All posts by Bryan Kavanagh

I'm a real estate valuer who worked in the Australian Taxation Office (ATO) and Commonwealth Bank of Australia (CBA) before co-founding a private valuation practice, Westlink Consulting. I discovered that we leave too much publicly-generated land rent to be privately capitalised by banks and individuals into land price bubbles. This generates repetitive recessions and depressions. These could be avoided by freeing up wages and earned profits and capturing most revenue from land values.

BANKING ROYAL COMMISSION MUST HAVE BROAD TERMS OF REFERENCE

It may be better for Australian banks to have the Standing Committee on Economics inquire into them than a Royal Commission—because they know that most parliamentarians are economically ill-informed (such as remaining under the delusion that budgetary surpluses are good for the nation)—but it’s most certainly not better for an increasing number of thinking Australians.

This includes those who know government may spend all it likes for productive purposes, provided it captures the economic rent of its natural resources to stop land price inflation. In 1879 the American social philosopher Henry George, having expressed the distributional formula that production is the sum of the incomes to land, labour and capital (P = R + W + I), made the point that labour’s wages (W) and capital’s profit (I) must decline if we fail to capture the rent of land (R) which in the economics sense includes all natural resources, land sea and sky/airwaves, viz, P – R = W + I, rent being the economy’s surplus owed equally to everyone (as it hasn’t been generated by labour or capital). Many see that if we fail to capture the land rent provided by infrastructure and other locational facilities, it becomes privately capitalised into escalating land prices, and is financialised by banks at a great cost to Australian wages, profits and social stability.

As a Royal Commission into banking is likely to find that government surpluses act to further assist banking interests intent on maximising profits via escalating private debt and bubble-inflated mortgages, rent-seeking interests (currently supported by the Liberal Party) are clearly served best by forestalling such a public inquiry.

Economic fallacies still abound in the twenty-first century. As they’re interrelated with banking, any Royal Commission into Australia’s banks must also be given the power to inquire into government deficits/surpluses, into money/debt and into economic rent/land price. If we acknowledge that rent-seekers have both money and power—Twiggy Forrest we learn has directed $400 million of our ‘super-profits’/economic rent to charity—we may expect them to endeavour to delimit any Royal Commission’s terms of reference into banking away from such necessary considerations. The Labor Party may be in favour of a Royal Commission into the banks, but its position on such broader terms of reference is unclear at best.

James Robertson Newsletter No. 57 – May 2017

 
This text can also be viewed at www.jamesrobertson.com/newsletter.htm. 

CONTENTS

1. Three Generations Left? Human Activity and the Destruction of the Planet

2. Some Points about Money

3. Books

4. A Programme about Social Justice and Public Policy

5. An Obituary

1. THREE GENERATIONS LEFT? HUMAN ACTIVITY AND THE DESTRUCTION OF THE PLANET

This question is also the title of a new book. See 3(a) below.

1(a) ‘The soaring ocean temperature’ from Oliver Milman in The Guardian

The soaring temperature of the oceans is the “greatest hidden challenge of our generation” that is altering the make-up of marine species, shrinking fishing areas and starting to spread disease to humans, according to the most comprehensive analysis yet of ocean warming. The oceans have already sucked up an enormous amount of heat due to escalating greenhouse gas emissions, affecting marine species from microbes to whales.

See www.ecologise.in/2016/09/09/report-soaring-ocean-temperature is-greatest-hidden-challenge-of-our-generation.

1(b) Why I had to tell my students that I fear for them

Rupert Read, a philosophy professor at the University of East Anglia, UK, tells his first-year students: “The reason I don’t envy you is because, as I look around the room, with very few exceptions, most of you are significantly younger than me. And I think there is a very real possibility that the later part of the lives of most of you in this room is going to be grim or non-existent. I’m sorry to have to say it. …. I actually think that you in this room here today should be very angry against the generation that’s older than you and the generation above that. Because there’s been what I would call a ‘festival’ of recklessness or a ‘carnival’ of short-termism that has characterised the last generations. It leaves you in a very parlous position; and it’s all too easy I’m afraid for such kinds of festivals to turn into funerals”.

See www.ecologise.in/2017/04/12/rupert-read-i-tell-students-i-fear.

1(c) The Dark Legacy of China’s Drive for Global Resources

William Laurance has worked as an ecologist in the Amazon, Africa, and the Asia-Pacific region on an array of environmental issues for the past 35 years.

He says, “I’ve never seen a nation have such an overwhelming impact on the earth as China does now. Across the globe, on nearly every continent, China is involved in a dizzying variety of resource extraction, energy, agricultural, and infrastructure projects — roads, railroads, hydropower dams, mines — that are wreaking unprecedented damage to ecosystems and biodiversity. This onslaught will likely be made easier by the Trump administration’s anti-environmental tack and growing disengagement internationally“.

See www.e360.yale.edu/features/the-dark-legacy-of-chinas-drive-for-global-resources.

1(d) Leadership for the 21st Century

Bruce Nixon blogs: “Today’s challenges are very different [from the past]: climate chaos and destruction of the ecosystem, growing economic injustice, mass migration resulting from climate change, poverty, and civil war, and the need to resolve conflict without violence. We have learned from the disastrous consequences of military intervention in Iraq. Cyber interventions are a new threat. And we are at the beginning of the fourth industrial revolution. Also we live in a far more diverse society.

Humanity uses the equivalent of 1.6 Earths in one year to provide the resources we use and absorb our waste. We use more ecological resources and services than nature can regenerate, through overfishing, overharvesting forests, and emitting more carbon dioxide into the atmosphere than forests can sequester (Global Footprint Network).

Austerity continues to do immense harm. It is widely recognised that free market capitalism and neoliberal policies, the dominant ideology of the past thirty years, have failed to deliver prosperity and wellbeing for all. Instead it is system that extracts wealth from those who create it and delivers it to the 1 percent and from poor to rich nations. …. Arguably the greatest threat to our survival is our capacity to commit mass suicide by destroying our habitat on Spaceship Earth or through nuclear war”.

See www.brucenixonblog.wordpress.com for a range of valuable insights on the human future.

1(e) General Election

In Britain we are having a general election on 8 June. It involves a lot of wasted political activity that won’t meet the challenges of the future.

2. SOME POINTS ABOUT MONEY

2(a) To Billionaire Doomsday Preppers Your Wealth Won’t Save You

“With Donald Trump’s election and the rising perils of war, climate upheaval, accelerating inequality, and civil unrest, some of the richest people in the United States are making escape plans….

But his idea of privatized survival is extremely limited. In the face of growing inequalities and ecological crisis, the wealthy will not be able to build a wall high enough or a silo deep enough.

Why? Two simple, interconnected reasons, one ecological and the other economic:

1. There is no Planet B.

2. Your wealth won’t save you….”

See www.resilience.org/stories/2017-02-23/billionaire-doomsday-preppers-wealth-wont-save.

2(b) Making Money from Making Money

A new report from the New Economics Foundation shows that “in the UK, commercial bank seigniorage profits amount to a hidden annual subsidy of £23 billion, representing 73% of banks’ profits after provisions and taxes”.

It concludes that “seigniorage profits could be seen as another form of public subsidy for the banking sector, supporting excessive pay and non-value-creating lending that contributes to rising house price and financial-asset prices”.

See www.neweconomics.org/2017/01/making-money-making-money.

2(c) How many of the richest people benefit from a dysfunctional property market

An article in The Guardian by the New Economics Foundation’s Alice Martin explains that the “British property market is making a few people very, very rich while leaving millions at the mercy of a dysfunctional market, with little or no influence over where they get to live.”

She writes: “it is a strange kind of economy where land and property routinely earn more than people do. But that is what we have – and the amount of wealth tied up in these areas has increased dramatically over the past few decades.”

See www.theguardian.com/housing-network/2017/may/10/richest-people-britain-property-moguls-housing-crisis.

2(d) The IMF should get out of Greece

“It has long been evident the Greek government, over the years, has been so overburdened with debt that much of it would eventually need to be forgiven. Now, even the mainstream media is touting that as the necessary solution to Greece’s predicament….So, here we have another case of private bank creditors being bailed-out. Yes, the Greek debt must be forgiven to allow the Greek economy to recover, but the burden now falls upon European and American citizens instead of on the banks’ owners, where it properly belongs.”

www.beyondmoney.net/2017/02/20/bloomberg-the-imf-should-get-out-of-Greece.

3. BOOKS

3(a) Three Generations Left? Human Activity and the Destruction of the Planet

This excellent book by Dr Christine Parkinson outlines how so-called progress has combined with a host of other factors, including free trade, a market economy, population increase and the development of a super-rich minority owning most of the wealth of the planet, to bring about global warming and climate change which could lead to a loss of many species and mass human extinction before the end of this century.

See www.threegenerationsleft.wordpress.com.

3(b) Rethinking the Economics of Land and Housing

This major new book is by Josh Ryan-Collins and his colleagues for the New Economics Foundation, in partnership with publishers Zed Books: Rethinking the Economics of Land and Housing. The subject is topical. The UK is facing a housing affordability crisis with enormous consequences for social justice and economic and financial sustainability.

See www.neweconomics.org/2017/02/britains-housing-crisis-get.

A further briefing on the subject is at www.neweconomics.org/2017/05/how-to-fix-the-housing-crisis. It starts by saying “The government’s Housing White Paper is set to join the decades of policy interventions that have failed to fix the housing crisis because they do not seek to address the broken land market and its role in an increasingly unequal economy”.

3(c) Basic Income: A Radical Proposal for a Free Society and a Sane Economy

“In this book, van Parijs and Vanderborght present a thorough history of basic income as well as a philosophical and practical defense. In the first chapter, they elaborate upon the concept of a basic income (“a regular income paid in cash to every individual member of a society, irrespective of income from other sources and with no strings attached”), explaining the significance of each of the key characteristics: it is paid in cash (rather than in kind), paid to individuals (rather than to households), universal, and obligation-free. In the second chapter they proceed to contrast basic income with alternative (but often closely related) proposals — such as the negative income tax (which is sometimes conflated with basic income), basic endowment, Earned Income Tax Credit, job guarantee, and working-time reduction”.

See www.basicincome.org/news/2017/03/new-book-basic-income-radical-proposal-philippe-van-parijs-yannick-vanderborght.

3(d) Progressive Protectionism

Progressive Protectionism by Colin Hines details why ever more open borders are increasing inequality, reducing economic activity and threatening the environment. He explains how countries could rebuild and diversify their economies by limiting what finance, goods, services and people they allow to cross their borders. They would move toward protection of nature, workers, localities and national sovereignty, as the key locale where democracy might resist rootless international capital.”

See www.progressiveprotectionism.com/wordpress/progressive-protectionism-book-review.

4. A PROGRAMME ABOUT SOCIAL JUSTICE AND PUBLIC POLICY

A part-time MA in Social Justice and Public Policy will start in Sept 2017 in Dublin. “The programme is specifically designed for people seeking to promote a fairer society, including those from business, community, voluntary, social inclusion, environmental organisations, trade unions, civil service, farming and religious sectors.”

See www.socialjustice.ie/content/civil-society-policy/ma-social-justice-and-public-policy.

5. AN OBITUARY

Very sad news indeed.

“To: All Friends, Advisors, and Supporters of the American Monetary Institute (AMI).

From: AMI Trustees Lucienne Dewulf, Jesse De Groodt, and Robert Poteat.  

It is with profound sadness that we reach out to you. As Trustees, we are writing to let you know that AMI Founder and Director, Stephen Zarlenga, passed away on Tuesday, the 25th of April after a courageous fight with cancer.

Stephen was a true Renaissance man of deep integrity.  He was dearly beloved by all who knew him well. His extraordinary mind, breadth of knowledge, and special care for humanity made him a visionary in the field of monetary reform.

His life has been devoted to educating Americans about the need for monetary reform and to his passion for justice and the well-being of all. We know it was a great comfort to him that his work will be carried forward according to his wishes within the American Monetary Institute.

There are no words to express our gratitude for your ongoing support and unending efforts in spreading Stephen’s lifelong work and words embodied in his book, The Lost Science of Money.

We are sure he will be watching over us, nudging our minds should we stray from the path he created.  We will be in touch with details regarding Stephen’s memorial and the future plans for AMI.”

James Robertson

18 May 2017

PS. Please remember that, if you want to change your email address, you can do this by clicking the ‘change your contact details’ link at the bottom of this email.

james@jamesrobertson.com

www.jamesrobertson.com

The Old Bakehouse, Cholsey, Oxfordshire OX10 9NU, United Kingdom
 

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DEFINITION

Ambrose Bierce “The Devil’s Dictionary”:-

LAND, n.  A part of the earth’s surface, considered as property. The theory that land is property subject to private ownership and control is the foundation of modern society, and is eminently worthy of the superstructure. Carried to its logical conclusion, it means that some have the right to prevent others from living; for the right to own implies the right exclusively to occupy; and in fact laws of trespass are enacted wherever property in land is recognized. It follows that if the whole area of terra firma is owned by A, B and C, there will be no place for D, E, F and G to be born, or, born as trespassers, to exist.”

THE REASON FOR DECLINING WAGES

Everyone’s mystified, even the unions. Whilst business seems satisfied with the situation, it might need to think a little further if it really wants the economy to recover.

What is it that’s suppressing wages?

Retail’s declining, and in most areas, business profits are declining.
People need money in their pockets for the wheels of commerce to keep turning, but they’ve become shackled to mortgage-induced debt which has got completely out of hand.

Long ago, the American economist Henry George had the explanation for this situation – and it has never been countered by argument. He said that the incomes from economic product (P) are distributed to three factors land (R), Labour (W) and Capital (I). So, P = R + W + I.

However, most importantly, he said that the community needs to capture land rent, a surplus in the production process, because it wasn’t created by individuals, but by the community. So his version of the distributional formula became P – R = W + I. This leaves wages and the return to capital untouched by taxation: they get their rightful reward for working, and the economic rent of land being a surplus is captured for the public good.

If we don’t capture the rent of land—if we allow it to be privatised—it will be capitalised into escalating land prices, and, as per George’s formula, the returns to labour and capital must diminish. If we were to capture all the rent of land to the public coffers, land prices must head towards zero, and wages and profits can only increase dramatically.

At first, this explanation—that there’s a reciprocal relationship between land prices and the returns to labour and capital—seems too simple, too pat, and it tends to blow people’s minds. It just couldn’t be correct.

But it is.

So this leaves those businesses with an interest in inflating land prices—such as those associated with banks and real estate—as the only ones making easy profits. They could be said to be unearned incomes, because they capture publicly generated land rent which is capitalised into land prices. Meanwhile, earned wages and profits have been squeezed and decline.

But most of us don’t want to pay the rent of our land into the public coffers because we’ve become attuned to the taxation of wages, profits and exchange: we have become blinded to the fact that land price and taxation is the enemy of prosperity.

Neoclassical economics had a hand in this situation. It was got up to put an end Henry George’s explanation that land rent had to be captured if labour and capital were to succeed by keeping a lid on land prices and arbitrary taxation. We’ve come to accept the idiocy of economists who have been trained to close their eyes to the 30% of the economy that is the economic rent of land.  (Don’t you hear them saying “There are no simple solutions, no magic bullets!”) Since 1973, particularly, this has led to the 0.1% increasingly taking much of the nation’s land rent, created a widening gap between the haves and the have-nots and driven economies to the wall. The rent-seeking FIRE sector (finance, insurance and real estate), once the service sector, has become the economy and is doing very. [!]

If you get the point, you understand more than most economists. If you don’t, it may be you’re still in their thrall.

Even most heterodox economists—alert to many of the ills of neoclassical economics—fail to see the inverse relationship between land prices and the equitable return to labour and capital. It’s a shocking stain on our educational system that we’ve permitted urgers and touts for a rotten distributional system to have gained such credibility in pushing the rent-seekers’ case.

Evidence?

Some of the feudal system actually worked. During the XV century when land rent was collected in England, a labourer with a family of five was able to save most of his wages after allowing for food, clothing and shelter. Professor Thorold Rogers’ studies into six centuries of manor rolls showed that the skilled carpenter of course did even better.