Saturday, 21 August 2021

Killer Arguments Against LVT, Not (489)

Emailed in by Benj from The Library of Economics and Liberty [sic]:

The author picks up on this pro-LVT argument:

Solution: A land tax. The first person to find some unused land gets to claim it, but also, the person who owns a particular piece of land at any given time has to pay a tax approximately equal to the intrinsic value of that land (the value not due to human labour). The tax money should then be distributed evenly among society.

That's a very hypothetical example, but hey. Note the key words "the intrinsic value of that land (the value not due to human labour)". The author is clearly thick and twists it round to the opposite.

Here's the KLN:

To put this in the form of a common-sense moral dialogue:
A: Welcome to the island!
B: Thanks. Now hand over half the surplus value of your land. You owe it to me.
A: This is my land. I’m the one who farmed it. I was going to give you some to help you out, but you’re scaring me.

Who says it's his land? Land ownership can only really exist under the umbrella of a government, i.e. consensus backed up by force. Or just force. What if they were both washed up at the same time but one of them managed to save a revolver and bullets from the ship wreck? Who do you think gets to own the land?

B: You’re entitled to your value-added, sure. But you have to share the raw productivity of nature with me.

This bit is actually correct. But the author is wilfully blind as to what the "raw productivity of nature" means...

A: Seems unfair.
B: Well, let me point out that you seem to have an inborn knack for farming.
A: True, I’ve always had a green thumb.
B: Interesting. I wasn’t born with this talent, so you also owe me half the value of your inborn green thumb. I think I’m going to like this island!

Exactly not. The point about Georgism is not taxing the value of individual skill and effort. No way is the newcomer entitled to half the total value of the output. He is - ultimately - only entitled to half of what he himself would be prepared to pay in rent/tax.

If the land is incredibly difficult to farm and/or the newcomer is absolutely rubbish at farming, the land is of no value to the newcomer and the "intrinsic value of that land" is zero as far as the newcomer is concerned.

If, on the other hand, farming on that island is really easy because there are a load of pre-existing edible plants, fruit-bearing trees and incredibly tame animals, only a small fraction of value of the food is due to individual skill and effort (somebody has to go out and collect it and bring it back) and most of the value is a freebie, like sunshine or rain.


benj said...

Caplan being an faux-lib American, finders keepers or "homesteading" is part of a national delusion to justify the idea of Manifest Destiny.

Let's say first one on the island was lazy and didn't do much food growing or gathering. Would Caplan think it ok for him to charge the new arrival a rent? Presumably yes on the basis of the "search cost" he performed looking to save his own life.

Mark Wadsworth said...

B, your rebuttal is much better than mine, you should have written this post!

Piotr Wasik said...

Assuming there is a government to arbitrage, wouldn't it the case be that the newly arrived person B would own no land (as the whole island is owned by A), and now as there are 2 citizens, they both receive the same UBI. Only A pays LVT for the value of the whole island. B could rent half of the island's value from A and net out to 0.

B's balance is +UBI - rent = 0. Now A's balance is -LVT + rent + UBI.

rent = 0.5 * LVT (because B rents half of the value of the island from A)
UBI = 0.5 * LVT (because there are 2 citizens, so full rental value of the island is split in 2 halves).

therefore A's balance is also 0.

Instead of renting, A can sell half of the island's value to B and their balances will be exactly the same. They will be paying identical LVT and receive identical UBI, net 0. And if B decides not to work, he will quickly discover that the combination of UBI and rent or UBI and LVT nets out to 0, and all these money transfers really equate to the fact that both people have the right to enjoy the island's land, that's all. No free loading, no right to someone else's fruit of labour, and no paying to someone for the gifts of nature.

The point here is that if govt decides initially that only A has right to be on the island, A enjoys all the value of the island. But when govt decides that 2 people have the right to be on the island, and are equal citizens, A and B, they both enjoy the value of the island equally.

It may feel unfair that suddenly A has to forego the right to 50% of the island's gifts of nature, but of course, in real life the number of citizens in any country is not jumping by 100% overnight, and the net effect of steady influx of new arrivals in immigration is usually positive: they consume the "island's" resources, but add more than consume in their labour. Maybe because immigrants are self selected group of people that are more resourceful than average (I think you MW pointed it out). Or maybe simply because more people boosts economy by network effect, even in the island example, when B joins A, there may be a division of labour.

The balances of A and B will look differently if one of them is frugal decides that he needs only a small fraction of the island's nature, not 50%. Then the other guy will be transferring money to the frugal one, but only the money from the value of the island's nature, never from the value of his labour, like farming.

Mark Wadsworth said...

PW, exactly, that's all a better take-down than my attempt.

"Maybe because immigrants are self selected group of people that are more resourceful than average (I think you MW pointed it out)."

I've heard Australians over here say it's easy to find work as they have a reputation for being hard working; I've heard returning Brits say it's easier to find work Down Under because they have a reputation for being hard working...

Piotr Wasik said...

... also, in case one of the citizens is frugal and takes only small amount of land (by renting or buying), and therefore his balance -LVT (or -rent) +UBI is net positive, it may look like he can claim some of some of the other citizen's fruit of labour, because the frugal one can use his net positive balance to buy some of the fruit of the other citizen's labour, BUT never above the value of of the extra land that the other non-frugal citizen is consuming. So it is not really a claim on someone's labour - just claim on the value of the overconsumption of land by someone else, eventually paid in goods produced, but there is a cap on how much the frugal ones can take from the overconsuming ones; so even unequal consumption of land is not changing much. If A wants to consume more land, he'd better work harder for it and produce more than the value of the land, otherwise this exercise of owning more is pointless, because he would have to pay for it exactly the amount owned.

In general I am finding things like this difficult to explain because I tend to write too many cases at once, and my explanation is becoming muddy. On the other hand if I simplify and I leave some cases out, someone would jump: and what about this guy in this particular situation, your plan does not cover his situation, he would lose on your tax reform. And then: what about another one, whose situation is diametrically opposite to the first one, so logically as you often point out it is impossible that both of them would lose. And so on.

Piotr Wasik said...

and one more thing - in real life, the newcomers to the island are not only literally immigrants, but the new generation, people born locally. Of course the new generation born locally vastly outnumbers immigrants. And then the oldies say to them: there is no free lunch, you have to pay us off, because WE OWN EVERYTHING on this island.

Mark Wadsworth said...

PW: " in real life, the newcomers to the island are not only literally immigrants, but the new generation, people born locally [who] vastly outnumber immigrants."

Exactly. And the Boomers offer the consolation prize "Don't whine, in forty years' time it will be your turn to fuck over the next generation while generously allowing them to pay your old age pensions."

Lola said...

In fact the principal of 'homesteading' reinforces the justice and effectiveness of LVT.
Consider, all settled land was once broken out of the wilderness by some adventurous Herbert. Him and his family and / or mates. he had an island of civilisation in the ocean of savagery. Which he had to defend all on his lonesome. next Tuesday someone else turns up and hews another oasis out of the wilderness next door, and has to defend it himself. One day whilst chatting over the fence they each agree that they can help each other out on this defence of the homestead bit and an army is formed. Then Fred moves in three clearings down and starts to try and nick bit of the other two's already homesteaded land. They decide on an arbitration system and fixed boundaries which are held by a mutually trusted third party and so on. The very nature of homesteading creates the 'state'. You can see this in action in the defended farmhouses along the north England border to keep the Scots at bay.

mombers said...

Why so much fixation on land for farming? Very few people are employed in farming, and very little rent accrues to agricultural land

Piotr Wasik said...

@M - I agree, land value is concentrated in cities where most economic activity takes place, despite cities taking only small fraction of all usable land. One of the most idiotic KLN I heard was "but land is irrelevant, because we don't live in agrarian society anymore" (from a Leftie, coming to their usual "and we should tax 'the rich' instead"). As if people could not grasp that value != area. But I don't come up with these "island" and farming examples, I only took the bait :-)

Mark Wadsworth said...

L, yes, "government" and "land ownership" are inter-dependent.

First homesteader "I now own this land."
Native Americans "No you don't" [kill him]
Next Homesteader has US Cavalry as back up, "I now own this land."
Native Americans "Oh, okay, we'll bugger off then."

M, it's because people are stupid (really stupid) and think of land in terms of area and not value.

PW, lots of stupid people use that KLN. The rebuttal is, OK, if land isn't important, there can't be any harm in taxing it.

Bayard said...

PW, that is a common misconception, that "land" = agricultural land only, land with grass and trees on it. The question to ask these people is "What is preventing your house falling to the centre of the Earth?"

Lola said...

MW You will note that I specifically said 'wilderness'. If there already people there with their own homesteading rights it's piracy. Except most 'natives' don't actually do 'land ownership' specifically.

mombers said...

@B or indeed the question is 'What's preventing your house falling to the Taliban or similar?' Certainly not your own labour or capital

Bayard said...

M, do the Taliban live at the centre of the Earth? Well I never!

Mark Wadsworth said...

L, indeed you did.

M, exactly. Or more pertinently, squatters, burglars, trespassers etc.

B, no.