False promise

In: Uncategorized

8 Jul 2010

I was intrigued to see a comment piece in today’s Financial Times with the headline “For states in crisis, austerity is not the only option” (in the newspaper version).

Unfortunately it turned out to be an anti-climax. Michael Hudson, the chief economist of the Reform Tax Force Latvia think tank, argues that for troubled economies, such as the Baltic states, there are alternatives to slashing public spending or currency devaluation. His alternative is a radical tax reform with particular emphasis on land.

In his view such a tax would be a disincentive to property bubbles. Hudson also argues it is in the tradition of Adam Smith, John Stuart Mill and the Progressive Era reformers in America.

I have no objections to penalising land owners but fail to see how such measures can address the fundamental problems of a weak economy. After all financial bubbles were a symptom of economic atrophy rather than the cause of the crisis.