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.

CORRELATION FOR POLICYMAKERS

Cobden added:  “Thus, the land, which anciently paid the whole of taxation, paid now only a fraction, or one twenty-fifth, notwithstanding the immense increase that had taken place in the value of the rentals. The people had fared better under despotic monarchs than when the powers of the state had fallen into the hands of a landed oligarchy who had first exempted themselves from taxation, and next claimed compensation for themselves by a corn law for their heavy and peculiar burdens.”

172 years later, with housing now unaffordable and economies stagnating and collapsing, policymakers and politicians clearly remain in the thrall of the ‘landed oligarchy’.

*REAL* ECONOMICS 101.0

Time’s getting short. There are many economic pathologies to address, all stemming from the one source.

Before we get to the source, there are economic basics need saying, so let’s say them.

  1. A healthy economy rewards all its participants, not just a few.
  2. A healthy economy displays sustainable growth.
  3. Rent-seeking is antithetical to 1 and 2.

Rent-seeking? So what’s ‘rent’? The rent you pay on your house? No …. well, partly.

An economy generates product (P).  The natural distribution of this product is to labour as wages (W), to invested capital as profit (I), and to land as rent (R), sometimes called ‘economic rent’ to distinguish it from the rent of your house. (By the way, in economic terms ‘land’ connotes all natural resources, land, sea, and sky/airwaves.)

Whilst the returns to labour and capital have been earned, land rent is unearned by labour or capital, arising merely from the existence of community. Rent is therefore surplus product, owed equally to everyone. It needs to be taken, either for ‘revenue’ or a universal basic income–or both–for the economy to ‘work’, viz, P – R = W + I.

However, rent is not captured equally to everyone, even though it comprises at least 25% of the economic product (not the 1% to 4% claimed in economic text books). As only a tiny part of rent is captured publicly, most of it is privately capitalised into land price. This therefore means we are distributing the economic product to wages, the return to capital and to rent-seekers:

P = W + I + R

This is where we make the big mistake. Believing government must be ‘funded’ by other than capturing rent, we then proceed to tax wages (W) and profits (I). So the current economic hegemony is completely out of whack, and whilst it should be clear that taxes, rent-seeking and land prices are inimical to social progress and a healthy economy, it’s obviously not – otherwise we’d be doing something about it.

Once people see that the introduction of taxes–instead of the capture of unearned rent–does indeed destroy, and that the privatisation of land rent generates increasing land prices, they may perhaps understand why economies are in collapse. The arbitrary taxation of wages and profits, together with escalating land prices, explain why people are in debt and economies are failing. You can safely say: ‘Land prices up: economy down.’

Got it?

 

 

 

PRESCIENCE?

“No nation could preserve its freedom in the midst of continual warfare.”
– James Madison, Founding Father and fourth President of the USA
 20 April 1795

“POVERTY IS THE MOTHER OF CRIME”

 

What did Marcus Aurelius mean when he said “Poverty is the mother of crime”? Surely he wasn’t trying to justify crime?  The vast majority of poor people keep on ‘the straight and narrow’ without turning to crime?

No, he wasn’t justifying crime; he was simply being realistic. When they see affluence all around them, some of the people who’ve been consigned to society’s margins will consider they haven’t much to lose by breaking the law – and they’d be dead right.

Thomas Piketty’s Capital in the Twenty-First Century shows the rate of return to wealth has been increasing at a greater rate than economic growth  [r > g], so there seems to be good reason for governments to reinforce their law enforcement if they’re to address the projected increase in criminal activity?

But that would be to treat outcomes. Is there any way to address the cause?

Yes there is. There is unethical behaviour and white collar crime at the ‘top’ end of the wealth spectrum which interferes with the poor and middle class receiving their fair share of the national product. “Interferes”? That seems to connote a particular mechanism? Yes, it’s a very simple, but little understood, method of diverting the national wealth away from its producers to the drones or parasites who don’t produce it.

We once recognised the surplus in the production process was the ‘economic rent’ of our natural resources, and by taxing land values, we built railways, roads, dams and bridges from the uplift in value this capital expenditure provided to surrounding lands. This was called ‘land value capture’ or ‘land value taxation’, and our municipal rates were based upon the principle.

But we began to listen to those stooges who cried that “a man’s home is his castle” and shouldn’t be subject of significant taxation – and “what about the poor widow?” So, in deference to these emotive cries, we gradually reduced land-based revenues on publicly-created land values and increased taxes on wages and profits. But were the latter not earned incomes – the real ‘private property’?

Yes, we were sold a pup by the 0.1%. They’d convinced us to wind back revenues on society’s surplus–some 30% of the economy–and leave it largely to them. The fact that up to 70% of post-WWII Australians  had become land owners, made the 0.1%’s case all the easier and we fell for their ‘pea and thimble’ trick. The uber-wealthy not only owned more real estate, but also the most valuable real estate.  Nevertheless, we 99.9% were prepared to trade paying our share of a publicly-created value for taxes on our incomes and purchases. And we’ve come to consider this as ‘normal’: the 0.1% has won!

The 0.1%, including the big banks, have become bludgers and parasites, living off the ill-gotten gains of privately financing the public economic rent. It is they who create the crime of poverty.

So, it seems quite incredible that Thomas Piketty could write a gargantuan book about capital in the 21st century without discovering the mechanism by which we’ve all been deceived and screwed. You, too, have become one of their suckers, Thomas!

Oh well, we should be able see the likely outcomes if this scenario is to be allowed to continue: declining wages; increasing private debt; urban and environmental decay; further economic collapse; increasing poverty; greater crime.

I guess we get what a totally uneducated polity deserves?