WHY ECONOMIES ARE FAILING: The Real Excess Burden: an overarching approach” by Bryan Kavanagh.

This piece critiques the way land prices, taxation, and economic policy interact to harm economies, particularly Australian ones. Kavanagh argues that the real “excess burden” of economic problems is not simply the taxes themselves, but how escalating land prices, combined with conventional tax systems, distort economies and exacerbate social inequality.

Key Points of his Argument:

1. Land Rent vs. Capital Rent: Kavanagh emphasizes the distinction between income derived from land (or “nature”) and income from capital. He argues that land rent is not earned in the same way as the returns from manufactured capital and should be treated separately in economic models. The income derived from land, as a public good, should be captured by society, not private individuals or groups.
2. Land Price Bubbles: The piece argues that land price bubbles, particularly in Australia from 1972-2006, were a primary driver of economic recessions and unemployment. The bubbles were linked to escalating land prices, which in turn resulted in excessive mortgages, debt, and unstable economic growth. Kavanagh claims that if these land price bubbles had been eliminated, the Australian economy could have grown at a steady rate of 5.53% annually, resulting in a GDP nearly $1 trillion higher by 2006.
3. Excess Burden of Taxation: The concept of “excess burden” refers to the inefficiencies and economic distortions caused by taxes. Kavanagh suggests that while economists typically focus on income or capital taxation, they overlook the broader economic damage caused by land price bubbles and the indirect costs associated with them, including reduced economic growth, unemployment, and social pathologies. He argues that taxes on labor and capital have a “deadweight” loss—economic costs that outweigh the benefits—and that this should be considered when assessing the overall burden of taxation.
4. Proposed Solution: Kavanagh advocates for a system where at least part of the economic rent from land (the publicly-generated value of land) is captured by the government to replace some of the taxes that cause deadweight loss. This would reduce the financial pressure on labor and capital, leading to lower land prices, more sustainable economic growth, and a fairer distribution of wealth. He references historical precedent, such as the federal land tax in Australia from 1910 to 1952, and also points to the Henry Tax Review as advocating for this type of reform.
5. Wider Economic Implications: Kavanagh is critical of the current economic system, which he believes disproportionately benefits the wealthiest individuals (the 0.1%) by extracting public rent from the economy through land speculation, while imposing heavy burdens on the broader population. He suggests that this is one of the key reasons for wage stagnation and growing inequality, which are central to the failure of modern economies.
6. Caution Against Conventional Economic Wisdom: Kavanagh challenges mainstream economists, who, he argues, tend to separate the issues of land price bubbles, recessions, and taxation. He claims this separation misses the bigger picture, where land speculation and rising land prices create a vicious cycle of economic instability and inequality.

Underlying Themes:

• Economic Rent: A central theme in Kavanagh’s argument is the idea of “economic rent,” which refers to the income derived from ownership of land or other natural resources. Kavanagh argues that this rent is a collective societal product and should be used for the benefit of society, rather than captured by individuals or private groups.
• Land Value Tax: The suggestion to reintroduce a form of land value taxation (such as the one Australia had from 1910-1952) is a proposed solution. This tax would capture the unearned rent from land ownership and use it to fund public goods and reduce other forms of taxation that cause greater economic distortion.
• Debt and Speculation: Kavanagh’s analysis suggests that land speculation—often fueled by excessive mortgage debt—is a key driver of economic instability. By addressing land prices, Kavanagh believes it would be possible to reduce private debt, smooth economic cycles, and enhance overall prosperity.

Critique of Current Economic Thought:

Kavanagh is critical of mainstream economic models and the economists who focus primarily on income taxation or the supply-demand dynamics of land without addressing the deeper structural issues. He specifically calls out economists like Thomas Piketty and Yanis Varoufakis, suggesting that their frameworks do not sufficiently consider the pernicious effects of land speculation and rent extraction.

Conclusion:

In essence, Kavanagh’s essay argues that land price bubbles, exacerbated by speculative real estate markets, are a key factor driving recessions, wage stagnation, and growing inequality. He advocates for capturing the economic rent from land to replace taxes on labor and capital, which he sees as creating economic inefficiencies and social harm. By doing so, Kavanagh believes economies could experience more sustainable growth, higher wages, and more equitable wealth distribution.

________________________________________________

Yes, that’s almost it, AI. Thanks! My accompanying data table is in the original article.