At the 39th annual conference of the Eastern Economic Association held at Cooper Union, New York, 9 to 11 May 2013, Professor Mason Gaffney delivered a paper which gets to the crux of the world financial collapse.  Obviously, few policymakers have appreciated the extraordinary implications of his algebra.

Read Gaffney’s address “Great Expectations: How credit markets twist the allocation and distribution of land” here —-> Gt-Expectations-MS1.

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 Reserve Bank of Australia (RBA) is a statutory authority whose duty is to contribute to the stability of the currency, to full employment, and to the economic prosperity and welfare of all Australians.

The RBA sets the cash rate in order to meet a medium-term inflation target. It also issues Australia’s banknotes and manages its gold and forex reserves.

Sometimes it increases the cash rate, the overnight lending rate, and sometimes it decreases it – usually by 25 basis points or 0.25%.

Let’s look at the rationale for increasing interest rates. “The economy is performing too well and has to be slowed.” Oh? It’s the RBA job to put the brakes on a healthy economy? Can it be too healthy?

“There’s incipient inflation that might take us past our target inflation rate.” That’s more like it; but then what has induced these inflationary pressures?  Surely not the ‘velocity of money’? That’s an effect rather than a cause?

Sometimes, in my wild erratic imaginings, I even start to think it may possibly have something to do with the non-productive, or speculative, side of the economy. But then I say to myself: “Self, that could not be right at all, because that’s not what Reserve Bank and all those bright financial analysts tell us.” They say the whole economy must be slowed by making the cost of money generally higher, effectively including people’s mortgages, business loans and venture capital.

Silly me, because the extension of my stupid line of reasoning would have the bank selectively target speculative real estate activity and leave wealth creation efforts alone, instead of making money dearer for everyone! But who really wants to tax speculative rent-seekers or have lower interest rates for businesses, workers and genuine investors – only a killjoy, surely?

Then there are times like these, when the RBA has been busy cutting the cash rate. We’re down to 2.75% here in Oz–not as low as many countries– but we may not have finished lowering interest rates yet. So, what’s going on in this case?

Well, the economy is rapidly slowing down and farmers, shopkeepers and many other businesses are feeling it – so the RBA’s got to help them out with lower interest rates.

But why’s the economy slowing down? Well, many people are in debt, especially mortgage debt, because of the gigantic real estate bubble we’ve experienced, and still the bills keep rolling in. People need assistance with credit.

But aren’t real estate bubbles, by their very nature because they end up bursting, part of the speculative bubble developed by the banking and real estate industries – so won’t the lower interest rates tend to attract more people back into the bubble housing market, acting to stop it from correcting, keeping house prices high? Doesn’t this just aid the banks, not the people?

So it’s the RBA’s job to assist bank profits? But the RBA’s charter, spelled out in the first paragraph above, doesn’t mention this to be its duty. Shouldn’t it be targeting speculators, both on the upside and down, instead of helping them rip Australians off? Is the RBA therefore breaching its charter? No? Why not?

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.

Forget the Australian budget: it was a yawn.

However, if you can get your head around his broad Aberdeen accent, Professor Mark Blyth has to be one of the world’s most entertaining speakers on international political economy. His book’s probably very good, too, but even though he notes John Locke sees property as ours in common (“so what’s the problem?”), I suspect he fails to see there’s an even more fundamental mischief than credit bubbles. I may be wrong, because Blyth does perceive Gordon Brown’s economic “prudence” failed to quell to the UK real estate bubble.

“The world has been engorging itself on a credit binge”, says Blyth; however, managed austerity has brought nations more, rather than less, debt. Austerity was introduced only to save the banks, and pensioners have been conscripted into this “Golden Dawn” in the misbelief that “there’s a free lunch if you skip your dinner.”

He reminds us it was not Karl Marx, but laissez-faire’s Adam Smith, who said “Civil government, so far as it is instituted for the security of property, is in reality instituted for the defense of the rich against the poor, or of those who have some property against those who have none at all.” And “For one very rich man there must be at least five hundred poor.”

Blyth’s talk, replayed on Radio National’s “Big Ideas” last night, unlike the budget, is a must listen.

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.

I wish, like Robert Gottliesen, I could believe a change of government is going to do the trick for Australia: but it’s not. Here’s Bob’s latest:

http://www.businessspectator.com.au/article/2013/5/14/federal-budget/quiet-end-treasurys-tame-double-act#ixzz2TEFNMHta

I responded to him and a couple of commenters here:

http://www.businessspectator.com.au/article/2013/5/14/federal-budget/quiet-end-treasurys-tame-double-act#comment-293771

And to another commenter seriously believing the original resource super-profit tax would have damaged Australian mining:

http://www.businessspectator.com.au/article/2013/5/14/federal-budget/quiet-end-treasurys-tame-double-act#comment-293811

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.

Keeping it going until Tony and Joe take over, eh Wayne?

Now for tomorrow’s budget.

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.

Talking of “old”, I came across a group of old email exchanges I saved from the Longwaves list to which I belonged until the list folded in the early noughties. (As usual, vitriolic personality clashes from a hopelessly intense handful was the main part of the problem.)  Otherwise, we had some very good discussions and debates from many interesting personalities about the upcoming depression (although one or two thought such an outcome was impossible – eh, Eric/Dan?) Although the list was mainly concerned about the economy and proceedings within the share market, Tom Drake, having read an article of mine which connected the Kondratieff Longwave to the real estate market, invited me to join as I might have something to contribute.  This was one of what must have been several hundred of my dispatches:

RE: tax

At 11:24 AM 1/14/00 +0900, you wrote:

>Survey: U.S. Thirty Times More Civilized

>A recent survey by the Tax Foundation estimated

>that Americans “will spend more per capita in 1999

>on taxes ($10,298) than on food ($2,693), clothing

>($1,404), and shelter ($5,833) combined.”

>In 1904, Oliver Wendell Holmes, Jr. made the famous

>statement that “taxes are what we pay for a civilized

>society.” The Tax Foundation points out that we must

>be awfully civilized by now – taxes are fully 30 times

>greater (in 1999 dollars) than when Holmes spoke.

>(Sources: Tax Foundation, as reported in “CEI UpDate,”

>Competitive Enterprise Institute)

RE: tax

14 January 2000 08:49 UTC, Bryan Kavanagh wrote:

(Uh oh! I feel another tax rant coming on!)

Taxes shouldn’t exist but, foolishly, we let them. Why?! “The only certainties in life are death and taxes” is a vast con trick worked on our gullibility. The Land Values Research Group recently quantified the annual value of all Australian natural resources, i.e. its annual ‘resource rent’–not to be confused with taxes–to be more than our total taxation at all three levels of government. (This is likely to be the case also in the US and other countries.) So, if we were to use this ‘natural fund’ to draw revenues for the use and abuse of nature, we could:-

. give the planet a real chance

. give ourselves the ultimate tax break, by abolishing totally the destructive taxing of labour and capital

. reduce land prices towards zero (land price is simply the private capitalisation of its uncollected rent)

. halve the size of future mortgages

. halve the price of all goods and services (because ‘rents’ can’t be passed on in prices as taxes are)

. free up vast the armies of bureaucrats, lawyers and accountants working in the field of taxation to do something   worthwhile with their lives

. create a genuine market in land and resources, removing at the same time the primary reason for seasons of economic recession and depression

. actually experience truly free markets and become free men and women

Taxes and land price are the real enemies of freedom, my brothers and sisters! Come over from the dark side!  🙂

(Ah! That didn’t half feel good.)

– Bryan Kavanagh

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.

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.

A public meeting held at the Brolga Theatre Maryborough on 8 May heard Dr Putland explain the manner in which those on minimum rates in the Fraser Coast municipality are subsidising the wealthy.

The Fraser Coast’s mayor was not looking well in The Chronicle’s coverage of the meeting.

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 second item in today’s Victorian API news demonstrates the Australian Property Institute is losing its way:

“Property taxes shoulder Vic budget

THE Victorian government is becoming addicted to property taxes, which will raise over $6 billion in forward estimates for the 2013-14 Victorian State Budget.” [My emphasis]

Now “becoming addicted to property taxes” is in no way exhortatory, or pushing a barrow, is it?

The API has apparently got to the stage where the organisation, founded by statutory valuers in 1910 mind you, now joins the ranks of urgers and touts, such as the Real Estate Institute of Victoria, to decry land-based revenues.

Of course, I was impelled to reply as follows:

“THE Victorian government is becoming addicted to property taxes, which will raise over $6 billion in forward estimates for the 2013-14 Victorian State Budget.”

An institute purportedly representing valuers—it was after all founded in 1910 by Commonwealth Taxation Office valuers—should know a very good case for reforming and extending current state land taxes was made in a thoroughgoing report by the Henry Tax Review panel. The words “becoming addicted” in the sentence above therefore disgraces both the API and the person who wrote them.

–       Bryan Kavanagh AAPI

______________________

This is the professional institute of which I was once proud to be a member.  Once known as the Australian Institute of Valuers, it is rapidly becoming indistinguishable from just another branch of the property lobby.

Was Mason Gaffney on the mark, or not, in November 1986?

BOTTLING THE AIR – by Mason Gaffney

“Don’t you know that if people could bottle the air, they would?  … there would be an American Air-Bottling Association …. they would let millions die for want of breath, if they could not pay for the air.” — Robert G. Ingersoll

Times have caught up with Ingersoll.  Ronald Coase, prominent Chicago economist, says polluters (whom he calls emitters, to avoid bias) have as much right to emit as victims (he says receptors) have to breathe clean air.  It doesn’t matter, says Coase, how we assign property rights originally: as long as property is firm, the market will sort it all out.

However, since emitters have invested in costly facilities, and property is sacred … you see whither this unbiased science is tending?

Was he laughed to scorn?  Au contraire, he was raised on the shoulders of his adulatory peers and anointed a demi-god (which tells you something about his peers).  Having risen on wings of theory the idea found its way into practice, and today The South Coast Air Quality Management District awards “offset rights” to those with worthy track records of emitting.  New emitters must buy “property rights” from old ones.

In effect, we don’t fine people for emitting, we reward them with a right to continue.  Then we can pay them to stop, by buying back the right we just gave away.  This is putting the free market to work, they say.  If you have not been emitting before, too bad.  I have offered not to emit millions of tons of nitrates, and sulfates too.  My price is modest, and highly competitive.  I underbid the big refineries by 50%, but Air District officials just hang up on me, if you can believe it.

They say I must have earned my offset right by suffocating the neighbors in the unregulated past.

Pursuant to Coase we should no doubt award the Ukraine a perpetual right to have melt-downs at Chernobyl, rights they could then sell to Uganda or Paraguay or other LDC wanting to modernize with a melt-down or two.  Nicotine fiends with proven records of smoking in crowded rooms regularly over at least the last four years will receive official charm bracelets they can flash whenever asked to butt out.  These, of course, will be modern “bearer bracelets,” transferable to the highest bidder.

Anyone caught leaving a room filled with such legally sanctioned smoke might well be fined, and charged with violating the bracelet-bearer’s 5th Amendment rights.

And those who want to breathe?  Coase says they should pay for the privilege, as they pay for indulging any personal taste.

After all, they already pay those who supply them with land to live on.  Only welfare bums would expect property owners to dip into their hard-earned savings and supply them with free air, when the market has a solution at hand.  All they need do is buy offset rights from Ancient and Honorable Emitters.  When they want to breathe, they just retire the rights upwind of them.

This is a marvel of efficiency, too.  They retire only what it takes to clean the air they need: no waste.

If they can’t afford to buy outright, they could rent – markets have ingenious solutions for all problems, like any good panacea.  Gas masks are another free-market solution: much better than socialistic policies that would impose uniform clean air on everyone, whether they want it or not.

What about the new-born, with no prior history of either emitting or breathing?  They come innocently into the world with no basis for being grandfathered in, and little money.  Sometimes real men must put aside maudlin whining, grit their teeth, and just pull up the ladder, lest the lifeboat be swamped.  It’s the free market way of population control, a modified kind of natural selection.  As for the alleged innocence of the little brats, remember Original Sin, and The Lord of the Flies.  There is, to be sure, a noisy crowd who want clean air to be generally available, and prate emotionally of natural beauty and rights.

They are only “environmental activists,” an odd elitist lot whom objective scientists may disregard.

For that they gave Coase a Nobel Prize.  You see, old Ingersoll was on the mark.  Nothing is too absurd once we accept invading, usurping, and leeching as the bases of property.

__________________

It’s me again. Coase-thinking is no different from Ayn Rand-thinking, the thinking of those who favour PPPs for infrastructure development, and the thinking of those in local government who want the revenue system to be based on improved values, even though it acts to deter improving properties.

Local government is a big problem in Australia. The independent panel looking into local government in New South Wales considers there might be a case for Capital Improved Value rating if the change wasn’t so messy. Wrong! It’s messy because it’s a rotten system. Evidence? The comprehensive Royal Commission of Inquiry into Rating, Valuation and Local Government Finance, New South Wales 1965-1967 under the chairmanship of Justice Rae Else-Mitchell confirmed site value rating to be the fairest and best rating base. Also, Sir Gordon Chalk’s 1989 inquiry into the Brisbane rating system which, after great deliberation, came to precisely the same conclusion.

But, no! As the Henny Penny syndrome has set in amongst all the pipsqueaks at local government;  they all recite the same mantra: “We need CIV rating!”, “We need minimum rates!” (so the poor can subsidise the wealthy presumably), and “We need differential rates!”  (so we can play god with the rating base and defeat its purpose) – blissfully unaware of the inquiries mentioned into why SV rating can’t be equalled by any other revenue system.

You are left wondering in whose interests these people are working. Or is Coase-like stupidity simply a phase through which we had to pass?

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.