It can be frustrating arguing with f**k wit economists about LVT.
One group of right-wing zealots will say that location values don't naturally exist. They are merely the symptom of a regulation crazy Government. The free-market will sort it all out and they will fall to zero.
Another group of right-wing nasties will concede they do. But they say these values are only created by individual landowners. To them, the claim they are socially created is dangerous Commie nonsense. If location value is individually created, "taxing" it will produce the same negative outcomes as taxing capital.
Reason, common sense, and observation cannot persuade them they are wrong. Perhaps mathematics can?
25 comments:
This is an interesting bit of empirical research. So we have a fact: Double the size of the city and get a 1.15 increase in wages. Or perhaps Increase wages by 1.15 and get a doubling in the size of the city.
Now we just need some theory behind it to explain which is the cause and which the effect; plus why the magic number is not 1.05 or 1.25.
D, it's not cause and effect, it is the same thing.
It's like rain forests - do trees grow because it rains so much or does it rain because there are trees there?
If the sewage pumps were turned off, the Thames barrier taken out of use, and the Embankment walls allowed to decay - all that valuable property in Belgravia and Pimlico would revert to its natural condition of swamp within a few years. The first flood would put the London underground permanently out of action. What would all that prime real estate be worth then?
Does average infrastructure cost increase linear with this increase in wealth from concentration, or is it pure rent? Is the city-bonus all privately produced externality?
@P
Exactly: the name Strand indicates
the original shore line.
Somewhat at a tangent, I have never understood why ,despite the government being taken over by the Dutch at the end of the 18th century, the UK has not polderised the Thames Estuary (the way Schipol airport was the site of an old naval battle).New land might now be created behind a huge outer Thames barrier serving also as a bridge taking rail traffic (from the Chunnel up North along the East side of the country).In the early days the Estuary must have invited enemy ships to sail or steam up to London. In WW2 the Luftwaffe could follow the line of the Thames in the moonlight. (I have a wartime book [somewhere] called "Bombers Moon".)
Ph, pretty much zero.
Kj, depends what you are talking about. Most things (cable, pipes) have a cost per mile to lay down. So in towns, you can hook up 10,000 people to internet, phone etc per mil of cable; in the countryside it is only 100 people.
That is why we had telephones, electric lighting, sewers and so on in towns long before they were common in the countryside (and in some places they still don't have them).
On the other hand, it costs a lot mroe to dig a Tube tunnel in London than it does to lay on extra bus services in the countryside, for the same number of passengers.
But it is still worth doing this in London because the extra boost to GDP (i.e. some of the 15%) justifies it.
DBC, why bother? In NL and HK they have to reclaim land because they don't have much. London is surrounded by flat, stable, cheap farmland so they can use that instead.
Footnote: when I flew back from Schiphol a couple of weeks ago, the plane followed the line of the Thames all the way from the coast to Heathrow. It was quite illuminating.
Article in the NY Times on this from 2010: "A Physicist Solves the City"
http://tinyurl.com/3rqpynu
Pablo, excellent find:
"This implied that the real purpose of cities, and the reason cities keep on growing, is their ability to create massive economies of scale, just as big animals do.
After analyzing the first sets of city data — the physicists began with infrastructure and consumption statistics — they concluded that cities looked a lot like elephants.
In city after city, the indicators of urban “metabolism,” like the number of gas stations or the total surface area of roads, showed that when a city doubles in size, it requires an increase in resources of only 85 percent."
That makes more sense to me than the "plus 15% rule", what it means is output is up to 200% for only 185% of the "cost".
The remaining 15% goes into higher profits, wages and rents/ransom payments.
Oops, spoke too soon.
There's a 15% saving in inputs, later on in the article it also says that incomes go up by 15% because of more specialisation etc.
MW, it doesn't mention how much of the increased wages goes into rents - I think you had a good article showing how most of the higher wages in London went to rents compared to Manchester or somewhere grotty...
M, it all goes into higher rents, common sense tells us that will happen and there is tons of data showing that this is exactly what happens. Not even the Daily Mail disputes this.
Talking of location values and maths has anyone seen those 3D graphic representations of city location values that look like actual citiscapes
Din, those graphics are great fun and everything but add nothing new to the debate.
By and large, the height/density of buildings is proportional to the location value. So what you see in real life is a huge great 3D graphic representation showing location values.
In reply to Mombers you say it all goes into higher rents, yes if you strickily apply ricardo's law of rent then you can't escape the effects of ricardo's law of rent.
Working using the internet, teleworking may help to even values things out geographically.
Din, this whole "teleworking" is a Faux Lib myth.
Email is better than fax is better than telex is better than telephone is better than telegraph, but none of the above inventions has levelled out land values, if anything they have exaggerated them.
The reason for high land values in trading centres is because of the ease of communication, status etc.
If there were one of those gamma ray bursts which knocked out all electric and electronic stuff permanently, then people in the countryside would be barely affected, they've still got cars and candles, but London and Manhattan would rapidly wither and die.
Wiping out all this "teleworking" would make land values level out again!!
The "flat stable cheap farmland" is called Green Belt and British people have tried to avoid towns being joined up since the Ribbon Development Act of the 1930's.
To build up London solidly from Brighton to Northampton (which you appear to hanker after) would not increase the LVT take because of the Central Park effect: areas kept clear of building increase the value of built-up areas proportionately.
Besides we probably need an outer Thames barrier anyway and this could serve as a bridge for rail, some of it for a port on the seaward side. Also there is the Estuary Airport going back to the Buchanan report. Spoil from Crossrail will need tipping.All too Statist? We're doing so well with laissez faire revivalism are n't we?
DBC: "To build up London solidly from Brighton to Northampton (which you appear to hanker after) …"
Ah… are you going all Homey on me and accusing me of having said things I've never said?
DBC: you keep spouting this anti-market theme every now and then, like you somehow think we LVTers believe that the current property market is some shining example of "the free market". Thing is we want this "free market", and this will happen when we get a certain tax policy implemented.
@MW
Seeing that you say that London is surrounded by "flat stable cheap farmland" which can only mean the Green Belt my suggestion is a fair inference.
BTW while looking up(on Net) the date of the Ribbon Development Act by way of adhering to the outdated convention of checking my facts (1935 /National Government era) I came across a Hansard record of a debate of the Andrew Maclaren 1937 Private Member's Bill on Land value rating.A mine of information from some astonishingly good speakers, it contained the disconcerting statement that Hitler confiscated all land-value increases coming landowners' way from infrastructure improvements!
But "Reason, common sense, and observation" is mathematics... or science.
Have you ever considered that every single person in the whole world is a lazy rent seeker? It matters little if you are a tenant or owner.
Have a think about it in a quiet moment. And something really important might emerge. It might not, in which case your moment was not quiet enough.
Does this have an upper limit?
I find it hard to believe that if everyone in California moved to LA they would all get richer.
LF, does this have an upper limit? Yes of course, daft question, that's not the point. There is a huge differential in overall output-to-input ratio between densely and sparsely populated areas, that is uncontroversial and the most important bit here.
If everybody in California moved to LA no they would not become richer, because all the incremental extra wealth they generate/costs they save simply go into higher rents.
I meant (I wasn't very well I read) this. Does it have a known upper limit after which it tails off?
LF, there must be an upper limit at which no more specialistion and efficiency savings can occur (and perhaps some inefficiencies creep in).
So perhaps it's easier to envisage the upper limit first, which might be a town with 5 or ten million inhabitants, or even 20 million (Mexico City, Tokyo) and then assume that every time the city size is halved, it becomes 15% less efficient/productive.
So 20 million = output $40,000 per capita
10 million = $35,000
and so on, down to
625,000 = $20,000.
and theoretically, a place with 10,000 residents has GDP of $10,000 per capita, but there are few such places, if it's a commuter suburb of a large twon, then the effective population is not 10,000 but they are part of the large town.
LF, there must be an upper limit at which no more specialistion and efficiency savings can occur (and perhaps some inefficiencies creep in).
So perhaps it's easier to envisage the upper limit first, which might be a town with 5 or ten million inhabitants, or even 20 million (Mexico City, Tokyo) and then assume that every time the city size is halved, it becomes 15% less efficient/productive.
So 20 million = output $40,000 per capita
10 million = $35,000
and so on, down to
625,000 = $20,000.
and theoretically, a place with 10,000 residents has GDP of $10,000 per capita, but there are few such places, if it's a commuter suburb of a large twon, then the effective population is not 10,000 but they are part of the large town.
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