patrick.net

The Bush years have seen a rise in debt slavery born out of an unrestrained credit bubble. We might call this Bushanomics. It funds both housing and the continued Iraq fiasco. Things have not gone well there so now we are going to spice things up with a troop surge. The Bush recipe continues to ripen prospering some and ruining others. Its repercussions are likely to reach well beyond January 2009.

I don't think it's terribly difficult to deconstruct Georgist arguments.

Land is valued, in a free market, by its various components. Land has intrinsic value, which sometimes maybe very low or effectively zero -- such as undeveloped, inaccessible swampland. Some land has very high intrinsic value, such as natural harbors or fertile farmland.

Potential usage also drives land value. Extraction of resource, establishment of productive commerce, industry or residential stock.

Microeconomics is the final component. Supply and demand. George lived during a period of dramatic capital creation, the industrial revolution. Had he lived to write about late 20th-Century Gary Indiana, he would have realized the essential flaw in his theory.

There certainly is a huge state component in apportionment of land, and thus in one of its fundamental value drivers. Regulations implied and explicit also serve to introduce friction into the free market function of the land market. Not all of this is bad. For example, the short-term benefit of building landfills next to schools is probably outweighed by the long-term detriment.

But, how exactly would one (one being a sovereign governing body) go about "depressing land prices"? I'm very curious to hear what grand price-control scheme will produce superior economic outcomes, especially given the enormous inefficiencies introduced by that very act.

People have always valued land, even when land ownership was prohibited (all land owned by the state). All that happens then is a "secondary market" or "black market" for land rights emerges spontaneously. So it costs political currency instead of ubiquitous tender currency, but the land still has value far beyond George's notions.

And let's roll back to the pre-Feudal period when apparently land was abundant, free, and we all lived in harmony. Who owned land in the various empires of Antiquity? How was land apportioned? By a market, or by the point of a spear? Even the non-agrarian peoples fought fiercely over land as it represented hunting territory. That land had value, and there was a market for it. Just not a market very sympathetic to making the wrong bet.

But today, with all our terrible notions of personal property rights, land ownership, an impartial arbitrating marketplace, and as close to equality of ownership as has ever existed, we're to believe we're all just slaves? Oy.

Land is valued, in a free market, by its various components.

Absolutely.

Land should not be free. In fact, everything should have a price.

No. Alternatives to private landownership is filled with moral hazards and inducements to inefficient behavior.

BTW, anyone here want a 10 months subscription to the Economist? I traded some unusable NW frequent flier miles for a year's subscription but I find its editorials even more indigestible than when I cancelled it the first time in 2002. I couldn't get any money back if I cancelled my subscription, so I'd be happy to send the remainder of my subscription to someone here.

While the median price of an existing home has flattened for the past year and may even be poised for a decline, the high-end market is soaring.

The luxury market is probably still solid. Too bad the social-ists in frisko are not allowing more luxury developments (without BMR units).

Uh with high profile celebrity developers like Ivana Trump, George Clooney and Michael Jordan backing out of the "Mantattanization" of Las Vegas that whole scenario is hardly anything to brag about. They've managed to salvage some of that market but primarily from attrition.

If one were to make the case for "free" RE (this would be it). Can you say...... I fold?

For the legions of FB's one flies over on their way into Macarran Int'l I'm sure they are taking great comfort in the thought that the "high end" market is holding up so well!

With golf community/ocean/mountain "view" lots in nose bleed territory and "teardowns" of perfectly habitable homes I think we can safely say this is HARM's credit fueled land bubble.

I have to remind myself that when "money is cheap" we're running out of land! (When it's expensive there doesn't seem to be any great sense of urgency).

A few years back I had a bright, young branch manager and we constantly kidded about just being GIVEN the damn house! Isn't the constant maint. decorating, upgrading, weatherizing, roofing and ever escalating property taxes punishment enough?!? I mean, think about it. Just a short while back there was an article about a family that were like 3rd generation "owners" and they were STILL owed the bank on it! How many times should a bank be allowed to collect a lifetime of int. payments on the same freakin' dump?

How many times should a bank be allowed to collect a lifetime of int. payments on the same freakin’ dump?

People should rethink the meaning of ownership. Again.

With the constant stream of negative cashflow, the boundary of renting and owning is quite blurry.

The original poster is misrepresenting Henry George's thesis. George didn't think land should be free. George thought that land was the scarce resource to which all monopoly rents flowed in the end and that taxes should only be levied against such scarce resources. (In the modern day, intellectual property would be similarly treated.) In particular, George thought that any improvements to land - houses, factories, fields of wheat - should not be taxable as they were returns to work and effort and energy. He argued that, as a matter of public policy, such efforts improve the lot of mankind and deserve no penalty.

To tie that into the ongoing theme of this site, the housing bubble of recent years actually has nothing to do with housing. It's all to do with the land a house happens to sit on. No one here - let's be honest, no one anywhere - believes that a stuccoed shack in East Palo Alto is worth more than it was five years ago - but the land underneath the shack is different. It's the land that has increased in price. George's argument is that the increase in the land's value is unearned and thus taxable. If the shack is worth more because somebody put granite in the kitchen or sod in the front yard, George would say, "Good for them."

Peter P,

Exactly! The lines have been unclear for at least the last 5+ years. Be it through savings, building/buying in a less expensive or "boot strapping" through sweat equity the whole idea is to have 'a' home that's completely paid off by the time you retire, no?

Whatever happens in the interim is just so much noise.

Punchbowl,

In a fashion, I have to agree. Perhaps the only way way we'll know which land/developments sit on worthless dirt is when the "ghost town" gets the bulldozer! (I've got a feeling it'll be A LOT!)

So how would you propose to "tax away unearned appreciation" of land? I'm not talking about conceptually, but detailed accounting-wise? I believe if you follow this logic through you'll find out it's circular. The very entry which causes you to book a tax liability is dependent upon itself.

Talk about singularities. --Or-- the better solution we have today. A tax of 0% on this synthetic attribute.

Anyway, how exactly would you unwind the intrinsic value from the total value? The components that drive total value -- the market value -- are not independent variables. For example, gentrification increases total value as a function of capital improvements, but also drives up intrinsic valuation of other unimproved proximate land.

Or maybe we're separating "potential" value from "intrinsic" value (the unimproved land next to gentrification is still worth only $0, it's just the potential for capital improvements drives up value). Well, in this case the intrinsic value term reduces to a constant and is irrelevant, leaving you with exactly the system we already have.

Am I missing something?

Congratulations on your first thread, Different Sean! Welcome to the wonderful world of moderation. I pretty much have to agree with Randy H, Peter P and most others re: abolishing private property ownership.

Yes, the current system has problems, and the U.S. could use a far more fair, uniform and efficient system of property taxation (witness Prop. 13), but I doubt abolishing private ownership would be the best solution. For one thing, it's not private ownership itself that caused the bubble --it's the Fed irresponsibly dropping interest rates to negative territory (in real terms), reckless abuse of credit issued on margin (110% LTV NINA flippers), a strongly pro-RE speculation bias in the tax code, and the global carry trade (endless stream of foreign-held $USDs for toxic MBS). Oh, and the total disconnect between risk and reward in the mortgage marketplace, thanks to a dereliction of duty by Congress and federal bank regulators. The same Congress and federal regulators we're supposed to trust to "fairly" and "efficiently" ration and distribute land under Georgism.

If land were to come under complete control of the state, there would still have to be *some* way of rationing it, determining it's "value"/price and best use, just like any other scarce resource. People would switch to competing for high-value land with "political currency", as Randy said --i.e. bribery, cronyism, intimidation, etc. And we all know goverment is far better skilled at correctly pricing things that than private enterprise... not.

MrSaito,

Excellent points. Sometimes we have a tendency to get wrapped around what's going on at Google, SunMicro etc. and lose sight of the contribution made by the smaller firms. I'm told "we're" the 3rd largest economy on the planet. It's just a shame we don't get treated with the dignity that would seem to warrant?

I didn't want to bring it up earlier b/c I thought it might derail the thread but it now seems appropriate to perhaps mention what is going on w/the Rose Garden here in "stumptown".

Paul Allen was given an unbelievable tax incentive package! (Like he needs one). Increasingly even some of his supporters are questioning the value of what he has brought to the table. The employment, economic development and general "resurgence" of the east side has completely failed to materialize! 2 blocks in from the stadium it still looks like it did before Portland had an NBA team. Yet despite defaulting on debt obligations and attempting to cut ties to the organization he STILL gets favorable tax treatment. Maybe small bus. owners should pool to get a team and show him how it's done?