Henry George Economic Principles Rediscovered ?

“Could it be that Henry George was onto something after all?”

What a remarkable title from the Boston based mainstream economics commentary ‘Economic Principals.com’ which “.. appeared for more than 18 years as a column in the Business section of The Boston Globe. It moved to the Web in March 2002. Although its resources are reduced, the spirit of the online project remains much the same as in the newspaper version! “.  This is the first mention of Georgist policies I have spotted outside of his ever faithful fan-clubs in the US and UK.  The author David Warsh is less than fully acknowledging of the accuracy of contemporary Georgists predictions of the current crisis – Fred Harrison’ book a case in point.  Nevertheless however curmudgeonly, it is heartening to see that Henry Geroge’s theories are finally gaining recognition  as relevant to understanding and thus solving the financial and economic dilemmas of out time.  Here is the excerpt…

George, you’ll remember, was a great nineteenth century social reformer,  the author of Progress and Poverty, tireless advocate of a single tax on land that he insisted was the remedy to all that ailed the world, written off as a crank by economists in pursuit of their vision of a scientific economics devoid of moral overtones. He died in 1897, after two unsuccessful mayoral campaigns in New York City, but not before attracting an enormous following, including, in Great Britain, the playwright George Bernard Shaw. George’s granddaughter, the dancer Agnes de Mille, recalled that, as a visitor to London as a child, his disciples would shyly ask permission to touch her hair – she was a living relic. George was written up to good effect as part of the “Victorian underworld” of economics in Robert Heilbroner’s The Worldly Philosophers: The Lives, Times and Ideas of the Great Economic Thinkers; and, even better, as a “saint and social deliverer” in Men of Good Hope: A Story of American Progressives, by Daniel Aaron.

Today George himself is a fading memory. But because the use and abuse of land is as lively a topic as it was when he first wrote, a hardy band of followers remain committed to the Georgeist tradition. The Secret Life of Real estate and Banking, by Phillip Anderson, proprietor of Investment Advisory Services, which bills itself as “the world’s foremost expert in business, real estate and commodity cycles,” appeared last year. Mason Gaffney, of the University of California at Riverside, dean of American Georgeists, just brought out After the Crash: Designing a Depression-Free Economy

But Georgeist arguments are hard to connect to mainstream views, except by straightforward empiricism and main-strength awkwardness. Take the first paragraph of Gaffney’s book, for example:

“It’s widely recognized that the economic crisis of 2009 was caused by unsound lending in real estate. Largely ignored, however, is that this contraction was easily predicted on the basis of a well-established pattern of land speculation, premature subdivision, and excessive building on marginal land that recurs approximately once every 18 years.”

Two of those assertions seem inarguable. When the crash came, the crisis was indeed rooted in unsound real-estate lending practices. And in fact it has been about 18 years since the United States savings and loan crisis, and the brief (but very expensive) recession of 1990-91 associated with it. Another 17 years before that occurred the 1973-75 recession, in which bank lending and the REITs (real estate investment trusts) played a major part.

But caused? That’s another matter. So is “easily predicted.”

Nothing there about China’s entry into global markets, about financial innovation, deregulation, technological change, US political gyrations, or any of the other factors more commonly cited. No doubt that when the crisis came, it was rooted in bad real estate loans around the world. The open question is whether property is a mainly a capital sink, a periodically dangerous form of hoarding, as opposed to a fundamental source of fundamental instability.

Land as an investment does seem to have characteristics that distinguish it from other asset classes. People throw their money into it in the expectation that its value will only increase. When it turns out they are wrong, they often hang onto it far too long, slowing the pace of recovery. So in some deep sense, Henry George was right. But then so was John Maynard Keynes. So was Karl Marx.

Instead of indulging in a spate of ancestor worship, it makes sense to give the topic a good going over. There will be plenty of time to consider real estate lending when banking reform moves to the top of the agenda next year. That mechanics of the real estate cycle are worth thinking about. After all these years, the Georgeists deserve a seat at the table.  (link to article)