Resourceful Understandings

Karl FitzgeraldTrue Cost EconomicsLeave a Comment

by Karl Fitzgerald

As the South Pole effect blows its melting southerly winds upon our summer, the wake up call must be coming soon. With the evidence mounting up, young people are wondering what is causing the delay.There are reasons like there are seasons. Much has to do with the playing field government & businessmen must compete in. This playing field is governed by the laws of economics. Within this field, the morals of the businessman are cornered by the dictates of the market. This is because most must play by the rules of the sharemarket. A noose appears each 3 months in the form of quarterly dividend payments, for which the CEO must do all he can to achieve his profit objective. Elsewise he will endanger the share bonus scheme that has become as common as his ‘golden handshake’.

One of Government’s main roles is to manage the parameters of society’s behaviour. With melanoma levels peaking and extreme weather events scaring the daylights out of insurance companies, one wonders whether we can make up our own minds. Are we to accept that running for the shade on a sweltering day is the way of life in a modern world? Many people don’t have time to research the most environmentally useful product or importantly, the money to pay for organic, worker friendly goods. Beyond all this, do we really need the latest designed anything? Subsequently our common sense suffers and our rationality is limited, mainly because we have to work such long hours to pay off our mortgage.

The best way to change people’s behaviour is by the hip pocket nerve. “Charge society extra for environmentally unfriendly activities” they say. Social Justice experts become concerned because any eco-tax placed on the consumption of harmful goods and services leads to inflation. That means it will be a regressive tax and fall harder on the poor. It also concerns government as inflation is its number one enemy. Inflation leads to increased prices, reducingthe amount of stuff we can purchase and in the end causing more unemployment. This short-term fear generally overrides any long term need for change towards an economic system that can deliver greater generational equality.

A way through this is to look at the fundamental laws of economics. The grandfather of economics, Adam Smith, spent more than one third of his book talking on the importance of an effective tax system. Much of this has fallen upon deaf ears and a much sexier term, “the invisible hand”, has become the catchcry for all Smith’s hard work. Within Adam Smith’s words of wisdom grew the seeds that inspired another Classical economist – David Ricardo. He deducted the theory of economic rent. This was the formalisation into theory of the big ‘up yours’ that landlords can say when they hike up your rent by 10 or 15%. “Either pay what we want or you can move out to the boondocks”. We tenants have little alternative as the land has been locked up by a framework that encourages wealthy investors to hoard land as they know there is easy money in the long term. This is reinforced by a subtle system of subsidies from the poor to the rich (such as negative gearing and tax payer funded infrastructure that delivers windfall profits to nearby landlords).

These windfall profits occur in many other activities at present too. When a local community works together to build a safer locality, this adds to the local value of land. The same thing occurs when a few friends get a community garden together, producing organic food and setting up a trendy outdoor café. In time people will want to live closer to this new asset, leading to higher land values. In economic terms this increase is known as economic rent. We believe that since the public creates this economic rent, it should be re-cycled back into the community coffers. At present this rent is captured by those smart enough to play the system.

A True Cost Economics (TCE) system is needed to ensure the community gets what it deserves both now and into the future. This can be implemented to avoid inflation by moving beyond our 2 dimensional economic system of Neo Classical Economics (which only looks at labour & capital in economic equations) and into a system that accepts that we do live on a round, finite planet. What is needed is to go back to the Classical era where land was technically included in the equation as the third “Factor of Production”. This ensures the capturing of economic rent, allowing the government to cull the 13 – 15 different inefficient taxes we live with today (including Income Tax), streamlining the tax package. This can all be rectified by replacing them with a system of Resource Rentals, where a Land Value Tax (LVT) acts as the anchor for future revenue raising. This forms what we call Geonomics: the land-based economic system.

By pulling out these inefficient taxes prices will drop by at least 32% (ABS estimates). Other calculations say this could be as much as 50%. This drop gives us the ability for eco-taxes and resource rental charges to be set up to penalise anyone polluting the earth, ensuring that the true cost of our activities is represented in all that we do. By adopting this framework we can incorporate environmental costs without endangering inflation levels, removing the government’s reticence over inflation and meeting the Social Justice industry’s needs.

Now the great ‘Green Tax Shift’ can simultaneously fast forward the assistance to those in poverty and look after the planet. This occurs because under a Resource Rental system everyone must pay something back to society for the privilege of controlling that resource. No longer will the Packers be able to rort the tax system to boast of only paying $100 p.a in tax. In fairness, we must remember that it’s not their fault, they are just doing what the system allows at present.

If we were to go the whole 9 yards like Tony Blair & Bono keep professing, then we must establish real justice from the most basic of premises – the ability to own your own land so you can put a roof over your family’s head and/or find a cheap location to start a business from. This is a huge hidden issue of the times, with the locking up of the lands constricting our freedom to be self-employed, reducing employment opportunities and in the end limiting our options to working for the man. This is the great danger of globalisation that few look at. In the same year as the Seattle protests and the birth of the Global Justice movement (1999) there were 4770 foreign investments in Australia. Of these, 3700 were real estate investments (78%) worth an average of $14.1 million! (The Age, 24/12/1999)

When an LVT is implemented, ‘investment’ properties must become economical ie they must be rented out, they can no longer be left idle waiting for the capital gains delivered by society’s development. To see how much over-capacity there is in housing, especially flats, just drive by the Docklands at night. Even better, ask a friend who lives there. The real estate lobby’s figures may say 3% vacancy levels (REIV), but friends living there report anywhere from 20 – 40% vacancies. Imagine if these properties were forced onto the market? This is what will happen when a decent LVT (set at 10%) is implemented. The price of land would drop, probably by 20% plus with this increased supply. You can almost hear the screams of delight from the younger generations. Phew the great Australian dream isn’t a fantasy!

The Resource Rental system includes sharing a % of the wealth from all resources such as land, coal, water, gold, oil, gas & the electromagnetic spectrum. With at least 10% going back to the government, the community ensures it is getting a reasonable share of the ‘common wealth”. Any increase in value, such as that caused by China’s resource boom, means that the whole society, and not just the shareholders, benefit (BHP’s cash flow has increased 46% in just 6 months!). At the same time, any company that causes excess pollution must pay a % back to society (not a minimal amount that can be financially factored in ie no ceilings on any charges).

Environmental Scientists are helping the evolution towards a TCE system by developing the costing methodology for different resources ie water (see the writings of CSIRO’s Mike Young for a good start). These specialist fields can expand on the framework that Geonomics provides. Exciting developments in carbon trading are a representation of this, where the productive value of the carbon absorbed and converted into oxygen are valued. One hopes that in the future the Kyoto type carbon levels are continuously tiered downwards, ensuring that in time pollution rights cannot be exported.

The valuation of natural eco-systems is also an important development towards a TCE system. New York’s water quality has traditionally been naturally filtered by nature – plants, soil etc. An EPA warning on water quality forced NY to shape up this natural filtration as the alternative $6billion fee for a mechanised system reinforced to lawmakers how valuable nature was. This led to a million dollar buyback program of nearby farms & the tightening of environmental laws. Such savings see “Bio-Mimicry” as the new catchcry. Get business to study nature and replicate the millions of environmentally efficient methods it has worked out over the millennia ie adapting the sticky stuff mussels use to clamp onto rocks for commercial use. Let’s keep the pressure on to ensure that doesn’t become bio-piracy of indigenous customs. The problem at present is that much scientific funding is tied to political outcomes that are influenced by campaign funding, the so-called ‘lobbyocracy effect’ recently seen within the CSIRO. This curtails the study in vital areas that long term sustainability requires.

Global warming’s extreme weather will hit tropical areas harder, where resource wealth is concentrated and poverty more entrenched. This emphasises the need for a fairer distribution of these resources amongst the community to provide funding and support for the expected ramp up of natural disasters. A TCE system can do this and simultaneously simplify life for the business sector, reduce the pressures on the working class (lower mortgages) and reward those who are environmentally conscious with lower costs.

Investigate our websites to learn more about our position in the “radical centre” and keep posted on an upcoming visit by world leading Geonomics expert Alanna Hartzok in May 2006, speaking at the True Cost Economics Forum on Friday May 12th, 2006

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