Redesigning the Economy at the Tele, Otaki

Posted on April 29, 2015 by Deirdre

About 25 people will gather at the Tele at Queens Birthday weekend to talk about how to remodel the political economy, according to Co-leader of the New Economics Party Deirdre Kent. “People are coming from a variety of backgrounds, but one thing they have in common is that they want to address the big issues of our time – fair sharing of the riches of the world, climate change, and resource depletion.”

‘Everything is on the table’. Kent said they wanted to drop deadweight taxes like income tax and sales tax and corporate tax in favour of people paying a full rent for the exclusive use of natural resources like land and minerals. “That is a major change, and a necessity for a post fossil fuel era”, she said. “And the rents need to be shared by everyone using regular Citizens Dividends”.

Facilitator Margaret Jefferies will be using an Open Space method so that participants get to talk about what appeals to them most, whether it is the money system, the tax and welfare system, the governance system or something else.

“After three years of online and small meeting discussions we know we want to give a great deal of power to Community Boards and Councils rather than central government. So that the economy doesn’t have a growth imperative built in, we want money spent into existence rather than lent into existence with interest.”

“We believe that, given the current and growing level of private debt there will be a second and bigger Global Financial Crisis. Economics Professor Steve Keen, an expert on debt deflation, will be beamed in on Skype on the Friday night talking about risk.”

For further information go here

The 1-3% inflation target is really a circulation incentive and we need to read Gesell instead

Posted on April 14, 2015 by Deirdre

The other morning on the radio I distinctly heard a senior politician say that the economy wasn’t going well ‘because the inflation rate was too low at below 1%’.

I thought I was hearing things. Indeed someone coming to Earth from Mars might ask a few questions. Presuming inflation is a bad thing and it is now near zero, why then is the economy not going swimmingly?

Then I remembered what I had recently learnt – that economists had designed a 1-3% inflation target as an ideal because you had to have some incentive to spend today or the economy would seize up. You didn’t want inflation too high, but a low rate of inflation is acceptable and even necessary simply because otherwise people hold on to their money and nobody spends. They realise that goods will be dearer tomorrow – if only by a little – so they decide to spend now rather than wait.

Goodness, how few people know this. And how it is becoming exposed now that the inflation is below 1% in more than one of the developed nations.

Now land was taken out of the CPI in 1999 as you can see in this graph.

Yes the graph makes good sense. With land safely out of the CPI, economists can brag that their target has been achieved for a consistently long period. And you had the huge land bubble of 2002-2008 never recorded in the CPI and then again the land bubble of 2011 onwards completely out of the graph.

So putting aside this statistical sleight of hand, we also know now that the national currency must have a circulation incentive. (That is under the current currency design of money created as interest bearing debt)

As we collectively head blindly into a period of deflation of unknown length and pain, we must pay attention to the writings of Silvio Gesell, a far thinking German businessman who also lived during a Depression in the 1880s in Argentina. His book The Natural Economic Order has been translated and put online for all to read. Of him Keynes said “The world will owe more to Gesell than it does to Marx”.

Gesell realised that a businessman with goods is at a disadvantage from those holding money. While the goods decayed, rotted and generally went out of date as they waited for someone to buy them, the money retained its value. Those in possession of money were better off than those who had goods. He famously wrote: “Only money that goes out of date like a newspaper, rots like potatoes, rusts like iron, evaporates like ether, is capable of standing the test as an instrument for the exchange of potatoes, newspapers, iron and ether.”

After decades of having loyal followers, during the 1930’s depression, Gesell’s theory was put into practice, but only briefly because the banks managed to persuade the government to stop it. It was in the small town of Wōrgl, Austria 1932 that the Mayor put aside 20,000 schillings and used them as backing for notes called Work Certificates. They paid their employees partly in Work Certificates. Each note had 12 spaces on the back and a stamp had to be stuck on every month to validate the note. To avoid paying for the stamp people spent the Work Certificates quickly. The currency was successful at reducing unemployment, so much so that people came from miles around to witness the Miracle of Wōrgl. It was in place 15 months before the government made it illegal and they went back to unemployment.

Modernising the Georgist ‘doctrine’ without using the words “land value tax”

Posted on April 5, 2015 by Deirdre

In Land a New Paradigm for a Thriving World, Martin Adams has spelled out his philosophy that no one should make a profit from owning land. He has carefully and thoughtfully reframed the Georgist ‘doctrine’ for a modern era and developed a clear new language. For example here is a classic sentence: ‘What most people don’t yet realise is that the value of land is best shared, and that whenever we profit from land we profit from society.”

Martin is no slave to doctrine and clearly thinks out the issues for himself. He sees the vision. “Once we being to share this value with one another, we have the opportunity to unleash a cultural, technological, ecological, and even spiritual renaissance that will liberate us in ways we can’t imagine.”

And – great news – Martin is no centralist. He understands that revenue must flow from the periphery to the centre, not the other way round. So he talks of land moving into a Community Land Trust and people then paying a Community Land Contribution. Some of the revenue stays local and the rest is passed upwards to other levels of government.

From his description of how to prevent urban sprawl to his chapter on using farmland efficiently, Martin challenges us to think in a fresh way.

Thoughout this valuable little book Martin has steadfastly refused to use the word ‘tax’ , arguing it implies that the people being taxed have to part with something that belongs to them. “Land value taxes”, he says, “are still rooted in the paradigm of private land ownership.”

The questions arising from this book regarding the practicalities of some of his suggested solution remain to be tackled. Martin, being so honest and so curious, will no doubt ask more questions, talk to more people and develop more politically realistic solutions. It’s monumental task. I have no doubt he will make an even bigger contribution in the future. Watch this space!

Charles Eisenstein, Thom Hartman and Peter Barnes don’t just recommend any book or call a book a ‘brilliant contribution’ or a ‘modern breakthrough’. Their reputations would be at stake if they did.

Available here

The Land Dollar – how we came to offer this as an option

Posted on March 25, 2015 by Deirdre

The combination of allowing banks to create money interest bearing debt, together with a land tenure system that allows people to profit from rising land values have led to growing debt, a built-in growth imperative, inequality and a never ending series of boom-busts. Both the issues of land and money need to be addressed, especially in the light of the climate emergency and the growing inequality we live with.

In our search to design an economy that isn’t at war with the planet – one that doesn’t write in forced economic growth or widen the gap between rich and poor – we have opted to combine basic income, monetary reform, governance reform and tax reform (the latter closely related to land tenure reform). We want a world where everyone has a fair share of our common wealth. We want to replace the extractive model that is killing our habitat with one that is life-friendly.

While addressing these reforms together is a huge challenge, we know for our climate’s sake we must succeed. In reforming the system we know we can’t afford to shock the economy. So we need incremental change of some sort and must look to nature for guidance about design.

We realised early on that imposing a land tax alone was politically well nigh impossible, even at half a percent. Raising it to the a full land rental level would be just as hard. That sort of incremental change would not be possible.

Objections for instance to charging a full rent for monopoly use of land include:-

a. The banks would block it. They hold the power because they issue mortgages backed by land.
b. The public wouldn’t like it because the market value of their property would decline. This is unacceptable especially to those with big mortgages.
c. Property owners would argue they already pay rates and a mortgage so why should they have to pay a third time?

We realised early on that reforming the money system by spending money into existence to build infrastructure would result in rising land values for those with properties served by that infrastructure – be it rail, schools or ports. It would be difficult to control land inflation and therefore to halt the march to further inequality. The rich would also buy up patents and any natural monopoly they could get their hands on.

Funding a full Basic Income is also a considerable challenge. An extremely large sum is needed, even when the net public expenditure is calculated.

During the summer of 2001-12 Deirdre had had a series of Skype calls with a Cambridge academic, the late Dr Adrian Wrigley. His solution was for the Treasury to pay off the mortgage and for a full land rental to be paid. The property would then have a covenant on it requiring owners to pay a full land rental to Treasury. No rates would then be payable. If the property was sold, the next owner would still have to pay that rental.

We only wanted the land to be bought/paid for, not the whole mortgage, so we changed it to that.

We soon learnt that using the preferred “covenant” idea was hard to explain to the public so we reluctantly dropped it in favour of publicly owned leasehold land. However we started with a centralised model of public ownership and remained with that for almost 2 years. All the time we were a uneasy about land being owned by any agency of central government.

Adrian never talked of a parallel currency. It was our idea to have one. We thought the current system is so badly messed up we had to start again, and believe that this was also the way not to shock the economy.

We knew a lot of land is overvalued and although we recommended buying land at market value, we know this isn’t the total solution.

So we recommended designing a second parallel (and competing) national currency, and link it from the start to completely new tax laws. After all no public budget would ever stretch to paying for such a large quantity of land, no matter how slowly it was acquired. Treasury, not the Reserve Bank, would issue Treasury Notes to buy up land. We happily adopted Adrian’s excellent idea of having a Land Rental Index for each area and adjusting the rental each year accordingly. Only the land value needs assessing not the improvements, so that is easy. And you only need a sample of properties in each general area. Land rentals are valued each year and the index suitably adjusted.

Parity with the land dollar with NZ dollar became a hot topic of debate. After discussion we eventually said “issue it at par, redeem it at par and let it float in between.” The new currency would be valued by those who wanted to employ labour without tax or buy goods without sales tax.

The name of new currency changed many times – Tradeable Tax Credit, Treasury Note, Zeal and finally the Land Dollar. (We also went through a short stage of recommending Rates Vouchers for both Auckland and Christchurch.)

Then, in mid year 2014 we suddenly realised it didn’t have to be issued by Treasury at all. Eureka! It could be issued by Community Boards and the revenue could be shared by other levels of government and eventually flow to central Government. We said ‘turn the funding model upside down, replace centralisation with a model where decisions are made across the whole economy. Restore local democracy’. We gave a great deal of power to the local level of government – currency creation power, land buying power (compulsory where applicable), and revenue gathering power.

In this model the Community Board or its elected equivalent “owned” more and more land – a more politically acceptable solution. The local committee must have on it, by right, one or two representative from the local iwi or hapu grouping, who would have veto power over any decision to buy land, thus avoiding potentially sensitive land. Land would effectively go into a Community Land Trust. In this way land could be gradually taken out of the market place and the people who decide which land to choose would be answerable to the locals. (Adrian had hoped the land buying could all be done voluntarily to avoid legislation. Some will no doubt come in voluntarily)

A whole raft of tax laws applying to transactions using the new currency (the Land Dollar) would have to be passed right at the beginning. These would include all taxes on the rights to the use of natural monopolies. Natural monopolies are the rights to land, water, airwaves, minerals, fisheries, patents, domain names, hydro-electric power generation and supply, any public utility such as a port, airport or the monopolistic rights to reticulate wires, pipes, rails, roads and the like: the right to use water, air, land or the biosphere to absorb waste.

So what does the policy say now?

Our party wants to restore the concept of sharing the values of the commons, have a money system that doesn’t build in increasing debt and the need for competitive behaviour. We want to distribute the rent from use of the commons to all NZ citizens over one year old as a regular Citizens Dividend.

A new national currency the Land Dollar is to be slowly spent into existence at Community Board level to buy up land. No rates would be payable for those whose land is community owned. A local land committee would give local hapu/iwi veto power over decisions as some land may be sensitive even after Treaty settlements. The rent from the land would be shared with other levels of Government and as a Citizens Dividend – using participatory budgeting as there would be many simultaneous claims. Inflation would be controlled by a network of committees at different levels working with Treasury and Reserve Bank.

Transactions using the land dollar would attract no income tax, GST or corporate tax. But a whole set of different taxes is needed. This is because it must not be spent to plunder the earth, deplete resources, subtract from the social or cultural capital or pollute the water, air or biosphere. That means a full carbon tax for example.

For any currency to be effective as a means of exchange there has to be a circulation incentive built in. Adrian Wrigley suggested that rather than having a financial penalty built in for hoarding as recommended by Silvio Gesell, to make it easier each note should be issued with an expiry date.

The electronic version when received by Treasury would be refreshed and redated before issuing it as a Citizens Dividend. All citizens would receive it. Where there were dependents, the designated carer would receive it, thus changing the economic status of carers. In time this dividend would rise to a basic income, allowing a huge range of inventions and options for people who have been in unsatisfying jobs but have a passion or a hobby they want to pursue. Entrpreneurism would flourish – much needed in a post carbon age.

There are many unresolved issues. The property owner that has land bought with the new currency will have $100,000 plus to spend. Trades with the land dollar will not attract GST, income tax or company tax. We need actual examples, but believe a lot of it will be spent on labour to upgrade their homes or on the development of their small business.

We invite alternative solutions
This policy has been derived by discussing with a range of people at and between meetings and it has been largely driven by Deirdre, who has received feedback from meetings in Christchurch, Otaki, Wellington, Motueka, and two at huis held by the Living Economies Educational Trust hui. We are also aware there are some big issues we have not yet tackled, like the issue of Maori land. Our solution, we emphasise, is one solution. If you have another, please let us know!!
April 2015

The Tree issue in Titirangi is an example of why land should move to public ownership

Posted on March 12, 2015 by Deirdre

The architects who own the two Titirangi sections with the precious kauri and rimu trees on them should have their land bought by the Local Board and the rent should be reduced because of the restrictions they suffer in building, according to the New Economics Party.

Spokesperson Deirdre Kent said the tree issue in Titirangi is a graphic example of why land ownership should progressively move into public ownership. Local Boards should have power to create a second national currency to buy up community land. And if the use of the land is restricted because of historic building, conservation of trees or building height limits, the rent should be reduced as the part of the land already serves a public purpose.

The land rent should be in lieu of rates and the revenue shared by other levels of government.
She said if the Auckland Council (preferably the Local Board if it had the power) buys this land destined for low cost housing there will be four beneficial outcomes:
1. The trees can be saved
2. the housing produced will be genuinely low cost because the cost of the land will not be included into the cost of the housing
3. the citizens Auckland will enjoy a dividend from the land rental in perpetuity
4. The citizens of New Zealand will enjoy a more bouyant economy as lower cost of housing results in lower mortgage payments therefore less interest payments and less bank profits streaming across the Tasman to Australia.
“The financing of land purchase on a large scale is eminently possible. It is only political will that is needed to create a second national currency that can be spent into existence through land purchase by councils,” said Ms Kent

For further comment phone Deirdre Kent 06 364 7779 or 021 728 852

Submission to the Local Government Commission on Reorganisation of Wellington Local Government

Posted on March 11, 2015 by Deirdre

You will be aware that there is a push for a Wellington supercity. Here is our submission to the Local Government Commission:

Submission to the Local Government Commission on Reorganisation of Local Government in New Zealand

1 March 2015

1. Who we are

We are a political party that was started in 2011. Our goal is to have a just and sustainable economy that mimics nature in its organisation. We want a tax system that taxes what you hold or take not what you do or make. We want a money system where money is created without interest by the people not by commercial banks. We want a welfare system that encourages sharing, honesty and intimacy. We want open government and participatory democracy, including participatory budgeting.

2. We do not favour the proposal in its current form but would recommend an entirely different form of cooperation and sharing. While we are in favour of the organisation of a larger unit, not all power and control should go to the central body. Your model does this. All revenue is collected centrally and it does not appear to be shared fairly. All major decisions appear to be made centrally or by unaccountable Council Controlled Organisations. This is not nature’s model. Although we understand that ‘finance
follows function’ it is the central organisation that does all the deciding in your model and this is unacceptable.

We like both big and small and so we commend working on the organisational model from scratch. We believe that each small community have its own unique nature and be in a state of constant negotiation with the nearest big centre and with the centre. As far as possible it should recycle within its own community. When there is a major financial decision to be made there should be participatory budgeting.

3. Organisation of government should resemble nature. Nature has complexity, continuous recycling of energy and matter. There are managed boundaries. In nature there are systems within systems and wholes within wholes. There are well designed feedback loops for constant readjusting towards equilibrium. There is continuous self-organisation and response to stress or change. In nature there is no conflict between the needs of the larger whole and the needs of individual cells or organs. n nature decision making is spread. Cooperation supplements competition. There is diversity and coordination of parts and an awareness of the whole. Since for any whole part the energy and resources in must equal the energy and resources out, it is critical not to deplete resources from the periphery or it withers and that is not good for the whole. CCO’s must be managed on this principle.

4. This requires the reinstatement of paid community boards and the right of local communities to elect their own community board. Democracy costs money and we should not sacrifice democracy to starve the periphery of representation. There needs to be a balance between efficiency and resilience. Nature manages quite a lot of replication. It saves energy and resources by its superb organisational principles. Although under this model Local Boards (formerly councils) have the choice to have local
committees (previously Community Boards), it must be remembered that Kapiti Coast District Council in 2008 was one vote away from disestablishing Community Boards.

5. As a second best alternative please at least recommend legislation to require local representatives to call public meetings to discuss major budget decisions at local level and give them the money to do this.

6. CCOs must be answerable to elected representatives and the LGC must make it clear how this is to happen. These have largely been responsible for the fact that both Rodney and Waiheke are now working to escape from the Auckland supercity. We need more information on CCOs and their powers.

7. We endorse the submission of the “Land” Rent for Revenue and Justice Association of New Zealand where it recommends that in Local Government reform a larger entity should reinstate a rating system based on land value alone rather than capital value.

We believe in the principle “location, location, location”. Where there is a location that gives access to more services like infrastructure, commerce or nature, it is the land that goes up in value. Because we should pay for what we hold, we should pay for our continuing use of the land.

a. It is a progressive tax. Rating on land value alone means rates are lower for more ratepayers. Hence where a poll has been taken –

a situation that existed for decades – the public has has always chosen land value rating.

b. It discourages sprawl and saves public money. Since sprawl leads to a demand for building infrastructure it is essential financially to have a rating system based on land values. When this happens, landowners will either sell underused sites or use them appropriately. Capital value rating results in cities with holes in as development often “leapfrogs” outwards in search of cheap land.
Wellington should remain compact and we should encourage compact development in each town within the region.

c. There should be public ownership of infrastructure. The larger council should own and coordinate the infrastructure – the natural monopolies of water, main roads, rails, pipes, wires, ports and airports. Where possible the operation should be leased to private operators at market rentals.

d. It discourages speculation because those who do not use valuable land properly are penalised.

e. Land value rating encourages building and improvement of properties, whereas capital value rating discourages it by penalising it.

This is good for business. It is no good arguing that Wellington economy is not flourishing and then putting in a rating system that discourages economic activity.

What has Precinct Properties buying public land to do with hungry children in our schools?

Posted on February 25, 2015 by Deirdre

Anyone notice that 20-22% of schoolchildren in New Zealand are hungry every day? What has this to do with the recent sale by Auckland Council of the most valuable property in the country to a private company, Precinct Properties?

Well, plenty. Let me explain. If Mayor Len Brown had played Monopoly enough as a kid he would know that the way to get rich is to buy properties. Well, read “buy land” actually. When a representative of Precinct Properties spoke on National radio tonight he was open when he said, “Our emphasis is on owning land freehold” Of course. “Freehold” means “free of rent”. How nice.

So instead of leasing the land to a developer, the Auckland Council has sold 2 acres of the most valuable land in the country and thinks it has done a deal. But the “deal” is really Precinct Properties 100: Council 0. Precinct Properties knows it because they know the City Rail Link is about to start and the uplift in land value is theirs to capture – and other land owners near the hubs.

It is not news that land near rapid transit hubs will rise in value. When the Jubilee Line Extension was built in London in the late 1990s, it was discovered that the uplift in land values of properties within 1000 m of a hub was £13 billion. The cost of the extension was a mere £3.5 billion. Yes, that means private landowners get windfall gains from public expenditure. The public loses all round and windfall gains are all privately collected by “freehold” land “owners”. Nice. Thanks!

It’s not a coincidence the sale happened right now. Auckland Council was busting to start the link but delays were frustrating them. Imagine the Precinct Properties smooth talk to gullible Mayor Len Brown: “If you let us buy the QE11 Square we will build a wonderful new building and attract huge expansion in Auckland. It will also enable you to start the City Rail Link.” “Wonderful,” says Len. And he thinks: “Just what I want. People will remember me as the one who got the City Rail Link and did so much for the development of Auckland.”

Of course there will be development. The start of the rail link is just what landowners near the City Rail Link hubs are hanging out for.

Our party says we need more land in public ownership, not less. In fact there should be a law against selling public land. If the government or council want to have land utilised it should lease the land never sell it.

OK, that is at the moment dreaming, as all the momentum is exactly in the other direction.

But there is a partial and realistic solution – get land owners in the area to share part of their windfall gain with the council so the council can gradually pay off the loan to build the link. It can be done through targetted rates under the law. Targetted rates are used extensively by Wellington Regional Council and by almost every council. It is only a fraction of the windfall gains in land value that is targetted. And this is politically acceptable. People understand that they should share their gain with the public purse. If a landowner benefits from public spending they should pay higher rates. Spread over 20 years, it will pay a significant proportion of the cost of the City Rail Link. The Sydney Harbour Bridge and the Melbourne Rail Link were partially funded this way. The process is called Land Value Capture and it exists in various forms all over the world.

So what has this got to do with hungry children? Remember the Campbell Live recently showed that of one class of 28 Year 11 students at Decile 2 Kelson Girls College, 18 of them didn’t have lunch and ten came to school with no breakfast. 8 had no breakfast and no lunch. “Many students are needy. Their parents are really struggling to make ends meet,” said the school principal.

When people and businesses with the most valuable land (think central Auckland) have a windfall rise in land value, money that rightly belongs to the whole public flows into the coffers of the land “owners”. Businesses like Precinct Properties. The propaganda is that it is owned by mums and dads, yes very wealthy mums and dads, but mostly big investors like insurance companies and pension funds. Calculations earlier show that every year the public is deprived of something like $37 billion through the uplift in land values that occurs with development. A real estate agent last week told a friend in Howick that values there were rising by $15,000 a month and he could see no end to it.

Yet the “mums and dads” of the Year 11 students at Kelston Girls College are paying rates or rents and often catching buses to work two jobs. Mostly they will be renting. They won’t be getting any unearned windfall from the uplift in land values. That is how people get rich, not by working. Wherever you find a really rich person or company you will know they are landowners who have received unearned gains from rising land values.

The New Economics Party

Let's fix the economic system that is killing our planet!