Albert: I’m working on a new kind of music, mum!
I think I’ve said all that needs to be said on the technical matters. I want to spend a little time on the ‘meta’ issue of this working paper, as a paper. I’m slightly concerned that this is what passes for academic discourse these days. Now in saying that, I’m not claiming any special knowledge of a time when things were better – maybe it’s always been this bad – but several times in this paper, the authors throw in some – how shall we say? – frankly bizarre asides and decisions that have no place in a paper of this nature. One that I’ve already mentioned is that they made no attempt to mathematicaly model rent, which was the thing they were supposed to be investigating. Their model assumed their conclusion, and they then used it to claim their conclusion was valid. No wonder they call it ‘the dismal science’…
Moving on from that, however, there are several other things in the paper that set off alarm bells, and in one particular case, cartoon-style klaxons.
Julian Simon (1998), noting that the very longest trends throughout humankinds history exhibit decreasing rather than increasing scarcity for nearly all raw materials, predicted the trend would continue indeﬁnitely. The theoretical underpinning of this prediction is one of endogenous invention, and this invention must be sustained through the availability of quasi-rent and the preservation of property rights. It is through entrepreneurial discovery activity that the supply of resources has increased, driven by the incentive of quasi-rents from their sale.
Leaving aside Simon’s complete dismissal of the 2nd law of thermodynamics, how exactly does endogenous invention rely on quasi-rents from land searching? Unless you are searching for some space in which inventors invent better, it’s the inventions that enable the improved searching and the utilisation of what they find, not the other way round.
Without this activity, it is conceivable that the doom-and-gloom forecasts of Simon’s day would have come true.
Now seems like a good point to mention that the idea of government charging for the use of natural resources is not exactly unheard of in the real world. It’s how sovereign wealth funds came about, after all. All this decreasing scarcity and avoidance of the doomsday scenario has taken place even with governments often claiming ownership.
The developing world is using an increasing proportion of the worlds natural resources, and natural resource allocation between countries is often a source of extreme tension in international relations.
Stop War. Stop LVT. Won’t someone think of the children?!
A very high tax on the unimproved value of land could drastically interfere with the dynamic nature of entrepreneurial activity: developers must earn some minimum amount from the land to cover the enormous tax, therefore they will employ the land in its obvious use.
You have to love the hysteria leakage here. They’ve tried so hard to be impassive and technical about this, but LVT’s just….so……enormous! In any case, land-users don’t look at a plot and ask “What can I do here?”. They decide what they want to do and ask “Where can I do it?”. The incentive to search under LVT is obvious when you consider who actually directs economies.
We consider a shift in expectations that discourages investment in land even after the George tax is repealed. Now, when calculating the net present value of land, the buyer considers not only the tax rate for the current period but his expectation for the tax rate in future periods as well.
<sigh> There is only one condition where you can, even in theory, make a logical argument from regime uncertainty. That condition is that you counter-propose absolutely no changes to the status quo. I have yet to see this done. How will our intrepid authors fare?…
However, we…suggest that taxing of negative externalities (Pigou 1920, Baumol 1972) is plainly superior from an efficiency perspective.
Yeah….I thought as much….
Previous attempts at land reform have more often failed than not, sometimes with terrible consequences. Consider the case of Uganda, where in 1971 dictator Idi Amin expelled approximately 60,000 Indian immigrants and expropriated their land (Jorgensen 1981). The idea was simple: expel the immigrants and redistribute their holdings among the native population to curry favor without effecting future output.
<Klaxons sound> Erm……what? Is this paper actually an elaborate prank? Am I on You’ve Been Framed/Candid Camera? How is any of this relevant? Progress and Poverty already has an entire section on why redistribution in this manner does not and cannot work. How is the failure of something that George said wouldn’t work a useful marker for the validity of George’s proposal? What possible reason do the authors have for mentioning Amin, except as an attempt to discredit LVT by supposed association?
What’s most astonishing about this is that one of the authors must at some point have said to the other “You know what this needs? A discussion of Idi Amin’s expulsion of the Indians!” and that at that point the other failed to immediately slap his colleague with a fish and say “Whatever you’ve taken today, keep it far away from me!”
While a true comparative institutions approach is impossible because no country has attempted to follow Georges recommendations wholly, some countries have experimented with very high land taxes to tremendous detriment.
Astoundingly, this statement (which comes after the ‘Amin incident’) is followed by no further discussion of either any examples of countries that have experimented with very high land taxes, nor the tremendous detriment they suffered by doing so. These are the sorts of things that you would expect a paper of this nature to be interested in exploring. Surely!
Not worth the paper
The introduction of this paper states:
This critique [of LVT] distinguishes itself from previous critiques by employing the language of modern economics.
Making such a claim sets you to a higher standard, which makes the dismal failure of this paper to say anything of value all the more disappointing. The economics profession should stick to simply ignoring Henry George – it’s something they are at least half-competent at.