WHAT ‘REPRESENTATIVES’ – WHERE?

The parties have hijacked the political process by representing privileged interests instead of the people. Rather than attend to the interests of their denizens by obtaining revenues from whence they ought to come–thereby setting the economy on a course of steady and sustainable growth–politics has degenerated into a popularity contest behind which deals are done with the big rent-seekers.

As far as the parties are concerned, the decision-making necessary for a quick exit from the GFC can go jump, because appropriate action will bring unpopularity, not the least with those special interest groups who lobby and largely fund them. To turn this situation on its head and re-educate the public away from a speculative mindset is too big a brief for them! Better to try to forestall further economic and social collapse for as long as possible by printing money, austerity, anything, rather than taking the necessary medicine by acting now.

Parties of all shades have come to endorse dilatory tactics, because they don’t want to see beyond this blinkered, short term view. One party is as mediocre as this other in this game; they only have to attract enough of the middle ground punters to get their party back into power. The major parties march under seemingly alternative populist banners of ‘greater social justice’ or ‘better economic management’, whilst at the same time cosying up to rent-seeking interests who’d like to own society’s natural monopolies so they can extract risk-free incomes.

Once in power, none of the parties delivers what it had represented to swinging voters, nor even what the other party had represented, because it hasn’t an economics capable of supporting those programs. As the economy seems to have a mind of its own, parties will simply cling to power as long as possible, until the people, having had enough of them, will put the other party into office in a forlorn hope of improvement. And so the cycle repeats: just as certainly as the cycle of boom and bust which mocks the parties’ efficacy.

Some examples that political parties are obsolete? President George W Bush and his advisors, representing the ‘better economic management’ of the Republican Party, managed to engineer the financial downfall of the United States of America. [“Phew! Lucky you got outta there, George Dubbya?”]

The other side is no better. In the UK, Gordon Brown, representing Labour and ‘greater social justice’, helped the wealthy get rich at the expense of the poor and the middle class during his time as ‘the world’s greatest treasurer’. Having won the prime ministership of Britain by backstabbing Tony Blair, Brown now blames the ‘Global Financial Crisis’ for Britain’s economic woe – as though it’s unrelated to his inept decision-making during his chancellorship of the exchequer! In that position Brown had actually boasted there would be no return to boom/bust!

Meanwhile in Australia, Peter Costello, also claiming a supreme ability for his economic management, managed to widen the rich-poor gap as he clasped to his breast the faux-prosperity he manufactured out of arguably the world’s greatest real estate bubble.

When Australians sacked the Liberal Party/National Party coalition from government in 2007, they also removed Prime Minister John Howard from his seat of Bennelong. Peter Costello seemed to have read the portents from his time as treasurer, not wishing to lead the Liberal Party in opposition during a period of slowing economic growth emanating from the real estate bubble he fostered.  So he’d sit on the backbenches, write his memoirs, then get the hell out of there!

Labor Prime Minister, Kevin Rudd, has decided not to draw attention to Costello’s failure to address the incredible ten year real estate bubble, because he’d been silent on it, too. Speaking out on it might involve him in taking action against it instead of keeping it inflated, and that’s not what politics is about these days: fixing economies. It’s about continuing to grant favours to rent-seekers and hanging on in there and making yourself look good for as long as possible before they wake up to you.

So, rather than face the music and let the bubble deflate, Kevin Rudd and treasurer Wayne Swan have chosen to delay Australians from taking their depressionary medicine – by feeding the bubble.  Wage earners were given $900 to spend; although numbers of real estate sales were down, the First Home Owners’ Boost kept prices up, while government capital spending on house roof insulation and spending on schools ensured a positive GDP. Both know this will only delay and worsen the crash but, these days, it’s all about buying time.

There’s a history to be written, so, during this period of deferring the inevitable, Rudd plays the climate change tune. Although nothing came out of Copenhagen, few doubt Rudd’s committed involvement on the world stage, and he’ll certainly take his extensive networking and the negotiation skills he displayed to the  next election! But as for taking action that will resurrect the economy …. forget it!

Political parties’ preference for counter-productive taxes and encouraging real estate bubbles has slowly but surely eroded initiative and delivered us into another economic depression.

It’s beyond time to let political parties know they’re failing us.

AN UPDATE

You’ll remember the world’s having this economic depression we’ve chosen to call the GFC, right?

Oh! All except Australia, that is. Australia’s OK because, as Christopher Joye of RP Data Rismark and Macquarie Bank’s Rory Robertson say, we not only don’t have the most massive real estate bubble of any country in the world, but we don’t even have a land price bubble at all. [This is undoubtedly more in hope than reality, of course. Yes, it’s a bit of a fib.]  Our high prices, they say, are simply the result of high immigration and insufficient land. [!] Then we have China helping us stave off a recession, so we’re pretty right; no worries!  Hey! And we’ve got the best fall-back position of all when the bubble does burst. “Well, we couldn’t really say that, could we? Someone’s got to keep up Australia’s confidence!”  Yep – they’re simply cheerleaders for a doomed economy and unprepared to draw attention to the role that property played in its collapse.

Now, TIME magazine has front-covered ‘helicopter’ Ben, the man famous for his essays on the Great Depression, and for saying that it’s easy to cure economic depressions simply by printing enough money. OK? And aren’t we so lucky to have Ben Bernanke? Yes, I suppose we are. Who else could have told us the way to get out of this depression was the way we got into it? Spend up big, print money and get into debt.  It sounds a bit like a door: you got in that way, so that’s also the exit. Gee, who would have thought it? I wish I had Ben’s nous and imagination!

Meanwhile, happy that their economies are in such great shape, the world’s leaders tripped off to Copenhagen towards the end of the week to front the cast of thousands fixing up climate change while we’re all on Bernanke’s winning streak. That’ll go well, too!

Whereas I had thought the only remedy for the GFC  would be to un-tax people for working, and taxing land prices (therefore, removing recessions and depressions caused by bursting land price bubbles), we’re told this just won’t be allowed to happen. But we don’t have a good track record for being able to get out of depressions without an eventual war. BTW, just try to engage your elected representatives on land rent instead of taxation! It doesn’t matter which party (or philosophy), which religion (or non-religion), which sex, they’ve all got their stuff rehearsed on this one:-

“Sorry, but we must treat you and your kind as pariahs, because EVERYONE knows there is NO such easy solution!”

“You’re trying to blow the whistle on boom and bust? But that’s how the capitalist system has always worked: boom, bust, boom, bust – and we slowly progress that way!”

No place, apparently, for independent reasoning such as in my “Unlocking the Riches of Oz: A case study of the social and economic costs of real estate bubbles 1972 to 2006” showing how we might vastly improve our lot by capturing publicly-generated annual land values:  that it would quickly and sustainably double our wealth and GDP; that we’d close the rich-poor gap and everyone would be much better off, and; that we’d eliminate real estate bubbles and recessions altogether.

“No, that’s madness! What would you know? We’ve got trained experts dealing with the economy! Who are you?”

“Oh!  So your experts saw it coming then?”

“No, that’s beside the point. The point is they are our paid and appointed experts. Others, like you, may offer your way out opinions, of course.”

“But why not investigate the solution proposed by the handful of people who DID forecast the financial collapse – a sort of economic Copenhagen, if you like – which would exclude all the economic deadwood, the so-called experts?”

“Pshaw! Get out of here!”

Well, that just about brings you up to speed.

By the end of the year, we’ll learn to what extent Treasury Secretary Ken Henry and his panel of experts appointed to inquire into “Australia’s Future Tax System” decided to recommend dismantling the tax office and ratcheting up rates and land taxes.

Hey! That’s not a smile I see turning up at the corners of your mouth, is it?     🙂

BARNABY JOYCE, the Australian politician, is  in the news.

Good on you, Barnaby!  That’s saying it like it is; but it’s just about now they start get to you, mate.

Now there’s the following to contend with:-

1.  “Shadow cabinet solidarity” [translation:  Shut your face!];

2.  “Coalition discipline” [translation:  Do as you’re told!]

All of which means keeping up a stirling ‘front’, as though you agree with all the nonsensical politicking surrounding you, Barnaby. Don’t call things for what they are anymore. Don’t be a problem-solver anymore. Be prepared to lie, gild the lily, etc., because you’re in the coalition’s shadow cabinet now – and there are very few occasions when you will be able to say what you really think anymore.

Nice knowing you, mate, but today your colleagues and the press will let you know THEIR reality – and that’s rarely the sort of truth you spoke yesterday!

TERRIBLE IRONIES AND PARADOXES

The Copenhagen climate change conference has brought to my mind some enormous ironies. Science must, of course, investigate the reality and extent of climate change, because global warming does pose a dire threat to the planet and to humanity.

Should global warming prove to be as real as the weight of scientific opinion suggests, and if humanity is as big a contributor as it is commonly thought to be, then the dark clouds of economic depression will paradoxically present a silver lining of delay to climate change – to the extent that polluting manufacturing industries will go out of business and be shut down during the depression. It might also provide the hiatus necessary for Prime Minister Rudd or his successor to reflect upon the stupidity of an emissions trading scheme as a valid and timely economic response to environmental pollution.

As opposed to the uncertainties accompanying climate change, science has displayed a blind spot to the reality directly responsible for the death of hundreds of millions of people over the last hundred years. I don’t refer to the weapons of ‘defence’ created by scientists, but of the abject failure of economies which direct us regularly into employing these weapons under some false pretext or other.

I’ve mentioned before the economic circumstances that delivered us WWI, but not that the impossible WWI reparations set upon Germany related directly to the outbreak of WWII. Was not the rise of a despotic Hitler a quite natural result of the Great Depression being overlaid upon these war reparations which therefore reduced Germany to a screaming shambles? Didn’t she have to try to get out from under? May not the useless devastation and loss of life of WWII, including the Jewish holocaust, have been prevented had the Treaty of Versailles not been so extremely punishing on the German people?

Indeed, a strong case can be mounted that WWII may not have been fought at all had the Central Powers actually defeated the Allies in WWI! Given that the mindset of Germans, Austro-Hungarians and Bulgarians is far less fixated upon the real estate speculation to which Pax Brittanica and Pax Americana been so witlessly and devastatingly wedded, it is arguable that the world would not, at the outset of the 21st century, have experienced history’s biggest ever real estate bubble. Its bursting has directed the world into its greatest economic depression and commenced the countdown to WWIII, which we will  undoubtedly be misinformed is necessary for our safety and wellbeing (regardless of the probability that it will be nuclear!)

While it is interesting to speculate on what might have happened had Germany won the first world war, a more tangible fact is that by not calling the sham of neo-liberal economics for the fraud that it is, science has become complicit in the ongoing failure of economics. Representatives of science can at times become too self-righteous, but in that most crucial area of daily life which is economics, they can ill afford any such hubris.

In view of the economic reality now bearing upon us, and for the sake of people and the planet, a scientifically workable economics has become a priority more urgent than big climate change conferences. Moreover, the alternative revenue system outlined in this blog would provide the wherewithal to research and develop solutions to the increasing array of problems confronting the world at this historic turning point.

We the Selectorati (Please keep this message out of the hands of losers)

Once you’ve understood that you’re only on this planet for a short period, certain things should become clear to you. Namely, there’s only a few people who are life’s winners; the vast majority will die losers.

Whilst workers and capitalists are both losers, socialists are the greatest losers of all, because they actually believe capitalists are the cause of the misdistribution of wealth. Let them think that, because setting labour against capital is the tactic we call ‘divide and rule’.

Don’t advertise the fact but, to be on the winners’ team, no matter how unfortunate this may sound, you must make your way in life at the expense of all the losers. This is a zero sum game – and you don’t want to be among the zeros! It’s paramount that you work from this understanding and, if you throw yourself into it, wealth must come your way!

The secret!

Here’s how to get workers and capitalists working for you, without their knowing. Get real estate in a good location, then …. get more.

It’s so easy, if you do it right! Leverage yourself properly and you’ll be able to claim the interest charges on your tax. Of course, your tenants will also help to pay off the mortgagea. Memorise this:  “Rent is for the payment of interest.” Tenants can’t use this insight. Nor can they claw back all the taxation they’ve ever paid over the years per medium of their real estate capital gains! But you’ll certainly be able to do this! Politicians won’t stand in your way because we have political clout.

How it works

You see, as wealth is created, a surplus above costs and profits is spun off in the process. It’s called land rent. Some losers may say that it’s owed back equally to the whole community to pay for necessary government, education, health, law enforcement and capital works (for which the term ‘infrastructure’ is now the buzzword). But if we can get this rent–and we do in most cases–the losers will have to derive their public revenues from elsewhere, namely, from taxing the productivity, thrift and enterprise of those to choose not to be rent-seekers, or, as the French say, ‘rentiers’. Lovely word!

Offset your taxes

Sure, we’ll pay taxes, too, but we’ll be able to claw back each and every red cent of any revenue we pay through the increases in the value of our properties. If challenged, our quite legitimate disclaimer is: “The tax system made me do it!”

The two principles behind this idea are that rent in good locations is better than the rent in inferior locations, and publicly-generated land rent NOT collected by government will be crystallized into larger capital gains for us. This is the privilege granted to those with the insight to see the world for what it is. It’s dog eat dog out there, and it’s better to be the devourer than the prey, folks! There may be ways to make this sound much nicer, but that’s your bottom line.

Note that the location, size and topography of your properties, and their proximity to population, public works and private facilities will rapidly increase the value of the land component of your properties.

You don’t have to do much at all to grow your wealth in this manner. Let the community do it all for you. But, of course, at every opportunity make people aware, as you monitor your rents and capital gains, that your work is as difficult as any other job and that it is an honest living. The tax system encourages all Australians to do it, and if many prefer not to, then they clearly identify themselves to be among life’s great losers. It’s just that we at the top do it better and hold out hope to the plebs that they, too, may hope to join in this game.

Some naysayers will suggest that living high on the hog as a rentier is ‘like parasites living off the productive effort of others’, but that’s an easy-to-wear tag once you’ve seen the upside! Anyway refute this, by claiming to be a provider of accommodation!

Work at this!

There’s just one further thing you do need to secure your position. You should scream blue murder against council rates and state land taxes at each and every opportunity! “A man’s home is his castle”, and it’s quite unconscionable to have to pay taxes on properties for which you’ve bought and paid. They’re yours! You own them! Right? “Taxes on land penalise and deter property development” always works, too, even if it is untrue.

In this regard, you’ll be supported by the churches.  They’ll always see the merit of your claims, as they also baulk at paying charges on their lands. They understand on which side their bread is buttered, because they are winners, too. Not necessarily their congregations, of course, but certainly their hierarchs who are entrusted with the management of their property and funds. George Pell, for example.

In fact, some of the churches have recently taken rent-seeking to new heights by being amongst the country’s biggest tollway investors. Tollways and private ownership of public utilities are other forms of the meretricious taxation we winners should be promoting. You can encourage these charges under the guise of ‘user pays’! Even if you don’t use the tollways, they’ll certainly add value to your properties! But, remember, we number the churches amongst our friends. Forget the rubbish that you must not capitalise land values for you are but passing strangers who must pay the rent, Leviticus something or other: what would he know?

Finally

So, let governments tax anything but the value of the land we hold. You’ll find the losers will support you on this because they are too unsuspecting and thick to see the manner in which taxation rips them off to our advantage. They actually believe that taxation can be used as a means to redistribute income, that is, to narrow the gap between we and they, although of course it must do exactly the opposite!

“No land or property taxes!” must remain the catchcry of both winners and losers – or else our free ride is over! See to it! You might even get public radio and television stations to promote residential property ‘investment’! Good luck, and happy rent-seeking, my brother and sister Selectorati!

Did you see “A Currency Affair” on Today’s News Tonight?

I read with interest the comments on Michael Hudson’s article in THE AGE on Wednesday.

Amongst other things, Hudson had suggested:  “HIGHER land and house prices typically lead to an increased supply of housing. Yet at the peak of Australia’s perennial housing affordability crisis, the Housing Industry Association declared that there would be a 13 per cent fall in housing starts this calendar year, compounding last year’s 18 per cent fall.

In light of massive rezonings in Victoria and improved planning bureaucracy in many states, this can only be seen as a warning that property insiders expect there to be a price crash.”

Hudson also had the temerity to say:  “Property prices are defined by how much a bank will lend.”

Well … didn’t that elicit comments from those who remain in denial of the world’s biggest real estate bubble?!

~~~~~~

“In fact, it’s the opposite. The bank lends based on the value of the property (you must never have had a home loan).”

“… there’s a big housing shortage here”

“It’s important not to lump different types and markets into one.”  [Well, there goes the ‘Barometer of the Economy’ and ‘the Kavanagh-Putland Index which does exactly that!]

“What a ridiculous article based on nothing other than property developers not being able to borrow millions anymore.”

“A 70 year old lecturer at a minor campus university is (sic) the USA is now the sage on Australia’s impending property disaster.” [Er, you would perhaps prefer the self-justificatory comments of the same Ivy League Harvard boys who sponsored this GFC, Greg?  BTW, UMKC is the centre of credit analysis in the US.]

~~~~~~

I am sometimes afflicted with secret doubts about the perspicacity of some of my fellow Australians.  These same few will undoubtedly support our upcoming bank bailouts – although it defeats me how a government rescue of the banking sector at the expense of its citizenry can be seen as anything but the most obscene of all corruptions.

Connie Hedegaard, the Danish Minister for Climate and Energy, has been a solid citizen in the area of alternative energies. But she and the world’s leaders will join the ranks of con-artists and purveyors of derivatives if they try to tie us into emissions trading schemes (ETS) as a response to pollution/global warming in December at Copenhagen.

Let’s keep it simple. The problem is pollution – so let’s tax polluters. The fact that taxes destroy CAN be usefully employed in this instance. Let’s destroy pollution!

Abattoirs, once notorious polluters in Australia, have been forced to address waste water issues by providing settlement ponds, anaerobic and aerobic. Also, the horrible odours that had previously escaped from these premises were remedied by after-burners and underground bio-filter beds, the latter kept moist to ensure that the micro-organisms which attack these offensive effluvia remain happy.  Simple!

Hey, c’mon guys! We didn’t start trading in waste water and odour rights between abattoirs to get this done!  (Or is this one somehow going to be turned on its head in Copenhagen, too?)

Let’s see. We’ve got this terrible pollution happening, so let’s create a trade in the right to pollute, so that sometime we might be able to reduce pollution levels? To what level of stupidity IS it possible for humanity to descend?!

The most frightening thing is that these people are deadly serious! Kevin Rudd got into his now-famous hissy fit last week about those who baulk at the ETS he’s been asked to promote. Maybe attack is the best form of defence when you’re found short on logic?

The real problem for most Australians, not having been convinced at all by the Minister for Climate Change and Water (Penny Wong) nor Prime Minister Rudd about carbon trading, is that the leader of the opposition, Malcolm Turnbull, having close ties to investment banks (who will no doubt see this new form of derivative as an absolute boon) ALSO favours the costly and ineffective carbon trading option!

December 2009 in Copenhagen promises to be hilarious.  Go, Kevin ’07!

The first episode of David McWilliams’ “Addicted to Money” on ABC1 last night was compelling viewing. Making reference to the cargo cult culture increasingly evident over recent years in our own long-running soapie Neighbours made the wordwide financial collapse a little more poignant for Australian viewers who have been largely insulated from the GFC to date.

Trinity College Dublin-educated McWilliams worked as an economist in the banking industry before turning his undoubted talents to journalism and documentaries.

Comparisons can be made between the engaging techniques of McWilliams and Michael Hudson, the latter who has just completed a successful tour of Australia. Both have the insider’s knowledge of the financial system and share an ability to expose and lambast its shortcomings.

No doubt, future episodes of “Addicted to Money” will determine whether McWilliams is as solid as Hudson in his conclusions, but I was seized with the thought of how illuminating and entertaining it might be to get the two men in a room together to have a decent conversation about the cause and cure of the GFC.  

Although he didn’t speak to it, McWilliams made it easier for me to understand that, in terms of the world’s financial systems still running amok, there’s a certain sort of logic in Prime Minister Rudd appointing Peter Costello as a governor of Australia’s Future Fund. Costello fashioned the fund from taxes derived off the back of the world’s greatest real estate bubble over which he presided as Treasurer, so why not tie him to some responsibility for where we are heading with it?

Of course, I speak with a forked tongue: I’m not at all happy to see individuals connected with creating the bubble in the first place, whether it be Ben Bernanke or Timothy Geithner in the US or Peter Costello in Australia, having clearly demonstrated their inadequacy, being employed for their services by new governments that have, amongst other things, been given the electorate’s OK for financial reform.

Unlike McWilliams and Hudson, however, it seems that none of the major political parties has yet fathomed how cheap credit and property-directed tax systems have built real estate bubbles, then leveraged financial derivatives off them. That’s worrying!  Does this mean that Australia, too, will have to endure the obscenity of bank bailouts when our real estate bubble finally bursts?

________________________________________________________________________________

ps.  Thursday 19 November 2009 (Episode 3)

Yikes, David!  You came so VERY close! Yes – the problem is THE ECONOMY and the ENVIRONMENT! And we can reconcile them both by collecting the RENT for using land.  Then, and only then, can we achieve the conservation of our planetary resources and environments; no more leveraging debt off real estate bubbles; no more recessions; no more depressions; in truth, a synthesis!

Somewhere, sometime, humanity will be struck by the realisation that a sane ECONOMICS utilises RENT (not taxes) as the means to reconcile PEOPLE with the PLANET.

“The dog’s breakfast of state land taxes needs reform”

WE agree entirely with Tanya Plibersek and the Urban Development Institute of Australia’s Stephen Holmes that where capital works were once funded from local government rates, which can’t be passed on in lot prices, the more recent practice of hitting sub-dividers with up-front charges adds, of course, to the price of sub-divided land.

For the sake of more affordable housing, we should revert to the former system.

Whilst that situation is being remedied, we can also hope that Ken Henry’s review of the tax system has the gumption to recommend the elimination of the exemptions, thresholds, multiple rate and aggregation provisions that make state land taxes such a dog’s breakfast.

The principle at issue here is that local and state governments have an ongoing interest in capturing on the public’s behalf at least part of the uplift in land values provided by public infrastructure.

Up-front charges, including headworks charges, don’t do this; nor do our misbegotten state land taxes.

Bryan Kavanagh
Research Associate, Land Values Research Group
Melbourne, Vic