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.

Speaking of Earthsharing Canada’s Frank de Jong, as we were in the last post, here Frank introduces the concept of ‘economic rent’ to Hugh Reilly and Erin Ademoglu on That Channel’s “Liquid Lunch” program.

You’re a pretty decent pedagogue, Frank!

And, as Macrobusiness suggests today, it’s so much easier to leech off economic rents than to create extra real wealth.

An informative video from Earthsharing Canada on how LVT works in favour of development and against land speculation.

More than half the population of Victoria, Australia, used to live in municipalities which rated on land value only (Site Value Rating).  Now, however, every municipal council has managed to ignore all the evidence favouring Site Value Rating and base their rates on Capital Improved Values (CIV); two councils remain on Net Annual Value which, like CIV, also taxes buildings on the land.

Speculators in Sydney and Brisbane have been unable to get rid of Site Value Rating altogether as they have in Victoria, but they continue to try.  They’ve managed to reduce the efficacy of land value taxation by increasing the numbers of properties on ‘minimum rates’, thereby distorting the rating base and making the many properties on ‘minimum rates’ pay something more akin to a poll tax.  Of course, people on ‘minimum rates’ in Sydney and Brisbane effectively subsidise  those ratepayers who have more valuable lands. Incredible!

News services yesterday reported President Barack Obama saying members of the G8 will be on “common ground” in seeking solutions to the European crisis at Camp David this weekend.

Although Obama is an economic ignoramus, he is undoubtedly a wordsmith.  A Google search reveals this is not the first time he has used the “common ground” metaphor.

If only he was able to take himself literally, the President has unwittingly uttered the solution to the financial crisis in Europe. (Hey! And in the USA too,  Barack!)

We can no more ‘own’ the land than we can privatise the air we breathe. We may own a house, shop,  factory, office,  or farm buildings, but we may only be granted exclusive possession of the land – on the payment of its annual rent – because we are on common ground.  Anything else is systemic theft.

Let’s look what happens when we fail to capture the rent of land for public revenue:

1. Uncaptured rent becomes privately capitalised into higher and higher land prices, upon which banks advance credit – even when land prices  develop into a bubble. [!]
2. As people recognised the potential to realise capital gain in land prices, land morphed from being common ground (to be used for homes, shops, factories, offices and farms) to an investment on which profit may be made at great cost to society.  This generates gross pathologies, such as we are now witnessing with the banks.
3. By failing to capture land rent for revenue, taxes are levied on goods and services.  This ultimately acts to destroy wealth creation and employment as economies grind to a halt.

Yes, Mister President, we are indeed on common ground.

Tell the G8 they need to capture the rent.

Alternatively, keep it metaphorical – and consign us all to an ever-deepening economic crisis.

The decision is yours.

SIMPLE EXPLANATORY VIDEO FROM OUR SOUTH AFRICAN FRIENDS

Longstanding President of Prosper Australia, trad jazz pianist – and bloody good bloke.

Victoria Grant is a 12 year-old Canadian who obviously understands–presumably via her dad, Zane– more about money than Canada’s parliamentary representatives.

She’s good.

Nice to see the following three points in the draft of taxation policy at the Australian Council of Trade Unions’ 2012 Congress:-

24. Congress calls on the Government to examine the following proposals:

a) Negative gearing should be confined to the same source income. Losses arising from owning an investment property should not be able to be deducted from taxable income earned in other ways.

b) Stamp duties should be replaced with a broad-based, progressive land tax with a generous tax-free threshold. The land tax should include provisions allowing asset-rich, income-poor households to defer payment of liabilities.

c) The First Home Owner Grant should be phased out. The Grant is largely counter-productive, as it has led to an increase in property prices. Assistance to first-home buyers should be targeted towards the construction of new dwellings.

__________________________

It might assist the Labor Party to take note of these suggestions and start to return to its roots, especially concerning land tax.  In many areas, it has become indistinguishable from the Tories.

I touched upon the fact here and here that a land tax had always been Australian Labor Party policy, and former secretary of the party, Cyril Wyndham, took it upon himself simply to write the plank out of the party’s platform in 1964.  Well done, Cyril!  I guess the policy to reinstate the federal land tax removed by Bob Menzies was a bit too embarrassing for you?

Except for that bit about a “generous tax-free threshold”, the ACTU is in now almost line with the recommendations of the Henry Tax Review on land tax.

Maybe Treasurer-in-waiting, Joe Hockey, is also? Speaking at the National Press Club today, he berated the minority Labour government for not bringing in Ken Henry’s tax reforms. [!]

Oh?  So, I guess we can expect the Libs to abolish all the taxes recommended by Ken Henry’s panel, improve the mining tax so badly stuffed up by Labor, and call for the States to implement a single-rate all-in land tax?

That’s something Australians will look forward to with great anticipation, Joe!

Wow!  Nice story, Michael!

What a pity Greenspan didn’t stay sacked!

However, I guess if someone’s proved to be an obliging and ‘amenable’ economist, there’s always a chance to rise to the top at the Fed?

“THE MORTGAGE” by Will Carleton

GOD BLESS AMERICA!

_____________________________________

President Woodrow Wilson (1856-1924):

“Every country is renewed out of the ranks

of the unknown, not out of the ranks of the

already famous and powerful in control.”

LVRG Blog — Friday, May 11, 2012:

[Letter in Crikey, May 11, 2012.]

Gavin R. Putland of Prosper Australia, writes:

Tony Abbott is quite right: the carbon price “amounts to a reverse tariff” in that it taxes the carbon intensity of Australian products but not imported products. I’ve been complaining about reverse tariffs for more than four years. Welcome aboard, Mr Abbott!

What Abbott didn’t say is that the carbon tax, which will raise about $8 billion a year, will be only the fourth-biggest reverse tariff in Australia’s tax system.

The third-biggest, which raised about $18 billion in 2010-11, is payroll tax, which taxes the labour content of Australian products but not imported products. This discriminatory quality strengthens the claim that payroll tax, in so far as it applies to labour embodied in goods, is an unconstitutional duty of excise.

The second-biggest, which raised something like $54 billion in 2010-11, is the payroll tax masquerading as the superannuation guarantee. A federally-mandated, employer-funded 9% super contribution is equivalent to a federally-funded 9% contribution paid for by a 9% federal payroll tax. Doubling the GST, though I don’t recommend it, would be a far more sensible way to pay for super, because the GST is “border-adjusted” (taxing imports while sparing exports) but otherwise affects prices in much the same way as a payroll tax.

State payroll taxes and the federal super guarantee are patently worse than the carbon tax, not only because they raise more revenue, but also because they tax something desirable (jobs) rather than something undesirable (pollution).

But the biggest, baddest reverse tariff, which raised about $200 billion in 2010-11, is income tax in all its forms. Australia’s income tax penalizes income earned in production of Australian products but spares income earned in production of imported products. In other words, it amounts to a value-added tax without border-adjustment. If it were called a “VAT” or “GST” without border-adjustment, it would not pass the laugh test in any developed country. But separate the value added by labour (wages) from the value added by capital (profit), tax them separately, shoot them full of loopholes, re-brand the whole sordid mess as “income tax”, and you get the mainstay of the tax system in almost every developed country. It’s one of the great con-jobs of the last hundred years.

Hence I am pleased that the carbon price will at least raise the personal income-tax threshold, allowing employers to offer useful amounts of part-time work without having to withhold personal income tax (or any part of the low-income tax offset).

I confess that I will be more pleased if the carbon price is converted to a simple tax before it creates any private property rights. We discourage smoking and drinking by taxing tobacco and liquor, and I fail to see why pollution should be treated any differently. We didn’t create tradable rights to smoke or drink, and I fail to see why we should create tradable rights to pollute.

But those who are concerned about reverse tariffs should have bigger fish to fry.