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 need to be avoided by capturing more revenue from land values to free up wages and household debt.

TAXES AND TEA PARTIES

Revolution“Taxes and Tea Parties”, an article I wrote for Online Opinion was published today.

TAXES AND TEA PARTIES

The revolutions fought over taxation often escape our attention.

Britain’s street riots against Margaret Thatcher’s poll tax in 1990 mirrored to a lesser extent Wat Tyler’s bloodier peasant’s revolt against the poll tax in 1381. Equity dictates that some taxes shouldn’t even be contemplated.

The Boston Tea Party, after which the new “Tea Party” movement in the US has been named, was the initial impetus for the US War of Independence (1775-83) when, as a reaction to tea having been taxed by Britain under the Tea Act, colonists threw  three shiploads into Boston Harbour on December 16, 1773.

The French Revolution (1789 to 1799) might have been averted had King Louis XVI heeded the advice of his physiocratic economic advisers who had recommended the institution of “l’impot unique”, the single tax on land. Having witnessed the failure of mercantilism and smelled revolution in the air, the Physiocrats’ leaders, Turgot and Quesnay, earnestly advised the king that the land tax would encourage greater production and a better distribution of wealth, instead of what mercantilism saw to be of paramount importance: balanced trade and greater accumulation of silver and gold. The King may even have retained his head had he not rejected the suggestion in favour of his natural inclinations.

Adam Smith and Benjamin Franklin paid separate visits to France to meet with the Physiocrats in 1764 and 1767 respectively, and, as their writings show, were deeply impressed with the new economics.

The modern Tea Party movement in the US initially came out of the right, but it would be a mistake to see it exclusively as such now, or to underestimate the growing concern over the extent of misgovernment in the US. Workers, too, have rapidly become unimpressed with bank bailouts and the rising levels of unemployment.

Additionally, Democrats have started to question Barack Obama’s pushing through health insurance reform just now, regardless of its merits, especially in the light of the recent loss of Teddy Kennedy’s once safe Massachusetts Senate seat, so they are also beginning to acknowledge that the revolutionary foment born of the GFC may no longer be entirely along party lines.

Ironically, the conservative Heritage Foundation has acclaimed the Tea Party to be akin to California’s “Proposition 13” movement which put a ceiling on the property tax in 1978. The Foundation would do well to look at the economic basket case into which California has refashioned itself, as an effect of the damaging taxes and charges that have replaced the diminished property base.

New Hampshire, the highest property-taxing state of all in the US, also has the best economy. If the Heritage Foundation were to list all the other states in order of the level of their property taxes, it will see further evidence of the correlation between higher property taxes and superior economic performance. No doubt, carrying a brief for privileged conservative interests, the Foundation will claim these results to be coincidental.

It’s worth remembering that the GFC first exploded onto the US scene as a result of its exposure to subprime loans; the first evidence of the residential property bubble having burst. Although Australia’s property bubble remains intact, the real estate bubbles in a number of other countries have also burst, and their tax systems appear similarly to have been heavily involved in rewarding property speculation at a great cost to productive activity.

Ken Henry’s review of the Australian taxation system remains under wraps while the Labor government wrestles with some of its recommendations. It’s an election year, and, as some of the Henry review panel’s more thoroughgoing suggestions will undoubtedly provide additional traction for the opposition unless watered down into mediocrity, the Rudd Government is reported to have sent some of the recommendations for review to, guess who? Ken Henry.

Should Henry’s “Australia’s Future Tax System” be compromised to the extent that earlier leaked reports of recommendations for reformed land taxes and a resource rent tax go missing altogether, Australia will be greatly discouraged from working its way out of the GFC, literally, because the privileges granted to rent-seekers will remain largely intact. In this scenario, the tax system will continue to look like a derivative of that other well known tea party – the Mad Hatter’s.

If, for party-political reasons, we don’t introduce genuine reform into our taxation morass, the question arises whether Australians will also take to the streets in the event of our property bubble bursting. Of course, we can always shut our eyes and pray that the GFC doesn’t take hold in Australia.

THE LAND QUESTION

George7aIRELAND:  OUR FUTURE?

Ireland’s in a mess. I’ve previously mentioned my enjoyment of Irish journalist and economist David McWilliams’ accounts of Ireland’s rapid transformation from a roaring tiger economy into a sickly mouse.

If McWilliams hasn’t read Henry George’s “The Irish Land Question”, I can recommend it to him as an excellent investment of about an hour of his time. Published in New York 129 years ago, it provides insights as encouraging and applicable today as they were in 1881:-

  • Ireland’s economic situation, though stark, is similar to what the vast majority of people are experiencing elsewhere (to greater or lesser degree)
  • the Irish ‘famine’ is economic rather than agricultural
  • ‘the land question’ is at the bottom of the economic fracture
  • there is a simple repair for the fracture, if we wish to use it

Henry George received a hero’s welcome when he went to Ireland, but the Irish eventually chose not to utilise his remedy.  It was too hard.

Although the global financial collapse was entirely predictable, world economies have so far failed to react by removing the fundamental flaw that created it.  In the absence of the essential switch from taxes to a land rent revenue system, we may therefore expect the GFC to deepen over the next few years.

THE ECONOMY IS SICKLICAL (GET WELL SOON!)

SURRENDERING AT THE OUTSET?

“Recurring financial crises are part of the cyclical nature of a free market economy.”

[Sigh!]  With an opening sentence like that one, how likely is it that the Faculty of Law’s symposium ‘Global Financial Crisis: The Way Forward’ at Bond University on 9 April is going to be anything but complete farce?

So, an equivalent of the GFC, at regular intervals, is all that the “free market” has to offer us? Wait!  Don’t tell me: all we need then is a little more ‘regulation’?  Yes?  OMG!

Will any of the listed speakers have the intestinal fortitude to challenge the symposium’s hapless starting premiss?  Surely, there’s got to be a serious amount of grey matter among that lot, or, are they all fresh out of intellectual rigour?

Why should not the starting point for the Bond symposium be that these mindless 18-year cycles are most unnatural, and can be remediated by abolishing taxes and applying a land and resource rent system? Many people have written to this effect, even forecasting the GFC, but they are shunned because they are outsiders, beyond the pale:-

“Don’t you realise that although a land rent as an alternative to taxes may seem to be a simple fiscal adjustment, it actually amounts to a revolution?”

“Yes – a revolution which removes these repetitive 18 year cycles of boom and busts forever and creates a sustainable and genuinely free market.”

It has all happened before, of course.  The French Physiocrats tried to warn Louis XVI to apply l’impot unique, the single tax on land, but he gallantly chose to foster the French Revolution and lose his head rather than offend his brothers in land.

Seems retaining land monopoly and speculation is a principle worth dying for, even if it does create regular GFCs?

Wizard of Id 2

PROPAGANDA – OR HOME TRUTHS?

conservativesTHREE STORIES

[Once upon a time …]

“They’re undermining the country, I tell you! We’ve got to set up a conservative foundation. We’ll call it ‘Status Quo Now!’ and and give presentations showing the public that those bleeding-heart liberals amount to nothing more than stooges for the commie nihilists.”

“We’ll use words like ‘patriot’, ‘the flag’, ‘God’ and ‘defending our values’ a lot.  We’ll show them we’re the good guys, working for the principle of freedom on which this country was founded.”

_______________________________________________________

liberals [Once upon a time …]

“If we’re ever to reform society, we’ve got to start a body to counter all the right-wing claptrap spread by parts of the media, that healthy levels of government spending will pull the country down because we’re trying to create a ‘one world government’.  Let’s call the organisation ‘The Democracy Vibe’.”

“We’ve got to show the people that it’s big business and the political right that are pauperising them.”

_______________________________________________________

rentiers

[Today …]

“Phew! We thought that might be a close call; but it turns out that neither Status Quo Now! nor The Democracy Vibe really pose any real threat to us at all.  Neither have worked out how we’ve designed the tax system to grab for ourselves the 30% of the economy unearned incomes represents. They’re still puzzled about the means by which we, at less than 1% of the population, grow richer and richer.”

“While they and the political parties continue their misdiagnoses, we rentiers will keep running the show. So, let’s continue to encourage their delusions, boyos!”

JAPAN

JAPAN PLAYS RIP VAN WINKLE

Japan’s not one of the ‘PIIGS’, but it has its own problems.  In 1995 the Japanese economy, the second largest in the world to the US, had a GDP in excess of US$5 trillion. It didn’t achieve this figure again (in nominal terms) until last year, 2009.  In other words, the economy has deflated for 13 years.

We could learn a lot from Japan, because deflation is also our future.

For example, what might the USA learn from the Japanese experience?

  • That ‘quantitative easing’ (including zero, or near zero, interest rates) will fail to fend off the economic depression.
  • Feeding banks with cash, and the economy with stimuli, can’t replace productivity, sales and confidence.

Once the world’s powerhouse economy, Japan will this year be overtaken in the GDP stakes by an emergent China.  It has proven to be incredibly slow to pick up on the the fact that that Keynesian pump-priming ‘works’ only once the deflation has purged excessive debt out of the economy.  Rather than quickly writing off the unsustainable debt created by the banking system, Japan chose instead to cosset its banks: this should also offer us food for thought.

What brought about Japan’s lengthy slumber?  It was set in place by the gargantuan late-1980s  commercial real estate bubble which burst in the early-1990s.  Although the resemblance to the giant residential bubble that recently burst across the USA is remarkable, Barack Obama’s neo-classical economic boffins haven’t shown the wit to take these lessons on board: they are slowly but surely directing the USA into a form of hibernation within the same deep ruts that scoured the Japanese economy for so long.  Why repeat the somnambulance?  Maybe to avoid, at any cost, that most fundamental of actions that needs to be taken, namely, shifting the revenue base off production and onto land values? It’s a big step, but it works.

Back in 1987 I warned Japan about the gloomy prospect for its economy:-

Look Japan 1987

GREECE

Greek strikes and riots

AND SO IT BEGINS …

The ‘G’ in the ‘PIIGS’ acronym for troubled economies [i.e. Portugal, Italy, Ireland, Greece and Spain] has begun to experience real social unrest.  Greece only has more of the same to look forward to, because slashing government spending and seeking international financial support can be no replacement for the GFC’s real remedy – shifting the revenue base by abolishing taxes and instituting a land rental system.  Yet that is as far removed from the people of Greece as it is for any other country.

Most Greeks, including those rioting in the streets, know that their taxation system has long been in tatters due to rampant avoidance and evasion – that it is unfair and must be recast – but they have no idea what should replace it.

…. and those in the know, the less than 1% of wealthy Greeks who understand the tax system and use it to direct vast swathes of unearned GDP unto themselves … they aint saying nothing.

Tony O’Brien (1945 – 2002)

TonyTony O’Brien was born in Sydney, grew up in Melbourne and was drafted into the army, serving in the infantry in Vietnam for a year in 1966-7.  He met and married Dinah in London where he worked as a landscape gardener before settling back in Adelaide with their three children.

In the late 1990s Tony’s statistical flair began to illuminate the pages of PROGRESS, the journal of Prosper Australia, so I quickly inducted him into the Land Values Research Group as its research coordinator.  I found Tony’s ease with meaningful statistical data difficult to believe.  It was as though statistics had been his training.

He was a remarkable Australian, not only identifying with the underdog, but pointing to ways he and she might retain the fruits of their labours. Tony’s Land Monopoly and Income Polarisation in Australia 1950 to 2000 has been widely distributed since publication in October 2001.

Numerous e-mail exchanges between Tony and me revealed his flair with the English language and love of music.  Learning of my interest in folk music, Tony pointed me to folk songs old and new, including Leon Rosselson’s Diggers Song, the poignant lyrics of which are reproduced here:

The Diggers’ Song 

(The World Turned Upside Down)

© Leon Rosselson

  

In 1649, to Saint George’s Hill

A ragged band they called The Diggers came to show the people’s will.

They defied the landlords, they defied the law

They were the dispossessed reclaiming what was theirs.

We come in peace, they said, to dig and sow.

We come to work the land in common and to make the waste-land grow.

This earth divided, we will make whole

So it can be a common treasury for all.

 

The sin of property, we do disdain

No man has any right to buy and sell the earth for private gain

By theft and murder, they took the land

Now everywhere the walls spring up at their command.

They make the laws, to chain us well.

The clergy dazzle us with heaven or they damn us into hell.

We will not worship the god they serve

The god of greed who feeds the rich while poor men starve.

We work, we eat together, we need no swords.

We will not bow to the masters nor pay rent to the lords.

We are free men, though we are poor.

 

You diggers all stand up for glory, stand up now.

From the men of property

The orders came

They sent the hired men and troopers

To wipe out the Diggers claim.

Tear down their cottages

Destroy their corn.

They were dispersed

But still the vision lingers on.

 

You poor take courage

You rich take care

The earth was made a common treasury

For everyone to share

All things in common

All people one

We come in peace.

…  The order came to cut them down.

LAND DEALING AND THE COLLAPSE OF EMPIRES

History

LEARNING HISTORY’S FAILED ECONOMICS?

“The relevance of Moses’ economics to our own tax-burdened days is startling” proclaimed The Viking Press’ blurb for Francis Neilson’s book “The Eleventh Commandment” on its release in 1933.

However, during those early days of the Great Depression, policy makers made the gross error of failing to heed Neilson’s revelations about the destruction that had been visited upon empires that had “laid field to field”. Atrociously high prices for land occurred in Ancients Babylon, Rome and Greece, explained Neilson, and, once we understand the wrongful manner in which we hold real estate leads to the collapse of empires, we’ll also know how to break this repeating curse.

Although differing from Neilson’s profession and libertarian stance, UMKC’s distinguished professor of economics, Michael Hudson, presents as a modern-day counterpart of Francis Neilson.

Hudson’s heterodox financial analysis warned long and loud of the Great Recession, both from his intimate knowledge of Wall Street’s goings-on and also from intensive study of the economic verities exhibited by the collapse of empires since the times of Ancient Sumer.

Michael Hudson directs us to the same remedy as Francis Neilson: the public capture of land rent instead of taxation. He provides an additional insight, however: that land rent not captured for public revenue becomes available to banks as interest. Hence, banks’ massive profits before they brazenly seek public bailouts once the land price bubble has burst. They play both ends against the middle – the public.

Some quarters, not the least the economics profession, have been slow to pick up that orthodox economics has been thoroughly discredited by another real estate bubble. They fail to observe that the history of empires is simply a practical study of economics writ large. One of neoclassical economics paragons, once head of the US Federal Reserve Bank, Alan Greenspan, admitted his surprise and ignorance at the arrival of the Great Recession.

Greenspan could do no better than humbly study the timeless wisdom of Francis Neilson and Michael Hudson – even if Hudson was once commissioned to sack him!

IRELAND’S TRAVAILS

David McWilliams
David McWilliams

Those who’ve not caught up with David McWilliams’ insightful Irish financial journalism might remember his recent television series “Addicted to Money”.  The latest post on his website is a thoughtful deconstruction of the absolutely ludicrous hoops through which Ireland is jumping, presumably for the sake of ‘saving face’ and doing ‘what is expected of it’ [or rather, expected of its taxpayers and inhabitants by the international financial community for the next generation or so].

I’m much more impressed with McWilliams’ alternative solution.

NEW ZEALAND DEBATES A LAND TAX

South Island New Zealand

New Zealanders are debating the introduction of a land tax to counter their savage decline into the GFC.  Of course, it’s arguable that if they already had a significant land tax in place, their economy wouldn’t have experienced the financial collapse caused by their bout of speculation, and would have generated more real wealth instead.

All the old property lobby canards are already being trotted out:  What about the ‘poor widow’? [She needn’t pay the land tax and can put it as a charge on her estate.];  It’s a wealth tax! [Er, yes, it’s based upon the value of the land the community has ceded to your use, and those with more valuable land will pay more than those with less valuable land, or  none. This is unfair? ]

Go for it New Zealand!  The main question is will Australia and the US allow you to go for it – because the first country that raises itself out of the economic mire in this fashion will stand out like a beacon from all the others – and they’ll have to follow.  But Australia and the US both heavied you over your ‘No nuclear ships’ policy and you stood tall.  So, you’re more likely to introduce it than we are in Australia.  This could get very interesting!