Capitalism reached another of its blind spots in 2007. It had pumped up a massive real estate bubble; basically a bubble in land prices. And that’s peculiar, because land has no cost of production, yet it costs so much. Maybe that’s because homes are no longer a place in which to live, but a commodity in which we may ‘invest’, or speculate?
When the land bubble burst in the USA in 2008, crashing the economy, it was the banks which (with a couple of exceptions) were bailed out: not the people. Problem seemed to be that the population wasn’t “too big to fail”. The federal reserve and government understanding was that whereas the people of America didn’t matter, banking most certainly did matter.
“Occupy Wall Street” protesters complained, but they didn’t see the need to tax land values if they were to repair the incredibly indebted situation of most Americans. The few who did know, didn’t realise land income may be legally taxed in the USA at the federal level. It used to be done pretty well at local and state government levels, until the ‘temporary’ tax measures of the Great Depression took hold.
This had still been ‘capitalism’, before it was permitted to morph into assisting rent-seekers at the expense of workers. Capitalism’s ills were worsened in 1971 as US Vietnam War debt forced President Nixon to free the Federal Reserve from the gold standard. Land price speculation became rife. With the support of world governments, capitalism had morphed into rentierism, pure and simple.
In Australia in 2008, the Rudd government was fortunate enough to have been sufficiently behind the curve to do as Hank Paulson had suggested to Wayne Swan. The government pumped more than $50 billion into the economy to keep land prices ‘up there’, and was ‘successful’ in doing so. That permitted the Australian real estate bubble to continue apace, virtually unimpeded, until 2017. Rentierism had also come to rule in Australia.
Meanwhile, although it was bruited about that the American economy had ‘recovered’, all that really recovered were share and real estate markets, big tech, banking, and escalated private debt. With no compunction, the Federal Reserve’s quantitative easing has fostered what used to be the previously criminally corrupt activity of public companies buying back their own shares, now with virtually cost-free money.
So here we are now at the ‘mid-term’ recession: that is, within the 18-year real estate bubble cycle: viz, 1954-1972-1990-2008-2026.
With the Covid-19 virus now overlying the recession, the question becomes: What sort of genuine world financial recovery can we really expect to have, before the depressionary crunch in 2026, if central banks keep asset markets inflated, instead of governments looking after the interests of their people, with such positive actions as a living wage universal basic income, complemented by taxing publicly-generated land incomes, in order let asset prices finally deflate?
Things ain’t looking too good in this respect, because governments and central banks continue apace with speculative priorities favouring banking, real estate and monopolies.
In this mad scenario, people don’t matter.