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:-
- 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.
- 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.
- 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.
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.