Prosper Australia

photo credit: kevindooley

Michael Hudson

Originally posted at Counter Punch

Paul Samuelson, America’s best known economist, died on Sunday Dec 13th. He was awarded the Nobel prize for economics, (founded one year earlier by a Swedish bank in 1970 “in honor of Alfred Nobel”). That award elicited this trenchant critique, published by Michael Hudson in Commonweal, December 18, 1970. The essay was titled “Does economics deserve a Nobel prize? (And by the way, does Samuelson deserve one?)”

It is bad enough that the field of psychology has for so long been a non-social science, viewing the motive forces of personality as deriving from internal psychic experiences rather than from man’s interaction with his social setting. Similarly in the field of economics: since its “utilitarian” revolution about a century ago, this discipline has also abandoned its analysis of the objective world and its political, economic productive relations in favor of more introverted, utilitarian and welfare-oriented norms. Moral speculations concerning mathematical psychics have come to displace the once-social science of political economy.

To a large extent the discipline’s revolt against British classical political economy was a reaction against Marxism, which represented the logical culmination of classical Ricardian economics and its paramount emphasis on the conditions of production. Following the counter-revolution, the motive force of economic behavior came to be viewed as stemming from man’s wants rather than from his productive capacities, organization of production, and the social relations that followed therefrom. By the postwar period the anti-classical revolution (curiously termed neo-classical by its participants) had carried the day. Its major textbook of indoctrination was Paul Samuelson’s Economics.

Today, virtually all established economists are products of this anti-classical revolution, which I myself am tempted to call a revolution against economic analysis per se. The established practitioners of economics are uniformly negligent of the social preconditions and consequences of man’s economic activity. In this lies their shortcoming, as well as that of the newly-instituted Economics Prize granted by the Swedish Academy: at least for the next decade it must perforce remain a prize for non-economics, or at best superfluous economics. Should it therefore be given at all?

This is only the second year in which the Economics prize has been awarded, and the first time it has been granted to a single individual — Paul Samuelson — described in the words of a jubilant New York Times editorial as “the world’s greatest pure economic theorist.” And yet the body of doctrine that Samuelson espouses is one of the major reasons why economics students enrolled in the nation’s colleges have been declining in number. For they are, I am glad to say, appalled at the irrelevant nature of the discipline as it is now taught, impatient with its inability to describe the problems which plague the world in which they live, and increasingly resentful of its explaining away the most apparent problems which first attracted them to the subject.

The trouble with the Nobel Award is not so much its choice of man (although I shall have more to say later as to the implications of the choice of Samuelson), but its designation of economics as a scientific field worthy of receiving a Nobel prize at all. In the prize committee’s words, Mr. Samuelson received the award for the “scientific work through which he has developed static and dynamic economic theory and actively contributed to raising the level of analysis in economic science. . . .”

What is the nature of this science? Can it be “scientific” to promulgate theories that do not describe economic reality as it unfolds in its historical context, and which lead to economic imbalance when applied? Is economics really an applied science at all? Of course it is implemented in practice, but with a noteworthy lack of success in recent years on the part of all the major economic schools, from the post-Keynesians to the monetarists.
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photo credit: mugley

The plot thickens with Glenn Milne reporting

THE Federal Government’s biggest tax inquiry in more than two decades is set to propose a national land tax, a new resource tax and a congestion tax for clogged cities.

The Henry Review, by Treasury head Ken Henry, is also expected to canvass a federal clawback of GST revenues, which now go entirely to the states, to fund the Government’s proposed takeover of the public hospital system.

Dr Henry’s report, due at the end of the month, is also believed to favour a national payroll tax to replace the state system.

One of its controversial proposals is for a national land tax to replace state-based stamp duties payable on the sale of homes and investment properties.

A national land tax would open up the Government to claims of taxing the family home. But it could mean big savings for many Victorians – for houses priced $550,000 and under Victorian homebuyers pay $14,370 more in stamp duty than Queenslanders.

There are many other advantages of a move towards a Land Tax, especially the signal it sends our bloated property market that land speculation is a destructive practice. Such a replacement of stamp duties will remove an impediment to property turnover, helping the market reach a truer price discovery. The efficiency gains this will deliver are undeniable amongst independent economists.

With foreign investment in property growing, having a uniform Land Tax rate will assist the people in sharing from the ever increasing value of land. It also signals in a globalised world where capital is just so mobile, that a Land Tax is the fairest way to ensure that all pay their fair share. Wealth cannot be off-shored under this system.

The move towards a resource rent tax on mining companies is another admission that the earth’s scarce resources are part of our common wealth. Why should workers be taxed so that the privileged can make money in their sleep through resource speculation and hoarding? Check some of our recent tax submissions.

An interesting Christmas break to come…

photo credit: D.Reichardt

Regarding NZ’s Buckley Tax Review, Promises and Costs of a Land Tax :

On the one hand, a land tax would induce farmers to make the best possible use of their land, since the tax would be levied regardless of whether the land was in production. But on the downside, this could encourage over-use – since fields lying fallow would still be being taxed – and would probably result in the elimination of much of the remaining native bush on which some of our endangered birdlife still depend.

The over-farming issue is a common misnomer. Farmers live in areas with a lower per acre land value than in a central location of any city. They will have a tax advantage over city slickers with higher land values and therefore land taxes.

The key is that the land is valued yearly. This must be done. Farming land will then be worth more in good crop seasons and less in years of drought. This reduces the need to over-use land.

With the overall tax burden revenue neutral but yet city people paying more of the mix, farmers can afford to let their fields re-generate.

With less incentive for farmers to sub-divide their property on the edge of towns (because Land Tax reduces the speculative windfall), this policy can help ensure they use their land for productive purposes. This reduces the need to cull any more old growth forestry.

With humanity’s survival in the balance, the importance of carbon sinks will rapidly evolve in the very near future. This will provide an additional incentive to the Land Tax system in valuing the earth and in effect re-balancing the playing field back to a de-centralised model.

To ensure the policy is effective as possible, the local municipal rating should be moved off improvements and onto land only. Why penalise capital investment?

photo credit: Compound Eye – on Fall 09 Colorado Review cover

Gordon Brown’s increasingly populist policies have leapt to a new level of desperation. Reflecting the severity of the economic malaise in England, the British government has announced a new 50% super tax on banker’s bonuses (above 25,000 pounds).

One can guess the outrage, one can guess the flight of skilled workers. Now the media war is on.

Britain’s financiers and entrepreneurs are quitting the UK at a rate of 10 a week to avoid Labour’s new 50% taxes.

So ten bankers have threatened to leave and now the British public is threatened with a ‘$178bn budgetary black hole’? How to work a headline…

If the government was serious about deep seated reform and wanted to keep it’s most talented minds, it would move swiftly to turn off the speculative largesse by imposing a 10% Land Tax, with all land valued yearly. Nobody can offshore their land. And a cut in VAT and payroll tax would be the trade-off. Remember the People’s Budget of 1909?

What has been the go-to-solution? Doug Noland reports in First Dubai

The entire US financial and economic recovery rests on a flimsy foundation of a highly distorted Treasury and agency market bubble.

Some major European figures are commenting:

Awarding big bonuses to bankers could help sow the seeds of a future financial crisis, Jean-Claude Trichet, European Central Bank president, has warned.

Mr Trichet said financial institutions should be using higher profits to strengthen their capital bases rather than paying out “unwarranted levels of compensation or bonuses”.

In another example of the open minds politicians have in Europe at present,
EU leaders urge IMF to consider Tobin tax

European Union leaders urged the International Monetary Fund on Friday to consider a global tax on financial transactions in spite of opposition from the US and doubts at the IMF itself.

In a communiqué issued after a two-day summit, the EU’s 27 national leaders stopped short of making a formal appeal for the introduction of a so-called “Tobin tax” but made clear they regarded it as a potentially useful revenue-raising instrument.

photo credit: ViaMoi

Mining and finance are the big winners in the devolving economic model we endure. With the concentration of big business so great, those with control of scarce resources or scarce employment opportunities are able to lean on working classes and the tax payer to plump their profits.

Westpac’s disastrous .45% handball of interest rates shows their oligopolistic influence over their ‘clients’. If only mortgagees didn’t have to work so many hours to cover their debt to the bank (70% of which is the land, once known as the commons), they may have more time to vote with their feet.

How can owners of licensed monopolies (such as banks, land holders) have such power to extort the market?

Some useful stats for your next dinner table chat in Business profits soar in slump

IN THE middle of the worst global slump since the Great Depression, the profits of Australian business soared to record highs in 2008-09 – while wages fell to near-record lows.

In the past, profits used to fall in recessions. In the recession of the ’70s, the Bureau of Statistics estimates that they fell from 20.5 per cent of national income to 17 per cent. In the ’90s recession, they fell from 24 per cent to 22 per cent. But this one has been something different.

Corporate profits, which have been on a roll all through this decade, kept rolling serenely on through the recession, climbing from 27.4 per cent of national income to a record 27.7 per cent.

Wages took the brunt of the slowdown, falling from 54.3 per cent of the cake to 54 per cent as unemployment grew by 200,000 and hundreds of thousands of workers took cuts in paid hours to keep their jobs.
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Much of the profit growth over the decade has been in finance and mining – both of which suffered little damage in the 2008-09 slowdown. By contrast, the Bureau’s national accounts now reveal, manufacturing has been the biggest victim, with its output crashing by 6.4 per cent to a seven-year low.

Check out this funky clip defining how the war on creativity is defined by speculative pariahs undermining creative communities via the age old rental squeeze. Congratulations to Ingrid Brooker as the winning entrant.

New Zealand is known as one of the world’s leading gimp nations when it comes to protecting the future that land in prime locations avails. They have no Land Tax. They have pathetically low council rates. Worse, these are set to penalise home construction such that the family home pays upwards of 30% more than the land banking speculator.

The kiwis haven’t even got a capital gains tax (not that we endorse that but at least the public could some share of the gains).

The gate is right open for foreign investors – no limits on foreign investments. Look at what the propertied elite say here and here.

The result – some of the most unaffordable property in the world.

Essentially they have given the big thumbs up to hammock surfing speculators and corporate REIT raiders to buy up their most valuable sites and hoard them until they can hock them for a fortune.

It really is flabbergasting.

Especially when they have been earmarked as one of the only habitable land masses in about 50 years.

But it seems that some are awakening to this giant ‘kick me’ sign the kiwi’s have given themselves with their lax tax policy. A ‘once-in-a-generation’ type Tax Review (similar to the Henry Review) has just given their findings.

Read this post highlighting some key presentations from kiwi tax experts. The slide shows are of interest, particularly the fallacies in Shaw’s (check the list of exemptions).

Arthur Grimes gives a more balanced view.

But listen to Geoff Nightingale from Price Waterhouse Coopers. Some effective lines on the justice and equity front that give one some hope that the kiwi’s are looking at deep seated reform. It seems the Tax Working Group has seen beyond the lure of a Capital Gains Tax that penalises turnover in favour of the more effective Land Tax.

However, the NZ Treasurer Bill English put a stop to the hopes of future generations with:

“Changes that are widely understood and are supported make the most difference to economic performance. Those sorts of changes tend to stick.

“Those without support simply don’t last and can’t make that much difference to our economic performance.”

At least yet another Tax Review has come out in our favour. Some good articles are out in the open and being discussed.

One day the masses will awaken to the invisible chains that high mortgages place on them due to poor tax policy.

The popularity of McMansion-ville suburbs dwindles as genuine home-buyers look for communities with character in New home sales retreat: HIA

Sales of new homes in Australia dropped in October, an industry survey showed today, in a further pullback from stimulus-driven gains earlier in the year.

The Housing Industry Association said sales dropped 6 per cent in October, on top of a 4.3 per cent decline in September. That largely unwound an 11.4 per cent jump in August as people rushed to take advantage of additional first home-buyer grants.
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“It is looking like 2010 will be a year where the number of new homes built will fall well short of what is required to match Australia’s rapidly growing population.”

A drive through any of these corporately designed communities will see a dearth of community hubs, clubs and information centres. This is the infrastructure that creates a community. However, any such ‘third place’ imposes a reduction of sell-able property. The profit making mantra has decided these are not worth it. However, some developers are bucking this trend.

In a carbon challenged future, the lack of public transport (and any hope of funding it under the current model) may also be impacting on buyers’ decisions.

With property prices continuing to move upwards, home buyers are instead competing for land and houses in older suburbs where the housing mix was allowed to evolve by a raft of competing builders and architects, rather than by a centrally controlled, profit making developer.

And what do we get in response? Knowledge that housing will only get more expensive as supply will be crimped next year (as Hudson warned recently).

But yet our houses are the biggest in the world:

The typical size of a new Australian home hit 215 square metres in the past financial year, up 10 per cent in a decade, according to Bureau of Statistics data compiled for Commonwealth Securities.

The answer we are looking for is in the need to break open the dominance of the big 6 developers and to open up the large land banks to everyday builders. However, our tax system ensures all the advantages lie with big companies. How?

Low land taxes allow developers to drip feed properties to market to ensure prices can be manipulated upwards. It also encourages mcmansions by under-playing the role of land in the affordability equation.

On Saturday I spent a few hours driving around Hillside, at the far end of our sprawl past Keilor, in shock and awe at the hoodwinking job going on in Melbourne. The vast majority of streets I drove down in this McMansion-ville had vacant blocks of land littering the community. So much for additional land supply as the answer for affordability! Check the flickr page to see just some of the sites.

The tax system also supports large developers and land bankers alike at the local level. CIV (capital improved valuations) council rating sees the family home paying more than the land banker, as they have no improvements/ no house to be taxed. Local governments are complicit in allowing the family home to subsidise the land banker by upwards of 30%.

One of the many other advantages for any large business is that quarterly GST can be saved up over 3 months and the interest earnt on it used to offset the costs of hiring accountants. The accountant can then spend time investigating tax loopholes to minimise the developer’s contribution to the community.

The community will continue to be duded for as long as it ignores these self imposed tax tricks.