JCS Comments to T Piketty's Book on " Capitalism in the 21th century"

Hi folks,

the french economist Thomas Piketty has just published a great book on " Capitalisme au 21' siècle",
the english version is due to come out this spring.
I have read the full 950 pages of the french version, with great delight, but do have a couple of comments that I did elaborate during and after. As usual, I did not agree with everything, worked on some of the formulas, did my own calculations and simulations, and hope that it might help to clarify our views.

 You can find my short paper within the following link:

JCS Comments to T Piketty's Book

and the Resumé can be read right here:

A few months ago, Thomas Piketty published a great book about Capital in our new Century, and pointed out that the ratio of Capital to Revenue is growing again and may soon reach levels not seen since the eve of WW1, that the share of revenues that goes to capital is also reaching old heights again, that both Capital and Revenue are distributed ever more inequally.

These being trends of large concern to Mr Piketty, and not only him, his proposal is to have both revenues and capital seriously taxed in progressive manners, in a way that wealth, purchasing, decision, operation and political power are well enough distrbuted to make revolutions and wars about these issues obsolete.

After going though the book, I set out to have my own thoughts and calculations and came up with the following facts and opinions, detailed in the following chapters and summarized in the conclusions right here:

a)      I fully admire and appreciate the work that has gone into Mr Piketty’s book, and agree that the growing inequality of distribution of both revenue and capital is up to no good, and that the bulk of revenue should really go to labor

b)       I also agree that progressive taxation on both revenue and capital are needed to keep things in check, and to avoid the concentration of large amounts of purchasing and political power  in the hands of the few.  These taxes should be organized on a european, or better on a worldwide level

c)      I am not so sure about the inevitability of endless capital accumulation per se, as even in times of low growth, the formula B2 :             BE’ = S% -  BE * G%             stands for the limits thereof.

But recession has to be avoided in that respect, as that will make things really go haywire as the formula also shows.

d)      I also think that it is more relevant to consider the inequality S% > G% ,

rather than R% > G%, as it is savings that accumulate to capital.

e)      I am not sure either about what level of BE Capital/Revenue ratio would be optimal for what purpose, so while it is interesting to see how things have been through time, we should think about what we would need or want, or dismiss it as an lesser variable.

I am not sure about the future of return on capital R% either, and could well envision lower rates if capital is plenty, and bank interest is cheap. Also, I somehow miss a contribution the discussion on the impact of our debt system upon our economic life.


That's it, follow the link if you want the details, comments are welcome at jcswork@pt.lu
cheers
Jean-Claude

is "full money" enough to stabilize the economy ?

Hi folks,

a couple of days ago, the Neue Zürcher Zeitung (NZZ) had half a page on the monetary Modernization effort in Switzerland, where the MoMoCh team is preparing a signature collection for a referendum on "Vollgeld", full money.
The NZZ even stated (with horror) that the initiative aims at forbidding the banks to create money....

So I thought it would be a good moment in time to see what the "Vollgeld" initiative could or would call for, and evaluate the effects + & - in a few words, that have grown to a few pages.
It is all written in german, here is the link in the title
Reicht das Vollgeld-Konzept aus, um die Wirtschaft zu stabilisieren?

in english, it means: is "full money" enough to stabilize the economy ?

comments welcome

cheers
Jean-Claude

correction of formula on public debt & deficit in Boskin paper and Schemmann book

Hi folks,

as I read Michael Schemmann's 2010 book about "European Monetary Reform", I stumbled onto a couple of formulas for the mathematically intended, they are relating public debt, growth, public deficit and interest rate. These are interesting subjects that I touched a couple of months ago in my treatise on perpetual public deficits and debt

A quick plausibility check showed that at least one of the formulas was wrong. The formulas were referenced to a paper by M.J.Boskin, so I looked them up there, and there the wrong one was wrong as well.
So I set out to determine the correct one, to identify the (typing) mistakes, and to look at how useful the formulas are when evaluating the sustainability of public deficits.
You find this information here, under the title:
"Correction of the formula on public debt as published by Mr Michael J. Boskin in 1988, and referenced to by Mr Michael Schemmann in 2010"                            by Jean-Claude Schmitz.

Recapitalizing EuroZone Banks ; by jcs

Recapitalizing EuroZone Banks ; by jcs Luxembourg; december 6, 2013 Hi folks, you may be interested to see the relationship between   your, and every else’s - interest payments to the commercial bank, and  -  bank assets, bank profit, debt and money (monetary mass) in circulation. The following paper Recapitalizing EuroZone Banks; by JCS explores all of that, looking at the case where you -         do not pay interest nor principal, -         do pay interest, but not principal -         do pay interest and principal over x years and determines whether monetary mass and debt change synchronously or not. (They do, synchronously ) After that, the paper goes on to examine what happens when the bank tries to save some of its profit into its capital reserve         - when interest is paid but principal not        (money comes down but not debt)         - when both interest and principal are paid                                    (money and debt both go down, but money goes down faster ) showing that what is going on these days ( end of 2013) with commercial banks thin on capital trying to save their profits and reduce their loans  does not help at all to conclude with the proposal to  inject Money-No-Debt into the commercial banks, after nationalizing them for 2 weeks,  and before reselling them to the market after that. Comments welcome at jcswork@pt.lu

A few words on : Public debt in the EuroZone, and in Luxembourg (in German, auf deutsch )

Staats-Schulden in der EuroZone, und in Luxemburg

Es gibt kaum noch einen Staat in der EuroZone, welcher nicht hochverschuldet ist, leider befindet sich seit ein paar Jahren auch Luxemburg auf dieser abschüssigen Rampe. Die meisten andern Länder hatten schon vor Ausbruch dieser Krise alle Mühe der Welt, sich bei 60% zu halten, und sind nun bei circa 90 % angelangt.  Diese Prozente sind gerechnet in Relation zum BruttoSozialProdukt, im Vergleich zu den Staats-Einnahmen wäre der Prozentsatz mindestens doppelt so hoch...

Zurückzahlen kann und will diese Art von Schulden sowieso niemand, man bräuchte schon eine lange Zeit mit positiven Aussenbilanzen, und die müsste man dann auch noch in satte Steuereinnahmen umsetzen, und dies auch wollen.

Das Wachstum, was man sich davon erhofft, findet seit Jahren nicht statt, allzu gross sind die Verluste der Realwirtschaft in Richtung Sparen, Gewinne, Pensionsfonds, und allzu gering ist die Neigung jener Kreise, endlich etwas Geld auszugeben oder zumindest in die Realwirtschaft hinein zu investieren.

Man mag es sich nicht ausmalen, wie gross der Rückgang der Wirtschaft, also das negative Wachstum ohne die zusätzlichen Staatsdefizite wären, welche meistens von denselben Kreisen finanziert werden nach dem Prinzip: ich zahle dir etwas Steuern, weiss dass es nicht reicht, dafür leih ich dir noch etwas dazu, natürlich gegen Zinsen.

Das führt zu nichts Gutem.

Hält man sich vor Augen, dass zur Stabilisierung der Schuldenquote das % Wachstum (nominal)

zum ersten grösser sein muss als der mittlere Zinssatz auf diesen Staatsschulden, und

zum zweiten mindestens so gross sein sollte wie das Wachstum der Schulden, wohlbemerkt das Verhältnis von Defizit zu bisheriger Schuld,

so wäre bei einer Schuld von 90% und einem Defizit von 4 % ein nominales Wachstum von 4/90 = 4,4 %  vonnöten, damit die Staatsschuldenquote nächstes Jahr nicht noch schlimmer ausssieht. 

Davon sind wir weit entfernt, das Wachstum in Europa ist eher bei nullkommanichts, und damit auch keineswegs grösser als der Zinssatz. Das wird z.B.  in Frankreich also nicht besser werden.

In Luxemburg mag man sich mit ~25 % oder 10 Milliarden Schulden noch recht sicher fühlen, aber auch hier gilt die gleiche Formel: Für unser Defizit von 1 Milliarde müsste dann ein Wachstum von 1/10 = 10% herausspringen. Das wird wohl auch vor den Wahlen niemand versprechen wollen.

Hat sich die Wirtschaft bis einmal an das höhere Ausgabenniveau gewöhnt, so gibt es kaum noch ein zurück. Setzt man die Staatsausgaben zum Beispiel so weit runter, dass kein Defizit mehr entstehen sollte, so riskiert man die Wirtschaft so zu schädigen, dass durch die mangelnden Steuereinnahmen das Defizit sich dann doch wieder einstellt, womöglich noch schlimmer als zuvor.

Unsere Schulden werden also kontinuierlich steigen, im gegenwärtigen System, mit allen Begleiterscheinungen wie Zwang zum Sparen, Austerität etc. Womöglich über Jahrzehnte hinaus.

Das einzige, was dann noch hilft, ist mit dem existierenden Geld mehr Aktivität zu entfalten, es lokal besser zirkulieren zu lassen, also es nicht zu sparen sondern es lokal auszugeben oder lokal zu investieren. Der Beki lässt grüssen...

Gelingt das auch nicht, so muss im Namen des Vaterlandes wohl oder übel bei Geldinhabern der Teil geschröpft werden, welcher sonst nicht in Umlauf gebracht würde. Aber nicht der Teil, der noch probiert zu zirkulieren. Und hoffentlich sind wir dann nicht allzusehr im Ausland verschuldet.

Jean-Claude Schmitz; Ingenieur

17-10-2013

Treatise on Perpetual Public Deficits and Debts; by JCS

Hi folks,

please find here

Perpetual Public Deficits and Debts

a study that I just finished on some interesting aspects of

Perpetual Public Deficits and Debts

With the help of a few simple formulas and a small simulation table, it
analyzes the pitfalls of Public deficits and Debts that no one ever can nor wants to repay,
looks at the (in)consistency of Maastricht Criteria and ECB inflation target with sustainable growth,
demonstrates that Reinhard-Rogoff  had it all wrong (90% discussion),
determines the conditions to keep at least the debt ratio stable and
finishes by showing how the problem can be solved and after that avoided by the
introduction of Positive Money-no-Debt.

Comments, suggestions and corrections welcome at jcswork@pt.lu

cheers
Jean-Claude                    25-9-2013

presentation held on sept 23, 2013 at the A.L.I. in Luxembourg on : Reform of Monetary and Financial Systems to end this crisis

Hi folks,

please find here two links to the presentation I held on
september 23, 2013 at the A.L.I. in Luxembourg

including the

Analysis of our EuroZone Crisis and
Proposals to  Reform our Monetary and Financial Systems
in order to resolve it

with (keep & share)        presentation at A.L.I. 23-9-2013   

  or 
with (scribd) :                 presentation at A.L.I. 23-9-2013
 
cheers
Jean-Claude;        24-9-2013