PRESTIDIGITATION

Now you see it

illusion2

The modern economist is a great illusionist. He makes the planet, territory (over which wars are fought), land (from which every product is made) disappear. As a result, presidents and prime ministers, their economic high priests in tow, have become lost souls.

British writer and economist Fred Harrison, who forecast the global collapse, confirms their mastery of the art of magic with the following observations:-

The Queen could not be told the truth

When the Queen of England visited the London School of Economics she asked a simple question about the looming economic disaster, “Why did no one notice it coming?”  Professor Garicano replied, “At every stage everyone was relying on someone else, and all thought they were doing the right thing“.  As modern economists use a collection of mangled economics, the Queen could not be told the truth.

Economists 100 years ago colluded to distort economics

A century ago a group of influential economists: John Bates Clark, Frank Knight, Francis Walker, Edward Seligman and Richard Ely, colluded to manipulate the building blocks of classical economics. They had an ideological agenda.  The future they shaped is our reality. Their mission was clear, to protect the vital interests of the privileged few. To so they had to conceal the unique qualities of the classical factor of production – LAND.  (Read here the incredible story of how these economists were asked to make land and natural resource rents disappear.)

A century of economic disasters followed, literally messing with our lives.  Economics has been a tool for contorting our collective consciousness, the current economic crisis an example of the pathetic state to which economics has been reduced.

Modern economists are confused

We handsomely reward economists to fine tune the economy to keep it stable. When boom turns to bust they escape into mysticism. They claim, “occasional slow downs are natural and necessary features of a market economy“.  The people we trust to keep the economy on an even keel have no idea what makes an economy explode. Take the central bankers, they pontificated, moving interest rates up and and manipulating the money supply.  They didn’t know what they were doing – it was all an illusion. 

The problem lies in some of the theories invented by economists. They do not reflect the real world. They are fictions invented to explain an imaginary market economy.  When the economy overheats the imaginary equations turn out to be useless.

Economists admit their economic models do not work

The daddy of all central bankers was Alan Greenspan, of the US Federal Reserve. He said, “the models do not forecast recession because the parameters are dominated by what happens in normal times when the economy is growing”. 

As the economy crumbled, He said to the US congress, “I discovered a flaw in the model which I perceived as a critical function structure which defines how the world works, I was shocked”. Greenspan’s victims are more than shocked, they are traumatised, losing their homes and jobs. 

In failing to raise the warning flags, Greenspan was not alone, economists at the Bank of England also failed to forecast the end of the business cycle. They confessed their economic models break down when the going gets tough. Rachel Lomax, deputy governor of the Bank of England confessed, “When it comes to quantifying the changes in credit conditions, our workhorse economic models still cannot help us very much”.

If you were caught by surprise when the bottom fell out of the credit market, don’t worry, you were in good company. Leading economists at places like the LSE were also shocked. Professor Sir Charles Woodhart, served on the Bank of England monetary policy committee, he now admits that standard forecast economic models are “effectively pretty useless“.

Here is an example of the nonsense that can be produced by economic theory. According to the British governments Property Valuation office in Jan 2008, land values will continue to rise until 2013.  Six months later the economy had broken down.  The graph has been erased from their web site. 

Land speculators are the biggest gainers

Who gains from this intellectual mess?  One groups of people reap spectacular rewards, property developers, land speculators all reap windfall gains from one asset that sustains us all, LAND.  

In the good times when people go mad buying and selling properties, we lionise these developers. Yet all they are doing is cashing in the on the land values others create. Take the case of a cluster of flats adjacent to a prime brownfield site. Their presence gives value to the adjacent site, yet the thousands of residents of the flats will not share in the increased values they help create.

Banks fuelled the property/land bubble

Bankers around the world played their part in the economic crisis pumping up credit to fuel the property bubble.  As land values rose bankers even created more money. This was a self inflated bubble of hot air. It had to burst.

Economists who know the answers are suppressed

For the past century economist have messed with our minds.  All is not lost.  A few economists have been stewards of the precious knowledge of how the economy works. The Nobel prize winning economist Bill Vickrey and California professor, Mason Gaffney. All voices of reason that have been suppressed. 

We need to force through change to eliminate vested interests

With all the global crises converging – mass unemployment, poverty, terrorism – it is time to make up our minds and stop playing the game that was rigged 100 years ago. If we do not challenge the vested interests that exploit people, all of us, the environment and future generations will pay the ultimate price. We have to oblige our elected leaders to deal with the realities on the ground. 

In the end it is up to everyone to assume personal responsibility and restore common sense in the way we govern society.

[Acknowledgment to John at Land Cafe]

AUSTRALIA HAS TIME ON ITS SIDE

Oz economyAmericans are now awake to the fact that their housing market will be ‘cactus’ for years, but most  Australians remain blissfully ignorant that our beginning-to-burst bubble is even worse than the US’s.

Take a peep at this excellent discussion between David McWilliams, Gabor Steingart, Joseph Stiglitz, and Simon Wolfson, as moderated by Stephanie Flanders. It canvasses the possibility of the ending of the Eurozone. McWilliams is a standout.

The discussion touches upon the two approaches destined to fail: “Helicopter Ben’s” USA method , simply running the money-printing presses ad infinitum, and the austerity strictures Eurozone lenders are seeking to apply to the PIIGS “sinner” nations (which must clearly worsen their plight).

It also suggests the best approach. McWilliams says Iceland is bluntly correct:  “We don’t have any money, we have fish. We’re not paying your money back.”  Nor should they, of course, because each and every one the European banks were disdainful of risk management. They lent out funds that could NEVER be repaid, so who exactly are the real “sinners” here?  Debt that can’t be repaid won’t be repaid.

What’s the relevance of all this to Australia, you may ask. Well, when we do awaken from our Rip Van Winkle torpor (it seems we must suffer the collapse before the mainstream is prepared to contemplate solutions), we have the benefit of seeing the failures transpiring in the US and Europe, and, making the comparison with those countries that have wiped their hands of the shortcomings of banks, we will be able to hang our miscreant banks out to dry, too.

When real estate has finally tanked in sleepy Ozland and carcasses are all over the floor, I’m betting our government(s) will try nevertheless to send us down the “austerity measures” trail, to bail out our banks at grave cost to people and the economy; but by then we’ll know better and resist.

The difficult-to-beat solution would be refusal to reward banks for their spendthrift policies, combined with Ken Henry’s panel’s recommendations to start the wheels of the economy rolling again.

If we take heed of the warnings we’ve had the luxury of already witnessing from overseas, we’ll be able to navigate our way through banks’ self-interested arguments (which will undoubtedly be taken up by the spin doctors in the ‘respectable’ media).

To make their same mistakes doesn’t bear thinking about.

MELBOURNE PROPERTY VACANCIES 2010

PARASITES RUN

EarthSharing Australia has published its 2010 update of properties held vacant in Melbourne. The speculative vacancy rate has dropped from 6.84% in 2009 to 4.94%, suggesting that many Melbourne ‘investors’ (read speculators seeking capital gains) have read the signs and taken their money and run before the property market tanks.

Although the average vacancy rate across Melbourne is one in twenty properties, the EarthSharing survey reveals several suburbs having as many as one in every thirteen properties being held vacant.

(Read the full report here.)

IF YOU WANT TO WIN, KEEP THE PRESSURE UP

photos by Sebastian CostanzoThe game between undefeated Geelong and Collingwood lived up to expectations as I braved the MCG’s sharp winds with 81,600 fans last night.

What a great result for the mighty Cats!

Committed Magpie, Cat, and non-aligned supporters were connected as one by the intensity of the final quarter.

I leapt from my seat, arms akimbo, as Joel Selwood shot that incredible handpass across to Stevie J standing a metre out from the goal line, ready to toe-poke the ball through.

Beer and circuses? Nonsense! ‘Aussie Rules’ is a phenomenal remnant piece of the social fabric at which the huns have been tearing.

As the plutocrats rip and tear at the social tapestry, the holes grow: ravaged resources and environment; failing economies; lack of job opportunities; impossible debt and excessive gambling; inadequate time for friends, family, study and hobbies; scant funding for education, health, social welfare and public infrastructure .…

The social network connects us as never before, not unlike the electricity and intensity of that crowd at the football last night. Slowly but surely, we are beginning to use this network to call the powers-that-be to account for their ravages.

These faltering efforts will grow. Eventually they will bear fruit.

DELUSIONS

Pop-partyTWO REALITIES?

I missed Wayne Swan delivering his federal budget on TV last night because I was out at a party in the city celebrating with champagne and caviar the popping of Australia’s real estate bubble.

Karl Fitzgerald and David Collyer spoke entertainingly, and David proposed the toast to the pricking of the bubble.

There’s now some hope for younger Australians’ access to a home, regardless of what the treasurer serves us up tonight, I thought.

When I got back home, I did a bit of late night channel-surfing to learn what had happened in the budget. There was some good news about mental health.

Also, looming large as life was genial shadow treasurer Joe Hocking smirking that Wayne Swan would never deliver a budgetary surplus. He’s right. He probably knows the disastrous implications of the residential market now starting to revert to its long term trend, although he’s obviously quite unprepared to mention this rampaging elephant within Treasury’s budgetary rooms.

And there was Paul Bloxham being asked what might curtail Wayne Swan’s heroic aim of bringing in a surplus budget by 2013.  As he considers Australia doesn’t have a real estate bubble, he had to hesitate for a moment.  Something would happen to show up Swan’s “rubbery figures” on our burgeoning resource sales with China, Bloxham opined.  

I went to bed chewing over the vast discrepancy between our small group celebrating the collapse of the property bubble and the millions of words in which the media will analyse the budget without making this necessary connection.

I know which group has a firmer grip on reality.

I AM: the shift is about to hit the fan

Tom ShadyacTom Shadyac wrote and directed the comedy films “Ace Ventura: Pet Detective”, “The Nutty Professor”, “Liar, Liar” and “Bruce Almighty”.

He has now attuned himself to the current historic watershed that has spurred me into blogging about it.

I’ve not seen Shadyac’s new documentary film, “I AM: the shift is about to hit the fan”, but it sounded in a US interview with him last night (via ABC News Radio) as though it gets straight to the point. He clearly thinks the world’s about ready to make the shift to change its bad habits. 

Listening to the discussion of the documentary, it appears “I Am” does everything except identify the final mechanism, the private capture of the public’s rent, that has been used to destroy humanity’s common bond.

The glue that held us together for so long has given way, and our “Stuff you!” individualism has begun to wreck the planet and society, so we need to establish a new equilibrium.

Of course, the Wall Street wreckers will claim Tom Shadyac’s film is fudge. They have to, to justify their misanthropy, because much of their work is founded upon a deep-seated disgust of mankind; people in the broad are no more than the market from whose rent they must steal.

I’ve written here many times that as economic rent represents the human community, insofar as it is community-generated, we need to make a revenue shift from taxes to land and natural resource rents – to socialise what is society’s, and to leave alone what is private property. Breaking this natural law of economics, as we do, has devastating consequences.

It would be nice if those who see “I AM”, as with the great mass of people feeling the need for a shift in values, are able to make this final connection sooner rather than later, because it’s essential to guaranteeing a future for the human race, and because all of us have an equal entitlement to the rent we equally produce.

They haven’t yet woken to this in revolutionary Egypt, Libya, nor near-revolutionary (?) Portugal, Ireland, Italy, Greece, Spain, the US ….

USA UPDATE

Helicopter BenUS housing market update from patrick.net

House Price Index shows Double Dip (calculatedriskblog.com) Discuss 

Are home sales slumping because lenders refuse to lend? (irvinehousingblog.com) Discuss 

Strategic defaults could get very ugly (marketwatch.com) Discuss 

Las Vegas halfway through housing downturn? (vegasinc.com) Discuss 

The Fed may deny it, but Americans know prices are rising (newsweek.com) Discuss 

Expectations with respect to Inflation and interest rates (patrick.net) Discuss 

$368/month for gas (patrick.net) Discuss 

Commodities Plunge, Stocks Slump, Dollar Strengthens (bloomberg.com) Discuss 

Europeans back off Rate Hikes; US Dollar Up Sharply (Mish) Discuss 

Prediction of ‘Hundreds of Billions’ in Muni Defaults (bloomberg.com) Discuss 

Can Obama Use bin Ladens Death to Help Fix the Economy? (time.com) Discuss 

Who Rules America at the Local Level? Growth Coalition Theory (sociology.ucsc.edu) Discuss 

THE REGIONS: PLENTY OF QUESTIONS, NO ANSWERS

The ABC’s “Q&A” was set in Albury/Wodonga last night as it discussed the problems existing in Australia’s regions. Most of these were obviously heartfelt by the big local audience.

There’s no doubt the coastal capital cities win out revenue-wise, and otherwise, and those in the regions, having grown most of Australia’s produce, go without as they also pay more in petrol for living outside the capital cities.

How do we deliver equivalent infrastructure to them? Do they have to make do with occasional carrots, such as the $65 million cancer clinic Minister for Regional Australia, Regional Development and Local Government and the Arts, Simon Crean, promised will be in this year’s budget?

Regional issues seemed endless. At least the national broadband network offered them a superhighway on which better health and education services might be delivered, most agreed.

But not one of Tony Jones’ Q&A guests, nor one of the people in the audience, got to grips with their greatest problem, which paradoxically also offers the only real solution to their long list.

People in the regions pay the same taxes as those in the cities. “That’s fair!” do I hear you cry? But what if the taxes paid, both by people in the cities and the regions, are patently unfair because they penalise production and reward property speculation?

What if there was a better source of revenue that recognised, perfectly, all the problems in the regions? What if Australia was to make a revenue switch based upon land values?

Land values are lower in the regions because of their smaller population, locational, capital works and facility disparities when compared with the cities.

Therefore, rural and regional areas would clearly be benefitted by the abolition of the 128 taxes  and the re-introduction of a federal land tax recommended in “Australia’s Future Tax System” by Ken Henry’s panel – but Tony Jones, the Q&A panel and his audience showed this is not even showing up on their radar.  Why not? Their circumstances would see them paying far less to each level of government.

Such is the ignorance on the issue of land value-based revenues that former Olympian and Gold Coast City Council mayor, Ron Clark, has been pleased to announce (in connection with the introduction of site value rating) that almost 50% of his municipality was “eligible” to pay the minimum rate.  That sounds nice, doesn’t it:  “I’m eligible to pay the minimum rate.” But let’s examine what it really means.

It means that people with lower-valued properties are having to pay more than if they were to pay the same rate in the dollar on their land value as is paid by the owners of more valuable land. Lower value property owners are therefore subsidising higher-valued properties, or, put another way, the Gold Coast City Council has progressed that half of the people with the least valuable properties onto what amounts to a poll tax.  And yet people found the gumption to revolt in the streets of London in 1990 when Margaret Thatcher tried to introduce a poll tax; but we don’t revolt, we cop it in the neck.

If the rating base is land values, then land values it should remain – and there must be no minimum rate – but the theory and benefits of land value taxation are as badly understood in the regions as they are here in the cities.  So, we continue to be screwed.

Meanwhile, as Q&A avoided the issue of how land-based revenues at local, state and federal levels might assist rural and regional areas in particular, Australia’s handful of uber-wealthy rent-seekers rubbed its hands that the secret of its free ride at the people’s expense remains a mystery.  

[FWIW, I’ve written on the subject of decentralisation in Online Opinion.]

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