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I believe we will see more trading innovation in these markets over the next five years than we’ve experienced during any period since these markets began to go electronic in the late 1990’s. There are many reasons for this, but let’s focus on four broad themes: structural changes to financial markets, electronic trading resilience in turbulent markets, technology and data as multipliers and the evolving role of the trader. While each of these is at a different stage and none is brand new, together they are a catalyst for serious innovation. Structural changes to financial markets For many years, asset classes adhered to the “stay in your lane” principle, but those days are behind us. Clients and dealers increasingly view risk transfer holistically, trading in and out of multiple asset classes all day long with as little friction as possible. For example, credit investors can now buy corporate bonds and instantly hedge interest rate risk via U.S. treasuries or emerging markets currency risk via FX swaps. Pools of liquidity are also becoming more connected, allowing a retail bond investor to find the other side of a trade even if it’s in the institutional or wholesale market. China’s Bond Connect has electronically linked the world’s second largest local bond market with the rest of the global fixed income ecosystem. And don’t forget about regulation, as we know there is more to come. As happened with Dodd-Frank and MiFID/MiFIR, expect more regulation in these markets to yield new and innovative ways to promote transparency and efficiency. Electronifying markets is what makes these innovations possible. Electronic trading has proven its resilience in turbulent markets Historically, market volatility caused fixed income traders to revert to the telephone, but increasingly we’ve seen electronic trading become stickier. Take, for example, the response of corporate credit markets to the March 2023 collapse of several major banks. During this period of extreme volatility and a frantic hunt for liquidity, electronic credit trading volumes held steady compared with March 2020. The same was true when traders responded to the UK Gilt crisis, the Russian invasion of Ukraine and countless other moments of extreme market stress. This continued pattern of once-in-a-lifetime stress events followed by swift, tech-driven responses that keep markets moving is a harbinger of a new wave of innovation. Technology and data as multipliers Technology is not the source of all innovation, but it does carry a big stick. Our business has always been about optimizing the balance between humans and technology, so a potential sea change like artificial intelligence (AI) and machine learning (ML) becomes an opportunity to recalibrate that balance and ask what else can we do for clients. One place where we’ve seen real impact has been pricing. At Tradeweb that’s meant using AI to create pricing data for less liquid markets such as muni bonds, calculating intraday Net Asset Value (NAV) for ETFs or even benchmark closing prices in European government bonds. We also use machine learning in selecting the right counterparty or dealer on a trade. Most of the recent AI debate has focused on generative AI, which we view as a powerful capability – but it’s still early days. Evolving role of the trader Trader skills and capabilities will continue to evolve as technology takes on more mundane tasks, increases efficiency and pushes humans towards higher margin focus. We already see traders who are quants, coders, even portfolio managers – and that evolution will continue. Even as technology creates more possibilities, often led by younger generations of digital enthusiasts, it has never been more important for traders to also be skilled relationship managers and even marketers. The combination of these themes sets the stage for a period of massive transformation over the next five years. Some of these developments we’ve discussed have been with us for some time and others are more recent, but the perfect storm of these trends accelerating at the same time has created a powerful and exciting opportunity to reach new heights in trading innovation.

The flat tax never made it through Congress, but it’s been adopted by more than a dozen other countries since 1994.

It’s unfortunate that the United States is missing out on the tax reform revolution. Instead of the hundreds of forms demanded by the current tax system, the Armey flat tax would have required just two postcards. Households would have used the individual postcard to pay a 17 percent tax on wages, salary, and pensions, though a generous family‐​based allowance (more than $30,000 for a family of four) meant that there was no tax on the income needed to cover basic expenses.

To many Americans, consumption taxes are those collected at the cash register- such as the state sales tax--or value-added taxes like those they might encounter on a trip to Europe. Few Americans consider the flat tax a consumption tax because it would be levied on personal income. Economists and public finance experts, however, do consider the flat tax a consumption tax. The confusion revolves around the current tax code's policy of imposing greater penalties on income that is saved and invested than on income that is consumed. A tax code that does not discriminate against savings and investment is considered a consumption-based tax system, regardless of whether taxes are collected at the paycheck or at the cash register. In this respect, the flat tax is a version of a consumption tax.

The first concern is easy to address. Every flat tax plan has a generous allowance for all households based on family size. This “zero-bracket amount” would be more generous than the combined standard deduction and personal exemptions in the current tax system. Indeed, because of , I actually think the amount of tax-free income people would be able to earn is too large. So Mr. Ungar probably can relax on that point.

The second concern, though, is much harder to solve. The risk of a flat tax is that the system somehow will get compromised and degenerate back to . I like to think the American people, after finally being freed from , would vigorously fight to preserve the flat tax. But I also confess there are no guarantees. But here’s the deal. The worst thing that happens is that the current system re-emerges. That obviously would be a big disappointment, but that downside risk is rather tame compared to the downside risk of a  or , which is that politicians would pull a bait and switch, never get rid of the income tax, and then we wind up with a French-style tax system (and the  it finances).

The flat tax revolution also suggests that the politics of class warfare is waning. For much of the 20th century, policymakers subscribed to the notion that the tax code should be used to penalize those who contribute most to economic growth. Raising revenue was also a factor, to be sure, but many politicians seem to have been more motivated by the ideological impulse that rich people should be penalized with higher tax rates. If nothing else, the growing community of flat tax nations shows that class‐​warfare objections can be overcome.

For many Americans, the flat tax means simply that everyone would be taxed at "just one rate." Even though the 17 percent tax rate is a key feature of the flat tax[1], it would be only one element of the comprehensive reform.[2]The flat tax eliminates inequalities in the current tax code by treating all taxpayers--and income--equally. With the exception of exemptions based on family size, all income would be taxed, but only one time. For fairness and simplicity, there would be no deductions, credits, preferences, or loopholes. To achieve even further simplicity, taxes on most business and capital income (such as dividends and interest payments) would be withheld and paid at the business level.

The leading legislative proposal to create a flat tax is sponsored by House Majority Leader Richard Armey and Senator Richard Shelby (R-AL). Under the flat tax, the current Internal Revenue Code's 480 forms would be replaced by two simple postcard-size forms. Individual taxpayers would receive a generous allowance based on family size (more than $33,000 for a family of four) but would be responsible for paying a tax of 17 percent on any wage, salary, and pension income above that amount. The tax on all other income, including interest, dividends, rents, royalties, and business profits, would be withheld and paid at the business level (much as an employer withholds and pays individual income tax for workers). Because the government would not be allowed to tax any income more than once, both the capital gains tax and the death (or estate) tax would be eliminated. The flat tax also would get rid of all itemized deductions like the write-off for home mortgage interest, charitable contributions, and state and local income and property taxes. On the business side,[3] the flat tax wipes out all features of the current code that undermine U.S. competitiveness, including the alternative minimum tax, rules on pensions and deferred compensation, depreciation (which would be replaced with first-year expensing), international tax provisions, and uniform capitalization rules. (See Chart 1.)

To many Americans, consumption taxes are those collected at the cash register- such as the state sales tax--or value-added taxes like those they might encounter on a trip to Europe. Few Americans consider the flat tax a consumption tax because it would be levied on personal income. Economists and public finance experts, however, do consider the flat tax a consumption tax. The confusion revolves around the current tax code's policy of imposing greater penalties on income that is saved and invested than on income that is consumed. A tax code that does not discriminate against savings and investment is considered a consumption-based tax system, regardless of whether taxes are collected at the paycheck or at the cash register. In this respect, the flat tax is a version of a consumption tax.

Both the flat tax and a national sales tax also could be considered examples of an income tax, but one in which "income" is properly defined. The current tax system, by contrast, should not be referred to as an income tax; rather, it is an excessively complicated amalgamation of income and wealth taxation.

The current tax code of the United States is irreversibly broken and should be repealed. The tax laws undermine the country's prosperity by imposing needlessly harsh penalties on work, savings, and investment. Although many taxpayers face confiscatory tax rates and often are forced to pay more than one layer of tax on their income, the politically well-connected can take advantage of special deductions, credits, preferences, shelters, and loopholes to minimize their own tax liability. The result of this double standard is a tax system that not only penalizes productive behavior, but also violates the fundamental constitutional principle of equal treatment under the law.

The good news is that Congress is considering two major plans to fix the tax code: the flat tax and the national retail sales tax. Replacing the current system with either of these two taxes immediately would restore the principle of fairness to the tax system because both would treat all taxpayers equally. Both the flat tax and a national sales tax would replace today's discriminatory tax structure with a single low rate. In addition, either plan would eliminate the current tax code's bias against savings and investment and promote the kind of capital formation that America needs to boost workers' incomes and raise long-term economic growth. In addition, because far fewer personnel and far less paperwork would be needed to collect "contributions" under either plan, the ultimate result would be a dramatic downsizing of the Internal Revenue Service (IRS) bureaucracy and billions of dollars in compliance costs saved each year.

Flat taxes are meaningfully simple, however, in several ways. It is easier to forecast revenue under a flat tax, and to project the revenue effects of potential tax changes. It is easier for taxpayers to estimate their tax liability and how it would change under different income scenarios, which enhances tax transparency and potentially improves some economic decision-making. It accords better with impressions that taxpayers form of tax burdens based on headline rates, such that individuals and small businesses may be more attracted to a state with a relatively lower flat rate than one with a graduated-rate system that would yield similar liability. And it simplifies the function by which taxpayers decide whether to work or invest more on the margin, since all marginal returns to labor and investment are exposed to the same rate.

Of greater significance for taxpayers, however, is that flat-rate income taxes tend to function as a bulwark against unnecessary tax increases, and to provide greater certainty for individual and business taxpayers. Economic decisions are made on the margin; choices about investments, labor, or relocation will be made on the basis of the effect on the next dollar of income, not the prior ones. A competitive top marginal rate matters most for economic growth, and flat income taxes—given their “all-in” nature—not only mean a lower rate on that all-important margin, but tend to be harder to raise in the future, whereas highly graduated taxes are more susceptible to targeted, but often economically inefficient, tax hikes.

A new report from ProPublica argues that wealthy taxpayers face low effective tax rates as a portion of their wealth and mentions taxing unrealized capital gains or imposing a wealth tax. However, a better approach to raising the tax burden on the wealthy would be to pursue progressive consumption taxes as they have fewer administrative and economic costs.

Under the current tax system, individuals are tax-ed on their income, which consists of wages and salaries; investment income like dividends and capital gains; business income, such as farms, partnerships, and LLCs; and retirement income. If an individual owns an asset like a stock or a small business, they do not pay taxes on the increased value of that asset until they realize the gain through a sale. Until they sell, any gain in the value of a stock or a business is a “paper gain,” meaning they have not received proceeds on which to be taxed.

When a family saves for future generations, it provides resources to finance capital investments, like the start‐​up of new businesses and the expansion of old ones. Greater capital, in turn, affects the earnings of both existing capital and workers.

Because capital is subject to diminishing returns, an increase in its supply causes each unit of capital to earn less. And because increased capital raises labor productivity, workers enjoy higher wages. In other words, by saving rather than spending, those who leave an estate to their heirs induce an unintended redistribution of income from other owners of capital toward workers.

One single impulse—to narrow the gap between the rich and the poor—drives these concerted efforts to wring more out of the taxation system, if only from a much-reduced wealth base. But even if the markets were to turn around, the fatal flaw in these onerous taxation programs persists in their initial premise: that closing the wealth gap between rich and poor matters more than increasing overall wealth.

Consider two changes in wealth in a two-person society: one person who starts with $10 and another who starts with $20. In one scenario, the wealth of both double to $20 and $40, respectively. Classical liberals would see an unambiguous social improvement. Equalitarians might ask whether the increased wealth differential should lead us to reject this new state of affairs where both are better off. In a second scenario, the wealth of each person falls to $5. Should an egalitarian prefer this newfound parity because it eliminates the wealth gap even though it makes both sides worse off?

A world dominated by totalitarian states would be more incompetent, more war-prone, less cooperative, and more inhibitive of progress than one dominated by democratic states. Our current world is not particularly competent, peaceful, cooperative, or progressive—a totalitarian-dominated world would be worse. It would increase the risk of another collapse and extinction and could shape the future toward less desirable trajectories (Beckstead, 2013). Totalitarian states are incompetent. They are bad at forecasting and dealing with disasters (Caplan, 2008).16 This can be seen most clearly in the great famines of Communist China and the USSR, in which millions died (Applebaum, 2017; Becker, 1996; Dikotter, 2010; Snyder, 2010). In comparison, functioning multiparty democracies rarely, if ever, experience famines (Sen, 2010). “Established autocracies” (or “personal”/“sultanist”) are particularly bad, as there are few checks or restraints on arbitrary rule and the whims and ideology of the single individual, even from other elites (Svolik, 2012). From the inside, the “inner circle” around Mao, Stalin, and Hitler seems incredibly chaotic, with elites strongly incentivized to conceal information and encouraged by the autocrat to squabble and feud—so they are divided (Conquest, 1992; Kershaw, 2008; Zhang & Halliday, 2006). If totalitarian states are worse at addressing social, environmental, and technological problems, then a world dominated by them would likely be worse at responding to risks of collapse and extinction. A world dominated by totalitarian states is more likely to have major wars. States with near-universal adult suffrage rarely (if ever) go to war with one another (Barnhart et al., 2020), so a world dominated by democracies has fewer wars. Miscalculation might be a particular problem for totalitarian states due to personalization and disincentives for accurate information, leading to well-known strategic disasters such as Hitler and Stalin’s blunders in World War II (Bialer, 1970; Noakes & Pridham, 2001), or at a smaller level, Saddam Hussein’s rejection of diplomacy (Atkinson, 1993). War makes collapse and extinction more likely, by raising the chance of weapons of mass destruction being used. Linked to this, totalitarian states are less cooperative than democratic states. While cooperation is possible (Ginsburg, 2020), their internal norms are characterized by paranoia and treachery, and their lack of transparency limits their ability to credibly commit to agreements. This is bad for all risks that require cooperation such as pandemics or climate change (Tomasik, 2015). Finally, continued social and scientific progress is likely to reduce risks of collapse and extinction. Social progress could reduce global inequality and other risk factors. Scientific progress could help address natural risks and climate change (Sandberg, 2018), differentially increase defensive rather than offensive power (Garfinkel & Dafoe, 2019), and solve safety challenges in AI or biotechnology (Russell, 2019). However, as we will now discuss totalitarian states would likely inhibit social progress. A central question from a longtermist perspective is: Which values should shape the future? I would argue that we should prefer it to be shaped by liberal democratic values. This is not to say that the current democracy-dominated world is perfect—far from it. The fate of billions of factory-farmed animals or hundreds of millions of people in extreme poverty makes that abundantly clear. However, democracies have two advantages. First, democracies have space for cosmopolitan values such as human rights, plurality, freedom, and equality. These are better than those that characterize life under totalitarianism: Fear, terror, subjection, and secrecy. Second, they have within themselves the mechanism to allow progress. In the last 100 (or even 50) years, the lives of women, LGBT people, religious minorities, and non-white people have dramatically improved. Our “moral circle” has expanded, and could continue to expand (Singer, 1981). The arc of the moral universe is long, but given the right conditions, it might just bend toward justice (King, 1968). A global society dominated by these values, and with the possibility of improving more, has a better longterm potential. A totalitarian-dominated world, on the other hand, would reduce the space for resistance and progress—distorting the human trajectory. We should be particularly concerned about “bottlenecks” at which values are particularly important—where there is a risk of “locking-in” some particular set of (possibly far from optimal) values. While they are currently far-off, future technologies such as artificial general intelligence, space settlement, life extension (of autocrats), or much better surveillance could enable lock-in (Caplan, 2008).17 Conditional on them avoiding new catastrophes, world orders dominated by totalitarians could be quite long-lasting (Caplan, 2008). Democracies can undermine authoritarian and totalitarian regimes through the following ways: Control, including conquest; contagion through proximity; and consent, promoting receptivity toward democratization (Whitehead, 2001). Democracies can actively undermine these regimes through war, sanctions, hosting rebellious exiles, or sponsoring internal movements. Passively, through contagion, they offer a demonstration that a better, more prosperous life is possible. For example, in the final years of the USSR, ordinary Soviet citizens were able to see that the West had a higher standard of living—more innovation, more choice, and more consumer goods. The elites were able to read books from the outside, and travel—Gorbachev’s contacts and friendships with European politicians may have made him more favorable to social democracy (Brown, 1996). Democracies can undermine the will and capacity of the coercive apparatus (Bellin, 2004). However, in a world not dominated by democracies, all these pressures would be far less. A world in which, say, totalitarian regimes emerged as dominant after World War II (for example if the USA was defeated) could be self-reinforcing and long-lasting, like the self-reinforcing relationship of Oceania, Eurasia, and Eastasia (Orwell, 1949). Orwell’s fictional world is characterized by constant low-grade warfare to justify emergency powers and secure elites, and with shifting alliances of convenience as states bandwagon and balance, thereby preventing any resolution. A totalitarian-dominated world order could be rather robust, perhaps for decades or even centuries. A long-lasting totalitarian-dominated world would extend the period of time humanity would spend with a heightened risk of collapse or extinction, as well as increased potential for distortion of the human trajectory and the possibility that a “lock-in” event may occur. This example illustrates the possibility of a “negative recovery,” resulting in a trajectory with less or no scientific and social progress and a less favorable geopolitical situation, which would threaten the destruction of humanity’s longterm potential.

Economic democracy is not simply a series of piecemeal reforms; it is also a vision of a fundamentally different kind of society. Imagine a society with full and robust economic democracy based on the following four pillars: the majority of workplaces are worker cooperatives; workers and consumers interact in a highly regulated and redistributive market; finance is provided by public banks; and public investment occurs partially at high level for major projects, but significantly through lower levels via participatory investment. How would the nuts and bolts of such a system function? People would apply for jobs in the normal way. Co-ops would try to make money in the market, just as firms do today. The co-ops would be free to pay their workers equal wages or not (though previous experience with co-ops indicates that wage differentials will not usually exceed 3:1). Co-ops looking to expand would apply for loans from their local public bank. Businesses that are innovative and successful at responding to the demand of the population would grow and prosper. So successful firms would make more money than their competitors, thus providing incentives to work hard. High levels of taxation would prevent the rich from becoming super-rich, and would also pay for excellent public services, perhaps a Guaranteed Basic Income. Firms that are producing things that no one wants would go out of business; their workers would need to find new jobs (but note that unlike today, this would not at all be a tragedy since the public services or basic income provide very strong social support). Moreover, community members would be able to direct the economic development of their neighbourhoods through their participatory budgeting system as well as the public banks. Such a system would retains price signals for efficient allocation, a certain degree of material incentives for hard work, but no devastating consequences for business failure. There would still be business competition, which is useful for keeping firms accountable to what the population wants, but in this competition, no one wins majestically and no one loses tragically (no one ever becomes rich enough to acquire power over others or poor enough to go hungry, or lose their healthcare). The democratic market here resembles more a friendly sports race than a life-or-death battle. A true economic democracy would possess all the efficiencies of the market system without the profound injustices and disenfranchisement. There would be far more freedom - workers have enhanced say in their workplaces, citizens would have enhanced say about the economic development of their communities. There would be far more equality - due to the compressed pay scales of the co-ops and the higher taxes. Democracy too would have finally breached the barriers of the political system within which it has previously been confined, and would thereby come to animate all the main institutions of society. Such a society would be neither capitalist nor communist. It would be a radically democratic society. Clearly it would not be a perfect society, but just as clearly, it would be a profound advance from where we are now.

Top-down government control can be problematic, as states can also act very undemocratically, if not in an outright authoritarian manner. In other words, public ownership is no guarantee of democracy. In addition to citizens’ wealth funds, there is a need for a new generation of public and deeply democratic banks. Here we can learn from Costa Rica’s Banco Popular. This bank, which is owned by 1.2 million Costa Rican workers, is possibly the world’s most democratic bank, with the Assembly of Workers as its highest governing body. It lives up to its mission of serving the social and sustainable welfare of the Costa Rican people by financing cooperatives and groups who tend to face financial exclusion, such as workers, peasants and small and medium-sized enterprises (SMEs). Its banking decisions are further guided by principles of gender equity, accessibility and environmental responsibility. Banco Popular works together with the regional energy cooperative, COOPELESCA, one of four that successfully electrified the rural parts of the country. With a low-cost loan, COOPELESCA fully converted to LED lighting and by 2015 the cooperative had offset its carbon footprint through its own renewable energy sources and additional environmental actions. The worker-owned bank also helped COOPELESCA to buy exhausted land to preserve soil, biodiversity and water resources. There is also much to learn from the German saving banks, or Sparkassen. The assets of these 400 local saving banks are nobody’s property. The banks are independent from local authorities, they cannot be privatized or see their profits diverted for other purposes. Each bank’s board is key to its effectiveness, as it is made up of municipal representatives and other local stakeholders whose duty is to fulfil its binding mandate to stimulate savings, promote financial inclusion and lend to SMEs. These examples of cooperative and municipal banking practices show how principles – such as a binding mandate, the involvement of a variety of stakeholders, providing different channels for popular participation – can facilitate democratic public banking.

We can draw four conclusions from the chapters in this book. First, financial resources are there but are being extracted and wasted by a very small and very privileged minority. Second, private finance is much more expensive than public finance when it comes to public services and infrastructure. Third, despite privatization, there is still a considerable volume of public finance available, in particular in the form of public banks. Fourth, as long as public finance is mobilized for private profits rather than public benefit, a just transition towards energy democracy will fail. So, if we know what we are up against and what is needed to fight the climate crisis, how do we envisage finance and money systems that make sure we get there? Our vision for transforming money and finance rests on two pillars. The first is a politics of finance for the 99 per cent in which public and democratically accountable finance is used to invest in water, health care and education as well as ecologically sound industries. The second is a politics of public money in which governments do not borrow from private banks, but rather use their democratic power to spend money directly in the real economy and retrieve the surplus expenditure, also known as a ‘budget deficit’, through progressive taxation. This, in combination with building international tax justice, could effectively liberate society from the shackles of debt and financialization. We value the decades of work done by the worldwide Tax Justice Network, whose members have put tax evasion and avoidance on the political agenda and with this book, we wish to complement these efforts. With this new vision we aim to spark hope and nurture alliances, as they provide a basis for fleshing out radical and viable money, tax and finance models that can help us build the future we want. Moreover, the following real-world examples that have withstood neoliberalism reveal that economic alternatives have always been there. Now it is up to all of us to ensure that they will take root and take over, everywhere.

There is only one true superpower. Since the end of the Second World War, we’ve seen the United States bestride the world like a colossus.

What makes the US such a potent ally and formidable adversary? Its nuclear arsenal? This helps. As does its incomparable navy and huge, hi-tech army. The soft power from its ubiquitous contributions to culture is clearly important. But none of these really explains America’s unique ability to project power globally. This is conferred by the mighty US dollar.

What if we used public money to build the systemic solutions needed for everyone to thrive? What if our money, tax and finance systems could be radically transformed? What if we could unlock the power of public finance by deepening democracy? After the 2008 global financial crisis, big banks were rescued and public spending was curtailed. This justified ever harsher austerity measures and reinforced a persistent myth that the public sector must rely on private finance to solve excessive inequality and ecological destruction. Today, private finance has not only failed to address these problems, it has intensified them. The public does not have to rely on the private sector. Public funds are much bigger than we imagine: equivalent to 93 per cent of global GDP. Public banks have enough resources to raise the many trillions needed to invest in public services and climate infrastructure, without having to turn to private financiers. This book presents visions of regenerative and redistributive economies, built with collective power: from the thriving cooperative economy in Kerala, India, to the hundreds of local saving banks in Germany, the worker-owned bank Banco Popular in Costa Rica, and the thousands of People’s Credit Funds in Vietnam. It explores models that could become the new normal—the basis for a democratically organised and lifesustaining future. The real-world examples in this book demonstrate that a political economy that curbs the power of big finance and serves people and planet is possible. The ideas shared here are timely and urgent—a call to readiness before the next financial bubble bursts.

The politics of public money. These concrete alternatives show that the pathways towards economies of well-being are plenty. We can use transformative state funding, banking and procurement strategies to build strong human development and community wealth from the ground up. Yet, under a global, debt-driven financial system, we need to ask where the money comes from. Most new money is issued by commercial banks in the form of private and often high-interest loans, perpetuating the cycle of reckless economic growth. This type of money can be better understood as finance, as it is always based on creating debt and indebting people and entire populations. Even the IMF and the Bank of England now acknowledge that this is how new money is created. That most of our money is based on debt is not a given: it is a political situation that people and policymakers can change. In the neoliberal era, as central banks in many rich countries became apparently independent of government, their primary duty was to guarantee price stability and limit inflation by setting interest rates and producing cash (notes and coins). However, governments’ continued power to issue debt-free money was shown by the €2.6 trillion that the European Central Bank created and the US$4.5 trillion that the Federal Reserve issued after the 2008 financial crisis, a process also known as ‘quantitative easing’. Most of the new money went to rescuing the financial system, including the big banks. The underlying approach was tied to trickle-down economics, believing that buying corporate and government bonds would in turn push up share prices resulting in short-term spending and long-term investing in which everyone would prosper. This obviously never happened, as shares are predominantly owned by the wealthy who know how to make more quick money through the financial sector than through more productive sectors. Hence private finance and financial markets have been relying, more than ever, on governments and public money to regain temporary stability, while being largely left unregulated to maximize profits through speculative financial vehicles. This approach, according to various political analysts such as Walden Bello, will almost certainly provoke another financial crisis. Governments still have the power to spend money rather than lending it, but the way they have used it has led to more and not less concentration of wealth. The 2008 global financial crisis showed that banks were saved through public bailouts and the financial losses were socialized through austerity measures on the backs of ordinary people. Given that the public is ultimately liable, this illustrates that even credit or debt-driven money issued by commercial banks should be considered a public good and therefore should be in public hands and democratically controlled. It will take a ‘politics of public money’, as opposed to a politics of privatized finance, to stop the growth juggernaut. This can be done only by reasserting the powers to create new money in 8 | Public Finance for the Future We Want order to fundamentally democratize our money systems. This public money should be spent (rather than lent) to address the many great challenges of our time rather than diverted and lost in the financial markets. With amassed counter-power, we can reclaim the state and create a new monetary model. To give an example of what such a model could look like, Mary Mellor, emeritus professor at Northumbria University, argues that a new model could allow people to democratically and collectively decide the amount of public money that should be created. Any publicly created money that turns out to be superfluous would be retrieved through taxes in order to keep inflation in check. While the trillions created by central banks after the 2008 crisis through speculation dangerously pushed up real estate prices, the fear of hyperinflation – when the prices of goods and services rise more than 50 per cent a month – seems largely unsubstantiated. With so many jobs, goods and services needed to restore the ecosystem, and to keep inflation in check, the new money should not be speculated with but put to societal use. In order to restore ecosystems and put an end to extractivism, we need to confront the power of big business, in particular the fossil fuel oligarchy. Carla Skandier of the Next System Project argues that the United States, whose energy industry is responsible for a large share of the country’s greenhouse gas emissions, could use its sovereign monetary power to buy out fossil fuel companies. A public buyout would enable society to shift control away from private, profit-driven shareholders and towards democratically decommissioning fossil fuel operations. With popular pressure, these entities could be transformed into climate-friendly public companies that prioritize the needs of displaced fossil fuel workers and communities, as well as other disenfranchised groups. While these proposals may sound too radical to many politicians, creating new public money in the people’s interest is gaining significant momentum as it could effectively finance the Green New Deal. This plan, most recently put forward by Congresswoman Alexandria OcasioCortez in the US, seeks to rapidly decarbonize the economy while also tackling social and economic inequalities. Public support for massive public investment, powered by publicly created money and democratically organized banks is growing, as these might be the only big guns with which we can actually fight climate change to foster collective well-being.

Perhaps, but Ocasio-Cortez and the 22 representatives joining her in calling for a Select Committee are also proposing a novel way to fund the program, one which could actually work. The resolution says funding will primarily come from the federal government, “using a combination of the Federal Reserve, a new public bank or system of regional and specialized public banks, public venture funds and such other vehicles or structures that the select committee deems appropriate, to ensure that interest and other investment returns generated from public investments made in connection with the plan will be returned to the treasury, reduce taxpayer burden and allow for more investment.” A network of public banks could fund the Green New Deal in the same way President Franklin Roosevelt funded the original New Deal. At a time when the banks were bankrupt, he used the publicly owned Reconstruction Finance Corporation as a public infrastructure bank. The Federal Reserve could also fund any program Congress wanted, if mandated to do it. Congress wrote the Federal Reserve Act and can amend it. Or the Treasury itself could do it, without the need even to change any laws. The Constitution authorizes Congress to “coin money” and “regulate the value thereof,” and that power has been delegated to the Treasury. It could mint a few trillion dollar platinum coins, put them in its bank account, and start writing checks against them. What stops legislators from exercising those constitutional powers is simply that “everyone knows” Zimbabwe-style hyperinflation will result. But will it? Compelling historical precedent shows that this need not be the case. Michael Hudson, professor of economics at the University of Missouri, Kansas City, has studied the hyperinflation question extensively. He writes that those disasters were not because of government money-printing to stimulate the economy. Rather, “Every hyperinflation in history has been caused by foreign debt service collapsing the exchange rate. The problem almost always has resulted from wartime foreign currency strains, not domestic spending.” As long as workers and materials are available and the money is added in a way that reaches consumers, adding money will create the demand necessary to prompt producers to create more supply. Supply and demand will rise together and prices will remain stable. The reverse is also true. If demand (money) is not increased, supply and GDP will not go up. New demand needs to precede new supply. The Public Bank Option: The Precedent Of Roosevelt’s New Deal Infrastructure projects of the sort proposed in the Green New Deal are “self-funding,” generating resources and fees that can repay the loans. For these loans, advancing funds through a network of publicly owned banks will not require taxpayer money and can actually generate a profit for the government. That was how the original New Deal rebuilt the country in the 1930s, when the economy was desperately short of money. The publicly owned Reconstruction Finance Corporation was a remarkable publicly owned credit machine that allowed the government to finance the New Deal and World War II without turning to Congress or the taxpayers for appropriations. First instituted in 1932 by President Herbert Hoover, the RFC was not called an infrastructure bank and was not even a bank, but it served the same basic functions. It was continually enlarged and modified by President Roosevelt to meet the crisis of the times, until it became America’s largest corporation and the world’s largest financial organization. Its semi-independent status let it work quickly, allowing New Deal agencies to be financed as the need arose. The RFC Act of 1932 provided the RFC with capital stock of $500 million and the authority to extend credit up to $1.5 billion (subsequently increased several times). The initial capital came from a stock sale to the U.S. Treasury. With those resources, from 1932 to 1957 the RFC loaned or invested more than $40 billion. A small part of this came from its initial capitalization. The rest was borrowed, chiefly from the government itself. Bonds were sold to the Treasury, some of which were then sold to the public; but most were held by the Treasury. The RFC ended up borrowing a total of $51.3 billion from the Treasury and $3.1 billion from the public. Thus the Treasury was the lender, not the borrower, in this arrangement. As the self-funding loans were repaid, so were the bonds that were sold to the Treasury, leaving the RFC with a net profit. The RFC was the lender for thousands of infrastructure and small business projects that revitalized the economy, and these loans produced a total net income of $690,017,232 on the RFC’s “normal” lending functions (omitting such things as extraordinary grants for wartime). The RFC financed roads, bridges, dams, post offices, universities, electrical power, mortgages, farms, and much more; and it funded all this while generating income for the government. The Central Bank Option: How Japan Is Funding Abenomics With Quantitative Easing The Federal Reserve is another funding option before the Green New Deal. The Fed showed what it can do with “quantitative easing” when it created the funds to buy $2.46 trillion in federal debt and $1.77 trillion in mortgage-backed securities, all without inflating consumer prices. The Fed could use the same tool to buy bonds earmarked for a Green New Deal; and since it returns its profits to the Treasury after deducting its costs, the bonds would be nearly interest-free. If they were rolled over from year to year, the government would in effect be issuing new money. This is not just theory. Japan is actually doing it, without creating even the modest 2 percent inflation the government is aiming for. “Abenomics,” the economic agenda of Japan’s Prime Minister Shinzo Abe, combines central bank quantitative easing with fiscal stimulus (large-scale increases in government spending). Since Abe came into power in 2012, Japan has seen steady economic growth, and its unemployment rate has fallen by nearly half; yet inflation remains very low, at 0.7 percent. Social Security-related expenses accounted for 55 percent of general expenditure in the 2018 federal budget, and a universal health care insurance system is maintained for all citizens. Nominal GDP is up 11 percent since the end of the first quarter of 2013, a much better record than during the prior two decades of Japanese stagnation; and the Nikkei stock market is at levels not seen since the early 1990s, driven by improved company earnings. Growth remains below targeted levels, but according to The Financial Times in May 2018, this is because fiscal stimulus has actually been too small. While spending with the left hand, the government has been taking the money back with the right, increasing the sales tax from 5 percent to 8 percent. Abenomics has been declared a success even by the once-critical International Monetary Fund. After Prime Minister Shinzo Abe crushed his opponents in October 2017, Noah Smith wrote in Bloomberg Opinion, “Japan’s long-ruling Liberal Democratic Party has figured out a novel and interesting way to stay in power—govern pragmatically, focus on the economy and give people what they want.” He said everyone who wanted a job had one; small and midsize businesses were doing well; and the BOJ’s unprecedented program of monetary easing had provided easy credit for corporate restructuring without generating inflation. Abe had also vowed to make both preschool and college free. Not that all is idyllic in Japan. Forty percent of Japanese workers lack secure full-time employment and adequate pensions. But the point underscored here is that large-scale digital money-printing by the central bank to buy back the government’s debt combined with fiscal stimulus by the government (spending on “what the people want”) has not inflated Japanese prices, the alleged concern preventing other countries from doing it. Abe’s novel economic program has achieved more than just stimulating growth. By selling its debt to its own central bank, which returns the interest to the government, the Japanese government has in effect been canceling its debt; and until recently, it was doing this at the rate of a whopping $720 billion (¥80tn) per year. According to fund manager Eric Lonergan in a February 2017 article: The Bank of Japan is in the process of owning most of the outstanding government debt of Japan (it currently owns around 40 percent). BOJ holdings are part of the consolidated government balance sheet. So its holdings are in fact the accounting equivalent of a debt cancellation. If I buy back my own mortgage, I don’t have a mortgage. If the Federal Reserve followed suit and bought 40 percent of the U.S. national debt, it would be holding $8 trillion in federal securities, three times its current holdings from its quantitative easing programs. Yet liquidating a full 40 percent of Japan’s government debt has not triggered price inflation.