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The financial crisis for dummies Main causes – main solutions Richard Parncutt (Uni Graz, Austria) Special session, ICMPC 2012, Thessaloniki, Greece 28.7.2012.

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Presentation on theme: "The financial crisis for dummies Main causes – main solutions Richard Parncutt (Uni Graz, Austria) Special session, ICMPC 2012, Thessaloniki, Greece 28.7.2012."— Presentation transcript:

1 The financial crisis for dummies Main causes – main solutions Richard Parncutt (Uni Graz, Austria) Special session, ICMPC 2012, Thessaloniki, Greece sodahead.com

2 Sometimes a theory is too simple …so we make it more complex Economics: Communism Eliminate poverty by sharing everything …but who will want to work? Psychology: Reification of emergent properties Universal grammar (Chomsky) …or statistical learning (Saffran)? de.wikipedia.org mobilemoms.wordpress.com

3 Sometimes a theory is too complex so we simplify it Cosmology: Pre-Copernican theory Ptolemy: Earth = centre of the universe Any area: Truth distortion Confusing each other with jargon Solutions: Ockham’s razor Transparent terms and arguments mlahanas.de Is the economic crisis really too hard for ordinary people to understand?

4 My bias Regulated free enterprise to achieve “greatest happiness for greatest number” 1.Prices determined by supply and demand 2.Equality of participation 3.Legal regulation (transparency, contractual fullfilment, debt repayment…) All three points need serious repairs!

5 The wealth gap: The main problem 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 inherent bias of economic theory 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 distortion in 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 – Rags to riches stories (if Bob Marley can do it, so can you) Secrecy – Tax havens are ok (confusion of privacy and secrecy) Emotion – Widows should not pay wealth tax (  wealth tax is bad) 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 debts Different “free lunches” – at enormously different costs Working class Welfare abuse Costs millions Middle class Tax evasion Costs billions Global rich and mega-rich Diverse tricks (tax evasion, derivatives, futures trading, short selling, subprime lending…) Costs trillions ClassWars.org

9 A simple model of the financial crisis Main general cause: Economic globalisation 1.New opportunities for rich to invest and evade tax 2.Reduction of democratic power of governments 3.Power vacuums  dangerous practices  Rich get richer, poor stagnate  Collapse of financial institutions (governments, banks)  Breakdown of free enterprise Obvious solutions 1.Tax the rich 2.Develop global democracy 3.Regulate global markets

10 Steps to sustainable recovery The problems and solutions are moral - 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 fractional reserve banking – Origin of problem: Earning interest by trickery – Solution: Honesty not trickery Banks should return to serving lenders and borrowers!  End dependence on growth

11 Global wealth tax A logical response to: – Economic globalisation – Expanding wealth gaps Why global? Prevent tax evasion Why wealth? That is where the money is Why tax? Legitimate government income

12 1% tax on all wealth Why 1%? Typical rate in France, Switzerland, Netherlands, Norway, and India Goal: End global poverty & climate change Would apply to: All wealth incl. companies and trusts Individual assets above US$ 1 million Implementation: Negotiated by UN, IMF, G20, World Bank Collected nationally (existing mechanisms)

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

14 Reasons for doing nothing 3 urgently needed taxes: Global wealth tax Global transaction tax (Tobin) Global emissions tax 3 reasons to do nothing: Greed Dishonesty Arrogance The main problem is not legal or technical - it’s political and moral

15 1% Global Wealth Tax Special requests: Sign the petition at change.orgpetition Give me suggestions about – content – publicity – funding for a student publicity officer


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