Needs fixing.

Here’s my blast from the past on our lead balloon economies.

Australians are going to have supply chain issues as we emerge from the pandemic, but we certainly have a greater overlooked problem regarding the private debt bound up in impossible-to-service mortgages over the next three years. Meanwhile, the talk about government ‘debt’ is largely irrelevant.

So, what do we do? How do we handle massive private debt?

Well, the usual response to a national financial emergency is that we need to look to the concerns of big business, but big biz doesn’t always have a handle on matters because it tends to silo its own position at the expense of small businesses and the general populace. Moreover, governments attuned to the neoliberal economic position have developed a habit of listening to the well-heeled guys and their advisers before they consider what’s in the best interests of their people, and therefore business – especially small business.

If we understand that ‘businesses’ comprise commercial, industrial, rural and other interests, and that the rest of us may be classified as ‘residential’, our land values may offer a little perspective.

At 80% of total Australian land values, residential is clearly the largest component. Residential land of course includes the many owners of businesses. The idea of looking at where most land value lies is not to diminish the importance of the roles of the business, rural and agricultural sectors, but is it possible that these may be best provided for if governments were first to address the issues of where Australians are housed to examine possible flow-on effects for businesses.  

Let’s examine the proposition.

In a 2019 paper produced for Prosper Australia entitled Trickle Up Economics: Assessing the impact of privatised land rent on economic growth, Dr Gavin Putland produced a version of the following chart which showed that taxes, their deadweight losses and other economic rents now account for 50% of the Australian economy, leaving a net 50% only to be shared between wages and profits. Of course, we need to recognise that banks and monopolies making super-profits derive these from the 50% of the economy that is shown as the 50% that makes up extractive ‘economic rent’.

The chart represents the first occasion on which the Australian economy has been separated into earned and extractive incomes. This may appear to be a normative statement at first flush, but the ongoing and increasing financialization of repetitive booms and busts provides strong a posteriori support, so let’s go with it for a moment.  

Aren’t some of these tax ‘extractions’ necessary for redistribution to pensions and the poor? Certainly, but it could be done much better without all the deadweight losses incurred by so-called ‘conventional’ taxation. Taking the recessions from bursting real estate bubbles into account, I’ve assessed the deadweight loss to be some $2.34 for each dollar of tax that Australia levies. Of course, most economists will dispute this: they must, or else be seen to have been remiss in not alluding to it. However, the late Professor Fred Foldvary endorsed my approach in his comment on my method here.

It was John Locke who first noted that as all taxes come out of rent (ATCOR) that’s where they should come, directly. The late Professor Mason Gaffney made the necessary addendum that the excess burden of taxation also comes out of rent (EBCOR). Economic rent cannot be passed on in prices, so why are economists silent on this point?

Public policy needs urgently to address all this tax-induced misery, because for each dollar of tax we apply, we’re actually losing $2.34. That’s not only deducted directly from the earnings of labour and capital, but it’s passed on directly into the prices of all our goods and services. It could be done so much better by direct public capture of land rent (the dark blue in the chart) which would do all that the expropriation of wages and profits currently does (the red in the chart) and much more towards societal health. It would massively reduce prices and leave wages and profits untaxed. The seekers of unearned economic rent, owed equally to everybody, including banks, monopolies and property speculators wouldn’t be too happy of course, but we’d at last have a tax regime giving all the right signals to doers instead of to leeches.

That’s the first step in dealing with private debt.

I think we could manage that, but having the current tax regime designed for themselves has undoubtedly proven rentiers to be an impressive lobby against which to test ourselves!

The common wealth was the rent of land before it became a stupid meaningless word.

A bit like the word owner which came from the Middle English word owerner: he who owed the land rent.

Oligarchs and their economic lackeys wouldn’t like to be reminded of the original meaning of these words.

Silence of the historians

By FWG Foat MA, DLitt

There is a Secret of History. The mot de l’enigme is Land. The great historians of the rank, for instance, of Mommsen, say the word, but then pass on, as though in haste to leave a dangerous ground. Lesser historians shun the mention of it altogether, or mention it in faltering accents. Time, with its effacement of old meanings, helps this obscurantism and oblivion falls upon the theme.

What is the cause of this conspiracy of silence? The answer is again in one word, landlordism. Historians are protégés of those whose interest lies in keeping dark concerning land. Now a protégé must not discuss what patrons do not wish to mention. But that would come to writing nothing of man’s greatest struggles, longest wars, and bitterest distress. “Well, then, let the historians write of wars, political struggles, and distress in social life. Let them write freely of the things that happened, and the suffering endured. But let them never mention land and the ownership of land as being the ultimate causes of these happenings. They can write out the story, showing their knowledge of the facts; and if they are pressed for explanations they can point to intermediate collateral causes: man’s natural pugnacity, notions of honour, foolish mistakes, wild aspirations towards political freedom, and the like. That will satisfy the few inquiring minds, and the rest will never question. Only no mention of the land and the landlords!”

These were the orders tacitly given by those who had the powers of censorship and suppression of books, removal of professors, and withdrawal of patronage. How could a man explain that land and landlordism were ultimate causes of nearly all wars and sufferings of the peoples, when his payments and his patrons were of the landlord class, or members of that nameless party whose sincere and secret faith was landlordism?

Besides, the peoples loved the soldiers. Tales of great battles always interested. Pity could be awakened and wild patriotism. There was no need to talk of land and ownership in order to fill up the lecture time or make a book of history. “Agrarian laws?” Well, they made such dull reading!

Dull, yes, but the dullness was deliberate, or else was due to plain stupidity. Let us consider a few national histories, and see what could have been made of the story of land and landlordism The national history best known throughout the English-speaking world is that of the “Children of Israel”. The story of the Hebrews is the only history which has been read aloud for centuries in the hearing of the people, and diligently taught in all the schools. It is a story of a struggle to “possess the land”, then to maintain a fair division of it among descendants of the conquerors. The institution of the Jubilee return of lands to their original owners is now known to have been a dream of prophets and idealist lawmakers, but its importance as a principle cannot be over-estimated. Although the cleverer landholders retained (by what the Bible calls oppression) lands of their less ambitious “brethren”, they kept them against the express injunction of the Tribal God – that is, of the prophets and liberators who declared they spoke for Him. “The land shall not be sold for ever”, said Yahweh, “for the land is mine; and ye are strangers and sojourners with me”. (Leviticus XXV. 23).

To paraphrase: “No just man of our people must make claim to permanent ownership of any land: the land has been distributed to all our free men on a principle of equal justice, and the good patriot must be loyal to the general system. No individual can own land absolutely; he has it only in usufruct; it belongs to the whole tribe, and is in the unchanging guardianship of the Nation’s God” .

The usual struggle, of course, went on, in the course of which much land was claimed and kept, and the expropriators got such wealth and influence that they controlled even the opinions of the people; and the peasants of Galilee thought Jesus mad when he declared that the rich men of His time were not the best of men. “How hard it is for a man of property to come to see the higher truth”, the Master pointed out to His disciples. “Well! Who, then can be saved?” the poor men said, in pure bewilderment.

When He went on to pour His condemnation on those same high-placed proprietors because they “devoured” widows’ houses and “for a pretence” made long prayers, “the common people heard Him gladly” – and the landowners knew they must take action.

In the history also of Sparta redistribution of the land was tried. The reforms in this direction, piously credited to the great Lycurgus, were really undertaken by Agis and Cleomenes at a later date. The struggle was keen between the true patriots, who were prepared to give allotments in Laconia to the landless citizens, and those who meant to keep exclusive privilege.

At Rome, again, if there is any meaning in the hundred years’ revolution which divided the Senate (mostly the landowning classes) from the people, from the reforms of Gracchus to the settlement made by Caesar, it is that the people wanted land in Italy and the Senate would not yield it; that the people wanted to assert the principle that the ager publicus was the domain land of the State. i.e., the property of the community alone, and the Senatorial party, with others who came in for profiteering, wanted to keep rent-free the lands assigned to them, and make them instruments of economic slavery; and that the lawless individuals of the nation, tempted by the notion of the absolute ownership, themselves in time and on occasion became petty landlords, too, and asserted the same claim to dominium where they should have been content with usufruct.

Of course there were wars in Italy and in the provinces, and very few of them were about anything but this dominium and its consequences, until at last the Roman world grew weary of the strife, and the great statesman Julius Caesar made some adjustment of the claims of common freedom against privilege. If Caesar had not seen that provinces must live their own lives, in the enjoyment of their lands within one common state, and made the taxation represent acknowledgment at once of freedom and responsibility, there would have been no Roman Empire to endure five hundred years.

The story of our own land for the thousand years between the fifth century and the fifteenth is a story of land and land ownership far more than anything else. Our Saxon forefathers came to win land, and all through the so-called Heptarchy engaged in ceaseless fighting over what they had won.

The Feudal System brought another new order in. The English law (according at least to Coke and Blackstone), asserts that as a changeless principle all land is holden, mediately or immediately of the King, ie., no one can have true freehold land; all land is subject to old charges, services which sale or transfer cannot remit. Civil wars occurred through efforts of land-holders to shake off the claim for these services due to the State or larger community, represented by the feudal overlord.

One meaning of Magna Charta, as Professor Pollard has pointed out, is that it was such an effort; the liberty which certain barons wanted was liberty to decline to render these dues, the “liberty” was a freehold each one wished to have created out of his feudal tenure. The lawless Barons of Stephen’s and other weak reigns were playing the same game, and as in the Roman Republic, so here landless individuals have gradually joined in it, until most Englishmen suppose that land can be private property, and that “freehold” land, so far from owing rent or service to the State, can be actually let or sold to the State, as well as to other tenants or purchasers, for the private profit of the alleged “owners”.

The purchaser of any “freehold” piece of land owes to the community the services which have anciently been charged upon it, for example, that he should present himself in the full armour of a knight on horseback at the call of the proper superior representing the State, unless he pays for another person to go in his place. “But”, it may be said, “such services ceased to be required”; to which the reply is, only when money payment was accepted instead. Again, it may be said: “Well, but it is three hundred years since the claim was made”; to which we reply – then there are arrears long overdue! How else could the public charges have been met? How in the interval have the public moneys been raised? The answer is that they have been raised pro tem. by taxes laid upon the workers’ work, the employers’ capital, and the people’s food and homes gradually and almost secretly: no wonder that historians were not to mention the transference.

No wonder that much was made of John Hampden’s protest against ship-money. No wonder that histories represent the English people as madly desirous of “the vote”, “the Charter”, religious equality, and other desirable things. No wonder that we are supposed to have been oppressed by tyrannous kings. No wonder that the thirst for the destruction of neighbouring peoples and the glory of warfare have been emphasised – anything rather than that the people should know that the one indefeasible title which the English law permits is the title of the whole community to inalienable possession of the land, the soil of Britain. Anything rather than that the peoples of Europe should know that they are fighting each other throughout the centuries, in order that the unlawful ownership of State lands may be left without taxation, and that attention may still be diverted from the history of Land.

As the previous post suggested, the OECD, Australian Treasury and others are off on their usual tax “reform” trip: a simple switch from income tax to greater reliance on a tax on goods and services. (Six of one half a dozen of the other. 🙁 )

When will Australians find the intestinal fortitude again that we once had to have land ‘tax’–it’s a rent actually–front and centre at all three levels of government? It injects zero deadweight loss into the economy for God’s sake, compared to more than twice the amount levied for ‘conventional’ taxes!

That’s certainly not the usual switch from one tax to another. That’s genuine reform!

It’s one BIG disadvantage, however, is that it does offend the uber-wealthy and their stooge economists – and they’ve been calling the shots!

h/t: cross-posted from LinkedIn (because Dr Terry Dwyer makes sense!)

David Montani

National Tax Director at Nexia Australia

Once again, the OECD recommends that Australia adopt “growth-enhancing tax reforms”, including rebalancing the tax mix away from personal income tax to GST (with appropriate shielding). So many experts, with so much evidence, say this over and over, and yet we still have so many politicians who are the tax-reform equivalent of anti-vaxxers. Google “oecd economic surveys australia september 2021”

Josh Frydenberg Jim Chalmers #caseforchange #taxreform

Dr Terry Dwyer

The Treasury uses the OECD to lobby politically and put pressure on the government of the day, so take cum grano salis.

Second, OECD tax burden comparisons are worthless, since superannuation and workers comp in our systems are taxes in many European systems.

Third, Y = C + S, so a GST increase is equivalent to a flat rate income tax which exempts savings. Try selling a flat rate income tax of 10% with no tax free threshold, an exemption for foreign landholders not spending here and an unlimited super tax deduction… same thing pretty much.

Fourth, another twist. Consumption is mismeasured. A farmer gets write-offs for sheds for his pigs, a father and mother get no deduction for raising children to replace them as labourers. Yet labour is a factor of production as much as capital. Adam Smith understood this which was why he opposed taxes which would diminish the future supply of useful labour. So did Manchester merchants who wanted the Corn Laws ended.

I trust this does not mean I am regarded as the economic equivalent of an “anti-vaxxer”. If so, dump me in with Adam Smith, JS Mill, Henry George, Harold Hotelling, William Vickrey and a few more economists.

I don’t see blogging here about the world’s descent into the 2026 depression for 13 years—i.e. as long as The Keiser Report, but without all its followers 🙂 –to have been a negative thing. Quite the contrary, it’s a matter of describing ‘what is’ — or as my academic brothers and sisters would have it, I’ve employed a positivist approach to describing the depressionary half of the fourth Kondratieff Wave.

It’s quite clear that this method is at odds with neoclassical economics and the mainstream media’s coverage of socio-economic events. Not that I’m an economist. It’s probably that my more practical experience as a valuer of real estate in the Australian Taxation Office, the Commonwealth Bank of Australia and founding a private valuation practice held me in great stead to provide more credible insights than most economists and media commenators. (Giving myself a bit of a pat on the back here, if you’ve not noticed. )

On my journey, I’ve been fortunate to make the acquaintance of economists having similar views to my own. They’d probably be described as having a heterodox understanding of economics, including visionaries such as Mason Gaffney, Michael Hudson, Fred Harrison, Fred Foldvary and Steve Keen.

It was Henry George who set me on a course different from the mainstream with his simple but compelling distributional equation

P – R = W + I

showing that labour and capital will receive their full incomes (W and I ) undimished by arbitrary taxation were we to remove unearned economic rent (R) from GDP (P). By not doing so, taxes and their enormous deadweight losses and land prices will continue generating background inflation, 18-yearly recessions and (eventually) a financial depression.

I find it amazing that we have managed to ignore Henry George and his followers, including my colleagues at Prosper Australia for some 140 years, insofar as this approach would not only have abolished poverty but have been able to provide a universal income such as Guy Standing and others advocate today. George also had a good grip on monetary theory as described by Stephen Zarlenga and more recently by Stephanie Kelton. Not at all bad, Henry George!

It’s a pity that not all UBI-ers and MMT-ers have been able to put the whole VIMMLBUTT together yet; they’re only seeing part of the elephant.

We may only hope that we can all get it together before 2026.

Piketty v Hudson 23 Deptember 2021