This week we had the extraordinary spectacle of the Prime Minister of New Zealand addressing his party Blue-Greens, claim that environmentalists push up the price of land.
OK he is getting at the over-bureuacratic interference in the planning process and cites examples of councils wanting to know about furniture layouts and positioning of plants before they grant a permit.
Pull the other leg Bill. We are not going to accept that one. Sure they are intrusive, but that can be solved. Probably councils are desperate for revenue and central government gets far too much of the public revenue.
No Bill, land only has value because of community activity. You don't put a factory out in the wop-wops where there is no electricity, no internet, no sewerage or water supply, let alone the transport to get the goods out. You put it where it is near to all the infrastructure, suppliers and markets. You site it near rail, near ports. It is all the government expenditure on infrastructure, and all the businesses and community that makes a certain site desirable. Land which is well serviced has more value than land which is isolated and poorly served.
The value of land is increased by five things:
1. Infrastructure provided by government – rail, roads, schools, hospitals
2. Infrastructure provided by local government – water, storm water, sewerage, streets, lighting, parks, community halls, street enhancement.
3. Businesses and industry – manufacturers, maintenance, retail, warehousing, commercial centres
4. Community organisations and individual housing – clubs, organisations, neighbours.
5. Nature – proximity to rivers, seas, views, good soil, good weather
Given that Auckland has all these, and you have seen immigration as a way of increasing the GDP, making government look good, it is no wonder Auckland prices have been rising for so long. Then again, the international trend to very low interest rates has been a huge factor (not something you can take credit for Bill though you try I know).
And all this before the big one – the fact that the tax system favours buying houses for investment as those who own 2, 5, 20 houses have much to gain and precious little tax to pay. That is on your plate Bill, don't dodge it. The Green Party tries to recoup a small proportion of the capital gains for the public purse and the Opportunities Party collects it all, but you only collect a miniscule amount of this unearned income. Shame on you. And double shame for then turning round and blaming environmentalists. Get real.
So Bill, if you want to blame bureaucracy or environmentalists demanding good tree planting, please see it in the full context of what actually raises the price of land.
Designing a new economy has major challenges politically. We want two major changes that actually aren't politically realistic in the current world where eight individuals own as much wealth as the poorest 50%. There is too much concentrated power.
If we want monetary reform it is unavailable at national level because there are simply too many bank lobbyists in the world's capitals who are spending far too much for any public interest lobbyists to match. Then again, if we want to replace
Then again, if we want to replace income tax with land tax, forget it. Not a goer either from a practical political viewpoint. No self respecting politician will touch it if taxing land reduces its market value and threatens a politician's votes.
What about getting a Basic Income and replacing the intrusive welfare system? Well that depends on how you would fund it. The problem is most of the current solutions are a drag on the economy. You must not fund it from GST which is regressive or from income tax which is a drag on the economy.You must fund it by sharing the rent on land and other monopolies.
Well where do we go then? You have painted a dismal picture.
Most respond by saying "Oh well bring A or B in gradually". That takes ages and moreover when A is implemented it affects B and C. So the idea of just imposing a 1% land tax and bringing it up gradually is quite impractical. We have to think in terms of whole systems. It is a whole system shift we need. Redesign the political economy from scratch.
The fact of the matter is that we must be politically savvy to come up with a solution. Many economists might agree that land tax is the most logical tax, but unless they are standing for office, they don't have to face the public. It is one thing to be an economist and another to be a politician. Victoria University's 2010 Tax Working Group which was stacked with economists from many government departments as well as consultants and academics, proposed a land tax. Did the government listen? Not that I can recall. I don't remember their recommendations on land tax being discussed in the public arena for more than a day.
What about Positive Money and all its followers saying that money should be spent into existence not lent into existence? They make a very good case, you can't fault it. And yes, the British Parliament took it seriously enough to have a parliamentary debate. But do you believe it will go further? You only have to read Nomi Prins book 'All the Presidents Bankers' to get an idea how close presidents have been to the big bankers for over a century. Hilary Clinton's campaign was funded by investment bankers and Trump has six Goldman Sachs bankers in his cabinet. He has already moved to get rid of the weak regulations they now have.
When considering the political feasibility of putting in the idea of Michael Kumhof and Jaromir Benes' Chicago Plan Revisited, a plan making bank debt illegal, Lietaer, Arnsperger, Goerner and Brunnhuber listed five reasons for not recommending it.
"1.Replacing a monoculture with a monoculture is not the way to generate diversity in exchange media.
2. While it is true that a Chicago Plan reform would eliminate risk of widespread banking crashes and of sovereign debt crises, there would still be monetary crises.
3. If governments were the only ones in charge of creating money there might be a risk of inflation. Such a risk is real and demonstrated in 2009 by the hyperinflation crippling the Zimbabwean dollar after President Mugabe instructed the central bank to print its currency by the trillions.
4. The fourth reason can be summarised as ‘political realism’. Any version of the Chicago Plan will be fought to the death by the banking systems because it threatens both its power base and its business model. Even after the excesses triggering the 2007-8 collapse, or in the middle of the Great Depression of the 1930s, the banking lobby managed to deflect the implementation of any significant changes. In 2010, for every elected official in Washington, there were three high-level lobbyists working full-time for the banking system. The financial services industry including real estate spent $2.3 billion on Federal campaign contributions from 1990 to 2010, which was more than health care, energy, defence, agriculture and transportation industries combined." (In USA, according to Gar Alperovitz, in 2010-11 the FIRE section (finance, insurance, real estate) section spent nearly $1 billion in lobbying against bank regulation.)
"5. The final argument is about risk. Nationalising the money creation process cannot be done on a small pilot scale. It must be implemented on a massive, national scale or, in the case of the euro, a multinational scale. Any change always involves the risk of unintended consequences. Logically, large scale change involves greater risk."
Yes, there is a way to go. The ideas came from the permaculture teachers in our new economics movement. Reform the very structure of governance to give quite substantial powers to local government, turn governance upside down as well and then we might have a chance. The centralised governance structure must be replaced with distributed governance. Then we need to rethink the powers given to or claimed by local governance. In fact central government is not going to give very local government big powers like money creation, land ownership or revenue raising power, so they have to claim it themselves. This is where rebellion must be focussed.
So we have proposed spending money into existence at the very lowest level of government (in New Zealand that would be the Community Board). That money will gradually buy up land. The Community Board would then receive land rent from the property holder and pay the rates (local taxes) of that property holder. This process happens gradually, while closely monitoring inflation. If there is a sign of inflation, the rate of decay of money can be adjusted or the money spent at a higher level of governance.
So the Community Board claims the right to issue money, to buy land with that money, to receive public revenue. It could also impose certain resource rents to be determined.
With the growing revenue from land rent the Board would be able to distribute regular Citizens Dividends and build and maintain essential infrastructure.
There would have to be participatory budgeting so that the balance between infrastructure and dividends was maintained and the public was behind the Board.
Now if we are going to reclaim the right to issue money, we might as well design it properly while we have the chance. It is there we look to history and read Bernard Lietaer. He cites a period of 2000 years of a decaying Egyptian currency which had huge social, educational and economic benefits, 200 years of European currencies in the central middle ages that resulted in an age of prosperity, equality, high education and more leisure and finally a period in 1932-3 in a small Austrian town during the Great Depression. Each of these had a decaying currency, much as goods decay.
So the new money would be designed to decay. In practical terms, it would keep its face value but attract a regular payment to keep it valid. The local Board would develop a more equal relationship with its local Council who would inevitably end up accepting the new currency for rates. This would eventually pass on to central government who would have to accept it for taxes.
So what we propose is a new currency that soon is accepted by central government for taxes. This means it is a new national currency. They way this works out is that each local board keeps its currency from inflation so all are on a par. They flow into a stream that flows into a river towards central government.
I need help. I have struggled for a long time with a suitable name for the book I am writing, a book that is based on the contents of this website.
I have already submitted an essay to an international competition for called What's your Alternative? I called my essay A New Political Economy. Boring title but it gives the crux of it.
I know naming a book is very important and I have a designer ready and waiting to design a cover. So I have been reading a marketing book called Platform: Get Noticed in a Noisy World by Michael Hyatt. He seems to classify good titles under one of four categories, PINC.
P stands for Titles that make a promise
I stands for titles that create intrigue
N are titles that identify a need e.g.Fearless: Imagine your life without fear
C are titles that simply state the content.(which was what I did in my essay)
Going through titles for TED talks I find lots of I titles and P and N titles and even C titles.
So here first is the elevator pitch for the book:
What is your book about? It's about designing an innovative political economy. We need a completely new money system, a completely new tax and welfare system and a completely new governance system. Leave the old system alone. Then incorporate the big changes into a genuinely new package. We can't just tweak the old system, we need disruptive innovation.
I know it is a nerve to take on such a task, but this book designs a system for a country, not the entire planet! But honestly the system we have is broken, we have passed peak oil and our system is designed for growth, and we can't get that now. We are in real trouble and the old system is just not going to serve us any more. Almost all economists just want to tweak the old system. This book says we need to start again with a completely new model and so it proposes one.
Would you help me? The ones I have thought of so far are the following (I have had a Facebook group on the topic but I think the people there are getting a bit sick of the problem). Note: there would be subtitles too, bit longer.
The Big Shift to a Natural Economy
The Big Shift to a New Economy
Three Big Shifts
Whole System Shift
Designing a Better Economy
Now having re-read Platform and been through those TED talk titles, I am submitting:
Disrupt! A New Political Economy redesigned from scratch
Stand Aside Economists: We need a completely New System
The Big Shift to a Surprising New Economic System
I am open to anything and await advice from innovators, linguists, disrupters, comics, originals, advertisers, marketers, publishers
Later: The book is going to be called The Big Shift: Rethinking Money, Tax, Welfare and Governance for the Next Economic System. A hard copy will be ready in mid March and a kindle after that.
Tim turned 16 the other day. By the time Tim is 30 the world will be producing only half the oil it is producing now and when he is 40 it will be producing less than a third.
Since I found out about peak oil in 2004 I have bothered you with my dire predictions. I know we got the timing wrong, and I know we have subsequently found shale oil and the global economy has continued on a business as usual path. You think I was wrong, do you?
Well here we are at 2017 and the article I have just read several times explains why the timing was wrong. We didn’t allow for fracking and we didn’t factor in the financing of oil. But now we are stuck. You tell me where the Nafeez Ahmed article falters. He quotes from an HSBC report and that is the sixth to biggest bank in the world. The HSBC article quotes from the International Energy Agency and from a Swedish University’s energy programme. Ahmed quotes further from a recent Cornell University paper which in turn quotes a paper from the Italy’s premier agency for government research.
I know very few of you will want to read the Ahmed paper. After all it is holiday season and we all have books to read, swimming to enjoy, bike rides and tramps to accomplish and screens to attend to.
So let me summarise this paper a little, adding an odd bit for explanatory reasons:
Conventional oil peaked in 2005. Unconventional oil (shale oil, deep sea oil) peaked in March 2015. Oil is the most dense energy form human beings have ever found and nothing has yet replaced it. Consequently it is closely correlated with economic growth and population growth. The current economic system requires constant economic growth. Oil has fuelled the growth in global wealth.
Ten years ago some of you replied, “Don’t worry, we will find something”. Oh yes we found fracking, and China went back to coal. But we also had already found debt instruments. If you don’t understand what these are you are in good company. Not even the heads of hedge funds or big banks know what strange derivatives (bets) are being invented by their traders sometimes. Ahmed says simply “the world is borrowing from the future to sustain our present consumption levels”. I know the shale oil companies were largely funded not from banks but from selling bonds. Ordinary people bought company bonds and got paid very high interest rates. The interest rates have risen so high that many shale companies are going broke paying them.
As oil exploration is yielding fewer and smaller fields and the oil is getting deeper and more expensive to extract, the oil companies abandon uneconomic fields. This happened around New Zealand and we attributed it largely to the actions of Greenpeace. But it was more than that. It costs them too much to extract it. Oil prices have recently climbed to just over $50 a barrel and companies need about $60 to break even. So they borrow. The trouble is this debt doesn’t produce real wealth.
Remember back in 2008 just before the Global Financial Crisis we had soaring oil prices? Oil went to $150 a barrel. Since nearly all goods are transported and the transport cost went up there was less money left for the rest of the economy. So we had a huge recession. So if oil prices are too high we get a recessionary effect that destabilises the global debt bubble. That debt is now higher than the pre-2008 crisis. If oil prices are too low we get too much debt which brings with it huge bank risks.
The economy can’t grow without oil. So we are stuck. The article says “the economy can quite literally never recover unless it transitions to a truly viable new energy source which can substitute for oil.”
Ahmed won’t of course have read my essay that I just submitted to the Next System Project essay competition where I propose an entirely new way of constructing a political economy so that we are not dependent on oil or on money as debt. (More of this later, I have just entered it into their international competition)
Ahmed says that because on 1 Jan 2018 there are new regulations coming into force in the finance industry, there will be a massive collapse shortly after that. He called it in 2008 and he is calling it now.
So while you are reading soothing headlines about how the economy is ‘in recovery’ or angsting over Donald Trump’s appointment of Exxon Mobil chief as Secretary of State or yet another climate change denier to a key position, think about your preparation for next year. The economy can't recover, given its present structure and its geophysical limitations. Where will you get your food? Cash? Petrol? Will your local authority be able to maintain a good supply of drinkable water or a sewerage system if they are in increasing debt? What about power?
Now there will be those who say this is wonderful for climate change. Yes it may be the only thing that makes our planet habitable. But it is an awful way for billions of us to learn. Actually the people who will be best off will be those who are already scraping a subsistence living. But that is another matter.
If only half the today’s global oil supply is available to Tim when he is 30, what is the future for your grandchildren? Or your old age? Can you devote an hour of your precious time to getting a handle on the reality of all this? We are so privileged in New Zealand and have had it so good for so long. I have missed out on a share price boom I know. Yes I got the timing wrong. Yes I have been a doomster. But please think for yourself now. You are educated, you probably have unlimited data for your computer, use it. Plan now for a massive, tightly interconnected, global financial collapse now. You might have a year.
When job figures in the US came out in early November 2016 the unemployment rate was 4.9 percent and hardly anyone worried. For economists a 5% unemployment rate is a really good figure. But remember the new definition of who is employed? Employment in most developed nations these days is "at least one hour of work done in the past week by a person aged 16 or older". So the "employed" includes all those who lack job security, and those with intermittent employment or underemployment and the resultant precarious existence.
This is what the Democrats missed. There is many a commentator who has observed that the urban privileged are completely out of touch with those who experience the worry of a day to day precarious existence, always uncertain whether they can pay their bills. This is the precariat. Professor Guy Standing, in a book published well before Brexit and Trump's election warned that the rapid growth of the precariat is producing instabilities in society. He warns it is a dangerous class because it is internally divided, leading to the villainisation of migrants and other vulnerable groups. And, lacking agency, its members may be susceptible to the siren calls of political extremism.
Something familiar there? While they might not call it the precariat, Bernie Sanders, Donald Trump and Nigel Farage all appeal to this group. So while the question is legitimate, the solutions of Trump and Farage are wrong, wrong, wrong.
The tragedy is that just as politicians miss the precariat, economists miss energy. And strangely they are related. Here is how:
Oil is a remarkably dense energy source with one barrel of oil supplanting eleven years of human labour. Graph its use with the rise in GDP and they are in complete lockstep. The economy as it is currently structured is utterly dependent on growing supplies of cheap to extract energy. Only a fool would deny it is extremely unwise to build an economic system that relies on ever growing expansion in oil supply. In real terms energy supply is already on the decline due to the expanding internal energy requirements of the oil industry.
The cost of oil exploration and extraction is rising and with it debt
Actuary Gail Tverberg writes that peak oil didn’t play out as expected because we didn’t factor in the financing of the oil industry. As the cheap-to-extract oil ran low, the cost of extracting non-conventional oil grew higher. This meant the firms had to go into more debt in the form of bank debt, bonds and derivatives. Eventually the debt overwhelms the oil companies and the layoffs begin. In order to pay interest on all their debt, indebted firms have had to keep wages low. The same happens for all firms that extract commodities, because they all require cheap-to-extract energy. The last step is that these low wages reduce the general demand for goods.
Nicole Foss points out that if demand collapses, the money supply declines and a deflationary spiral begins that few notice. 18 months after the decline in oil prices started, by February 2016 Bloomberg Business reported there had been 250,000 oil jobs lost and apparently each of these jobs supports over three basic wage jobs.
Tverberg says, "Why is the price of oil so low now? In fact, why are all commodity prices so low? I see the problem as being an affordability issue that has been hidden by a growing debt bubble. As this debt bubble has expanded, it has kept the sales prices of commodities up with the cost of extraction, even though wages have not been rising as fast as commodity prices since about the year 2000. Now many countries are cutting back on the rate of debt growth because debt/GDP ratios are becoming unreasonably high, and because the productivity of additional debt is falling."
So the drop in oil prices leads us to an underlying problem. The world is reaching the limit of its debt expansion. This is what is called Debt Deflation.
So even though we are living in a time of energy constraints, our blinkers don't allow us to see that. Risk analyst David Korowicz wryly observes,"The irony is that people may rarely notice they are living under energy constraints. Energy retraction from the global economy can be achieved by production declines or collapses in demand, though as we have seen, they are deeply inter-related. We may experience energy use collapse not as an energy constraint, but as a systemic banking collapse and vanished purchasing power."
So here is the source of the vanished purchasing power of the precariat. In a post election blog energy analyst Richard Heinberg observes that the problems won't go away when Trump is elected. In the face of the door being closed to national action on climate change, build community resilience is his message. "The most promising responses to our twenty-first century crises are showing up at the community level anyway. It’s in towns and cities across the nation, and across the world, where practical people are being forced to grapple with weird weather, rising seas, an unstable economy, and a fraying national political fabric."
None of these arguments will be known to the incoming president, though some advisors may try to educate him.Good luck to them. He is an anti-science president. If he slaps tarriffs on as he has promised, purchasing power will decline still further and accelerate the already active deflationary spiral.
Trump's attitude to women seems the same as his attitude to the environment – if it's there, it is there for my use. Coal stocks soared on his election and renewables dropped. However, oil stocks didn't rise much, possibly a sign that reality of constraints are already priced into the market.
An interesting question with Trump is how committed he actually is to his own ideas, from the potentially sensible to the crazy. He is a “top of the head” sort of a guy, who changes position and contradicts himself on exposure to new things (or simply because he finds himself in a new context). Is the Presidency just a vanity project for him, in which he will blow with any policy wind he encounters? His victory speech, and his abandonment of the “Lock her up” approach, suggested that.
At the worst, if his “vision” as expressed during the campaign carries through, the US (and to a lesser extent the world) are in for an appalling time – racist, misogynist, anti-environment, pro-individualist, pro-violence and so on. And if the Republican Party as a whole gets the bit between its teeth, the US Government will be gutted and corporates will simply finish their take over. At the best, there’s no doubt he has created more space for these sorts of behaviours at the fringes in the short term. In between, as seems more likely, the direction as a whole will probably be negative, but it’ll be muddled and maybe not so fast moving.
There are a few bright spots, less likelihood of a war with Russia and above all, an increased energy and commitment of climate change activists. Our lives depend on it. He has focussed our minds. There is no spare planet. Somehow we must find a way.
If we don't like predatory capitalism and we don't like socialism, what do we want? This is what Gar Alperovitz of The Next System has asked. Many in the climate emergency movement have also called for ideas for a new economy. While some of the ideas are expanded elsewhere, here is a summary of what we believe is necessary:-
1. Leave the existing currency alone. It is what Bernard Lietaer calls a yang currency and needs to be balanced with a yin currency. So many things are wrong with the system it is quicker and better to start again. But the trick is to find how.
2. Elect a Community Board. Appoint hapu and/or iwi representatives. This board guides the process of decentralisation of energy and many other systems previously centralised and vulnerable to shock. They decide what is important for your area in the way of infrastructure for your local resilience – a functioning water system, a port, a roading system, a local radio station, a micro electricity grid, Local Area Networks for internet. They are responsible for planning and community development.
3. Elect a Currency Board, responsible for designing and issuing the currency and keeping it stable. It will eventually become a community bank. These people must be willing to communicate with and cooperate with all the other neighbouring Currency Boards. You can see how important the elections are! This Committee will create a new natural currency that decays by design. They will decide if it will be digital or notes. They will ensure the notes are secure and decide on the rate of decay of the currency and how much to issue in order to avoid inflation.
4. Elect a Land and Resources Board and appoint hapu and/or iwi representatives with knowledge of local land stories, Treaty settlements, sensitive land that is not back under iwi control. These people work with any existing land trusts and decide on what land to buy to put into the Community Land Trust. They first seek council cooperation to put council owned land into their trust. They also work with any local cooperative to ensure the land they use goes into the CLT. Then they make recommendations to the Monetary Committee for suitable properties to buy up with new money. They also monitor local resources – water, fish, forests, minerals and set rules for sustainable use of the commons.
A Lot of Elections are needed
It seems like a lot of elections, but they are important because you need plenty of elected people to act as checks and balances on the other boards. This is big stuff you are dealing with. Each small board has a range of vital functions we are not used to at this level, and it is critical to avoid corruption.
Decide that your Community Board will function as a self-governing local entity, possibly serving a population of 5000 – 25,000 people. Know that you can both make and enforce your local rules, especially rules relating to your currency and your rental gathering. Resist interference from national government in matters you believe are just local matters. Tell them to go away. You will help them later when your own currency and revenue schemes are scaled up. (See Declaration of Interdependence for rights and responsibilities of local communities)
Put it into action
The next phase is for the Currency Board to spend the new currency into existencein one of four ways:
a. to pay for labour and materials for adapting and maintaining infrastructure – the ones decided by the Community Board. Or you could spend it into existence to pay part of the salary of bank staff. Or a Citizens Dividend for a start? Or all three?
b. To pay part of the salary of staff in the new currency.
c. To distribute a small Citizens Dividend.
d. To buy land for the Community Land Trust.
If you can employ staff, get them to persuade your local businesses to accept the new currency for payment.
The Land and Resources Board will decide which land you want to put into community ownership first. Is it bare land or already built on? Will you insist on compulsory purchases? Is there a local factory or business in your district that has privatised part of your commons? (minerals, intellectual property, water, knowledge, public infrastructure). What powers do you want to purchase land of those who are polluting the biosphere?
5. Employ a valuer to set up a Land Rental Index. Accept only the new currency as payment.
6. Compile and maintain of directory of local citizens, including all children. Each will be eligible to share the rents from the use of the commons.
7. Have your Community Board communicate at the earliest possible juncture with neighbouring governance units. Ask yourself at what stage will you need to cooperate with other boards for roading, sewerage, water supply, transport, stormwater infrastructure. Be sympathetic to your local council when they have rating (local tax) arrears and use it as a bargaining tool, so your citizens can pay their rates in the new currency.
8. Employ participatory budgeting. The decision about whether to spend new revenue on infrastructure, administration or on Citizens Dividends will be done at a public meeting only. Establish the principle of community participation in budgeting right from the start. There will always be a tension between building essential infrastructure and giving out Citizens Dividends. Some get really attached to their dividends. Since Alaska doesn’t have participatory budgeting and people love their dividends so much, Alaska’s system isn’t funding enough infrastructure.