I'm going to take the liberty of quoting someone else's blog post in full. (I don't know the author, though I suspect we might know some of the same people.) This makes some points which overlap with something I posted a few days ago (see the post on Joe Stiglitz's talk in Queensland) about the financial economy.
Dear George Osborne: how to help the country recover from a financial earthquake by Adrian Hoare
We do not design road vehicles with unround wheels but we have an economy with comparably unsuitable features. The only circular motion is in those ideas that set off in promising directions, only to return to their starting point.
In 2007 we suffered a financial earthquake. It would be foolish in the extreme to rebuild our economy upon the same foundations whose weakness led to the catastrophe. The banks were blamed and they were certainly very irresponsible. So too were the government(s) who failed to impose sufficiently robust regulations on them, to prevent them from their own stupidity. It is said that the banks could not be allowed to fail because they are vital to the economy. The logical argument following from that is that the banks should be nationalised or at least kept under close regulation, however much they howl about it.
It is openly admitted that there is a financial economy and a real economy. Something is wrong there. Without a real economy there would be no need for banks.
The banks’ blunders, serious though they were, could hardly have happened were it not for the existence of a market in land values, popularly and grossly inaccurately referred to as the property market. In the same way that land itself is fundamental to our very being, so the operation of the land values market is the basis of our economy. Every economic activity involves land (that is, all natural resources) directly or indirectly.
If conventional thinking on economics continues to determine policy, we shall be in the doldrums for years. There is an alternative: Land Value Taxation (LVT). This has the twin merits of requiring all occupiers of land to pay an annual fee (tax, if you like) for their security of tenure, and at the same time, raising revenue for government.
Shifting taxes off enterprise and effort onto LVT would improve Gross Domestic Product (GDP) by a very substantial margin. If we were to opt for LVT now, we could pass through the doldrums rather more quickly. That ought to appeal to our coalition government, which must need all the help it can find to keep the cynical, prowling media off its back. The government needs to show that its coalition works and LVT is the tool to prove it.
We in the US "would do well to bend [our] eye in the direction of the taxation system; not to see if a little tweak here and there might increase revenue without too much pain but to look at the fundamentals."