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OpEdNews Op Eds    H4'ed 5/1/12

Real Estate 4 Ransom -- locking up the Great American Dream

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However, this knowledge has been written out of the economic policy framework. It is as if Flat Earth economics pervades our thinking. Economic policy makers have decided "Land in prime locations abounds for all. The earth is not valuable. Living in an inner suburb has no advantage over property in the sprawl. There is no market power differential between the owners of the earth charging higher rents and your local bakery deciding to increase the price of bread."It is as if high housing and commercial property prices are good for international competitiveness.

What has been lost from the traditions of Classical Economics is that higher property taxes act as a counterweight to mortgage debt. A home buyer will pay less for a property with a tax liability attached to its land value than for one without.

The real estate, banking and insurance sector, what Professor Michael Hudson calls the FIRE sector ( http://michael-hudson.com/2012/01/banking-wasnt-meant-to-be-like-this/ ) , don't want this understood. The dominance of the real estate sector in print advertising certainly helps.

Higher land prices mean a greater mortgage interest stream for the lifetime of the contract. Real Estate agent commissions and insurance premiums also benefit from this arrangement.

It must be remembered that the catalyst to the Global Financial Crisis was the bursting of the land bubble. Banks were forced to write down their books to reflect lower land values. Derivatives imploded. The supply of credit collapsed.

Corrupt banking practices were certainly a major contributor, but more analysis needs to be spent on how property taxes (more accurately Land Value Taxes) can keep a lid on land prices in the first place. If the land price was kept low with holding charges acting as a counterweight, banksters would find it less lucrative to create exotic financial tools for land and housing.

Instead of looking at root causes, the 'solution' to revenue short falls has been to raise sales taxes in the UK, France, USA and New Zealand. Sales taxes are a regressive tax, falling on the poorest hardest. But this is the tax pathway we are being led down. The message is: ditch property taxes and ditch progressive income taxes in favour of more pain for the unprivileged.

Attention is diverted to anything but the land bubble.

Economics is kept as a dismal science so that we the people don't catch onto the subtle subsidies provided to the owners of the earth.

Land values are created by the existence of community. If no-one lived in your city, land values would plummet. If the people re-appeared, land prices would jump again, as if by magic. Think about that for a minute. This is the free lunch, the economic rent that economists have been taught to ignore. This magic money is created by the development of households.

As Winston Churchill famously quipped "Land is the mother of all monopolies". This warning of the dangers of monopoly must be studied so we can apply it to keyboard capitalists now extorting markets in commodities, water rights and even our DNA. Once the profits are harvested, a tax haven of choice is on offer. The Bahamas for beach lovers, Leichenstein for skiers.

Modern day capitalism has become an arena for the privileged to force up prices for scare resources, pressing the 99% to beg for access to what were once human rights. Entrepreneurial genius is now a quest to ring-fence resources.

With the mobility of capital and the benefits of foreign investment set in stone, future property bubbles are guaranteed. The modern world needs an automatic stabiliser to ward off these damaging boom bust bailouts.

The trend continues because economic policy has been exempted from the damage property bubbles cause. US criminologist William K Black states that this Great Recession has cost the American household sector alone a whopping $11 trillion. ( http://www.financialsense.com/contributors/william-black/2011/11/25/banking-system-rotten-to-the-core )

To re-balance this playing field, the tax code must be 'occupied'. Classical economists such as Adam Smith, David Ricardo and Henry George understood the importance of the unearned income that attributes to owners of natural resources and licensed monopolies.

A resource based economy will be possible when our economic rights are re-established as part of the common-wealth. The devil is in the detail of our tax system. Taxes must be switched off our hard work and onto the scarce resources that magically increase in value over time. Land in prime locations is like a giant invisible oil well that must be tapped for the public's benefit to free us from a life of mortgage debt and monopoly power.


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Karl Fitzgerald is the Co-Director and Producer of the documentary Real Estate 4 Ransom ( www.realestate4ransom.com )
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Real Estate 4 Ransom -- locking up the Great American Dream

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