Death Duties

I was reading Martyn Bradbury’s post Generation X have been betrayed by neoliberalism and baby boomers.

I agree with many of the points he makes including some of the points made in the article he cites, insofar as economic inequality is a massive issue.

But I do not agree that we can attribute the cause of economic inequality to a birth cohort. The focus on generation ignores or at least treats as ancillary, an obvious cause, namely, speculation or rentseeking. It is not the fact of being born between 1946 and 1964 that destroyed free education, a robust welfare system and affordable housing in NZ. It is the speculative rentseeking behaviour of those – many born within that particular cohort, some before and some after – who were already privileged enough to participate in the speculative markets that created widespread economic inequality and preserved it through the 1980-1990 economic reforms through to today.

But I want to focus on the last statement Bradbury makes at the end of his post:

“A progressive Government coming into challenge this intergenerational theft should first consider reapplying death duties to redistribute all that boomer good luck to other generations”

The argument it stems from is more or less this: Baby Boomer’s (BB) were born into and lived through a unique economic boom that created many opportunities such as affordable housing (really it was cheap land), a robust welfare system and free education. This implies that during and as a result of the economic boom, BB’s were the recipients of the benefits that flowed from those opportunities without the struggle of repaying student loan debt and being priced out of the housing market unlike the generations following the BB’s. Therefore, BB’s should compensate future generations for the loss of opportunities by paying a tax on their death.

I understand why people romanticise about taxing the BB’s on their death (as morose as it is), because when faced with communities living in poverty, there is a whole generation to blame because we are told that BB’s had everything sweet.  In doing so, we neglect the highly unjust tax and monetary system.

Often missing from the debate also is that death duties will likely incentivise the wealthy BB’s (those these arguments usually target) to shift the funds of their estate to offshore tax havens.

So, in my view, changing the tax system to capture unearned income (during the lifetime of the individual) and targeting speculative behaviour is better than waiting for people to die.

An objection also worth noting (although highly unlikely and very slippery slope) is that wealthy BB’s may become targets of vigilante groups in extremely tough economic times, on the perception that they are worth more to society dead than alive [I don’t seriously think this is an issue, but its not an impossibility either].

The idea of death duties, in my opinion, is flawed for three key reasons (although this isn’t an exhaustive list).

Firstly, it is inefficient to (re)introduce another tax into an already complex tax machine.

Secondly, there is a simpler, more efficient and effective tax that could deal with speculative behaviour/rentseeking – land value tax (LVT).

Thirdly, death duties are hardly hallmarks of a progressive government, unless what we view as progressive is retro politics. Death duties were introduced in the 19th Century in NZ and by the mid-1950’s were (mostly) abandoned [see Michael Littlewood’s History of Death Duties and Gift Duty in NZ].

On the first point, I consider death duties inefficient for many reasons, including  that it is difficult to determine (even approximate) how much revenue will be raised in any given year and so that makes planning/budgeting on how to redistribute those funds uncertain. Also, no-one mentions how these funds might be redistributed back to society e.g. citizens dividend? or just paid into the states general fund? There is also the issue that the argument for death tax is intended to assist future generations, yet these are usually the direct beneficiaries of inheritance, so the tax takes from those generations. Although the suggestion is, it is fairer because it redistributes back to all. However, by putting back into the general fund, means that living BB’s still benefit from the deaths of their birth cohort, while the direct recipients have their inheritance taxed.

The uncertainty of fund levels also impacts on administrative costs such as staffing, office space, office equipment – noting that some of the revenue collected would be redistributed back into administrative costs, reducing the pool of funds available for social redistribution.  And the tax itself adds to the growing number of taxes (increasing bureaucracy) the government expects individuals to pay thereby increasing the reach of the state from the life of the individual into their death.

On the second point, the level of tax paid by the community is already excessive. Most people agree we need to reduce the tax burden not amplify it. The focus should not be on how many other taxes we can use to collect the revenue necessary to provide public services. I maintain my position that LVT and abolishing or significantly reducing all other productive taxes appears to be the fairest and most efficient way to deliver public services, alleviate poverty, disincentivise speculative behaviour and incentivise innovation and entrepreneurship.

So discussions on economic inequality ought to focus on how we can collect revenue efficiently and effectively while reducing the tax burden. Without reiterating previous posts, I have written on LVT  here and here and you can also view the LVT page of resources by clicking on the tab at the top of this page.

[Note: There are many Georgists/LVT proponents who do support inheritance taxes, so this post isn’t intended as a reflection of the broad church of Georgism/Geoism]

The third point is that NZ has had death duties in the past and they were abandoned. Calling a government progressive for reintroducing them is like saying a Beatles Tribute band is progressive. Death duties are retro politics. Admittedly, the same claim might be levied against LVT; however, LVT has not existed as a single tax and is currently being researched around the globe as economists and political and non-political groups look for ways to tame the speculative beast and ensure prosperity for all.

I’ll also point out, that some BB’s actually saved their earned income to pass on to their children. They may have struggled through their life for this specific purpose. Are their earnings something that we can justifiably tax? I’m not convinced it is at all.

I absolutely agree that we need to deal with economic inequality – and fast.  I also support the idea of redistribution, provided it is done in a manner that minimises hierarchy rather than reinforces it.  But if we unpack the phrase ‘death duties’ we see that it grants the state a ‘right’ to collect revenue from individuals on their death, since  individuals (would) have a correlative duty to pay the state on their death. Death duties are effectively a death tax, and taxes are collected through enforcement measures exercised through state hierarchy. So, death taxes reinforce state hierarchy through a perverse strategy for managing economic inequality by ‘waiting for people to die’ so that the state can ‘benefit from their death’.

I suspect many readers will disagree with me about death duties; however, my question is what does it say about humanity if there is not even freedom from the reach of the state in death?

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The Māori struggle is not a ‘left’ thing

Morgan Godfery wrote an amazing obituary to Shane Jones’s retirement from politics. I was going to write something on Jones specifically, but Godfery’s piece summed up most the things I would have tried to express (although I would have done a poor job in comparison). However, one particular statement stood out as more of a general observation Godfery makes about Māori politics:

… I’ve said it before: Māori politics doesn’t sit apart from the political spectrum, but below it. At least the political right doesn’t pretend to be a false friend

While my personal preference would be to use ‘outside’ rather than ‘below’, I think Godfery makes the salient point about the subjugation of the Māori struggle to eurocentric conceptions of the political economy, namely, the socialist/left vs capitalist/right dichotomy.

It is becoming increasingly irritating (for me anyhow) when people claim that only the political left in NZ are capable of representing Māori in politics. I think this is an indefensible claim because it assumes Māori lead a homogeneous existence and that Tikanga  is a left ideal.  It reminds me of a quote shared by Bentham Ohia when speaking with Bolivian President Evo Morales which I’ve expressed before here and replicated in the picture below:

Bolia-Forum-2-Evo-Morales

There is no shortage of non-Māori ‘advocates for Māori’ who consider they are in a position to advance arguments against Māori who step outside the lefts confines as traitors to Māori. As sell outs. As blights on the Maori struggle.

I’m embarrassed that I allowed myself to breathe this myth for so long coming to the realisation only recently about how wrong I was to propagate that view, and how offensive such claims are to Māori. It is wrong to expressly or implicitly clam that someone lacks tikanga values simply because they choose to cooperate with those of the capitalist class. Tikanga does not fit neatly into eurocentric political conceptions – it sits outside them but in being so, as Godfery points out, it is treated as inferior to the ideologies that occupy NZ’s political spectrum.

Embedded in these ‘left is best for Māori’ claims is the idea that Maori representation requires actions like picketing at state housing evictions in Glenn Innes, or protesting on Queen Street or outside the beehive. These are certainly admirable actions, they are grassroots actions, but they are not specific Māori focused grassroots actions. This is not an attack on Hone Harawira (or the Mana Party) who is highly respected for his Māori specific focus in his electorate – its a pointed criticism at the many on the left who craft a conception of Māori representation in terms of the class struggle.

I recall when Native Affairs interviewed David Cunliffe following his successful bid for Labour leadership. Mihi Forbes asked if there were any Māori policies that Cunliffe thought the audience might be interested in, to which he ignorantly replied:

Firstly let me state the obvious that Māori disproportionately benefit from Labours core policies around jobs, around warm dry homes, around education, around healthcare of course they do

He was promptly called out on twitter by Māori Law Professor Khylee Quince:

Kquince

This is a prevailing stereotype in NZ. Yes, many Māori are unemployed and/or less educated and so on but being Māori is not synonymous with being poor as Cunliffe implies. Its no wonder the Māori struggle is subordinated when even those claiming to advocate for Maori, are advocating for the lower class to which they presumptively see Māori as belonging. We are poor first, then we are Māori. Apparently.

The Maori struggle is not one of class. The class struggle is as already mentioned, an imported conception. Its not a struggle confined to the hubris of parliament. The Māori struggle is to break free from the institutions that dominate and control Māori life. The Māori struggle is realising tino rangitiratanga, self-determination proper and not the artificial markings of self-determination through Pakeha specific legislation that allows Māori minimal meaningful participation in their system.

A radical departure from the status quo is needed if the Māori struggle is to regain its momentum.

I accept this claim is likely to irk many as a ‘separatist’ ideal. But it must be noted as I’ve expressed before, that tino rangitiratanga is not about taking power for Māori to dictatorially wield over non-Māori. Its about regaining lost power so that Māori can engage in a cooperative society on equal footing.  I’m also aware that many very hardy socialists will despise the claim that the Maori struggle is not a class struggle. But I’m not saying Maori can’t participate in both struggles, in fact I wholeheartedly support Maori participating in both struggles – I’m merely pointing out that there is a distinction that is too often ignored.

While it’s justifiable to claim those initially of the left who stepped to the right abandoned the class struggle, it is wrong to malignantly accuse those people of abandoning the Māori struggle as if the struggles were synonymous.

Reviving Georgism: George was a root hacker not a branch wriggler

Universal Basic Income vs Minimum/Living Wage

Bryce Edwards compiled a round-up of the inequality debates regarding NZ’s 2014 Election. I suppose, whether the motivation to focus on inequality is well-intentioned or a vote grabbing exercise is yet to be determined.

My issue with the inequality debate is that it is most often framed in terms of whether we should (a) increase the minimum wage, (b) legislate for a living wage, or (c) target assistance through wages subsidies like Working for Families. Not really root hacking stuff.

The presumption from those advocating increasing the minimum wage or having a living wage is that it will improve outcomes for the working poor.

Minimum or Living wage (MLW)[1] proponents also tend to argue that it is unfair that government subsidises businesses through the various welfare packages made available to low-income earners absolving businesses of the responsibility to pay fair wages to its workers.

In fact, I have made this argument myself and while I have revised my views on MLW strategies, I do think it has some merit. But whether MLW strategies address the issue of economic inequality is a different story.  In my view, part of the remedy to overcoming economic inequality is to implement a Universal Basic Income (UBI).[2]

I have posted this particular piece in my Reviving Georgism series because like many Georgists,[3] I think UBI and Land Value Tax (or land rent, land fees etc) are complementary policies for tackling inequality.

I do not necessarily oppose a MLW, in fact, a living wage is precisely what I advocate. I’m just not convinced that state regulating private enterprise to pay a particular minimum amount will necessarily have the effects intended. I think that UBI is a better goal because it benefits all society, not just one group, i.e. low skilled, low-income ‘workers’.

I also think we overlook that a MLW is a legal privilege that favours business and is therefore out of step with the objectives of the Unions and campaigns who typically lobby for MLW. I set out my argument below.

MLW as legal privilege

A MLW is a legal privilege weighted in favour of business because it removes the negotiating power of the worker to obtain a higher wage. It does this by legally entitling businesses to pay workers less (the minimum) than they might otherwise be willing to pay. Moreover, businesses are likely to choose to pay the legal minimum required simply because the law says they can.

Robert J Murphy adds another dimension where he argues that:

“Raising the minimum wage might represent a drastic harm to the most vulnerable and desperate workers…What could happen is that the higher wage would attract new workers into the labor pool, allowing firms to become pickier and, thus, to overlook the least-productive workers, who would remain unemployed or lose their jobs to more-highly-skilled workers”

I agree that MLW increases could represent a harm to low-income earners and I think that Murphy’s point reinforces my argument about privileging business. Additionally, MLW strategies might attract those who are unemployed but looking for work, to take on low skilled jobs in the interim, thereby potentially increasing unemployment for low skilled workers – an unintended consequence.

I’m not ignoring the fact that in non-minimum wage societies businesses can (and do) exploit workers.  My criticism is not that MLW strategies are inherently bad for all workers, indeed they probably do have some positive short-term effects for some but as Fred Foldvary points out [Henry] George would argue that minimum wage simply treats the effects [of poverty] not the symptoms, and that it distracts and appeases to avoid confronting the remedy.

Wages increase when rent decreases

George argues that ‘the line of rent is the necessary measure of the line of wages’.[4] He thinks that under free conditions, no-one would work for someone else if they could make the same amount working for themselves.[5] He argues its only when land is monopolised that individuals are forced to compete for work.[6]

George’s theory argues that wages are determined by what is left after rent is taken out.[7] Rent being that which is paid for using land.[8] He further argues that:[9]

“No matter how much they might actually produce, they receive only what they could get on land available without rent—on the least productive land in use. Landowners take everything else. Hence, no matter how much productive power increases, neither wages nor interest can rise if the increase in rent keeps pace with it”

He also proposes that:[10]

“Where land is subject to ownership and rent arises, wages will be fixed by what labor could secure from the highest natural opportunities open to it without paying rent (i.e., the margin of production). Where all natural opportunities are monopolized, wages may be forced by competition among laborers to the minimum at which they will consent to reproduce. Clearly, the margin cannot fall below the point of survival”

At first glance, this quote seems to support having a MLW, but in context George would say MLW is not conducive to solving inequality – it simply ‘appeases’ the workers to avoid dealing with the free lunch income enjoyed by land owners at the expense of workers who are forced to compete for a minimum wage. Noting, a minimum wage could never be lower than the margin or landowners would risk an uprising that could threaten their privilege. So even without a MLW setting, landowners will always have a minimum at which they can charge rent, and businesses would have a minimum at which workers would consent to work or they risk workplace strikes.

On this basis, I think a MLW plays right into the hands of the landowners and businesses to the detriment of the most vulnerable members of our society because it provides a sense of certainty around rents i.e. a MLW provides a legally specified minimum wage that must be paid to workers (by businesses)  on which land owners can base their rents.

Importantly, as Nate Blair points out minimum wages in the long-run can only shift economic rent to different locations or decrease aggregate wages. And while a minimum wage can benefit labour in the short-run, including labourers who also happen to be landlords,  the long term impact on real wages is negligible.

Arguably, UBI is no different than MLW because it too provides everyone with a specified minimum amount of income. However, this is why I think in order for UBI to be effective it must be accompanied by a LVT and because it focuses on long term outcomes.

Another benefit of UBI is that it provides a mechanism for recognising and rewarding our currently economically invisible members i.e. those who carry out valuable but unpaid work such as stay at home parents, or volunteers.

The UBI and LVT combination also provides a foundation for setting up a participatory democracy framework which would enable individuals to voluntarily take part in public decision-making forums (e.g. multi-body sortition etc) without the stress of having no income. But that is a discussion for another post.

To conclude, if the politicians aren’t going to address the root of inequality by looking at tax evolution and a UBI, then we deserve an answer as to why. This is what I believe we ought to challenge our politicians on this year to determine if their policies are simply vote grabbing or genuine. How we decide the amount, or the age, or the frequency at which individuals receive a UBI (or the rate or measure for determining LVT) is beyond the scope of this particular post but I think what we should be focusing on (as the title of this post suggests), is hacking at the roots instead of simply wriggling the branches of the failed system we have inherited.

UPDATE:

Its been brought to my attention that I have probably been a bit presumptuous in assuming that readers would take into account the current wage subsidies and welfare packages already available in NZ.

Its important because this is the context within which I base my argument. Here are a few sites to help get your head around NZ minimum wage and the government transfers available:

In NZ there are two predominant broad views about how to improve poverty. The first broadly subscribes to the Scandinavian model – progressive taxation and increasing the top marginal rate to increase revenue to provide free core public services. Critics of the welfare system and of those advocating for a Scandinavian model in NZ argue that welfare creates dependency and this dependency causes the poverty and wage gaps we see in our country.  The critics are the second group who typically subscribe to the neoliberal model – lower taxes, privatisation, user pays services, the free market. Scandinavian model advocates usually argue that if the wealthy paid more taxes on their productive incomes that we could afford to provide core public services to those most in need.

There is a strong tension between these two groups. As a relatively recent subscriber to Georgism, I think that both models are flawed because unlike Georgism, they ignore the role that speculative behaviour plays in creating inequalities.

In this post, I tried to clarify that I didn’t think a MLW was inherently bad, just that UBI with LVT was better overall.

The reason most often cited for pursuing a MW is ‘fair pay for a fair days work’ and I agree with the sentiment. However, I don’t think ‘fair pay’ and ‘minimum wage’ are the same, but this is how MW proponents often frame their arguments.

In fact, MW’s often aren’t ‘fair’ for the work carried out. If they were then government transfers i.e wage subsidies wouldn’t be necessary. No matter how little a worker is paid by their employer, the wage subsidies supplement those incomes enough so that supplemented income makes working more attractive than just receiving jobseeker support (a welfare payment).

So if we had no MW (in NZ), and some workers were to receive less from an employer than they might currently get those low-income earners would have their incomes supplemented by wage subsidies.

Additionally, no business could pay below the maximum someone could get on welfare because most workers would choose not to work for less than what they could get for not working. This would apply in any country who has a welfare system. In effect, even if there was no legally specified MW there is actually already a minimum in place i.e. more than a worker could receive as their maximum on welfare. Admittedly, in NZ this rate would probably change depending on the region a person lives, because the accommodation supplement is location based.

Aside from the arguments set out in this post, MW also has the effect of forcing workers to compete for jobs, which gives business the upper hand to choose the person willing to accept the least amount in wages i.e. the minimum legal amount.

I reiterate, I don’t disagree that MW’s can have short term benefits. However, I think that focusing on MLW prolongs getting to the real remedy because it appeases workers, which means the more vulnerable members of our society – those who are unable to work for whatever reason, only receive welfare payments, which are necessarily less than those who earn any productive wage with additional government transfers (wage subsidies). A UBI and LVT combo would iron out this inequality and ensure even those who were unable to work had access to a living wage, not a bare minimum.


[1] For ease of reference, I use MLW to include those who advocate:

  1. a minimum wage; and or
  2. increasing the minimum wage; and or
  3. a living wage.

[2] Others refer to this is Guaranteed Minimum Income or Guaranteed Basic Income.

[3] I have resolved to use the term ‘Georgism’ (as the title of each post suggests) to reinvigorate interest in Henry George’s economic theory. However, in doing so I think I may have inadvertently neglected the preferences of some who prefer ‘Geoism’ and others who reject describing themselves under an ‘-ism’, such as Martin Adam’s who writes at Land, A Humaniteer Project. Adam’s proposes that while Henry George’s economic theory is traditionally understood as Georgism, a more accurate term is ‘Geoism’ because it ‘contains the prefix Geo, from the Greek word γαια, meaning ground or earth’ and because George’s philosophy advocates the sharing of nature. Please note that I use the term ‘Georgism’ broadly to include any persons who share in advocating the fundamentals of George’s economic theory.

[4] Henry George and B. Drake (ed.) Progress and Poverty (2006, Robert Schalkenbach Foundation, New York) available online: http://www.henrygeorge.org/pdfs/PandP_Drake.pdf  at 117.

[5] Ibid at 116.

[6] Ibid.

[7] Ibid at 93.

[8] Ibid at 89.

[9] Ibid at 93.

[10] Ibid at 116.

Credit for the title of this post belongs to Adam John Monroe

Thanks to all those in the LVT Facebook group that helped me get my head around this and directed me to relevant chapters!

National signs NZ up to Ethiopia land grab

A media release from the National Party states that NZ have signed a Food Security Cooperation Arrangement with the Ethiopian government.

Foreign Minister Murray McCully states that NZ’s involvement is:

…to assist in the development of commercial scale agriculture in Ethiopia, and build food security partnerships in the region.

Indicatively, the food security arrangement is less about feeding one of the poorest countries in the world, and more about commercial agri-business gaining access to millions of hectares of land in Ethiopia.

Fred Pearce explains in his book The Landgrabbers that:

The [Ethiopian] governments five year plan promises to lease 3 million hectares for large scale mechanized agriculture by 2015, much of it in the rebellious tribal border lands of Gambella (chapter 1, p.12)

Pearce also points out, the development of commercial-scale agriculture has devastating effects on those regions where the land is most sought by commercial interests. In order to get land ready for commercial agriculture, the government collects the dispersed local inhabitants (predominantly tribal groups) into state-designated villages while foreigners get exclusive use rights of their land, forests, fields and hunting grounds through arrangements like the Food Security and Cooperation Arrangement.

The effect on the inhabitants, the ecosystems, the wildlife and biodiversity in general is disastrous. In addition to being forced from their lands and into a lifestyle they are not accustomed to, they have their livelihoods snatched from them as their fields and forests are cleared, waterways diverted and lands enclosed.

Many end up working on the farms for low pay because they are now required to pay rent in the village they did not freely choose to live in to a landlord who took what had been freely available to them. Moreover, because they work on the commercial farms, they are unable to tend to their own food crops which makes food security even more difficult than their previous subsistence living.

The governments and commercial enterprises that participate in these land grabs often proclaim their businesses will lead to prosperity and jobs for locals. This is rarely the case. In Ethiopia, the companies bring in foreign nationals and the highland Ethiopians to do the technical work, while limiting the local lowland Ethiopians  opportunities  to unskilled  very low paid work. Despite that its the lowland Ethiopians whose land is most often subject to these land grabs.

To make matters worse these companies export most the food grown on these commercial farms. The locals lose their own ability to feed themselves through loss of land and an inability to buy expensive imported food, so that commercial agri-business can use their lands to feed foreigners for profit.

McCully’s media release highlights the commercial advantages for NZ in signing the agreement, pointing to Ethiopia’s proximity to key markets in the Gulf, but it is vague on the issue of food security.

Food security is defined by the WHO ‘as existing when all people at all times have access to sufficient, safe, nutritious food to maintain a healthy and active life.’ However, given the signals in the media release focusing on commercial scale agriculture I am doubtful that the arrangement concerns food security for the most vulnerable Ethiopians.

The National governments acceptance and support of commercial agri-busness in Africa is evidence that the colonial past lingers on.

This is exploitative, destructive, neo-colonialism. We should be ashamed that our Government would make us complicit in a practice that intentionally destroys the lives of already marginalised people for profit.

Reviving Georgism: How the Greens could improve their taxation policy

Previously, I wrote that I would vote according tax reform policy because I consider tax reform as fundamental in resolving economic equality in NZ and abroad. It’s also no secret that my voting preferences are best understood in a left-wing framework, but this does not presuppose I would vote for a NZ Left party if their tax policy had worse outcomes.  Anyhow, I was reading the Greens taxation policy and decided this was a good time to write the third installment of Reviving Georgism and discuss how the Greens could improve their taxation policy to address the unrelenting economic inequality smothering NZ.

(Obviously, I am critiquing from a non-economist perspective but in light of Henry George’s economic theory)

Summary of Greens Taxation policy

The Greens state that they envision a tax system that ‘supports communities and the environment, encouraging sustainable behaviour while providing sufficient revenue for the effective operation of Government’.

They insist that a tax system should be broad based to avoid excessive reliance on personal and business income taxes, and that the tax base should include: Personal & Business Income Taxes, Consumption & Expenditure Taxes, Targeted Environmental Taxes, and Taxes that acknowledge the value of common property (Resource Rents).

The Greens also advocate Ecological Taxes (ET), a Capital Gains Tax (CGT), and a Christchurch Earthquake Levy (CEL) as part of their policy proposal. In addition, they recommend setting up an ecological tax commission, increasing the top marginal personal income tax rate, altering the progressive tax scale, and introducing a universal tax free threshold for the first $10,000 of income.

The Greens support exempting the family home from CGT, restricting foreign purchases of local assets, and treating investment income equally for tax purposes.

This taxation policy is intended to ‘shift taxes off work and enterprise, and onto waste, pollution and scarce resources’. The Greens insist under their taxation policy ‘clean business pays less and everyone pays less income tax’.

Note, I will not be discussing The Greens monetary policy included in the taxation scheme, in this post, except to point out that if productive income tax is abolished, individuals would receive their full wage and this is likely to be spent back into the economy, increasing the money supply in circulation without having to artificially create more money or print more money.

Why tax at all?

Most of us probably agree that under current economic conditions we need to fund public services for the most vulnerable members in our communities and for other community needs. And generally, tax is considered acceptable for this purpose. The question for now then is not whether we should tax, but rather what should we tax.

Of course, hard leaning right libertarians will probably dispute the use of taxation altogether, but for the purposes of this post, I will not explore that particular argument.

As pointed out in my previous posts on Reviving Georgism here and here, I explain how Henry George proposed targeting what we take not what we make and he saw this is as fundamental to eradicating poverty and instrumental in advancing progress.  I think that the Greens vision could be highly compatible with Georgism if more radical changes were made to their taxation policy  and if they simplified rather than complicated the tax system because their vision is not too dissimilar from George.

Analysing the Greens under a Georgist lens

Currently, the Greens taxation policy is not the fairest way to draw revenue for public services because it places a large tax burden on the productive earnings of individuals and businesses and burdens them with further costs attributable to an array of other taxes (existing and new).  But it does at least feature land and resource rents, which are not only relevant to Georgism but probably the most important component of an efficient and effective tax system.

I find the Greens phrase  ‘funding the effective operation of Government’ problematic, because it’s so general in nature it ignores that the tax system must be simple or efficient if we want effective government. As pointed out in the Taxing Question of Land ‘complex tax systems allow for avoidance, evasion and expensive administration costs to both the public and private purse’. So it is really a matter of fiscal responsibility to implement a simple tax system. The Greens seem to presume that the introduction of CGT counters the avoidance issues, but they ignore the cost it takes to administer further taxes and to enforce payment, and the fact that individuals and businesses may still be able to hide that revenue in offshore tax havens.   Unfortunately, the Greens policy does not simplify the monstrosity of a tax system we currently endure, it introduces a raft of new taxes without abolishing any existing taxes, and effectively feeds the monster.

The Greens also insist that a broad base tax system is necessary to reduce the burden on income earners, but seem to equate ‘broad base’ with many taxes. Broad base just means not restricting to narrow sources, and as the Land Value Tax Campaign argue land itself is the broadest base of all from which to draw public revenue since it’s the hub of basically all economic activity. The Greens seem to overlook the practical role of land and natural resources in this sense.

The Greens insist that their taxation policy lowers income taxes but it doesn’t. It raises the top PAYE rate to 39% for those that earn over $80,001.00. The Greens retain a tax-free threshold which is intended to offset the land and resource rents that form part of their ecological taxes. In addition, there is no reward for clean business, there is simply an exemption from paying the maximum rate.

In order to understand the alleged benefits of the Greens income taxation, I carried out a comparison between the current PAYE scheme and the Greens PAYE scheme. The table below shows the current thresholds and tax rates against the Greens taxation proposals. It also provides two examples illustrating that the Greens are wrong to say that ‘everyone pays less income tax’.

Current PAYE 
Tax rate
 
Greens PAYE
Tax rate
Up to 14,000
14,001 to 48000
48,001 to 70,000
70,001+
10.5%
17.5%
30%
33%
Up to 10,000
10,001 to 42,500
42,501 to 80,000
80,001+
0%
19%
33%
39%
(Note: all comparisons exclude all other levy's/taxes)
Example A: XX earns $90,000 per annum
AA under PAYE
$90,000
AA under Greens PAYE
$90,000
$14,000  - 10.5%
$34,000  - 17.5%
$22,000  - 30%
$20,000  - 33%
$1,470
$5,950
$6,600
$6,600
$10,000  - 0%
$32,500  - 19%
$37,500  - 33%
$10,000  - 39%
0
$6,175
$12,375
$3,900
TOTAL
$20,620
TOTAL
$22,450

Example A shows that someone who earns $90,000 p.a pays an extra $1,380 p.a under the Greens taxation scheme.

Example B: XY earns $48,000 per annum
XY under PAYE
$48,000
XY under Greens PAYE
$48,000
$14,000 - 10.5%
$34,000 - 17.5%
$1,470
$5,950
$10,000  - 0%
$32,500  - 19%
$5,500   - 33%
$0
$6175
$1,815
TOTAL
$7,420
TOTAL
$7,990

Example B shows that someone who earns $48,000 p.a pays an extra $570 p.a under the Greens taxation scheme.

So despite the Greens universal subsidy for the first $10,000 earned, no real benefit accrues to the income earner. The use of progressive taxation nullifies the intended effect of a tax-free threshold. It’s probably why Labour dropped it and why National have argued against it.

LVT avoids issues inherent in progressive taxation

Supporters for progressive taxation schemes typically argue that the most well off members in society should pay more than the least well off members. I agree to an extent, except I don’t think ‘well-off’ should have any bearing on actual income earned – such income goes to the income earner in exchange for their labour. I’d argue that well-off is those with the privilege of holding land, that is, those whose increases in wealth occur through the State sanctioned legal privilege of land holding (*NB, I do understand that there are persons who are asset rich and cash poor which needs special attention when implementing a tax reform such as LVT).

Other issues that concern me with progressive taxation are:

  1. self-employed earners may opt to work for cash jobs to avoid paying the higher tax rate, thereby reducing the amount of revenue collected for public services/effective operation of Government
  2. it could discourage individuals and businesses from acting charitably because of the increase in tax from their productive earnings, thereby reducing the funds that might otherwise be invested or directed toward charitable causes
  3. by having the income tax rate so high and introduction of resource taxes on top along with a raft of other taxes without removing any pre-existing taxes, may in fact drive down wages or employers may choose to employ fewer people to maximize their profits

Avoiding xenophobia allegations

I do worry about the restrictions on asset purchases targeted at foreign purchasers. Restricting foreign purchases of local assets suggests xenophobic attitudes, whether intended or not. However, if land rents are implemented, there is no need for the restrictions because the landowner becomes liable to pay the land tax. The rents accumulated are then redistributed back to the community whose efforts created the unimproved value of the land. This unimproved value is also why I think the Greens are wrong to exclude the family home as a source of tax revenue. Homeowners can simply hold their properties without making any improvements yet the land value increases through the efforts of others but the benefit of that unearned increment goes straight to the land title holder.

Greens compatibility with Georgism

In reference to my earlier posts on Georgism, I do think The Greens are right to argue that ‘work and enterprise should be encouraged and speculative investment in non-productive assets discouraged’, and I also agree that ‘the taxation burden should be reallocated away from income and towards resource use, waste, and pollution’, which is why I think the Greens policies could be highly compatible with Georgist economic theory.

If the Greens explored the fundamentals of Georgism, I think they could create a sound tax system that fits their vision while simultaneously addressing the economic inequality smothering NZ.

I think the best way to improve the outcomes of our most disadvantaged members is by abolishing income tax altogether.  This does not mean abandoning social security. The LVT is an effective precursor to introducing a UBI, and subsequently the dismantling of an overreaching State by reducing the need for many of the services the State provides. It is simple and  efficient.

In my opinion, The Greens are in a favourable position. Without the support of the Greens, Labour probably wont be able to govern. This means that instead of the Greens having to resort to incrementalism (after all, Labour have that covered) they can use their influence as part of a coalition to push more radical policy that is less State centred while trying fresh ideas to revitalise the Left and broaden their appeal across the political spectrum.

In summary, The Greens could improve their taxation policy by abolishing taxes on productive earnings and focusing on taxing land and resources. This would simplify the tax system, work toward reducing the size of government and act as a precursor to implementing a UBI.

 

FYI – Over the next week or so, I will be updating my blogshelf to include a page designated to Land Value Taxation. Please email me: ellipsister.blog@gmail.com  if you have a blog or website and want to make sure I include it! Thanks. 

Reviving Georgism: Introduction

HGeorge

“This association of poverty with progress is the great enigma of our times…so long as all the increased wealth which modern progress brings goes to build up great fortunes, to increase luxury and make sharper the contrast between the House of Have and the House of Want, progress is not real and cannot be permanent” – Henry George

Henry George is most well known for his ‘single tax on land’ proposal, or what is most commonly referred to as Land Value Tax or LVT (although, he was not the first to popularise this idea). George’s theory is summed up on Econ Lib as follows:

Most taxes, noted George, stifle productive behaviour. A tax on income reduces people’s incentive to earn income; a tax on wheat would reduce wheat production, and so on. But a tax on the unimproved value of land is different. The value of land comes from two components, its natural value and the value that is created by improving it (by building on it, for example). The value of a vacant lot in its natural state comes not from any sacrifice or opportunity cost borne by the owners of the land, but rather from demand for a fixed amount of land. Therefore, argued George, because the value of the unimproved land is unearned, neither the land’s value nor a tax on the land’s value can affect productive behaviour. If land were taxed more heavily, the quantity available would not decline, as with other goods; nor would demand decline because of land’s productive uses. By taxing the whole of the value of unimproved land, the government would drive the price of land to zero.

I have briefly alluded to LVT before here and here .

A social advantage of the LVT is that it obtains support from across the political and economic spectrum, that is, its not strictly left, right or centre. For example, David Farrar (right wing blogger/National Member) recently commented that he supports a land tax and Stuart Nash (left wing blogger/Labour Member) did the same earlier this year on the Daily Blog .

My understanding so far is that George wanted to bring an end to privilege. He thought that the dependency relationship between land owner and non-landowner enabled the conditions for poverty to flourish and he considered that a land value tax to replace income taxes would reduce the resultant economic inequality by placing the tax burden on the unproductive gains of the land owner rather than the productive gains of the worker.

This presumably has the effect of encouraging the least well off members of society to obtain their full wage, thereby incentivising productivity and reducing the incentive of land owners to hold vacant land which drives up property prices.

As a non-economist, there are definitions I am still trying to get my head around, so any economists reading this feel free to correct any errors in the comments below. I’m still reading ‘Progress and Poverty’ (among multiple other texts) and I’ve decided that I will address Georgism in a series of posts over the next few months, with the holiday season nearing, I may be somewhat distracted. I will try to write according to the titles listed below and I will update with hyperlinks as I post:

  1. What is land tax
  2. Who does land tax apply to
  3. Why we should favour land tax
  4. How will land tax reduce economic inequality
  5. How we can implement land tax fairly in Aotearoa New Zealand

NZ’s attachment to the State

I have written, rewritten, changed the angle on this post multiple times over the past week and have just today reduced this particular post from the 4,200-word monster it was to something more digestible.

Recent political events indicate how attached to the apparatus of State we are here in NZ. When I began writing this blog just over a year ago, many people accused me of being a ‘statist’. They were right. I genuinely believed that we required the State to regulate both the economy and our social systems because I considered the only alternative was a corporate/multinational controlled society. My initial concerns derived from my strong opposition to neoliberalism (NL) and my limited understanding of how economies work.[1]

I imagine that the ingrained fear of the ‘free market’ is responsible for the general attachment to the State. The fear is probably well founded, given the concept of the free market we have differs significantly from the free market advocated by classical liberalism (CL). Under NL, the ruling elite have an advantage over the masses because they control the policy making of the State (I explain one angle of this later in this post). NL diverges from CL at this point, because the free market was supposed to be free from State intervention. As Michael Hudson points out, ‘Today’s neo-liberals say a free market is free for predators. It’s free for monopolists, free for land speculators, free for bankers to extract as much income from wages and industry as possible’.[2] I’m not here defending CL, merely pointing out that the NL conception has created this State attachment, that perhaps a free market under CL conditions wouldn’t have. Noam Chomsky argues that Adam Smith advocated [free] markets only on the grounds that under perfect liberty [free markets] would lead to perfect equality’.[3] But my concern is that a great disservice has been done to the concept of the ‘market’ itself, as if markets are inherently evil and designed to privilege the few.

The dominant theory is that the State is necessary for regulating the market to ensure that the least advantaged members of our society are not made worse off by the privileged few under the NL framework. Parties on the Left most often espouse this view, but it sits awkwardly with the Labour Party given that they implemented this system during the Fourth Labour Government. Additionally, as highlighted by Giovanni Tiso in his latest post, The leader vanishes, the Labour Party still considers that [Labour] ‘took difficult and long overdue decisions necessary for the modernisation of the New Zealand Economy’.[4] Clearly, an endorsement of the neoliberal project, yet in his bid for leadership, David Cunliffe asserts that he will increase taxes for the rich, and even touted the ‘socialist’ card.[5] So I am somewhat confused as to Labour’s true position.

As I mentioned above, I believed that we needed the welfare state[6] to overcome the existing structural inequalities in NZ. However, exposure to further information highlighted the flaws of the welfare state, specifically, that if the State are the arbiter of human rights and freedoms, then we are vulnerable to the same authoritarianism that we are currently experiencing under this National led government.

Sebastian AB writes on C4SS blog that what the state is capable of giving, it is also capable of taking away – by force.[7] The GCSB Act is the most current or at least, the most publicly discussed example of the seizure of human rights and freedoms (i.e. privacy) from individuals.

In my view, NZ’s political framework appears to be an amalgamation of the welfare state (WS) and NL. and the tension between these two ideologies has (arguably) created the worst possible outcomes for everyone. NL underpins all the policy decisions made in NZ, and policies targeted at improving outcomes for individuals and families (welfarism) are developed and implemented within this framework. Despite any perceived improvements under Labour or National, the changes have had no substantive impact on social or economic equality.

I was disturbed about the aggressive pronouncement (by Cunliffe, but also advocated by other left wing parties) of increasing income taxes for the rich, because it reaffirmed that our left is devoid of new ideas and are rehashing stale policies from the state socialist handbook.

Labour, Greens and Mana (LGM) argue that increasing taxes on high-income earners means that such earners will contribute their fair share to society. I appreciate and endorse the sentiment – we don’t want to leave our least advantaged members struggling to survive.

But what are the consequences of increasing income taxes for high-earners?

Those who pay proportionately more in taxes receive benefits from the State in the form of policy privileging their interests, otherwise the government risk being ousted by those with the most capital. The effect is the same as crony capitalism. This interventionism causes the deprivation that LGM insists their policies protect against.

Taxation is a huge reason that income inequality exists, and income tax is actually a relatively modern concept. Some critics even question the constitutional legality of taxing personal income, given its denouncement in the Magna Carta.[8]

In NZ, we use a progressive taxation scheme, i.e. a tax system that takes a larger percentage from high-income earners than it does from low-income earners.[9] LGM simply want to increase the percentage further for higher income earners, and some parties have even called for reducing the percentage to low income earners.

Problem – when those who earn high incomes become subject to a heavier tax burden, they seek increases in their net income to counter the loss through taxation. The obvious result is that low income earners lose out so that businesses can retain those high earners – these are typically academically qualified professionals who have the ability to negotiate their wages in their favour. This creates job losses/reductions in the lower echelons of business. When jobs become scarce in the lower echelons of the business, the workers compete for the available jobs and workers tend to accept less than the true value of their labour. In addition, they are often forced into beneficiary queues, state housing, state education and state healthcare systems and must conform to the criteria of those State schemes to even receive or become entitled to assistance thereby limiting their individual autonomy. Moreover, low income earners become the subjects of government data collection, further infringing their rights to privacy.

We will continue to play cat and mouse with income taxes as the rich are pitted against the poor. History tells us who wins. Our taxes effectively pay the ruling elite to tell us what we can and cannot do.  In fact, this is neoliberalism 101. The statocracy have convinced us that without the State, the market will plunge us into the deepest pits of inequality we have ever known.

As a nation, we have been indoctrinated to view State intervention as an indicator of a compassionate government, resulting in an unhealthy attachment to the State apparatus through propaganda used to obtain support to implement unpopular policy – usually policy that intends to limit human rights and freedoms for the economic advantages of the ruling elite.

I consider myself left because I still believe that socialism is preferable to capitalism, because in my view, profit over people is never justifiable and hierarchies are inextricably linked to capitalism where bosses control and exploit rather than emancipate workers. But I am not a socialist who thinks the State can resolve structural inequalities and is necessary towards that end. I can appreciate the pragmatic arguments for the State, but I doubt that we would be thrust into an Arab Spring like revolution in rejecting the State in an attempt to minimise its control over our lives.


[1] I admit that I am still a novice when it comes to economics and do not even pretend to hold any kind of expertise on the topic.

[3] Noam Chomsky on Libertarian Socialism via YouTube http://www.youtube.com/watch?v=yxbeyn2xMQE at (1:07)

[4] Giovanni Tiso, “The leader vanishes” on Bat Bean Beam available online at: http://bat-bean-beam.blogspot.co.nz/2013/08/the-leader-vanishes.html

[5] See Colin Espiners article David Cunliffe is Labours top dog available online at: http://www.stuff.co.nz/national/blogs/bull-dust/9092256/David-Cunliffe-is-Labours-top-dog

[6] “A welfare state is a concept of government in which the state plays a key role in the protection and promotion of the economic and social well-being of its citizens. It is based on the principles of equality of opportunity, equitable distribution of wealth, and public responsibility for those unable to avail themselves of the minimal provisions for a good life… The welfare state is funded through redistributionist taxation and is often referred to as a type of “mixed economy”. Such taxation usually includes a larger income tax for people with higher incomes, called a progressive tax. This helps to reduce the income gap between the rich and poor” Wikipedia available online at: http://en.wikipedia.org/wiki/Welfare_state

[7] Sebastian AB on C4SS “Taking power with or without Chris Hedges” available online at: http://c4ss.org/content/20440

[8] H/t Mark Hubbard’s blog (dedicated to tax issues) Life behind the Iron Drape available online at: http://lifebehindtheirondrape.blogspot.co.nz/  see also Ian Wisharts Income Tax: 1297 law holds key to challenge in Investigate (June 2000) available online at: http://www.investigatemagazine.com/june00tax.htm

[9] Progressive Tax, Investopedia available online at:

http://www.investopedia.com/terms/p/progressivetax.asp

And the government says “Punish the kids!”

Image

And the government says “Punish the kids!” Well, not exactly. But they may as well. The National government have contributed around $40 million dollars in funding to private schools, but will not even entertain the $5-6 million Kids Can estimate or the $15 million CPAG estimate (estimates according to David Shearer on Radio Live this evening) to assist in alleviating some of the effects of child poverty.

The price however, is irrelevant. The relevant point is the flawed argument propagated by many economically-right thinking people (ERTP): If people can’t afford to have kids then they shouldn’t have them.

Isn’t the value of hindsight a wonderful thing? How many times have we all made decisions that attract costs that on hindsight we probably shouldn’t have made even though the decision was reasonable in the circumstances at the time? I’m sure we can all think of examples on both a personal and political level.

Admittedly, having children is a more complex decision because the relevant factors are not just around affordability. But according to many ERTP, a decision to have a child should always be based on affordability. Whether you say it out loud or not, the implication of this premise a big resounding ‘keep your legs shut’ or you have no right to complain when your kids are starving. That is effectively the message the government gave women today and previous governments have given in the past. And what about the solo dad’s struggling to raise their kids? Well, the government just gave you a kick in the nuts too! Don’t stick your bits inside a female; you can’t trust that she’ll stay around to feed your kids. Harsh? Yes. But this is the message a government sends when it refuses to incorporate funding for hungry children into the national budget.

I am amazed ERTP having come out and blamed women for child poverty given the underlying premise of these arguments. But I digress.

We can accept the premise that it is the parents responsibility to feed their children. Generally. However, what we must expect is that when parents are unable or fail to provide for their children, the government will step in to assist those children. If they don’t, then what? I can appreciate that the government don’t want parents to abdicate their responsibility because the government have a safety net. But this argument is the same one that Bill English gives about parental responsibility. It is overly simplistic and lacks the empathy required to build a community that thrives. Moreover, this argument is redundant when these families are forced into poverty through failed economic policies.

What’s not taken into consideration when demonising these parents who are unable to feed their children is the fact that children aren’t born in hindsight. Additionally, other arguments flapped around various social media sites and on talk back radio are the sterilisation of women or forced abortion if the prospective parent[s] have a poor financial outlook. Wtf? Fortune telling determines who can have children? This quackery is normally scoffed at but is legitimate when it applies to persons in poverty? What gives any person the right to determine that a prospective family with a poor financial outlook should terminate a pregnancy?  That is a very dangerous road to go down. When we start advocating for the State to determine who can and cannot have children and under what circumstances, it begins to look remarkably like the eugenics programmes carried out in Nazi Germany and the less talked about programmes in the United States.

It is a myth that people live in poverty by choice. They stay in poverty because successive governments have failed to make the necessary reforms to improve their situations or to prevent people ending up in that situation. And this is no accident. Without poverty, capitalism cannot survive. Poverty usually stems from an inability to obtain employment or to obtain employment that improves ones’ financial situation. I have discussed this in earlier posts, but have no expectation for you to go back and read them, so here is my summary:

“In order to sustain a capitalist growth economy, out of necessity we must ensure there is a stable level of unemployment. However, we must be careful not to make any welfare scheme that compensates for this necessity, too attractive, or the whole economy will collapse”

This is in effect government induced poverty. ERTP must accept that when the government creates poverty for their benefit, it must at least act to alleviate it. A start is to provide kids with food in schools, but don’t expect that it is the full solution. A government that refuses to take action to assist these kids, punishes them.

Update: Below is an extract of a post on Facebook. I’m using it to show the ineptitude of the many people who consider State intervention bad (i.e. the ERTP described in this post) unless it acts to controls the lives of those who are forced into poverty through ineffective economic policy. Although written in the context of the US, I’ve seen many ERTP in NZ hit the like button on this:

This was in the Waco Tribune Herald,   Waco  , TX , Nov 18, 2011

PUT ME IN CHARGE . . .Put me in charge of food stamps. I’d get rid of Lone Star cards; no cash for Ding Dongs or Ho Ho’s, just money for 50-pound bags of rice and beans, blocks of cheese and all the powdered milk you can haul away. If you want steak and frozen pizza, then get a job.

Put me in charge of Medicaid. The first thing I’d do is to get women Norplant birth control implants or tubal ligations. Then, we’ll test recipients for drugs, alcohol, and nicotine. If you want to reproduce or use drugs, alcohol, or smoke, then get a job.

Put me in charge of government housing. Ever live in a military barracks? You will maintain our property in a clean and good state of repair. Your home” will be subject to inspections anytime and possessions will be inventoried. If you want a plasma TV or Xbox 360, then get a job and your own place.

In addition, you will either present a check stub from a job each week or you will report to a “government” job. It may be cleaning the roadways of trash, painting and repairing public housing, whatever we find for you. We will sell your 22 inch rims and low profile tires and your blasting stereo and speakers and put that money toward the “common good..

Before you write that I’ve violated someone’s rights, realize that all of the above is voluntary. If you want our money, accept our rules. Before you say that this would be “demeaning” and ruin their “self esteem,” consider that it wasn’t that long ago that taking someone else’s money for doing absolutely nothing was demeaning and lowered self esteem.

If we are expected to pay for other people’s mistakes we should at least attempt to make them learn from their bad choices. The current system rewards them for continuing to make bad choices.

AND While you are on Gov’t subsistence, you no longer can VOTE! Yes, that is correct. For you to vote would be a conflict of interest. You will voluntarily remove yourself from voting while you are receiving a Gov’t welfare check. If you want to vote, then get a job.

Note: I do not endorse what was said in this Facebook post and am well aware of the flaws in the arguments this person makes. I apologise in advance for any rage this excerpt may cause those with a social conscience.

Connected Capitalism?

In the first week of 2013 I decided to begin the year by reading a book that promotes capitalism. Why? Because my goal this year is to read outside my comfort zone. 

The book of choice:  Neville Isdell & David Beasley “Inside Coca Cola: A CEO’s Life Story of Building the World’s Most Popular Brand” (2011, St Martins Press, New York).

Why this book? Well, last year my sister and I argued about the benefits and problems of capitalism which in itself is not unusual because we both agree to disagree about most things political especially when it comes to money and society. Anyhow, we were discussing how we had quite polar opposite views and ended up in a slightly heated discussion about Coca Cola (Coke).

Prior to this particular discussion I had watched a documentary on the depletion of water tables in rural India that the local communities blamed on the production of Coke in their area. However, my sister had just read the book cited above. She insisted I read the book before bagging Coke. I was at her house just a few days ago, saw the book in a pile and took it as my holiday reading. Its at least an interesting perspective. 


In this book, Isdell (former CEO of Coca Cola) argues that there was no proof that Coke created the depletion of the water tables in India and that the report he’d read indicated that depletion was the result of overuse by farmers in these areas and that the water tables have continued to decline at the same rate since Coke has withdrawn from the area. What Isdell does not say is – who funded the report, how were the water tables measured before and after Coke operated in the region, how was water use by farmers measured, what was the amount of water required to sustain the Coke plant to name a few questions. 

Given he states he has an explicit bias to Coke, I am still not willing to take his word for it. 

Additionally, he promotes Coke as a moral corporate citizen. Whatever that means. In his mind, it appears to mean that certain percentage of Coke’s profits are redistributed to the communities within which Coke operates. I was amused to see him argue (and to be fair, he argued well, even if I do disagree), that spending $25 million building a Coke bottling factory in Afghanistan was more beneficial to the community than building a Hospital.  His reasons were simply that the Coke bottling plant would provide 350 jobs which meant the government could collect employee and company taxes to build and sustain their own Hospital and employees could afford to pay for medical treatment. So his argument is that 350 employees would sustain the building and operation costs of a Hospital in Afghanistan so that they could then pay to use the services they have already subsidised through their taxes? Oh, right. 

Moreover, introducing an unnecessary product into a destabilised country claiming some moral victory when this was simply for profitability and acquisition of majority market share in Afghanistan is not responsible. What about the waste caused by the production of coke (including the plastics in which the drinks are sold), the extraction of resources to develop the technology used to make the product saleable, the lack of health benefits to a country that is suffering…I could go on. 

But Isdell claims that this is necessary to alleviate poverty. No. Building Coke bottling operations in developing countries is not in the best interest of the community, no matter which way you view it. It creates more problems than it solves. It uses precious water resources in these countries to make an inferior product and then charges those communities for the consumption of the inferior product even though the superior product – water, is or at least ought to be freely available. 

Isdell calls this ‘connected capitalism’ – the partnership between corporations, NGO’s and governments who work together to create profits in order to resolve poverty. There already exists terms for this kind of partnership – ‘Crony Capitalism’ and ‘Fascism’. Business and government should never be in partnership with each other since history tells us it leads to bribery, corruption and the implementation of the Police state as corporations force governments to enact laws that protect their business interests. It creates class divisions and ensures that poverty always remains to legitimise corporate profit making. 

Unemployment benefits the wealthy

I almost relented on submitting this blog post because of the in depth analysis to be found elsewhere, and being a layperson on the subject I had my reservations about making certain claims, so what I’ve done is included references for anyone wondering where I got my information from and am unapologetically stating my opinion. 

The question I wanted to ask is why are we (apparently) all surprised at the high unemployment rates disclosed late last week? Maybe because the government proposed to create around 170, 000 new jobs. But did we really believe it? I was doubtful, as were many commentators at the time the government made the claim. In short, if you didn’t already know, NZ’s monetary policy relies on certain levels of unemployment. Any government that is unwilling to change our monetary policy, then is lying through their teeth when they assert that their objective is full employment or high employment. Bold claim, I know, but instead of looking at why we have this spike in unemployment I was more interested in the role of unemployment in our economy so this post is a brief and probably over-simplistic look at monetary policy in NZ.

Inflation. As defined by the Reserve Bank of New Zealand (RBNZ) is ‘the term used to describe the average rise in prices through the economy, and it means that money is losing its value’. It is usually caused by high employment and subsequently high demand for goods and services, which enables businesses to ‘charge more (inflate prices) for the same goods or services’. Its also caused by higher prices for imports. In short, if there is too much money circulating and ‘too few goods and services’ then money loses value.

If high employment causes inflation, then the logical step is to reduce employment or alternatively, to increase unemployment to reduce inflation levels. When there are not enough jobs, workers compete for those positions, putting employers in advantageous positions such that they can drive down wages. This drags inflation down because there is less money circulating in the economy when unemployment is high and people are competing for jobs.

Another benefit is that low wages create an economy where workers have less so they spend less which helps control inflation, while business owners have more so they demand for the more luxury items are for the privilege of those in positions that pay higher wages because there is less competition for those more specialised roles. Say Hello to the wealth gap. The assumption was that the benefits would trickle down. Yet to happen. Its been almost 30 years and we still have a massive gap between the rich and the poor.

So what happens when people are working considerable hours for wages that provide little more than welfare benefits? Welfare looks more attractive and disrupts the labour competition required for this neoliberal monetary policy to work. The answer then, was firstly to create an arbitrary poverty line then cut that by 20% and make that the welfare entitlement, care of the good old economists at Treasury (In a Land of Plenty link at bottom of page). The next step was to create campaigns demonise beneficiaries as welfare dependents. Pause here. Remember, people are forced into unemployment through redundancies or non-renewal of contracts (to name a few methods) and then made to compete for jobs at lower wages in order to control inflation so that those in positions of privilege could retain the value of their assets, that high employment and subsequently high inflation adversely affects. Another tactic to demonise those who required state assistance, was to introduce penalty programs where those who refused to take on low wage work risked their benefit being cut. 

Why would someone refuse to take on low wage work? For multiple reasons.

Low wages do not provide enough to support individuals let alone families. Working brings with it additional costs if you have children, that is, child care costs for those under 5 and before and after school care costs for those with school aged children. Extra petrol costs if the parent/s work far away from home, parking costs if there is no parking at the work site. There may be moving costs associated with new employment so rent may go up, change of school zones can result in extra school uniform costs. The list is endless for additional costs, especially for those with children. I accept that welfare is not the answer but neither is forcing struggling families and individuals into low wage work. The answer, in my view,  is a change in monetary policy.

I need to quickly address interest rates here and the effect on inflation. In short, the RBNZ raises interest rates when inflation is high. It does this for the follow on effects. Firstly, people borrow less. Secondly, companies make cutbacks so that they can repay the debt. This results in less money circulation and helps control inflation. Cutbacks are usually in the form of staff reductions. Or restructuring. Interest rates are lowered when the RBNZ want to stimulate the economy.

When interest rates are lowered, then employment levels will rise again and economic growth occurs, that is, more spending. 

In summary, the unemployed are forced onto benefits to survive when monetary policy drives up interest rates that cause employers to make cuts to repay debt. They are then forced to look for work in conditions designed to put the unemployed at a disadvantage. If they refuse to take work that pays less than what is livable, they are penalised by the State for conditions created by State monetary policy. Sounds fair enough, for merciless right wingers.

I just want to mention the minimum wage, because it is important. The National Party have refused to increase the minimum wage citing its bad for business. Yet, contrary arguments suggest that the more money people have the more they spend, thereby making at least small to medium business profitable (see Frankly Speaking blog at http://fmacskasy.wordpress.com/ for a more in depth analysis on the unemployment strategies of neoliberalism). However, what does that do to inflation? It drives that sh* up. See the circularity? If people are spending more, then businesses are making more money and can afford to employ more people but as demonstrated above, higher employment leads to higher inflation rates.

So what is the real problem? It is money and the policy used to convince the public that the conditions within which we live are fixed and that there is no alternative. The value of money is determined by the market, and therefore so too is the value of an asset. A good or service is worth as much as you are willing to pay for it. The mistake is in thinking that money has an intrinsic value. It doesn’t. It’s a piece of paper with a number on it and what you can trade it for depends on what the market thinks it’s worth. I mean we can quantify money in terms such that $1 equals 100 cents and so on, but what it is worth is qualitative. As long as society believe that money has value based on a qualitative assessment of its worth, then the only logical outcome is to accept this neoliberal model that creates poverty to enrich and sustain those already privileged members of society. Corporate’s. The best example I’ve read about understanding the value of a bank note is that it is simply an IOU from the bank (In Ian Wishart’s ‘Daylight Robbery’). Fake credit. So the unemployed are pawns in a game designed to protect the value of capital that doesn’t exist? Society, this is messed up.
A good documentary on monetary policy and unemployment is “In a Land of Plenty” and is available to watch free via the NZ On Screen website at http://www.nzonscreen.com/title/in-a-land-of-plenty-2002 .