Tuesday, 27 March 2018

Ricketty - Again!

Came across this post from Piketty. As it happens I am interested in Tobin and have signed up to Robin Hood. So I am not against using fiscal means (transaction tax) to try to control the banks. If that is what he means. Rather, it is this concluding paragraph that fills me with despair. He says:

'The political strategy which consists in transforming the wealth tax into a property tax (impôt sur la fortune immobilière), to avoid a complete suppression of the wealth tax, quite frankly leaves me speechless. There is no logical reason to levy a higher tax on a person who invests their fortune in a house or a property rather than in a financial portfolio, a yacht or any other type of good. We can only hope that elected members remember that they were not elected to be part of this kind of farce.'

My god - Mr Ricketty. Logical reason? How about Land and Rents are not merely 'Capital' for starters!

27 comments:

mombers said...

How much of the financial assets (blue in the graph) are capitalised land rents?

Mark Wadsworth said...

M, got it in one! About two-thirds is the answer.

jack ketch said...

Call me uninformed (and you'd be right of course) and correct me if I'm wrong but if Mr.Piketty can't see the fundamental good reason to differentiate between the purchase of land/property and other goods, namely that land is forever (unless you are very unlucky or God just hates you) and not just for Xmas , then I must wonder how he got his job.

Mark Wadsworth said...

MW, you have given reason 1.

Mombers has added reason 2.

JK's ovetlaps with my reason 5.

May I add

3. Thoes "financial assets" must mean shares in companies. The underlying assets might be

a. proper productive and competing businesses without any particular government protections or monopoly position (L'Oreal), in which case see 1. or

b. Monopoly businesses esp. recently privatised ones. Radio spectrum, landing slots, banking etc. These would all be taxed in their own right at asset level under normal LVT principles.

4. If somebody buys a yacht, he is putting money back into the productive economy. Bad idea to tax the yacht. What is relevant is how somebody got the money to buy the yacht in the first place

5. It is easier to raise far more money from land value tax than from a general wealth tax. That's why Macron suggested it. You can impose a higher rate on land without it slipping abroad and valuations are relatively simple (only one asset class). Land makes up three-quarters of all assets or unearned income.

6. Land values arise from efforts of the whole of society, so belong to the whole of society. The normal French person has put no effort whatsoever into creating the value of the L'Oreal business and has no moral claim to it.

Mark Wadsworth said...

By the way, Tobin tax is terrible idea. The best way to reclaim banks' monopoly profits is firstly LVT and secondly a straight bank gross asset tax.

Ben Jamin' said...

Piketty can see where this road leads ie LVT, which marginalises him and his immoral ideology.

Same as the faux-libs, same as the YIMBYs.

They don't want solutions that reconcile, hence no honest debate.

Mark Wadsworth said...

I've just spotted mistakes 7 and 8:

"There is no logical reason to levy a higher tax on a person who invests their fortune in a house or a property rather than in a financial portfolio, a yacht or any other type of good"

7. Anybody who uses 'land' and 'property' interchangeably is an arsehole.

8. Nobody gets richer by saving up and buying a yacht. That's an expense. People get wealthier (or avoid becoming poorer) by owning land. It's a source of income.

Bayard said...

Mistake No 9: a yacht is a liability, not an asset, therefore it is not, in any way, an investment.

Lola said...

Also, 'property' as in buildings are a 'liability', they wear out. Your house is a liability. If you rent out a building it is an 'asset' - an asset or investment being defined as something that has a yield - and there are only four of those, shares, bonds, land and buildings, cash; everything else is some derivative of those.

And as MW says putting your hard earned into stocks and shares is a productive use of those savings. As is putting them in a bank who use maturity transformation to turn those short term deposits into longer term loans (yes yes I know that loans create deposits). The trouble is most bank loans are mortgages on land.

MW Isn't a bank asset tax simply LVT by one remove?

Lola said...

Bayard. 'A yacht is a hole in the water into which you pour money'.

DBC Reed said...

Marshall Steinbaum's May 2017 article " "Why are Economists giving Piketty the cold shoulder?" gives a fairly up-to- date account of the basic Piketty controversy highlighting the shrapnel blast of algebraic formulae from Matthew Rognlie (who in a down market moment said that Piketty's book should be called "Housing in the 21st Century").Steinbaum's version of what Rognlie is saying is that Piketty'e data for capital growth are disproportionately "the result of the price appreciation of certain scarce stores of wealth, primarily housing and the land it sits on,not the quantity accumulation of productive capital that is the subject of the neoclassical economics".What is peculiar is that Theresa May approves Rognlie's analysis in "You Gov PM speech Making housing fairer" to Town Planning Institute earlier this month (5th March), while dissing LVT at PMQ's (21st March), although this is more in line with Rognlie ,no matter what he unintelligibly says.

Lola said...

DBCR. 10/10 Bloody May / Hammond. What defeats me is the logical disconnect in what they say. Is it mendacity? Stupidity? Or what?

Mark Wadsworth said...

L: "isn't a bank asset tax simply LVT by one remove?", Yes, sort of, it's complementary to LVT.

ThomasBHall said...

I do love it when Lola and DBCR agree! We really are a refuge for intellectual honesty.
my 10/10- 7. Anybody who uses 'land' and 'property' interchangeably is an arsehole (especially when they know better).

Bayard said...

"Your house is a liability"

Especially if it is a historic building. In fact, a listed building in poor condition has negative value - the land would be worth more if it wasn't there.

Graeme said...

R>G, so returns to wealth are greater than the growth of the economy. Any company paying out dividends greater than its Roce will soon come to grief, won't it? But that is how rentiers get rich according to Piketty, according to extensive data sets. The fact that it defies understanding doesn't count for an academic

Mark Wadsworth said...

G, excellent take down! It is of course rents that are taking up an ever larger share of the economy.

Lola said...

On a completely prejudicial note, does anyone else feel that Piketty has both an attitude of intellectual and knowledgeable arrogance plus that face that just makes you want to give him a slap?

When I have heard him interviewed I take in a deep breath to shout at the telly/radio and then cannot be arsed and let it all out with a sigh and a simple 'oh do just fuck off!'. It drives Mrs L mad - so that's a bonus.

Lola said...

TBH. I have this theory that pretty well everyone, well pretty well every Brit, is a libertarian - slightly left or slightly right depending - but that most of us have not yet realised it. Hence DBCR won't like to admit it but IMHO he is slightly (too far) tilted to left Libertarian hence we do often agree. He just hasn't got it yet.

ThomasBHall said...

Actually Lola, I think pretty much every human is a libertarian when it comes to how they want their own affairs managed. All this collectivist nonsense breaks down as soon as you speak to any individual. The problem is that people also often seem interested in managing the affairs of everyone else- but they still want their own liberty for themselves...

Mike W said...

I only mentioned the issue of Tobin tax an aside. In that I wanted to tease out that Picketty may actually have had some policy tools that would do the job of halting the observed concentration of wealth in France. In the sense that the doctor had some 'medicine' even though he can't diagnose the illess correctly. Random, but better than nothing?

What I found disturbing recently, and why I posted, is whether those folks who who already know LVT here in the UK, actually have taken any policy tools from their reading of Picketty's book.I do worry, as I am left guessing what they may be, as you can see. So when Picketty trashes, on fake, future moral grounds, our tried and tested LVT model, you do wonder as Graeme and TBH suggest above, if he actually wishes to do anything about the issue other than misdirect the general public with a big wall of data sets.

DBCR above, are we being suckered in here? Notice the date of publication of P's famous book and the publication of his article posted here. He is sticking to his guns, despite everyone outside neo-lib economics pointing out the problem is rents. Why? You actually offer a paper that explains why. In my opinion :)

Those powerful professional 'critics' you point to, are not proposing LVT/alternative policy (LVT Lite) with us, in my view, they are simply playing the game Picketty is also employed to play out. It's all a big show.

They are saying in effect; don't worry important Neo/Lib economic departments in America are looking at the question of concentration of wealth (mere market failure?), sure there are known problems with Picketty's French, Neo/Lib model, but a bit more research and we will let you know.

My reading of the paper you reference, is that the minor 'issue of rents', as they see it, is getting in their way of formulating a consistent mathmatical Labour/capital model in this area of self-satisfied, academic research. Read the 'rent' comments by the great and the good at the end of your man's paper.Are they really on the side of the angels?

Bayard said...

"But that is how rentiers get rich according to Piketty, according to extensive data sets."

Landlord-bashing will always be popular, viz 1930's Germany (pace Godwin).

Mark Wadsworth said...

B, landlord bashing? In the UK, we are brainwashed to treat the largest landlords as semi-divine i.e. the Royal Family and various "noble" men. The bloody Americans elected one as President.

When I was a kid, landlords were seen as pretty seedy (Rigsby) and barely a step above brothel madams or door step lenders (not that this logic was extended to the Royal Family and all the Dukes), now they are openly boasting about their wise investments and are lauded by all the Homey newspapers.

Lola said...

MW Rachmann was my 'favourite' landlord...

Bayard said...

MW, agreed, real lords escape the obrobrium levelled at mere landlords, Rupert Rigsby being a good stereotype. Similarly in 1930s Germany it was the small Jewish landlords that caught it the neck, not the aristos, although you might have had to leave in a bit of a hurry if you opposed the Nazis, or face a very life-shortening experience, even if you were an aristo.

However, I don't think that landlords are any more popular now than they ever were, hence my comment about landlord-bashing.

Physiocrat said...

Pickety is worse than useless. I wrote this in 2014 when there was all the hype about him.

http://www.landvaluetax.org/the-lvtc-blog-by-henry-law/picketty-has-got-it-wrong.html

DBC Reed said...

@ Mike W
My apologies for not replying to your question on 29th March.Later on that day I came across "Piketty's three big mistakes" by Noah Smith on Bloomberg which put all the ducks in a row ending up with a ringing endorsement of Henry George and LVT for agglomeration problems.This stunned me into radio silence: reading American stuff that we've been discussing for years.
How come Theresa May who appears to claim that she's been influenced by Rognlie cannot progress to Henry George herself?