In any comparative discussion between the USA and China we’re inevitably directed to the USA’s clearly greater freedoms of the individual, its superior wealth and human rights.
But what’s happening right now, and are there any similarities between the two countries?
Similarities?! ……… Surely, you jest!
Over the years, America has obviously achieved enormous economic growth and prosperity for its people under a system of ‘democratic capitalism’.
A question has emerged, however: is the USA’s middle class retrogressing–as forewarned by Taylor Caldwell–and has some $11 trillion of mountainous household debt subsumed the US middle class, absorbing it in within the poor and lower class?
Since 2008, The Fed and federal government policy have continued to keep residential prices inflated, instead of allowing real estate markets to decline, or increase naturally, as with any other free market. Supporting banks and real estate prices at any cost has turned the US financial system into a free market caricature, and it has come at great cost to Americans.
Meanwhile, whilst the top 1% in the US uses this failed financial model to expropriate approximately 38.6% of the country’s wealth, its upper echelons–probably about 0.01% of the population–has developed itself into a super-wealthy elite caste within the 1%. In this combination, it’s not difficult to explain the retrogression of the middle class and poor: they’ve not received their fair share of the distribution of US produced wealth because it has been purloined by government-aided morphing of the monetary system into “Rent-Seekers Incorporated”.
The left and right of USA politics has accordingly bifurcated to a weird extent as the phenomenon of increased concentration of wealth plays out in a manner seeming to have parallels to pre-WWII Germany.
In recent decades, the People’s Republic of China has made astounding ground in improving the economic lot of its citizenry. More of the population has been drawn into the burgeoning cities from the countryside. Poverty remains, but a vast number of China’s 1.38 billion people are undoubtedly now far better off under the intensive economic expansion program. Paradoxically, the country has employed the instrument of ‘state capitalism’ as the method of generating incredible wealth (and debt) within a communist ‘command’ economy.
In the process, there’s no doubt that Chinese involved in real estate development have received far in excess of fair reward for effort as they inflated China’s land prices to incredible heights. With the number of billionaires in China rapidly approaching the number in the USA, some people have done particularly well for themselves!
The common factor
As growth in the USA slows to a crawl, and China’s phenomenal economic growth rate halves, rent-seeking elites have become the distinctive trait of both countries. ‘Free enterprise’? ‘Communism’? Bah, humbug!
With the history of property bubbles as a guide, if rent-seeking isn’t taxed out of existence–most unlikely in either the USA or China–it is this rigged government financial mechanism that promises to be the socio-economic undoing of both countries.
It would be nice to be more optimistic, but reason prevails.
What’s tax, dad?
It’s what they take out of my pay, son. They say it’s to pay for things our top brass, the state, spends on, but it’s not. It’s to stop price rise.
What do you mean, dad? What sort of price rise?
They’ve got to take some dough out of my pay so that Oz dough keeps its worth, son.
Why don’t they leave you what you earn, and tax the land you have, ‘cos no one earned the worth of land, did they?
Right on, son! Good one! ‘Cos land price is what makes our dough lose its worth in the first place. If we were to take the land rent, and not tax those who work, that would fix up a lot of things. Land price would go to nil – and the cost of dough could be nil, too!
Gee! Don’t folks get that, dad?
No they don’t – at least, not most folk. And of the few who do see it – the point one per cent with all the dough, they don’t like it and won’t have it.
Is that why we have a lot of strife with things – such as those who rule us?
Yes it is, son.
That’s too bad, dad. What can be done?
We have to hope folks will learn, I guess – but it’s hard.
But that seems so plain. Why’s it so hard?
Though it’s plain, it’s odd, but most folks don’t seem to know of it. And change is hard these days.
Wow, folks do need to learn of this, dad! It should be taught to us in school!
Yes, that would help, son.
Those who argue MMT per se is inflationary would do well to acquaint themselves with the subject*. The idea and practice isn’t particularly modern or new; Abraham Lincoln at least argued part of its case:
“The government should create, issue and circulate all the currency and credits needed to satisfy the spending power of the government and the buying power of consumers. By adoption of these principles, the taxpayers will be saved immense sums of interest. Money will cease to be master and become the servant of humanity.“
…. and used it during the American Civil War.
Henry George approved the same principle, despite MMT advocate Bill Mitchell believing that Henry George simply favoured land value ‘taxation’ (actually rent) as an efficient revenue-raiser, and seeing LVT as being an “obsession’ which denies the role “financial capital plays in destabilising economic systems”.
Sorry, this just isn’t so, Bill. Seems you, too, may have been advised not to read Progress and Poverty because it’s rubbish? Like Adam Smith, David Ricardo, JS Mill and Tom Paine, Henry George understood that ‘ground rent’ must be taxed away in order to deliver their undiminished rightful rewards to labour and capital – and to bring an end to rent-seeking monopolies.
Viz, P – R = W + I
At least some MMT-ers* appear to appreciate that the full capture of land rent could, in fact, bring land prices and monetary inflation to zero, just as surely as MMT considers the rightful interest rate is also zero.
Zero interest: zero land price?
Food for thought – for everyone.
MMT and LVT anyone?
…. you’re very close, guys! Have a read of Progress & Poverty!