Central bankers in developed countries are running out of ammunition with the trillions of dollars, yen, pounds and euros pumped into their financial systems, failing to trigger growth since the 2008 credit crisis. The United States and most European governments are unable or unwilling to implement fiscal stimulus through tax reductions or increased spending. This has put pressure on central bankers to dig deeper into their tool kits for more unconventional policies. Milton Friedman’s “Helicopter money” now is not an extremist idea. Helicopter money, given directly to consumers, would get them rushing to the shops to spend their windfalls which in turn boosts confidence in the economy, the theory goes.
The renewed interest in an idea that is about half a century old proves that measures hitherto deemed daring, have become commonplace. Helicopter money is meant to be once-off but the idea of a universal basic income (UBI), where citizens will receive regular stipends is also gaining traction.
Talking of daring ideas, Steve Roth argues that property rights are in the nutshell centered solely on violence and coercion and provides an analogy of a group of tribes living around a common water source to drive home his argument.
A group of tribes live around a common river. All the tribes draw freely from this river and there is enough water for all the tribes. No one “owns” it. One day a tribe resolves to take ownership of the river and set up camp around it, preventing other tribes from using it. They then coerce the other tribes to give them labour, goods, or other concessions before access to the water is granted. The other tribes may challenge this, but if the controlling tribe has the ability to enforce such claim, the other tribes can do practically nothing about it. With time, say some generations later, the other tribes may eventually come to accede existing state of affairs as the natural order of things by eventual consensus, regardless of the vexation that one tribe now “owns” the river. Acceding to the existing state of affairs is what brings about ownership. Otherwise it is merely possession and control. This is because, if the controlling tribe cannot enforce such entitlement through violence, then such “ownership” is meaningless. In our modern world the monopoly and execution of that violence, has been outsourced to government. Therefore, if a person encroaches on your property, you can call the police to remove him and if necessary, by force. The institutional and legal mechanisms of ownership have multiplied a zillion-fold. Thus, the whole world’s financial machinery “the immensely complex web of claims, claims on claims, and claims on claims on claims” are all rooted in physical force or the threat of physical force in Roth’s opinion.
“In Property and Freedom”, Richard Pipes offers a description of the evolution of property rights from the primitive era to the advent of the state. He notes that “in most countries property took the form of possession, claims to which rested not on documented legal title but on prolonged tenure, which custom acknowledged as proof of ownership.”
Rooted in violence or otherwise, economists acknowledge the importance of property rights. Richard Roll and John Talbott in a paper titled “Why Many Developing Countries Just Aren’t.” find that nine factors explain more than 80 percent of the international differences in gross national income per-capita, with property rights (+) and black market activity (-) having the highest levels of significance. Gerald P. O’Driscoll Jr. and Lee Hoskins point out that the relationship between wealth and the protection of property, measured by the per capita GDP for 150 nations, is two times higher in countries with the strongest property rights than in those with only a fairly decent protection. As the protection of property deteriorates, per capita GDP drops to a fifth of that in nations with the strongest protection. English philosopher and social reformer Jeremy Bentham, argues that the law protecting property is “the noblest triumph of humanity over itself.”
However, a child born into a “defeated tribe” bears this “liability” for which s/he had nothing to do with (s/he might have put up a formidable resistance had she been around). Government enforcing such property rights consequently, is justifying inequality that began in the womb, making “the accident of birth” a great source of inequality. James Heckman, a Nobel Laureate in economics discusses this extensively in his recent book, “Giving Kids a Fair Chance,”
Roth’s argument, to some extent, is corroborated by President Barack Obama’s “you didn’t build that!” speech where he claims:
"There are lots of wealthy, successful Americans who agree with me – because they want to give something back. They know they didn’t – look, if you’ve been successful, you didn’t get there on your own. I’m always struck by people who think, well, it was just because I was just so smart. There are lots of smart people out there. It must be because I worked harder than everybody else. Let me tell you something – there are a whole bunch of hardworking people out there."
Mitt Romney also agrees that all “Olympians” know they did not achieve what they have achieved solely on their own power. So as we cheer the “Olympians” let us also remember to cheer the coaches, the fans, the parents and the communities. This argument can be easily rebutted with the fact that whether they built it by themselves or not, they pay their fair share of taxes and in that regard, the “you did not build that” argument is moot.
The former finance minister of Greece, Yanis Varoufakis, however provides another interesting angle to this debate arguing that the rich promote a common myth that wealth is generated individually and subsequently collectivized by government, through taxation. In reality, the generation of wealth was always collective and privatized by people who possess the power to do so i.e., the propertied class. Farmland and seeds, which were pre-modern types of capital, were developed collectively through generations of peasant efforts that were appropriated stealthily by landlords. Every smartphone is made up of parts developed by some form of grant provided by government, or as a result of the commons of pooled ideas and yet no dividends are ever paid to society. Taxation, the argument goes, is not the answer to such compensation since the payment of taxes by corporations are in exchange for services provided by the state and not for the injection of capital which yield dividends. There is therefore a strong case for the commons’ right to a share of the capital, and dividends associated with capital reflecting the investment of the society in the capital of the corporations. Since, it is impossible to measure the size of social capital embedded in any firm, such evaluation can only be done though political mechanisms by for example enacting legislation that requires a percentage of shares from every initial public offering (IPO) be directed to a Commons Capital Depository and the associated dividends providing a universal basic dividend (UBD) independent of welfare payments.
Thomas Piketty is of the opinion that inequality is a major instigator of Middle Eastern Terrorism and the export of jihadi terrorism to Europe through the Islamic State. The concentration of a great deal of wealth in economies with a very small portion of the regional population makes Middle East “the most unequal on the planet” he argues. A recent study shows that increasing inequality, creates a situation where the poorest have very little cash available. This poor class of cash starved population increasingly take up a larger percentage of the economy, which leads to a total stagnation of the economy leading to the richest few owning almost all the resources of the economy.
As the president of the European Commission and then Luxembourg prime minister said at the height of the Euro zone crisis, “We all know what to do; we just don’t know how to get re-elected after we’ve done it”. There is solution to the problem of increasing inequality, the goodwill to execute it is however lacking.