> Please correct me if I am wrong. The whole basis of Georgeism seems to me to be "it isn't fair that some fat-cat landowners got lucky and own land and we need to redistribute the value to the people who aren't so lucky."
This is correct. Land is unlike other forms of wealth in that its value is not created by its owner. Therefore any wealth derived from it is pure ecenomic rent
> get really nervous when I see an income redistribution scheme buried in a lot of theoretical hand-waving and euphemisms. At least have the decency to come take it from me directly and honestly, so I can act accordingly.
Let me not hide it then. This is a redistribution sceme.
> In the first article the lede was "the rent is too damn high", which is a function of supply and demand, not exploitation. A true open market would allow a market solution for "the rent is too damn high", increasing supply to meet demand and lowering prices. How might we increase supply of land to meet buyers' demand?
Georgism does not interefere with the effficient market. The fact that rent is at its price is not a result of exploitation. But at the same time the fact that the proceeds of the rent goes to landlords bears no relation to any value they added to the economy. The value of urban land is the result of economies of agglomoration*. Therefore the just beneficiary of the land rent is the people that live in an agglomoration, not the land owner.
A thing which confuses me is that the blog suggests that an LVT will not directly increase rents, although it might indirectly increase them if all the awesome benefits of an LVT increase the productive value of the land. Nothing here suggests that an LVT will directly or indirectly *decrease* rents, so it does nothing to solve the problem of the rent being too damn high.
Well Georgism doesn't propose LVT as a way to decrease rents, that is not the point. What it does is move taxation from being on productive activity (labor, investment) to unproductive activity (rent extraction). It doesn't make rents go down, but it does substantially better the economy, and while the renters don't pay any more or less in rent, they have now been relieved from all taxation. Perhaps most importantly, it reworks the incentive structure in place so that land speculation, which does drive prices up, becomes much more difficult or impossible. This also removes many incentives for NIMBYism from residents and governments, making it that much more likely for zoning reform to occur.
A property tax discourages people from constructing buildings on their land, because they have to pay tax on the value of the building, and thus don't get to keep the full profit. A land value tax doesn't discourage people from constructing buildings on their land. So property taxes discourage the construction of structures, and thus increase rent on structures. To the extent that you can replace a property tax with a land value tax, you thus decrease rent on structures (even though the rent on the land remains the same).
An LVT wouldn't technically decrease rents directly, but it would decrease the amount of other taxes the renter has to pay (or would be returned to the people generally in a "citizen's dividend"), so the renters would have more money in their pocket at the end of the month. It would also have the effect of encouraging land to be used for more economical usages, which would lead to more housing if the rent is still too high.
This isn't true. The LVT would encourage more development because vacant and underdeveloped lots would be put to use, which would make housing cheaper and increase wages (See Ricardo's Law of Wages), reducing both the true and relative cost of housing.
You increase the supply of land by making it not economically profitable to own but not use land up to its full potential. That's what an LVT does.
You could get the same impact if you simply collected the tax and then burnt it in a hole. Of course, that would not be sensible. So the next question, what to do with it? Well, that sort of relies on your politically persuasion and ethical framework. Georgists believe that land rent is a value derived by the community, as its essentially a reflection of how desirable that piece of land is to use, so it should be returned equally to everyone, essentially as a payment to everyone to respect that individual's claim on the rights associated with that piece of land.
Yes, because even single-family-home owners who don't have any tenants still benefit unfairly from landlordship. Here's an example:
Consider the case of your neighbor, who is renting a house with the same exact layout and lot size next to yours. The rent they pay includes the rent for the building itself and utilizing the underlying land. Lets say that the county decides to build a nice school in the neighborhood over. Both your taxes and the renter's rent go towards paying for it (as the rent paid must cover the property owner's taxes otherwise they'd be losing money). Once the school is built, your property would become more valuable as a result so you are capturing the benefits of the taxes you paid. However, even though the renter paid just as much as you did towards building the school, their best case scenario is that their rent doesn't go up more than usual now, while the benefits of the school go towards the property value of their landlord.
Otoh, with a high LVT, both you and your neighbor's landlord are paying the same LVT. Once the school is built, the land value might be reassessed to be higher. The renter's rent goes up just the same as in the previous case, because the newly provided infrastructure makes the land more valuable. However, now the single-family-home-owner is also charged for the improved infrastructure, whereas before they got it for "free".
If the state builds the school, it’s funded by the taxpayers in any case. The difference is that with LVT, it’s more directly funded by those same taxpayers who are in position (quite literally) to benefit from it (even if in reality they don’t care about the school).
A property tax is a shitty version of an LVT, so yes, in current practice, the single-family-homeowner end up bearing of some of the cost while capturing back a lot of the benefit through increased land value as they already own the property.
However, if there was no property tax and no LVT, it would be clear that the infrastructure was paid for by income/sales taxes on the people of the county (30%-40% of them being renters on average), but the increase in land value was entirely captured by the 60-70% of landlords, even if some of those landlords are single-family-homeowners.
The Pennsylvania model seems like it would work well. Pennsylvania has a cool law that lets municipalities set different tax rates for land vs buildings. It worked really well for reducing urban blight in Harrisburg.
As a Pennsylvania property-taxpayer (though not in Harrisburg), I think "the Pennsylvania model" is pretty absurd, certainly as implemented.
My house has fluctuated substantially in value over the last ten years, but its appraised value hasn't changed since 2013, and indeed _can't_ change, by statute, unless I make substantial changes to the property. Municipalities adjust the revenue they collect by adjusting millages.
That hypothetical is presented in a context where there is no LVT, but the landlord is still charging the highest price they can. From that income, they pay whatever small taxes they owe on the property in the current system, which pay for the infrastructure improvements that they capture because they own the land. The issue is that the landlord hasn't actually created any value but are capturing a significant portion of the renter's created value (and yes, I'm aware that landlords do spend some portion on property maintenance and payment processing, etc, however, there exist property management companies that will do all of this for a % of your total rent income. In urban/suburban areas, the percentage of rent that goes towards actual maintenance is very small. Therefore, the money that the landlord gains after paying the property management company entirely value that was unfairly extracted by them.)
> the rent paid must cover the property owner's taxes otherwise they'd be losing money
If a landowner is allowed to surrender the land to the state, then it would be impossible for land value tax to exceed the rent on the land, because any landowner who found themself in this position would just surrender the land and continue as a land renter.
"because even single-family-home owners who don't have any tenants still benefit unfairly from landlordship" - just a note to say that this is not the tact to take if you actually want people to come over to your side. Also, your estimation of the contributions of the homeowner to the school quality and the rent rate if property values go up are both not correct - home owners contribute a greater share to local tax base over time and rent rates absolutely go up when property values go up.
"single-family-home owners who don't have any tenants still benefit unfairly from landlordship." - wait, that's not something you can just assume - you describe various reasons why the benefit is very valuable indeed, however, I benefit from it *fairly*, I just bought the benefit and paid for its full value, I have state guarantees on the land deed that it's mine now and if the state wants to take it away from me, the constitution requires the state to compensate me.
You can argue that the land value increases are earned unfairly and deserve to be taxed, fine, you can start taxing the future increases in land value from tomorrow. But simply taking away the *current* land value is not something the state has the right to do.
Yes, they are taxed on the theoretical rent and yes it would be passed onto the owners, as the HOA consists of the owners of the land, and this is how it should be.
The location of this subdivision matters, right? Lets say that central park in NYC was abolished and a subdivision of 16 homes was built there each taking up 5% of the land, with 20% of the land left as a private park for those who owned houses in the new subdivision. Even though 20% is held by the HOA, it is democratically controlled the 16 home-owners. Therefore, even though their private lots are 5% of the property, they each own 1/16th of that private park and should therefore be taxed for it.
> The HOA is an entity unto itself, and even though I theoretically "own" a portion of the common land, I can't do anything with it, and receive debatable value from it.
This is because you willingly entered that kind of arrangement. Some people do actually 'value' using the land around them like that. Don't ask me to explain it because I'm certainly not one of them, but in so far as government goes, if you want a lawn, then you have to pay for it, regardless of whether its your private lawn or a lawn that you share with 16 people.
> Under Georgeism, are public spaces like Central Park taxed on their theoretical land-rent value?
Well, Central Park is kind of like the HOA example, except that instead of sharing it with your 16 neighbors, its shared with your closest 7 million neighbors that live in the city and pay taxes for its upkeep. I'm not sure about the exact details surrounding NYC's central park, but in principle, the people of the city through representative government _could_ decide that it is private and only allow access for people who live _in_ NYC, just like the HOA could vote to sell tickets to the park that they own.
This particular decision only applies in Connecticut, but the reasoning (First Amendment and U.S. Supreme Court precedent) would apply in all states if federal or other state courts agree with it.
Yes, the COA is taxed on the theoretical rent of the land. The COA passes this LVT onto the owners. This encourages good land utilization, because the taller you build the condo-tower, the more owners you have between which the LVT is split. If someone wants to build a single-family-home next to the condo tower, they have to pay the same amount of LVT as all of the condo owners do in total.
It's not passed on to renters - it is collected from the landlord's receipts of existing rents that the renters pay. Because the landlord has a fixed tax burden regardless of how many units they have on the land, they have an incentive to build more units so that they can collect additional rent while paying the same tax.
Right. The tax is baked into the market-set rents. The rents don't go up - just the amount of rent that goes to the landlord vs to the state goes down.
The landowner does nothing to make their land more worthy of rent than any other land, so they can only compete with each other on price, and on the intrinsic features of the land. The intrinsic features of the land stay the same under the LVT, so the landlord doesn't gain any new leverage against a tenant to require the tenant to pay more. It's not like the case where you tax some productive activity, so that all people who do that activity do a little bit less, so they now all have a bit more leverage to charge more from their consumers because there's a bit less supply to go around. The supply remains constant, and the demand remains constant, so the prices should remain constant.
A short answer to Case 1 is that, as an owner-occupier, you have the imputed income that results from not paying rent. This is a fairly standard point of economic accounting: your average Reserve Bank will calculate economic prosperity of a household by including the value of the unpaid rents of owner-occupiers.
It's not surprising that so many "rationalists" oppose Georgism. They fancy themselves intelligent creators but actually cannot prosper unless they're allowed to own something that makes them money without any real effort on their part.
Frankly, I had never heard of Georgism and find it intriguing. That said, it suggests a radical shakeup of the capital structure of the modern world. I think it is reasonable, given that humanity is better off than at any point in history, to put a strongish prior on radical changes being undesirable.
A large reason why we are better of now that ever is because of radical changes we underwent in the past. Yes some radical changes have worked out badly, but that's why you should judge each radical change on its own merits.
"no real effort on their part" - tell me you don't own a home, without telling me...
It's probably safe to say the top comment on the last article, where the guy just bought a $1.5mill home, was prospering just fine without owning land.
I also am a well-off homeowner, and committed Georgist. (My spouse and I are both engineers for top-tier companies and we own a home close to both BART and Caltrain. We are winners under the current system. We just think the system should not be rigged to squash the economic prospects of people less successful than us. Our town should be a welcoming home to everyone involved in its local economy, both the folks in our "export" industries like tech, and the people who do local services -- baristas, yoga instructors, teachers, janitors, lawncare folks, whatever.)
The two critiques of LVT I find at least worth serious engagement are (a) the issue that we need to step up our game at assessments (which are known to be systematically distorted right now), and (b) the transition would create windfall gains and losses, and a lot of the losses would hit people who are middle class enough to own homes, but not up in the top 10% or so, where people enough wealth _outside_ real estate that a hit to their primary residence isn't that big a deal.
Addressing (a) is purely a technical problem. Between sales of vacant lots, and reasonable statistical methods applied to sales of non-vacant lots which then propagate implied changes in land value to adjacent areas, it really should not be THAT hard to build a model of the value of every square foot of land. This is actually a class of problem that the learning models of the past decade are _very good at_. So I agree it's a thing we have to do, as a pre-condition of trying to impose an LVT, but it's eminently do-able.
And hypothetically you can address (b) with some kind of phase-in process. Have the tax on structures phase out, while the tax on land steps up, over the course of 10 or 20 or 30 years. (On the one hand doing it over 30 is annoying, and you'd risk having the politics shift to reverse the process before you could see benefits. On the other hand, a 30 year phase in really is kind of fair, b/c it aligns to the standard 30-year mortgage. So anyone who bought last year will be able to pay down their original mortgage on the same time-frame that the tax change is phasing in. This is the same reason I'd favor structuring an elimination of the MID by having the cap on how much principal qualifies phase down in a pattern that lines up with the balance curve for a mortgage of the current qualifying amount, at a reasonable estimate of the prevailing rate.)
There is another critique, at least how I now see Georgism (I did not think of this before reading the comments): Georgism kind of replace private land owners by the state, the LVT can be seen as a land rent. This dissociate ownership of the land (that remain to the state) from ownership of private infrastructure built on this land (Houses, factories). This can happen under the current system, but it is not common: Infrastructure owner is often also the land owner. The reason why this is uncommon (I think) is the risk of infrastructure confiscation (by land rent increase), because infrastructures are impossible (or very difficult) to move. I would hesitate a lot (A LOT) building a house on somebody else land, and this somebody else being a state (even my own state) barely alleviate this hesitation compared to building on a private actor land. Expropriation is already something I despise (even if I was never the victim, and understand it's necessity)....
I think it's kind of instinctive too, master of your land/home and all. The fact that you are not on par with the state, basically owner and master of nothing if the state decide against, is not something nice to remember even if it's basically true. Part of the appeal of land/house ownership is this feeling to be in control there, at least. Maybe it's one of those illusion it's dangerous to break ;-)
All land is already, in a sense, owned by the government. It asserts sovereignty over it, and can (and does, all the time) pass laws that change what you may do on that land.
This is actually how the Austrian economist (nationality, not economic school) Silvio Gesell saw land reform. He advocated for the state seizing control of all land--with compensation for improvements--and then leasing back to land holders with a fair auction system. As far as I can tell this results in effectively the same situation as George's 100% LVT proposal, in terms of money changing hands.
(Gesell had some other, very complementary ideas for monetary reform which allow for capturing rents inherent in banking due to monetary policy as well. Gesell's "freigeld" demurrage money plus a 100% LVT would likely be enough to fund the full government without any deadweight taxes.)
I question the assumption that many rationalists oppose Georgism. I learned about it through this community and in no other social circle I'm in there's so much excitement and support for the concept.
I'm responding to many of the comments on the first part of this series. There was a lot of "I'M SCARED CUZ THIS LOOKS JUST LIKE COMMUNISM WITH EXTRA STEPS!!!"
I wonder how many of these there actually were and to what degree they actually represent the community at large. Seems like a small number of people who are also responsible for a large volume of comments.
Hey, it's not like you hear about Georgism everywhere outside of the ratsphere, and only the rats oppose it. It's more like you almost never hear about it elsewhere, and the opinions in the rationalist community are... mixed.
It's probably because Georgism does not fit in the traditional political divide (and most people are cheering for their team instead of trying to figure out things). One one hand it is "tax and redistribute"; on the other hand it does *not* make the capitalists the bad guys... at least not per se, although I suppose that many capitalists actually understand the game and invest a lot in real estate, becoming also a part-time landlords. (Okay, so maybe this makes Georgism like 80% left-wing, but no one in the mainstream left cares, because they are now too busy making sure there are enough minority CEOs.)
Though there is the popular meme in rationalist circles that you should "rent, not buy", which always made me wonder, given that the best investments I have ever made were real estate and cryptos (and the latter are relatively recent and the jury is still out on their future).
Speaking about real estate and cryptos in one sentence, to me it feels like the land was kinda "Bitcoin, before Bitcoin was a thing". Limited supply, increasing value, unproductive speculative investment... you know, half of the things people say about cryptocurrencies, they actually apply to land, too. It's just that they somehow come as cool insights when talking about the cryptos, and meh what talking about land. Or to put it the other way round, cryptocurrencies are like a virtual land, in a virtual universe; whenever people coordinate on which virtual universe they want to live on, the price of the virtual land in that universe skyrockets.
I suppose that if Georgisms turns out to be true (and kinda obvious in hindsight), it will make many people feel stupid. It will mean that the things they spent large parts of their life optimizing for were not really that important in grand picture. That they could have made much better financially, if they just (at the right moment) took mortgage, bought some land, and sold it a few decades later. Oops, not sold, *rented*; and used the rent to buy more land, et cetera. (And things like "learning the latest JavaScript framework" make only economical sense as a way to get some starting capital, so that you can buy the land during the nearest mortgage crisis.)
"I suppose that if Georgisms turns out to be true (and kinda obvious in hindsight), it will make many people feel stupid. It will mean that the things they spent large parts of their life optimizing for were not really that important in grand picture."
Honestly, this is very likely the case for Rationalists regardless of whether or not Georgism is true. If Rationalists were truly optimizing themselves for success, then you'd expect that they would be dramatically more successful than the rest of the population, which doesn't seem to be the case at all.
Minor point, "which doesn't seem to be the case at all" seems like an odd observation from where I'm standing. I see a lot of big names in the comment section of this blog and people mentioning that other big names very much read this blog and other stuff from the rationality community.
I grant this might be selection bias, I don't want to claim any kind of rigor -- after all, I'm not talking about the people in the comment section that aren't successful, the people who don't comment that aren't successful, or what the percentages of any of these are versus how they are in the rest of society -- but I did want to point out that I had the opposite *impression* you did.
(Of course, *even if* my impression were true, that doesn't prove causation, only correlation. It could be that very successful people are interested in rationality, not that rationality makes people successful, and I feel like there are good reasons to assume this would be true - successful people tend to have more time for intellectual pursuits, and rationality is one of them. Might be hard to untangle.)
I am extraordinarily successful and I read and comment on ACX mostly to make fun of "rationalists." It's amazing and sometimes amusing how irrational they are despite the label they claim.
Scott sometimes asks interesting and thought-provoking questions, but his followers are almost never on his level intellectually speaking. I suspect the "big names" you see are more likely to be people like me than those who actually believe themselves to be rationalists.
That's entirely possible (although I do rather doubt it, since I do know quite a few successful self-identifying rationalists personally - my social circle is just too small to be statistically relevant, since I'm an introvert). Case in your point, I don't really consider myself a rationalist but would also consider myself very successful - that said, I also think my shirking the label is probably at least partly a sleight of hand on my part. :)
I very much *don't* make fun of rationalists (nor much of anyone else, actually, to be fair, I like varied perspectives), am friends with a lot of them, very much enjoy getting inspired by them, very much enjoy attending the European LessWrong Community Weekends and reading science-fiction stories to the attendees (eh, it's just kind of my shtick), but just don't have the time or dedication to be invested in rationality in a way that would make me feel like I'm any proper part of the community. More stably orbiting at a distance. Does that make me a rationalist? Various people have said "yes". I'm shrugging and think it doesn't matter much either way; for transparency I continue to clarify I'm more in-orbit, though, whenever the topic arises, but arguments for either state can be made.
I take it you don't think you're a rationalist at all, by any measure? If you don't mind my curiosity (and feel free to tell me to shove off, or just ignore the question), what does that mean for you? Presumably you're not the polar opposite, either (I'm picturing 'the opposite' as someone who deliberately tries to increase their own cognitive biases).
How are we defining success? If we're talking about "successful people" in the sense of celebrities, politicians, famous billionaire CEOs, etc., then it's clear that no one in the Rationalist movement has anywhere near that level of wealth, power, influence, or fame. Bostrom might be the sole exception, as he's a famous academic who's written several award-winning books and is seen as a leader in his field. Hanson is likewise a very well-respected academic in his field, though not as famous as Bostrom. And Scott is the one who's closest to being a household name, since he has the most mainstream appeal of any of them. But Bostrom, Hanson, and Scott are far from representative of the average Rationalist, and most of their fame and prestige is for reasons unrelated or at best tangentially-related to Rationalism. Even Yudkowsky isn't on that level; he's famous within certain internet circles, extraordinarily influential within the Rationalist movement itself, and probably quite well-off by now, but he's still ultimately a big fish in a very small pond.
If we're using a more modest definition of success - for instance, just comparing their income, savings, assets, etc. to the rest of the populace - then I'd expect that Rationalists on average are probably a slight bit wealthier than the median person in their country, but only because they tend to work in STEM fields and those tend to pay well. Once you account for occupation, I'm reasonably certain that Rationalists wouldn't be better off than anyone else. In fairness, I really don't think they'd be worse off either (though if there *was* a significant difference in life outcomes between Rationalists and everyone else in one direction or another, then I find it considerably more likely they'd be worse off compared to others in the same line of work, rather than better off, just because people who subscribe to fringe ideologies and movements generally tend to be worse off than the average person). You could argue that adjusting for occupation isn't fair, since the fact that so many Rationalists work in STEM fields is a point for Rationalism in itself, but I find it more likely that Rationalism simply tends to appeal to people who already have STEM inclinations, rather than specifically encouraging them to go into STEM in the first place.
There are more abstract definitions of success too, like personal happiness, physical and mental health, robust social lives, and so forth, but those tend to be a lot harder to measure and quantify, especially on the group level. And my intuition tells me that Rationalists would not fare exceptionally well in those categories either, though it's really anyone's guess.
From the base rates perspective, the fact that e.g. "only a few rationalists become world-famous" is only important if the control group does better or at least just as well. -- Like, if everyone else's chance to become world-famous is 1:10000, but being a rationalist increases it to 1:1000, that would be awesome... and simultaneously, mostly invisible.
As you say, a fair control group would probably be controlled for profession, so like a random selection from population, proportionally weighted towards STEM.
We would also have to somehow measure the changes in profession that people make because they are rationalists. For example, who is a counterpart of "a software developer, later a rationalist, later an entrepreneur" -- an average software developer, or an average entrepreneur? Well, a certain fraction of non-rationalist software developers also becomes entrepreneurs; but how does this differ from the fraction of those who are rationalists?
So, doing exact numbers would be hard. And without exact numbers, the problem is that some things are difficult to see. Like, imagine that I have a magic button, and if I press it now, every rationalist will become 2× as rich, 2× as famous, and 2× as happy as they are now. Okay, I clicked the button... what do you observe? If you are one of them, you see a dramatic change in your life. If you are not one of them, you probably see nothing: the number of world-famous rationalists has not changed significantly, maybe it did not change at all. But if you couldn't even observe the effects of this magic button, how are you going to observe the effect of being a rationalist? You can perhaps say that it is smaller than a magical "10× everything" button, because that one would probably already be quite obvious from outside (e.g. after pressing such button, most rationalists would early retire, so there would be a lot of "so how do you guys enjoy your free time" in the comments).
+1 to Huluk's point. I also learned it from this community. And when I talk about it to people who've never heard of it, the biggest opposition comes from, in order of effected anger:
1. conservative-minded people that say "then what did my parents pay this house for"
2. marxist types that see it as perpetuating evil capitalist practices
3. standard-issue liberals that smile condescendingly and start talking about the importance of having many different taxes and fixing social problems with ad-hoc benefit programs
It suffers from the same problem as most syncretist ideologies, which is that people on the right view it as fundamentally leftist ("it's just a step away from collectivizing land entirely and that's literal communism!"), people on the left view it as fundamentally rightist ("it's just another attempt to reform a fundamentally cruel and unjust capitalist system!"), and people in the center just dismiss it for being a weird fringe idea.
Personally, a lot of the core assumptions of Georgism seem correct to me. The main reason I'm not an outright Georgist is because I don't see any clear path to get from the modern system to a Georgist one without dramatic changes that could risk destabilizing the entire economy. I would probably support attempts to implement Georgist ideas through a gradual series of incremental reforms, but I'm not entirely sure what that would look like.
I'm also rather skeptical of ideologies that claim all of the problems with society can be fixed with One Weird Trick (whether it's doctrinaire "free market will fix everything" minarchist libertarianism or Marxist communism), and Georgist claims pattern-match just a little too closely to that sort of mindset. It doesn't help that a lot of the Georgists I've spoken to have given off strong missionary vibes. But that's more of a personal intuition than any solid ground to dismiss Georgist ideas in themselves.
> It doesn't help that a lot of the Georgists I've spoken to have given off strong missionary vibes.
Including many who have shown up in the comments here.
I don't get the point of Part II at all. It's like someone said at some LVT meeting "but the taxes will be passed onto the renters" and everyone panicked, because they love the renters and hate the landlords, and so they tried to justify that, no, relax, we are only hurting the outgroup with this.
If an LVT is efficient (and I think it is), it doesn't matter where the tax falls. But spending 1 of 3 parts to show that the oxen being gored are only those of the bad group is weird, probably wrong, and irrelevant.
I think the more realistic and honest answer is that, yes, in many cases, renters would bear a significant portion of the cost *in the short term*, but in the long term renters would be much better off in average. (In fact, if LVT works as well as Georgists claim, then *everyone* - including landowners - will be better off in the long term, but especially renters.)
Roughly half of adults own land, and a switch to an LVT would hurt them in obvious ways. If anything, you would want to convince people that lawn-owners aren't going to be especially screwed.
But from the Georgists who showed to infest the comments on part 1, lots of them would rather scream at land-owners than accomplish their goals.
And "would rather scream at their outgroup than accomplish their goals" might be the perfect description for minority political groups!
If it were the case that the tax were passed on to the renters, then (1) that would by itself be a non-starter since people who rent largely can't afford the cost of living doubling overnight; and (2) it would undo all the proposed benefits of the LVT which derive from changing the distortive incentive structure about land speculation. With that in mind I think this is a very reasonable objection to devote an article to in the sequence.
Alright, I'm going to try *really* hard to take this question in good faith and respond accordingly.
It's hyperbole, meant to play on the tendency of shady online advertisements to make dubious or outright false claims about how various ailments can be solved through "one weird trick." Obviously Marxism is not literally "one weird trick," nor is free-market libertarianism for that matter; these ideologies and their prescriptions for society are in fact incredibly complex. Nonetheless, at the core of these ideologies is the notion that a particular set of policies can be used to fix most or perhaps even all of the problems with our society, and beyond that, to fix most or all conceivable problems with any society (since these ideologies are designed to be fully generalizable and universalizable). This notion seems incredibly misguided to me, as human society is simply too complex for its problems to be addressed by *any* wholly theoretical framework. Furthermore, every society and time period has its own particularities that must be understood and addressed in their own right, so the idea of any system being fully generalizable and universalizable is itself extremely flawed. While this does not mean that improving society is impossible, it does mean that positive change will generally come through experimentation with different policies in different sets of circumstances, and not through a single set of policies designed in advance on theoretical grounds. Thus, from my perspective, the claims and prescriptions of Marxian economic theory can be viewed as analogous to the solutions proposed by those "one weird trick" advertisements and mocked accordingly.
Wouldn't that same criticism be equally applicable to say, capitalism (or liberalism)? Is human society simply too complex for a system as generalized as capitalism?
Since you're into experimentation with different policies are you generally in favour of the socialist experiments that are currently being undertaken (e.g. Cuba)?
Well, "capitalism" is a very broad term that can be applied to any economic system in which capital is privately owned, so capitalism (unlike Marxism) isn't inherently tied to a specific plan for how society should be arranged. That said, there are some capitalist ideologies that *do* propose a specific plan for optimizing society (such as the obviously Hegelian brand of globalist neoliberalism espoused by Fukuyama, or the free-market libertarian utopianism of Austrian School thinkers like Hayek and Mises), and I'm highly critical of those for the exact same reasons that I'm critical of Marxism.
As for experimentation with Marxist-Leninist policies, I don't see much need to experiment with systems that have already been proven to consistently and spectacularly fail, without exception. I don't think much good would come from experimenting with Nazi or Ba'athist ideas, for instance. Given the disastrous track record of Marxism-Leninism in the USSR, Maoist China, and elsewhere, I don't think much good will come from yet another attempt to implement those ideas either. And my support for political experimentation has its limits; I would oppose political experiments that would result in widespread violations of human rights, which was always the outcome of Marxist-Leninist regimes taking power.
I also think you're rather misunderstanding what I meant. My point was that *instead* of trying to change the whole system at once, we should experiment with policies a la carte, to see which ones work and which ones don't. Marxism-Leninism is explicitly built around changing the whole system at once, so you *can't* really try to experiment with it in piecemeal fashion. But if you're talking about "socialism" in a broader sense and not Marxism per se, then sure, there are probably some socialist policies that haven't really been tried on a large scale yet and could be implemented within the existing framework without totally overhauling the entire system at once.
Most of the folks I know in my local neolib circles, including the guy who runs the YIMBY Neoliberal account, are, if not actually Georgists, at least sympathetic to Georgism. I dunno if it's universal, but it seems like Twitter globe-with-meridian folks are majority at-least-friendly on Georgism.
Owning something that makes you money on itself is called investing. Or long time preference. You suggest banning investment to focus on immediate returns, i.e. short time preference. There are many societies built around such a principle, so moving to such a place is easy. Many enjoy nice warm weather too :-) Well, ,built around is maybe not the right formulation. Trapped there may be better...
I'm somewhat critical of Georgism myself (see my posts above), but claiming that Georgists support "banning investment" is just obviously incorrect, to the point where your argument comes across as being in bad faith. At most you can argue that they support banning one particular type of investment, but even that's not quite right. It seems like you're just unfairly equating Georgism with Marxian communism on the basis of some perceived similarities.
I was reacting to a general criticism of buying stuff in the hope they will earn you money for nothing (i guess no or minimal work), which is indeed a definition of investing : consume resources now so that it will bring you more resource later.
By the way i agree with a later comment: it's tempting to differentiate investing (morally good) from speculating (morally bad) and i do it all the time.... But in fact it's extremely difficult to distinguish the two objectively : suppose you buy stuff because you think you can use it to earn you x per year. Now your neighbor think he can earn y>x per year with it, and want to buy your stuff, at a higher price obviously. You sell your stuff... Was you initially buying stuff speculation or investment? Seems you need to know if your initial estimation of earning x per year was in good faith or not, so not objectively decidable...
Now on georgism: it effectively replace private landlords by the state, in fact you can not really own land, just rent it. You then have to build stuff on rented land.... This is done, sometimes (ampheteotic rents of 99y, countries where foreigners can not buy land but can build, renters home improvement) but the risk of confiscation is so high that it is very uncommon. That's my 3rd argument againsr georgism...
1) fast transition to georgism is a fast and large regulation change, which is inherently unfair because people adapted to pervious regulation. Unstable regulation promote short time preference which kill investment and long term projects
2) Georgism in fact replace private landlords by the gouvernement. This may be a win if gouvernement is better in some sense than private actors, but it's an important concentration of powers and reduce choice of landlord... Which is very dangerous so bad.
3) it means improving or building on non-owned land, which is universally frowned upon due to large risk of confiscation of large non fluid assets.
"t's tempting to differentiate investing (morally good) from speculating (morally bad) and i do it all the time.... But in fact it's extremely difficult to distinguish the two objectively "
It's not. Investing creates something, which you hope will be valuable and earn you a return. Speculation does not create anything.
More accurately, it's a question of timing: if your asset evaluate, it's because the market believe it could earn more (or it's a bubble, but then it's speculator against other speculators - which is how I now see the stock market). So speculation is selling before your asset has the chance to produce, while investing is doing at least some production before selling? How much do you need to wait producing before selling to be considered a (good) investor instead of a (bad) speculator? And do you need to produce yourself, or other producing with your investment count?
Investing in a business carries risk, and investors ought to be rewarded for that risk. The risk-premium return of an investment is not rent-seeking.
Investing in land carries no risk inherent in the investment itself, as the reward of appreciating value is due to the external work of the community which surrounds it. Profiting off the appreciation of land is 100% an economic rent.
Buying a thing on the theory that you will be able to _sell it again later for more money_ is not investment. It is speculation.
_Investment_ is buying a thing because you believe it will produce a stream of income, by way of producing goods or services that others will be willing to pay for, as an ongoing flow.
And Georgism does not ban land _investment_. If you think you can buy the land and put it to a use that will produce greater revenue -- e.g. buy a vacant lot, and put an apartment building on it, and charge rent for the apartments -- then great, invest in the land (and the apartments).
A Georgist LVT makes land _speculation_ un-profitable. Which is good, because the speculator adds no value to the economy, and deserves no reward for simply having been in the right place at the right time. The speculator's profit derives entirely from the rest of the community's investment in making the land location more desirable.
One might reference here Warren Buffet's comments on gold, which is a purely speculative asset:
<blockquote>
Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A.
Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?
Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators – must continually absorb this additional supply to merely maintain an equilibrium at present prices.
A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything.
You can fondle the cube, but it will not respond.
</blockquote>
(Because of this quote, I often think of people who play up speculative bubbles as "cube fondlers".)
It is a silly post because a terminal payment when you sell the asset is just as much a stream of income. There is no difference between investment and speculation. The latter is just a boo word.
If you can't understand the difference between an asset that is used to produce income _flows_, and an asset that is _purely_ a stock, well, that's on you.
It is the same thing from a microeconomical perspective (i.e. when you're calculating a ROI). It's a very different thing from just about any other perspective.
No, snortlax is right : distinguishing the two is a moral judgement, and quite arbitrary. You needs to know the intention of the entity who buy then sell the stuff to decide off it's speculation (no plan) or investment (the bought stuff would be used somehow). Or even estimate if they would have bought it on the first place of further sell was impossible, like for art pieces for example...
I am not the last pesting against those damn speculators, but it's really a somewhat arbitrary moral judgement.
- or tries to create - This caveat inherently makes investing very difficult to differentiate from speculating: you need intention, which is internal to the buyer. And a wise investment needs to factor residual value after production, else you can invest in things only if you plan to use them to death. Once that is done, speculating can be seen as investing with a too short use period....What is too short?
The gold example is also very interesting, as people buy gold not only because it could appreciate. It fact, they buy it (mostly? at least that's always the reason I thought about buying some) because it is somewhat resistant to catastrophic depreciation, like total loss either by bubble collapse, economy crash, or regulatory confiscation...
That's also a traditional reason to buy land...
and store cash, when negative interest rates or bank account freeze are looming...
hum, there is some common pattern, maybe also why I tends to become more frightened of Georgism the more I read the comments: The advantages are real, but you need trust in the government/system.
Regarding part III, there is a critical subtlety in the question of "can you measure the unimproved value of land cleanly", and how that relates to the idea that the tax has no deadweight loss.
The normal sense of "unimproved value of land" is: if I took this particular parcel of land and knocked down the building, what would it be worth?
A subtle feature of this definition is that the value of land is sensitive to parcel size and is not linear. That is, two separate parcels A and B are worth *more*, added together, than a parcel C combining them would.
The reasons for this is the same as the reason that the LVT notionally raises a lot of money with no deadweight loss: because most of the value of any specific parcel is spillover - a positive externality - from all the improvements on the neighboring structures and really most of the structures in the region. If someone builds an apartment building in one parcel, the neighboring parcel becomes more valuable because you can put retail on it. A developer that owned *both parcels* could internalize this externality by building both structures - but if the parcels are taxed separately, then the developer is actually paying a tax on its structures! It pays a tax on the retail by way of the apartment-land and on the apartment by way of the retail-land.
It's important to note that this is not a hypothetical. In general this sort of thing - buying adjacent parcels and building synergistic structures on them - is fairly common. (There is a lot of it going on in Tysons Corner in Northern Virginia, near where I live.) Even more specifically, this is a norm for the development of suburban subdivisions - a single developer buys up the land for the entire neighborhood, builds a bunch of houses (and amenities like pools, sometimes), sets up an HOA and so on, and then sells the houses. This is profitable because the houses are worth more in a nice little neighborhood than when built one at a time as stragglers off of a main road.
So: if you take parcels as fixed and immutable, there is actually a deadweight loss from an LVT.
Is there a way to get around this? Well, you could allow people to combine parcels for the purpose of appraisal, and try to revalue the combined parcel without *any* of the buildings on it. But this creates a straightforward tax strategy in which ownership of ever-larger contiguous regions is combined so that more and more spillover value gets subtracted out and the tax base is eroded. (In the limit you value the Earth as a single parcel with no buildings at all, and ask "what is the value of a square kilometer of Manhattan if no buildings exist in the entire world?")
The existence of nonzero (and nontrivial) deadweight loss really changes things. The general rule with deadweight loss of taxes is that, for a given tax, it's proportional to the square of the tax rate. So for an LVT with an extremely high rate, this could be quite serious. But in particular this informs the comparison with an equal-revenue property tax.
The LVT falls on land and the property tax falls on land+structures. So the property tax has a larger base and a lower rate, but the structures portion of the base has a big coefficient for the deadweight loss while land just has what we have above + whatever you get from other problems in land valuation. The result is that, unless you actually know all of the relevant parameters, it's ambiguous which of the two taxes has a higher total deadweight loss.
Finally: it's overlooked, but a large, large portion of the tax on structures *also* has no deadweight loss: the tax on structures that already exist. With the exception of a few structures that might actually be torn down, you cannot disincentivize the construction of a building that already exists. So simply eliminating property taxes is a windfall to that particular factor, and - why pay out a windfall? As long as we are doing estimates and approximations, I personally favor reforming existing property taxes to have abatements for new improvements rather than trying to go full LVT.
This is really a false dilemma- improvements don't increase the land value of the land on which they are built, but they can still increase land value outside of their footprint within the same plot. Your valuation 'contradiction' just an artefact of subdivision, but it is entirely possible to value land on a per-square-foot basis. Part III of this article will talk about assessment methods which answer this question.
It is not a false dilemma. Either your assessment method ignores most of the exist value of land, *or* it definitely falls partly on improvements and therefore has a deadweight loss. Realistically, every method would pick the latter - it will result in some people who would have internalized positive externalities facing a disincentive to building improvements.
It's a theoretical argument on the same terms as the theoretical argument that the LVT has no deadweight loss. I have no interest in trying to come up with a sufficiently-powered study that you could do, particularly absent dictatorial control over tax policy.
Sure, but the point is we could look for it. And the thing is, many of the studies cited in this very article claim to have at least partial evidence for this very hypothesis.
So in other words, you are not willing to commit your theoretical critique of a tax endorsed by a list of Nobel laureates to any sort of real world implications which we can and have measured?
lmao buddy I don't care who endorses it. FWIW the entire empirical section of this post is irrelevant to me because I require no convincing that LVT falls on land not tenants.
There were a couple of threads in yesterday's post along these lines. For a long term residential owner living in their own house, they have an incentive to restrict what their neighbors build, because that could raise their own land value and therefore LVT. Over time this is quite common in real life, and we have a name for this type of behavior - Gentrification. It would be worse if we were attempting to gain more of our tax base from LVT instead of multiple sources. I personally don't have a problem with gentrification, but I also don't live in a city and don't have a stake in it.
Are you making a testable hypothesis that increased in LVT will lead to a roughly proportional increase in building restrictions and a consequent decrease in building density?
No, I think building density can and will increase with an LVT. I think it will do so at the expense of any current housing, which is often identified as a problem of gentrification on one end and NIMBYs on the other. NIMBYs try very hard to keep developers out, even though they would raise property values, and that's the behavior I am talking about. LVTs will make it harder for them to succeed, because it moves the question one step further back, to the land becoming more valuable (and more desirable) in the first place. NIMBYs win either way in the current system, as their property is worth more and they could sell or rent it for more than before, *or* (usually) choose to stay there. The property owners under an LVT can't choose to stay without paying huge penalties.
Looking into how real estate development I am not convinced about a plain assertion that " improvements don't increase the land value of the land on which they are built" in the general case. While this may be true in the case of a single small plot of land (e.g. a parcel for housing or a store) where all (or, which would be a crucial difference, *almost* all!) of the value created by the improvements would "spill over" to the neighbouring plots of land, this does not seem to be true for large plots of land.
For example, it's undisputable that the land value of all the land in a town is much higher than the land value of all that land before the town was built or an otherwise equivalent location which is not currently populated. In that regard, if someone owned a large plot of the land and developed it into a small town (or a gated community), the land value (and potential land value) of it would definitely increase. However, if they did it without dividing the land and selling it to the inhabitants but merely renting parcels it of it, then the land value (or the value of potential rent) would significantly increase, because all the "spillover" from improvements from one home to another, from a store or a park to the home and vice versa, all that interaction would happen inside of one (large) plot of land on which is owned by a single entity, and they would have directly increased the value of their land through these improvements.
This raises the question about whether subdivision affects things. In a hypothetical simplified example of only two neighbouring plots of land, building an improvement of one will often raise the value of the neighbouring land. Georgism proposes that plot A should be taxed on the unearned value increase created by the improvements on plot B; and plot B should be taxed on the unearned value created by the improvements on plot A. However, if someone owns *both* these plots, they effectively get taxed by the improvements they made on their own land, which IMHO can't be considered unearned income.
Subdivision of land is something that comes up in the literature. I don't think I addressed it head-on in part 3, but you can think of it as being something like zoning that has an effect on the land value because it changes how that land is practically able to be used.
That is to say, any method that uses multi-parameter hedonic regression can take land parcel size and shape into account during the assessment process.
The problem is that even if you assess the value of each parcel correctly, it's unfair and unproductive for the State to tax the owner of two properties for the value that their two properties give to each other. If a developer takes a field next to a freeway, builds 100 houses and a store, and tries to sell them out individually, the underlying value of the land on under each home has increased under his ownership, but clearly he is responsible for that. My understanding is that LVT would call him a thief for owning land that goes up in value, ignorant of the landowner's creation of that value, and tax it all away from him. Is that wrong?
Hm. I think "a thief" is putting it too strongly. Surely it's OK to simply recognize that the developer had a good plan and good follow-through and overall did a good thing, and as a result the land is now worth more and can be taxed more? If the developer wants to do all that work and then sit on empty houses, that seems like a bad thing, and to me it's fine that the LVT discourages it. If the developer wants to sell or rent those properties right away, that seems like a good thing, and to me it's fine that the LVT encourages it. When I hear about investors buying up new condos and keeping them empty, that to me seems like a sign that something is wrong with our economic system, something that an LVT might help fix.
Also, back to your example, isn't it the case that some, if not most ,of that extra value comes from the people living there? Imagine what would happen if you moved there, and then so did 99 of the worst people you've ever known or heard about, such that within an hour you are being literally eaten alive. As you are slowly turned over the spit, wouldn't you agree that the value of your property is less than that of a bare field of land in the middle of nowhere?
So, when the first person buys a chunk of that land with one of those houses, it seems to me that the increase in land value is best characterized as a form of speculation on the nature of the other people who will come to live there. My above example is obviously extreme, and the average case should have roughly average people (for that region). So I suppose a counter-argument might be that the extra value is created by the developer acting like a gate-keeper: even when they don't actively select the new owners, they restrict the pool of potential owners by simply building certain types of improvements and setting up the neighborhood a certain way and advertising a certain way.
"The law of society is, each for all, as well as all for each. No one can keep to himself the good he may do, any more than he can keep the bad. Every productive enterprise, besides its return to those who undertake it, yields collateral advantages to others. If a man plant a fruit tree, his gain is that he gathers the fruit in its time and season. But in addition to his gain, there is a gain to the whole community. Others than the owner are benefited by the increased supply of fruit; the birds which it shelters fly far and wide; the rain which it helps to attract falls not alone on his field; and, even to the eye which rests upon it from a distance, it brings a sense of beauty. And so with everything else. The building of a house, a factory, a ship, or a railroad, benefits others besides those who get the direct profits.
Well may the community leave to the individual producer all that prompts him to exertion; well may it let the laborer have the full reward of his labor, and the capitalist the full return of his capital. For the more that labor and capital produce, the greater grows the common wealth in which all may share. And in the value or rent of land is this general gain expressed in a definite and concrete form. Here is a fund which the state may take while leaving to labor and capital their full reward. With increased activity of production this would commensurately increase."
"Q6. If a land-owner builds, does not that increase the value of his land and consequently the amount of the tax he would have to pay? If so, would not he be taxed for his improvement?
A. No. Upon the value of the building he would never pay any tax. It is true that his improvement might attract others to the locality in such numbers as to make land there scarcer and consequently dearer. His own lot would in that case rise in value with the other land and be taxed more, just as the rest would be. But that would not take any of his labor in taxes; he would still have his building free of taxation. Thus: If on a lot worth $1000 a building worth $1000 were erected, making the whole worth $2000, the tax would fall only upon the $1000 which represents the value of the lot. If land then became so scarce that the lot rose in value to $1500 the tax would be raised. But the owner's improvement would be still exempt. When his property was worth $2000 he was taxed on $1000, the value of the lot, leaving $1000, the value of the building, free; and now, though he is taxed on $1500, the value of the lot, $1000, the value of the building, is still free." http://www.wealthandwant.com/themes/Neighbors%27_Actions.html
"If the developer wants to do all that work and then sit on empty houses, that seems like a bad thing, and to me it's fine that the LVT discourages it."
The point about deadweight loss is that the developer isn't simply going to plan to sit on empty houses. At the margin, the developer has less incentive to go forward with the development, because potential profits are heavily reduced by a high-rate LVT capturing much of the value increase in higher taxes.
The Danish study indicating that home prices capitalize the discounted present value of future land taxes into lower sales prices actually reinforces that point, because the price paid by homebuyers will reflect the post-development tax increase.
Most of your example is just the developer capturing the value created by the freeway which presumably links these 100 houses to some denser area were these future residents can work and pursue recreation. Adding a single store into the mix doesn’t change the game.
Plop that same 100 house development and store onto a cattle road in Nebraska and he will have created essentially no value.
There are a lot of fields next to highways. Should they all be, right now, land value taxed at the land value rate of the development that could be built on them ?
If what you say is true, then the value of large undeveloped plots next to the freeway would be identical or comparable to the total value of land after this development has occurred. This is not reflected in reality, there is a very large increase in land values.
My hypothesis is that this value is largely created by solving the coordination problem between these 100 people; they could just decide to settle there together at the same time and found a community (and capture the value increase themselves) but it's hard to do so, so it does not happen as much as people want, so people are willing to pay a premium to build on land where someone else has done this coordination and arranged the other 99 potential neighbours. And since they're demonstrably willing to pay a quite large premium for that, it indicates that this service is considered valuable and useful.
> This is not reflected in reality, there is a very large increase in land values.
I would be interested to see how you are supporting this assertion. 100 certainly does not seem to be enough people to move the needle on agglomeration effects increasing land value, and that really you are just including improvements like roads, sewer, utilities etc
Even independent of those I would pose the question of how much of a value difference would exist if half of the units sit vacant? It still seems that the value is added by the residents themselves, and not simply the structures and infrastructure provided by the developer.
Assuming taxes are assessed annually or every two years, perhaps this would incentivize faster more efficient development. Buy, develop, and flip before the reassessment.
"Finally: it's overlooked, but a large, large portion of the tax on structures *also* has no deadweight loss: the tax on structures that already exist."
Does this work? I mean, it seems like the same as saying "taxing candy bars has no deadweight loss, because you can't disincentivize making candy bars that are already made. So it can't decrease supply, so it can't affect price."
Isn't the expectation of a tax enough to disincentivize the construction of new buildings?
The portion of the tax that falls on new structures has a DWL. Just not the portion that falls on existing ones. The distinction is conceptually important because, first, it means that replacing the property tax with an LVT means some asset holders receive a windfall (which is suboptimal because it means you need higher rates than otherwise to pay for that windfall, at a given level of revenue), and second because property taxes can be modified to attempt to exclude new construction, if only partially. Many places offer abatements for new construction and this can substantially reduce the deadweight loss of the property tax.
I still feel like I don't fully understand. To define terms, by "new" we mean "after the tax was introduced" and by old we mean "before the tax was introduced"? Or do we mean something more like "built in the last 5 years" vs "older than that"?
Assuming the first, it sounds to me like, yeah, you can adjust taxes on things that already exist without retroactively affecting their existence. But you could only do that once. If you made a habit of starting to say "that building's old enough to be taxed" then it would incur a deadweight loss through the same expectation mechanism.
I'm having trouble thinking it through, but it feels to me like, for that reason, the windfall would only be a one time cost. So you could offset it just by charging a proportional fee, once, if that was important to do.
Yes, "new" means literally "anything built after the tax was introduced". And yes the time inconsistency problem is there. The intermediate solution is after new construction or improvement, you exempt the value of the new construction from the taxable value for a period of time. Thus there's still some disincentive from the tax but it's in the future so has a lower present value, and in the meantime you've mostly averted the uncertainty of "what if the government reneges on the deal".
An example that may be closer to the lives of the audience here than Tysons Corner is the Googleplex. Google owns offices on a huge swath of low-quality land in Mountain View. That land is now quite valuable, as it's in easy commuting distance from a high-paying company. And yet, if Google hadn't built it, it would just be crappy land near the salt flats of the southern SF Bay, where no one would want to live.
Right. Building a nice public restroom would count some towards the land value of the private land around it(as it isn't an improvement on any piece of private land) allowing the value of it to be recaptured by the public in the form of LVT.
If instead a private entity bought that same land and built the same set of restrooms as the above with private access only to their adjacent private plot of land, then all the spillover value would go to their adjacent private plot of land alone.
That spill over would now count as improvement value, and not count towards Land Value anymore and wouldn't be captured as LVT Revenue.
So there's an incentive to private individuals to turn public spillover into their land value into private improvement value
I think you are spot-on on the Land-subdivision-determines-Landvalue paradox. Tbh, it sounds more severe than any of the 3 counterarguments, that get a blogpost to refute them. I wonder if that is because it is not brought forth by so many people, or because there is not a good way to refute it.
OK but like, there's not enough houses in America being built to satisfy the demand. So the landlords can just charge whatever they want because there's not really anywhere for people to go? Maybe their property values decrease, so they don't want to sell their houses, but why should that have any effect whatsoever on rent prices? If you implemented this LVT tax, what prevents a landlord from passing it on to the tenant if every other landlord is also passing it on to the tenants, and no one is building new houses because building new houses is illegal? People have to live somewhere and moving is very hard.
I was really hoping this section would be convincing but I just can't see how this would concretely change the situation in America. I guess I just don't believe the Danish study because presumably it's not illegal to build houses there or something. Help me understand how this applies to America. Can you explain, concretely, how in a city where landlords are already gouging people on rents and their taxes go up, and it's illegal to build new houses, that they wouldn't just increase the rents further? What is supposed to happen to the people who are living in that city? What does the person who can never afford a house and is already spending 50% of their income in rent actually do that "gives them leverage"? They can't buy land or a house. Everyone is raising rents everywhere because of this new tax. I predict that in America, the tenants of that city would just eat it and spend 60% of their income on rent instead of 50%, and just give up on ever having kids. How, concretely, are you imaging it could be any different?
Especially if you're paying a "citizen's dividend" -- in the hypothetical city where building houses is illegal, why don't the landlords just snap up the full amount of that dividend?
I think this is actually a better point. Landlords already charge the most the market can bear, so they can't pass on an increase in their costs. But if tenants become richer, they can afford more rent, so if the housing supply is fixed, they bid up rents.
Of course with a 100% LVT, the increase in rent just equates to an increase in tax, and the cycle continues until enough tenants decide they'd rather take their (now massive) citizen's dividends to a cheaper location.
Keep in mind that the current tenants are not a fixed group either. San Francisco's population has been significantly replaced over several generations with a much more affluent tech-heavy population. You can certainly price out the current residents and replace them with others, so the market can theoretically bear the highest amount that *anyone* can afford to pay who might want to. The whole conversation about gentrification is about this.
> Landlords already charge the most the market can bear, so they can't pass on an increase in their costs.
Assuming we are talking about a build-constrained NIMBY city:
"What the market can bear" isn't fixed. If you increase the costs to all landlords in a living area by $200, then they will all tend to raise their prices by almost $200. A lot of that almost-$200 will come from increased wages that employers are required to pay.
There will be some friction as some people are required to leave the area because their skills aren't enough to afford living there, and some businesses as they are not efficient enough in their use of space to afford having a footprint there.
PS: there's lots of places in the country to build that aren't run by NIMBYs. Bidding up housing prices in NIMBY-run cities is rewarding NIMBY policies. Stop doing that.
You won't increase the cost equally on all landlords though - you'll increase the cost on landlords in proportion to how much of their rent comes from land rather than from the structure. That is, single-family landlords have a higher increase than apartment landlords.
> If you implemented this LVT tax, what prevents a landlord from passing it on to the tenant if every other landlord is also passing it on to the tenants, and no one is building new houses because building new houses is illegal?
Now this is a really interesting objection, and I believe this *would* happen if there was a sharp discontinuity; landlords forming a cartel, and basically agreeing to shift taxes to tenants, whether or not it's rational/prudent.
Now, in a competitive equilibrium, this would drive more units into production, and these landlords would get soaked, the end. But clearly we don't live in a competitive equilibrium‒instead, we would see landlords enjoying super-marginal rents to continue to enjoy a return, and landlord enjoying submarginal rents to lose all their tenants and have their units sit empty.
Let's assume the former case, and let's assume it happens everywhere: that is, landlords have defied theory, and successfully passed LVT onto their tenants. What is another way of framing this? Notably, this means that the *ground rents* that these parcels can enjoy is greater than previously thought. What does that mean? The LVT should be increased, thus effectively taxing away the super-marginal rent that the landlord gets. That is, they *can't* pass it on, after all!
We're now in a weird disequilibrium instead of a tidy equilibrium, but eventually it'll have to be resolved somehow... in any case, we can't sustainably see landlords shift their tax on.
This is not CONCRETE enough for me to understand what you're saying. That's why I asked for a concrete example. My mind just doesn't work with the abstractions you're using like "weird disequilibrium", "tidy equilibrium", and "super-marginal rent". I'm not trying to be difficult, I just can't really hold on to these concepts in my mind and make them do useful predictive work (and I suspect that you can't either).
I propose, concretely, that in a NIMBY city where you can't build more houses, that the clear outcome to LVT is that landlords will respond to any decrease in their bottom line by just raising rents. They don't want to lose any money and they have the power so that's what they'll certainly do. If it makes everyone renting miserable then so be it. The landlords already ARE effectively a cartel that is currently raising rents to unbearable levels anyway; they will just do it even more with LVT. Either way, the outcome is that people "just deal": they add more roommates, stop paying for healthcare, stop paying their student loans, give up on ever having families, etc, exactly as they are currently doing. It just happens faster with LVT.
Can you paint me a concrete picture of a NIMBY city where you introduce LVT and this doesn't happen? What does that look like? How to the people renting the houses derive more power from LVT so that the can use that power to get lower / the same rents? Power concedes NOTHING without a demand. So how do the renters make this demand from the landlords? And how especially does this work when the people are getting a "freedom dividend" and thus clearly have extra money that the landlords can just take?
I propose that if you can't paint a CONCRETE picture of a NIMBY city that at least sounds more probable than the one I just painted, then the argument against rent being passed on to tenants with LVT doesn't really work, it's just confusing economic words.
So here's the difference. Without any LVT or property tax, A NIMBY city/community is "sustainable" because once you own the property, the appreciation of the underlying land doesn't increase your taxes/costs. At worst, this creates an incentive to block new construction (as it would increase the supply of the commodity you're hoarding). (Prop 13 in California is the quintessential case that demonstrates this btw)
With an LVT, A NIMBY city/community is not "sustainable", because as the land appreciates, the rent goes up and owning the land doesn't protect you from this. At a certain point, people in the community will have to _pay_ for how unproductively they're using the land. Now, if its a community of multi-millionaires and billionaires, they probably can afford to have a SFH anywhere they want and will not need to increase density. However, since most communities are not composed of millionaires and billionaires, they will have to choose how much they're willing to pay to be a NIMBY, whereas before it cost them nothing to say "no".
This seems like an excellent theoretical point and I think I can add something concrete. I'm personally feeling fairly at sea in this whole thing but I feel there is a particular lighthouse that gives me a clear directional answer. In multiple of the studies this post mentions it was found that taxing land more relative to improvements resulted in more improvements
More improvements and construction activity means more stock and less rent / lower mortgages pretty surely. Whether or not a LVT can be in theory or in practice passed on to some degree it seems apparent that it cannot be passed on to the same degree that the current tax scheme is. Whether or not a deadweight loss exists in the LVT scheme is an academic question in relation to the question of whether or not any such loss is more or less than in the current tax structure. I'm seeing that the answer is definitely less and this should apply to a NIMBY community where as you say, they may still be NIMBYs but now there is a market force headwind against them that has been seen to occur in practical examples
If landlords can charge whatever they want, why aren’t they? If the landlords can all just get together and decide to increase prices if there’s an LVT, what do they need the LVT for?
The argument is more that an LVT doesn't magically escape the same problems that already exist. Housing/rent prices are already going up very quickly in popular cities, which means that landlords are in fact doing that. The alternative is to live somewhere else, which for some people is more possible than others. If you can't live anywhere else, then the rates can go up indefinitely to the carrying capacity of people's income. Judging by the highly paid professionals living with roommates in popular cities like SF, that capacity is still expanding beyond what we once thought of as reasonable limits.
The limit would be when Google decides that paying hundreds of thousands of dollars so that their developers can live in driving distance of the Googleplex isn't worth it, and opens a Googleplex #2 in another city where rent is cheap.
It appears that the limit is insanely high, more than you would expect a software developer job to be valued at, but nonetheless there has to be a limit in Google's budget somewhere.
If I can make widgets for 1% cheaper than my competitors, I can capture the whole market. If I can rent my apartment for 1% cheaper than my competitors, I still only have 1 unit.
The LVT is an external factor that coordinates their behaviour without them having to "get together". They all see similar cost increases, and so all spontaneously have the same incentive to test whether the market will bear a somewhat higher rent, and suddenly the price at which landlords are willing to rent at has gone up across the board.
Since tenants have no ability to set the price (they NEED a place to live, one month without a unit is catastrophic and possibly fatal, whereas a unit sitting empty for a month is just an opportunity cost and whatever ongoing costs the unit incurs), they just have to pay the higher rate or leave the area. Or become homeless.
They are? Housing has more than doubled relative to income over the last generation. Wealth inequality is skyrocketing. Black Rock is buying up massive amounts of houses and than immediately increasing the rents and cutting services. It's MUCH harder to actually start a family / have kids anywhere because of the rent being two damn high. Most young people have to live with roommates in the cities. It's no longer possible to even rent a house with a minimum wage job, virtually anywhere America. People have to drive for 3-4+ hours a day to get to their job in the city. And it didn't used to be this way, at least not as bad. I've seen people being squeezed more and more in my own personal life, everywhere I've lived, and I believe that the data supports these observations nationally.
We're literally seeing the wealthiest in society taking more and more of the houses and choke everyone else until they're miserable. You are accurately describing the current situation almost everywhere in America. The landlords as a group are clearly effectively working as a cartel that raises rent prices to the great disadvantage of the renting class. You might call it "what the market will bear" but it's severely damaging the quality of life of the next generation, and it seems like a LVT would just immiserate the renting class even more, the way the current power structures work, as it's passed on from the landlords. Power concedes NOTHING without a demand, and I don't see how LVT gives the renters the power to make any demands. And people's lives can always get worse: people can live 5 to a room instead of just 3 as they are now. They can live in their cars. They can drive 10 hours a day instead of just 6. They can give up, forever, any hope of having kids or owning a house. LVT seems like it's just going to exacerbate the already cartel-like behavior of landlords, which I why I asked for a concrete way that that wouldn't happen.
Do you have any evidence at all that this is the result of landlords forming cartels and not just from limited supply, or are you just speculating that rising house prices are the result of cartels because cartels also raise prices?
They don't need to form a cartel, their behavior is the same either way. Landlords in major cities ARE all raising their prices. They have all the power, and so can do as they please.
They don't seem to address the ability of landlords to increase rent when their costs increase. Which, if the area they own in is desirable, they can. They couldn't in Denmark due to rent control, which is a whole separate issue, and so that study is not relevant to your argument unless you also propose universal rent control. The Denmark study seems to be the main plank in your argument, and it proves nothing except that rent control controls rental prices, which is not a particularly interesting result.
If all the landlord's costs go up, all the rents go up, and the tenants pay more or less 100% of the increase. Not anywhere close to 0% of the increase.
It could only possibly be true that the landlords eat the cost if there is minimal demand from tenants, but in that case, rent is not likely a big issue.
I don't believe that there's some literal cartel with formal agreements between members and such. But it's clear to me that most of the power belongs to the landlords, especially in NIMBY American cities. This imbalance of power is enough to make the landlords act like a cartel, simply by following their own interests. I don't see how LVT shifts this balance of power at all, and absent that the natural result is that the landlords as a group will pass on almost all of the LVT to the tenants. Do you think that LVT will significantly alter the current power balance between tenants and landlords?
One solution, which I like to plug as often as I can, is to move out of cities. I know, that sounds crazy to some people, but there is actual life outside of urban areas. There are places where you can buy a legit, livable house, with yards and trees, for less than $100,000 - in the US. That's even excluding the really run down former industrial towns, including Detroit, where you can get houses for almost literally $0.
I think people get hung up on the lower cash incomes of rural areas, but if you are spending 60%+ of your income on housing, and all of your other expenses are higher too, then only making half as much as you would in a city seems a lot more plausible. Sure, I could easily be making a lot more cash income in a city right now, but I would have a smaller home, no land, and less access to parks, trees, and everything that goes with it.
When I hear about how miserable people are living in cities, often due to high prices, I feel very inclined to point out this alternative. Not everyone wants to or can leave the cities, but everyone who does helps lower rental prices for those who can't.
If we want to go totally theoretical, there is a limit on how much rent landlords can charge before the tenants illegally refuse to pay, elect people who promise to make it legal to build more houses, or straight-up revolt and slaughter them. If the landlords have total control over the supply (which is implied by "building houses is illegal") the rent is already at that point, so it cannot be increased (without one of the aforementioned failure conditions). This excludes UBI, however.
With regard to UBI, there's one interesting thing about UBI as it relates to land rents - if you're living solely on UBI, you don't care *where* you are living. This allows entrepreneurs to build developments in the middle of nowhere and undercut city rents based on land value.
If there were a UBI and an LVT and the landlords still had a lock on zoning such that constructing developments in the middle of nowhere were illegal, then yes, the UBI would get eaten up by passed-on LVT, *but no more* because the UBI is literally all the extra latitude the landlords get before they're slammed back up against revolt. In that case there's little gained but also little lost.
Tax is only one dimension of the problem that we have not enough housing, at least in my country and I imagine it's the same in yours. You do have to fix consenting structures and any other locally relevant blocks to allow more housing to be built. But - switching to this tax does help achieve that. Landholders can't rely on capital gains to generate return from their asset holding and have more a lot more personal incentive to build more housing units on their land. If you do the same for the consenting body and the relevant government agencies then you're getting somewhere and start shifting the supply deficit. Conversely, if you did all the consenting and government things but didn't do the tax part then the individual landowners wouldn't be incentivised to build more and you still wouldn't solve the problem. Necessary but not sufficient.
Lars, could Donald Hagman's 1965 book, "The Single Tax and Land Use Planning: Henry George Updated," actually be a journal article and not a book?
I couldn't locate a book by that title in several usual places, including WorldCat and AbeBooks. However, HeinOnline offers a preview of a paper in the UCLA Law Review by that author, with that title, in its 1964-65 edition.
DOIs are clearly useful for online retrieval, interlibrary loan, and citations, among other purposes. But I couldn't readily find one for this particular article. (It does appear DOIs are being retroactively assigned to older articles from the pre-DOI era, but perhaps that's a gradual process?)
There are a number of DOI registration agencies, https://www.doi.org/registration_agencies.html, at least some of which may allow searching by metadata such as author and title. Crossref is one such registry that's frequently suggested. However my searches there for this article were fruitless: either not finding that piece or encountering "Internal Server Error" messages.
One byproduct of searching for "Donald Hagman" on Crossref, was that the first cites returned were to a couple of journals which published eulogies on his death in 1982, giving impressions of his life, outlook, background, and academic focus. As well, one of those lists titles for several of his other publications. (From this sampling, he does seem to have been well-liked and his work respected, but that obviously doesn't mean his research is beyond examination and criticism.)
If all else fails, HeinOnline (mentioned earlier) offers a 24-hour subscription that includes up to 5 downloads for US $29.95, but am thinking you might well be able to obtain a copy of this law review article at no cost, or at least at a considerably lower cost, through a local library.
The quote from the "Valuer General" of New Zealand is... literally... a fictional quote. That is, Hagman made it up, as part of an explicitly fictional narrative where the Valuer General visited New Chicago, a city on Mars. Now, part of it *is* a real quote from a real person.
"The Valuer General of New Zealand, Earth visited New Chicago. He was asked why all of the land-use control benefits of landvalue taxation had not been obtained in New Chicago as they were reputed to have been in New Zealand. He admitted, however, that many of the New Zealand benefits were mythical. He indicated that New Zealand had adopted land-value taxation principally to break up the large landed estates and that the tax had accomplished this.* He also indicated that "there was no evidence that the tax would (1) control urban sprawl and speculation in land; (2) encourage the construction of 'better' buildings; (3) encourage growth; or (4) cause slums to disappear.""**
* fn 66: Bird, A National Tax on the Unimproved Value of Land: The Australian Experience: 1910-52, 13 NAT'L TAX J. 386 (1960), indicates that the dismemberment of large estates was also a major motive behind land value taxation in Australia.
** fn 67: See Statement of Values General as reported in 27 ASSESSORS' NEWS LETTER 102 (1961).
I can provide the full PDF – DM me via Twitter @RikiScanlan
Interestingly, this link is literally the first result for me when I google "The Single Tax and Land Use Planning: Henry George Updated" (without any quotes, even). And I apparently have access to all of HeinOnline via MIT Libraries; let me know if there are any other articles you want access to around this stuff.
While this evidence is intriguing, I think you'd still need to red team the new rules to really make a compelling argument that they can't be gamed.
Suppose, for example, that one of the metrics used in practice to assess the value of the property is what other properties sell for versus what they previously sold. Great, that's hard data, even if it requires some interpretation; wear and work and so on. But you could easily imagine a degenerate case where only a couple properties were sold, and a cabal of property owners could gather and drive the prices down on those few sales so their taxes are artificially depressed; they then split the difference with the seller.
I want to believe that it's hard to just raise the rents and soak people, but having watched friends try to buy houses in the last year ... sellers' markets are rough for buyers.
A cartel can drive prices _up_ but I fail to see how a cartel can drive prices _down_. As soon as the price drops below the marginal productive value, someone outside the cartel will buy it.
Picture a smaller group (two people, maybe brothers) if it's hard to imagine someone acting in the interest of their partners as well as themselves. If two people own all the rentals in a town, then it benefits them each significantly to play along and keep prices lower, even if one suffers more than the other through low price sales. This is always harder the more people involved, but the core concept may be sound.
There's a different idea called "Harberger taxes" which is an attempt to solve the valuation problem. Basically, everyone self-assesses their own property, *but* this assessment has teeth; the assessment is an offer to sell the property at that price. If I say my property is worth $4M, then anyone who wants it for more than $4M can just write me a check and get the deed (and presumably assess the value at whatever higher number they want).
This unfortunately doesn't line up with a LVT perfectly, because you're pricing both 1) value of the land, 2) value of the improvements that are hard to move, and 3) value of not having to move. As well, the stable scenario is one where all of the assessments are *overestimates*, not one where they're true estimates (rather than the 'market price', i.e. what it would cost when the owner is motivated to sell, they're the price when the owner is motivated to keep).
That's a really cool idea! It sort of reminds me of the supposedly ancient way of proving that you're poorer than someone else: offer to trade everything you have for everything they have and see if they refuse.
I think you could find a clever way around this problem. For example, you could say that buying the land gets you the land but not the improvements on it; the buyer is contractually obligated to set up equivalent improvements on ~equivalent land owned by the seller, of the seller's choosing. Or that the buyer does not get ownership of the improvements, and must either negotiate that separately or lease/rent the land to the seller or refrain from doing anything with the land but sitting on it and enforcing rules of who's allowed to leave and enter. (I imagine all of these can be gamed, but I imagine you can do a lot better, too.)
Such a degenerate case seems very unlikely in a large city, and I imagine that public auctions would tend to be weighted as more reliable evidence than off-market sales precisely because one can game the later to set a price of your choosing. Mind you, if stamp duty still exists in this world then false sales to manipulate valuations become very expensive!
So, I was thinking about the observation that Georgist and Pigouvian taxes both have no economic deadweight loss. On the surface this makes perfect sense: force actors to price in negative externalities, and don't let them benefit from things they did nothing to earn or create.
But the Georgist definition of land isn't just a matter of uncreated wealth, because the value of one parcel of land (especially in cities) is primarily a matter of all the other improvements humans have made to surrounding land. On its face a LVT prevents me from benefitting from those positive externalities, which, fine, I didn't create them. But to me this suggests a problem in regards to defining how large each taxed unit should be. If I own a plot of land and build a house on it, then sure, I have no right to earn higher rent just because someone else builds a mall or a highway or a better school nearby. But what if I buy up many plots and build a bunch of things on them that mutually increase the value of one another? It seems like unless I can somehow arrange for all the land I own to get assessed as a single unit, I'm being prevented from benefitting from positive effects of improvements I myself create. An edge case for sure, but developers do, in fact, sometimes buy up large tracts to build mixed use communities for exactly this kind of reason today.
This, while an edge case, remains a very interesting thing to consider. It was given some attention by William Vickrey in his article "A Modern Theory of Land-Value Taxation", a bit inconclusively: he recognizes a small distortion that arises among a set of parcels under common ownership, but believes that assessing them differently based upon whether they're under common ownership would violate neutrality.
In general, I tend to believe that this distortion within cities should be small enough not to matter, with the exception of whether the *city itself* is the common owner, in which case the distortion ceases to matter, insofar as the city itself is the recipient of the tax receipts.
It matters *quite a bit* in extremely unusual situations (Walt Disney establishing Walt Disney World), which is consistent with the general principle: LVT can be applied fairly regularly on urban land, but is hard to apply to rural/submarginal lands (which probably needs some sort of framework that balances the desire to see new development when appropriate, and preserve wilderness/low-intensity usage when appropriate).
It's tempting to respond "the common developments one sees here (exurban tract development, suburban shopping malls, etc) are rather undesirable and unsustainable (see Chuck Marohn on the suburban ponzi scheme), whereas the development that arises from assumptions of independent parcel ownership (less heavily planned urban developments from the first decades of the 20th century or earlier) are more consistent with vibrant and sustainable practices of urbanism", but that would be too reductive. Clearly, there is *some* worth in large-scale developments, and it may be too restrictive to believe that these should all be public projects. If we *really* wish to encourage these developments, we can jettison the constraint that taxes remain neutral and give a relative LVT exception in accordance to how much of the "positive externalities" are internalized into the project. I'm curious what people may think the downsides of such a policy decision would be.
This is a great response and also gets to one of the more useful qualities of imagining implemented georgism - the problems it asks us to solve are much more interesting than our current tax setup. to me that seems to be because it solves so many stupider first-order problems to start.
This is also the model used by private mass transit corporations in places like Japan and Hong Kong, as far as I know (and by similar corporations in New York and Los Angeles at the turn of the 20th century).
If the tax remains with the city, rather than goes to a higher-level (e.g. state or national) government, that creates another problem. The services (or outright cash payouts to residents) financed by the tax make the city an even more attractive place to live relative to rural towns with cheap land. This increases demand, and drives up land prices and rents even further (so, when movement between municipalities is possible, it doesn't hold that landlords can't pass on the tax, at least temporarily).
Then, at the next reassessment, the government raises the tax further, then it uses the revenue to fund even more services, leading to even more demand, and thus even higher rent, and so on. Rents and taxes both spiral towards infinity.
The root of the problem is that, today, high land prices and rents are the mechanism that cuts demand for land (in the sense of demand that is able and willing to pay) down to the level of supply. Georgism attempts to redistribute the land rent back to the tenants, in effect letting them rent below the market-clearing rent, removing the mechanism that creates a market equilibrium. And I don't see what mechanism would take its place.
I have been thinking about this objection, which Alex Godofsky also raised, and wondering whether it might apply to single lot builders as well, albeit indirectly. If I build, say, an apartment building on my plot of land, there is now more money to be made by surrounding it with grocery stores or office parks or Home Depots. That, in turn, should raise the land value of my plot. Technically this is a "second order" effect, but it's not at all clear to me that it should be small when added up over all the mutually beneficial developments nearby. Isn't that the driving force behind city building anyway?
Thanks for explaining it this way. I saw the other objections and wondered why this didn't already apply to single lot owners. The value of a city is not independent of the value of each improvement made within it. Times Square raises the value of nearby properties, but Times Square would not have been built if those other properties did not already exist and provide a lot of value.
Yes, as I was writing my comment, I was thinking first about offices in a skyscraper, but replaced it with a multiple-lots example because it felt cleaner to me.
If you own land and rent it as a mobile home park, and suddenly you have to pay an additional $25k/yr, and so does every other mobile home park owner in the country, then of course prices will rise. When labor costs rose over the past
> Please correct me if I am wrong. The whole basis of Georgeism seems to me to be "it isn't fair that some fat-cat landowners got lucky and own land and we need to redistribute the value to the people who aren't so lucky."
This is correct. Land is unlike other forms of wealth in that its value is not created by its owner. Therefore any wealth derived from it is pure ecenomic rent
> get really nervous when I see an income redistribution scheme buried in a lot of theoretical hand-waving and euphemisms. At least have the decency to come take it from me directly and honestly, so I can act accordingly.
Let me not hide it then. This is a redistribution sceme.
> In the first article the lede was "the rent is too damn high", which is a function of supply and demand, not exploitation. A true open market would allow a market solution for "the rent is too damn high", increasing supply to meet demand and lowering prices. How might we increase supply of land to meet buyers' demand?
Georgism does not interefere with the effficient market. The fact that rent is at its price is not a result of exploitation. But at the same time the fact that the proceeds of the rent goes to landlords bears no relation to any value they added to the economy. The value of urban land is the result of economies of agglomoration*. Therefore the just beneficiary of the land rent is the people that live in an agglomoration, not the land owner.
*https://en.wikipedia.org/wiki/Economies_of_agglomeration
A thing which confuses me is that the blog suggests that an LVT will not directly increase rents, although it might indirectly increase them if all the awesome benefits of an LVT increase the productive value of the land. Nothing here suggests that an LVT will directly or indirectly *decrease* rents, so it does nothing to solve the problem of the rent being too damn high.
Well Georgism doesn't propose LVT as a way to decrease rents, that is not the point. What it does is move taxation from being on productive activity (labor, investment) to unproductive activity (rent extraction). It doesn't make rents go down, but it does substantially better the economy, and while the renters don't pay any more or less in rent, they have now been relieved from all taxation. Perhaps most importantly, it reworks the incentive structure in place so that land speculation, which does drive prices up, becomes much more difficult or impossible. This also removes many incentives for NIMBYism from residents and governments, making it that much more likely for zoning reform to occur.
A property tax discourages people from constructing buildings on their land, because they have to pay tax on the value of the building, and thus don't get to keep the full profit. A land value tax doesn't discourage people from constructing buildings on their land. So property taxes discourage the construction of structures, and thus increase rent on structures. To the extent that you can replace a property tax with a land value tax, you thus decrease rent on structures (even though the rent on the land remains the same).
An LVT wouldn't technically decrease rents directly, but it would decrease the amount of other taxes the renter has to pay (or would be returned to the people generally in a "citizen's dividend"), so the renters would have more money in their pocket at the end of the month. It would also have the effect of encouraging land to be used for more economical usages, which would lead to more housing if the rent is still too high.
Then the lede should be "Income tax is too damn high!"
This isn't true. The LVT would encourage more development because vacant and underdeveloped lots would be put to use, which would make housing cheaper and increase wages (See Ricardo's Law of Wages), reducing both the true and relative cost of housing.
You increase the supply of land by making it not economically profitable to own but not use land up to its full potential. That's what an LVT does.
You could get the same impact if you simply collected the tax and then burnt it in a hole. Of course, that would not be sensible. So the next question, what to do with it? Well, that sort of relies on your politically persuasion and ethical framework. Georgists believe that land rent is a value derived by the community, as its essentially a reflection of how desirable that piece of land is to use, so it should be returned equally to everyone, essentially as a payment to everyone to respect that individual's claim on the rights associated with that piece of land.
Case 1:
Yes, because even single-family-home owners who don't have any tenants still benefit unfairly from landlordship. Here's an example:
Consider the case of your neighbor, who is renting a house with the same exact layout and lot size next to yours. The rent they pay includes the rent for the building itself and utilizing the underlying land. Lets say that the county decides to build a nice school in the neighborhood over. Both your taxes and the renter's rent go towards paying for it (as the rent paid must cover the property owner's taxes otherwise they'd be losing money). Once the school is built, your property would become more valuable as a result so you are capturing the benefits of the taxes you paid. However, even though the renter paid just as much as you did towards building the school, their best case scenario is that their rent doesn't go up more than usual now, while the benefits of the school go towards the property value of their landlord.
Otoh, with a high LVT, both you and your neighbor's landlord are paying the same LVT. Once the school is built, the land value might be reassessed to be higher. The renter's rent goes up just the same as in the previous case, because the newly provided infrastructure makes the land more valuable. However, now the single-family-home-owner is also charged for the improved infrastructure, whereas before they got it for "free".
If the state builds the school, it’s funded by the taxpayers in any case. The difference is that with LVT, it’s more directly funded by those same taxpayers who are in position (quite literally) to benefit from it (even if in reality they don’t care about the school).
Georgists adovcate for the abolition for nonland property taxes.
A property tax is a shitty version of an LVT, so yes, in current practice, the single-family-homeowner end up bearing of some of the cost while capturing back a lot of the benefit through increased land value as they already own the property.
However, if there was no property tax and no LVT, it would be clear that the infrastructure was paid for by income/sales taxes on the people of the county (30%-40% of them being renters on average), but the increase in land value was entirely captured by the 60-70% of landlords, even if some of those landlords are single-family-homeowners.
It seems the easiest way to move to LVT is to just keep tweaking property taxes until they only tax the land.
The Pennsylvania model seems like it would work well. Pennsylvania has a cool law that lets municipalities set different tax rates for land vs buildings. It worked really well for reducing urban blight in Harrisburg.
As a Pennsylvania property-taxpayer (though not in Harrisburg), I think "the Pennsylvania model" is pretty absurd, certainly as implemented.
My house has fluctuated substantially in value over the last ten years, but its appraised value hasn't changed since 2013, and indeed _can't_ change, by statute, unless I make substantial changes to the property. Municipalities adjust the revenue they collect by adjusting millages.
"as the rent paid must cover the property owner's taxes otherwise they'd be losing money"
Wait... wasn't the argument that the property owner's taxes won't get passed on in the form of higher rent to cover the property tax?
That hypothetical is presented in a context where there is no LVT, but the landlord is still charging the highest price they can. From that income, they pay whatever small taxes they owe on the property in the current system, which pay for the infrastructure improvements that they capture because they own the land. The issue is that the landlord hasn't actually created any value but are capturing a significant portion of the renter's created value (and yes, I'm aware that landlords do spend some portion on property maintenance and payment processing, etc, however, there exist property management companies that will do all of this for a % of your total rent income. In urban/suburban areas, the percentage of rent that goes towards actual maintenance is very small. Therefore, the money that the landlord gains after paying the property management company entirely value that was unfairly extracted by them.)
> the rent paid must cover the property owner's taxes otherwise they'd be losing money
If a landowner is allowed to surrender the land to the state, then it would be impossible for land value tax to exceed the rent on the land, because any landowner who found themself in this position would just surrender the land and continue as a land renter.
It would still be possible if the land was improved in any way (say by structures etc.) since they can't be separated from the land.
"because even single-family-home owners who don't have any tenants still benefit unfairly from landlordship" - just a note to say that this is not the tact to take if you actually want people to come over to your side. Also, your estimation of the contributions of the homeowner to the school quality and the rent rate if property values go up are both not correct - home owners contribute a greater share to local tax base over time and rent rates absolutely go up when property values go up.
"single-family-home owners who don't have any tenants still benefit unfairly from landlordship." - wait, that's not something you can just assume - you describe various reasons why the benefit is very valuable indeed, however, I benefit from it *fairly*, I just bought the benefit and paid for its full value, I have state guarantees on the land deed that it's mine now and if the state wants to take it away from me, the constitution requires the state to compensate me.
You can argue that the land value increases are earned unfairly and deserve to be taxed, fine, you can start taxing the future increases in land value from tomorrow. But simply taking away the *current* land value is not something the state has the right to do.
Case 1a:
Yes, they are taxed on the theoretical rent and yes it would be passed onto the owners, as the HOA consists of the owners of the land, and this is how it should be.
The location of this subdivision matters, right? Lets say that central park in NYC was abolished and a subdivision of 16 homes was built there each taking up 5% of the land, with 20% of the land left as a private park for those who owned houses in the new subdivision. Even though 20% is held by the HOA, it is democratically controlled the 16 home-owners. Therefore, even though their private lots are 5% of the property, they each own 1/16th of that private park and should therefore be taxed for it.
> The HOA is an entity unto itself, and even though I theoretically "own" a portion of the common land, I can't do anything with it, and receive debatable value from it.
This is because you willingly entered that kind of arrangement. Some people do actually 'value' using the land around them like that. Don't ask me to explain it because I'm certainly not one of them, but in so far as government goes, if you want a lawn, then you have to pay for it, regardless of whether its your private lawn or a lawn that you share with 16 people.
> Under Georgeism, are public spaces like Central Park taxed on their theoretical land-rent value?
Well, Central Park is kind of like the HOA example, except that instead of sharing it with your 16 neighbors, its shared with your closest 7 million neighbors that live in the city and pay taxes for its upkeep. I'm not sure about the exact details surrounding NYC's central park, but in principle, the people of the city through representative government _could_ decide that it is private and only allow access for people who live _in_ NYC, just like the HOA could vote to sell tickets to the park that they own.
The Connecticut State Supreme court ruled in 2001 that the city of Greenwich could not exclude non-residents from a city park/beach.
The stated rationale was that it violated First Amendment rights to assembly and speech.
Quoting from the decision:
"We note that, as a general matter, under the forum-based approach
adopted by the United States Supreme Court, courts do not conduct a
particularized inquiry into the manner in which the specific public
property at issue historically has been used. The inquiry, rather, is
whether, in light of the objective characteristics of that property, it is a
street, sidewalk or park in the traditional or conventional sense of those
terms. If so, the property is a public forum for purposes of First
Amendment analysis...
No particularized inquiry into the precise nature of a specific street,
sidewalk or park is necessary; all public streets, sidewalks and parks are
held in the public trust and are properly considered traditional public fora.
Public places historically associated with the free exercise of expressive
activities, such as streets, sidewalks, and parks, are considered, without
more, to be public forums."
http://mason.gmu.edu/~jkozlows/lawarts/10OCT01.pdf
This particular decision only applies in Connecticut, but the reasoning (First Amendment and U.S. Supreme Court precedent) would apply in all states if federal or other state courts agree with it.
Case 2:
Yes, the COA is taxed on the theoretical rent of the land. The COA passes this LVT onto the owners. This encourages good land utilization, because the taller you build the condo-tower, the more owners you have between which the LVT is split. If someone wants to build a single-family-home next to the condo tower, they have to pay the same amount of LVT as all of the condo owners do in total.
It's not passed on to renters - it is collected from the landlord's receipts of existing rents that the renters pay. Because the landlord has a fixed tax burden regardless of how many units they have on the land, they have an incentive to build more units so that they can collect additional rent while paying the same tax.
Right. The tax is baked into the market-set rents. The rents don't go up - just the amount of rent that goes to the landlord vs to the state goes down.
The landowner does nothing to make their land more worthy of rent than any other land, so they can only compete with each other on price, and on the intrinsic features of the land. The intrinsic features of the land stay the same under the LVT, so the landlord doesn't gain any new leverage against a tenant to require the tenant to pay more. It's not like the case where you tax some productive activity, so that all people who do that activity do a little bit less, so they now all have a bit more leverage to charge more from their consumers because there's a bit less supply to go around. The supply remains constant, and the demand remains constant, so the prices should remain constant.
A short answer to Case 1 is that, as an owner-occupier, you have the imputed income that results from not paying rent. This is a fairly standard point of economic accounting: your average Reserve Bank will calculate economic prosperity of a household by including the value of the unpaid rents of owner-occupiers.
Thank you for the article.
Loving this series.
Magnificent stuff.
What is "the liquidity effect" talked about in Bourassa (1987)?
It's not surprising that so many "rationalists" oppose Georgism. They fancy themselves intelligent creators but actually cannot prosper unless they're allowed to own something that makes them money without any real effort on their part.
Frankly, I had never heard of Georgism and find it intriguing. That said, it suggests a radical shakeup of the capital structure of the modern world. I think it is reasonable, given that humanity is better off than at any point in history, to put a strongish prior on radical changes being undesirable.
A large reason why we are better of now that ever is because of radical changes we underwent in the past. Yes some radical changes have worked out badly, but that's why you should judge each radical change on its own merits.
Also, it's only radical in the sense that the status quo is radically unfair. Making something radically unfair, fair, is a "radical" change.
Are there a lot of rationalist slumlords?
"no real effort on their part" - tell me you don't own a home, without telling me...
It's probably safe to say the top comment on the last article, where the guy just bought a $1.5mill home, was prospering just fine without owning land.
Sorry buddy, swing and a miss! I've owned three and sold two. Want to continue making assumptions and demonstrating your cluelessness?
I also am a well-off homeowner, and committed Georgist. (My spouse and I are both engineers for top-tier companies and we own a home close to both BART and Caltrain. We are winners under the current system. We just think the system should not be rigged to squash the economic prospects of people less successful than us. Our town should be a welcoming home to everyone involved in its local economy, both the folks in our "export" industries like tech, and the people who do local services -- baristas, yoga instructors, teachers, janitors, lawncare folks, whatever.)
The two critiques of LVT I find at least worth serious engagement are (a) the issue that we need to step up our game at assessments (which are known to be systematically distorted right now), and (b) the transition would create windfall gains and losses, and a lot of the losses would hit people who are middle class enough to own homes, but not up in the top 10% or so, where people enough wealth _outside_ real estate that a hit to their primary residence isn't that big a deal.
Addressing (a) is purely a technical problem. Between sales of vacant lots, and reasonable statistical methods applied to sales of non-vacant lots which then propagate implied changes in land value to adjacent areas, it really should not be THAT hard to build a model of the value of every square foot of land. This is actually a class of problem that the learning models of the past decade are _very good at_. So I agree it's a thing we have to do, as a pre-condition of trying to impose an LVT, but it's eminently do-able.
And hypothetically you can address (b) with some kind of phase-in process. Have the tax on structures phase out, while the tax on land steps up, over the course of 10 or 20 or 30 years. (On the one hand doing it over 30 is annoying, and you'd risk having the politics shift to reverse the process before you could see benefits. On the other hand, a 30 year phase in really is kind of fair, b/c it aligns to the standard 30-year mortgage. So anyone who bought last year will be able to pay down their original mortgage on the same time-frame that the tax change is phasing in. This is the same reason I'd favor structuring an elimination of the MID by having the cap on how much principal qualifies phase down in a pattern that lines up with the balance curve for a mortgage of the current qualifying amount, at a reasonable estimate of the prevailing rate.)
There is another critique, at least how I now see Georgism (I did not think of this before reading the comments): Georgism kind of replace private land owners by the state, the LVT can be seen as a land rent. This dissociate ownership of the land (that remain to the state) from ownership of private infrastructure built on this land (Houses, factories). This can happen under the current system, but it is not common: Infrastructure owner is often also the land owner. The reason why this is uncommon (I think) is the risk of infrastructure confiscation (by land rent increase), because infrastructures are impossible (or very difficult) to move. I would hesitate a lot (A LOT) building a house on somebody else land, and this somebody else being a state (even my own state) barely alleviate this hesitation compared to building on a private actor land. Expropriation is already something I despise (even if I was never the victim, and understand it's necessity)....
I think it's kind of instinctive too, master of your land/home and all. The fact that you are not on par with the state, basically owner and master of nothing if the state decide against, is not something nice to remember even if it's basically true. Part of the appeal of land/house ownership is this feeling to be in control there, at least. Maybe it's one of those illusion it's dangerous to break ;-)
All land is already, in a sense, owned by the government. It asserts sovereignty over it, and can (and does, all the time) pass laws that change what you may do on that land.
The only change would be who gets the land rent.
This is actually how the Austrian economist (nationality, not economic school) Silvio Gesell saw land reform. He advocated for the state seizing control of all land--with compensation for improvements--and then leasing back to land holders with a fair auction system. As far as I can tell this results in effectively the same situation as George's 100% LVT proposal, in terms of money changing hands.
(Gesell had some other, very complementary ideas for monetary reform which allow for capturing rents inherent in banking due to monetary policy as well. Gesell's "freigeld" demurrage money plus a 100% LVT would likely be enough to fund the full government without any deadweight taxes.)
Land value tax makes land a shared COMMONS not a state owned property.
I question the assumption that many rationalists oppose Georgism. I learned about it through this community and in no other social circle I'm in there's so much excitement and support for the concept.
Same. And I've been consumung quite a lot of left-wing media. Heard zero mentions of Georgism there.
I'm actually quite excited about it now. It helped perfectly unite both of my capitalist and socialist intuitions.
I know a bunch of both center-left and center-right YIMBYs who are Georgists.
Let's not be mean.
Before Lars' review I had never seen anyone *mention* Georgism in these circles, let alone oppose it. What are you responding to?
Thread OP is just throwing out boo lights, like they often do on Substack.
I'm responding to many of the comments on the first part of this series. There was a lot of "I'M SCARED CUZ THIS LOOKS JUST LIKE COMMUNISM WITH EXTRA STEPS!!!"
I wonder how many of these there actually were and to what degree they actually represent the community at large. Seems like a small number of people who are also responsible for a large volume of comments.
Hey, it's not like you hear about Georgism everywhere outside of the ratsphere, and only the rats oppose it. It's more like you almost never hear about it elsewhere, and the opinions in the rationalist community are... mixed.
It's probably because Georgism does not fit in the traditional political divide (and most people are cheering for their team instead of trying to figure out things). One one hand it is "tax and redistribute"; on the other hand it does *not* make the capitalists the bad guys... at least not per se, although I suppose that many capitalists actually understand the game and invest a lot in real estate, becoming also a part-time landlords. (Okay, so maybe this makes Georgism like 80% left-wing, but no one in the mainstream left cares, because they are now too busy making sure there are enough minority CEOs.)
Though there is the popular meme in rationalist circles that you should "rent, not buy", which always made me wonder, given that the best investments I have ever made were real estate and cryptos (and the latter are relatively recent and the jury is still out on their future).
Speaking about real estate and cryptos in one sentence, to me it feels like the land was kinda "Bitcoin, before Bitcoin was a thing". Limited supply, increasing value, unproductive speculative investment... you know, half of the things people say about cryptocurrencies, they actually apply to land, too. It's just that they somehow come as cool insights when talking about the cryptos, and meh what talking about land. Or to put it the other way round, cryptocurrencies are like a virtual land, in a virtual universe; whenever people coordinate on which virtual universe they want to live on, the price of the virtual land in that universe skyrockets.
I suppose that if Georgisms turns out to be true (and kinda obvious in hindsight), it will make many people feel stupid. It will mean that the things they spent large parts of their life optimizing for were not really that important in grand picture. That they could have made much better financially, if they just (at the right moment) took mortgage, bought some land, and sold it a few decades later. Oops, not sold, *rented*; and used the rent to buy more land, et cetera. (And things like "learning the latest JavaScript framework" make only economical sense as a way to get some starting capital, so that you can buy the land during the nearest mortgage crisis.)
"I suppose that if Georgisms turns out to be true (and kinda obvious in hindsight), it will make many people feel stupid. It will mean that the things they spent large parts of their life optimizing for were not really that important in grand picture."
Honestly, this is very likely the case for Rationalists regardless of whether or not Georgism is true. If Rationalists were truly optimizing themselves for success, then you'd expect that they would be dramatically more successful than the rest of the population, which doesn't seem to be the case at all.
This is a good point.
Minor point, "which doesn't seem to be the case at all" seems like an odd observation from where I'm standing. I see a lot of big names in the comment section of this blog and people mentioning that other big names very much read this blog and other stuff from the rationality community.
I grant this might be selection bias, I don't want to claim any kind of rigor -- after all, I'm not talking about the people in the comment section that aren't successful, the people who don't comment that aren't successful, or what the percentages of any of these are versus how they are in the rest of society -- but I did want to point out that I had the opposite *impression* you did.
(Of course, *even if* my impression were true, that doesn't prove causation, only correlation. It could be that very successful people are interested in rationality, not that rationality makes people successful, and I feel like there are good reasons to assume this would be true - successful people tend to have more time for intellectual pursuits, and rationality is one of them. Might be hard to untangle.)
I am extraordinarily successful and I read and comment on ACX mostly to make fun of "rationalists." It's amazing and sometimes amusing how irrational they are despite the label they claim.
Scott sometimes asks interesting and thought-provoking questions, but his followers are almost never on his level intellectually speaking. I suspect the "big names" you see are more likely to be people like me than those who actually believe themselves to be rationalists.
That's entirely possible (although I do rather doubt it, since I do know quite a few successful self-identifying rationalists personally - my social circle is just too small to be statistically relevant, since I'm an introvert). Case in your point, I don't really consider myself a rationalist but would also consider myself very successful - that said, I also think my shirking the label is probably at least partly a sleight of hand on my part. :)
I very much *don't* make fun of rationalists (nor much of anyone else, actually, to be fair, I like varied perspectives), am friends with a lot of them, very much enjoy getting inspired by them, very much enjoy attending the European LessWrong Community Weekends and reading science-fiction stories to the attendees (eh, it's just kind of my shtick), but just don't have the time or dedication to be invested in rationality in a way that would make me feel like I'm any proper part of the community. More stably orbiting at a distance. Does that make me a rationalist? Various people have said "yes". I'm shrugging and think it doesn't matter much either way; for transparency I continue to clarify I'm more in-orbit, though, whenever the topic arises, but arguments for either state can be made.
I take it you don't think you're a rationalist at all, by any measure? If you don't mind my curiosity (and feel free to tell me to shove off, or just ignore the question), what does that mean for you? Presumably you're not the polar opposite, either (I'm picturing 'the opposite' as someone who deliberately tries to increase their own cognitive biases).
> I take it you don't think you're a rationalist at all, by any measure?
...but simultaneously, do you assume that *everyone else* you see commenting on ACX *is* a rationalist?
How are we defining success? If we're talking about "successful people" in the sense of celebrities, politicians, famous billionaire CEOs, etc., then it's clear that no one in the Rationalist movement has anywhere near that level of wealth, power, influence, or fame. Bostrom might be the sole exception, as he's a famous academic who's written several award-winning books and is seen as a leader in his field. Hanson is likewise a very well-respected academic in his field, though not as famous as Bostrom. And Scott is the one who's closest to being a household name, since he has the most mainstream appeal of any of them. But Bostrom, Hanson, and Scott are far from representative of the average Rationalist, and most of their fame and prestige is for reasons unrelated or at best tangentially-related to Rationalism. Even Yudkowsky isn't on that level; he's famous within certain internet circles, extraordinarily influential within the Rationalist movement itself, and probably quite well-off by now, but he's still ultimately a big fish in a very small pond.
If we're using a more modest definition of success - for instance, just comparing their income, savings, assets, etc. to the rest of the populace - then I'd expect that Rationalists on average are probably a slight bit wealthier than the median person in their country, but only because they tend to work in STEM fields and those tend to pay well. Once you account for occupation, I'm reasonably certain that Rationalists wouldn't be better off than anyone else. In fairness, I really don't think they'd be worse off either (though if there *was* a significant difference in life outcomes between Rationalists and everyone else in one direction or another, then I find it considerably more likely they'd be worse off compared to others in the same line of work, rather than better off, just because people who subscribe to fringe ideologies and movements generally tend to be worse off than the average person). You could argue that adjusting for occupation isn't fair, since the fact that so many Rationalists work in STEM fields is a point for Rationalism in itself, but I find it more likely that Rationalism simply tends to appeal to people who already have STEM inclinations, rather than specifically encouraging them to go into STEM in the first place.
There are more abstract definitions of success too, like personal happiness, physical and mental health, robust social lives, and so forth, but those tend to be a lot harder to measure and quantify, especially on the group level. And my intuition tells me that Rationalists would not fare exceptionally well in those categories either, though it's really anyone's guess.
From the base rates perspective, the fact that e.g. "only a few rationalists become world-famous" is only important if the control group does better or at least just as well. -- Like, if everyone else's chance to become world-famous is 1:10000, but being a rationalist increases it to 1:1000, that would be awesome... and simultaneously, mostly invisible.
As you say, a fair control group would probably be controlled for profession, so like a random selection from population, proportionally weighted towards STEM.
We would also have to somehow measure the changes in profession that people make because they are rationalists. For example, who is a counterpart of "a software developer, later a rationalist, later an entrepreneur" -- an average software developer, or an average entrepreneur? Well, a certain fraction of non-rationalist software developers also becomes entrepreneurs; but how does this differ from the fraction of those who are rationalists?
So, doing exact numbers would be hard. And without exact numbers, the problem is that some things are difficult to see. Like, imagine that I have a magic button, and if I press it now, every rationalist will become 2× as rich, 2× as famous, and 2× as happy as they are now. Okay, I clicked the button... what do you observe? If you are one of them, you see a dramatic change in your life. If you are not one of them, you probably see nothing: the number of world-famous rationalists has not changed significantly, maybe it did not change at all. But if you couldn't even observe the effects of this magic button, how are you going to observe the effect of being a rationalist? You can perhaps say that it is smaller than a magical "10× everything" button, because that one would probably already be quite obvious from outside (e.g. after pressing such button, most rationalists would early retire, so there would be a lot of "so how do you guys enjoy your free time" in the comments).
+1 to Huluk's point. I also learned it from this community. And when I talk about it to people who've never heard of it, the biggest opposition comes from, in order of effected anger:
1. conservative-minded people that say "then what did my parents pay this house for"
2. marxist types that see it as perpetuating evil capitalist practices
3. standard-issue liberals that smile condescendingly and start talking about the importance of having many different taxes and fixing social problems with ad-hoc benefit programs
It suffers from the same problem as most syncretist ideologies, which is that people on the right view it as fundamentally leftist ("it's just a step away from collectivizing land entirely and that's literal communism!"), people on the left view it as fundamentally rightist ("it's just another attempt to reform a fundamentally cruel and unjust capitalist system!"), and people in the center just dismiss it for being a weird fringe idea.
Personally, a lot of the core assumptions of Georgism seem correct to me. The main reason I'm not an outright Georgist is because I don't see any clear path to get from the modern system to a Georgist one without dramatic changes that could risk destabilizing the entire economy. I would probably support attempts to implement Georgist ideas through a gradual series of incremental reforms, but I'm not entirely sure what that would look like.
I'm also rather skeptical of ideologies that claim all of the problems with society can be fixed with One Weird Trick (whether it's doctrinaire "free market will fix everything" minarchist libertarianism or Marxist communism), and Georgist claims pattern-match just a little too closely to that sort of mindset. It doesn't help that a lot of the Georgists I've spoken to have given off strong missionary vibes. But that's more of a personal intuition than any solid ground to dismiss Georgist ideas in themselves.
> It doesn't help that a lot of the Georgists I've spoken to have given off strong missionary vibes.
Including many who have shown up in the comments here.
I don't get the point of Part II at all. It's like someone said at some LVT meeting "but the taxes will be passed onto the renters" and everyone panicked, because they love the renters and hate the landlords, and so they tried to justify that, no, relax, we are only hurting the outgroup with this.
If an LVT is efficient (and I think it is), it doesn't matter where the tax falls. But spending 1 of 3 parts to show that the oxen being gored are only those of the bad group is weird, probably wrong, and irrelevant.
I think the more realistic and honest answer is that, yes, in many cases, renters would bear a significant portion of the cost *in the short term*, but in the long term renters would be much better off in average. (In fact, if LVT works as well as Georgists claim, then *everyone* - including landowners - will be better off in the long term, but especially renters.)
Roughly half of adults own land, and a switch to an LVT would hurt them in obvious ways. If anything, you would want to convince people that lawn-owners aren't going to be especially screwed.
But from the Georgists who showed to infest the comments on part 1, lots of them would rather scream at land-owners than accomplish their goals.
And "would rather scream at their outgroup than accomplish their goals" might be the perfect description for minority political groups!
Just let them write off purchase price plus inflation in the lvt
If it were the case that the tax were passed on to the renters, then (1) that would by itself be a non-starter since people who rent largely can't afford the cost of living doubling overnight; and (2) it would undo all the proposed benefits of the LVT which derive from changing the distortive incentive structure about land speculation. With that in mind I think this is a very reasonable objection to devote an article to in the sequence.
How is Marxism "one weird trick"?
Alright, I'm going to try *really* hard to take this question in good faith and respond accordingly.
It's hyperbole, meant to play on the tendency of shady online advertisements to make dubious or outright false claims about how various ailments can be solved through "one weird trick." Obviously Marxism is not literally "one weird trick," nor is free-market libertarianism for that matter; these ideologies and their prescriptions for society are in fact incredibly complex. Nonetheless, at the core of these ideologies is the notion that a particular set of policies can be used to fix most or perhaps even all of the problems with our society, and beyond that, to fix most or all conceivable problems with any society (since these ideologies are designed to be fully generalizable and universalizable). This notion seems incredibly misguided to me, as human society is simply too complex for its problems to be addressed by *any* wholly theoretical framework. Furthermore, every society and time period has its own particularities that must be understood and addressed in their own right, so the idea of any system being fully generalizable and universalizable is itself extremely flawed. While this does not mean that improving society is impossible, it does mean that positive change will generally come through experimentation with different policies in different sets of circumstances, and not through a single set of policies designed in advance on theoretical grounds. Thus, from my perspective, the claims and prescriptions of Marxian economic theory can be viewed as analogous to the solutions proposed by those "one weird trick" advertisements and mocked accordingly.
Wouldn't that same criticism be equally applicable to say, capitalism (or liberalism)? Is human society simply too complex for a system as generalized as capitalism?
Since you're into experimentation with different policies are you generally in favour of the socialist experiments that are currently being undertaken (e.g. Cuba)?
Well, "capitalism" is a very broad term that can be applied to any economic system in which capital is privately owned, so capitalism (unlike Marxism) isn't inherently tied to a specific plan for how society should be arranged. That said, there are some capitalist ideologies that *do* propose a specific plan for optimizing society (such as the obviously Hegelian brand of globalist neoliberalism espoused by Fukuyama, or the free-market libertarian utopianism of Austrian School thinkers like Hayek and Mises), and I'm highly critical of those for the exact same reasons that I'm critical of Marxism.
As for experimentation with Marxist-Leninist policies, I don't see much need to experiment with systems that have already been proven to consistently and spectacularly fail, without exception. I don't think much good would come from experimenting with Nazi or Ba'athist ideas, for instance. Given the disastrous track record of Marxism-Leninism in the USSR, Maoist China, and elsewhere, I don't think much good will come from yet another attempt to implement those ideas either. And my support for political experimentation has its limits; I would oppose political experiments that would result in widespread violations of human rights, which was always the outcome of Marxist-Leninist regimes taking power.
I also think you're rather misunderstanding what I meant. My point was that *instead* of trying to change the whole system at once, we should experiment with policies a la carte, to see which ones work and which ones don't. Marxism-Leninism is explicitly built around changing the whole system at once, so you *can't* really try to experiment with it in piecemeal fashion. But if you're talking about "socialism" in a broader sense and not Marxism per se, then sure, there are probably some socialist policies that haven't really been tried on a large scale yet and could be implemented within the existing framework without totally overhauling the entire system at once.
Or, as Georgists themselves put it: https://i.redd.it/jtlvie0jdya61.png
Is there an established link between Georgists and Furries?
The kitty behaviour is in reference to "seeing the cat" https://www.henrygeorge.org/catsup.htm
Most of the folks I know in my local neolib circles, including the guy who runs the YIMBY Neoliberal account, are, if not actually Georgists, at least sympathetic to Georgism. I dunno if it's universal, but it seems like Twitter globe-with-meridian folks are majority at-least-friendly on Georgism.
Owning something that makes you money on itself is called investing. Or long time preference. You suggest banning investment to focus on immediate returns, i.e. short time preference. There are many societies built around such a principle, so moving to such a place is easy. Many enjoy nice warm weather too :-) Well, ,built around is maybe not the right formulation. Trapped there may be better...
What do you mean? I already live in a place with overwhelming economic short time preference. It's called America.
Greg's argument was bad, but snarky comments like this aren't helpful either and only serve to further drag down the overall quality of discussion.
I'm somewhat critical of Georgism myself (see my posts above), but claiming that Georgists support "banning investment" is just obviously incorrect, to the point where your argument comes across as being in bad faith. At most you can argue that they support banning one particular type of investment, but even that's not quite right. It seems like you're just unfairly equating Georgism with Marxian communism on the basis of some perceived similarities.
I was reacting to a general criticism of buying stuff in the hope they will earn you money for nothing (i guess no or minimal work), which is indeed a definition of investing : consume resources now so that it will bring you more resource later.
By the way i agree with a later comment: it's tempting to differentiate investing (morally good) from speculating (morally bad) and i do it all the time.... But in fact it's extremely difficult to distinguish the two objectively : suppose you buy stuff because you think you can use it to earn you x per year. Now your neighbor think he can earn y>x per year with it, and want to buy your stuff, at a higher price obviously. You sell your stuff... Was you initially buying stuff speculation or investment? Seems you need to know if your initial estimation of earning x per year was in good faith or not, so not objectively decidable...
Now on georgism: it effectively replace private landlords by the state, in fact you can not really own land, just rent it. You then have to build stuff on rented land.... This is done, sometimes (ampheteotic rents of 99y, countries where foreigners can not buy land but can build, renters home improvement) but the risk of confiscation is so high that it is very uncommon. That's my 3rd argument againsr georgism...
1) fast transition to georgism is a fast and large regulation change, which is inherently unfair because people adapted to pervious regulation. Unstable regulation promote short time preference which kill investment and long term projects
2) Georgism in fact replace private landlords by the gouvernement. This may be a win if gouvernement is better in some sense than private actors, but it's an important concentration of powers and reduce choice of landlord... Which is very dangerous so bad.
3) it means improving or building on non-owned land, which is universally frowned upon due to large risk of confiscation of large non fluid assets.
"t's tempting to differentiate investing (morally good) from speculating (morally bad) and i do it all the time.... But in fact it's extremely difficult to distinguish the two objectively "
It's not. Investing creates something, which you hope will be valuable and earn you a return. Speculation does not create anything.
More accurately, it's a question of timing: if your asset evaluate, it's because the market believe it could earn more (or it's a bubble, but then it's speculator against other speculators - which is how I now see the stock market). So speculation is selling before your asset has the chance to produce, while investing is doing at least some production before selling? How much do you need to wait producing before selling to be considered a (good) investor instead of a (bad) speculator? And do you need to produce yourself, or other producing with your investment count?
Investing in a business carries risk, and investors ought to be rewarded for that risk. The risk-premium return of an investment is not rent-seeking.
Investing in land carries no risk inherent in the investment itself, as the reward of appreciating value is due to the external work of the community which surrounds it. Profiting off the appreciation of land is 100% an economic rent.
This distinction is critical.
Buying a thing on the theory that you will be able to _sell it again later for more money_ is not investment. It is speculation.
_Investment_ is buying a thing because you believe it will produce a stream of income, by way of producing goods or services that others will be willing to pay for, as an ongoing flow.
And Georgism does not ban land _investment_. If you think you can buy the land and put it to a use that will produce greater revenue -- e.g. buy a vacant lot, and put an apartment building on it, and charge rent for the apartments -- then great, invest in the land (and the apartments).
A Georgist LVT makes land _speculation_ un-profitable. Which is good, because the speculator adds no value to the economy, and deserves no reward for simply having been in the right place at the right time. The speculator's profit derives entirely from the rest of the community's investment in making the land location more desirable.
One might reference here Warren Buffet's comments on gold, which is a purely speculative asset:
<blockquote>
Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A.
Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?
Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators – must continually absorb this additional supply to merely maintain an equilibrium at present prices.
A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything.
You can fondle the cube, but it will not respond.
</blockquote>
(Because of this quote, I often think of people who play up speculative bubbles as "cube fondlers".)
This is an excellent post.
It is a silly post because a terminal payment when you sell the asset is just as much a stream of income. There is no difference between investment and speculation. The latter is just a boo word.
If you can't understand the difference between an asset that is used to produce income _flows_, and an asset that is _purely_ a stock, well, that's on you.
This seems to commit us to saying that buying a zero-coupon bond is wicked in a way that buying an ordinary bond is not.
It is the same thing from a microeconomical perspective (i.e. when you're calculating a ROI). It's a very different thing from just about any other perspective.
No, snortlax is right : distinguishing the two is a moral judgement, and quite arbitrary. You needs to know the intention of the entity who buy then sell the stuff to decide off it's speculation (no plan) or investment (the bought stuff would be used somehow). Or even estimate if they would have bought it on the first place of further sell was impossible, like for art pieces for example...
I am not the last pesting against those damn speculators, but it's really a somewhat arbitrary moral judgement.
Investing creates - or tries to create - value. How does buying and selling an asset create any value?
- or tries to create - This caveat inherently makes investing very difficult to differentiate from speculating: you need intention, which is internal to the buyer. And a wise investment needs to factor residual value after production, else you can invest in things only if you plan to use them to death. Once that is done, speculating can be seen as investing with a too short use period....What is too short?
The gold example is also very interesting, as people buy gold not only because it could appreciate. It fact, they buy it (mostly? at least that's always the reason I thought about buying some) because it is somewhat resistant to catastrophic depreciation, like total loss either by bubble collapse, economy crash, or regulatory confiscation...
That's also a traditional reason to buy land...
and store cash, when negative interest rates or bank account freeze are looming...
hum, there is some common pattern, maybe also why I tends to become more frightened of Georgism the more I read the comments: The advantages are real, but you need trust in the government/system.
Regarding part III, there is a critical subtlety in the question of "can you measure the unimproved value of land cleanly", and how that relates to the idea that the tax has no deadweight loss.
The normal sense of "unimproved value of land" is: if I took this particular parcel of land and knocked down the building, what would it be worth?
A subtle feature of this definition is that the value of land is sensitive to parcel size and is not linear. That is, two separate parcels A and B are worth *more*, added together, than a parcel C combining them would.
The reasons for this is the same as the reason that the LVT notionally raises a lot of money with no deadweight loss: because most of the value of any specific parcel is spillover - a positive externality - from all the improvements on the neighboring structures and really most of the structures in the region. If someone builds an apartment building in one parcel, the neighboring parcel becomes more valuable because you can put retail on it. A developer that owned *both parcels* could internalize this externality by building both structures - but if the parcels are taxed separately, then the developer is actually paying a tax on its structures! It pays a tax on the retail by way of the apartment-land and on the apartment by way of the retail-land.
It's important to note that this is not a hypothetical. In general this sort of thing - buying adjacent parcels and building synergistic structures on them - is fairly common. (There is a lot of it going on in Tysons Corner in Northern Virginia, near where I live.) Even more specifically, this is a norm for the development of suburban subdivisions - a single developer buys up the land for the entire neighborhood, builds a bunch of houses (and amenities like pools, sometimes), sets up an HOA and so on, and then sells the houses. This is profitable because the houses are worth more in a nice little neighborhood than when built one at a time as stragglers off of a main road.
So: if you take parcels as fixed and immutable, there is actually a deadweight loss from an LVT.
Is there a way to get around this? Well, you could allow people to combine parcels for the purpose of appraisal, and try to revalue the combined parcel without *any* of the buildings on it. But this creates a straightforward tax strategy in which ownership of ever-larger contiguous regions is combined so that more and more spillover value gets subtracted out and the tax base is eroded. (In the limit you value the Earth as a single parcel with no buildings at all, and ask "what is the value of a square kilometer of Manhattan if no buildings exist in the entire world?")
The existence of nonzero (and nontrivial) deadweight loss really changes things. The general rule with deadweight loss of taxes is that, for a given tax, it's proportional to the square of the tax rate. So for an LVT with an extremely high rate, this could be quite serious. But in particular this informs the comparison with an equal-revenue property tax.
The LVT falls on land and the property tax falls on land+structures. So the property tax has a larger base and a lower rate, but the structures portion of the base has a big coefficient for the deadweight loss while land just has what we have above + whatever you get from other problems in land valuation. The result is that, unless you actually know all of the relevant parameters, it's ambiguous which of the two taxes has a higher total deadweight loss.
Finally: it's overlooked, but a large, large portion of the tax on structures *also* has no deadweight loss: the tax on structures that already exist. With the exception of a few structures that might actually be torn down, you cannot disincentivize the construction of a building that already exists. So simply eliminating property taxes is a windfall to that particular factor, and - why pay out a windfall? As long as we are doing estimates and approximations, I personally favor reforming existing property taxes to have abatements for new improvements rather than trying to go full LVT.
I probably should have drafted this somewhere other than the substack comment box before posting oh well.
It's good. I'd look forward to a compilation of these critiques in a future article by Lars. Maybe Q&A style.
Note to Lars: that'd be really cool of yah
I guess I know what I'm doing for the next few months
This is really a false dilemma- improvements don't increase the land value of the land on which they are built, but they can still increase land value outside of their footprint within the same plot. Your valuation 'contradiction' just an artefact of subdivision, but it is entirely possible to value land on a per-square-foot basis. Part III of this article will talk about assessment methods which answer this question.
It is not a false dilemma. Either your assessment method ignores most of the exist value of land, *or* it definitely falls partly on improvements and therefore has a deadweight loss. Realistically, every method would pick the latter - it will result in some people who would have internalized positive externalities facing a disincentive to building improvements.
Okay, is this a testable hypothesis that raising the rate of LVT, absent all other effects, will have a negative effect on, say, building density?
It's a theoretical argument on the same terms as the theoretical argument that the LVT has no deadweight loss. I have no interest in trying to come up with a sufficiently-powered study that you could do, particularly absent dictatorial control over tax policy.
Sure, but the point is we could look for it. And the thing is, many of the studies cited in this very article claim to have at least partial evidence for this very hypothesis.
So in other words, you are not willing to commit your theoretical critique of a tax endorsed by a list of Nobel laureates to any sort of real world implications which we can and have measured?
lmao buddy I don't care who endorses it. FWIW the entire empirical section of this post is irrelevant to me because I require no convincing that LVT falls on land not tenants.
There were a couple of threads in yesterday's post along these lines. For a long term residential owner living in their own house, they have an incentive to restrict what their neighbors build, because that could raise their own land value and therefore LVT. Over time this is quite common in real life, and we have a name for this type of behavior - Gentrification. It would be worse if we were attempting to gain more of our tax base from LVT instead of multiple sources. I personally don't have a problem with gentrification, but I also don't live in a city and don't have a stake in it.
Are you making a testable hypothesis that increased in LVT will lead to a roughly proportional increase in building restrictions and a consequent decrease in building density?
No, I think building density can and will increase with an LVT. I think it will do so at the expense of any current housing, which is often identified as a problem of gentrification on one end and NIMBYs on the other. NIMBYs try very hard to keep developers out, even though they would raise property values, and that's the behavior I am talking about. LVTs will make it harder for them to succeed, because it moves the question one step further back, to the land becoming more valuable (and more desirable) in the first place. NIMBYs win either way in the current system, as their property is worth more and they could sell or rent it for more than before, *or* (usually) choose to stay there. The property owners under an LVT can't choose to stay without paying huge penalties.
Looking into how real estate development I am not convinced about a plain assertion that " improvements don't increase the land value of the land on which they are built" in the general case. While this may be true in the case of a single small plot of land (e.g. a parcel for housing or a store) where all (or, which would be a crucial difference, *almost* all!) of the value created by the improvements would "spill over" to the neighbouring plots of land, this does not seem to be true for large plots of land.
For example, it's undisputable that the land value of all the land in a town is much higher than the land value of all that land before the town was built or an otherwise equivalent location which is not currently populated. In that regard, if someone owned a large plot of the land and developed it into a small town (or a gated community), the land value (and potential land value) of it would definitely increase. However, if they did it without dividing the land and selling it to the inhabitants but merely renting parcels it of it, then the land value (or the value of potential rent) would significantly increase, because all the "spillover" from improvements from one home to another, from a store or a park to the home and vice versa, all that interaction would happen inside of one (large) plot of land on which is owned by a single entity, and they would have directly increased the value of their land through these improvements.
This raises the question about whether subdivision affects things. In a hypothetical simplified example of only two neighbouring plots of land, building an improvement of one will often raise the value of the neighbouring land. Georgism proposes that plot A should be taxed on the unearned value increase created by the improvements on plot B; and plot B should be taxed on the unearned value created by the improvements on plot A. However, if someone owns *both* these plots, they effectively get taxed by the improvements they made on their own land, which IMHO can't be considered unearned income.
Subdivision of land is something that comes up in the literature. I don't think I addressed it head-on in part 3, but you can think of it as being something like zoning that has an effect on the land value because it changes how that land is practically able to be used.
That is to say, any method that uses multi-parameter hedonic regression can take land parcel size and shape into account during the assessment process.
The problem is that even if you assess the value of each parcel correctly, it's unfair and unproductive for the State to tax the owner of two properties for the value that their two properties give to each other. If a developer takes a field next to a freeway, builds 100 houses and a store, and tries to sell them out individually, the underlying value of the land on under each home has increased under his ownership, but clearly he is responsible for that. My understanding is that LVT would call him a thief for owning land that goes up in value, ignorant of the landowner's creation of that value, and tax it all away from him. Is that wrong?
Hm. I think "a thief" is putting it too strongly. Surely it's OK to simply recognize that the developer had a good plan and good follow-through and overall did a good thing, and as a result the land is now worth more and can be taxed more? If the developer wants to do all that work and then sit on empty houses, that seems like a bad thing, and to me it's fine that the LVT discourages it. If the developer wants to sell or rent those properties right away, that seems like a good thing, and to me it's fine that the LVT encourages it. When I hear about investors buying up new condos and keeping them empty, that to me seems like a sign that something is wrong with our economic system, something that an LVT might help fix.
Also, back to your example, isn't it the case that some, if not most ,of that extra value comes from the people living there? Imagine what would happen if you moved there, and then so did 99 of the worst people you've ever known or heard about, such that within an hour you are being literally eaten alive. As you are slowly turned over the spit, wouldn't you agree that the value of your property is less than that of a bare field of land in the middle of nowhere?
So, when the first person buys a chunk of that land with one of those houses, it seems to me that the increase in land value is best characterized as a form of speculation on the nature of the other people who will come to live there. My above example is obviously extreme, and the average case should have roughly average people (for that region). So I suppose a counter-argument might be that the extra value is created by the developer acting like a gate-keeper: even when they don't actively select the new owners, they restrict the pool of potential owners by simply building certain types of improvements and setting up the neighborhood a certain way and advertising a certain way.
"The law of society is, each for all, as well as all for each. No one can keep to himself the good he may do, any more than he can keep the bad. Every productive enterprise, besides its return to those who undertake it, yields collateral advantages to others. If a man plant a fruit tree, his gain is that he gathers the fruit in its time and season. But in addition to his gain, there is a gain to the whole community. Others than the owner are benefited by the increased supply of fruit; the birds which it shelters fly far and wide; the rain which it helps to attract falls not alone on his field; and, even to the eye which rests upon it from a distance, it brings a sense of beauty. And so with everything else. The building of a house, a factory, a ship, or a railroad, benefits others besides those who get the direct profits.
Well may the community leave to the individual producer all that prompts him to exertion; well may it let the laborer have the full reward of his labor, and the capitalist the full return of his capital. For the more that labor and capital produce, the greater grows the common wealth in which all may share. And in the value or rent of land is this general gain expressed in a definite and concrete form. Here is a fund which the state may take while leaving to labor and capital their full reward. With increased activity of production this would commensurately increase."
"Q6. If a land-owner builds, does not that increase the value of his land and consequently the amount of the tax he would have to pay? If so, would not he be taxed for his improvement?
A. No. Upon the value of the building he would never pay any tax. It is true that his improvement might attract others to the locality in such numbers as to make land there scarcer and consequently dearer. His own lot would in that case rise in value with the other land and be taxed more, just as the rest would be. But that would not take any of his labor in taxes; he would still have his building free of taxation. Thus: If on a lot worth $1000 a building worth $1000 were erected, making the whole worth $2000, the tax would fall only upon the $1000 which represents the value of the lot. If land then became so scarce that the lot rose in value to $1500 the tax would be raised. But the owner's improvement would be still exempt. When his property was worth $2000 he was taxed on $1000, the value of the lot, leaving $1000, the value of the building, free; and now, though he is taxed on $1500, the value of the lot, $1000, the value of the building, is still free." http://www.wealthandwant.com/themes/Neighbors%27_Actions.html
"If the developer wants to do all that work and then sit on empty houses, that seems like a bad thing, and to me it's fine that the LVT discourages it."
The point about deadweight loss is that the developer isn't simply going to plan to sit on empty houses. At the margin, the developer has less incentive to go forward with the development, because potential profits are heavily reduced by a high-rate LVT capturing much of the value increase in higher taxes.
The Danish study indicating that home prices capitalize the discounted present value of future land taxes into lower sales prices actually reinforces that point, because the price paid by homebuyers will reflect the post-development tax increase.
Most of your example is just the developer capturing the value created by the freeway which presumably links these 100 houses to some denser area were these future residents can work and pursue recreation. Adding a single store into the mix doesn’t change the game.
Plop that same 100 house development and store onto a cattle road in Nebraska and he will have created essentially no value.
There are a lot of fields next to highways. Should they all be, right now, land value taxed at the land value rate of the development that could be built on them ?
Yes
If what you say is true, then the value of large undeveloped plots next to the freeway would be identical or comparable to the total value of land after this development has occurred. This is not reflected in reality, there is a very large increase in land values.
My hypothesis is that this value is largely created by solving the coordination problem between these 100 people; they could just decide to settle there together at the same time and found a community (and capture the value increase themselves) but it's hard to do so, so it does not happen as much as people want, so people are willing to pay a premium to build on land where someone else has done this coordination and arranged the other 99 potential neighbours. And since they're demonstrably willing to pay a quite large premium for that, it indicates that this service is considered valuable and useful.
> This is not reflected in reality, there is a very large increase in land values.
I would be interested to see how you are supporting this assertion. 100 certainly does not seem to be enough people to move the needle on agglomeration effects increasing land value, and that really you are just including improvements like roads, sewer, utilities etc
Even independent of those I would pose the question of how much of a value difference would exist if half of the units sit vacant? It still seems that the value is added by the residents themselves, and not simply the structures and infrastructure provided by the developer.
I should add that Adam Ozimek has a variation of this critique here: https://www.forbes.com/sites/modeledbehavior/2015/03/29/the-problem-with-100-land-value-taxes/
Assuming taxes are assessed annually or every two years, perhaps this would incentivize faster more efficient development. Buy, develop, and flip before the reassessment.
"Finally: it's overlooked, but a large, large portion of the tax on structures *also* has no deadweight loss: the tax on structures that already exist."
Does this work? I mean, it seems like the same as saying "taxing candy bars has no deadweight loss, because you can't disincentivize making candy bars that are already made. So it can't decrease supply, so it can't affect price."
Isn't the expectation of a tax enough to disincentivize the construction of new buildings?
The portion of the tax that falls on new structures has a DWL. Just not the portion that falls on existing ones. The distinction is conceptually important because, first, it means that replacing the property tax with an LVT means some asset holders receive a windfall (which is suboptimal because it means you need higher rates than otherwise to pay for that windfall, at a given level of revenue), and second because property taxes can be modified to attempt to exclude new construction, if only partially. Many places offer abatements for new construction and this can substantially reduce the deadweight loss of the property tax.
I still feel like I don't fully understand. To define terms, by "new" we mean "after the tax was introduced" and by old we mean "before the tax was introduced"? Or do we mean something more like "built in the last 5 years" vs "older than that"?
Assuming the first, it sounds to me like, yeah, you can adjust taxes on things that already exist without retroactively affecting their existence. But you could only do that once. If you made a habit of starting to say "that building's old enough to be taxed" then it would incur a deadweight loss through the same expectation mechanism.
I'm having trouble thinking it through, but it feels to me like, for that reason, the windfall would only be a one time cost. So you could offset it just by charging a proportional fee, once, if that was important to do.
Yes, "new" means literally "anything built after the tax was introduced". And yes the time inconsistency problem is there. The intermediate solution is after new construction or improvement, you exempt the value of the new construction from the taxable value for a period of time. Thus there's still some disincentive from the tax but it's in the future so has a lower present value, and in the meantime you've mostly averted the uncertainty of "what if the government reneges on the deal".
An example that may be closer to the lives of the audience here than Tysons Corner is the Googleplex. Google owns offices on a huge swath of low-quality land in Mountain View. That land is now quite valuable, as it's in easy commuting distance from a high-paying company. And yet, if Google hadn't built it, it would just be crappy land near the salt flats of the southern SF Bay, where no one would want to live.
Right. Building a nice public restroom would count some towards the land value of the private land around it(as it isn't an improvement on any piece of private land) allowing the value of it to be recaptured by the public in the form of LVT.
If instead a private entity bought that same land and built the same set of restrooms as the above with private access only to their adjacent private plot of land, then all the spillover value would go to their adjacent private plot of land alone.
That spill over would now count as improvement value, and not count towards Land Value anymore and wouldn't be captured as LVT Revenue.
So there's an incentive to private individuals to turn public spillover into their land value into private improvement value
I think you are spot-on on the Land-subdivision-determines-Landvalue paradox. Tbh, it sounds more severe than any of the 3 counterarguments, that get a blogpost to refute them. I wonder if that is because it is not brought forth by so many people, or because there is not a good way to refute it.
OK but like, there's not enough houses in America being built to satisfy the demand. So the landlords can just charge whatever they want because there's not really anywhere for people to go? Maybe their property values decrease, so they don't want to sell their houses, but why should that have any effect whatsoever on rent prices? If you implemented this LVT tax, what prevents a landlord from passing it on to the tenant if every other landlord is also passing it on to the tenants, and no one is building new houses because building new houses is illegal? People have to live somewhere and moving is very hard.
I was really hoping this section would be convincing but I just can't see how this would concretely change the situation in America. I guess I just don't believe the Danish study because presumably it's not illegal to build houses there or something. Help me understand how this applies to America. Can you explain, concretely, how in a city where landlords are already gouging people on rents and their taxes go up, and it's illegal to build new houses, that they wouldn't just increase the rents further? What is supposed to happen to the people who are living in that city? What does the person who can never afford a house and is already spending 50% of their income in rent actually do that "gives them leverage"? They can't buy land or a house. Everyone is raising rents everywhere because of this new tax. I predict that in America, the tenants of that city would just eat it and spend 60% of their income on rent instead of 50%, and just give up on ever having kids. How, concretely, are you imaging it could be any different?
Especially if you're paying a "citizen's dividend" -- in the hypothetical city where building houses is illegal, why don't the landlords just snap up the full amount of that dividend?
> In the hypothetical city where building houses is illegal
You mean Berkeley?
Palo Alto is also a good guess.
I think this is actually a better point. Landlords already charge the most the market can bear, so they can't pass on an increase in their costs. But if tenants become richer, they can afford more rent, so if the housing supply is fixed, they bid up rents.
Of course with a 100% LVT, the increase in rent just equates to an increase in tax, and the cycle continues until enough tenants decide they'd rather take their (now massive) citizen's dividends to a cheaper location.
Keep in mind that the current tenants are not a fixed group either. San Francisco's population has been significantly replaced over several generations with a much more affluent tech-heavy population. You can certainly price out the current residents and replace them with others, so the market can theoretically bear the highest amount that *anyone* can afford to pay who might want to. The whole conversation about gentrification is about this.
> Landlords already charge the most the market can bear, so they can't pass on an increase in their costs.
Assuming we are talking about a build-constrained NIMBY city:
"What the market can bear" isn't fixed. If you increase the costs to all landlords in a living area by $200, then they will all tend to raise their prices by almost $200. A lot of that almost-$200 will come from increased wages that employers are required to pay.
There will be some friction as some people are required to leave the area because their skills aren't enough to afford living there, and some businesses as they are not efficient enough in their use of space to afford having a footprint there.
PS: there's lots of places in the country to build that aren't run by NIMBYs. Bidding up housing prices in NIMBY-run cities is rewarding NIMBY policies. Stop doing that.
You won't increase the cost equally on all landlords though - you'll increase the cost on landlords in proportion to how much of their rent comes from land rather than from the structure. That is, single-family landlords have a higher increase than apartment landlords.
Yes, the "almost-$200" is what happens on average. Certain people would be above or below that based on their circumstances.
> If you implemented this LVT tax, what prevents a landlord from passing it on to the tenant if every other landlord is also passing it on to the tenants, and no one is building new houses because building new houses is illegal?
Now this is a really interesting objection, and I believe this *would* happen if there was a sharp discontinuity; landlords forming a cartel, and basically agreeing to shift taxes to tenants, whether or not it's rational/prudent.
Now, in a competitive equilibrium, this would drive more units into production, and these landlords would get soaked, the end. But clearly we don't live in a competitive equilibrium‒instead, we would see landlords enjoying super-marginal rents to continue to enjoy a return, and landlord enjoying submarginal rents to lose all their tenants and have their units sit empty.
Let's assume the former case, and let's assume it happens everywhere: that is, landlords have defied theory, and successfully passed LVT onto their tenants. What is another way of framing this? Notably, this means that the *ground rents* that these parcels can enjoy is greater than previously thought. What does that mean? The LVT should be increased, thus effectively taxing away the super-marginal rent that the landlord gets. That is, they *can't* pass it on, after all!
We're now in a weird disequilibrium instead of a tidy equilibrium, but eventually it'll have to be resolved somehow... in any case, we can't sustainably see landlords shift their tax on.
This is not CONCRETE enough for me to understand what you're saying. That's why I asked for a concrete example. My mind just doesn't work with the abstractions you're using like "weird disequilibrium", "tidy equilibrium", and "super-marginal rent". I'm not trying to be difficult, I just can't really hold on to these concepts in my mind and make them do useful predictive work (and I suspect that you can't either).
I propose, concretely, that in a NIMBY city where you can't build more houses, that the clear outcome to LVT is that landlords will respond to any decrease in their bottom line by just raising rents. They don't want to lose any money and they have the power so that's what they'll certainly do. If it makes everyone renting miserable then so be it. The landlords already ARE effectively a cartel that is currently raising rents to unbearable levels anyway; they will just do it even more with LVT. Either way, the outcome is that people "just deal": they add more roommates, stop paying for healthcare, stop paying their student loans, give up on ever having families, etc, exactly as they are currently doing. It just happens faster with LVT.
Can you paint me a concrete picture of a NIMBY city where you introduce LVT and this doesn't happen? What does that look like? How to the people renting the houses derive more power from LVT so that the can use that power to get lower / the same rents? Power concedes NOTHING without a demand. So how do the renters make this demand from the landlords? And how especially does this work when the people are getting a "freedom dividend" and thus clearly have extra money that the landlords can just take?
I propose that if you can't paint a CONCRETE picture of a NIMBY city that at least sounds more probable than the one I just painted, then the argument against rent being passed on to tenants with LVT doesn't really work, it's just confusing economic words.
So here's the difference. Without any LVT or property tax, A NIMBY city/community is "sustainable" because once you own the property, the appreciation of the underlying land doesn't increase your taxes/costs. At worst, this creates an incentive to block new construction (as it would increase the supply of the commodity you're hoarding). (Prop 13 in California is the quintessential case that demonstrates this btw)
With an LVT, A NIMBY city/community is not "sustainable", because as the land appreciates, the rent goes up and owning the land doesn't protect you from this. At a certain point, people in the community will have to _pay_ for how unproductively they're using the land. Now, if its a community of multi-millionaires and billionaires, they probably can afford to have a SFH anywhere they want and will not need to increase density. However, since most communities are not composed of millionaires and billionaires, they will have to choose how much they're willing to pay to be a NIMBY, whereas before it cost them nothing to say "no".
This seems like an excellent theoretical point and I think I can add something concrete. I'm personally feeling fairly at sea in this whole thing but I feel there is a particular lighthouse that gives me a clear directional answer. In multiple of the studies this post mentions it was found that taxing land more relative to improvements resulted in more improvements
More improvements and construction activity means more stock and less rent / lower mortgages pretty surely. Whether or not a LVT can be in theory or in practice passed on to some degree it seems apparent that it cannot be passed on to the same degree that the current tax scheme is. Whether or not a deadweight loss exists in the LVT scheme is an academic question in relation to the question of whether or not any such loss is more or less than in the current tax structure. I'm seeing that the answer is definitely less and this should apply to a NIMBY community where as you say, they may still be NIMBYs but now there is a market force headwind against them that has been seen to occur in practical examples
If landlords can charge whatever they want, why aren’t they? If the landlords can all just get together and decide to increase prices if there’s an LVT, what do they need the LVT for?
The argument is more that an LVT doesn't magically escape the same problems that already exist. Housing/rent prices are already going up very quickly in popular cities, which means that landlords are in fact doing that. The alternative is to live somewhere else, which for some people is more possible than others. If you can't live anywhere else, then the rates can go up indefinitely to the carrying capacity of people's income. Judging by the highly paid professionals living with roommates in popular cities like SF, that capacity is still expanding beyond what we once thought of as reasonable limits.
The limit would be when Google decides that paying hundreds of thousands of dollars so that their developers can live in driving distance of the Googleplex isn't worth it, and opens a Googleplex #2 in another city where rent is cheap.
It appears that the limit is insanely high, more than you would expect a software developer job to be valued at, but nonetheless there has to be a limit in Google's budget somewhere.
Because "all just get together" is hard to do. Even OPEC has defectors.
(A common way to coordinate this "all just get together" is stuff like minimum lot sizes, required amenities, and NIMBYism.)
You may not have noticed, but the landlords in major metropolises have been doing this for decades. Rents have been skyrocketing.
They don't need to coordinate to all follow their own incentives to maximize rent.
Yes. I hate NIMBYism.
If I can make widgets for 1% cheaper than my competitors, I can capture the whole market. If I can rent my apartment for 1% cheaper than my competitors, I still only have 1 unit.
The LVT is an external factor that coordinates their behaviour without them having to "get together". They all see similar cost increases, and so all spontaneously have the same incentive to test whether the market will bear a somewhat higher rent, and suddenly the price at which landlords are willing to rent at has gone up across the board.
Since tenants have no ability to set the price (they NEED a place to live, one month without a unit is catastrophic and possibly fatal, whereas a unit sitting empty for a month is just an opportunity cost and whatever ongoing costs the unit incurs), they just have to pay the higher rate or leave the area. Or become homeless.
> what prevents a landlord from passing it on to the tenant if every other landlord is also passing it on to the tenants
This hypothetical happens with our current setup too! What if all landlords formed a cartel and they all agreed to raise prices?
They are? Housing has more than doubled relative to income over the last generation. Wealth inequality is skyrocketing. Black Rock is buying up massive amounts of houses and than immediately increasing the rents and cutting services. It's MUCH harder to actually start a family / have kids anywhere because of the rent being two damn high. Most young people have to live with roommates in the cities. It's no longer possible to even rent a house with a minimum wage job, virtually anywhere America. People have to drive for 3-4+ hours a day to get to their job in the city. And it didn't used to be this way, at least not as bad. I've seen people being squeezed more and more in my own personal life, everywhere I've lived, and I believe that the data supports these observations nationally.
We're literally seeing the wealthiest in society taking more and more of the houses and choke everyone else until they're miserable. You are accurately describing the current situation almost everywhere in America. The landlords as a group are clearly effectively working as a cartel that raises rent prices to the great disadvantage of the renting class. You might call it "what the market will bear" but it's severely damaging the quality of life of the next generation, and it seems like a LVT would just immiserate the renting class even more, the way the current power structures work, as it's passed on from the landlords. Power concedes NOTHING without a demand, and I don't see how LVT gives the renters the power to make any demands. And people's lives can always get worse: people can live 5 to a room instead of just 3 as they are now. They can live in their cars. They can drive 10 hours a day instead of just 6. They can give up, forever, any hope of having kids or owning a house. LVT seems like it's just going to exacerbate the already cartel-like behavior of landlords, which I why I asked for a concrete way that that wouldn't happen.
Do you have any evidence at all that this is the result of landlords forming cartels and not just from limited supply, or are you just speculating that rising house prices are the result of cartels because cartels also raise prices?
They don't need to form a cartel, their behavior is the same either way. Landlords in major cities ARE all raising their prices. They have all the power, and so can do as they please.
What do you think of the empirical results from the studies cited in this article?
They don't seem to address the ability of landlords to increase rent when their costs increase. Which, if the area they own in is desirable, they can. They couldn't in Denmark due to rent control, which is a whole separate issue, and so that study is not relevant to your argument unless you also propose universal rent control. The Denmark study seems to be the main plank in your argument, and it proves nothing except that rent control controls rental prices, which is not a particularly interesting result.
If all the landlord's costs go up, all the rents go up, and the tenants pay more or less 100% of the increase. Not anywhere close to 0% of the increase.
It could only possibly be true that the landlords eat the cost if there is minimal demand from tenants, but in that case, rent is not likely a big issue.
I don't believe that there's some literal cartel with formal agreements between members and such. But it's clear to me that most of the power belongs to the landlords, especially in NIMBY American cities. This imbalance of power is enough to make the landlords act like a cartel, simply by following their own interests. I don't see how LVT shifts this balance of power at all, and absent that the natural result is that the landlords as a group will pass on almost all of the LVT to the tenants. Do you think that LVT will significantly alter the current power balance between tenants and landlords?
One solution, which I like to plug as often as I can, is to move out of cities. I know, that sounds crazy to some people, but there is actual life outside of urban areas. There are places where you can buy a legit, livable house, with yards and trees, for less than $100,000 - in the US. That's even excluding the really run down former industrial towns, including Detroit, where you can get houses for almost literally $0.
I think people get hung up on the lower cash incomes of rural areas, but if you are spending 60%+ of your income on housing, and all of your other expenses are higher too, then only making half as much as you would in a city seems a lot more plausible. Sure, I could easily be making a lot more cash income in a city right now, but I would have a smaller home, no land, and less access to parks, trees, and everything that goes with it.
When I hear about how miserable people are living in cities, often due to high prices, I feel very inclined to point out this alternative. Not everyone wants to or can leave the cities, but everyone who does helps lower rental prices for those who can't.
If we want to go totally theoretical, there is a limit on how much rent landlords can charge before the tenants illegally refuse to pay, elect people who promise to make it legal to build more houses, or straight-up revolt and slaughter them. If the landlords have total control over the supply (which is implied by "building houses is illegal") the rent is already at that point, so it cannot be increased (without one of the aforementioned failure conditions). This excludes UBI, however.
With regard to UBI, there's one interesting thing about UBI as it relates to land rents - if you're living solely on UBI, you don't care *where* you are living. This allows entrepreneurs to build developments in the middle of nowhere and undercut city rents based on land value.
If there were a UBI and an LVT and the landlords still had a lock on zoning such that constructing developments in the middle of nowhere were illegal, then yes, the UBI would get eaten up by passed-on LVT, *but no more* because the UBI is literally all the extra latitude the landlords get before they're slammed back up against revolt. In that case there's little gained but also little lost.
Ah yes, Denmark, the famous urban libertarian paradise with no zoning laws...
> So the landlords can just charge whatever they want because there's not really anywhere for people to go?
NIMBYs rule most of the coastal cities, which is kind of independent of LVT or not.
But there are lots of places in the country you can build housing.
Tax is only one dimension of the problem that we have not enough housing, at least in my country and I imagine it's the same in yours. You do have to fix consenting structures and any other locally relevant blocks to allow more housing to be built. But - switching to this tax does help achieve that. Landholders can't rely on capital gains to generate return from their asset holding and have more a lot more personal incentive to build more housing units on their land. If you do the same for the consenting body and the relevant government agencies then you're getting somewhere and start shifting the supply deficit. Conversely, if you did all the consenting and government things but didn't do the tax part then the individual landowners wouldn't be incentivised to build more and you still wouldn't solve the problem. Necessary but not sufficient.
Lars, could Donald Hagman's 1965 book, "The Single Tax and Land Use Planning: Henry George Updated," actually be a journal article and not a book?
I couldn't locate a book by that title in several usual places, including WorldCat and AbeBooks. However, HeinOnline offers a preview of a paper in the UCLA Law Review by that author, with that title, in its 1964-65 edition.
https://heinonline.org/HOL/LandingPage?handle=hein.journals/uclalr12&div=49&id=&page=
Oooh thanks!
Got a DOI locator for that?
DOIs are clearly useful for online retrieval, interlibrary loan, and citations, among other purposes. But I couldn't readily find one for this particular article. (It does appear DOIs are being retroactively assigned to older articles from the pre-DOI era, but perhaps that's a gradual process?)
There are a number of DOI registration agencies, https://www.doi.org/registration_agencies.html, at least some of which may allow searching by metadata such as author and title. Crossref is one such registry that's frequently suggested. However my searches there for this article were fruitless: either not finding that piece or encountering "Internal Server Error" messages.
One byproduct of searching for "Donald Hagman" on Crossref, was that the first cites returned were to a couple of journals which published eulogies on his death in 1982, giving impressions of his life, outlook, background, and academic focus. As well, one of those lists titles for several of his other publications. (From this sampling, he does seem to have been well-liked and his work respected, but that obviously doesn't mean his research is beyond examination and criticism.)
Hmmm, bummer. I guess I'll have to talk to a librarian and so some old school sleuthing if I want to dig this thing up.
Very likely, alas.
Here's a text cite, if this helps:
Hagman, Donald G.
The Single Tax and Land-Use Planning: Henry George Updated [article]
UCLA Law Review, Vol. 12, Issue 3 (March 1965), pp. 762-788
The UCLA Law Review does offer online access to past issues, but only beginning with Volume 49 (2001): https://www.uclalawreview.org/archive/
If all else fails, HeinOnline (mentioned earlier) offers a 24-hour subscription that includes up to 5 downloads for US $29.95, but am thinking you might well be able to obtain a copy of this law review article at no cost, or at least at a considerably lower cost, through a local library.
I have access to it directly.
The quote from the "Valuer General" of New Zealand is... literally... a fictional quote. That is, Hagman made it up, as part of an explicitly fictional narrative where the Valuer General visited New Chicago, a city on Mars. Now, part of it *is* a real quote from a real person.
"The Valuer General of New Zealand, Earth visited New Chicago. He was asked why all of the land-use control benefits of landvalue taxation had not been obtained in New Chicago as they were reputed to have been in New Zealand. He admitted, however, that many of the New Zealand benefits were mythical. He indicated that New Zealand had adopted land-value taxation principally to break up the large landed estates and that the tax had accomplished this.* He also indicated that "there was no evidence that the tax would (1) control urban sprawl and speculation in land; (2) encourage the construction of 'better' buildings; (3) encourage growth; or (4) cause slums to disappear.""**
* fn 66: Bird, A National Tax on the Unimproved Value of Land: The Australian Experience: 1910-52, 13 NAT'L TAX J. 386 (1960), indicates that the dismemberment of large estates was also a major motive behind land value taxation in Australia.
** fn 67: See Statement of Values General as reported in 27 ASSESSORS' NEWS LETTER 102 (1961).
I can provide the full PDF – DM me via Twitter @RikiScanlan
Interestingly, this link is literally the first result for me when I google "The Single Tax and Land Use Planning: Henry George Updated" (without any quotes, even). And I apparently have access to all of HeinOnline via MIT Libraries; let me know if there are any other articles you want access to around this stuff.
While this evidence is intriguing, I think you'd still need to red team the new rules to really make a compelling argument that they can't be gamed.
Suppose, for example, that one of the metrics used in practice to assess the value of the property is what other properties sell for versus what they previously sold. Great, that's hard data, even if it requires some interpretation; wear and work and so on. But you could easily imagine a degenerate case where only a couple properties were sold, and a cabal of property owners could gather and drive the prices down on those few sales so their taxes are artificially depressed; they then split the difference with the seller.
I want to believe that it's hard to just raise the rents and soak people, but having watched friends try to buy houses in the last year ... sellers' markets are rough for buyers.
And Goodhart's Law always looms.
For whatever it's worth, the Goodhart of Goodhart's law co-wrote this pro-LVT piece with Tideman:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3954888
A cartel can drive prices _up_ but I fail to see how a cartel can drive prices _down_. As soon as the price drops below the marginal productive value, someone outside the cartel will buy it.
Dumping is viable for some cases and coordinated dumping could exist, why not?
Isn't it a collective action issue? The ones doing the dumping lose out for a gain spread across the group
Picture a smaller group (two people, maybe brothers) if it's hard to imagine someone acting in the interest of their partners as well as themselves. If two people own all the rentals in a town, then it benefits them each significantly to play along and keep prices lower, even if one suffers more than the other through low price sales. This is always harder the more people involved, but the core concept may be sound.
There's a different idea called "Harberger taxes" which is an attempt to solve the valuation problem. Basically, everyone self-assesses their own property, *but* this assessment has teeth; the assessment is an offer to sell the property at that price. If I say my property is worth $4M, then anyone who wants it for more than $4M can just write me a check and get the deed (and presumably assess the value at whatever higher number they want).
This unfortunately doesn't line up with a LVT perfectly, because you're pricing both 1) value of the land, 2) value of the improvements that are hard to move, and 3) value of not having to move. As well, the stable scenario is one where all of the assessments are *overestimates*, not one where they're true estimates (rather than the 'market price', i.e. what it would cost when the owner is motivated to sell, they're the price when the owner is motivated to keep).
That's a really cool idea! It sort of reminds me of the supposedly ancient way of proving that you're poorer than someone else: offer to trade everything you have for everything they have and see if they refuse.
that's indeed exactly what it's based on, the ancient Athenian assessment of who was wealthy enough to be obligated to fund the navy
I think you could find a clever way around this problem. For example, you could say that buying the land gets you the land but not the improvements on it; the buyer is contractually obligated to set up equivalent improvements on ~equivalent land owned by the seller, of the seller's choosing. Or that the buyer does not get ownership of the improvements, and must either negotiate that separately or lease/rent the land to the seller or refrain from doing anything with the land but sitting on it and enforcing rules of who's allowed to leave and enter. (I imagine all of these can be gamed, but I imagine you can do a lot better, too.)
Such a degenerate case seems very unlikely in a large city, and I imagine that public auctions would tend to be weighted as more reliable evidence than off-market sales precisely because one can game the later to set a price of your choosing. Mind you, if stamp duty still exists in this world then false sales to manipulate valuations become very expensive!
So, I was thinking about the observation that Georgist and Pigouvian taxes both have no economic deadweight loss. On the surface this makes perfect sense: force actors to price in negative externalities, and don't let them benefit from things they did nothing to earn or create.
But the Georgist definition of land isn't just a matter of uncreated wealth, because the value of one parcel of land (especially in cities) is primarily a matter of all the other improvements humans have made to surrounding land. On its face a LVT prevents me from benefitting from those positive externalities, which, fine, I didn't create them. But to me this suggests a problem in regards to defining how large each taxed unit should be. If I own a plot of land and build a house on it, then sure, I have no right to earn higher rent just because someone else builds a mall or a highway or a better school nearby. But what if I buy up many plots and build a bunch of things on them that mutually increase the value of one another? It seems like unless I can somehow arrange for all the land I own to get assessed as a single unit, I'm being prevented from benefitting from positive effects of improvements I myself create. An edge case for sure, but developers do, in fact, sometimes buy up large tracts to build mixed use communities for exactly this kind of reason today.
This, while an edge case, remains a very interesting thing to consider. It was given some attention by William Vickrey in his article "A Modern Theory of Land-Value Taxation", a bit inconclusively: he recognizes a small distortion that arises among a set of parcels under common ownership, but believes that assessing them differently based upon whether they're under common ownership would violate neutrality.
In general, I tend to believe that this distortion within cities should be small enough not to matter, with the exception of whether the *city itself* is the common owner, in which case the distortion ceases to matter, insofar as the city itself is the recipient of the tax receipts.
It matters *quite a bit* in extremely unusual situations (Walt Disney establishing Walt Disney World), which is consistent with the general principle: LVT can be applied fairly regularly on urban land, but is hard to apply to rural/submarginal lands (which probably needs some sort of framework that balances the desire to see new development when appropriate, and preserve wilderness/low-intensity usage when appropriate).
The problem is that it's not actually that unusual; it's a very common development pattern.
It's tempting to respond "the common developments one sees here (exurban tract development, suburban shopping malls, etc) are rather undesirable and unsustainable (see Chuck Marohn on the suburban ponzi scheme), whereas the development that arises from assumptions of independent parcel ownership (less heavily planned urban developments from the first decades of the 20th century or earlier) are more consistent with vibrant and sustainable practices of urbanism", but that would be too reductive. Clearly, there is *some* worth in large-scale developments, and it may be too restrictive to believe that these should all be public projects. If we *really* wish to encourage these developments, we can jettison the constraint that taxes remain neutral and give a relative LVT exception in accordance to how much of the "positive externalities" are internalized into the project. I'm curious what people may think the downsides of such a policy decision would be.
This is a great response and also gets to one of the more useful qualities of imagining implemented georgism - the problems it asks us to solve are much more interesting than our current tax setup. to me that seems to be because it solves so many stupider first-order problems to start.
This is also the model used by private mass transit corporations in places like Japan and Hong Kong, as far as I know (and by similar corporations in New York and Los Angeles at the turn of the 20th century).
If the tax remains with the city, rather than goes to a higher-level (e.g. state or national) government, that creates another problem. The services (or outright cash payouts to residents) financed by the tax make the city an even more attractive place to live relative to rural towns with cheap land. This increases demand, and drives up land prices and rents even further (so, when movement between municipalities is possible, it doesn't hold that landlords can't pass on the tax, at least temporarily).
Then, at the next reassessment, the government raises the tax further, then it uses the revenue to fund even more services, leading to even more demand, and thus even higher rent, and so on. Rents and taxes both spiral towards infinity.
The root of the problem is that, today, high land prices and rents are the mechanism that cuts demand for land (in the sense of demand that is able and willing to pay) down to the level of supply. Georgism attempts to redistribute the land rent back to the tenants, in effect letting them rent below the market-clearing rent, removing the mechanism that creates a market equilibrium. And I don't see what mechanism would take its place.
I have been thinking about this objection, which Alex Godofsky also raised, and wondering whether it might apply to single lot builders as well, albeit indirectly. If I build, say, an apartment building on my plot of land, there is now more money to be made by surrounding it with grocery stores or office parks or Home Depots. That, in turn, should raise the land value of my plot. Technically this is a "second order" effect, but it's not at all clear to me that it should be small when added up over all the mutually beneficial developments nearby. Isn't that the driving force behind city building anyway?
Thanks for explaining it this way. I saw the other objections and wondered why this didn't already apply to single lot owners. The value of a city is not independent of the value of each improvement made within it. Times Square raises the value of nearby properties, but Times Square would not have been built if those other properties did not already exist and provide a lot of value.
Yes, as I was writing my comment, I was thinking first about offices in a skyscraper, but replaced it with a multiple-lots example because it felt cleaner to me.
If you own land and rent it as a mobile home park, and suddenly you have to pay an additional $25k/yr, and so does every other mobile home park owner in the country, then of course prices will rise. When labor costs rose over the past