Mike, The situation is particularly frustrating to a Georgist. Some 130 years ago, Henry George analyzed the reason for periodic booms and slumps. In the first part of the 20th century, Homer Hoyt meticulously provided us with a history of Chicago booms and slumps that indicated that George was right (although Hoyt was never a Georgist -- just a first-class land economist).
The Classical Political Economists regarded Land as vital part of production. The term Land applied to all natural resources, not just the dry stuff under our feet. However, much of the discussion tended to concentrate on the land on which we spend our lives living and working. Yet, we don't drill for oil on land, we don't build a factory on land, we don't live on land. Rather, we drill for oil at the South-East corner of the north 40. We build the factory in an industrial park next to the Interstate. We live in a house at the corner of Elm Street and 10th Ave. Essentially, with 'real estate' we buy and sell locations and every location is a monopoly -- a natural monopoly. In a free market, demand for a good raises its price from equilibrium. This stimulates increased production which rushes to market to take advantage of the higher price. When these goods reach the market they satisfy demand and the price drops back to equilibrium. (The reverse takes place if the demand slackens.) The price mechanism is quick to act and is a far better way of allocating economic goods than any kind of government control. We all know this even if we have never studied economics. (And we take advantage of it if we can!) Unfortunately, locations don't act this way. As Will Rogers said, 'They ain't making no more dirt.' We don't have land factories producing locations and when the price goes up you can't bring in some locations from elsewhere. When I arrived in Southern Cal I looked at two identical houses - one in Thousand Oaks over the hill and some miles to the north, the other closer to central activity in the San Fernando Valley. The Valley house cost $10,000 more than the Thousand Oaks house. The difference was land value, the extra cost of location. We can do nothing without land so the demand is continuous. Thus, the cost of land goes up and up. As more land can't be produced and cheap land can't be moved to compete with expensive areas, prices continue to rise. They finally arrive at the "highest amount that can be collected while maintaining production". Any higher and labor would be left with too little to survive. The high cost of land must be paid if work is to take place and of course it comes from wages. George suggested that people at the bottom of the wage pyramid would get subsistence level wages and this seems to be the case now in every advanced economy. As we don't want to deal with the land problem, we try to help those most severely harmed by it. Hence, the welfare state, an admission of failure if there ever was one. A good example is the UK, which spends a large part of its budget on welfare. Even so, we find in Parliament discussion of the few pounds extra that must be provided to old age pensioners to help them to warm their homes during the winter. Some 1.7 million children suffer from severe hunger. And in the last issue of the Economist it was mentioned that 700,000 people have not had a job in nine of the previous 10 years. Welfare is not the answer. We have to get back to basics, take another look at the way the classical political economists analyzed the situation. Perhaps I should end this misery with some optimism. I've lately seen two or three economists who are now writing about 'space', pointing out that modern economics is not taking space into account in its thinking and therefore its conclusions may be wrong. Not much, but one can hope. Harry -----Original Message----- From: [email protected] [mailto:[email protected]] On Behalf Of Michael Gurstein Sent: Wednesday, November 24, 2010 11:50 AM To: [email protected]; 'RE-DESIGNING WORK, INCOME DISTRIBUTION, EDUCATION' Subject: [Futurework] Ireland vows austerity but plan draws skepticism This looks very much like the end of the beginning of the slow motion train wreck that may undermine first the Euro and ultimately the USD with completely unpredictable consequences in all directions... Bets on how long it will take for all this to unravel... i.e. Ireland-->Portugal-->Spain-->Euro Crisis-->USD crisis (my bet is less Ireland-->Portugal-->Spain-->than a year... M ------------------------------------------------ Ireland vows austerity but plan draws skepticism Reuters * Obama: Portugal is a key partner in Afghanistan Play Video Presidential Transition Video:Obama: Portugal is a key partner in Afghanistan AP * Obama Appointee on the Hot Seat Play Video Presidential Transition Video:Obama Appointee on the Hot Seat FOX News By Padraic Halpin and Carmel Crimmins Padraic Halpin And Carmel Crimmins - 38 mins ago DUBLIN (Reuters) - Ireland promised on Wednesday to cut spending and raise taxes to combat its banking crisis and secure an international bailout, but drew accusations of overconfidence in assuming the crippled economy can grow. As tempers flared across Europe over the financial and social cost of rescuing Ireland, German Chancellor Angela Merkel said politicians must show financial markets who is in charge and make investors share in the risk of future debt crises. Irish Prime Minister Brian Cowen, whose government is close to collapse, unveiled a 15 billion euro ($20 billion) four-year austerity plan that he said would affect all Irish people. "The size of the crisis means that no one will be sheltered from the contribution that has to be made toward national recovery," Cowen told a news conference. The plan includes thousands of public sector job cuts, phased-in increases in Ireland's value-added tax (VAT) rate from 2013 and social welfare savings of 2.8 billion euros by 2014, but does not touch the country's ultra-low corporate tax rate. The EU's monetary affairs chief Olli Rehn said the austerity plan would help to stabilize Ireland's public finances. "The plan strikes a good balance of durable expenditure and revenue measures, with due regard to protecting the least well off," he said in a statement. But almost immediately the credibility of the plan, which is vital for meeting the terms of the IMF/EU rescue package, came into question for sticking to economic growth assumptions unveiled earlier this month to widespread skepticism. Credit rating agency Standard and Poors said Cowen's government was too optimistic in assuming growth and the Irish economy would struggle to expand at all in the next two years. Dublin forecasts real GDP will grow an average 2.75 percent from 2011 to 2014. But S&P said nominal GDP -- not taking inflation into account -- would be close to flat in the next two years. "There is a meaningful difference," said Frank Gill, director of S&P's sovereigns rating group EMEA. S&P cut Ireland's credit rating on Tuesday and put it on negative watch, saying it was likely to need to inject more funds into the banks, hit a property market collapse in 2008 which forced the government into guaranteeing their liabilities. Others were also wary. "It doesn't seem all that realistic to me," said Stephen Lewis, chief economist at Monument Securities. "It seems they're planning very stringent fiscal measures and yet they expect the economy to grow against that background. That seems highly unlikely. POLITICIANS LACK COURAGE? Investors have sold off Irish debt, particularly since German Chancellor Merkel raised the possibility earlier this month that state bond holders might not get all their money back in future were another debt crisis to strike. Merkel renewed her calls on Wednesday, defying criticism that she risks upsetting investors at a time when many fear a crisis which began in Greece earlier this year and moved to Ireland, might spread to other euro zone countries. "Have politicians got the courage to make those who earn money share in the risk as well? Or is dealing in government debt the only business in the world economy that involves no risk?" she asked the German parliament. "This is about the primacy of politics, this is about the limits of the markets," said the chancellor, acknowledging that her insistence on this issue was making markets nervous. Merkel is talking about future government bond issues but holders of current Irish debt fear the risk of default. Dublin's 10-year bonds are trading far below their face value, at less than 75 cents in the euro. On Wednesday they yielded 9.23 percent -- a level at which Dublin could not realistically issue news bonds, and far above the 2.63 percent on the equivalent German bond. By contrast, Ireland is expected to be pay about five percent on loans from the International Monetary Fund. The euro, which has fallen sharply in recent days on fears that Ireland's debt and budget crisis would spread to other euro zone countries such as Portugal and Spain, barely moved after the austerity plan. The plan is a condition for EU/IMF aid under negotiation for a country long feted as a model of economic development and now the latest casualty in the 16-nation common currency bloc. Cowen told parliament no final figure had been agreed for EU/IMF assistance, "but an amount of the order of 85 billion (euros) has been discussed". A CURSE FOR GENERATIONS The sudden implosion of Ireland's economy has bewildered its people. Unemployment -- a curse for generations of Irish which had almost lifted in the boom years -- has leapt to about 14 percent from about 4 percent in just a few years. Anne Fullham, a 44-year-old property lawyer who lost her job in March, never dreamed she would find herself taking benefits. "When I was growing up ... it was the safest job you could possibly have -- if you're a doctor, a lawyer, an architect. And now the architects and the lawyers are in trouble," she said. "We still all laugh about it in such a way that if you didn't, you'd cry," she said. A Reuters poll on Wednesday showed that 34 out of 50 analysts surveyed believe Portugal, where unions held a general strike on Wednesday, will be forced to follow Ireland and seek a bailout. If that occurred, fears about Spain would grow and investors could begin to worry about the future of the currency zone that was set up over 11 years ago and regarded as a major success in its first decade of existence. Slovak Finance Minister Ivan Miklos added to the gloom, saying that "the risk of a euro zone break-up, or at least its very problematic functioning, is very real". The Irish Independent newspaper said the situation was so critical that Dublin could pump extra cash into the ailing banks as early as this weekend. An erosion of support from the government coalition partners this week means Cowen is unlikely to survive in office much beyond the New Year to implement the plans. But his successor's hands will be tied by the terms of an agreement to be signed with the EU and the IMF, and Ireland's financial crisis will leave little scope to revise them. (Additional reporting by Jodie Ginsberg, Lorraine Turner and Steve Slater in Dublin, Stephen Brown in Berlin and William James in London; Writing by Paul Taylor, Noah Barkin and David Stamp; Editing by Louise Ireland) (Dublin newsroom) _______________________________________________ Futurework mailing list [email protected] https://lists.uwaterloo.ca/mailman/listinfo/futurework _______________________________________________ Futurework mailing list [email protected] https://lists.uwaterloo.ca/mailman/listinfo/futurework
