SUNG AND UNSUNG HEROS

You’ll have heard of Paul Krugman because he’s no great threat to the status quo, and that darn Joseph Stiglitz is starting to become a bit of a worry, but there’s one economist of whom we must always speak sotto voce.

He was once saved by his students and friends when a university board tried to sack him.

You see, in The Corruption of Economics professor Mason Gaffney demonstrated that the modern economist is laboring under a delusion, so it’s not easy for the profession nor mainstream media to acknowledge him publicly as per the two aforementioned Nobel prizewinners (2008 and 2001, respectively). Gaffney might have to wait for his Nobel in the Economic Sciences.

Fortunately, Gaffney’s work speaks for itself. Being both intellectually rigorous and brilliantly expressed, it will find its way into the public discourse eventually, as do all great truths.

My anticipation has been whetted on learning of a forthcoming release, The Mason Gaffney Reader, to honour Mason Gaffney on his ninetieth birthday on 18 October.

The following address delivered to the Land Policy Council at the Grosvenor Hotel in London on 17 May 1998 is typical of Gaffney’s challenge to rectify the study of economics:-

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“Eighteen Answers to Futilitarians

Constructive problem-solving is when one takes problems and dilemmas and composes them into solutions. A simple exam­ple is when two lonely, longing people meet and marry. Another, more prosaic, is when a producer converts wastes into useful by-products. Another, more general, is whenever demand meets supply.

The genius of Henry George was to confront dismal dilem­mas, futile standoffs and harsh trade-offs posed by what we may call “futilitarians,” and compose or reconcile them into solutions. The most obvious such desperate trade-off he solved was that posed by Malthus, who told the working classes they must choose between food and sex.

Today, futilitarian economists have an array of dismal choices for us: equity vs. efficiency; attracting business vs. supporting public services; inflation vs. unemployment; pollution vs. unemployment; equality vs. incentives; productivity vs. full employment; equality vs. saving and capital formation; free choice vs. urban sprawl; etc.

Understanding George’s program, one can see that those al­legedly hard choices are false, calculated to unman us and make res­olute action seem futile. Herewith is a list of reconciliations that are inherent in George’s philosophy.

George’s ideas are more than a philosophy, they are a prescription for action. For short, I shall describe his public policy program as “Geofiscalism.” For George, a philosophy was designed to accompany a program of action: theory and practice were also composed and reconciled. He saw theory and practice (or thought and action) as complements, not substitutes. So should we.

1. Geofiscalism composes common rights in land with private tenure of land, and free markets. It tends, on balance, to foster subdivision of land. Those still excluded from tenure are com­pensated in three ways: landowners support government; they must hire workers and invest in new capital to generate income from their lands; and they must supply goods and services from the land. The last two combine the stimuli of supply-side and demand-side eco­nomics, leveling them upwards. The Keynesian specter of oversaving is dispelled by untaxing capital, stimulating new investments.

2. Geofiscalism untaxes labor without raising taxes on capital, or capital formation. It is even possible to untax both labor and capital, while still supporting government at high levels, or dis­tributing the surplus as a social dividend.

3. Geofiscalism composes equity with efficiency. It is pro-incentive, for reasons well known. At the same time the tax base, land, is highly concentrated among the wealthiest people, in­cluding alien owners and nimble international tax-dodgers. Thus it combines the pro-incentive effects of a poll tax with the equalizing effects of a progressive wealth tax.

4. Local and regional (state, provincial) governments can pay for public services as generously as they please while si­multaneously attracting industry, capital and population by untaxing them.

5. Geofiscalism contains urban sprawl without denying con­sumers free choice of location. It lets settlement be con­tained within growth boundaries, if desired, without inequity, by making the favored landowners pay most of the taxes; it lets settlers choose outlying locations, if they wish, by making them pay the in­cremental social costs they impose on the whole.

6. Geofiscalism creates jobs without use of inflationary de­mand stimulus. It stimulates both supply and demand jointly, leveling them upwards (cf. #1). It proffers us “True Fiscal Stimulus,” in contrast to the current shallow usage of “fiscal stimu­lus” to mean deficit finance and bank expansion.

7. Geofiscalism lets a polity attract people without diluting its resource base. We may label this the “Hong Kong Effect,” although it is observable in most thriving cities. It results from the power of economic synergy in free markets to generate large eco­nomic surpluses, surpluses that lodge in the rent and value of local land, such that large, densely settled cities generally have more land value per capita than smaller cities and farm regions. George sum­marized this force as resulting from “Association in Equality”; and he clearly meant free association, free of taxes on exchange, and with equal rights to land. A modern planner would want to elaborate on the efficient circulation systems and layouts to facilitate such as­sociation, and George would surely agree; but he would remind the modern planner, as he reminded his contemporary civil engineers, that taxes on exchange offset and penalize the very linkages that good planning and public works strive to achieve.

8. Geofiscalism makes jobs while abating demands on nature and the environment. This is a by-product of containing ur­ban sprawl (cf. #5, #9), and the Hong Kong Effect (#7). The syner­gistic city is resource-sparing.

More generally, Geofiscalism puts a new focus on raising the productivity of land and natural resources, in contrast with the cur­rent unbalanced, exclusive focus on maximizing labor productivity, even at the unspoken cost of wasting land.

Geofiscalism is also philosophically compatible with “green taxes,” which are based on a philosophy that nature belongs to all in common, and those who poach on it and defile it should pay society for what they take, and the damage they do. George himself did not develop this theme, but latter-day Geofiscalists have done so, using the economist’s tool of “marginal cost pricing,” which shows the ef­ficiency both of land-value taxes and of green taxes.

9. Geofiscalism promotes economy in government. By mak­ing jobs, it automatically lowers welfare costs, both directly by taking people off the dole, and indirectly by weakening the ratio­nale for most doles in the first place. Making jobs of course lowers crime, with all its direct and indirect costs. It lowers social unrest, with threats of riots and arson.

It also abates the high costs, both civil and military, of ter­ritorial expansion. Now, such expansion results from three forces combined: people seeking jobs and lands; investors seeking outlets; and land speculators seeking unearned increments. Geofiscalism abates all three forces by directing human settlement and activity to a smaller area of better lands.

As a happy by-product, this also abates demands on nature and the environment.

10. Geofiscalism lets us raise tax rates without impairing the tax base: there is no “Laffer-curve Effect.” That is, higher tax rates must always yield higher tax levies. [There is a “tax capitalization effect” such that a rise in the tax rate may yield a less than proportionate rise in the tax levy; but that should not be confused with a Laffer-curve Effect.]

11. Geofiscalism effects a radical social and economic re­form in a completely non-catastrophic way, working silently through existing institutions and the free market. It can be and has been adopted (in part) by democratic governments, by authoritarian ones (Meiji Japan), and by foreign occupying forces (MacArthur Japan, Kuomintang Taiwan, Hong Kong, Kiauchow).

12. Geofiscalism may be and has been applied by local, central, and intermediate levels of government.

13. Geofiscalism may be and has been applied in whole or in part. It is compatible with a mixed economy. It may be applied immediately, or phased in slowly, as preferred.

14. Geofiscalism is impervious to tax-avoidance and eva­sion schemes: foreign tax havens, tax shelters, profit shifting, concealment, electronic transfers, smuggling, creative ac­counting, etc. Every parcel of land is open for inspection. It lies un­ambiguously within one taxing jurisdiction. It cannot be moved or hidden. The owners must identify themselves, pay up, or lose their land. Foreign residents and foreign owners have no advantage over resident citizens.

15. Geofiscal levies are enforceable without tracing per­sons, and without threatening them with jail or other personal penalties. The land is the hostage.

16. Geofiscalism democratizes access to land, in the man­ner of open access to a commons, yet without relaxing the constraint on economic use. It democratizes and opens up access by lowering the purchase price; it puts a constraint on wasteful hold­ings by imposing an annual charge or tax on holding land. The net effect is the same as making credit available to all potential buyers on exactly the same terms: same rate of interest for all, and perpetual credit for all. Land credit is extended to the poor, and everyone, with no risk of non-repayment.

It also puts future buyers on the same footing as the pres­ent owners, thus removing the differential advantage of inherited entitlements. This last point does not, of course, commend itself to most of those with inherited entitlements, yet in many circumstanc­es even they will experience gains, if the advantage of lowering other taxes exceeds the rise in the land tax.

17. Geofiscalism speeds the renewal of sites now occu­pied or covered by decayed and/or obsolete machinery, equipment and buildings. It does so without subsidies, either direct ones to new equipment or indirect ones like sacrificing tax revenues. Thus it keeps a nation’s physical plant modern and competitive, has­tening the embodiment of new technology into working material forms. It increases investment opportunities at home, providing out­lets and stores of value for savings.

18. Geofiscalism raises revenue without any complex ma­chinery and paperwork such as bedevil the income taxes (corporate and personal), and without any confidentiality of tax data from the press and the public. No one but the tax man knows what special income tax deals are enjoyed by anyone else; it’s all personal and confidential, and wide open to corruption. Land, on the other hand, is public business.

Panacea?

George, considering such reconciliations, wrote in wonder that “The laws of the universe are harmonious.” [Progress and Poverty, Book VI, Chapter 2] Modern philoso­phers may cavil at his mode of expression and his awe, but that need not distract us. Perhaps the harmony came from his attitude, his problem-solving orientation, as much as from the universe, but in either case it is real enough, and wonderful to realize. Let us adopt the same attitude, and watch our intractable problems fall away.

Some captious critics, viewing just a few of such claims of harmony, damn Geofiscalism as a “panacea.”  The word betrays a cu­riously warped mindset: who would damn a solution for the very reason that it is a solution? The word is theirs, though, and what they evidently mean is only implied: strong claims must be false, by assumption, so the critics are spared from proving them false in any specific way. That is counterfeit wisdom, indeed, and a cop-out. It is our fortuity as Geofiscalists to set forth the claims, and challenge critics to refute them — and hold their peace when they cannot.“

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.

Michael Hudson is one of a handful of economists who forecast the global financial collapse would be the natural result of banking excesses in residential real estate where, by ignoring their risk management, they acted to inflate bubbles.

Now, instead of letting the land price bubbles deflate as they should, governments have sought to prop them up, creating thereby a new asset bubble class which is no less sinister. It, too, must end badly for all of us.

Hudson deserves, but will never receive, the Nobel prize in economics for his eye-popping analyses which expose the tactics of the 0.5%.

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.

The problem is not the US (or Barack Obama).

The problem is not Australia (or Kevin Rudd).

The problem is not Europe (or the EU)

The problem is not China.

The problem is not politicians.

The problem is not the environment.

The problem is not global warming.

The problem is not population.

The problem is not human rights.

The problem is not unfairness.

The problem is not cruelty.

The problem is not pharmaceuticals nor drugs.

The problem is not education.

The problem is not unemployment.

The problem is not provision for retirement.

The problem is not money.

The problem is not banking.

The problem is not the share market.

The problem is not business.

The problem is not housing.

The problem is not land prices.

The problem is not dispossession.

The problem is not insufficient funding.

The problem is not debt.

The problem is not poverty.

The problem is not labour.

The problem is not capital.

The problem is not productivity.

The problem is not monopoly.

The problem is not the uber-wealthy.

The problem is not war.

It is all of the above, as impacted and misshapen by taxation.

Revenues derived from rents can’t misshape nor destroy  anything!

No problem can be remedied successfully if taxes aren’t abolished. Simple.

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.

At least the new Treasurer, Chris Bowen, is prepared to admit there are hurdles ahead for the Australian economy. This is a change from Wayne Swan who accused people of “talking the economy down” if they found themselves unable to ignore the damning results of this rampantly extended period of rent-seeking. No, we shouldn’t shut up about it, Wayne: it has to be stopped.

But I doubt the Rudd-Bowen combination has the fortitude to tackle rent-seeking head-on before the election, despite Australians earnestly seeking a political leadership that is guided by principle instead of opinion polls.

If the government wants to demonstrate it has a spine, the first thing it should do is to scrap Julia Gillard’s minerals resource rent tax (MRRT), designed in a back room deal with the big miners, and replace it with Kevin Rudd’s original resource super profit tax (RSPT).  The MRRT is a shocker and yields nothing.

It would be a bold statement that Labor is prepared to address the real economic problems confronting Australia.

If it’s a difficult call for Labor, it would be an even more remarkable initiative for a new Liberal government under Tony Abbott.

It’s one policy for which the Greens should be admired.

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.

ABOLITION: THE ONLY TAX REFORM

Many harebrained ideas are promoted in connection with tax reform. These include flat rate income taxes, a Tobin Tax or other forms of transactional taxes including VAT/GSTs. Although people who promote each are often well-intentioned and seized with the certainty of the efficacy of their arguments, they are thoroughly misguided.

They ignore the many great philosophers who have come to the conclusion that payment of the economic rent for the privilege of exclusively-possessed land, natural resources or other government-granted privileges is the only real solution to failing economies, because taxation does indeed destroy.

Whereas taxation is an arbitrarily-imposed fine, economic rents are a payment for a government-granted privilege. Whereas taxes add directly to costs and deadweight throughout the economy, rents do not. Although the distinction is critical, the 0.5% endeavour to fudge it with catch cries such as “a tax is a tax”. (Yes, but a rent isn’t!)

Moreover, whereas taxes continue to inflate land prices, the public capture of land rents acts to decrease them.

As the financial system sinks into Bunyan’s slough of despond, a glow of a light that glimmered wanly over the horizon has increased as a number of countries look to “property taxes” with increasing regard. Some even appreciate property improvements should remain untaxed if derived revenues are to remain rents in nature.

Given the dire situation of world economies, it was therefore very heartening to see The Economist come out in praise of the benefits of “Levying the Land” on the weekend.

Against the wishes of what should be a shamefaced 0.5%, it does seem a welcome dose of reality is beginning to set in.

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.

EDWARD’S PRAYER

Following the enclosures of Henry VIII which robbed the people of their common lands, the precocious King Edward VI knew what he had to do to ameliorate the ensuing poverty and strife that was wracking England.  He would write a prayer of comfort which was to be read in church.  It was included in the 1553 Book of Private Prayer in Edward’s 16th year, the year he died.

“We heartily pray Thee to send Thy Holy Spirit into the hearts of them that possess the pastures and grounds of the earth, that they, remembering themselves to be Thy tenants, may not rack or stretch out the rents of their houses or lands, nor yet take unreasonable fines or moneys, after the manner of covetous worldlings: but so let them out that the inhabitants thereof may be able to pay the rents, and to live and nourish their families, and remember the poor.

Give them grace, also, to consider that they are but strangers and pilgrims in this world, having here no dwelling place, but seeking one to come; that they, remembering the short continuance of this life, may be content with that which is sufficient, and not join house to house, and land to land, to the impoverishment of others; but to behave themselves in letting their tenements, lands and pastures, that after this life they may be received into everlasting habitations.”

As we continue to practise the art of land monopoly and dispossession in the 21^st century, praying for social justice remains the preferred approach of the Church, lest upholding biblical injunction against the lords of the land might offend them.

And, of course, we wouldn’t want to offend such people as Gina Rinehart as she steals billions of dollars of Australians’ land rent each year, would we?

So, a prayer it will remain.

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.

IT’S NOT DIFFICULT TO UNDERSTAND

If you want to know why Coles and Woolworths can pay farmers virtually nothing for their produce and can play one off against another, just re-read my previous post …. slowly and with comprehension.

Anything worthwhile, such as workers wages and the price of farm produce, has been deflating since 1968-70 because the tax system has favoured drones – speculators and share market investors.  It’s only share markets and house prices have been inflating, via rent-seeking.

Effective demand has accordingly been declining and now we’re reaping the whirlwind. The vast majority of Australians are carrying debt–many with excessive debt they can never repay–whilst the 0.5% have been getting obscenely wealthy at others’ expense. An enormous gap has developed between the 0.5% super-wealthy and everybody else.

This is because we have a revenue ‘system’ which penalises manufacturing, small business, retailers, workers and families as it heaps increasingly greater rewards upon so-called “investors”.

Hey, Productivity Commission!  You should listen up, too, because I’ve solved your greatest problems!

What’s behind this financial mess is a crazy tax system that sorely needs to be scrapped.

But I guess if the ACCC, Productivity Commission, et al, do call for essential tax reform they’ll be putting themselves out of business because their raison d’être will disappear. They only exist in order to try to counter the rather natural outcomes of a mad tax system.

So why NOT scrap a revenue system in total disarray?

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.

To see the result of all this money printing just look at stock prices. Hyper-inflation is already here, it’s just in paper assets instead of the in goods and the real economy. Why is the inflation relegated to stocks and bonds rather than hard assets? I believe it is because of the massive income inequality or wealth gap which persists in the global economy.

Since we all know that the wealthy spend a much lower percentage of their total income than the poor, and conversely save a much greater percentage of this same income, a large wealth gap tends to produce over-investment and speculation, thus hyper-inflating financial assets, while at the same time weakening demand for the actual products of created by this over-investment. This is what creates the global deflationary forces, since, when supply exceeds demand prices must fall.

This situation is highly unstable and can only persist for a short while before profit destruction occurs and the bubble pops. It is this over-investment, and the resulting demand gap that has created the Asian financial crisis and will ultimately pop the US stock market bubble ushering in the next global great depression. Japan is printing money at an incredible rate but prices still fall. It is the old pushing on a string effect.

Demand is weak and will stay weak as long as income and wealth distributions stay lopsided. From this perspective the IMF bail-outs have made the situation worse, since fat-cats were subsidized by tax dollars from the working class. Talk about a reverse Robin Hood!

At the same time these bail-outs and plunge protections just serve to embolden risky investments and over-speculation as fat-cats and cronies are convinced that the will not be allowed to lose. With all these bail-outs and money printing, the Central Bankers are trying to avert a financial collapse which is admirable. And they hope that markets will just trade sideways for a few years until all the excesses of the past are wrung out in a relatively painless soft-landing type scenario.

Problem is the markets won’t just trade sideways, if you make it obvious that there is no risk of loss speculation will get more out of hand. If you flood markets with liquidity they will use it to pursue more and more risky and unprofitable ventures, and will create grossly over-inflated asset values. This is the moral hazzard implicit in being the lender of last resort. The central banks need to bite the bullet and let the bubble pop or it will just keep keep on growing. It is not possible to deflate it slowly. Speculators don’t learn caution and sobriety with a series of 10% drops shortly followed by 30% gains. They learn caution and sobriety from real pain and serious loss. It is this cathartic action that creates the conservative, cautious environment that makes the next healthy growth phase possible.

If anyone is looking for an explanation of why the plateau phase is so unusually long and drawn out this time look no further than the recent money growth statistics and other central bank antics trying to repeal economic cycles, but really just postponing the inevitable.

Will Greenspan, Rubin, and Clinton go down in history as the geniuses who defeated the Longwave, or as goats whose hubris got the better of them and made the eventual bubble popping far worse than it would have been without their tinkering?

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Greenspan, Rubin and Clinton? Yep, that’s right.  Bill Shepler wrote this estimable analysis on the Longwaves List on 4 May 1998 (12:58 pm).

Bill remains absolutely correct that the longer our reserve banks prop up paper assets, at an enormous cost to the real economy, the more calamitous must this economic depression be.

Demos.org displays the “stacked deck” here in graphical format.

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.

AT LEAST UNTIL THE CONFIDENCE VOTE IN THE HOUSE TOMORROW?

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.

Robert Gottliebsen is a longtime Australian financial commentator, but he hit a bump in the road in Business Spectator today in a piece entitled “Haunted housing”.

It typifies all those confusing analyses that have it that increasing house prices, at a somewhat unidentified level, are good for people and the economy.

“The economy is recovering because house prices are up” is an incorrect statement – even if we do receive a perverse warm inner glow when the price of our home does increase.  A little thought would show that it’s only good for real estate agents whose fees are based on the sale price of homes.

Anyway, I couldn’t help myself, so I had to respond:-

A garbled Goldilocks account Robert! You suggest China’s house price increases are too high, ours are too low, but the US is “just right”. As a developer of a real estate index–prices to GDP as a yardstick of the social and economic health of the economy where higher ratios are worse–and who forecast the global financial collapse I’d agree China’s real estate prices are too high, but so too are America’s if the data we’re receiving is correct. I’d go so far as to say rising house prices in the US are clear evidence that its economy is NOT recovering, because the housing deflation must be allowed to take its course, instead of propping banks up as for the last 20 years in Japan. The process could be rapidly expedited, however, by instituting something like the Henry Tax Review’s proposal for a federal land tax accompanied by the slashing a multitude of taxes on labour and capital with all their deadweight: but as Eliza Doolittle remarked that’s “Not bloody likely!”

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.