Re-thinking Development, Economics, Finance and Environment
IMF program for Eurozone
EU Growth Compact
Green Financial System
Our Financial Crisis Book
ECB No Magic Bullet
As a former Citibank Vice President (retired)in New York, I totally agree with Robert Johnson and Sony Kapoor. As described by Simon Johnson, New York banks form an olligopoly that is so powerfull that the new regulations to be made public by the US Treasury will consist mostly of cosmetic changes leaving the banks free to continue as usual. The present crisis will therefore be followed by a new, more severe crisis in 3 to 5 years. A complete redefinition of the banking regulation body will then be unavoidable and will most likely result in a thougher world for the banks.
A friend of mine and I have decided to form a small group in France to push for reforms that make sense and could avoid this forthcoming mayhem.
The subjet being discussed is really only the tip of the iceberg, what remains hidden is even more significant and serious. In fact our macroeconomic system has a built-in instability and the business cycles which are felt by it are the result. Not all of these cycles are from the same cause but there is one particularly significant one that seems to occur regularly every 18 years or so, that is due to the land-value (partly real-estate, since most people do not separate the two concepts) inflation "bubbles", which are the basic cause of our present economic woes.
Even without governmental encouragement to speculate in land-values, this process is an on-going thing. Who does not wish to benefit from an expanding community where tax-payers money is being continuously invested in the infra-structure of the community. Thus land values tend to rise and home owners to benefit from the changing values of the land under their homes. Thse values have steadily risen since the last crisis and already there are signs of a new cycle beginning to start up. The trouble is that speculation in land tends to hold it out of use with the result that the competition for the available land further inflates its price and reduces it availability for use.
The building trade is not the only kind of productive process affected. So too are many associated others and the resulting unemployment is all too obvious. Prices are simply too high to encourage demand and this effect is always with us. It is unstable until the failure of sufficient speculators and banks who help them, results in a significant fall in prices and a new cycle will then begin.
Most people blame the government and the banks whose combined policy over recent years is to allow and encourage this booming speculative matter, because it looks like a good thing for all (a sort of free lunch). Unfortunately it cannot go on for ever and when the costs of investment become so high that no more speculation in land is worthwhile, then the growth process breaks down. There is a need to tread carefully here, bank failures are regarded as catastrophic but when the losses are compared to earner's failures and the large numbers whose empolyment has been halted for many years and are debt-ridden, homeless, and poor to a growing degree and we can identify this reason, then it is time for the government to act; even if it necessitates losses by the banks in order to help those who are too poor to help themselves.
The answer is to stop land value speculation and to slowly reduce its cost so that people can afford to house themselves and to work again with the entepreneuers whose limititation due to high cost of leasing land is a basic part of the monopolistic land owning problem and its unavailability. One cannot simply blame the banks nor limit their amount of investment in mortgages, whether these are classed as good or bad kinds. The trouble is more basic and with the system of land tenure.
Land prices should be allowed to fall in a natural manner, when when their values are gradually taxed. (Land Value taxation may take 5 years to fully implement, meanwhile the specuators and banks have a chance to take their money elsewhere.) With land value taxation the resulting income to the public purse will allow for reductions in income tax giving the consumer more ability to spend and increasing the level of demand. The cheaper land will be more freely available. This will help reduce competitive production costs, allowing further demand to be expressed in a greater need for labor and significant reductions in the poverty level. The investment in the local infra-structure will be better used when population and industrial densities have grown due to the cheaper land being more fully used. Land value taxes are almost impossible to hide from since the owner of all of the sites and their comparative values are public knowledge and no exceptions in tax payment are justified. This tax cost less to collect than present income tax due to the many loop-holes that provise the background for a full-time battle between the payers and the collectors
Thus from all viewpoints the terrific (and often unrecognized) pressure which speculation in land values exerts on the national economy and in the bipolar trend of our society will be lifted. It wil be done in a way that is not subject to corruption nor privitation of the national bounty arrising from the land. The cause of the unstable pricing of land will cease and the nation be able to live with a more certain future expectation of a "levelled playing field".
Land value taxation was first proposed by Henry George, famous American economist, more than 130 years ago in his seminal book "Progress and Poverty" which sold more than 4 million copies, but which the landed interests at the time were able to oppose. We are still suffering from this ommission to see the light.
Financial transactions facilitate and transfer wealth and capital from the richest to the poorest of nations. The incidence of tax is not always born by those that it aims to penalise. I dont see this tax making any real significant contribution to changing the job market, funding development or ensuring the reduction of the incidence of financial crisis.
The financial markets must be more scrutunously regulated with a shift of focus towards prudence and sustainability in their conduct. Penal methods will not yield long run financial markets stability. In fact, the reduction of trade and the reluctance of it could ensure that markets operate less effeciently than before.
More information about text formats
We work in several countries in the European Union and can be reached at info(at)re-define.org / For media: media(at)re-define.org