What a week this is – so many good reports and articles on the role of untaxed land values in the current crisis. Maybe the zeitgeist is finally awake to a land value tax. ? Fred Harrison has to be given a great deal of the credit if so.
…So I am a land speculator – a mini-aristocrat in a land where private appropriation of the fruits of others’ efforts has long been a prime route to wealth. This appropriation of the rise in the value of land is not just unfair: what have I done to deserve this increase in my wealth? It has obviously dire consequences.
First, it makes it necessary for the state to fund itself by taxing effort, ingenuity and foresight. Taxation of labour and capital must lower their supply. Taxation of resources will not have the same result, because supply is given. Such taxes reduce the unearned rewards to owners.
Second, this system creates calamitous political incentives. In a world in which people have borrowed heavily to own a location, they are desperate to enjoy land price rises and, still more, to prevent price falls. Thus we see a bizarre spectacle: newspapers hail upward moves in the price of a place to live – the most basic of all amenities. The beneficiaries are more than land speculators. They are also enthusiastic supporters of efforts to rig the market. Particularly in the UK, they welcome the creation of artificial scarcity of land, via a ludicrously restrictive regime of planning controls. This is the most important way in which wealth is transferred from the unpropertied young to the propertied old. In his new book, David Willetts, the universities minister, emphasises the unfairness of the distribution of wealth across generations.* The rigged land market is the biggest single cause of this calamity.
Third and most important, the opportunity for speculation in land both fuels – and is fuelled by – the credit cycle, which has, yet again destabilised the economy. In a superb new jeremiad, the journalist Fred Harrison argues that this cycle – with a duration of 18 years – was predictable and, by him at least, predicted.** In essence, he notes, buyers rent property from bankers, in return for a gamble on the upside. A host of agents gain fees from arranging, packaging and distributing the fruits of such highly speculative transactions. In the long upswing (the most recent one lasted 11 years in the UK), they all become rich together, as credit and debt explode upwards. Then, when the collapse comes, recent borrowers, the financial institutions and taxpayers suffer huge losses. This is no more than a giant pyramid selling scheme and one whose dire consequences we have seen again and again. It is ultimately, as Mr Harrison argues, a ruinous way of running our affairs. (link to full article)
