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Comment by bufordsharkley | Hacker News Reader

For what it's worth, I find the "landlords" explanation here extremely compelling. In the last year, I've happened upon the works of the 19th century economist Henry George (who identified landlordism as the root cause of poverty) and found his distinction between land and capital to explain many of the "paradoxes" we have in modern economics.

I recommend checking out his work, but if anybody is curious about details of his economic theories, AMA.

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I've not paid a landlord for two decades, but it seems to me that home owners like myself compete with each other to bid up the price of property. If I earn more, that gives me more capital with which to bid for a bigger house in a better location and hopefully outbid someone else doing the same thing. So disposable income flows directly into increasing house prices.his isn't theory, it's what I've been doing for the last twenty years.

Edit: I'm not complaining, this effect has dramatically increased the values of the two properties I have owned (one after the other) during that time. I fully expect to come out well ahead, but it will be a problem for my children. I expect to have to help them fund their first property purchases, perpetuating the cycle.

This effect was formalized by Joseph Stiglitz 40 years ago, with his "Henry George Theorem"[0]―namely that "aggregate spending by government on public goods will increase aggregate rent based on land value (land rent) more than that amount, with the benefit of the last marginal investment equaling its cost".

This is a big reason so much of urban planning today has latched onto Value Capture of a way of financing infrastructure. In cases like Hong Kong's subway system, you can pay for world-class transit without any additional taxes, merely letting the subway capture the increases in land values that it creates.[1]

[0] https://en.wikipedia.org/wiki/Henry_George_theorem

[1] https://www.theatlantic.com/china/archive/2013/09/the-unique...

> but it seems to me that home owners like myself compete with each other to bid up the price of property

That seems like a side effect of the global crash in interest rates: People buying homes with cash are currently competing with borrowers with much less than 20% down and low interest rates.

btw, this is somewhat intended, and is the reason the Fed dropped rates to zero in the first place. If assets were not reflated, the recession would have gone much deeper. Unfortunately, "assets being reflated" means, as one example, people buying assets (homes) with cheap money.

It will be interesting as rates return to normal and the Fed starts to shrink its balance sheet later this year.

Well, the classic model of how this should work is:

1) Economy sags, people have little demand to borrow money for investment

2) Interest rates are lowered to spur investment

3) Investment takes place, economy recovers

4) People are much hungrier to borrow money for investment, so interest rates increase

We haven't reached (4), and in addition, it should seem surprising that borrowing money to put it into real estate will help the economy to recover. Unlike investments into production, an investment into land doesn't seem to actually affect supply and demand in a way that will help the economy grow.

With debt to GDP ratios at all time highs around the world we do seem to have reached (4). But money markets aren't free markets, being effectively controlled - and distorted - by central banks. They hold interest rates low to attempt to spur investment in productive capacity. But business investments are motivated not only by interest rates (and labor market "flexibility") but by perceived demand, which, in part due to aforementioned low wage growth, stays weak. Capital and debt flows instead to bidding up asset prices.

And in case anyone asks, the fact that lending free money to banks and companies just causes that money to be paid out to the very rich is just a totally unrelated coincidence.

Completely unrelated.

> it should seem surprising that borrowing money to put it into real estate will help the economy to recover

Usually that's right. Since there were a ton of MBS (and CDO's etc) based on real estate, there was a lot of incentive for money to flow to individuals and reverse the crash.

Now that the banks have delevered, a crash in real estate would not be the systemic event it was in 2008. Of course, the bagholders would be those holding the assets.

> It will be interesting as rates return to normal and the Fed starts to shrink its balance sheet later this year.

The FED has predicted they'll do something about their amount of debt pretty much every month (except, I believe, 2 months) since 2009. Initially they were going to raise interest rates to 0.25% in 2012. They repeated that prediction, increasing the rate they were going to hike to (e.g. in 2015 the prediction was a raise to > 0.5% immediately). They finally "hiked rates"[1][2] in december 2016.

[1] With the VERY important caveat that there are no plans to reduce the balance sheet. In other words, as long as you owed billions to the fed 6 months ago, you're still lending for free to some extent. In other words, we can have an intelligent argument about whether interest rates are "really" above 0% or not.

[2] Also to be taken into account is that European, English, Japanese and Chinese interest rates are still negative. (QE = negative interest rates)

Excellent Graphic of FED predictions here: https://www.bloomberg.com/graphics/fomc-dot-plot/

And the policy response in the UK so far is let's get your children more buried into debt!

You either are a landlord or you are paying one (probably a bank). So I don't think your characterization is technically accurate, as deeds exist, and only a small portion of that deed is taxed - as opposed to all of it in a georgist system.

I think I understood the basic premise of georgism and land tax does make a lot of sense.

However, what confuses me is that they justify land value tax by claiming that society is what gives value to the land. Eg: Making a subway increases the value of all houses in the area, subway is built by tax payers money, hence the value should accrue to everyone.

But by this logic, shouldn't all luxury goods also be taxed similarly? Eg: Diamond/Gold etc. You pay some money for it and keep with it you. The value increases in proportion to its scarcity (society's inability to find more of it) and decreases with their abundance.

Similary, every product's market price can be split into its intrinsic and community-driven price. Simply because they aren't sold at cost price but at the one decided by the market. Also, every company utilizes community resources (transportation/electricity etc). I am not sure how to even start thinking about this final segment. How is the land value going to compensate for these additional services? Or are we ignoring these because their contribution will too less?

Could you recommend a good introductory book on his ideas?

https://www.amazon.com/Progress-Poverty-Industrial-Depressio...

It's a fantastic read. Great author. Great person. Once you see his ideas you will view our "economy" utterly differently and IMHO for the better.

George himself is extremely readable. "Social Problems", or his enormously popular "Progress and Poverty" are good introductions.

If that seems a bit too much, I recommend first essay in Robert de Fremery's "Rights vs. Privileges" as a short overview of George's concepts.[0]

[0] https://books.google.com/books/about/Rights_vs_privileges.ht...

I'm wary of "systems" like this, whether Marxist, Georgist, Hayekist, whatever. The idea of a system is too attractive, and I think a lot of these ideas therefore attract undue approval and adherence.

A la carte, experience and evidence would seem the way to go. Unfortunately, if you adhere to a system, some of the items on the buffet are just off limits.

One could say the same thing about the "system" of abolitionism.

I would suggest some of the essays regarding Mutualism and Georgism at C4SS. They tend to do a decent job breaking down the problems of capitalism without smothering you with thick language.

Yup and the solution is simple, a land value tax as close to 100% as is practical.

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