Comment by netcan | Hacker News Reader

Comment by netcan | Hacker News Reader

I learned a little bit about georgism as the idea started crossing my feed.. 5-ish years ago.

What I've noticed, especially in online spaces is that advocates have quite disperate notions of what it's supposed to do and how it's supposed to work.

Relatively contentious and complex arguments about 2nd and 3rd order effects seem to dominate. EG rent will decrease because of incentives and political economies.

I think this comes from defensive arguments.

Here, he defends against the argument thelat taxes will be passed on to tenents. I agree that the answer is no, but how that is established is important. It's core to understanding the whole framework.

The premise of georgism is that land is scarce. Hi demand, and low supply yields a price. That price does not change because the landlord owes taxes. Supply and demand remain the same, and yields the same price/rent.

LVT is the maximum, non distorting tax rate. The rate at which land itself is worth zero. If tax exceeds LVT building becomes unprofitable and land has negative value.

When tax equals lvt... Tax revenue is maximized and land value is zero.... in the theoretical chalkboard economy.

This is the whole core reasoning underlying Georgism. It is about capturing the value of land, in taxes. All of it, ideally.

Price, scarcity, abundance, affordability... These are peripheral. Also the same rules, more or less apply.

Skipping onto YIMBY, supply constraints and whatnot tends to obfuscate the key parts.

Georgism wants to crash the property market. Zero out the location component of real estate value.

If I actually instituted, an enormous class of wealth goes poof.

That's the key fact to consider.

Georgism does not assume that land is scarce, Georgism only assumes that land is in constant supply. E.g. that taxing land does not cause the land to disappear, unlike produced goods, where if you tax a shirt, for example, you get less shirts produced. That's the whole point. Because fewer shirts are produced, the price of each shirt goes up, and this is the mechanism by which taxes can be "passed on" to the buyers of shirts.

On the other hand, structures on the land are produced, they are not in fixed supply. Therefore Georgism does not advocate taxing the structure -- only the land itself.

Because land is in fixed supply, it is impossible to pass on costs to renters of land. In a market economy where prices are set by supply and demand, the only mechanism for sellers to pass on costs is a reduction in supply (since they cannot influence demand), because for all goods (not just land), the sellers always charge the maximum the market can bear. Once this price is established, they cannot "choose" to raise prices, because this suggests they were charging less than the market would bear before. Therefore threats to raise prices even more are always hollow. Landlords are not charities, they always charge the maximum that renters can pay, irrespective of the landlords' own costs.

In that environment, the only way for land rent prices to go up higher is a reduction in supply, as demand curves bend downward. But with land, supply is fixed so reductions in supply are impossible. This is the insight of Ricardo.

Now the argument is that land, encumbered with a tax, is worth less to the land buyer than unencumbered land, so that what happens as property taxes rise is that the land falls in value due to the tax burden. It never falls to zero, of course, even at a one million percent tax rate the land has some positive value, if even just a few pennies -- at which it will be sold, and so the result is the capture of the value of the land by the state, while people get to keep the value of what they produce (the structure on the land), which is not taxed. It's important to recognize that not taxing produced goods is an important part of Georgism also. This incentivizes people to invest in produced goods rather than non-produced goods, and to save by acquiring capital rather than land, as there is no social benefit for people to bid against each other for ownership of something in fixed supply like land, because no matter how many bidders there are, the same amount of land will be supplied every year, regardless of what price it is.

Yes.

Henry George talks about "fixed supply" and a lot of his language speaks to the conomic ideas of the time. Remember that the liberal philosophy of property rights was all about adding your own labour to establish value and property rights.

But... We've moved on from those things.

We both said the same thing, just using different words. But... Using simple, modern economic explanations makes it a lot easier to follow.

I think people get totally lost unless they understand (in modern, marginalist microeconomic terms) why (a) rent does not change (b) the value of land becomes near-zero (c) what "land value" attempts to describe.

Meanwhile, the part of this that inevitably dominates the politics and decision making is this: (x) land loses all it's value and real estate investing no longer yields capital gains (y) Homeownership is no longer a safe haven. Owner-occupiers becomes exposed to future housing costs, just like renters.

These are two major changes, and Georgism and needs to own them (imo) to maintain coherence. There's no room for confusion here.

>It never falls to zero, of course, even at a one million percent tax rate the land has some positive value

No. The land can have negative value, if the tax is too high. This is the kind of confusion I'm talking about... and where georgism gets genuinely confusing.

The "land value" in Geogist land-value-tax.. is not market price. It is whatever the land price would be.. in a market without property taxes. It is a theoretical price. The tax rate is applied to the theoretical price. That is LVT.

The whole business with theoretical prices is why Georgism was dismissed as a form of communism. Soviet economics was developing similar concepts in the 60s-90s. Eg linear programming.

In all honesty, I don't think this is all that important. Irl georgist policies would have to make do with an innacurate estimate of LVT, erring on the side of low taxe rates relative to "real/theoretical" LVT. They could even abandon the concept entirely, and go with a more tangible proxy.

But... long before you get to that point, you have to contend with the losers of this paradigm shift. (1) Anyone holding valuable real estate loses. Both homeowners and investors. That is a lot of private wealth disappearing (2)Then, the economic safety of home ownership disappears. You can no longer buy to lock in a price and guarantee yourself housing forever.

It's important to remember that in most periods, Georgists like georgism because it is a better tax system. It's not really a solution to housing availability or affordability... not directly.

There are interesting discussions to be had about indirect consequences.. but you can only have those once you have the direct consequences straight.

There are real, genuine tradeoffs. Policy advocacy tends to obfuscate these... and that balloons out into a general confusion.

> The whole business with theoretical prices is why Georgism was dismissed as a form of communism

This (the calculation) is addressed by the author.

> Landlords are not charities, they always charge the maximum that renters can pay, irrespective of the landlords' own costs.

This is simply not true in the same way that consumers are not always rational and always pay the exact correct price.

Landlords regularly charge less than full market rate, for example when they have a good tenant, as the costs of a new tenancy and the risk of a void are higher than the incremental marginal rent (once taxed at the landlord's marginal rate) is worth to that landlord. Unlike what most people seem to assume, being a landlord is not a zero-labour job. Things that require additional labour on the part of the landlord have to be worth it.

The thing that changes this calculation is an increase in costs. You are right that landlords are not charities, so they will generally avoid a loss. The primary costs for most landlords are mortgage interest and taxes. Increase the taxes and some of these landlords will now be underwater and will increase prices towards highest market rate as a result.

Yes, landlords have and rental markets are not securatized commodity markets. There's always some noise.

The point is that the price is determined by supply and demand, primarily. Speculative market responses at the margins if the transition is analyzing the noise. Besides the point.

The much bigger issue at transition, is that landlords are going to be underwater across the board. The whole point here is a permanent transition from high land prices to near-zero land prices.

Landlords avoid raising prices to good tenants not for emotional reasons, but because a vacant apartment earns no rent, and getting a tenant that lives in the unit only for 6 months and then you need to spend two months without rent looking for a new tenant is a worse situation in terms of revenue than a stable tenant that pays every month. It is purely an economic decision that takes search costs into account and falls into the rubric "charging the most the market can bear".

You are just adding complications but not really changing the argument. We can also talk about hotels versus longer term rentals versus residential rent. Why does a hotel charge more per night than a residential rental? Because hotels have much higher vacancy rates, in order to have a unit available. A good hotel strives to be 3/4 full at any time. That would bankrupt most landlords of residential housing, where vacancy rates are 5-7%, not 20-30%.

As the rent goes up above the average rent for your area, so does the cost and time of finding someone willing to pay that rent, and in this way, there is an optimal rent that maximizes your revenue that may not be the highest rent paid but is the highest revenue received over time. That is why good, stable tenants often pay less.

Yes, said more directly, tenants are not commodities. Some tenants will destroy their unit. Others will require more maintenance requests, move out sooner or will pay rents later. Those differing qualities yield different prices. They have differing qualities, just as items at the grocery store do. You will pay more for a higher quality item, if you desire that quality.

Thus there is no single rental price, merely an initial unknown quality rental price, that as a tenant gets to know the quality of the landlord, and the landlord gets to know the tenant, will resolve to a price that is different for every combination. There will be a distribution according to all of these factors.

These are market rents. LVT will not change them.

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