From time to time, a Georgist will suggest to me that one or another politician or academic, who seems sympathetic but ignorant about economics, should be given a copy of Progress & Poverty.  I usually reply that such persons are too famous and wise to be influenced by new ideas or logical analysis.  But now I might propose that, if one is serious about promoting wise economic policy, one might make the investment to give such a distinguished person After the Crash.

Georgists know that the crash could have been avoided by a simple policy of taxing privilege, not production.  But here we are, in a real economy which is doing poorly.  Mason Gaffney explains how we got here, and what needs to be done to get us out. Everyone who wants to understand the situation should read this book.  It is as long as it needs to be– a bit over 200 pages– and doesn’t seem to be available on the free Internet, so unfortunately some of the most vocal advocates won’t read it. Wealthy institutions– Lincoln, Cato, New America, EPI, etc.– could do no better service than to buy whatever rights are necessary to make it widely available.

Although it is listed on Amazon, Schalkenbach seems to offer a much better price.

Here are what appear to be the main points.

1. Speculation in land titles, and other types of privilege, was the main cause of the crash.  It was made more severe because banks and similar institutions financed it liberally.

2. For a job-rich recovery, we need to recognize that some types of capital investment create a lot more jobs than others. The best type of investment for this purpose turns over rapidly. Compare the number of jobs generated by a major infrastructure project— high speed rail, for instance— with the same amount of money invested by small scale businesses in working capital for inventory and payroll. Done properly, this analysis needs to cover the entire time period while the infrastructure project is amortized.

3. Current government policy at all levels focuses mainly on big projects that generate few jobs per million dollars invested.  This involves not only direct government investment, but tax laws and other practices that favor these kinds of investments.  One reason for this is that the beneficiaries– banks and monopolies– have the resources to lobby effectively.

4. Wise policy is to eliminate such programs, but not to create new ones subsidizing job-creating investments.  Rather, if we just let the market function, without taxing labor to subsidize the privileged, the recovery will be faster, broader, and more stable.

5. The “property” (real estate) tax has much better economic effects than income taxes or consumption taxes.  Even though it penalizes building construction, the effect is to channel more investment away from job-poor and into job-rich forms.

6. Banks have repeatedly got into trouble by lending on real estate, with the current crash only the most recent example.  Wise policy would insist that banks make mainly “self-liquidating” loans, such as for inventory or accounts receivable, and require that real estate purchasers provide hefty equity.

There is much much more in this book, and I started to write a much longer review, but will not complete it because no one (including me) would have the stamina to read it.  I will post some pieces of it later. Meanwhile, if you are concerned about our economic future, you should read this book.

New money without real goods behind it means inflation, more imports with fewer exports, devaluation, and a real risk that our foreign creditors will rebel.

So how to free up credit?

pay down the national debt. It’s called “reverse crowding-out”

By raising taxes? Yes, but not taxes on productive activity.

Land value, we have seen, is fictitious capital, an asset and store of value for individuals that has no real social capital behind it. By taxing it and lowering its value we do not destroy any capital. On the contrary, we raise the owners’ propensity to save and create real capital to restore the missing store of value. We also raise revenues without suppressing or twisting the incentives of free markets, as generations of economists have shown and agreed.

And he concludes

The changes I propose are massive and radical, I know; but we have been massively, radically wrong, and the times call for equally massive, radical reforms. People will resist, will object, will twist and turn and contort in dozens of ways, as Washington now is, to protect banks and landowners and the current power structure, resisting the unwelcome inevitable. They have eaten, drunk and been merry on low taxes, cheap credit, foreign loans and rising land values. Meet The Great Reckoning: it is time to foot the bill. We can do it and turn America healthy in one stroke by taxing land values and rents to retire public debts.

Update 11/3/08:  Mason’s paper(pdf) is now posted on his web site so I have removed it from this blog.