Harry, I recognize that land plays a vital role in the costs and patterns of growth. That is why, in a growing city, people build houses out in the suburbs where land is cheap, or, if they build them downtown, they do so in multi-story units, housing as many people as possible on one small patch of land. Inflation, however, reflecting the changing value of currency, is much more difficult to pin down. It can be a subtle and creeping long term process. In Canada, for example, a person earning $10,000 in 1960 would have to earn over $75,000 in 2010 to have the same purchasing power. Or it can be dramatic, even overwhelming. When I was in Russia in 1995, I had to keep my money in US dollars and exchange it for roubles day by day because of the rapidly shrinking value of the rouble. The Russian government was unable to tax in the chaos of the times and nobody would lend it money, so the only recourse it had was to print it.
I'm not saying that the price of land isn't a factor in growth and inflation, but merely that there are many other factors involved as well. But then I'm not a Georgist and don't see things the way you do. And I wouldn't like to see another housing boom right now. The US and indeed global economy is still recovering from the impact of the last one. Regards, Ed ----- Original Message ----- From: Harry Pollard To: 'RE-DESIGNING WORK, INCOME DISTRIBUTION,EDUCATION' ; 'Keith Hudson' Sent: Tuesday, October 12, 2010 4:36 PM Subject: Re: [Futurework] Not a very positive picture Ed, The Georgist attitude toward growth is as follows. In a normal economy, uncontrolled by the price mechanism, land rents increase (rather like any other monopoly) until any further rise would stop production. As it happens, quite a few landholders do raise their rents (or equivalent sales prices) rather than sell. This because in an advancing economy land rents increase. It makes more sense to hold on to land which is advancing in value than to sell and invest perhaps at an interest rate lower than the increase in rent. (The higher tax rate on income than on capital gains is another reason for not selling.) Factories that contract to pay a high rent, or buy at a capitalized rent, may have trouble staying afloat. However, if the economy grows, their increased income enables them to pay the rent. If this is not enough in a faltering economy, governments inflate the currency. Inflation helps the factories to pay their contracted rent and keeps them alive. We know that interest rates will rise to counter inflation. Not so with rent. As the rent which is asked is already as high as it can go, landholders cannot increase it or there will be no factory. So, inflation works to keep an economy going. In other words, "growth" and "inflation" are necessary to maintain the economy. Of course, when government's meddle in the economy, it often gets out of hand. They will force growth when they shouldn't, and perhaps let inflation get out of control. A major problem at the moment is that land prices are still too high. Some economists refer to this as the high price of housing. This effectively removes land from the equation. Yet, the house price is not the problem. I saw a factory manufactured house the other day selling for $19,000. I am sure it was anything but a mansion, but it indicates that the problem is not in a house cost but in a high price of land. The only way to come out of the Great Recession is to drop the cost of land close to zero. This is likely to produce a construction boom which carries about a quarter of the economy with it. However, this is a political impossibility. So, we will enjoy another decade of stagflation unless we get into a serious war! Harry ******************************** Henry George School of Los Angeles Box 655 Tujunga CA 9104 818 352-4141 ******************************** From: [email protected] [mailto:[email protected]] On Behalf Of Ed Weick Sent: Saturday, October 02, 2010 8:46 AM To: Keith Hudson; RE-DESIGNING WORK, INCOME DISTRIBUTION, EDUCATION Subject: Re: [Futurework] Not a very positive picture Keith, I don't see Pete putting the cart before the horse. Economic progress, or whatever one should call it, results from the assembly of new productive pieces and the discard of old and no longer useful ones. The long shift from medievalism to modernity involved many different processes and trends, the provision of infrastructure to support rapidly growing cities and expanding frontiers being one of them. I don't see emulation of the upper classes by the lower classes as being growth's primary historic driver. When living in the countryside before the industrial revolution people grew their own food, built their own shelter, and made their own clothing. This was no longer possible following the movement to cities. They had to buy whatever they needed, and they bought what they could afford. If they could afford it, they bought products of a higher quality, perhaps partly because they were emulating someone higher up on the social scale, but mostly because it made life easier. In a previous posting I commented on the role of advertising and credit in today's world. Advertising has been with us for a long time and has, I believe, been instrumental in prompting people to consume and hence in driving growth. Consumer credit is a more recent phenomenon. It allows people to consume beyond their means in the hope that they will be able to pay for present consumption tomorrow. Given that growth is being driven by advertising and credit as well as real need, one has to wonder where it may be taking us. One also has to wonder about other growth components such as militarily and politically based spending decisions. I think I'd better stop now. I've arrived at the point at which I have to wonder if growth really is a good thing and that's not good for someone who's supposed to think like an economist. Ed ----- Original Message ----- From: Keith Hudson To: RE-DESIGNING WORK, INCOME DISTRIBUTION,EDUCATION Sent: Saturday, October 02, 2010 5:13 AM Subject: Re: [Futurework] Not a very positive picture At 13:49 01/10/2010 -0700, Pete Vincent wrote (in a civilized and non-abusive way): On Fri, 1 Oct 2010, Keith Hudson wrote: > Apart from the necessary supply of increasingly cheap fossils fuels, the > industrial revolution (that is when the idea of "economic growth" emerged > and GDP has been worshipped) depended foremost on the mass production of > what were originally hand-made luxury items enjoyed by the land-owning rich > of the agricultural era. Despite what Marx and Engles said about the > increasing impoverishment of the factory workers they were, in fact, > prospering all the way through the 19th century and most of the 20th. As > each new consumer product, hitherto expensive (cotton clothing, porcelain > pots, curtains for the windows, bicycles, etc) became cheaper in successive > swathes then, with hard saving at each stage -- the professional > middle-class (see Samuel Pepys diaries), then the middle-class, then the > working class -- became a cornucopia flowing downwards, and a whole > population working hard and aspiring upwards. [PV] I'm finally moved to comment on this thesis. If I were to contemplate the arc of the western prosperity flowing from the industrial revolution, I would pinpoint the key drivers as being a synergy of several. Obviously key are the extraction of high energy content fossil fules, first coal then oil, in combination with the development of devices to extract and exploit them for motive power and ancillary applications, particularly smelting. But what I would identify as the key additional factor which catalyzed the advance of wealth is the simultaneous advent of vast open frontiers, offering the opportunity of carte blanche application of the new technologies and accompanying explosive population growth. At the same time, intellectual freedom led fairly directly to great advances in public health and sanitation, which brought about such an improvement in the living conditions of the already "fully" populated regions of the world that it was the virtual equivalent of the opening of another frontier, in terms of the resulting increase in population. All this growth and expansion provided the main wealth driver, not in consumer goods, but in major industrial production for housing, transportation and commercial infrastructure: steel rails and girders, brick, concrete, and asphalt; multistorey buildings, highways, bridges, ships. I suggest that an entire absense of consumer products may not have caused a substantial reduction in the overall arc of productive activity and accompanying growth of wealth (if we consider housing to be distinct from consumer goods). You can consider the automobile a consumer good, but in its absense, an equivalent flourishing of public transportation would necessarily have resulted. In my view you are putting the cart before the horse. Infrastructure follows industrialization-consumerism (apart from the minimal industrial infrastructure paid for privately). Typically in a developed modern economy, consumer spending accounts for 65-70% of GDP; infrastructure 15%. Consumer spending supplies immediate profits, part of which can be re-invested soon afterwards. There's no doubt that infrastructure spending supplies extremely important long-term benefits, but it is smoothed-out over the nation as a whole and supplies no specific financial surpluses. When political parties present their manifestos at election times they speak to the selfish class interests of the electorate and, increasingly in recent decades, to the sub-classes within them. Politicians don't present infrastructure projects at the top of their lists because they know that it is the immediate interests of the individual and his family which, added together, supplies the national motivation which can also pay for infrastructure as a byproduct. Stalin and Mao Zedong with their concentration on heavy industry made the bad mistake of trying the infrastructure-first route, and both the Soviet Union and China failed as a consequence -- the former collapsed, the latter became moribund. The irony of all this is that when consumerism is in full spate (e.g. England in the 19th century, China and Russia today) -- even with low levels of taxation -- then abundant local and state infrastructure (physical and welfare) can be relatively easily laid down out of the general prosperity. Today, with few, if any, uniquely new consumer products (only embellishments of 20th century ones) to motivate their electorates, all advanced governments are deeply in debt and cannot even maintain their existing infrastructures from taxation, never mind extending them. Keith Keith Hudson, Saltford, England ---------------------------------------------------------------------------- _______________________________________________ Futurework mailing list [email protected] https://lists.uwaterloo.ca/mailman/listinfo/futurework ------------------------------------------------------------------------------ _______________________________________________ Futurework mailing list [email protected] https://lists.uwaterloo.ca/mailman/listinfo/futurework
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