THERE IS A MEETING HERE TONIGHT (no, not in the John Moulton barn)
To my mind the reserve bank and economic experts gathering together tonight at Jackson Hole in Wyoming are, to quote Henry George, “mules packing a library”. Nothing can issue from sterility.
Jackson Hole will remain a void, and we’d do well to avoid its misdiagnoses.
Where are the heterodox economists who forecast this downturn? Did US Wall Street analyst and balance of payments expert Michael Hudson get an invite? Did Australia’s debt expert Steve Keen get a guernsey? Chances are, having forecast the GFC, these men may have had real answers, instead of the usual hot air we get from reserve bank governors.
At the risk of being repetitive, might I suggest that as tax systems of the world generated this bubble in land prices, a revenue system based on land value capture and the abolition of taxes is the only effective way to deal with these impossible levels of debt?
Wallowing in their multi-billion profits, Australia’s banks are about to find out how quickly this situation can reverse. We paid them obscene interest (rent?) on bubble-inflated mortgages with no risk management, and next we’ll be bailing them out of the mess they’ve left for us.
In so doing, I trust they’ll become government enterprises, because they’ve not been doing us any favours in private ownership. (No margin adjustments on +100% bubble prices, guys?!) I guess those who enjoy living through an economic depression won’t agree with me.
I remain more upbeat than ever that something good is happening to Australian politics after seeing interviews with some of the independents.
Tony Windsor has always been a solid citizen. Anyone so disapponted with the tripe emitted from the major parties can’t be bad. I hope he sticks to his principles in favour of a resource rent from mining super profits.
Rob Oakeshott’s experience in State politics in New South Wales doesn’t seem to have drained the idealism out of him, and he remains capable of a very thoughtful political analysis (albeit some of it shook Tony Abbott to the core. “A unity government? Whaaa …!”)
Bob Katter remains Cowboy-hatted Bob Katter – and most of his north Queensland electorate of Kennedy seem to like him that way.
Then, there’s the first Green in the lower house, Adam Brandt. He’s an unknown quantity and having already stated his preference for a Labor government under Julia Gillard, he’s a bit naive or very upfront, either of which seem preferable to the execrable know-it-all world weary nonsense that often passes for debate and ‘repartee’ within the parliament.
With the number of seats for Labor and Liberal pretty well locked at 73 apiece, let’s see what transpires after absentee votes have been counted and re-counted on the seats in doubt next week.
… all of which makes independent Rob Oakeshott’s suggestion for a unity government an interesting thing to conjure with. Obviously, the big boys ‘n girls aren’t ready for it yet, but it’s a good thing he’s planted the seed: it just might bear fruit when things get really bad.
Like the Americans, we can get pretty rabid over our two big political parties. Nevertheless, in government they turn out to be Tweedledum and Tweedledummer once they’ve performed the ritualistic kowtow to banking and big business.
For example, Australia can trump Barack Obama’s incredibly stupid appointment of Timothy Geithner as Secretary of the Treasury with PM Julia Gillard deferring to the big miners by lowering Kevin Rudd’s proposed 40% tax on their profits (which acknowledged Australian ownership of its resources), to an effective 22.5% rate (which doesn’t).
Whether yesterday’s ‘hung’ election delivers a minority Labor or Liberal conservative government, they’ve both now got to consult with the three conservative independents and two new Green-flavoured members of the lower house. (See their photos below.) Which is not to say they’ve got to cave in to them holus bolus, but at least they will have to listen to them.
To which I shout: Hallelujah!
Our shock jocks of the radio will, of course, beat their breasts, crying that this has delivered ‘unstable government’ to Australia, but I believe we may have matured more than America … to have moved a little closer towards democracy.
Whoever coalesces to form the next government, the Greens will undoubtedly have effective control in the Senate. Unlike the conservatives, they acknowledge the need to capture our mining resource rents and, thankfully, seem to understand that we need a pollution charge, instead of a derivative-like pollution trading scheme. But the Greens have some maturing to do on water security and population policy.
Maybe the three independent conservatives, all of whom represent rural or regional areas will be able to convince themselves and Greens leader Bob Brown that Treasury Secretary Ken Henry’s mooted federal land tax (to replace the idiosyncratic array of state government land taxes, payroll taxes and stamp duty) will clearly be the most effective way to revitalize farming and regional areas, because land values are lower in those locations?
Meanwhile, with democracy, land and resource value capture all in the air, Australia seems better placed than any nation in the world to remedy the Global Financial Crisis.
This election result makes me confident that Australians now have the wit to find their way out of this nonsensical rent-seeking maze.
But as the property crunch is about to impact upon Australia, the new political arrangements and effective action will have to be sorted out pretty quickly. In this respect, I encourage people to catch tomorrow’s “Four Corners” program at 8:30 pm on ABC-TV 1. I expect it will be long on describing why we are about to have a crash, but extremely short on pointing to abolishing taxes and capturing rents as the solution. See if you agree!
Oh, for Kerry O’Brien, Tony Jones and Co. at the ABC to discover land and resource rents! (Unfortunately, the bods at the commercial TV channels will never be permitted to do so.)
I was at a Prosper Australia committee meeting last Thursday night, so I missed entrepreneur Dick Smith’s “Population Puzzle” and the “Q and A” session that followed on ABC-1. But I got to see a tape of them yesterday. Unfortunately, the fears I expressed in my previous blog were realised: Dick Smith’s Population Puzzle was disappointingly lightweight.
At least it posed a question worthy of debate in Q and A.
Tony Jones Q and A show, also attended by Dick Smith and a number of special invitees, was quite interesting; but it was extremely frustrating for anybody understanding anything about land and natural resource rents. It featured:-
Green’s leader, Bob Brown
businessman, John Elliott
Minister for Sustainable Population, Tony Burke
Opposition immigration spokesman, Scott Morrison, and
Suvendrini Perera, from Curtain University in WA
They were all pretty good, seeming to accept that there is a world population ceiling. But the debate rested upon whether we’re anything like being ‘there’ yet. Each made a combination of valid and less valid points, but none zeroed in on the equitable access to resources by employing natural resource rents and pollution charges for revenue, before we consider population controls.
The ‘resources are finite’ slogan played its usual role. (Why not capture their rent, then?) However, the inference made is that they’re disappearing, rather than being converted in substance. (What about the conservation of mass, Bob?) So, by changing their form and then recycling our resources, it is indeed possible to have a chain of continued economic growth, notwithstanding many peoples’ view to the contrary.
Bob Brown correctly mentioned that the mining tax was fair before he proceeded to lose me by favourably invoking the Reverend Thomas Malthus. “Malthus was wrong!” interrupted Elliott. (Of course he was. We’re still here regardless of his gloomy predictions, but Dick Smith’s and Bob Brown’s neo-Malthusianism still garners incredibly strong support.)
Some of the participants came from a less gloomy point of view. They may even have agreed with the American social philosopher, Henry George, who famously said: “It’s a well provisioned ship, this on which we sail through space”.
John Elliott was the surprise package. He said we should tax people in the regions less. Yes, John! Take it a little further, though. Wouldn’t a single rate land value ‘tax’ do this, because land values are higher in the cities and lower in the regions?
However, the point that those who monopolise and speculate in our land and natural resources are ripping us off eluded the Q & A panel. How was this? Surely, it patently mocks us as world economies flounder and collapse as a result of taxation and resource speculation? No? People still in denial, maybe? We clearly do need to capture more of our land and resource rents if we are to allocate natural resources more fairly and efficiently, before we seek to pull up the population ladder and cry “That’s enough!”
But we should do that quickly, because travelling in time from Joshue De Castro’s important 1955 “Geography of Hunger” through Colin Clark’s 1973 “The Myth of Over-Population” until today, there’s a welter of studies evidencing that when economies in underdeveloped countries start to improve, their birth rates also decline. Meanwhile, national economies continue to crumble as a result of the ongoing privatisation and monopoly of land rent, a process that is pauperising so many once reasonably well-off people in the west.
It was so frustrating that Dick Smith and Tony Jones both failed to touch upon this most natural solution to so-called ‘overpopulation’! No, we don’t have to wear hair shirts nor return to the middle ages, guys!
To solve any political problem at all, whether it be collapsing economies, unemployment, poverty, sustainable population, the environment, or how infrastructure can be self-funding, the 21st century needs urgently to rediscover economic rent, because rent was central to classical economics.
That’s because about 50% of the economy is rent, yet nobody understands anything about it at all now.
So, to hear on ABC radio this morning in “Australia All Over” that entrepreneur Dick Smith is concerned about Australia’s population growth, without mentioning taxation or resource rents at all, is perplexing.
Dick, you seem to miss the point that the Reverend Thomas Malthus has already been proven wrong: food supply has indeed been able to grow at a greater rate than population growth, despite his gloomy forecasts to the contrary.
Do I hear you say “But look what population is doing to the Australian environment, Bryan?” No, Dick, in a British journal in 2001 I forecast a global financial collapse by 2009 because of the failure of governments to capture for revenue the annual value of land (what economists call ‘economic rent’). This failure leads to the rape and pillage of the environment and economic decline. Tax systems around the world gave all the wrong signals and brought on rampant land speculation and the Global Financial Crisis. Now it’s our turn: Australia’s real estate bubble is about to burst.
If we put an annual charge on land, as argued by Ken Henry’s review of the Australian tax system, we’ll stop people from treating it as a mere commodity, monopolizing it, speculating in it, and systematically destroying it. Don’t you see, Dick, that when land is treated as a commodity, we humans also lose our freedom?
To be frank, Dick, I think the impassioned reasons “Macca” read out on “Australia All Over” today as to why Rob Westcott lives at Glenthompson resonated much more strongly than your concerns on population growth. But I guess I’ll be watching your upcoming TV show to see what you have to say, all the same.
I suspect you’ve made a far greater profit from real estate than you ever did by selling electronics, Dick, so I hope that the principle of capturing greater land rent instead of taxation hasn’t eluded you for this reason?
Do you not see that the failure to capture adequate land-based revenue favours expensive capital city locations and acts to depopulate our regional towns and cities, Dick? Think about it: no taxation at all; only a charge only on land values. See the positive implications? As people in our capital cities will pay more than people in our regional areas, this will re-invigorate the regions. And taking taxes off performing work will get the economy moving once again.
Still no, Dick? OK, let’s take another tack. As wars rage overseas, people will always seek refuge, peace and freedom by fleeing to more secure countries like Australia. But as many Australians feel threatened by existing taxes and their impossibly high mortgages (both of which would be much lower under a land rent revenue regime) they’ll tend to react against population increase or migration, as you do. In bad times, they’ll consider it threatens their welfare and jobs. But that’s not the real problem: it’s taxation of employment, thrift and industry which directs us into real estate speculation. Workers get slaughtered, property rorters get rewarded.
But would we be as fearful of refugees (‘queue jumping illegal boat people’?) if the economy was more buoyant and healthy? Almost certainly not. (And studies in underdeveloped countries show that birth rates tend to fall as prosperity increases.)
So, surely Australia should seek to solve its unhealthy economic situation before it adapts its population to suit all our existing pathologies? Are you not repeating Malthus’ mistake of advocating population control, while you seek no other significant changes to the status quo (such as the aristocracy’s locking up of the land at the expense of the poor and dispossessed), Dick?
Why not let a land-based revenue system obviate land monopoly and speculation first, and encourage production of real wealth without taxation, to see to what extent we really do have a population problem? (Our cattle and sheep don’t seem to be experiencing an overpopulation problem, although they occupy many more times the land that we humans do.)
Not to capture rent to the public purse is to allow a few private individuals to collect most of this income stream which, after all, is not generated by them, but by the Australian community as a whole. That’s why the economy is crumbling and why we are beginning to see absolutely everything as a problem.
Australia once rose to solve these challenges instead of blaming their symptoms. So, Dick, before you concern yourself with population control, try to comprehend the great truth Joseph Stiglitz, former chief economist at the World Bank has expounded: “Rent is a secret tax the wealthy charge the poor.”
It’s indeed probable if we were to collect more land-based revenue instead of taxation, Dick, that many of our apparent economic, environmental, ‘overpopulation’ and capital works problems would overnight start to resolve themselves.
Like most modern cities of the western world, the architecture of the city of Melbourne relates fascinating stories of boom and bust. Almost every building tells a tale, either of the relative ease and timeliness with which it was constructed during the boom, or of the unforeseen financial difficulties with which it was plagued before it was finally able to be completed after the building bubble had burst.
Interrupting hiatuses are to be found between the various architectural styles during the 1890s and 1930s depressions and at the two world wars. But even this absence of construction, coupled with the buildings themselves, paint very telling pictures of Melbourne’s financial history, back to mid-nineteenth century days of the Bendigo and Ballarat goldfields and beyond.
SPRING STREET MELBOURNE (TOP END OF BOURKE STREET)
Work commenced on Victoria’s State Parliament House in 1856. It was designed with a glorious crowning dome as shown here:-
But ended up looking like this:-
What happened? The recession of the 1870s and the depression of the 1890s happened.
The absence of the dome today continues to mock Victorian parliamentarians’ lack of understanding of the theory of economic rent. Ask any of them, and they seem unaware that taxing the State’s production, employment and exchange, instead of capturing its land rent, not only accounts for the missing dome on Parliament House, but explains economic recession and depression, and the lack of adequate funding for Victoria’s public transport, education, health, and public safety.
Their inability to get to grips with Melbourne’s financial booms and busts proves them either ignorant or stupid. They seem actually to prefer these repetitive ravages to a healed and ongoing healthy economy.
333 COLLINS STREET MELBOURNE
The Commercial Bank of Australia was completed at this address in 1891 but temporarily closed its doors shortly thereafter in 1893 to panicking depositors during the 1890s depression. The Commercial Bank of Australia eventually merged with the Bank of New South Wales in hard times in 1982 to become the modern Westpac Bank, which itself held on only by the skin of its teeth from the 1991/1992 recession.
From 1990 to 1991, just after the 1980s boom had peaked, a magnificent 33 storey building in classical post-modern American style was erected on the extended site, for which a record $2139 per square foot was paid. The massive original banking chamber dome was retained and integrated into the design in a complex engineering feat by the builder, Becton Corporation.
But things went horribly wrong in the recession of 1990/1991. Becton had fortunately insured itself and ended up exercising 90 per cent of its put option of $512m with the State Government Insurance Corporation of South Australia (SGIC). However, the SGIC hadn’t adequately covered its own position, sending broke the State Bank of South Australia. The State Savings Bank of Victoria also collapsed as a result of its thrusting but inexperienced merchant banking arm, Tricontinental, which helped fund the development it had intended to occupy.
The premier of South Australia, John Bannon, was forced to resign in 1992, and the Labour Governments of Victoria and South Australia were defeated at respective elections in 1992 and 1993.
The 1980s bubble was certainly bigger than 333 Collins Street, but this was the building that brought down the governments of South Australia and Victoria.
Tricontinental sent the State Savings Bank of Victoria (SSB) broke, and it was taken over by the Commonwealth Bank of Australia (CBA). The CBA then proceeded to move its headquarters into the SSB’s near-new headquarters at the south-western corner of Bourke and Elizabeth Streets which has only recently been refurbished to 21st century ‘green’ standards.
563 BOURKE STREET MELBOURNE
A 15 storey office building was constructed behind, and as part of, the historic five storey Gollin Building located at the south-west corner of Church Street in the city of Melbourne’s west.
It was built by restaurateur-racehorse-owner-developer, Floyd Podgornik, who tragically shot himself on the eve of the Blue Diamond Stakes in February 1990. In 1991, construction of the ‘Renaissance Building’ was completed at a total of some $84 million, including purchase of the land and the pre-existing Gollin Building. However, it was to be sold for about one quarter of this cost about 1992/93.
At the time, Melbourne’s skyline boasted a number of such new high-rise office buildings. Almost one third of them were vacant, with approximately one million square metres going begging – an amount equivalent to twenty Melbourne Cricket Grounds.
Although most landlords brazenly retained high nominal asking rents, leases were being written with associated deals of up to ten years rent free. Many of these included free fitouts to the tenant’s requirements which, when also taken into account, discounted nominal asking rentals by as much as four-fifths.
270 KING STREET MELBOURNE
WH Holmes House, a building of 16 storeys was erected on the site by Mainline Corporation in 1974 and occupied on completion by part of the Australian Taxation Office. Mainline was Australia’s biggest office builder when the company collapsed just before the final touches to the building were finished.
Commercial and General Acceptance (CAGA), the finance arm of the National Bank of Australia collapsed contemporaneously with Mainline Corporation, to herald Australia’s 1974/75 recession.
The buildings of the city of Melbourne are replete with such stirring stories. It’s entirely possible that future Melbourne development and infrastructure could be built with economic certainty via a state revenue system that collected a much greater part of land rent and far less taxation – absent the rampant speculation that puts so much construction at risk every second decade. But certain moneyed interests don’t want to countenance this recession-solving solution and, unfortunately, they have our politicians’ ear.
Well, if you put aside all the BS, namely, that the ALP represents working people (maybe it once did) and that the Liberal party is more economically responsible (yeah, that’s why it allowed the real estate bubble to develop from 1997 to 2007 without the blinking of an eye), what’s the real choice?
Not much, because most people are by habit welded to one or other of the major parties. Their party is their hero, so, blinded to their own party’s incompetence, they have visions of clarity about each and every one of the foibles of the foe.
Bob Brown? The Greens? Well, at least they saw through the bunkum put up by the self-serving case of the mining magnates against the Resource Super Profits Tax.
It’s hard to say whether or not Julia Gillard saw through their nonsense, too, or believed that as the public hasn’t been educated enough to the benefits of resource rents as compared to taxes, she’d better cave in and drop the effective rate of resource rent from Rudd’s 40% of net profit to 22.5%.
Tony Abbott might have won two blues for boxing at Oxford, but didn’t learn the difference between a resource rent (“a big new tax”) and a tax, so he’s going to remove what’s left of the federal mining rent if the Liberals win government.
The Democrats? They’re no longer represented at all in the federal parliament. And yet they’re the only party whose constitution calls for land value capture at all three levels of government.
The peak of Australian Democrats’ power was in 1990 when their leader, former Senator Janine Haines, polled 26.4% of the vote when she stood for the lower house South Australian federal seat of Kingston.
Haines was an admirable leader who, instead of kow-towing to polls, preferred to speak her mind. As the real estate bubble topped out in 1989, she mentioned that maybe there was a case for the reintroduction of the federal land tax if Australia was to keep a lid on damaging real estate speculation.
Well! … thank you very much, said the Liberal and Labor parties: “She’s after your home!”, they screamed in unison, and shamelessly shared preferences in an unholy alliance to defeat her.
To have achieved 26.4% of the vote in this House of Representatives’ seat was remarkable in these circumstances, given the welter of propaganda, lies, chicanery and spite levelled by the two major parties against one of Australia’s best ever politicians.
Labor’s Gordon Bilney went on to win the seat of Kingston as the Hawke government was returned to power.
There’s a postscript. On 29 November 1990, federal treasurer Paul Keating announced “This is the recession Australia had to have”, but he might well have added: “because we failed abysmally to institute a federal land tax, as Janine Haines proposed, if we wish to stop real estate bubbles from forming.” To this day, Keating has never demonstrated any understanding of natural resource rents.
Election time’s here and shallow humbug’s in the air again. I don’t know for whom I’ll vote, but I do know that it’s impossible to understand world events, history, or even the collapse of empires, until the devastation wrought by taxation and the private capture of publicly-generated land rent is understood.
Although Professor Michael Hudson is undoubtedly the authority here, I have elsewhere touched upon rent’s role in the cause of WWI and WWII, respectively. It’s chilling that failing speculative economic regimes seem to be slowly but surely directing us towards WW III.
Popular British historian, Niall Ferguson couldn’t see beyond debt in an otherwise good article “Decline and fall of the US” in THE AGE today (29/7). He was unable to make the connection between impossible debt levels and the privatisation of the public’s land rents.
At the same time as Ferguson, Nobel prize-winner and former World Bank chief economist Joseph Stiglitz is also visiting Australian shores.
Noted author and journalist Greg Palast provides the following insights into Stiglitz that demonstrate Stiglitz has progressed further down the track in his comprehension of the role of economic rent than Niall Ferguson:-
(Palast) So then I turned on Stiglitz. “OK, Mr Smart-Guy Professor, how would you help developing nations?” Stiglitz proposed radical land reform, an attack at the heart of ‘landlordism’, on the usurious rents charged by the propertied oligarchies worldwide, typically 50 per cent of a tenant’s crops. So I had to ask the professor: “As you were top economist at the World Bank, why didn’t the Bank follow your advice?”
“If you challenge [land ownership], that would be a change in the power of the elites. That’s not high on their agenda.”
In THE AGE today Stiglitz also demonstrated what should constitute the basis for a fair mining rent: “You need to have a well-designed competitive auction to have different companies compete so that companies get the necessary returns to do the investment – but the surplus goes to the Australian people.”
In the absence of another Janine Haines, or our own Joseph Stiglitz or Michael Hudson, this election is already a crock.
LIGHT AT THE END OF THE TUNNEL OR A FREIGHT TRAIN COMING?
The People’s Bank of China (PBOC) has not only lifted interest rates five times in 2010, but has also raised the reserve requirement ratio (RRR) for large institutions to 17.5%. To acknowledge that people in rural areas aren’t sharing in the boom, rural banks have been set at the lesser rate of 13.5%.
The RRR is the proportion of deposits that banks must hold in reserve. As these are now large by western standards, it is clear that China is genuine about reining in much of the liquidity that has sent Chinese real estate into a bubble. Clearly, the PBOC acknowledges that a problem exists.
China has overcooked its real estate development to the point where it graduated from serving the national interest and the interest of the people to that of self-serving rent-seekers who pocket obscene profits. Failing effective action, a deflation in real estate prices is now inevitable. It’s merely a matter of ‘when?’ But of course it can be managed better than the west is doing.
Georgist economics argues that China’s raising of interest rates and the RRR won’t prove to be effective. Instead of worrying about controlling growth, she should be looking to protect what is her most important asset, the people who ultimately constitute China’s economy. Patently, higher interest rates and RRR don’t help her people.
Like the west should do, China must capture a significant part of the uplift in land values that her incredible boom has bestowed upon her. Here is the natural source for revenue. Here lies the potential to let people in rural and regional areas share in the boom by permanently abolishing their taxes.
Unlike the west, China is still a command economy. She has control over land management and taxation, and she has the ability to take effective action, uncluttered by demands of the rent kleptocracy that bedevils the west.
China is in a position where she could introduce a land rent system, whereby the people would share more equally in the benefits of her incredible renaissance. Not to do so will consign China to the same fate that awaits the west: many years of economies bumping along the bottom underwater; many years of printing money; many years of tweaking interest rates; many years of austerity as the economy slowly deflates.
China still has a choice in the matter. The oligarchy that sponsored this depression (and doggedly resists increasing land value capture) ensures that we no longer have this choice in the west.