We weren’t ready.
One political party spruiks that they’re good economic managers: the party of business, the ‘low tax’ party; another, that they’re the party of the worker; another, that our environment is paramount.
None of them were ready. Each failed their mission; they didn’t get out of the blocks.
None of them were prepared to tackle the blight of rampant property speculation that has festered in Australia since 1996.
And that’s proved to be the catalyst in creating this miserable financial mess.
It’s like this. Taxing land values keeps a lid on real estate speculation; on the growth of land prices and monopolies. As a result, wages and profits both grow, without inflation or deadweight loss. Prosperity prevails.
On the other hand, we’ve decided to tax wages and earned profits, so we have less of them. As these have diminished, we set up a fight between labour and capital that’s entirely distracting, because wages and profits are complementary in any successful economy. So, it’s the escalating growth in land prices and the taxing of productivity that’s become the invisible enemy of Australia’s prosperity.
But no political party or financial commentator has had the intestinal fortitude to call out the stupidity of fining productivity and rewarding real estate and asset speculation. This may be because it not only offends powerful interests to do so–such as banking, monopolies and the 0.1% who major in asset price speculation–but also the many Australians who’ve adapted to the insistence of a perverse tax regime openly admitting there’s more to be had by ‘investing’ in land prices than in working for a living.
There’s a handful of heterodox economists who’ve see the crux of the problem, of course, but they’ve been swamped by the self-serving greed that’s come to replace economic stability. Ayn Rand’s malign influence is to be found in the neoliberal economics of Ronald Reagan, Margaret Thatcher, the Hawke/Keating government and all who have followed them into power.
We were badly prepared. We were easy pickings.
Economic chaos rules.
So, what would ‘preparation’ have looked like?
Another term for asset speculation is ‘rent-seeking’. Many Australians have mastered the art, not the least, banking and real estate interests. Rent-seeking has resulted in splitting society into ‘winners’ and ‘losers’. As asset prices and mortgages have inflated to impossible levels, much of Australia’s middle class has come to join the poor in impossible debt and penury.
Prime Minister Morrison’s pronouncements today begin to acknowledge this failed economics–that we’ve all become loser/victims–because we weren’t ready for this extraordinary threat.
Had we done as the classical economists argued–taxed away society’s ‘economic rent’ (the productive surplus, or ‘unearned income’) instead of allowing it to be privatised–wage-earners and small businesses would’ve received their full reward, undiminished by the enormous deadweight losses generated by land prices and the taxation of productivity.
The American economist and social philosopher, Henry George, expressed the idea of taxing away ‘land’ rent–as also advocated by economists Adam Smith, David Ricardo, JS Mill, Tom Paine, Mason Gaffney, Michael Hudson, Joseph Stiglitz and Fred Harrison–in a simple formula: Production minus rent will leave wages and the return to capital undiminished by taxation:-
In effect, this returns economic rent to the public domain, as it was largely during the Progressive Era following the 1890s depression. Australia actually captured a greater proportion of its economic rent at all three levels of government, compared to the Americans at local and state levels as shown here:
Doing so now would now act to bind the vast societal fracture that’s been permitted to develop between rent-seekers and the poor.
It goes without saying that the disarray in which we find ourselves due to the COVID-19 virus would have been tackled immediately and with more certainty in a society respecting the position of science, health and education – above rent-seeking greed.
The Prime Minister’s spending proposals may assist to alleviate our immediate situation, but he and his party still fail to acknowledge the underlying malady: as do messrs Albanese and Bandt.
As the Australian media goes into frenzied coverage of the Morrison government’s palliatives, it’s unfortunate that there’ll be no deeper discussion about how Australia’s torn social fabric may be repaired.
The current terrible threat needed addressing urgently, of course, but it also offers a great opportunity for real economic reform.
The parties purportedly supporting business, workers and the environment, must first support the interests of all Australians by permanently euthanizing pathological rent-seeking.