Bank capital requirements based on credit risk serves no purpose, based on fighting climate change does.

Sir, Ben Caldecott writes: “The UN’s Sustainable Development Goals and the Paris climate change agreement will be unattainable unless banks finance solutions to these massive social and environmental challenges.” “Banks need a better climate change strategy” July 1st.

The current risk weighted capital requirements for banks are idiotic since these are based on the assumption that what is perceived as risky is more dangerous to our bank systems than what is perceived as safe. But these are also totally purposeless. I do not really favor this type of distortion but there’s no question banks would serve a better purpose if their capital requirements were based, not on credit ratings, but on Sustainable Development Goal ratings.

Obviously such capital requirements would automatically generate “loans that charge lower interest rates to borrowers who meet or outperform sustainability targets” just as the current ones generates lower interest rates to the sovereign and “the safe”, all paid by less and more expensive credit to “the risky”

Of course it would be of utmost importance in that case that the SDG rating agencies are not captured by any of the climate change fight profiteers that abound.

That said, before any climate change fight initiative, including the Paris agreement, what would be most effective is a high carbon tax, with all its revenues shared out equally to all citizens. Why has that not been implemented yet? The simple answer is that because for states that lives on cronyism that is of absolutely no interest.

Sir, if the world is to have a chance to afford successfully fighting climate change, or at least afford to mitigate some of its worst effects, we have to circle all our wagons in an effort to keep out of it all those who are just out to make monetary or political profits.

http://ourpiedaterre.blogspot.com/2015/04/my-proposal-for-this-earth-day-2015.html

@PerKurowski

Here are some actions we should take in order to reduce the threat inequality poses to our democracies.

Sir, the discussions about growing inequality, that tend too often to concentrate on either income or wealth inequality expressed solely as a linear function of monetary terms, are dangerously simplified. Once some basic and non-basic wants have been met, loading up some extra millions does not produce the same amount of marginal benefits per dollar.

But of course for those who do not have the income to satisfy their needs and basic wants inequality matters, a lot. And so more important than worrying about inequality, is to worry about how increase the incomes of those earning less. 

Sometimes the lower incomes for some can have to do with some few other earning unjustifiably or even incorrectly too much, but most often it has little to do with that.

But the redistribution profiteers want to hear nothing of that sort. They prefer to feed envy, with for instance their so frequent mentions of how few wealthy posses more wealth than a billion or so of the poor. That of course can only increase the threat inequality signifies to our democracies that Martin Wolf lays out well in his “Inequality is a threat to our democracies” December 20.

Going from “a stable plutocracy, which manages to keep the mass of the people divided and docile” to the “emergence of a dictator, who rides to power on the back of a faux opposition to just such elites” is what sadly happened in my Venezuela.

What can we do?

When Wolf writes “The market value of the work of relatively unskilled people in high-income countries seems very unlikely to rise” we could for instance see what role risk weighted capital requirements for banks play:

In terms of equality what’s the difference between someone owning a home and someone renting a similar one?

Not much, that is unless the value of the house owned increased a lot and, as a consequence, rents also increase, sometimes more than what the renter can compensate with increased salaries.

That’s what happens when banks are allowed to hold residential mortgages against much less capital than when for instance lending to entrepreneurs; and as a consequence earn higher risk adjusted returns on equity with mortgages than when financing entrepreneurs; which mean banks will make the financing of house purchase abnormally available; which means house prices will go up… until

That is also what happens when central banks inject liquidity that benefits mainly the owner of assets; “now your house is worth more so take out a new loan against it” is not an offer that one renting will hear. 

When Wolf refers to “a desire to enjoy some degree of social harmony and the material abundance of modern economies, [being a] reasons to believe the wealthy might be prepared to share their abundance.” We should be careful of promising more than what could be obtained, because much of that abundance is not easily converted into effective purchase power or transferable income to others; for instance when some wealthy, by means of what could classify as a voluntary tax, decides to freeze on a wall, or in a storage room $450m of his purchase power, in a Leonardo Da Vinci “Salvator Mundi” how do you efficiently reverse that? Of course what’s important here is not the buyer’s paid $450 million but to where the $450million received are going.

Sir, I believe the following actions would go a long way to “ensure the survival of liberal democracy”

1. Getting rid of the distortions produced by bank regulations

2. A monthly Universal Basic Income (UBI) that is sufficient to help you get out of bed but not so large as to permit you to stay in bed. 

3. A Revenue Neutral Carbon Tax that helps fund the UBI and aligns the incentives for saving the environment and reducing inequality. 

4. A special tax on profits obtained under the cover of intellectual property rights to help fund the UBI.

5. Have Facebook, Google and alike pay a minimum fee into the UBI fund for any advertising that they send to us on the web. That would also help us to make sure they do not waste so much of our very scarce attention span.

@PerKurowski

Climate-change fight profiteers capture governments (and perhaps FT too). Only citizens can really fight climate change.

Sir, you write “The UN issued a stark warning last month on the scale of the challenge, noting that even if governments act on their plans to cut or slow emissions, national pledges so far add up to only a third of the reductions needed to meet the goals of the Paris accord. Negotiators meeting in Bonn this week are supposed to be crafting rules to ensure countries step up their efforts.” “A sharp reality check on the climate challenge” November 15.

Forget it! The Paris agreement was just another great photo-op. If you really want to be able to do what it takes to save our pied-à-terre, you have to keep out the few big green profiteers able to lobby governments (and perhaps You too), and incorporate all the citizens in that quest.

How? Huge national carbon taxes with all its revenues shared out equally to all citizens. The moment a citizen gets a check and is himself turned into a small profiteer of the fight against climate change (and of the fight against inequality) all changes.

Sir, you have published a letter of mine before describing this type of solution, but you might be mightily targeted by those green profiteers too. So beware!

@PerKurowski

An all out war against inequality would be extremely harmful to us all.

Sir, Tim O’Reilly writes: “Clayton Christensen’s, “law of conservation of attractive profits” holds that once one thing becomes commoditised, something else becomes valuable.” And that “Hal Varian, Google’s chief economist, noted that ‘if you want to understand the future, just look at what rich people do today’. “People power, not robots, will overcome our challenges” October 20.

But I ask, does that not require a strong supply of rich and unequally wealthy, in order to power that demand for the new, that which majorities never generate? And, if so, does that not put a dent on the argument of: “the fundamental question of our economy today is not how to incentivise productivity, but how to distribute its benefits”?

Sir from this perspective the current all out war against inequality could be extremely harmful for all. For instance, as I have, unanswered, often tweeted to Mr. Thomas Piketty “Visit the Museum of Louvre in your Paris and try to figure out how much of it would have existed, had it not been for extreme inequality.”

And O’Reilly, as a source of jobs refers to that “there is the looming spectre of climate change”. Indeed but who is going to pay for the fight against it? If government takes on debts to fight climate change, who will volunteer to repay those debts tomorrow, whether we are successful or not? No one!

That is why I have argued so much in favor of creating a whole new generation of social incentives, which could help get the world to work in the same direction on at least some important issues.

For instance, if there was a huge carbon tax, which revenues did not go to the redistribution profiteers but were shared out equally among all citizens, then we could link up the fight against climate change with the fight against inequality, without affecting the remaining societal incentive structure… that which helps to create the inequality we need.

PS. And please never forget, just in case there will not be enough jobs tomorrow, to think about how we can create decent and worthy unemployments.

@PerKurowski

Much more than the Paris Climate (photo-op) Agreement, our pied-à-terre needs revenue neutral carbon taxes

Sir, Martin Wolf writes: “In no area are global spillovers more significant and co-operation more vital than climate… The main obstacles to such action are three. First, specific economic interests, notably in the fossil fuel industry… Second, free-marketeers, who despise both governments and environmentalists, reject the science, because of its (to them) detestable policy implications. Third, few wish to…threaten their standard of living, for the sake of the future or people in poorer countries” “Climate change puts poorest nations at risk”

Not so fast! There are those of us who believe that the threat of climate change is so real that there is no need to convince us with the “people in poorer countries” argument. The best interests of our grandchildren suffice. And there are those of us that despise the idea that so much of the important sacrifices required could be dilapidated enriching governments and environmentalists. To mostly attribute “specific economic interests” to the fossil fuel industry is to be too biased.

Of course the poorer countries should be helped, but the brunch of the climate change war effort, needs to be carried out as much as possible by sending out strong market signals, letting the markets operate freely assigning resources; and aligning the incentives as best as possible.

For that I strongly believe that a huge carbon a tax, shared out entirely to the citizens, is what first should be happening. Let us for instance suppose that petrol (gas) was sold all over the world at Norway’s current price of about US$2.10 per liter (Venezuela would have to increase its prices US$2.09 per liter) and that 100% of what that tax produces, goes directly back to the citizens.

Then we would fight climate change and inequality at the same time; which would be great since as Martin Wolf rightly holds: “The linked challenges of climate and development will shape humanity’s future.”

Sir, nothing in the Paris Climate (photo-op) Agreement seems to me remotely as powerful and effective as revenue neutral carbon taxes.

Similar to what I proposed for Mexico City

http://ourpiedaterre.blogspot.com

@PerKurowski

An adequate carbon tax has little to do with costs and much to do with the elasticity of the demand for carbon

Sir, Dr Robin Russel-Jones opines that a revenue neutral carbon tax will not work because of difficulties in “reaching agreement on the level of taxation.” "Support for carbon tax: let’s not get too excited", June 29 

The “market price for carbon credits of less than €10 per tonne of carbon dioxide… provides little incentive for businesses to control their emissions or invest in renewables” and “a carbon price of $166 per tonne of CO2…[based] on “societal costs generated by the burning of fossil fuels, calculated by the IMF… would put fossil fuels out of business”

No, the adequate level of carbon tax will depend on the elasticity of the carbon demand… and the only way to find that one out is by taxing. Put whatever carbon tax like for instance $40 per ton and see what happens. 

Dr. Russel-Jones, Chair of Help Rescue the Planet writes: “there is no reason to think that a business group in which fossil fuel interests are well represented will come any closer to solving the above conundrum than the UN has.”

Yet some of us also argue that there is no reason to think that those profiting from the business of protecting the environment would do so either.

That is why we need the carbon tax that pays out all revenues to the citizens. That aligns the incentives for the fight against inequality with those for protecting the environment, by means of market signals, and so without any hanky panky!

@PerKurowski

President Trump, remember Einstein’s “No problem can be solved from the same level of consciousness that created it”

Sir, Martin Wolf, in these moments of so much radical uncertainty, recommends Donald Trump to follow one don’t-rock-the-boat strategy. “Janet Yellen, and the Fed’s inflation target, should both stay” June 19. I wish I could be such an optimist to believe that would do.

If I were Trump I would like the Fed to think about how it could help to create sustainable jobs, not some kicking-the-can-down-the-road financed jobs; and about what to do with the unemployed, if they fail to reach the previous goal.

The current risk adverse bank regulations risk banks building up too large exposures to what’s perceived as safe against too little capital; and hinders the efficient allocation of credit to the real economy. So that just must go… completely!

Why should not Janet Yellen be able to do this? Well as Einstein once said: “No problem can be solved from the same level of consciousness that created it”

http://subprimeregulations.blogspot.com/2016/12/must-one-go-on-hunger-strike-to-have.html

And the structural unemployment that threatens social cohesion must be forcefully attacked before social cohesion breaks down. After, it is quite too late, as we all can see has been happening in Venezuela.

What to do? A Universal Basic Income is one useful tool of many to handle that problem with; and the revenue neutral carbon tax, the carbon dividend, seems a good source to start feeding a UBI scheme that foremost must be financed with real money… that is of course unless you really want to go down the same road as Zimbabwe or Venezuela 

@PerKurowski

A revenue neutral carbon tax helps face climate change, inequality, structural unemployment (UBI) and promotes growth

Sir, Ed Crooks reports that “Eleven leading international companies… have joined a campaign backing a revenue-neutral carbon tax in the US, as a way of tackling the threat of climate change that “embodies the conservative principles of free markets and limited government”. “GM and Total among 11 multinationals to support US carbon tax campaign” June 21. 

And yesterday, George P. Shultz and Lawrence Summers also signed up completely on the idea. “The inevitable climate solution” Washington Post, June 20.

Indeed, as I have written to you many times before, a carbon tax which revenues are equally redistributed to all, “carbon dividends”, is the way of how to align the market signal that helps face the current environmental challenges, with the current concerns about inequality and lack of sustainable economic growth.

It also constitutes a fiscally sound way to begin funding the universal basic income the society so urgently needs in order to face growing structural unemployment, before social cohesion breaks down, as then it might be too late.

It follows the same principles as what I proposed in May 2016, in order to combat pollution in Mexico City, and that you surprisingly yet very kindly published.

So Sir, forget the Paris Climate Agreement lamentations, at least for a while. The Climate Leadership's Council proposed carbon dividends proposal carries a lot more green, social and economic punch.

Please, even if this could make Trump to become a greater green hero than Al Gore, swallow it, for the best of our young. If Washington Post seems to be able to do so, you could too. 

PS. A decade ago I protested the trading of carbon credits as being just indulgences issued in order to keep on committing environmental sins. But carbon-tax-dividends, is that not something like democratic climate change indulgences, applied to and shared by all?

@PerKurowski

Martin Wolf, if we are to save our pied-a-terre, that will not happen by pitting clean Obama against dirty Trump

Sir, I refer to Martin Wolf’s “Trump’s bad judgment on Paris” June 7. 

Wolf writes: “Above all, the earth is not just an arena. It is our shared home. It does not belong to one nation, even such a powerful one. Looking after the planet is the moral responsibility of all”. Precisely! I agree 100%!

But when Wolf suggests, “the remaining participants in the accord must… commission an analysis of how to deal with free riders. Everything must be considered, even sanctions.”, then I disagree, 100%.

That has clearly little to do with how to help our planet and all to do with furthering the ongoing polarization in the world, all to do with fighting it out in an “arena”.

Really, what does “free riders”, in a “non-binding” agreement, in which “no coercion was involved” mean? So if US had remained in the “framework” (because a framework is all the Paris Climate Agreement is), and not done anything, would that have been better?

I was like most against Trump (the US) pulling out of the accord, but, after it happened, I take it as the best thing that could have happened. At least now we will no longer be lulled into feeling more secure about our planet by something that might just be a dangerous illusion of a solution. Something that might just have been a huge political photo-op; and a congenial gathering of green subsidies distributors and customers. Now at least we all know better how little punch that Paris Accord really carried.

So, let’s take it from here. Let us inform the Americans that a revenue neutral carbon tax, like the one recently proposed by some republicans, might carry ten times as much environmental saving punch than the Paris Accord. Let’s inform Trump that if he helps to support a successful implementation of such plan he could become even a greater hero to the Greens than Al Gore… that he would have been touched by Abraham Lincolns’ “the better angels”.

Sir, I sincerely believe that the price signals of a carbon tax; with all its revenues distributed among citizens, instead of being redistributed by some few, is the best way to live up to our moral responsibility towards what I often lovingly refer to as our pied-a-terre. If Donald Trump helps that to come thru, I at least am more than willing to forgive most of his very much salon inappropriate behaviors.

PS. And really, what is a Paris Climate Agreement that was signed by a president but not put up for ratification by the US Congress? In 1920, it was the US Senate that said no to the League of Nations with a 49 to 35 vote.

@PerKurowski

http://ourpiedaterre.blogspot.com

Mexico needs carbon and petrol tax, which revenues are all redistributed by a Universal Basic Income mechanism.

Mexico needs to align incentives on pollution

Sir, Jude Webber writes about the horrible pollution caused by the excessive number of cars in Mexico City (“Corruption and car fumes clog up the capital”, Notebook, May 26) and proposes that eliminating corruption in emission testing could be an important part of solving this. Fat chance! As a Venezuelan, I know that this is not a viable route.

Ms Webber writes: “Mexicans are snapping up cars as fast as the world’s seventh largest producer can churn them out . . . Domestic consumption is the engine of economic growth so there is no official incentive to dissuade people from buying Mexican-built cars and associated products such as petrol.”

That’s really not the case. You must build up the right political and economic incentives to correct for it. If Mexico imposed carbon tax, petrol tax and a strong traffic toll system, and made sure all the revenues from it were immediately returned to the economy by means of a universal basic income, you would face a different reality. Then you would have aligned the incentives for pollution control and the fight against climate change with the fight against inequality, and that makes for a very powerful alliance.

Standing in the way, besides initial protests from car owners, would be the redistribution profiteers who would miss a chance to make political and economic capital. Just as in Venezuela.

Published in FT