Money is just an IOU, and the banks are rolling in it

Back in the 1930s, Henry Ford is supposed to have remarked that it was a good thing that most Americans didn’t know how banking really works, because if they did, “there’d be a revolution before tomorrow morning”.

Last week, something remarkable happened. The Bank of England let the cat out of the bag. In a paper called “Money Creation in the Modern Economy”, co-authored by three economists from the Bank’s Monetary Analysis Directorate, they stated outright that most common assumptions of how banking works are simply wrong, and that the kind of populist, heterodox positions more ordinarily associated with groups such as Occupy Wall Street are correct. In doing so, they have effectively thrown the entire theoretical basis for austerity out of the window.

To get a sense of how radical the Bank’s new position is, consider the conventional view, which continues to be the basis of all respectable debate on public policy. People put their money in banks. Banks then lend that money out at interest – either to consumers, or to entrepreneurs willing to invest it in some profitable enterprise. True, the fractional reserve system does allow banks to lend out considerably more than they hold in reserve, and true, if savings don’t suffice, private banks can seek to borrow more from the central bank.

The central bank can print as much money as it wishes. But it is also careful not to print too much. In fact, we are often told this is why independent central banks exist in the first place. If governments could print money themselves, they would surely put out too much of it, and the resulting inflation would throw the economy into chaos. Institutions such as the Bank of England or US Federal Reserve were created to carefully regulate the money supply to prevent inflation. This is why they are forbidden to directly fund the government, say, by buying treasury bonds, but instead fund private economic activity that the government merely taxes.

It’s this understanding that allows us to continue to talk about money as if it were a limited resource like bauxite or petroleum, to say “there’s just not enough money” to fund social programmes, to speak of the immorality of government debt or of public spending “crowding out” the private sector. What the Bank of England admitted this week is that none of this is really true. To quote from its own initial summary: “Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits” … “In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money ‘multiplied up’ into more loans and deposits.”

In other words, everything we know is not just wrong – it’s backwards. When banks make loans, they create money. This is because money is really just an IOU. The role of the central bank is to preside over a legal order that effectively grants banks the exclusive right to create IOUs of a certain kind, ones that the government will recognise as legal tender by its willingness to accept them in payment of taxes. There’s really no limit on how much banks could create, provided they can find someone willing to borrow it. They will never get caught short, for the simple reason that borrowers do not, generally speaking, take the cash and put it under their mattresses; ultimately, any money a bank loans out will just end up back in some bank again. So for the banking system as a whole, every loan just becomes another deposit. What’s more, insofar as banks do need to acquire funds from the central bank, they can borrow as much as they like; all the latter really does is set the rate of interest, the cost of money, not its quantity. Since the beginning of the recession, the US and British central banks have reduced that cost to almost nothing. In fact, with “quantitative easing” they’ve been effectively pumping as much money as they can into the banks, without producing any inflationary effects.

What this means is that the real limit on the amount of money in circulation is not how much the central bank is willing to lend, but how much government, firms, and ordinary citizens, are willing to borrow. Government spending is the main driver in all this (and the paper does admit, if you read it carefully, that the central bank does fund the government after all). So there’s no question of public spending “crowding out” private investment. It’s exactly the opposite.

Why did the Bank of England suddenly admit all this? Well, one reason is because it’s obviously true. The Bank’s job is to actually run the system, and of late, the system has not been running especially well. It’s possible that it decided that maintaining the fantasy-land version of economics that has proved so convenient to the rich is simply a luxury it can no longer afford.

But politically, this is taking an enormous risk. Just consider what might happen if mortgage holders realised the money the bank lent them is not, really, the life savings of some thrifty pensioner, but something the bank just whisked into existence through its possession of a magic wand which we, the public, handed over to it.

Historically, the Bank of England has tended to be a bellwether, staking out seeming radical positions that ultimately become new orthodoxies. If that’s what’s happening here, we might soon be in a position to learn if Henry Ford was right.

— source theguardian.com By David Graeber

The Panama papers are not about tax

This deliberately provocative headline is of course not fully true: tax is clearly a tremendously important aspect of the Panama papers scandal, as it continues to roil governments and élites and their advisers, around the globe. But there are far too many commentators who seem to be putting this into a ‘tax’ pigeonhole. Many have dubbed this “the Panama tax avoidance scandal” (or variants of this) — which reflects a profound misunderstanding of what is going on.

First, as an aside, we should probably banish this word ‘avoidance’ from the tax lexicon, because it’s so widely misused and misunderstood (it helps use words like ‘tax cheating’ or ‘escape’ instead, to keep you out of the thorny thickets of what’s legal or not.) But more importantly for today’s blog, these commentators have erred when they put Panama into the ‘tax’ box. Tax is a subsidiary story.

The Panama papers are, most importantly, about secrecy, and . . . hiding: hiding drugs money, hiding money from spouses, hiding from angry creditors, hiding from Mafia-hunting police, and of course hiding from tax too. It is a more general story about wealthy, law avoiding folk and “tax havens” (which are, again less about tax than about other things, as we’ve noted.). Aditya Chakrabortty, writing in The Guardian, cites a TJN expert:

“Thirty years of runaway incomes for those at the top, and the full armoury of expensive financial sophistication, mean they no longer play by the same rules the rest of us have to follow. Tax havens are simply one reflection of that reality. Discussion of offshore centres can get bogged down in technicalities, but the best definition I’ve found comes from expert Nicholas Shaxson who sums them up as: ‘You take your money elsewhere, to another country, in order to escape the rules and laws of the society in which you operate.’ “

Note that the t-word is absent from that loose definition.

One of the few people in the world who has a well-informed insider’s perspective who is also happy to speak out about it is Brooke Harrington of Copenhagen Business School, who took the remarkable step of actually obtaining a professional qualification in wealth management to pursue her studies. As she told our Taxcast recently:

“Tax avoidance was really only the tip of the iceberg. I didn’t realise how much bigger the problem is. Really what wealth managers do extend much more generally to law avoidance. And that creates problems of legitimacy for whole governments: it’s bad enough that people think they are getting shafted because the rich aren’t paying their fair share of taxes: it’s quite another matter when you say there is one law for the rich and one for everyone else and they are not the same: that is the sort of thing that can potentially topple governments.”

— source taxjustice.net

How a private water company brought lead to Pittsburgh’s taps

In the summer of 2015, Metropolis Magazine named Pittsburgh one of the world’s “most livable” cities and gushed about its infrastructure, “The city has more vertical feet of public stairways than San Francisco, Cincinnati, and Portland, Oregon, combined.”

But the magazine hadn’t done its research. Around the same time, the city’s water utility was laying off employees in an effort to cut costs. By the end of the year, half of the staff responsible for testing water throughout the 100,000-customer system was let go. The cuts would prove to be catastrophic. Six months later, lead levels in tap water in thousands of homes soared. The professor who had helped expose Flint, Michigan’s lead crisis took notice, “The levels in Pittsburgh are comparable to those reported in Flint.”

The cities also share something else, involvement by the same for-profit water corporation. Pittsburgh’s layoffs happened under the watch of French corporation Veolia, who was hired to help the city’s utility save money. Veolia also oversaw a change to a cheaper chemical additive that likely caused the eventual spike in lead levels. In Flint, Veolia served a similar consulting role and failed to detect high levels of lead in the city’s water, deeming it safe.

For-profit water corporations see America’s crumbling infrastructure as a business opportunity. Either they buy struggling water systems or market their services to cities like Pittsburgh that need the help. At the same time, they use their political clout to cut taxes, choking off the public money necessary to sustain vital water infrastructure. Veolia, along with other corporations like American Water, is a member of the National Association of Water Companies (NAWC), which actively lobbies for lower taxes.

Last Wednesday, Pittsburgh Mayor Bill Peduto announced the city would provide filters for drinking water, which is the right thing to do. But he’s also considering partnering with another for-profit water company to clean up Veolia’s mess.

Partnering with corporations that must turn a profit should be off the table. For-profit water corporations will always have a financial incentive to cut service, shrug off maintenance, and fire employees. When they’re in charge, the high costs of doing business are passed on to residents: privately owned water systems charge 59 percent more than those that are publicly owned. Every public dollar that goes to executives and shareholders is a dollar that could be invested in making water clean and affordable.

Pittsburgh’s water needs democratic control and public investment, not corporate takeover.

— source salon.com by Donald Cohen
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The problems with measuring tax systems

In the past few years there have been several efforts to understand and even measure ‘spillovers’ – that is, how one state’s tax or legal system can transmit damage to other states’ tax or legal systems. Perhaps the best known of these efforts is the Tax Justice Network’s Financial Secrecy Index (FSI), which attributes a secrecy score to every country measured, then combines that score mathematically with a size weighting, to create a ranking of the world’s most important secrecy havens. The index has been extremely effective in drawing attention to the issues, and in uncovering a lot of new data and analysis and understanding of the offshore phenomenon which lies at the heart of financial globalisation.

The FSI deals with secrecy: there is a clear need for something similar in the area of tax. Corporate tax loopholes in one country, for instance, can have similarly damaging effects on the corporate tax systems of other countries, by encouraging multinationals to shift profits to the lower-tax jurisdiction, depriving the higher-tax jurisdiction of revenues. People are, rightly, rather angry about this.

A little work has already been done in this area. The IMF published a paper in 2014 entitled ‘spillovers in international corporate taxation,’ a first stab at measuring the scale of the phenomenon. Coming at it from a different angle, Oxfam recently published a report on ‘the world’s worst corporate tax havens’ whose methodology produced a ranking a bit like Financial Secrecy Index’. The corporate tax havens of Ireland and the Netherlands recently published ‘spillover analyses’ of their own tax systems which, surprisingly or unsurprisingly, depending on how cynical you’re feeling, largely absolved themselves of blame.

This is an area where much more work needs to be done. Now Andrew Baker and Richard Murphy offer a new, broad framework for thinking about how one might go about it.

Their blog Reframing Tax Spillovers, and the associated paper for the APPG, rightly highlights the flaws in these other projects, and offers something more comprehensive and useful.

Crucially, Andrew and Richard recognise that there are different dimensions of spillover: not just from one country or state to another, but also between different taxes in the domestic economy. For instance, the corporate income tax was originally set up in order to defend the ordinary income tax: if you have no corporate tax then rich folk simply convert their ordinary income into corporate income and escape the income tax. As they put it: ‘Taxpayers will try to divert part of the income that should be subject to this tax to another tax or location, or both.’ This happens all the time – and of course there are spillovers that cross both tax boundaries and national borders. This early-stage concept is highly welcome, and I can imagine it flowering into something big and useful.

Yet there is another generic issue that also needs highlighting: the conservative bias in measurement itself.

Much has been said about neoliberalism – the disenchantment of politics by economics, as Will Davies has put it – in a sense, the effort to shoe-horn as many aspects as possible of life, the universe and everything into the price system.

Much has been written about how neoliberalism, neoclassical economics and the economics faculty at Chicago University have injected a conservative bias into economics. But there’s an even deeper problem than this: in the area of tax, the very act of measurement is likely to impart a conservative bias.

This is for a pretty simple reason. Take a corporate tax cut, for instance. Leave aside the question of tax spillovers to other countries, and start by asking: ‘does this tax cut help my own country?’ What does it look like from a purely selfish national perspective?

Many studies have done this. Does the corporate tax cut foster new corporate investment, or bring in Foreign Direct Investment (FDI)? Oceans of work have been done here, and plenty of the political discourse in Britain, and in many other countries, leaves the matter at that. If it attracts FDI then that tax cut is ‘competitive’ – so let’s do it. After all, who could oppose a ‘competitive’ tax system?

But of course the story doesn’t end there. FDI is a means to an end, not an end in itself. If you have to spend a lot of treasure to attract that FDI, the cost may not be worth it. Britain’s corporate tax rate cuts since 2010 are forecast to cost nearly £15 billion a year in lost tax revenues by 2021 – which is well over a third of the education budget. It’s hard to see that this equation makes for a ‘competitive’ tax system – whatever ‘competitive’ might mean in this context. I would argue that pretty much all of that academic work just measuring elasticities is, for this reason, pretty meaningless from a policy perspective.

If one could do a good cost-benefit analysis – as in ‘here are the benefits of a given tax cut, weighed against the costs’ – then one might be able to draw a better conclusion about the merits or disadvantages.

But this is where the conservative bias comes in. It’s relatively much easier to measure the ‘benefits’ side of a tax cut – FDI responses, elasticities and so on – than it is to measure the costs.

That is, it’s relatively easier to measure things like investment responses, elasticities, which in isolation tend to favour tax-cutting, than to measure the other side of the ledger where the damage of tax cuts shows up: such as by reducing the long-term benefits of (tax-financed) infrastructure or education, which might play out over decades; or confidence in the overall tax system and democracy itself, as corporate tax rates fall far below personal income tax rates, or the effects of higher inequality exacerbated by corporate income tax cuts, and so on.

As the US public finance expert Robert G. Lynch put it to me recently: ‘It is much harder to measure the damage from reductions in public investment due to tax cuts than it is to measure the benefits from tax cuts.’

Researchers often stick to what they can measure, and to the extent that they do acknowledge the other, harder to measure side of the equation, it tends to be in more narrative form. So even when there’s a suitably nuanced report, policy-makers can cherry-pick out the numbers and throw away the narrative as so much fluff. This happens all the time. And that’s before we even get to the lobbying and role of private finance sponsoring some academic research.

There’s no obvious way around this: more narrative emphasis on the hard-to-quantify stuff will just get airbrushed out of the way of tax cuts. What is necessary is to de-emphasise of the role of economics and measurement in these debates, and to rekindle the politics. Civil society has been doing a decent job here: but academia and policy-makers have too often been in the thrall of the economists.

What is needed, at the end of the day, is to pursue the disenchantment of economics by politics.

— source speri.dept.shef.ac.uk by Nicholas Shaxson

Protesters Target Nuclear Power Bailout Plan

In New York City, dozens of protesters gathered outside Governor Andrew Cuomo’s offices Wednesday to oppose a bailout of New York’s aging nuclear power plants that could cost ratepayers up to $7.6 billion over the next 12 years. Bruce Rosen of the group United for Action says New York should instead turn to clean energy sources like solar and wind to meet its goal of reducing greenhouse gas emissions. The New York protest came as a draft budget document seen by the website Axios reveals the Trump administration hopes to slash the Energy Department’s renewable and energy efficiency program by nearly 70 percent.

— source democracynow.org

The bait and switch of public-private partnerships

This being the age of public relations, the genteel term “public-private partnership” is used instead of corporate plunder. A “partnership” such deals may be, but it isn’t the public who gets the benefits.

We’ll be hearing more about so-called “public-private partnerships” in coming weeks because the new U.S. president, Donald Trump, is promoting these as the basis for a promised $1 trillion in new infrastructure investments. But the new administration has also promised cuts to public spending. How to square this circle? It’s not difficult to discern when we recall the main policy of the Trump administration is to hand out massive tax cuts to big business and the wealthy, and provide them with subsidies.

Public-private partnerships are one of the surest ways of shoveling money into the gaping maws of corporate wallets, used, with varying names, by neoliberal governments around the world, particularly in Europe and North America. The result has been disastrous — public services and infrastructure maintenance is consistently more expensive after privatization. Cuts to wages for workers who remain on the job and increased use of low-wage subcontractors are additional features of these privatizations.

The rationale for these partnerships is, similar to other neoliberal prescriptions, ideological — the private sector is supposedly always more efficient than government. A private company’s profit incentive will supposedly see to it that costs are kept under control, thereby saving money for taxpayers and transferring risk to the contractor. In the real world, however, this works much differently. A government signs a long-term contract with a private enterprise to build and/or maintain infrastructure, under which the costs are borne by the contractor but the revenue goes to the contractor as well.

The contractor, of course, expects a profit from the arrangement. The government doesn’t — and thus corporate expectation of profits requires that revenues be increased and expenses must be cut. Less services and fewer employees means more profit for the contractor, and because the contractor is a private enterprise there’s no longer public accountability.

Public-private partnerships are nothing more than a variation on straightforward schemes to sell off public assets below cost, with working people having to pay more for reduced quality of service. A survey of these partnerships across Europe and North America will demonstrate this clearly, but first a quick look at the Trump administration’s plans.

Corporate subsidies, not $1 trillion in new spending

The use of the word “plans” is rather loose here. No more than the barest outline of a plan has been articulated. The only direct mention of his intentions to jump-start investment in infrastructure is found in President Trump’s campaign web site. In full, it states the plan “Leverages public-private partnerships, and private investments through tax incentives, to spur $1 trillion in infrastructure investment over ten years. It is revenue neutral.” The administration’s official White House web site’s sole mention of infrastructure is an announcement approving the Keystone XL and Dakota Access pipelines without environmental reviews, and an intention to expedite environmental reviews for “high priority infrastructure projects.”

Wilbur Ross, an investment banker who buys companies and then takes away pensions and medical benefits so he can flip his companies for a big short-term profit, and who is President Trump’s pick for commerce secretary, along with a conservative economics professor, Peter Navarro, have recommended the Trump administration allocate $137 billion in tax credits for private investors who underwrite infrastructure projects. The two estimate that over 10 years the credits could spur $1 trillion in investment. So the new administration won’t actually spend $1 trillion to fix the country’s badly decaying infrastructure; it hopes to encourage private capital to do so through tax cuts.

There is a catch here — private capital is only going to invest if a steady profit can be extracted. Writing in the New Republic, David Dayen put this plainly:

“Private operators will only undertake projects if they promise a revenue stream. You may end up with another bridge in New York City or another road in Los Angeles, which can be monetized. But someplace that actually needs infrastructure investment is more dicey without user fees. So the only way to entice private-sector actors into rebuilding Flint, Michigan’s water system, for example, is to give them a cut of the profits in perpetuity. That’s what Chicago did when it sold off 36,000 parking meters to a Wall Street-led investor group. Users now pay exorbitant fees to park in Chicago, and city government is helpless to alter the rates.”

The Trump plan appears to go beyond even the ordinary terms of public-private partnerships because it would transfer money to developers with no guarantee at all that net new investments are made, according to an Economic Policy Institute analysis. The EPI report asks several questions:

“[I]t appears to be a plan to give tax credits to private financiers and developers, period. The lack of details here are daunting and incredibly important. For starters, we don’t know if the tax credit would be restricted to new investment, or if investors in already existing [public-private partnerships] are eligible for the credit. If private investors in already existing PPP arrangements are eligible, how do we ensure these tax credits actually induce net new investments rather than just transferring taxpayer largesse on operators of already-existing projects? Who decides which projects need to be built? How will the Trump administration provide needed infrastructure investments that are unlikely to be profitable for private providers (such as building lead-free water pipes in Flint, MI)? If we assume tax credits will be restricted (on paper, anyhow) to just new investment, how do we know the money is not just providing a windfall to already planned projects rather than inducing a net increase in how much infrastructure investment occurs?”

Critiques of this scheme can readily be found on the Right as well. For example, Douglas Holtz-Eakin, a former head of the Congressional Budget Office and economic adviser to John McCain’s 2008 presidential campaign, told The Associated Press, “I don’t think that is a model that is going be viewed as successful or that you can use it for all of the infrastructure needs that the U.S. has.”

Corporations plunder, people pay in Britain

Britain’s version of public-private partnerships are called “private finance initiatives.” A scheme concocted by the Conservative Party and enthusiastically adopted by the New Labour of Tony Blair and Gordon Brown, the results are disastrous. A 2015 report in The Independent reveals that the British government owes more than £222 billion to banks and businesses as a result of private finance initiatives. Jonathan Owen reports:

“The startling figure – described by experts as a ‘financial disaster’ – has been calculated as part of an Independent on Sunday analysis of Treasury data on more than 720 PFIs. The analysis has been verified by the National Audit Office. The headline debt is based on ‘unitary charges’ which start this month and will continue for 35 years. They include fees for services rendered, such as maintenance and cleaning, as well as the repayment of loans underwritten by banks and investment companies.

Responding to the findings, [British Trades Union Congress] General Secretary Frances O’Grady said: ‘Crippling PFI debts are exacerbating the funding crisis across our public services, most obviously in our National Health Service.’ ”

Under private finance initiatives, a consortium of private-sector banks and construction firms finance, own, operate and lease the formerly public property back to the U.K. taxpayer over a period of 30 to 35 years. By no means do taxpayers receive value for these deals — and the total cost will likely rise far above the initial £222 billion cost. According to The Independent:

“The system has yielded assets valued at £56.5bn. But Britain will pay more than five times that amount under the terms of the PFIs used to create them, and in some cases be left with nothing to show for it, because the PFI agreed to is effectively a leasing agreement. Some £88bn has already been spent, and even if the projected cost between now and 2049/50 does not change, the total PFI bill will be in excess of £310bn. This is more than four times the budget deficit used to justify austerity cuts to government budgets and local services.”

The private firms can even flip their contracts for a faster payday. Four companies given 25-year contracts to build and maintain schools doubled their money by selling their shares in the schemes less than five years into the deals for a composite profit of £300 million. Clearly, these contracts were given at well below reasonable cost.

One of the most prominent privatization disasters was a £30 billion deal for Metronet to upgrade and maintain London’s subway system. The company failed, leaving taxpayers with a £2 billion bill because Transport for London, the government entity responsible for overseeing the subway, guaranteed 95 percent of the debt the private companies had taken out. Then there is the example of England’s water systems, directly sold off. The largest, Thames Water, was acquired by a consortium led by the Australian bank Macquarie Group. This has been disastrous for rate payers but most profitable to the bank. An Open University study found that, in four of the five years studied, the consortium took out more money from the company than it made in post-tax profits, while fees increased and service declined.

As for the original sale itself, the water companies were sold on the cheap. Although details of the business can be discussed by “stakeholders,” the authors conclude, the privatization itself remains outside political debate, placing a “ring-fence” around the issues surrounding the privatization, such as the “politics of packaging and selling households as a captive revenue stream.” The public has no choice when the water provider is a monopoly and thus no say in rates.

Incredibly, Prime Minister Theresa May and the Tories intend to sell off more public services to Macquarie-led consortiums.

Corporations plunder, people pay across Europe

Privatization of water systems has not gone better in continental Europe. Cities in Germany and France, including Paris, have taken back their water after selling systems to corporations. The city of Paris’ contracts with Veolia Environment and Suez Environment, expired in 2010; during the preceding 25 years water prices there had doubled, after accounting for inflation, according to a paper prepared by David Hall, a University of Greenwich researcher. Despite the costs of taking back the water system, the city saved €35 million in the first year and was able to reduce water charges by eight percent. Higher prices and reduced services have been the norm for privatized systems across France, according to Professor Hall’s study.

German cities have also “re-municipalized” basic utilities. One example is the German city of Bergkamen (population about 50,000), which reversed its privatization of energy, water and other services. As a result of returning those to the public sector, the city now earns €3 million a year from the municipal companies set up to provide services, while reducing costs by as much as 30 percent.

Water is big business. Suez and Veolia both reported profits of more than €400 million for 2015. Not unrelated to this is the increasing prominence of bottled water. Bottled water is dominated by three of the world’s biggest companies: Coca-Cola (Dasani), PepsiCo (Aquafina) and Nestlé (Poland Springs, Deer Park, Arrowhead and others). So it’s perhaps not surprising that Nestlé Chairman Peter Brabeck-Letmathe infamously issued a video in which he declared the idea that water is a human right “extreme” and that water should instead have a “market value.”

One privatization that has not been reversed, however, is Goldman Sachs’ takeover of Denmark’s state-owned energy company Dong Energy. Despite strong popular opposition, the Danish government sold an 18 percent share in Dong Energy to Goldman Sachs in 2014 while giving the investment bank a veto over strategic decisions, essentially handing it control. The bank was also given the right to sell back its shares for a guaranteed profit. Goldman Sachs has turned a huge profit already — two years after buying its share, Dong began selling shares on the stock market, and initial trading established a value for the company twice as high as it was valued for purposes of selling the shares to Goldman. In other words, Goldman’s shares doubled in value in just two years — a $1.7 billion gain.

Danes have paid for this partial privatization in other ways as well. Taking advantage of the control granted it, Goldman demanded lower payments to Danish subcontractors and replaced some subcontractors who refused to use lower-paid workers.

Corporations plunder, people pay in Canada

Canada’s version of public-private partnerships has followed the same script. A report by the Canadian Centre for Policy Alternatives flatly declared that

“In every single project approved so far as a P3 in Ontario, the costs would have been lower through traditional procurement if they had not inflated by these calculations of the value of ‘risk.’ The calculations of risk could just as well have been pulled out of thin air — and they are not small amounts.”

Not that Ontario is alone here. Among the examples the Centre provides are a hospital, Brampton Civic, that cost the public $200 million more than if it had been publicly financed and built directly by Ontario; the Sea-to-Sky Highway in British Columbia that will cost taxpayers $220 million more than if it had been financed and operated publicly; bailouts of the companies operating the city of Ottawa’s recreational arenas; and a Université de Québec à Montréal project that doubled the cost to $400 million.

A separate study by University of Toronto researchers of 28 Ontario public-private partnerships found they cost an average of 16 percent more than conventional contracts.

Corporations plunder, people pay in the United States

In the United States, a long-time goal of the Republican Party has been to privatize the Postal Service. To facilitate this, a congressional bill signed into law in 2006 required the Postal Service to pre-fund its pension costs for the next 75 years in only 10 years. This is unheard of; certainly no private business would or could do such a thing. This preposterous requirement saddled the Postal Service with a $16 billion deficit. The goal here is to weaken the post office in order to manufacture a case that the government is incapable of running it.

The city of Chicago has found that there are many bad consequences of public-private partnerships beyond the monetary. In 2008, Chicago gave a 75-year lease on its parking meters to Morgan Stanley for $1 billion. Shortly afterward, the city’s inspector general concluded the value of the meter lease was $2 billion. Parking rates skyrocketed, and the terms of the lease protecting Morgan Stanley’s investment created new annual costs for the city, according to a Next City report.

That report noted that plans for express bus lanes, protected bike lanes and street changes to enhance pedestrian safety are complicated by the fact that each of these projects requires removing metered parking spaces. Removing meters requires the city to make penalty payments to Morgan Stanley. Even removals for street repairs requires compensation; the Next City report notes that the city lost a $61 million lawsuit filed by the investment bank because of street closures.

Nor have water systems been exempt from privatization schemes. A study by Food & Water Watch found that:

Investor-owned utilities typically charge 33 percent more for water and 63 percent more for sewer service than local government utilities.
After privatization, water rates increase at about three times the rate of inflation, with an average increase of 18 percent every other year.
Corporate profits, dividends and income taxes can add 20 to 30 percent to operation and maintenance costs.

Pure ideology drives these privatization schemes. The Federal Reserve poured $4.1 trillion into buying bonds, which did little more than inflate a stock-market bubble, while the investment needs to rebuild U.S. water systems, schools and dams, plus cleaning up Superfund sites and eliminating student debt, are less at a combined $3.4 trillion. What if that Federal Reserve money had gone to those instead?

“Public investment to create private profit”

Given its billionaire leadership, the Trump administration’s plans for public-private partnerships will not lead to better results, and may well be even worse. Michael Hudson recently summarized what is likely coming in this way:

“Mr. Trump wants to turn the U.S. economy into the kind of real estate development that has made him so rich in New York. It will make his fellow developers rich, and it will make the banks that finance this infrastructure rich, but the people are going to have to pay for it in a much higher cost for transportation, much higher cost for all the infrastructure that he’s proposing. So I think you could call Trump’s plan ‘public investment to create private profit.’ That’s really his plan in a summary, it looks to me.”

This makes no sense as public policy. But it is consistent with the desire of capitalists to continually extract higher profits from any and all human activity. Similar to governments handing over their sovereignty to multi-national corporations in so-called “free trade” deals that facilitate the movement of production to locales with ever lower wages and weaker laws, public-private partnerships represent a plundering of the public sector for private profit, and government surrender of public goods. All this is a reflection of the imbalance of power in capitalist countries.

This is “the market” in action — and the market is nothing more than the aggregate interests of the most powerful industrialists and financiers. It also reflects that as capitalist markets mature and capital runs out of places into which to expand, ongoing competitive pressures will drive corporate leaderships to reduce expenses (particularly wages) and move into new lines of business. Taking over what had been the public sector is one way of achieving this, especially if public goods can be bought below fair market value and guarantees of profits extracted.

The ruthless logic of capitalism is that a commodity goes to those who can pay the most, regardless of whether it is something essential to human life.

— source systemicdisorder.wordpress.com

“Ryancare” Dead on Arrival

The new American Health Care Act has been unveiled, and critics are calling it more flawed even than the Obamacare it was meant to replace. Dubbed “Ryancare” or “Trumpcare” (over the objection of White House staff), the Republican health care bill is under attack from left and right, with even conservative leaders calling it “Obamacare Lite”, “bad policy”, a “warmed-over substitute,” and “dead on arrival.”

The problem for both administrations is that they have been trying to fund a bloated, inefficient, and overpriced medical system with scarce taxpayer funds, without capping its costs. US healthcare costs in 2016 averaged $10,345 per person, for a total of $3.35 trillion dollars, a full 18 percent of the entire economy, twice as much as in other industrialized countries.

Ross Perot, who ran for president in 1992, had the right idea: he said all we have to do is to look at other countries that have better health care at lower cost and copy them.

So which industrialized countries do it better than the US? The answer is, all of them. They all not only provide healthcare for the entire population at about half the cost, but they get better health outcomes than in the US. Their citizens have longer lifespans, fewer infant mortalities and less chronic disease.

President Trump, who is all about getting the most bang for the buck, should love that.

Hard to Argue with Success

The secret to the success of these more efficient systems is that they control medical costs. According to T. R. Reid in The Healing of America, they follow one of three models: the “Bismarck model” established in Germany, in which health providers and insurers are private but insurers are not allowed to make a profit; the “Beveridge model” adopted in Britain, where most healthcare providers work as government employees and the government acts as the single payer for all health services; and the Canadian model, a single-payer system in which the healthcare providers are mostly private.

A single government payer can negotiate much lower drug prices – about half what we pay in the US – and lower hospital prices. Single-payer is also much easier to administer. Cutting out the paperwork can save 30 percent on the cost of insurance. According to a May 2016 post by Physicians for a National Health Program:

Per capita, the U.S. spends three times as much for health care as the U.K., whose taxpayer-funded National Health Service provides health care to citizens without additional charges or co-pays. In 2013, U.S. taxpayers footed the bill for 64.3 percent of U.S. health care — about $1.9 trillion. Yet in the U.S. nearly 30 million of our citizens still lack any form of insurance coverage.

The for-profit U.S. health care system is corrupt, dysfunctional and deadly. In Canada, only 1.5 percent of health care costs are devoted to administration of its single-payer system. In the U.S., 31 percent of health care expenditures flow to the private insurance industry. Americans pay far more for prescription drugs. Last year, CNN reported, Americans paid nearly 10 times as much for prescription Nexium as it cost in the Netherlands.

Single payer, or Medicare for All, is the system proposed in 2016 by Democratic candidate Bernie Sanders. It is also the system endorsed by Donald Trump in his book The America We Deserve. Mr. Trump confirmed his admiration for that approach in January 2015, when he said on David Letterman:

A friend of mine was in Scotland recently. He got very, very sick. They took him by ambulance and he was there for four days. He was really in trouble, and they released him and he said, ‘Where do I pay?’ And they said, ‘There’s no charge.’ Not only that, he said it was like great doctors, great care. I mean we could have a great system in this country.

Contrary to the claims of its opponents, the single-payer plan of Bernie Sanders would not have been unaffordable. Rather, according to research by University of Massachusetts Amherst Professor Gerald Friedman, it would have generated substantial savings for the government:

Under the single-payer system envisioned by “The Expanded & Improved Medicare For All Act” (H.R. 676), the U.S. could save $592 billion – $476 billion by eliminating administrative waste associated with the private insurance industry and $116 billion by reducing drug prices . . . .

According to OECD health data, in 2013 the British were getting their healthcare for $3,364 per capita annually; the Germans for $4,920; the French for $4,361; and the Japanese for $3,713. The tab for Americans was $9,086, at least double the others. With single-payer at the OECD average of $3,661 and a population of 322 million, we should be able to cover all our healthcare for under $1.2 trillion annually – well under half what we are paying now.

The Problem Is Not Just the High Cost of Insurance

That is true in theory; but governments at all levels in the US already spend $1.6 trillion for healthcare, which goes mainly to Medicare and Medicaid and covers only 17 percent of the population. Where is the discrepancy?

For one thing, Medicare and Medicaid are more expensive than they need to be, because the US government has been prevented from negotiating drug and hospital costs. In January, a bill put forth by Sen. Sanders to allow the importation of cheaper prescription drugs from Canada was voted down. Sanders is now planning to introduce a bill to allow Medicare to negotiate drug prices, for which he is hoping for the support of the president. Trump indicated throughout his presidential campaign that he would support negotiating drug prices; and in January, he said that the pharmaceutical industry is “getting away with murder” because of what it charges the government. As observed by Ronnie Cummins, International Director of the Organic Consumers Association, in February 2017:

. . . [B]ig pharmaceutical companies, for-profit hospitals and health insurers are allowed to jack up their profit margins at will. . . . Simply giving everyone access to Big Pharma’s overpriced drugs, and corporate hospitals’ profit-at-any-cost tests and treatment, will result in little more than soaring healthcare costs, with uninsured and insured alike remaining sick or becoming even sicker.

Besides the unnecessarily high cost of drugs, the US medical system is prone to over-diagnosing and over-treating. The Congressional Budget Office says that up to 30 percent of the health care in the US is unnecessary. We use more medical technology then in other countries, including more expensive diagnostic equipment. The equipment must be used in order to recoup its costs. Unnecessary testing and treatment can create new health problems, requiring yet more treatment, further driving up medical bills.

Drug companies are driven by profit, and their market is sickness – a market they have little incentive to shrink. There is not much profit to be extracted from quick, effective cures. The money is in the drugs that have to be taken for 30 years, killing us slowly. And they are killing us. Pharmaceutical drugs taken as prescribed are the fourth leading cause of US deaths, after heart disease, cancer and stroke.

The US is the only industrialized country besides New Zealand that allows drug companies to advertise pharmaceuticals. Big Pharma spends more on lobbying than any other US industry, and it spends more than $5 billion a year on advertising. Lured by drug advertising, Americans are popping pills they don’t need, with side effects that are creating problems where none existed before. Americans compose only 5 percent of the world’s population, yet we consume fully 50 percent of Big Pharma’s drugs and 80 percent of the world’s pain pills. We not only take more drugs (measured in grams of active ingredient) than people in most other countries, but we have the highest use of new prescription drugs, which have a 1 in 5 chance of causing serious adverse reactions after they have been approved.

The US death toll from prescription drugs taken as prescribed is now 128,000 per year. As Jon Rappaport observes, with those results Big Pharma should be under criminal investigation. But the legal drug industry has grown too powerful for that. According to Dr. Marcia Angell, former editor in chief of the New England Journal of Medicine, writing in 2002:

The combined profits for the ten drug companies in the Fortune 500 ($35.9 billion) were more than the profits for all the other 490 businesses put together ($33.7 billion). Over the past two decades the pharmaceutical industry has [become] a marketing machine to sell drugs of dubious benefit, [using] its wealth and power to co-opt every institution that might stand in its way, including the US Congress, the FDA, academic medical centers, and the medical profession itself.

It’s Just Good Business

US healthcare costs are projected to grow at 6 percent a year over the next decade. The result could be to bankrupt not only millions of consumers but the entire federal government.

Obamacare has not worked, and Ryancare is not likely to work. As demonstrated in many other industrialized countries, single-payer delivers better health care at half the cost that Americans are paying now.

Winston Churchill is said to have quipped, “You can always count on the Americans to do the right thing after they have tried everything else.” We need to try a thrifty version of Medicare for all, with negotiated prices for drugs, hospitals and diagnostic equipment.

— source ellenbrown.com