The rioting in England is indefensible, but how to understand it?

I’ve mentioned several times throughout these blogs that the rent of land represents community.  However, although land and natural resource rent is community-generated, less and less of it has been captured back for public revenue over the last forty years.  Thereby, a sense of a community has been lost.

That’s because it has become fashionable to privatise the rent of land and natural resources in the misbegotten belief that ‘user pays’ and increased taxation is preferable to the public capture of publicly created resource rents. It is largely privatisers of our natural resource rents who’ve been able to put about this self-serving idea. And they’ve sold it successfully to government.

The cumulative effect of the process over forty years has been to widen the gap between rich and poor. This now vast divide is well documented, but the role of land rent remains virtually invisible.

Right wing shock jocks consider that parasitic leeching of natural resource rents by private interests is respectable employment, and, unable to think through the logical consequences, they’re flabbergasted by London’s street riots.

The rising of the hun in the city is obviously a function of poverty and dispossession. Feeling disenfranchised and disconnected, these predominantly lower class youth exhibit their hate for a system that keeps them down and often unemployed whilst bank CEOs who crashed the system flaunt their multi-millions.  Unlike many of us, the rioters see the game is rigged and their frustration has spilled over into aggression and excess.

But it’s not just happening in the west.  It’s a worldwide contagion.  This compelling cover story in India’s national magazine “Frontline” shows private rent-seeking is also doing gangbusters in India.

Dear Austan,

You didn’t reply to my last e-mail on 10 March 2009, but that’s OK, because I know you’re pretty busy. But most people can see this thing’s become a full-blown financial depression now, and I thought you might be more interested in what I want to suggest to you this time around.

I e-mailed you because I know you’re a mate of President Barack Obama’s, and you might convey to him this recipe for a quick exit from this collapse.

It’s all about the ONLY way to get out of it, Austan. Nothing else can possibly work, believe me. There’s much history to this effect.

President Obama needs to do a near-immediate tax shift, off producers, off workers, off exchange and thrift – and onto the rent of land and natural resources.

We’ve just had a major inquiry into tax reform here in Australia, Austan. The panel for ‘Australia’s Future Tax System’ was headed up by Treasury Secretary, Ken Henry. Henry and his panel did a great job.

The panel has come out in favour of abolishing most of our hopelessly inefficient taxes and getting significantly more rent revenue from mineral resources and from land.

The mining tax is being amended to a less effective format, but it’s going ahead. There’s to be a public meeting in Parliament House, Canberra, from 4th to 5th of October this year to see what other of Ken Henry’s panel recommendations Australia ought to employ.

I’m hoping we’ll take up the recommendation for an all-in single rate land tax – more correctly (as you’d realise) a land rent.

That’s because, as you’ll see at this particular hyperlink, the land rent/tax has an incredibly strong pedigree.

You’ll know, as any economics text book says, Austan, the charge on land values won’t be able to be passed on in prices, and it will help to allocate our natural resources more efficiently. It will put an end to monopoly and speculation in land, virtually reversing the process that led to this financial collapse, because we’ll also be taking taxes off productivity and getting things moving again.

Such a revenue shift will give all the right signs to productivity.

We have a politician here, Barnaby Joyce, who warned us of this ‘economic Armageddon’.  I doubt, however, he’ll take it further, because it would need guts for him to take the next step and press for the implementation of Ken Henry’s reformed State land tax to get us out of this mess.

I hope you might have the gumption to do so with President Obama, Austan.

Good luck, and best regards,

–      Bryan Kavanagh

MY ITALICISED COMMENTS FOLLOW PART OF  (a)  ITS EDITORIAL  (b) ROSS GITTINS’ BRAINLESS OPINION PIECE

(a) “Reasons to resist the financial panic”

“Confidence and psychology play a nebulous but massive role in the real economy, as they do in financial markets. Australia long ago embraced global markets for goods and services and capital. Thus we are not immune from the turmoil wiping hundreds of billions of dollars from financial assets the world over, including some $55 billion here in several hours yesterday.

….. But there are fundamental reasons, too, why Australians ought to have greater confidence than is suggested by the plunge in the local sharemarket. Our economy is not shackled by debt. Nor is it highly taxed relative to other industrialised nations. The federal budget is headed towards surplus. This is the result of prudent public policy over the past quarter of a century. ….“

Oh, good, the government’s doing fine, but what about the astronomical level of debt Australian households are carrying (and trying, with mixed success, to reduce)?  Generated, of course, by record land prices and, yes, by respective governments’  excessive taxation! That private debt doesn’t rate a mention, Mr Editor? Isn’t the fact that the Australian public doesn’t have a dollar to spend just a little bit worrying, you great pillock!

As for the “prudent public policy” of both Liberal and Labor governments presiding happily over the reduction of Australians’ real wages and their spending into a real estate bubble of $2.8 trillion between 1999 and 2010 ….! This includes some $805 billion we are somehow going to have to manage writing off, by the way.

Australia’s position is, in fact, far WORSE than anywhere else in the world, Mr Editor, whilst you, are off in la la land, away with the fairies!

Oh, I get it! Maybe making soothing noises will patch over the structural financial mess that surrounds us! Fat chance!

(b) “Importing gloom belies burgeoning national economy “

“While Europe and the United States are struggling, our budget deficit isn’t particularly big and our level of government debt is laughingly small, writes Ross Gittins.

Is it possible for a country that’s the envy of the developed world to talk itself into a recession? I don’t know. But it seems we’re about to find out.   …. Mining boom (blah blah) …. Pay rises are few (blah blah) …. Not  because the media are putting a negative spin on all the news, reveling in the bad news and forgetting to mention the good.“

Now, Ross, please tell me you’re not a neo-liberal economist; a blinkered high priest for the status quo?

You didn’t write THE AGE editorial, did you. Ross?

Hey! Fairy stories some other time, you guys! Australia meanwhile has a serious structural problem of household debt with which we have to contend!

THE AGE can be much more forensic.  It can surely do much better than that sort of crud.

TELLING IT LIKE IT IS – THESE TWO MOBS ARE BEYOND THE PALE

Unfortunately, modern Tea Partiers and most libertarians, who should be able to solve the problems of the US economy, have become integral to its hopeless morass.  They should read the proud history of the Boston tea party.

If you’re against taxes, guys, you’ve got to be for rents.  Only morons can be against both. Read your Locke, your Adam Smith, your Henry George.

And look at the timeless common sense of your forebears: “Put to the vote: as many are of the opinion that a public tax upon the land ought to be raised to defray the public charge, say ‘yea’.” …. “Carried in the affirmative, none dissenting.” (Philadelphia’s first tax law, 30 January 1693)

You are usurpers! You’ve fallen for the neo-classical idiocy that land doesn’t exist separate from capital anymore, and therefore, like the return to capital, land rent may be privatised. [!]

But land and its rent are separate from capital, guys. Unlike capital, no individual created them – and therein lies your BIG fallacy!

Land and natural resource rents which represent the community occupy 50% of the economy, and are therefore owed back to ALL the people because they created it.  But you seem to think this is communistic and are therefore presumably happy to include bank CEOs and their minions in with the 0.1% of the population who, like parasites, capture these publicly-created values.  I hate to tell you, guys, but that’s not ‘free market’, it’s socialism for the rich!

And allowing them to thieve from us is why we’re taxed when we should not be. (That last bit’s the only part you’ve got right!)

You have now made yourselves as irrelevant as the politicians you criticise.  Wake up to yourselves, you boorish idiots!

Watch out now for rabble analysts’ specious nostrums.

They need to be asked just one question:  “Did you pick the financial crash?”

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________________   ….  plus c’est la même chose  ____________

The Reserve Bank of Australia (RBA) was quite right not to increase the overnight cash rate yesterday.

Having run their mortgages and credit cards up to record levels, the GFC has brought about a Pauline conversion amongst Australians. They’ve come to their own conclusions, because neither the RBA nor APRA (the Australian Prudential Regulatory Authority) had really warned them their household debt load had become nigh on impossible.  Whilst people were waking up by themselves, the RBA and APRA remained asleep on the job.

In an article in THE AGE on 15 June 2005, I warned that the RBA shouldn’t increase interest rates because Australia’s “economic growth is primed to tank into a major deflation”.

Nevertheless, the RBA subsequently ratcheted the cash rate up from 5.75% to 7.25% over the next 27 months to 5 March 2008, before proving me right by having to drop it by 4.25% (to 3%) in a period of only 7 months!

But if I was ahead of the pack in foreseeing a drop in property prices in Australia and around the world as early as 2005, I’m surely not now? Is it not fear of a worsening global financial collapse that Australians have ‘deep pockets’ and our retail industry is now suffering so badly?

By not understanding the real problems faced by Australians, misguided RBA monetary policy has added to retailers and mortgage-holders deep concerns. Increases in the cash rate has made it more difficult for both. It has also sent the Australian dollar higher than it should be, thereby damaging our exports.

So, whilst it is the job of the RBA to attend to stability of the currency and full employment, it is its third criterion, the economic prosperity and welfare of all Australians, which is most important right now.

May I remind RBA governors that whilst Australians aren’t spending, whilst real estate values are declining and the dollar remains too high, it is STILL not the time for the RBA to even consider increasing interest rates.  A reduction is more appropriate.

In the current financial environment it’s only superficial commentators, unaware of the overarching concerns of Australians, who could believe otherwise .

It helps to understand that taxation and land price escalation is responsible for most inflation – and there certainly aint going to be much increase in land prices from hereon in!

So, get with the program, RBA!

——–>    MAYBE WE DON’T WANT TO LEARN?

~~~~~~~~~~~~~~~~~ Loses somethin’ towards the end of the line below, don’t it?

See Fred Harrison’s compelling analysis of Joseph Stiglitz’s 2010 UN report “Reforming the International Monetary and Financial Systems in the Wake of the Global Crisis”:-

The Global Crisis According to Stiglitz

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Why shouldn’t the US default? [Patrick]

No country has ever done well by trying to shackle its future generations to their forbears’ impossible debt.

The US aint going to default yet, of course – so watch this interminable financial collapse continue.

[sigh! 🙁 ]

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