Leading Economists Debate Where the World Is Headed

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This panel brings together prominent economists to debate a range of issues with global scope: from inequality and emerging markets to austerity policies and the impact of technology on employment. This will be a free-ranging discussion focused on where the world is headed and what can be done to improve economies and people's lives everywhere.
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Roubini - "We should think about why there has been accumulation of credit" [But we should meticulously ignore the role of the Fed in mispricing credit - it has absolutely nothing to do availability of credit.]

Roubini - "The Fed should be concerned with avoiding bubbles" [With the great track record the Fed has of spotting bubbles in the rearview mirror, that will work out really well. It works especially well with experimental seat of the pant policies.]

boohoo
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To expand my comments to the global economy, all one needs to do is examine the degree to which land and natural resources are concentrated in a relatively small number of individuals, corporations and tax-exempt organizations. This provides a good indicator of the stress placed on the productive elements in an economy to overcome the dual costs of rents to landed interests and taxes (on earned income flows and produced assets).

Japan has struggled in the late 1980s to overcome the problem of unaffordable land costs, the cause of which is an absence of any annual tax on land values.

nthperson
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Reference to GDP growth as a measure of how well a nation's economy is doing is quite misleading. Total spending tells us very little about the well-being of people. Net changes in capital goods is a better measure, as is the change in median household income.

One need look no deeper than the means by which governments raise revenue to identify the systemic problems existing in every country. The differences are differences of degree only. Within the economics discipline only a small number of economists have acknowledged the degree to which entrenched privilege is nurtured by law relating to property and taxation. As Joseph Stiglitz has stated, the central problem is laws that favor rent-seeking from land, natural resources and land-like assets (e.g., the broadcast spectrum and take-off and landing slots at airports) over income earned by producing goods or providing needed services.

Too many economists have accepted without critical analysis the teaching that nature has the same characteristics as goods we produce. Nature is not a form of capital. Price does not clear the market for land as it does for labor, capital goods or even credit. The reason is the very low effective rate of taxation on the potential rental value of land. The consequences of this are evident when one looks at land prices as a primary driver of what are mistakenly viewed as business cycles.

Research by some economists who understand land markets (e.g., Fred Harrison in the UK, Bryan Kavanagh in Australia, Fred Foldvary and Mason Gaffney in the US)  identifies an 18-year land market cycle. The depth and duration of the inevitable crash is determined by the extent to which land prices are driven upward by credit-fueled speculation. After 2008, rather than implement regulations to prevent yet another speculation driven land market cycle, the Federal Reserve adopted policies to stimulate the increase in land prices by keeping interest rates historically low. This certainly bailed out mortgage loan investors to a degree and allowed still employed property owners to refinance out of high interest sub-prime mortgage loans. But, this did little to correct the fundamental problems associated with the nation's system of taxation.

Taxing land rent in the U.S. is a responsibility of local government. And, with few exceptions local governments impose heavy tax burdens on property improvements and light tax burdens on land values. Thus, net imputed rents are capitalized by market forces into higher and higher prices until asking prices for land as so high they cannot be sustained by businesses or households. A real problem is how to get every city, town, borough, township, school district and county government to more over a short period of time to a land-only property tax base.

We also tax earned income flows at a much higher rate of taxation than we tax gains from speculation. We treat such gains as "capital gains" even though actual capital goods lose exchange value from the moment produced.

 

nthperson
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Whether progressives, liberals, conservatives, libertarians or any other political majority holds office and power, the economy of our society (any society, actually) will be plagued by cyclical booms and busts. The reason is actually quite straightforward. Systems of law and taxation are fundamentally inconsistent with creating either a full employment society or equality of opportunity. The most significant issue goes back centuries: the private appropriation of what political economists called "rent."

What is rent? Rent is that portion of wealth produced that rightfully belongs to the community or society as a whole and not to any individual or entity. There is the rent of land which arises because of locational advantages. Some advantages are directly related to nature (e.g., a location on a natural harbor or river, a location with abundant natural resources, and other factors such as soil fertility, climate, etc.). Other advantages come to those who hold or own locations because of the aggregate public investment in infrastructure and other amenities. It is the failure to publicly capture this rent, this value, that is a fundamental injustice, an injustice that has created the societal norm of income and wealth concentration among the few and widespread poverty for others.

I doubt that any of the participants on this panel have ever studied the great political economists, from Adam Smith and Anne Robert Jacques Turgot in the 18th century to Patrick Edward Dove and Henry George in the 19th century. Their writings on the consequences of allowing rents to be privatized is as relevant today as it was when they put pen to paper. They may have read Smith, but the others they may not even know of, even though Henry George was known world-wide at the end of the 19th century.

One of the few writers today who has captured the full essence of the message of the political economists if Fred Harrison, whose first book in 1983, "The Power In The Land, " puts all of the issues involved into modern terms. He has produced clarifying works every few years. His 2005 book, "Boom Bust: House Prices, Banking and the Depression of 2010, " forecast the 2008 crash of the financial markets at a time when most economists were in denial.

nthperson
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So what are these guys saying. Are we in a bubble? Is the stock market and the economy in the crapper?

cogen