EDWARD’S PRAYER

Following the enclosures of Henry VIII which robbed the people of their common lands, the precocious King Edward VI knew what he had to do to ameliorate the ensuing poverty and strife that was wracking England.  He would write a prayer of comfort which was to be read in church.  It was included in the 1553 Book of Private Prayer in Edward’s 16th year, the year he died.

“We heartily pray Thee to send Thy Holy Spirit into the hearts of them that possess the pastures and grounds of the earth, that they, remembering themselves to be Thy tenants, may not rack or stretch out the rents of their houses or lands, nor yet take unreasonable fines or moneys, after the manner of covetous worldlings: but so let them out that the inhabitants thereof may be able to pay the rents, and to live and nourish their families, and remember the poor.

Give them grace, also, to consider that they are but strangers and pilgrims in this world, having here no dwelling place, but seeking one to come; that they, remembering the short continuance of this life, may be content with that which is sufficient, and not join house to house, and land to land, to the impoverishment of others; but to behave themselves in letting their tenements, lands and pastures, that after this life they may be received into everlasting habitations.”

As we continue to practise the art of land monopoly and dispossession in the 21^st century, praying for social justice remains the preferred approach of the Church, lest upholding biblical injunction against the lords of the land might offend them.

And, of course, we wouldn’t want to offend such people as Gina Rinehart as she steals billions of dollars of Australians’ land rent each year, would we?

So, a prayer it will remain.

You say we need more funds to tackle poverty, homelessness, health, the environment, education and infrastructure? I say instituting the Henry Tax Review is a BIG step towards solving those problems.

IT’S NOT DIFFICULT TO UNDERSTAND

If you want to know why Coles and Woolworths can pay farmers virtually nothing for their produce and can play one off against another, just re-read my previous post …. slowly and with comprehension.

Anything worthwhile, such as workers wages and the price of farm produce, has been deflating since 1968-70 because the tax system has favoured drones – speculators and share market investors.  It’s only share markets and house prices have been inflating, via rent-seeking.

Effective demand has accordingly been declining and now we’re reaping the whirlwind. The vast majority of Australians are carrying debt–many with excessive debt they can never repay–whilst the 0.5% have been getting obscenely wealthy at others’ expense. An enormous gap has developed between the 0.5% super-wealthy and everybody else.

This is because we have a revenue ‘system’ which penalises manufacturing, small business, retailers, workers and families as it heaps increasingly greater rewards upon so-called “investors”.

Hey, Productivity Commission!  You should listen up, too, because I’ve solved your greatest problems!

What’s behind this financial mess is a crazy tax system that sorely needs to be scrapped.

But I guess if the ACCC, Productivity Commission, et al, do call for essential tax reform they’ll be putting themselves out of business because their raison d’être will disappear. They only exist in order to try to counter the rather natural outcomes of a mad tax system.

So why NOT scrap a revenue system in total disarray?

You say we need more funds to tackle poverty, homelessness, health, the environment, education and infrastructure? I say instituting the Henry Tax Review is a BIG step towards solving those problems.

To see the result of all this money printing just look at stock prices. Hyper-inflation is already here, it’s just in paper assets instead of the in goods and the real economy. Why is the inflation relegated to stocks and bonds rather than hard assets? I believe it is because of the massive income inequality or wealth gap which persists in the global economy.

Since we all know that the wealthy spend a much lower percentage of their total income than the poor, and conversely save a much greater percentage of this same income, a large wealth gap tends to produce over-investment and speculation, thus hyper-inflating financial assets, while at the same time weakening demand for the actual products of created by this over-investment. This is what creates the global deflationary forces, since, when supply exceeds demand prices must fall.

This situation is highly unstable and can only persist for a short while before profit destruction occurs and the bubble pops. It is this over-investment, and the resulting demand gap that has created the Asian financial crisis and will ultimately pop the US stock market bubble ushering in the next global great depression. Japan is printing money at an incredible rate but prices still fall. It is the old pushing on a string effect.

Demand is weak and will stay weak as long as income and wealth distributions stay lopsided. From this perspective the IMF bail-outs have made the situation worse, since fat-cats were subsidized by tax dollars from the working class. Talk about a reverse Robin Hood!

At the same time these bail-outs and plunge protections just serve to embolden risky investments and over-speculation as fat-cats and cronies are convinced that the will not be allowed to lose. With all these bail-outs and money printing, the Central Bankers are trying to avert a financial collapse which is admirable. And they hope that markets will just trade sideways for a few years until all the excesses of the past are wrung out in a relatively painless soft-landing type scenario.

Problem is the markets won’t just trade sideways, if you make it obvious that there is no risk of loss speculation will get more out of hand. If you flood markets with liquidity they will use it to pursue more and more risky and unprofitable ventures, and will create grossly over-inflated asset values. This is the moral hazzard implicit in being the lender of last resort. The central banks need to bite the bullet and let the bubble pop or it will just keep keep on growing. It is not possible to deflate it slowly. Speculators don’t learn caution and sobriety with a series of 10% drops shortly followed by 30% gains. They learn caution and sobriety from real pain and serious loss. It is this cathartic action that creates the conservative, cautious environment that makes the next healthy growth phase possible.

If anyone is looking for an explanation of why the plateau phase is so unusually long and drawn out this time look no further than the recent money growth statistics and other central bank antics trying to repeal economic cycles, but really just postponing the inevitable.

Will Greenspan, Rubin, and Clinton go down in history as the geniuses who defeated the Longwave, or as goats whose hubris got the better of them and made the eventual bubble popping far worse than it would have been without their tinkering?

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Greenspan, Rubin and Clinton? Yep, that’s right.  Bill Shepler wrote this estimable analysis on the Longwaves List on 4 May 1998 (12:58 pm).

Bill remains absolutely correct that the longer our reserve banks prop up paper assets, at an enormous cost to the real economy, the more calamitous must this economic depression be.

Demos.org displays the “stacked deck” here in graphical format.

You say we need more funds to tackle poverty, homelessness, health, the environment, education and infrastructure? I say instituting the Henry Tax Review is a BIG step towards solving those problems.

AT LEAST UNTIL THE CONFIDENCE VOTE IN THE HOUSE TOMORROW?

You say we need more funds to tackle poverty, homelessness, health, the environment, education and infrastructure? I say instituting the Henry Tax Review is a BIG step towards solving those problems.

Robert Gottliebsen is a longtime Australian financial commentator, but he hit a bump in the road in Business Spectator today in a piece entitled “Haunted housing”.

It typifies all those confusing analyses that have it that increasing house prices, at a somewhat unidentified level, are good for people and the economy.

“The economy is recovering because house prices are up” is an incorrect statement – even if we do receive a perverse warm inner glow when the price of our home does increase.  A little thought would show that it’s only good for real estate agents whose fees are based on the sale price of homes.

Anyway, I couldn’t help myself, so I had to respond:-

A garbled Goldilocks account Robert! You suggest China’s house price increases are too high, ours are too low, but the US is “just right”. As a developer of a real estate index–prices to GDP as a yardstick of the social and economic health of the economy where higher ratios are worse–and who forecast the global financial collapse I’d agree China’s real estate prices are too high, but so too are America’s if the data we’re receiving is correct. I’d go so far as to say rising house prices in the US are clear evidence that its economy is NOT recovering, because the housing deflation must be allowed to take its course, instead of propping banks up as for the last 20 years in Japan. The process could be rapidly expedited, however, by instituting something like the Henry Tax Review’s proposal for a federal land tax accompanied by the slashing a multitude of taxes on labour and capital with all their deadweight: but as Eliza Doolittle remarked that’s “Not bloody likely!”

You say we need more funds to tackle poverty, homelessness, health, the environment, education and infrastructure? I say instituting the Henry Tax Review is a BIG step towards solving those problems.

Young researcher Philip Soos has mounted another powerful challenge to Australia’s hibernating financial system.

You say we need more funds to tackle poverty, homelessness, health, the environment, education and infrastructure? I say instituting the Henry Tax Review is a BIG step towards solving those problems.

IMPORTANT WEEKEND ARTICLE FROM THE USA

A consensus is emerging between economists that the US economy is now largely based on rents instead of production.

Once the insights of the abovementioned article are understood and accepted, many things should start to become obvious. These include:-

1. Economic rents are a surplus over and above earned incomes which, being unearned by any individual (because that’s how they are defined!) are owed back to the community as a whole. These economic rents are sometimes confusingly called “super profits”: they are not a component of private profit owed to businesses or individuals.

That there is a raft of people with self-interest in the private capture of economic rent–from homeowners and landlords to the holders of taxi licences who might disagree–doesn’t make the proposition any less valid.

1. Therefore, perhaps with the exception of “sin taxes” on such as tobacco and alcohol, all non-rent revenues imposed upon workers and businesses should be declared illegal.

1. By failing to declare taxes illegal, society condones private rent-seeking. This generates these pathologies:

(A)        The private capture of land rent escalates land prices

(B)        These escalating land prices form bubbles every 18 or so

(C)        The land rents extracted by bank mortgages and rent-seeking by the holders of other monopoly licences (such as mining, electro-magnetic spectra, taxi, etc.) tend to attach people and businesses to excessive debt

(D)        Banks, having funded these bubbles, fail when the bubble bursts

(E)        The combination of debt (ineffective demand) and the failure of the financial system based on rent-seeking creates recessions and depressions

The remedy, then, is to outlaw private rent-seeking and capture economic rent for public purposes, instead of taxing labour and capital. It is more than sufficient for the purpose.

Instead, governments are actually propping up financial systems built upon rent-seeking, worsening the situation for citizens around the world. A twofold action is called for in the current depression: governments must permit real estate bubbles to deflate and outlaw private rent seeking.

BACK HOME

Australia has not yet seen a significant decline in its real estate bubble, but already we are witnessing the car industry in extremis, businesses obtaining 457 visa labour, manufacturers emigrating overseas, or major banks outsourcing their IT – all for the sake of “cheap labour”. These are suggestive not of a remedy, but of the problem: the Australian government electing to prop up the real estate bubble and continuing to promote rent seeking.

You say we need more funds to tackle poverty, homelessness, health, the environment, education and infrastructure? I say instituting the Henry Tax Review is a BIG step towards solving those problems.

I was terribly, terribly upset when I didn’t rate a mention in Dr Dirk Bezemer’s list of those who forecast this global financial collapse.  [Sob!] After all, I did forecast that it would be with us by 2009 in the British journal Geophilos in 2001: likewise in a  videoed address at Melbourne Uni in 2005, and in Unlocking the Riches of Oz in 2007. [Sob!]

But maybe Dirk Bezemer was looking at economists only, in order to emphasise the point that so very few of these purportedly professional people were able to see this depression coming – so perhaps he wasn’t interested in people employed in real estate who foresaw it?

Of course, whatever we’re called, valuers-assessors-chartered surveyors, we ought to be at the top of any list of economic forecasters, because unlike economists we do understand that the real estate market leads and directs the economy.  Economists don’t, except for the handful on Bezemer’s list; that’s what distinguishes his tiny group from their more pedestrian confreres.  As Henry George once famously said, economists who can’t explain financial depressions are simply “mules packing a library”.

And I hope my two submissions to Australia’s Future Tax System, one of which I reproduce here, may have influenced the recommendations of Ken Henry’s committee.  You never know.

You say we need more funds to tackle poverty, homelessness, health, the environment, education and infrastructure? I say instituting the Henry Tax Review is a BIG step towards solving those problems.

You say we need more funds to tackle poverty, homelessness, health, the environment, education and infrastructure? I say instituting the Henry Tax Review is a BIG step towards solving those problems.

THE STORY SO FAR

OK, so now we’re at the stage where Ford’s knicking off out of Australia and General Motors is telling Holden workers they cost too much. Textile’s gone overseas and our once efficient ship-building industry was closed down years ago.

You might say manufacturing has had it. We try to recover the situation by claiming we’ve become a “post-industrial” society.  Yeah, sure!

Retail’s going bust, too.

We have all these effete economists who can talk the leg off a chair now having us convinced we need to extend the GST, rather than look to economic rents and monopolistic privilege for our necessary revenue.

Australians have become a witless lot; we stupidly accept the taxing of labour and capital rather than deriving necessary revenues from land and resource rents and natural monopolies as once we used to do.

You see, if you tax labour and capital the taxes are passed on in every stage of the production process, adding themselves and their deadweight to the prices of our products, nobody wants them.  Why would they?

It’s NOT a matter of excessive labour costs: it’s taxation and all its deadweight cascading throughout the Australia economy.

When are we going to realise the one thing most economists DO get right (but then weakly retreat from): that revenues from economic rents CAN’T be passed on in prices?

Municipal rates and land tax are notionally already in the gross rent paid by a tenant, and can’t be ‘passed on’ again to the tenant:

If, as claimed by vested interests, the land value tax can be passed on, why do not these representatives of special privilege pass the measure and allow their friends to pass it on?  The reason is they know that the land values tax cannot be transferred. – EJ Craigie, former South Australian politician, circa 1958.

A.  CLASSICAL ECONOMISTS:

1 Though the landlord is in all cases the real contributor, the tax is commonly advanced by the tenants, to whom the landlord is obliged to allow it in payment of the rent. – Adam Smith “Wealth of Nations” Book 5, Ch 2

2 A tax on rent falls wholly on the landlord.  There are no means by which he can shift the burden upon anyone else… A tax on rent, therefore, has no effect other than the obvious one. It merely takes so much from the landlord and transfers it to the State. – John Stuart Mill (1806-1873) “Principles of Political Economy”  Book 5, Ch 3, Sect 2

3 The power of transferring a tax from the person who actually pays it to some other person varies with the object taxed.  A tax on rents cannot be transferred.  A tax on commodities is always transferred to the consumer. –   Professor James E Thorold Rogers “Political Economy” 2nd ed Ch 21, p 285

4 A tax levied in proportion to the rent of land, and varying with every variation of rents… will fall wholly on the landlords. – Walker’s “Political Economy”, p 413

5 The incidence of the ground tax, in other words, is on the landlord.  He has no means of shifting it; for, if the tax were to be suddenly abolished, he would nevertheless be able to extort the same rent, since the ground rent is fixed solely by the demand of the occupiers.  The tax simply diminishes his profits. – ERA Seligman “Incidence of Taxation” pp 244-245

6 A tax on rent would affect rent only: it would fall only on landlords and could not be shifted. The landlord could not raise the rent, because he would have unaltered the difference between the produce obtained from the least productive land in cultivation and that obtained from land of every other quality. – David Ricardo “Principles of Political Economy and Taxation” Ch 10, Sect 62

7 The way taxes raise prices is by increasing the cost of production and checking supply.  But land is not a thing of human production, and taxes upon rent cannot check supply.  Therefore, though a tax upon rent compels owners to pay more, it gives them no power to obtain more for the use of their land, as it in no way tends to reduce the supply of land.  On the contrary, by compelling those who hold land for speculation to sell or let for what they can get, a tax on land values tends to increase the competition between owners, and thus to reduce the price of land. – Henry George Progress and Poverty, Book 8, Ch 3

B.  MODERN ECONOMISTS

1 Pure land rent is in the nature of a “surplus” which can be taxed without affecting production incentives. – Paul A Samuelson, Hancock & Wallace, “Economics – An Introductory Analysis” (Australian Edition) Ch 28 p 595

2 …. the complete inelasticity of the supply of land means that a tax on land rent has no effect on price or output and therefore does not alter resource allocation…This outcome is in contrast to property taxes on buildings.. Jackson & McConnell, “Economics” (2nd Aust Ed pp 540/541)

3 The (land) tax cannot be passed on to consumers… The failure of the single tax idea does not change the fact that a large increment of value does accrue to the owners of land, particularly in or near urban areas, due to the growth of the economy, without the landlord having to contribute any productive factor services in order to earn it. – Richard G Lipsey, “An Introduction to Positive Economics” (3rd ed.)

4 Aside from its compelling appeal to the public’s sense of justice, a single tax on land has another advantage over most other forms of taxation – it is neutral in its effects on production incentives and resource allocation. – Waud, Hocking, Maxwell & Bonnici, “Economics” (Australian Edition)

C.   SO, FOR THE SAKE OF EFFICIENCY AND GREATER HOUSING AFFORDABILITY, WHY NOT PUT MORE REVENUE WHERE IT ULTIMATELY FALLS ANYWAY?

It is in vain in a country whose great fund is land to hope to lay the publick charge of the Government on anything else; there at last it will terminate. The merchant (do what you can) will not bear it, the labourer cannot, and therefore the landholder must: and whether he were best to do it by laying it directly where it will at last settle, or by letting it come to him by the sinking of his rents, … let him consider.”  — John Locke, “Some Considerations of the Lowering of Interest” (1691).

I have not lost any of the principles of public economy you once knew me possessed of; but to get the bad customs of a country changed, and new ones, though better, introduced, it is necessary first to remove the prejudices of the people, enlighten their ignorance, and convince them that their interest will be promoted by the proposed changes; and this is not the work of a day.  Our legislators are all landholders; and they are not yet persuaded that all taxes are finally paid by the Land. — Benjamin Franklin, Letter to Alexander Small, (September 28, 1787).