Renegade Economists Show 465
How to improve population pressures, urbanisation, boom-bust economies, dwindling wage growth, the burgeoning size of government and the time-poor nature of life? Could a change in economic policy achieve all this? The need for Georgist economics could not be more pressing with the world’s most powerful property mogul about to assume the Presidency.
Here are the show notes, I read more than usual but it was time to spell this out.
Georgist economics is the belief that all government revenues can be funded by monopolists in return for the legal privilege of ‘their’ property rights. We face the current juxtaposition of having our incomes ‘socialised’ via income taxes and the community-generated increase in land prices ‘privatised’. Why are we penalised for working but rewarded for buying and selling the earth? Some sort of neo-colonial hangover? Ultimately it plays into the pyramid game, the paradox of providing subtle subsidies to the ‘owners of the earth’.
In essence, it is not how much revenue raised, but how you raise it that matters.
The heavy lifting for delivering what some call an Earth Rights Democracy is a Land Tax. This acts to channel the property bubble away from the banking system and towards giving us all an income tax cut. To run all 3 levels of govt costs some $517 bn dollars. In the bumper bubble year of 2014-15, Oz land values increased $570bn, more than enough to cut ALL taxes. Read the Total Resource Rents of Australia for more. Whilst we recognise these sort of windfall gains will not occur each year, the need to tax other forms of monopoly in telecommunications, utilities, railways right down to patent protection ensures there will be more than enough for all.
Rather than choosing a wealth envy line of attack that Kevin Rudd failed so spectacularly with in the Mining Super Profits Tax debacle, Georgists prefer to focus on the legal privilege bestowed upon any monopolist by government decree. The protection the government provides such property rights deserves public recompense. The returns on investment enabled for monopolies are significant and reflect a return above the cost of production (including normal rates of return). Within this is the Classical Economics delineation between earned and unearned incomes. Any price charged above the cost of production is an economic rent that can be taxed without affecting supply. Why? The property owner is still earning a reasonable rate of return minus the Land Tax paid, so with opportunity costs in mind, will keep supplying that good at the new lower price.
Remember The ‘invisible hand’ was mentioned just once in Smith’s ‘The Wealth of Nations’, as was the ‘free market’. Monopoly was stated 64 times, land 87, tax 96 and rent 102 times. Smith famously said “to afford the greatest revenue to the state; taxation always being employed as an instrument for revenue, never of monopoly”.
With all that in mind, let’s look at 8 Unexpected Outcomes of a Georgist economics system.
- Sprawl, congestion
- Law of Rent & Wages increasing
- Self help & size of govt
- More time
- Community stability
- Split the right wing
Heather Remoff: “It’s always more fun to focus on controlling the sex lives of somebody else than admit to the damaging effects of our own greed. A solution that requires those in affluent segments of society to do nothing we haven’t already done is a guaranteed winner. We’ve reduced our birth rates. Therefore, the problems of poverty, income inequality, climate change, war, famine, and a host of other economic and ecological disasters can be solved if we can just convince those other people to stop having so many children.”
– growth rates fall back to sustainable levels in developing nations as the Ethiopian farmer respects the positives good health and education deliver. Better H & E infer better birthing and neo-natal outcomes. No longer need to have 9 kids as they know that 2 will be enough, they will survive.
– alternatively, in developed economies, the cheaper cost of housing encourages earlier family formation. The overall drop in the cost structure of the economy, when reducing Australia’s 125 taxes, of which just 10 raise 90% of all revenues, to some 25 taxes on monopoly rents, makes life more affordable. The daunting cost of child rearing becomes that much more easier.
Some will limit tax liabilities by moving inland. This will help offset the incredible urbanisation pressures the world has endured over recent decades, breathing life back into dwindling regional towns. Pensioners may take a tree change to reduce taxes.
With higher Land Taxes, Speculative Vacancies come onto the market adding to supply, pushing down prices. People move closer to town, to their workplaces.
As Land Taxes replace Stamp Duties, those in the wealthier suburbs will pay more than those on the sprawl. AHURI found that 15% of SD revenues where paid for those living in ‘affordable’ suburbs whilst some 4% was paid for by those in wealthier bayside suburbs. This transition will make it easier to move closer to work, without the threat of some $35,000 in Stamp Duty. Congestion will fall.
This will be good for marriage rates, as a Swedish study found divorce was much more likely for those traveling more than 45 mins each way to work. Yes a bonus spinoff.
The Law of Rent is one of the most crucial tenants of Georgism. It looks at how wage rates are set on the margin. Those living on marginal land and working for themselves make a decision. Do I want to work for the man or can I earn a reasonable wage working the land myself? As people recognise they can work for themselves on cheap land, employers recognise they must at least match this wage to attract talent. Thus wages are not set in central corridors of power, but by those starting their own business on remote lands. What will be the effect of climate change making it harder on marginal sites to survive as the Goyder Line (measuring marginal, farmable land in South Oz for e.g.) sweeps down from the desert and through the northern most regions of the Barossa Valley? Land owners in central locations will enjoy greater economic rents as more people move to arable lands.
The key aspect for Georgists is that if we do streamline the tax system and push down the price of land, more will be able to make a go of marginal land, perhaps reversing some of the Goyder line pressure points, as there will be less tax paperwork, delivering greater incentives for starting up small business. Wages will increase – an unexpected outcome of higher land taxes.
With lower land prices, less mortgage debt, lower taxation, cheaper consumer prices and more independence for both labor and capital, people will have more headroom to look after themselves. Finding meaningful work may well reduce the rate of depression, divorce and drinking, all reducing costs on the burgeoning health budget.
Taxing monopoly rents in the pharmaceutical industry will reduce the cost of drugs and thus the PBS, saving billions.
A resilient tax system that acts in a preventative manner in regards to boom-bust cycles will reduce the need for bailouts. This will reduce inequality, a key driver for poverty and related crime levels. Less policing will be necessary, reducing a key drain on govt resources. Some say this will also reduce the need for the army, cutting more costs there.
The points raised in no 2 re Sprawl will see less govt cost in infrastructure provision as there will be less sprawl. Apart for that, Land Taxes have an inbuilt capacity to ensure that those who benefit from infra pay more than those who don’t.
All these savings and many unlisted ones here see some Georgists believing we could shrink the size of government by some 20%. Perhaps some areas of the bureaucracy will need to be actually replenished after decades of cutbacks, but the point stands that less policing will be needed.
Less debt, lower land prices, lower cost of goods infers we need less income. Some may choose to work less hours. With more small business creation, the tenuous nature of part time work will subside, giving labor greater confidence in staring down the boss who always wants more.
The pace of gentrification will fall back to normal rates of growth with property speculation pulled out of the equation.
Awaken genuine entrepreneurs to the deadweight high land prices and the accompanying high tax take cause. Producers should be given the tax favouritism, not rent-seeking parasites.
The System of National Accounts – download Table 61 for land values and see how much prices increased in your state. Australia has the best land data in the world. This is under threat with the privatisation of many state land titles offices.
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