It ain’t capitalism; it ain’t communism; it ain’t globalization; it ain’t financialisation: World governments and their central banks continue to play by Henry VIII’s rent-seeker rules. We’re all playing ‘Monopoly’ and mistakenly believe that most of us can win.

Henry VIII’s extravagance led him to debase the currency, to the dissolution of the monasteries, and to the enclosure of the commons where he obtained useful payment for these lands from the adjoining land barons. In misguided attempts to recover from England’s financial plight, Henry acceded to reducing the barons’ land rent by more than 10 per cent and targetting the common people with arbitrary taxes : –

“… down to the reign of Richard the 3rd, the proportion contributed by the land was nine-tenths; thence, to the time of Mary, it was three-fourths ,,.” Richard Cobden: Corn Bill—Burdens on Land HC Deb 14 March 1842 vol 61 cc519-81

Henry’s falling out with Rome led him to establish the Church of England which divided the nation savagely, distracting from the emerging landholding system where ‘owerners’ (Middle English)–those who owed the land rent­­–were being released from their fiscal obligations.

 This proved to be the foundation of a seemingly invisible divide-and-rule mechanism that continues to this day to serve the interests of rent seekers. The uber wealthy own the most valuable land and more of it while the poor are locked out of access by impossible land prices. We have big landowners and miners calling the shots, but there’s a strong new group among these ‘aristocrats’; Big Tech isn’t paying its market rent for the electromagnetic spectrum it controls. Insofar as the spectrum is a natural resource, in economic terms it is also ‘land’.

Of course, much history has been written since Henry VIII but, five hundred years on, tax regimes now direct more of the industrial revolution’s increased surplus product–literally the common wealth of the nation–disproportionally to the ‘owners’ of land who claim they have no rental obligations for their possession of land. They are ‘owerners’ no longer: rent is their ‘private property’.

Despite it clearly playing the critical role in increasing wealth disparities and the destruction of social cohesion, benumbed by the sheer number of socio-economic problems Tweedledee and Tweedledum political parties serve rent seeking interests by turning a blind eye to the privatisation of publicly generated land rent.

An astounding truth cannot be revealed: divide and rule pays homage to private rent seeking by allowing it to remain invisible. Henry VIII lives on amongst us, and academia accedes to his criminal failings.

How a Basic Income puts a nation back to work (yes, WORK)

Gavin R. Putland, BE PhD – Author, researcher

The crucial difference between a Universal Basic Income (#UBI) and conventional “welfare” is that a UBI is not withdrawn or reduced if the recipient also works for a living. This is not the only difference. It is not even the defining difference. But it is the crucial difference, the redeeming difference, and — if the Basic Income is made less than universal — the one feature that absolutely must be retained.

Why? Because if the Basic Income (BI) is payable to workers, wages only need to supplement the BI. So wages can be lower, without leaving workers worse off. So it becomes more attractive to hire new workers, because the cost is reduced, and less attractive to fire current workers, because the saving is reduced.

But how do we pay for a BI? I just answered that question! If workers get $X more from the Treasury in the form of a BI, and the rest of the private sector pays $X less to workers in the form of after-tax wages, then the rest of the private sector can afford to pay $X more in tax to cover the BI. As long as that $X of tax is levied on anything but labour, it doesn’t reduce the newly enhanced profitability of hiring workers. And that analysis is pessimistic because it doesn’t allow for the growth dividend: as a BI encourages hiring, it creates a bigger economy, which therefore automatically pays more tax even if the tax scales stay the same.

But wouldn’t the extra hiring spend the growth dividend because more people would get the BI? No, because there would also be fewer unemployed people receiving benefits! (In practice, the unemployed would also receive the BI, perhaps with a supplement to assist with their peculiar expenses. All other welfare payments would likewise be replaced by the BI or, at worst, the BI plus supplements for special cases, leading to a simplification of the system.)

But wouldn’t the extra tax raise prices? No, not when you allow for the reduction in labour costs, which feed into prices just as effectively as any tax — even the GST! Moreover, not all taxes feed into prices. If a price is inflated due to protection from competition (as with monopolies, cartels, locational advantage, etc.), a tax on the value of the protection reduces the vendor’s unnecessary gains (economic rent) rather than raising the price. And don’t forget the growth dividend.

But wouldn’t the extra jobs feed inflation by tightening the labour market and raising wages? No. If we’re silly enough to pay for the BI using taxes that feed into prices as the cost of labour does, then the only downward pressure on prices will come from the growth dividend, and inflation will restart if wages rise high enough to overcome that downward pressure. But that still leaves some margin for reducing unemployment. Using taxes that don’t feed into prices will obviously allow a greater reduction in unemployment before we hit what economists call “non-accelerating inflation”. Until then, a BI is deflationary.

But wouldn’t a BI take away the incentive to work?

I must remark at the outset that the question is either appallingly naive or appallingly serpentine, because unemployment, by definition, is an excess of willing workers relative to the number of available jobs. In those circumstances, defending the incentive to work is like the captain of the Titanic calling the fire brigade. “Mutual Obligation”, as we call it, is the doctrine that the unemployed should try harder to take jobs from you and your kids. The popularity of this position exemplifies Henry George’s brutal observation that “the majority of men do not think.” When there are several unemployed jobseekers competing for each available job, the policy of making them compete harder can serve no purpose except to force down wages. That is indeed its official purpose — which can never be officially stated, because the voters might not approve.

But, to answer the appalling question, no, a BI would not take away the incentive to work, because:

(1) Nobody is suggesting that the BI by itself should be a comfortable living. Although conservatives and progressives would disagree on exactly how uncomfortable a BI should be, the common presumption is that almost all recipients would want something more.

(2) As the BI would be payable to workers, the reward for working would be in addition to, not instead of, the reward for not working. A standard unemployment benefit (“JobSeeker Payment”, as we now call it in Australia) is withdrawn in response to earned income. This withdrawal combines with income tax to produce Effective Marginal Tax Rates (EMTRs) that are much higher than those faced by the highest income earners. If more than one welfare payment is withdrawn in this manner, a family can easily face an EMTR in excess of 100%, with the result that working loses money instead of earning it. (For examples, follow @DPlunky on Twitter.) What sort of incentive is that? In Australia, the problem is compounded because the Commonwealth has adopted buggy data-matching algorithms that double-count earned income and assign income to the wrong accounting periods, generating bogus claims of overpayment (#RoboDebts). A BI is immune to such disincentives because eligibility is not affected by earned income.

(3) In assessing the incentive to work, we must consider not only the incentive to get a job, but also the incentive to create one’s own job. If the BI is payable to self-employed people, it creates a safety net that makes people more willing to take the risk of starting their own businesses, and gives them more time to build it up. Even an uncomfortable safety net is better than none. New businesses, of course, add to the growth dividend and help to pay for the BI.

(4) If points (1) to (3) are not good enough, the “crucial” feature of a BI does not preclude an activity test, provided that work passes the test.

But, concerning point (2), shouldn’t the BI be withdrawn from high income earners in order to save taxpayers’ money?

No, because:

(a) If we accept the premise that the BI should be income-tested, then successive governments, in pursuit of “savings”, will keep lowering the threshold until we’re right back where we started — with the lowest-paid workers facing the worst disincentives. If there is to be a means-test on the BI, it should be an assets test, not an income test. (And ideally it should target the kinds of assets that can’t be produced, so that it doesn’t deter their production.) Assets tests don’t hit you until you have built up some sort of buffer. Income tests can stop you from building up that buffer in the first place. Australia’s welfare system, with its severe income tests combined with generous and leaky assets tests, is not designed to give a hand-up to those who need it; it’s designed to pull up the ladder from those who need it, and to give a hand-out to those who don’t. Besides, the ability to build up financial buffers is an essential part of preparedness for the next pandemic, so that the Minister for Industrial Relations won’t sound so let-them-eat-cake if he suggests that casual workers with no paid leave should have “already made provisions” for self-isolation!

(b) Saving taxpayers’ money is a meaningful goal if the government simply takes money and spends it. But if the government also hands out money in the form of welfare, the level of taxation becomes a rubbery figure, because arbitrary conventions decide whether the clawing-back of welfare payments is taxation or means-testing, and whether the payments themselves are expenditure or tax rebates. If all means-tested benefits were reclassified as non-means-tested benefits plus taxes that claw back the same money from the same people as the means-tests, then the official levels of taxation and expenditure would rise enormously, although in fact, apart from the labels, nothing would change. Similarly, if all welfare payments were reclassified as tax rebates or prebates, the official levels of taxation and expenditure would fall enormously, although again, apart from the labels, nothing would change. Labels matter, however, because they influence what happens next. The “income test” label is particularly damaging because it has led us to tolerate a system in which a precariously employed waitress faces a higher effective marginal tax rate than the CEO of Qantas.

(c) In view of (b), if you want to turn a Basic Income into a paragon of fiscal rectitude, all you have to do is classify it as a refundable tax rebate/prebate, to be deducted from the revenue side of the budget rather than added to the expenditure side. Instant small government!

(d) Welfare payments can be withheld not only through means-tests, but also through activity tests (with exemptions for those who can’t be expected to pursue the activity). As an income-tested benefit is equivalent to a non-income-tested benefit plus an income tax, so an activity-tested benefit is equivalent to a non-activity-tested benefit plus a tax on the lack of the prescribed activity. The latter test is clearly preferable — provided of course that employment and self-employment count as “activity” — not only because it is better to punish inactivity than to punish working for a living, but also because we don’t have a separate inactivity-tax system that can double up with activity tests to produce absurdly high effective marginal inactivity tax rates!

In summary, we can afford a Basic Income, especially if it comes with a reasonable assets test and a reasonable activity test. But what we definitely can’t afford is a so-called “basic income” that is clawed back in response to earned income, because that means employers have to compensate workers for the loss of benefits, which employers can’t afford, causing a shortage of jobs. In other words, what we definitely can’t afford is the status quo.

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The Ambulance in the valley.

’Twas a dangerous cliff, they freely confessed,
Though to walk near its crest was so pleasant,
But over its terrible edge there had slipped
A duke and full many a peasant.

 So the people said something would have to be done,
But their projects did not at all tally.
Some said, “Put a fence around the edge of the cliff”,
Some, “An ambulance down in the valley”.

But the cry for the ambulance carried the day,
For it spread through the neighbouring city,
A fence may be useful or not, it is true,
But each heart became moved with pity           

For those who slipped over that dangerous cliff.
And the dwellers on highway and alley
Gave pounds and gave pence not to put up a fence,
But an ambulance down in the valley.

Then an old sage remarked, “It’s a marvel to me
That people give far more attention
To repairing the results than to stopping the cause,
 When they’d much better aim at prevention.

Let us stop at its source all this hurt”, cried he,
“Come, neighbours and friends, let us rally.
If the cliff we will fence, we might almost dispense
With the ambulance down in the valley”.

136 years on, we fail to see the point of this allegory, that poverty exists because our tax regimes continue to serve the interests of rent- seekers.

Labour parties were founded by supporters of the ideas of Henry George and were initially totally supported by the union movement.

Unions fell out with Henry George over the need for genuinely free trade; they wanted protectionism; especially during hard times.

Thereby, they started losing interest in the need for a land tax if wages earners were to retain their wages and to secure their rightful return on their efforts. George had shown that wages and profits would rise naturally without inflation if land values were taxed. However, unions left the ground of education on this point, leaving themselves the secondary option of coercive action only.

Much later, Paul Keating was to intervene in Australia’s economic affairs to suggest that we may not be able to afford pensions for our citizens in the future: We needed a compulsory superannuation system.

The union movement now provides a better superannuation system than its retail competitors.

The circle is now complete. The union movement has joined the rent seekers. It wants more of workers’ wages.

The union movement is now sorely compromised. It cannot press for a tax on land values nor a universal income.