to measure its value. Being forced to sell your labor for 8 dollars an hour is like being forced to sell your current gold holdings for 35 dollars an ounce. But if the retail buyers for gold all colluded to 'set' the price they will PAY at 1970's rates, while demanding to sell at the real market rates themselves and pocket the difference, it would be seen as an outrage...Anyone holding gold would feel ripped-off, that their gold was being stolen from them. No one would seriously be arguing that they should just be left alone, no one would say they had a right to do that, or call them 'good businessmen'...And everyone would agree that this kind of situation in an important commodity market would be incredibly destabilizing. So why don't people understand how serious this issue is?

Until the formula for calculating labor's proper compensation is updated to reflect new realities, the owner-classes will continue to reap all the benefits from any future growth. It is just impossible to do it on the old hourly wage model...as long as labor is still tied to time spent, you run out of hours you can possibly work, unless you keep upping the hourly wage, and then you end up with 50 dollar an hour busboys...And it isn't all that hard to ridicule this notion, so the GOP does get some traction in their arguments against raising the minimum. And the owner-class is happy to keep the discussion about what labor is worth per/hour, as they know that they can make the argument look ridiculous by referencing that 50 dollar per hour busboy you'll end up with...And they are right, because raising the minimum wage doesn't address the CAUSE of the problem!

Obviously something has to be done, but it's doubtful we'll get anything more than quick-fixes that can be made politically palatable. The ones who are making out like bandits will continue to make sure that any real reforms are mocked and made to appear ridiculous.

I suppose we'll end up with some sort of wealth claw-back, in the form of taxes or whatever. I guess it will give some folks a bit of extra, better than nothing. But in no way will it fix the problem, because it isn't how much they get or have...it's how much WE get and have that is important. It isn't that they are getting too much, it's that we aren't getting enough. Fix THAT, and you won't have to claw-back anything, because it wouldn't GET up there in the first place!

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