I was readin’

Leviticus twenty-five

… came across

verse twenty-three:

“The land shall not be

sold forever,

this land belongs to you and Me.”

Not unlike his own verse:-

As I was walkin’

I saw a sign there

and the sign said ‘Private Property’,

but on the other side

it didn’t say nothin’,

that side was made for you and me!

“LongWave Basics

by Bryan Kavanagh

22 December 1999 11:20 UTC

>At 06:06 AM 12/21/99 -0700, Tom Drake wrote:

>

>> I wrote

>> 1) Demographics – no.

>> 2) Collective memory – no.

>> 3) Master clock – no.

>> 4) Rent-seeking as a result of taxes – yes.

>>

>> If 4 remains obscure, then 1, 2, & 3 will forever remain as candidates.

>> When we are able humbly to acknowledge that we are indeed

>> inextricably fused with air, and are every bit as reliant

>> upon other natural resources, we will begin to gain some insight into

>> the utter economic absurdity, the devastating wastage of human potential

>> of taxing wealth-creation.  If ever we do lift this veil, then the

>> naturalness of a community charge on the use of natural resources for

>> necessary public service and infrastructure will hit us in a blinding

>> flash. Then and only then, will the Longwaves list be redundant.

>>

>> – Bryan Kavanagh

>>

>————————————————————————–

>Bryan,

>

>I have read your site and followed your posts for over three years.

>Your work on real estate cycles has been very interesting to me

>and has helped my own understanding of the Long Wave.

>

>But I do not understand *HOW* the “economic absurdity…. of

>taxing wealth creation” rather than taxing the “use of natural

>resources” is a cause of the LongWave itself.

>

>Could you go into this in greater detail, and since this is a more

>Long Wave-related discussion than what goes on at the site itself

>in the past year, perhaps it should go there?

>

>Regards,

>

>Tom Drake

>

>Tenorio Research

>editor@TenorioResearch.itgo.com

OK, Tom.  On the assumption that people here on the Longwaves list may be interested, I’ll attempt the task.

DEMOGRAPHICS:  Our neo-Malthusian friends would have it that population increase leads to shortages.  What, then, of the benefits of specialisation and mass production? At what point exactly do benefits attaching to these commence to reverse upon themselves? IMO, of itself, demographics has little or no influence on the K-wave.

COLLECTIVE MEMORY may seem appealing, too, but what are we really saying here? What *is* it precisely that becomes obscure to the collective memory? Excessive debt? Financial collapse? Recession? Depression? Really?

The MASTER CLOCK theory will also have its adherents, especially on a list such as the Kondratieff Wave.

But none of these theories describes the economic fundamentals of what *causes* the economy to derail.

The birds continue to eke out a chirpy living; so the question becomes what are *we* doing wrong?

Clearly, the problem is the extraordinary knot which repetitively develops in our distributional system.

Do we not we hear much about the community decrying the paradoxically widening gap between the rich and the poor in this ‘healthy, booming economy’? What is the process by which this gap widens – because, eventually, if Joe Sixpack no longer has a dollar in his pocket and can’t service his debts: the wheels of the economy must start to fall off.

The wealthy cannot make the economy go round by themselves – they need Joe.  They won’t admit it, but he is integral. Many on the Longwaves list hold this process began to unfold in the early seventies. I believe its pace quickened discernibly in 1990/’91, after the collapse of western commercial real estate markets in 1989, and the process will gradually roll from denouement to conclusion.

[Segue] Why do people *have* to work for others? What if people all had the opportunity to work for themselves?  Under the latter scenario, owners of capital would have to bid up wages in order to attract workers away from their own pursuits.  This would never do: so those who run the show have to think up a ruse to keep people in their place.  A new form of slavery, perhaps?

This was no better exemplified than in the case of the founding of the colony at South Australia. Wages and living conditions are notoriously better in a new colony, such as also the US once was. However, a not-too-nice chap by the name of Edward Gibbon Wakefield, who wrote a book called “England and America”, thought his class still needed cheap labour in these circumstances.  Although his family was well off, he  had abducted two heiresses and spent time in jail for kidnapping the third with intent to marry.  He had been doing some thinking whilst interned in Newgate prison.

Wakefield thought there was a way by which you could found a colony which was not based upon cheap *convict* labour, as Sydney town had been.  Why not simply release land to the colonists “at sufficient price” that only the wealthy will be able to afford their ‘town block’ and rural broadacre parcel – so others will have to work for years before they are able to afford a deposit, much less pay it off.  [Enter the mortgage, ‘the grip of death’.]

There’s your cheap, subdued (cowed?) labour force.

Wakefield touted his theory, ‘The Wakefield Plan’, for colonising South Australia, New Zealand & Canada. The wealthy lapped it up. The Church also thought it had great merit. It would stop people from seeking to raise themselves beyond their proper station in life.

[Segue again: to a pier in Auckland, New Zealand, 1890.] Two men, one the tough former explorer Sir George Grey, governor of New Zealand, and former governor of the colony of South Australia, where he had seen Wakefield’s plan break out into a depression as the investors’ land bubble burst. Wakefield’s ideas were in opposition to Grey’s duty to society and compassion for working people .  The other man: an American by the name  Henry George.  They shook hands, meeting only briefly, because George’s ship was quickly bound for Australia.

I fancy the discussion went something like this:

“That fellow Wakefield is now in New Zealand with his Plan, I see, Sir George.”

“Yes, Henry. He’s a friend to the rich, and a bane to all others!”

“Deucedly using my P – R = W + I to advantage the already-privileged, too!”

“Just so, Henry: just so. He has always been one with an eye for the main chance at society’s expense.”

[Cutting to the chase]

As times recover after the depression, and people get back to work, it is often not only employment that begins to grow again. Land price also gets up off the floor where it needed to remain.  As land prices are permitted to resurrect with prosperity, so do mortgage commitments; so does the taxation of labour and capital.

Taxes cascade throughout the economy into every nook and cranny, doubling the prices of goods and services – as distinct from a community charge on resource rents which cannot be passed on in costs and prices.

The twin pathologies—-taxes and land prices—-pick up … mortgages growing, growing….until massive debt and speculative rent-seeking by the wealthy (and those who aspire to be like them) starts to choke off real wealth production….. once again.

Another depression.

Innovation; demographics; collective memory; master clock?  Nah.  Taxes, land prices, debt and rent-seeking, rotating in hopelessly repetitive cycles of boom and bust.

A community charge on land and other natural resource rents would break this cycle, IMHO.

A far better case is impeccably put at http://www.henrygeorge.org/chp1.htm

– Bryan Kavanagh“

… TO STOP THE PARASITES

A great piece from Alan Kohler in today’s Business Spectator.

Love some of those colorful lines, Alan!

Of course, I just had to comment.   😉

____________

Too fat to fail

Alan Kohler

Published 7:46 AM, 11 Jul 2012 Last update 7:46 AM, 11 Jul 2012

The problem with depressions, not that I’ve ever been awake during one before, is that you tend to get caught up in the minutiae of the moment – the gripping Libor-rigging scandal, the latest writhe in the agony of Europe, the latest twitch in the US economy.

We rush from scandal to crisis clamouring for each to be punished or redeemed. But interesting as all this is, it distracts from the big picture, the real story, which is that the world has begun an epic, long-term balance sheet adjustment.

Because most western governments are insolvent, fiscal policy is dead. They maxed out their taxing power a long time ago and have been borrowing ever since. When it comes to the economy, governments are a spent force.

This has put central banks in charge, and they basically do one thing only: print money. If all you have is hammer, everything looks like a nail, so central banks naturally think the world’s problem is a lack of money, which they are busily solving.

The problem is a lack of money is not the problem, it’s solvency, and part of the reason for that is too much money, or rather too much credit.

Debt was built up through 30 years of current account imbalances after currencies were finally unshackled from the gold standard in 1971, and the depression of the 70s came to end in 1982.

Central banks, principally the Federal Reserve, complied in the process of debt build-up by holding down interest rates and allowing asset prices to rise, keeping balance sheets in the black.

The credit crisis of 2007-08 brought asset prices down rapidly and rendered banks suddenly insolvent, so they had to be recapitalised by governments. Now the governments of Europe, the US and Japan are insolvent and the only question is when the central banks will monetise their debt – that is, print more money and buy their debts.

Governments and banks, lashed together like cage fighters, have to shrink drastically to reflect the new reality of their balance sheets, but no one wants to shrink and they are fighting that like polecats at the same time as fighting each other.

Rigging Libor, the benchmark interest rate for most global lending, and which is bound to extend far beyond Barclays, was one way the banks attempted to avoid their fate.

As a result of the 30-year boom in their product (credit), banks became too big and, more importantly, came to believe their own bullshit. Bankers became so rich, they naturally felt this was due to their brilliance, so that when the magic stopped working in 2007 they felt no compunction in bending the rules. They were, after all, Masters of the Universe.

The financial industry must now shrink and learn humility. To use investment parlance, the world is overweight banking and it needs to return to the simple task of collecting savings and distributing them to those who require them.

Governments also grew too big and acquired too much self-belief as a result of easy debt. Budget deficits and current account deficits were easily financed by future generations and they are now asking for the money back.

As a result short-term government bailouts in Europe are getting shorter and shorter, and less worthwhile. Greece is in worse shape now than it was before being bailed out. Spain and Italy are heading down the same path.

The governments of Japan and the United States are both insolvent – that is, their debts are greater than they can service for long. There is no alternative than deflation, although they will probably try inflation first – that is, monetising the debt.

But the greatest danger for investors is to not recognise the deflationary forest because you’re too busy watching the trees.

That doesn’t necessarily mean not investing, although for some wary souls it does, but rather it means understanding that we’re in a long bear market that is now five years old and could have 10 years to run, as banks, governments and households go about shrinking their debts to better reflect their assets and income.

Bear markets like this cause heartbreak, but they also create wonderful opportunities.

MACROBUSINESS has released charts showing Queenslanders are increasingly alert to the fact that land prices are deflating.

Those Australians continuing to buy residential property are either exceptionally wealthy–and don’t mind their purchase price looking very stupid shortly–or ignorant of Prosper Australia’s “Don’t Buy Now!” campaign:-

Around the world, elites continue to design revenue systems to suit their own selfish interests.

When after a period of time people are drawn to protest at increasing evidence of the social and economic damage caused by direct taxation, the 0.1% goes along with a switch to indirect taxes – and, some years after this has been put into practice, things of course need to go vice versa. Alternation between one failed revenue source to another.  This alternation is promoted in the media as ‘tax reform’.

Their other constant over the last century has been to wind back taxes on real estate assiduously – particularly on land.

For more than 130 years, Georgists have demonstrated without much success that this is a travesty of ‘free enterprise’.  It is not even a ‘capitalist’ system, but a system of plutocrats stealing the public’s rent.

Instead of liberty and free enterprise we exist under a system of rentierism.

Rentierism breaks into a recession with monotonous regularity, and a little less regularly into the devastation we are now witnessing when a gargantuan bubble in land prices bursts .

But our attention span is limited, so we believe each partial recovery is a real recovery. The rentiers take the opportunity to blame the preceding financial collapse on property-based taxation, which is therefore wound back further. Some of the non-rentier fraudsters who believed they could match the rentier class in accumulation of corrupt wealth are usually thrown into jail for their criminality.  The rentier remains invisible throughout this process, and as time passes the land price bubbles grow progressively larger.

We don’t ‘get it’, you see?  Whilst we ought to be abolishing all taxes on labour and capital, whether direct  or indirect, and making everyone pay the full annual rent for exclusive possession of the lands over which they’ve been granted title, we’re constantly re-assured by their neo-classical high priests that all’s OK, a new economic day has dawned.  [They’re still not openly reporting this one as a depression yet – because we’ve got to mask the fatal flaw with CONfidence.  “We’ll wait until all the ‘technical definitions’ of economic depression have been satisfied.”]

And so we resort to financial stupidity instead of introducing a revenue regime that, not fining labour and capital, will free humanity.

Rentierism still rules – and won’t go down without the odd fight in the High Court.

We had a feeling Australian real estate spruikers were lying to us about a grave undersupply of housing, just as Southern Californian realtors did in an effort to explain nosebleed high prices before their bubble burst.  But now we have the evidence.

Granting such licence to the real estate industry is no joke. The manner in which its boffins are permitted to lie to us has devastating social and economic consequences.

It’s got to change.

Until spruikers are read the Riot Act, Australia’s real estate valuers should ensure they keep arms length from them.

REAL ESTATE STATISTICS

The Lands Titles Office of South Australia is the nation’s most timely in the production of real estate sales data.

The release today of South Australia’s June sales total, 4510 sales aggregating a consideration of $1,495,172,843 (for all residential, commercial, industrial and rural sales), brings the financial year to a close.

The number and value of sales are the highest for the year, but June is not uncommonly South Australia’s greatest sales month.

The following graph tracks the dollar value of South Australia’s real estate sales over the period of the bubble from 1999.

Following an attempted recovery in 2010, the last two years seem to confirm the end of the state’s property bubble.

South Australians should see a return to the long term trend over the next few years and much more affordable accommodation for home seekers. This is most heartening.

I often see articles sympathetic to the banks, claiming they’re hard done by, and most certainly not responsible for the global financial collapse.

Holding the banks to be the epitome of financial rectitude, and apparently not responsible for their own risk management, they lump the blame onto miscreant borrowers.

When some clown called Irvine Renter recently said Robert Shiller has completely lost his mind in suggesting banks carry responsibility, I flew into a rant:

“I know who’s lost his mind – and it aint Robert Shiller.  Banks who lend on bubble-inflated land prices have deep structural problems with their risk management procedures – problems bordering on fraud.  Of course they should adjust their loan books back to the real market and renegotiate loans from there.

After hundreds of years, banks don’t know that real estate bubbles burst?  C’mon!  They want to tie mortgagors down to 30 year sky high mortgages – then expect to be bailed out when things go awry.

Guess where your true moral hazard lies, guys? It aint with Joe Sixpack.”

I expect those people who hold the FIRE sector (viz, finance, insurance and real estate) to be the paragons of morality–thereby helping to underpin the rationale behind obscene bank bailouts–will also find excuses for Barclays and other British banks for fiddling their LIBOR rates.

Their claim that criticising banks is “bank bashing” is every bit as hollow and meaningless as those who claim land taxes are “wealth taxes”. (What on earth does that mean anyhow?)

The sorry state into which the banking industry has descended won’t be reformed by bailing it out for its sins: it must be permitted to go to the wall and be replaced by private interests or governments unprepared to finance real estate bubbles.

As with calls for further financial regulation, the argument that we need to save such a fatally flawed financial system doesn’t hold water.