Western economies had been struggling with distributional issues for the 50 years prior to the advent of COVID-19. The virus has compounded and added to the phenomena of declining wage growth, disappearance of the middle class and wealth being channelled directly to the already wealthy via the private capture of what is called ‘economic rent’.
What was happening and what can we do about it?
You could say that it all started with the transition from classical to neoclassical economics promoted by John Bates Clark who wrote “at least 24 works directed against (Henry) George, over a span of 28 years, 1886-1914.” [Mason Gaffney in “The Corruption of Economics”, in ‘Neo-classical Economics as a Stratagem against Henry George’, Shepheard-Walwyn, London, 1994]
JB Clark and his neoclassical followers managed to morph publicly generated land rent into the independently earned incomes of labour and capital, but they had they to wait until the Great Depression to achieve the full flowering of their rather devastating idea.
Meanwhile, the greater part of the period between the 1893-1897 depression and that of the 1930s has been termed the ‘Progressive Era’. It is arguably capitalism’s most successful episode, featuring successful attacks on real estate speculation and political corruption. Things began to change in the land boom of the early 1920s, however.
The following chart demonstrates the striking victory of neoclassical economics. JB Clark’s US adherents made the case that as the federal government could not tax land values, there was no alternative to greater use of income tax for the government to address the financial collapse. World War II acted to endorse their pointedly shallow approach to economic distribution.
For some 20 years, the post-war reconstruction period saw governments placing great emphasis on private housing for their peoples and this has been regarded as productive and progressive. However, a real estate bubble which challenged that of the early 1920s in extent developed across the western world at the outset of the 1970s. Although real estate and most media interests preferred to paint the ensuing financial collapse as a result of the OPEC Crisis, TIME magazine of 1 October 1973 provided another story altogether: This was some property boom!
I argued in “The Coming Kondratieff Crash: Rent-seeking, income distribution & the business cycle” [Geophilos Autumn 2001 No.01(2)] that 1973 was the turning point in the ‘Long Wave’ between economic depressions; that we were now into its downslide. The relative un-taxing of land values in the 1970s and 1980s [Hello Proposition 13!] had acted to exacerbate the ever-increasing bank financialisation of escalating land prices. Property speculation had become the name of the game in the second half of Nikolai Kondratieff’s fourth Long Wave.
In early 2007 I called the Global Financial Collapse in “Unlocking the Riches of Oz: A case study of the social and economic costs of real estate bubbles 1972 to 2006”. Ironically, based on a warning from US Treasury Secretary Hank Paulson to Australian Treasurer Wayne Swan that real estate prices must be kept inflated, the Australian Rudd government pumped $50 billion into the economy and was able to do what the USA could not do: it avoided a recession.
In August of 2008 Mason Gaffney also documented with valuable detail “The Great Bust of 2008” whilst the mainstream media was more concerned, fascinated even, with the personalities rather than the causes and cures of the crisis.
So, with another land price bubble around our ears in 2021, as we try to endure the ills of Delta version COVID, the question becomes: What next?
So what do we do next?
IMO, we need to work to enact a universal income to support people and businesses as economies worsen before they implode, to abolish income and sales taxes and put an end to these speculative bouts of rent-seeking that bring about tragic socio-economic collapse.
Should my narrative strike a chord, may I suggest you join the body having an effective response to boom-bust, namely, Prosper Australia? It’s not costly! Inquire how you may assist us. We need you.