Scottish political economist Mark Blyth has urged Canberra to set up a citizens’ wealth fund which would help fix income inequality in Australia by placing more wealth into the hands of the public.
Speaking at AIST’s ASI conference on Monday, the high-profile Blyth – a professor at Brown University’s Watson Institute for International and Public Affairs – told delegates that when the cost of borrowing is lower than economic growth, governments should create a national wealth fund to issue bonds and invest in equities.
“Everyone can set it up in six months and it would have a tremendous impact,” he said, pointing out that equities are much less plentiful now thanks to the number of corporate share buybacks that have occurred as a result of cheap debt.
Whenever there is a financial crisis or a pandemic, he added, there are wild swings in financial markets. “Currently, central banks step in and put a floor under asset prices to protect those asset values which means the top 20 per cent [of investors] never make losses,” he said.
“Everyone else in the real economy is bearing the cost which is fundamentally unfair.”
He told delegates that when equities fall in value the government can issue an extra 20 per cent of GDP in debt which it can fund at a negative real rate.
The professional fund can buy equities he went on to say, put them in a passive fund and get the upside of asset ownership – 6 per cent compounded as prices recover over the next 10 to 15 years.
“You would have all the money you would ever need without raising a single cent in taxes”, he said.
Importantly, he said, broadening asset ownership for the majority of the population would make an enormous dent in inequality.
During the conference, Blyth stressed the “failure of imagination” that pervades institutions policymakers and highlighted the need for courage, good political leadership and a change in perspective.
“When everyone dumps equities, there is a tremendous opportunity to build public wealth – we just haven’t taken it.”
Central to Blyth’s address on the polarisation of wealth was the anger that people feel over wealth disparity which has led to a resurgence of populism.
Blyth, who co-authored a book called “Angrynomics, told the audience people are angry about that unemployment, no wage growth and when the cost of house prices skyrocket.
“That would annoy me, to put it mildly,” he said.
During the session, the political economist made a distinction between public anger which is based on moral outrage and private anger such as loss of income.
Nevertheless, Blyth concluded that historically low-interest rates and lack of inflation made it a great time to be an investor.
“With incredibly low-interest rates and with incredibly low inflation rates – and a propensity for the deflation – it’s going to remain incredibly cheap to borrow for the next 10 to 15 years so why not lock in a low rate and go for it!”
“There has never been a cheaper time to be an investor.”
Blyth voiced concerns about the cognitive bias that exists because of “this horrible COVID world at the moment” which investors are projecting forward into the future much more than they should.
‘If you are liquid enough and you can access debt and you get the rocket fuel boost coming out of buying the dip, it’s going to be nice.”
The problem is capital redeployment, not capital rebuild, he warned adding that there was no destruction of capital during the recent market shock. Rather that investors walked away from investing.
“Think of how to redeploy capital rather than preserve it. Preserving capita is a fool’s errand as eventually, it will rot.”
“Get it right and you will be richer than God unless we all die. Basically, investing is a covered option. Go take it.”