Proposed new local spending currency can only work with a full land rent

Council owned land Manukau. The other property owners get unearned capital gains from rise in land value.

Two of my previous posts have advocated local authorities get authority from Government to issue a new currency which decays like ordinary goods decay. It would exist alongside the national currency. Because it decays, it will circulate much faster than the national currency, the rate being dependant on the rate of decay.

The previous idea was to do what the Mayor of Wōrgl, Austria did during the Great Depression in 1932, to spend it into existence by paying part of the wages of council employees in that currency. In the case of Wōrgl that was a Work Certificate that had to be stamped every month. Owners of the certificates would have to buy a stamp every month worth 1% of the note’s face value. That means over 12% a year of decay, or a -12% interest rate. Well that turned out to be big because the certificates circulated so fast that the town had to withdraw a large percentage of the notes from circulation.

Unemployment dropped and a great deal of infrastructure was built all within the space of the 15 months that they currency existed. Wōrgl was the centre of attention and many local towns wanted to do the same.

The locking down of countries including of borders during the pandemic has left us facing a worldwide depression worse than the Great Depression. In New Zealand we will always be partly dependent on the rest of the world, no matter how successfully we manage our borders to keep out the virus. Interdependence is a fact of life.

But there has always been another elephant in the room. If you could buy property with this new local money that circulates so much faster than the national currency it would fuel a property boom. You would just blow up land prices. And, as anyone familiar with leasehold properties knows,  you can only keep land prices down by extracting the proper land rent from them.

It is possible, even probable, that Wōrgl in 1932 will have had their rates struck on unimproved land values and their rates might have been relatively high compared with 21st century New Zealand. I don’t really know.

To stop speculation land rent is needed

The elephant in the room is about the need to have a full land rental on land. What is that, you say? It should be about 5 or 6% of the unimproved land value, according to valuers I know. And this should go to the public purse because it is the public that has built the infrastructure to give the landowners the windfall and it is the public that has set up businesses and organisations and clubs and facilities in the district. And we know the main cause of wealth disparity is the privilege given to property owners.

Well, think of Auckland which has had leasehold land for years and the land owners reap that windfall which rightly belongs to the public (read Central Government or Local Government).

In 2108 Core Logic estimated there to be roughly 17,000 leasehold properties currently in New Zealand. A lot are in Auckland and 15% of central city apartments are on leasehold land. Land is usually owned by churches, councils. Christs College in Christchurch once owned land under 2000 homes there. Most online references to leasehold land mention the banks are  averse to lending on leasehold land. Many tell you that investors  won’t get any capital gain and some talk about the sudden jumps in yearly ground rent, especially when the land rent rises if the land is sold. Most ridiculous of all you still have to pay rates. What a mess!

The banks are loath to lend on them. Guess why? Because when land increases in value due to community activity around it, and the land is sold, the banks will be able to lend out more money. Or I should say they will be able to create more brand new money and get the interest on it. As a group banks want their share of the eventual capital gain. But with leasehold properties, they would be lending only on the value of the house and that doesn’t have any capital gain. In fact it usually declines.

Obviously the owners of  land are the ones to gain from a tax system that turns a blind eye to their unearned gains.  Groups that lease out land with houses on them include St Johns Trust in Auckland that used to own more, but still owns properties in Tamaki Drive. The rent they enjoy should be reaped by society.

If you buy a house on leasehold land you pay a ground rent. This can be enormous and it means that the price of leasehold properties is extraordinarily low. Add in the sudden jumps of the seven year lease reviews and you get more problems.

Let’s look on Trademe Property. One house advertised now called On the Park is in Campbell Road, One Tree Hill costing $170k with a rental of $27,500 a year, fixed to 2017. The agent says the big house would cost $2 million if it were on freehold land. At a 5.5% rent ratio I work out that the land value would be around $500,000.

Ngati Whatua owns some properties on leasehold land and Napier Port used to. There will be many more owners in Raglan, New Plymouth and Lake Rotoma who are reaping the full land rental.

Land owners, industrialists and bankers still hold power

So let’s get back to  the process of colonisation because this may shed some light. When colonists arrived they  were steeped in Western economic belief that land could be owned, whereas this was a completely foreign concept to Māori. Moreover our colonist ancestors had commercial banks and within decades had a national currency. Tax had to be paid in that currency. It’s all tied up. Britain had of course previously discovered that land ownership led to a huge growth of banking and industry. But they had to subvert the economics departments of universities to prevent them from telling it how it was. As Mason Gaffney and Fred Harrison wrote, the land barons, industrialists and bankers were the ones originally to corrupt the economics departments of American universities by conflating land with capital and omitting mention of banks and money.

Today that power is ever present. Efforts to bring in a full land tax or land rent at central Government level will prove fruitless. The 2010 Tax Working Group report concluded a land tax was needed but it was completely ignored by the then government. Our Prime Minister stated in 2019 that while she leads the Labour Party there will be no capital gains tax. And both of these reports recommended that only a small proportion of the unearned gains be recouped by Government not the full land rent. They belong to Government.

So how do we find a solution?

Somehow, somewhere, someone is going to finally understand that working for reform at central level is not going to have results. We don’t need to waste all that time fruitless badgering central government when their hands are actually tied. The banks, the land owners and the industrialists, even of New Zealand Aotearoa, are between them far too powerful to allow a full land rent nationally and what’s more they will resist any monetary reform at central level.

It’s how the world works.

Could the other way of issuing new money be by buying up land using partly the new local money that decays? And if so, what land should be bought? Can the Council like the NZTA force the sale of property? At local level land at least some land is Council owned now.

It’s usually parks, cemeteries, and golf courses that are owned by council now. Auckland

And could local government collect the full land rent? Councils are bound by the laws governing them. They can only strike their rates as Central Government dictates and rates have never captured the full land rent. Landowners still reap some unearned capital gain.

There is one thing that is currently hard to get our heads around. Councils at some time are going to have to defy or disobey the Central Government. The political challenges of combining a full land rent with monetary reform are considerable, but not insuperable if we put our collective minds to it.

If we don’t, the wealth gap will continue to widen and when we have so many ultrarich we won’t be able to control climate change. Oxfam in a 2015 study found that it is this group of ultrarich (10%) that emits half of our total emissions. And with an unliveable climate billions will die. That is not being too melodramatic.

 

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Best leverage points for changing a system like the economy

Right now many groups round New Zealand are doing a lot of thinking about how we might build back better after the pandemic. They are identifying issues and making recommendations, whether it be on addressing climate change properly, facing the wealth disparity or generally working towards a world with a future for humanity.

But where should we intervene in the global or national political economy? It’s easy to suffer from overwhelm of ideas and information so it might just  be helpful to think about which interventions would have the most leverage. Would a small intervention somewhere have a big effect?

Donella Meadows, a systems analyst focused on environmental limits to economic growth did a lot of thinking on this topic during the 1990s and wrote a classic piece. She identified twelve leverage points to intervene in a system. A complex system could be a firm, a city, an economy, a living being, an ecosystem or an ecoregion.

12 Leverage points of Intervention in a system

 

So I am just going to deal with the first three which bring the greatest results. They are also the hardest ones to move. Here is a quote from Wikipedia

“3. Goal of the system

Changing goals changes every item listed above: parameters, feedback loops, information and self-organization.

A city council decision might be to change the goal of the lake from making it a free facility for public and private use, to a more tourist oriented facility. That goal change will effect several of the above leverage points: information on water quality will become mandatory and legal punishment will be set for any illegal effluent.

  1. Mindset or paradigm that the system — its goals, structure, rules, delays, parameters — arises from

 

A societal paradigm is an idea, a shared unstated assumption, or a system of thought that is the foundation of complex social structures. Paradigms are very hard to change, but there are no limits to paradigm change. Meadows indicates paradigms might be changed by repeatedly and consistently pointing out anomalies and failures in the current paradigm to those with open minds.

A current paradigm is “Nature is a stock of resources to be converted to human purpose”. What might happen to the lake were this collective idea changed ?

 

  1. Power to transcend paradigms

 

Transcending paradigms may go beyond challenging fundamental assumptions, into the realm of changing the values and priorities that lead to the assumptions, and being able to choose among value sets at will.

Many today see Nature as a stock of resources to be converted to human purpose. Many Native Americans see Nature as a living god, to be loved, worshipped, and lived with. These views are incompatible, but perhaps another viewpoint could incorporate them both, along with others.”

Donella Meadows wrote, “The shared idea in the minds of society, the great unstated assumptions, unstated because unnecessary to state; everyone knows them‚ constitute that society’s deepest set of beliefs about how the world works. There is a difference between nouns and verbs. People who are paid less are worth less. Growth is good. Nature is a stock of resources to be converted to human purposes. Evolution stopped with the emergence of Homo sapiens. One can “own” land. Those are just a few of the paradigmatic assumptions of our culture, all of which utterly dumbfound people of other cultures. Paradigms are the sources of systems. From them come goals, information”.

 

 

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Time to halt privatisation of high country

Although about a fifth of the South Island high country is owned by Government and leased out to runholders, this is changing. Since 1992 the Government has allowed the privatisation of leasehold land. Called “tenure review” it involves an unusual deal and the government loses. The runholders because of their input into the farm claim the improvements belong to them. They end up getting part of the farm for a song. No I am wrong – they sometimes make money on the deal by a strange mechanism. And then they flip it on, making millions in the process. The less valuable land is kept for conservation. There is something strange about the land valuation process.

So why on earth does the public purse lose? To retire the pastoral rights, the Crown paid runholders $36 million (or $656/hectare). That is ridiculous. It is all explained by Dr Brower in April 2107 here and the Environment Court at that stage made a case for stopping freeholding of land in the McKenzie Basin.

The picture above from Stuff shows this week’s protest by Greenpeace about a farm near Twizel where the farmer wants to run 15,000 cows. Many local farmers and even Fonterra joined Greenpeace in opposing this dairy conversion.

All the figures and stories are given in her post and she ends by saying “The best, easiest, and cheapest thing New Zealand could do for the land and water of the South Island is to stop high country tenure review. Better late than never.”

As Charlie Mitchell from Stuff points out, the best land stays in pastoral use and the deal is skewed towards the wrong side. “You might assume that ownership rights to valuable land would be worth more than occupation rights to less valuable land. But the Crown believes the opposite, so it has purposely lost money through these deals.”

More recently we saw the headline “Flipped. From zero to $17.5 million.” This involved a lakeside property on Lake Hawea. Previously under tenure review the farmer had been paid $2.2 million by the crown and had paid nothing in return. Then he onsold it for $17.5million. Flipped from zero to $17.5 million by Charlie Mitchell. An earlier article is one on McKenzie country

Of course after privatisation the owner can subdivide so by April 2017 what used to be about 120 leaseholds is nearly 4000 parcels of freehold land.

The Minister of Lands Hon Eugenie Sage has her work cut out to change this situation.

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Which do you fancy – Economic Growth or Financial Collapse?

I have now watched a TED talk on this topic twice and can’t help but respond. Ecological economist Marjan Van Den Belt is right when she says “we are mindlessly addicted to economic growth, we are growth junkies.” She advocates reciprocity in economies and says that is the key to a circular, sharing, regenerative economy. So far so good.

She urges listeners to take “a small step in the right direction”.  She points out that goal 8 of the UN Sustainable Development Goals is “meaningful jobs and economic growth”. What a shame they the UN doesn’t appear to understand that growth measures both good and the bad and doesn’t distinguish between them. So every time someone gets lung cancer that is good for growth, and when there is an accident the same. But when a mother cares for her preschoolers well or a family member cares for a frail older relative, the GDP doesn’t budge. Family work, voluntary work are not counted.

She also says neoclassical economic theory describes people as homo economicus – rational, self-centred and suggests trying to put that on your profile for a singles site. Yes.

So why do I want to respond? Because we are trapped. We have designed the money system and the land tenure system and together they are leading us by the nose to the growth imperative. And what happens if the economy doesn’t grow? Why it collapses of course. So is this economics professor really suggesting we crash the money system by allowing economic growth to grind to a halt? Does she really want us to have no money in the system, to have ATM machines that don’t work, to have plummeting house prices with negative equity and all the ensuing misery of foreclosures and bankruptcies? I doubt it.

Yes she wants a new paradigm and quotes Buckminster Fuller’s exhortation to build a new model. Good.

That is exactly what I have done in my new book The Big Shift. Although there may be other possible ways to get there, together in our little new economics think tank we designed this new model and believe once it is built and once it flourishes it will provide not only appropriate jobs, but where jobs are not possible, it will give a basic income so that parenting, inventing, producing needed sustainable energy and products will also flourish.

You see we need to get back to community owned land and community created and designed money systems. I know it is a huge leap for our thinking to get to community owned land and we can only do this fairly by adequately compensating landowners for their land. We can only do this by creating new money because there isn’t enough in the system of the conventional debt-based money created by banks.

Today I had a lovely email from a Green Party activist who said, “I have spent the weekend reading your book, couldn’t put it down. All amazing and well outlined ways to change our world small sections at a time. However, are there enough of us who are willing to take that last step?” And she wanted to buy a second copy to lend out to friends. Nice.

And she wanted to buy a second copy to lend out to friends. Nice.

For those wanting to read more about how neoclassical economics started and why, I suggest reading The Corruption of Economics by Mason Gaffney and Fred Harrison. It outlines how neoclassical economics started as a reaction to the influence of Henry George. Land barons, industrialists and bankers paid scholars to corrupt the discipline. After two decades they had succeeded in getting any mention of land, banks, money or credit in the mainstream texts. They had subsumed land under capital so successfully that even forward thinking economists like Gareth Morgan fail to mention land as a separate factor of production. Moreoever he also fails to mention money creation.

This emphasis on pointing out the fallacies of measuring the economy as the growth in GDP has gone on since the 1970s so it is great that more know about it But they don’t know what causes the growth imperative, which, as Steve Keen has pointed out, is the combination of the tax system that fails to address rises in land value (and other assets) and the faulty money system.

 

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Sarah vs the Govt – thoughts after first day in court on climate targets

Sarah Thomson poses for media outside Wellington High Court. She is taking the Government to court on their climate change targets

On approaching the High Court yesterday I was first struck by the sign outside that said “System Change not Climate Change” held up by a pressure group. Why didn’t I call my book this? It’s a damn good slogan. Crowds soon gathered and the media arrived to interview Sarah Thomson, the law student taking the case on climate targets.

When a 24 year old takes the Government to court it has got to be newsworthy and important. When her lawyer Davie Salmon started up, the years of preparation showed and a very long friendly conversation between Salmon and the judge began. Huge piles of documents were behind the young woman judge and I couldn’t help thinking this judge has the power to rule that the government revisit its emission targets and she looks five foot nothing. We have to stand up when she leaves the court.

Sarah Thomson with supporters. From left Deirdre Kent, James Renwick behind, Sarah, Paul Bruce, Tim Jones (behind) Diana Shand RNZ photo

The argument that New Zealand is small therefore we don’t need to do much was thoroughly demolished, especially with Salmon’s suggestion that if the boat is sinking everybody bails, no matter how small their bucket.

He took us through the difference between the target of 1.5 degrees vs 2 degrees of warming. Reality strikes when you realise that, although he said he wouldn’t exaggerate, he used the word ‘catastrophic’. Yes beyond two degrees it is catastrophic and James Renwick had reminded us outside that it is only five years till we get to 1.5 degrees. David Salmon persuasively argued that you shouldn’t rely on technologies that don’t exist yet to take carbon dioxide from the atmosphere. He said it was like telling someone to keep smoking in the hope someone would invent a cure for lung cancer. One cannot predict inventions. Therefore no real weight can be put on that hope.

System Change not Climate Change

He impressed on the judge the comprehensiveness of the AR5 summary of climate change knowledge worldwide. The sheer size and scale of the work was noted and the fact that it is always out of date before it is published. He said, “I don’t want to make you read it all Your Honour, is scary reading about floods and famines, mass migrations and conflicts and some of it is dry and detailed”. She replied, “I’ll be happy to read it”. He said,”Maybe not happy by the time you finish.”

Sarah and her boyfriend were sitting in front of me in the gallery. Occasionally she would lay her head on his shoulder. When later she put her arm around him I wondered if that couple would ever have children and what sort of world will it be for them. Will their mothers grieve for the grandchildren they wish they had? But I do know they should be immensely proud of their children and of themselves for bringing them up to have such a huge sense of responsibility.

My thoughts, as always, went to economics. Where were the economists in this court? I couldn’t see a soul.  What would they say if they were here? Yes, Salmon talked about Business-as-Usual scenario and I thought that even Helen Clark’s government did nothing to stop the intensification of dairy because it feared the economy wouldn’t grow enough and they would be out of government. And so we get agricultural emissions rising.

Sarah Thomson and Prof James Renwick outside Wellington High Court Monday 26 June 2017

And Naomi Klein realised the economy was at war with the climate.

So I thought what would it really take to change the economic system from growth dependent to a healthy one? How many really want to face up to the money system and that the land tenure system (and therefore the tax system) simply have to change. It’s a big shift for people’s mindsets. What causes the growth imperative? It is the combination of privately owned land system with an interest-bearing debt money system controlled by private banks. A match made in hell. Maybe we have to get to hell before we wake up.

We have the choice of catastrophic climate change or economic collapse. Both are horrible. Please, someone, focus on changing the political economy before it is too damn late!!

I kicked myself that I hadn’t written a flyer for my book and taken it with me.

 

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