The prosperity paradox

The prosperity paradox

By | 2017-12-08T15:06:01+00:00 October 29th, 2016|Book, Economic problems, HGFA, Housing affordability, Poverty|Comments Off on The prosperity paradox

Why advances in technology and productivity won’t make you rich.

Preface to the book The Prosperity Paradox

By Mark Hassed

Prosperity Paradox by Mark HassedThe science of economics today is in a very similar situation to the science of astronomy five hundred years ago.

At that time it was believed that the Earth was a flat, stationary object in the centre of the universe. Because of this mistaken belief astronomers were forced to construct elaborate and completely false models of how the universe worked.

It wasn’t until these models were challenged by the observations of two great astronomers, Copernicus (1473-1543) and Galileo (1564-1642), that they were finally abandoned. This change in belief took over a century and was strongly opposed by the ruling hierarchy at the time.

Such was the strength of the opposition to Galileo’s observations that he was imprisoned, tried before the Inquisition and forced, under threat of torture, to deny his discoveries. His tormentors refused to look through his telescope to check the observations for themselves. This opposition is even more striking when one considers that Galileo’s discovery made not one iota of difference to any existing wealth or power structures.

Five hundred years later, the fall of communism in eastern Europe has been regarded by many western economists as vindication of free market economics. It is widely felt that a form of Darwinian selection has chosen the best economic system and all that remains is refining the free market system.

But, is this an accurate observation of the free market system?

Looking down the “telescope” at the countries that have adopted this system – and this includes all western democracies – reveals four major adverse consequences.

Firstly, unemployment is an inevitable by-product of the free market system. For more than a century no free market economy has achieved full employment.

This has become well accepted by economist and now unemployment is treated as a statistical phenomenon, to be managed rather than fixed. In a good year unemployment is around 6%, in a bad year around 12%.

Governments crow when they “create” jobs and allocate blame elsewhere when unemployment rises. For all this it is easy to observe that unemployment does not vary with the policies of a government as much as it does with the economic cycle.

Also, obviously, unemployment is not just a statistical problem. The tens of millions of unemployed people worldwide are subject to the despair and aimlessness that leads on to such problems as criminality, drug abuse, suicide and marital breakdown.

Secondly, poverty and the resulting welfare dependency have become accepted features. Across free market economies around 40% of people receive of some kind of government support. The “welfare state” is used to alleviate the worst features of poverty and prevent people from starving in the street.

Needs that people in earlier generations were able to fulfill for themselves have had to be taken over by government. For example, adequate housing is now beyond the reach of many two income families, whereas a few generations ago it was within the reach of most single income families.

Few would argue that the welfare system addresses the true cause behind poverty yet such is the inability to find that cause that we are forced to carry the growing burden of the welfare system.

Thirdly, inequitable distribution of the burden of taxation is widely seen. This was starkly demonstrated by Australia’s richest man paying no income tax at all for 6 consecutive years during the 1990s.

As the great philosopher Plato (427-347BC) said: “When there is an income tax, the just man will pay more and the unjust man less on the same amount of income.” Governments have been tinkering with and amending the income tax system for around nine decades. Even so, income tax remains mandatory for the poor and middle classes and is optional for those able to afford expensive “tax planning” advice.

Further, many multinational corporations also avoid taxation by moving income off-shore through transfer pricing arrangements and other schemes.

Finally, the distribution of wealth is becoming increasingly unequal. Across western democracies we see that the richest 5% of people own a minimum of 80% of the wealth. Meanwhile the poorest 40% of people have essentially no net worth.

This trend is accelerating with the middle class being under pressure to either move up or being forced down to the poorer class.

Despite the above four problems governments across the western economies tinker at the edges of the system rather than give the system the thorough inspection that is indicated.

In 1995 I came across a quiet, run-down shop in the back streets of Melbourne, Australia. There they sold, among other things, a collection of dusty pamphlets faded with age containing speeches by the American economist Henry George. These pamphlets were priced at “One Penny” or “Two Pence” and even the most recent was from 1950.

The pamphlets were named the same as the names of the chapters in this book – quaint unusual names that rang of a hopeful idealism.

I later discovered that the author of these speeches, Henry George, was born in Philadelphia in 1839. His major book, Progress and Poverty – An inquiry into the cause of industrial depressions and of increase of want with increase of wealth, was published in 1879. It was immediately popular and became an international best-seller. It was and remains the all-time best selling book on economics and has never been out of print since it was first published.

Henry George spoke widely in America, England, Australia, Scotland, and Ireland. His talks sparked the formation of societies and leagues bearing his name as well as some political parties. Despite this, the ideas of Henry George are almost entirely unknown today by the general public and only slightly known as historical curiosities amongst economists.

When reading the pamphlets a glimmer of hope started to emerge in myself – a vision of how things might be. Henry George speaks in terms of principles and justice. He looks beyond effects and finds the cause underlying. He quotes from scripture and dares to ask how the Creator intended us to behave.

These are approaches that are about as far from the approach taken by modern economics as it is possible to be. In spite of this the speeches are very pragmatic. Henry George doesn’t just point out the problems; he also provides the answer. The answer is simple, elegant, just and completely relevant to today.

To those people who look at the economic scene of today and wonder what is going on this book is dedicated. If this book ignites in you a spirit of enquiry and wonder, like Galileo’s, then Henry George would have been well pleased.