Our good friend Frank de Jong has set up Earthsharing Canada. Check the new look website where you can read Frank’s erudite writings like:

Untax Business, Uptax Nature
By Frank de Jong

Well, the federal political parties are saber rattling again, threatening an election over the corporate tax cuts which will be in the upcoming budget.

The Conservatives are sticking with their plan to roll back corporate taxes from 22% in 2007 to 15%, that corporate tax cuts are good for the economy…, while the Liberals say this is a bad idea in the face of a $56 billion deficit. The NDP are of course lined up behind the Libs.

Both sides are half right and half wrong, giving the Green Party an excellent opportunity to promote our economic program.

Harper is correct, corporate taxes are bad for the economy. Taxes on productive activities are “dead weight” taxes which make some marginal productive activities uneconomical that otherwise would be viable, creating jobs.

But the Libs and NDP are also right, that the gov should not run a deficit, should not mortgage our future, nor should it cut programs that hurt people, especially the vulnerable, and lower the quality of life.

Green economic theory agrees that governments should untax businesses to encourage economic activity, jobs, providing goods and services. There should be no taxes at all on businesses. We want businesses to be successful so why would we punish them with taxes??

But green economics is socially progressive and fiscally responsible, so clearly governments should not run deficits and governments need revenue to provide the programs we need and want.

What to do?

The Green Party solution is to untax people and businesses and instead generate needed revenue by collecting fees and levies on the use and abuse of nature. This approach will right-price nature, preserving it, and at the same time encourage businesses to be more resource efficient (conservation) and labour intensive (more jobs).

If the next federal election is fought over corporate tax cuts, we will have an excellent angle, a very strong platform.

Our slogans can be: Pay for what you burn, not for what you earn. Pay for what you take, not for what you make. The government should collect unearned income, not earned income. Government shouldn’t punish someone for having a job or punish a business for being successful!

By untaxing jobs and business and instead collecting “economic rent” (revenue without a corresponding cost of production), government would be putting renewables on a level playing field with fossil fuels, would make walkable communities attractive compared to sprawl, and bias organic, local agriculture over industrial/factory farming.

Land Value Taxation comes to Ireland

A very good development coming out of the Irish meltdown, the introduction of nation-wide land value taxation policy. http://www.thejournal.ie/government-announces-new-site-value-tax-from-20…

Site Value Taxation (or Land Value Taxation) is like the property tax except that it levies only the value of the lot underneath the buildings, not the value of the buildings (improvements). It is a tax shift, not a tax grab, since other taxes will be reduced.

One benefit is that it doesn’t punish those who renovate, expand or who build affordable housing. In Canada, multi-unit and commercial buildings pay 4 – 10 times the rate of detached houses.

Another is that it “right prices” land which will incent efficient land use, reducing sprawl. A vacant lot will carry the same charge as a lot with a building on it, encouraging people to build or sell, rather than hold land out of production for speculative purposes.

Also, assessments are more accurate and simpler when only the lot is assessed, and not the buildings, a problem which hit the papers in Ontario.

LVT is not just for the municipal level. The Ontario and Canadian governments should generate most of their revenue from land value taxes plus levies on resource use and pollution, in lieu of income, business or consumption taxes. Income and business taxes kill jobs and damage the economy, but taxing nature doesn’t.

“When capitalism started, nature was abundant and capital was scarce; it thus made sense to reward capital above all else. Today we’re awash in capital and literally running out of nature”, Peter Barnes, Capitalism 3.0

“A commons arises whenever a given community decides that it wishes to manage a resource in a collective manner, with special regard for equitable access, use and sustainability. It is a social form that has long lived in the shadows of our market culture, and now is on the rise.”, David Bollier, www.onthecommons.org
.

“Sacrifice of nature’s scarce services constitutes an increasing opportunity cost of growth, and that in turn means that nature must be priced, either explicitly or implicitly. But to whom should this price be paid?”, Herman Daly

These 3 quotes were part of a document we prepared for the Sustainable Living Festival. Download the double sided A4 paper Earth Based Economics and share it around.

Today I had the pleasure of seeing Professor Joseph Stiglitz speak on the topic of From Measuring Production to Measuring Well-Being, courtesy of the Economic Society of Australia.

I became a fan of his following his timely defection from the World Bank as outlined in Greg Palast’s The Globalizer Who Came in from the Cold. I read this article in my formative days of studying geonomics. Palast writes –

So then I turned on Stiglitz. OK, Mr Smart-Guy Professor, how would you help developing nations? Stiglitz proposed radical land reform, an attack at the heart of “landlordism,” on the usurious rents charged by the propertied oligarchies worldwide, typically 50% of a tenant’s crops. So I had to ask the professor: as you were top economist at the World Bank, why didn’t the Bank follow your advice?

“If you challenge [land ownership], that would be a change in the power of the elites. That’s not high on their agenda.” Apparently not.

Back to today’s talk.

Stiglitz framed the discussion around the importance of accurate information, following his specialty of asymmetrical information. The core focus was the need for a Green GDP measure. Paraphrasing his speech, he mentioned:

“What is measured, affects what we do. The distortion created by price (what you can con the market in to paying for a piece of land, for example) rather than value (what can be realistically earnt from that location) causes multiple problems. This lured 40% of all US investment to be channeled into real estate, delivering phony profits. 40% of all corporate profits in the years running up to the GFC bust were in finance. Again these were phony profits, not based on any form of productive value, and so were wiped out by the subsequent market correction.

This was an example of the economics of information. Measurements like GDP included phony profits, making countries look better than what life actually is for those on the ground. ‘Bad accounting leads to bad decisions.’”

Stiglitz segwayed onto the UN’s Human Development Index. He gave the tentative thumbs up to such measurements of the quality of life, saying that incorporating both health and education with GDP per capita was a more rounded measure. Eyebrows were raised when he commented that more weighting should be given to the health and education sectors of the UN HDI than economic growth.

He went on: “It would be negligent of a business not to depreciate it’s capital. This is a key component that all investors consider. Why then do we not incorporate a measure on natural resource depletion?”

Other statistical discrepancies of note included the predominance of mean measures for analysing incomes. The tremendous increase in the ultra wealthy over the last 30 years has dragged the mean upwards. Stiglitz was adamant that ‘more than all the growth in wealth was going to the top, none to the bottom tiers of society’. Far more accurate was to look at medians – measuring the income of those people half way between rich and poor.

As he has throughout the tour, Joseph threw his support behind the mining tax.

“Why does America return such poor results for the 16 – 17% of GDP spent on health? We spend a lot for so little in return. Infant mortality rates are comparable to the Developing World.”

Thoughts flowed to Alanna Hartzok’s 2006 tour when she discussed the Health Olympics (the greater the wealth gap, the poorer the health).

“But yet GDP was pushed higher by poor health outcomes (requiring even more spending).” Why not a similar Defence Spending Olympics as Joseph ridiculed how some US states spent more on new prisons than schools, despite the police and war efforts.

Professor Stiglitz concluded with the need for distinction between what society says makes it happy and what we end up doing. Families not eating together in the main was anathema to the common belief of the family first.

Measurements must reflect what we care about.

This brought me back to the MC’s opening remarks – ‘what doesn’t get measured doesn’t matter’. Why aren’t economic rents measured? Have we learnt anything from the land bubble – the giant black hole of economic analysis – that led to the GFC? Two income earners are working so many hours to cover the mortgage, no wonder they don’t eat together. How extensively would the Riches of Oz be unlocked if we captured the rents for all?

The question I would have asked if I had the chance was, ‘with price to value such an issue in a world of resource scarcity, when are we going to look beyond Reactive Economics (like struggling to find health finance) and look towards Preventative Economics (where our behaviour is influenced before the act)?’

Having sat directly behind Stiglitz pre-talk, I reminded my neighbour that I might have missed out on asking a question, but it was all about location, location. Soon Stiglitz had a copy of Hudson’s Counter-Enlightenment in the post talk rush to speak to him.

A quick prompt of him got the desired response – ‘I’m a huge fan of Henry George’.

With that I encourage you to read this insightful interview with Joesph Stiglitz (h/t – Geophilos & Wealth and Want:

Joseph Stiglitz: October 2002 Interview
with Christopher Williams, of the Robert Schalkenbach Foundation,
published in Geophilos, Spring, 2003

Q: I want to follow-up on what you had said some months ago about land reform:

JES: “The main, underlying idea of Henry George is the taxation of land and other natural resources. At the time, people thought, “not really that too,” but what was underlying his ideas is rent associated with things that are inelastically supplied, which are land and natural resources. And using natural resource extraction and using land rents as the basis of taxation is an argument that I think makes an awful lot of sense because it is a non-distortionary source of income and wealth.

Q: In Globalization and its Discontents, you write (p. 81): “But land reform represents a fundamental change in the structure of society, one that those in the elite that populates the finance ministries, those with whom the international financial institutions interact, do not necessarily like.”

JES: Yes. Let me try to approach the question a little more systematically. Once you take the perspective I just gave, that means the management should be done in such a way that it maximizes the amount of money available to the US government from natural resources because they are within its domain and control. So, looking at the United States, one of the implications of this is that a foundation such as yours [the Robert Schalkenbach Foundation, created to promote the ideas of Henry George, as expressed in Progress & Poverty] ought to be very much against the policies of the US government of giving away our natural resources. Here is a case where we not only are not taxing it much, we’re actually giving it away.

Q: I assume you’re speaking in particular of oil and mineral rights, but would not Broadband Spectrum rights also be included in that category?

JES: Yes, Broadband Spectrum rights as well. Now, giving away rights such as those would be anathema to the spirit of Henry George. And the second part is that when you sell them, you want to do so in such a way as to maximize the revenues. And whether you decide to sell it or whether you decide to rent it, would be the question of what is the way that maximizes the extraction of public revenues.

Q: And those revenues go to the people. Not to private concerns.

JES: Exactly. So you’re trying to say, from the perspective of public management, how can we take this inelastic supply of public resources and maximize the rents that we can extract from it, consistent with other public objectives? That is a very deep philosophical approach, and requires a re-thinking of how we manage all aspects of those public resources. However, much of what we do is inconsistent with that. Now, the issue of land reform is a little bit different. There, it’s a two-step analysis. My concern that I expressed about land is that in many developing countries, you have most land owned by a few rich people, and the land is relatively little taxed. But the land is worked in a system of sharecropping in which workers have to pay the landlord 50% of their output. In a way, you can look at that 50% as a tax. The sharecroppers are paying a 50% tax to the landlord. But it’s worse than a tax. Because it’s not a land tax, it’s a tax on their labor. And it’s a tax that goes to the landlord rather than to society. So the notion is that land reform could take a variety of different forms. For instance, the government could take over the land and rent it to the people. Or give it to the people and have a land tax that would not have the distortionary effect of land reform. So, in a way, these systems of share-cropping are worse even than anything that Henry George was worried about in terms of misuse of land.

Q: However, when you speak of land reform, do you have concerns about compensation as an issue in its implementation?

JES: That is one of the key issues. And there’s a program at the World Bank that’s been started in Brazil, which is called “Market-Based Land Reform” where they buy the land and give it or sell it to the workers. They use government power to obtain the right to buy it.

Q: Has President Mugabe of Zimbabwe’s misuse of government power to return land to its so-called “rightful owners” given land reform a bad name?

JES: That’s true, but it doesn’t have to be done that way. Now, one of the things that is again in the spirit of Henry George is that, if you have land taxes, then the market value of land goes down. What you’re willing to pay for land is the difference between what you pay and what you get to keep after paying your land taxes. So, in a Henry George world, the amount of compensation would be very low. So one could argue that moving toward a land tax would facilitate that reform. Once we raise rates on land taxes, the market value will have to go down. The government can buy the land and redistribute it to the workers, and they then would be able to keep the fruits of their labor. They will continue to pay the land tax, but the product of their own efforts — their labor — will be their own, as opposed to sharing fifty percent with the landlord.

Q: Do you think land reform could possibly find a way onto the political agenda in the United States?

JES: No. Land reform is not a big issue in the United States because we don’t have a lot of sharecropping. There’s some, but it’s very limited.

Q: What countries do you regard as the most politically open to tax reform as a means of achieving meaningful land reform?

JES: I think some countries in South America are moving in that direction. They’re beginning to do this form of taxation because they want the land to be utilized. Some people own land but make no use of it.

Q: You mentioned the World Bank’s program titled “Market-Based Land Reform.” Is that the only international forum in which there is a chance of gaining politically-effective support for “land value taxation” as an instrument for land reform?

JES: There’s not a lot [of] discussion going on in those circles about land reform. The World Bank is still talking about it, as in the program I was talking about. And certain countries are continuing to talk about it within themselves. But the IMF is not, and I don’t know of any NGO (nongovernmental organization) that is.

Q: What are the greatest political obstacles confronting developing countries to the extraction of economic “rent” for public purposes? Is it simply a matter of “vested interests?”

JES: Yes, it’s not very complicated. You know, in the Clinton Administration, we tried to reform the disposition of natural resources — mineral rights — by saying the US Government should not be giving this away to a few wealthy people. But the mining interests were adamant in opposing this reform.

Q: In your opinion, would it be more effective to attempt to achieve support from economists about the need for such reform, or to bypass them in seeking to build popular support independently from them, in that the views of mainstream economists on the topic of land reform might fairly be characterized as an “intransigent”?

JES: There are some economists who are interested in this. I think most economists would like the idea, and would support it. But, economists spend their time on things that they think have marketability. So it isn’t that they don’t think it’s a good idea; they don’t think there’s any resonance in it. President Bush is still talking about the inheritance tax, and income tax, and they want to get involved in what other people are talking about. It’s a social phenomenon, I think. So, if you get a lot of other people talking about it, then they’ll join the fray.

Q: You are aware that Henry George was a critic of the moral foundations of our economic institutions. What do you think of reform efforts toward land value taxation based on an appeal to morality?

JES: What it fits into is that there is a wide view today that we should tax environmental “bads” such as pollution and the like. And switch from taxing good things like labor. So, in a way, that’s where it comes in: let’s stop taxing good things like labor, and tax things that are resources. So the argument is, “why tax things that are contributing to society?”

Q: I’d like to move to topics related to globalization because I read your book, Globalization and its Discontents, and, like many other people, found it fascinating. What has happened to the idealism that was supposed to make institutions such as the World Bank and IMF serve the inclusive interests of everyone in what was then called the Third World? You make the point that these have become institutions that serve the interests of wealthy nations almost to the detriment of poorer ones.

JES: The problem is that they believe that by helping the rich you help the poor.

Q: The old “trickle down” theory?

JES: Yes, “trickle down.”

Q: But that’s been fairly discredited, hasn’t it?

JES: Yes, it has. But as a general phenomenon, nobody likes to think badly of themselves. They always end up in arguments about why it’s in the “General Good.” But, on the other hand, I think that self-interest is a very strong force. That’s what Adam Smith said, and I see it all the time.

Q: But haven’t these institutions detached themselves from the grass-root interests of land-less people around the world?

JES: The IMF never thought of itself in that way. It began as a club of the rich countries to help each other out. And when the colonies got released, and the developed countries managed their own economies better, they went in and became the new imperialist power. That’s an over-simplification, but they then became the agents of the advanced industrialized countries.

Q: You criticized “The Washington Consensus.” From reading your book, I see that you summarize that set of doctrines as “1) Fiscal Austerity, 2) Privatization, and 3) Market Liberalization.” What are, in your view, the central weaknesses of the policies that flow from the Consensus?

JES: It didn’t work. I mean, the weaknesses are not that these are necessarily bad in their own right, but it’s the balance. Fiscal prudence is a good thing. But they pushed it beyond where it ought to have been. Market Liberalization is a good thing, but not if it’s done too fast.

Q: Would you say, then, that there is a structural flaw in the market system?

JES: There are many limitations. We all know that there are lots of examples where markets fail, and you need a role for government. So where the structural problem is, it’s their belief that there’s not a role for government to play. And that markets can solve every problem. That’s the structural failure: “Markets are perfect, and can solve every problem.”

Q: For this interview, I also read George Soros’ book, On Globalization, which I know you reviewed in the New York Review of Books. In it he states, “It is market fundamentalism, which holds that the social good is best served by allowing people to pursue their self-interest without any thought for the social good — the two being identical — that is a perversion of human nature” (p.179).

JES: Yes, George and I are very similar in our views.

Q: Don’t you think we need to go deeper and look at the rules that govern the unequal bargaining power between the rich and the poor? Isn’t that what really has to be attacked?

JES: Yes, that’s what I’m saying in the book. The underlying problem is the way the rules are made. If the rules are bad, you need to ask the question, “how did those rules get established?” And it’s the processes by which the rules get made that is the underlying source of the problem.

Q: Do you think that changing the rules is possible?

JES: I wrote the book because I believe that, in a democratic society, pressure can be brought to bear on the rule-making process. As you become aware of who’s at the table, why things are biased, they’re responding, criticizing. Even if it doesn’t quickly change, it circumscribes the ability to continue with self-interest. The World Bank is already changing enormously. That was relatively easy. President Clinton appointed someone who has a very different mind-set from previous World Bank presidents. The rest is very hard. The IMF has not made that kind of change. It’s still a long, hard road for both of them. In some ways the WTO [World Trade Organization] is in an even more difficult position. But that’s the great thing about democracy: we have so many critics. We have newspapers, and people like me and George Soros writing books.

Q: Aren’t you also saying that the real impetus will come from democratically-elected representatives with the political power to make changes?

JES: But they also respond to public pressure. In the last Presidential Debate between Bush and Gore, both sides said that we had to change the IMF. Clearly, the issue of the IMF had raised itself to a level — it’s still not in everyday talk in that it’s not what most Americans think about — that it got thirty seconds or a full minute in a Presidential Debate between Bush and Gore. Well, that’s a big achievement from where it was before. The IMF is a very important institution for developing countries and most Americans have never heard of it.

Q: I was at a conference recently on the French concept of “mondialization” as opposed to “globalization.” The French consider the spirit of “mondialization” to be more “generous” towards less developed countries, in contrast to the American idea of pursuing our national interest without regard to theirs. Would you call yourself a proponent of “mondialization” rather than of “globalization”?

JES: It is interesting that my book has been selling fantastically in France, so they obviously sense the commonality on our views.

Q: Let me ask you about Russia. President Putin has been a prominent advocate of the need to shift the fiscal base away from people’s wages and savings and on to the rents of natural resources. But this strategy flew in the face of conventional tax wisdom, which favored a “broad tax base” that included the use of “stealth” taxes. The IMF, by its actions (if not its public declarations), strenuously opposed the Putin strategy. What might President Putin do to remain engaged in the process of pro-market reforms while retaining the support of foreign investors and at the same time shifting the tax base on to the rents to be derived from Russia’s natural resources?

JES: Russia provides another good example of what I’ve been talking about. The fact is that their economy has been imploding. And it’s become nothing more than a natural resource economy as a percentage of the GDP — about 60 to 70%. At that point, natural resources become the only major source of revenue. So they’ve been forced to move in that direction by necessity. And, obviously there’s a political economy tension: the rich guys don’t want to give it up. But that’s the distinction they’re going to move in because there’s no alternative.

Q: Your academic work led you to formulate what you called “The Henry George Theorem.” This demonstrated that public spending — where this was efficient — generated additional rental value that surfaced in the land market. Other distinguished scholars, such as the late Nobel prize winner, William Vickrey, confirmed your findings. You also noted in one of your books, co-written with Anthony Atkinson, that the Henry George Theorem was attractive both because it was the revenue-raiser that did not distort private incentives and because “it is the ‘single tax’ required to finance the public good.” [Anthony B. Atkinson & Joseph E. Stiglitz, Lectures on Public Economics, London: McGraw-Hill, 1980, p. 525] Now, public investment, unless of the wasteful kind designed to serve the privileged interests of rent seekers (the classic type being a land speculator), should be viewed as working in partnership with the private sector and not a drain on the community. How can the reputation of publicly provided services and investments be rescued?

JES: That’s a very good question. What we did when I was at the Council of Economic Advisors was some studies to try to show what the social returns would be to public investment in R&D, etc. And we became convinced that the rates of return of those investments are very high. So you ask the question, “what can we do to restore confidence in public investment?” We need to realize how much we depend on them. I keep telling people, “The Internet.” That’s one example. It was publicly funded. It’s now a public-private partnership. The government did the basic research, and the private sector ran off with it. But, arguably, we would never have had the Internet if it were not for government expenditure. So I think a major industry in the United States — biotech — is based on NIH (National Institutes of Health). NIH does all the basic research.

Q: From the conference on “mondialization,” I saw a major difference in attitude among the French with regard to public investment. The French believe strongly in public funds for public works, whereas Americans believe they shouldn’t be taxed more in order to support public projects. Which view do you agree with?

JES: There’s been a lot of so-called “bad rhetoric” in this whole area. The real point is that we need to recognize that there are some things in the area of “the public sphere.” We’re not having investment in basic research; we need to have the government do it. And that’s what I’ve consistently been arguing; you don’t want the government building steel factories. But you do want the government doing certain research, and the relative size of that depends on the society. Right now, we should be spending far more on basic research. So what is the message. I think how much we depend on the government. And the new economy, we take it for granted, but it is the public sector. I think you’re right that we have the wrong view. But I keep saying, “The Internet.” How much as it changed our lives? And it’s [the result of] the government.

Q: And yet, in American society, the idea is instilled that one ought to take for one’s own benefit, so as to have the big cars and houses, etc., that will impress other people, rather than to give in order to promote a public benefit. Aren’t those the actual values of American society?

JES: We need to realize that our livelihood today depends on our innovation, and our innovation depends on our sciences. Our livelihood depends on our global position. For example, we have to be able to fly, to go to the airports.

Q: I wanted to ask your view on the adequacy of land as a tax base. At one time, as you know, there was a “Single Tax” movement, for the purpose of deriving revenues sufficient to run the government solely from land value taxation. In your view, how feasible is that today?

JES: Most economists would say that you cannot run the US economy on the “Single Tax.” In my mind, the “Single Tax” is the wrong way to think about it. The question is: “Would it be better if we had more taxation of land and natural resource, and more revenue from natural resource management, and I would include atmosphere and spectrum.” And less tax on income and savings. And I would say, “Yeah.” And I think many economists would agree with that. So, if you want to sell it as a “Single Tax,” then, no, you won’t get anyone to agree that there’s enough revenue there. If you look at is a more “central” tax, then, yes, you will get most economists to agree with you.

Q: A former Director of Robert Schalkenbach Foundation was given a grant recently to research the adequacy of land as a tax base. He’s a professor at the University of California, Riverside, named Mason Gaffney, and he wrote a book titled, “The Corruption of Economics.” Are you familiar with his work?

JES: No.

Q: I’ll send you a copy of the book. Basically, he argues that the founders of neo-classical economics, which, as you know, is the paradigm taught in schools such as the University of Chicago, distorted the science of economics to protect vested interests. For example, Rockefeller money was spent to hire professors of economics with a view to their discrediting the ideas of Henry George. Did that happen?

JES: My general impression is that most donors that give money to universities don’t take a very strong view of [who should be on] the faculty. Sometimes it ends up on one side, sometimes on the other. It would have been unusual [at Chicago], but it could have happened there. What is striking about Chicago as a school of economic theory is that it’s very conservative. One would have thought that Henry George was someone who would have been liked by “Conservatives.”

Q: In that George wanted to reduce tax on the fruits of one’s own labor?

JES: Exactly. And you want non-distortionary taxes, so I would have thought that every “Conservative” would be in Henry George’s camp. Now, as far as I know, I’m one of the few people who keeps emphasizing that you ought to view Henry George in a broader way, to include natural resources. I didn’t think that people thought about that a hundred years ago. But if they had, and maybe Rockefeller was smart — he realized that he obviously didn’t want a tax on natural resources.

Q: He wouldn’t have wanted rents flowing from natural resources to go to the people rather than to him.

JES: Yes, he obviously wouldn’t like that perspective. But I don’t know if that view was at that time recognized, and I just don’t know whether he actively intervened at Chicago.

www.wealthandwant.com

… because democracy alone hasn’t yet led to a society in which all can prosper

photo credit: SvenDowideit

Respected Ecological Economists Herman Daly writes in Modernizing Henry George:

Economists have traditionally considered nature to be infinite relative to the economy, and therefore not scarce, and therefore properly priced at zero. But the biosphere is now scarce, and becoming more so every day as a result of growth of its large and dependent subsystem, the macro-economy.

As the macro-economy expands into the ecosystem it displaces what was there before, namely habitat of other species (and of indigenous and poor members of our own species). Consequently, biodiversity decline is a salient index of the increasing scarcity of nature, as is involuntary resettlement of people to make way for dams, mines, soybeans, and cattle; and of course increasing depletion and pollution.

Sacrifice of nature’s scarce services constitutes an increasing opportunity cost of growth, and that in turn means that nature must be priced, either explicitly or implicitly. But to whom should this price be paid? Nature would prefer not to sell herself, but if forced to it by growth, would at least like to divide equally among her children the revenue from the forced sale of her previous gifts. From the point of view of efficiency it does not matter who receives the price, as long as it is counted and paid by the users. But from the point of view of equity it matters a great deal who receives the price for nature’s increasingly scarce services. Such payment is the ideal source of funds with which to finance public goods, and to redistribute to the poor.

“Value added” belongs to whoever added it. But the original value of that to which further value is added by labor and capital, the value of scarce natural resources and natural services, should belong to everyone. It is the original commonwealth. These “payments to nature” should be the focus of redistributive efforts.

Payment for what is now too scarce to be treated as a free gift is measured and appropriated by markets as a rent (payment in excess of necessary supply price). Rent is unearned income to the recipient, but allocative efficiency requires that it be paid by the user of the resource. Taxation of value added by labor and capital is certainly legitimate. But it is both more legitimate and less necessary after we have, as much as possible, captured natural resource rents for public revenue.

The above seems to be the basic insight of early American economist Henry George (1839-1897) who applied it specifically to rent on the scarcity of desirable locations of land rather than to rents on natural resource scarcity in general. Could we not extend Henry George’s logic to resources in general? For resources the necessary supply price is the cost of extraction — so any payment above cost of extraction is rent. Since land has no cost of extraction all payment for land is rent. If no rent is paid, land does not cease to exist. Neoclassical economists accept this definition of rent but resist Henry George’s ethical emphasis on rent as unearned income.

The modern form of the Georgist insight is to tax the rent from land, and by extension from natural resources and services of nature, and to use these funds for fighting poverty and for financing public goods. Or we could simply create a trust fund from these rents, and disburse the earnings from it to all citizens, as in the Alaska Permanent Fund. Our present practice of taxing away a lot of the value added by individuals from applying their own labor and capital creates resentment, and discourages the supply of labor and capital.

Taxing away value that no one added, scarcity rents on nature’s contribution, does not create as much resentment, and the resentment it does cause is less justified. In fact, failing to tax away the scarcity rents to nature and letting them accrue as unearned income to a landlord class has long been a primary source of resentment and social conflict. Furthermore, taxing land and resource rent does not diminish their quantity. Soviet communists tried for a while to abolish the category of rent because it represented unearned income — a part of “surplus value” like profit and interest. They jumped to the conclusion that therefore resources and land must be free. But that makes it impossible to allocate resources efficiently.

Better to follow Henry George and retain rent as a necessary price for measuring opportunity cost, but to then tax it away as unearned income to the landlords. The more we tax away rent the less we have to tax the value added by human labor and capital.

Charging scarcity rents on natural resources and redistributing them to the commonwealth can be effected either by ecological tax reform, or by quantitative cap-auction-trade systems. In differing ways each would limit expansion of the scale of the economy into the biosphere, thereby preserving biodiversity and also providing revenue to run the commonwealth. I will not discuss their relative merits here, but rather emphasize the advantage that both have over the currently favored strategy. The currently favored strategy might be called “efficiency first” in distinction to the “frugality first” principle embodied in each of the policies mentioned above.

“Efficiency first” sounds good, especially when referred to as “win-win” strategies, or more picturesquely as “picking the low-hanging fruit.” But the problem of “efficiency first” is with what comes second. An improvement in efficiency by itself is equivalent to having an increased supply of the resource whose efficiency increased. The price of that resource will decline. More uses for the now cheaper resource will be made. We will end up consuming perhaps as much or more of the resource than before, albeit more efficiently, as pointed out in the nineteenth century words of economist William Stanley Jevons:

“It is wholly a confusion of ideas to suppose that the economical [efficient] use of fuel is equivalent to a diminished consumption. The very contrary is the truth.” (The Coal Question, 1866, p. 123)

We need frugality (diminished consumption) more than efficiency. “Frugality first” induces efficiency as a secondary consequence, an adaptation; efficiency first does not induce frugality — it makes frugality less necessary, and it does not give rise to a scarcity rent that can be redistributed. Let us put frugality first by reducing physical throughput with ecological tax reform and/or cap-auction-trade systems for basic resources, and by so doing both avoid the Jevons effect and collect the scarcity rents on nature for the commonwealth rather than the elite.

If we could directly limit population and per capita resource use (scale of the macro-economy) to a level that nature could easily sustain, then nature’s services could remain free. But if we insist that population and per capita consumption must be free to grow, then the rising cost of natural resources must indirectly limit growth, and the question of who receives the increasing rent (who owns nature) will become ever more pressing, and Henry George’s thinking ever more relevant. Alternatively, our increasing takeover of nature will, beyond some point, render moot the question of distribution of rents by eliminating all potential claimants! When an overloaded ship sinks all aboard drown — even if the overload is justly distributed and efficiently allocated!

photo credit: Maria Gertsovskaya

From South Africa to Bolivia to here in Australia, the failure to approach land as a human right rather than a speculative kite is breeding dangerous undercurrents amongst those excluded from ‘the property game’.

The young firebrand South African ANC youth leader Julius Malema again fired up the masses with these comments:

“You need land to do everything. Without land voting means nothing,” he said.

Malema said South Africans can vote until they are purple.

He said as long as they did not have the economy of South Africa their votes were useless.

“You vote and you still go beg,” he said.

An economic democracy is vital. We need our birth rights, our earth rights. Speculative privileges have superseded those fundamental rights through distortions in the tax system. Julius went on:

—
Malema said he was told one should not talk politics of land and property or nationalisation because it would scare investors away.

“They invest in countries where there are civil wars. ” he said, adding that people should not believe the “lies” that investors would be scared off by talks of nationalisation.

Malema said Investors did not care about people and that they were interested in making profit.

Last night’s Today Tonight rang loud on the fear of Chinese investors buying up Australia. If a higher and flatter Land Tax was implemented on land valued yearly, the profits that attract foreign investors and agri-business would be greatly wound back.

Foreign investment in property is unproductive. No matter how much money is invested, investors can’t make any more land. The profits inherent in land as a scarce resource are the magnet for investment. It has little to do with providing housing for slum dwellers.

With our system there would be a re-balance away from land based profiteering and towards the provision of housing for a steady rate of return.

Nationalisation is not necessary. What is vital is capturing the community created rent (that capitalises into the massive property based profits). Private possession of land is still sacrosanct.

The catch is that this possession is based on the yearly payment of a land rent back to the community (once known as the government) in respect for the privilege of being a custodian of that piece of land. Outright ownership for 99 years is no longer reliant upon on a huge loan to banks.

The ANC has ignored the warnings of South African colleagues such as Godfrey Dunkley that bureaucratic land reform is a slowly imploding mess (witness Zimbabwe, not matter what the role of the IMF/ WB). Legal stouches and community infighting hamper who gets the land by the river and who gets to live next to the dusty quarry.

No farmer no matter what skin colour will voluntarily give up land they have cared for. Perhaps Mugabe and SA’s Zuma need to look at the speculative elite rather than race. Even then, we can’t put the blame on those lucky few, it is the system that needs changing.

Market forces directed by the tax system can do this much more effectively.

After 30 years of neoliberal dominance it is time that the people stood up and promoted an economic policy that delivers reward for effort for businessmen whilst simultaneously protecting the environment with a True Cost Economics system. Read more

Taking our lead from a superb weekend of discussions amongst a gamut of switched on thinkers at the Sustainable Living Festival, Karl Fitzgerald and Andy Moore presented the Renegade Economists live from the event.

During the show we ran through a dream list of predictions for a Transition Decade to sustainability

Listen to the show (right click to download) as we make our way through:

2010
• Speculators Savaged by GFC

2011
• Vested Interests Exposed
• Lobbyocracy Outlawed

2012
• The People Awaken

2013
• Election based on Geonomics Tax Reform
• Income Tax Halved
• Stamp Duty abolished
• Land Rent system imposed (5% on yearly land valuations)
• Carbon Tax system starts with great fanfare
• Profits soar in green industries
• Affordability improves

2014
• Geonomics system expands
• Payroll Tax removed
• Company tax abolished
• Resource Rents capture 80% of mining profits
• Natural Monopolies pay annual license on value of privilege (ie banks, phone, water companies)
• Wage levels shoot up as less paid in rent
• Tax incentives for localised bio-char projects
• Council rates change to Site Value only (improvements no longer taxed)

2015
• Scare campaign by vested interests shot down by Chris Judd
• Urban Density, walkability jump
• Citizens paid for Eco System Services management
• Community Land Trusts surge in popularity
• Lord Mockton admits he was wrong

2016
• 7th new (magnetic) train line built in Melb
• 60% of houses have govt funded solar/ micro power generation

2017
• Carbon Taxes increased, air pressured cars outsell petrol

2018
• Extra government finance piled into saving plankton (possible as
  tax havens now rendered obsolete)

2019
• Govt encourages people to work from home
• People work less hours as less needed for mortgage

2020
• Greens around the world are thanked for saving the planet

photo credit: sigmaman

In Revenue Sharing – A Piece of the Pie John Cutfeet says:

I recently heard an Elder say that we, as the First Peoples, were given resources by the Creator from which we can make a living. He said, “God gave us resources to use from our lands. Our people did commercial fishing where we sold fish to make a living. We have the land and resources we can use instead of not doing anything with it.”

This message by the Elders has been consistent throughout the years and has been voiced repeatedly. When our forefathers engaged in the treaty-making process, they understood that they were agreeing to share the land and the benefits it provides with the newcomers.
Unfortunately, the text of the treaty does not reflect the discussions as remembered by the elders. They recall agreeing to share the lands and its resources for mutual benefit and not mass land surrender.

The shadows of the Copenhagen climate conference provide an opportune time to review our operating system and it’s pursuit of creating carbon permits for carbon speculators AKA carbon cowboys acting out as financial middlemen.

The short term mentality of quarterly dividend payments curtails the western CEO from thinking of future generations. Easy profits are delivered by the economic rents inherent in mining, land speculation or the ownership of any resource that is scarce. This gives modern economics a one-eyed view of the importance of scarce resources.

What justification do mainstream religious leaders give themselves late at night with the disjoint between the sentiment of their teachings and the outcomes of society as dictated by the economic system?

If nature’s wealth is shared amongst all, and not just the shareholders and privateers, then equality of opportunity is encouraged. Read this report on Valuing Common Assets and read more here for background.

Indigenous practice for thousands of years saw this work effectively and sustainably.

We believe that speculation on the licensed monopolies of scarce resources (also our DNA, copyright, fishing licenses) drives the rest of the economic juggernaut to cut corners. A coffee shop is forced to do this to keep up with the average 15.5% return over the last decade for land speculators here in Australia (where our land bubble still hasn’t popped).

Once speculators are signaled to stop their destructive practices of price inflation, then the cost of living returns to a more sustainable level. The implementation of a true cost economics system does this by penalising speculation and penalises pollution. Urban density, walkable communities and $1 train rides on an expanded network are all possible.

So too is more affordable housing, a decentralised push back out of our mega-cities and into the bush (where land values are lower and thus so are taxes) and even increased small business. The access to cheaper land with a simpler tax framework encourages the everyday person to follow their dreams into a start-up. The competition for labour heats up and because less is being paid for in rent, there is more to pay wages.

This all assists in undoing the forces that are driving the wealth gap. The chasm between private interests and the public good finds harmony when public works benefit all citizens equally, rather than delivering windfall gains for the lucky few who ‘own’ land.

A strong link with indigenous leaders will one day be made upon the common ground that the earth’s worth is for all and not just the privileged few. Can trust in market forces ever be rekindled? We like to think so.

A kilogram of beef contains between 15,000 and 100,000 litres of embodied water. For every kilogram of wheat grown in Australia, seven kilograms of topsoil are lost. We give lip service to concerns about peak oil and greenhouse gases, yet our agricultural industry is utterly dependent on unsustainable quantities of polluting petrochemicals.

There’s no reason why this insanity can’t be quickly and effortlessly changed to a geoist system of economics which inherently recognises the true value of natural resources. The major obstacle to change actually lies with the peddlers of our current neoclassical economics. You can side with these peddlers and relax, ignore the food riots, have a beer and flick on the TV, or you can come and be prepared in the knowledge that will help in the transition away from the consequences of our dietary choices.

Speaker: Karl Williams (a.k.a. Mr. Ed)
Time: 7 pm, Friday August 1st
Venue: EarthSharing Australia, 1st Floor, 27 Hardware Lane, Melbourne

All welcome, light supper provided, gold coin donation,RSVP appreciated to Karl Fitzgerald or via 9670-2754