'Til Debt Do You Part - Is Your Future Already Over?
You may be wondering why it's so expensive to receive a college education in countries like Australia and the United States. Or maybe not - a lot of people have accepted that this is just the way things are.
When I was in my early teens, I remember seeing a television commercial where a man in his early twenties walked into a bank and asked for a current account that came with a cheque book. The big shocker was that the bank manager said yes. You see, banks didn't want to do business with young people because they didn't have any money and had little or no track record of earning an income.
Banks didn't give huge home loans back then, either. From memory (and I'm beginning to realise how distant this is as I'm writing), they typically lent out two and a half times a person's annual income and no more.
The thing is...
It may appear as though this kind of lending may be helping the students and home buyers, but it's actually making things worse for them and benefiting the education providers and home vendors.
You see, if a university knows that students can borrow $50,000, then they'll increase their tuition fees to that amount. If students then become more credit worthy to the tune of $100,000, can you guess what the cost of a college education then becomes?
The same principle applies to buying a house - the more money banks are willing to lend to their customers, the more house prices increase.
Is everything going to be okay?
This wouldn't be too much of a problem if incomes were increasing at the same rate. Incomes are not increasing at the same rate!
There is a special term used for the ever widening gap between incomes and debt levels - a bubble.
I've had debates with economics professors from some of the most prestigious universities in the World and they flat-out refuse to acknowledge this. They firmly believe that it's impossible to know that a bubble exists until after it bursts. If you don't believe me, call the economics department of any major university on the planet.
Tell me the bad news first
What's the good news?
The good news is that it's a mild day in Sydney. Not too hot, which makes walking to the shops easier.
What? Did you think that there's some good news for you about not being forced to surrender your freedom to rent seekers?
The deregulation that prevented rocketing levels of debt was done in the name of freedom. Not your freedom, of course - you're too poor to matter. It was done to provide rent seekers the freedom to exploit you. That's why they keep repeating the message that deregulation is always good, in every circumstance.
Does debt mean freedom? No. So why should anyone believe that freedom means debt?
Solution
Right now, people get walloped with taxes for doing work. The more productive they are, the more they get hit over the head with taxes. Rent seekers are fine with this because they tend not to work, but just collect money from people who do.
What if, instead of taxing people on the money they've earned, the government were to tax them on the money that they didn't earn?
"But universities are earning their money by providing an education, blah, blah, blah." Yes, but the portion of the money that they take which exceeds the cost of providing that service is an economic rent.
Unearned incomes are a form of privilege. Tax privilege instead of production and you'll give people a fair go at building a decent life for themselves, their families and their communities.
Thus is well thought out and makes you think. I actually think I did a good thing by opting out of debt inducing student loans. My wife is almost 40 and still paying off student loans.
It's a rigged system. I wonder if there could be an education based blockchain application that could help students some way.
Great blog, found through @ocd
With big ups from me,
JGV
You and your wife might be interested in reading this article I posted yesterday about how the government could bail out people who have student loans (and other debt) without being unfair to everyone else who didn't take a loan.
Thomas Piketty does the most comprehensive analysis of these issues in his magisterial Capital in the 21st Century. Well worth the read. Piketty is notable for having the largest accumulation of real world data of any economist in over fifty years, rather than relying on computer models or small sample sizes. He uses literally centuries worth of tax and trade data from a large number of countries to base his claims off of- he's next to unassailable.
His thesis essentially boils down to one claim- r>g, or "the rate of return on capital is greater than the rate of growth of the economy at large". Capital always out-earns wages and salary. The best way to beat this? Historically, it's unquestionably the progressive income tax.
I thought that Piketty's analysis was good, but his conclusions were a bit... junior. Since publishing Capital in the 21st Century, he's received a lot of fair criticism and, to his credit, he seems to have taken it on board. If he writes another book, I expect that it will be a lot better.
Income taxes of any kind create economic distortions. All taxes are unfair, but it's particularly unfair to take money away from people because they earned it. I prefer a land value tax, which is a tax on privilege (economic rents). It's non-distortionary, has zero deadweight loss (i.e. it's extremely efficient) and directly addresses the problem of inequality growth. I recommend taking a look at Progress and Poverty by Henry George.
Land value taxes worked extremely well in Japan in the late 19th century and in Australia from the early 1900's until the 1950's (we only have them at state/territory level now). Politicians in the UK were recently talking about introducing them.
What a stellar article, saw you listed on @ocd, fantastic job of simply illustrating such an important issue that everyone with a dollar bill and a heartbeat should be attacking with a fervor, not ignoring with indifference. I post about similar topics, with many of them libertarian leaning, I would be curious on your thoughts on them if you ever get the chance for feedback I would greatly appreciate it. Stellar job @penston! UPVOTE-FOLLOW worthy for sure!
Thanks. I didn't think this post would be as popular as the one I wrote about people who plunder the reward pool, but this is post is more typical of what I joined Steemit to write about.
I'm looking forward to checking your posts.
I'm well aware of Georgism, and am not a fan. First off, while certainly well intentioned, any single solution answer is inherently unstable- Piketty's advocacy for progressive taxation is his main thrust, but is hardly as comprehensive as the Georgist solution. (See also Popper's distinction between holistic and piecemeal solutions and social planning.)
Next, and most importantly, Georgists (in my experience) seldom bring up the neegative environmental effects of their plan. In particular, the gross damage done to their topsoil by Australia. (Deforestation in Japan in this time period was severe, but mitigated by centuries old forest conservation policies instituted by the shogunate) Basing your entire system of tax revenue off the value of the land hardly incentivizes putting protections in place on the land that reduces the tax value of said land by preventing its exploitation. National parks and wildlife preserves owned by the government don't generate revenue at anywhere near the levels of exploited and taxed land.
Third, the distribution of the world's capital is hardly so tilted towards land as it used to be. Intellectual property, for instance, makes up much of the world's capital today- far more than in George's time. Likewise, debts, stocks, and other purely financial instruments make up a huge portion of rhe world's capital now. That doesn't even count the vast increase in non-land physical capital, which is huge. Simply put, land doesn't make up enough of the world's total capital to balance income inequality anymore.
Taken to its logical conclusion, Georgism might proceed to a general tax on capital. This is, of course, a singularly challenging task, especially given how illiquid much of it is. Not impossible, but somewhat impractical.
Also, as to Piketty's maturity or lack thereof- his real-world dataset is larger than the datasets used by the entirety of Georgist economists. (As well as a number of other economic disciplines.) Data in that quantity forgives a lot.
And as to income taxation being unfair- governance has never and will never be about fairness. It's about monopolizing force. The anarchists got that right, even if I disagree with a lot of other stuff they think and want.
The unimproved value of land is constrained by zoning and whatever improvements exist nearby. Can you tell me more about the topsoil damage in Australia that you mentioned?
Land value tax wouldn't be used on farmland or areas zoned for extraction (mines) as that would incentivise environmental degredation. It makes more sense to collect royalties on whatever was taken from the land.
Indeed, land is not the only economic privilege that contributes to inequality growth, but its significance shouldn't be downplayed. I recommend taking a look at this list of total resource rents by Prosper Australia to give an idea of what could be taxed instead of incomes.
Basically, Australia's spent the last couple centuries stripping their topsoil for sheep, cattle, and short term (1-generation or less) farms. They have the most garbage soil management program of any major industrial nation on the planet- and there are some bad ones. (The world's total topsoil loss in arable land over the 20th century amounts to over a third of the amount currently in production, so that says a lot.) Using Australia as an example for anything to do with land is highly suspect at best. Hell, the Prosper Australia site you linked me to even says "Under a land tax system, the rural sector would enjoy a lower tax burden, encouraging decentralisation." This could very directly contribute to even further worsening the topsoil of Australia. (If you're really interested, I highly recommend Montgomery's Dirt: The Erosion of Civilization.)
There's no practical difference in collecting tax on land and on resources extracted from land when it comes to historical environmental degradation. We have examples of both methods dating back to the Roman Empire- only direct controls on land use, like preserves and National Parks, prevent environmental degradation of the land.
You're conflating land tax (or land rent) with land use.
A land value tax would be the wrong thing for agricultural land because it would incentivise people to pillage as quickly as possible and exit so as to minimise their tax burden.
Collecting royalties is appropriate because you're charging people for what they've taken. The more they pillage the land, the more they have to pay. If anything, it's a disincentive!
I agree with you that the environment is extremely important and I believe that this can be achieved by managing resources with a long-term mindset. One of the things I love about permaculture is how they focus on building soil and rehabilitating land.
Good write, this is a big problem with prices increasing, many young people will not be able to afford anything in the future.
Ireland's real estate bubble is re-inflating and prices are already crazy. Parts of Canada are in a bubble and Australia and New Zealand have the most overpriced real estate in the World. Another crash is coming, but it could be avoided by stabilising prices with a land value tax (keep them steady until incomes can catch up).
Its a good feeling to be debt free but ever increasing number of livelihoods and the expenses its hard to cope up with. But I like the good news more :P
Some good points, interesting ideas, I tend to prefer a flat consumption tax on purchases. Also, I think the value of a college education is going down and is overrated for many professions.
Consumption taxes are regressive and create economic distortions. Do you prefer them because they're a kind of pay-to-play tax? You might be interested in this other article I posted a few weeks ago on the subject.
The quality of education from many universities is overrated, yet employers are still impressed when they see the name of a famous college on a CV. Higher education is always valuable, but the emphasis must be on education and not selling degrees. Having said that, some of the best professionals I've come across never went to college.
Well I know what it feels like to be in debt and I am in a lot of debt to be honest...but I am working on trying to clear it all up so I can give my family a better future. I wouldn't want them to be in a situation where they have nothing. I want a future for them where they are debt free.
My post gave a solution to the problem of incentivising rent seekers. Tomorrow, I might write about a solution to widespread debt (i.e. how to bail out people who have debts in a way that is fair).
A very good read that I did not see mentioned is "Modern Money Mechanics" published by the Federal Reserve Bank in the US. Read that publication, which by the way was used a training manual for fed employees, and then you will have a better understanding about how money is created.
Your signature creates the money you "borrow", the banks loan you your own money, it is right there in their own book.The bank never loaned you anything, and that is what people need to understand.Banks cannot loan money on deposit, nor can the lend credit, sounds crazy but it is all covered in that publication.
What you're referring to is endogenous money. The term that banks usually use is to 'extend credit' rather than lend money. They never actually lend money or credit to anyone - all they do is buy securities (i.e. when you sign the paperwork for a 'loan', you're signing a promissory note, which is a security).
Few people understand that, but even fewer understand that bank credit is not accepted for the payment of taxes.
Where have you been for the last 10 months? Thanks for the reply, hope you are doing well.
This gem of a post was discovered by the OCD Team!
Reply to this comment if you accept, and are willing to let us share your gem of a post! By accepting this, you have a chance to receive extra rewards and one of your photos in this article may be used in our compilation post!
You can follow @ocd – learn more about the project and see other Gems! We strive for transparency.
Let me know if you have any questions regarding the project or nomination. Hope to hear from you soon!
That all sounds good @geke. I was going to ask how you found my post, but looking at your blog, I already know.
Congratulations! This post has been upvoted from the communal account, @minnowsupport, by Penston from the Minnow Support Project. It's a witness project run by aggroed, ausbitbank, teamsteem, theprophet0, someguy123, neoxian, followbtcnews/crimsonclad, and netuoso. The goal is to help Steemit grow by supporting Minnows and creating a social network. Please find us in the Peace, Abundance, and Liberty Network (PALnet) Discord Channel. It's a completely public and open space to all members of the Steemit community who voluntarily choose to be there.
If you would like to delegate to the Minnow Support Project you can do so by clicking on the following links: 50SP, 100SP, 250SP, 500SP, 1000SP, 5000SP. Be sure to leave at least 50SP undelegated on your account.
True @penston nice article