FOR WHOM ARE WE VOTING ON AUGUST 21st?

Well, if you put aside all the BS, namely, that the ALP represents working people (maybe it once did) and that the Liberal party is more economically responsible (yeah, that’s why it allowed the real estate bubble to develop from 1997 to 2007 without the blinking of an eye), what’s the real choice?

Not much, because most people are by habit welded to one or other of the major parties. Their party is their hero, so, blinded to their own party’s incompetence, they have visions of clarity about each and every one of the foibles of the foe. 

Bob Brown? The Greens?  Well, at least they saw through the bunkum put up by the self-serving case of the mining magnates against the Resource Super Profits Tax.

It’s hard to say whether or not Julia Gillard saw through their nonsense, too, or believed that as the public hasn’t been educated enough to the benefits of resource rents as compared to taxes, she’d better cave in and drop the effective rate of resource rent from Rudd’s 40% of net profit to 22.5%.

Tony Abbott might have won two blues for boxing at Oxford, but didn’t learn the difference between a resource rent (“a big new tax”) and a tax, so he’s going to remove what’s left of the federal mining rent if the Liberals win government.

The Democrats?  They’re no longer represented at all in the federal parliament. And yet they’re the only party whose constitution calls for land value capture at all three levels of government.

The peak of Australian Democrats’ power was in 1990 when their leader, former Senator Janine Haines, polled 26.4% of the vote when she stood for the lower house South Australian federal seat of Kingston.

Haines was an admirable leader who, instead of kow-towing to polls, preferred to speak her mind. As the real estate bubble topped out in 1989, she mentioned that maybe there was a case for the reintroduction of the federal land tax if Australia was to keep a lid on damaging real estate speculation.

Well! … thank you very much, said the Liberal and Labor parties: “She’s after your home!”, they screamed in unison, and shamelessly shared preferences in an unholy alliance to defeat her.

To have achieved 26.4% of the vote in this House of Representatives’ seat was remarkable in these circumstances, given the welter of propaganda, lies, chicanery and spite levelled by the two major parties against one of Australia’s best ever politicians.

Labor’s Gordon Bilney went on to win the seat of Kingston as the Hawke government was returned to power.

There’s a postscript. On 29 November 1990, federal treasurer Paul Keating announced “This is the recession Australia had to have”, but he might well have added: “because we failed abysmally to institute a federal land tax, as Janine Haines proposed, if we wish to stop real estate bubbles from forming.”  To this day, Keating has never demonstrated any understanding of natural resource rents.

Election time’s here and shallow humbug’s in the air again. I don’t know for whom I’ll vote, but I do know that it’s impossible to understand world events, history, or even the collapse of empires, until the devastation wrought by taxation and the private capture of publicly-generated land rent is understood. 

Although Professor Michael Hudson is undoubtedly the authority here, I have elsewhere touched upon rent’s role in the cause of WWI and WWII, respectively.  It’s chilling that failing speculative economic regimes seem to be slowly but surely directing us towards WW III.

TWO VISITORS

Popular British historian, Niall Ferguson couldn’t see beyond debt in an otherwise good article “Decline and fall of the US” in THE AGE today (29/7).  He was unable to make the connection between impossible debt levels and the privatisation of the public’s land rents.

At the same time as Ferguson, Nobel prize-winner and former World Bank chief economist Joseph Stiglitz is also visiting Australian shores.      

Noted author and journalist Greg Palast provides the following insights into Stiglitz that demonstrate Stiglitz has progressed further down the track in his comprehension of the role of economic rent than Niall Ferguson:-

(Palast) So then I turned on Stiglitz. “OK, Mr Smart-Guy Professor, how would you help developing nations?” Stiglitz proposed radical land reform, an attack at the heart of ‘landlordism’, on the usurious rents charged by the propertied oligarchies worldwide, typically 50 per cent of a tenant’s crops. So I had to ask the professor: “As you were top economist at the World Bank, why didn’t the Bank follow your advice?”

“If you challenge [land ownership], that would be a change in the power of the elites. That’s not high on their agenda.”

In THE AGE today Stiglitz also demonstrated what should constitute the basis for a fair mining rent:  “You need to have a well-designed competitive auction to have different companies compete so that companies get the necessary returns to do the investment – but the surplus goes to the Australian people.”

In the absence of another Janine Haines, or our own Joseph Stiglitz or Michael Hudson, this election is already a crock.

LIGHT AT THE END OF THE TUNNEL OR A FREIGHT TRAIN COMING?                                                                                       

The People’s Bank of China (PBOC) has not only lifted interest rates five times in 2010, but has also raised the reserve requirement ratio (RRR) for large institutions to 17.5%.  To acknowledge that people in rural areas aren’t sharing in the boom, rural banks have been set at the lesser rate of 13.5%.

The RRR is the proportion of deposits that banks must hold in reserve. As these are now large by western standards, it is clear that China is genuine about reining in much of the liquidity that has sent Chinese real estate into a bubble.  Clearly, the PBOC acknowledges that a problem exists.

China has overcooked its real estate development to the point where it graduated from serving the national interest and the interest of the people to that of self-serving rent-seekers who pocket obscene profits. Failing effective action, a deflation in real estate prices is now inevitable. It’s merely a matter of ‘when?’  But of course it can be managed better than the west is doing.

Georgist economics argues that China’s raising of interest rates and the RRR won’t prove to be effective.  Instead of worrying about controlling growth, she should be looking to protect what is her most important asset, the  people who ultimately constitute  China’s economy. Patently, higher interest rates and RRR don’t help her people.

Like the west should do, China must capture a significant part of the uplift in land values that her incredible boom has bestowed upon her. Here is the natural source for revenue. Here lies the potential to let people in rural and regional areas share in the boom by permanently abolishing their taxes.

Unlike the west, China is still a command economy.  She has control over land management and taxation, and she has the ability to take effective action, uncluttered by demands of the rent kleptocracy that bedevils the west.

China is in a position where she could introduce a land rent system, whereby the people would share more equally in the benefits of her incredible renaissance.  Not to do so will consign China to the same fate that awaits the west: many years of economies bumping along the bottom underwater; many years of printing money; many years of tweaking interest rates; many years of austerity as the economy slowly deflates.

China still has a choice in the matter.  The oligarchy that sponsored this depression (and doggedly resists increasing land value capture) ensures that we no longer have this choice in the west.

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A STRANGE REPAST

To my mind, the highlight of the Real Estate Institute of Victoria’s luncheon at the Sofitel Hotel in Melbourne yesterday was not what keynote speaker Frank Gelber of BIS Shrapnel told the packed audience, as reported by THE AGE, namely that property would keep on booming.

Rather, it was the questions put to him by John Poulter of the Henry George Club that as residential prices are at least 7 times average incomes against the long term average of 3 times, something has to give. 

What would happen to Dr  Gelber’s predictions, Poulter inquired, if annual wages returned to three times the price of a house?  Didn’t his forecast ignore the current plight of consumers who surely underpin the economy?

Tacked to the end of an inadequate response, Frank Gelber asked the questioner: “What would you do to make residential property more affordable then?” “Tax the land” was the reply.  As 500 real estate agents drew a collective breath and let out a loud murmer, applause actually emanated from one part of the room!

The Land Values Research Group’s Dr Gavin Putland quickly followed up Poulter’s questions: ” To what extent do your predictions concerning commercial, retail and industrial property depend on the assumption that there will not be a massive correction in the residential market?”  Dr Gelber was certain that there will be no major correction.

Perhaps sensing that his forecasting hadn’t quite convinced his audience, Dr Gelber finally asked whether anyone agreed with him about his prognostications of a recovery in the commercial real estate market.  Not one person amongst the 500 attendees did.  Remember, this was a room filled with real estate people. Frank seemed to be off on his own little tangent.

The first luncheon speaker, Marcus Padley of Australian stock market renown, had earlier signalled his disagreement with the rosy title of Frank Gelber’s talk.  In an entertainingly amusing talk, Padley provided plenty of good reasons why people should be out of shares, reminding those who would buy and hold that there is usually a good time to sell.  Padley knows his stuff.

The company and victuals were enjoyable.

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1. goods and services should be made dearer by applying taxes to them
2. business profits should be taxed
3. my earnings should be taxed
4. my earnings should be further reduced by mandatory provision for my health care
5. my income should be further reduced by the cost of my education
6. superannuation funds should be allowed to invest my retirement allowance in shares and real estate (for a fee) at their whim
7. land-based revenues (i.e. land rents) can be passed on in prices, like taxes
8. I should not have to pay any land rent on the land that I own
9. there is no connection between inadequate public capture of land rent and rapidly escalating land prices
10. rapidly escalating land prices don’t increase the levels of household debt
11. rapidly escalating land prices are good for the nation
12. rapidly escalating land prices are good for my children
13. rapidly escalating land prices are good for future generations
14. rapidly escalating land prices and real estate speculation are unrelated
15. rapidly escalating land prices and real estate speculation are unrelated
16. rapidly escalating land prices and the negative gearing of real estate investments are unrelated
17. rapidly escalating land prices and economic recessions and depressions are unrelated
18. rapidly escalating land prices are simply a matter of supply and demand; there is no such thing as a real estate bubble
19. the educational system would tell me if the tax system was constructed to favour rapidly escalating land prices
20. my own intelligence would let me know if the tax system was constructed to favour rapidly escalating land prices
21. lawyers would let me know if the tax system was constructed to favour rapidly escalating land prices
22. the churches would le me know if the tax system was constructed to favour rapidly escalating land prices
23. my political party would let me know if the tax system was constructed to favour rapidly escalating land prices
24. the real estate industry would let me know if the tax system was constructed to favour rapidly escalating land prices
25. I am fully across why the world is currently experiencing a financial collapse

Although it’s bad enough that there were involuntary poor in America in the first place, The End of the American Dream website provides 22 statistics demonstrating that America’s middle class has been driven into the ranks of the poor, too.

It’s not just the US, of course.  Twenty-one years after the collapse of the Soviet Union, people across the world are beginning to doubt the ability of their political leaders to arrest this new and deepening financial collapse.

Incredibly, President Barack Obama actually retained George W Bush’s failed economic goons to keep their hands upon the financial levers.

Perhaps the kindest thing that can be said about this is that his advisors mightn’t have understood that the collapse of the US Empire was at hand, and considered he’d better not ‘scare the horses’ by undertaking systemic change.  A bit of re-regulation here, a bit of an overhaul of Wall Street there, coupled with some of his powerful oratory might do the trick, they advised.  That Obama accepted this warped advice proves the Presidency to be beyond him.

However, he’s not alone. There’s no evidence elsewhere that leaders have been more successful.  All have had their feet of clay exposed.  As the economic depression enfolds country after country, only a handful of outstanding economists have pointed to the one alternative to keeping the fiat printing presses running hot and putting people further into hock for what is likely to be generations.  But they are ignored by ‘experts’ startled like rabbits in the headlights.

Meanwhile, financial analysts also go out of their way to miss the point as they continue to mouth their daily platitudes in the press and on television.  Slowly-boiled frogs spring to mind.   Within their self importance they are entirely clueless, and it’s necessary that those aware of the real economic  facts retain their sense of humour as they witness the crass witlessness of the pundits.  They are all sham and shamelessness.

Does anyone still believe the US has been running a system of free enterprise since the early 1970s?  Real wages have been falling ever since then as taxation, debt and land prices rose.  Rather, America has been exposed as a once-free country that grants special privileges to rent-seekers garnering the nation’s publicly-generated land rents unto themselves.

None has been more successful in doing so than the banking sector as it pocketed skyrocketing rents by way of mortgage repayments on bubble-inflated land prices.

As publicly-created US land rent became increasingly privatised instead of captured via property taxes as once it was, people have railed in a desultory fashion against related increases in the taxation of employment, industry and saving that, except for its war industries, has slowly but surely ground the US to a halt.

However, their heads fixed firmly within the mortgage noose, few Americans were moved to rebel.  Casey Research lists 10 benefits one expatriate found by emigrating.  His plaintively insistent case is well argued, but lacks practicality for most US citizens.

Those who know their history understand full well that taxation and land speculation has caused the collapse of each and every Empire.  How sad that Americans didn’t learn from history the risks of allowing most of its economic rent to be privately expropriated.

Click on this excellent animated cartoon of our economic situation.  It’s worth watching!

It is based on a talk by anthropologist/social theorist David Harvey.  Right at the end, David says “I don’t have the solution, but I think I know what the nature of the problem is.”

The solution is not the nationalisation of the means of production, distribution and exchange, but the collection of rent, the surplus product, the conclusion Marx himself seemed to be reaching when he died.

So, the cartoon’s final diagram could have been to the only workable solution shown below.  That is, abolish taxes and collect the land rent to increase wages (with no attendant inflation).

THE WORLD’S GREATEST HOAX

The fudging together of land and private property has been the parasites’ coup of all coups.  Poverty, dispossession and criminal activity stem from this hoax.

Although a site may indeed be possessed exclusively upon payment of its rent, all the great philosophers have insisted that up-front capitalised payment should not be used to commute the obligation to pay the annual rent for exclusive possession of a piece of land. Even freehold titleowners were expected to pay their ‘quit rents’.

Indeed, an owner of a property (from the Middle English ‘owerner’) was once the person who owed the rent.

“Once, natural resources were fully used for the benefit of all, and not appropriated for selfish ends. This was the age of the Great Commonwealth of peace and prosperity.”   Confucius  551 – 479 BC

“The land shall not be sold in perpetuity, for the land is mine.”  Leviticus 25:23

“Equity therefore does not permit property in land.…. Observe now the dilemma to which this leads. Supposing the entire habitable globe to be so inclosed, it follows that if the landowners have a valid right to its surface, all who are not landowners have no right at all to its surface.”  Social Statics: The Right to Land – Herbert Spencer

“It is vain in a country whose great fund is land to hope to lay the publick charge on anything else; there at last it will terminate.”  Some Considerations of the Lowering of Interest – John Locke

We’re having this economic depression because we’ve been convinced by non-productive rent-seeking leeches that day is night – that land is indeed “private property”.

The chicanery that allows people to protest that they have no further obligation once they’ve paid for a piece of land leads directly to the super wealthy stealing from the earnings of the poor. Incredibly, the wealthy, the middle class, the poor, the churches, the law, and those who claim to support freedom, have come to sanctify the social and economic idiocy that this fallacy entails.

If we accept the falsehood that the property tax, rates, land tax or the economic rent of land should NOT be captured for the common wealth, we paint ourselves into a corner from which revenues must then be derived from taxing private production, thrift and employment – and thereby inflating recurrent real estate bubbles.

This mindset, into which much of the world has morphed, turns on its head what throughout history has constituted private property. Was not private property once the earnings produced from one’s toil? How was it ever deemed acceptable for the state to steal from people’s earned incomes except through this, the world’s greatest con job?

Those who consider land to be “private property”, and believe land-based revenues should be reduced or even abolished, no doubt also go about their daily affairs ignorant of what exactly has caused this collapse of the world’s financial systems.

Might I suggest that Ponzi schemes are secondary in their crassness only to the notion that land has somehow morphed into “private property”?

From this, it follows that the first line in any Bill of Rights must lay down the community’s responsibility to collect the rent, so that individuals aren’t taxed.

Two verses that usually go missing from Woody Guthrie’s “This Land is Your Land”:-

As I went walking, I saw a sign there

On the sign it said “No Trespassing”

 But on the other side, it didn’t say nothing

 That side was made for you and me.

 In the squares of the city, in the shadow of the steeple

 By the relief office, I saw my people

 As they stood there hungry, I stood there asking

 If this land was made for you and me. 

POPULATION SHIFTS

Most people are clearer about the need for Australia to decentralise its population than they are about the niceties that distinguish Julia Gillard’s re-badged ministry for Sustainable Population from those minister Tony Burke exercised in his recently constituted role as Kevin Rudd’s minister for Population. The new title sounds better, though.

Five months out from the Victorian election, the regions are being courted again. If the coalition wins government, it has promised to spend $1 billion on looking after them. On the other hand, the Brumby government says it will move 400 public servants to Ballarat, Bendigo and Moe, spend $100 million to lure students away from Melbourne and $260 million on infrastructure in its $600 million 5 year decentralisation package.

State and federal governments over the years have attempted to address the exaggerated drift of population from the regions that James McAulay noted clots “like mud” to Australia’s coastal capitals. It’s patently wrong that rural and regional areas must wait patiently until the government of the day looks like losing an election before the regions are thrown a few more scraps.  A fairer system must be possible.

Attempts at decentralisation have met with little success because the techniques employed have been fundamentally flawed, ranging from such approaches as offering taxpayer-funded incentives to businesses, to the re-location of government departments. These have come at a significant cost to taxpayers – the Whitlam government’s involvement in the Albury-Wodonga project springs to mind – and the temporarily-arrested population loss from those regions selectively favoured has eventually resumed.

CANBERRA

In some respects Canberra stands out as an exception. Whilst it may skeptically be put that you’d have to expect a federal public servant-based city to blossom strongly, this would be to ignore the method under which Canberra was founded. With some tweaking it might even offer an effective model to assist Australia to effloresce, to decentralise.

Canberra was established on a leasehold system of land tenure whereby, if people agreed to pay the rent on a piece of land secured under a long term lease, the land was theirs, provided they built a house on it. The rent being many times less than the capitalised price they’d have to pay for a block of land in other capital cities, the wondrous new land management tool initially encouraged people to settle in Canberra. The proceeds went into funding the running of Canberra.

But by 1971 lawyer Frank Brennan documented in “Canberra in Crisis” how vested interests had effectively dismantled the Canberra leasehold system by ensuring that the city failed to capture anything like the national capital’s full market site rents. ACT taxation accordingly began to escalate to fill the revenue vacuum generated by this failure.

Later, in an article entitled “Canberra’s leasehold legacy” in the ANU Reporter of 21 September 1994 Dr Julie Smith reported that the once effective leasehold system designed to “take the load of the cost of the creation of the Commonwealth off the backs of the people of Australia” had finally been scuppered: “Once housing costs in Canberra were among the lowest in Australia. Now they are comparable to the other cities. This is no coincidence.”

[So this must now be the ultimate irony?]

LEASEHOLD UNNECESSARY

However, it isn’t necessary that Australia reconstitute itself under a leasehold system of landholding in order to stimulate the regions; only that it capture significantly less revenue from employment, thrift and industry and more from rates and taxes on land values.

Clearly, as land values are higher in our capital cities than in the regional areas (“location, location, location!”), a land-based revenue system will produce cheaper rates and land taxes in Australia’s rural and regional areas, and therefore stimulate greater employment opportunities in those areas.

This would finally address a pathological revenue system that supports capital city development at the expense of the regions. The existing bias actually explains much of the population drift to the capital cities: that’s where the jobs are because that’s where the tax advantages and best infrastructure are both to be found.

STUMBLING BLOCKS

The Rudd Government recently ruled out in the strongest terms any possibility that it would introduce Ken Henry’s panel’s recommendation that a comprehensive land tax should be used to replace iniquitous taxes such as payroll tax and stamp duties. This thereby ensures that Australia will continue to pay lip service to decentralisation.

Insofar as it ignores Canberra’s brilliant genesis this is most regrettable. It wrongly assumes that people can’t be educated to the fairness of paying revenue based upon the value of relative locational benefits.

It’s worth noting that not only would an across-the-board higher level of rates and land taxes assist the regions – provided other taxes are reduced or abolished accordingly – but it would also act to put a ceiling on escalating land prices and the attendant mortgage debt currently being shouldered by Australian households.

The latter approach to decentralisation would, of course, be anathema to the same interests that sabotaged the successful ACT experiment, which is somehat similar to mining billionaires labelling the proposed Resource Super Profit Tax “another big tax” when it is, in fact, a natural resource rent owed to the public purse.

The economics textbooks tell us that public capture of land and resource rents can’t be passed on in prices or affect production incentives adversely, and Julia Gillard’s today re-naming the miners’ “super profits tax” a “resource rent tax” seems to acknowledge this point at last.

Decentralisation is obviously necessary if Australia is to unclog its capital cities and utilise the infrastructure available in the regions.  Many people are beginning to wonder, however, whether a bi-polar party-political system, funded to a large extent by vested interests, is any longer capable of acting in the best interests of the Australian people.

Recent history suggests the two major parties are increasingly in the thrall of sectional interests and paid lobbyists. This has come at a great cost to the national interest and to our rural and regional areas.

I was apalled at the nonsense that tried to pass itself off as reasoned discussion when 3AW shock jock Neil Mitchell interviewed mining magnate Clive Palmer on radio this morning.  It was hopeless.

As the proposed resource rent is going to cost mining jobs, opined Palmer, the new Prime Minister Julia Gillard’s commitment to negotiate with mining companies isn’t good enough.  She must scrap the resource super profits tax altogether, said Palmer.

Now here’s the thing, Neil and Clive: there’s a vast difference between a tax and a natural resource rent.  A tax hits labour and capital, whereas a resource rent is a charge for use of the community’s natural resources.

How did you both ignore the fact that taxes keep the returns to labour and capital down – even Clive Palmer’s labour and capital – and that to the extent you capture land and resource rents to the community you raise the returns of labour and capital?  Amazingly, you both managed to avoid this critical point for about ten minutes.

C’mon guys, even the economic textbooks make the distinction between arbitrary taxes and targeted resource rents*, so in whose interests were you working this morning?  ‘Cos it certainly wasn’t the Australian people’s.

Oh!  “Australia’s rent-seeking parasites”?  OK …. now I understand.  But aren’t rent-seeking leeches the reason the world’s having this global financial crisis, Neil, Clive ….?  #

* “Pure rent is in the nature of a “surplus” which can be taxed without affecting production incentives.”  ECONOMICS – Second Australian Edition, Samuelson, Hancock and Wallace, 1975.

# If you can put aside an hour to learn about how the GFC is affecting Europe and what needs to be done about it, Professor Michael Hudson will bring you right up-to-date.