Economic policy: A snake-oil duopoly

Gavin R. Putland writes on the Letters Blog at the Australian:

Rudd is nаked too

Kevin Rudd has declared that the interventionists are back in charge, the non-interventionists having “no clothes” due to the global recession. He conveniently forgets that the non-interventionists took over after the interventionists were discredited by the recession of the mid 70s, but conveniently remembers that the interventionists took over in the 30s after the non-interventionists were discredited by the Great Depression. What he offers is not a break with the past, but a continuation of the snake-oil duopoly that has dominated economic thought for more than a century.

The problem is not state intervention or lack thereof, but a tax system that favours speculation on non-replicable assets, chiefly land. Once every 18 years or thereabouts, the land market forms a bubble, which duly bursts, causing a credit crunch and recession. This bubble-burst-recession cycle has continued for 200 years through times of regulation and deregulation, protection and free trade, high taxes and low taxes, cheap oil and expensive oil, war and peace — except World War II, which delayed the cycle by about a decade.

The only way to end the cycle is to tax the speculators out of business. But political parties are funded by the speculators. So Rudd's job is not “to save capitalism from itself”, but to save the casino from the taxman. History says he will succeed.

History also says that it takes two cycles for people to forget when the other party of snake-oil merchants were last in charge. At that rate, the interventionists will survive the recession of 2027 and be turfed out by the recession of 2045 (give or take a couple of years in each case).

That is, of course, unless governments heed the advice to tax speculators out of business (pigs might fly), or the present recession is so much more severe than those of the mid 70s and early 90s that it delays the next land bubble. Starting from a lower base, with investors chastened by recent disaster, the market may take longer to reach bubble territory.

[Posted February 16, 2009.]