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So Much Misinformation, So Little Time…

2 Nov

Kyle Trowbridge has posted the standard hodge-podge of Austrian-school misinformation about taxes here:

> Broadly speaking, taxes can be broken into three types: consumption, income, and wealth.

Actually, there are just two types of taxes: those that confiscate privately created value for public purposes (i.e., virtually all our current taxes), and those that recover PUBLICLY created value for public purposes rather than giving it away to private interests as a welfare subsidy (i.e., taxes on government-created and -enforced privileges like land titles, corporate limited liability, broadcast spectrum allocations, IP monopolies, resource extraction rights, utility and cable monopolies, private banks’ privileges of issuing debt money, etc.).

> Taxes on wealth/net worth, inheritance, gifts, capital gains, and property all are levied on an aggregate of saved wealth,

No.  “Saved” wealth implies wealth that has been earned but not spent, and is available to be invested in productive capital.  In reality, the value of many assets, including those listed above, is simply the present value of what the owner expects to take from society in the future and not repay in taxes.  It’s no more “saved wealth” than the economic value of a protection racket or a drug dealer’s turf is saved wealth.

> Likewise, property taxes charge people/businesses a fee based on all real property (land, buildings, machinery, wells, etc. and all permanent improvements on these items). Not exactly a good incentive for increasing a factory size, building new offices, expanding a farm, etc.

In fact, property taxes are two opposite taxes, of the two types identified above: a tax on the privately created value of improvements, which measures what the owner is contributing to the wealth of the community, and a tax on the PUBLICLY created unimproved value of land, which measures what the community is contributing to the wealth of the landowner.  Taxing the former does discourage productive investment in improvements, but taxing the latter stimulates MORE productive investment in improvements, as the owner must either use the land productively, sell it to someone else (who will only be interested in buying it to use it productively), or lose money to the tax.

> Savings are what drive economic growth.

No, devotion of purchasing power to productive investment drives economc growth.  The proof of is in the last few years as US corporations have made huge profits and saved huge stashes of cash, but the economy is stagnant because they are not investing the money productively.  Saving — hoarding purchasing power — does nothing whatever to drive economic growth.

> So it would seem any tax that effects saving as little as possible would be preferred. Thus, wealth and income taxes should absolutely be scaled back or abolished, even if it means replacement by sales taxes or hikes in said rates (obviously not ideal).

Wrong.  A tax on savings would stimluate MORE productive investment, as owners of cash hoards would have to put their funds to work to avoid losing money to the tax.  That is why inflation is highly stimulative: people know they have to spend their money or invest in something productive enough to earn a positive return, or lose purchasing power.

> Start with trying to repeal your property taxes,

Nonsense.  Reducing (let alone repealing) property taxes is economic suicide, as California has proved since it passed Proposition 13 in 1978.  Look at the US states with the highest property tax rates, like NH, NJ, WI, TX and CT, and you will see that their economies are better than the states with the lowest property tax rates, like LA, MS, AL, CA and MA.  Proposition 13 was the greatest public policy blunder committed by any state since the Civil War.

> then work on income taxes, then we can move on to abolishing the state.

People who advocate repealing property taxes are interested in increasing the state welfare subsidy to landowners, not in abolishing the state.

A Typical Fallacious and Dishonest Rationalization for Landowner Taking

26 Oct

Zac Gochenour has written a short article purporting to “debunk Georgism”  here:\

It is absurd, fallacious and dishonest from start to finish, as all other such “debunkings” have been.  It might be an interesting exercise for the reader to read Gochenour’s article and see how many of the fabrications and fallacies he can spot before reading the comprehensive and conclusive demolition that follows:


Debunking Gochenour’s Debunking


“Those who can make you believe absurdities can make you commit atrocities.” — Voltaire

The more interesting corrollary of Voltaire’s penetrating observation is that those who would make you commit atrocities will first try to make you believe absurdities.  All apologists for landowner privilege are in that category.  To rationalize, justify and excuse the atrocities committed in the name of private property in land, Zac Gochenour would have you believe the following absurdities:

““Land” is not necessarily more fixed in supply than any other input.”

Land is fixed in supply by definition, as its quantity cannot  be increased by labor and does not respond to price.

Quoting Milton Friedman (who probably knew better, but was lying about it):

“[T]here are many other resources, of which human labor is one of the most important, which are, to put it in technical economic jargon, in inelastic supply so that a tax on the return from such services is unlikely to affect the amount of such services made available for market use. The most obvious examples are such items as the skill of Muhammad Ali or of a Frank Sinatra. These are natural resources, too, and they are limited in supply and derive their value from their scarcity.”

Labor is by definition not a natural resource, and being limited in supply is not the same as being FIXED in supply.  Everything is limited in supply — except the dishonesty of apologists for landowner privilege, of course.  The skill of a particular person is an attribute of that person, not a factor of production.  Their labor — the effort they devote to production — is the production factor, not their skill, and it is not fixed in supply.  Its quantity responds to price.  Land’s does not.

“At a sufficiently high tax rate, Ali refuses to fight, Sinatra refuses to sing.”

Because professional boxing and singing are labor.  A natural GIFT for boxing or singing, by
contrast, which is in fixed supply, is NOT labor.

“So what does it mean to produce land?”

It means someone is about to lie.  Always.

“Firstly, just identifying a good piece of land is production.”

But it is production of information, not land.

“Information is production, and this information is reflected in the so-called “unimproved” value of land.”

But it is not land.  Many other products of labor affect the unimproved value of land, from the services and infrastructure government provides to the opportunities and amenities the community provides, to the technology innovators provide.  The point is that none of these things is, except by coincidence, anything the landowner provides.

“Another way land can be produced is by improving its qualities.”

More absurdity.  Improvements are not land.

“Not everything that improves the value and productivity of the land is a physical capital improvement.”

But it IS a product of labor, and thus not land.

“Land is produced via the entrepreneurial process of identifying and valuing land.”

More absurdity.  That process produces information, not land.

“What is really meant by “unimproved value,” then? The best definition I can come up for what
George means is: the obvious value of the land based on comparison to other valuations.”

No, it’s what the land would trade for if all the improvements to it were removed.  Mr Gochenour does not seem to have tried very hard to come up with an accurate and honest definition.

“And it makes certain false assumptions about the homogeneity of land”

There is no such assumption.  The assumption is about the willingness of market participants to
accept close substitutes for land parcels that are by definition unique.

“and the ability of bureaucrats to properly estimate its value.”

I invite Mr Gochenour to provide his evidence that “bureaucrats” suffer from some congenital
cognitive deficit that prevents them from applying the same methodology private real estate appraisers apply.

Thought not.

“Say you have lived in your childhood home your entire life. What’s the land worth to you? Is it just the value of the rent you could charge someone from living in the house? ”

What the land is worth to any individual is irrelevant.  Its value is what it would trade for on the market.

“If you’re going to have to pay all of this value in taxes, why bother to make any investment at all?”

To obtain the economic advantage the land confers on its user — and avoid losing money to the tax.

“But if you have been following the argument so far, you now agree that all production is
transformation and that land must be produced.”

More absurdity.  It is self-evident, indisputable, and true by definition that land was there before any human being could possibly have produced it.

All apologists for landowner privilege lie.  That is a natural law of the universe.  There has never been an exception to that law, and there never will be.

“Search costs are (one of) the cost of natural resource production.”

Absurd.  Searching produces information, not natural resources.

“So how does the landowner make up for the search costs? Rents!”

Absurd.  There is no relation — none — between “search costs” and land rent, as Ricardo proved
200 years ago.

“More accurately, a rent that is actually an incentive for search is called a “quasi-rent,” using the terminology of Alfred Marshall. [4]”

But even more acurately, Zac Gochenour is just makin’ $#!+ up.

“Other rents incentivize productive activity: patents for inventions, “reputation rents,”[5] product variety, and yes, land titles.”

No, not land titles.  That is why Zac Gochenour cannot answer The Question:

How, exactly, is production aided by the landowner’s demand that the producer pay HIM for what government, the community, and nature provide?

And no one else can answer it, either.

“In the case of land, the quasi-rents incentivize folks to invest in information about land and build relationship-specific capital with that land. This enables new resources to be found, value-enhancing extra methods to be used, and even communities to be formed.”

But it is having to PAY land rent that gives the land user an incentive to do those things, while being privileged to collect and POCKET land rent has no such incentive effect on the land’s owner.  He has no motive whatever to do anything but accept the high bid.

“Misconceptions about property lead people to make what I consider a lot of absurd claims about economics and morality.”

A phenomenon of which Mr Gochenour is himself an instructive example…

“All property rights are in some sense arbitrary, based upon expectations stemming from
evolutionary biology or cultural norms.”

Evolutionary biology and cultural norms are not arbitrary.

“If any property right is “natural,” property rights in land would have to be at the top.”

That must explain why private property in land was unknown — even inconceivable — to our
hunter-gatherer and nomadic herding ancestors before the invention of settled agriculture.

“Many animals exhibit territorial behavior.”

Forcible animal possession is not property.

“As we discussed above, the process of producing land: identifying a good plot of land, investing in assets specific to that area, etc., is quite costly.”

Gochenour’s claim that this process produces land rather than being applied to pre-existing land is self-evidently absurd.

“The quasi-rent is not just extra profit – it may be your entire livelihood.”

As might a slave’s labor be to his owner…

“Expropriation to the “community” not only makes little economic sense,”

It makes more economic sense than providing a large, growing, and unsustainable welfare subsidy giveaway to idle, greedy, privileged landowners at the expense of the productive.

“it violates some of our deepest held intuitions about what is right.”

As emancipation of slaves did 300 years ago:

“When the emancipation of the African was spoken of, and when the nation of Britain appeared to be taking into serious consideration the rightfulness of abolishing slavery, what tremendous evils were to follow! Trade was to be ruined, commerce was almost to cease, and manufacturers were to be bankrupt. Worse than all, private property was to be invaded (property in human flesh), the rights of planters sacrificed to the speculative notions of fanatics, and the British government was to commit an act that would forever deprive it of the confidence of British subjects.”

–Patrick Edward Dove, The Theory of Human Progression, 1850

“Georgism seeks to redefine property from its spontaneous-order definition to a definition that they believe to be superior. This sort of activity rarely ends well.”

See above re slavery, which, like private landowning, was a quick and dirty “spontaneous order” solution to a real problem.  We now have better solutions to those problems.  But just as with slavery, those who find their personal financial interests are well served by the old solution will oppose the introduction of a better solution.

“Sweeping, top-down reforms like George’s have at their heart a critical, fallacious assumption: that the government can be constrained to do exactly what you want and nothing more.”

Strawman fallacy.  Everyone knows perfection is not attainable.

“The first obstacle, which I relate to Hayek’s knowledge problem,[7] is that just collecting the money does not mean the government[8] knows what to buy.”

At least it is recovering the money from those who will pocket whatever benefit IS created.

“Public choice economists, from Buchanan and Tullock forward, have long argued against the romantic notions of the incentives faced by state actors.”

But as land rent is largely created by government spending on services and infrastructure, desire for revenue will stimulate government officials to spend on things that people willingly pay land rent for.  Land rent recovery automatically aligns government’s financial incentives with the public interest, just as ordinary free market institutions align the financial interests of producers with the desires of consumers (Smith’s “invisible hand”).

“In their classic article,[9] Kydland and Prescott[10] prove that optimal policymaking is difficult even under the best of assumptions.”

Did Kydland and Prescott assume that government would efficiently recover essentially all the value its spending created, as would be the case with land rent recovery?

“In the George case, there is simply no way for the government to credibly commit to never
expanding taxes beyond the unimproved land values of the George system.”

So?  It can’t commit to never putting innocent people in prison, either.  So what?  Does that mean we do away with prisons?

“If future voters want more services than that can pay for, the government will just issue new taxes.”

And…?  That’s democracy.

“In the George case, the expectation is that people will invest heavily in land improvements, knowing that taxes are limited to unimproved land values. But once those improvements are built, they are just like the land itself.”

No, they are not.  Such a claim is absurd.

“The government can levy taxes on those improvements with no expectation of deadweight loss.”

More absurdity.  Every prospective investor in improvements will know he will be taxed on them, just as they are now under the property tax system, and will be discouraged from such investment.

“But because current landowners know this, they won’t invest as heavily in improvements.”

It is the land USER who invests in improvements, not the landOWNER.

“The Georgist tax has only served to prove to landowners that society is willing to levy very high tax rates on certain factors of production when they believe the property holder has little recourse.”

Such a claim is outrageous and dishonest.  Recovery of the publicly created rent of land for public purposes and benefit is self-evident justice, not mere exploitation of a quirk of economics.  The landowner has NO recourse to land value taxation because the supply of land is fixed, and HE DID NOT CONTRIBUTE IT, nor did he create its value.

“George’s program is a social plan comparable to socialism.”

That is a flat-out fabrication, nothing but name-calling, and disgraceful.

“I predict that if tried on any large scale it will lead to disaster, and if tried on the small scale will fail to produce desired results.”

It HAS been tried partially on a large scale, and produced economic miracles such as transforming Meiji Japan from a poor and stagnant feudal backwater to a modern industrial and military power in a single generation.  It has also succeeded brilliantly when fully implemented on a small scale, as in Kiaochow.

“For those who are interested, I have a working paper (with Bryan Caplan) that more formally
develops many of the ideas found in this essay.”

If Mr Gochenour is interested, I will demolish it for him.

Welcome to Takenomics

14 Oct

Welcome!  This blog is just starting, and I am just starting as a blogger, so please bear with me while  I am putting the essentials together.  Questions are welcome, as are posts on takenomic theory and practice.

— Takenomics

What Is Takenomics?

14 Oct

Economics is defined as the study of production and exchange.  It is easy to see that without exchange, existence above a Stone Age level is impossible, while without production, human existence itself is impossible.  But theories about production and exchange don’t explain what goes on in real economies very well, because the major factor that determines who gets ahead economically, who holds power and who makes the rules we all have to live by isn’t production or exchange at all.  It’s taking.  Takenomics explains how takers use a rigged economy to take the wealth that producers produce, while making no commensurate contribution to wealth production themselves.

Taking takes many forms, but by far the most important is privilege: legal entitlements to benefit by the uncompensated violation of others’ rights.  Everyone knows that thieves take from others, but they do it a foolish way, by breaking the law and thus getting into trouble.  The privileged take from others the smart way: legally, especially by owning assets that entitle them to do it.

What kind of assets are these privileges that enable takers to take from producers?  How about bank charters that enable them to create money out of debt in order to charge interest on it?  Intellectual property monopolies that enable them to privatize what has entered the public domain?  Corporate shareholdings that enable them to take advantage of limited liability laws to pocket profits while pushing the costs and risks onto others, especially taxpayers?  And most importantly, ownership titles to land and natural resources that enable them not only to pocket the value of what nature provides, but of everything government and the community provide, too.

Let’s start with a little story that may make the concept of assets as privileges clearer:


Suppose there is a bandit who lurks in the mountain pass between two countries. He robs the merchant caravans as they pass through, but is careful to take only as much as the merchants can afford to lose, so that they will keep using the pass and he will keep getting the loot.

A thief, right?

Now, suppose he has a license to charge tolls of those who use the pass, a license issued by the government of one of the countries — or even both of them.  The tolls are by coincidence equal to what he formerly took by force.  How has the nature of his enterprise changed, simply through being made legal? He is still just a thief. He is still just demanding payment and not contributing anything in return. How can the mere existence of that piece of paper entitling him to rob the caravans alter the fact that what he is doing is in fact robbing them?

But now suppose instead of a license to steal, he has a land title to the pass. He now charges the caravans the exact same amount in “rent” for using the pass, and has become quite a respectable gentleman. But how has the nature of his business really changed? It’s all legal now, but he is still just taking money from those who use what nature provided for free, and contributing nothing whatever in return, just as he did when he was a lowly bandit. How is he any different now that he is a landowner?

And come to that, how is any other landowner, charging rent for what nature provided for free, any different?