~~~~~~~~~~~~~~~~~~ What we take, NOT what we make! ~~~~~~~~~~~~
~~~~~~~~~~ What we take, NOT what we make! ~~~~~~~~


My colleague Dr Gavin Putland’s work is so compelling, sometimes I should step aside from my blog and invite others to take a peep at it.

Gavin sums up why the GFC occurred and what we need to do about it here. It might sound technical, but it’s worth reading, because it says it all. Policy makers take note:-

“A simple equation involving price, rent, appreciation, interest and tax predicts that for realistic values of the parameters, the price of land should be infinite — or, if finite, far in excess of lenders’ capacity to supply credit and of borrowers’ capacity to service loans. In practice this means land prices will be bid upward until the financial system breaks, causing a credit crunch whose effects flow through to the rest of the economy. The associated “correction” in land prices, perhaps combined with financial reforms ostensibly designed to prevent any recurrence, eventually restores confidence. But unless the parameters in the equation are permanently changed, the recovery merely sets the stage for the next crash. The only parameters that can be permanently changed are those pertaining to tax. Paradoxically, the indicated tax reform would enrich property owners: by removing perverse incentives and encouraging investment in infrastructure, it would increase capacity to pay for land, so that the new (stable) price trajectory would be higher than the present (unstable) one. The alternative to such reform is a continuation of periodic financial crises and recessions.”

Read more here …

Whither Australian real estate?

BMW Edge Theatre


I attended the joint Australian Property Institute-Real Estate Institute of Victoria “State of the Market” seminar yesterday in the inspiring BMW Edge Theatre at Melbourne’s Federation Square.

I often find myself cringing throughout hubristic keynote speeches delivered by this or that bank chief economist at these six-monthly professional gatherings. As the GFC slowly loomed onto the horizon, they continued to regale us with charts and data purported to proclaim how strong and invulnerable the Australian economy is. Never a mention of the incredible $2.4 trillion real estate bubble into which Australian real estate had developed, nor of the $670 billion or so in debt that will have to be wiped off, making our big four banks tremble at the knees.

At a dinner function about a year ago, I mentioned to Chris Plant, Victorian President of the Australian Property Institute,  that I usually have to grit my teeth throughout many of these episodes, reminding myself that I need my continuing professional development points to total at least 20 by the end of the year. I’ve found there’s never a heterodox view permitted within the real estate industry, and the “State of the Market” presentations are upbeat to a fault.

However, while Westpac’s senior economist, Matthew Hassan, didn’t mention Australia’s real estate bubble (the biggest in the world incidentally), he gave an excellent presentation yesterday. It was laced with a number of meaningful charts, clearly explained. This can be no V-shaped recovery, Matthew suggested: there is unsustainable debt to come to light in the US which virtually ensures we may expect a ‘double-dip’, or ‘W-shaped’ recovery.

Hallelujah, Matthew! You said it like it is, and the conclusions you drew from your research seemed pretty solid to me. And you know what? (as Keven Rudd would say), I’m sure the packed audience appreciated your research and lack of BS.

Tony Crabb, Director of Investment Strategy at Savills, gave an optimistic account of the outlook for commercial, retail and industrial property in his inimitably smooth fashion, while Tim Church, head of real estate at UBS, opined that Australian real estate investment trusts seemed primed to climb back out of the hole into which they’d recently descended.

When I couple my barometer of the economy with the data presented by Matthew Hassan, however, as much as I’d like to believe Tony Crabb and Tim Church’s optimism,  I have a feeling they were wearing the industry’s usual rose-coloured specs yesterday.

Peter Garrett responsible for four deaths?

Peter Garrett
Peter Garrett

I loved Midnight Oil’s “Beds are burning” both for its great anthemic quality and for the line “the time has come to say fair’s fair, to pay the rent, to pay our share“.  It’s a pity it only related to our aboriginal brothers and sisters, when it could have been employed in the broader sense, to include us all.

On radio 3AW this morning Neil Mitchell held the “Oils” lead singer, now Minister for the Environment, Heritage and the Arts, Peter Garrett, responsible for the deaths of the four men who died installing the roofing insulation provided as part the federal government’s stimulus package. Implementing the program hastily and with insufficient training was destined to be extremely risky, if not disastrous, as it has proved to be.  As the responsible minister, maybe it could be said that Peter Garrett was ultimately responsible for the four deaths?

Neil Mitchell
Neil Mitchell

On exactly the same reasoning, Neil Mitchel, I trust you accept responsibity for the deaths of those who die for lack of daily wherewithal because of your publicly aggressive opposition to land tax?  When the ‘Harvey Report’ into Victorian state business taxes recommended reforming the land tax system you said on 28 February 2001:  “I think we (3AW) have a job … to convince the government not to do it!” Every year since then you have sympathetically taken calls from listeners claiming the state land tax to have affected them unfairly. Nevertheless, for all its distortions caused by the threshold, exemptions, multiple rates and aggregation provisions, most of which the Harvey Report had recommended reforming , it remains a fairer tax than any other state tax.  Had it been reformed along the lines of the Harvey Report recommendations, but also extended to all residential properties and increased significantly in order to replace Victoria’s share of the GST, payroll tax and stamp duty, it is arguable that Victoria’s state product would currently be double what it is today.

The reasoning behind this statement is carefully explained in “Unlocking the Riches of Oz” showing that Australia’s GDP would now be about $2 trillion instead of $1 trillion, had we captured half our publicly-generated land rent since 1972.  In other words, the deadweight costs of the taxation of thrift and industry and bursting real estate  bubbles are in fact costing Australians some $1 trillion dollars a year.  That’s an incredible amount.  If the Australian public were also to get a better return (than the crimnially low 10 cents a tonne) for the natural resources we ship overseas, it is quite arguable that most taxes could be scrapped, and that every man woman and child could receive a citizens’ dividend that would abolish the need for pensions and superannuation.  I hope people might peruse the reasoning accompanying the spreadsheet figures in “Unlocking the Riches of Oz” before they were to dismiss this apparently exaggerated claim.

So, I agree that there is, unfortunately, a sense in which Peter Garrett is responsible for the four deaths of the roof insulation installers. But I also consider that your spreading disinformation on land tax has done similarly, Neil. At a minimum, it has acted to reduce Victoria’s gross state product to favour real estate speculation, and is at least partly responsible for Victoria’s decline into the GFC.

A big call?  Maybe.  But yours this morning on Peter Garratt was no less so.

RBA to stop bubbles?

Glenn Stevens
Glenn Stevens

The governor of the Reserve Bank of Australia, Glenn Stevens, now considers central banks should be more proactive in dealing with dangerous asset bubbles.

I made the same suggestion to the previous governor, Ian Macfarlane in “The Coming Kondratieff Crash” in 2001, but Mr Macfarlane sought to place the blame for the financial threat well and truly outside his own backyard, saying in a talk to the Economic Society on 10 July 2001:  “The major threat to our future growth prospects now comes from the international economy, not from domestic factors.”

Mr Macfarlane and others will undoubtedly claim that the GFC did indeed emanate from overseas,  but this would be to ignore the case made by my colleague Dr Gavin Putland that data show recessions usually begin at home.

Glenn Stevens’ statement does merit a hearing from our policy makers: but it won’t get it.  It never does.  Nor would ratcheting up interest rates be the most appropriate policy.

Don Mercer
Don Mercer

Stevens’ earnestness reminds me of a statement made by Don Mercer when he took over as CEO of the ANZ Bank from Will Bailey in 1992.  Surveying the rubble surrounding him following the bursting of the 1989 real estate bubble, Mercer bravely declared that we had learned lessons from the ensuing recession that would see to it that such crashes would never occur again.

Maybe Australia’s recession hasn’t happened yet, Don, but it is only a matter of time.  Whilst messrs Rudd and Swan congratulate themselves for having forestalled an Australian financial collapse by means of their stimulus package, they might contemplate the possibility that their action was premature, because our real estate bubble hadn’t even burst, and that, in fact, their pre-emptory action acted to re-stimulate Australia’s incredible property bubble.

It’s implicit in Glenn Stevens’ statement that he believes early action on interest rates might choke off future bubbles. It could help a little, Glenn, but didn’t you notice that property bubbles also developed during the high interest rate regimes of the 1970s and 1980s?

No, I’m afraid the ONLY way to put an end to property bubbles, Glenn, is for policymakers and our elected representatives to ensure that a man’s home (or, more properly, his block of land) is no longer his tax haven. That is, tax policy should encourage industry and destroy real estate speculation, not vice versa.

Central bankers meet secretly in Sydney


It has come to my attention from a usually unreliable source that the secret meeting of central bankers convened in Sydney for today and tomorrow has come together to discuss my blog.  Apparently, most central banks consider that my assertion that we’re having this GFC because tax systems around the world have for too long been slaughtering wage and salary earners and rewarding real estate speculators is valid.

My source, who shall remain nameless, believes that the final paragraph of the letter calling the meeting posed the question:  “If Kavanagh is correct that finance, insurance and real estate is not the hub of the economic universe as we had previously thought, and if we are to end issues involving sovereign debt, then maybe tax systems do need be altered to send the right signals?”

Were this most unreliable rumour found to be true, the central bankers’ Sydney initiative would deserve international support.



Phew! Good to hear from Davos 2010 last week that things are looking up again. A ‘fragile’ recovery is underway it seems. Looks like I was wrong and will have to pull the plug on this blog!

Not really.  What a cacophony of misbegotten ideas to set world economies aright! Try as I might, I didn’t hear one suggestion that came close to solving the world’s social and economic problems, notwithstanding the presence of Sharan Burrow, the Australian president of the International Trade Union Confederation.

Davos didn’t properly define the cause of the collapse, so it stands to reason that it can’t possibly have a valid response to it.

Banks got a bit of a hammering. While they can’t hold their heads high over their part in the GFC (and many bankers were conspicuously absent from Davos 2010), might I suggest we dig a little deeper than the role bank credit played in the collapse?

Was it banks that caused the decline in real wages ever since 1972, Sharan? No, it was rather the combination of increasing taxation and increasing land prices.

People understand how taxes reduce net incomes: but land prices?  That’s a bit more difficult to explain but, trust me (or else take a peep at Unlocking the Riches of Oz again), there is necessarily an inverse relationship between escalating land prices and real wages. It’s also explained by the equation P = R + W + I (production is the sum of publicly generated land rent, plus private wages and the return to private capital).

So, if real wages are declining and real land prices are heading moonward, OF COURSE people had to resort to taking on greater and greater levels of debt!

Hey, Davos! Here’s a hint: maybe we can create effective demand, pay down debt and abolish impossible land prices if we capture more land rent for revenue, and pay less taxes on our productive efforts! So, stop patronizing us with stupid, interfering solutions! Get out of the way, and out of our pockets!

But that’s not all!  Listening to the entertaining breakfast team of Ross Stevenson and John Burns on radio 3AW this morning, I learn that the superannuation industry isn’t happy taking only 9% of Australians’ wages to make some asset or other favourite in their speculative binges with our billions. They want more – maybe 12%-15%! So, that’s taxes taking, what, a third?; mortgages taking a third; super taking a sixth? I guess that still leaves us another sixth on which to live (i.e. for food, clothing, entertainment, etc.)?

The really sad part is that when Ross and John ran a survey on whether we should pay more, as the super funds are seeking, one third of the respondents said ‘yes’! Sigh!  When will we be left alone to retain the salary we have earned – without the government and super funds demanding we give more and more of it to them?  When will we begin to stand on our hind legs about this enormous con! There’s a natural source for government revenue, fellas! Try publicly-generated land rent!  [Sorry, I forgot: that’s a ‘no-no’!]

Oh!  And I just heard on the news that the federal treasurer, Wayne Swan’s got plans to assist with Australia’s ageing society.  [Isn’t it great the government’s always coming up with these ideas to spend our money?]  Hey! It doesn’t include getting out of our pockets so we can look after ourselves, does it, Wayne?

Edward Gibbon Wakefield
Edward Gibbon Wakefield


We know that taxation destroys, and that land rent conserves, but policy makers nonetheless favour taxes on production, thrift and exchange, incorrectly stating “There’s not enough rent”.

It’s not stretching the truth to say that current revenue regimes were designed by sociopaths. Here’s a story that might reinforce this proposition.

Edward Gibbon Wakefield’s dad, also Edward, was a rotten father. Oh, yes, he hung around philosophising with John Stuart Mill’s dad, James Mill, but, what with that and his real estate business and his farm, he had no time at all left for young Edward Gibbon.

By age 15, Edward Gibbon Wakefield fulfilled every criterion for a sociopath.  He’d been kicked out of three schools. His mother, not being able to control him, had sent him to his stronger-willed grandmother. When Edward was 11, grandma Priscilla wrote back in 1807: “my mind painfully engaged in the perverseness of dear little Edward – his obstinacy if he inclines to evil terrifies me“. His “pertinacious inflexible temper makes me fear for his own happiness and of those connected with him” He “has a mind that requires delicate handling“.

Whilst in Newgate prison for marrying the second (or was it the third?) heiress he had abducted, Wakefield had this great idea! You could keep the masses genuflecting to the landed gentry if they couldn’t afford the price of a block of land! All you had to do was to set the land at “sufficient price” and they were your slaves! So, you didn’t need convicts in new colonies if you had tax-paying wage slaves who couldn’t afford a block of their own!

The idea was enthusiastically taken up in founding the new, gentrified colony at South Australia.  Although it worked up to a point, it was a bit of a pity that workers were thrown into unemployment within the year and that economic depression ensued.

Nevertheless, Adelaidians still erected a monument to Wakefield and named roads after him, because he was part of the landed gentry, you see, and he foreshadowed the very system to which we adhere today: i.e. let landowners line their pockets with the real wages stolen from those who work and produce. The middle class won’t even understand the process, or, for that matter, why recessions always follow the bursting of land price bubbles.  Just ask all those who attended Davos last week.



TRUE BLUE – apologies to John Williamson

Hey, True Blue

Give it to me straight

Are you still my mate …

All wrapped up in that flag

To fight another US war,

[I’m not really sure ….]

Hey, True Blue

Are you really disappearing

Or are you still in there

Using the tax man

To buy another prop-er-ty?

[It’s been botherin’ me ….]

Will you make it seven or eight?

Then give ’em back to the banks

When the market tanks?

I’m askin’ you

[Not a cockatoo]

True Blue …  True Blue?


What the ...HUH?

I mentioned on Sunday that China has belatedly recognised the gigantic problem latent in its property bubble, but that we haven’t done anything about ours.  We’re going to ride it out, after having force-fed our residential real estate market with (first) the first home owner’s grant and (second) the first home owner’s boost.  If the Real Estate Institute of Victoria has its way, these will be followed by a third boost to the residential real estate sector.

As with the banks, it’s deeply ironic that the real estate profession, the very bastion of so-called ‘free enterprise’, is extending out its hand as a supplicant for privileged perks. So far, and presumably unto the death of the economy, the Rudd government has come to the party.  The government has also bet Australian taxpayers’ money on our banks’ ability to survive the upcoming real estate crash.  What chance, then, of the credit and property markets finding their own levels without unmitigated disaster? In today’s Business Spectator, Karen Maley reports on Andy Xie’s concerns that China hasn’t done enough about its property bubble.  Might I observe that it has done a lot more than we have?

However, Peter Martin tells us in today’s Sydney Morning Herald that a federal land tax is off the agenda as far as the Henry Tax Review goes.  While this might seem to be good news to many Australians on Australia Day, if it’s true, the Chinese action to subdue the property market suggests that Australia’s lack of fortitude in this respect will prove to be incredibly bad public policy.  But, of course, every western government is still taking advice from the same orthodox economists who drove us into this mess. Incredible!

Maybe it’s easier to set a proper economic course in a communist economy than in a democracy, even though the property bubble explains the crater into which westen economies are tanking.  (Other than the Land Values Research Group‘s data,  Patrick in the USA, House Price Crash UK, and Bubblepedia in Australia all clearly attest to this.)

In view of the wests’ absolute inaction on ramping property taxes up – to keep the lid on speculation (yes, ESPECIALLY when prices are heading down!), and so that taxes on productivity can be slashed – we’re quite entitled to inquire just to what extent western governments ARE in the thrall of property lobbies.

Or, to put it more succinctly,  WHAT THE ….!


Propping up the proppers-up!
Propping up the proppers-up!


On 13 January 2010 “Online Opinion” published an article “Propping up Australian real estate” in which I asserted that over-investment in real estate is a rational reaction by individuals to the dictates of perverse tax regimes.  But how stupid are our representative governments that they refuse to acknowledge penalising people for generating real wealth and rewarding them for inflating real estate bubbles will escalate land prices to all time highs at a terrible cost to the real economy and to society itself?

Unions and the bosses of industry remain light years away from perceiving how tax systems have been set up to benefit speculators at the expense of workers and business alike.  So, speculators we’ve had to become.  Economic Indicator Services’ Phil Anderson (author of the excellent study “The Secret Life of Real Estate“) was recently moved to tell subscribers to his newsletter:-

Here’s a very good chart of US wages.  Goes to show that under the present monopoly capitalist system, you will get slaughtered as a simple wage earner.  But you know that already.

You start to wonder at what point western governments would ever admit to the complicity of the tax system in cyles of boom and bust which, left uncorrected, direct us into economic depression and war.

This was long ago spelled out in Henry George’s seminal work “Progress and Poverty“. It remains the world’s biggest seller in economics and, in view of the Global Financial Crisis, its sub-title “An inquiry into the cause of industrial depressions and of increase of want with increase of wealth … The Remedy” should be attracting the interest of policy makers.  However, as long as the economy’s handmaidens, finance and real estate, rule from the pedestals on which we’ve placed them, the wisdom contained in the book is unlikely to come to the attention of President Barack Obama and Prime Ministers Gordon Brown, Kevin Rudd and others.

So, while China’s getting windy about the incredible rewards given to those who help to inflate real estate bubbles, we’re not addressing this aspect of the economy at all.  Instead, we’re still seeking new ways to regulate bank lending, a well-worn path that always leads to a dead end.

We’re wasting time we can ill afford to waste.