We’ve heard the stories of China’s rise and its displacement of the United States as the world’s number one economy. It’s attributed to China’s large population, the largest in the world (though soon to be surpassed by India’s), and catching up to western levels of incomes & purchasing power. In essence, it’s the emergence of the world’s largest consumer market. At the same time, China has also started to take hold of strategic industries, further setting the course for future domination.

There are four ways that the United States can maintain its narrow lead for the status of the world’s largest consumer market and major economic power:

Population growth

Consumer purchasing power growth

Productivity growth

Foreign Policy

Births and Land Use

While the American birth rate has stagnated and slowed, the population has grown due to immigration. While this allows the US to maintain a growing class of consumers, there is room do better on this front by ensuring that the type of immigration the country receives is a net generator of wealth. The US can also lay the groundwork for the work environment to become more attractive through more efficient use of working hours and higher incomes. However, with the political tides changing , it is becoming clear that there might be future of reduced immigration. It draws attention to the fact that just as it can be unreliable to rely on the import of labor to achieve long-run economic & geopolitical objectives, just as it is for other critical resources. So this leaves us with birth rates.

While the focus on achieving rising birth rates has focused on maternity/paternity leave, daycare, and sometimes cash, these were never concerns in times when birth rates were high, and a solo parent’s income was enough to raise a family. When these measures were attempted in other countries, they failed to raise birth rates substantially. This brings us to an overlooked feature of the birth-rate puzzle: space. Birth rates were higher when the population was more dispersed, more rural, and had more space in cities as well. The days of rampant property bubbles fueled by tax incentives and cheap lending had not arrived yet, and it was possible to provide ample space for growing families. A single income earner in a family could afford to pay for substantial space for a residence without the burden of heavy debts. This is why the first step to solving the birth rate puzzle and in turn rebuild the first pillar of American economic restoration is to view the issue through the Georgist lens centered around land. The New Physiocratic League prescribes a form of land value tax (LVT) shift called a ULT, which incentivizes efficient land use, ends land speculation and wasting space, ensures the lowest price per square foot/meter of housing, and boosts net incomes. A land value tax is not a property tax, as it applies only to the land, not the structure built on top of it. Unlike a property tax, and LVT incentivizes rather than penalizes adding value (such as residences) to the land. By applying the burden to taxation of land (which cannot flee the country, unlike labor or capital), physical space is put to its highest & best use and development soars. The ULT form of this policy which the New Physiocratic League prescribes, only taxes the actual structure if the price per square foot/meter exceeds a certain price, thereby moulding the structures into ones that are affordable instead of encouraging solely high-end developments. These taxes must not only replace income taxes, they must turn income taxes negative. By applying taxes on land, income earners must see an amplification of their incomes through negative rates of taxation, rather than have their labor efforts taxed away. The New Physiocratic League advocates for the Three Pillars program to ensure such a shift.

By forcing net incomes upward through this tax shift, those residing in more affordable or less populated areas, including struggling towns, would feel a tremendous boost, as incomes in these regions go further. It would become more attractive to live in such areas as a result. At the same time, urban areas would see a large increase in available housing, as land hoarding comes to an end, and property bubbles are swiftly popped. This can be further improved by ending tax distortions which encourage oversized mortgages.

A tax shift to a ULT and driving income tax rates negative is the only way to address the issue of housing affordability, as it addresses the supply side (land, space, number of housing units) in addition to the demand side (incomes). Price and wage interventions do not solve the root of anything. A negative income tax policy such as the New Physiocratic League’s Three Pillars also replaces a host of bureaucratic, ineffective, and expensive social programs, underwrites labor costs (thereby maximizing labor force participation), and allows people the freedom to spend, save, and invest their newfound income the way they wish. It also rewards previously unremunerated work such as parental care of children. It all starts with re-balancing the burden away from labor and onto land.

Purchasing Power

Further to the supply side point, an increase in employment and amplification of nominal incomes does not mean much unless those incomes have purchasing power. This means that the supply of goods (including housing) must rise rapidly, ahead of incomes, to ensure this income has substantial and rising purchasing power. This point is also addressed in the New Physiocratic League platform, in part by relieving the burden of taxation, capital, and labor costs on production and sectoral banks. This also stems from shifting the burden onto land instead.

Finally, infrastructure is ultimately what will allow rural areas to maximize their appeal and living standards and get goods to market. An LVT allows infrastructure to pay for itself (and with a surplus), by capturing the land value that results from infrastructure investments. It allows towns to enjoy those funds, reinvest them, and purpose them as the community sees fit.

With incomes, employment, leisure time, and purchasing power maximized, and housing costs minimized, we can see a return in the affordability of family life. This re-balancing is the only way to restore a healthy economy and a sustainable birth rate.

Productivity

Productivity is defined as the amount of output (income) generated per hour of work. It is a key ingredient to maximizing purchasing power, reducing needed working hours, and maintaining economic supremacy. Productivity growth makes for a more complex policy recipe, but the New Physiocratic League platform addresses this as well. This includes a shift in tax incentives away from debt-fueled consumption towards investment, and a shift away from the lending bias over equity (removing tax penalties on equity funding). It also includes maximizing the amount of venture capital available, a free labor market, real competition & removing some occupational licensing protections, education reform, and removing incentive bias towards long working hours over high productivity work. A reversal in income taxation would also apply to business income, and with a new shift in incentives away from consumption-debt and land speculation towards capital investment & labor, the additional funds would be channeled to push productivity growth to new heights.

Foreign Policy

While the United States must primarily find its own path to prosperity and economic leadership, it must also find like-minded allies with their own incentives to challenge China’s rise. To find common ground and to achieve such objectives, these would best be large, growing countries with their own concerns over a rising China, with democratic institutions, and a western approach to law (e.g. English Common Law), and with official use of the English language. A strong tradition in entrepreneurialism would also help form a joint understanding. India and the EAC (East African Community) fit this description on all counts. India under Modi the country is solidifying its turn towards the free market. With the Swarna Bharat Party working as an LVT advocate, India may also one day implement such a tax shift. The EAC is already ahead on this front, with Kenya having already implemented an LVT. Even as individual countries, the EAC is a rapidly growing economic area, and has plans to merge into a federation — the East African Federation. By strongly allying with these large, rapidly growing, like-minded countries, there can be a united front large enough to confront future challenges, with the United States leading the way.

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