Land Value Taxation Campaign

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Western world will become significantly less wealthy

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Western world will become significantly less wealthy - so says the Daily Telegraph economics editor in this article. This is true. But it has not happened yet. Billions dollars and pounds have been lost in paper values, but that is not a loss in wealth.

The loss in wealth will occur because land prices had advanced well beyond the actual earning capacity of land, based on the capitalisation of the rent at a realistic rate. But because the price of land is sticky downwards and does not fall to market-clearing levels, the wealth creation process, which depends on the application of labour to land, will be throttled. That will make people less wealthy. Millions will be out of work for several years. Productive capacity will stand idle. It does not have to be like that. If land value taxation were in place, it would act as a holding cost. Unwanted land would be promptly brought onto the market and recycled for new uses, with a quick recovery.

Underlying the present difficulties is the mistaken notion that land is wealth. It is not. A land title is a claim on the stream of income known as Rent. How the Rent of Land arises was explained by David Ricardo when he formulated his Law of Rent. Pity everyone seems to have forgotten about it. For a simple and amusing explanation, look here.

Arguments against LVT

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Some comments from somebody who had a look at What is LVT? What can one say?

It's because of their red braces

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The dissection of the economic crises gathers pace with a flood of articles on the web sites of the press. It is, apparently, all caused by greedy traders in the City and Wall Street. The ones with red braces. Nice idea to blame these unlovely people and easy to do but...


Millennium goals being missed

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The world's leaders are gathering at the UN in New York this week to review progress towards the millennium development goals set in 2000. New figures released by the World Bank reveal that 1.4 billion people are now living in _blank"extreme poverty, or a quarter of the entire population of the developing world. UN secretary general Ban Ki-moon has singled out rich countries for failing to raise aid levels as promised. If only things were that simple.

Interest rates and the threat of mass unemployment

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David Blanchflower of the Bank of England's Monetary Policy Committee has repeatedly argued for a cut of interest rates to fend off mass unemployment. But the underlying assumptions are wrong because they are based on defective economic theory. It is not possible to get an economy to function properly just by adjusting interest rates.

A low interest rate will cause a fall in the value of the currency in foreign exchanges, making imports expensive, and this will be reflected in prices of foods and raw materials. On the other hand, a low exchange rate is favourable for exporters and also encourages foreign ownership of land and capital, and may attract inwards investment in productive capacity. But it will also drive up property prices, in reality land values as cheap money encourages borrowing for land purchase.

A high interest rate will attract foreign deposits and have a favourable effect on the exchange rate, making imports cheap but exports relatively expensive. But it will tend to cause unemployment and will also put a check on land values.

It must therefore be obvious that there is never a "right" interest rate in the present dispensation, and to attempt to run an economy by adjusting them is doomed to failure. But what is the real cause of unemployment? "Lack of effective demand" is the usual answer, but that is a circular one because people who are not working cannot exercise demand as they have nothing to offer in the marketplace. At this point it is worth looking at what the process of production consists. There are three factors. Labour, of which there is no shortage. Capital, that is, real physical capital - machines, ships, aircraft, factory, shop and office buildings, etc, which can always be produced. But there is a third factor, one which modern economic theory hardly mentions. Land. Somewhere to conduct the productive activity. Every Big Issue seller and street busker knows the importance of picking the right pitch, but the experts ignore this vital factor.

Recession means a fall in demand. Shops and factories close. Usually, it is the marginal areas that are worst affected - places remote from the main centres of population or with poor access. Some parts of Britain will become industrial wastelands in the next couple of years, just as they did in the early 1980s, with vacant sites, derelict factories and boarded-up shops.

If the land market behaved like markets in, say, perishable foods, the price would drop to market-clearing levels and the sites would quickly be recycled to new uses, for example by redevopment or refubishment. The recession would be no more than a blip, paving the way for a fresh and vigorous new round of economic activity.

But that is not what happens. Because land is permanent and there is no holding cost other than rent foregone, its price does not fall in response to reduced demand. Owners hold it off the market, awaiting the upturn. Which of course prolongs the recession. By the time the vacant sites are brought back into use, buddleias will have grown into sturdy shrubs.

This is why land value taxation is needed - that is, an ad valorem tax on the annual rental value of the land alone. Come a recession and the tax still has to be paid, whether the buildings are in use, vacant or demolished. Owners are under financial pressure to find occupants who will pay the rent, so that they can pay the land value tax charge. If land value taxation is in place, recession is mild and short - the economy quickly bounces back.

So anyone concerned about unemployment needs to be advocating not cuts in interest rates but the prompt implementation of land value taxation.

Swedish budget - skattesänkning

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The Swedish budget was announced yesterday. The theme is "skattesänkning" - tax cuts and credits designed to stimulate employment as well as a reduction in taxes on business. The tax cuts mainly benefit those on higher incomes. There are also small tax cuts for pensioners. The Social Democrat's economics spokesman, Thomas Östros has criticised the finance minister, Anders Borg, for experimenting with the country's economy; Borg, in turn, criticises the Social Democrats for standing for sky-high taxes and welfare programmes.

Brown plans crackdown on world markets

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The Guardian, reporting on the Labour Party conference with opens today, writes...

"Gordon Brown yesterday pinned hopes of reviving his premiership on a package of measures designed to tackle the economic crisis, including a drive for tighter international controls of the global money markets and a crackdown on the culture of irresponsible City bonuses. However, the prime minister also paved the way for higher levels of public borrowing, in breach of the Treasury's own rules, following the tumult on world markets last week. These will be announced to the Labour Party conference today...

"In his speech to the Labour party conference today, the chancellor, Alistair Darling, will promise to do "whatever it takes" to rectify the mistakes made by the markets, but he will make clear: 'Just as one government alone cannot combat global terrorism, just as one government alone cannot combat climate change, so one government alone cannot deal with the consequences of globalisation.' "

Are these two just playing to the gallery in a bid for support or are they serious? At least nobody can criticise the British Prime Minister for being too modest in his objectives. It's those nasty currency traders that have caused all the problems, with their greedy eyes only on those bonuses irresponsibly poured out by their employers. But who set up the conditions which rewarded such behaviour?  Who let a property bubble develop on their own doorstep? Who failed to understand the circumstances which led to the development of that bubble? Who failed to implement the one measure which would have addressed the problem at its root? It is easier to forget these questions and blame the present troubles on what is going on in Tokyo, or Riyadh, or Frankfurt or New York.

Of course, it now turns out that the UK banks had been importing trouble by purchasing bad debt from the US and treating it as part of their assets, but with the prevailing delusion that land is wealth, what regulation can stop them?

Britain leaders, of course, still imagine the country as a great power, thinking the country to be number three after the US and Russia. Is Brown thinking of sending a Task Force to punish the evil international money dealers? Is that why new aircraft carriers have been ordered for the Royal Navy? Read article here


Speaking up for LVT

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As a pleasant change, someone is speaking up for LVT, in a review of Brian Hodgkinson's Book "A New Model of the Economy", published by Shepherd Walwyn. The comments are revealing - in fact it is worth registering with the Guardian and adding to the discussion. There are some bizarre notions around.
Article by Mark Braund in the Guardian

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