By J.D. ALT
It’s telling that in the media coverage about the damage inflicted by Hurricane Michael, there are a lot of stories about how the citizens of Mexico Beach would like to rebuild their town, but no stories at all about how they might be enabled to do that. Only the opposite: why it’s going to be virtually impossible for Mexico Beach to ever be Mexico Beach again. Why is that?
One reason: These were modest structures in a modest town, paid for with modest, working-class incomes. They cannot be rebuilt as modest structures. If they are to be rebuilt at all, they will have to be elevated, heavier, stronger, laterally-braced and deeply rooted. Replacement costs will likely be on the order of $2 for every $1 of value they might have been insured for. That’s an expenditure few of the Mexico Beach citizenry can afford.
Another reason is the question of whether Mexico Beach should be rebuilt at all. A look at a topo map of the residential community—aligned on either side of HWY 98—shows an average ground elevation of 4 feet above sea-level. Current sea-level-rise (SLR) projections, based on existing ocean-water warming (and anticipated melting of the Antarctic and Greenland ice-sheets) are for a minimum of 3-6 feet of SLR in the next 20-30 years—well within the life-time of any replacement structures. Even if the Mexico Beach structures were elevated on pilings, eventually the roadways and utilities serving them would have to be elevated as well—a daunting public expenditure.
A third reason is this: The American way of doing things is for people to pull themselves up by their bootstraps, pay their own way, and solve their own problems through the mechanisms of free-market enterprise. When a large-scale disaster strikes, we pull together as a nation and provide “disaster relief” to help victims get through the first weeks and months of shock and chaos. We give them blankets and cots, food and water, shelter in gymnasiums or mobile trailers. We give them emergency funds to maybe fix a roof—but not to replace a house, let alone replace a house with one that costs twice as much as the original was worth. For that, they’re on their own in the free-market. Or, to put it another way, the free-market is on its own to “help” them.
Which is why most of the talk about Mexico Beach is about people selling their damaged property to developers, who will buy them for a song and build beach-front condos which they’ll sell at a profit to buyers much less modest than the original Mexico Beach citizens. Because the condos could be put up so quickly, the banks financing the construction would be paid off—and the developer would have exited the scene with his profits—before any threat from the next hurricane had time to come along. And the mortgages taken out by the condo-buyers would be securitized in a myriad of shuffled bundles owned by nameless securities traders who wouldn’t hold them long enough to worry about their ultimate value when sea-level-rise begins lapping at the foundations—or would even know which part of their bundles are getting their feet wet. In the end, it will be the condo owners—many of them, likely, retirees—who will know that their equity positions have been wiped out by the impending SLR even while they still possess an outstanding mortgage coupon book.
The “market mechanism” can’t really deal with Mexico Beach in any other way. But there could be other mechanisms that provide a more rational, humane, and economically sensible outcome. Mexico Beach could be rebuilt as the intimate, small-scale, modest community it once was—and it could be occupied by the same families and businesses who were there before Hurricane Michael—and it could be done in a way that logically, ecologically, and economically prepares for the much larger challenge to come: the inevitable sea-level-rise that will, in thirty years or so, require it all to be finally abandoned. Here’s how:
Eight steps to rebuild Mexico Beach
- Congress shall establish a National Sea-Level-Rise (SLR) Trust. The trust shall have the authority to purchase properties which are threatened with abandonment, due to SLR, within the time-frame of a 30-year mortgage.
- Threatened property shall be purchased by the SLR Trust for the current appraised value of the property, or—in the case of recent storm or flood damage—the appraised value prior to the damage.
- The purchase proceeds shall be in the form of an interest-bearing cash “target-account,” in the name of the seller, which can only be accessed for the purpose of purchasing, or building, a new dwelling in a location not threatened by SLR.
- A citizen who has sold his property to the SLR Trust shall retain the right to occupy the property, rent it to others, and make improvements to it (at his own expense), until such time the property is abandoned to SLR.
- A citizen holding the right-to-occupy an SLR Trust property which has been storm-damaged shall be provided a federally guaranteed, no-down-payment, prime-rate, 30-year loan, to repair or rebuild any structure that stood, or is standing, on the property; the amount of the loan shall not exceed the appraised value of the structure that existed prior to the storm damage.
- Repaired or rebuilt structures shall not be required to meet upgraded building codes but may be built to the building code in force when the structure was originally built.
- Occupants of such repaired or rebuilt properties shall be under a mandatory evacuation of the property whenever a hurricane or flood warning is posted by NOAA.
- If the repaired or rebuilt structures are destroyed, or damaged as to render them unlivable, by a subsequent storm event, the SLR Trust shall order the property abandoned, and pay-off any outstanding mortgage principle that might remain.
Let’s stop here and evaluate what has been accomplished:
- The property owners of Mexico Beach have been offered the opportunity to sell their property to a National SLR Trust for its appraised value prior to Hurricane Michael—and prior to the general market awareness of the threat of SLR.
- Property owners who sell to the Trust retain the right to occupy and improve the property until such time it is abandoned to SLR. This provides them time—up to 30 years—to plan and implement a relocation, or to simply live out the remainder of their time without having to relocate.
- Participating property owners are provided a federally guaranteed, no-down-payment, prime-rate 30-year loan to repair or rebuild their property’s structures as they existed prior to Hurricane Michael.
- Participating owners have converted the equity they had in their property to an interest-bearing, cash “target account” which may be applied—at the time of their choosing—to the purchase or construction of a new dwelling in a location not threatened by SLR.
In other words, the citizens of Mexico Beach are enabled to rebuild their community as it was before the hurricane—and can occupy their rebuilt structures for a foreseeable future of up to 30 years. At the same, time two crucial preparations have also been made for the eventual abandonment of Mexico Beach due to sea-level-rise:
- The land is now owned by a National SLR Trust which can implement an ecologically safe demolition process when the property is eventually abandoned to the sea.
- The interest-bearing, cash “target-accounts” now held by the prior Mexico Beach owners constitute a pre-funded “consumer market” for replacement homes—or even replacement communities—in non-SLR-threatened locations. Thus, both funding and motivation have been loaded into a pipeline that will result in new construction and development solutions down the road. Such a pipeline could be expected to result in a protracted economic stimulus, as well as a (more or less) orderly retreat from the coast.
Okay, but where will all the dollars come from?
Before going any further, an obviously crucial question must be answered: Where will all the money come from? The proposed National SLR Trust, after all, is mandated not just to purchase Mexico Beach properties, but all U.S. coastal properties which are “threatened with abandonment, due to SLR, within the time-frame of a 30-year mortgage.” To put it perspective, this might include, for example, the entire city of Miami Beach. The magnitude of the SLR Trust’s spending, in other words, will be enormous. More to the point, it will far exceed the dollar-generating capacity of the U.S. federal tax system. There is no reason to even imagine tax-payer dollars footing the bill. So where will the money come from?
Fortunately, there is a group of economists who have been developing the answer to that question over the past two decades, and their findings are now ready for main-stream American politics to pay serious attention to. Their answer is this: In a very real and practical sense, the U.S. sovereign government already has the money.
The economists’ explanation has become known as “Modern Money Theory” or MMT. While the moniker stuck, there’s nothing “theoretical” at all about what these macroeconomic thinkers are telling us is demonstrably true: Since the United States (and the rest of the world) abandoned the gold-standard half a century ago, the U.S. Treasury and Federal Reserve have been operating with a pure “fiat” money system. And that system has remarkable capabilities. Although those capabilities have been demonstrated in key historical crises (such as WWII and, more recently, the Great Recession of 2008), they have never been grasped, or used proactively, by the political system. The time is at hand where that must change.
With respect to our proposed National SLR Trust—and the rebuilding of Mexico Beach, as just outlined—the funding would be created in the form of “SLR treasury bonds” issued by the U.S. Treasury. These bonds can be understood to be certificates of issuance of future U.S. fiat dollars—dollars that will become active and spendable when the bond matures. The Federal Reserve coordinates with its banking system to trade existing bank reserves for the SLR bonds. The traded bank reserves are then spent by the Treasury to meet the spending obligations of the SLR Trust. When the SLR treasury bonds mature, the “future” dollars they contain become spendable within the federal reserve banking system. There is no need to collect tax-dollars to “pay-off” the bond-holders: they already have the money.
According to MMT macroeconomics, true reality is this: The federal government is not constrained by a lack of U.S. dollars—since the Treasury and Federal Reserve are authorized to create fiat-dollars as necessary to meet the spending obligations assigned by Congress. The only thing that constrains federal spending are the real resources—labor, materials, energy, and technologies—that are available to undertake and achieve a particular goal agreed upon by Congress. In the case of rebuilding (and ultimately relocating) the Mexico Beach community—or even the entire city of Miami Beach—two things seem clear: (1) the real resources for the rebuilding and relocating are available. (2) Putting those resources to work, by means of SLR treasury bonds, would not only help thousands of American families recover from storm catastrophes, it would begin the work of adapting to what will become one of our greatest collective challenges—the large-scale retreat from coastal cities and towns as sea-level rises. Finally, it would set into motion an expanding and protracted economic stimulus that will benefit local communities—large and small alike—all around the country: An orderly retreat from the coast-lines, after all, could easily see new communities and neighborhoods sprout up in the Midwest or the Rocky Mountains.
As the first step in a larger macroeconomic transformation, then, let’s rebuild Mexico Beach!
Very interesting proposal but it requires an appraisal of the material, labor, and energy requirements per year for the duration of the SLR, which is not easily determined. It will certainly provide “full employment”! Maybe robots will fill the gaps that arise.
Why would we want to encourage and enable the building in a zone that will be flooded by SLR?
In answer to your specific question, where else would you put naval installations or sea ports and the communities needed to support them?
This article concentrates on paying for just a small example of the work that must be done to prepare for the effects of global warming and climate change. The broader problem includes areas threatened by catastrophic fires, droughts, and inland flooding.
A very practical concept JD, which would be easily implemented under a better economic system as per the following excerpt from a paper explaining and detailing just such an approach.
It seems that virtually nothing in the private sector can be attempted today unless there is a potential for a monetary profit, and it seems that affliction has now contaminated the public sector.
The theory is, that making a “profit” is the essential motivation for doing anything. If one cannot make a profit out of an activity, why do it?
It is an interesting fact that we humans are the first life form native to this planet to ever learn, and build, and discover, and create. Although we’ve only been around for about a million years, imagine what we could achieve in another million years, if of course, we, as a human species, can survive that long.
We, humans, have developed an amazing understanding of the world, and indeed, the universe surrounding us.
We know the problems we face to survive another million years because we have created every threat to our own existence that faces us today.
We can solve these problems right now. We have the intelligence, the technical prowess and the organisational capability to solve every problem we face, today, right now.
So what is stopping us?
We cannot afford it!
It costs too much money!
There is no profitable way to resolve the problems we have created!
If these problems remain unresolved they will eventually consign us to the same fate as the dinosaurs.
But, in reality, who cares how much a problem costs to solve?
Bankers? Politicians? Corporations? If they cannot make money out of it, then it cannot be done.
But wait, wasn’t it “us” who created the idea of money, of governments and of
the businesses in the first place?
Let’s face it, there is no galactic bank going to foreclose on our planet and toss us out into the universe, homeless.
So, why do we insist that saving ourselves from destruction, at our own hand, must be profitable otherwise it just cannot be done?
How can we justify our own demise by saying profit trumps the interests of the whole human race?
That is not a trick question; it is the question that needs to be answered by every responsible economist.
Although most economic systems are obsessed with the concept of monetary profit, the idea of “profit” can be viewed in many different ways. In a better economic system the idea of “profit” includes factors that are not measured in terms of money.
For example, the survival of the species is beyond evaluation.
If we are stuck in the quagmire of today’s economic and accounting thinking, every one of these essential improvements will cost “money”. And as we are constantly told, “money” for some queer, unexplained, and unfathomable reason, is of a finite quantity. That myth has actually been perpetuated by most orthodox economists through their slavish adherence to the outdated and now abandoned “gold standard” theory.
Why is that? After all, “money” is simply an idea of humans; it doesn’t exist in nature, we humans created it so, why have we let it become something that now dictates what we can do and what we can’t?
The truth is as JD has stated, there is no such thing as a limited amount of “money” being available to do what is needed to be done. The only limitation is in relation to the amount of goods and services available for purchasing and the manpower to get the job done. The idea of a limited supply of “money” is purely a figment of man’s ingenuity aimed at guaranteeing the status quo.
The human psyche can be divided into many different categories but two of the main ones are their “needs” and their “wants”. These two characteristics can be used as the basis for a better economic system. We can create a Government to provide what the society deems to be the essential “needs” to serve the public. The Government can then support a private sector whose duty is to provide the huge range of “wants” that has become an accepted condition of modern living. Most of these “wants” are beyond the imagination and ability of any Government to supply and is far better left to the abundant entrepreneurial spirit in the private sector.
The other major problem for our economic well-being, is the problem of interest-bearing debt, especially when the interest is compounded.
Is there a practical alternative to going into debt? For a monetary sovereign Government of an independent country, there certainly is.
Such a Government does not need to borrow “money” from anyone, nor does it need a tax system to extort taxes from the people. And neither does a monetary sovereign Government need to resort to the deceit of selling “bonds” as an excuse for raising “money”. The refusal to recognise where the “money” should come from in the first place shows the sheer dishonesty of that practice. In our current economic system that “money” in the private sector comes from the stupidity of Governments in giving the private banks the authority to legally “counterfeit” the nation’s money supply. For any independent monetary sovereign nation the perpetuated myth that taxes are as inevitable as death, is and always has been, a lie.
A monetary sovereign Government does not need to impose taxes on anyone at any time, as it can always create all the money it needs to fulfill its obligations.
However, there is a way to greatly reduce the cost of borrowing by eliminating the interest charges. Under the current system, it is the interest charges that represent the major factor necessitating the continual expansion in the money supply. Population changes is, of course, another major factor.
Let’s face it, there is nothing natural or essential about the process of charging interest, and especially with compounding that interest. These “ideas” are purely man-made accounting gimmicks to extract more “loot” from people who are forced, or choose, to borrow money. It certainly is an effective gimmick if one is collecting the interest payments, but it is not so effective for those who have to pay the piper.
Of course, it is all rationalised on the basis of the lenders taking a ‘risk”, but for bankers, that “risk” is negligible. Banks just create “money” via a computer keyboard and they can just as easily write off the “money” by reversing the process.
• So, instead of allowing the private banks to create interest-bearing credit, the Government should sell access to “money” to the private banks based on the bank’s legitimate due diligent analyses of every application they receive from customers wanting to borrow “money”
• This “money”, of course, could be exactly the same type of “money” currently created by the private banks, namely, accounting figures created by a computer keyboard and listed in a customer’s account.
• Instead of the banks being allowed to charge interest on their loans they would only be allowed to add an administrative cost for the period of the loan, over and above the cost of buying the “money’ from the Government
• Because of the competition between the private banks in securing customers, the banks would be able to add a competitively controlled profit loading related to the period of the loan
• Interest charges would no longer be allowed and the evil of the man-made accounting and manipulative concept of compounding interest would be eliminated
To my way of thinking, the above parameters define the proper way a monetary sovereign nation should use the authority granted by the people to their Government, in creating their nation’s legal tender. Any tokens not recognised as legal tender, cryptocurrencies particularly, should have no standing in any contract or legality within the nation’s monetary or legal system.
Pretty true except for eliminating the tax structure.
One of the basic tenents of modern money is what makes it useful as a medium. And that is it is the only thing that can be used to pay taxes, fines, and fees to the government. Everyone accepts the government currency becsause we all need the currency for taxes. Thats what gives it its value.
Taxes also serve the purpose to control the money supply. Too much specie circulating- withdraw some and burn it.
Cyber money cannot be used to pay any bills to the gov hence will never reach the universality of gov issued specie.
I know it is a tenet of MMT that taxes are the justification for legal tender Micky, but the other side of the coin is that no modern society could exist without a universally accepted and guaranteed medium of exchange. Legal tender has proven to serve as that medium and people do not need coercion to accept something that is essential to their survival.
Lincoln’s explanation for the issuing of his “greenbacks” in the 1860s is very clear as to its purpose
“The government should create, issue and circulate all the currency and credit needed to satisfy the spending power of the government and the buying power of consumers….. The privilege of creating and issuing money is not only the supreme prerogative of Government, but it is the Government’s greatest creative opportunity. By the adoption of these principles, the long-felt want for a uniform medium will be satisfied. The taxpayers will be saved immense sums of interest, discounts and exchanges. The financing of all public enterprises, the maintenance of stable government and ordered progress, and the conduct of the Treasury will become matters of practical administration. The people can and will be furnished with a currency as safe as their own government. Money will cease to be the master and become the servant of humanity. Democracy will rise superior to the money power.”
It is true that the current spawn of cryptos cannot be accepted as legal tender, and neither should they be. That is akin to allowing anyone to set up their own money as used to happen when the banks printed their own notes. It should be obvious to anyone that there is absolutely no backing of any kind in respect to cryptos, certainly no universal acceptance and definitely no guarantee that they even exist.
However, these cryptos are really exactly the same as all the digital “money” created by the private banks by punching keys on a computer keyboard. The only difference is that the Government allow and support the private banks to fo this and thereby provide the legitimacy for the banks to counterfeit the legal tender.
Graham Paterson : Legal tender has proven to serve as that medium and people do not need coercion to accept something that is essential to their survival.
This sort of legal tender chartalism is wrong in theory and has proved to be wrong in practice.
If there is not some kind of relation between spending and taxing, in particular if there is not a reliable tax system, the government can issue whatever it wants, call it legal tender , but if there is too much spending, people will not accept this legal tender, it will become less and less essential to survival and more coercion will be needed for people to accept it. Money that is only “legal tender” and not some kind of (tax) credit is not really money at all, and people eventually abandon it.
Lincoln’s Greenbacks were one of the best ever experiments that proved that MMT chartalism is true and legal tender chartalism is false. First, on of Lincoln’s main adviser on the Greenbacks was his Treasury Secretary, Salmon Chase. As Alfred Mitchell Innes relates in his great papers, required MMT reading, Chase understood perfectly that taxes were necessary to drive demand for the Greenbacks, and Chase went so far as saying that calling something not usable for taxes “legal tender” would make it actually worth less, used less – legal tender laws would lessen the value of money! – he was the strongest opponent of legal tender chartalism ever.
Second, Greenbacks eventually depreciated relative to gold or silver money. Why? The answer is much more interesting than usually told. There were multiple issues of the Greenbacks. The first issue was usable as payment for pretty much any tax, just as coined money was. The first (Tax-driven, MMT) issue never depreciated against gold Like Chase, the New York banksters of the time understood money just fine, and were major foes of Lincoln and the Greenbacks (and many leaned toward the Confederacy) . So they used their henchmen in Congress to make the later issue Greenbacks usable for many fewer tax payments. The later issue Greenbacks (merely legal tender) depreciated substantially; one needed more of them to pay for taxes or anything else.
So the Greenbacks were quite close to a controlled experiment, one that decisively refuted “legal tender chartalism” and strongly supported MMT’s emphasis on the importance of tax-driven money.
There’s one problem with your idea. Some Gulf Coast states have offshore drilling. Land that is reclaimed by the sea becomes common public land and the states share in the revenue generated by offshore drilling on that newly reclaimed land. Private land owners lose their mineral rights when this happens. This gives some states a perverse incentive to do nothing about coastal erosion. Your idea of a land trust might generate some hostility from unexpected quarters. (I would have never thought of this myself. My father just mentioned it one day while we were talking about coastal erosion in Louisiana.)
There’s one problem with your notion. Some Gulf Coast states have offshore oil drilling. Land that is reclaimed by the sea becomes common public land, individual land owners lose their mineral rights and the states share in the revenue generated by offshore drilling on that newly reclaimed land. This gives some states a perverse incentive to do nothing about coastal erosion – or even encourage it. Your idea of a land trust might generate some hostility from unexpected quarters. (I would have never thought of this myself. My father just mentioned it one day while we were talking about coastal erosion in Louisiana.)