Wednesday, 30 July 2014

They own land. Give 'em more land!

Yep, there was a time when dishing out land was the method of rewarding favoured groups. Feudalism basically. See also "selling off the Royal Mail for £1 billion less than its real value" or "Selling off council housing for a massive discount".

Neo-Classical economists agree with this approach. Only by severing our common property rights, and giving them away for free to a select minority, can their value be realised. Presumably, although breathing is currently free, if we could privatise air, those companies would be adding value by charging us to breathe. I digress.

In today's Telegraph, leading the charge to this Feudal Utopia is Matthew Lynn who's article "Want people to back fracking? Let them own land under their property" can be read here.

In a nutshell, his argument is, because people are worried about the impact of fracking, let's re-attach the mineral rights to their freehold. Thus compensating them for any inconvenience caused. Hurrah!

So, because the value of their unearned wealth in land has gone down, let's dissolve the wealth we share in common (unexploited value of shale gas) and give them exclusive rights to it.

The parasite is unwell, let's feed it!

Lynn opines that this simple solution, is the only solution, if we want to get fracking going.

But, there is another simple solution, which is the opposite of his. Land Value Tax.

Under LVT your liabilities change when the economic and spacial environment changes. All externalities are thus internalised. So, those affected by fracking will be compensated by lower bills, at precisely the amount the market judges they are. No bureaucrats, or messy bribes involved.

This sounds like a much fairer and efficient way to run things.

22 comments:

Bayard said...

That's odd, because Matthew Lynn usually has the right idea about most things, but I would admit that he does subscribe to the "building more houses will get the prices down" myth.

The main problem with fracking is that the anti-frackers (a tentacle of Big Green) have spun such a convincing myth that it will destroy life as we know it, that the whole thing is now self supporting: people don't want fracking near their homes because they know that this will cause a reduction in their property value. However, the only reason why this reduction will occur is that it is a commonly held belief that it will. It's a sort of reverse bubble.

Steven_L said...

They've been 'fracking' in the north sea for donkeys and have you seen the rents / house prices in Aberdeen???

Oil and gas pay big bucks for doing not very much. School leaver sat in an office shuffling paperclips? Here, have £28k a year. 4 x 12 hour shifts a week answering the phone and giving out information to punters? £35k. Junior manager with a degree and a bit of experience? £50-75k.

The rents will go up near any oil and gas industry hub.

Ben Jamin' said...

@ Bayard

"If the shale industry gets going, it won’t be the exploration licences that bring in the big money, it will be the tax on the energy produced, on the people working the rigs, and on the far larger number of jobs created by having significantly lower energy costs than our main industrial competitors."

Notice the contradiction? More up stream taxes from " significantly lower energy costs"??

It's agreed that prices will not significantly fall.

Ben Jamin' said...

@ Steven L

Possibly, but I think fracking will be a more diffuse.

But, for sure, there will be economic upsides for local areas. Whether these outweigh the downsides, who knows yet?

All I know is, LVT would sort it out.

Bayard said...

BJ, my guess is that there will be hardly any downside, in the form of environmental damage, but also hardly any upside, in the form of lower energy costs. However, because of the myth, you can guarantee that there will be a reduction in land values where there is fracking. Remember, there are no such thing as absolute values: things are worth only what people are prepared to exchange for them and that's as much psychology as it is economics, hence bubbles. Currently the anti-frackers have everything to gain and nothing to lose; most people know that the value of the gas and oil will be siphoned off by the government, who will waste it, and the oil companies who will give it to their senior managers or their shareholders.

Kj said...

You could nominally give landowners the right to the mineral Licenses, and just make sure that superprofits taxation adjusts the mineral value to just enough to keep Things interesting for the landowner. If it wasn't for the fact that this tax was cut to "encourage" Exploration. The logic is rather strange, instead of taxing free money, assume tax Revenue will come in at the far end through punishing any jobs created downstream.

mombers said...

How about granting landowners the right to the air above them too? That'll sort out the long suffering folk near Heathrow! Being sarcastic of course. They have already been compensated by lower prices and rents.

mombers said...

How about compensation for landowners like myself whose property has not benefited by CrossRail largesse? In the 7 months I've been a homeowner, it's gone up by 40 grand (utterly useless to me - how do I spend it apart from putting it towards a bigger house that has gone up even more???). Had the government built a CrossRail station near me though, I would be hundreds of grand up (tax free) without having to work...

DBC Reed said...

@SL
Have they been fracking in the North Sea.?Would seem to me the obvious place to do it:out at sea.

Ben Jamin' said...

@ Bayard.

You could put out scare stories in order to reduce your LVT liabilities. But there's nothing like a cost/benefit analysis involving hard cash, for people to overcome their superstitions.

@ KJ

I don't think it's a good idea to reward non-producers with any monopoly share sweeteners. As far as I'm concerned any profit would be a super profit.

It's true their should be some sort of compensation for those affected. But two wrongs don't make a right. And as wrongs go, exclusive property rights to natural resources are about as wrong as it gets.

@Mombers

Yes, landowners did own everything above them, in a wedge from the centre of the Earth, up to infinity, and beyond:)

For common sense reasons, due to the discovery of the radio spectrum and powered flight, these rights got severed. As did a few, like coal, oil, gas, radioactive minerals.

If you'd done your "search and discovery", you would, according to Neo-Classical economists, been producing the increase in land values, associated with the CrossRail project.

So, a lack of enterprise on your part old chap.

Lola said...

Surely returning to the homesteader the rights to the mineral under the surface is absolutely fine, as long as he also pays LVT. That is, whoopee, he finds he has an oil well. Oh Dear! His LVT bill has skyrocketed.

Doesn't seem so daft to me.

Ben Jamin' said...

@ Lola

So the unimproved value of the minerals under his land is still zero.

There is a problem with this approach.

At the moment, because those rights belong to the State, we get to choose who does the search and discovery. This means we get maximum value out from the unimproved resource.

If landowners did, their would be no such competitive tendering process.

They could claim, that the total value under the ground was due to their search and discovery costs.

This is what anti-LVTers claim btw. The full value belongs to the landowner.

The landowner is a non-producer. End of.

Ben Jamin' said...

@ Lola

This is where is all ends up.

http://econlog.econlib.org/archives/2012/02/a_search-theore.html

Far better, we say we all own an equal share of minerals.

That way, it is us who are giving permission to search, discover, exploit. We can then maximise the value we each get, over the long term. Idiot politicians notwithstanding.

I think this boils down to a really important principle. Yes you can tax the externalities from monopoly ownership of land. And with location, this makes more sense, because landowners are also producers.

But, with every other type of Land, not only isn't this necessary, it's immoral. And that's never the most efficient way of going about things.

Kj said...

BJ, compulsory purchase, because "we", i.e. politicians decide to go ahead with a different use for land that is owned by somone, would still involve an element of rents, as it surely would have to be open market value++. I'm not too fussed abouth whether this involves a share or a premium purchase price. One response to the search-theoretic "problem" in mentioned paper, is leaving the desicion on change of use with the current owner of the land above, if it needs to be touched or disturbed at all (if not, just make the explorer liable for compensation if anything occurs), where said owner would get a cut of post-superprofit-taxed revenue. The other response is yours ofcourse, that it's left up to political decision, with subjective compensation. The latter has it's problems as well.

Agreed that LVT on non-exploited resources is a bad idea.

Ben Jamin' said...

@ KJ

"Agreed that LVT on non-exploited resources is a bad idea."

As in, the unexploited value minus the production costs?

Search and discovery of new "Land" ie oil, is a capital cost, so goes under production as far as I'm concerned.

The whole problem with the search-theoretic theory, stems from the basis, that it is possible to own land in the first place.

Once you dismiss that, it no longer becomes a problem. The responsibility for search and discovery of new resources becomes a State endeavour i.e competitive tendering.

Leaving this to private landowners would subject to inefficiency and fraud.

Kj said...

BJ: no, and yes. I mean mixing up lvt on a surface right with rents on minerals that could be exploited, which calls for extraction/severance/superprofits taxes. And I do believe people can own land, in the sense that they are paying rents for a right (in the hypothetical case that they are paying rents ofcourse), to use that land as they see fit, subject to legal constraints, which should regulate externalities only. If you agree that it's just to oay rents on land, that has to involve agreeing with ownership and certain rights to it. And if the community says the land ought to used for something else, either on or under the surface, that would/should involve either incentives or a judicial procedure with compensation.

Ben Jamin' said...

@ KJ

Well, you could say under LVT nothing changes, but everything changes. Do freeholders really "own" their land in an absolute sense? Freehold, really means, rent free. And even that's not quite true.

We don't need to "nationalise" location, because freeholders are also producers. It's probably quite rare that and landlords just rent out land. There is usually some level of improvement.

You can't say that about the other forms of land. So why have a middleman i.e the freeholder taking their cut?

But yes, I agree, any externalities caused by mineral extraction, or any others in spacial environment should be compensated.

LVT does that, but if compulsory purchase is necessary, it should be generous.

Ben Jamin' said...

@ KJ

Well, you could say under LVT nothing changes, but everything changes. Do freeholders really "own" their land in an absolute sense? Freehold, really means, rent free. And even that's not quite true.

We don't need to "nationalise" location, because freeholders are also producers. It's probably quite rare that and landlords just rent out land. There is usually some level of improvement.

You can't say that about the other forms of land. So why have a middleman i.e the freeholder taking their cut?

But yes, I agree, any externalities caused by mineral extraction, or any others in spacial environment should be compensated.

LVT does that, but if compulsory purchase is necessary, it should be generous.

Kj said...

BJ: I'm talking about the hypothetical case where we would be taxed on land rents. Those taxes would imply recognizing ownership of the rights to that land. A Georgist view of land is about ownership upon payment, as opposed to for example usufruct. Othrrwise agreed, I just wanted to stress that I found the framing being a bit dismissive to the rights of someone holding land. Obviously it will be more easy and cohesive to do exploration on someones land if you say "there ought to be generous compensation" than saying "landowners aren't due shit, we'll let you know when you move out" if you get my drift.

DBC Reed said...

With Lola on this .Given LVT and given private ownership of mineral rights anybody with shale gas under their land will be hit with such an enormous LVT bill that they won't derive any benefit.The line that Silvio Gesell took and now apparently Carol Wilcox of Labour Land Campaign is now taking is that being hit with a big LVT obligation will lead to landowners selling cheaply to the government.I think Gesell was trying to pump prime his scheme for buying out landowners with par bonds ,interest payments coming from the rents charged once the land was in public ownership .There is a lot to this approach but Gesell's wild language puts people off nowadays.

Ben Jamin' said...

@ dbc

So why give it to them?

All you are doing is further atomising the relationship between people.

DBC Reed said...

"Why give it to them?" .I believe the idea in Gesell's case was to increase the land tax liability so landowners would give up the ghost and get rid of their land to the State for some minimal compensation, thereupon the land ,now nationalised, would re-appear for rent to whoever. (Any receipts over and above payment on the par bonds would go as a State payment to women.)
In Carol Wilcox's case the idea is that high LVT valuations would lead to surrenders so that public sector house building can take place.
Can't see how this further "atomises" people; they are atomised and alienated in the present set-up.