Real estate prices are nearly directly proportional to the willingness of the banks to lend. This has meant that efforts by government to facilitate mortgage borrowing – along with banks’ own love for real estate lending, if only because of its long-term ascending value as collateral – has led to a vicious spiral of escalating prices. Some spirals, like the Japanese real estate bubble, have been particularly dramatic, but overpriced real estate is a global phenomenon.

More macro-prudential rules, limiting banks’ lending to real estate and favoring lending to productive assets, should be put in place. Governments should not subsidize real estate lending, be it through interest rate reduction or implicit guarantees.


The supply of new construction, particularly in large cities, but also in in rural communities that are prime for development into new centers of activity, is subject to too many different authorities. It is also subject to the influence of current owners, who have a vested interest in restricting supply.

The number of authorities needed to greenlight new construction should be drastically reduced, and decisions should be taken by a single committee operating under reasonably brisk timetables. People who would benefit from the new supply, or their representative associations, should be given a voice in the process.


Real estate that is owned for hoarding purposes severely depletes the supply available to renters and prospective buyers. This is especially the case in city centers. Uninhabited, unrented real estate should be taxed severely, with the proceeds going to commuters and displaced communities.


Constructions companies have in many cases become speculators in their own right, owning directly, or through options, a vast stock of land. In order to maximize profits, they then delay development rather than accelerate it, in order to gain from land value appreciation.

Incentives should be put in place to ensure construction companies are motivated to develop land rather than sit on it and thus benefit from restricted supply. One way to do this is to impose taxes on land marked for construction that is not rapidly developed.


Differing tax treatment should not affect the choice between renting and owning. It is fundamentally unfair that renters should be somehow taxed more than owners for their real estate consumption, but this is what happens, as renters pay tax on the income they must put towards rent, while people who own their homes have no income devoted to rent. This leads to two alternatives. Either a reasonable rent allocation should be deducted from the income tax paid by renters, or, as is done in a few countries like Switzerland, the implicit income from real estate ownership should be accounted for in tax declarations. In other words, if you make $100,000 a year and live in your own home, which would rent at $20,000 at market rates, you would end up declaring an income of $120,000 to reflect the free rent you’re enjoying. Of course, maintenance costs and any other real estate tax paid should be taken into account, so in the end you may end up declaring more like $12,000 in extra income, rather than the full $20,000.



Education continues to be treated as an expense. It is in fact an investment that needs to be maintained, or amortized, over time. As long as we mistreat the value of education, we will underinvest and mis-invest. The first step is to properly account for the returns on human capital.


Whatever the education model – public or a mix of public-private, a knowledge economy requires more investment in human capital. This requires an increase of education investment by the state, especially in higher education, if only to maintain the minimum funding level necessary per student. We further have to avoid social injustice and misallocation of resources by missing out on the best students if they are poor and unable to pay their tuition. This requires higher state education budgets, as well as better legal and tax treatment to induce private investment in human capital.


One solution would be contracts between the students and the higher education entities they are attending. “Human Capital Contracts”, or income-sharing agreements, were initially proposed by the late Nobel economist Milton Friedman.

When Milton Friedman put forward Human Capital Contracts, he was searching for a financing mechanism that would increase investment in education. The principle is straightforward: Investors pay for education costs in exchange for a share of the student’s future income above a certain threshold for a number of years. In such a framework, the investor is incentivized to provide the student the most valuable education given his or her skills. In the process education providers stop being one-off providers and become stakeholders in their students’ success.

While Friedman’s idea didn’t initially take off, its time has now come in today’s competitive and fast-changing labor market. Peer-to-peer platforms in the U.S. are starting to propose such contracts to students, while the state of Oregon has been experimenting with the same concept. To contractually make education providers capture part of the value created by their services would prove transformational for an archaic education model in need of a revolution.


Universities would benefit from future income linked to their graduates’ job-market success. They could, of course, sell these contracts in portfolios to capital markets, being rewarded – or sanctioned – according to the value they create. Market prices would signal to both students and universities alike the skills that are most in demand and which universities provide the most added value. It has been argued that human capital contracts are a form of slavery. This misses the point that it is contractually accepted by both parties, provides opportunities that may not otherwise be accessible, entice all parties to a favorable outcome, and, indeed, encourage one’s future elevation in society.

Such a formula would automatically put a bonus on the education of the high-demand STEM jobs that the economy is clamoring for. It should not prevent people studying art history, or ancient Greek, or philosophy – degrees that can underpin successful careers in law, consultancy, publishing, and other industries.

Of course, not all degrees worth acquiring are immediately translatable into market value; nobody wants a society limited to, say, coders and accountants. And not all highly valuable skills (teaching, for example) are amply rewarded. Society as a whole has an interest in cultivating a wide range of academic fields; universities also see their mission as the development of intellectual inquiry or cultural preservation. In recognition of this, government will have to continue to subsidize certain educational provisions to reap these benefits. But the incentive for students and universities to think pragmatically would be much stronger – and loan defaults much less frequent – in such a system. The onus would be, on an aggregate and risk adjusted basis, for the universities offering these paths to have students choosing their fields, and being taught skills that lead to sufficiently remunerative jobs to pay for their education, be it in the private or the public sector.


Vocational training, currently hugely undervalued except in Germany, would also become more prized as training institutes and prospective students alike would be able to see the added value of this sector.


Online education providers could be expanded, finally applying mainstream technology to reduce the cost of providing education. Continuing education programs maintaining the skill levels of graduates facing continuous innovation during their career could become a new norm. Depending on the individuals, this could be introduced from high schools and progressively increased throughout the curriculum, saving critical but genuine interaction for specific classes or periods. Better an online ‘customized’ class than an overcrowded auditorium, even if face-to-face education remains critical at the early stage.


Strong-arm negotiation by the state, regulation of drug monopolists, and deregulation of innovation and production can all go a long way in alleviating the problems in Western health care systems. Marketing to doctors needs to be regulated. Expensive mass-media marketing to consumers should be forbidden. Evergreening must be severely limited.

Those are just for starters.


Health care is a tricky area to be applying economic principles, but one basic rule holds here just as well as it does everywhere else: Increasing supply decreases price. This has indeed been found to be true in cross-country comparisons. Furthermore, we all know that monopolists have and always have had an incentive to reduce supply in order to increase price and extract a monopoly rent.

The number of doctors should not be fixed by medical associations. These groups will always act as monopolists and try to fix supply at a level that will maximize their clients’ – that is medical doctors’ – revenues. Training doctors has a cost, but having too few ends up being even more costly. States should lift these privately-determined caps on doctors and subsidize the training of a larger number of them. Further, anybody with the skills to pass the medical exam, and willing to do the subsequent training, should be allowed to practice, as long as they pay for their study privately. This would further increase medical doctor numbers, and thus reduce the price that the market will bear for their services.


One of the reasons health care is so contentious is that it is literally a question of life and death (little or no elasticity of consumption). We are thus prone to believe arguments we should spend more so as to enhance life and quality of life. This is especially true if the solutions are through discoveries that will benefit all mankind in the future.

Unfortunately, this argument, while reasonable on its face, has been repeatedly abused. Pharmaceutical companies, for instance, have systematically justified high drug prices by claiming they are needed to pay for research for future drugs. Without even going into the accounting of what they consider research, the numbers show that marketing expenses by drug companies are double their R&D budget.

Precisely because this is not a market like any other, and responsibility in the use and consumption of the resources paid for by the population is critical. Applying monopolistic maximization behavior, artificially boosting demand and prices, cannot be allowed and needs to be regulated. Not even accounting for the devastating side effects that revenue optimization can trigger, as illustrated by the opioid crisis, it is one thing to choose to potentially overpay in order to subsidize and encourage research, and another to systematically push overprescription and overconsumption of drugs.

Some forms of drug marketing, such as TV advertisements, and what could be described as the soft corruption of doctors – like taking them on cruises to explain the supposed benefits of some new form of an old drug – should be outlawed.


Pharmaceutical companies expend lots of effort to extend their patents beyond their natural expiration. This is wrong in two ways. First, it makes consumption of the old drug more expensive. Second, it shifts the focus of research away from true discovery and towards gimmicky innovations that will pass legal standards for patents – with little regard for their actual medical value. The patent offices should be instructed to take a much more severe line on these issues and take a much harder stance on evergreening. The patent life for pharmaceuticals is already more than long enough to cover the investments made for their development. Evergreening is a form of gratuitous overcompensation.

The laws already on the books must also be enforced. Currently, several of the leading generic drug manufacturers are being sued by a group of U.S. state attorneys general for egregious price-fixing. Such actions should be applauded. And if generics manufacturers continue to conspire against public health, governments should consider more drastic actions. Massachusetts Sen. Elizabeth Warren has proposed creating a state-run generic manufacturer. It’s an idea her colleagues – and legislators from other nations – should take a close look at.


The U.S. happens to have the most health care privatization in the Western world. This creates a strong suspicion that unregulated pricing by private health providers leads to monopolistic pricing. After all, a patient with a horrible disease or a gaping head wound is in no position to haggle over the price of her medical care. Effective negotiation over health care costs can only be accomplished when someone, like the state, bargains collectively on behalf of patients (as insurance companies also do to some extent).

But the State has not yet abdicated its role in healthcare everywhere, and the UK NHS system provides some particularly interesting insights into what a properly functioning system can look like: a cost to GDP that is among the lowest reported (40% cheaper in percentage of GDP than in the US); more doctors, rather than a fixed number, allowing for a lower cost of supplying first line medical advice; and a fully private system in parallel for those that desire it.

While this is and always will be contentious, it is a fact that a system like the UK’s, in which a universal lower-end system functions in parallel with a higher-end private sector, ends up being less costly in terms of GDP. It probably also provides more care to more people.

Some will argue it is unfair, as some people get better treatment. But it is not more wrong than wealthier people buying more luxurious cars with better safety equipment, which will eventually be mass produced and trickle down, becoming standard issue for all cars in the future. Others will argue that this leads to a centrally planned, state-controlled system. But health care is special and should not be left solely to the whims of the market. We all recognize the need to help those in immediate distress, and a safety net based on emergency rooms ends up costing a lot more than decent investment in primary and preventive care.

The state-run NHS is far from perfect. It provides “free” services to the whole population, which likely encourages overconsumption, and it may well be paying for, or reimbursing things, it should not be. Doctors in the U.K. are permitted to work in private practice, and many do, but they are also expected to work for a wage in the National Health Service, the system to which British residents contribute through the national insurance tax scheme.

While British doctors are not crushed under student debt, and are not subject to many spurious malpractice lawsuits, they are somewhat overworked. The NHS system can be particularly demanding on younger doctors. In 2015, junior doctors in the U.K. walked out for the first time, complaining of long hours and poor pay. They are right, but their situation is the logical outcome of the way medical care is organized in England, with a state system incentivized to reduced costs, and thus to have as few doctors working for as long as possible for the minimum pay possible.

For doctors, working for the NHS means shorter consultation times, harried, overstretched staff, and hefty demands on their productivity. But it is also where they gain valuable experience. For the consumer, medical care is regulated, bureaucratic, and sometimes cumbersome, but substantially free, and that is something British voters guard jealously. Wealthy Brits – and rich medical tourists from abroad – can enjoy more advanced, luxurious amenities from a flourishing private sector. But the very existence of the public alternative keeps costs down even there.

This dual system has delivered above-average success in terms of life expectancy versus cost compared to other European countries, and performs substantially better than the U.S, though it comes at a cost to doctors, especially the ones not established enough to have a private practice.

The UK also offers an admirable example of how to keep drug prices reasonable. The NHS has put an evaluation system in place that measures any new drug’s impact on life expectancy and quality of life. It then negotiates in bulk with pharmaceutical companies based on these objective measurements. The result is that while the U.S. spent over $1100 per person on pharmaceuticals in 2015, the comparable English figure was less than $500.

Health Care Expenditure And Life Expectancy (Thoughts For Debate)



According to the consulting firm McKinsey, European countries and the U.S. underinvest in infrastructure by at least 0.5% of GDP per year. This underinvestment has been going on for many years and has created maintenance issues that have resulted in spectacular accidents. This is true not even accounting for foregone progress towards technological and environmental goals that will eventually require even more investment to make up for lost time Consultancy.

Investment in infrastructure needs to be sharply increased in the many Western countries that have neglected it. This can be done either through a public approach (a new infrastructure push driven by the state through construction subcontracts for the private sector), or a public-private approach.

In an ideal world, this would be state driven, and subsequently, depending on the type of infrastructure, its operation privatized under government supervision – for if it is the role of government to have a vision and to invest in the future, it is often not best at running large operations. Further, the infrastructure investment program, while it will create jobs and growth, long term and short term, should not become an excuse for other forms of political vote buying.

It is to be noted that while most Western countries underinvest in infrastructure, some countries have been drastically overinvesting. This also represents a misallocation of resources, albeit a less harmful one, that will in due time lead to credit issues.

In any case, the striking result is that one often feels when travelling to some emerging countries that they have first-world infrastructure, and when travelling in the West, that the infrastructure is third-world. The most advanced trains are now found in China. In Shanghai, you take the Maglev, a magnetic train, to travel from the airport to the city center, while the whole country is interconnected with a dense network of high-speed trains. Singapore has such pleasant and efficient airport terminals that they are compared to luxury malls. Korea is already planning the construction of smart highway networks for driverless cars by 2020. In sharp contrast, the UK, which invented railways, has yet to build a second high-speed railway link. Italy, whose Roman architects built architectural marvels that impress to this day, has collapsing bridges. Belgium, which had the only highways visible from the moon, now has roads plagued by potholes, and the U.S., which invented commercial aviation, has overcrowded airports that are decades old.

Infrastructure Spending And Needs In % GDP (Thoughts For Debate)


In order to finance this infrastructure push, one could conceive a large new government-backed funding program that would come with a state guarantee. It should have tax advantages, both in managing the entities and raising money to finance them. The possibilities are many and depend on each country’s particular circumstances.


Governments have been struggling to make basic infrastructure investments under the weight of fiscal deficits, high levels of public debt, and election-cycle politics. We need to look at infrastructure and education as investments rather than spending, amortizing it accordingly. Public investment stands at 3 percent of GDP or lower in advanced countries.



We need to account for the movement of human capital in a statistically meaningful way. In a knowledge economy this human capital is critical. The current standard, tracking the human capital balance via net migration, is woefully inadequate. We need to develop tools to estimate, albeit imperfectly, the loss of human capital (educated people leaving) and the gains (educated people coming) that our economies generate. Educating people for over two decades only to see them pack up and leave is a terrible loss for the community and the economy. Receiving engineers and doctors that we did not even have to train is an extraordinary profit. In order to properly design public policy, this needs to be known and recognized.


Silicon Valley stocks fell on the news of the Trump victory as investors anticipated they would have a more difficult time recruiting skilled labor. In Brexit-schizophrenic Britain, the tech industry is similarly worried. Companies need high-skilled labor. High-skilled immigration should be encouraged as a positive contribution to the human capital balance. These immigrants do not compete with the most vulnerable, only with the most talented, creating value for all in the process. The introduction of an employer tax for immigrants, such as the one used in Singapore, can encourage the recruitment of high-skilled labor while favoring local hires and discouraging low skilled immigration. According to the Nobel laureate Maurice Allais, to compensate for the use of public infrastructure, such a tax should total about four times the average annual wage – several thousand dollars per employee per year – for a number of years. The proceeds would go toward a public human capital and infrastructure fund aimed at maintaining the level of public services despite the increased demands on the system from immigration, as well as retraining local workers that may be displaced. The higher employer cost would result in reduced immigration for low skill jobs but not impact higher-skilled, high-wage jobs. It would also increase wages for the lowest earners by reducing the competition from immigrants.


The former squalid Calais “jungle” and the pile-up of refugees on Greek and Italian islands illustrate the logistical challenges to stopping the flood of illegal immigration. As a general rule, any physical barrier, while temporarily helpful in stemming migration flows, is likely to be circumvented one way or another, as has been demonstrated again and again by drug traffickers. Experience indicates that a superior response is to cut deals with bordering countries that are conduits for illegal immigration. This often involves offering some carrots, such as market access or development support, as with the recent EU deal with Turkey, as well as some stick (often the withholding of the same things). In the past, Spain has done this particularly effectively by focusing on readmission of illegal migrants at their point of entry, coordinated border surveillance, and reception of refuges in third countries. Illegal immigrants should be treated with basic human decency. At the same time, Western majorities have rendered their judgment on illegal migration at the ballot box: They need to be forcibly repatriated to either their last point of embarkation, or their country of origin if it can be determined.


Because of the availability of work in the Western shadow economy, illegal immigrants from poor countries will continue to have a strong economic incentive to migrate to Western countries. By doing so, they will continue to compete with and disenfranchise the most vulnerable member of societies, including legal migrants. Therefore, the attractiveness of illegal migration should be reduced to a minimum, and not only by fighting shadow economic activity. We have to consider refusing access not only to benefits (the social safety net of our society), but also to public infrastructure as much as possible. This may of course not always be the case, if only on humanitarian grounds in emergency circumstances, but should be the basic policy. It should also not compromise the integration of the following generation that will remain, a difficult balancing act. A system that legitimizes and gives access to illegal immigrants is fundamentally unfair to legal immigrants and to the most vulnerable members of Western countries, who will face unfair wage competition, reduced public service access, and a smaller slice of the social spending pie. It is ultimately unsustainable. OpenMigration

Immigration South of Europe (Thoughts For Debate)

Immigration To Spanish Canary Island (Thoughts For Debate)


The loss of income which parents, especially women, see when they have children is not properly accounted for. Particularly in the early years of a child’s life, they are making a tremendous investment that will benefit the community as a whole later on. The more qualified the parents, the higher the investment, and the higher the loss of income. Young parents, and in particular young mothers, should receive – in proportion to their pre-pregnancy income – a compensation in the early years of a child’s life, especially for their first and second children. This would then be progressively reduced for subsequent children. This would have the added benefit of encouraging, at the margin, bigger families for the highest earners, which would help to alleviate dynastic wealth concentration.


Except in times of crisis, all or most transfers to disadvantaged regions should be made in the form of investments, be it human or physical capital.

Regional transfer money often goes to social spending to alleviate the pain the region is going through. This is understandable, both from a human perspective, and indeed from a political perspective, to ensure one’s re-election. This is not, however, a satisfactory way to allocate resources, as it only delays the pain and does nothing, or maybe less than nothing, if it prevents necessary adjustments to restore a region’s competitiveness. Most of the money received by a region from other regions should be invested in infrastructure or education. One example of such a policy has been in the EU. There, a portion of regional aid is earmarked for infrastructure on a fixed pro-rata basis, encouraging local governments to invest. This was particularly successful in Spain in the ’80s, for instance.


A key decision to make in a regional policy is if the region is to remain an economic center or not. If it is not to remain one, then depopulation will occur, and regional policy should focus on increasing or aiding human mobility while maintaining a minimum level of population and infrastructure. For instance, after the Western gold rush, a number of areas were more or less abandoned, and this was widely accepted as a logical outcome as the economic resource that had triggered a rise in local populations had disappeared. Similarly, climate change can cause a once-prosperous agricultural region to become nonviable. Indeed, in the face of a deteriorating local climate, overexploitation could have detrimental effects. In such a case, a good regional policy must accept that further economic growth is not in the general interest or public good, and resources need to be set aside to facilitate a transition.

Often, though, the opposite situation can appear. Some regions have attributes that could make them regional centers, but dominant regions have crowded them out and hollowed out their resources, preventing them from growing to their full potential. Ultimately, the costs of living and doing business in the dominant regions become too high, despite economies of scale, and alternative growth centers have to be found. Regional policy must focus on developing alternative regional centers for less competitive industries that are no longer able to operate in high-cost mega-hubs like Paris and San Francisco. It must ensure that the local infrastructure is good and large enough, and that local human resources, or other human resources, provide both a minimum level of activity and potential for growth. A regional policy would thus have to try to “freeze” some human resources in that territory so that it remains attractive as a regional hub. One way to do this is to provide tax incentives for some high-skilled workers, or to subsidize education on the condition that students spend some minimum number of years working in that area after graduation. This has been very successfully accomplished in Singapore, for instance, when it was developing in the 1970s and ’80s, staving off a brain drain, and focusing on human capital while its neighbours remained focused on commodities.


If the region is to develop, it must not only retain and attract talent and industry, it also must make its talent and industry competitive. This requires an ability to travel as well as to import and export. Thus, a primary focus of investment must be in access infrastructure. Again, Spain’s investment in unlocking regional potential through regional airports and highways in the ’80s, and Singapore’s development of its port and airport provide admirable blueprints.


If a set of regions or states want to integrate to the point of having a currency union, foregoing their ability to pursue individual currency devaluation, they need to recognize the cost and pay the price. The adjustments will necessarily be brutal and can lead to the abandonment and deindustrialization of an entire region. If this is not an acceptable political outcome, then there need to be large inter-region or interstate transfers, probably on the order of multiple percentage points of GDP, and more in times of crisis. A currency union that imposes political constraints and does not provide for this transfer is fundamentally unsustainable. The political resentment it will generate over time, and the rise in local pockets of populism, will ultimately compromise it. Indeed, even in non-currency unions, should the constraints be too onerous, popular resentment will arise, as we saw with Brexit.


It is important for the pain from asymmetric shocks to be shared as widely as possible in any currency area where devaluation is no longer an option. In the Eurozone, there are two bodies pursing partial reforms intended to do this but have not been fully implemented. The capital markets union is harmonizing rules regarding bonds and securitization. And the banking union is seeking to set up a single supervisory and resolution mechanism. Controversially, it is also pursuing a common deposit insurance scheme. But, as the ECB report notes, the market seems to lack faith that such a banking union will be completed. Partly that’s because there is such disparity across markets, from the NPL-challenged Italian banks, to the profitability-challenged German banks, to the tightly run Scandinavian banks.



We need to recognize that some countries have acted as free riders, putting at risk a collective good for their own benefit. The U.S. Treasury has over the years published a watchlist of “currency manipulators”, countries that run persistently high current account surpluses, while maintaining seemingly weak or weakening currencies. The lack of normal currency adjustment effectively puts the global trade edifice at risk. As illustrated in the euro zone, persistent balance of payment surpluses in core countries penalize growth and force socially painful adjustments. The free-riders of the global trading framework need, as suggested by Keynes, to be penalized, whether through a suspension of market access or punitive tariffs. U.S. Treasury


Western leaders are paying the price for ignoring how globalization imposed costs on the middle class and pain on those with lower skill levels. The answer isn’t trade isolationism but smarter policies to correct these imbalances. In particular, preference should be given to free trade with countries that have similar income levels and do not run systematic current account surpluses. These are the trade partners with whom trade specialization brings benefits, while the burden does not fall overwhelmingly on the lowest-wage workers. The reasonable equilibrium over the long term of exchange rates further insures that production and consumption are fairly shared.


By analogy, trade with low-income countries puts wage pressure on the most vulnerable members of our societies. This has effectively been creating a disequilibrium in our societies, with most of the pressure on our weakest members. While we all consume some of the low-cost, labor intensive products, Western elites do not produce them or earn their income from their domestic production. Such shifts may be inevitable, but the cost of transition is born only by some. A tariff on the import of these goods from low income countries designed to pay for the transition of domestic workers from these industries would buy some time and provide the means to make such a transition palatable for all.

Similarly, trade has to be a two-way street, and systematic surpluses above and beyond what can be explained normally have to be actively discouraged. Keynes himself had suggested the idea of punitive tariffs for “beggar my neighbour” policies. This idea should be revisited and implemented in cases of prolonged systematic surpluses.



Some monopolies are, by their nature, if not impossible to break up, uneconomical to break up. They constitute “natural” monopolies, in that the natural state of affairs is to have a single standard or single operator. For instance, only a limited set of operating systems can be deployed in personal computers or mobile phones. This will either lead to abuse of this situation or a regulatory response. The response can be either to fix prices or to levy a special tax on the monopoly rent that is being extracted from consumers. Price-fixing by government is always a difficult affair, so taxing the monopolist rent should be preferred.


Not all monopolies are meant to remain as such. In some cases, as Schumpeter argued, it is not bad per se that these “market breakable” monopolies extract a monopoly rent, or abnormal profit, because this will attract challengers who will, through innovations, grab market share from the former monopoly. If this fails to occur, however, or if the monopoly rent becomes so high that waiting for a market solution to emerge becomes too painful, the government may have to step in and break up the monopoly. This is still being done regularly, and proactively, by the European Commission, when new mergers occur. But in the U.S. regulators have abandoned that tool after wielding it successfully for much of the 20th century. The time has come to pick it back up, as there are several incumbent monopolies that need to be broken up by regulators.


What should be particularly deterred is the tendency of monopolies to extend their monopoly power to new, usually adjacent, domains. This creates ever-larger monopolies that stifle innovation and concentrates all resources in the hands of a few companies that, over time, lose their eagerness and ability to innovate, yet become more difficult to disrupt. Why is it, for instance, that only Apple’s App Store can sell programs for Apple’s iPhone? If it is a matter of security, surely customers can be warned, or third parties can perform security audits. In the past, would automobile manufactures have been allowed to own petrol stations or garages that you had to go to in order to buy gas to drive their cars? These expanding monopolies need to be aggressively dealt with, to restore competition and innovation.


Antitrust departments, particularly in the U.S., have been underfunded relative to the extent of monopolistic activity and the growth of M&A transactions. Appropriate funding must be restored and will easily pay for itself through the fines that will be imposed. The state has to have the means to act to preserve a well-functioning market, therefore it needs to be able to have and enforce an active antitrust policy.


Laws should be considered to prevent monopolies from acquiring start-ups that threaten their grip on the market, be it through outright acquisition or exclusive licensing. If monopolies are to be challenged, they cannot be permitted to systematically absorb challengers.


Recognized monopolies, be it in high-tech or in more traditional sectors like health care or aviation, should be required to devote a percentage of their revenues to external venture capital or other funds that will invest in innovative companies in their area of activity. While the financial profit may accrue to the shareholders of the monopolies, no control can be given to the monopolies, who will want to prevent the emergence of new alternatives.



Many financial trades are executed to arbitrage very thin margins. This does not meaningfully improve liquidity. They bring no collective value, and sometimes, as when arbitraging mutual funds, can be collectively destructive to savers. A small financial transaction tax on short term financial movements would make many of these arbitrage trades impractical or unprofitable.


The economy as a whole, largely because of low interest rates, but also because of loose regulations and overflowing money from QE, is significantly overleveraged. This creates considerable risk, as pointed out numerous times, by, among others, the BIS. Leverage needs to be reduced. This can do done by encouraging equity and discouraging debt. Debt can be discouraged by several means, such as stronger macro-prudential rules, extension of existing rules to leveraged shadow bankers, suppression of the debt tax shield, or higher withholding taxes on interest.


The change in rules authorizing trading of derivatives between market-only participants, i.e. only between financial participants, should be reversed. It may have improved liquidity but it has led to the creation of numerous synthetic products that turned out to be, by their very nature, toxic gambling, with the government ending up having to bail-out participants.


Laws put in place to protect consumers have, in many cases, been turned around to protect the status quo, and the rents of financial institutions. This has helped preserve structures that correspond to what the industry was like decades, if not centuries, ago. Similarly, legislation aimed at strengthening capital bases and defining risk buckets have created means of arbitrage that have nothing to do with sound financial institutions. The rules should be simplified and refined.


In parallel, according special status to financial technology, as was done for example on e-commerce by permitting a long period of sales tax exemption, would generate a number of new financial models. Which models would prevail is unclear, but it is certain that great savings and transparency would be achieved for society as a whole.


It is estimated that worldwide annual payment transaction costs have now reached over $2 trillion, a huge amount, and yet these transactions remain cumbersome.

A BIS report recently hinted at the upsides of a central bank-issued crypto currency (CBCC). The advantages of digital money, in terms of transaction costs and execution, are such that the monetary authorities, if they want to maintain their lucrative seigniorage and ability to conduct monetary policy, will have no choice but to adopt this new form of money. In the process, seemingly innocuous technical choices with critical consequences will have to be made.

All central banks may eventually have to decide whether issuing retail or wholesale CBCCs makes sense in their own context.” BIS report

Thus the conjunction of efficiency and the decision not to offer anonymity would result in a revolutionary transformation of the financial system. Ironically, the result would be the very opposite of the libertarian ideology underpinning the original cryptocurrencies. Further, it would accelerate the de-structuring of the banking system as we know it. Commercial banks would lose deposits, and with it their ability to lend. The fall in the monetary multiplier would require massive money creation to compensate, and lending would increasingly be made by regulated specialized funds. Whether or not this is ultimately the case, important changes in monetary policy and the structure of the financial system will become inevitable. Cryptocurrencies will, for instance, allow for negative interest rates to be imposed, reduce the financial system’s leverage, and allow bank-runs to take place almost instantaneously. It will remove a large part of the income of traditional banks and clearing institutions, raising doubts about the sustainability of their business models. Critically, it would allow government, if it so decides, to breach the veil of anonymity in any transaction.

Given the importance of seigniorage – the profit from creating money for close to nothing – as well as the control of money supply in economic policy making, it is obvious that central banks will not only issue this new form of currency as well, but probably also have laws enacted reaffirming their national monopolies in minting.



Elections should not be games that come down to who can raise the most money. This would inevitably lead us either to a plutocracy or again to a form of soft corruption where interest groups provide financing for their puppets to be elected. We need strong and independent leaders, free from these influences. Elections do cost money. The state can provide part of the budget, and so can the public as well, but the expenses should be capped, and the limits enforced. Foreign money, of course, should be kept strictly out. Too often election finance limits have gone unenforced and the biggest spender indeed elected. In order to avoid this, spending should be reported essentially on a real time basis to an electoral commission with strong powers.

We have to set stricter limits on all kinds of emoluments politicians get during or after their mandate. In particular, the practice of showering them with lucrative conference appearances and book deals that has emerged in the last decade is nothing but a form of soft corruption where particular interest groups ensure income for politicians who have served them well. This is buying influence unduly against the public interest, even if the payment is delayed. These side incomes, which can and have been very material, have to be forbidden. Indeed, in some cases, some foundations seem to have enabled an industrialization of this corrupt practice more than an exercise in public good.


If we want to be led by the best among us, we cannot ask only for idealistic commitments. That would leave us only with ideologues or, at best, second-tier rulers without vision. Thus, as much as corruption and soft corruption have to be rooted out, politicians should be making a decent living from performing their duty – making them beholden to the public that pays them. Only then can we hope to get statesmen. If we do not pay them adequately, we will attract the wrong people that will pay themselves by fair means and by foul.


As is already the case in a number of countries, we need to limit the length of electoral mandates to prevent professional politicians (and even sometimes families of politicians) from monopolizing power. This may be controversial, as term limits may prevent the progressive acquisition of expertise in areas of public policy. But longer mandates, with just one possibility for re-election, are probably best, as we need leaders to have time to implement and enact a vision, and not be constantly on the electoral trail or begging donors for money.

It is not difficult to admit that after 10-15 years in power, say over three mandates, another team or another generation can and should bring the state new vision and energy. If that was not to be the case, something would have gone wrong during that mandate to start with, as a key preoccupation of any leader should be to prepare the next generation, if only as an insurance policy in case of early accidental demise.

Another way out is increased public funding of elections and more severe enforcement of election spending limits. Violations of such limits often come belatedly, preventing such regulations to have ‘teeth’. The cost of subsidizing an election, compared to the risk of undue foreign or private influence on public policy, and especially compared to the size of the economy, is trivial. We need to rethink election financing, as a necessary step towards preserving and maintaining an independent democracy.


But 10 to 15 years does not make a career. To avoid soft corruption with “golden parachute” jobs provided by special interests after their terms expire, as well as to also encourage the regular transition of power, high-ranking political leaders should be supported in retirement by the state. This should include some form of generous pension and set of privileges, even at a young age, and the ability (and encouragement) to pursue certain befitting endeavors, such as teaching at university, or working at truly philanthropic foundations.


The state should be efficient and able to act. That does not mean it requires a large percentage of the population to work for it. States’ core missions can be accomplished, in fact better accomplished, by a relatively limited administration that is well paid, with investment in the proper training and technological resources. Non-core activities that the state wishes to encourage can be subcontracted. Bridge construction, for example, would be left to construction companies.


In many Western countries, it is now the case that nearly all members of legislative bodies come from the same small group of educational institutions or, even worse, from the same professions. Parliaments, which at the beginning of the last century were overwhelmed by journalists, are now made up mainly by lawyers. While legal skills are clearly useful in drafting laws, parliament needs to represent society and the taxpayers. As much as possible, diversity of training and background is needed to improve legislative bodies.


Fundamentally, the original role of parliament was to represent taxpayers’ interests by limiting the king’s expenses. The role of parliament has subsequently expanded to writing laws and, sometimes, to meddling in executive branch decisions. This can make the executive unable to act.

It also leads to clear conflicts of interest, as a majority interest will often be willing to abuse a minority. Huge parts of the population, sometimes the poorest, are not represented in Parliament or do not vote, creating a democratic problem. For instance, the elderly tend to be greatly overrepresented among voters. We need to study ways to have a more effective parliament. Maybe we should no longer have a ‘territorial based’ senate next to the ‘population based’ parliament. What about making one chamber a “taxpayer and community contributor senate” (for which one would have to prove they paid tax or contributed something to the community to vote) and making the other chamber a “peoples’ parliament,” where voting would be extended to all citizens and made compulsory as in Australia.

This means that a painful reduction to a sustainable level, coupled with structural reforms in favor of the middle class and the most vulnerable, lower production taxes, and a more active role for the state, are all necessary.


In the West, one working person supports two others, be it because they are not of working age, studying, unemployed, or disabled. The public transfer for this support is mainly through income tax and social security taxes on wages. For advanced economies, these charges represent on average about 35 percent of labor costs. We need to shift the cost of social security contributions onto consumption rather than production. A further benefit is that consumption of imported products would contribute as much as local ones, levelling the playing field. Indeed, today, the taxation of domestic labor to finance domestic policies makes imported goods, whose labor input is not taxed in such a way, more competitive than their domestic alternatives. Effectively, large labor taxes favor labor-intensive imports to the detriment of locally employed people and local industry.

The move away from labor tax to consumption tax is referred to as “tax shift.” It has been experimented with in Denmark, Belgium, and Germany among others, with some degree of success. One way to implement this shift could be to finance social security through a “social” value added tax surcharge on consumption. This carries some problems of its own. It raises social issues if the VAT is collected on goods that are disproportionately consumed by the poor. By shifting taxation away from producers to consumers, it may function as an indirect tax on wealth, but also on the recipients of social benefits, such as pensioners, the poor, and the disabled. While there would be a political price to pay for increasing prices at the till, the lower non-wage labor costs would encourage increased employment, better wages, and improved balance of trade.


A social VAT would be somewhat similar to certain environmental levies, such as on CO2 emissions from cars, which tax consumption independently of the vehicle’s origin. The regressive nature of a consumption tax can be somewhat alleviated by exempting basic products.

Such a tax shift can be materially significant in proportion to the economy, but be revenue neutral, even excluding the growth it would generate. Consider that U.S. social security contributions are about 6% of GDP, which compares with UK VAT receipts of about 7% of GDP (with rates ranging from about 0% to 20% depending on the product.)


The tax wedge’s worst consequence is to discourage employment and to increase unemployment. This is a typical case of lose-lose, as we will lose out on production, and the state will end up having to pay social contributions rather than collect any direct or indirect taxes. Particularly at risk of course are the least productive workers, whose low wages make social benefits more enticing, and who can more easily be replaced by machines or robots not subject to labor tax. We need to suppress social tax and, indeed, income tax for the lower income class. Such a measure would simplify tax collection, encourage the cleaning out of large parts of the shadow economy, and genuinely encourage employment among the least productive members of society, generating both economic and social gains.


When, through automation, a human job is replaced, progress is made in the sense that more will be produced with less labor. Provided this can be done cheaply enough, productivity, the engine of long-term economic growth, goes up. However, the human replaced might not readily find another job. Most likely, he or she will need to be retrained, and may even have to relocate to do so, all of which is costly. Today, these transition costs, even if they prove successful, are borne by the public, and by the individual made redundant. Yet it is socially important to keep people employed. If that was not enough, the tax system currently encourages machine input over labor input. The tax wedge, which can be over 50%, implies that a company has to pay up to twice the cost of a robot for a human to accept the same job. There is no tax wedge for robots, which inherently have a tax advantage. The opposite should be true, for keeping people employed has essential social benefits. We should, therefore, introduce a robot tax, which would level the tax playing field for labor and whose proceeds would go to retraining the labor robots displace.

The object of a robot tax should not be to prevent mechanization, and robotization of certain jobs, which is inevitable, but rather to make the tax playing field equal between human labor and robots, and to pay for the social costs that such a transition generates.


It benefits society to have people employed rather than unemployed, producing something (however little) rather than nothing. It will also very much benefit those who go from unemployed to employed and will feel a sense of belonging rather than dependence. Thus, it is worth subsidizing rather than taxing (through social security taxes) low-wage jobs, particularly for the young or for jobs that can be seen as having some community value (say gardening for a local borough, or providing information and support at a hospital).


There are few things worse than idle wealth. It is a resource that is hoarded with little or no use, and it contributes nothing to the future of the economy. While it may reflect society’s recognition of past contributions, it needs to be encouraged to play a productive role, or to be treated as what it is: a drag on the economy and an inflammatory social problem. Thus, taxation of a wide variety of assets used for passive hoarding should be imposed to discourage the practice and extract resources that can be allocated to investment. For instance, taxes should be levied on unoccupied real estate in prime locations and on idle stockpiles of raw material. Alternatively, or in parallel, a small tax on all large concentrations of wealth could be considered to push this wealth to become productive (as when Silicon Valley entrepreneurs invest their wealth in risky projects that, if successful, would benefit all). The issue with this is that it is not the role of the state to keep a register of people’s assets and wealth, and thus more narrowly targeted taxation of idle assets may well be superior.

Taxing idle wealth has to be seen and understood in the context of a paradigm shift in taxation. The negative incentives created by the massive taxation of income are tremendous. A tax system should not be focus on revenue sources that ultimately decrease the production of an economy. A wrong tax structure ends up decreasing the size of the pie and makes everybody worse off in the long run. In other words, one should tax wealth that is not productively invested, and tax consumption, but stop taxing production, particularly for people (income tax).


The most egregious source of wealth must be one where one has done nothing to deserve it. It corrupts both the recipient and the very notion that wealth should be earned in a meritocratic system. On the other hand, it is morally understandable that part of the “consumption” on one’s own created wealth is to make sure one’s progeny are well off. The conflict between these two arguments should be resolved by an effective taxation of estates. At present, as we have seen, this is probably the least effective tax. Rather than focus on income tax evasion, which would largely disappear with a consumption tax shift, enforcement action should focus on estate tax evasion. Not only would this bring additional revenues, but it would restore faith in the social contract by allowing people to believe again that wealth is acquired, earned, and deserved rather than inherited and received.


One way to make this process of estate taxation less painful, and a celebration of one’s lifetime success rather than a “death tax,” is to encourage philanthropy. This greatly reduces the social tensions caused by wealth concentration and indeed becomes a form of social recognition of the wealth produced by some of the best among us through hard work. Initiatives like Warren Buffet’s and Bill Gates’s Giving Pledge should be promoted and celebrated to a greater extent.



Monetary policy needs to return to its roots as a mundane affair. Central bankers should resume their roles as benevolent technocrats laboring in obscurity rather than the specialists in PR they have become.

The pressure on central banks, the “only game in town” to “save the world” by pushing interest rate down, needs to stop. Monetary policy can and should be an auxiliary to fiscal policy, not the main line of defense against the pain of recessions. But as the capacity of emasculated central governments to pursue fiscal policy has withered away, the burden has fallen on monetary policy.

This has created an overreliance that leads to abuse and excessive risk taking. Fiscal policy creates jobs and infrastructure and benefits broad swathes of society. Overuse of monetary policy bails out the owners of mortgages and securities only, while penalizing many others and setting perverse incentives, leading to moral hazard and more bubbles and crashes.


Not only has monetary policy been overused, it has been improperly used. On average, over many decades, interest rates have been set lower than is appropriate, especially after recessions. This has, over and over again, reflated bubbles that have come back with a vengeance. It has also encouraged overuse of debt as a financing instrument at the expense of equity, and consumption at the expense of savings. Over the economic cycle, interest rates should be set above inflation by an amount that reflects and is linked to net economic growth – or just below.


Overreliance on monetary policy and systematic low interest rates over long periods have, together with QE, shaken trust in central banks as much as inflation did in the past. It is time for a period of normalization where less is more. Money is a public good of prime importance, a collective delusion, which we need to nurture and preserve.


As they plot their paths forward, central banks must absorb, rather than compete with, new technology. We have, as a society, decided that money should have some attributes, which may have pitfalls but contribute to its monopoly of the mind in the collective delusion of a common medium of exchange.

We have decided it should be anonymous and untraceable, as far as cash is concerned. As our society evolves and paper (or coin) cash becomes less useful, digital alternatives with the same attributes should be adopted. Indeed, the combination of distrust in central banks and lack of evolution to adapt to new technology are threatening the state’s monopoly on money. Central banks should start moving towards the issuance of their own electronic money. This may well lead to the end of the seigniorage enjoyed by private banks, and a fundamental change of balance sheets. That is, if any anything, a good thing, as the over-financialization of the economy is something we should be addressing anyway.



We should recognize that quantitative easing was necessary. Our system is exhausted politically, financially and intellectually, which is why we have seen the rise of the dissenting majority. After the last crisis, QE was needed to avoid a collapse. It has bought us time to act by staving off a liquidity crisis and stimulating some growth through the wealth effect.


But we should also recognize that QE is addictive and may have been overused. It is after all convenient for governments that no longer have to worry about finding takers for chunks of debt knowing that their own central banks will buy it right up. And all that attention on central bankers is an ego boost that even the sternest bureaucrat cannot be immune to. But relying on money-printing to fund government is not a sound way forward, and the central banks should have halted QE sooner.


Indeed, QE has come with serious drawbacks. Markets no longer price and signal risk properly, which leads to misallocation that will result in lost resources. This is compounded by the flow of money filtering in through central bank acquisitions. The newly printed money is introduced into the system by buying financial assets, which has led to hoarding strategies rather than investment strategies, renewed the housing bubble, and exacerbated wealth inequality, to the point where wealth concentration is at historic highs. If central banks truly saved the day a decade ago, their unwillingness to recognize and confront the dark side of QE is contributing to the current crisis. It needs to stop.


For all its downsides, the profits from QE can be used to restore states’ capacity for fiscal policy.

Our central banks have become the largest owners of government debt. It now makes sense to consolidate the balance sheets of the central banks and the government, showing the national debt to, in fact, be a fraction of what it is under current accounting conventions. This renewed transparency will free, on the face of it, considerable resources. The refreshed balance sheet will indeed reveal that the badly needed means to boost infrastructure and human capital formation very much exist, creating the basis for stronger growth in the future.

Alternatively, a form of “sovereign future fund” could be created by putting all the assets acquired through the QE program into it, with the express purpose that its income be used to invest in infrastructure, research, and education. This fund would be put in an Al Gore-style “lockbox,” protecting it from any future attempts by politicians to steer its funds away from their intended purpose.

A lockbox approach would ensure proper spending for decades to come, shielded from politicians’ desire to capture votes by prioritizing immediate consumption over investment spending.

Both options would “renationalize” the profits from QE, easing the populist resentment at increased assets prices and wealth distribution. Both would also, one way or another, restore the state’s sorely needed capacity to play its proper fiscal role in the long run, with appropriate investment spending and lower taxes on low-income people meeting a key populist demand.


The third branch of the state is often overlooked, as it has been in most Western countries. It can take many years for a judgment to be made in some of the most basic affairs, due to an overuse of procedures by brilliant lawyers and underfunded judiciaries. We need tribunals to be efficient and fast, for they are a basic structure of our society, and delaying tactics have become an unfair means of defense for the wealthiest corporations. This affects social cohesion and trust in the state. More financial and technological resources need to be allocated to the judiciary to allow it to expedite matters and recover public confidence.



The state has to encourage the process of creative destruction. It must also protect against the excesses of this process: Creating an industry requires important sunk costs that may not be recognized in the volatility of a business cycle if resources are not properly managed. It is thus a balancing act: to alleviate the pain, but not to negate the adjustments. These adjustments free up the resources that will flow to more competitive companies and new activities.


Unimpeded creative destruction thus can and should be seen positively. Depending on the country, a number of steps can be made towards this goal of easing resource reallocation. They include improved bankruptcy law, removing the stigma of failure or bankruptcy, and creating or facilitating investment instruments that can channel the necessary capital.


Avoiding the excesses of the business cycle can imply some form of industrial policy, where an industry rationalization is coordinated, and maybe even subsidized, provided it is temporary, so as to avoid huge dislocation costs. Critical in all this is a safety net for the workers, for they will be the first victims of creative destruction. The object should be to relieve the transition pain, by providing sufficient minimum means while adjusting, and to facilitate that readjustment, by subsidizing mobility as well as education. The longer life expectancies, together with accelerated technological changes, means that we must rethink education and training as an across the ages need.



As a general rule, a state, because it is faced with many unpredictable contingencies over time, should let a majority of its budget be discretionary in nature. This is no longer the case. In most Western democracies, the “obligations” of the state have crowded out discretionary spending, leaving it to bear the brunt of belt-tightening, often with disastrous consequences. Is it really true that an increase in say, medication spending, should automatically prevail over bridge maintenance? While this may or may not be the case, it should be left to the executive branch to make these hard decisions as they arise. Automatic expenses should be severely limited.


For states to truly recover their capacity to act, they must limit their debt. The interest rate payments before QE, and to some extent even today, have crowded out states’ margins of maneuver and their capacity to act decisively when needed. With large debts – and interest payments in the tens of percent of national budgets – there is little room for a strong fiscal policy, to invest in the future, or to finance critical policies when needed. The state just becomes a collector of income for the wealthiest. We need to reduce national debt substantially. As described, the abdication of monetary policy with QE may just have given us a window to do this.


Fiscal policy is a powerful instrument that is needed and missed. The government must be able to run deficits, large deficits, for a number of years while a recession is hurting. It must be able to finance large projects over the long term and invest in the future. It has to be able to avoid overreliance on monetary policy, which ultimately creates and reflates bubbles that come back to hurt us. But in order to do that and avoid the pitfall of the national debt, government needs to be in equilibrium over the business cycle. This means that during the good years surpluses need to be collected, or assets acquired during crisis years need to be resold at profits.


Social spending now accounts for up to 30% of GDP. This has reached such a level because the pain felt by the middle class has grown ever more acute, and social spending has been an easy way for governments to buy votes and preserve peace without addressing underlying problems. This is unsustainable and in the long term makes things worse by overtaxing income and production on the one hand, and simultaneously depriving states of the means to act by crowding out spending on core state functions.

It is worth noting in that context that wealth and income inequality are at record highs while we are spending more than ever to prevent inequality with large nominal taxes. That paradox is in itself a proof of the limits of the current model.