INFLATION

Economics textbooks tell us that demand-pull inflation, a rise in aggregate demand, together with nearly full employment, is the most commonly accepted theory of inflation.

Of course, there are also cost-push theorists who see powerful unions demanding wage increases without any excess demand for labour that might generate inflation as the issue.

By and large, the most common belief about inflation is a combination of both forms.

The American journalist Henry Hazlitt wrote erroneous books on the topic of price increases, urging a return to the gold standard if they were to be tamed. These were enthusiastically taken up and promoted by libertarians who, also relatively clueless on the topic of inflation, blame government mismanagement for instigating both forms.

Curiously absent in all analyses is the escalation of land prices. The Earth has existed for more than 4 billion years; it had no cost of production, but when humans congregate at a location the phenomenon of land rent arises at those locations.

We can either capture that pubicly-generated rent publicly, or else allow it to be privatized by individuals. We do the latter, allowing land rent to be privatized and capitalized into locational prices. This means that we need to raise arbitrary taxation to withdraw money from the system and ‘protect the currency’. However, this is consigned to abysmal failure because of the deadweight costs generated by taxes. There is nonesuch with public capture of the economic rent of land.

“Australia’s Future Tax System” (‘The Henry Tax Review’) advocated greater public capture of land rent by means of an all-in land tax which would be more than offset by abolition of some 100 inefficient taxes. As mentioned, these currently inflate prices by being passed off into costs. To date, however, the recomendations of The Henry Tax Review lie dormant.

Accordingly, Australia has seen its land prices increase at an average rate of 9.25% per annum since 1984. Taxes and land prices: there’s your truly destructive cost-push inflation devaluing the currency and increasing prices of good and services. There, also, are the excessive land prices, much of which in the next few years, in the absence of public policy action, will be significantly destroyed in a depressionary scenario. But, no, in neoclassical economic terms, we simply have a “supply problem” with excessive land prices, and any economic convulsion will simply be “the natural business cycle” in action.

Land price (and tax) inflation is that which is completely ignored in all neoclassical economic investigations. Land, which will outlast us all, costs businesses and individuals excessively because we have equated and conflated land rental income with the incomes from produced capital.

Current ignorance of the role of land prices mocks all inflationary analyses.

‘INSIDERS’ THIS MORNING

1. The Voice to Parliament

Australian may not yet be ready to introduce the Georgist solution, as in the proposed Constitutional preamble below, but the referendum is certainly going to determine whether or not Australians are snarks.

2. SAVING MEDICARE

It was of concern to the Insiders panel from whence the money was to come for AMA doctors to receive a greater rebate for their services. How about from the federal government which can issue its own currency, guys?

If this has the effect of the government proceeding into deficit, it will also mean that the public sector will go into surplus.

And we don’t need to issue bonds to ‘fund the deficit’.

3. THE RBA IS LIKELY TO RAISE THE CASH RATE NEXT TUESDAY

Yes, but it’s quite unnecessary. It does this to address inflation, but the best way to address inflation is to reduce inflation-generating land prices (‘cost-push’ inflation). It is these that create low wages and earned profits whilst pumping private rents and monopoly super-profits.

4. STAGE 3 TAX CUTS FOR THE WEALTHY

I agree that these are quite unnecessary, guys. However, why don’t we take the opportunity to do what is urgently needed to be done, namely, re-visit the Henry Tax Review’s recommenations for genuine reform of Australia’s very inequitable tax regime? Especially those in connection with capturing more of our land and resource rents and abolishing the 100 or so taxes mentioned in the report.

5. THE ROBOTDEBT FIASCO

This is the mess we get into when a parasitic 0.1% is permitted to capture a great part of our economic rents and still cannot be satisified with invasive means testing of incomes.

Hopefully, we will shortly discover the need for the economy’s surplus product to to be taken from leeching rent-seekers and distributed, equally and fairly, as a universal income.

SUMMARY

You may note that ‘Insiders’ (the media generally) chooses to ignore solutions proposed by Henry George to ongoing social, economic and financial problems, so the following are some of the concerns he addressed at length (in “Progress and Poverty“, “Social Problems” and “The Science of Political Economy” and elsewhere).

  1. Abolishing poverty (per medium of a citizens’ dividend/universal income).
  2. Abolishing arbitrary taxes on earned incomes, goods, services and transactions.
  3. Achieving public capture of economic rents.
  4. Establishing public control of natural monopolies.
  5. Establishing and maintaining a free public education system.
  6. Establishing and maintaining a free public health system.
  7. Establishing and maintaining a free public transport system.
  8. Establishing a public understanding of the distribution and use of money. (Summarised in the second half of this piece by Stephen Zarlenga.)

DEVALUATION OF THE $AUD

No inverse relationship?

i.e. Australia’s land price inflation has been greater than that of the USA since 2013.

However, land price is of no concern to economists as a factor in currency devaluation, despite land just ‘being there’ and having no cost of production at all.

May Australia’s ridiculously high land prices explain the ‘need’ for the RBA to increase interest rates and the attendant increasing levels of mortgage stress?

Of course!

It ain’t just all the things we list in our basket of consumer prices that generate inflation, folks. Land prices are our greatest contributor to the nation’s inflation!

Same ‘mystery’ solved of how escalating land prices have weakened the US dollar over time.

So, for good reason, the Oz dollar is even weaker!

NOT NEW, BUT QUITE RELEVANT ….

Click here

However, may I respectfully disagree about extending the GST please, Ken Henry? It’s akin to an income tax having no threshold, hitting particularly those who spend most of their income – and there are plenty of people in that bracket these days!

MY FRUSTRATION SHOWING?

UKRAINE AND OTHER MUSINGS

Ukraine means ‘on the edge’. This apparently also means that its people may be attacked by other countries so it can become a mainstream country and taken off ‘the edge’.

Wars are fought over land and resources, but we tend to ignore the fact, becoming bogged down into meretricious detail about who caused what.

Taxing land values, not incomes, to put an ongoing charge on the use of and abuse of nature, would begin to put a little perspective on the economics of land and territory ‘ownership’ and on having a decent social contract.

However, there are numerous people on the left and right of the political spectrum who would go to war against this ever happening.

Cui bono?

Jorge Mario Bergoglio, Pope Francis, has powerful ideas in respect of natural justice but has been painted by conservative Catholics who have praised the role of the late Joseph Ratzinger, Pope Benedict XVI, to be a threat to the Church.

In the light of Leviticus 25:23 this is quite revealing, fitting comfortably with the ideas of the burgeoning Christian school of happy clappers.

The world’s a mess, but isn’t beyond redemption.