*REAL* ECONOMICS 101.0

Time’s getting short. There are many economic pathologies to address, all stemming from the one source.

Before we get to the source, there are economic basics need saying, so let’s say them.

  1. A healthy economy rewards all its participants, not just a few.
  2. A healthy economy displays sustainable growth.
  3. Rent-seeking is antithetical to 1 and 2.

Rent-seeking? So what’s ‘rent’? The rent you pay on your house? No …. well, partly.

An economy generates product (P).  The natural distribution of this product is to labour as wages (W), to invested capital as profit (I), and to land as rent (R), sometimes called ‘economic rent’ to distinguish it from the rent of your house. (By the way, in economic terms ‘land’ connotes all natural resources, land, sea, and sky/airwaves.)

Whilst the returns to labour and capital have been earned, land rent is unearned by labour or capital, arising merely from the existence of community. Rent is therefore surplus product, owed equally to everyone. It needs to be taken, either for ‘revenue’ or a universal basic income–or both–for the economy to ‘work’, viz, P – R = W + I.

However, rent is not captured equally to everyone, even though it comprises at least 25% of the economic product (not the 1% to 4% claimed in economic text books). As only a tiny part of rent is captured publicly, most of it is privately capitalised into land price. This therefore means we are distributing the economic product to wages, the return to capital and to rent-seekers:

P = W + I + R

This is where we make the big mistake. Believing government must be ‘funded’ by other than capturing rent, we then proceed to tax wages (W) and profits (I). So the current economic hegemony is completely out of whack, and whilst it should be clear that taxes, rent-seeking and land prices are inimical to social progress and a healthy economy, it’s obviously not – otherwise we’d be doing something about it.

Once people see that the introduction of taxes–instead of the capture of unearned rent–does indeed destroy, and that the privatisation of land rent generates increasing land prices, they may perhaps understand why economies are in collapse. The arbitrary taxation of wages and profits, together with escalating land prices, explain why people are in debt and economies are failing. You can safely say: ‘Land prices up: economy down.’

Got it?

 

 

 

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