Some critics of the reform argue that it creates a ‘massive concentration of power’ with the government, which will lead to corruption.
The Logic of The Argument
The logic behind this argument is the following: if you allow the government to create a lot of money and spend it into the economy, there is the scope for massive corruption as this money gets siphoned off, or goes to contractors who pay bribes to government officials.
The Argument is Against Government ‘Per Se’ – Not Against The Reform
In most European economies, and in the USA, governments are already responsible for spending around 40% of GDP. The reform proposal merely funnels the annual growth in the money supply – which will be in the region of 5% of the current money supply – through the government, in addition to the 40% of all spending that they take through taxes.
(Note that 5% of the money supply is not the same as 5% of GDP – in absolute terms, it is likely to be much smaller.)
Let’s put some figures to this discussion. The table below show the billions of Pound Sterling created by banks, through the fractional-reserve banking process, in each year up to 2007.
|
Year
|
£bns created by commercial banks |
|
2000
|
68
|
|
2001
|
59
|
|
2002
|
65
|
|
2003
|
72
|
|
2004
|
94
|
|
2005
|
148
|
|
2006
|
168
|
|
2007
|
177
|
(Source: Bank of England official statistics – derived by measuring the annual increase in M4)
Let’s assume that the money creation in 2005-2007 was excessive (triggering the sub-prime crisis and the financial crisis of 2008), so let’s choose the 2004 figure, rounded up to £100bn as a ‘good’ level of annual increase in the money supply.
Under our proposals for reforming the financial crisis, the government – and not the banks – would create this £100bn and spend it into the economy.
In the 2007-2008 financial year, the UK government spent £558 billion (according to UK Treasury statistics). Adding the £100bn newly created money to this amount is only a 15% increase in the government’s budget.
The Argument Doesn’t Make Sense
If you want to argue that increasing the government’s budget by 15% would lead to massive corruption, then logically you should also be arguing for the complete end of government in all forms. After all, if you believe that £100bn will lead to terrible corruption, then you must believe that the £558 billion that the government currently spends must already be the source of phenomenal amounts of corruption.
In Reality The Risk of Corruption Is Low
The risk of corruption as a result of our reform proposals is no greater than the risk of corruption that already applies to 100% of tax revenue. If you funnel a lot of money through any group of people, there will be a degree of corruption. But I have never heard any economist or academic say ‘We shouldn’t raise taxes because it will lead to corruption’, so it makes no sense to argue this with regards to this reform.
The Lesser Of Two Evils
No doubt corruption takes place at certain levels of government – more so in some countries than others. However, the choice is simple: would you rather run the risk that a small percentage of that newly created money be used for ‘corrupt’ purposes, or would you rather stick with the current system, which has just thrown tens of millions of people out of employment, and bankrupted most of the world’s governments – including that of the USA?
There is a way around these things especially in the light of computer technology. Irrespective of whether we are talking about banks, or governments their monetary transactions can be tracked electronically. If necessary (depending on the programme involved) we could stops things like fraud, or some other form of abuse (eg. creating to0 much credit!!!) by means of direct fines..if necessary out of their bank accounts! Remember money is ELECTRONIC DATA in the mian.
The problem with the above claim is that in some peoples eyes this would be seen as perhaps “going too far” but it is perfectly possible.
What a naive objection! Object to reform because it will lead to corruption? The a fundamental premise implicit in the very objection itself requires one to believe that there is no corruption in the current system. What absolute poppycock!!!! The underlying premise in the objection is a FALSE premise which leads to the proponent of such nonsense to its false conclusion.
The current system is riddled with corruption. The corruption is so ubiquitous and absolute, it is not just in the financial system but extends through to the political and legal system too.
Here’s some food for thought. How about the ‘favours’ (or perhaps outright kick backs) MP’s receive from the banking lobby for favourable legislation? Didn’t Tony Blair have a nice little job lined up at JP Morgan for when he left office? Ever thought about our courts, have you wondered how many judges have favourable “loans” (as reported in the USA) or wondered about cosy little executive directorships at the banks for judges or member of their families)? And what about the banks themselves. Why do you think the banks always win against the consumer? Ever wondered what those obscene bonus are really about – hush money perhaps, don’t want them to spill the beans about the criminal conduct that goes on in there – do they?
Objection on the grounds of potential corruption – what utter nonsense – does the proponent of such idiocy prefer that we continue to support the current corrupt system?.
The system is so absolutely corrupt now – there can be no serious objection that another system would allegedly lead to corruption.
And by the way, does the proponent prefer that we continue with the current system where the massive concentration of power is in held in the hands of private bankers.
A massive concentration of power in parliament is more preferable because they are answerable to us voters and we can get rid of them within five years – but we have no mechanism to get rid of the bankers.
Given the choice of these two evils – I’d still prefer parliament to have the massive concentration of power