If you’re reading this, there’s a good chance that debt will impact your life in some way in the near future, and not for the better. Perhaps directly as a debtor, or perhaps indirectly, as we feel its effects throughout the broader economy.

Debt is not inherently bad. It can be used to invest and grow, whether it be a business or an economy. On the national or regional level, there are a lot of low hanging fruit in which debt can be utilized to produce long-term growth, especially when a country is in its early stages of development. In more developed countries this can still be done, but it becomes increasingly difficult. A country which has no infrastructure can build a railway, port, and road network to get its goods to markets. Individuals and firms want to move near this infrastructure, so land values nearby start to rise. Instead of collecting rents from the land owners who were lucky enough to benefit from these nearby projects, governments tend to unfairly burden the workers and entrepreneurs with these debts by taxing them. In the early stages of development, since these workers might benefit so much from the infrastructure, their increased incomes may be able to shoulder the burden. If land owners decide to use their land efficiently, for example, to support an adequate supply of housing, workers may be able to still use their after-tax incomes to rent or buy a home, and governments can then use their income tax revenues to repay the debts. Lenders/bondholders get repaid and have the confidence to lend again in the future.

Reality, unfortunately, has not been so kind. Due to poor land usage, resulting from a combination of zoning laws, real estate speculation, and in particular, a lack of incentives to increase the supply of housing (and in many cases commercial or industrial space), workers and entrepreneurs are hit with a double burden. First with income taxes, and then again with the increase in real-estate prices resulting from the projects which their taxes and labour builds. When factoring in housing in purchasing power calculations, real incomes are being crushed. Credit tends to flow into land to chase its price gains rather into productive assets, worsening the issue. In developed countries, public projects often no longer pay the same kind of dividends to incomes as they do for countries in their early stages of development, as necessary as these projects may be. The remainder of these tax revenues may also go to fund an elaborate bureaucracy and web of programs of varying effectiveness, which have failed to raise the incomes of the majority to a degree which would compensate their burden.

Because incomes aren’t rising adequately, there is less to tax (as the tax burden falls disproportionately on incomes). And because government projects are showing diminishing returns to prosperity, the fiscal deficits, in turn, only worsen. Trying to increase the burden on upper tax brackets or firms only drives money and labour to hide or flee, and unfairly targets much-needed skilled professionals such as medical practitioners, specialized tradespeople, and innovative entrepreneurs. Meanwhile, owners of expensive land (which would be far more transparent to tax and easier to account for) watch their property wealth rise at the expense of new property buyers or renters. The labour force is forced into debt to afford expenses (especially housing and consumer durables), and the financial sector profits off mortgages and the consumer debt that workers borrow to pay their bills.

In Canada, the US, UK, and Australia among many other countries, the current account balance has been deeply in the negative for an uncomfortably long time, indicating that these countries have been consuming more than they produce. These governments are running sizable fiscal deficits as well, only compounding the issue (of which it is often associated). Typically, countries facing a dual deficit scenario eventually face jarring currency depreciation, forcing a wrenching adjustment of the current account balance, at which point central banks to step in to raise interest rates to prevent an inflationary spillover. This usually also means a deep recession and involuntary fiscal discipline (both public and private) as credit dries up. This is the kind of painful correction that some say is needed, to reorient the economy and direct misused resources. Yet it doesn’t address the fundamental issues with regards to the economy’s incentive structure.

The tax system rewards the misuse of land which results in a lack of affordable real estate as its prices soar, and encourages the use of debt — especially mortgage and consumer debt. This is money that could have been channeled into savings, investment, and production. It would keep the current account in check and private debt levels sustainable. Unlike goods or typical assets, land cannot increase in supply in response to price rises, so instead of resulting in any positive effect, the end result is just a lack of affordability and access. The current account deficits, in part driven by this resulting lack of capital investment, are further enabled by the market distortion of subsidized goods from abroad, and an overvalued currency (as indicated by the dual deficits) aided by reserve-currency status, and in some cases, hot money inflows. The mispricing of goods and currencies is not the result of a functioning market, and instead aids in the misallocation of capital. Note that if these economies’ tax structures were tilted more towards production and investment (and away from debt-fueled consumption) resulting in a rebalance of current accounts, the currency valuations would make more economic sense. The governments then tax money from workers and entrepreneurs which further reduces production by hampering productivity, reducing the ability to save and invest in even more production. As a result, the economy is heavily tilted towards unsustainable levels of consumption without the possibility of producing enough to compensate for it. Furthermore, workers are unjustly squeezed at every turn, and the more we work, the more we’re taxed, and the more that tax money is either squandered or used for projects which ratchet up the price of already unaffordable real estate for which output-generating workers are not compensated for.

To restore the balance and reverse years of this damage, we need to reorient these economies to once again allow production to flourish, and allow capital to flow to its rightful places. However, this reorientation must be permanent, and not accomplished through repeated, violent crashes that follow the popping of unsustainable credit and asset bubbles which we’ve grown so accustomed to. Otherwise, we will instead repay debts through inflation and further squeezing workers through income taxation. By extension, under the current incentive structure, any recovery from the next recession will once again be a veneer of growth masked by more asset price bubbles, unaffordable real estate, and hidden inflation, as was with the previous recovery. Real prosperity must come from rising production, total factor productivity, and broad-based income growth that doesn’t rely on excessive consumer nor public debt.

The only way to get out of the fiscal deficit hole without sinking the economy is through the taxation of land values. In fact, a land value tax (LVT) is the only tax that can stimulate economic growth, rather than strangle it. At the same time it improves housing affordability by ensuring land goes to its highest and best use, and justly compensates the public for the monopoly on location. It is transparent, as land cannot be hidden offshore. By raising revenues through land, it also affords us to return income taxes back to the people, and even underwrite wages/labour (and capital) — as opposed to using arbitrary minimum wage laws and bureaucratic government programs that are currently required to support our most vulnerable under our current economic regime. Finally, an LVT rewards governments for smart investments, as investments which make the surrounding land more desirable are recouped through an LVT, perhaps with a profit.

Through the platform of the New Physiocratic League, the tax burden falls on land and the work of nature, of which we did not produce ourselves. Instead of taxing the efforts of workers and entrepreneurs, our incomes, savings, and investments are instead amplified under this platform. We would also be compensated for the use of our shared resources. Instead of using bureaucratic programs to apply band-aids to a broken system, automatic mechanisms would ensure that incomes, savings, investments, and production are absolutely maximized, while nature’s bounty is shared, protected and compensated for. Such a system is not only one of economic justice, but is the only way to address unsustainable dual deficits, unequal opportunity, unaffordability, underproduction, exaggerated debt cycles, and environmental abuse in one elegant solution.

The New Physiocratic League platform can be summed up in 6 points: