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A warm welcome to our new visitors from the Sustainable Living Festival. Over 90,000 people visited the SLF and we were snowed under with interest, with many expressing an interest in what the Next Economy could be. Of course the answers were there with Land Value Tax as the bedrock to a new economy prioritising the productive sector over the current speculative frenzy seen in land, mining related shares and water rights to name a few. The Next Economy must reflect our economic as well as democratic rights. As our zine (below) mentions, if we are all born onto the planet as equals, why aren’t we all shareholders to the earth’s naturally rising value? This would reduce incentives to pillage and slow down the intense growth mantra economies are forced to abide by.
With this recognition of the commons, the common-wealth (the land, the water, the air and all other gifts from nature) would be more respected. Economic interest would develop a sense of stewardship for future generations. Accompanying this would be the knowledge that our publicly built assets, our infrastructures such as dams, gas and power piping and the like are valuable public commodities. If they are well managed, all of society benefits with the lowest cost operating system. Low utility prices give our industry an advantage over neighbors.
However, in today’s world, if it’s not available for the FIRE (Finance Insurance and Real Estate) sector to profit from, then a full frontal attack on our last remaining public utilities is activated (as is currently underway) to ram through more privatisations. The public loses out due to these newly privatised entities having a legal mandate to return shareholder dividends – first and foremost. This leads to maintenance cutbacks and reliability suffers. Listen to a recent Renegade Economists show on Energy Price Gouges with fmr CSIRO researcher Chris Mardon. There are over 10 different ways we are being gouged, something I hope to spell out online soon. These are much more substantial than the effects of the carbon tax on pricing. A convenient smokescreen.
This leads nicely to the other tenet to a New Economy – the need for a charge on pollution. As Christine Legarde (IMF chief) said over the weekend:
“I do think that climate change issues and progress in that regard are critical and are not just fantasies, they are real issues…..I would hope that it (Australia) continues to be a pioneer (on Carbon Tax).”
We had much interest in our More Trains poster. It was excellent to see the interest in the issue continue to build, with much help from the Melbourne Transport Forum. Here is our new poster describing the process:
Renegade Economists podcast 322 & 324
There has been much interest in the German housing miracle. How have they survived the global land ponzi game? Or have they?
Listen first to Jess Wright jumpstart the year’s interviews with her insights on recent travels through Scotland and Germany.
Then last week Professor Dirk Loehr took us through the evolution of German economic thinking (Marx, Engels, List, Fleurscheim & Gesell). We finish with the impressive alliance of pro LVT groups supporting the campaign before delving into current gentrification issues. Check Dirk’s German blog Rent Grabbing.
Subscribe to the weekly Renegade Economists podcast here.
Our friends in the US are about to launch a new Earthsharing website. And guess what – a new social networking phenomena is upon us to help their launch. Thunderclap helps punch through the noise of 400 million tweets per day by sending out a time coordinated message. Watch this vid then sign up your social media outlets to support the cause of sharing the earth’s worth.
That will make four Earthsharing websites, with Canada, the UK and soon the US. We are currently working on a new website update here, so stay posted for more regular content soon.
One of the world’s leading podcasts, the Extra Environmentalists, has shown an increasing interest in Georgist economics over recent episodes. I sat on the other side of the fence for once, as the interviewee in Supply Shock – an exciting way to finish 2013.
We covered many of the topics I race through on the weekly Renegade Economists podcast, including the role of increased capital mobility on real estate prices, Blackstone Capital, rental backed securities and the big one, how the value of the earth was removed from analysis through the corruption of economics.
Justin and Seth write:
When the profession of economics began to think that land and capital were equivalent and interchangeable, the roots of real estate speculation and environmental crisis were established. Because the origins of neoclassical economics became deeply influenced by the interests of early 20th century land barons, a new economic paradigm will have to challenge the assumptions of powerful landowners. Will a world in search of economic growth embrace a steady state that properly analyzes the role of land in economic life? Can the rampant real estate speculation across the planet be tamed with an overhaul of our tax system?
Listen to the entire show:
Part one of the two hour show was Brian Czech from the Centre for Steady State Economics on his new book Supply Shock, which includes analysis of how Henry George and Classical economics were removed from the curriculum.
In part two, I point out that small business aims for a 6-8% return on capital invested. Share investors are happy with 8 – 10% but real estate investment in Australia is pushing 15% returns.
I would liked to have built upon that to say it is this 15% return that drives the growth paradigm. On the revenue side, all other facets of the economy are clamouring for similar growth levels and try to cut corners to keep up with these easy returns, known as unearned incomes.
On the cost side, many small businesses and tenants face higher rents because of this speculative largesse. Each time a property is sold at a higher price, rents must be increased when a new lease is signed to justify the higher land price.
The end result? The few independently owned small businesses remaining in our neighbourhoods are often those that own their premises. Have you ever seen any such small business, perhaps one that does not look very busy and wondered how it stays alive? Pop in and ask them if they own the building. Perhaps they are enjoying their ‘privilege’, using the rising rents they are able to charge their tenants to finance what they love (retailing a product perhaps of dubious popularity).
Thus the treadmill speeds up due to the opportunity cost of business people sweating away trying to earn their 6% (and wage earners hoping just to keep up with inflation, let alone land prices) whilst property flippers earn 15% and are barely taxed. On some level we try to keep up with those earning more money for less effort, pushing the need for economic growth at the ballot box. Few realise that those enjoying unearned income will always outstrip society whilst the tax system is structured to penalise those working (with income and company taxes).
Within reason, we should all be sharing in this rising value of the earth, such that pressures to keep up with the 15% returns are minimised by land taxing away the easy profits (unearned incomes) in real estate. Then we can slow down a little to establish long lasting relationships in our community before being pushed on by speculative gentrification practices.
As the Federal Government leads the deficit scaremongering on the road to lining up the firesale of our public assets to insiders (whilst slugging the consumer with a higher and thus regressive GST), we are reminded of the approach they could be taking if genuinely interested in a productive market.
Leading Commons advocate David Bollier writes in Why Not Tax Monopoly Rents?
Some interesting material coming out of Prosper Australia, a Melbourne-based organization and its partners, Earthsharing Australia and the Land Values Research Group. A new report entitled “Total Resource Rents: Harnessing the Power of Monopoly” finds that nearly one-quarter of Australia’s GDP comes from unearned income, not the 2% that neoclassical economists claim.
This means that ten times greater revenue could be raised through taxing unearned income from monopolies than previously thought. It also means that nearly half of Australia’s government revenues could be raised through channeling revenues from the real estate boom to more productive purposes. In the process, income, company and sales taxes – along with 122 other current taxes – could be eliminated.
Report author Karl Fitzgerald, “the Renegade Economist,” describes the implications of the findings of the report:
“Unearned incomes equate to 23.6% of GDP and could be taxed without pushing up pricing structures. Most economists dismiss economic rents at just 2% of GDP. This report finds the free lunch driving the wealth gap is ten times greater than mainstream economists acknowledge.
“Prices could fall by some 20% by reducing the number of taxes from 126 to 24” stated Fitzgerald. “The compliance and deadweight losses are a huge cost that fall disproportionately on small business.” This reform offers a more efficient and equitable economic system, valuing productive over speculative activities.
Australia taxes productive work while averting its eyes from the incredible windfall gains handed to those who own monopoly rights. Victorian abalone licenses were sold outright for just $6 in the late 1960′s. Each license can now be leased out yearly for a reported $100,000. This unearned income can be taxed without affecting productive outcomes.
The largest component of monopoly rents is land. Land rents rose by some $154 billion, amounting to 14.2% of GDP in 2011-12. If desired, the inevitable property bubble could be channelled into funding over half of all Australian government revenue. Less debt and more flexibility are worthy objectives for government and citizens alike.
The Federal government is enticing state governments to sell off public assets with a share of company tax. The majority of recent Public Private Partnerships have been unabashed economic failures, delivering few if any profits. ‘Value capture’ is a more effective model for financing infrastructure. Land values rise in areas where the public finances a new train station. By capturing one third of this uplift, all the infrastructure needed could be financed.”
Here’s a brief overview of the different types of monopoly rents that could be taxed, along with calculations of the amount of revenues that could be raised. The categories include land, oil and gas, water rights, airports, forests, satellite orbit rights, patents, among many other sources of unearned income.