David Boyle is a nef fellow, a writer and the editor of nef‘s newspaper, Radical Economics.
In the library of the Treasury, there is an ancient copy of one of Keynes’ pamphlets, and it has been scrawled over by Treasury officials with the words ‘bankruptcy’ and ‘insanity’.
Keynes was challenging the Treasury idea, which seems to have been in their DNA since time immemorial, that the way out of recession is to get people to save not spend. The money has to be in the banks, ready to lend.
Keynes’ view was that, in the end, this kind of puritanical retrenchment led to death – “a peregrination in the catacombs with a guttering candle”. But we don’t have to worry because that was in the 1930s. Or do we?
A little bird told me recently that the attitude in the Treasury has reverted to type faced with the recession and deficit. Once again, the official view is that people should be encouraged to save not spend, so that the money is available for lending.
Since Keynes’ day, there are two extra problems with this, and they are not small. There are hardly any banks left, and those that survive have long since dismantled the infrastructure they need for local lending. Their attention is elsewhere. They can’t do it.
So when the Treasury persuade George Osborne to raise VAT to 20 per cent, this is the agenda: don’t spend, save. Unless he and Cable and Danny Alexander can stand up to the Treasury, and tackle this hideous and ancient mistake, I fear it may be the peregrination in the catacombs for us.
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24 June, 2010 at 2:26 pm
Phil Henshaw
What Keynes also pointed out… that also seems to have gone over nearly everyone’s heads, is the insight that Ken Boulding and only a few others picked up from him. That’s that recovery from recession at the limits of the earth is *different* from recovery during a limitless growth period before approaching the natural limits of cost and complications.
When natural limits result in steeply rising opportunity costs for increasing savings and growth, then **the spenders of last resort MUST become those continuing to add to their savings**, and not from credit. The equation is elemental, but “the mental calculus” for asking how to best bring an end to the growth of money in response to the natural end of freely growing physical wealth… seems to still need some work.
I’ve tried various ways to get people to ask that question, with some success. I’d be glad for some help if anyone has ideas of how to get it across. see: http://synapse9.com/blog/2010/03/12/switching-the-spender-of-last-resort-when-government-goes-broke-2/ phil
24 June, 2010 at 4:04 pm
David Chester
The subjet of macroeconomics limitations is a difficult one. There is no doubt that such limits exist but we are not going to reach them simply because before we do things will become more expensive. In other words we are pressing against a barrier which gets harder and harder as it partially gives way.
Specifically this barrier is land prices. Although the so called bubble in real estate has burst, the prices of accomodation and of land in particular have not changed very much and are still so high as to restrict normal activity in the building trade and in normal progress and growth. These high land prices mean that everything produced on the land, all consumer goods as well as durable capital goods too, are costing the producer and buyer too much. Demand is down and unemployment is high.
What we need is lower land prices and that will affect the fat cat land monopolists whose speculation in land values have driven us into this mess. Should thes land prices be reduced they claim, the banks will find themselves with vast withdrawal demands by investers and savers and that means bankrupcy and a failed macroeconomy for all. However it should be noted that the change in land prices doesn’t have to be so sudden and that by the gradual transfer of taxation from incomes and purchases and onto land, there will be sufficient for investment to change from inflated land values into something more sensible. For the land morally is ours not theirs and their pride in its ownership a sham.
By the gradual introduction of a land-value tax instead of every other kind, the whole country will benefit. The following explanation needs to be taken more seriously by George Osborne and our friends in high places:
14 ASPECTS of LAND-VALUE TAXATION affecting Government, Land Owners, Community and Ethics
3 aspects for GOVERNMENT
1. Most of the ground-rent being collected as LVT, adds to the national income. It allows the other taxes on earnings, purchases and family/corporate ownership of buildings to be reduced and eventually to be eliminated.
2. The ownership of each land parcel is registered. Then the cost of collecting the LVT is much smaller than for income tax and other production-related taxes. Using regularly updated maps, the rental value of each site (as if without buildings) is public knowledge. Then the LVT is simple to understand, the amount of tax is easily found and its payment by the land owner is impossible to avoid.
3. With LVT, the national economy stabilizes and no longer experiences the 18 year housing boom and bust cycle, which was due to the changing prices that arose from speculation in land-values during town expansion.
6 aspects affecting LAND OWNERS
4. LVT is progressive, the owners of the most potentially productive sites pay the most tax. None is paid on marginally productive sites, since their owners cannot claim ground-rent from possible tenants.
5. The land owner pays his LVT regardless of how the land is used. When the land is leased to tenants most or all of the resulting ground-rent is the tax.
6. LVT stops the speculation in land prices because any withholding of land from proper use is too costly.
7. The introduction of LVT reduces the sales price of sites even though their value (or potential usefullness) may continue to grow.
8. With LVT, land owners are unable to pass the tax on to their tenant renters, due to the competition for land use. The users of (untaxed) marginal sites price their produce according to the costs of their labour, the use of the durable capital and the added transport needs. Owners/occupiers who access more productive land pay LVT/ground-rent and compete in their production, so this tax cannot be added to what buyers willingly pay.
9. With the introduction of LVT, land prices will drop. Speculators in land values will tend to foreclose on their mortgages and to withdraw their money for reinvestment. Depending on the rate of these changes, bankrupcies can result. Then LVT should be introduced gradually to allow the investors sufficient time to transfer money to company-shares in durable capital goods, where their greater use will meet the increased demand for produce (see below).
3 aspects regarding our COMMUNITY
10. With LVT, there is an incentive to use land for production, rather than it laying idle or being partly used. An optimum amount of urban land is brought into use, which reduces the spread of suburbs onto rural land and avoids vacant city centers.
11. With LVT, greater working opportunities exist due to cheaper land and a greater number of available sites. Consumer goods become cheaper because entrepreneurs have less difficulty in starting-up and running their businesses. Demand grows, unemployment decreases and with it a reduction in the polarization of our class-society and its degree of poverty.
12. As LVT is introduced, investment money is withdrawn from land and placed in durable capital goods. The investors in company shares tend to be wage-earners (as well as banks and monopolists). Their decisions favour more competition and cheaper local production without heavy transport costs, whilst the monopolists have less control of prices and the unavailability of alternative goods. This is a natural trend of our free-marketing social system.
2 aspects about ETHICS
13. The collection of taxes directly from productive effort and commerce is socially unjust. The associated philosophy favours coercive robbery and is “Robin Hood” in style. LVT replaces this form of extortion by gathering the surplus rental income which comes without exertion. Consequently LVT is a natural system of money-gathering, which avoids the present-day distortion of business economics.
14. Bribery and corruption cease with LVT. Before, this was due to the leaking of news of municipal plans for housing development. However, the speculation in land values is no longer worthwhile after LVT is in place.
24 June, 2010 at 8:30 pm
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