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Letter to the Editor
Mark Hassed
Cantebury

Contrary to David Morrell’s views that “you can’t go wrong land banking in Toorak” – “$25m house price: a record” (the Age, 5/3) – most if us would be better off without land banking.

Or at least those of us who want land to use as to opposed to make speculative profits with.

Published Monday March 8th

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MICHAEL HUDSON

Former Treasury Secretary Hank Paulson wrote an op-ed in The New York Times yesterday, February 16 outlining how to put the U.S. economy on rations. Not in those words, of course. Just the opposite: If the government hadn’t bailed out Wall Street’s bad loans, he claims, “unemployment could have exceeded the 25 per cent level of the Great Depression.” Without wealth at the top, there would be nothing to trickle down.

The reality, of course, is that bailing out casino capitalist speculators on the winning side of A.I.G.’s debt swaps and CDO derivatives didn’t save a single job. It certainly hasn’t lowered the economy’s debt overhead. But matters will soon improve, if Congress will dispel the present cloud of “uncertainty” as to whether any agency less friendly than the Federal Reserve might regulate the banks.

Paulson spelled out in step-by-step detail the strategy of “doing God’s work,” as his Goldman Sachs colleague Larry Blankfein sanctimoniously explained Adam Smith’s invisible hand. Now that pro-financial free-market doctrine is achieving the status of religion, I wonder whether this proposal violates the separation of church and state. Neoliberal economics may be a travesty of religion, but it is the closest thing to a Church that Americans have these days, replete with its Inquisition operating out of the universities of Chicago, Harvard and Columbia.

If the salvation is to give Wall Street a free hand, anathema is the proposed Consumer Financial Protection Agency intended to deter predatory behavior by mortgage lenders and credit-card issuers. The same day that Paulson’s op-ed appeared, the Financial Times published a report explaining that “Republicans say they are unconvinced that any regulator can even define systemic risk. … the whole concept is too vague for an immediate introduction of sweeping powers. …” Republican Senator Bob Corker from Tennessee was willing to join with the Democrats “to ensure ‘there is not some new roaming regulator out there … putting companies unbeknownst to them under its regime.”

Paulson uses the same argument: Because the instability extends not just to the banks but also to Fannie Mae and Freddie Mac, Lehman Brothers, A.I.G. and Wall Street underwriters, it would be folly to try to regulate the banks alone! And because the financial sector is so far-flung and complex, it is best to leave everything deregulated. Indeed, there simply is no time to discuss what kind of regulation is appropriate, except for the Fed’s familiar protective hand: “delays are creating uncertainty, undermining the ability of financial institutions to increase lending to businesses of all sizes that want to invest and fuel our recovery.” So Paulson’s crocodile tears are all for the people. (Except that the banks are not lending at home, but are shoveling money out of the U.S. economy as fast as they can.)

As Obama’s chief of staff Rahm Emanuel put it, a crisis is too good a thing to waste. Having created the crisis, Wall Street wants to use its momentum to knock out any potential checks to its power. “No systemic risk regulator, no matter how powerful, can be relied on to see everything and prevent future problems,” Paulson explained. “That’s why our regulatory system must reinforce the responsibility of lenders, investors, borrowers and all market participants to analyze risk and make informed decisions,” In other words, blame the victims! The way to protect victims of predatory bank lending (and crooked sales of junk securities) is not new regulations but just the opposite: “to simplify the patchwork quilt of regulatory agencies and improve transparency so that consumers and investors can punish excesses through their own informed investing decisions.” Simplification means the Fed, not a Consumer Financial Protection Agency.

Moving in for the kill, Paulson explains that the Treasury is bare, having used $13 trillion to bail out high finance in 2008-09. So he warns the government not to run a Keynesian-type budget deficit. The federal budget should move into balance or even surplus, even if this accelerates the rise in unemployment and decline in wage levels as the economy moves deeper into recession and debt deflation. “We must also tackle what is by far our greatest economic challenge — the reduction of budget deficits — a big part of which will involve reforming our major entitlement programs: Medicare, Medicaid and Social Security.” The economy thus is to be sacrificed to Wall Street rather than reforming finance so that it serves the economy more productively. It is simple mathematics to see that if the government cannot raise taxes, it must scale back Social Security, other social welfare spending and infrastructure spending.

What is remarkably left out of account is that today’s financial crisis, centered on public debts, is largely a fiscal crisis in character. It is caused by replacing progressive taxation with regressive taxes, and above all by untaxing finance and real estate. Take the case of California, where tears are being shed over the dismantling of the once elite University of California system. Since American independence, education has been financed by the property tax. But Proposition 13 has “freed” property from taxation – so that its rental value can be borrowed against and turned into interest payments to banks. California’s real estate costs are just as high with its property taxes frozen, but the rising rental value of land has been paid to the banks – forcing the state to slash its fiscal budget or else raise taxes on labor and consumers.

The link between financial and fiscal crisis – and hence the need for a symbiotic fiscal-financial reform – is just as clear in Europe. The Greek government has pre-sold its tax revenues from roads and other infrastructure to Wall Street, leaving less future revenue to pay its public debt. To cap matters, paying income tax is almost voluntary for wealthy Greeks. Tax evasion is hardly necessary in the post-Soviet states, where property is hardly taxed at all. (The flat tax falls almost entirely on labor.)

Throughout the world, scaling back the 20th century’s legacy of progressive taxation and untaxing real estate and finance has led to a public debt crisis. Property income hitherto paid to governments is now paid to the banks. And although Wall Street has extracted $13 trillion in bailouts just since October 2008, the thought of raising taxes on wealth to pay just $1 trillion over an entire decade for Social Security or health insurance is deemed a crisis that would lead Wall Street to shut down the economy. It is telling governments to shift to a regressive tax system to make up the fiscal shortfall by raising taxes on labor and cutting back public spending on the economy at large. This is what is plunging economies from California to Greece and the Baltics into fiscal and financial crisis. Wall Street’s solution – to balance the budget by cutting back the government’s social contract and deregulating finance all the more – will shrink the economy and make the budget deficits even more severe.

Financial speculators no doubt will clean up on the turmoil.

Read more by our favourite contemporary author at www.michael-hudson.com

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The Brumby government’s ill-fated Growth Areas Infrastructure Tax was defeated in the Victorian Senate last evening.

This spells the danger of poor land policy. Why did they attempt to charge $95,000 per hectare as a flat fee? Why wasn’t this infrastructure cost spread over a 20 year period as per traditional council bond funded infrastructure (repaid over time by the rating system – until neo-liberalism took over to undermine public finance)?

With developer’s squeezing at least 16 titles into each hectare, the per hectare land value would be worth approximately $4.5m (16 x $280,000). Even a more pessimistic price of $200,000 per possible title would deliver bucket loads to farmers.

Could farmers really look the people in the eye to say that they deserved to earn more in one foul swoop than they have over their entire life time?

The $95,000 per hectare flat tax was destined to cause controversy as it ignored those sites with access to nearby roads or services. This disadvantaged those farmers in poor locations, for which the media was made well aware of. Obviously, some sites would be more advantageous than others and so their land values would be higher.

Why didn’t the Brumby government communicate to MP’s and the public alike that firstly, huge millionaire windfalls would result from the re-zoning. With numbers please. Secondly, the naturally appreciating value of land.

Many criticisms would have been avoided if the government bond system of finance was repaid over the average 20 year lifetime of infrastructure by the landholders who benefited most from the new train stations etc.

As we show above, the $95K is minuscule compared to the land value per hectare post re-zoning. That’s barely 2% of the upkick. Worse yet, all this controversy for a GAIC that has been shown to only capture 15% of the projected infrastructure costs.

If the government was serious about financing such sprawl, it should implement a 10% land value capture policy on any re-zoned land. This will force the land to be used for it’s best and highest use (in this case housing). The farmer will still take home 90% of the windfall, but the public would receive some compensation for the privilege bestowed upon these landowners.

Readers of this site would understand that we would prefer to keep the 10% LVC charge in place and start removing stamp duty, payroll and the loophole ridden income tax. This would ensure that developers release all land to market asap, rather than drip feeding sites to the market over 18 years like Stockland have admitted at their Highlands sight in in Craigieburn. More positive spin offs can be seen here.

Who do rising property prices really benefit?

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Surprise! A new Age survey found that investors were concerned about the Henry Review’s proposed Resource Rent Tax:

… a staggering 92 per cent believed that the higher taxes would hurt the share prices of resource stocks. Long-term effects were also considered, with 25 per cent believing that a resource rental tax was ’short-sighted’ and likely to ‘damage mining’ as an industry. More frightening was that 45 per cent of investors said the implications of the tax would make them rethink their investments in the sector.

These figures suggest significant support for a mining campaign against the tax, at least among those actively in the stock market. However, the miners have a big job ahead of them balancing this campaign against an already-widespread perception among investors that the tax is damaging to earnings. Too vigorous a response could increase risk-aversion significantly.

The miners have some room to move. When asked about how the government should deal with any resistance to the tax, 42 per cent of investors reckon authorities should ‘give in’ to miner demands. If the miners threatened to move offshore, 23 per cent said ‘let them go’. The results sounded one note of caution in that 36% of investors agreed the government should counter-threaten with nationalisation of assets. This figure is likely to be higher among the general population.
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It seems investors are keen to fashion Australia’s economy into a resources powerhouse – with all of the population increases that entails – but they don’t want to pay for it.

With this BRIC-led resource boom in full steam, a number of countries are charging over 70% in Resource Rents (Norway, Bolivia, Bahrain). Let’s hope the Rudd government can keep the public’s interest front and centre when the lobbyists knock on their door. Extraction should never be confused with production.

Please read our Dec – Jan edition of Progress (8MB), a special on Resource Rents.

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Dr Gavin Putland

Taken from the Dec – Jan edition of Progress.
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If a “site” is a piece of ground or airspace, then the “rent” of the site is simple enough: it is the price per unit time that the highest rational bidder will pay for the use of that ground or airspace, subject to any legal constraints on the uses to which that ground or airspace may be put.

But what if the “site” confers — or simply is — the right to exploit a mineral deposit? At any given time, that right will command a rent of so much per year. But because the deposit is depletable, the time over which the rent can be collected is limited. Moreover, as other deposits are depleted, the value of this deposit will presumably increase over time.

“Hotelling’s rule” says that because the conservation of this resource must be competitive with other uses of capital, the capitalized rent per unit of the remaining portion of this deposit must increase at the going rate of interest, in which case the present value of the right to exploit the deposit is independent of the timing. But this rule assumes unrestricted competition between uses of “capital”.

If in fact the “capital” available to exploit this deposit comes from a limited pool of which the owners expect some element of economic rent, then the remaining portion of the deposit must appreciate faster than the going rate of interest in order to justify its conservation. If, in addition, this deposit is a small part of the global reserve, exploiting it faster will not significantly accelerate the appreciation of the remaining portion, in which case the company with access to the resource will simply deplete the resource as fast as its capital allows. That (as Michael Hudson told me in October) is what typically happens.
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