The greatest social problem that we are experiencing today is the growing difference between the poor and the rich and we have learned to accept it. But it is at terrible cost in separation and the associated feelings of anger, depression and helplessness, between the people who have jobs that provide stable incomes with comfortable homes and those who don't and can't. The practical solution here is driving me nuts!
Many governments have made progress in easing this injustice--some changes have recently taken place. But its bad enough that a quarter of our school children are going to their classes hungry, without taking with them sufficient food. These unhappy disclosures about the poor come with news that the shares market is recovering and this is a good time to invest! Much lip service is paid to the dire need to "create" more jobs, whilst less public money is being collected as tax (and spent) and civil servants are being sacked.
Poverty is a national problem of macroeconomic proportions and the approach to it must be by understanding how our economy works, without politics being involved. Due to what seems to be a complex situation, few people can speak with conviction about macroeconomics. However, there is a rational way of thinking about it--to understand how our society really operates and simultaneously to find the solution to joblessness.
Searching for this answer is coldly logical and basic. It begins by examining the difference between micro- and macro-economics. We are most familiar, on a family level with microeconomics. Macroeconomics on the other hand, takes into account the "big picture" and shows how national policy affects the average of the whole population.
Most people (including myself) have difficulty in determining whether a particular aspect of the subject is a micro- or macro- one. This dilemma explains why the experts are unable to agree, for they are always confusing these two ideas. From a microeconomic aspect, personal taxation is regarded as harmful--we would cheerfully do better without it. However as responsible citizens, who can also view taxation nationally, we know that it is necessary and from this position, the more tax that is collected the better. Using macroeconomic concepts, one can show that we actually have a simple situation to poverty, when viewed from sufficiently great a distance.
Within the social system, to produce goods and services the managers combine three factors. These are commonly known as land, labor and capital. (Some economists claim that an additional factor is technology, but this can be purchased as a service so it is either capital or labor.) The returns paid for use of these factors are ground-rents, wages and interest (or dividend), respectively. These costs must be covered during use of the 3 factors. When one of them is in short supply, the product becomes more costly, due to the scarcity and competition for its availability and use.
Initially in a "new" country, there is an abundance of land, but the pioneers are limited in their productive capacity by the paucity in their numbers. Everyone works hard, but if a farmer needs to dig up a tree-root or to shift a heavy rock, he needs help from others. So the first limitation is in labor. Anybody with a few workers for hire is king.
A little village springs up. There are now sufficient people to perform all the farming activities. However, there is only one tractor and few plows and straggly draft-animals, which are needed in half a dozen places at once during the plowing season. Then the limitation is in capital. The owner of a tractor now gets rich, due to the heavy demand for his services. Until the farmers can produce sufficient goods and exchange some of them for better tools and good equipment, they will remain relatively poor.
The community grows into a small town. There is no longer a problem of insufficient manpower or equipment. The problem is one of finding suitable space for newly established farms and businesses--choice locations having already been taken. The newest farms on outlying land have their produce brought to the central markets, which makes these goods more costly to supply. Those who produce on the more conveniently located central lands, discover that they can raise their prices to equal those of goods from the outlying farmers. These pioneers will now enjoy the surplus income (above actual cost) in a raised standard of living, whilst poorer farmers on the fringes of the community barely scrape by. After manufactured goods become available and commerce developed, land closest to the factories, shops, offices and homes is able to command higher ground-rents. This most productive land, central to the town, has the greatest value.
Landowners speculate in land as a valuable resource, particularly when it lays in a development region. They would rather wait for a new highway or rail-road to be planned and for the potential usefulness this confers on their originally acquired fields, than put this land to the plow. When they subsequently rent it out as small parcels for commercial use, they can demand rent that is hundreds of times more in goods-value than what was grown by the pioneers. They do this without performing a stroke of work and without employing a single laborer, although some will make a token gesture to use their land in a more socially-justifiable way. Eventually and inevitably the land is sold at extremely high prices for use in manufacture, commerce or residence. Due to land value speculation, as monopolized sites become available their prices are inflated, regardless of whether they are sold, leased or rented.
This situation is in many countries. The most productive and valuable parts of the land are held by monopolists who speculate in them, driving up the cost of the produce (be it food, services or manufactured goods) and of residence. Our gift from nature (if not from God) has now become vitally important, due to the greater population density and municipal development. The monopolistic landowner finds it is better to hold the land out of use. He/she can borrow from the banks, which encourage him/her to buy the outlying land, which is certain to rise greatly in value and to generate more money than a generation of farmers could possibly have earned.
When land is sold, a betterment tax on land value (intended to stop land speculation) can be mostly avoided, with much of the true sum passing "under the table" before the contract is signed. The development land is initially in the hands of the local authorities who don't pay tax to themselves. Their town planners and lawyers are the first to inform the banks where a new suburb is projected. Then the landlords speculate, as they borrow money from banks for the subsequent development.
The selfish non-use and speculation of this huge resource, the value of which grows from public investment within the community, provides the land monopolists with an income that effectively comes from ground-rents. This miss-direction of rent is the cause of the high prices and relative low demand for consumer goods. The landlessness of hired workers coupled with the low demand for their efforts creates a lack of available jobs, which cause our current unemployment and poverty. Before ground-rent became significant and people did not hoard land (much of which was “commons”), there was never any unemployment.
One answer to this problem is to collect a proportion of potential rent as a tax for public use. Much of the ground-rent (as interest), is due to public investment in the streets, sewers, transport systems and emergency services. Therefore it is socially just and fitting to collect it for public use. The effect of taxing many material items is to suppress them, but you can't do this with the land, because it is there anyway. By introducing even a small amount of land-value tax, the speculators will sell land to entrepreneurs, who use it properly and can pay for the privilege.
Introduction of this tax enables the government to employ more people and to provide better social services, education, etc. (particularly to the poorer sector, whose need for them is greatest). It can do this without changing the average national income (because the same total sum of money is involved, whilst being distributed differently). Using a simple model based on common-sense assumptions, by numerical analysis that a high-school student could follow, I have found that a tax on land-values will quickly stimulate the system 50% more than when the same tax burden is laid on personal income.
The introduction of a modest amount of land-value taxation will enable us to morally and justly pull ourselves out of the economic quagmire, in which we have been floundering. This is a sorely felt need by all those land-less souls who are without work and lack the opportunity to earn enough to survive without having to beg, lie or steal.