The third way: why business and unions are both wrong

THE IMPASSE

Newspaper editorials seem mystified that retail spending is down. They point to the fact that Australia’s national debt, unlike other nations, is well under control, as though this is somehow germane to our commercial slowdown.

Editors also reflect that maybe online shopping is responsible for cutting a swathe through spending in the shops.

In an obvious attempt to be optimistic, there’s no mention of the world record ratio of household debt to disposable income, i.e. above 150 per cent, to which Australians have shackled themselves in recent years.

Many people have hit the stumbling block and been forced to cut back on their spending, but others, aware of the catastrophic effects of the financial collapse overseas, have set themselves on a debt reduction program. Accordingly, a slight downturn in the ratio nearer to the 150 per cent mark shows their efforts are beginning to work. Unfortunately, such reduction in household debt doesn’t assist our economic performance.

Surely then Australia’s world record household debt levels explains the collapse in consumer confidence and demand? Mortgage debt, of course, accounts for by far the greatest part of household debt, and credit cards for much of the rest.

So, how does politics’ Left respond to this unwelcome slowdown?

Unions are looking for pay rises for their workers. They say this will help relieve their members’ debt and might get them spending again. The unions are aggrieved Qantas wants to put off 1000 staff to restructure towards Asia and at OneSteel’s announcement of job cuts, and they know more can be expected in retail if things don’t change. So, more money in workers’ pockets will resurrect economic activity, they claim. And they’re partly correct.

Meanwhile, marking the 20th anniversary of the Superannuation Guarantee Levy, former Prime Minister Paul Keating notes that unit labor costs decreased every year the levy rose, from 4 per cent in 1991 to 9 per cent in 2002, despite employers claiming it would prove to be a cost to them. He’d like it increased to 15 per cent, but will settle for 12 per cent immediately.

Mr Keating apparently hasn’t noticed average weekly wages have trended down ever since 1972.  (Some apparent real increases since 1998 were at least partly the result of redefining Australian CPI following the US Boskin Commission’s recommendations in 1996, wherein it opined the CPI had been overstated, and  employed more stable “rental equivalents” in preference to house prices.)

As Paul Keating dusts down his Louis XVI clocks, one wonders whether he has workers’ interests at heart, or just his own place in Australia’s economic history. Isn’t workers’ most immediate need in hard times to be able to access their own earnings?  Isn’t compulsory superannuation based upon the incredibly patronising premise that governments and super funds know better than you how to manage your retirement and financial affairs?

For that matter, now that the union movement itself has an integral stake in industry superannuation funds, wherein lies its true allegiance? Does it lie in making favourites out of particular shares, or certain REITs, or in looking after the here and now of its members, as once it did?

On the other hand, business is becoming choleric about the possibility of further wage increases. Salary rises have recently exceeded increases in productivity, they rightly claim, despite the longer trend in real average weekly wages having declined from the outset of the 1970s.

So, you can bet that industrial relations, which for employers amounts to keeping the lid on salaries if production isn’t also increasing, is again about to hit the headlines and become contentious. Like the unions’ logic that wage increases will help increase effective demand, that these should not be allowed to occur unless there is a corresponding increase in productivity also seems a valid proposition.  Both sides are partly right.

However, as our economic performance worsens, the inevitable outcome of rapidly hardening attitudes between unions and business is likely to be greater strike action and IR conflict. Whilst this tension between labour and capital is age-old, neither side offers resolution to the immediate problem of ineffective demand.

If unions have their way with pay rises, it will be inflationary and put further pressures on business to reduce staffing levels. If business holds its line on no further pay rises, from whence shall effective demand arise?

If the current approaches of labour and capital can be seen not to address the problem, is there any alternative to these rapidly bifurcating attitudes? Must we find ourselves in one camp or the other?

Let us consider how to provide wage increases without adversely affecting business or generating inflation.

THE SOLUTION

The Henry review of the tax system seems to offer the only solution for Australia. Ken Henry’s panel strongly argued the need to abolish many inefficient taxes that adversely affect business, increasing its costs and adding to consumer prices.

The tax inquiry showed a transition to a greater reliance upon natural resource rents and reformed State land taxes, both being in the nature of a community-generated surplus product, otherwise known as economic rent, won’t add to business costs if a greater part of it is captured to revenue coffers.

As natural resource-based revenues do not add to business costs is the one point on which all economists do agree, it’s a pity neither of the major parties has been prepared to take this up and educate the public to that effect. Vast ignorance exists on this critical point, and the parties remain fearful and delinquent in not mentioning it.

It is therefore clearly possible that tax cuts can deliver increased incomes both to businesses and consumers without being inflationary.

Is this not the solution to the impasse currently confronting unions, businesses and all Australians? Would not this action assist debt to be paid down whilst also restoring consumer confidence that the tax system is finally providing better signals, namely, that increased productive effort will be rewarded instead of punished?

If the public tax forum to be held in Canberra on 4th and 5th of October fails to grasp this nettle, Australia’s economic future appears certain to grow increasingly bleak.

Mark Twain: “A Connecticut Yankee in King Arthur’s Court”

Chapter 13:   Freemen!

By a sarcasm of law and phrase they were freemen. Seven-tenths of the free population of the country were of just their class and degree: small “independent” farmers, artisans, etc.; which is to say, they were the nation, the actual Nation; they were about all of it that was useful, or worth saving, or really respectworthy; and to subtract them would have been to subtract the Nation and leave behind some dregs, some refuse, in the shape of a king, nobility and gentry, idle, unproductive, acquainted mainly with the arts of wasting and destroying, and of no sort of use or value in any rationally constructed world.

And yet, by ingenious contrivance, this gilded minority, instead of being in the tail of the procession where it belonged, was marching head up and banners flying, at the other end of it; had elected itself to be the Nation, and these innumerable clams had permitted it so long that they had come at last to accept it as a truth; and not only that, but to believe it right and as it should be.  The priests had told their fathers and themselves that this ironical state of things was ordained of God; and so, not reflecting upon how unlike God it would be to amuse himself with sarcasms, and especially such poor transparent ones as this, they had dropped the matter there and become respectfully quiet.

…when the harvest was at last gathered, then came the procession of robbers to levy their blackmail upon it: first the Church carted off its fat tenth, then the king’s commissioner took his twentieth, then my lord’s people made a mighty inroad upon the remainder; after which, the skinned freeman had liberty to bestow the remnant in his barn, in case it was worth the trouble; there were taxes, and taxes, and taxes, and more taxes, and taxes again, and yet other taxes – upon this free and independent pauper, but none upon his lord the baron or the bishop, none upon the wasteful nobility or the all-devouring Church.

WHERE RELIGIONS GO WRONG

Millionaire Joseph Fels (1815 – 1914) once received the following begging letter from the Dean of a theological institution:

Having read much of you and your many acts of charity and philanthropy, I write to ask for a donation from you for our institution. It may seem strange that I ask this of one who is not of our faith, yet I have read in some of your speeches that you make no distinction of race, creed, or color, and that you regard all men as your brothers; that you believe in the Brotherhood of Man and the Fatherhood of God. Thus you are teaching what our institution teaches, and our school is doing, as best it can with limited means, the work you are trying to do. …

Fels’ response cut the ground from under the Dean and those who believe charity can ever be a replacement for economic justice:-

TRUE CHRISTIANITY AND MY OWN RELIGIOUS BELIEFS

Replying to your communication, I am at a loss to know where you have read of my acts of charity and philanthropy.” I am not a philanthropist, and give nothing to charity. When you say I am not of your “faith,” I suppose you mean of your creed. Let me state my faith, and we can see wherein we differ.

I believe in the Fatherhood of God, and therefore in the Brotherhood of Man. By “Man,” I mean all men. So far, I suppose we agree.

I believe that the Creator freely gave the earth to all of His children, that all may have equal rights to its use. Do you agree to that?

I believe that the injunction, “In the sweat of thy brow shalt thou eat bread,” necessarily implies, “Thou shalt not eat bread in the sweat of thy brother’s brow.” Do you agree?

I believe that all are violating the divine law who live in idleness on wealth produced by others, since they eat bread in the sweat of their brothers’ brows. Do you agree?

I believe that no man should have power to take wealth he has not produced or earned unless freely given to him by the producer. Do you agree?

I believe that brotherhood requires giving an equivalent for every service received from a brother. Do you agree?

I believe it is blasphemous to assert or insinuate that God has condemned some of His children to hopeless poverty, and to the Crimea, want, and misery resulting therefrom, and has, at the same time, awarded to others lives of ease and luxury, without labor. Do you agree?

I believe that involuntary poverty and involuntary idleness are unnatural, and are due to the denial by some of the right of others to use freely the gift of God to all. Do you agree?

Since labor products are needed to sustain life, and since labor must be applied to land in order to produce, I believe that every child comes into life with divine permission to use land without the consent of any other child of God. Do you agree?

Where men congregate in organized society, land has a value apart from the value of things produced by labor; as population and industry increase, the value of land increases, but the value of labor products does not. That increase in land value is community-made value. Inasmuch as your power to labor is a gift of God, all the wealth produced by your labor is yours, and no man nor collection of men has a right to take any of it from you. Do you agree to that?

I believe the community-made value of land belongs to the community, just as the wealth produced by you belongs to you. Do you agree to that?

Therefore, I believe that the fundamental evil, the great God-denying crime of society, is the iniquitous system under which men are permitted to put into their pocket, confiscate, in fact, the community-made values of land, while organized society confiscates for public purposes a part of the wealth created by individuals. Do you agree to that?

Using a concrete illustration: I own in the city of Philadelphia 11½ acres of land, for which I paid 32,500 dollars a few years ago. On account of increase of population and industry in Philadelphia, that land is now worth about 125,000 dollars. I have expended no labor or money upon it. So I have done nothing to cause that increase of 92,500 dollars in a few years.

My fellow-citizens in Philadelphia created it, and I believe it therefore belongs to them, not to me. I believe that the man-made law which gives to me and other landlords values we have not created is a violation of the divine law. I believe that Justice demands that these community-made values be taken by the community for common purposes instead of taxing enterprise and industry. Do you agree?

That is my creed, my faith, my religion. Do you teach that, or anything like it, in your theological school? If not, why not?

I have a right to ask, since you have asked me for money. If you agree to my propositions, but do not teach them, tell me why. If I am in error, show me in what respect. I am using all the money I have to teach my creed, my faith, my religion, as best I can. I am using it as best I know how to abolish the Hell of civilization, which is want and fear of want. I am using it to bring in the will of our Father, to establish the Brotherhood of Man by giving each of my brothers an equal opportunity to have and use the gifts of our Father. Am I misusing that money? If so, why, and how?

If my teaching is wrong and contrary to true religion, I want to know it. I take it that if you are not teaching religion to its fullness, you wish to know it. Am I correct?

What I teach may be criticized as mixing politics with religion, but can I be successfully attacked on that ground?

Politics, in its true meaning, is the science of government. Is government a thing entirely apart from religion or from righteousness? Is not just government founded upon right doing?

If my religion is true, if it accords with the basic principles of morality taught by Jesus, how is it possible for your school to teach Christianity when it ignores the science of government? Or is your school so different from other theological schools that it does not teach the fundamental moral principles upon which men associate themselves in organised government? Do you question the relationship between taxation and righteousness?

Let us see. If government is a natural growth, then surely God’s natural law provides food and sustenance for government as that food is needed; for where in Nature do we find a creature coming into the world without timely provision of natural food for it?

It is in our system of taxation that we find the most emphatic denial of the Fatherhood of God and the Brotherhood of Man, because, first, in order to meet our common needs, we take from individuals what does not belong to us in common; second, we permit individuals to take for themselves what does belong to us in common; thus, third, under the pretext of taxation for public purposes, we have established a system that permits some men to tax other men for private profit.

Does not that violate the natural, the divine law? Does it not surely beget wolfish greed on the one hand, and gaunt poverty on the other? Does it not surely breed millionaires on one end of the social scale and tramps on the other end? Has it not brought into civilization a hell, of which the savage can have no conception? Could any better system be devised for convincing men that God is the father of a few and the stepfather of the many? Is not that destructive of the sentiment of brotherhood?

With such a condition, how is it possible for men in masses to obey the new commandment, “that ye love one another”? What could more surely thrust men apart? What could more surely divide them into warring classes?

You say that you need money to train young men and fit them “to carry the Word to the heathen of foreign lands, and thus be instrumental in dispelling the darkness that reigns among millions of our brethren in other lands.” That is a noble purpose. But what message would your school give to these young men to take to the benighted brethren that would stand a fire of questions from an intelligent heathen? Suppose, for example, your school sends to some pagan country an intelligent young man, who delivers his message; and suppose an intelligent man in the audience asks these questions:

“You come from America, when your religion has been taught for about 400 years, where every small village has one of your churches, and the great cities have scores upon scores. Do all the people attend these churches? Do your countrymen generally practice what you preach to us? Does even a considerable minority practice it? Are your laws consistent with or contrary to the religion you preach to us? Are your cities clean morally in proportion to the number of churches they contain? Do your courts administer Justice impartially between man and man, between rich and poor? Is it as easy for a poor man as for a rich one to get his rights in your courts?

You have great and powerful millionaires. How did they get their money? Have they more influence than the poor in your churches and in your congress, your legislatures and courts? Do they, in dealing with their employees, observe the moral law that “the laborer is worthy of his hire”? Do they treat their hired laborers as brothers? Do they put children to work who ought to be at play or at school? Do your churches protect when the militia is called out during a strike, or do they forget at such times what Jesus said about the use of the sword?

After four centuries of teaching and preaching of your religion in your country, has crime disappeared or diminished? Have you less use for jails? Are fewer and fewer of your people driven into madhouses, and have suicides decreased? Is there a larger proportion of crime amongst Jews and infidels than among those who profess the Christian Religion?”

What answers would your missionary return to these questions? How would you answer them?

I do not attack Christianity. The foregoing questions are not intended as criticism of the great moral code underlying Christianity, but as criticism of the men who preach, but do not practice that code. My contention is that the code of morals taught to the fishermen of Galilee by the Carpenter of Nazareth is all-embracing and all-sufficient for our social life.

I shall be glad to contribute to your theological school or to any other that gets down to the bedrock of that social and moral code, accepts it in its fullness, and trains its students to teach and preach it regardless of the raiment, the bank accounts, the social standing or political position of the persons in the pews.

–         Joseph Fels

 

NEW DOCO

Prosper Australia has every reason to be proud of its new documentary “Real Estate 4 Ransom” which debuted to a packed audience at the Australian Centre for the Moving Image at Federation Square in Melbourne last night.

Fast, focused and entertaining, it is a tribute to co-directors Karl Fitzgerald and Gavin Emmanuel that they were able to produce such complete, timely and powerful insights on a shoestring.

Whilst economics is often boring, this wasn’t the case as “Ransom” transported its audience right to the heart of the reasons for the global financial collapse.  It is arguable even the resplendent and commercially successful “Inside Job” failed its viewers against this criterion, settling instead only for a fascination with crooked financial personalities and the Glass-Steagall Act.

As “Ransom” exposes a connection between the world’s tax systems, escalating land prices and the financial collapse, l hope it finds a much wider audience than last night’s obviously appreciative one.

It most certainly merits it.

THE RIOTS

The rioting in England is indefensible, but how to understand it?

I’ve mentioned several times throughout these blogs that the rent of land represents community.  However, although land and natural resource rent is community-generated, less and less of it has been captured back for public revenue over the last forty years.  Thereby, a sense of a community has been lost.

That’s because it has become fashionable to privatise the rent of land and natural resources in the misbegotten belief that ‘user pays’ and increased taxation is preferable to the public capture of publicly created resource rents. It is largely privatisers of our natural resource rents who’ve been able to put about this self-serving idea. And they’ve sold it successfully to government.

The cumulative effect of the process over forty years has been to widen the gap between rich and poor. This now vast divide is well documented, but the role of land rent remains virtually invisible.

Right wing shock jocks consider that parasitic leeching of natural resource rents by private interests is respectable employment, and, unable to think through the logical consequences, they’re flabbergasted by London’s street riots.

The rising of the hun in the city is obviously a function of poverty and dispossession. Feeling disenfranchised and disconnected, these predominantly lower class youth exhibit their hate for a system that keeps them down and often unemployed whilst bank CEOs who crashed the system flaunt their multi-millions.  Unlike many of us, the rioters see the game is rigged and their frustration has spilled over into aggression and excess.

But it’s not just happening in the west.  It’s a worldwide contagion.  This compelling cover story in India’s national magazine “Frontline” shows private rent-seeking is also doing gangbusters in India.

 

OPEN LETTER TO AUSTAN GOOLSBEE

 

 

 

 

 

 

Dear Austan,

You didn’t reply to my last e-mail on 10 March 2009, but that’s OK, because I know you’re pretty busy. But most people can see this thing’s become a full-blown financial depression now, and I thought you might be more interested in what I want to suggest to you this time around.

I e-mailed you because I know you’re a mate of President Barack Obama’s, and you might convey to him this recipe for a quick exit from this collapse.

It’s all about the ONLY way to get out of it, Austan. Nothing else can possibly work, believe me. There’s much history to this effect.

President Obama needs to do a near-immediate tax shift, off producers, off workers, off exchange and thrift – and onto the rent of land and natural resources.

We’ve just had a major inquiry into tax reform here in Australia, Austan. The panel for ‘Australia’s Future Tax System’ was headed up by Treasury Secretary, Ken Henry. Henry and his panel did a great job.

The panel has come out in favour of abolishing most of our hopelessly inefficient taxes and getting significantly more rent revenue from mineral resources and from land.

The mining tax is being amended to a less effective format, but it’s going ahead. There’s to be a public meeting in Parliament House, Canberra, from 4th to 5th of October this year to see what other of Ken Henry’s panel recommendations Australia ought to employ.

I’m hoping we’ll take up the recommendation for an all-in single rate land tax – more correctly (as you’d realise) a land rent.

That’s because, as you’ll see at this particular hyperlink, the land rent/tax has an incredibly strong pedigree.

You’ll know, as any economics text book says, Austan, the charge on land values won’t be able to be passed on in prices, and it will help to allocate our natural resources more efficiently. It will put an end to monopoly and speculation in land, virtually reversing the process that led to this financial collapse, because we’ll also be taking taxes off productivity and getting things moving again.

Such a revenue shift will give all the right signs to productivity.

We have a politician here, Barnaby Joyce, who warned us of this ‘economic Armageddon’.  I doubt, however, he’ll take it further, because it would need guts for him to take the next step and press for the implementation of Ken Henry’s reformed State land tax to get us out of this mess.

I hope you might have the gumption to do so with President Obama, Austan.

Good luck, and best regards,

–      Bryan Kavanagh

TODAY’S “AGE” MUST BE HAVING US ON?

MY ITALICISED COMMENTS FOLLOW PART OF  (a)  ITS EDITORIAL  (b) ROSS GITTINS’ BRAINLESS OPINION PIECE

(a) “Reasons to resist the financial panic”

Confidence and psychology play a nebulous but massive role in the real economy, as they do in financial markets. Australia long ago embraced global markets for goods and services and capital. Thus we are not immune from the turmoil wiping hundreds of billions of dollars from financial assets the world over, including some $55 billion here in several hours yesterday.

….. But there are fundamental reasons, too, why Australians ought to have greater confidence than is suggested by the plunge in the local sharemarket. Our economy is not shackled by debt. Nor is it highly taxed relative to other industrialised nations. The federal budget is headed towards surplus. This is the result of prudent public policy over the past quarter of a century. ….

Oh, good, the government’s doing fine, but what about the astronomical level of debt Australian households are carrying (and trying, with mixed success, to reduce)?  Generated, of course, by record land prices and, yes, by respective governments’  excessive taxation! That private debt doesn’t rate a mention, Mr Editor? Isn’t the fact that the Australian public doesn’t have a dollar to spend just a little bit worrying, you great pillock!

As for the “prudent public policy” of both Liberal and Labor governments presiding happily over the reduction of Australians’ real wages and their spending into a real estate bubble of $2.8 trillion between 1999 and 2010 ….! This includes some $805 billion we are somehow going to have to manage writing off, by the way.

Australia’s position is, in fact, far WORSE than anywhere else in the world, Mr Editor, whilst you, are off in la la land, away with the fairies!

Oh, I get it! Maybe making soothing noises will patch over the structural financial mess that surrounds us! Fat chance!

(b) “Importing gloom belies burgeoning national economy “

“While Europe and the United States are struggling, our budget deficit isn’t particularly big and our level of government debt is laughingly small, writes Ross Gittins.

Is it possible for a country that’s the envy of the developed world to talk itself into a recession? I don’t know. But it seems we’re about to find out.   …. Mining boom (blah blah) …. Pay rises are few (blah blah) …. Not  because the media are putting a negative spin on all the news, reveling in the bad news and forgetting to mention the good.

Now, Ross, please tell me you’re not a neo-liberal economist; a blinkered high priest for the status quo?

You didn’t write THE AGE editorial, did you. Ross?

Hey! Fairy stories some other time, you guys! Australia meanwhile has a serious structural problem of household debt with which we have to contend!

THE AGE can be much more forensic.  It can surely do much better than that sort of crud.


Giving tea partiers and so-called libertarians a serve

TELLING IT LIKE IT IS – THESE TWO MOBS ARE BEYOND THE PALE

Unfortunately, modern Tea Partiers and most libertarians, who should be able to solve the problems of the US economy, have become integral to its hopeless morass.  They should read the proud history of the Boston tea party.

If you’re against taxes, guys, you’ve got to be for rents.  Only morons can be against both. Read your Locke, your Adam Smith, your Henry George.

And look at the timeless common sense of your forebears: “Put to the vote: as many are of the opinion that a public tax upon the land ought to be raised to defray the public charge, say ‘yea’.” …. “Carried in the affirmative, none dissenting.” (Philadelphia’s first tax law, 30 January 1693)

You are usurpers! You’ve fallen for the neo-classical idiocy that land doesn’t exist separate from capital anymore, and therefore, like the return to capital, land rent may be privatised. [!]

But land and its rent are separate from capital, guys. Unlike capital, no individual created them – and therein lies your BIG fallacy!

Land and natural resource rents which represent the community occupy 50% of the economy, and are therefore owed back to ALL the people because they created it.  But you seem to think this is communistic and are therefore presumably happy to include bank CEOs and their minions in with the 0.1% of the population who, like parasites, capture these publicly-created values.  I hate to tell you, guys, but that’s not ‘free market’, it’s socialism for the rich!

And allowing them to thieve from us is why we’re taxed when we should not be. (That last bit’s the only part you’ve got right!)

You have now made yourselves as irrelevant as the politicians you criticise.  Wake up to yourselves, you boorish idiots!