General

Re: The Crime of Poverty

dsyddall — Wed, 14 Mar 2012 23:01:56 GMT

Hi Autolykos, can you check the posts written by Fred Foldvary. I think your questions about economic rent are answered there.

Re: The Crime of Poverty

Autolykos — Wed, 14 Mar 2012 15:01:59 GMT

Still waiting on your reply to my last post, dsyddall.

Re: The Crime of Poverty

dsyddall — Fri, 09 Mar 2012 01:36:03 GMT

Graham Wright:
dsyddall:
If it maximises profit over the long term to commit the land after two years with an LVT, then why would it not maximise profit without an LVT?
Your question above is equivalent to 'why would LVT have any impact on land use?'

No, because uses that are unprofitable with an LVT may be profitable, but not maximally profitable, without an LVT.

Re: The Crime of Poverty

Graham Wright — Thu, 08 Mar 2012 20:30:06 GMT

dsyddall:

Graham Wright:

When you have an LVT, it will change the calculation for him, and he might hold it out of use for only 2 years, say. In both cases he is maximising his profit. The question is whether the original 5 years hold out represents the actual best use of the land, and the 2 years is a distortion, or the original 5 years was a distortion and the actual best use of the land would be 2 years hold out, then commit. I don't know how you can so confidently assert the latter. So, again, why is it necessarily a beneficial consequence of the LVT to have (some) land committed sooner than it would be without the LVT?

If it maximises profit over the long term to commit the land after two years with an LVT, then why would it not maximise profit without an LVT?

Dan, you've been arguing that "LVT encourages land owners to put land to the best possible use" and you've made it clear that you consider the lack of an LVT to have the negative economic consequence of encouraging land owners to 'hold their land out of use'. The economic benefit of LVT, according to you, is that there will be less of these land speculators. In other words, that some of the land which, in a market without LVT, would be 'held out of use' (uncommitted) would be 'brought into use' (committed) in a market with the LVT.

Your question above is equivalent to 'why would LVT have any impact on land use?' You tell me, since we both agreed many posts ago that LVT will have an impact on land use.

Re: The Crime of Poverty

Jerry Payton — Thu, 08 Mar 2012 19:43:08 GMT

Graham Wright:

The reduced purchase price also means a reduced selling price, so they cancel out. The cost of paying the tax is not offset by anything.

I'll rephrase Fred again (from the previous page):

Fred Foldvary:

The tax on Rembrandts will not reduce the revenue to the museum, as the visitors will pay a fee based on their desire to see the art, not on who receives the revenue. The tax would reduce the price of Rembrandts to the amount for which the profit from them is the same as before. The reduction in the purchase price, and thus also of the expllicit or implicit interest on the loan or equity offsets the tax payment.

The tax is offset by greater equity, and the price to each indivdual consumer goes down. The tax would actually not arise in the first place unless the demand for equity already existed. It would be a policy based on the rational expectation of "80%" of the population demanding equity in Rembrandts -- it's a bad example because this is not actually the case.

Land on the other hand has universal 100% appeal to everybody whether they realise it or not.

Graham Wright:

So the museum is not part of the economy as a whole? What?

And are you really saying that it is not a bad thing for "the economy" if treasured paintings get destroyed?

Yes, fires occur and therefore speculation is good and taxes are bad. Shall we treat this as a premise, a conclusion or have you just made a non-sequitur?

Graham Wright:

Do we agree that speculators play a useful, beneficial role in the economy (namely, getting supplies to where they are most demanded, across time) even for goods in fixed supply and not able to be (further) produced?

Not to go off on a tangent here, but I have to wholeheartedly disagree with the notion that PURE speculation ever has a stabilizing effect. It may unavoidable and unharmul in small doses, but I think from any objective viewpoint it always increases volatility.

In the case of wheat, the farms or groups of farms often have their own storage capacity, their products go through at least 2 brokers (in the form of whosale elevators and smaller smaller distributors) before hitting the mills, which is the last possible choke point before the you are primarily on the more stabile demand side of the equation dealing with more perishable goods.

The farmers, elevators, brokers, and distributors are not hapless animals, ignorant of their role in the supply and demand equation. They in fact have access to better information with which to speculate on the value of the goods and services they are providing, because that is their sole business. Producers and consumers do not need the help of middlemen who are only there to jerk the prices around to nobody's benefit but their own.

Let's be consistent: do the central banks improve stability when they speculate on the demand for currency in the economy? I was under the impression that the entire Austrian position was that stability would be improved by removing this speculation and returning to a more direct supply and demand equation.

Are we to draw distinctions in the supply and demand equations for land, wheat and money?

Re: The Crime of Poverty

dsyddall — Thu, 08 Mar 2012 19:41:22 GMT

Graham Wright:

When you have an LVT, it will change the calculation for him, and he might hold it out of use for only 2 years, say. In both cases he is maximising his profit. The question is whether the original 5 years hold out represents the actual best use of the land, and the 2 years is a distortion, or the original 5 years was a distortion and the actual best use of the land would be 2 years hold out, then commit. I don't know how you can so confidently assert the latter. So, again, why is it necessarily a beneficial consequence of the LVT to have (some) land committed sooner than it would be without the LVT?

If it maximises profit over the long term to commit the land after two years with an LVT, then why would it not maximise profit without an LVT?

Re: The Crime of Poverty

Graham Wright — Thu, 08 Mar 2012 19:28:16 GMT

Jerry Payton:

Graham Wright:

Fred Foldvary:
With complete and explicit CCR, there is also no distortion, because the rent payment is independent of the actions of the developer entrepreneur. CCR converts the implicit opportunity cost of foregone rent revenue with an explicit rent payment based on the highest and best use of the site as estimated from uses and rentals in the neighborhood. Though monetarily equivalent, these are psychologically different, as an explicit payment has a different psychological effect than an implicit cost that one may not think about much.

I don't know what you mean by this.

Fred is saying that (in the case of uncommited, underdeveloped land with no tenant) the calculations of the developers AND the broader economy are improved when rent is paid upfront by the titleholder, explicitly, rather than being an implicit and hidden subsidy, calculated ex post facto when the rent is capitlized into the sale price 15 years later.

That is, the economic costs are explicitly expressed in the real-time rental price and obvious to everyone concerned, as in the case of Manhattan skyscrapers built on leased land.

Thanks for trying, but this doesn't really help. I don't know what point you are making.

Re: The Crime of Poverty

Graham Wright — Thu, 08 Mar 2012 19:26:41 GMT

dsyddall:

Graham Wright:

dsyddall:
LVT does not foreclose this option to the speculator/developer. It only ensures that the gains made from the change in use after the two years of withholding must be equal to or greater than the loss made during the two years of withholding (since only otherwise does the speculator/developer make a net loss).

Right, but the economic "selling point" of the LVT, the reason it's supposed to be good for the economy, is that it will reduce the amount of land left uncommitted. And I agree it will likely have this effect, but there's no reason to consider that good for the economy. The tax makes it more costly to hold land, so relative to a situation with no LVT, land will be committed sooner than it would otherwise be. Do you agree with that?

As I note above, only in the case where the cost of withholding for a particular duration is greater than the increase in gains made after that duration.

Graham Wright:

Then tell me why it's necessarily a good thing to have land committed sooner than it otherwise would be.

It is not necessarily a good thing to have land committed sooner. But (as implied above) in the cases where it is, LVT encourages it. In the cases where it is not, LVT does not have that effect.

I'm talking about the margin here. Say you have a parcel of land (or a Rembrandt) and a speculator (with no LVT) decides to hold it uncommitted and he ends up waiting 5 years before committing it. When you have an LVT, it will change the calculation for him, and he might hold it out of use for only 2 years, say. In both cases he is maximising his profit. The question is whether the original 5 years hold out represents the actual best use of the land, and the 2 years is a distortion, or the original 5 years was a distortion and the actual best use of the land would be 2 years hold out, then commit. I don't know how you can so confidently assert the latter. So, again, why is it necessarily a beneficial consequence of the LVT to have (some) land committed sooner than it would be without the LVT?

Re: The Crime of Poverty

Jerry Payton — Thu, 08 Mar 2012 18:42:09 GMT

Graham Wright:

Fred Foldvary:
With complete and explicit CCR, there is also no distortion, because the rent payment is independent of the actions of the developer entrepreneur. CCR converts the implicit opportunity cost of foregone rent revenue with an explicit rent payment based on the highest and best use of the site as estimated from uses and rentals in the neighborhood. Though monetarily equivalent, these are psychologically different, as an explicit payment has a different psychological effect than an implicit cost that one may not think about much.

I don't know what you mean by this.

Fred is saying that (in the case of uncommited, underdeveloped land with no tenant) the calculations of the developers AND the broader economy are improved when rent is paid upfront by the titleholder, explicitly, rather than being an implicit and hidden subsidy, calculated ex post facto when the rent is capitlized into the sale price 15 years later.

That is, the economic costs are explicitly expressed in the real-time rental price and obvious to everyone concerned, as in the case of Manhattan skyscrapers built on leased land.

Re: The Crime of Poverty

dsyddall — Thu, 08 Mar 2012 01:32:09 GMT

Graham Wright:

Fred Foldvary:
With complete and explicit CCR, there is also no distortion, because the rent payment is independent of the actions of the developer entrepreneur. CCR converts the implicit opportunity cost of foregone rent revenue with an explicit rent payment based on the highest and best use of the site as estimated from uses and rentals in the neighborhood. Though monetarily equivalent, these are psychologically different, as an explicit payment has a different psychological effect than an implicit cost that one may not think about much.

I don't know what you mean by this.

Can you explain which part you aren't sure about so that others might be able to help?

Re: The Crime of Poverty

dsyddall — Thu, 08 Mar 2012 01:25:18 GMT

Graham Wright:

dsyddall:
LVT does not foreclose this option to the speculator/developer. It only ensures that the gains made from the change in use after the two years of withholding must be equal to or greater than the loss made during the two years of withholding (since only otherwise does the speculator/developer make a net loss).

Right, but the economic "selling point" of the LVT, the reason it's supposed to be good for the economy, is that it will reduce the amount of land left uncommitted. And I agree it will likely have this effect, but there's no reason to consider that good for the economy. The tax makes it more costly to hold land, so relative to a situation with no LVT, land will be committed sooner than it would otherwise be. Do you agree with that?

As I note above, only in the case where the cost of withholding for a particular duration is greater than the increase in gains made after that duration.

Graham Wright:

Then tell me why it's necessarily a good thing to have land committed sooner than it otherwise would be.

It is not necessarily a good thing to have land committed sooner. But (as implied above) in the cases where it is, LVT encourages it. In the cases where it is not, LVT does not have that effect.

Re: The Crime of Poverty

Graham Wright — Wed, 07 Mar 2012 21:38:39 GMT

Fred Foldvary:

Does CCR (community collection of rent) distort or does it optimize the timing of development?

Yes, that is the question.

Fred Foldvary:
Today's fiscal system distorts the timing by imposing taxes on capital goods and subsidies to land value. In a pure market, neither would exist, and the timing would not be distorted. Without CCR, landowners would implicitly pay a community rent for public goods, because it is unlikely that market-based payments would be based instead on sales prices or income unrelated to the public goods.

Nobody's talking about today's fiscal system, or taxing capital goods. And none of us here are worried about public goods being "underfunded" or anything like that, because we know that even roads, defense, lighthouses, etc can and ought to be provided privately. So I don't know why you brought this up.

Fred Foldvary:
With complete and explicit CCR, there is also no distortion, because the rent payment is independent of the actions of the developer entrepreneur. CCR converts the implicit opportunity cost of foregone rent revenue with an explicit rent payment based on the highest and best use of the site as estimated from uses and rentals in the neighborhood. Though monetarily equivalent, these are psychologically different, as an explicit payment has a different psychological effect than an implicit cost that one may not think about much.

I don't know what you mean by this.

Fred Foldvary:
Thus CCR promotes a more efficient timing of development relative to merely implicit payments by spurring lazy site holders to optimize their timing.

On what basis do you call one site holder "lazy" and another usefully keeping his land uncommitted? Why is it more optimal to have land committed to projects sooner rather than later, as it would be without CCR?

Re: The Crime of Poverty

Graham Wright — Wed, 07 Mar 2012 21:15:03 GMT

dsyddall:

Graham Wright:

I was talking about the Rembrandts already owned by the museums.

In that case the cost of paying the tax is offset by a reduced purchase price.

The reduced purchase price also means a reduced selling price, so they cancel out. The cost of paying the tax is not offset by anything.

dsyddall:
So the museum bears the burden of the loss, not the economy as a whole.

So the museum is not part of the economy as a whole? What?

And are you really saying that it is not a bad thing for "the economy" if treasured paintings get destroyed?

dsyddall:

Graham Wright:

No, speculation stabilises PRICES over time.

Of course, I don't disagree, but in this case the difference is semantics. The demand for wheat is relatively stable over time, so saying that speculation stabilises its price over time is functionally equivalent to saying that it is stabilising supply.

It seems like a crucial distinction to make ("prices" vs "production") to me, but OK. Do we agree that speculators play a useful, beneficial role in the economy (namely, getting supplies to where they are most demanded, across time) even for goods in fixed supply and not able to be (further) produced?

dsyddall:
Graham Wright:

1. Land may not get 'used up', but it does get used. And land tends to be highly committed, in the sense that altering the use of land tends to involve considerable cost: namely, destroying the improvements on it that combined with it in it's previous use that are not needed for it's new use. If a patch of land has a house on it, and someone wants to build a block of flats on it, he has to acquire the land but also buy the house and then destroy it. This makes starting a new project on committed land more costly than starting a new project on relatively uncommitted or bare land.

Why should a person who wants to acquire land with a house on it pay anything less than the market price for land with a house on it?

A speculator might reduce the cost of acquiring the land for the developer of the flats 15 years in the future, but only at the expense of reducing production for the economy as a whole in the meantime. Why should the economy as a whole incur the cost of reduced production only so that a developer can buy land cheaper?

15 years? What about if it's 1 year? Or 1 month? Surely then you would agree that it would be a big waste of resources to build a house on the land, only to knock it down almost straight away to build something else. So then the question becomes how long is it preferable to hold land in an uncommitted state, and this is something we need market calculation to work out. Each land speculator will decide how long he wants to leave his land in an uncommitted state, and the length of time that maximises his profit over the time-period he cares about is the length of time which is the optimal for that particular piece of land.

You have absolutely no basis for implying that the cost of holding land uncommitted for 15 years and then building on it is necessarily more than the cost of building on it straight away and then having to destroy what you built and build something else 15 years later. That kind of calculation can only be done by entrepreneurs on a case-by-case basis.

Also, you seem to imply the developer is not part of "the economy as a whole" as well now. It is as if you have a notion of "the economy" which is disconnected from the individuals that comprise it.

dsyddall:
Graham Wright:

2. There is a sense in which land can be withdrawn from the economy, or held out for later. Isn't that what this whole 'problem of speculators' is about? Land being withdrawn from or held out of the economy by big bad landowners? But a land decision-maker could decide that a piece of land is going to be worth more in the long-run if he waits and doesn't commit the land for a couple of years, waits to see what happens to demand, then makes the decision about what to build on the land later. If he's right, the land has been used as efficiently as possible. That would be equivalent to someone deciding to hold onto his wheat for a while, and then sell it in the spring.

LVT does not foreclose this option to the speculator/developer. It only ensures that the gains made from the change in use after the two years of withholding must be equal to or greater than the loss made during the two years of withholding (since only otherwise does the speculator/developer make a net loss).

Right, but the economic "selling point" of the LVT, the reason it's supposed to be good for the economy, is that it will reduce the amount of land left uncommitted. And I agree it will likely have this effect, but there's no reason to consider that good for the economy. The tax makes it more costly to hold land, so relative to a situation with no LVT, land will be committed sooner than it would otherwise be. Do you agree with that? Then tell me why it's necessarily a good thing to have land committed sooner than it otherwise would be.

Re: The Crime of Poverty

dsyddall — Wed, 07 Mar 2012 01:12:01 GMT

Graham Wright:

I was talking about the Rembrandts already owned by the museums.

In that case the cost of paying the tax is offset by a reduced purchase price.

Graham Wright:
dsyddall:
The risk of loss is compensated for in the price paid by the museum to the owner.
So what?

So the museum bears the burden of the loss, not the economy as a whole.

Graham Wright:

No, speculation stabilises PRICES over time.

Of course, I don't disagree, but in this case the difference is semantics. The demand for wheat is relatively stable over time, so saying that speculation stabilises its price over time is functionally equivalent to saying that it is stabilising supply.

Graham Wright:

1. Land may not get 'used up', but it does get used. And land tends to be highly committed, in the sense that altering the use of land tends to involve considerable cost: namely, destroying the improvements on it that combined with it in it's previous use that are not needed for it's new use. If a patch of land has a house on it, and someone wants to build a block of flats on it, he has to acquire the land but also buy the house and then destroy it. This makes starting a new project on committed land more costly than starting a new project on relatively uncommitted or bare land.

Why should a person who wants to acquire land with a house on it pay anything less than the market price for land with a house on it?

A speculator might reduce the cost of acquiring the land for the developer of the flats 15 years in the future, but only at the expense of reducing production for the economy as a whole in the meantime. Why should the economy as a whole incur the cost of reduced production only so that a developer can buy land cheaper?

Graham Wright:

2. There is a sense in which land can be withdrawn from the economy, or held out for later. Isn't that what this whole 'problem of speculators' is about? Land being withdrawn from or held out of the economy by big bad landowners? But a land decision-maker could decide that a piece of land is going to be worth more in the long-run if he waits and doesn't commit the land for a couple of years, waits to see what happens to demand, then makes the decision about what to build on the land later. If he's right, the land has been used as efficiently as possible. That would be equivalent to someone deciding to hold onto his wheat for a while, and then sell it in the spring.

LVT does not foreclose this option to the speculator/developer. It only ensures that the gains made from the change in use after the two years of withholding must be equal to or greater than the loss made during the two years of withholding (since only otherwise does the speculator/developer make a net loss).

Graham Wright:

Yes, but the benefit of LVT is supposed to come in the form of less speculators, less land being held out of use. If you admit that sometimes the best thing to do economically is to have a patch of land kept bare for a while, uncommitted, then how can you say that it's necessarily beneficial to shift some of the land that is currently uncommitted into being committed?

As I note above, the LVT only causes this shift in the case where the speculator would as a consequence make a net loss (i.e., where the withholding causes a loss from the perspective of the economy as a whole).

Re: The Crime of Poverty

Fred Foldvary — Tue, 06 Mar 2012 23:22:42 GMT

Economic rent is income not needed to put a factor to its most productive use. The economic rent of land is the rental paid by the highest bidding tenant (at the rental offered by the second-highest bidder) minus the normal costs of landlording.