Dr. Ken Grigg predicts the Recession We Had To Have
Depressions are born in the boom times when the prices that are speculatively demanded for land soar to such unbridled heights that incomes dependent upon real levels of production can no longer possibly sustain them. Then comes the crash.
It happened, classically, in Australia in the 1890s. It happened worldwide in 1929. This cyclic process of recession was spelt out by the American, Henry George, in 1879 in his work Progress and Poverty — An Inquiry into the Cause of Industrial Depressions and of Increase of Want with Increase of Wealth: The Remedy. But, lemming-like, we are still not learning that that endemic process is still at work.
The shrinking of nett disposable incomes in the face of mortgage commitments and of tax-inflated prices is the penultimate phase in the process, wherein there is a general contraction in effective demand.
We are now in that late phase. Look about you. People are hurting. Retailers are complaining. The crash is on course.
There is only one solution. It takes not of the original cause.
Economic sanity has to be restored by ruthless destruction of the mania for land-value gambling — the “cargo cult of the free lunch” — and by the encouragement of that real production of goods and services which rests upon the honesty of rendering valuable service for valuable service, and which is the real, appropriate response to our external debt problem.
This calls for a very heavy levy of Land (rental) Value Taxation as the substitute for taxes upon labour, upon capital, and upon the goods and services they produce — and which constitute the nation's real wealth.
To persist with and even intensify high interest rates, whilst doing absolutely nothing about land prices as the underlying cause for the boom-crash cycle, is part of the insanity, and is evidence of sheer economic incompetence.
And we must forget about a consumption tax. Prime Minister Scullin tried it in the last depression. What did it achieve for us then? A consumption tax not only completely fails to address the underlying cause for this approaching depression but it would further exacerbate it. Those who persist in advocating such a tax must be counted amongst the economic illiterate.
So far from contracting the economy, we should all be enabled by fiscal policy to “Lengthen Our Stride”. Not only consumption, but also the generation of ability to save, stems from increased levels of economic activity, and not from its suppression. Consumption taxes and forcedly high interest rates are as harmful to the economy as is protection. To persist in relying upon quite unsustainable interest rates as almost the sole tool for management is insanity.
First published as “The Impending Depression”, Progress, September 1989, p.3. Posted here (with added emphasis) on Dec.10, 2009. The date of composition is presumably before September 1989, but is taken as Sep.1 for want of more precise information.
Kenneth N. Grigg, MBBS, member of the LVRG and sometime president of the Henry George Foundation (Australia), died on July 5, 1990, at the age of 66. On Nov.29 of the same year, Paul Keating announced “the recession that Australia had to have”.