UNDERSTANDING CAUSE AND EFFECT

If you jump off the top of a tall building, you’ll go splat at the bottom: that’s simple physics.

We are told economic laws are not as certain as those of physics, but this isn’t so.

It’s not coincidental that none of those heterodox people who forecast the world financial collapse treat land simply as another form of capital, as does today’s orthodox economist.

Many of them understood that land price is a pathology. Others, such as Robert Shiller and Joseph Stiglitz, knew that when land prices are permitted to develop into a bubble this is certainly a most unhealthy phenomenon.

Not so witless orthodox economists.

They still believe land price is simply a function of supply and demand, and don’t regard the private capture of more and more land rent as socially devastating.

They don’t see banks as privatisers of capitalised land rents.

Therefore orthodox-trained RBA, APRA and ASIC and Productivity Commission economists were not to be found amongst those who foresaw the financial bust.

You might say they failed their appointed task.

Why, then, are these people putting their hands out for a pay packet, let alone still being permitted to oversee finance and productivity?

They’ve failed us.







6 thoughts on “UNDERSTANDING CAUSE AND EFFECT”

  1. Regarding the graph shown, if you multiply that chart by the standing variable home loan rate at the time, you’ll get a good analog for land rent.

    Obviously there is an increasing built component in those figures as well would should properly come out, but the result is still informative.

  2. I was assuming a full LVT is being collected – i.e LVT set at such a rate that the land price is zero.

    It’s clear there would be an increase – some of that extra money released would obviously flow into land rents. But also evidently, some would flow elsewhere.

    I wouldn’t be surprised to see up to 50% of the income tax removed flow directly into LVT increase though.

  3. The long term MEAN relationship between total land values and GDP has been 1:1, Steve, and when a land price bubble such as this bursts, I’d expect it to shoot below 1:1 before returning to long term trend. So, yes, something like a return to the 1953 figure is entirely possible given our private debt levels, IMO.

  4. Many, including me, have looked at the enormous increase in productivity when deadweight and excess burden of taxation is removed from the economy, Chris. But maybe you mean the rate of increase in LVT? I’d simply say it must not be permitted to increase beyond the level of economic rent within the economy. However, we don’t know that amount yet. We DO know that the economic rent of land alone in Australia (i.e. without mineral, fishing, forestry, spectrum licences, etc.) could replace taxation at all three levels of government in Australia, despite many economic textbooks repeating the canard that rent is only about 1% of GDP. I’d expect LVT to rise to capture increased economic rent as taxation is reduced and the returns to labour and capital increase. It becomes a virtuous circle, instead of morally bankrupt boom/bust each 18 years. You’ll see from my ‘syllogisms’ post, I’m not confident of it happening this time around, though.

  5. Bryan, just a question whether anyone has looked at the degree of increase that occurs under a LVT when other taxes are removed?

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