Global financial collapse: What’s happening to us?

Having demolished the claim of the real estate lobby concerning inefficiency and ineffectiveness of a land tax, neo-classical economics circulates a canard of its very own: “The percentage [of property rent in the economy] has dropped to well under one percent today” (Buchholz, 2007:86). “But by 2000 urban land rents represented only four percent of national income” (Clarke, 2007:198). “Rent is one percent of the U.S. income in 2004” (Krugman and Wells, 2006:283). “Rental income was 4.7 billion, or 0.079% of GDP in 1992” (Case and Fair, 1994:559). “Rental income is $7.9 billion of a total GNP of $5,234 billion, or 1.5 per cent” (Baumol and Blinder, 1991:137) and “… land rent forms such a small percentage of national income: that 2 per cent is nothing compared to the present tax percentages which is around 30” (Pen 1974:210).

These claims are made to look silly by Mason Gaffney, Professor of Economics at the University of California (Riverside) who actually bothers to do the required research in The Hidden Taxable Capacity of Land” in The International Journal of Social Economics, 36(4), instead of plucking figures out of the air.

Similarly, in The Taxable Capacity of Australian Land and Resources (Australian Tax Forum, 18 (1), 2003), following a painstaking time series analysis, Dr Terry Dwyer announces: “The ‘bottom line’ reinforces the overall conclusion from Table 4 that land-based tax revenues are indeed sufficient to allow the total abolition of company and personal income tax.”

Land rent only four per cent of the economy? Less than one per cent? Bah, humbug! Try thirty per cent plus!

In the face of facts, the evidence that the GFC is the inevitable outcome of a pathological tax system fining labour and business whilst encouraging real estate bubbles becomes compelling.

The diagram below assists to explain the process: effective demand is being choked off by the wedge driven into GDP by increasing shares to taxation and private rent seeking which diminishes the returns to labour and capital.

The analysis is entirely consistent with the conclusions of The Henry Review.