Can enonomic recession be avoided?

What things do you need to pay attention to if you want to prevent the recession from coming or how to avoid the worst consequences of the recession? Read here

- (Prov 22:3) A prudent man foresees the evil, and hides himself: but the simple pass on, and are punished.

This writing is about economic depression, how it could be avoided, and (if not avoided) how its negative impact could be reduced. This is not always possible, however, as we can see in several countries that are so dependent upon foreign trade and other activities that they cannot influence their own futures. Something can still be done. An economic depression will always cause more poverty and alienation, and even reducing some of these ill effects will be helpful.

Danger of getting into debt

- (Rom 13:8) Owe no man any thing, but to love one another: for he that loves another has fulfilled the law.

One of the biggest threats to the economy is the risk of indebtedness, ie an increase in debt. Especially when there are good times and stock prices are rising, people tend to take on oversized loans. It is committed by both private individuals when buying expensive housing and by municipalities and states. People tend to believe that the financial situation will remain the same or improve so they do not prepare themselves for the worst. They do not try to pay back some or all of their debts when times are good. For example, the State will not increase its tax rate to keep its budget in balance and prevent indebtedness. This is usually because decision-makers want to stay in favour with people.

Preventing indebtedness is one of the most important factors in the prevention of an economic depression. During the economic recession of the early 1990s, the countries that had accumulated the most debt in the late 1980s suffered most. Finland was one of those countries. Countries that had not accumulated a lot of debt had it much easier during the depression.

Saving in advance and monitoring loans

- (Ps 37:21) The wicked borrows, and pays not again: but the righteous shows mercy, and gives.

- (Luke 14:28,29) For which of you, intending to build a tower, sits not down first, and counts the cost, whether he have sufficient to finish it?

29 Lest haply, after he has laid the foundation, and is not able to finish it, all that behold it begin to mock him,

One reason why economic recessions occur is that people fail to check their debtors' personal information or solvency; loans are given to anyone without any collateral regardless of whether or not they will be able to pay the loan back. This is what happened in the United States during the real estate crisis a couple of years ago, and during the economic recession in Finland in the early 1990s. Leo Meller describes the loan offers that people received in the 1980s right before the economic crisis in Finland:

I wrote above about the liquidity in Finland, i.e. the money that is available. The loans offered to ordinary people seem very extreme in Finland and in the other Western countries. Here are some recent examples:

Newspaper Uusi Suomi described in its financial section on 22 October 1987 (please note the date: around the large stock exchange crash): Kansallis-Osake Pankki, (Bank KOP) offers lifetime mortgages. KOP offers a housing loan that is valid until you die. You do not have to start paying back the loan during your loan-time. The fixed interest always remains the same for a period of five years. The loan can also be transferred to another person approved by the bank. You do not have to start paying back the loan during your loan-time. You will have to pay back the entire sum when the loan period expires. The loan period may be even until the time the customer probably dies. In practice, loan periods are usually between 20 to 40 years. (...)"

The cover picture and headline of magazine Suomen Kuvalehti on the next day showed an empty studio in Helsinki and stated, "Take a loan of FIM 300,000 – pay back FIM 777,750".

Harsh messages!

What about the loans banks offer to their customers? I have received marketing letters from Sweden and Switzerland, all of them offering me loans, even without actual collateral. It seems that financial institutions are offering true discount loans: take a loan, take a loan from us, no matter how – just take it!

Yhdyspankki Bank whose slogan is "Providing Opportunities" sent me an expensive-looking four-colour brochure whose cover promised "Flexible credit! Up to FIM 100,000 – available right away!" The inner pages of the brochure included the following promise, for example: "You can use your flexible credit where you like".

Another brochure of Yhdyspankki Bank promised the following: "Freedom to choose! What would you like? We can give you a loan right away... Come and tell us what you want."

I woke up in a hotel room in Turku on Tuesday, 15 September 1987. I had preached the previous evening about the money-making companies wanting to tie up Finns to huge debts with financial restraints. It was quite tragicomic when I saw on the front page of the local newspaper, Turun Sanomat, an advertisement. The heading was: "Good morning Turku! Here is your loan!" There was also a loan application form, printed right there on the newspaper – just grab a pen and apply for a loan. The text at the bottom said: "We will give you FIM 5,000–50,000 without any negotiations. You don't even have to be our customer! Just return this form to any of our offices!"

Who could resist such marketing of a loan?

A loan application form on the front page of a newspaper! (1)

There is a simple way we can avoid errors like those described above: borrowers should already have a sufficiently large amount of money in their savings, and banks should study the financial status of their potential customers in more detail. These two steps can easily be forgotten when housing prices and stock exchange rates are going up and the interest rate is low.

Speculating with borrowed money

- (James 4:13-16) Go to now, you that say, To day or to morrow we will go into such a city, and continue there a year, and buy and sell, and get gain:

14 Whereas you know not what shall be on the morrow. For what is your life? It is even a vapor, that appears for a little time, and then vanishes away.

15 For that you ought to say, If the Lord will, we shall live, and do this, or that.

16 But now you rejoice in your boastings: all such rejoicing is evil.

Speculating with borrowed money is one of the major causes of financial instability. In the past (before the 1929 stock market crash) people took on larger and larger loans to buy stocks. That caused stock prices to go up but when they came back down, many people were in trouble. Charles Mitchell, chairman of the New York National City Bank at the time, was not able to anticipate this. This is what he stated two days before that crash:

The situation of the US industry is absolutely healthy, and our credit situation is by no means critical... The public interest in the loans of stockbrokers is always exaggerated... The market is now generally in good shape and healthy. The last six weeks have done an immense amount of good by shaking down prices... I know of nothing wrong with the stock market or with the underlying business and credit structure. (2)

What we can learn from this is that we should not start speculating with borrowed money, and that no loans should be granted to people who plan to do so. This has been one of the main causes of economic crises in the past 100 years. David C. Korten writes:

Gambling with borrowed money is a bad idea under any circumstances. When it is done on a scale that threatens the integrity of national financial systems, there is a compelling rationale for strong public measures to eliminate it. Appropriate measures include prohibiting banks from accepting financial assets as loan collateral and from lending to hedge funds and other financial institutions for the purpose of buying stocks or derivatives. Buying stocks on credit should be similarly prohibited. (3)

Solvency of banks is one of the most important factors in preventing an economic recession. If banks are solvent, many problems will be avoided. At least, the advice below should be taken into account.

Be careful when granting loans, as mentioned earlier. During the banking crisis of the early 1990s in Finland, the most conservative banks – those who had paid the most attention to risk management –came out the best. They did lose some of their market share at first but then came out of the crisis in better condition. The total cost of the economic crisis to Finnish society was around FIM 50 billion (more than EUR 8 billion).

Focusing on basic banking is important. This means avoiding any stock or real estate speculation with customers' money. One of the reasons why the SKOP Bank had so much trouble in Finland in the early 1990s was that the bank had been involved in property and stock investments. When prices came down, the bank went bankrupt.

A statement given by the former president of the SKOP Bank to the Finnish Parliament in the autumn of 1986 clearly explains this. He describes the situation a couple of years before the crash. His prediction came true:

We may end up with a deep financial depression, very bad unemployment and plenty of bankruptcies in a couple of years.

- The sloppy fiscal policy will at first increase the prices of real property but not even the real estate business can continue forever. If there is a depression and/or the interest rate rises, the property value will decrease.

- The most dangerous recent event is that financial institutions have started to fund the stock exchange with credit and trade stock themselves, which is the most dangerous approach and dubious on many levels when the banks are both owners and sponsors at the same time. Morals and ethics will be hard to find when even people holding a trusted position in a bank practice stock trading to make themselves richer using information obtained from their employer on whose behalf they make decisions.

We may end up in ruin. (...) The entire national economy will be shocked. (4)

Solvency of banks can be developed by making sure that they have more cash at hand. Even a reserve of 100% has been proposed:

One hundred percent reserve requirement for cash deposits. As early as 1948, Henry C. Simmon, founder of the conservative School of Economic Monetarianism at the University of Chicago, proposed a 100 percent reserve requirement for cash deposits. This would have limited the ability of banks to create money and increased the state's ability to control cash flows. Since then, many economists have put forward similar proposals. The current US reserve requirement is on average less than ten percent. Implemented over many years of transition, the financial system would have time to adapt to a change that would break the loan pyramid and help restore the bond between making money and generating wealth. (5)

Interest

- (Ex 22:25) If you lend money to any of my people that is poor by you, you shall not be to him as an usurer, neither shall you lay on him usury.

- (Lev 25:35-37) And if your brother be waxen poor, and fallen in decay with you; then you shall relieve him: yes, though he be a stranger, or a sojourner; that he may live with you.

36 Take you no usury of him, or increase: but fear your God; that your brother may live with you.

37 You shall not give him your money on usury, nor lend him your victuals for increase.

The verses above warn us about usury. The interest rate should either be reasonable or not be charged.

This is also one of the major reasons causing economic recessions. If companies are highly indebted when interest rates suddenly rise, it is like a death sentence for them. This is what happened in Finland twenty years ago and later in Asia. Tens of thousands of large and small companies became bankrupt in Finland alone, increasing the unemployment rate. Furthermore, private persons had trouble coping with their debt. If the interest rate had remained low and usury had not been practiced, the negative impact would have been much less severe. The quote below is about the economic recession in Asia.

Companies highly involved in debt are particularly sensitive to interest rate increases, especially to the extremely high levels urged by the IMF. At very high interest rate levels, a company highly involved in debt goes bankrupt quickly. Even if it does not go bankrupt, its net worth vanishes quickly as it is forced to pay huge amounts to creditors.

The IMF understood that the fundamental problem in East Asia was weak financial institutions and over-indebted companies. Nevertheless, it pursued an interest rate policy that exacerbated precisely these problems. The consequences were exactly as predicted: thanks to high interest rates, more and more people were faced with payment difficulties, which meant that more banks suffered bad debts. It further weakened the banks. The increasing difficulties in the corporate and financial sectors exacerbated the downturn caused by tight monetary and fiscal policies by reducing aggregate demand. At the same time, the IMF had succeeded in reducing aggregate demand and aggregate supply. (6)

Regulation of the financial market. One of the most important lessons from America’s Crash of 1929 and the resulting Great Depression of the 1930s is that financial markets must be regulated. President Franklin D. Roosevelt’s administration recognised this after the Crash and initiated measures that would allow the federal government to intervene in financial markets. Those financial reforms helped restore trust in the markets.

It is noteworthy that when there have been financial crises in recent decades we have forgotten the importance of regulation and the lesson from the Great Depression of the1930s. Some capital investment groups have demanded complete deregulation of investor controls, which has caused a catastrophe. People have not learned from previous mistakes and acted to ensure sufficient control. Many severe economic recessions have been caused as a result.

Fears of this vicious circle have induced governments throughout the world to strengthen their financial systems through prudent regulation. Repeatedly, the supporters of free markets have resisted these regulations. When their voices have been heeded the consequences have been disastrous. This was the case both in Chile in 1982-83, when the country's gross domestic product fell by 13.7% and one in five workers were unemployed, and in the United States during the Reagan period, when, as has already been said, deregulation led to a Savings & Loans Associations bank crisis that cost American taxpayers USD 200 billion. (7)

Several examples prove the importance of regulation. These examples show what will happen if investors are given too much freedom:

- The savings and loan association crisis in the United States was caused by deregulation of banking, interest rate generation and crediting. This promoted eager competition between banks and led to huge credit losses.

- Finland followed in the footsteps of the US and deregulated banking in the mid-1980s. Before that, the interest rates were similar in all banks and banks only competed with each other in offering more free services and having a more comprehensive office network. Deregulation allowed them to compete with cheap loans, too. Furthermore, long-term borrowing from abroad was allowed to companies, even though domestic funding was also available. This led to a severe banking crisis that cost around 50 to 70 billion Finnish marks (8–12 billion euro) and to 200,000–300,000 people becoming unemployed.

- The Asian crisis in the 1990s was caused by the countries being forced to liberate their capital markets even though they did not require foreign capital. Nobel laureate Joseph E. Stiglitz proves that this was the most important single factor contributing to the financial crisis.

International bankers and politicians were convinced that a new era was about to begin. The IMF and the US Treasury Department believed, or at least claimed, that full liberalisation of capital movements would help east Asian economies to grow faster. However, thanks to its high savings rate, East Asia did not have any need for foreign capital, but despite this, pressure was exerted on the countries of the region to open up their capital markets in the late 1980s and early 1990s. I personally believe that the liberalisation of capital movements was the single most important factor in the emergence of the crisis. I came to this conclusion not only by carefully observing the crises in the region, but also by looking at the almost a hundred other economic crises that have occurred over the past quarter century. As economic crises have become more frequent (and serious), we now have a wealth of data to analyse the factors that contributed to them. (8)

• The real estate crisis in the United States a few years ago was the result of a lack of supervision of mortgage lending. Previously, banks had to issue mortgages cautiously, since the lender always remained a creditor. However, new procedures and derivatives changed the practices so that creditors were no longer in direct contact with the debtor. This led to credit losses in the billions because control was overlooked.

Bonuses and intervening with risk-taking. The previous chapter was about regulation of the financial market. This chapter continues along the same lines.

One of the key dangers for the economy is caused by investment banks and the bonuses they give to their employees. Bonuses encourage people to take more risks because their personal liability is low. Bonuses are also considered to be one of the major underlying causes of the financial crisis. A newspaper article from 17 March 2011 explains the situation as follows:

Banks still give out top bonuses

Large investment banks in the United States and United Kingdom continue to reward their executives with huge bonuses, as if the financial crisis never occurred. (...) The financial crisis that started in 2008 led to extensive global discussion on the need to limit the bonuses available to bankers. No major change occurred, however: bankers still continue to earn unbelievable sums.

Banks continue to give out bonuses as if there was no crisis at all, especially in New York and London. (...)

This bonus culture is considered one of the underlying reasons behind the financial crisis. The larger the profit a banker made, the larger his or her bonuses were, even though the personal risks taken on by the banker were low. This encouraged people to take on more risks. (Helsingin Sanomat 17 March 2011)

How can we address this problem of bonuses and risk-taking? One way we might create change is by introducing strict taxation – such as 90% – of all bonuses because the risks taken when trying to obtain bonuses create a major hazard for the national economy. Since a single person can be responsible for up to tens of billions of euros in assets and the person may receive a large reward for performance of these assets as the broker, the income obtained in this manner should be strictly taxed.

Another alternative would be to change the bonus system in such a manner that bonuses would not only be cancelled if the company is unprofitable but the brokers would be liable to repay any losses from previously earned profits. This would cause them to take on clearly fewer risks than before.

The first proposal aims at restoring the symmetry of incentives by making the broker bonus system fully balanced – i.e., a system where negative values are also possible. Losses from risks previously taken should not just cancel the bonuses but make them negative. This would mean that the brokers would have to pay for their current losses from their previous profits in the same relation.

(...) The objection will probably be that the most "competent" brokers would then go into exile because of salary offers from competing banks which are not bound by the balanced hiring obligation. Let them go! The social benefits offered by these so-called "brains" is highly controversial. It is not a problem as such if only the "mediocre" brokers who are not desired by banks abroad remain here. (...) (9)

One means of intervening in this problem ofrisk-taking is to ban derivatives. They were not used in the previous decades and they are not necessary now. Banks should focus on basic banking – granting credit – instead of creating products whose risks are almost impossible to anticipate. The key reason for the financial crisis was that people were unaware of the risks.

The financial sector managed just fine for decades without the two most toxic innovations, derivative products and securitization. Now they are considered so indispensable that life without them cannot even be imagined. One should not be startled by such squeals from the financing sector.

Banks practiced their profession of banking up until the early 1990s: they granted credits and retained them in their accounts until their maturation. It would be highly audacious to claim that this caused the banks to fare badly. We propose that banks take this tiny step backwards and stop claiming that nothing would be possible without the securitization tool.

Deterioration of the quality of credits granted in the beginning of the chain, their volume becoming rampant and tragic illusions of the true risks of securitization products: these are more than enough justification for simply banning these most detrimental "financial innovations". (10)

Speculation is one of the modern traits. People speculate with stock, currencies, foodstuffs, raw materials, etc. Around 90% of the global assets were spent on trade or long-term investments in the 1970s and only 10% went to speculation, but the figures are opposite now (Member of the European Parliament Eija-Riitta Korhola stated in her blog that "if the GDP of the global economy is around 50 billion US dollars, it means that 1,144 billion is being invested in financial speculation.") This means that instead of making long-term investments or investments that would create jobs, people use assets in investments aiming at fast profit. Such fast asset transfers – currency speculation, for instance – are one of the key reasons why the economy is unstable. This can be seen in the fact that, for example, the countries that deregulated their capital markets the most suffered the most during the Asian financial crisis, whereas the economies of India and China that relied on capital restrictions experienced a growth rate of five to eight per cent in the same time period. This was a major difference.

How can the harmful effects of speculation be addressed? Experts have presented various options. One option is the so-called. Tobin tax. It is a proposal by Nobel Laureate James Tobin that international currency transactions be taxed at a low tax. Such a tax would reduce short-term speculation and the exploitation of exchange rate fluctuations.

Another option is to impose a progressive tax on short-term capital gains, e.g., on capital gains, in the following way. When the average investment time on the stock exchanges is only one – two weeks (!), such a tax would seem to make long-term investments more attractive. It would reduce large fluctuations in stock exchanges, which are detrimental to businesses and society.

A gradual additional tax on short-term capital gains. A surtax on short-term capital gains would make many forms of speculation unprofitable, stabilize financial markets, and lengthen investment perspectives without penalizing long-term productive investment. If the assets have been in possession of a seller less than a week, the surtax might be as high as 80 percent on the otherwise untaxed portion; if a week but less than six months then the tax might be 50 percent; from six months to three years the tax might be 35 percent; and if the assets are in the possession of the same owner more than three years the selling tax would be 10 percent. This surtax would place ordinary work first and would reduce gains obtained by moving money. (11)

Accumulation of wealth

- (2 Cor 8:13-15) For I mean not that other men be eased, and you burdened:

14 But by an equality, that now at this time your abundance may be a supply for their want, that their abundance also may be a supply for your want: that there may be equality:

15 As it is written, He that had gathered much had nothing over; and he that had gathered little had no lack.

The seeds of the US stock market crash in 1929 were sown much earlier. One of the greatest underlying reasons for the crash was the government’s reduction of taxes in 1921, 1924, 1926 and 1928. Those tax reductions favoured large corporations and wealthy people, in particular. This caused the difference in people's wealth by 1929 to grow wider than ever before. It has been estimated that 59% of all the wealth in the United States was held by just 1% of all families.

What can we learn from this? We should learn, at least, that we should not recklessly reduce taxes because we may have to pay for it later. We should try to pay back our debt when the times are good because it is easier. In bad times it is much harder.

On the other hand, we should keep the differences between people's wealth in check. In the 1930s the US Government applied a policy that levelled out the wealth and created a strong middle class. England also switched to a similar operations model, and the economic policy aiming at levelling out people's income benefited the State.

As a counterbalance to this experience of early "economic growth", conditions for ordinary Britons began to improve with the onset of the First World War in 1914; this development continued until the end of the Second World War, including the interwar period, although then the British national product as a whole did not grow at all. As Douthwaite has said, there were political pressures during the wars to control market forces. The state imposed heavy taxes on top earners and controlled wages. Although wage increases were kept below inflationary levels, more people were employed and jobs were secured. As a result, the real purchasing power of most wage-earner households increased. Although the state taxed wage increases, it often imposed the same absolute salary increase on everyone. Thus, wage increases for the unskilled labour force became proportionally higher than for the educated workforce. Overall, this led to a huge income stream from the rich to the poor.

After World War I, veterans' return to work was facilitated by moving from a 54-hour workweek to a 46-48-hour workweek — keeping unemployment low and wages high. Those who were left out of work were looked after by the national unemployment insurance scheme enacted in 1911. This was funded by significant taxation of high-income earners, which systematically shifted income from wealthy taxpayers to those who needed the most help.

World War II resulted in much the same consequence for the poor. The benefit came not from the growth in output that accompanied the war effort but from a combination of many factors. These were a high demand for labour, the erosion of wage differentials, government’s control of profits, and the implementation of a highly progressive tax structure. Income equality increased dramatically, and the enforced saving that resulted from rationing left an enormous pent-up demand following the war, easing the transition to a peacetime economy.

Similar development was experienced in the United States. The depression of the 1930s and World War II galvanized the politicians to take measures that resulted in a significant redistribution of income. These measures led to the building of the strong middle class that came to be seen as the hallmark of America's economic strength and prosperity. (12)

Re-arranging debts. Reducing the interest rate or temporarily suspending the repayment of loans (for a year or two, for example) could help many countries. In some of them (developing countries), the cost of paying off debt exceeds up to three times the funds allocated to health and social care, but if interest rates are reduced or there is a temporary interruption in payments, they can recover financially. The high interest rate has also caused thousands of companies to become bankrupt and thus has increased the number of poor people. The strict financial policy that is favoured by many creditors usually only causes more misery, but lowering the interest rate and restructuring loans could be more effective measures. Might these measures be used to address the Europe’s current financial crisis, in which, for example Greece is in trouble? Additional loans would probably not assist these states because their debt would only increase. Nobel Laureate Joseph E. Stiglitz has written on the subject and mentions, among other things, debt service suspension as one of the options:

Almost everyone who has anything to do with economic development, even those in Washington's power-savvy circles, now agrees that rapid liberalization of capital markets without concomitant regulation can be dangerous. They also agree that overly tight fiscal policy in connection with the 1997 Asian crisis was a mistake. When Bolivia went into recession in 2001, partly due to the impact of the global recession, some suggested that it would not be forced to follow traditional austerity policies and cut public spending. At the time of writing in January 2002, it appears that Bolivia will be allowed to revive its economy, using the revenues it will soon receive from newly discovered natural gas reserves, until its economy begins to grow again. Since Argentina's collapse, the IMF has recognized the flaws in the strategy of large bailouts and has begun to talk about the use of temporary debt suspensions and bankruptcy restructuring, options that I and others have advocated for several years. Two other wins are the debt relief brought about by the Jubilee campaign and the concessions agreed to as a condition for the start of a new "development round" of trade talks in Doha. (13)

EMPLOYMENT

- (Matt 20:1) For the kingdom of heaven is like to a man that is an householder, which went out early in the morning to hire laborers into his vineyard.

Maintaining the highest possible level of employment should be one of the main goals. If the unemployment rate decreases, it will reduce society's costs and poverty, but as it rises, costs will increase, tax yields will decrease, and poverty and indebtedness will increase as people will have less money to buy. In addition, crime can be one of the consequences of unemployment, especially in countries with low unemployment benefits.

But can unemployment be reduced or prevented from growing? Next, we will study this topic and some of the means that have been put forward by experts.

People first. One feature of modern society is the obsession with economic efficiency. We strive to maximize profits, which of course is not entirely wrong, because no business can operate for long making losses.

However, it is worth asking, has the obsession with efficiency gone too far? Many companies lay off their employees even when they are in strong shape and making a profit. It may be a question of wanting to make the balance sheets look even better and make the shareholders happy. Numbers and the interests of rich shareholders are considered more important than employees and their future. Managers who do not know their subordinates (large corporations and multinationals) are guilty of this kind of behavior. It is difficult for them to be interested in people's well-being because they are far from them. Numbers and great balance sheets mean more to them.

Efforts should therefore be made to preserve jobs. People should only be made redundant when it is absolutely necessary, not when such drastic measures are not needed. For example, in Japan, the culture is such that they try to keep employees in the same company until retirement age. From the point of view of society's interest, it is more useful to maintain high employment than for the value of shares to rise.

Privatization. One feature of modern society is privatization. Although polls have always shown that people want to keep public services (health and education), some parties have tried to push for privatization. They think it is more efficient and will be cheaper for society.

However, this matter must be viewed from the point of view of the whole. Sometimes privatization can make sense, but often the disadvantages are greater. It is due to the following factors:

• It has been established that if the state maintains high-level social services and health care, it does not worsen the state's competitiveness. The Nordic countries have had versatile services produced with tax funds, but these countries have maintained their competitiveness.

• When unemployment almost always increases as a result of privatization, it becomes economically expensive for society as a whole. The salary of public sector employees returns to the economy in exactly the same way as that of the private sector, but if a lot of people remain unemployed, it means a strain on society. The government would have to pay more unemployment benefits while receiving less tax revenue, and there would be less money flowing through the national economy.

According to neoliberal thinking, it is almost forbidden to consider different social goals or several different sectors of society at the same time. For example, the municipality of Pernaja laid off 12 employees of its own school kitchen just to save a few tens of thousands of marks - buying food from a larger unit operating on commercial principles was a little more affordable. However, 12 new unemployed people cost the Finnish state about one million marks per year, so this solution implemented in accordance with the spirit of EU competition legislation was absurd from the point of view of the national economy as a whole. However, the persons responsible for the decision stated in a TV interview that nothing would come of the handling of common issues if such matters should also be taken into account when making decisions. They had clearly internalized the neoliberal logic in an exemplary way. (14)

A newspaper article (Etelä-Suomen Sanomat 28.4.2013) shows how the outsourcing of services to private producers has increased costs, not reduced them. When savings have been sought by reducing personnel, it has been necessary to rely on purchasing services and external consultants. It has even become more than twice as expensive as the original expenses:

Savings bring new expenses

Outsourcing: In even half of the municipalities, the purchase of services has increased costs

Sami Vainio: The savings obtained by outsourcing services often backfire in the creation of new expenses. For example, in the years 2006-2010, the government's personnel expenses decreased by 216 million euros, but the purchases of services increased by more than 500 million.

- When the declining staff has had to be replaced with services, it has become more expensive in the long run, assesses Hanna Kuusela, Ph.D. of the Academy of Finland.

Kuusela has studied the growing power of consultants in the public sector in the book Konsulttidemokratia, written together with Matti Ylönen.

A shrunken administration often becomes dependent on various consultants, which means that companies are able to charge more for their services. Funding has been especially blatant in public sector information management, whose expenses even doubled in the first decade of the 21st century.

- When all the power is given to monopolized or concentrated markets, there is really no point in waiting for savings, Kuusela points out.

• If only the state's share is taken into account, the services produced with tax funds may appear expensive. However, if the health care system is dismantled in order to reduce taxation, it will become more expensive for people. They have to pay more for it and may need other types of assistance to pay their expensive bills.

One indication that privatization is not effective is US health care. It has been established that there is the world's worst and most inefficient healthcare system, if costs and achievements are compared. Its system is the most expensive, but in practice worse than the health care of any other OECD country.

Healthcare is a good example. The US health care system is already clearly more expensive than Finnish health care, even if only expenses covered by state tax revenues are included. If we also include the funds that people themselves spend on their health care, the USA spends 15 percent of its gross domestic product on health care, and Finland only 7 percent. Calculated in dollars, the USA uses more than three times more money for health care per person than in Finland. (15)

• When unemployment increases as a result of privatization or other activities, it always causes social problems, which at worst means crime, social unrest and urban violence. Diseases related to poverty, such as tuberculosis, may also increase.

In practice, the former means that savings in one place can bring costs elsewhere. Endless privatization and the pursuit of efficiency may look good in the short term, but if it increases other costs, the end result may be worse financially. The overall efficiency must be taken into account.

The lower unemployment rate also had profound social effects – issues that the IMF paid little attention to in any country. Millions of workers previously excluded from the labor market were brought in, simultaneously reducing poverty and the number of people living on welfare at an unprecedented rate. This in turn reduced crime. All Americans benefited. The low unemployment rate, on the other hand, encouraged people to take risks, to accept jobs without employment security - and this willingness to take risks has proven to be an essential ingredient for the success of the USA in the so-called "New Economy". (16)

Banks and companies. One of the reasons for the increase in unemployment in the Finnish recession in the early 1990s was the inflexibility of banks towards companies. When the banks received a guarantee that the state would cover all credit losses, they took advantage of this. The result was that thousands of relatively healthy – albeit indebted – companies went bankrupt. Most bankruptcies would have been avoided if there had been debt payment programs, temporary deferrals of payments and if stricter conditions had been set for banks. It is always more difficult to start a new business than to maintain an existing one.

In Finland, the recession and banking crisis of the 1990s bankrupted tens of thousands of small and medium-sized companies. In thousands of cases, our big banks drove healthy small businesses in temporary payment difficulties into bankruptcy completely unnecessarily: from their point of view, it was safest to let the indebted companies go bankrupt, because then the state compensated the banks for the credit losses incurred in full, without an upper limit. If the banks had started negotiating more flexible payment schedules with the companies and tried to keep them alive through the recession, their own profit margins might have decreased. In their opinion, they did not have the opportunity to do this due to the increasingly tense domestic and international competition situation. (17)

Cooperative type model. One way to maintain employment is a cooperative type model where the employees are the owners of the companies. Such a model effectively eliminates the confrontation between employees and the employer. It is also often more effective because employees participate in planning and responsibility. If there is a recession, and production decreases, full employment can be maintained by reducing the number of working hours of employees, and not by firing anyone.

It is possible to take the same measures in ordinary companies, but labor market policy, bureaucracy and inflexibility usually prevent larger solutions from being made. It is not possible to negotiate how best to maintain employment and how to keep the company financially healthy at the same time. Inflexibility in negotiations or perhaps the constant pursuit of salary can cause unemployment. If the employees themselves were the owners of the company, such problems would not occur easily.

- (Luke 3:12-14) Then came also publicans to be baptized, and said to him, Master, what shall we do?

13 And he said to them, Exact no more than that which is appointed you.

14 And the soldiers likewise demanded of him, saying, And what shall we do? And he said to them, Do violence to no man, neither accuse any falsely; and be content with your wages .

- (Prov 30:15) The horse leach has two daughters, crying, Give, give. There are three things that are never satisfied, yes, four things say not, It is enough:

Takeovers and unemployment. One major cause of unemployment is company takeovers, in connection with which employees are fired in order to make the companies even more productive. The continuity of employment is not cared, but the most important thing is to present a profitable balance sheet, from which only rich shareholders benefit. In addition, it is problematic that several business takeovers are done with loan money. It increases corporate debt and the vulnerability of the financial system.

A measure that the government should take immediately to curb frenzy is to prohibit banks and other financial institutions from giving loans for takeovers. Just like in the 1920s, the 1980s saw a huge wave of corporate mergers.

…What is the bottom line? The debt of the merged companies has grown and the wealth disproportion has worsened as the shareholders have become even richer. Let's remember that one percent of the wealthiest owners in America always own 50 percent of all stocks. (18)

Shorter working hours. One way to reduce unemployment is to reduce working hours. It has been proposed e.g. 4-day work week or 6-hour work day. This opens up the opportunity for new employees and radically reduces unemployment. However, such solutions require that the salary decreases in almost the same proportion. Business expenses will grow unreasonably if the salary remains the same.

For example, the state of Utah in the USA has tried a 4-day work week, when the state assigned most of its employees to a shorter work week. The salary remained the same in this experiment. It was found that employees would rather work four long days than five shorter ones for the same salary. The state's expenses were also reduced: there was less driving, resulting in savings of $1.4 million. Likewise, sick expenses and overtime were reduced, resulting in additional savings of $4.1 million. (Finnish Reader's Digest, January 2011, p. 44)

Another example is from France. Work was divided there by shortening the working week to 35 hours. As a result of the experiment, unemployment in France decreased significantly: from 12.6% to 8.5% in four years. Although, for example, Finland's economic growth during the same period was clearly faster, it did not have the same effect on employment. This confirms that the reduction of working hours, which was tried in France, is a factor that increases employment.

At the end of the 90s, the social democratic government of Lionel Jospin changed the course of French economic policy and began to revive consumption in the Keynesian way. It employed 300,000 young people in the public sector and decided to divide the work by reducing the working week to 35 hours. Faith returned immediately, the economy took off and unemployment began to fall. In 1997, France's trade surplus reached an all-time high, and investments increased by ten percent compared to the previous year.

Pekka Tiainen, a negotiator at the Ministry of Labour, assured that shortening working hours would improve employment in France. He justified his view by comparing the situation of Finland and France. - Unemployment in France has decreased faster than in Finland, even though Finland's growth has been clearly more drastic. I think it confirms that shortening working hours has been important, Tiainen argued.

Shortening working hours created 265,000 new private sector jobs in France over five years. This is what the research institute Plan, which serves the economic planning of the French state, estimated in a study at the time.

The law reducing weekly working hours to 35 hours was enacted after severe political debate in the fall of 1997. It entered into force in June of the following year in larger companies with at least 20 employees.

The unemployment rate in France fell from 12.6 percent to 8.5 percent during the left-wing government that was in power for four years. The reading was the lowest in 18 years. According to Plan, one fifth of the improvement in employment can be directly explained by the jobs created by shortening working hours. (19)

Facilitating business operations. Setting up new companies often requires a lot of paperwork and is complicated by bureaucracy. If setting up businesses were made simpler and easier, and new entrepreneurs received continuous support, it could increase new businesses and employment.

In Britain, this model was introduced in the late 1970s. A special department was established for small and medium-sized companies. Its purpose was to eliminate bureaucracy, and all those who planned to start a business could turn to this department for their problems. The effectiveness of the measure is proven by the fact that over 2.5 years, more than 2 million new companies were created in Britain, and as a result, almost 5 million new employees.

Agriculture and employment. Efforts should be made to maintain or increase employment in agriculture. At the moment, when there is high unemployment in the cities, it makes no sense to try to reduce the use of labor in agriculture. It does not make sense from an overall economic point of view. Especially a policy that does not protect the country's own basic food production is dangerous because it makes the food supply dependent on other countries. Dagen magazine describes the situation in Sweden:

Dagen magazine stands behind Gyllenhammar's words: "The decline of Swedish agriculture means a huge waste of resources. We are suffocating our resources and at the same time making thousands of people unemployed in agriculture and the food industry. Narrowly calculated, it is true that food is cheaper elsewhere than in Sweden. However, it does not follow from this that it would be economically desirable to reduce our own food production in favor of imported goods. Large-scale importing of food would require increased export income in order to even out the trade balance. If you don't have money to pay, you can't buy products either. Today's politics are dangerous and insane. In the foreseeable future, the world can hardly talk about an abundance of food, on the contrary, development is threatening. So how is it defensible that a country with such excellent conditions surrenders itself to the care of other countries?" (20)

How can employment be maintained or increased in agriculture? The first condition is that each country must secure its own basic food production, as the previous example shows. If this is not pursued, it is a dangerous policy.

One way to maintain employment in agriculture is also to support small farms. The more small farms there are, the less unemployment there is. Small farms increase employment. They can be supported by a few important changes in the law:

Agricultural subsidies. When agricultural subsidies have been paid, they have been implemented according to surface area. For example, a farmer with 200 hectares has received ten times more support than a farmer with 20 hectares. This type of division has led to the creation of increasingly large farms and the decrease of small farms. However, the result has not been a decrease in the number of subsidies, but they have been distributed to fewer and fewer farmers. It does not make sense from an overall economic point of view, because at the same time jobs have decreased.

One solution is to change the structure of agricultural subsidies so that they target more small farms. It means that each farmer is paid a basic part, but the relative amount of support decreases as the area increases. The following example illustrates this option:

If the agricultural support package remains the same but is distributed among fewer farmers than before, the state's total expenditures will increase. As a result, jobs disappear from the national economy, and unemployment benefits must be paid to the unemployed from the budget of the Ministry of Labour.

The goal of social income transfers should be to equalize income differences and support the poorest people. However, the EU's agricultural support policy works with a completely different logic. It rewards ownership: a large farmer who owns a thousand hectares of land receives a hundred times more money from the Finnish government directly or through the EU machinery than a small farmer who owns only ten hectares of land.

In practice, this kind of policy increases unemployment and leads to a kind of reverse land reform and an ever faster concentration of land assets.

However, such a policy would not be the only option. What if Finland started paying all farmers who do not collect unemployment benefits or other state support, a certain annual amount of agricultural support, regardless of the size of the farm? Additional funds could be granted to highly indebted farmers during a transitional period, and organic farms could receive a little more money each year. Such a system would benefit small farms the most. Large farms would lose a lot of money, but this would not be so serious, because large enough farms should be able to manage anyway, unless they have, as a result of the current forms of agricultural support, adopted too expensive and ineffective procedures, such as over-fertilizing fields that cause blue-green algae blooms. (21)

Land ownership taxation. Another possibility is to tax land assets. Small farms could be tax-free, but large farms (e.g. more than 100 hectares) should be taxed progressively. The larger the farm size, the higher the taxation. This would result in the land being distributed more evenly and more small-scale farming would be created, as it is not profitable to keep oversized farms. Especially in developing countries with huge facilities, it would matter. There, even a small plot of land is of great importance, because it can become the basic income for a family.

TAXATION is one of the key factors in balancing the economy. Every state has expenses, and if funds are not available through taxation or in other ways, the result is economic imbalance and indebtedness. Such fiscal policy cannot be successful in the long term.

In this area, it is worth paying attention to a few technical aspects of taxation.

Tax reductions? It has been established that when a recession comes, one of the reasons is the erosion of the tax base. States have taken up tax reductions and reliefs when they should have tightened monetary policy. This has happened e.g. in Greece and the United States. Maybe the intention was to create more jobs, but tax reductions are a very expensive way to do that. It has been estimated that if unemployment is to be reduced by one percentage point, it would require reducing wage taxation, indirect labor costs and value added tax by ten percentage points. Such a tax reduction makes no sense, as it would lead to deep indebtedness of the state. There are better and more efficient ways to maintain employment.

Less taxes, less taxes, less taxes, cried the chorus of economists again at the peak of the boom in the spring of 2000. The last time we were as unanimous was at the bottom of the downturn. Then they shouted: savings, savings, savings.

... The results of empirical studies are, on average, such that reducing structural unemployment by one percentage point would require reducing the overall tax rate on work – wage taxation, indirect labor costs or value added tax – by a total of about ten percentage points.

When applied to Finland, this kind of average efficiency of tax cuts would mean that reducing structural unemployment by one percentage point - which would mean about 25,000 people - would require annual tax cuts rising to about FIM 20 billion, i.e. a waste of almost FIM million in tax revenue and the resulting need to reduce public expenditure per employed person. That amount would already support several dozen unemployed people a year. Doesn't seem very wise! (22)

Impact of automation. One reason many states have lost tax revenue is automation and its impact on the economy. The further automation in industry and the internet-based self-service society progress, the more jobs and tax revenues will be lost. E.g. In Finland, tens to hundreds of thousands of industrial jobs have been lost due to intensification of production and new technology.While productivity has increased, the government's tax revenues have not increased, because the same production can be done with an ever smaller number of people. Even new investments do not necessarily change the trend, because they aim to increase efficiency, which is at odds with preserving jobs.

The service sector has the same problem. As internet-based self-service progresses, it will reduce more jobs. This has already happened in the banking sector, because thousands of jobs have been lost. There are also other sectors where self-service is a big change. Doing business online and ordering travel tickets are small examples. They reduce jobs in the service sector.

What can be done so that the tax revenues of the states do not decrease due to automation and the unemployment it causes?

The most sensible thing would be to try to tax the growth and efficiency of production and not just the share of human labor. If the number of employees in industrial companies and service sectors decreases, society will no longer be able to secure welfare services. It also reduces people's purchasing power and the results of other businesses because unemployment increases.

On the other hand, if productivity and business volume are taxed, there would be more to be distributed to society in the future. (For example, in Finland, the profits of companies in 2000 were FIM 184 billion, which was close to Finland's annual state budget. The budget for the entire 1990s was less than FIM 200 billion.) Changing the focus of taxation - taxing more productivity than the share of human labor - would also favor those companies that strive to keep employment as high as possible. It could be further promoted by making every employee tax-deductible. Tax treatment of wages would be a factor that increases employment.

Politicians worldwide should ensure that production that is standing still is pumped out, that is, distributed in taxes and wages, even the previous amount. Regardless of whether the work is done by a human hand or a robot hand. The same applies to thinking work. Either the human brain or the computer brain does the work.

... Instead of taxing work, the focus of taxation and social contributions should be shifted to other components of production, and especially from the position of human labor to the taxation of the processing value of production... This would ensure that as production increases, society's common pot would accumulate to be distributed in proportion to the growth of production. With the current taxation principle, technology and automation can be legally used to evade taxes. Not even the trade unionists have understood this.

If European countries are unable to harmonize their taxation, infrastructure and social security, the only chance to secure tax revenues would be to switch from the current income tax system based on human labor to "cash flow-based" taxation. This has been presented, for example, by Hans-Werner Sinn, professor of economics in Munich. Nowadays, this neoliberal economics professor works as the director of the Ifo Institute and as an advisor to the right-wing Angela Merkel's black and red government coalition.

Scientists have been discussing the advantages of the model since the 70s, but nowhere in the world has it been tried. According to Sinni, cash flow debiting has the advantage that tax revenues would not erode. The company would be taxed on the difference between money coming into the cash register and money leaving the cash register. The investments would be written off all at once.

According to scientists, the system is simple. It does not require complicated accounting and does not involve difficult valuation problems. Sinn considers cash flow taxation to be realistic, even though he has no experience with it.

... Since technology mainly benefits only the owners of capital, it should also benefit all citizens. Unfortunately, political decision-makers worldwide have not even addressed this problem in their speeches. (23)

Income differences. When you want to improve the economy of society and the state, equal income distribution is one of the key factors. The more even the income distribution is, the more purchasing power there is in the market, and the social spending of society is lower. An example is two super rich people who already have everything and spend the same amount on food as other people. If they both buy an expensive luxury car and invest their money in stock market gambling, it will not benefit society's overall economy much.

On the other hand, if 10,000 ordinary people spend the same amount on consumer goods, food and clothes, it has a greater economic significance. It benefits society more because it maintains several sectors of the service industry and industry. When these sectors remain upright, there will be no unemployment and social spending will not increase.

Means that can be used to reduce income differences in society include, for example, progressive taxation and higher taxation of capital income. We are looking at both options.

Progressive taxation. Higher progressive taxation would reduce income differences and increase the overall well-being of society. Many rich people complain about their taxation, but e.g. in Finland only state income taxes are taxed progressively. They make up less than 20% of payments to wage earners, so their share is not very large. Municipal tax and value added and other consumption taxes have been flat taxes.

Taxation that is more progressive than the current one – the increase could start for e.g. those earning more than 30,000 euros per year – is one option for reducing income differences. It is close to the biblical model, where income differences are equalized (2 Cor 8:13-15: For I mean not that other men be eased, and you burdened: But by an equality, that now at this time your abundance may be a supply for their want, that their abundance also may be a supply for your want: that there may be equality: As it is written, He that had gathered much had nothing over; and he that had gathered little had no lack.). An increase of a few percentage points doesn't feel like much in a rich person's wallet. It shouldn't matter to such a person.

What about employment? Some studies have shown that progressive taxation is also a good option in terms of employment. Its benefits are not limited to the reduction of income differences:

Another claim you often hear from the National Coalition Party and the Confederation of Finnish Industries is that progressive taxation kills people's willingness to work and thus increases the unemployment rate. A survey published a couple of years ago says quite the opposite, however. It says that progressive taxation is favourable particularly from the employment perspective. According to Professor of Economics Erkki Koskela, high progression will keep wages in check, which will lead to a better development of employment.

Professor Koskela says that both Finnish and international empirical studies have confirmed that progression improves employment. Koskela has written about this in a book called Towards Higher Employment, the Role of Labour Market Institutions, published by the Government Institute for Economic Research.

Koskela says that this observation has not received enough attention. He continues to say that the observation is supported by empirical studies in Italy, the United Kingdom, Sweden and Finland. Progressive taxation is usually justified only from the point of view of equality, not employment.

Capital gains. When you want to improve the economy of society and the state, higher taxation of capital income (dividends, interest, profits from the sale of securities...) is one of the key factors. The problem in today's society is that the share of wages in the gross domestic product has been decreasing all the time - it has increased the state's debt - but capital income has increased. And even though the share of capital income has increased, it has only had a minor social benefit, because their taxation has been non-existent (in Finland, dividends became completely tax-free in 1993 and after 2004 they were slightly taxed again). It is possible that the tax rate of an ordinary wage earner has been even higher than that of a person who received a large part of his income in the form of tax-free dividends. Many well-to-do may have been free riders in the area of taxation because the legislation allowed it.

Capital income should therefore be able to be taxed like labor income. It could happen progressively so that the smallest capital gains are tax-free. If the states agreed together on the amount of this tax and other taxes, it would considerably reduce speculation and their heavily indebted economies could be balanced.

The late professor of fiscal law in the University of Helsinki Kari S. Tikka was also concerned about the current unfair taxation. He stated: "The largest tax-free dividends paid to private persons this year (in 2001) will amount to more than 100 million Finnish marks. At the same time, salary income is heavily taxed and tax must be paid even for unemployment benefits and the smallest pensions. This has caused many people to lose faith in the fairness of taxation."

The taxation professor was of the opinion that fairness in taxation is a complex issue. "We adopted the principle of not evening out the income distribution for capital income but only for earnings in the tax reform of 1993. We took a huge step towards favouring global competitive ability instead of fairness in our taxation. (...) This could be one reason why people have estranged from politics and feel less solidarity for their fellow members of the society: they see that the people with the highest income seem to be freeloaders," Tikka pondered. This is why Tikka was in favour of reinstating a tax for dividends.

(...) Both the state income tax and the municipal tax and the capital income added to it should be added together and the entire pot should be taxed at a progressive rate. Its maximum could be, for example, 55 percent. A 45% share would be quite enough stimulus even for the greedy.

(...) The capital tax rate should be at least the same as the tax rate for salaries. It is incomprehensible that having money "lay around" is currently more advantageous than working. Wealth tax should also be restored.

It is incomprehensible that a person who enjoys dividend income in Finland has been able to lie on the couch and that the corporate tax credit system allows him to survive with almost zero tax on his capital income. In any case, capital taxes in Finland are among the lowest in the EU countries. It is strange that politicians worldwide have accepted a lower tax on capital than labour, even though there is an oversupply of capital in the world anyway. (25)

Tax havens – i.e. countries where the tax rate is very low and thousands of mailbox companies exist – are one reason why some governments have lost tax revenue. They are launderers of dirty money because they and anonymous accounts are used by terrorists, drug lords and criminals. Likewise, many ordinary private individuals and companies engage in tax evasion when they take advantage of them. In practice, this kind of activity is a matter of greed but also of stealing, which we are warned about. People do not want to pay the same taxes that others pay. It erodes society's tax base and is is one reason why some national economies are in such poor condition.

- (Luke 12:15) And he said to them, Take heed, and beware of covetousness: for a man's life consists not in the abundance of the things which he possesses.

- (Eph 5:5) For this you know, that no fornicator, nor unclean person, nor covetous man, who is an idolater, has any inheritance in the kingdom of Christ and of God.

How can such activities and tax evasion be tackled? One way is the pressure of the states towards tax havens. The next proposal talks about strong measures that could be used to prevent tax evasion. Tax competition in general is one of the biggest reasons why governments lose revenue. They get into a cycle where it is increasingly difficult to maintain welfare services, because there is a fear of capital flowing out and that companies will get better benefits in other countries. Irrational tax competition could be prevented by agreements between states. A reasonable tax on capital outflows could also keep speculation and currency speculation under control.

Tax havens and mailbox companies must be globally criminalized. If necessary, the EU must put a trade embargo on these tax havens and cut off telecommunication connections to them.

The taxman should be given the right to intervene in bank secrecy. Secret bank accounts abroad should also be criminalized. Anonymous nominee registers on the stock exchange should be abolished and tax evasion should be prevented. Likewise, lawyers and accounting firms that assist in tax evasion must be held equally liable as their clients. (26)

If value-added tax were increased by a couple of per cent, the national economy could clearly improve. Private persons would not suffer much from paying €103 instead of €100 for a product they are buying. Neither would such a minor increase harm businesses because consumers would not change their behaviour. Such an increase would clearly benefit the national economy, however.

Raising VAT would be a better idea than raising the fuel tax, for instance, because VAT is a much more comprehensive tax and raising it would not cause unjust harm to people who have to commute from farther away. Furthermore, transport costs would increase if the fuel tax was greatly raised (according to an article in newspaper Etelä-Suomen Sanomat on 20 September 2011, fuel tax will increase the costs arising from a single truck by €15,000). This could cause transport companies to go bankrupt, force cutbacks of public transport and raise the prices of all goods due to the higher transport costs.

Pension ceiling. One way to address government spending is to set a pension ceiling. This means that the highest tax-free pensions can be no more than 1500-2000 euros per month. Such a measure is effective in reducing income inequality in society (Income inequality among pensioners has grown disproportionately high in many countries. Some pensioners are very poor while others have plenty of money.) and is one way to keep budgets reasonable. The problem is that the politicians themselves are rich and refuse to make such cuts.

Social costs are a large item in the state coffers. One option to reduce them is more accurate allocation of expenses. One should only focus on helping the less fortunate. For example, well-to-do people (more than 40,000 euros per year) can manage without child benefits or other subsidies. These subsidies could be stopped when income exceeds a set limit. Another option is to tax them progressively.

Housing costs are a matter of great importance to the economy and employment. The more society spends on housing costs, the more it reduces people's purchasing power and thus employment. When people's funds are tied up in housing costs, there is less money left for other consumption. This trend has continued over the past few years, as rents and apartment prices have been rising all the time. In Finland, there was an average of 42,000 euros in mortgages in 2004, but already 71,500 euros in 2008. The rise in prices has also increased society's expenses in the form of housing and subsistence allowances: in Finland, housing allowances paid out in 2009 amounted to almost 1.1 billion euros (ESS 29.5.2011).

How can purchasing power and employment be maintained with housing policy? In owner-occupied housing, low interest rates are one key factor. If mortgage interest rates stay low, people will pay off their debts and have money left over for other things as well. The opposite is true if interest rates rise. Then the purchasing power in society fades and people don't have money for anything other than taking care of loans.

Another radical option in owner-occupied housing is to adjust the price ceiling for square meter prices. In many urban areas, prices have run so high that ordinary wage earners can no longer afford them. Price regulation can be used to limit excessive price requests.

In rental housing, one way is to build more affordable rental apartments. The problem is the lack of land. Where apartments would be needed the most, there is the least amount of plot land and opportunities for construction.

Another way to live in rented accommodation is to take back rent regulation. Finland had this system from 1968 until the mid-1990s. When this system was dismantled, it increased the supply of rental housing somewhat, but at the same time rents skyrocketed. If the regulation were to be taken back – however, taking into account the needs of landlords such as the costs of renovating houses – it could significantly reduce housing costs and housing subsidies.

In order to rationalize the rent prices, the tenants proposed increasing the number of rental apartments as well as rent regulation. "Some kind of maximum rent level" was hoped for square rental. The dismantling of rent regulation in the 1990s was considered a "really stupid act", with which the rental business has become "legalized robbery". Many respondents emphasized that the restoration of rent regulation would be necessary in order to control arbitrary rent prices and rental activities. The emphasis on financial issues in the answers is a strong message that tenants feel insecure in their housing especially for this reason. Housing support is not considered to solve the problem, because it is often insufficient for the lowest incomes in relation to the need. In addition, only a minority, i.e. one in four respondents, received housing allowance. By transitioning to a market economy, the desired / sought functionality for the rental market has not been achieved. The quantitative lack of housing construction is a big part of the problem. (27)

REFERENCES:

1. Leo Meller: Raha ja Raamattu, p. 85,86

2. David Wilkerson: Jumala huolehtii (God’s Plan to Protect His People in the Coming Depression), p. 11

3. David C. Korten: Elämä kapitalismin jälkeen (The Post-Corporate World. Life After Capitalism), p. 239

4. Published in Suomen Kuvalehti in 1996, quote from Suuri lama

5. David C. Korten: Maailma yhtiöiden vallassa (When Corporations Rule the World) p. 403,404

6. Joseph E. Stiglitz: Globalisaation sivutuotteet (Globalization and Its Discontents), p. 160,161

7. Joseph E. Stiglitz: Globalisaation sivutuotteet (Globalization and Its Discontents), p. 165

8. Joseph E. Stiglitz: Globalisaation sivutuotteet (Globalization and Its Discontents), p. 146

9. Frederic Lordon: Rahamyllyt kuriin (Jusqua’a quand? – Pour en finir avec les crices financieres), p. 190

10. Frederic Lordon: Rahamyllyt kuriin (Jusqua’a quand? – Pour en finir avec les crices financieres), p. 191

11. David C. Korten: Maailma yhtiöiden vallassa (When Corporations Rule the World) p. 403

12. David C. Korten: Maailma yhtiöiden vallassa (When Corporations Rule the World) p. 67,68

13. Joseph E. Stiglitz: Globalisaation sivutuotteet (Globalization and Its Discontents), p. 330,331

14. Risto Isomäki: Kohti vuotta 1929?, p. 76

15. Risto Isomäki: Kohti vuotta 1929?, p. 101

16. Joseph E. Stiglitz: Globalisaation sivutuotteet (Globalization and Its Discontents), p. 84

17. Risto Isomäki: Kohti vuotta 1929?, p. 45

18. Ravi Batra: 1990 – Suuri lama? (The Great Depression of 1990), p. 163,164

19. Ari Ojapelto: Ahneuden aika, p. 651

20. Thoralf Gilbrant: EU, peto vai pelastaja (Ef i politikk og profeti), p.114

21. Risto Isomäki: Kohti vuotta 1929?, p. 241,242

22. Ari Ojapelto: Ahneuden aika, p. 349, 352

23. Ari Ojapelto: Ahneuden aika, p. 328,638,660

24. Ari Ojapelto: Ahneuden aika, p. 353

25. Ari Ojapelto: Ahneuden aika, p.356,639,644

26. Ari Ojapelto: Ahneuden aika, p. 644

27. Anneli Juntto, Anne Viita, Sonja Toivanen, Mia Koro-Kanerva: Vuokra-asunto Helsingissä sijoituksena ja kotina, p. 69