4.7.2013 1

Inequality, Bubbles and Crashes - Why Rising Inequality is

Economically Unsustainable

Professor Dr Christian Kreiss

2

Overview - Agenda

1. The Invisible Hand: Daily Transfers

2. Euro- Zone: Out of Balance

3. Spiritual Background

4. How to Overcome the Crisis:

a) What to do together?

b) What can each person do individually?

3

The Invisible Hand

Daily Transfers

4

Example: Buying a Roll1. Farmer:

● Growing wheat needs soil rent mus be paid to the owner

● Capital (tractor, sewing- machine, seed etc.) interest or dividend must be paid for loan or equity

● Labor of the farmer wage is being paid

2. Mill

● Real estate location of the mill rent to the landlord

● Capital (mill, tools etc.) interest for loan or dividend for equity

● Labor of the miller wage payment

3. Bakery

● Bakery needs ground rent payment to the owner

● Capital (oven, inventory etc.) interest for loan or dividend for equity

● Wage for the baker

5

Example: Buying a Roll

4. Result:

● The price of each product that we purchase contains a certain percentage of interest or capital payments

● Economic term: payment of a rent, which means money is paid without having to work for it

● On average in Germany ca. 33 to 38% of the product price the private end- consumer pays

● Varies, dependent on intensity of capital and land employed

Christian Kreiß 6

Some win, some lose

How much money is it?

Government consultants (The „five wise men“: € 518 bn per year (2006-2008) non-wage/ rent- payments in the form of interest, dividends and real estate- payments to landlords

Who gets all this money?

Top 10% (biggest part: top 1%) of the population

Wealth distribution in Germany and the world very unequal

Christian Kreiß 7Quelle: Helmut Creutz

Parents of Jesus invest 1 Penny at a bank in Bethlehem when fleeing to Egypt at 4% interest p.a.1750 a mountain of gold as big as the entire earth

$ 1 investment 1919 in stocks of Coca Cola: after 74 years, in 1993: $ 51.203

Growing like an infection or cancer: exponential growth rate from the beginning, but only from a certain critical mass the illness becomes acute, evident and, mybe, mortal

Interest on interest

8

Interest on interest, wealth distribution and tax evasion

tax justice network 22. Juli 2012:„Revealed: global super-rich has at least $21 trillion hidden in secret tax havens“

9

The Logical Consequence: Increasing Inequaility

10

Increasing Inequality

Germany: income distribution better than OECD- average

Worldwide: inequality since 30 years  World: top 1% of the world population own 40% of wealth

(Germany 23%), lowest 60% own 0,8%

OECD November 2011, Divided We Stand: Why Inequality Keeps Rising, Country Note Germany

11

Increasing Inequality

Income distribution USA (Wall Street Journal, 27. Okt. 2008)

12

Economic Impacts of Increasing Inequality

13

Increasing Inequality

Economic Impacts:

1. Top earners Income share

2. Top earners save more than normal people

3. Result: saving rate median income lags behind

Deutsches Institut für Alterssicherung 2005

14

Impacts of Growing Inequality

Increasing saving rate worldwide capital glut low interest rates worldwide (too) high investments/ speculation in

1. Real Estate Real estate bubbles worldwide, valuation illusions. Montalvo 2008: „Real estate cancer“ in Spain

2. Gold, raw materials, food

3. M & A

4. Industrial production large overcapacities

Result: overcapacities, cancerlike structures worldwide

Real correction necesseary (has not yet begun)

15

Leverage and Debt

16

Sustainable growth path versus debt driven growth path

1980 1985 1990 1995 2000 2005 2010Zeit

BIP

klassischerKonjunktur-verlauf

Rückkehr zumnachhaltigen

Wachstums-pfad

tatsächlicher Wachstumspfad aufgrund von Höherverschuldung

stilisierter Konjunkturverlaufnachhaltiger, endogener Wachstumspfad ohne Höherverschuldung

Wedge between the growth rate of capital (offer) and the growth rate of mass incomes (demand)

„Solution“:

Debt to increase purchasing power

Real US GDP 1980-2011: increasing from 100 to 231 (+131%)Median income 1980-2011: increasing from 100 to 108 (+8%)

BCG The Boston Consulting Group, Back to Mesopotamia? September 2011

18

USAKoo 11.9.09

19

Summary Impacts

1. Property rigths exponential growth

2. Increasing inequality

3. Savings rate increases

4. Capital glut, sinking interest rates - Mass income lags behind

5. Rising asset values, asset bubbles - overdebtedness

overinvestment, cancer in the social organism

6. Severe correction imminent

(Euro reinforces distortions in continental Europe)

20

Imbalances in the Euro Area

21

Imbalances in the Euro Area

Converging interest rates, ignoring credit- worhiness

capital glut in the euro periphery huge misallocations of capital Asset bubbles, exaggerations

Sinn 5/2011

Deutsche Bank Bergheim 9/2007

22

Imbalances in the Euro Area

1, S.86

Sinn 5/2011

23

Euro Area

WSJ 25.3.09

Dt. BundesbankMärz 2011

Bergheim 2007

Workforce in the construction sectorJobless rate

24

Imbalances in the Euro Area

WSJ 18.7.11

Deutsche Bank Research 2009

WSJ 14.9.09

25

Spain

Tradingeconomics15.3.2013

26

Euro Area

Sinn Mai 2011

27

Imbalances in the Euro Area: What‘s behind?

● „Nuclear option“ WSJ 14.9.09

● Social crises, national tensions, conflicts, chaos

● Cui bono? Who is profiting? Who could be interested in these developments? Idea behind: How to deeply weaken continental Europe?

● Overcapacities are reduced in continental Europe capital stock in other countries are spared

● Subconscious: strong nationalisms Euro must fail

● Premature introduction of a great ideal Illusions are generated, to cause disappointments and conflicts?

28

Spiritual Background

29

Cui bono (Whose benefit)?

● „Of the 1 per cent, for the 1 per cent, by the 1 per cent“ (J.Stiglitz 2012)

● Power of the central banks/ EU-circles/ IMF increases in tandem with increasing debt

● Easier recruitment for military personnel

● Example John Pierpont Morgan (JP Morgan) and the crisis of 1907

Plutocratic, antidemocratic developments Power of elites and owners of capital

increases Bundling of power, ital.: il fascio

30

Misery, Fear and Freedom

Power, economic satellisation only the tool?

Question of freedom and human dignity?

Assaults of 9/11 2001 in New York WTC Patriot Act Oct. 2001 Substantial reduction of civil rights in the USA Snowden

Europe: decisions on public finances increasingly at supranational levels

31

Freedom of the Press

Who owns the media? Berlusconi, Springer, Murdoch etc. few families

Marquette University: journalists are under pressure of advertisers 2013, Madrid: historic Plaza del „Sol“ is renamed as „Vodafone Sol“

Anger in Spain„El Pais“, „El Mundo“ did not comment for fear of losing ad- revenue 2010, oil pest Gulf of Mexico: BP streamlines wikipedia

Media are biased, streamlined

32

The Role of the Economic Sciences

IMF Predictions Prediction for 2008, dating from April 2007

Actual 2008

GDP growth rate    

USA 2,8% 0,4%

Euro Area 2,3% 0,7%

Germany 1,9% 1,2%

Japan 1,9% -0,7%

Great Britain 2,7% 0,7%

IMF Predictions Prediction for 2009, dating from April 2008

Actual 2009

GDP growth rate    

USA 0,6% -2,6%

Euro Area 1,2% -4,1%

Germany 1,0% -4,7%

Japan 1,5% -5,2%

Great Britain 1,6% -4,9%

33

The Role of the Economic Sciences

Leading ca. 70 Journals of economics and business are mainly US- an GB- based certain ideologic axioms = postulated truths are assumed

Western World: no career possible without acceptance of these postulates/ axioms

Wrong axioms wrong/ harmful results

„Since centuries the economic sciences are serving the ruling class“ (Wolfgang Berger)

34

Solutions

35

Solutions

Unchecked exponential function

With death tax

Progressive income tax

Result: Established income and death taxes are no solution, postpone explosion/ collapse

Basic problem: Wealth structures

36

Political SolutionsEasy solution is possible!!

Reducing inequality by taxing rent income:

A) Property tax on real estate that is not used by the owner himself, of 3% p.a.

B) Wealth tax on shares for owners who don‘t work in the company of 3% p.a.

C) Elimination of compound interest by introducing stamped money like the Chiemgauer

D) Use this additional rent income to reduce social security tax for all who work cost of labor sinks, real wages increase workforce becomes cheaper for companies new jobs, purchasing power increases economic upswing. Possible in Greece, Spain etc. There exists enough money, but it is too unevenly distributed and thus coagulates (ain‘t spent)

37

Political Solutions

Media

Rethink ownership structure

Reduce advertising• Ban on advertising (France, Scandinavia, San

Paulo)• Increase VAT on advertising

Economic interests may not influence cultural life

38

Political Solutions

Dissolve sleaze (corruption)

Separation of

Economy Political system: lobbyism, political

donations, changes from political system to companies and vice versa („Goldman connection“ etc.)

Cultural life (media, schools, universities etc.)

39

Unnecessary consumption

Joseph Beuys: 90% of our work is either harmful or unnecessary

Social responsipility and freedom of each individual

How can I do without unnecessary goods and activities?

Individual Contributions

40

Individual Contributions

How to handle my assets?

What is the bank doing with my deposited money? What does the bank invest in?

„Your money is working hard for you“ = untruth

Question of consciousness: return on investment as high as possible?

Man cannot live on money, You allways live on the work of others

41

Individual Contributions

Claims mindedness

Self interest fight for goods and services tax evasion Exploitation of social benefits

Awareness:

All goods and services one makes use of, all deferred work brings about that all others have to work harder

42

This crisis is a big chance

Alternative Thinking: Eisenstein: Sacred Economics Felber, Christian: Gemeinwohlökonomie Herrmannstorfer, Udo: Schein- Marktwirtschaft Kennedy, Margrit: Geld ohne Inflation und Zinsen Scharmer, Claus Otto (MIT, Boston): Theory U Scheurmann: Der Papalagi, Die Reden des

Südseehäuptlings Tuiavii Sedlacek: Economics of Good an Evil Steiner, Rudolf:

• The Threefold State• World Economy (Lectures)

43

The Spiritual Dimension

Antoine de Saint-Exupéry: It is only with the heart that one can see rightly; what is essential is invisible to the eye

Albert Schweitzer: Do something for somebody everyday for which you do not get paid

Rudolf Steiner, solution of social problems: recognition of the divine quintessence of man

A. Schweitzer,Nobel laureate 1952

44

Than you for your attention!