WHERE ARE THE QUANTS?

Why don’t quants assess unearned incomes in the economy? You know, extractive economic rents – ‘super profits’?

Here’s a start in the chart below. These are land rents and capital gains – in blue and green – only. Viz, they don’t include electromagnetic spectra rents.

And, of course, taxes on productivity are extractive, too. Not only that, but they inject deadweight losses of something like twice the amount levied.

Disappearing aggregate demand/wages and earned profits (blue) is the main reason world economies are in a mess.

C’mon, quants: make a name for yourselves!

4 THINGS NEED FIXING

(1) Elected politicians currently accommodate their party’s (or lobbyist) interests, instead of the interests of the people they are purported to represent. Using Proportional Representation to help elect people supporting other than binary party viewpoints will assist in fixing the current corruption of representative democracy.

(2) “Where is the money to come from?” Representative government is not like a household. It can spend national money on a universal basic income, infrastructure, and other necessary projects, without borrowing money. Such government expenditure would assist demand and, thereby, the socio-economic fabric.

(3) “We need to set up a fund.”  No, we don’t. We don’t need the Australian Government Future Fund, nor superannuation funds out of which retired people may be paid. We simply pay them their pensions, without building up funds which tend to lose vast sums at each recession, after the bursting of each bank-inflated land bubble. Nor is taxation a fund, a pot of money, from which our elected representatives may spend, despite current political mythology. Rather, we use taxation to withdraw money from the system, in order to maintain the currency’s purchasing power.

(4) Finally, and most importantly, we don’t need to tax wages and profits. These taxes on productivity carry enormous deadweight losses and ought to be abolished. However, we do need to tax away ‘ground’ rents (including mining and electromagnetic spectra rents), as advised by Adam Smith, if we’re to abolish monopolies. Capturing these economic rents instead of taxes will free up the economy and allow wages and profits to grow consistently, instead of granting super-profits to banks and other extractive rent seekers, at the expense of all others.

Although we do need these four surgeries to remedy the slough into which we’ve become entrapped, we seem to prefer applying band-aids to our ever-increasing number of socio-economic wounds.

Let’s hope that changes!

SPECULATIVE MADNESS PRODUCED HITLER

We’ve been absolutely inundated with TV accounts of Hitler and WWII. But I’ll bet you’ve never once heard the reasons for Hitler’s rise?

Did you know, for example:

  1. That following the introduction of the rentenmark in 1923, the German ‘recovery’ from hyperinflation immediately moved into corruption and speculative land price bubbles?
  2. In 6 years, land prices rose by 500% in Hamburg, and between 700% and 100% in Berlin.
  3. It was “good business” to be on terms with the Berlin City Council regarding proposed new train lines. Corruption ruled.
  4. In fact, if you were in the know with Berlin’s traffic dictator, he’d let slip details about Alexander Platz being extended and to have a giant underground station built beneath it.
  5. It was complete speculative madness, and land speculators could double or treble their fortunes overnight.
  6. This came at a vast price for ordinary Germans who, seeing and suffering from all the political corruption, sought relief from a saviour.

Guess who, mateys?

When do we get to hear this story? It’s all here: written by a bloke who witnessed it and was jailed by the Nazis.

Sort of reflects what’s been happening here recently, doesn’t it?

But world political systems aren’t running awry like that today ………….. er, are they?

IT AIN’T A BINARY WORLD. THERE’s a THIRD WAY.

At present, the western capitalist world divides into either a left/labour/social democratic stream, or the right/capital/libertarian stream, depending on the emphasis the followers of each place on the workings of the economic system.

What if there’s a more nuanced approach, blending the best ideas of both ‘labour’ and ‘capital’ adherents, by acknowledging the damaging role of the income that flows to land ‘ownership’?

When neoclassical economics came to confound land and capital, it ignored that income flowing to land is extractive in nature and comes at great cost to both labour and capital. What if land rent, being unearned were to be taxed away, instead of taxing productivity?

The world’s heavily indebted rent-seeking economies indicate it may be time to revisit the ideas of classical economists, Adam Smith, David Ricardo, JS Mill and Henry George (amongst others). They understood the need for public capture of ground rent (which would include electromagnetic spectrum rents these days), for capitalism to work properly, where each of labour and capital would receive their earned reward.

Just a thought.