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Paternalism (‘we know better than you what to do with your money’)

By Bryan Kavanagh - posted Friday, 5 February 2010

Good to hear from Davos 2010 last week that things are looking up again. A “fragile” recovery is underway it seems. Looks like I was wrong and will have to pull the plug on my blog!

Not really. What a cacophony of misbegotten ideas to set world economies aright! Try as I might, I didn’t hear one suggestion that came close to solving the world’s social and economic problems, notwithstanding the presence of Sharan Burrow, the Australian president of the International Trade Union Confederation.

Davos didn’t properly define the cause of the collapse, so it stands to reason that it can’t possibly have a valid response to it.


Banks got a bit of a hammering. While they can’t hold their heads high over their part in the GFC (and many bankers were conspicuously absent from Davos 2010), might I suggest we dig a little deeper than the role bank credit played in the collapse?

Was it banks that caused the decline in real wages ever since 1972, Sharan? No, it was rather the combination of increasing taxation and increasing land prices.

People understand how taxes reduce net incomes: but land prices? That’s a bit more difficult to explain but, trust me (or else take a peep at Unlocking the Riches of Oz (PDF 587KB) again), there is necessarily an inverse relationship between escalating land prices and real wages. It’s also explained by the equation P = R + W + I (production is the sum of publicly generated land rent, plus private wages and the return to private capital).

So, if real wages are declining and real land prices are heading moonward, OF COURSE people had to resort to taking on greater and greater levels of debt!

Hey, Davos! Here’s a hint: maybe we can create effective demand, pay down debt and abolish impossible land prices if we captured more land rent for revenue, and pay less taxes on our productive efforts! So, stop patronising us with stupid, interfering solutions! Get out of the way, and out of our pockets!

But that’s not all! Listening to the entertaining breakfast team of Ross Stevenson and John Burns on radio 3AW on February 1, I learn that the superannuation industry isn’t happy taking only 9 per cent of Australians’ wages to make some asset or other favourite in their speculative binges with our billions. They want more - maybe 12-15 per cent! So, that’s taxes taking, what, a third?; mortgages taking a third; super taking a sixth? I guess that still leaves us another sixth on which to live (i.e. for food, clothing, entertainment, etc.).


The really sad part is that when Ross and John ran a survey on whether we should pay more, as the super funds are seeking, one third of the respondents said “yes”! Sigh! When will we be left alone to retain the salary we have earned - without the government and super funds demanding we give more and more of it to them? When will we begin to stand on our hind legs about this enormous con! There’s a natural source for government revenue, fellas! Try publicly-generated land rent! [Sorry, I forgot: that's a “no-no”!]

Oh! And I just heard on the news that the federal treasurer, Wayne Swan’s got plans to assist with Australia’s ageing society. [Isn't it great the government's always coming up with these ideas to spend our money?] Hey! It doesn’t include getting out of our pockets so we can look after ourselves, does it, Wayne?


We know that taxation destroys, and that land rent conserves, but policy makers (such as Australia’s Ken Henry?) nonetheless favour taxes on production, thrift and exchange, incorrectly stating “There’s not enough rent”.

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First published in the author's blog, The Depression, on February 1, 2010.

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About the Author

Bryan Kavanagh is a real estate valuer and associate of the Land Values Research Group.

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