The fundamental laws of thermodynamics will place fixed limits on technological innovation and human advancement.
In an isolated system entropy can only increase.
A species set on endless growth is…

Muse – The 2nd Law: Unsustainable

At this point I want to leave critiquing the paper and talk about something that’s crystallised in my mind as a result of this exercise.  I have to admit I’m kind of disappointed that I haven’t fully realised this until now.

As soon as you realise that from the producer’s perspective LVT already exists, following that trail of thought to its conclusion implies that most of the decisions producers now make wouldn’t be impacted at all, simply because their numbers don’t change.  They still pay Rent, they just change who they pay it to.

That’s both a good thing and a bad thing.  It’s good because a tax that changes production decisions is generally accepted as a bad thing, as the presence of this paper demonstrates.  It’s bad (at least, for those who think that we’re wasting our natural resources), because it wouldn’t affect those decisions either.  As I’ve mentioned, many governments already charge producers for the privilege of extracting fossil fuels and yet we’re still doing it at the rates that we are.  One of the assumptions of some environmental activists is that we abuse the planet as we do because the land doesn’t make us pay to use it, and that if we just charged people who used the earth then the problem would be solved.  Indeed there are environmentalists who support LVT for that very reason, but it seems people are charged to use the earth and it still happens.

So must we stop claiming that LVT would help in environmental matters?  Actually, no.  The most important of these shifts happens when LVT proceeds are used for current government spending, thus eliminating the need for other taxes.  When this abolition takes place, some interesting dynamic shifts happen.  Labour and Capital becomes more attractive as an input to production, relative to land.  At the moment, if there is a more labour-and-capital-intensive way of performing something that uses less space and resources, that method is penalised by the current tax system.  By allowing labour and capital back into production we not only increase production (and thus wealth), but we favour methods that are more resource-efficient, and we have more skilled people in a position to improve that efficiency through technological advancement.

The time will soon come (and maybe now is) when we will need everyone to put their heads together to find an alternative energy source to oil, yet we let much of our skills base wither on the vine.  We need to get cracking.

Another way that this helps is in housing.  A tax regime that favours land-use over labour/capital-use results in a sprawl of badly-built and badly allocated houses, as people only think about their spatial/locational needs when they buy the house, and may never revisit the topic.  Such homes are energy-expensive to maintain and difficult to service by mass transportation.  Tip the balance the other way, and you get a tighter spread of well-built homes that are traded more often and utilised more efficiently as people regularly reevaluate their spatial/locational needs.  Homes that don’t waste energy, and form communities that don’t need as much energy to commute to/from.

By not punishing the human input to endeavour, we remove many of the pressures that force people to rely on resource-expensive methods.  Then and only then, will you be able to really talk to them about ‘saving the world’.

Finally, there is one more thing to discuss, that of the previous rentiers.  In truth, while there are things that can be changed simply by levying LVT, in some ways it matters more what you do with the proceeds.  It’s important to remember that those proceeds have always existed, but up until now they have been funnelled to those to have title, and they decide what to spend it on.  What is important to them becomes important to the producers, because they have the money to pay for it.

Rents, when concentrated in the hands of few determine the course of an economy.  This is the root of distortion and is, to me, another reason for the Citizen’s Income.  For who really needs to be entrusted with the power of the rents, and ultimately who really can be?

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