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Ireland's political and cultural magazine
36March 2015
POLITICS INTEREST RATES
March 2015 37
Negative Interest
Rates would
force investment,
redistribute wealth
and reduce debt.
By Peter Emerson
I
F you buy a house, you’ll have to
maintain it. Any car will have
to be insured. Jewellery is best
kept in a safe deposit. Works of
art also need to be protected. In
other words, being rich can be costly…
unless, that is, your wealth is in cash. For
if you go to a bank with, oh, €,,
and say please, please, please! look after
this for me, it will cost you nothing; in
fact, they’ll pay you!
The two words, ‘ecology’ and ‘econ-
omy,’ both start with ‘eco’ meaning
‘house.’ The similarity ends there – the
words mean the ‘study of’ and ‘manage-
ment of’ respectively – and if something
is ecological, it may well be aesthetic and
wise... but uneconomic. Take, for exam-
ple, a tree. A tree is beautiful, it certainly
serves good purpose, but it is worth
nothing, financially, until, that is, like
wheat or barley, you cut it down.
Here’s another example. If I go to
work on my bicycle, I consume not, I
pollute not, and if I manage to avoid all
those car fumes, I keep fit. Such a self-
ish act, however, does not help the Gross
Domestic Product, GDP, at all. If you, in
contrast, go by car, then you consume,
you pollute, and the GDP improves. Let
us now take the logic one stage further:
if, heaven forbid, you have an accident
and wrap yourself round a lamppost,
then you create employment for the
usury
Uninteresting
38March 2015
ambulance crew and the insurance com-
pany and the police and the garage and
the nurses and the lamppost factory
and… in a nutshell, while you languish
in hospital with your leg in traction, rest
assured, you have prompted a healthy
improvement in the GDP.
What a crazy way to run an economy…
and here’s another instance. The ecol-
ogist argues for more self-reliance. At
home, for example, I grow my own spuds;
then, every year, I put some aside to go to
seed, and the rest, over time, go into the
pot. In other words, year on year, I am
working (but getting no wage); harvest-
ing (but getting no income); investing
(without spending money); in a word,
I’m being ecological. Economists do not
measure these activities because they
can’t: no money is involved.
An economy based on debt
For many countries in Africa and
elsewhere, one pressing priority is
self-sufficiency in food; a big part of
the problem, therefore, is current
fiscal policy, for the latter promotes
dependency, the very opposite. Just to
demonstrate the point, here in Ireland,
most two-year old children know what
a banana is, even though it comes from
, miles away; but most -year-
olds don’t know what a loganberry is,
even though it is indigenous. We could
grow loganberries, but we don’t; we
can’t grow bananas, and we have allowed
ourselves to become dependent on the
multi-nationals concerned.
We are independent politically, per-
haps, but not economically, and not least
because we’re in debt. As are most coun-
tries. Ireland, of course, has the bailout.
Things do not look good for Greece. The
UK is up to its ears. Despite its reserves,
China is in serious trouble with its debt-
based economy, and so it goes on: most
developed and many developing econo-
mies are in the red; many former Soviet
countries are struggling; and underde-
veloped nations are even worse off. So
who’s in credit? Well, a few countries
like Saudi Arabia, Qatar and Monaco are
wallowing in the black (gold) but, on bal-
ance, the world is a debtor. So who, I ask
again, is the creditor? Mars?
Well, whenever a country is in trou-
ble, it borrows from the bank. If, later
on, the bank gets into trouble, then the
country, even though it is already in
debt, might provide a rescue operation
to the bank by borrowing money… from
the bank. Now admittedly, the first bank
might not be the same as the second, but
even so, they’re all lending to each other.
In short, it is, yet again, a crazy way to
run the economy!
Gambling or speculation
At the moment, then, the world is in a
mess. And it’s getting worse. The rich
are getting even richer. If you and I go to
the races, then you might win a few bob
and I might lose; but the day is zero-sum.
When the rich play games, however, they
can’t lose: it’s win-win. They put their
money in the bank, in yen perhaps, and
it earns interest; they may take a gamble
and switch it over to yuan, or dollars
or whatever, but it still earns interest.
Then, if the currency appreciates, they
get a second prize. And the poor who
aren’t even playing are the losers; the
world, after all, is zero-sum. The bank-
ers pretend it is not by using the phrase
‘wealth creation.’
Furthermore, when you are really
really rich, you can begin to actually
control the currencies. Taking £Xtril-
lion out of sterling causes a flutter; the
price drops; the market begins to panic;
and the price tumbles. So now, via your
various companies based in some off-
shore tax haven like the Cayman Islands
and operated by those nice people in
HSBC in Geneva, you put your money
back into sterling. As a result, confi-
dence is restored; the price improves…
and you make a fortune from your for-
tune so you go laughing all the way to
the bank… where you are already. Even
if such speculation is small its whole ten-
dency is to achieve this effect – it’s the
essence of the way markets work.
Furthermore, if your timing is clever,
the rise in the value of the currency
means the political party you support
will win that vital next election. This
partly explains why, generally speak-
ing, business tends to support not only
the more right-wing parties, but also
the current adversarial political system
itself. On the scale writ small, in the
board room for example, they might try
to achieve a verbal consensus; when the
going gets serious, however, as in poli-
tics so too in business, majoritarianism
takes over: it is the majority stakeholder
who dominates, and the majority vote
which dictates at the AGM.
Negative interest rates
Pa rt of t he solut ion to t he se i ne ffic iencies
and injustices could be negative interest
rates. Money in a bank is a lodgement,
not an investment. An investment, as it
were by definition, must be for a fixed
minimum period: five years, say, will
get a small return, ten or more will pay
a better rate.
In other words, if you’re rich, any mere
lodgement will cost you. No matter what
your wealth – a home, a ca r, jeweller y, ar t
or cash – it will be expensive. €,
in the bank will be worth, let us say,
€, after one year; about €,
after two, and so on. By the time you’re
, there might not be much left; so,
if you want to do something with it, use
it – (a) invest it, (b) start a business, or
whatever, and the sooner the better. In
time, if (a) the investment pays off, you
may get interest plus dividend plus an
increase in the share price (sharehold-
ers like to both have and eat their cakes);
or (b), if the business is successful, then
profits will begin to accumulate.
If, however, your money is just sitting
in the bank, a mere lodgement being
transferred perhaps from one cur-
rency to another, from one commodity
to another, from one futures market to
another, then it is not an investment, it
is a lodgement if not indeed a specula-
tion. So each transfer should be subject
to a Tobin tax, of course, and until such
deposits become investments, these
lodgements should be subject to nega-
tive interest rates.
Such a policy would have immediate
beneficial effects. It would help to redis-
tribute wealth. It would mean that money
would be cheaper to borrow, so reducing
Greece’s debt burden, for example, not
to mention our own. It could be part of a
broader fiscal reform in which GDP – or
Gross Domestic Happiness, as they say
in Bhutan – could be recalculated on the
basis that the annual budget includes not
just cash but finite reserves in the earth
and/or territorial waters as well, things
like trees and oil deposits. This will help
ensure, if we do extract part of ‘our’ min-
eral wealth, that we do so responsibly;
that we do not take without taking care,
to use Naomi Klein’s phrase. Maybe
then, the two words – ecology and econ-
omy – would be similar.
In summary, negative interest rates
would help return the world to the situ-
ation in which usury was not regarded
as a virtue named credit but, as was (and
sometimes still is) the case according to
Jewish, Christian and Moslem beliefs,
was held to be a vice, a sin. •
Peter Emerson, www.deborda.org
POLITICS INTEREST RATES
It would help
to redistribute
wealth, reduce
debt and
could be part
of a broader
fiscal reform
in which Gross
Domestic
Happiness
and the
environment
supersede GDP
“
March 2015 39
