Sunday, 5 November 2017

Killer Arguments Against Citizen's Income. Not (10)

Martin Farley, at

Why Basic Income Needs LVT

* It is the most secure way to provide funding for a Basic Income.
* It doesn’t distort economic decision making so will allow Basic Income to be part of a growing, functioning economy.
* If Basic Income increases incomes of recipients, there is a danger that those increases will be captured by rent-seeking landlords and others (i.e. rents or interest rates will just go up till they have absorbed all the extra money). If this happens, LVT will allow society to recoup most/all of the revenue captured by rent-seekers and push it back to Basic Income recipients.

I am 99% agreed with all this. Being practical about it, LVT is the best (or least bad) way of funding anything, even government programmes with which you personally disagree (and most of us disagree with a lot of it; it's just that different people like or dislike different bits; what's left are any government spending programmes to which no significant majority is strongly opposed). And a Citizen's Income is the best (or least bad) kind of welfare system, however it is funded, being the least distortionary if nothing else. There is of course a nice logical symmetry as well; location values are generated by everybody and nobody, so by default ought to be shared between everybody.

It is just his third point, which I have seen many times, which is not quite correct. In a large country like the UK with a huge disparity in earnings potential or general desirability between locations, there will always be areas where the location rent is close to zero (most farmland; areas with low wages/high unemployment etc).

Using David Triggs' simple formulation, that "rents only arise if two or more people are competing to occupy a site", nobody is trying to outbid anybody to farm, work or live in those least desirable areas, so rents must be zero.

This zero sets the baseline. If after-tax wages in Area B are £15,000 and the cost of living is £15,000, rents are close to zero. Some people there will move to Area Z, where after-tax wages are £35,000, so rents will be £20,000. Workings based on recent actual figures here.

Assuming - which I don't recommend - that a Citizen's Income were funded with much higher income tax (and making lots of "all things being equal" type assumptions), then the difference in after-tax wages between the least and most desirable areas will fall. The rents at the lower bound will still be zero, the differential in after-tax wages falls, so rents in the most desirable areas must also fall.


Lola said...

Isn't it the point of LVT that it attempts to neutralise the location premium? That is it prevents the landowner benefiting from an economic rent? However tenant demand will always be higher in more economically successful locations so rents will always be higher in them so is there an equivalent increase in costs of landlords improvements?

Ben Jamin' said...

Take the example below, what would be the effect on UK rents/prices vs London rents/prices?

Certainly the landlords of low income London workers will see a rise in their rents. But what of those that pay the taxes and higher incomes?

Less jobs for a start.

Lola said...

BJ. He's a prat. Apparently for the 'average worker' 4 days out of every 5 day working week wages go on taxes and rents. If he increases wages by decree by 4.6% all that will happen is that rents will rise. No worker will be better off. Double prat.

James Higham said...

What happened to the LVT?