A NEW CONTINENT IN ECONOMICS

7 continentsWhen I first discovered the Georgist School of economics, I probably experienced much the same feeling European navigators had when they “discovered” the Americas and Australia.

Here was a new continent, unknown to western civilisation: tangible and true – a new world of opportunity.

Trouble is, where Europeans chose to work indefatigably to develop those opportunities in the Americas and Australia (and we can’t deny this was often done with a rapaciousness that came at a horrible cost to the native populations),  the Georgist school has continued to be kept a secret from the world.  Why?

Whilst Chicagoan, Keynesian and Austrian economists cling to the restrictive neo-classical limits of their shorelines, the vast new territory that is Georgism remains pristine, untouched – even though it offers incredible opportunities to resolve forever many of the problems that currently beset the world.

Perhaps it’s time for the world to discover that the 50% of the economy that is economic rent – not the miserable one to two per cent guessed at in Jan Pen’s Income distribution: facts, theories and policies (1971) – is owed back equally to everybody because they create it?

Once known and really understood, the implications for the freedom of humanity will prove more important than the discovery of new continents.

­­­­­_____________________________________

URGENT NEED …

taxes… ABOLISH TAXES AND PAY THE RENT

I hyperlinked my last post to Taylor Caldwell’s attack on income taxes. It echoed Thomas Jefferson’s warnings that, by having citizens of America work for government, income tax would enslave them.

In view of these incredibly strong words, why do we simply accept the levying of income taxes today?

The Progressive Income Tax equates to slavery? Certainly. Enormous bureaucracies are engaged looking into our private business affairs. Big Brother has been with us for quite some time.

And, if we acknowledge the current inability of nations such as Portugal, Ireland, Italy, Greece and Spain to meet their international liabilities, it may indeed be seen that the peoples of these nations have been made slaves to their creditors; they’ve been subordinated to debt and bank bailouts. People matter only insofar as they will underwrite these debts with their incomes for two or three generations.

And it’s not to draw too long a bow to add the USA to the top of the sovereign risk list. Britain might also be thrown into the mix.

However, these countries will prove only precursors of every country on the face of the earth, because we’re having the economic depression of all depressions if you are able to pierce through the veil of media denial, folks.

How then did we ever come to accept income taxes?

Income tax was introduced at the federal government level in the USA as a WWI measure, and in Australia during WWII. Governments knew that war emergencies were the only manner in which people would ever accept the introduction of an income tax nationally at the time.

But the oligarchy’s job was done and we succumbed to it by not insisting income tax be revoked after the wars. We thereby made ourselves slaves in fact.

As much as I don’t care for the ideas of the Tea Party movement, it is undoubtedly correct to identify income tax as problematic. Unfortunately, the Tea Party doesn’t understand how economies work, and in this it is like just about everybody else.

If economists and others came to understand the economic distributional relationships between the returns to natural resources, labour and capital, P = R + W + I, they’ll see there’s no place for taxation, that ALL taxes on earned incomes enslave citizens, people who comprise the backbone of economies, and that they may be liberated only by the public capture of publicly-generated land and resource rents.

Of course, the oligarchy wrongly believes it’s in its interests to keep them ignorant of these facts and under the serfdom of depression-inducing taxation. It’s not, because even the oligarchs are going to suffer big time in this one.

____________________________________________________________________

OTHER TRAGEDIES: DROUGHTS AND FLOODING RAIN

Few countries are free from devastating natural phenomena of one sort or another, whether it be bushfire, cyclone, tornado, earthquake, volcano, flood or landslip.  

In February 2009, 173 Victorians were tragically killed in bushfires. Twenty is unlikely to be the final number of those drowned in the floods of south-eastern Queensland last week. This week lesser, but nonetheless devastating, floods have now been visited upon people in many parts of rural Victoria.

Dorothea Mackellar’s touching “My Country”, of which most of us know smatterings, told years ago of the drought and flooding rain that do not lessen her love (nor that of most Australians I would think), for the beauty and terror of a country that she says is no England. I can’t reproduce the poem here because agents for the estate of Dorothea McKellar have extended the copyright and won’t allow me to do so, but why not Google it if you want to read it in its entirety?

Meanwhile, those Australians remaining bereft as a result of fire, flood and drought still require our assistance. Our perverse system of revenue will ensure, however, that it proves to be hopelessly inadequate.  🙁

ARE WE STUPID, OR WHAT?

silly… ANSWER FOR YOURSELF

Bloomberg tells us US Fed officials saw the housing bubble in 2005 but didn’t alter policy. We are told Greenspan did increase interest rates but that he didn’t warn the US strongly enough.

OK, so what’s new? What could he have done without scaring the horses? Even if he’d increased interest rates 5% in one fell swoop, it wouldn’t have done a thing.

There’s only one way to curtail a property bubble, and Greenspan and his crew know it, but he wouldn’t recommend the government employ it to put an end to repetitive real estate bubbles because it cries “Enough!” to the great rort the banking system perpetrates upon us all.

Banks capture the rent of land, one-third of the economy, by way of mortgage repayments on the land-inflated price of real estate.

The scam can only be put paid to by governments capturing land and natural resource rent for public purposes instead of taxation.

If we haven’t the will for that, we can write all the stories we like about Greenspan and other distracting individuals, but we must ultimately blame ourselves for being played for idiots in the creation of economic recession or depression – and then coming back for more.

We lack not only the intestinal fortitude to do the right thing, preferring to be taxed on our comings and goings, but also have a remarkable ability to deny that this is the only course of action we may take to stop being ripped off by the already super-wealthy.

.

CHINA RULES

Great WallTHE NEW PAX SINICA

China isn’t going to come out of the first depression of the twenty-first century unharmed, but it is clearly going to emerge as the new economic leader.

With history as a guide, the transition to the new Chinese peace won’t be without conflict.

What does China’s emergence say about capitalism versus communism?

Not much; remember, European communism collapsed in 1989.

The Pax Americana downfall, like Pax Britannica before it, rather suggests Shakespeare’s  Lord Polonius had it just about right in Hamlet: “Neither a borrower nor a lender be”.  More particularly, maybe a borrower of the impossible trillions of dollars the United States of America owes the world? She couldn’t even pay the interest on her debt were she to garnishee the wages of every US citizen. Here’s a Wikileak secret: the US has been an example of government in complete disarray. (Keep that to yourself, because the media has been doing so.)

Don’t hold your breath if you are Tea Party-inclined, or a ‘money as debt’ person. If government, not private banks, were to strictly control the issue of money, we’d be no better off if we continue to provide credit against the so-called ‘security’ of land price.  

To the collapse of each civilisation before ours, to every economic depression, we may accurately assign the lending of money against ephemeral land price, i.e. failure to capture its rent for necessary government, as its cause. 

You’d think we’d learn, but Jews and Christians alike are slow learners. History’s millennia demonstrate Moses wasn’t just whistling Dixie with “The land shall not be sold forever, for the land is mine, and you are but strangers and sojourners with me.” (Leviticus 25:23)

Now the baton is being passed to China, I wonder whether she’ll do any better in this regard.

She’s had a couple of great people point her in this direction:-

Once, natural resources were fully used for the benefit of all, and not appropriated for selfish ends. This was the age of the Great Commonwealth of peace and prosperity.” – Confucius (551-479 BC)

The land tax as the only means of supporting the government is an infinitely just, reasonable, and equitably-distributed tax, and on it we will found our new system.” – Dr. Sun Yat-Sen (1866-1925)

.

THE ISSUE IS LAND PRICE, NOT EASY CREDIT

 

chimera

I regularly make the point here that we’re having this financial collapse (which will prove to be a depression) because the study of economics isolates itself from the real estate market – and never the twain shall meet.

I argue that many people in real estate, like me, have a better idea of what’s happening in the economy because we’re happy to integrate real estate with the economy. [Here’s another real estate person who can tell you of the future of retailing, depression or no depression.]

Oh sure, looking over their shoulder, some economists now refer to the involvement of real estate in the collapse but, not understanding its deeper role, they will only provide a most superficial analysis.  Otherwise, Austrian economists, and others, wouldn’t reduce the reason for the downturn to one of “easy credit” as they do.

It’s like this. Banks and financial institutions provide credit to customers believed to be ‘creditworthy’. Virtually all creditworthy clients offer a mortgage over real estate assets.

The nub of the difference on this issue is that economists and bank managers don’t understand that the land price component of a mortgage is more than nebulous; it’s a chimera. Where they believe land price to be a thing of substance, like a dwelling, many real estate valuers and agents know that fire-breathing dragons will disappear in the full light of day.

Once land price is seen for what it is, that is, the wanton private capitalisation of the public’s uncollected rent, it becomes apparent that the price of land does not reflect conditions of supply and demand as argued mindlessly by some economists. 

So, no, the problem isn’t one of easy credit and low interest rates: it is that credit can be provided against land price, an ‘asset’ that can disappear overnight.

So, rather than easy or excessive credit, the issue still remaining completely unaddressed is one of risk management, namely, why do banks keep lending against a ‘value’ – rather a price – that will disappear, like a chimera?

As land price is too volatile, why not capture its rent, in order both to reduce and stabilise land prices and abolish damaging taxes?

This problem’s not going to go away until we fix it.

HOW LABOR LOST ITS WAY

Amongst the letters in response to Shaun Carney’s article “Labor crisis of faith” in THE AGE on New Year’s Day are these two:-

January 3, 2011

Where are all the true believers?

SHAUN Carney – “Labor crisis of faith” (Opinion, 1/1)  is spot on. A primary reason for the downturn in support is that Labor too readily compromises its values and core constituency for short-term electoral gain. Few people have any idea what it really stands for.

Prime ministers Ben Chifley, John Curtin and Gough Whitlam were strident champions of social justice and the advancement of workers and their rights, and they had strong community connections and respect for the Aussie battler. The ALP of yesteryear valued its grassroots membership and the views of unions. It would not have permitted self-interested, right-wing factional warlords to wrest control.

Old Labor was a party of true believers who kept the light on the hill shining bright and clear. This light has been substantially dimmed by the current mealy-mouthed leadership, many of whom seem hell bent on appeasing big business and their financial interests at the expense of the little person. This can be seen in Labor’s policies regarding planning and industrial relations where the average person is made to feel as though the government is at war with them. There is no point to the ALP unless it changes its name to the Alternative Liberal Party.

Rex Solly, Bolwarra

 

A soulless party

THE ALP is in a precarious situation because it no longer stands for anything except clinging to office. Driven by focus groups and with MPs largely drawn from recycled union apparatchiks or ministerial advisers such as ”Captain America” Mark Arbib, who spends an inordinate amount of time at the United States embassy, the party has no soul.

The weekly focus group reports often result in sudden policy U-turns and any talk of social justice provokes looks of genuine incredulity. The Greens have a purpose and policies, and will continue to attract disillusioned Labor voters as the party follows the Titanic to the bottom.

Thos Puckett, Ashgrove, Qld

 

I’m not so sure the Labor Party used to be as responsive to its membership as Rex Solly suggests, but both letter writers and Shaun Carney make several good points.

In its cleverness to be modern and ‘with it’, Labor has become so responsive to focus groups that it now stands for everything and for nothing. 

 

The Hon. Clyde R Cameron, AO, Minister for Labour (1972-1975)
The Hon. Clyde R Cameron, AO, Minister for Labour (1972-1975)

WHERE THINGS STARTED TO GO WRONG

The rot really began to set in when federal secretary, Cyril Wyndham, simply wrote the longstanding plank of the Labor Party to introduce a tax “on the unimproved value of the land” out of the Labor Party’s platform in 1964. It was never voted out.  (Maybe some Australians mightn’t like it?)

A speech “How Labor Lost Its Way” given by Clyde Cameron four years after his retirement from the national parliament, on the occasion of the opening of the South Australian headquarters of the Henry George League on 13 May 1984, documents this to have been the point from which Labor began to backslide on matters of social and economic principle.  

Cameron records Labor Party leader Arthur Calwell’s parliamentary reaction to the Menzies Government’s Bill to abolish the federal land tax in the early 1950s: “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.

Clyde Cameron’s “How Labor Lost Its Way” concluded: “This speech may even cause present day Labor leaders to once again take the road to social justice and fiscal decency.”

It didn’t.  They haven’t. 

Although Ken Henry’s tax review panel has also recommended both parties take the same road to social justice and fiscal decency, they refuse to do so, having a preference for the road that, privatising economic rent, has always led to the collapse of civilisations. 

Such is the wit of our parliamentary ‘representatives’.

.

PREVENTION IS BETTER THAN CURE

The Ambulance Down in the Valley

’Twas a dangerous cliff, they freely confessed,
Though to walk near its crest was so pleasant,
But over its terrible edge there had slipped

… A duke and full many a peasant. 

 So the people said something would have to be done,
But their projects did not at all tally.
Some said, “Put a fence around the edge of the cliff”,
Some, “An ambulance down in the valley”.

But the cry for the ambulance carried the day,
For it spread through the neighbouring city,
A fence may be useful or not, it is true,
But each heart became moved with pity           

For those who slipped over that dangerous cliff.
And the dwellers on highway and alley
Gave pounds and gave pence not to put up a fence,
But an ambulance down in the valley.

Then an old sage remarked, “It’s a marvel to me
That people give far more attention
To repairing the results than to stopping the cause,
  When they’d much better aim at prevention.

Let us stop at its source all this hurt”, cried he,
“Come, neighbours and friends, let us rally.
If the cliff we will fence, we might almost dispense
With the ambulance down in the valley”.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

What a welter of useless government regulation we’ve put into place to ensure that banks and financiers behave responsibly!  And, have they?

Yet the pundits are all sitting around now  devising new regulations to ensure that a global financial collapse can never again happen: banks must only be able to lend so much, based on X and Y; borrowers should only be able to spend Z times their incomes on a mortgage, and so on, ad infinitum

These regulations are destined to fail. They are just another part of the vast mountain of corrupt, ineffectual government legislation that intrudes remorselessly into our daily lives – merely ‘ambulances down in the valley’.

The most remarkable of such intrusions are the millions of words of requirements covered by legislation to tax our private and corporate incomes.  (Isn’t our legal drafting a marvel to behold?)

Stick with me here; I’m about to build a fence atop the cliff.

To the extent that publicly-generated land rent is permitted to be privatised instead of captured for revenue, privatised land rent becomes capitalised into land prices.

What if land price is an aberration?  Wouldn’t it cease to exist if governments were to capture the public surplus that economists call ‘economic rent’?  If there’s no rent privatised, there’s nothing left to be capitalised into a land price.  If you continue to pay the rent, you’ve paid all your taxes and the land is yours to do with as you will. Pipe dream? No, not at all; before things became so corrupted we did use rent for revenue.

So, if land price needn’t exist, and land price bubbles have a habit of collapsing and leaving lenders exposed, why do we persist both with taxation and land prices that grow incredibly when land rent is privatised?

For people to thrive, and economies to work, capture of the public’s rent is society’s protective fence around the clifftop.  Instead of a rentier-controlled economy, we’d begin to see what free enterprise really is.   

Such is the extent of land rent – if you add to it all the value of all other natural resource rent licences – when all necessary government costs are met, there’d still remain a substantial dividend to be distributed equally between all citizens.

What an impressive fence!  

We’ve allowed corrupt governments to let common sense fly out the window.

common-sense

.

US WAKING TO THE FACT THAT TAXES DESTROY …

…. BUT THAT’S JUST HALF THE EQUATION

The US has belatedly come to see the need for taxes to be abolished if it is to resurrect its tax-devastated economy. However, it hasn’t come within a bull’s roar of realising that non-tax revenues must complement the slashing of taxation.

Although it’s now obvious to everybody that the sub-prime loans crisis was merely a pimple on a gargantuan real estate bubble, it is not recognised that the increasing privatisation of the public’s economic rent in the US since 1972 was the catalyst for both increasing taxes and escalating land prices. [The ills delivered to the state of California by Proposition 13 exemplify  how the capture of publicly-generated land rent was restrained in favour of taxes on productivity, so it’s no coincidence that the Governator has been supervising a basket case.  Goodbye Arnie!]

Real average weekly wages have actually declined in the US since 1972.  (And Professor Mason Gaffney suggests the recent uptick is actually more apparent than real!)

Av US earnings

And while Joe Sixpack was losing out to powerful rent-seekers who’ve had increasing access to Congress’ ear over the last forty years, Joe’s been forced to take on more and more debt to keep his head above water.  Something had to give …… and it has.

Congress has to understand that it is not privileged rent-seekers who drive the US economy, but Joe and Joan Sixpack having a dollar or two in their pocketbooks. But the figures above speak for themselves; Joe Sixpack has been played for a sucker, and government has been complicit.      

While they’re at it, members of Congress should take the time to understand the vast difference between taxes and natural resource rents: one impedes social and economic progress and the other doesn’t.

But they’ll not learn the difference from their neoclassical economic advisors who’ve been running this one-sided game for privileged rentiers. Bernanke, Geithner and their ilk ought to be sacked for incompetence.

Reducing taxes is only a good beginning. Capturing land and natural resource rents will restore Joe’s confidence that the US is once again headed in the right direction.

_________________________________________

Further thoughts:  Robert Reich, University of California (Berkley):-

Where have all the economic gains gone? Mostly to the top. The economists Emmanuel Saez and Thomas Piketty examined tax returns from 1913 to 2008. They discovered an interesting pattern. In the late 1970s, the richest 1 percent of American families took in about 9 percent of the nation’s total income; by 2007, the top 1 percent took in 23.5 percent of total income.

It’s no coincidence that the last time income was this concentrated was in 1928. I do not mean to suggest that such astonishing consolidations of income at the top directly cause sharp economic declines. The connection is more subtle.

The rich spend a much smaller proportion of their incomes than the rest of us. So when they get a disproportionate share of total income, the economy is robbed of the demand it needs to keep growing and creating jobs.

HOW TAXES CORRUPT, AND INDUCE ECONOMIC DEPRESSION

Put them on the ground!
Put them on the ground!

 

Ben Franklin was wrong, and he knew it, when he said: “In this world nothing can be said to be certain, except death and taxes”, because he was aware that economic rent is a surplus arising out of the production process. He might more correctly have observed that nothing in life is certain except death and rent.

Franklin knew well that rent could be captured for public purposes without penalty to labour and capital, that is, without the introduction of taxation, but he didn’t want to offend his land-owning colleagues.

Like Franklin, Adam Smith also went to France to understudy the Physiocrats. That he was also impressed with the truism land rent must be the revenue base is evident in his writings, but Smith couldn’t quite bring himself to argue for l’impote unique, and that taxes be abolished.  Did this have anything to do with the Duke of Buccleuch being Smith’s mentor?

We’re told we ought not be dogmatic, that it’s a blessing to be adaptable and flexible, but that certainly does not apply to the revenue base which has to be land and natural resource rent – because corruptions begin to emerge if they’re not the base.

And, once we fall for the corruption represented by stealing from the earnings of labour and capital, the following social ills spill into society:-

  • The return to capital and wages proves inadequate and must be supplemented by taking on more and more debt.
  • Governments, besotted by and beholden to taxation, legislate and spend in areas they’d not have to if people were allowed to retain their own earnings. They’re forced to pay pensions of different descriptions, then try to get provision for these of these off their balance sheets by privatising retirement through compulsory contributions to private superannuation funds (further reducing peoples’ net wages).
  • Like taxation, private superannuation is revered as a public good.  Black becomes white.  Only a few see through this nonsense.
  • Government and superannuation both balloon impossibly, driving up household debt even further.  As rent is being privatised instead of captured for public purposes, it gets capitalised into an impossible land price bubble.
  • Businesses are forced offshore to where “labour is much cheaper”, but it is rarely said “to where taxes and land prices are much cheaper”.
  • The land price bubble implodes.
  • So does the financial system – because debt has been ‘secured’ against bubble-affected real estate prices.
  • As a form of survival, commerce sets up arrangements to defer payment for client purchases.  Business schemes become more and more elaborate, more and more questionable.  White collar crime becomes rampant.
  • Not only does it go unremarked that governments have drained effective demand out of the citizenry as rentiers are rewarded obscenely (bank CEOs being the most visible of this category), but a remedy is suggested: wages must be wound back. This acts to deepen the lack of demand in the economy, and to compound the corruption that has taken place.

All this happens when people are kept ignorant about the alternative to taxation.  

And, no, David McWilliams’ new account of the Irish being forced to nationalise their banks to keep them as ‘going concerns’ isn’t some sort of an Irish joke. (Hey! Isn’t the definition of a going concern an enterprise that is able meet its debts?)  It serves to demonstrate the depths into which the world’s taxation-induced corruptions have descended.

But as few understand the cause, few understand the urgent need to abolish taxation.  What unwitting sheep we humans can be!

______________________________________________________________________

“There is no subjugation so perfect as that which leaves the appearance of freedom.”

– Jean-Jacques Rousseau

HAVE A HAPPY CHRISTMAS AND – THE BEST I CAN WISH ANYBODY –  MAY YOUR NEW YEAR BE GEORGIST!

THANK YOU, DR HENRY

Ken Henry

SECRETARY OF THE TREASURY KEN HENRY RESIGNS

We can ask no more of our public servants than they do their jobs competently and well.  Occasionally, one emerges from the ruck to  go well beyond these criteria.

Dr Henry was one such person, and Prosper Australia’s David Collyer today expressess gratitude for Ken Henry’s service to the Australian public. 

.