One KLN (Killer Argument Against LVT, Not) which I have heard too many times is that 'land' (in the physical sense) is 'not so important any more in a modern economy'. The proponent then plucks something out of the air like intellectual property rights (copyrights, patents etc), points at a few companies who make large amounts of money from them (Facebook etc) and says that is what we should be taxing.
Clearly, in financial terms, this is nonsense, IP is in distant second place. Facebook's world wide profits are $16 billion (about $3 per user), so even if everybody in the UK is on Facebook and generates $3 profit, that's about £150 million a year. Compare that with the total site-only rental value of UK land, which is about £250,000 million a year. That's not physical land value (undeterminable) but location value (easy to measure and can only arise if the government provides 'public services').
Under general Georgist principles, government protection of copyrights and patents should either be watered down OR if we decide that it is desirable, the extra profits accruing to the rights holders should be taxed at higher rates (they ought to pay the government for enforcing and upholding these rights). This goes without saying and shows that the proponents of the KLN really haven't done any homework whatsoever.
Under general Georgist principles, there are other things that are good sources of taxation, be it oil and minerals; exclusive right to use certain radio frequencies; personal number plates; taxi driver permits, it is a very long list.
What do all the things on the list have in common?
They are all things which have no cost of production, where supply is limited (whether by nature or by the government), and quantity cannot be increased by the productive sector.
You can work hard and make a car or a table or a CD player and sell it, so those aren't 'land'. But however hard you work,
- you cannot increase the surface area of the earth at a particular location*;
- you cannot print and sell Harry Potter without JK Rowling and her publisher's permission;
- the amount of oil and minerals under the earth is a fixed (albeit unknown) amount.
- you cannot increase the width of the radio spectrum;
- you can get a physical number plate made for less than £10, but you can't choose which letters and digits are on it (so you can't just make a load of 'A1' number plates and sell them for £10,000 each);
- the council can restrict the number of people allowed to drive taxis/mini-cabs in their area.
And all these things wouldn't have value if supply were not restricted and if governments didn't do what governments do. Their value bears no relation to the efforts of the owner.
- Oil and mining companies and their employees work very hard extracting the stuff, but however hard they work does not affect its value. The current world market price of oil or gold just is what it is, and might be above or below the cost of extraction from any particular well or mine.
- When the telecoms companies bid for radio spectrum, they guesstimate what end users are willing to pay for mobile services, deduct a guesstimate and their costs and the residual value is what they were prepared to bid.
- For sure, Microsoft have created some neat software, but without copyright and patent protection, they might not have bothered so it would have much lower value.
- I'm sure taxi drivers work hard, but they understand supply and demand, which is why they lobby heavily against the likes of Uber. The extra they earn because of restrictions is unearned, it is 'rent' and they rent they get is from 'land' (in the economic sense used here), the council or city could reduce their earnings by this much at the stroke of a pen.
* Don't bore me with the notion that you can create new land by chucking rocks and concrete in the sea. That does not increase the surface area at that location. This is an expensive process, and is only worth doing if location values are very high. So it's worth doing off the shore of Monaco (and within its jurisdiction), it would be ruinous to do the same exercise half a mile down the coast if you were merely creating more France.
Saturday, 22 December 2018
Clever definition of "land" in economic terms
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7 comments:
* On the other hand:
https://wattsupwiththat.com/2016/08/30/earths-surface-gaining-coastal-land-area-despite-sea-level-rise/
Perhaps more simply, just apply the harm done principle in a consistent way.
Does the use of any good or service, exclusively or otherwise, harm others?
If that harm is not able to be eliminated or internalised by the application of laws, rules, regs, then the state should collect a compensatory payment to be used as revenues or (preferably IMHO) returned as a citizens dividend.
You can label those things to which such payments are due from as Land, The Commons or whatever. I don't think it really matters too much.
@JH
Land is everything not supplied by human effort. Whether it is "fixed in supply" or not depends on your views on how you define the universe. Entropy says its all going to disappear back to nothing eventually, so not fixed.
Even on the earth, natural resources are depleted by humans turning them into capital, or gas/energy being lost to space. On the otherside we get the suns energy, meteorites and the occasional comet.
The point about land is that because by definition there are zero labour/capital inputs, when it becomes valuable those excluded are harmed. Whether it is fixed or not in supply by nature is irrelevant.
JH, yes of course, that's a different point.
BJ: "The point about land is that because by definition there are zero labour/capital inputs, when it becomes valuable those excluded are harmed"
I argue it the other way round. It is only if you can harm others by excluding them that 'land' becomes valuable.
I might have the historic sole right to transport people by horse and cart between two villages. But as nobody wants to be transported by horse and cart anymore, no potential competitors are harmed by being prevented from doing so. So that sole right has no value.
Well said!
BJ, or to give another example, all land value is ransom value. If I kidnap somebody's child, I can only hold out for ransom if that child's parents are suffering a loss by being separated (excluded) from their child.
The ransom depends on the harm being done, if I kidnapped a child whose parents hated it anyway, I'm not doing any harm (to them) so won't be paid any ransom.
P, thanks.
The monopoly value of IP mostly ends up in land value in places like Silicon Valley, where highly paid technicians live, or in expensive real estate purchased by well rewarded executives and shareholders.
@MW
Everything is scarcity/ransom/harm done value. My point was that in order to ascertain who is being harmed, we need find out the origin/nature of supply.
@ Phys
I was thinking along the same lines today. However, if you believe IP harms resource allocation, thus the economy as a whole, then it would depress land values in aggregate(globally perhaps). Though I agree that as it is, certain locations now certainly benefit.
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