Renegade Economists Show 290
As broadcast on 3CR, May 22, 2013
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World leading Georgist author Fred Harrison discusses his new book The Traumatised Society – How to Outlaw Cheating and Save our Society, with topics like the first law of social dynamics, apartheid economics and recalibrating the western mind.
Fred was the only economist to predict the economic crisis of 1992 and the global financial crisis of 2007 – 10 years before they happened.
In 1983, in The Power in the Land, he warned that the global turmoil of 1974 would be followed by the crisis of 1992.
And in 1997, in The Chaos Makers, he warned:
“By 2007 Britain and most of the other industrially advanced economies will be in the throes of frenzied activity in the land market…Land prices will be near their 18-year peak… on the verge of the collapse that will presage the global depression of 2010.
The two events will not be coincidental: the peak in land prices not merely signalling the looming recession, but being the primary cause of it.”
KF: Fred, in your book The Traumatised Society, there’s a lot of focus on something that so many of us intrinsically know but can’t really tie across all the multiple disciplines and that is the fact that today’s decision making process is based around cheating.
FH: Yes, well I use that word in a technical way. I don’t refer to the cheating that most people would recognise and which they would condemn. For instance, when people on the soccer field cheat, we can see they’re cheating, the referee blows the whistle and they’re penalized. And we all reject that. I’m referring to a kind of cheating that we actually celebrate – we think that it’s good to participate in this kind of activity. We do not know that we are actually cheating, and that is this: many of us, particularly people who own property, and that includes people like me who are homeowners, end up making a lot of money, not by adding value to the wealth of our nations but by sitting back and waiting for that money to flow into our pockets. And we do it through the land market, and that’s a process which is perfectly legal and nobody senses it.
Infact, we all want to be on the property ladder – that’s how it’s presented by the media; that’s how the politicians advocate it. We don’t realise that getting on the property ladder means that we are going to cheat other people. A simple example: today’s middle class, middle-aged homeowners – once they’ve paid off their mortgage start to make huge capital gains. The people we are cheating are, for example, the next generation that’s coming up behind us who are ending up having to carry a debt just so that we can walk away with a lot of unearned income. Now, that is cheating our society – it contaminates the whole culture in such a way that I had to conclude that we live in a society that’s traumatised.
We don’t recognise what we’re doing, so cheating in my terms is a social process. It’s one that we have to understand, it’s going to be very painful for people to come to terms with the fact that they are actually engaged in a process of cheating and that’s why it’s so difficult for politicians to introduce the correct decisions that would solve our social problems. They can’t do it because if they did, they would be adopting the one policy that would actually prevent the cheating in our society, but to do that would cost them a lot of votes because people would reject the one policy that would undermine this social process of cheating.
KF: In that context then, is it a little harsh to call it cheating or is it more a self-interest that we have been led into and perhaps the cheating has come from up above.
FH: It’s cheating whichever way you look at it in that those who gain from participating in the land market are getting something for nothing. And it’s not through sheer luck; it’s a social process – a legalised one, institutionalised. It was based on grand theft in the past. And in the past, of course, people recognised that the enclosure of common land was the stealing of land by kings, where the aristocracy bent the laws to legitimise the theft of other people’s land. That was a clear case of personalised cheating, but that cheating was then institutionalised through the legal system so now we’re all engaged in it. We don’t like being called cheats, and I wouldn’t like to be called a cheat, and of course the reality is that we reject cheating as an activity, and yet we are gaining from that very process. So I have to use that word because people have to stop and think about what’s going on.
In Australia, for example, there’s a debate about whether rich people like your Gina Rinehart should be given tax relief – she wants special enterprise zones to be created where she can set up business and not be taxed on her billions from the rents of natural resources. Well, the lady is advocating very actively that Australia should be locked into a process of cheating – cheating people who add value, who work for their incomes – by constructing or preserving a tax regime that deprives them of the income which they create to favour the people who are pocketing money which they don’t create, which is the rents of lands and natural resources.
KF: I really do like how in your book The Traumatised Society you draw a distinction. Many people say that there are two classes in our population, the capitalists and labour, but you’ve taken that to another level.
FH: Well, the word capitalist is an ambiguous one, you see. Thanks to people like Marx, we tend to condemn capitalists on the whole as somehow shady characters and yet people who are entrepreneurs, who add value by investing in capital formation and hire people to create the products or services that we all want to buy, they are actively engaged in production and that’s an honourable activity. But at the same time, many capitalists also make money out of this unearned source. Their assets include land or land-based assets which deliver to them huge flows of rents. Now, rents are a socially-created revenue that ought to be earmarked to fund the shared services that we all need. Many capitalists do not know that they are also participating in the cheating culture.
We have entrepreneurs like Sir Alan Sugar, who created a business that was fit for the digital age, who is now also making a lot of money out of property in London. Well, he is an entrepreneur, he adds value. So he’s not someone who should be branded by Marx as a capitalist, but at the same time, he’s making huge capital gains out of land, and that’s where the confusion occurs. And that’s why the language that we use to try and analyse what the heck is going on in our society constitutes a barrier. And so that’s what prevents politicians from coming up with the kind of policies that would put society back on sustainable growth paths. We have to clean up the language, and words like ‘capital’ or ‘capitalism’, ‘globalisation’ as well, only confuse the issue.
KF: I really like this term “The Predator Culture”, and the distinction of defining our population between those add value to society and those who extract. The extractors of course are the predators, and that’s the sort of analysis that we’re seeing here in Australia where the vested interests are attacking the governing Labor Party from all sorts of angles and whilst they can talk about growing inequity, they can’t join the dots between Gina Rinehart making $598 per minute versus the giant property bubble we’ve got going on versus the telecommunications companies trying to push down the price of the 4G spectrum versus the funding pressures that come through to schooling and so there needs to be a new language and Fred that’s why I loved reading your work. One of the things I enjoyed about the book was how you take us through the tribal histories of dispossession and how removing land had such a deep, searing effect on the soul.
FH: Social scientists have been polluted very badly by this predator culture, by the people who’ve got a vested interest in confusing people at the abstract level so that we can’t actually come to grips with what’s wrong in our society. And it was after many decades of failing to communicate this simple message to politicians who on the whole genuinely want to do the right thing by their communities, failing to make them understand that they’re going to continue to fail unless they adopt a new financial system that rebases the whole structure of our society.
Having realised that I was actually not speaking their language, I came to terms with the need to examine not the way I approach people or the way those who are active around the world in trying to develop a new approach, not the way they approach people in a conventional way because that has always failed. And I had to figure out why we keep failing – why intelligent people who make decisions that determine the fate of nations are simply not able any longer to understand what it would take to put our society back on the sustainable growth path, and that’s why I had to go right back to the beginning to figure out what is it that so traumatises our society that we keep making the wrong decisions, and that meant I had to go right back to the beginning to see what it is that creates the collective psychology that ends up giving identities to people whether they are Australian aboriginals 40,000 years ago or modern nations in Europe.
How do they develop their identity? And one of the key elements is the association with their natural environment. When that connection is broken, the population is traumatised and they lose their reference points and terrible things happen to such communities and that’s the state that basically the whole world is in now – we have been ruptured from our natural reference points, or one of them, which is our relationship with nature. And that has happened because some people made fortunes out of that terrible state of affairs, and it’s in their vested interest to keep us confused.
And so, the debate about what we do about this mess has to go more deeply than just figuring out new ways of communicating good ideas. We have to understand what it is that traumatises society, then we have to help people right at the beginning to start to understand and think about why our communities keep making bad decisions that deprive all of us – and I do stress, all of us, including the very rich people – of our humanity. And so I coined this concept of a crime, “humanicide”, as the ultimate crime against human beings and against nature. It’s a process where we rupture human beings from their natural environment so we are no longer actually human as we would like to think.
KF: Can you take us through the indigenous Bororo of Brazil?
FH: The model of trying to help people to modernize was one of the projects that Europeans undertook over the period known as colonialism. They went to teach them, for instance, Christianity, to make them understand that there is an alternative way of living, supposedly a superior one, based on the European culture. To help people to understand that, it was necessary to rupture them from their old way of thinking, you see. Now, in the case of the tribe that you’re referring to, the Jesuits understood that the way to detach a tribe from its natural environment and its normal way of thinking, which was the sustainable way for them in that time and place, what they had to do was reconfigure their living arrangements.
It was a simple case of “town planning”, as we would call it. Instead of them living in a circular way that configured everybody’s roles in a pattern that enabled them to understand the rhythms of nature, the rhythms of the household cycle needs, the rhythms of the needs of their community, all of which was integrated around a pattern of living. To detach them from that, they had to simply cause them to live in dwellings that were lined up in a linear process. That linear process ruptured their minds; it detached their way of thinking from the rhythms of nature, and from their own social customs. That rendered them vulnerable, it made them hostage to the Christian teachers who wanted them to think like Christians, but it also made them hopeless in terms of everyday living. They were vulnerable now – they couldn’t actually sustain their communities so many died off and they could no longer regard themselves with pride. They had lost their dignity, and this was a tragedy that was repeated all over the world when Europeans turned up and sought to integrate the local people with their customs. And the tool for doing this was detaching them from their land.
KF: Well, that dispossessed nature that indigenous people have suffered was also seen in the English enclosures era, where a poet named John Clare had some very interesting points on this very vulnerability.
FH: One of the ways to disentangle the mess that humanity is in is to look at traditional societies but we also need to come back to our own and to figure out why rich societies like those in Europe are in such a terrible mess. The incidence of suicide among young people today, for example, is rising quite dramatically. Why are young people killing themselves? They’re doing so out of despair. Out of despair over what? Well, the economy, the lack of jobs, hopelessness because they are not going to be able to set up families because they can’t afford the rents or the purchase price of houses. These are symptoms of an underlying cause.
Alcoholism is condemned as somehow the failing of individuals, it’s not recognised as one of the pathological consequences of a society that is disturbed. This is unpopular as a way of interpreting these human failings because it seems to relieve individuals of their personal responsibility. And I’m not seeking to do that, but what I am seeking to do is to say, look, the pressures that people are put under are abnormal. In a healthy society, most people would not be driven to needing drugs or to being violent against other people. We’re seeing in Western society now many men, mainly, killing their children. Now, there is the ultimate test of a pathologically disturbed community when fathers, for whatever apparent reason, are killing their own families. This is such a terrible reality, which we can’t face up to – we don’t want to say that we share in the responsibility for it, so we blame the individual failings of the characters participating in those terrible deeds, but these are all symptoms of a social system that is so dislocated from normal forms of behaviour that people can’t cope and they do terrible things. And the dislocation does stem back to the way communities are ruptured from their natural environment. And we have to turn to poets like John Clare, whom I discuss in my book, who recognised that something awful happens when communities are dislocated from their natural habitats, when their common lands are enclosed and most people are deprived of the riches of their community, and they end up disturbed and in John Clare’s case, he ended up in a mental institution.
But people don’t recognise, by and large, the connection with the way property rights have been reconfigured to make some people rich and most people poor. That’s what I call cheating.
KF: Now, Fred, you’ve written in your book that nature provides many interesting insights in terms of its efficiencies. Many have written about that before, but you took another angle on it.
FH: Our society is supposedly structured on principles like trying to achieve efficiency, and we think economy and the pricing mechanisms are all calculated to achieve the best combination of resources so that we all get richer at the least cost. The reality is that ours is a most inefficient system in one particular aspect. And because of that inefficiency, because of the bias in the way that we structure the incentives to build up assets, we end up not only being underproductive in the material production of wealth, but we also deplete both our cultures and the natural environment. Because our pricing mechanism was constructed by the cheats of old, we now do not pay for the services that we actually use. We get away with murder, sometimes literally, but figuratively speaking, we extract resources both from our society and culture and from nature that we do not pay for and we don’t replace.
The result is that we are actually depleting our living resources both in nature, by killing off species and degrading our landscapes and our habitats, and also our culture. And it’s really important to realise that what we are being separated from is not just the land – that’s only half the story – we’re being separated from our social system, our cultures. That’s why so many people now are incapable of even expressing what is wrong with the way our social system is. That is why they turn to barbiturates and so on out of frustration. It’s this loss of access to the riches of not just nature but our society which makes us all poorer, and that’s what I call “humanicide”.
KF: Following the great depression it seemed like there was no way out for economic policy makers until World War Two came along. Do you think a World War Three is going to happen, or do you think that perhaps a positive spin will be brought about where there will be a huge public policy initiative to save the Earth from the ravaging climate?
FH: Well, on current trends I have to be pessimistic and conclude that the people who make the decisions are just going to drive us deeper into the abyss, and what I characterise as a Third World War is the most likely scenario. You see, we don’t have the language or the psychology that enables the decision makers to participate in a debate, a logical debate that would set the course back to peace and prosperity. So long as that language is not available, there is only one way out of the mess that the world is in now, and that is a terrible conflict. But we know that we now have the means of destruction such that not many people are going to be left standing if that conflict occurs.
Now, of course, I have been thinking about what the form would be of that conflict if it happens. It won’t necessarily be a re-run of the last world war – those things never happen. Generals fight the next war on the basis of the old war and that’s why they tend to lose their wars. It’s going to be a different kind – a World at war with itself. But the devastation is going to be awful. And so, that’s why it’s so important for people like you, Karl, to figure out new ways to communicate to people the urgency with which we have to go back to the basics, start again, challenge the people in authority to figure out how we can even have a rational debate about what causes these depressions and what drives people to do terrible things in their personal lives. It’s the pathology of this predator culture which needs to be forensically examined in order that politicians can then end up having a rational debate about the correct policy tools that will get us out of the mess.
I think Australia is at the cutting edge of what is going to happen because you are trapped between the up-and-coming emerging markets, particularly China, and the old world, Europe and America. You think the future is with China, but you’re culturally rooted in the old world, and a choice has to be made about which direction you go in. I’m afraid that if you follow the Chinese model, you’ll still be locked into this predator culture because China is in the process of replicating precisely the same kind of cheating process that has done for Europe now. And so there is no future in the Chinese model as it stands at present.
KF: They seem to be making some pretty dramatic moves, though, with the 20% capital gains tax in Beijing and the 50% up-front payments for second properties. I’m sure there are probably ways around that, but they’re making some serious signals …. that they’re looking to keep in check the sort of property bubble type of phenomenon that has destroyed the world economy.
FH: Yes, but these are too little, too late, and they will be temporary. Right now, they are locked into this culture of cheating. And this culture will not allow government to undermine the logic of that culture. So, yes, government can say things about wanting fairness in tax regimes and so on, but until we face head-on the process of cheating, of extracting value that you don’t actually produce, which means it’s at the expense of those people who do produce it, until we face that head on, we’re going to continue to deepen this hold over the global civilisation that we now are, of those who are the cheats in our society.
KF: One of the positives we are seeing from over the ditch down here in Australia is there is all sorts of land value tax fervour going on in the UK. There has been admittedly horrid distortions with the mansion tax, garden tax, and now a bedroom tax coming through, but on the positive side you’ve had the first major think tank, CLASS, propose a land value tax, The Case for LVT in the UK. Caroline Lucas from the Greens is also putting things through parliament, how economic rents could help society. And just this week the London finance commission has looked at funding the cross-rail, using again the rising value of the Earth to finance public infrastructure.
FH: Yes, all of that is happening and there are other people who even get generous references to the need for a land value tax in the Financial Times. Well, I’m afraid I don’t get excited by all this, Karl, for this reason: it has happened in the past, and it will happen again in the future. And so long as it’s isolated individuals making vague references, even explicit ones to a sensible fiscal reform, the cheating culture can handle it. It will just tolerate it until it appears to be getting out of hand and then it will suppress it.
For instance, Joseph Stiglitz – there is no one more famous in the world today who is such an ardent advocate of this kind of fiscal reform, but they have marginalised him. They’ve put him in a ghetto along with others who are treated as trouble-makers who should not be treated seriously precisely because he puts his finger on exactly what needs to be done. So although there are people in the UK who are making generous references to the needs for a land value tax, it has happened in the past and we have seen that the cheating culture has survived and it will survive such a discussion again in the future until there is a groundswell. When we have got large numbers of people marching down Whitehall making the demand for this fiscal reform, then we are in a different ball game, but I would remind you that it is only a hundred years ago that Winston Churchill was leading such a campaign and he failed.
KF: Fred, to finish off, Margaret Thatcher recently passed away and there has been much fanfare of her economic prowess but I put to you that so much of her ability in curbing inflation and regenerating the English faith in the capitalist mode of operation was that she essentially raided the commons. She sold off public housing; she benefited from the North Shore oil and of course privatised many natural monopolies. Is that a fair analysis?
FH: It is, but you see, you have to ask yourself why an intelligent woman who genuinely did care for the people of Britain did those things, and the answer is this: she was just a product of a system; she was required to do those things by the system, the power structure that she chose to embed herself into. She would not have been allowed to do the right kind of thing but she was obliged to do the very things that you’ve identified because that’s part of the cheating culture. And so people who go for power in a democracy like Britain, they do not have the freedom to do what is right.
Take our current prime minister, David Cameron. He is married to the daughter of landed gentry – they inherited millions from land that was acquired over the centuries. Now, the prime minister of Great Britain is not now going to turn around and say “Yes, this is actually a culture based on cheating from the past that we’re benefiting from today, and we need to put it right.” So, he goes on about the need for corporations like Apple and Google to stop cheating and pay a fair tax, but none of that will come to anything because it can’t, because they are agents of a system, a culture of cheating.
KF: Fred, you know I reckon after you’ve done 10 years of Georgism, there should be a free bonus geo-psychiatry analysis to help us survive. Here you are, and you’ve been doing this, what 30 or 40 years?
FH: 40, yeah.
KF: Wow. It’s so hard, but it’s something that gives us hope that all this policy talk – that’s what I like, there’s just not much going on around the world. And you know, we’ve learned virtually no lessons from this global land bubble and all that has happened is they have jacked up the sales taxes around the world.
FH: Well, that’s exactly all that they’re allowed to do. So you’ve got a case study in thinking about why it is that after a land-driven property bubble that causes a recession, there is no talk in policy terms about changing the tax regimes or changing the incentives so that it doesn’t happen again. Until you have got a decent explanation for that, there’s no point in going on talking about “Well, what we really need is a land value tax because it’s fair and efficient,” because that’s what we have been doing for four generations and we have got nowhere. So that’s why I have decided that I want to re-base the discussion on words like “cheating” and “predator culture” and so on, in the hope that it will make people angry enough, because they will be; they will say, “look, you’re accusing me of being a cheat. I am not a cheat – how dare you!” Now at least we have got a conversation that’s different from “You’re telling me you want a land value tax. We’ve got enough taxes – I don’t want another tax – goodbye!” And they walk away from the conversation and they can forget it. They can stay in their little bubble of denial.
KF: But wouldn’t they do the same though when you tell them they’re a cheat, they’ll just turn their backs and say –
FH: They’ll turn their backs and they’ll walk away and they’ll say “Harrison is a shit for calling me a cheat. I’m not a cheat; I work hard for my house – the value of my house. I paid a hundred thousand for my house and when I sell it, I’m going to make half a million.” “Now, hang on”, those people will think, “hang on, so Harrison says I’ve paid a hundred thousand. I’m entitled for the inflation and I’ve added a conservatory to my house, I’m entitled to get back two hundred thousand. So, Harrison is saying that that extra three hundred thousand, where did it come from?” So now, they’re thinking. Now, a little doubt comes in their mind, and they start to think in the privacy of their own home that it is strange, actually, that land values go up: my car depreciates and in the end I can’t give it away, the same with my fridge and my other property assets, but something is different.
So now you see, because of this word “cheating”, they won’t be able to let go of it, because nobody likes to be thought of as a cheat, because we all hate cheating. And to be lumped in with others as a cheat is something they can’t walk away from, or at least some people won’t be able to. But look, Karl, if you can come up with a different way of exploring these issues, great. This happens to be the one that I can figure out at the moment, but that doesn’t mean it’s the only one. But what I am saying is if we carry on with “land value taxation is fair and efficient”, we will continue to get nowhere. And all the debate in this country is still on the basis of “land value taxation is fair and efficient and so therefore we ought to have it”. And it ain’t going to go anywhere.
KF: You’re saying that the social justice angle, which I would have thought we have tried for longer than 40 years, is a better way to move forward. And efficiency, well, for us anyway, we have been pushing for the last 20-odd years, but you’re saying social justice, we’ve got to focus in that sphere?
FH: Well, the word “fairness” or “justice” or “social”, even, these are plastic words, which mean whatever it is you want them to mean. People have their own idea of what is “fair” or what is “social justice” because their minds have been coloured by the ideologies that they have been weaned on, which might be libertarianism, it might be socialism – whatever it is, they come at these words from perspectives where the words themselves don’t have a common meaning for everybody. So I can say, “look, land tax is fair” and someone else can say, “No it ain’t, it’s bloody unfair, you want to tax my land values!”
The word “fair” is no longer a common word that enables us to reach a consensus view. So we have to force people to look at things more deeply than “social justice”. Take the word “sustainable”. Now, everything that any businessman does, he calls it sustainable. He started a sustainable business; he’s produced a sustainable product. The word “sustainable” is now meaningless because it means anything to anybody. It has been hijacked and manipulated so you might as well not use the word “sustainable” anymore because it won’t achieve any policy objectives whatsoever. So, how do we overcome this particular problem? It all stems back to this: you’re not allowed to use the language that enables you to rationally arrive at a consensus about what is going on in our society. And that’s the cheating culture at work. So, if you don’t like the word cheating, fine, come up with other words to describe the process that undermines people’s capacity to think straight and to do what’s right.
KF: Beautiful, Fred, well let’s hope we find a horror film director to produce the film you’re talking about because you’re right, we need to slap people across the face and wake them out, pull them away from their remote control. We do need new tactics and good luck to you.
FH: That’s absolutely right. So, please, when you get a spare minute or two, think along those lines. What will stop people in their tracks in such a way that they will come back at you and say, “Look, I want to talk more about this”, because for whatever the reason they want to continue that discussion?
Listen to another interview with Fred on Critical Thought