For a while now, I've been saying that the problem is not capitalism per se
, because there are really two "capitalisms": Industrial capitalism and finance capitalism. The first is exemplified by the guy who makes a shoe. The second is exemplified by the banker who loans the shoemaker enough money to start a shoe factory.
As you may have noticed, America doesn't do industrial capitalism as well as it used to. We are now known for our financial "products."
The people who produce these products are killing us. Killing
How bad is it? Prepare for a shock.
Jerry Brown, governor of my old state of California, wants to build two water tunnels through the California delta. The project is necessary, but the cost is murderous.
Not the cost of construction. The problem is the cost of financing
The tunnels were billed to voters as a $25 billion project. That estimate, however, omitted interest and fees. Construction itself is estimated at a relatively modest $18 billion. But financing through bonds issued at 5% for 30 years adds $24-40 billion to the tab. Another $9 billion will go to wetlands restoration, monitoring and other costs, bringing the grand total to $51-67 billion – three or four times the cost of construction.
A general rule for government bonds is that they double the cost of projects, once interest has been paid.
The San Francisco Bay Bridge earthquake retrofit was originally slated to cost $6.3 billion, but that was just for salaries and physical materials. With interest and fees, the cost to taxpayers and toll-payers will be over $12 billion.
This is why the United States was able to create such an impressive infrastructure in the 1930s-70s, and why we can't do it any longer.
It gets worse. In fact, it gets ten times
And those heavy charges pale in comparison to the financing of “capital appreciation bonds.” As with the “no interest” loans that became notorious in the subprime mortgage crisis, the borrower pays only the principal for the first few years. But interest continues to compound; and after several decades, it can amount to ten times principal or more.
San Diego County taxpayers will pay $1 billion after 40 years for $105 million raised for the Poway Unified School District.
The solution: Don't socialize industrial capitalism. Let the shoemakers continue to make shoes; let the road construction guys continue to build roads. Instead...
SOCIALIZE THE BANKS. Make them accountable to the people.
In the last five years, China has managed to build an impressive 4000 miles of high-speed rail. Where did it get the money? The Chinese government has a hidden funding source: it owns its own banks. That means it gets its financing effectively interest-free.
Actually, the situation is more complex than that. China has lots of private banks -- but they still tend to dance to the government's tune. At a time when the rest of the world was talking austerity, China pushed for a massive construction binge. So far, the trick has worked.
Sounds like magic? Well, guess what: The way private banks operate right now is the real
magic trick. In fact, it's little better than a scam.
All banks actually have a hidden funding source. The Bank of England just admitted in its quarterly bulletin that banks don’t lend their deposits. They simply advance credit created on their books. If someone is going to be creating our national money supply and collecting interest on it, it should be we the people, through our own publicly-owned banks.
North Dakota, as you may have heard, has led the way...
Models for this approach are not limited to China and other Asian “economic miracles.” The US has its own stellar model, in the state-owned Bank of North Dakota (BND). By law, all of North Dakota’s revenues are deposited in the BND, which is set up as a DBA of the state (“North Dakota doing business as the Bank of North Dakota”). That means all of the state’s capital is technically the bank’s capital. The bank uses its copious capital and deposit pool to generate credit for local purposes.
The BND is a major money-maker for the state, returning a sizable dividend annually to the state treasury. Every year since the 2008 banking crisis, it has reported a return on investment of between 17 percent and 26 percent. While California and other states have been slashing services and raising taxes in order to balance their budgets, North Dakota has actually been lowering taxes, something it has done twice in the last five years.
Understand? Socializing finance capitalism will lower taxes.
Socializing finance capitalism will mean easier credit for the real
capitalists -- for the "make a shoe" people.
Socializing finance capitalism may be the only way to save industrial capitalism.