On a recent episode of TMBS 
My beef with Harvey is that he flippantly remarked that we need to institute the debt relief now then, "worry about the banks later". Not good Harvey, not good.
Why not good? Because if you go around forgiving debt the banks will realize the term they can collect interest from debts is limited (bankers are not idiots, they know where their profits come from), so they will immediately start making even more massive and fraudulent loans. The other problem is that the oligarchs will panic, because unless they are bankers they do not typically understand where their profits come from. Oligarchs profit from exploiting wage workers. So they will irrationally panic because the workers will suddenly have a slight windfall of cash. Oligarchs hate this becasue they see it as a threat to their power. Truthfully though, oligarchs who run product service businesses will massively profit from debt forgiveness, because when people get more spending power they tend to purchase more stuff, which means more profit for business. Oligarchs are dumb f__ks this way, they can't see why people having more money is actually good for them! Oligarchs are pretty lazy and stupid in many ways, they look at the world competitively, and so anyone with more money is a threat to them, when in fact the opposite is broadly true. Concretely, let's say Howard Schultz hates the idea of workers getting paid more, or getting their debt cancelled. Yet he owns Starbucks. So people with debt forgiven will be able to afford more coffee. So Starbucks will rake in a lot more profit under Bernie Sanders. A lot more! Why is Howard so bitter about working folks having their debt forgiven? The only answer is psychological: he is envious and greedy, he hates just the very idea of people having more money, other than himself. How dare they!
The truth is that a Bernie Sanders policy set (which can be classed as a fairly mild form of social democracy) would not put extreme wealth in any danger. The reason is that taxes are not actually needed to "pay for" social programs. Governments issue currency, and so can literally pay for anything for which they can find workers willing to produce and that people want. Governments do not need revenues.
Why then does Bernie propose a financial transactions tax to 'pay for" student loan debt cancellation? The answer is that this is a political smokescreen. Sanders' economic advisor, Professor Stephanie Kelton, can be seen in dozens of YouTube lectures explaining why governments can afford to pay for anything that can be materially produced, provided only it is morally sanctioned by Congress. Taxes are not needed, taxes are not government revenue. Why would you need to collect IOU's from your children? You can just tear them up and issue new IOU's. You collect IOU's to make them valuable to your kids, that's why! This is effectively what governments do with control of a sovereign currency. Only the government is legally allowed to burn money, and only the government can print new money --- exactly like a parent giving their children limited edition IOU's
So Bernie Sanders proposes the financial transactions tax to appease political adversaries who demand an answer to "how are you going to pay for it?" The truth is, Bernie knows the government can afford everything it desires, provided it can be paid for in It's own currency. Anything anyone is willing to sell to the governments, such as their teaching time to educate kids, or their nursing time to care for people. The tax is not monetarily necessary. it is politically necessary, it is a mere political smokescreen.
Also, the financial transactions tax does have a good purpose, it's just not the purpose Bernie is claiming. The true purpose would be to reign in reckless financial speculation and speculative computer automated microsecond trading and Ponzi hedge fund insanity, which is currently making millionaires out of people who contribute zero productive capacity to the real material economy.
Let's review the basic indisputable facts:
- The revenue from taxes is really anti-revenue for the economy as a whole, taxes suck money out of economic circulation.
- Taxes are necessary only because they make the currency valuable and stable, without taxes the dollar is worthless and would be directly competing with other payment systems like cryptocurrencies, which would be wildly unstable and would encourage reckless non-productive speculation.
- Taxes serve a secondary purpose, which is to redistribute wealth. When capital accumulates in the hands of the few it undermines democracy, taxes do a tiny little bit to rebalance, but not nearly enough. But this function only works if tax rates on the wealthiest are higher, and the USA is going in the wrong direction on this!
- Governments use what is called "deficit spending" to pay for things. Since governments are not in the business of primary production this is basically the only way government pays for things. But it can always pay because it is the monopoly issuer of currency. But "deficit spending" is a grave misnomer, psychologically, because it is actually in effect creating private surplus. Government deficit is our surplus. We, as private citizens, should want a bigger government deficit, and we should demand that it increases annually, roughly in proportion to unemployment fluctuation. Non-zero unemployment means the government is not spending enough to make up for the shortfall in jobs created by the private sector.
- There are only three basic limits to government spending, one logical, two moral: (1) government cannot not spend on things no one can produce , (2) government should not spend fraudulently (i.e., pay someone for doing nothing, such as a boondoggle, or pay someone for doing something illegal, or for lobbying, or for a favour, which is called a bribe). (3) government should not be paying for things that are of no universal social benefit (like subsidies for fossil fuels or subsidies for excess farm production).
Normally wasteful government spending generates inflation, but that is often not a huge problem. it takes incredible vast corruption t generate dangerous hyperinflation which leads to severe devaluation of the currency. This is avoidable by following the ethical rules above: no corrupt deficit spending, no wasteful unnecessary spending. However, government deficit spending on positive social goods like free healthcare and free education and free housing for the poor is anti-inflationary, becasue it lifts people up out of debt and stimulates their participation in the economy and circulates money more rapidly, which is always a net good for consumer businesses.
Lesson: the Bernie Sanders spending proposals would not produce any inflation, they would on balance be a massive stimulus to a starving economy. The economy globally in fact, has been starved by decades of neoliberal austerity, which was practices based on a thoroughly debunked and flawed idea of neoclassical economics --- that you need to put people in debt to force them into work --- turns out the opposite is more accurate, people in debt get stressed, then anxious, then depressed and become less productive and may eventually give up work entirely to become welfare dependents. Also, conversely, people given a decent wage tend to then not worry about money, spend more, and enjoy their work more, becasue they can focus on enjoying work for the wake of work, not because they need it to survive. So neoliberalism, practised by Thatcher, Reagan, Clinton, Blair, the whole of the EU, and perforce by Obama and now Trump and Merkle, Macron and May, all the arch neoliberal generation, has put the world into debt, under a false conception that debt is good for motivating workers, and the result has been catastrophic.
This is why you should regard political candidates like Joe Biden, Kamala Harris, Pete Buttigieg, and maybe even Elizabeth Warren, are dangers and menaces to society, becasue all they have to offer is more neoliberalism and more austerity. They would be disasters, and they would motivate the resurrection of Trumpism, or perhaps a new horrific fascist worse than Donny rump. The worst results of neoliberal austerity have always been unfairly blamed on the blameless immigrants. Neoliberalism thus, indirectly and perversely, but truthfully, because of ignorance, ends up promoting racism and xenophobia. but that ignorance is not the primary blame. The primary fault is with Neoliberalism itself, the Davos crowd group-think, the Clinton-Blair Third Way politics, the idea that liberalized market principles can solve all problems and that the oligarchs know best what is best for you and me, and the dehumanized thinking and insanity that workers need to be kept poor in order to motivate them to work.
Bernie Sanders, or more accurately the entire Youth and Progressive movement he currently leads, represents a clean break from this neoliberal insanity. He is a humanist who believes in true democracy and government by and for the people. Which is essentially socialism-lite. Government by and for the people is the best articulation of basic social democracy that I can come up with. It is what countries stricken with decades of neoliberal austerity desperately need. Sanders is the quintessential wise old 70 year old brain with an 18 year old heart. But he is not our saviour. If he fails, there are millions of people to take his place. The youth who back him are our saviours. Our hope is with the Movement not with the Man.
The Student Debt Jubilee
We must understand those fundamentals above to realize that the tax on financial transactions which Sanders proposes is just a political smokescreen. It is not a tax that is needed to finance forgiving all student loan debts. but it is a politically necessary piece of rhetoric because most people fail to understand that taxes do not pay for things, at least not when the spender is a sovereign government. Sovereignty here means, among other things, being the sole monopoly issuer of the currency. When you have that power you can afford anything that anyone is willing and able to produce for you. It means you logically can never be in debt in your own currency, since you can literally print money at will. But most people do not understand this, and so need to apparently be appeased by being told taxes will pay for these things (like Medicare For All, free college tuition and student debt cancellation).
And by the way, if you think these universal human rights need to be earned, well, you have earned them. Your nation earned them. The people who built your nation earned these things for you, you should thank them. These were the slaves and the generations of workers who built your country.
The true "cost" of programs like (1) student debt jubilee, (2) free healthcare, (3) free education, (4) federal job guarantee, (5) social welfare and pensions, are hard to calculate, but they are precisely the social programs any good social democracy should implement. The reason they are paid for by government spending alone (and not taxes) is because they are on balance usually positive in economic effect. Healthier people means greater worker productivity and lower spending on healthcare. Better education also translates to healthier living typically, and greater worker productivity, as well as higher rates of creativity and innovation in society. A Job Guarantee, if administered well and not fraudulently would also largely pay for itself, as does any productive job.
So all of these social programs are at worst cost-free and at best a net economic return.
They work when run by a good government working in the interests of it's people (rather than just the narrow greedy interests of the oligarchs). Remember, when people say they hate big government, they means big oligarch neoliberal government. A Bernie Sanders style social democratic government is not this, it would be a government people could love, not hate, other than of course the oligarchs who profit off poor governance which inflicts austerity on the poor. One of the great ironies of our times is that politicians like Reagan, Bush, Clinton, Cheney, McConnell, Paul Ryan, et al, are the worst at governing and yet they then turn around and cynically promote hatred of government because it is being so poorly governed. Well, they are self-fulfilling anti-government traitors,, and deliberately so. We should not hate our government merely because the idea of big government is bad, it is oligarchic neoliberal government which is the great evil --- even when free of corruption. A social democratic government on the other hand is pretty darn nice and friendly even if not perfect, but is especially nice when free of fraud and corruption.
General Debt Jubilee
Sanders should go even further. Since forgiving debt is good for the economy, it should be done periodically. Remember that when people are free of debt they can return to purchasing goods rather than paying off debt. This is fantastic for businesses who produce real goods. Of course Wall Street financial speculators care little about real goods (other than loving to consume them), they are parasites, feeding off the poor by using debt to generate their wealth off the interest payments people are forced to make when they are in debt.
So when you forgive credit card debt and not just student loan debt you free up working people, and you limit the parasitic wealth accumulation of the vampire hedge funds and financial asset speculators. This is a huge win for ordinary people. That's because most ordinary people do not gain wealth from stocks and bonds and financial assets, but rather gain their wealth from work on producing real material goods.
Remember also that a sovereign government, and only a sovereign government, can always afford to cancel debts of "its' people". This used to be a tradition in the past. Kings and Emperors would regularly run debt Jubilee's to help their people avoid becoming indentured salves to the creditors. Neoliberal capitalists have forgotten this history, and for good reason, because they want the modern worker to be indebted to their financial class. The vampire bankers do not know how to make real productive goods, but they do know how to suck money off lower income folks who get into debt. It's a method called interest payment, the main tool being something called a credit card account.
So there are few downsides to a global debt jubilee. The only worry is that following a debt jubilee people will be hopeful of a repeat, and will then be motivated to take out absurdly large loans. But this is easy to prevent. Banking regulations are needed immediately following, or better immediately prior to, a debt jubilee. It must be made illegal to issue fraudulent loans: defined as a loan the debtor can never reasonably be expected to repay. With such regulations a debt jubilee becomes sane and sensible.
The tagline should be: "Make Banking Boring Again". We need an end to reckless loan sharking, reckless hedge fund Ponzi schemes and insane financial asset speculation (which artificially and horrifically raises prices of human needs like housing, all for the sole benefit of the oligarchs who trade real estate like baseball cards rather than living in their real estate, and to the detriment of home buyers who actually intend to live in their houses).
This is why Prof. Harvey Kaye was wrong to laud Bernie Sanders and then claim , "forgive debt and deal with the banks later" (I paraphrase). We cannot forgive debt and not deal with the banks. Once bankers see that debts will be forgiven their wealth accumulation from demanding interest on loans will dry up, so they will have less time to rake in their profits from interest payments. So they will want to make even more absurd massive fraudulent loans, and quickly demand repayment, before the next jubilee. This is why to stabilize credit money the banks must be either massively heavily regulated to prevent them making fraudulent loans, or the banks need to be nationalized and brought under Congressional oversight. We need protection from vampire banking practices, because most of us are too busy trying to live a life to worry about whether our banks are acting ethically or not, we want to be able to trust them.
We cannot ever trust private banks. Their incentives to act fraudulently are too great. But we can trust banks run by bankers paid on a government standard salary who do not earn profit from interest on loans. A nationalised bank sends interest payments to the Fed, which simply then cancel it against the Federal deficit. It becomes in effect the "peoples profit", not the banker's profit. Nationalized banking socializes the profits from interest payments on loan debts. And it makes a periodic (10 year) debt jubilee a moderate and sensible economic policy.
So w can always afford to forgive debt, not just student loan debt.
What about Folks who already paid off their debt?
(a) good for them. (b) they should not be crying like babies. Since they paid off their debt the economy is clearly working for them. But perhaps they suffered great anxiety and stress to do so? Well, there is a nice way to make them happy too.
The solution is to run a biblical style debt Jubilee the way the economists Steve Keen and Michael Hudson recommend. Here is what you do Mr Sanders:
- Determine the minimum money amount needed to wipe off the worst quartile of current student loan debt. Say it is $30,000.
- Give every single citizen $30,000. This is the debt jubilee. Everyone gets the same amount of money regardless, even if they have zero debt.
- Everyone with debt must (by debt jubilee law law) pay off their debt, at least up to $30,000. If they have less debt they get to keep the balance.
- Regulate banks so that fraudulent loans are illegal: a loan can only be made (including credit card expenses) if the debtor can be reasonably expected to be able to pay off the debt within 10 years.
- Make public healthcare and public college education free, and housing affordable (de-commodify domestic real estate), with free public college education limited only by academic advancement criteria, so that people are not forced into debt in order to have basic human rights.
The Take home message of social democracy
When you control your own government, when everyone has an equal say, you have a democracy. When you demand your government works for everyone, not just the oligarchs, you have a social democracy. When you also issue a sovereign currency you have the power to pay for anything that can be resources --- and since healthcare and education hospitals, nurses, teachers) exist in abundance, we can always afford to pay for public healthcare and education. These are already resourced marginally sufficiently, though might be even better staffed under a proper social democracy (more doctors and nurses to reduce hospital waiting times, more teachers and school resources to reduce class sizes and improve learning quality).
None of thee social programs require taxes. Taxes only limit inflation and make the dollar valuable. So we do need taxes, we just don't need them to pay for public services. All public services are financed by government money, which is called "national deficit' but it should more accurately be renamed "private surplus". Government deficit is household surplus, by logical definition.
This is why the USA needs a social democracy administration like the one Bernie Sanders is proposing, and he is the only candidate for 2020 going so far. None of the other candidates would make a dent in poverty and socio-economic inequality. Elizabeth Warren is closest, but at best her policies would only paper over the exploitations of the current USA regime of anti-democratic capitalism.
It is time, long past time, the American people (and in fact all people all over the world) claim back their governments. Claiming back your government, taking it back from the greedy hands of the oligarchs, is what I call social democracy. This is true even if you desire small libertarian style government. You need social democracy even for libertarianism to work, becasue without the stability of a sovereign currency stabilized by taxation on the wealthy, you will get a class hierarchical society with massive systemic inequality and injustices, and so under free market libertarianism you get a worse state then neoliberal market economics, you get a viscous free for all fight to the death. This is not the sort of "freedom" normal sane people want.
Social democracy is the only sane way forward. It is a broad framework, it encompasses many varieties and styles of governance, depending on what society decides to publicly fund, and what not to, and what degree to encourage private innovation. These are choices open to social democracy. It is the most liberating form of government known to humankind.