Killer arguments against LVT, not (22)

IanB stepped up to the oche again* (over at Ritchie's - the article that sparked this off was the usual Ritchie nonsense on a different topic entirely):

... in an advanced economy land ownership just doesn’t matter very much. There is plenty of land available for rent (1), and very few of us need much land to sustain ourselves (2). Many businesses can be run from a single office. Richard Murphy doesn’t need rolling acres of farmland to be a prosperous economist (3). So in an advanced economy, we don’t really need to worry about land (4). Yes, it’s irksome that the Duke Of Wotsit makes lots of money from rents because his distant ancestor did something for the king, or whatever, but it’s not the end of the world (5).

In a free (or indeed mixed) economy, there are so many options for prosperity that we can step beyond arguing about land taxes (6); it’s just mad old Henry George’s obsession that refuses to die. Even Karl Marx derided him as a monomaniacal nutter. (7) Prosperity in an advanced economy is not tied to resource ownership (8). It is tied to productivity. A carpenter does not need to own a forest; he makes his money turning low value wood (which he purchases) into high value furniture. It doesn’t matter whether the tree farm is in his own country, or another, even. Resources don’t matter (9). What matters is how much value you can add, that’s all (10)

(1) OK, the contention that "there is plenty of land available for rent" suggests that land (more precisely buildings, as pure land is only of interest to farmers) is important to the economy, and as we will see below, the location of those buildings is, for most people, very important indeed.

(2) In terms of surface area, most of us don't. A couple of hundred square yards for a house and garden, a few dozen square yards at our workplace. (Although let's not forget that although agriculture is only a few per cent of our economy, we all need to eat to live, over eighty per cent of the UK by surface area is agricultural land and the UK is broadly speaking self-sufficient in food).

But it is not the size of your garden or workplace that matters so much, it is its location. This is an important point and ties in with the fatuous viewpoint that "You should tax incomes and not land ownership as land is not an income generating asset."

If you want to better yourself, you might 'invest' in a qualification, or buy yourself a van and some tools and set yourself up as a tradesman. Your qualification or your van and tools are clearly income generating assets (and the more of these we have the better, so ideally they wouldn't be taxed at all - if you tax these things, or the income derived therefrom, you get less of them, which is a bad thing). But you also have to live somewhere where you can go about your trade or profession or employment.

We also know that there is a large disparity in average salaries in different parts of the UK. So if you want to go work harder and earn more money, you would try and move to an area where you can earn more (because there are more jobs, or more paying customers). However, the relative advantage of doing so is minimal, because the extra amount you can earn in areas where the economy is doing well is largely swallowed up by the fact that house prices and rents for business premises are higher as well, as explained for example in this article in The Daily Mail:

Millions of Britons have traditionally headed South in search of a better standard of living. But research suggests those with aspirations of wealth could be better off staying put. Those who opt out of the Southern rat race and move North could be even bigger winners. A study of the true spending power of salaries around the country concludes that those in the North of England enjoy a higher standard of living and a better quality of life...

The research highlights the fact that many families in the supposedly wealthy South are struggling to make ends meet, with 13 London boroughs featuring in the bottom 20 in terms of residents' spending power. Barclays' spokesman Gordon Rankin said lower housing costs were a major factor in giving Northerners a higher disposable income. He added: "There is a small, but noticeable, group of people who are realising the equity in their properties in the South-East and moving to the cheaper West and North and buying property outright. Because they do not have to worry about mortgage payments, they are therefore able to survive on smaller incomes."

So in practice, for most people, their home or business premises (or more precisely, the location thereof) is very much an income generating asset - it is the price you pay for the right to maximise your income. But the gains from the extra income you can make do not accrue to you, they are siphoned off by the land market. Which is why The Daily Mail article says, from an individual point of view, you would be just as well off moving to a lower income area and working a bit less, which surely cannot be a good thing from the point of the economy as a whole, can it? Wouldn't it be better if more of that extra income accrued to the person who does the work?

"Ah yes," I hear you cry, "but we could achieve that by cutting income tax!" Well, to some extent yes, but there's every reason to assume that if we cut income tax in isolation, the land market would still soak up that extra disposable income, so that is only part of the answer.

(3) Sure, there are a few isolated examples of jobs in which you can earn money regardless of the location, like people who can earn money writing articles or novels in remote locations. But they still need physical outlets for their output, be that the internet or bookshops or newsagents, they still attend meetings and talkshows, and they spend their money on things that require land (food, electricity, whatever). I'd rather concentrate on the rules and not the exceptions thereto.

(4) Nope, not true, see above. Or imagine, you had a couple of billion quid to spare and you want to build an airport or a power station or a shopping centre. Where would you rather build it? Near a large conurbation or on a remote Scottish Island? If you have any sense, you'd want to build it near a large conurbation, but land prices are higher there, and the more people you have, the bigger the battle with the Greenies and NIMBYs, and going through all the rigmarole with planning enquiries adds further to the cost of the land (but it might still be worth doing because finally getting the planning permission adds millions to the value of the land at that location), so the trade-off is, you build the airport or power station or shopping centre a few miles out of town (which is less efficient for all concerned) where the land is a bit cheaper and resistance to new construction is lower (there being quite simply fewer people affected in absolute numbers).

(5) The amount of money that The Duke Of Wotsit earns is irrelevant, what irks is the fact that he makes all this money for doing very little apart from being a NIMBY, and does not pay (directly) for the value of the services that The State provides (protecting his legal title, i.e. evicting squatters, law and order, maintaing roads and parks) which enables him to charge such high rents in the first place.

(6) This is the red herring from Hell. It is not true that land is not important, but whether something is important or not has nothing to do with whether it should be taxed or not. Enterprise, investment and employment are far more important than land (of course) but they still wouldn't be taxed (in an ideal world) but tobacco, alcohol and drugs aren't so important, but they still would be taxed (in an ideal world).

(7) ???

(8) This statement is completely at odds with his earlier admission that The Duke Of Wotsit was making lots of money from rents. I do enjoy arguing with people who are wrong, but it is very difficult arguing with somebody who is prepared to contradict himself to make a point.

(9) OK, the cost/value of things like food, oil, wood, coal, steel are only a small part of GDP (a fifth, perhaps?), but to say they "don't matter" is stretching it. Without these things there would be no economy.

(10) There is some truth in these generalisations, of course. The success of the economy and people's overall wealth depends on productivity. If productivity goes up, then we, as a whole, are wealthier. But the point is that a large part of that extra wealth accrues to people who had absolutely no part in those productivity increases.

Spotted by Robin Smith.