THE DEPRESSION – A SUMMARY

pulling threads togetherMy thanks to those who visit this site regularly.  Newcomers who can’t review everything that’s gone before might appreciate a summary:-

It may be hard to believe, but the world is experiencing the early stages of economic depression. You’d never know it, because the media seizes upon anything at all that may be seen as a “sign of recovery” from the slump.  Because of the failure of communism, it sees no serious alternative to the status quo, because it hasn’t accepted or realised that there is an alternative to tax regimes that foster private capture of publicly-generated land rent, and the repetitive cycles of boom and bust that this engenders.

Maybe it’s not all that bad; not a depression?  Why, countries, such as Australia, China, India and Brazil haven’t even experienced the effects of the global financial collapse (GFC), have they?  To which anybody cognisant of the incredible hurdles still to be got over would reply :  “Yet!”

Signs of recovery will prove false until the deadening burden of debt is liquidated from the system, whether it be government debt, household debt, or a combination of both of these.  Australia’s particular problem is the level of household debt.

Governments may employ only one of three approaches to combat the GFC:-

1.         PRINT MORE MONEY – ‘to avoid deflation’.  [The Bernanke option.]

The US finds this ‘solution’ to be eminently satisfactory, because the world still believes the US dollar and its T-notes and bills remain atop the pile of floundering currencies.

However, it is valid to inquire how printing more money and bailing out banks can possibly solve anything, because pandering to an errant financial, insurance and real estate (FIRE) sector certainly won’t create ONE more dollar of real wealth.

2.        AUSTERITY MEASURES – to ‘reverse’ the spendthrift mentality that developed through boom/bubble times. [Greek/Irish/Spanish options.]

These involve higher levels of taxation and slashing government spending and jobs.  History shows that this approach can’t solve the debt problem during a depression because it leads to lower levels of production and employment as the government tries vainly to reduce the ill effects of debt.  This alternative also panders to the already-failed FIRE sector of the economy to which we CAN’T look for assistance.

3.        ABOLISH TAXES – and collect land rent for revenue.  [The untried option.]

Whereas the first two options above were tried in the 1890s and 1930s depressions and failed abysmally, with WWI and WWII arising out of each, this method encourages production and employment and gives the signal to a privileged and powerful group of people that seeking to corner the public’s surplus rent is no longer acceptable: the criterion now must be real wealth-creation – not creating real estate bubbles and debt.

This option was  actually employed successfully by Sir Stamford Raffles in Indonesia (then known as the ‘Spice Islands’ or the Dutch East Indies)  to exit from an economic depression brought about by innumerable taxes levied by the Dutch.  Raffles went on to found Singapore on the same principle of abolishing taxes and collecting the economic rent, a surplus in the production process.

The approach was also part of the 1909 UK “Peoples Budget” before WWI, but was defeated by the House of Lords who preferred to send Britains to war rather than to discourage rent-seeking.

If you see these are the available options, and that only the last one works, you certainly do not have to apologise for NOT being an economist, because you understand more about economics than those economists who tinker with impractical mathematical models that ignore the massive quantum of production’s surplus rent.  (Yes, unfortunately this includes Austrian economists!)

And … welcome to the Georgist School of economics!  The positive way out of the depression – working our way out of it …. without taxation.

But it aint easy.  It’s difficult to educate people to a new mindset that demonstrates how private rent-seeking has kept them poor.  Just look at the ill-informed resistance of Australians to the introduction of the Resource Super Profit Tax, which would fairly capture our mineral rent for ALL the citizenry.

You can’t imagine a worse, if mindless, reception if the Australian government were to seek to introduce the second leg of rent capture, the comprehensive land tax/rent system recommended (to replace payroll taxes and stamp duties) by Ken Henry’s panel for Australia’s Future Tax System.

Finally, Australia is the closest country in the world to solving this economic depression, thanks mainly to Ken Henry’s review panel’s rent-capture recommendations, but because of a contrived ignorance concerning option three above, it looks like the depression will continue to roll in relentlessly upon us.

Let’s hope that enlightenment can somehow break through the “we’re right, you’re wrong” childish party politics that splits and subverts a reasoned discussion of economic reform.

LVRG text