photo credit: derekkeats

Mark Braund

Guardian UK

The South African government’s recent decision to abandon its Expropriation Bill, aimed at addressing the painfully slow pace of land reform, prompts the question: how can the country move towards a more equitable distribution of land and natural resources 14 years after the end of apartheid? Given the catastrophe in Zimbabwe following Mugabe’s land seizure policy, South Africa needs to get it right.

Land reform has always been high on the ANC’s agenda. In negotiations over the 1996 constitution it secured the inclusion of provisions to enable it to force through the land reforms necessary to give the black majority a real stake in the country’s economy. The constitution includes both a commitment to “the right to land ownership” and an acknowledgment that under exceptional circumstances that right could be suspended to promote land reform. Until recently, however, the government opted not to exercise its constitutional right to expropriate land.

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Last night’s Insight focused on the tragedy unfolding in the housing market and it’s effects on the rest of the economy. It was good to see that Housing Supply side issues got some time on air, but again the property lobby had large numbers in the crowd, no NGO’s got a guernsey, the omnipresent Ross Gittins took the softly softly line and outside of Steve Keen, there was not the sort of hard hitting critique needed.

The Real Estate lobby again pushed for more land supply. Result - cheap land for speculators to extort the market. Someone mentioned building high speed rail to Penrith and surrounding areas. Result - the added benefits are capitalised into higher land prices - benefiting whom? Those speculators with inside contacts. Debt was mentioned at 7 times the average wage - yes, but why? The high cost of land due to land speculation, inefficient government developer charges and the failure to capture the economic rent. Supply side was mentioned by 1 young academic and a few others, but no one dared to mention how.

Supply side? 119,623 vacant homes in Melbourne. Supply would be increased if the most efficient tax of all is implemented, the one students are taught in economics as the most effective way for government to raise revenue with the least distortions. It’s called Land Tax.

Let’s rename it as a Site Rental. No one likes a tax. We don’t like how it is presently administered, but we agree with the property lobby that it should be set at a flat rate. However, we differ in seeing that it should be set at a higher rate, funding the abolition of income and sales taxes.

Holding charges on land are barely 2%, whilst land values have increased at over 10% p.a for over a decade. The two are inter-related. Increase holding charges and speculation is diminished. Land banking becomes no longer profitable. Read more here and on our sister website

But what did other bloggers say?

Surfing through the SBS Insight comments page it was good to see the number of bloggers concerned about housing.

Check: Australian First Home Owner

HOUSING UNAFFORDABILITY and RENT STRESS are no accident. Both are the result of deliberate design of tax rulings that gives massive purchasing and debt repayment advantage to residential investors.

Affordable Homes for All Australians

I have nothing against someone wanting to make a quid. But the reality is that price increases, driven by huge investor demand, have been at the cost of the younger generation’s aspirations of owning a home in which to raise their families.

Contrarian Investors Journal summed up the Myth of Australia’s Housing shortage

When it comes to solving Australia’s housing problem, there is an entrenched superstition that makes many believe that there is a housing ’shortage’ in Australia.

And the crew over at Global House Price Crash held up the torch for our buddy Steve Keen.

It was good to see that Gavin Putland’s critique of Negative Gearing got a mention in the comments.

Read Bailing out the Bubble’s Enabler’s by Dr Michael Hudson, Prof of Economics (and Chief Economic Policy Adviser for the recent Kucinich for President campaign) if you want to get serious about this topic. He will be interviewed today on the Renegade Economists. Join the podcast!

Tohm Curtis continues his slightly sarcastic journey into the underpinnings of economics

Okay in Lesson 1, I concluded with the not so startling revelation that the economy was ultimately limited by the external environment or reality. Economics is a science because it’s constrained by reality, and hence people use observations to make predictions on how the natural environment will behave.

But so too is physics, mathematics etc. Lets go further now and look at economics as the study of decisions and what makes a good or bad decision. What is the result of a good decision?

Profits - Doing More with Less:

I’m from a business school and thus naturally in my mind, the result of a good decision is profit. Don’t let that turn you off as an activist though. Hopefully you would agree that profit occurs as a result of a decision where our return exceeds the cost of making that decision. The cost - benefit analysis.

So the recipe for profit is efficiency, in every manifestation in the corporate world, the business world, in trade, in economics, profit is derived from doing more with less. Sometimes it is getting more of the customers’ money, for the same product, then you are using your customers efficiently. Or it is from selling the same product to new customers, instead of developing new products which are expensive. Or it is from reducing your product and selling it at the same price.

Staff cutbacks intend to deliver the same product using less staff. They are trying to gain a greater return from their investment in wages.

Wanting Less Now, and More Later:

Imagine some cave person. Their aim in life is simple; eat enough to live long enough to reproduce. Maybe they are trying to choreograph a dance masterpiece in their lifetime, but let’s keep it simple.

This cave person has access to a stream with a bunch of fish in it, and they also have access to a sharp stick. The cave-person can skewer a fish out of the stream and eat it.

Simply put, the cave-person made a good decision to skewer the fish, because they profited in terms of energy, the fish they caught provided more energy than was expended catching the fish.

What if they caught 7 fish? At some point presumably they would have a surplus. They couldn’t eat all the fish they caught. So not only is the energy expended catching that surplus fish wasted, imagine if the dead fish spoiled overnight. If left in the stream it would stay fresh and be eaten tomorrow when it was useful/profitable to do so.

Cave-person in the Corporate World:

So in the above example the cave-person attempted to consume what it wanted, which unfortunately was not only more than it needed, but more than it could consume. Bad, inefficient decision.

Imagine though that that cave-person is now head of a big company listed on the share market. It makes $1 million dollars of profits, and the cave-person or CEO has to decide whether to pay out all these profits and make the shareholders happy now, or reinvest these profits to make shareholders happier in the future. Does it want more today or more tomorrow?

Same for any wage earner, do you save your money to consume another day, letting it accumulate into a big pile you can roll around in naked, or do you go out today and drink it all? Do you want your money more today or more tomorrow?

Under-consumption for Activists:

Thus we establish the basic criteria for good vs bad economic decisions, and by extension good vs bad policy. Paying attention to the fact that policy is a piece of paper that dictates what decisions are to be made in what circumstances.

For example, I, a rebellious youth, often jaywalk. But I have a policy when very drunk to ALWAYS wait for the green man before crossing the street, often mumbling ‘green-man, green-man, green-man’ to myself. …back to the mythical criteria. Since we live forwards and not backwards, we generally should take good economic decisions to be those that will make our lives easier in the future or long term and bad decisions to be those that make life harder, period. There’s a quasi middle ground that muddies up the issues and allows defenders of lies, injustice and stupidity to get away with sounding like they know stuff about economics. This grey area is called the short term. A decision can look good in the short term, but be bad in the long term.

To avoid confusion, let me be clear, a decision fitting the above criteria is a bad decision. It is inefficient.

Homework exercise 2: Short Essay Competition

Why in Australian society do people need to pay for gym, in order to lose weight gained from eating food they also paid for? Are they efficient consumers? Think about it.

photo credit: mhalon

as according to Tohm Curtis

a new series outlining why Economic Rehab is crucial

What does ‘Economics’ mean…there’s some confusion as to whether it is a science or a philosophy? Wikipedia can provide some insight into the history of economics. I think though that maybe the simple starting point is:

Economics is the study of reality.

Okay so what do I mean when I say Economics is a study of reality? What I mean is that this is really what makes it a science. I would say the exact same thing of Physics, I would say the exact same thing of Mathematics. Bertrand Russell incidentally said ‘Pure mathematics consists entirely of assertions to the effect that, if such and such a proposition is true of anything, then such and such another proposition is true of that thing.’

In Physics this means Isaac Newton’s description of gravity as any two masses exerting a constantly attracting force on each other is true. That is what happens in reality. For Physics to work, you can’t have a law of gravity that has exceptions. A theoretical world where some people fall towards the earth and other people float up into the sky would not hold as science. The laws have to conform to reality. They must be based on observations of things that happen.

Economics supposedly represents a scientific reality. Just we seem to get surprised in Economics much more regularly than we do in Physics or Mathematics.

When Richard Dawkins talks about the difference between religion and science. He says that a science is capable of accepting that if you go your whole life believing one thing and then are presented with evidence to the contrary, the scientist accepts the new contrary position. Once the evidence has been peer reviewed, the new evidence is what is taught from then on.

However, he suggests a religion is something that holds its truths to be absolute and rejects any new evidence no matter how compelling.

So you can’t just have an ‘Economic Theory’ that doesn’t conform to reality. Because reality places constraints on what Economic Theory can be. Economics, as the study of the management of the household, is challenged by the reality of scarcity.

photo credit: laurenatclemson

Michael Hudson

July 14, 2008

I am writing this article about Fannie Mae and Freddie Mac while sitting in the Queens Botanical Garden. This was not my plan today. The central air conditioning in my apartment broke down six weeks ago, and still has not been fixed. (It’s a nice condominium building, but accidents happen.) It is over 90 degrees outside, and nearly 100 as a result of the greenhouse effect in my apartment. Yesterday I took refuge in the Forest Hills Public Library, but it is closed on Sunday. One of the few libraries near public transport that normally is open on Sunday is in Flushing. So I went there to write the final draft describing the past week’s financial turmoil.

Unfortunately, when I got to the Flushing Public Library, a lady explained that because of the city’s budget cuts, the library no longer would be open on Sundays. Already before noon, when it was supposed to open, a large number of Chinese were waiting to get in, expecting to use the books and computer terminals. There was no sign explaining the situation in Chinese, and they continued to wait as I went down Main Street to the Botanical Garden.

At first glance this might not seem to have much to do with the turmoil of the last few days over the fate of Fannie Mae and Freddie Mac or the real estate markets they have helped inflate over the past decade. But actually, my experience today has everything to do with this topic. These two semi-public mortgage-packaging companies dominate the nation’s mortgage market and have supported real estate prices by steering over $5 trillion to enable homebuyers to bid higher and higher prices for homes, earning billions of dollars of bonuses, profits and interest for the bankers, mortgage brokers and Wall Street debt packagers who are the financial beneficiaries of the real estate bubble.

And that is what really is at stake. If cities such as New York did not cut back public services, they would have to do what they and nearly all American cities and municipalities traditionally have done: finance most of their public budgets by taxing property. But to do that in today’s market would leave homeowners – and commercial building owners as well – with less revenue to pay their mortgages. Already this year over a million debtors have defaulted on their home mortgages, and enough have now fallen behind to suggest that Treasury Secretary Paulson’s warning that two million mortgage defaults for 2008 may be a million too low.

So that is the tradeoff: If cities are to maintain their customary level of public services, they will have to tax property at the traditional rate. But this would mean that housing prices would be less. The revenue paid in taxes would not be available to pay bankers to capitalize into interest payments on higher mortgage loans to buy homes at higher and higher prices. given a choice between more affordable housing and better public service on the one hand, or “wealth creation” in the form of higher-priced housing (along with its higher carrying charges), Americans have voted overwhelmingly for the latter – that is, for debt peonage rather than economic choice of what to do with their earnings except pay their bankers.

To me, this seems crazy, but then I’m an economist and we’re notoriously unable to explain why people vote against what seems to be their self-interest. In any case, this seeming craziness is what the plunging prices for stock in Fannie Mae and Freddie Mac last week was all about. One politician after another was televised pontificating about the need to keep real estate at unaffordably high prices rather than falling back to more affordable levels. Nobody mentioned the option of cities and states avoiding public service cuts by taxing the real estate – mainly the land’s site value – that has soared since 2000. Nobody discussed how an economy would look with lower housing prices and less mortgage debt. All they could say was the need to preserve the value of bonds and packaged bank mortgages held by financial institutions, that is, ultimately, by the economy’s wealthiest layer of the population, the 10 percent that are responsible for the net saving – saving that takes the form mainly of loans to indebt the bottom 90 percent.

Debt write-downs and lower property prices would be good for most of the economy, but are anathema to Wall Street. Bear Stearns already has gone under as a result of its business model based on packaging junk mortgages, and last week it looked like Lehman Bros. was going down the same road. It amazes me that the election is not being fought over this economic issue, but I guess that’s why I’m sill in Dennis Kucinich’s camp rather than elsewhere.

The policy question

For millions of homeowners watching the price of their homes fall below the mortgages they owe, the question is whether to pay or default. Many have no choice. They have Adjustable Rate Mortgages (ARMs) that are resetting at sharply higher interest rates and require amortization payments far beyond what the debtor is able to pay.

The looming defaults threaten financial institutions holding mortgages on such properties, moving up the economic pyramid to reach investors and creditors at the top. Somebody must take a loss. But who? Big fish or little fish?

For lawmakers there are two possible policy responses. The first and seemingly most logical response would be to re-set bad debts at levels that can be paid. This write-down would be in keeping with the direction of legislation since the 13th century to favor debtors more than creditors. It would restore balance between what people earn and what they can afford to pay for housing and other debts.

This is not the path that Congress is taking. Instead of bringing debts within the ability to pay, its banking and real estate committees are trying to find a way to re-inflate housing prices. The hope is to enable existing mortgage debtors who have defaulted, or are on the brink of doing so, to get into a position to sell out or to borrow the money due on even easier terms from the Federal Housing Administration (FHA). This would leave government agencies rather than Wall Street holding junk mortgages. It would give security not to home owners and mortgage debtors but to the lenders and speculators holding the $5 trillion in mortgages guaranteed by the Federal National Mortgage Association (FNMA, “Fannie Mae”) and the Federal Home Loan Mortgage Corp. (“Freddie Mac”), as well as the default-insurance companies on the hook and whose IOUs have now sunk to junk status themselves.

What is the point of buying insurance against mortgage defaults, after all, if the insurance reserves are miniscule in comparison to the likely default volume? The monoline insurance companies (firms whose only business is to write default insurance) have made their money writing policies, not paying out. Their executives have already taken the money and run. Yet it is for their wealthy financial clients that Congressional hearts are bleeding, not for the victims of subprime mortgage fraud and the associated Wall Street fraud in packaging junk mortgages and selling them to institutional investors at home and abroad.

The question is, how can an economy survive with millions of homeowners defaulting and wealth ownership polarizing between creditors and debtors. This is what plunged the world into depression in the 1930s, and long before that, reduced the Roman Empire to debt bondage and serfdom.

Is it all happening again today? Or can things simply return to normal with today’s debts be paid off by borrowing yet more money and running yet further into debt, in what is known as the “magic of compound interest”?

The Democratic congress pushes for American families to pay higher home prices

Congressional banking committee heads are simply behaving as politicians traditionally do by giving priority to their major campaign contributors in the financial and real estate sectors. Led by Democratic senators Charles Schumer from Wall Street and Christopher Dodd from Connecticut’s insurance industry, and supported by Congressman Barney Frank from the real estate sector, Congress is seeking to bail out the bubble’s sponsors, not its victims. The plan is to re-inflate the housing bubble at least long enough for the largest banks and other financial speculators to dump their riskiest holdings. Book values on these mortgages – and the real estate that backs them – are purely fictitious, despite the AAA whitewash from bond-rating agencies which themselves are now under investigation for the fatal Arthur Anderson-style conflict of interest between their research and sales arms.

Dealing as they do with real estate, and hence with local urban politics where most of the property values and maneuvering occur, Fannie Mae and Freddie Mac are largely Democratic creations. James A. Johnson ran Fannie for most of the 1990s and was its main lobbyist. Until June he headed Barack Obama’s vice-presidential search team, but resigned when it was revealed that he got mortgages on unrealistically favorable terms from Angelo Mozilo’s notorious Countrywide Financial. FNMA’s former head, Franklin D. Raines, was President Clinton’s budget chief. He was forced to step down when serious accounting problems were discovered. Other Fannie apparatchicks include Jamie Gorelick, former Clinton deputy attorney general, and Thomas E. Donilon, Clinton chief of staff to the secretary of state.

To be sure, political opportunism leads Fannie and Freddie to cover all the bases, becoming known for hiring relatives of powerful politicians wherever they may be in a position to help. But at least this time the problem is not George Bush’s fault. The Wall Street Journal seems closer to reason than the Democratic Congress. Over the weekend its editorial clarified what socialists since Marx have been saying: “What taxpayers need to understand is that Fannie and Freddie already practice socialism, albeit of the dishonest kind. Their profit is privatized but their risk is socialized.” Calling FNMA and Freddie “high-risk monsters,” the newspaper noted that “Wall Street and the homebuilders also cashed in on the subsidized business, and also paid back Congress in cash and carry.” It concluded by questioning whether these government-sponsored enterprises (GSEs) were justified at all. “Apart from outright failure, the worst scenario would be a capital injection that left the companies free to commit the same mayhem all over again two or 10 years from now.”

In a separate article the Journal noted that, “On a fair-value basis, the company [Freddie Mac] had negative net worth of nearly $17 billion.” The problem is that there is no “market” – that is, no supply of equally gullible buyers – to take on these bad loans, except at distress prices. Through short-term greed and incompetence, the home-debt industry has pawned off highly debt-leveraged mortgage loans drawn up from fraudsters. I cannot actually call them crooks because instead of being indicted, they have been rewarded with tens of millions of dollars in bonuses for making so much money as debt innovators for the finance, insurance and real estate sectors.

Their place is to be taken by the government as bad-debt buyer of last resort. I suppose this might be called Finance Socialism – the stage at which it becomes necessary to rescue Finance Capitalism, at least its largest institutions (“too large to fail”) at the top of the economic pyramid. I suppose it might be called “real estate finance capitalism.” But in Washington-talk it is euphemized in the Democratic Party’s usual populist garb as “democratizing property” and “increasing homeownership,” by which is meant indebting a rising share of the population to the point where carrying their mortgage absorbs most of their disposable personal income.

Can a new real estate bubble be inflated?

The fact remains that like every financial bubble in history starting with England’s South Sea Bubble and France’s Mississippi Bubble in the 1710s nearly three centuries ago, today’s bubble has been sponsored by the government. Forget the “madness of crowds” free-market propaganda. Insiders and enabling politicians always try to blame the victim. The reality is that Fannie, Freddie and the FHA gave a patina of confidence to irresponsible lending and outright fraud. This confidence game led them to guarantee some $5.3 trillion of mortgages, and to keep $1.6 trillion more on their own books to back the bonds they issued to institutional investors. Their strategy has been to issue bonds paying fairly low interest rates, and use the proceeds to buy mortgages yielding somewhat higher rates. This kind of interest-rate arbitrage is what the S&Ls did in the 1980s – a relevant parallel, as I will discuss below.

The myth is that Fannie’s and Freddie’s role is simply to spread homeownership by making it affordable for more of the population. Fannie Mae was established in the Depression, in 1938 as part of Roosevelt’s New Deal, and privatized in 1968. Freddie Mac was established two years later, in 1970, to buy up S&L mortgages and give “liquidity” to their mortgages, by developing markets outside of the banks and S&Ls that originated these loans. But this turned out to be the “original sin,” so to speak. Outside investors were obliged to place their trust in the mortgage originators – banks, S&Ls and mortgage brokers, whose ranks are filled with fraudsters and crooks.

Whatever we may call it, their dream is to bring back the seeming golden age sponsored by Alan Greenspan at the Federal Reserve. It was a decade of quick mortgage billionaires writing fictitiously high mortgages and selling them off to pension funds and to German and English bankers eager to seek a few extra fractions of a percentage point in current income so as to justify a big bonus by claiming to outperform more reality-based money managers.

All this is as American as apple pie. Altruistic political talk aside, the reason why the finance, insurance and real estate (FIRE) sectors have lobbied so hard for Fannie and Freddie is that their financial function has been to make housing increasingly unaffordable. They have inflated asset prices with credit that has indebted homeowners to a degree unprecedented in history. This is why the real estate bubble has burst, after all. Yet Congress now acts as if the only way to resolve the debt problem is to create yet more debt, to inflate real estate prices all the more by arranging yet more credit to bid up the prices that homebuyers must pay. The plan is thus to pretend that the Bubble Economy’s financial unreality may be made real by Finance Socialism.

Can the plan work? The reason why Fannie and Freddie have been able to borrow at lower rates than their rivals is because their public sponsorship led investors to believe that there was an implicit public guarantee not to let them fail. And in view of the fact that these two agencies account for some $5 trillion in mortgages – nearly half the nearly $12 trillion U.S. home mortgage market – they do indeed seem to be “too big to fail.” The face value of mortgages they have guaranteed is nearly as large as the entire U.S. federal debt held by the public. This means that the nominal federal debt would double if they went under. But at least the government can always print money, while the real estate backing the mortgages guaranteed by Fannie and Freddie (or held in their own accounts) is plunging in price into the dreaded Negative Equity territory.

But on their shoulders ride the hope of re-inflating housing prices to bail out the financial managers who sought to make money by debt creation rather than tangible capital formation. So the question is whether housing prices can be raised to a level that oblige families to run into even more debt than they now are carrying – with even lower down payments, subsidized at public expense.

In this case the subsidy would not really be for homeowners at all, but for the financial system’s mortgage holders. The aim would not be to make housing more affordable, but less so, because the debts would be larger!

Most investors view the situation as being more political than strictly economic. One hears again and again these days about the “implicit” government guarantee to make good on the bonds Fannie and Fred issued to fund these junk mortgages. Its constant repetition reflects the anxiety that bondholders feel about how sound their bond holdings really are. (The stocks of Fannie and Freddie have now plunged to less than 10 percent of their former highs. Investors obviously expect their equity to be wiped out, a la Bear Stearns.)

The word “implicit” means “not explicit.” There is a tantalizing hint of what might be, but does not yet exist in a legal sense. Financial free lunchers on Real Estate Finance Capitalism claim to be innocent victims of an “unexpected” bad turn in the market. (Bad news always is “unexpected” as far as financial spokesmen and media reporters are concerned, just as Claude Rains was “shocked, shocked” to find that there was gambling going on at Rick’s Café.)

The distinction between implicit and explicit may be too philosophical for most money managers who work in the financial institutions that have bought Fannie Mae and Freddie Mac bonds and packages of junk mortgages. Most of these apparatchiks don’t need much of an education. All they need is greed, and that can’t be taught. It is a mentality – and on Wall Street it lives in the short run, from one annual bonus to the next.

Wall Street bonuses are based on how well one “performs” relative to the norm – a Treasury bond’s rate of return, or the average mutual fund or money market fund. Anyone can out-perform these averages simply by buying the most risky and hence highest-yielding bonds around.

Predator vs. victim – who will Congress support?

On the subway to my hoped-for cool spot in Queens, I opened today’s Sunday New York Times to find an article by the always informative Gretchen Morgenson about a Countrywide Financial customer saddled with an adjustable-rate mortgage re-setting at a rate beyond his means to pay. The mortgagee got so frustrated with non-responses to his earlier attempts at communication that he sent an e-mail message to a block of Countrywide addresses asking to renegotiate his mortgage on more affordable terms so as to avoid default. This is what Henry Paulson has been urging “responsible” lenders to do – and Countrywide is responsible for some $1.5 trillion in mortgage loans, most of them subprime.

The e-mail actually got to Countrywide co-founder and CEO Angelo Mozilo, cited above for having given GNMA head and erstwhile Obama advisor a mortgage on remarkably affordable terms. Mr. Mozilo is the Darth Vader of the global mortgage market, and the person probably more responsible than any other for wrecking more lives financially than any other man on the planet, including Ken Lay and Michael Milken. Until the movie biography arrives, we will have to do with Ms. Morgenson’s article.* (*“The Silence of the Lenders,” The New York Times, July 13, 2008.)

Mr. Mozilo actually responded. He found the request to lower his company’s mortgage demands “Disgusting.” The very thought of debtors not living up to written contracts they had signed – contracts which turned out to be bait-and-switch deals signed under duress – seemed to threaten the institution of private property itself. After all, had not the mortgage agreed to “adjust” his teaser interest rate upward to a more real-world rate of extracting his income?

A Countrywide “workout advisor” on the company’s “home retention team” tried to be more helpful. She suggested that “Maybe you can eat less,” when the mortgagee told her that all he could afford was $10 a day after paying his mortgage.

Perhaps my mind was wandering too far, but I was reminded of Sumerian and Babylonian language for creditors. Contracts said that they would get to “eat” the interest on debts owed by cultivators and debtors. Bronze Age contracts from Hammurapi’s time (c. 1750 BC) typically called for rural debtors to pay their debts in grain (which exchanged on a par with silver, one liter of grain per shekel of silver), weighed out at harvest time on the threshing floor. Post-classical economic theory is based on the principle of diminishing marginal utility. According to this theory, the pleasure of consuming more of any given commodity diminishes with each additional unit that is consumed. This seemed to suggest that as people got wealthier, they would become less greedy, leaving the path open for the poorest consumers to “catch up.” It was a happy picture of economies leading naturally and almost automatically to a more equal distribution of wealth.

Of course, it was utter fiction. But it was a “successful error” that won for the marginal utility school such enormous financial subsidies for economics departments teaching this distraction that it drove classical economics off the board with its discussion of unearned increments, free lunches and the polarization of wealth by rentiers (a word that today is almost as anachronistic as “usurer”).

Obviously, these marginal utility theorists never heard of the wealth addiction that Aristotle and other ancient observers described. How much can a creditor “eat” in practice? The answer is, “everything”! That is what wealth addiction is all about.

It is implicit in the mathematics of the “magic of compound interest.” This is the magic that has causing the real estate crisis plunging Fannie Mae, Freddie Mac and Lehman Bros. to the brink of insolvency.

A replay of the federal S&L insurance crisis: Bailing out the risk-takers, not their victims

Junk bonds issued by corporate raiders were the highest-yielding bonds in the 1980s – before they brought down the S&Ls. Since the Federal Reserve flooded the economy with credit after the dot.com bubble burst in 2000, junk mortgages have been the highest-yielding securities. Meanwhile at the Federal Reserve, Chairman Alan Greenspan deregulated the banking system to let the usual array of financial crooks express the “animal spirits” that he believed were the driving force in his Ayn Rand fantasy world.

The result is a replay of the S&L collapse two decades ago – a financial “golden oldie,” so to speak. The S&L bailout is relevant today because proposals to bail out FNMA and Freddie Mac bondholders are distressingly like the bailout of S&L depositors in crooked S&Ls back in the 1980s. Only a handful of S&Ls went under – and they were the notorious risk-takers. Their depositors were not neighborhood moms and pops. They were large institutional savers, who didn’t care about risk or crooked behavior, because there was a government guarantee by FSLIC: the Federal Savings and Loan Insurance Corporation. And that bailed out the large depositors.

Fast forward to today. FNMA was shown many months ago to have been cooking the books. But large speculators didn’t care. Although there was no official government guarantee, there was an “implicit” protection for risk-takers. Financial insurance firms sharply raised the protection for these two government-sponsored mortgage agencies. But investors still were able to make a few basis points more than normal by buying their bonds.

Should they be bailed out? And if the government does not do so, would this mean that FNMA goes under and the US mortgage market plunges?

Do we really want a new bubble? Or re-industrialization?

Let’s take a step back and look at the function that Fannie and Freddie have played in today’s Bubble Economy.

Who would one expect the Fed as “board of directors” for the commercial banking system, the Federal Housing Agency (FHA), FNMA and Freddie Mac as creatures of the real estate sector, to support? Ostensibly created to serve “the people,” 90 percent of whom are debtors, these institutions actually back the 10 percent of the population who are creditors.

This year already has seen a million foreclosures and the junk mortgage collapse is worsening. Home prices are plunging as interest rates on the euphemistically named adjustable rate mortgages (ARMs) “adjust” in the only direction they ever were intended: jumping up from teaser rates to distress levels. It is more difficult to borrow in today’s market. The economy has reached its debt limit and is entering its insolvency phase.

We are not in a cycle but the end of an era. The old world of debt pyramiding to a fraudulent degree cannot be restored, even if the Glass-Steagall Act is not restored to stop the conflict of interest that it unleashed when the Clinton Administration backed Treasury Secretary Robert Rubin and financial lobbyist Greenspan in repealing it. The real estate bubble was made possible by the unique degree to which America’s population emerged from World War II relatively debt free. Each recovery has taken off from a higher debt level. This something like trying to drive a car with the brakes pressed tighter and tighter to the floor each time there is a stoplight (recession). We have now reached the debt limit, and the economy is stuck. The class war is back in business, with a vengeance. Instead of it being the familiar old class war between industrial employers and their work force, this one reverts to the old pre-industrial class war of creditors versus debtors. Its guiding principle is “Big Fish Eat Little Fish,” mainly by the debt dynamic that crowds out the promised economy of free choice.

This is being portrayed as a post-industrial economy, but it is a much older story. No economy in history ever has been able to pay off its debts. That is the essence of the “magic of compound interest.” Debts grow inexorably, making creditors rich but impoverishing the economy in the process, thereby destroying its ability to pay. Recognizing this financial dynamic most societies have chosen the logical response. From Sumer in the third millennium BC and Babylonia the second millennium through Greece and Rome in the first millennium BC, and then from feudal Europe to the Inter-Ally war debts and reparations tangle that wrecked international finance after World War I, the response has been to bring debts back within the ability to pay.

This can be done only by wiping out debts that cannot be paid. The alternative is debt peonage. Throughout most of history, countries have found again and again that bankruptcy – wiping out the debts – is the way to free economies. The idea is to free them from a situation where the economic surplus is diverted away from new tangible investment to pay bankers for the monopoly they alone have been given to create bank-credit and charge interest on it. That is the classical idea of free markets.

Current proposals would replace bad debts that are not publicly insured (except by an “implicit” guarantee that relevant legislators have been bought into) with new debts, and new suckers are to be left holding the bag. Bahrainis and Saudis in particular are being courted.

But most of all, there is a public campaign being waged by the FIRE sector (Finance, Insurance and Real Estate) to convince the American public that, in the infamous words of Margaret Thatcher, TINA, “there is no alternative.” (See for instance the Wall Street Journal’s excellent coverage of the FNMA/mortgage crisis on July 11, 2002, p. A12.) When one hears this, it means that political censorship is being mobilized to flood the popular media with the intellectual equivalent of sterile fruit flies being released to stop the spread of a threat. All one hears is a barrage of claims that the government must preserve the financial fictions of FNMA and Freddie Mac in order to “save the market.”

But what is “the market” that is to be “saved”? To Wall Street and its Congressional advocates, it is the mass of bad debts growing at compound “magic” rates of interest, beyond the ability of debtors to pay. If the debtors cannot pay, then the Government – “taxpayers” are to pick up the check to Wall Street. Meanwhile, more tax breaks are to be given to leave the finance, insurance and real estate sectors with enough money to “earn back” their losses, by extracting yet more rent and interest from the industrial economy’s consumers and wage-earners.

The usual hypocrisy is being brought to bear claiming that all this is necessary to “save the middle class,” even as what is being saved are its debts, not its assets. Something must give – and the upper 10 percent of the population wants to make sure that it is not its own economic position, but that of the bottom 90 percent. The “way of life” that is being saved is not that of home ownership, but debt peonage to support the concentration of wealth at the top of the economic pyramid.

My modest proposal

Shareholders of FNMA and Freddie Mac probably will be wiped out, as were S&L shareholders in the bailout of S&L depositors in the 1980s. There’s a simple way to save FNMA’s and Freddie’s public functions, if they indeed are deemed necessary to keep supporting the debt market. This can be done without bailing out the speculators who bought the mortgages it packaged.

First of all, not all the mortgages that these two agencies have bought or guaranteed are junk. Most are genuine and are being paid. The poor are honest, after all, and think that they should pay as a matter of honor even if it is not in their economic interest to do so when their homes fall into negative equity. Let these mortgages continue to back the existing FNMA and Freddie Mac bonds to the degree that they actually receive mortgage debt service. If there is a shortfall, let bondholders take the usual haircut that is supposed to go hand in hand with risk. That is why these mortgages had such high rates of interest, after all. The loss would be proportional to the financial and real estate fraud they have enabled. This is the law for all other bondholders when their investments go south. Why make an exception for participants in the real estate bubble?

The rule caveat emptor should apply to bankers and investors here. They have bought a product – a flow of income that they either believed or pretended could be paid. Any student taught the mathematics of compound interest knows that in the end no economy’s debts can be paid. So this should be a special financial caveat.

To keep their activities current, let Fannie and Freddie issue a new series of bonds – the “we won’t fake it anymore” series. They would be based on a new honesty based on more realistic appraisals of the affordability of housing, which they were supposed to be promoting all along. These steps would not cause a collapse.

But before stepping up to save FNMA and Freddie Mac, we might ask whether it would be a tragedy for their debt guarantees to cease. Wall Street has given politicians a cover story that to support FNMA and Freddie on the pretense that its packaging and reselling mortgages in big “tranches” provides liquidity. Its defenders claimed to be “modernizing” the real estate mortgage market by creating uniform standards and homogeneous packages. But these packages were increasingly tainted with junk, putting floor sweepings of ARMs with no-down-payment and NINJA (no income, no job) loans into financial sausages.

What Fannie and Freddie did was to provide a vast new source of demand for mortgages. Their role has been to extend the market for mortgage debt, creating opportunities to make money financially in an environment of asset-price inflation – the Bubble Economy. The effect was to push up housing prices. This has been the great American game for a century. And it has turned increasingly to outside investors (including gullible German banks which were the first to go bust by trusting the U.S. junk mortgage market), swelling the supply of loanable funds that bid up property prices.

Prior to FNMA and Freddie Mac, banks that issued mortgages held onto them, because there were no outside blind buyers. This was the pre-fraud era. It is now looking like a Golden Age. Housing prices were lower, and buyers did not have to go so deeply into debt to purchase homes. But the Senate and Congress – at least the Democrats – are urging the FHA and other government agencies to prop up the mortgage market by issuing zero-down-payment loans and other subsidies. The immediate aim is not to help homeowners – who indeed will have to pay more if the housing market re-inflates. Each new economic crisis adds a few new words to the English language. This time we get “reflate.” Others include NYU Prof. Roubini’s “stagdeflation” for a combination of debt deflation of incomes and price inflation for commodities as the dollar sinks in response to the balance-of-payments deficit resulting largely from the war in Iraq. But that is another story. Today’s story is about how Congress is aiming to bail out the banks that have bought or packaged these junk mortgages, about how needless this bailout is, and about how much simpler and more fair to just write off the bad debts.

Conclusion

America’s $13 trillion in domestic real estate debt is no more payable than is the government’s $3.5 billion dollar debt to foreign central banks, or the public debt itself for that matter. Adam Smith remarked over two centuries ago that no government ever had repaid its debts. At that time the aristocracy – the heirs of the Viking warlords who conquered Britain and other European countries and turned their common lands into private property – held most of the land free and clear. Today, real estate has been “democratized,” but this has been done on credit. Mortgages are the major debts of most American families. In this role, real estate debt has become the basis for the commercial banking system, and hence the basis for the wealthiest 10 percent of the population who hold the bottom 90 percent in debt. That is what Fannie Mae, Freddie Mac and “the market” are all about.

Neither party in Congress supports a new bankruptcy bill. The lobbying money simply isn’t there. So the preferred alternative seems to be a new real estate bubble, which means more debt peonage for new homebuyers rather than housing prices falling back to more affordable proportions.

Of course, there is another alternative (TIAA). It is to change the tax system so as to collect rent as the basis for taxation, not for an expansion of debt to the banks. Real estate could free labor and industry from having to pay taxes. Instead, un-taxing property has forced labor to bear the tax burden, and to pay an equivalent sum in interest to the banks as well.

But that is a topic for a future article.

Michael Hudson is Chief Economic Advisor to Dennis Kucinich and the Kucinich-for-Congress campaign. A former Wall Street financial analyst, he is Distinguished Research Professor of Economics at UMKC, and author of Super Imperialism: The Economic Strategy of American Empire (new ed. Pluto 2002), and Debt and Economic Renewal in the Ancient Near East (CDL Press, 2002). He has more insightful analysis at his website.

Both are wedge issues that CEO’s are making the most of as they nervously await their next round of share option bonuses. “If these wedge issues continue I will be able to cash out in time and retire with some real wedge of my own!” Rational beings cannot expect all 193 countries to agree on a trading system within the next 2 - 3 years. However, decisive, unilateral action is needed immediately and PM Rudd should be commended for showing this.

It was pleasing to hear Garnaut comment that if too many industries put their hand out, then a Carbon Tax will be preferred. We strongly support a Carbon Tax over an ETS. Then no industry can pay others so they can pollute (what an ETS allows by default). No speculators can distort the market. Little delay is required to implement it.

When property rights are created, a great danger lurks within an ETS in that speculative middlemen will seep into the market, snapping up carbon permits and enforcing scarcity onto the marketplace. This will force the price of carbon, and thus of related inputs, higher and higher. This in turn will undermine the ETS and possibly return us back to square one.

We can see this occurring after just the first 12 months of the ETS, with prices jumping higher than they should and the disadvantaged screaming. Investment banks will applaud the system whilst bank rolling new ski trips to Aspen. The ALP will announce another inquiry. Economic theory will be avoided yet again in preference for another piecemeal system that favours rent seekers over the productive economy.

A number of searches through the 586 page Garnaut report, jokingly subtitled No Pain, No Rain, fails to reveal any definition on the lifespan of each permit. The longer the time frame, the greater room for speculators to extort the market.

This could be avoided. A holding charge must be placed on all carbon permits. From this we can use our knowledge of Georgism to analyse how far we take it. Should the holding charge be placed only on those permits sold during the trading period? This would act like a Mill Tax, where any increase in the re-sale value is rightly captured by the government on behalf of the people. We must remember that we are not privatising the sky for the benefit of investment bankers and their speculative clients. Carbon is part of the Global Commons we were all lucky enough to inherit as our birthright.

Should we place a holding charge on all permits, this would inflate the price of carbon but deter speculators from even thinking about it. The extra revenue raised could be used to fund the abolition of payroll tax, indirect taxes like the GST or income taxes on lower incomes. This tax shifting would assist in keeping the prices of goods steady.

Looking at the big picture, the ETS is just the beginning of the Resource Rental system we are inevitably moving towards. The ability for behaviour to change is difficult when we are still paying more than any other generation for housing. The hours spent at work to pay the mortgage make it hard to remember the green shopping bags, let alone cycle or walk to the shops. The land banking speculators are forcing the sprawl further and further into the greenfields that should be soaking up our carbon. Our worldwide infrastructure deficit (ie lack of public transport, ageing transport, lack of affordable hospitals) sees society trapped in it’s ability to adapt to the looming climate shift. A Resource Rental system can alleviate these pressures by correcting the leakages prevalent in today’s post-autistic economic framework.

It’s only a matter of time before the content of these pages becomes vital for the survival of all living beings on planet earth.

Andrew Sadauskas

It was a cold Thursday morning when I set out on my quest. My mission? To find the heart of Melbourne’s housing affordability and traffic problems. My quest took me to the middle of Melbourne’s great southeastern sprawl, which now stretches as far as Pakenham.

After a morning spent hunting for it on Melbourne’s public transport, I reached my unlikely destination: the carpark behind the Village Green Hotel, in Brandon Park.

On its asphalt surface stand the cars of about a dozen gamblers, who can’t resist their early morning gaming fix, and little else. Buried under its acres of asphalt, where the morning puters have parked, are several acres of land where houses don’t stand. Across the ever congested Springvale Road stands Brandon Park Shopping Centre; a shrine to the 1980s that Centro’s cash-strapped management now almost certainly regret buying.

If the Coliseum symbolises Ancient Roman cruelty, what does this carpark say about us? Are we addicted to the car like those punters at the poker machines inside? Are we willing to lose the house for our habit?

DO YOU HIGHLY RECOMMEND I GET ON THE BUS?
“[Melburnians drive] because the public transport system we have in Melbourne is inadequate. Governments of recent decades have failed to upgrade, or recognise what they need to do to make public transport to competitive with car travel,” says Jeremy Lunn, from the Outer-East Branch of the Public Transport Users’ Association.

There are different views on how to improve the situation, though. “Best to allow the entrepreneurs to seek out the markets [for public transport] and they will also - catallaxy style - find ways also to cooperate on linkages,” said Alan Moran, of the Institute of Public Affairs.

Such a view is not popular with the PTUA. “Clearly the IPA are living in a fantasy land that knows no sense of reality. One only needs to look at the recent history of transport in Melbourne to realise that this approach can never work. Even the earliest of railway and tramway companies had to be bailed out and rescued by the government as the private firms couldn’t stay afloat. The key to making public transport attractive is frequency of services,” said Mr. Lunn.

“It was believed that density was the key to increasing public transport patronage, though Paul Mees actually found that Canadian cities such as Vancouver and Toronto have similar densities to Melbourne, yet were far more successful in provisioning of public transport,” he said.

Between Monday and Friday, one nearby bus - route 736 - runs only once every half an hour (or less). The first service departs at 6AM and the last service at 11:35 PM. In comparison, Toronto’s route 52 runs every ten minutes, between 6:15 AM and 6:09 PM, every weekday. And, beyond those hours, it runs at least once every half an hour (except between 1:22 AM and 4:54 AM).

“The success of inner city trams has often been attributed to higher densities in the inner city. This myth was again dispelled by Paul Mees, who found that although the suburb of Fitzroy had a greater number of dwellings per hectare, Keysborough had a higher population density. In Keysborough, more people (i.e. families) were living in each dwelling. Clearly the success of public transport in Fitzroy could then be attributed to the frequency of services and superior route layout.”

According to Mees, 10% of Melburnians catch a bus or tram to the train station, compared to 76% of Torontonians. Toronto has a similar modal share to Melbourne, yet only has four train lines. Toronto’s publicly-run buses generally run directly along main roads and connect with train stations, forming a ‘grid’ (unlike Melbourne).

This raises a question: how should a ’suburban bus grid’ - such as the one suggested by Mr. Lunn and Dr. Mees - be funded? An obvious answer would be to fund it from increased fares. But doing so neglects the fact that it is not merely commuters who benefit from improved public transport: shifting motorists to public transport means less traffic on the roads, and improved access means more potential customers for businesses.

This, in turn, flows on in the form of higher land values: after all, many people would pay a premium to live near decent transport. Existing land owners benefit from improved buses even if they never catch one. In short, higher fares would mean commuters cross - subsidising land owners. This, in turn, means penalising those who act in a socially and environmentally responsible manner (by catching public transport rather than driving), while benefiting those that act in a socially irresponsible manner (by engaging in land speculation).

In order to ensure that these land owners pay their fair share for the benefit, what we would need to do is place a rental charge on the unimproved site value of land (that is, a tax on the value of the land, minus the value of any building or other improvements made to it). What this would mean is that, where a Toronto-style ’suburban bus grid’ is rolled out, land prices rise, and this rise would be captured by the Site Rental, which is used to fund public transport.

By doing this, we can in effect create a cycle of reinvestment in public transport, where public transport improvements are made, the improvements in land value are captured by the Site Rental, and these are in turn re-invested in public transport.

BUILDING UP, NOT BUILDING OUT
But even without improving public transport, logic tells us that Brandon Park’s publicans would be served just as well if their cars were parked in a multilevel car park, using less land. After the State Government’s recent 2030 audit, why does it make sense to keep the carpark as it is?

After all, according to property site www.realestate.com.au, the asking price for a 3 bedroom house in nearby Mulgrave is $420,000. It would, presumably, only take a small reduction in parking area for the owners to realise literally millions in return.

“Mainly, it’s the planning laws generally that say that for so many apartments, or so many bedrooms, or whatever, you’ve got to have so many car parking spaces, which is quite ridiculous, you’re right,” says Kevin Healey, of the People’s Council for Melbourne. Mr. Healey is also the host of 3CR’s ‘City Limits’ programme.

However, the faulty legislation does not end with mandates on carparking. There is simply nothing to prevent the owners of the Village Green pub maintaining acres of asphalt, speculating that they could sell it for more tomorrow than they can today, while our city sprawls further on the fringes. Nor is there any compelling reason, within our current tax system, to increase the population density on a given piece of land.

A tax on the unimproved site value of land would change this situation. If the owners of the Village Green pub were taxed for holding on to this land, they would almost certainly think twice about hoarding so much land so inefficiently; it would make financial sense to sell it off. Similarly, by building a multi-level carpark on a fraction of the land and releasing the rest for sale, the owners of this pub would also significantly reduce their tax bill, and thus the tax system would have a built-in mechanism for encouraging - and funding - higher density development.

CUTTING THE FRINGE?
An alternative to further development within Melbourne’s existing growth boundaries - on sites such as the Village Green pub carpark - is further growth on Melbourne’s fringe. “Releasing land at will is the key [on housing affordability],” says Mr. Moran.

But that leaves those who would rather live in a Brandon Park that exists, rather than a new one - complete with more carparks, shopping centres, and pubs - beyond Pakenham.

“There’s hypocrisy when the capitalists talk about ‘trying to provide affordable housing’ because, naturally, they want prices to rise all the time. The developers tend to buy chunks of land on the perimeter and build out there, there’s a bigger killing,” Mr Healey said.

Many of those reading this will undoubtedly cringe at Mr. Healey conflating land owners - who seek large economic rents while not contributing to the common pool of wealth - with ‘capitalists,’ who invest their wealth towards plant and equipment that increases the productivity of labour. This is a common mistake made within two dimensional economics.

Terminology aside, however, and Mr. Healey does make a very valid point about the impetus for further urban sprawl. Much of the push for further suburban sprawl is from developers who seek to purchase land on the fringes of suburbia and, with the stroke of a politician’s pen, see it rezoned as commercial and residential land, instantly generating wealth for themselves without actually contributing anything productive. Developers can, by ‘land-banking,’ create artificial shortages of land on the suburban fringes, securing more profits for themselves.

A charge on the unimproved site value of land would remove the incentive to engage in this practice, and instead would (as I pointed out earlier) encourage better use of land within the existing urban boundary.

This would, in turn, bring about what Ontario Greens leader Frank de Jong described as ‘walkable communities,’ where more businesses and services are within walking distance of homes, reducing car dependancy. Having higher density, walkable communities also allows for the more efficient provision of services such as schools, hospitals, and public transport, and makes them available to more people.

A (RARE) MOMENT OF AGREEMENT
Given this is (at times) a contentious debate, it seems amazing, then, that there are points that everyone seems to agree on.

“House owners are also concerned to ensure that land is kept in short supply to ensure they enjoy capital gains,” said Mr. Moran.

“The kind of problem you often face, that when you try to put low cost housing somewhere, you get a massive backlash from people who start complaining about the poor people who are going to live their and their own property values, etc… [Poorly planned high density development] creates the problems you’re getting in some areas of this backlash of people, so you really have to be well planned, it has to be done in ways doesn’t impose on other people, but that can be done.” said Mr. Healey.

Given this, it’s clear that the Village Green Hotel carpark says a great deal about us as a civilisation; perhaps as much as the Coliseum of the Ancient Romans. For the vacant lot and the sprawled carpark are the greatest monuments to the land-owning Caesars of sprawl. And the rest of us haven’t built up the courage to challenge them, by imposing a Site Rental on land; a charge that could be used to fund a Toronto style ‘bus grid’ that would reduce our reliance on the car. This leads us to being a civilisation clinging to the past, in the face of a walkable community future.

As such, in a sense, the Village Green Hotel carpark (along with many other single level carparks, empty blocks, and other wastefully used pieces of land across suburban Melbourne) is at the very heart of our current debates about housing affordability and traffic.

Frank toured Australia this time last year for the True Cost Economics Forum. He wrote this piece in lieu of exciting developments in Canada.

For the first time to my knowledge, Toronto will be collecting economic rent to pay for infrastructure — in this case to redevelop a section of a busy shopping street. (The wealth that accrues to locations is known as economic rent).

It was reported in the Globe and Mail as follows: “The city will borrow the money up front, to be paid off gradually by the businesses along the ritzy strip.”

Significantly, although the city has refused to pay for the street redevelopment out of property taxes, the adjacent businesses know the benefits to them will outweigh the costs, and are therefore willing to pay for it themselves. These Toronto businesses know that if infrastructure is warranted and beneficial it will raise the value of their land by more than the cost of that infrastructure. When redevelopment makes locations more desirable, more economic rent is attracted, over time, than the cost of the initial redevelopment.

This example is not at all unique; the economic theory is universal. The implication is that any infrastructure that increases land values should not be funded out of government tax revenue, but instead be paid for through the collection of the increased economic rent generated by the infrastructure, whether it is a hospital, school, sewer upgrade, park or transit system.

Normally the increased economic rent goes (untaxed) to the person or company that owns affected land, even though governments pay for the improvements out of the tax base. Taxpayers everywhere are unjustly expected to pay for improvements that only benefit the local land-owning minority.

The law of economic rent offers a model of how to finance more efficient transportation systems, reconstruct public infrastructure and green public buildings without bankrupting governments or raising taxes. Like this Toronto street redevelopment, all towns, cities, provincial and federal governments should collect the economic rent that migrates to land (and other finite assets like oil, aggregates, pollution) and use it to finance the greening of the country.

Scottish government: Developing a Methodology to Capture Land Value Uplift Around Transport Facilities

Wheels of Fortune: Self-Funding Infrastructure and the Free Market Case for a Land Tax: Fred Harrison

This year’s True Cost Economics forum saw both young and old dig deep within the pros and cons of carbon trading.

Keynote guest speaker Frank de Jong gave a compelling presentation on the importance of getting green Economics right. “We need to charge at the point of source so that we green the entire manufacturing process”. Carbon taxes over trading was his perogative, with tax shifting ensuring . Visit Frank’s Tools of Sustainability Tour report, including extensive multimedia page to download movies of talks and hear radio interviews.

Next was the politicians panel - ‘what do they see as possible and pragmatic’. The Greens Richard Di Natale said that the new Howard Governments Carbon Trading policy was a Claytons scheme - the scheme you have when you don’t have a plan - no targets, no objectives. Permits needed to be sold, not given away. Senator Lyn Allison (Democrats) snuck onto stage and soon jumped into the heart of the discussion by talking about the need for a number of Trading systems, including an Energy Efficiency Trading System, promoting financial incentives for manufacturers to produce energy efficient goods.

Then we had the youth panel on Policy Pathways, where Siska Waddington (SKM) gave a pragmatic response discussing the need to go with Carbon Trading, as Carbon Taxing sets no limit to the total amount of carbon. Carbon Trading incorporates sinks and offsets and gives us an objective. Also, the decision to go with Carbon Trading over taxes had already been made. This created some controversy as the view for a carbon tax was challenged. Well done Siska!

The last panel looked at the Policy Possibilities, where David Spratt (Carbon Equity) delivered a devastating presentation on the perils we face. He proposed that this urgency requires the need for a Carbon Rationing system. It certainly got the attention of the crowd! Donna Lorenz (Maunsell Engineering) stated that the carbon polluters, the smokestack industries, are hurting agricultural and rural industries that face the force of extreme weather ie recent floods in Newcastle. Adrian Whitehead from Zero Emissions Network finished off with a positive interpretation of policies making a difference. Included in this was the need for more localised communities, hinting at Frank’s desire for walkable communities linked by rail.

These presentations were so good that we have made them available for a short time:

Frank de Jong’s multimedia page (radio, TV footage)
David Spratt’s Why we must ration the future
Donna Lorenz’s Climate Change policy responses
Adrian Whitehead’s Climate Change Good Policy

Check the True Cost Reading page and keep informed with Earthsharing events by joining our mailing list.
See you next year as we continue to build a movement for a true ‘big picture’ reform.

True Cost Event Page

True Cost Economics is an economic model that seeks to include the cost of negative externalities into the pricing of goods and services. Products and activities that directly or indirectly cause harmful consequences to living beings and/or the environment should be accordingly taxed to reflect the somewhat hidden costs.

Natural resources need to be at the centre of our thinking, not written off as an ‘externality’ or mined for exorbitant profits.

The 2007 TCE Forum will feature Frank De Jong, leader of the Ontario Greens (Canada). He is an expert on environmental economics, having coined the term ‘the invisible green hand’ of market forces. Frank has over 20 years experience in Canadian elections and will bring a balance of political know-how and economic theory. As Frank says “Let the market do the hard work for us in changing our thinking towards environmental responsibility”.

Economics needs to direct the behaviour of consumers towards looking after the planet. Is Carbon Trading enough? A new economic paradigm is needed to ensure a liveable planet for future generations. It is time to discuss and plan for this evolution.

Frank De Jong will give his positive keynote “The Invisible Green Hand V the Time Famine”, then 3 panels will follow:
Policy Pathways: Carbon Trading v Carbon taxes. A crucial point in time demands we make the correct decision.
Siska Waddington (SKM)
Amanda McKenzie (Australian Youth Climate Coalition)
Tom Curtis (Earthsharing Australia)

Policy Possibilities: What are the cutting edge policy options? Also, the practical examples of effective green economics at work.
David Spratt (Carbon Equity)
Donna Lorenz (Maunsell Engineering)
Adrian Whitehead (Beyond Zero Emissions)

Policy Makers: What do the politicians see as possible and pragmatic? Is it genuinely possible to make policy that will stop runaway climate change? Eg, co2 below 550eppm
Senator Lyn Allison – Leader of the Australian Democrats
Evan Thornley – Parliamentary Secretary to the Premier (ALP)
Dr Richard Di Natale – Lead Senate Candidate – The Greens

15 minutes question time will follow each panel.

The Venue:
Swanston Hall - Melbourne Town Hall (to the left of the main stairs, enter from Swanston St)

Time
9.15 - 1pm

Science is leading the way with the evidence of global warming. The rapidly increasing cost of insurance is alerting us of the dangers to ignoring nature’s law.

The true cost of avoiding a transition towards a responsible economic system is quickly becoming apparent. Let’s insure against the power of nature by following the money trail and scientifically re-directing it towards a profitable future for all generations.

Free RSVP necessary