Economics and Political Theory

A Proposal: International Debt Swaps

I don’t have much in the way of political influence. Of any sort, really. Though, I am a digital artist. Perhaps I should go into politics at some point? xD Well, putting that particularly amusing thought aside for the time being, I do nonetheless like to try wrapping my head around the problems of the world, much like many others. I suppose in lieu of actually having real political influence, sometimes writing articles on the subject here might provide some psychological relief, at least, lol.

Today’s article is the product of one such session of musing: The international debt swap. It is a financial maneuver that almost certainly has no real utility over other financial instruments except under a most specific, curious, and propitious circumstance: Total imminent collapse of the international financial order. Sounds quite frightening, doesn’t it? Well, not to worry. It’s actually quite a subtle thing.

Consider the following scenario: The United States, and many other nations around the world, have become swallowed up whole with debt. Interest payments exceed anyone’s true ability to service their respective debts, and future generations are so crushingly doomed to wage slavery that the international order is collapsing. What now?

Well, the baseline course of action is default. No one wants to do this, but this will be the case once circumstances make it impossible to ignore that servicing the debt simply will not happen. This isn’t something that can be pronounced from on high. A government can not say, “Oopsie. We’re going to default!” while still having a functioning governing body and relatively robust GDP.

No, such a situation can only occur if, even when the government swears up and down over the graves of it’s 15 deceased grandmothers that it will pay its debts… everyone else simply walks away.

Under such circumstances, a nation has defaulted, both explicitly, and de facto.

At this point, the international debt swap becomes… well, admittedly, a modest proposal thrown onto the interweb and immediately drowned in a sea of bots, sexual filth, electronically aided autistic screeching. But that’s besides the point. It’s a proposal for something that probably won’t save the world, but might nonetheless have some usefulness should anyone with real power and influence see some utility in it, and as well possess enough political will and capital to attempt to carry it out. A slim chance, indeed.

How it Works

For the sake of simplicity, let’s just consider two nations: The United States, and China.

The US and China agree to accept surrender of state issued bonds from all bond holders. The two respective governments now have lots of bonds.
The two governments then exchange equal value bonds of one country for equal value bonds of the other country. China now has Chinese bonds. America now has American bonds.

Now then. Each country then proceeds to do the following:

Write off and retire those bonds, and create new financial instruments that are capped at the current value and maturity of those bonds. No more interest accrual.
Distribute these new instruments to citizens of their own country, in proportion to the tax burden allocated towards those citizens. American taxpayers own American bonds. Chinese taxpayers own Chinese bonds.

What Just Happened?

What just happened is that now, instead of governments owing exorbitant amounts of interest to foreign debt holders, much of this debt is now owned by local citizens of the country that issued that debt. The nation effectively owes the money to itself. Or, at the very least, to it’s own taxpaying citizens.

This means that the money that needs to be raised from those who pay taxes, needs to go back towards precisely those same individuals who pay taxes, in order to service the national debt.

Since the government would effectively be taking money to pay money back to whoever they are taking it from, there’s no need to actually take the money. Instead, the payments can be made in the form of tax credits on citizen’s annual refunds.

The debt is not 100% forgiven. But if much of the benefit from paying off those taxes is given directly to those who do it, then people have a very real incentive to no longer feel like all of the fruits of their labor are being stripped from them to feed someone else’s GDP. It’s also a lot easier for a government to deal with its own citizens when servicing debt than having to rely on another government dealing with their citizens.

Will this magically restore the economy and bring balance and justice to the entire world? Absolutely fucking not. Financial elites will take huge losses. They would have to stomach the positively noxious realization that their colossal financial fuck-ups have gone to help… poor people.

At the same time, however, the system does have its benefits:

The System doesn’t get Overthrown

Hey, would you look at that. No mass round-ups and political executions. No institution of Communist ideology. Since all of this potential capital redistribution is implemented by the old financial order, people have to accept the financial order in order to receive their thrifty FDR-bucks. How nice. Can’t receive tax breaks from the government if you overthrow the government, now can you?

Poor People don’t get Interest

These new financial instruments aren’t sovereign government bonds. The US defaulted on those. Sure, it’s paying off an equivalent amount of debt to new bondholders, but at least those poor plebeians aren’t receiving… ugh… interest. God forbid, right? And those original bond holders weren’t going to receive the money anyways since the system wasn’t solvent.

So it’s really a choice between gaining nothing and gaining nothing. But at least rich people can console themselves with the fact that nobody is going to be able to retire and life work-free off of their investments.

People who Work also Generate GDP

People who pay taxes are people who work. (Rich people don’t work. They hold investments.) When people who work receive more money because of the work they’re doing, that’s called increase in GDP.

But wait, doesn’t that increase in GDP get cancelled out by the debt? Yep. It certainly does. But in practice, this looks like Tax breaks. And since the new bonds are no longer interest accruing, the government can stimulate the economy, relieve overwhelming tax burden, and increase revenue all at the same time!

Well, sort of. Revenue would only increase if those tax breaks stimulated the demand side of the economy, spurring businesses to increase hiring to handle that demand. This may or may not occur, and to the extend that it doesn’t occur, the breaks would essentially look like hand outs.

Rich people hate handouts. But they would love the fact that these handouts have an explicit termination date, and the people who receive them were already those who were already working the most to contribute to GDP via their taxes. They would also quite like the fact that much of the money they make from their businesses now gets to feed back into the economy vs being sent overseas to foreign creditors. More money in the citizen’s pockets, after all, means more money for their to suck up as well, so there would be an incentive to continue business operations.

What this (Functionally) Really Is

Taking a look at this proposal for what it is, it’s probably just universal basic income wrapped up in the clothing of a catastrophic financial meltdown emergency stabilization plan, and cloaked in the vestments and garments of the financial industry to implement. The people on top might grumble, but at least they would get to remain on top as the stewards of such a plan, and that’s infinitely preferable to anarchy, I suppose.

Would such a plan stand a chance at actually being implemented? Maybe. Someone with the power, knowledge of all the levers and the skill to pull them all, in the correct sequence, at the right time, might be able corral something like this into existence. They probably would have to use extreme geopolitical instability to bring large swathes of humanity from the brink of crisis.

Stranger things have happened, I suppose.

Musings on Rebuilding the American and Global Economy

The blog post provides an overview of the current global economic fragility, highlighting the disconnect between corporate profits and individual wealth. It argues that disillusionment with work leads to civil unrest and addresses the flaws in economic theories that assume selfishness. The post suggests the need for legislative reform to address the economic damage caused since the 1980s.

A topic such as this can hardly be treated exhaustively within the confines of a single blog post. Hence, this first post might be better treated as a general overview that briefly surveys various associated topics, with posts delving into more detail to follow.

The Current State of Decay

There seems to be a general state of economic fragility over the current global economy. Large corporations continue to do business as usual, but there is a growing awareness that more and more citizens of America and other countries around the world have less and less money to fuel corporate growth. Economies overall are still trying to grow their GDP, but it has long been accepted that growth is becoming harder and more difficult over time.

This has led to many individuals becoming disillusioned with the world of work in their home countries. This disillusionment has fueled a rising malaise of despair, meaninglessness, and cynical resentment towards individuals and groups/organizations that are believed to be unfairly benefiting over society as a whole. This in turn creates a whole cascade of effects that generally lead to unfocused and undirected civil unrest and increasing violence rising throughout society as a whole. We need not delve into what happens past this point, as I think most people know exactly where this state of affairs leads.

This article isn’t really about establishing the validity of any resentment on one side of the economic divide over another. Wars are fought and chaos is unleashed since time immemorial over who is to blame. Who is right, and who is wrong. I am more interested in exploring the necessary changes that will be required to bring society back onto a more preferable path, revolution or war in the meantime or not. (Though, admittedly, I would very much prefer to avoid revolution. I don’t have the patience for such things.)

And in any case, the blame can not truly be distributed in one direction.

The sophistication of international trade and manufacturing pipelines is far more advanced and technical than most American citizens, I feel, are capable of even understanding or comprehending. That is to say, there seems to be a disconnect between most American’s intuitive internal beliefs about what is involved in producing the vast majority of modern goods and services, and what is actually involved in supplying them.

Likewise, and I could be displaying a particularly American bias in this following observation, but civic participation and understanding in my country, for the vast majority of American citizens, is simply nonexistent. There is little point to living in a Democracy if, for most individuals, there is no real difference in their lives from living within a Dictatorship. And no, it is NOT the responsibility of any government to ensure the civic education of its citizenry. And even if it was, human nature will ensure that no government would do so unless forced.

So, with these preliminary points out of the way, let us discuss the primary assumptions about the foundational components of American Global Capitalism.

The Axioms of Contemporary Economic and Political Theory

The fundamental assumptions of modern economics may be summed up quite succinctly:

People are selfish. Everyone wants everything for themselves, and they will act to do so.
Resources are essentially zero sum game. One man’s fortune is another man’s impoverishment.

Taken together to the most logical extreme, our current underpinning assumptions about economic functioning would seem to imply that the only way forward is war of all against all, and the economic winners are simply the ones who outmaneuver others according to the rules of the game.

Taken together to the most logical extreme, our current underpinning assumptions about economic functioning would seem to imply that the only way forward is war of all against all, and the economic winners are simply the ones who outmaneuver others according to the rules of the game. – No one particularly important.

We may, find some issues with this basic assumption:

Economic rules are superseded by legal rules, which are in turn are superseded by laws of human nature. If the game becomes rigged in the favor of a class of economic winners, then those winners of the economic dance at the expense of others will face lawsuits to overthrow them. If the legal system is rigged in the favor of those economic winners, then the winners of those lawsuits will face violence.

Of course, any society which comes to this point will have a government that has a monopoly on violence. So the economic winners will be able to use the government to inflict greater violence on the poor than the poor are able to inflict on the rich. At least until the government’s resources run out, which nonetheless can be quite a long time.

Having said that, a system such as that just pointed out is no democracy, but rather is a totalitarian state engaged in a constant war of surveillance and suspicion of its own citizens.

Democracy as a concept was invented at the very least as a preferable alternative to such an environment. In the west, many of us at the very least pay lip service to the idea that living in a Democracy is better than living in a Dictatorship.

Behaviorally, however, Democracies tend to fall into dictatorship when individuals of the upper class come to the belief that they can escape the fate of all prior dictatorships perpetually, as well as when the upper classes enjoy a prolonged period of peace long enough for them to forget how utterly miserable it is and impossible to enjoy their material wealth in opposition of endless hordes of resentful everymen.

Another issue with that basic assumption is that it is treated as an absolute, but it is trivial to point to the existence of attitudes of selflessness and non-zero sum behavior in other individuals, as well as idealism and more noble thinking and behavior amongst our fellow kind. Economic theory has no reply to such aberrations, and its own systems work well enough that the existence of such exceptions doesn’t really bother too many. We still get the benefits of industry without being forced to contend with such tricky philosophical questions.

Though, one might be pressed to wonder why anyone would really endorse such an economic theory as bleak and condemning of humanity’s moral character such as what has been brought forth. It doesn’t take much to realize that the basic foundations of our economic systems are built upon, ultimately, the most cynical and misanthropic view of human nature to date.

Though, one might be pressed to wonder why anyone would really endorse such an economic theory as bleak and condemning of humanity’s moral character such as what has been brought forth. It doesn’t take much to realize that the basic foundations of our economic systems are built upon, ultimately, the most cynical and misanthropic view of human nature to date.

So what is Actually Good about All of this?

As much as I hate to admit it, the benefit of this system seems to be only that, when one looks at the alternative systems available to us, it simply becomes a choice of “Eventual Dictatorship” vs “Dictatorship right now”.

I think that there is one other fundamental assumption about modern economic theory that many of us in the past did subscribe to without realizing it. The assumption is that, “It’s okay to believe everyone is a selfish miscreant, because in doing so, in forcing everyone to fight in the arena of economic competition, all of the competing forces will balance each other out, and we will have a system that perpetually abstains from the descent into tyranny and class warfare.

The problem is that this assumption is not only unfounded. It’s easily observable to be false. Economic competition obviously favors entrenched interests over new competitors. But even if we ignore that point, there is an obvious imbalance in power between producers and consumers. The corporation that builds and supplies all of the things we use has an obvious advantage in market price negotiation.

Business firms have the overwhelming advantage in applying constant upwards price pressure on goods and services. Consumers have only an intermittent and moderate advantage in applying downwards price pressure on the same, and only under great organizational and logistical burden, at that.

Business firms have the overwhelming advantage in applying constant upwards price pressure on goods and services. Consumers have only an intermittent and moderate advantage in applying downwards price pressure on the same, and only under great organizational and logistical burden, at that.

Unfairness, while lessened under this system, is not abolished.

How the System was Cheesed

I could write quite a bit in an effort to make this section more impressive and complex sounding that it really is. But in truth, the current state of the American economy as a result of the cheesing of the system isn’t that difficult to figure out:

Starting in the early 80s, executive leadership of corporations was permitted to merge with oversight committees, the investor class, and advisory boards of the same corporations. The executive CEO of one corporation was permitted to sit on the board of Directors of another Corporation. Alternatively, one individual is permitted to fill multiple advisory slots of an advisory organization, thus having complete control over the corporation. This also allowed executives AND the investor class to benefit financially from running corporations into the ground deliberately.

This is different from before, as no executive would willing run a corporation into the ground before, since they would be punished financially for it.
Corporations replaced pensions and strict pension regulation with 401k plans and very loose regulation on investment of 401k funds, as well as greatly reduced funding matching requirements.
Free trade allows corporations to circumvent labor laws and minimum wage price increases, as well as general labor protections down to the lowest bidder.
Any public goods or infrastructure outside of the most minimal, already established and provided goods and infrastructure was and still is demonized as communist in nature. Any sort of government funded housing, transportation, utilities, healthcare, infrastructure, in excess of what was already provided was cancelled or blocked with accusations of totalitarian government overreach. Many services that ARE currently provided have been reduced or are in the processes of being reduced/eliminated. Accusations of communism and government overreach are no longer as effective as they once were, but there are other approaches being considered.
Legislation originally intended to limit corporate consolidation, public good contamination, and predatory business practices has been largely repealed.

Much can be made of the details, and certainly other policy changes have made things worse, but I think these 5 large policies changes can be directly attributed as causing the large bulk of the economic damage from 1980 through to the present day.

All Right. So that’s what’s Wrong. How do we Fix it?

One possible way of fixing this problem is through getting legislation passed that undoes the previous harms that have occurred. This is admittedly, no easy feat. The process of getting any sort of legislation passed, especially within the current suffocating strictures of our current political environment… is difficult. Effort could be made to more properly describe how difficult, but honestly, hyperbole fails to be a limiting factor in circumstances such as these.

Having said that, perhaps this is a topic for another day, and another blog post that treats this matter in a much more general sense. “How” to get any bill passed in the halls of congress might be quite valuable as a post in itself, to say nothing of a bill that treats the specific items mentioned above.

And so, somewhat anti-climatically, my own musings on this subject are going to come to a close, for now. But this is a topic I plan to return to. That much, is for certain.