Posted by: graemebird | March 17, 2009

New Economic Theory Teaser/Sado-Pigouvianism And The Georgist Tax…. A Third Paradigm.

It has to be a teaser because I want to emphasise the difference between advocacy and technical economics.

Supposing we decide that some sort of alleged “externality” has to be dealt with in some way. A large maori walks across the road and knocks on the door. The sound of drums can be heard and when the door opens the drumming is louder. The Maori tells the boys father that if he hears his son drumming again he is going to take the boy, and the drum kit, and he is going to stick the drumkit “Where the son don’t shine.” True story so far.

But from here on we will talk fantasy and hypotheticals. Supposing both the boy and his father are well-armed. And come from a very tight clan of Albanians, many who live on the block.

Clearly we have a problem here no matter what. And technically speaking it is a case where something produced on one persons property is being allowed to disturb a person on another property. So it is not the case that even a libertarian ought to be neutral about.

We will despatch hypothetically a number of dispute resolution experts so as to test what appears reasonable.

And our first candidate is Pigou-Club-Mankiw. How would Pigou-Club-Mankiw work this situation out?

Well perhaps the kid would now be locked into a tax. And that noise-tax would wind up being sent to Canberra. Such that the lunatic, Nick Gruen, could spend that money as some sort of idiots stimulus package. But is this a satisfying solution for all concerned and not just blood-sucker-central?

Well I said this was a teaser. And I won’t be saying too much else about it for awhile. But you may well want to run some angles past me.

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Responses

  1. I seeking out fellow Georgists who properly understand economics.

  2. Right. It would be going to far to call myself a full-blown Georgist. I think most of the damage is done by height restrictions on buildings, the failure to recoup money on peak-time road provision, and also a great deal of the problems George pointed to would seem to come from fractional reserve monetary expansion.

    As well there was the problem of the enclosure movement going too far. Cutting off each last bit of land so that we were fenced in. Most land that is private property did not become that way via homesteading and even when it did, the extent of the land claimed was probably in error.

    Many boneheaded types who dismiss George outright, as if he made no point at all, don’t realise that it is somewhat meaningless to point out that there is a lot of unused and barely used land. In this theory since there is marginal and unused land how can there be a problem of people locking up the land unjustly or counter-economically?

    But what this does not take into account is that if another NewZealand opened up in the Middle Of The Pacific it still would not relieve land shortages in inner Sydney. They continue to look at land as if it is just another good that you put into a container and export. They assume their neoclassical models apply as if this importability and exportability were the case.

    But if you fence off some land and it becomes private property, that means that someone else must travel a greater distance around that fence.

    If the economic circumstances of the country are such that people will lock up land and use it less intensively then elsewhere, what this means is that relatively speaking, people have to travel further to get to the capital goods that make their labour valuable. Hence the practice of greater land usage per person, than what might be otherwise the case, under different policy, is such that it does impose costs and it does extract a rent of sorts.

    The idea then is to systematically cull any measures that are leading to this less intensive, lazier (shall we say) use of the land. Land has to be looked at differently, since we cannot import the land in the Western deserts into the middle of Sydney, where it might be more useful…… and even if we could it would only set us further apart from things, so we see that we must consider any measures which lead to less vertical development as highly anti-social.

    Height restrictions on buildings is one. Council regulations making it a hassle and a red tape nightmare to throw in a granny flat or multi-level basements would be another.

    George has made a good enough point that any known tax that hurts the landowner ought to be deep-sixed and for every few dollars the government lets go of it might well claw back one dollar in land tax.

    So that if general property taxes were deep-sixed, and rental income were made non-taxable, and if stamp duties were revoked. Well lets say the government were losing 10 billion in revenue in the context that there may be a windfall in land values. In that context I could see them clawing back maybe one billion in land tax. I can think of an even better solution than that. But I’ll get into this better solution later.

    But the problem is this. We want the land owners to have the incentive to build vertically. Of course if they are broke already, and you hurt their 1.cash-flow AND 2. capital value 3. BOTH AT THE SAME TIME ….. with an increase in land tax UNDER THE WRONG CIRCUMSTANCES…. well you are just abusing them and making it harder, and not easier, for them to contemplate such a program to more intensively use their land.

    And there is another factor here. If monetary policy were reformed then the price of land would be likely to collapse to one third its current value in many places. So that increasing the land tax regardless of context would seem to be openly abusive without producing the results that the original economics theory would have shown where the gains could be made.

    In general I think what we are after is to get to a stage where the up-front cost of land is reducing in nominal terms. Where land, in a sense, is becoming more plentiful regardless of location. What this really means is to orchestrate a slight, but continuing and insipid, over-supply of vertical living and working space.

    Land tax may be part of that. But it strikes me as sort of Sado-Pigouvian, not to try and tap out all other ways of trying to achieve this goal in most situations prior to reaching for the tax solution. Or at least prior to reaching for this solution in a heavy-hitting way.


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