TIME TO FIX ECONOMIC BLIGHT

Do you see the cat? Read on.

THE PROGRESSIVE ERA

Americans apparently consider the Progressive Era (1890s to 1920s) belongs to them. The period was driven by the reformist ideas of Henry George as taken up by public officials across the US political spectrum; amongst others, these included Hazen Pingree, Tom L Johnson, Brand Whitlock and Al Smith.

But all the political corruption and real estate speculation that led to the 1890s depression was also being attacked elsewhere. In 1909, UK Chancellor of the Exchequer Lloyd George introduced The People’s Budget which included a land tax. The House of Lords rejected it, of course, even though it was a budgetary measure. (This immediately saw PM Asquith introduce legislation sponsored by Winston Churchill and Lloyd George to ensure this could never occur again.) As a diversion, Their Lords began to beat the drums of war leading to WWI rather than have a land tax imposed upon them. (Don’t you hear these drums beating again? Obama v. Russia? Trump v. China?)

Meanwhile in Australia, the Fisher Labor Government introduced a federal land tax in 1910.  And Canberra was to be founded on a leasehold land system.

Few political parties anywhere were ashamed to admit to their Georgism in those days.

However, things began to change. The wealthiest 0.1% counter-attacked. They paid to have academic stooges hide the damage land prices and arbitrary taxes wreak upon workers and economies. Undeniably, it proved successful over the years. The land-taxing ideas of Henry George were almost written out of history, consigned to local government, and ridiculed: “A single tax? You’ve got to be joking!” (Forget the fact that all taxes come out of rent, anyway. Just don’t put them there in the first instance.)

THE RETROGRESSION

So in 1952, the economically-illiterate Menzies Liberal government, which had the great fortune to govern during the post-WWII upswing of the Kondratieff Wave, abolished Australia’s federal land tax.  Gone.

In a 33 minute parliamentary speech attacking Menzies’ decision on 24 February 1953, the leader of the Australian Labor Party, Arthur Calwell, said: “We of the Australian Labour Party have always believed that the land is the patrimony of the people, and that nobody has a complete and absolute title to it …. The land belongs to the people, and its use must be safeguarded and protected at all times …. We have always believed in the land tax, and when happy days come again we shall restore the measure, imposing the tax to the statute book of this country.

The indefatigable Cyril Wyndham believed otherwise. As new national secretary of the party from October 1963, he was tasked with helping organise Labor get back into government after years in the wilderness. He thought an Australian public keenly gravitating to home ownership in the buoyant 1960s under Menzies would no longer brook the party’s land tax plank. So he wrote it out of the ALP’s 1964 platform altogether. It was gone without a vote. It would be no good putting it to a party vote because Henry Georgists like Clyde Cameron would stir up trouble.

MAJOR PARTIES IN LOCKSTEP

And thus did the purportedly progressive Labor Party, like the conservative Liberal Party, become economically rudderless. They must now simply allow the speculative land price bubbles of 1973, 1981, 1988-89 wash over and drown Australians in the recessions of 1974-75, 1982-83, 1991—not to mention the present greatest of all bubbles—because neoclassical economics dictates that we must just shut up about speculative land bubbles and the privatisation of publicly-generated land rent.  (Be good little Noddies!)

In fact, whereas at the outset of the 1990s Paul Keating spoke of “the recession we had to have“, Labor now considers it must keep property bubbles inflated rather than have them burst on its watch. In the ironically-titled book The Good Fight, Wayne Swan demonstrates how, as Australian Treasurer, he sacrificed $50 billion of taxpayers’ money to the bubble.

KEATING

Since Christmas, I’ve started to read Kerry O’Brien’s book ‘KEATING‘ and, although I’m only up to page 143 of 794 pages, I’m prepared to bet that neither Kerry nor Paul Keating will touch upon land price bubbles being responsible for recessions. The ABC series “Labour in Power” forgot to mention that Gough Whitlam, as much as anything else, was a victim of the great 1973 Australian land boom. You’re not allowed to mention it, you see? Certainly, you may speak about the OPEC crisis–or this or that Prime Minister’s recession–but any ‘good’ economist mustn’t mention the role of skyrocketing land prices in creating impossible household debt. (“The Big Short” broke this rule.)

And you clearly like to see yourself as a good economist, Paul Keating. Although I came to thoroughly enjoy your punishing invective as Treasurer and Prime Minister, I’m sorry you didn’t get to ‘see the cat‘. But then maybe you did, Paul?  You’re an incredibly bright bloke, and I see that you recognise the Kondratieff Wave – so perhaps you do understand the impeccable case for a substitutive all-in land tax, but you backslid on it, to conform with the economic hegemony?

Right now, only an idiot would ridicule abolishing taxes on labour and capital.

It’s time for Labor to sing The Land Song again!  Sing it out proudly, folks!

 

 

 

NOT CAPTURING THE RENT HAS COST US DEARLY

“A financial algorithm for untangling this tragedy exists. It is the formula that made civilization possible. It is now wilfully ostracised by academia.”

“For five millennia, nation-state governance was based on the capacity to protect a territory, collect the rent and provide the population with the services that secured their allegiance.”

“The new Prime Minister was sincere in her intentions, but she will be defeated by a form of governance that rests on a programmed-to-fail model of High Finance.”

CHRISTMAS REFLECTIONS ON A BOOK  

The times they are a changing, but what’s the genesis of the turmoil that now confronts us at every turn? Some might even call it an economic depression. Book after book offers fantastic intelligence on the subject, but virtually all fail to comprehend, at bottom, the trouble is simply a variation on a longstanding theme of which we had biblical warning.  Empires collapsed and revolutions occurred when access to land was denied the hoi polloi and it became only the preserve of the wealthy.

I’ve derived intriguing insights over the years from Englishman Sir William Petty who fathered economics with his understanding of economic rent and the national accounts, long before Adam Smith and David Ricardo appeared on the scene; from Russian economist Nikolai Kondratieff and his extensive empirical studies of ‘long waves’; and, from the incredible wisdom of the American social philosopher/economist Henry George.

Kondratieff demonstrated a series of long waves in prices in France, Germany, the UK and the USA between the two economic depressions from 1789 to the third he saw was about to head into a trough from the time he wrote in 1922. Each featured an economically buoyant first half cycle followed by a slowly-deflating second half. On the other hand, using a simple distributional formula, Henry George showed land prices and taxation were the culprits in fashioning recessions and “industrial depressions”.

Georgist experts have gathered together for a new book edited by Fred Harrison to honour the indefatigable Mason Gaffney, and to offer suggestions for managing the incredible array of challenges we see about us today. For what it’s worth from a Kondratieff fan, I’d say the social fracture has been  relentlessly widening since the peak of the fourth K-Wave in 1972 whilst, like the slowly-boiled idiomatic frog, we were diverted by political personalities and mainstream media fripperies; although I do consider the social fabric has been torn for the same fundamental reasons as evinced by the knowledgeable contributors to Rent Unmasked:-

The sophisticated solution is to transfer taxes off earned incomes and trade and raise revenue from rents. One immediate consequence is the removal of the financial incentives that contribute directly to the destruction of nature. A nuanced system of public finance encourages behaviour that includes: leaving fossil fuels in the ground, reducing farming on marginal habitats, conserving fresh water and allowing nature to bury carbon in the ground.

–        Peter Smith, Rent Unmasked How to Save the Global Economy and Build a Sustainable Future, Essays in Honour of Mason Gaffney, edited by Fred Harrison, Shepheard-Walwyn (Publishers) Ltd., London 2016, Cries of the Wild, p.243

Disappointment with the transformation in Russia and China is based on outcomes ranging from the eruption of the billionaire oligarch class to the extensive poverty in both countries, and the undemocratic power exercised by authoritarian governments. All the socially significant symptoms may be traced back to the misappropriation of socially-created rents. That record provides the guidelines for the policy reforms that would empower Western democracies to fulfil the goals that are formalised in their social contracts.

–        Fred Harrison, Op. Cit., Beyond Socialism: Science and the Culture of Society, p.17

The greatest heterodox contribution of Gaffney was his delving into the history of economic thought to uncover the dark side of the history of neoclassical economics. The Corruption of Economics revealed the deliberate and successful endeavour by landed interests in the USA to deflect the land-tax movement sparked by Henry George. The best way to stop the movement to tax land value was to change economics itself, so that LVT would lack an academic imprimatur. …

…. Piketty’s empirical claims have been rebutted by, among others, Matthew Roglie (2015), who finds that the increase in financial wealth has been in land value, especially in housing, as ‘the non-housing capital share shows no clear trend’ (p.17). He adds, ‘since the higher cost of housing is mainly due to higher residential land values, rather than elevated construction costs for the structures themselves, it has made a particularly large contribution to net capital income.’ (p.18)

–        Fred E Foldvary, Op. Cit., Shifting the Landscape: Mason Gaffney as Ultimate Heterodox, pp.89, 99.

Citizens of the modern polity are to be forgiven if they seem perplexed by the decisions and financial guidance routinely served up by their governments and institutions. ….

…. Currency devaluation is also another way to financially repress most of the population. Today, many of the world’s free floating fiat currencies are in a downward death spiral. Taxation reduces the base upon which it is levied. Economists call this deadweight loss. When governments tax labour income, or business net income, or individual consumption, the less you will have of these things. What less takes many forms, including distorted business decisions, inefficient allocation of resources, and the lawlessness of underground economies.

–        Francis K Peddle, Op. Cit., Accounting for the Common Good, pp. 105-6

The thirteen contributors are to be congratulated on excellent contributions to the economic debate. One can only hope they will help blow the whistle on an economics concocted by the 0.1% to keep people from realising that real estate bubbles reflect inadequate capture of publicly-generated land rent; and that, as these bubbles grow larger and larger as they burst into each recession, they will eventually form a super bubble which must burst into an economic depression such as the world is now facing.

BIG QUESTIONS BEING IGNORED

We can no longer deny the critical sign of impending social fracture. Inequality has grown rapidly – and continues to grow apace. Over the millennia this ever-widening gap between rich and poor has been the seed that sprouted revolution and the collapse of empires.

For too long modern economists looking at GDP growth wrongly claimed it filtered down to the middle class and the poor, but Thomas Piketty‘s empirical studies in his best-seller “Capital in the Twenty-First Century” certainly show that it hasn’t.

So maybe we need workers to rise up in revolt against the 0.1% , in order to bring about socialism as advocated by Karl Marx?

Not at all necessary, said Henry George whose ideas Marx had called ‘capitalism’s last ditch’: you only need to socialise the rent of land which, although it is publicly-generated, is being improperly privatised. George claimed this action had potential to leave wages and capital completely untaxed, but he thought cooperation to this effect would prove difficult, because those who had the privilege of currently capturing publicly-created economic rent would not cede it readily.

These days we grant the rent-seeking privilege in no small part to banks, who not only create money as they write mortgages, but also generate ‘super-profits’ based upon escalating land prices, the rent of which rightly belongs to the community as a whole, rather than to banks and individuals.

Emergent economic questions are being ignored. Can we continue with the status quo without revolution?  What will happen to those counties which have proceeded down the same extraordinary debt path as Greece? Does the fiscal measure of public capture of land rent indeed represent economic stability and much-needed social cohesion?

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BREAKING!  Bryan Kavanagh today stripped Australia of its AAA credit rating as a result of its now impossible level of private debt. “Debt that cannot be repaid will not be repaid”, Mr Kavanagh said, reduced the rating to BBB-.

🙂