The idiom that fire is a good servant but bad master is well understood in Australia where bushfires in dry summers regularly ravage the countryside, often resulting in the loss of life.

The one hundred and seventy-three people who died in the Black Saturday bushfires in Victoria on 7 February 2009 tragically reinforce the point that an out-of-control fire can indeed be a devastating master.

It is not to trivialize this loss of life to compare it to the out-of-control financial sector currently ravaging world economies.

In the world of finance, nobody has popularized the acronym “FIRE”–for finance, insurance and real estate–more than Michael Hudson.

The fire idiom holds true for the economy’s FIRE sector. Instead of retaining it as the service sector, it has been put on a pedestal and promoted to the position of our master, so much so that it, too, has brought about devastating results.

This is no small claim.

We are lied to that banks must be bailed out because they are too big to fail. Some are apparently even too big to prosecute for criminality. [!] Their CEOs must be paid obscene amounts for their obscene actions – n’est-ce pas Lloyd Blankfein?

Clearly the greatest financial obscenity is the lending and creation of money against the ‘security’ of land prices.

Whilst this may seem an obscure reference at first, once we are able to see land prices simply as reflecting the private capitalisation of publicly-generated land rent owed equally to ALL people in the community–not just to banks–we may come to understand how lending against land price is a fraudulent and extremely volatile practice.

To understand the point is to understanding the manner in which the FIRE sector has failed us, and failed its own risk management.

Michael Hudson deftly exposes this failure in the release yesterday of his paper America’s Deceptive 2012 Fiscal Cliff .

2013 promises to be a critical year.  Hopefully, a far greater number of people will come to see the FIRE sector’s rent-seeking as the catalyst that turned our former servant into a voracious and devastating master.

Section 82 of the Australian Constitution says in part:

82. The costs, charges, and expenses incident to the collection, management, and receipt of the Consolidated Revenue Fund shall form the first charge thereon…

If the words mean what they say, they make it unconstitutional to require employers, at their own expense, to collect personal income tax payable by employees, or to require vendors, at their own expense, to collect GST payable by customers…

More here ….

Once upon a time there was a man who thought work was a fool’s game. He had a plan. He would make people his slaves. Not slaves who get food, clothing and shelter from their master. No, worse: they would have to pay for their own upkeep.

His plan was this. Land was very cheap and the townspeople prosperous–himself included–so he proceeded to buy up all the land he could.

After a while, he owned much of the land in town and virtually all of the land on its outskirts. People at first paid him modest rents, or else fairly low prices to buy a block of land.

But as the man’s rents grew and land prices increased, the townsfolk coincidentally seemed to grow much poorer. Some became unemployed and many couldn’t afford to pay for the land that had once cost them very little. Whereas there had been no unemployment at all, they had now come to regard an unemployment rate of 5% as pretty darn good: if only it could be got back down to that level!

The man called a town meeting. “We’ve got to do something for our poor”, he challenged them. “If we all chip in part of our wages and salaries, we can create a safety net for the unemployed and dispossessed and give them a little human dignity. I’m better off financially than most of you, so I don’t mind if I contribute the most. I’m also going to set up a number of charities.”

The townspeople thought these were great ideas. They voted to put them into effect, and wholeheartedly proceeded to elect this honorable man the mayor of the town.

Unaccountably, the mayor’s rents and land prices seemed to escalate, and those townspeople who still had jobs had to work for less. Some even went to work for the mayor. He had created employment for them, so he became more highly-regarded. The reverend thought him to be a true saint and promoted the mayor’s charities from the pulpit.

Some of the town’s unemployed turned to crime, so the number of town policemen grew. “This is a product of the times, a truly bad part of the business cycle”, the mayor declared …. “although [sotto voce] some people just can’t be helped, can they?”

He set up a committee to inquire into why the town’s productivity continued to decline and social cohesion had broken down.

The productivity committee reported that the town would have to be more innovative in its approach to work and business. Also, people would have to work a lot harder and their wages and salaries would have to be drastically cut, because they were clearly  too high.  A minority opinion suggested matters of credit and the town’s money supply needed to be studied in depth, because there was too much debt in the town and housing had become completely unaffordable.

The mayor agreed on all counts.
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…. AND THEY’RE INTERRELATED, OF COURSE!

AND, TOGETHER, THEY’VE GOT YOU HERE AGAIN.  WE DON’T REALLY LEARN, DO WE?

NO SURPLUS?  WELCOME TO THE REAL WORLD, WAYNE!

Although to be fair, you did tell the states to use their land-taxing powers, like the ACT government has, to make up their revenue shortfall.

And [hint] when you next speak to RBA governor, Glenn Stevens, could you please remind him the interests of Australia’s banks are NOT necessarily the same as those of the Australian people – and ask him whose side he’s really on?

THE LAND
THE EARTH FOR ALL

Thus saith the lord: “You weary me
With prayers, and waste your own short years.
Eternal Truth you cannot see
Who weep, and shed your sight in tears.

“In vain you wait and watch the skies;
No better fortune thus will fall;
Up from your knees I bid you rise
And claim the Earth for all.

“They eat up Earth, and promise you
The Heaven of an empty shell;
‘Tis theirs to say; ‘tis yours to do;
On pain of everlasting Hell.

“They rob, and leave you helplessly
For help of Heaven to cry and call,
Heaven did not make your misery,
The Earth was given for all.

“Behold in bonds your Mother-Earth –
The rich man’s prostitute and slave;
Your Mother-Earth, that gave you birth –
You only own her for a grave.

“And will you die like slaves, and see
That Mother left a bounden thrall?
Nay; rise like men, and set her free
A heritage for all.”

– Gerald Massey

I just saw a BBC interviewer ask Equatorial Guinea dictator Teodoro Obiang Nguema Mbasogo what he’s been doing with all the money from the country’s oil – because it certainly wasn’t finding its way to his impoverished people.  Mbasogo prevaricated.

That would be a pretty good question to put to the head of BP, too, I thought. Do the English do anywhere near as well as the Norwegians do from their oil rent?

For that matter, Australia has oil, natural gas, iron and coal in abundance, yet we don’t capture anywhere near enough rent from our natural resources either.

When Prime Minister Kevin Rudd tried to make the miners pay a little nearer to the fair rent for their licenses they revolted, got rid of Rudd for even contemplating Ken Henry’s 40% super profits tax, then negotiated the ludicrously small minerals resource rent tax in a back room deal with Rudd’s replacement, Julia Gillard.

They did a job on her.

But her economic ignorance was lost on Australians.

Are we really that thick?

The Norwegians aren’t: let’s take another look at the excellent video to which I put a link on Sunday.

… IF LAND TAX REPLACED PAYROLL AND PROPERTY TAXES?