Does “Assume” Make an Ass out of U and Me?

Once upon a time our assumptions about interest rates were that they were always in plural digits. Now we accept near zero interest rates and some accept negative interest rates as normal as they have been around for about a decade.

What would happen if currently “normal” mortgage rates returned to their higher previous “normal” rates? What would happen to car sales and the like if we returned to the “old normal” interest rates? How can people and institutions save when interest rates are nominal and interest fruitful amounts of money are so vulnerable?

With near zero interest rates, is the stock market the only actual vehicle for investment income? Is it reliable for the many?

Another previous normal assumption was that massive money creation would result in inflation/excessive inflation. It hasn’t. (Assuming relevant data is accurate). Can we now assume that the massive use of money trees does not, in practice, affect inflation significantly?

If this is the case, do our assumptions about state finance come into question? Is the reality that states can create enough money to run a state with good infrastructures, safety nets and the like with little or no taxation?

Does wealth correlate highly with power? Can wealth buy power in a democracy? If so, might this change our assumptions on taxation? Might we then consider that a prime purpose of taxation is to create/maintain real democracy? With increasing differences of income, can we reasonably assume that we are conniving at a reduction of democracy, which needs equitable and sustainable provision for all? Taxation can do this and so strengthen our society now and in the long term. Is there a better way of managing the increasing financial fissures in our society?

When there are moves to protect the poor and to maintain or improve our essential infrastructures, we are warned about the dangers of tax and spend policies. But is this commanding cliché accurate? Is it backwards? If our governments create money, directly and indirectly, it is a form of macro spending. Some of this release of money, aka spending, is then regained via taxation. Might we be more accurate to speak, and so think in terms of spend and tax policies?

Similarly, can we be sure that the sound housekeeping or balance the books models of national finance management is secure? The government creates its money. Our households do not. If the government recoups in taxation and reduction of the services needed to run an efficient nation, where are the monies and infrastructures needed by private enterprise?

Challenge your assumptions. Your assumptions are your windows on the world. Scrub them off every once in a while or the light won’t come in.
Alan Alda

 

 

 

* Steve Trevathan is chairperson of Lyme Regis and Marshwood Vale Liberal Democrats.

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