You’d be inclined to believe that keeping enough people unemployed to prevent inflation from rising has been pretty successful. The ‘non-accelerating inflation rate of unemployment’ (NAIRU) is now understood to be the natural rate of unemployment.
It used to bother us whenever unemployment grew beyond 1%, but those days disappeared once policy-making economists decided we needed a decent pool of unemployed people, in order to stop wage inflation, and possibly to keep workers from getting a delusion of grandeur that it was they, not the 0.1% or banks, who are the producers of wealth.
I’d argue, however, that something other than the natural rate of unemployment is afoot – and that the concept of NAIRU arose to explain and justify post-hoc the phenomenon of declining average real wages that has persisted from the early 1970s.
Like the 1971-73 worldwide bubble in land prices, so ably documented in a special supplement in TIME magazine of 1 October 1973. This gargantuan real estate hike is second only in extent to the current bubble which has floored world economies (which similar fate still hovers over China, Canada and Australia like the sword of Damocles). We hear a lot about the 1970s OPEC crisis, but zero about that 1971-73 real estate bubble.
What generates these bubbles? I put the case to the Henry Tax Review that is was a fractured set of tax policies which fines wage earners and earned company profits (as distinct from unearned bank and mining super-profits) that foster rent-seeking in our land and natural resources.
I was hoping that workers, the union movement, the Labor Party—or even the Liberal Party—might have picked up on the following chart I supplied in my submissions. It’s based upon a paper by Dr Terry Dwyer, formerly a tax expert within federal Treasury, who assessed Australia’s economic rent since 1911. It shows workers and businesses to be fighting over what’s left of incredibly declining net incomes after taxation and rent-seeking. But although the Henry Review may have listened (given its recommendations for an all-in land tax), neither of the main parties nor the union movement appears have picked up on this critical point. [Huh? A land tax?]
One critic noted that my technique has left capital gains in ‘net earned incomes of labour and capital’. That’s so, but it actually worsens the case that incomes, net of taxation and economic rent, are continuing to disappear towards zero.
Instead of “It’s the economy, stupid!”, may I put the lonely proposition: “It’s our rent-seeking, stupid!”?
Hey, political class! Are you listening? Voters are telling you that they matter, so you’d better start distancing yourselves from the 0.1%.
Every now and then I do a summary of what this site’s on about:-
Neoclassical capitalism has hit an impassible hurdle because we fail to discriminate between natural resources and man-made capital, as once the classical economists did. The privatisation of the rent of our natural resources has increased over the last forty years and gradually crippled once productive economies, grinding them to a halt. (You’ve not noticed?)
Rather logically, people will follow the signals delivered to them by their tax system. We stolidly reward those who capture our publicly-generated economic rents (more simply, unearned incomes or ‘super profits’), whilst damaging taxation fines earned wages and profits.
Very few economists are prepared to call out this irrational situation, presumably because they’re ignorant of what happens to our economic rents (some 25% of the economy, much of which is flowing to the 0.1%), or else because they are employed by bodies whose profits rely on this rent-seeking in unearned income.
The greatest rent-seeking is currently conducted by the banking industry. In the absence of sufficient land-based revenues to keep a lid on land prices, it is to banks’ advantage to escalate them, thereby their mortgages, in order to maximize profits. This is rent-seeking on a grand scale, putting people into unnecessarily high levels of debt, at a time when the growth of average wages is declining – thereby applying a brake on the real economy.
Banks’ allowance for crisis management during land price bubbles is incredibly inadequate. In this, they are encouraged both by their profits and not acknowledging a bubble until after it has burst. Risk management has gone out the window. They are fortified that when the bubble does burst they may rely on bailouts, because they are ‘too big to fail’.
In modern financial analysis, the workings of land prices, taxation and banking, the three greatest threats to world economic survival, remain untransparent.
We need to focus: it’s all about from where we derive our revenues.