‘BEEB’ MISSES THE BOAT, TOO!

The battle between Austrian and Keynesian economists, though sometimes painted as being ‘heterodox’ in comparison with ‘orthodox’ neoclassical economics is little more than a charade.

BBC World Service radio last night featured a very good run down on what both schools had to offer the world in its current financially strapped state. It included audio excerpts from the now famous ‘fight of the century’ between Lord Keynes and Friedrich Hayek.

I’ve previously featured the excellent video on this site, but challenged that it couldn’t possibly be the fight of the century when the champ, Henry George, was precluded from the bout.  George concerned himself with people and the planet – the combination of which makes up the real economy.

And Europe and the US aint going nowhere until governments introduce the real economy into their currently mistaken considerations.

So, like the video fight of the century, the BBC has also managed to exclude the Georgist school of economics.  After all, this devastating financial havoc WAS indeed initiated by real estate bubbles!

To underline this point, if you revisit my model here, you’ll see that Austrians and Keynesians, like neo-classical economists, have become too fascinated by the man-made moon on the left of the diagram, and are not getting to grips with the central real world economy, comprised of people and the planet, nor the natural moon of economic rent.

DECADENCE

In a tightly packed audience I watched the Melbourne preview of Pria Viswalingam’s documentary film “Decadence” in cinema 10 at Carlton’s Cinema Nova last night.

With another in what’s likely to become a spate of films documenting this damning episode in human history, one trusts it won’t need to be buried in a bomb-proof container for some newly-emerging posterity to discover.

The well-travelled and talented Viswalingam features in the doco in the manner of the laconic casual observer that made his SBS “Fork in the Road” and “Wine Lovers’ Guide to Australia” series so interesting and enjoyable.

What with the financial collapse, and protesters milling against corporate greed as they occupy Wall Street, Pria VisW has decided the time is ripe to document the western world’s recent supremacy has come to an end.  I’d go so far as to say he’s correct.

Viswalingam invokes the late British historian Kenneth Clark to help us realise past civilisations have similarly managed to destroy themselves by the gradual decline in their morality and confidence.

He flits engagingly from hither to yon to present compelling evidence of the decay and imminent collapse of western society.  His visuals and sound are impressive, especially his outdoors audio which is not, but could have been, recorded in a studio.

Loved your reference to our economic “boofheads”, Pria!

Unfortunately, however, and despite having trained in the liberal arts at Cambridge, Viswalingam fails to pinpoint the mechanism identified by Pliny the Elder as being responsible for the collapse of Ancient Rome is also inextricably involved in removing the US from its occupancy of the economic pinnacle:  i.e. “Latifundia perdidere Italiam”. (The great landed interests destroyed Italy.)

Whilst the documentary is more far-reaching than “Inside Job”, I believe its reasoning doesn’t quite match up to Karl Fitzgerald’s punchier and more incisive “Real Estate 4 Ransom” as the explanation of western society’s collapse.  Pria is comparatively preachy and generalised in his opinions, but maybe I’m biased in favour of RE4R because I’m in it.

The difference is that, in identifying the rent-seeking catalyst, “Real Estate 4 Ransom” offers a belated means to avoid the catastrophe by reversing the process.  Surely, after all, it is civilisations that fail to evolve by correcting their mistakes that die?

It was a pity there was no Q & A after the session.  Although Pria did invite everyone down to Jimmy Watson’s, I chose not to go, whether out of laziness or not wanting to be seen to indulge in such decadence, I’m not certain; but like the doco, I’m sure it would have been enjoyable.

 

HEDGEHOG?

I’m a ‘Johnny One Note’ about the rent of our natural resources, because it’s the most important area on which the modern economist can most easily be proven to be completely misguided and wrong.

Yet it is to high level modern economists that the world’s nations entrust the levers that govern our daily lives.

Economic rent is deemed to be so unimportant by today’s neo-classical economist that he’s told he might just roll it in with the return to capital. Though it requires the suspension of disbelief, he’s been educated to say there’s no essential difference between nature and anything man-made.

Like watching a young child poking a piece of metal into an electrical power point with approval, this mistruth has long been an accident waiting to happen. And now it’s happening in spades as unemployment increases around the world.

As economies collapse like dominoes, the worthlessness of the likes of US presidential advisers Alan Greenspan, Ben Bernanke, Henry Paulsen, and Timothy Geithner has been exposed for all to see, and the ineffectiveness of the economic advice being given to European leaders is now also being questioned – for good reason.

These economists, mules packing a library as Henry George called them, didn’t know about, or else hid from the public’s gaze, how the privatisation of natural resource rents—owed equally to all the people—has impoverished all but the parasitical rent-seeking one per cent.

So, yes, I consider economic rent is very important.

As I’ve also played a small part in assessing the quantum of Australia’s land rent, I’ve accepted the burden of trying to get this overlooked truth out there.

There’s more work to be done in the area of quantifying land rent, but I’ve little doubt that in most other countries it’s similar to Australia’s, that is, some thirty per cent of the economy, and that natural resource rents other than land–including mineral, fishing, forestry, spectrum and flight path rents–would bring it close to fifty per cent.

Fifty per cent of the economy!  Yet neo-classically-trained economists can clot together, look you in the eye, and try to tell you it’s only from one to four per cent.  That lie explains why we are where we are.

I think that’s amazing enough to go on about.  I guess I’m a hedgehog.

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The fox knows many things – the hedgehog one big one.
– Archilochus (c.650 B.C.)

CHALLENGING CORRUPTION

Whether in the Arab Spring or the Occupy movement in the West, despots and governments are being challenged more and more by younger people and others imbued with a sense of fairness and economic justice.

They’re sick of being mercilessly ripped off by the system itself. It stinks. And printing more money is the answer to nothing. It merely delays financial collapse until governments’ last vestige of credibility has evaporated.

I see Egyptians are getting windy that the revolution against the Hosni Mubarek regime might have merely replaced him with the military. They want civilian government.

There’s no certainty, however, that any civilian government would capture the economic rents from Egypt’s well diversified economy. Why won’t yields on natural resources continue to be expropriated by a privileged few, thereby continuing to impoverish Egyptians? After all, as in the west, they’ve not been educated to the massive quantum of natural resource rents within the economy—in fact, text books claim it’s a miniscule amount—so they don’t understand public capture is critical for successful societal change.

Just as a change of government in western society doesn’t necessarily address the one per cent’s privatisation of most of a nation’s natural resource rents, Arab Spring revolutions lacking a program to capture for the public what is the public’s are likely to be revolutions in name only, and likely to be ineffective.

The genesis for overthrowing dictators in the Middle East has largely seen better-schooled Arabs completing their educations only to find there’s no employment for them: they’ve been locked out of job opportunities.

There’s something terribly wrong with any system of government where people willing to work are unable to get employment, even to work productively for themselves.

The ability to work should be as natural as the ability to breathe. Nobody intervenes to stop people from breathing, but people do preclude others from access to natural resources – although such access is a precondition for work. Rent-seekers monopolise and commodify natural resources, and if you can’t buy in at their price, then you’re simply left out.

We can only trust those working for societal change confront the almost invisibly small but powerful group of rentier kleptocrats found behind every dictator, behind every corrupt government.

These are the parasites feeding off the people’s economic rent and denying them a living. These are the people pulling the strings of government, influencing them to call in university police with the pepper spray.

As always, their aspiration is to maintain control of peoples’ lives through their private capture of the public’s resource rents.

WHAT I DIDN’T HEAR – SPELLS DEEPENING SOCIAL & FINANCIAL DISASTER

“Prime Minister, Julia Gillard, men and women of Australia: the United States of America realizes it has pandered to the one per cent by allowing this minority to privatize the economic rents of its people.

As a result, the United States government, too, is in debt to the tune of $15 trillion dollars.

Therefore, to address this untenable situation and remove the 99% from the deep abyss into which it has been consigned, the US will, as of the next session of Congress, move to un-tax labor and capital.

[Great cheering ensues]

Thank you.  Having thus freed up the machinery of free enterprise, which had become so hopelessly shackled by the excesses of arbitrarily-applied taxes,  we’ll come to  see in the clear light of day that we created a false god of financial rent-seeking and excess.

[Cheers of agreement]

The USA will now revert to deriving its revenues from the publicly-generated economic rents of its land and natural resources – as once it did.

I am supremely confident that this essential initiative—which will almost certainly be followed by the economies of the world when they witness the positive results of this action—will herald the introduction of a new golden age of freedom and prosperity for everyone.

Thank you.”

[Relieved from their own guilt, the combined sitting of the lower and upper houses of Australia rises to its feet in prolongued clapping and cheering]

MAPPING FINANCIAL STABILITY

My colleague Gavin Putland has produced a brilliant technical analysis justifying most of what I’ve claimed are the benefits to be derived by the community from the public capture of land rent (the so-called land ‘tax’).

The major stumbling block Gavin puts his finger on is whereas a change “in the ‘land tax’ rate requires legislative change and is regarded as politically impossible, a rise in interest rates requires nothing but the executive decision of a central bank that is not answerable to the voters.

So, yes, Reserve Bank of Australia interest rate policy might similarly choke off the extent of speculative capital gains to be had from real estate ‘investment’—more particularly in the price of land—but the Bank always fails to employ it when it should, namely, during real estate bubbles.

Also, interest rate policy has proven to be a scattergun approach that affects much more than the property market. It doesn’t discriminate.

Those of a technical bent will be interested to visit Gavin’s exposition. On any reading it leads invariably to the same conclusion, though via a quite different route, to that which Ken Henry’s panel of inquiry came in connection with the Australian tax system—that all-in State land taxes are an essential revenue base.

Property lobbyists might care to note that the place of land value capture in financial stability has now been proven mathematically.

THREE CHARTS

I’ve explained previously that privatisation of the public’s rent is the mechanism by which the earnings of the 99% are stolen by banks and other parts of the 1%. I’m confident the public are beginning to awaken to the fact.

However, the current tax regime not only forces people to deliver the land rent – owed equally to all Australians – to the 1%, but, by not capturing our rent for public purposes, the deep sickness of rising land prices tends to increase exponentially – certainly NOT simply because of population increase and zoning controls, but because more and more economic rent has been permitted to be privately expropriated and capitalised further into rocketing land prices.

Oh, there’ll be an adjustment alright, as our incredible level of household debt finally comes home to roost.  Like the rest of the world, the mega greedy have run us right out of the effective demand that might keep the economy limping along. They took too much for themselves for too long.

Meanwhile, the fact that increases in Australia’s land prices are at the expense GDP growth is clearly shown in these three charts I’ve updated. The third chart demonstrates that so-called ‘booming’ real estate markets lead and direct the economy into regular recessions – or worse.

That’s how economies are killed.