Prosper Australia

photo credit: ToOliver2

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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The September edition includes a Hudson special, with leading intellect Dan Sullivan providing insights on the core issues re privilege on land, resources and money monopoly. David Smiley strips apart Kevin Rudd’s essay on ‘The Global Financial Crisis’ via his The Economy in Palliative Care. Local and international news from a geo perspective will help unveil the invisible chains.

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David Smiley

(To palliate: to relieve a disease without curing)

David Smiley analyses the debate started by Kevin Rudd’s essay entitled ‘The Global Financial Crisis’.

While the world’s experts are arguing about how to relieve the pain of recession, few are diagnosing its fundamental cause and fewer still are prescribing a fundamental cure. Let us start in Australia.

THE GLOBAL FINANCIAL CRISIS was the title of an essay by Kevin Rudd in the February issue of The Monthly. Rudd’s essay was largely ignored until Robert Manne explained some of its terminology in the March issue and then opened it up to debate in a symposium of international experts in the May issue. Rudd’s essay argued for the replacement, by social democracy, of the free-market and neo-liberal philosophies of some outgoing administrations in the English-speaking world. It contained a powerful critique of the outcomes of these philosophies, and an argument for market regulation to correct market failure in the financial sector. Though this central thesis was extensively set out, quite crucial aspects of method and of scope were mentioned but, regrettably, not developed. For example, the methods for correcting market failure go far beyond market regulation. And the scope of the problems now facing social democracy goes far beyond the financial sector. Regrettably, there were very few references in the essay to the housing market where the meltdown started. And, though this meltdown will have very large impacts beyond the OECD economies, there were only passing references to the threats to the Millennium Development Goals, protection, climate change, and to emerging poverty-driven conflicts.

THE SYMPOSIUM, published in the May issue, contained an introduction by Robert Manne to five world experts asked to comment on Rudd’s essay. This advice was inconsistent and, in some places, badly confused over the nature of land, capital, and the institutions that use them. Since this confusion is of extraordinary importance I will summarise the five contributions and then pose questions that Kevin Rudd should try to answer.

Eric Hobsbawm starts on firm ground, reminding us that monopoly capitalism and monopoly socialism have both crashed in the past and that all economies now combine the public and the private. The rationale for this combination is already well established in the constituents of market failure theory such as monopoly, externalities, merit goods, rent seeking, and non-monetary components of utility such as the environment. However, in a single paragraph, the fourth, Hobsbawm makes four serious mistakes that compromise the remainder of his response. One: that the higher growth rate of the post-1945 “golden age” was due to the remnants of war-time central planning. No, it was due to massive infusions of Marshall-plan capital into war-torn Europe, with results predicted by the theory of marginal returns in situations where the capital base is seriously depleted. Two: that subsequent slowing growth in the OECD was due to market fundamentalism. Partly true, but during that period accelerating real estate speculation was already dragging investment away from the productive towards the unproductive. Three: that the Asian economic miracles rested on “distinctly un-Hayekian” principles. No, “In all three of Asia’s biggest successes – Japan, South Korea and Taiwan – the groundwork for both fast growth and the income equality that eased the social strains of development was laid by a radical land reform.” (The Economist, 29 June, 1991, p. 16). Four: that Atlantic capitalism was responsible for the economic stagnation of the bottom 40% of the US population. No, that stratum was a class that, until tempted by Fanny Mae and Freddy Mac, rented housing from a land-owning class whose wealth was rapidly increased by a raft of tax breaks, remorselessly increasing real rents paid and implicit rents received in huge un-taxed capital gains.
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Karl Williams

Progress Magazine’s editorial column. Make sure you sign up to receive a hard copy of our hard hitting magazine – Trial Subscriptions are available.

This time of economic crisis is when we make our run. Politicians, think-tanks, bankers and the commentariat are proving to the public that their voodoo economics – essentially, neoclassical economics – is a proven failure.

The bailouts occurring – especially in the USA – are chiefly designed to prop up the banks and property prices. No surprise there – a collapsing property market is seen as disastrous by almost all.

No, we assert! Let the bubble burst! Let us be free from the iron chains into which we’re all shackled as we make our entrance on this planet – the massive cost we must pay to those who have misappropriated the Common Wealth. The burden that industry must bear – in terms of rent or interest on bank loans – in occupying the land they need to produce goods and services.

And when the rent from land is instead diverted into the public purse, the burdensome taxes on production can also be phased out. And the busts that inevitably follow speculative booms in land – as we predicted – will also have their origin withdrawn.

That Kevin Rudd’s solution to this crisis would simply involve giving away (from future taxpayers’ pockets) vast sums of money with the encouragement that they madly spend needs no comment. When Australia’s land price bubble bursts, as it shortly will, then Kev will wish he had something else in his pocket to dish out to the electorate.

Somehow, we seem to be living in parallel universes. Our universe still contains land, but Kev’s has land conflated into capital. Oh dear.

Karl Williams

July 2008

It’s one thing to calmly read statistics about climate chaos but a completely different experience to hear the frightening stories from the disaffected.

In the remote north-eastern Thai province of Nan, listening to a 60-year-old café proprietor relate how the climate has changed in her lifetime, visions of a freaky future of climate chaos hit me in a way that no peer-reviewed scientific forecast would ever do.

In this woman’s entire childhood, summer temperatures had never risen above the low thirties, but now the mercury hits 40 and beyond most summers. Moreover, whereas the monsoonal rain season used to last for a good five months, now it’s usually about three. Such changes haven’t progressed gradually, but have exhibited wild gyrations that are evident in the very landscape.

While wealthier residents of Bangkok can today still mask these unsettling climate changes with a casual adjustment of their air conditioner, those in the countryside are forced into a personal concern with what they’re suspecting is just the beginning of climate chaos spinning out of control.

Yet the economic reason why we’re rushing headlong into the abyss is not hard to fathom. Without fully costing the consequences of our use of fossil fuels, we effectively provide a set of subsidies to keep on wreaking environmental destruction.

Looking on the positive side, we have real hope in the form of the elegantly straightforward geoist principles of applying natural resource charges which would force each polluter to pay for the consequences of their actions and hence provide a stiff disincentive against further polluting.
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Professor Mason Gaffney

Get yourself comfortable – this is Must Read!

This crash is The Big One; it has the signs of becoming a Category 5. How do we know? We’ve “been there and done that” so many times before, roughly every 18 years over the last 800 or more. Major wars and, rarely, plagues have broken the rhythm, along with the little ice age, reformation and counter-reformation, political revolutions and reactions, the rise of nation-states, the enclosure movement, the age of exploration, massive European imports of stolen American gold, the scientific and industrial revolutions, the Crusades, Mongol and Turkish invasions, and other upheavals.

Yet, the endogenous cycle keeps returning, as soon as we find peace, and economic life returns to its even tenors. What President Warren Harding famously called “normalcy” soon evolved into another boom and a shocking bust, as so often before. Calm and routine prosperity has never been man’s lot for long: it somehow leads to its own downfall, cycle after cycle.

Homer Hoyt published his classic 100 Years of Land Values in Chicago, 1833-1933, in December, 1933. He covered in fine detail the 5 major cycles that crested and crashed in 1837, 1857, 1873, 1893, and 1926-29. At the end he generalized “The Chicago Real Estate Cycle”, a regular rhythm of boom and bust with the same features in the same sequence. The boom sets us up for the bust. He could have omitted the limiting word “Chicago”, its cycles were synchronized with national waves recorded by other scholars like Arthur H. Cole, Philip Cornick, Lewis Maverick, Frederick Lewis Allen, Harry Scherman, Carter Goodrich, Ernest Fisher, Homer Vanderblue, Herbert Simpson, and others – surprisingly few others, in fact.
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“Communally created values must be safeguarded, and it is the function of government to collect into the public treasury the value attaching to land by reason of the presence of the people, as that is the natural source from which public revenue should be drawn.”

“This small bespeckled man was always looked upon in the parliament” – so says Clyde Cameron – “as the greatest debater the Parliament of South Australia had ever seen”. Clyde (a cabinet minister in the glory days of the Whitlam government) also makes the claim “that Craigie really was a very great figure – I think really the greatest man of this [20th] century, and it is a tragedy that he was not given the opportunity to play a more important role in the politics of our country”.
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David Smiley

All countries save about 25 percent of what they produce, their Gross Domestic Product or GDP, for investment as capital in future production. In national accounts these “savings” include environmental damage and natural resource depletion incurred in the process of production. This does not seem a very good measure of sustainable development, and the World Bank has come up with a better one. The Bank subtracted from Gross Domestic Savings, the cost of carbon dioxide damage, and the values of energy depletion, mineral depletion, and net forest depletions. The result of these subtractions the Bank called Genuine Domestic Saving, or GDS, and they are astonishing.

World average GDS was about 13 percent. Both World Bank regional and country data were tabulated in World Bank World Development Indicators report of 2001, pages 180-183. For East Asia and Pacific, a region dominated by the land reform countries of China and South Korea, GDS was 25 percent. Moving to areas of political turbulence, GDS for Sub Saharan Africa was 3.9 and for Middle east and North Africa minus 1.3 percent.
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The Economics of Thailand

Karl Williams

A conundrum wrapped in a paradox is perhaps the best way to describe Thailand, and its economic system is no exception as our rolling travelogue will illustrate. To pick apart this puzzle, I had the assistance of the only two geoists in Thailand, who were also my gracious hosts in Bangkok – retired vice-admiral Suthon Hinjiranan and his son Pop, who has a PhD in town planning. Suthon recently translated “Progress and Poverty” into Thai and is battling alone against a tsunami of cashed-up property developers but, like a true Cat-Seer, agrees that “everything else is a waste of time”.

Firstly, a few basic facts on Thailand: population – 62 million (32% in urban areas); life expectancy – 70 years; GDP per capita – US$9000; ethnicities – 75% Thai, 14% Chinese and 11% other; religion – 95% Buddhist; literacy – 94%; economic system – speculation-fueled neo-classicism tempered by traditional cultural values. But let’s dig deeper to unearth how the vast proportion of Thais earn a paltry A$4 or $5, alongside an obscene number of brand new urban assault vehicles (4WDs) cruising the streets?

Why are there sparkling new skyscrapers and shopping malls alongside sprawling urban slums and vacant land?
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Geoff Forster

• The International Union for Land Value Taxation is launching a campaign to modify the UN Declaration of Human Rights. Article 3 at present reads: Everyone has the right to life, liberty and the security of person. The proposed amended version is: Everyone has the right to life, liberty and security of person, the enjoyment of which is contingent on the right of access to land . The right to land may be exercised indirectly, by sharing equally in the benefits that accrue to the community when use rights are assigned to others.

Article 17 is at present: (2) No one shall be arbitrarily deprived of his property. The proposed amended version is: No one shall be arbitrarily deprived of his property, including through taxation.

Article 29(1) is at present: Everyone has duties to the community in which alone the free and full development of his personality is possible. The proposed amendment is: Everyone has duties to the community in which alone the free and full development of his personality is possible. The life of the community is reliant on the performance of those duties, principal among which is the payment to the community of the value of the benefits received from it.
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