Alan Kohler on The Drum

.

LEX LUTHOR:  RENT-SEEKER

.

IT OCCURS to me that both the rioters in Greece and the protesters taking part in “Occupy Wall Street” have a point.  It’s too glib to dismiss them out of hand as socialists or “lefties”.

Joseph Stiglitz noted in a Vanity Fair article that one percent of the US captures as much as one quarter of its national income, “an inequality even the wealthy will come to regret.”

Paul Krugman has also come out sympathetically in The New York Times: “The way to understand all of this is to realize that it’s part of a broader syndrome, in which wealthy Americans who benefit hugely from a system rigged in their favor react with hysteria to anyone who points out just how rigged the system is.”

Although Prime Minister David Cameron sees English rioters, looters and trouble makers simply as criminals, a more thorough examination is likely to discover civil strife to be an inevitable outcome of poorly distributed wealth also in the UK.

The ninety-nine percent is indeed being constantly robbed by the “one percent”, but what exactly is the mechanism that channels wealth from its creators to the wealthy?

Wall Street’s in double trouble, because even the Ayn Randian right lays the problem on its doorstep. The banks provided too much credit to non credit-worthy people, it suggests.

In this connection, Friedrich Hayek’s thesis that excessive credit expansion is a precursor to economic depression has much to commend it, but my respect for the Austrian school of economics ends about there. It can see little or no scope for government ownership of natural monopolies.

Nor, in its brain-dead opposition to anything relating to society as a whole, does the libertarian right see a case for socialising the community-generated economic rent of natural resources, including land. People and companies may own all the land they choose, without having to pay anything like its annual rent to the community. This, they rabidly claim, would be communitarian; socialistic.

Only a handful of libertarians, seeing how such a stance conflicts with the principles of freedom, advocate merging with the Georgist school of economics. (See also Georgism)

And there’s the rub. Is not the economic rent of land and natural resources indeed the common wealth?

As we capture insufficient land rent by way of municipal rates, we have no real market in land, no true property market. Land may simply be held off the market without penalty. It will neither rust, decay nor become obsolete, and – as the price of a piece of land is simply the private capitalization of that part of its rent not captured for public revenue – recent history has guaranteed a profit if it is held idle until a land-hungry community will pay its ransom.

Since the outset of the 1970s, we’ve captured less and less land rent for public revenue, so why would people not set their caps for the increasing capital gains to be had in real estate, unless there were a market-based incentive to sell? People will tend to obey the polity’s tax regime signals.

We must live and work somewhere, and if properties are held underdeveloped or vacant without having to pay their annual value to the public purse, their prices will be bid up into unsustainable bubbles such as we’ve recently experienced, and we’ll be forced to extend the urban sprawl into our hinterlands.

As we’re beginning to discover, the calamitous financial bill must eventually be paid for this tax-induced misbehaviour.

Meanwhile, Wall Street continues to print money to save the US from economic depression whilst, alternatively, Europe prescribes sackcloth and ashes for errant Ireland, Greece and others.

Both approaches are doomed to fail.

There’s an altogether different remedy that will work, but which nobody is seriously investigating. It reverses the process that got us to this point.

First, debt that can’t be repaid, won’t be repaid, so banks must write back their assets to non-bubble inflated market prices. They oughtn’t have accepted bubble-inflated real estate prices as loan collateral in the first instance, and, having done so, shouldn’t seek to dispossess borrowers who can’t meet their originally impossible repayment arrangements. Loans must be adjusted accordingly. Banks that fail as a result will undoubtedly be purchased after due diligence is undertaken on their true asset values.

Secondly, tax regimes should switch from taxing ‘goods’ to taxing ‘bads’ as soon as practicable, in order to resuscitate foundering economies. This involves capturing more and more economic rent from land and natural resource use, and less and less from taxes on labour and capital.

This is the only real recipe for successfully addressing collapsing markets and civil unrest, but I’m not confident bankers and politicians are willing to listen to the voices in the street.

They seem to have a preference for the one percent.

THE FIGURES

Australia’s publicly-generated land rent in 2010 was $370 billion

Rent captured publicly was $32 billion

Therefore, the rent privatised (largely by the 1%) was $338 billion (whilst the 99%, paid $300 billion in other taxes)

i.e. The taxation paid by the uber wealthy is more than recovered by their privatising  of the public’s rent

_________________________________________

This piece was also carried (without the figures) in Online Opinion on Wednesday 12 October 2011

Radio 3AW’s Neil Mitchell said this morning the “numb nuts” who want to tax soft drinks in order to tackle obesity, and tax this, that and the other, for such-and such reasons ought to “get out of our lives”.  Health and other experts are constantly telling us what we should be doing to the tax system in order to fix this or that, he says.

It’s hard to disagree with Mitchell that we have indeed become a nanny state.

He mentioned the case of a chap in the municipality of Darebin who has been charged double rates on the lot on which he grows vegetables next to his home, because council considers it to be ‘vacant’, and doesn’t want to encourage vacant allotments in residential areas, veggie gardens or not.

Mitchell’s examples parallel goings-on in the tax forum being held in Canberra over the last two days.  The experts have been invited, so we’re getting a cacophony of views commenting upon the far-reaching recommendations of Ken Henry’s panel which inquired into ‘Australia’s Future Tax System’. Many participants, of course, argue from a perspective of self-interest, instead of what’s good for the nation.

I’ve watched some of the Canberra proceedings streamed live, and, looking at Ken Henry, imagine he must be terribly frustrated at what’s happening about him, because his panel recommended the abolition of a multiplicity of inefficient taxes, and the use of four revenue bases, only. This has virtually become invisible in the discussion.

I could see the invited experts are obviously very intelligent people, but, each and every one of them has been deprived the privilege of studying Ricardo’s Law of Rent (community-created economic rent) in any depth.

Although this is the same economic rent Sir William Petty used to value Ireland for William the Conqueror, today’s textbooks condition us, by lying to us, that economic rent is as low as one or two percent of the economy.  Therefore, economic rent is not worth quantifying, not even worth studying, much less capturing for public revenue:-

“….. land rent forms such a small percentage of national income that 2% is nothing compared to the present tax percentages, which are around 30. …… All this makes a figure of 1-2% for the remuneration of land sound incredible, and yet that is reality.”  Income Distribution, Jan Pen, Penguin Press, London, 1971

“But by 2000 urban land rents represented only 4 percent of national income, even in crowded England with its very high housing costs.” A Farewell to Alms: A Brief Economic History of the World, Gregory Clark, Princeton, 2007

Even if governments could take all rents without rebellion or severe recession (sic), rents would not come close to covering expenses. In 1929 property rents accounted for about 6 percent of national income. The percentage has steadily dropped (sic) to well under one percent today. Whereas property taxes once provided 65 percent of state and local budgets, they now supply about 17 percent.”  New Ideas from Dead Economists: An Introduction to Modern Economic Thought, Todd G Buchholz, Plume, New York, 2007

With all this obfuscation, it is therefore remarkable that Ken Henry chose land tax as one of the four most efficient tax bases around which Australia should seek to build its future.

If the character of a nation is shaped by its system of taxation, against this criterion we should be capturing to the public purse the nation’s economic rent: the whole rent, and nothing but the rent.

Although this might appear to satisfy Neil Mitchell’s concerns about nanny state taxes, not so. Neil may shortly be relied upon to conduct his annual onslaught against state land tax.  (Sigh! :()

The understanding that individuals ought not be able to privatise the 50% of the economy which is our economic rent – created not by individuals but by the Australian community as a whole – sadly continues to elude our ‘experts’.

“OCCUPY WALL STREET”

Fifteen per cent of Americans are living in poverty whilst the rentier class, less than 1% of the population of the USA, runs amok.  Can you blame people for protesting in the streets, in much the same way as the people involved in ‘The Arab Spring’ revolution?

We can only hope protesters around they world will eventually come to perceive pathological tax regimes as the catalyst assisting to deliver obscene salaries and bonuses not only to Wall Street rent-seekers but also to Arab despots; that the privatisation of the public’s land and resource rents is the key to the worldwide financial collapse.

This is the essential commonality in the search for democracy.

See further pictures from The Atlantic here.

NO INCOME TAX?

Towards a sensible revenue system

I’ve often heard people say replacing taxes with a land ‘tax’ (more properly a land rent) sounds “very feudal”, as though it’s a bad thing. You can tell by their tone that it is said in a demeaning way.

Yes, it is feudal, after all the feu was the land charge, but we might remember that wages have never again  been as high as they were in the fifteenth century and the first part of the sixteenth, and:

“Under the feudal system the greater part of public expenses was defrayed from the rent of land, and the landholders had to do the fighting or bear its cost. Had this system been continued, England, for instance, would to-day have had no public debt.

And it is safe to say that her people and the world would have been saved those unnecessary and cruel wars in which English blood and treasure have been wasted.  But by the institution of indirect taxes and public debts the great landholders were enabled to throw off on the people at large the burdens which constituted the condition on which they held their lands, and to throw them off in such a way that those on whom they rested, though they might feel the pressure, could not tell from whence it came.

Thus it was that the holding of land was insidiously changed from a trust into an individual possession, and the masses stripped of the first and most important of the rights of man.

The institution of public debts, like the institution of private property in land, rests upon the preposterous assumption that one generation may bind another generation.”     – Henry George, Social Problems, Chapter XVI ‘Public Debts and Indirect Taxation’

Public capture of the public’s rent, even though also mandated in the Bible to be the greatest of human rights, has gone missing from all bills of rights, so that a small number of super wealthy parasitical landowners are now able to pass their responsibilities off onto the rest of us.

We are even sometimes heard to argue in favour of these rent-thieves, derogatorily asserting that land taxes are ‘feudal’. Somebody has done a Goebbels-like job of disinformation.

How stupid have we become?

We believe we are at knowledge’s leading edge but have actually retrogressed into a new dark age in economics. We can communicate instantly with colleagues, family and friends around the world, but haven’t yet fathomed the truth about an economics that can hold civilisation together.

So, as world financial systems go out the back door, having confounded the modern neoclassical economist, the study of classical economics beckons us to re-discover economic rent [economic what?!] and to re-distinguish earned from unearned incomes.

In order to lift the veil on all this ignorance, let’s provide some Australian data:

In 2010, Australia’s publicly-generated land rent was $370 billion, but we chose to fine labour and capital $300 billion for working, and captured only $32 billion of this natural revenue source.

No prizes for guessing which 1% of the population received the greater part of the $338 billion that went uncollected, or why we’re descending into another economic depression.