Creating Growth

The fundamental underlying problem with euro debt in the European countries which require support from the ECB right now, is the insufficiency of tax receipts in those countries domestically.

It should not be believed that these problematic countries deliberately 'borrowed too much.' What happened, was that the trajectory of (expected) tax receipts was not manifested in practice. And there was a good reason for that:

Over the last thirty years, capital-expensive physical infrastructure and physical delivery collateral for so many things has been wiped away and replaced by far cheaper micro computers and the internet, including wireless internet. The tax from sales and economic transactions to do with all of that infrastructure has dropped right off. The system that has replaced that past-era economic activity is much less expensive, and employs far fewer people.

But the output, i.e., the actual SUPPLY of production and industrial output going through these new channels and systems, has as much vertical net economic value as previously (because people are still being fed and clothed and housed, that is, there is no SUPPLY shortage).

Governments become more risk-averse the less their tax receipts are - due to public and political pressure of running increased deficits when revenue drops - and they tend to then try and rely upon encouraging banks and financial markets through cheap money to financial institutions, to force markets and industry to create transactions that will supplant what was lost in the economy. But what was lost was a horizontal layer pertaining to parts of the economy not directly concerning what has a direct incentive value to banks. And banks are not interested in supporting such a layer because of any wider long-term indirect economic benefit, and nor are they motivated to replacing it similarly because of any long-term economic vision.

And all that happens then is the banks take the money cheaply offered by central banks, and sit on it. And then you have potential for a Depression with a wide disparity between the incomes of bank directors, and everyone else in the economy. And then you certainly get 'Occupy Wall Street!'

What governments have failed to conceive is the connection between the basic transaction drivers in the immediate past-era economy, and the basic transactions drivers in the present economy, and the negative consequences of their easy money policy to banks on these fundamental economy drivers.

The fundamental economy drivers are not 'supply and demand of banks capital and/or their money' - but supply and demand of actual things!

Take one clear example - licensed music is no longer economically supportable within the commercial music industry through the manufacture and sales of CD's. Shops close, warehouses are empty, any associated advertising and marketing, photographics, design and publicity - all fall off in economic activity, including in employing people. But the actual market is still there and is no longer (commercially) exploited as it once was. Tax revenues drop. You can stick as much cheap money as you like into banks that used to fund everything Disney once promoted - Britney, Justin, Christina, you name them - but they won't actually spend any of it, and they will sit on it proudly fantasizing that some crew in Silicon Valley somewhere with dirty Walmart T-shirts have finally cracked how to sell music online and reap zillions whilst spending no money at all on shop leases, inventory, warehouses, trucking, and employees. You have created, i.e., a highly recessionary effect.

Whereas, the remaining real fact is that the musician and the listener still want to have a transaction.

Unfortunately, governments are not generally intellectually-aware enough to accept that the fiscal policy offset needs to go to both the musician and the listener - not the bank at all, nor the sunset industry participants. There is no real benefit in compensating the banks and no possible benefit in assisting a dying industry segment.

The only genuine benefit will come if you return the economic cost of progressing channel efficiency to either or both sides of the actual supply/demand dynamic - namely, the maker and the end-user. That is, if you intend to maintain the level of taxation receipts that you were counting on based on past economic activity.

Massive tax rebates need to be extended to producers of music (in this example) and also to the buyers. How do you accomplish that latter element? For example, you might offer kids who actually purchase music online one free physical premium CD sent in the mail for each fifty songs they download at say 10 cents a song. That would be feasible.

You would certainly grant massive tax rebates to the artists and their producers - that would unlock the cash out of the banks' and other 'money sitters' with the effect of velocity circulation increase in the actual domestic economy and the concomitant increases in taxation revenues.

Increased taxation revenues equals better ability to meet sovereign debt repayments.

And this process must be transferred across a huge range of examples of manufacturing and production where there is a clear delivery and infrastructure immediate economic multiplier deficit due to the new computerized-era effects.

Banks and financial instrument exchanges and allied professionals all grab the headlines at any opportunity and clamour for the attention of politicians and the media constantly; but they are irrelevant to the exercise of creating economic growth. They are an after-effect of growth. Unbridled, they become the parasites that deliver Depressions.

Calvin J. Bear