OCCUPY MELBOURNE

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I WENT ALONG TODAY to “Occupy Melbourne”, with Karl Fitzgerald and the Prosper Australia team who’ve been there regularly.

What a great spirit was happening at the City Square!

Let some of the mainstream accuse the “Occupy” movement of this or that, but I was incredibly impressed and encouraged.

To those people bemused about what we’re on about when we’re clearly not as badly off in Australia as people in the USA, Ireland, Greece, Italy … etc.,  (yet), I would simply ask is it necessary to implode fully before we start to challenge the arrant nonsense that delivers Australians’ common wealth to rent-seeking parasites, whilst the 99% pays taxes on its comings and goings?

A great day, with a number of passers-by and inquirers agreeing that Prosper Australia and others at the City Square have much to recommend their ideas.

My day was surprisingly topped off for me when Alex’s groovy little band of musos gave the microphone to Karl Fitzgerald who then proceeded to do an incredible five minute rap on E-CON-O-MISTS.  And didn’t the crowd love it! Hidden talents, no longer, K2!

Good luck guys! The Melbourne City Council has been good so far.  I trust the Queen’s visit doesn’t have Lord Mayor Robert Doyle move in on you.

REVOLUTION IN THE AIR

Most of the people rioting and protesting around the world have got one thing right: the super wealthy have been stealing from us.

You’d have to question the perspicacity of anyone who would deny the fact, because the observation has resonated deeply with many people. We are awash with studies and data showing the rich have grown obscenely richer, whilst much of the 99% is impoverished and debt-laden.

Few, however, have got to grips with the two nearly invisible means by which this pea and thimble trick has been worked upon them – which doesn’t fill one with confidence that the “Arab Spring” revolution or the west’s “Occupy” movement will be able turn things around quickly.

We can only cross our fingers that people will come to see financial institutions’ ability to create money by a computer keystroke and their lending of funds against the chimera of land price for the two pathologies they are.

It is they that create the knot in the fair and proper distribution of the gross domestic product and deliver the earned incomes of labour and capital to the rich.

But first things first. As land prices collapse around the world, let’s keep them collapsed by capturing their rents for public revenue. Unusual? Too simple?

Yes, this remedy is always been criticised as being “too simple”, but it’s interesting to note how wages flow to labour and capital unimpeded under such a regime, and away from the lords of the land. So, it’s worth investigating, surely?

With such a revenue base in place, taxes on labour and capital could be gradually wound back and abolished, rectifying the distributional knot that has channelled wealth away from its creators to the drones and parasites.

Then, and only then, when banks are no longer able to assess the vagaries of escalating land prices amongst their “assets”, will we need to deal with the secondary problems of money and credit creation.

These are the correct priorities.

A WAY TO MAKE A MARKET-BASED ECONOMY WORK

 

IT OCCURS to me that both the rioters in Greece and the protesters taking part in “Occupy Wall Street” have a point.  It’s too glib to dismiss them out of hand as socialists or “lefties”.

Joseph Stiglitz noted in a Vanity Fair article that one percent of the US captures as much as one quarter of its national income, “an inequality even the wealthy will come to regret.”

Paul Krugman has also come out sympathetically in The New York Times: “The way to understand all of this is to realize that it’s part of a broader syndrome, in which wealthy Americans who benefit hugely from a system rigged in their favor react with hysteria to anyone who points out just how rigged the system is.”

Although Prime Minister David Cameron sees English rioters, looters and trouble makers simply as criminals, a more thorough examination is likely to discover civil strife to be an inevitable outcome of poorly distributed wealth also in the UK.

The ninety-nine percent is indeed being constantly robbed by the “one percent”, but what exactly is the mechanism that channels wealth from its creators to the wealthy?

Wall Street’s in double trouble, because even the Ayn Randian right lays the problem on its doorstep. The banks provided too much credit to non credit-worthy people, it suggests.

In this connection, Friedrich Hayek’s thesis that excessive credit expansion is a precursor to economic depression has much to commend it, but my respect for the Austrian school of economics ends about there. It can see little or no scope for government ownership of natural monopolies.

Nor, in its brain-dead opposition to anything relating to society as a whole, does the libertarian right see a case for socialising the community-generated economic rent of natural resources, including land. People and companies may own all the land they choose, without having to pay anything like its annual rent to the community. This, they rabidly claim, would be communitarian; socialistic.

Only a handful of libertarians, seeing how such a stance conflicts with the principles of freedom, advocate merging with the Georgist school of economics. (See also Georgism)

And there’s the rub. Is not the economic rent of land and natural resources indeed the common wealth?

As we capture insufficient land rent by way of municipal rates, we have no real market in land, no true property market. Land may simply be held off the market without penalty. It will neither rust, decay nor become obsolete, and – as the price of a piece of land is simply the private capitalization of that part of its rent not captured for public revenue – recent history has guaranteed a profit if it is held idle until a land-hungry community will pay its ransom.

Since the outset of the 1970s, we’ve captured less and less land rent for public revenue, so why would people not set their caps for the increasing capital gains to be had in real estate, unless there were a market-based incentive to sell? People will tend to obey the polity’s tax regime signals.

We must live and work somewhere, and if properties are held underdeveloped or vacant without having to pay their annual value to the public purse, their prices will be bid up into unsustainable bubbles such as we’ve recently experienced, and we’ll be forced to extend the urban sprawl into our hinterlands.

As we’re beginning to discover, the calamitous financial bill must eventually be paid for this tax-induced misbehaviour.

Meanwhile, Wall Street continues to print money to save the US from economic depression whilst, alternatively, Europe prescribes sackcloth and ashes for errant Ireland, Greece and others.

Both approaches are doomed to fail.

There’s an altogether different remedy that will work, but which nobody is seriously investigating. It reverses the process that got us to this point.

First, debt that can’t be repaid, won’t be repaid, so banks must write back their assets to non-bubble inflated market prices. They oughtn’t have accepted bubble-inflated real estate prices as loan collateral in the first instance, and, having done so, shouldn’t seek to dispossess borrowers who can’t meet their originally impossible repayment arrangements. Loans must be adjusted accordingly. Banks that fail as a result will undoubtedly be purchased after due diligence is undertaken on their true asset values.

Secondly, tax regimes should switch from taxing ‘goods’ to taxing ‘bads’ as soon as practicable, in order to resuscitate foundering economies. This involves capturing more and more economic rent from land and natural resource use, and less and less from taxes on labour and capital.

This is the only real recipe for successfully addressing collapsing markets and civil unrest, but I’m not confident bankers and politicians are willing to listen to the voices in the street.

They seem to have a preference for the one percent.

THE FIGURES

Australia’s publicly-generated land rent in 2010 was $370 billion

Rent captured publicly was $32 billion

Therefore, the rent privatised (largely by the 1%) was $338 billion (whilst the 99%, paid $300 billion in other taxes)

i.e. The taxation paid by the uber wealthy is more than recovered by their privatising  of the public’s rent

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This piece was also carried (without the figures) in Online Opinion on Wednesday 12 October 2011

TAXES AND THE NANNY STATE

Radio 3AW’s Neil Mitchell said this morning the “numb nuts” who want to tax soft drinks in order to tackle obesity, and tax this, that and the other, for such-and such reasons ought to “get out of our lives”.  Health and other experts are constantly telling us what we should be doing to the tax system in order to fix this or that, he says.

It’s hard to disagree with Mitchell that we have indeed become a nanny state.

He mentioned the case of a chap in the municipality of Darebin who has been charged double rates on the lot on which he grows vegetables next to his home, because council considers it to be ‘vacant’, and doesn’t want to encourage vacant allotments in residential areas, veggie gardens or not.

Mitchell’s examples parallel goings-on in the tax forum being held in Canberra over the last two days.  The experts have been invited, so we’re getting a cacophony of views commenting upon the far-reaching recommendations of Ken Henry’s panel which inquired into ‘Australia’s Future Tax System’. Many participants, of course, argue from a perspective of self-interest, instead of what’s good for the nation.

Ken Henry

I’ve watched some of the Canberra proceedings streamed live, and, looking at Ken Henry, imagine he must be terribly frustrated at what’s happening about him, because his panel recommended the abolition of a multiplicity of inefficient taxes, and the use of four revenue bases, only. This has virtually become invisible in the discussion.

I could see the invited experts are obviously very intelligent people, but, each and every one of them has been deprived the privilege of studying Ricardo’s Law of Rent (community-created economic rent) in any depth.

Although this is the same economic rent Sir William Petty used to value Ireland for William the Conqueror, today’s textbooks condition us, by lying to us, that economic rent is as low as one or two percent of the economy.  Therefore, economic rent is not worth quantifying, not even worth studying, much less capturing for public revenue:-

….. land rent forms such a small percentage of national income that 2% is nothing compared to the present tax percentages, which are around 30. …… All this makes a figure of 1-2% for the remuneration of land sound incredible, and yet that is reality.”  Income Distribution, Jan Pen, Penguin Press, London, 1971

But by 2000 urban land rents represented only 4 percent of national income, even in crowded England with its very high housing costs.A Farewell to Alms: A Brief Economic History of the World, Gregory Clark, Princeton, 2007

Even if governments could take all rents without rebellion or severe recession (sic), rents would not come close to covering expenses. In 1929 property rents accounted for about 6 percent of national income. The percentage has steadily dropped (sic) to well under one percent today. Whereas property taxes once provided 65 percent of state and local budgets, they now supply about 17 percent.”  New Ideas from Dead Economists: An Introduction to Modern Economic Thought, Todd G Buchholz, Plume, New York, 2007

With all this obfuscation, it is therefore remarkable that Ken Henry chose land tax as one of the four most efficient tax bases around which Australia should seek to build its future.

If the character of a nation is shaped by its system of taxation, against this criterion we should be capturing to the public purse the nation’s economic rent: the whole rent, and nothing but the rent.

Although this might appear to satisfy Neil Mitchell’s concerns about nanny state taxes, not so. Neil may shortly be relied upon to conduct his annual onslaught against state land tax.  (Sigh! :()

The understanding that individuals ought not be able to privatise the 50% of the economy which is our economic rent – created not by individuals but by the Australian community as a whole – sadly continues to elude our ‘experts’.