The oversophistication and ridiculous mathematisation of economics serves the purposes of rent-grabbers only – at great cost to all others.
The economy has fundamental distributional principles, but these have been masked in a welter of nonsense, such as that the returns to man made capital are no different from the returns to natural resources. Mainstream media supports the complexity because “the experts must know”.
The purpose of neoclassical economics, and more recently neoliberal economics, was to render it invisible that the nation’s net product is owed equally to all citizens although it is being expropriated by rent-seeking leeches.
It’s about time we woke up to this. We’re being dudded.
What better day than St Patrick’s to point people in the direction of Maireid Sullivan’s Global Arts Collective website? It’s an amazing compendium on an array of subjects.
Although Maireid has long lived away from her country of birth, her voice still retains an Irish lilt. And what a beautiful singing voice!
History is replete with the invasions and wars seeking to take territory from existing inhabitants. However, when the action is more recent, such as at World Wars I and II, the practice has been to recount details of the personalities and battles making up the war rather than recognising capture of land, resources or ascendancy from others. We fail to admit to Middle East incursions in these terms.
In retrospect, we’re able to see that colonisation amounted to the seizing of land, usually entailing terrible atrocities, from first nations peoples. A small rump still manages to ‘justify’ historical murder and violence on the basis that the native peoples were ‘uncivilised’. Even though recent ‘cowboy and Indian’ movies may have become more nuanced and moved onto cattlemen v. settlers, the intense irony that cowboys needed to defeat the Indians because they were savages still eludes this particular cohort. Though the precise wording may be disputed, the Speech of Chief Seattle in 1854 undoubtedly establishes which party had the superior grasp on the commonality of land to humanity.
To this day the ‘survival of the fittest’ mentality prevails in respect of the commodification of land for speculative purposes. An unspoken war exists between those who ‘own’ land and those who must rent. The savagery remains veiled as governments and central banks generate deep socio-economic distress as they wrongly act to inflate land prices, thereby dispossessing an increasing proportion of the citizenry.
In her ‘tell-all’ interview with Price Harry and Megan, Oprah Winfrey couldn’t mention that Harry bore a striking resemblance to former British cavalry officer, James Hewitt. It would have explained a lot of things about Harry and Megan’s break from the monarchy, but there are certain things that must be left unsaid in the best of circles.
There’s a distinct parallel in the field of economics.
Although it mightn’t be perfect, the Georgist School explains a number of economic phenomena that remain undiscovered by the modern economist. Things such as there being an inverse relationship between high land prices and the earned returns of individuals and businesses. Georgists explain that there are plenty of unearned incomes, or economic rents, generated by the community as a whole, and owed equally to all, wrongly enriching a parasitical rent-seeking class. But although it may explain many socio-economic ills, we simply can’t speak in those terms. Nor may we mention that taxes inflate consumer prices and that failure to capture land rent leads to ‘asset’ [read land] price inflation, real estate busts and economic depressions.
So, if we were to un-tax labour, capital and good and services, and instead taxed away ground rent as advocated by the classical economists, wouldn’t we have zero inflation and deadweight losses cascading throughout the economy? In that scenario, a universal income wouldn’t be at all inflationary then? That’s correct: it would abolish poverty, involuntary unemployment and solve industrial relations for all time. Not only would individuals, especially women, benefit from such a living wage universal income but businesses, too. They’d only have to pay an amount additional to the universal income.
But, hang on, we can’t say this. It might offend rent-grabbing parasites, and these days they make up a vastly increasing proportion of the economy. So I guess we’ve got to remain mannerly, mustn’t we, Oprah?
Indeed, following Henry George’s bulletproof outline of these benefits in taxing land prices away instead of incomes, it became essential to recast economics to neoclassical economics in order to accord with the leeching sensibilities of our betters.
So Georgists understand the delicacy of your interview entirely, Oprah.
There’s a lot not right, isn’t there? But the pandemic has brought pause, and ideas are being discussed.
Supporters of the ideas of Henry George are not being Cassandras by calling out the repetitive recessions experienced when land price bubbles burst. ‘Doomsaying’ is quite a misguided label for those promoting the positive story that wages and profits will increase and poverty be abolished if we were to tax ground rent instead of allowing it to be privatised. Where exactly is the negativity in freeing ourselves from real estate bubbles and the taxation we foist upon labour and capital? It is surely a simple and logical proposition that to protect private property rights, privately earned incomes ought not be taxed, and that public property rights are secured by capturing the ground rents created by public services and amenity?
Henry George was a realist, not a doomsayer, when he forecast the 1893 depression during his 3-month tour of eastern and southern Australia in 1890.
“You people of Victoria are now at the zenith of your prosperity but, mark my words, it is but a fictitious prosperity and cannot last. The day is not far distantwhen you will suffer the inevitable depression that must follow. “
– Melbourne Town Hall, 25 March 1890, PROGRESS, December 1949, ‘How and Why I Became a Single Taxer’, “E.B”.
“In the colonies [of Australia] I have been through, the curse of land monopoly and land speculation is over everything. I don’t know of any new country where more striking instances of the absurdity and injustice of our present treatment of land is to be seen.”
– Adelaide Observer, 26 April 1890
The other side of the ground rent coin, of course, is provision of a universal citizens’ dividend, to abolish poverty and inadequate pensions. A proper distribution of the nation’s net income is the right of all citizens, instead of it being privately expropriated by rent grabbers. Rising inequality has become the signature of our times. It is not widely understood that a universal citizens’ dividend also has the advantage of reducing wage costs, insofar as businesses need then only offer an amount additional to the citizens’ dividend for wages in order to attract or retain employees. What is not to like about a win/win solution that finally resolves our troubled industrial relations?
“As an English friend of mine puts it: No taxes and a pension for everybody; and why should it not be? To take land values for public purposes is not really to impose a tax, but to take for public purposes a value created by the community. And out of the fund which would thus accrue from the common property, we might, without degradation to anybody, provide enough to actually secure from want all who were deprived of their natural protectors or met with accident, or any man who should grow so old that he could not work. All prating that is heard from some quarters about its hurting the common people to give them what they do not work for is humbug. The truth is, that anything that injures self-respect, degrades, does harm; but if you give it as a right, as something to which every citizen is entitled to, it does not degrade. Charity schools do degrade children that are sent to them, but public schools do not.“
Henry George “The Crime of Poverty”, Burlington Opera House, Iowa, 1 April 1885.
But Henry George was not only a ‘single taxer’ and supporter of a citizens’ dividend; he was also a Greenbacker, a ‘modern’ monetary theorist who considered that direct government spending supports people and businesses. Although combining ground rent (misnamed land value ‘taxation’), a citizens’ dividend (universal basic income) and deficit government spending (modern monetary theory) bothers some supporters of the ground rent proposition, it should not, because they are integral to thoroughgoing socio-economic reform.
So, here we are in 2021 amidst an enormous public health threat for which we were unprepared. At the time of writing, Australia is doing very well in managing the pandemic in comparison with other countries. World governments have taken up the pandemic’s economic slack by providing people and businesses with proactive financial support, though not as effectively as an ongoing citizens’ dividend. The extent of COVID-19 spending has been staggeringly out of character with the concern of both political parties about deficit budgets, which is suggestive strong Treasury advice on the matter in the national interest. Morrison government expenditure will be multiples of the Rudd government’s much-criticised $50 billion spending in the wake of the 2008 GFC real estate collapse. That raises the question: Do federal government budgets really increase the national ‘debt’ which our children and grandchildren are going to have to pay?
Libertarian supporters of the Austrian school of economists have long argued that escalating national debt inevitably induces hyperinflation. Modern monetary theorists respond that not only has this not occurred as US federal ‘debt’ approaches $28 trillion, however, but in the absence of overseas borrowings it will not happen, provided a nation has its own currency: and that far from totalling national deficits into national debt, deficit budgets are not similar to household debt needing to be repaid; they are merely an historical record of government spending into the private sector. They proceed further, to the point of claiming that issuance of government bonds is unnecessary for governments being able to spend. Their arguments appear to have merit.
In view of the sheer extent of deficit spending during the COVID-19 recession, we may be about to learn which of the contrary views of Libertarians and Greenbackers are correct on hyperinflation. Examination of Germany’s 1920s hyperinflation may provide useful ideas.
It’s regularly claimed that the Weimar Republic’s hyperinflation in 1922 and 1923 was the result of unbridled money printing. However, it was vice-versa: the money printing arose from the hyperinflation generated by Germany’s impossible foreign debt. Germany having lost WWI, Article 231 of the Treaty of Versailles required its war reparations be paid in gold or foreign currency. As the Papiermark began its rapid decline, the cost of Germany’s foreign financial commitments rocketed upwards, becoming a financial millstone for the Papiermark, literally devaluing the currency to its paper namesake.
Although the Weimar Republic’s hyperinflation is renowned, Germany’s remedy is less well known. The state-owned Deutsche Rentenbank was established on 15 November 1923 to issue the Rentenmark, a new currency consisting of 100 Rentenpfennig, to establish financial order. But how could it be possible that a new currency would stem the rampant fifteen-month inflation running at over three hundred per cent each month? Panicked Germans did see a ray of hope in the new Deutsche Rentenbank. The bank’s assets were mortgages against major industrial and agricultural real estate interests, and these incoming rents were regarded as underpinning the bank’s stability. The land-based Rentenmark was seen to be supported in substance and, along with renegotiation of the terms of the Treaty of Versailles into staggered repayments under the 1924 Dawes Plan, confidence in the solid Rentenmark put an end to the hyperinflation. Recovery permitted the interim Rentenmark to be replaced by a new gold-backed Reichsmark in 1924, but Rentenmark notes continued to be accepted until 1948.
The German remedy is instructive. It chose first to instil confidence in the new currency by supporting it with land income. The intermediate step was essential, because success could not have been achieved by returning to Germany’s pre-war gold-backed currency, the failed Goldmark, because gold and foreign exchange debt had been the cause of the hyperinflation. Germans accepted the Rentenmark during financial chaos because it was directly secured by the flow of ‘rent’ repayments.
The lessons are obvious. First, a national government should not borrow in foreign currency. Next, if it were to abolish taxes on labour and capital and capture its ground rents instead, the currency is immediately backed by the stream of land rent, along with any necessary deferrals. The fiscal arrangement provides immediate stimulus to business and industry. Cancellation of taxes not only provides a green light to employment and productivity but acts to reduce consumer prices, assisting miscreant foreign borrowing to be paid down. Public capture of ground rent also reduces land prices, a not unsatisfactory outcome once it is understood that land has no cost of production. The problem is not the so-called ‘national debt’ about which economists agonise but record levels of private debt from ever-inflating land prices. These prices are not a function of the undersupply of land, but of inadequate public capture of ground rent.
Monetary inflation does not arise in a vacuum: it is closely linked to deadweight losses accompanying the taxation of productivity—consumer price inflation—and to escalating land prices—asset price inflation. A hyperinflation on the other hand seems only to arise when a country does not have its own currency, or when its level of foreign debt has become such as to trash its own currency, as with Germany, Zimbabwe, Venezuela, etc. On this understanding at least, modern monetary theorists seem to have it right: countries operating their own currency won’t experience hyperinflation unless significantly exposed to foreign debt.
Notwithstanding this case, declining real wages and increasing poverty continue to tear at Australia’s social fabric. It is urgent that taxes on labour and capital be replaced by ground rent and a living wage citizens’ dividend. The program will not be an easy one to implement, because the “conservative/fascist” and “liberal/communist” labels used to divide people into one of two camps works exceptionally well for the invisible rent-grabber.
Fortunately, ideas for genuine economic reform have blossomed during the pandemic’s enforced hiatus.
Ever since John Locke noted that as all taxes come out of land rent, that’s where we should put them in the first instance, most classical economist have agreed with him. The late great Mason Gaffney called this principle ‘ATCOR’–all taxes come out of rent–adding that the failure to do this generates ‘excess burden’, and that this excess burden of course also comes out of rent – ‘EBCOR’.
So, I assessed the excess burden to be in the order of one trillion dollars between 1972 and 2006, that is to say, a deadweight loss of $2.34 for each dollar of tax levied. In other words, had we taxed land values at half the rate of other taxes levied, it would have done what the taxes did but would have also controlled the land price inflation that shrank the value of the dollar, in addition to being protective of the environment. By 2006 real Australian real GDP would have doubled to two trillion dollars.
Under the influence of Henry George in the early days of the Australian federation, members of the Australian Labor Party and many members of the conservative parties came to accept the principle of taxing land values in the wake of the 1890s land bust depression. It provided a virtuous circle as governments provided infrastructure.
From 1910, when the Australian Taxation Office was founded to introduce the federal land tax, Australia had land taxes at all three levels of government. This was the manner in which we came to deal with real estate monopoly and land speculation. And it worked!
As in the USA, however, things changed in Australia at the Great Depression, neoclassical economists having at last established ascendency for the rent-grabbers who had been selling the fairy tale for 30 years that there was no difference between man-made capital and natural resources. The story continued that things were bad and money was required for the 1930s depression, then WWII, and “there’s not enough rent”. There certainly was! Remember ATCOR and EBCOR?
Then in the 1970s we removed state death duties in accordance with the ‘initiative’ of Queensland’s Joh Bjelke-Peterson. The federal government followed dutifully.
Then Labor’s Gough Whitlam got into the act by opting to fund half of local government’s requirements because councils “couldn’t keep taxing people’s property”.
More recently, some states have put caps on municipal rates, so here we are deeply immersed in the fools’ paradise. We don’t have to work. Why bother with that? We can all simply become wealthy property investors. Pity about the lack of wages growth and increasing poverty.
It’s obviously going to end well! We do property spec better than any other nation.
