…. namely, rent-laden assets: asset prices that no longer reflect true market conditions because they’ve capitalised land rent up into bubbles, making yields incredibly low. Whilst high yields usually signify high risk so, too, do low yields such as we’re now experiencing (including returns on credit). In these circumstances, there must sometime be a significant correction of yields towards the long term mean. That sometime has been a long time coming and it’s quite arguable 2008 was but a prelude.

This correction may be delayed, as evidenced by Japan’s recent 25 zombie-like years, or sought to be avoided by febrile monetary and fiscal measures employed by the likes of China, the US and Australia, but their crunch must eventually arrive too, just as surely as it did in Japan, Ireland and Greece.

By failing to abolish an array of inefficient and counter-productive taxes (along the lines advocated by Australia’s 2010 Henry Tax Review) tax regimes continue to present all the wrong signals to markets for genuine wealth creation. This encourages worldwide rent-seeking. Leaving too much of our natural resource rents in private hands has been capitalised into excessive land and share market prices that, just as in the 1920s, must evaporate, leaving unpayable debt in their wake.

The situation is clearly pathological, and a massive debt deflation is unavoidable if productivity is ever to resume but, like the account of the slowly-boiled frog, we’ve not sought to remove ourselves from the predicament. Since the 1970s we’ve gradually become inured to publicly-generated economic rents being increasingly privately capitalised—we’ve been happy to take part in the process ourselves, because that’s to where the tax system has directed us—and we’ve witnessed the attendant gradual decline of real wages and the falling away of profits in all but such rent-seeking industries as banking and real estate.

Our corrupted tax regimes have much to answer for.  But are we not responsible for them?  For markets to work, we’ve got to take natural resource rents out of the equation.