“WE HAVE REACHED THE BOUNDARIES, AND WE TURN BACK ON OURSELVES AND DEVOUR”

– Agnes George de Mille

A hundred years ago, a young unknown printer in San Francisco wrote a book he called Progress and Poverty. He wrote after his daily working hours, in the only leisure open to him for writing. He had no real training in political economy. Indeed he had stopped schooling in the seventh grade in his native Philadelphia, and shipped before the mast as a cabin boy, making a complete voyage around the world.

Three years later, he was halfway through a second voyage as able seaman when he left the ship in San Francisco and went to work as a journeyman printer. After that he took whatever honest job came to hand. All he knew of economics were the basic rules of Adam Smith, David Ricardo, and other economists, and the new philosophies of Herbert Spencer and John Stuart Mill, much of which he gleaned from reading in public libraries and from his own painstakingly amassed library. Marx was yet to be translated into English.

George was endowed for his job. He was curious and he was alertly attentive to all that went on around him. He had that rarest of all attributes in the scholar and historian – that gift without which all education is useless. He had mother wit. He read what he needed to read, and he understood what he read. What is more, he saw what was before his eyes, exactly, with the clear vision of an artist and the appraisal of a scientist. And he was fortunate. He lived and worked in a rapidly developing society in which his environment changed daily.

George had the unique opportunity of studying the formation of a civilization – the change of an encampment into a thriving metropolis. He saw a city of tents and mud change into a fine town of paved streets and decent housing, with tramways and buses. And as he saw the beginning of wealth, he noted the first appearance of pauperism. He saw the coming of the first beggars the West had ever known in its entire history. He saw degradation forming as he saw the advent of leisure and affluence. It was his personal characteristic that he felt compelled to discover why they arose concurrently.

The result of his inquiry, Progress and Poverty, is written simply, but so beautifully that it has been compared to the very greatest works of the English language. Indeed, there are pages that cannot be bettered for eloquence, for sparkling imagery, and for sound – that lovely poetic sound of the English language beautifully spoken. He always had this superb gift. His sea-log at fourteen compares with the style of Joseph Conrad.

Because he was totally unknown, no one would print his book. And so he and his friends, also printers, set the type themselves and ran off an author’s edition which eventually found its way into the hands of a New York publisher, D Appleton & Co.  An English edition soon followed which aroused enormous interest. Alfred Russel Wallace, the English scientist and writer, pronounced it “the most remarkable and important book of’ the present century.”  It was not long before George was known internationally.

During his lifetime, he became the third most famous man in the United States, only surpassed in public acclaim by Thomas Edison and Mark Twain. George was translated into almost every language that knew print, and some of the greatest, most influential thinkers of his time paid tribute.

Leo Tolstoy’s appreciation stressed the logic of George’s exposition: “The chief weapon against the teaching of Henry George was that which is always used against irrefutable and self-evident truths. This method, which is still being applied in relation to George, was that of hushing up …. People do not argue with the teaching of George, they simply do not know it….”

John Dewey fervently stressed the originality of George’s system of ideas, stating that, “Henry George is one of a small number of definitely original social philosophers that the world has produced.”  In another appreciation Dewey said that “It would require less than the fingers of the two hands to enumerate those who, from Plato down, rank with Henry George among the world’s social philosophers.”

And Bernard Shaw, in a letter to my mother, Anna George, years later wrote, “Your father found me a literary dilettante and militant rationalist in religion, and a barren rascal at that. By turning my mind to economics he made a man of me….”

Inevitably he was reviled as well as idolized. The men who believed in what he advocated called themselves disciples, and they were in fact nothing less: working to the death, proclaiming, advocating, haranguing, and proselytizing the idea, and even, when lacking inspired leadership, becoming fanatically foolish so that the movement which touched greatness began to founder. It was not implemented by blood, as was communism, and so was not forced on people’s attention. Shortly after George’s death, it dropped out of the political field. Once a badge of honor, the title, “Single Taxer,” came into general disuse.

Except in Alberta (the richest and most prosperous province of Canada) and in Australia and New Zealand, his plan of social action has been neglected while those of Marx, Keynes, Galbraith and Friedman have won great attention, and Marx’s has been given partial implementation, for a time, at least, in large areas of the globe.

But nothing that has been tried satisfies. We, the people, the whole people, are locked in a death grapple and nothing our leaders offer, or are willing to offer, mitigates our troubles. George said, “The people must think because the people alone can act.”

We have reached the deplorable circumstance where in large measure a very powerful few are in possession of the earth’s resources, the land and its riches and all the franchises and other privileges that yield a return. These monopolistic positions are kept by a handful of men who are maintained virtually without taxation; they are immune to the demands made on others.

The very poor, who have nothing, are the object of compulsory charity. And the rest – the workers, the middle-class, the backbone of the country – are made to support the lot by their labor. They are made to pay for the men in possession who are, in effect, their rulers, and for the paupers who are denied the opportunity and dignity of earning their own living. Forcing one group to pay for all amounts to tyranny.

We are taxed at every point of our lives, on everything we earn, on everything we save, on much that we inherit, on much that we buy at every stage of the manufacture and on the final purchase. The taxes are punishing, crippling, demoralizing. Also they are, to a great extent, unnecessary.

It was rage at unjust and proliferating taxation that drove the people of California to revolt. In June, 1978, they voted overwhelmingly to adopt Proposition 13, an amendment to the state constitution which would greatly diminish all taxes on real property – on land, houses, gardens, farms, buildings.  This was neither a thoughtful nor a searching reform, since the improvements and the site and all natural resources were lumped together, and income and sales tax rates were not separated. Under the so-called reform, the great landholdings remained intact, and therefore the great profiteering, untouched.

The voters believed that there was too much wastage in government, too much public welfare, and that they could do very well with a great deal less of both. The results so far have not been what was intended. State funds will undoubtedly be commandeered to bail out local treasuries and probably the state funding of schools, universities, libraries, symphony orchestras, museums and archives will be drastically reduced while the bureaucracy and welfare remain relatively untouched. But there has been an amount of serious thinking and if this change does not work the miracles that people hope (and it won’t), at least it will cause them to study the problems thoughtfully. The electorate is, at long last, beginning to ask questions. In this sense, the adventure has been of value.

But our system, in which state and federal taxes are interlocked, is deeply entrenched and hard to correct. Moreover, it survives because it is based on bewilderment; it is maintained in a manner so bizarre and intricate that it is impossible for the ordinary citizen to know what he owes his government except with highly paid help.

Contrary to basic American law which presupposes innocence until guilt is proven, the government now takes for granted that every American citizen is lying and cheating at every turn and he must pay an advocate to persuade the duly elected authority that he is neither a liar nor cheat. It comes to this: we support a large section of our government (the Internal Revenue Service) to prove that we are breaking our own laws. And we support a large profession (tax lawyers) to protect us from our own employees. College courses are given to explain the tax forms which would otherwise be quite unintelligible.

All this is galling and destructive, but it is still, in a measure, superficial. The great sinister fact, the one that we must live with, is that we are yielding up sovereignty. The nation is no longer comprised of the thirteen original states, nor of the thirty-seven younger sister states, but of the real powers: the cartels, the corporations. Owning the bulk of our productive resources, they are the issue of that concentration of ownership that George saw evolving, and warned against.

These multinationals are not American any more. Transcending nations, they serve not their country’s interests, but their own. They manipulate our tax policies to help themselves. They determine our statecraft. They are autonomous. They do not need to coin money or raise armies. They use ours.

And in opposition rise up the great labor unions. It is war.  In the meantime, the bureaucracy, both federal and local, supported by the deadly opposing factions, legislate themselves mounting power never originally intended for our government and exert a ubiquitous influence which can be, and often is, corrupt.

I do not wish to be misunderstood as falling into the trap of the socialists and communists who condemn all privately owned business, all factories, all machinery and organizations for producing wealth. There is nothing wrong with private corporations owning the means of producing wealth, with, as the socialists would say, Capitalism.

All Georgists believe in private enterprise, and in its virtues and incentives to produce at maximum efficiency. It is the insidious linking together of special privilege, the unjust outright private ownership of natural or public resources, monopolies, franchises, that produce unfair domination and autocracy. The means of producing wealth differ at the root, some is thieved from the people and some is honestly earned. George differentiated; Marx did not. The consequences of our failure to discern lie at the heart of our trouble.

This clown civilization is ours. We have achieved it out of the hopeful agrarian society that flourished in the eighteenth century, out of a new government we had every right to believe was founded on reasonableness, wisdom and justice. We were not compelled to come to this. We knew neither king nor conqueror. We chose this of our own free will, in our own free democracy, with all the means to legislate intelligently readily at hand. We chose this because we insisted on following the worn-out European grooves, because it suited a few people to have us do so. They counted on our mental indolence and we freely and obediently conformed. We chose not to think.

Our government, alas, was predicated for its effectiveness in expansion on free land. Now there is no more free land, and the flaw in the great plan grows evident. We have reached the boundaries and we turn back on ourselves and devour.

Henry George was a lucid voice, direct and bold, that pointed out basic truths that cut through the confusion which developed like rot. Each age has known such diseases and each age has gone down for lack of understanding. It is not valid to say that our times are more complex than ages past and therefore the solution must be more complex. The problems are, on the whole, the same. The fact that we now have electricity and computers does not in any way controvert the fact that we can succumb to the injustices that toppled Rome.

To avert such a calamity, to eliminate involuntary poverty and unemployment, and to enable each individual to attain his maximum potential, George wrote this extraordinary treatise a hundred years ago. His ideas stand: he who makes should have; he who saves should enjoy, what the community produces belongs to the community for communal uses; and God’s earth, all of it, is the right of the people who inhabit the earth. In the words of Thomas Jefferson, “The earth belongs in usufruct to the living.”

This is simple and this is unanswerable. The ramifications may not be simple but they do not alter the fundamental logic.

There never has been a time in our history when we have needed so sorely to hear good sense, to learn to define terms exactly, to draw reasonable conclusions. We needs must, or perish. As George said, “The truth that I have tried to make clear will not find easy acceptance. If that could be, it would have been accepted long ago. If that could be, it would never have been obscured.”

We are on the brink. It is possible to have another Dark Ages.  But in George there is a voice of hope.

Alan Joyce’s lockout of Qantas staff last weekend bore out my recent fulminations in The Third Way: Why Businesses and Unions are Both Wrong, that IR trouble is about to break out in a big way.

Wage and salary earners continue to lose ground in an increasingly difficult economy, but employers’ margins are feeling the pinch, too. How is the impasse to be resolved?

In the overly simplistic Labour v. Capital model we practise, Alan Joyce considers he has no choice but to chase cheaper labour for Qantas in Asia if he is to resurrect the international fortunes of the airline: he must put an end to the unions slowly finishing off what increasingly resembles a carcass.

Naturally, the unions disagree. They claim Joyce and the company have overreacted to their campaign for wage justice and the need to maintain Qantas employment in Australia.

So, IR is reduced, as always, to cheap labour v. wage justice.

However, where the usual resolution of this situation is for companies simply to go offshore, let me proffer an infinitely better solution.

It is not only wages that are cheaper across Asia and South-East Asia. The prices of their products and services are cheaper because their  taxation and land inputs are also vastly less than ours. We not only fine labour and capital more for producing, but our small population of only 23 million souls has the dearest land in the world, therefore, the dearest land inputs in our cost of production.

How may Australia reduce its land and tax inputs in order to become more cost competitive?

For starters, we could look to the findings of Ken Henry’s inquiry into our incredibly pernicious tax regime. We should abolish all the taxes he recommends should be abolished, and put greater emphasis on capturing the economic rents of our land and natural resources as his panel advised.

The chart below clearly shows that labour and capital should NOT be fighting each other for what is left of the returns to labour and capital after the taxman and the rentier class have had their way with us. Wage earners and employers have common cause in reducing their taxation by abolishing as many taxes as practicable, as recommended by Ken Henry, and replacing these with the publicly-generated land rents currently captured by banks and other rent-seekers.

Interestingly, the same solution was once applied by Sir Thomas Stamford Raffles in what is now known as Indonesia. Raffles went on to found Singapore on the same principles.

Hey, Qantas, this form of IR works! Hey, labour, this form of IR works!  Hey, capital, this form of IR works!

In fact, the only real stumbling blocks are (a) politicians and (b) rent-seekers. Do we have the wit and energy to overcome them, if we want workable revenue and IR systems?  Probably not?

C’mon guys!  Let’s pull our fingers out and implement the Henry Review! The times call for it as an essential reform!

Addendum:

1.   Australia has the most profitable banks in the world – because we have the highest land prices in the world.

2. Australia manufactures less and less, because our taxes on productivity and our exceptionally high land prices (the latter of which are about to self-correct) give all the wrong signals.

3.  Despite our politicians and rent-seekers, we CAN do something about this incredible corruption and stupidity.

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Hey, George!

This site will help you, mate!

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Land Supply and Housing Affordability: Where do the Homeless fit in?

–       by Bryan Kavanagh

Precis of a talk given at a forum held at Prosper Australia on Friday 13 October 2006

The evidence on housing evictions just given by Ken Fernandes demonstrates that the dispossessed don’t fit in at all. The poor have no political clout, so they don’t really matter. It’s that simple.

Homelessness is evidence of a corrupt system in any country, whether in countries of the first, second or third worlds.

In connection with housing affordability, interestingly, the recent movie “Thank you for smoking” has more than a hint of an effective response to homelessness when Nick Naylor, the successful anti-hero lobbyist for the tobacco industry justifies what he does for a living when he says:-

–       “I’ve got a mortgage.”

–       “99% of people do what they do because of the mortgage.”

–       “We’d all be better off if we rented.”

Hollywood has never spoken truer words!

Unfortunately, few people understand land price. It’s simply the private expropriation and capitalisation of uncollected, community-generated rent. This example may assist to explain:-

If a residential site sells for $200,000, and residential property yields are showing 4% net – the annual site rent is $8000. [ie. 4% of $200,000]

So, if we took even half this publicly-created rent for public finance, the price of the site would fall to $100,000. [ie. $4000 pa capitalised at 4% = $4000 x 100/4]

Would this not make a home more affordable?

If we didn’t capture the site’s existing $1000 in rates, the price of the site would actually blow out to $225,000 [ie. $9000 pa x 100/4]

Clearly, public charges on land actually lower land prices.

So, if we took the whole $9000 pa each year, the site’s price would theoretically drop to zero.

The homeless can afford zero land price. Unfortunately, most landlords can’t – and landlords have enormous political clout.

And, of course, landlords do not ‘supply’ land – it’s a natural resource.

We used to capture more publicly-generated rent before Gough Whitlam decided to halve council rates at the outset of the 1970s and fund this reduction from federal revenues. A gigantic land bubble had burst during Whitlam’s prime ministership, creating a recession. “It was caused by property taxes and succession duties!” cried the landlord lobby.

So, State probate tax and federal estate duty were duly abolished (led by Joh Bjelke Petersen in Queensland) during what remained of the 1970s.

With these incentives – coupled to those of negative gearing – the green light was given to rampant speculation. And this, of course, has impacted negatively on land ‘supply’ and affordability.

Much the same process which inflated land prices was legislated by most of the western world, exemplified by California’s ‘Proposition 13’ which put a ceiling on the property tax in 1978.

The supply of suitably zoned residential land does affect price to a minor extent, but I find myself at odds with the Institute for Public Affairs’ Alan Moran, whose The Tragedy of Planning argues that greater land release by Australian State governments, as in the US cities such as St Louis, Houston, Dallas and Atlanta is the necessary public policy response to housing affordability.  It’s not.

It may not be coincidental that those cities have experienced far greater than average US crime rates, due in no small part to soulless, unplanned expansion.

Inside a bubble, things have a habit of getting distorted. You even start to believe governments when they say ‘The economy is in great shape!’

People don’t bother to save. “We are asset rich and can borrow more”. [Up go land prices!]

Housing equity withdrawal, or re-financing, went berserk in Australia, then in US, between 2000-2004 as the bubble in land prices was used to purchase even more residential real estate. Even people on modest means believed they, too, could become landlords. [Pity about productivity!]

The ‘wealth effect’ of a bubble has a powerful influence. Australians even believe that Peter Costello, who has presided over the greatest residential property bubble in our history, is a good Treasurer!

Thus, a credit spree has funded history’s greatest bubble in land prices – whilst the gap between rich and poor, and dispossession and homelessness, has grown.

As they say in the classics: “It’s pathological tax systems – not land supply, stupid!”

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If you’re still having difficulty getting your head around the concept of economic rent, this new video cartoon will help you.

Cat’s-paw (kats’por), n. person used by another to serve his purpose; a tool.

[Here’s a classic radio case of a cat’s-paw who was used in an attempted dissertation on Henry George.]

Those 1% who steal the public’s rent rarely have to defend their own position: they can usually rely on a volunteer cat’s-paw!

Unfortunately, it’s not at all difficult to tax everybody on their earnings or on their purchases – the trickle-down tax effect of which is to make the cost of goods and services at least 50% dearer than it should be. (No, dear reader, wages are ultimately NOT the most costly input to the price of goods and services!)

However, just you try to suggest taxing land values will reduce prices and raise wages without being inflationary, and the cat’s-paw suddenly becomes most solicitous about what this might do to home-owners, farmers, and the poor widow. They’ll have to be excluded, of course, so there goes your very tax base straight away – so why, then, bother at all with land value taxation?

[Here’s a video example.]

Then there’s the person who believes that land value taxation is only about the SIZE of your land, when it’s all about its VALUE. And, they say, if you’ve got a big, beautiful house on a block of little value, you won’t be taxed much, whereas a person with a cheap house on a valuable block will be taxed more.  (Yes, exactly, because the latter is in a more valuable location, maybe even ripe for redevelopment.)

[Another video demonstrates this.]

No; land value taxation has NOTHING to do with your income – nor should it. It has to do entirely with the annual value generated by the site(s) over which you hold ownership.

In cases of genuine hardship, exemptions to payment of the charge may be given, but for fairness sake, people should be equally, if not more, solicitous about home owners, farmers and poor widows having to pay more than double what they should on their every purchase because of our current errant tax regimes.

No, no, that doesn’t suit the rentier (nor his cat’s paw) at all!

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Now, here’s a bit of GOOD news!

There are a number of reasons behind Westpac Bank’s record profit of almost $7 billion. Suffice to say capital and interest repayments on bubble-inflated residential mortgage helped the bottom line.

Westpac’s announcement and the RBA’s 25 basis point cut in the cash rate gave me a flashback to a talk I’d given at Melbourne University in 2005 when I’d mentioned both Westpac and the RBA in unflattering terms.  (And hasn’t Westpac resurrected itself from the Bank that nearly went under in the early nineties!)

My talk “Collapsing Economies and National Resource Rents” was given at a Centre for Public Policy symposium on “Equity in Sourcing Revenue” at Melbourne University on 2 August 2005.

Other speakers were Professors Julian Disney and John Freebairn, and Tim Colebatch, Economics Editor of THE AGE. The symposium was chaired by Brian Howe, AO, Director of the Centre for Public Policy and former Deputy Prime Minister of Australia.

On the day, I took the opportunity to practise a little prophesy: “Ladies and gentlemen, if we don’t take what is the community’s for the community then, tragically, community – civil society – is lost.”

– ALSO FROM GAVIN PUTLAND

<—- Click

… ALL BAD!

Hot on the heels of the Australian Bureau of Statistics updating its Australian System of National Accounts, my colleague Dr Gavin Putland, Director of the Land Values Research Group, has released another fascinating series of charts confirming the portents of the Kavanagh-Putland Index.

They show Australia has been set up for a financial bust as big as, if not bigger than, anywhere else in the world.

Unbelievable?

I’m confident time will shortly prove the statement correct, because Gavin Putland and I have put in years of work quantifying Australian real estate bubbles and their damning consequences. This one will put others to shame.

In bubbledom, we are the champions!

Who’s to blame?

We are. Australians are; particularly the baby-boomer generation. Many of us got a warm inner glow as our land prices shot up to nosebleed heights from 1999 to 2007 under the bubble-ignorant political leadership of John Howard and Peter Costello, only to be followed by the equally ignorant Rudd-Swan-Gillard regime.

The warm inner glow was sorely misguided, because future generations of Australians were being locked out of housing opportunities, and the X and Y generations began to realise the fact.

Most of the boomers didn’t care, though. Wasn’t their wealth increasing rapidly? Couldn’t they borrow  more against their assets?

Australia’s politicians, either ignorant of the realities of property bubbles, or with an eye to not losing baby-boomer votes, were not up to disabusing them of the notion that skyrocketing land prices were good for the nation.

So – no, Australia has most certainly not avoided the global financial collapse. We’re living on a rapidly diminishing band of borrowed time, and no one’s up for the simple fiscal adjustment that would turn this sad presentiment around.

The “Occupy” movement and unions do have an inkling, but they’re not even warm yet.

Howard Jarvis and Paul Gann are the men responsible for turning the once ‘Golden State’ of California into the economic basket case of the USA.

What did they do?

They garnered support for the “People’s Initiative to Limit Property Taxation”, otherwise known as “Proposition 13” to cut the property tax, ostensibly to stop the property tax from driving older Californians out of their houses, but in reality to appease the landlord lobby for whom Jarvis worked. Landlords had become increasing unhappy with the incidence of the property tax on their net yields, especially through the 1970s recessions.

The USA property lobby, then emboldened by the success of Proposition 13, got behind a similar push in 30 other states, most of which proved unsuccessful. This was promoted by selling the fact that cutting the property tax would help property owners. Nothing was said about how resultant budgetary shortfalls were to be financed.

The carrying of Proposition 13 in 1978, of course, meant that Californian budgets were forced to rely on alternative taxes which slowly but surely began to erode its prosperity.  Government spending excesses compounded the problem.

To this day it’s arguable that most Californians still can’t figure what happened to them.  Were they to examine the miscarriage that has become their property tax base, they’d get an inkling.

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Further reading:

The beginning: Mason Gaffney 1978

The middle: Mason Gaffney 1995

The end: California had the biggest property boom in the United States, the median property price in April 2005 being $500,000.  Orange County, Ventura County and the San Francisco Bay Area had median prices around $650,000.

As home prices plummeted in 2007 and 2008 after the housing bubble burst, many thousands of homes have been foreclosed.

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