We have to, in the first instance, cut off Georgist economic analysis from Georgist land-tax advocacy. From there we want to further flesh out and develop some of the ideas of Georgism. And then see whether a better solution than land tax might be in order. Or to see whether some level of land tax would seem to be necessary. One doesn’t prejudice these matters in advance. But rather one works through all the angles and accepts the most JUST solution, no matter what that would be.
THE PRICE SYSTEM UNDERESTIMATES THE NEED FOR VERTICAL DEVELOPMENT.
Thats the best summary I can give to the anomalies which have lead to the advocacy of the Georgist tax in some circles. I think the Georgists have a point and we ought to meet them part of the way but not necessarily go to that part-way meeting place assuming that TAX is to be the solution to these anomalies that we will allude to here. We don’t wish to be like Sado-Pigouvians and assume that if there is negative or positive externalities that this automatically implies either a tax or a subsidy. And if in the end a tax does appear to be necessary this ought not mean that it is a heavy tax, or a tax to be brought on precipitously. We assume that we have no knowledge of the answer until such time as we have fleshed out the reasoning. There is no need to jump to conclusions here.
THE PARADOX OF LAND
The paradoxes of land in economics. I here refer to only LAND and not natural resources which are sometimes rolled in under the one heading. Here we use the term to refer only to ground-space and location location location. In economics nonsensical paradoxes crowd out the valid ones. And where economists have learnt and believe in the bullshit ‘paradox of thrift’ they appear unable to recognize certain paradoxes to do with land and how land is a good like no other.
It is like that always. People who learn the nonsense fiscal multiplier can never quite get their head around all the implications of the real and valid bank-cash-pyramiding multiplier….. I sez “valid” as an economic concept and not as a banking practice.
Anyway I was replying to a Georgist that just now landed on my site. And on the one hand I didn’t want to appear gung-ho for any increase in taxes, but on the other hand I wanted to show that I did appreciate the economic realities that inspired Henry George.
Now I hate triangulaters, compromisers and professional holier-than-thou fence-sitters. Quislings like this really piss me off. But re-reading what I wrote it sounds a bit like I’m being that way myself. Well I’m not but its a complex subject.
First we need to come to grips with the fact that vertical development ought to be the first cab off the rank no matter what. The anomalies that I’m calling the “paradox of land” really do stipulate that any obstruction to vertical development is gravely anti-social and more than normally economically destructive.
Hence any country right now has much to gain by systematically looking at their tax code and regulations to see if there is any unnatural discouragement to vertical development WHATSOEVER And this might be done with whatever policy mix one has on the fly without yet reaching for the land-tax bludgeon…. At least in the first instance.
Anyway I’ll include my response to the Georgist, and maybe some of you will be able to come to grips with part of what I am talking about, and not be so unnuanced, absolutist, and pig-ignorant as Sinclair Davidson for example. No paradox of land to see here says Sinclair. I see nuh-think. I know nuh-think ………. says Sinclair in effect.
Here is a re-written version of my earlier post:
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. The absolutist anti-Georgians continue to look at land as if it is just another good that you could 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 we ought to take the view; 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. ((((Whether or not the land tax would thereafter be retained is another matter. Since I believe I have a better solution.))))
So that if general property taxes were deep-sixed, rental income were made non-taxable, 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 economic-theory, and the paradox-of-land, would have suggested that 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 this oversupply. But it strikes me as sort of Sado-Pigouvian, not to try and tap out all other ways of attempting to achieve this oversupply 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.”