Slowly but surely the penny is dropping right around the world.   The issues that caused the GFC have not been resolved, are not going away and are lurking in the corner ready to pounce.

Despite all the radical actions, by Central Banks and governments, the international economic system remains on life support.

What are the key elements of the system that have demonstrated beyond doubt that it is structurally defective?

• The effective privatisation of most public money creation to private banks. Neoliberal theory argues that most new public money creation should be by private banks in the form of new bank lending. Neoliberals argue fiercely that the public sector should create as little new money as possible – which is what a fiscal deficit amounts to.  What we have is an effective “franchise” (click link for a very interesting article on the subject) granted by the public sector to private banks to create new public money.  The problem with this is that public money creation in the form of private bank lending is a very unfair and inefficient method of introducing new money into an economy as it is almost inevitably directed to the unproductive activity of pumping up and maintaining the prices of assets that can be pledged as security for the loans.

• Lending that effectively pumps up the value of the assets used as the security for the lending is a wonderful ‘perpetual motion’ model for bankers and the existing owners of assets but a disaster for the ongoing health of an economy as the price of basic inputs like land and housing are driven through the roof.  The richly profitable private asset price pumping inherent in our current monetary system is why there are constant campaigns in the press by the banking and finance sector (and their cheerleaders in the press) for the public sector to run “balanced budgets”. “Demonizing” public sector deficits is nothing more than demonizing money creation by the public sector. By running a balanced budget the public sector is by definition allowing the private banking sector more room to profit from the business of creating the new public money (via an expanding amount of bank lending) that every growing economy requires.   If there was more public money creation by government (say by spending more on health, education, infrastructure etc) that means less room for interest accruing private bank public money creation.    The privatisation of public money creation is probably the worst neoliberal privatisation of a common asset.

• Finally and most importantly – when public money creation is privatized in the form of private bank lending an interest charge is created because a bank loan imposes an interest charge.  In effect private companies are allowed to attach a trailing commission to public money creation even though public money can be created by the public sector completely free of an interest trailing commission.  The historic concerns about the practice of charging interest – aka usury – are most applicable and acute in the context of the creation of public money by private banks with a trailing commission ‘interest’ attached, because there is simply no justification for doing so.  We could have as much public money creation as we need completely interest free.

• Unrestricted unproductive international capital flows –  An unproductive capital flow is a flow of capital that does not clearly and directly add to the productive capacity of an economy.

• Classic examples include flows related to lending for asset price speculation,  flows related to the mere acquisition of title to assets and flows related to the explicit manipulation of exchange rates. Neoliberal theory holds that no distinction should be drawn between productive and unproductive capital flows and all should be completely unrestricted.  The reason this distinction is not made by neoliberals is because unproductive international capital flows are a fundamental tool of exploitation and wealth extraction.

• The big three examples in the Australian context are (1)  the taxpayer guaranteed foreign liabilities incurred by our private banks to support speculative lending for existing housing (2) the sale of commonwealth and state government securities to foreign interests (3) the mere transfer of title to significant local assets – land, infrastructure, industries to foreign interests.

• Don’t accept the bull dust that ALL capital inflows to Australia are ‘investment’ as that implies they are adding to the productive capacity of the economy. The vast majority of the capital inflows into the Australian economy are ‘speculative’ unproductive inflows and do little except place an effective tariff on all Australian industry and workers by driving the exchange rate above what it would be having regard to our trade performance.

Currently the world remains under the spell of the 20th century modernist fixation with grand projects of globalism or universalism from both the right and the left.

Both want a similar end state – essentially authoritarian in nature.  The right wants a universal international order that is privately run by private corporations and oligarchs and the far left one wants a universal international order that is run by a “publicly appointed” bunch of genius uber public servants who know best.  Both are deeply suspicious of genuine democratic participation as both do not trust the public.

The right believe the general public to be infested with ‘leaners’, ‘welfare queens’ and ‘moochers’ while the left considers the general public to be a bunch of ‘bogans’, ‘rednecks’ and a ‘basket of deplorables’.

Both the left and the right are convinced that public cannot be trusted and their interests need to be managed by someone – preferably by THEM and their back room boys and girls and their generous local and foreign donors.

Neither the left or right vision for public administration have much to recommend them as over time they are likely to become indistinguishably, grey and authoritarian.   Both sides are supporting a similar outcome because they believe their “good guys” will be the ones running the show.   The winner takes all nature of the project means there is never any hesitation by either side to resort to the “end justifies the means” thinking.    Once in control the risk is great that whatever “good” the winners ever possessed will turn sour and nasty.

The local alternative

The only alternative to these grand meta-narrative projections of globalist human ego is to drive politics back to local communities. Only limited and essential powers are to be vested in any federal institution or organisation and the membership of those federal bodies must be drawn from the local political communities rather than via direct election to avoid the all too common problem that the center starts to claim a direct mandate from the public for the accretion of power to the center.

Economic decision making will be located as close as possible to the community political processes. This means that the issues of taxing and spending are made as close as possible to those who are affected by them.

Approaching the issue of economics this way means that each community retains greater control of its approach to economic development, the degree of economic engagement it has with other communities. It can decide what degree of connection is in the interests of its citizens.

A nation is then simply a federation of communities that believe that they have some shared but limited interests.

So what would be the features of an approach that accepts that economic development of communities and engagement between communities and nations should be driven by a multitude of local considerations rather than some universal global mission statement by a left or right wing elite with grand plans?

• Local currencies for local communities The power over money creation returned to the public – shutdown the effective private bank franchise over public money creation.  If anyone is going to grow the public money supply to meet the needs of a growing economy it should be the public sector executing the essential public projects they have been elected to undertake – education, health, municipal services, defence, justice.

• Banks operate only as intermediaries of public money or they (and anyone else for that matter) can issue purely private money – assuming they can find any takers.

• No sales of government securities to off shore parties

• Strict limits or complete prohibitions on unproductive capital inflows and outflows (Essentially do not do unto others  what you would not have them do to you)

• Encouragement of productive capital inflows (joint ventures preferably to encourage skills and knowledge transfers) and outflows (joint ventures or no strings attached aid projects – gift human and physical capital to developing countries)

• Encouragement of liberalised (but not free) trade in goods and services. Free trade is a myth.  Trade is a form of communication between people but it requires regulation to ensure that it is not a vehicle for disease (quarantine), exploitation, oppression and harm.

• Liberalised movement of people but immigration policies limited by reference to infrastructure and the environmental capacity of the community and the wishes of the community with regards to growth. Note:  While a non-discriminatory approach is favored by the Glass Pyramid it is accepted that some communities (for example the Japanese) may prefer to discriminate if they wish to preserve a particular cultural or language identity.  Ultimately that is a matter for the community.

• Locals laws for local conditions.

The details of each will be up to each community to decide.

Whilst we may hope that other communities share our perspectives ultimately each community should be free to determine how their communities choose to live and grow.

If this approach sounds a bit familiar it should because it aspects of it are similar to the economic and development strategies used by many countries (especially former colonies) over the last century who sought to develop their economies while maintaining as much independence as possible from foreign exploitation.

The current neoliberal globalist model is little more than a rebadged colonial/exploitative model wrapped or sold in a veneer of claims to “freedom” and the brotherhood of man.  It is bullshit.

A truly global community is a community of independent and self determining communities or nations that are genuine federations of communities.

Free Nation Economics.

So what should we call a shift to policies that seek to reform the two key elements of the modern neoliberal economic regime – privatised public money creation and unrestricted unproductive international capital flows?

Good question.

Critical are policies that recognize that the economic development of a community must remain connected to the democratic processes of THAT community and recognize that globalism is fundamentally flawed because it undermines the connection between the democratic political processes of a community and its economic development.

Preferably any name should be one that is easily understood and can be readily adopted in other countries.

The Glass Pyramid suggest reclaiming a word much abused in recent years – Freedom.  A word that should be associated with liberty but is now associated with a brutal globalist movement of economic repression and exploitation.

The Glass Pyramid suggests Free Nation economics for the following reasons:

• The importance of the nation – a community or a national federation of communities.
• The importance that communities are free or sovereign in their affairs.
• That economic policy must be tied to the communities that it serves and not some international globalising ideology
• Communities and nations should be free to determine their own path of development and how they engage with other communities or federations of communities
• It is about time that the word freedom was reclaimed from the propagandists of international neoliberalism and financial capitalism.