NIMBYs in the twenty-first century
economist.com
economist.com
The mechanism of r getting bigger than g is not an increase in r, but a decrease in g. The increase of the global economy is dominated not by increasing technological efficiency, but by population growth. There is an upper limit of the number of people we can fit on this rock (whether 9 billion or 100 billion, we will hit a limit at some point). Once we bump into that ceiling, growth will slow dramatically, and those who have already managed to create a sizable stash, or who have the talent to regularly beat the market, can accumulate wealth to no end.
In short, as I understood Piketty's book, the fact that r might not increase if we put the right limits on housing development, doesn't change the overall hypothesis made by Piketty.
I think the point is that if you move towards rent-seeking vs. value creation, people with a critical mass just hoover up capital and get richer. Even if the economy contracts, you can still take more chips off the table.
We have historical examples of this as populations start bumping against local ceilings that illustrate that this scenario is very possible. The Roman aristocracy was living it up, while the plebeians in many cases were subsisting on bread and circuses.
So unless there is a relatively low limit for total humans on this planet, we won't reach it before we become a spacefaring race, at which point the limit will be the carrying capacity of the Universe.
But even in that case, you can only have at most polynomial growth (human habitat spherically expanding with speed of light) instead of an exponential one.
Those rotting bits ... outside of consumer software, the life of software is easily measured in decades.
If people upgrade software every few years it's because the new software is much better (or at the very least perceived as such). Even most consumer software keeps on working almost forever (although this is starting to change now that so many things depend on external services).
Imagine if the giant metal press had a new version come out a few years later than was twice as efficient. You could keep operating the old one as long as you wanted, but paying for a new one would be well worth it. The old one is "obsolete." But the value of the old one, in terms of what it does for your business, is unchanged! If you wanted to sell it, the price on the secondary market will take a big hit, but that's less important.
Rather than demonstrating that return from capital is declining, the rapid obsolescence of software demonstrates that return from capital is increasing! If businesses were buying new giant metal presses every few years even though the old ones worked fine, would you say "oh, the return must be decreasing," or would you say, "wow, those new presses must be a huge improvement to be worth such a quick turnaround"?
This value winds up in land because it is claimed for exclusive use by individuals, enforced by government. Yet, claiming ownership over any part of the surface of this ball of space rock is arbitrary, and no principle of justice can truly legitimize it.
Instead of Piketty's blunt "wealth tax" we should be taxing land value, which as the cited MIT/Brookings report shows, is responsible for nearly all the new growth in inequality.
http://en.wikipedia.org/wiki/Henry_George http://en.wikipedia.org/wiki/Georgism
... in short capitalism for work, but collective use of land to recognize its unique ability in compounding inequity.
Georgists would contend that they do not support collectivized land, but rather support "common" rights to land.
In practice it's common for large-scale property investors to use this as a way to accumulate and hold land tax-free or nearly tax-free. At least in Texas almost all large land holdings are held as agricultural land for that reason. Investors keep the land classed "agricultural" until such time as they want to actually develop it. Sometimes this is really agricultural land in addition to being an investment; other times a few gratuitous cows are thrown on some land purely for tax reasons (this is why the city of Houston has a surprising number of tiny cattle ranches within the city limits). The end result either way is that you can accumulate land over long periods of time without paying much in the way of taxes.
It is very much like the patent debates, except even worse. At least a patentholder, in theory, might have had something to do with thinking up the idea. And at least the patent doesn't last forever
Land titles are permanent, yet the titleholder had nothing whatsoever to do with the manifestation of the space and matter contained at the location.
This is important to understand because "well let's just raise taxes on rental properties" can sound really emotionally appealing to stick it to those nasty landlords, but the landlords aren't the ones who end up with the real bill in the real world. Oh, you might also as a side-effect reduce the landlord's wealth by essentially raising transaction costs, but, well, that's a plan firmly from the stupid quadrant: http://harmful.cat-v.org/people/basic-laws-of-human-stupidit...
Unfortunately, rather a lot of plans for addressing inequality strike me as coming from the "stupid" quadrant in practice... which is basically another way of saying this is a really hard problem, not that it isn't a problem. If too many of the golden goose's eggs are going to too few people it is still imperative that the goose not be killed, or, ideally, even all that slowed down by any plan to fix that. And I fear many people grossly overestimate the power of the modern economy to sustain social engineering schemes... the difference between even 1% growth and 1% contraction in a given quarter is very small, pretty much below a Just-Noticable-Difference everywhere, yet over the long term compounds quite frightfully... we have less buffer for playing around than it may initially seem when you first look at trillions here and trillions there.
"A tax upon ground-rents would not raise the rents of houses. It would fall altogether upon the owner of the ground-rent, who acts always as a monopolist, and exacts the greatest rent which can be got for the use of his ground."
- Adam Smith, Wealth of Nations
- David Ricardo, On the Principles of Political Economy and TaxationBut if there were a monopolized market, changes in price differentials between different areas wouldn't result in changes in patterns of where people choose to rent, but empirically we do see price changes driving decisions as to where people live, including renters. There are constraints, and the market for housing isn't perfectly fluid, but its simply not the case that real property rental -- whether for residential or commercial/industrial uses -- shows the behavior of a market where land owners have monopoly/market/pricing power.
This may well have been different in late 18th to early 19th Century Britain when Ricardo and Smith were writing; availability of better means of transport for people and goods (particularly perishables) means that while location is important to the value of land, there's a wider area over which land can be substituted for other land for the same use, so any particular owner is less able to exercise market power, because price changes can be (and are) met with substitution.
The rental value they can charge is determined by the general level of income that can be had at that location compared to the best available rent-free location.
Since we don't really have much rent-free locations, land rents can go very very high. Even in the regions people are commuting from. Why do you think rents in Oakland are so high, despite the commuting required to get to San Francisco?
Of course they do. But land doesn't have an inherent full rental value, it has a value for particular uses. If land in place A that is used for use X becomes more expensive because the landlord is trying to rent it for more than the minimum price to meet his economic costs with no economic profit, land in place B whose highest-value use was the less-valuable use Y (given that land A was already being used for X, driving the marginal value of additional X down below the marginal value of additional Y), might become viable for X at a price greater than it was already able to charge for use Y, but lower than A was trying to charge.
This potential for substitution is what distinguishes a competitive market from a monopolistic one. Now, substitutability of land is sharply limited when transport costs are high relative to the value of the things provided by the uses of the land, which was true to a greater extent when Ricardo and Smith were writing than it is today (and, given geography, is -- even with similar technology -- often going to be true more on average in Britain than in the US.)
In land rents as in most other markets, taxes on the supplier (the owner offering the land for rent) -- like other costs -- are in part passed on to the consumer, and in part born by the supplier, reducing the quantity supplied at any given price and increasing, all other things being equal, the market clearing price. Land rent is, in practice, not fully monopolized so that taxes on it only reduce monopoly rents (and even if it was fully monopolized, this would only be the case if the taxes were less than the premium taken as monopoly rents for the property where the least premium was able to be charged.)
One very easy principle can: the value of land goes down dramatically if you can't kick other people off of it. Exclusive use is critically important. Unless you'd like other people traipsing through your house.
http://libertythinkers.com/education/a-landlord-is-a-governm...
Is software even capital? Isn't this part of why we've been arguing against software patents for years now? Obviously software and other forms of intellectual property have value, but to me capital is something used to produce valuable products, not the products themselves. Maybe the firmware for some CNC machine is capital?
Are books capital because you can make movies out of them?
Seen as a good that increases the productive capacity of a company or the economy more generally, it seems software very much is capital.
The argument for patents is that it encourages people to invent things, because they have a guarantee of exclusive use which makes it easier to make money from their invention. It also encourages people to make inventions public instead of keeping things secret and then the knowledge being lost, since that's required as part of obtaining a patent. The US Constitution spells this out explicitly: the purpose of patents and other such things is "To promote the progress of science and useful arts...."
The arguments against software patents are basically that it doesn't have the desired effect. Much of what gets patented gets rediscovered independently, and thus it doesn't seem to actually encourage innovation. Nobody seems to ever go digging through patent archives looking for useful software techniques, so the fact of making patented inventions public also doesn't help.
None of this has much to do with software as capital, which would work much the same with or without software patents.
Looking at things from this perspective, capital includes everything from carpet, books and desk chairs to massive heavy industry factory machinery.
A source: http://www.henrygeorge.org/def2.htm
Large amounts of leverage are both legal and easily acquired for real estate transactions. Most of the remaining tax shelters in the US are related to real estate see "Full time real estate professional," 1031 exchange, etc.
In reality they are just different asset classes and should be judged on their merits.
I appreciate your use of "a bit" to qualify your statement, but I'll also note that rebalancing towards property in the form of REITs or REIT-like structures makes sense. But on a personal level it may not, since it depends on a) picking the places that'll be important in the future (picking, say, SF or Seattle from 1980 – 2001 was not an obvious bet) and b) depending on a contemporary NIMBY framework to keep more property from being built. Point b is particularly interesting, because Yglesias and others have proposed that height limits, parking minimums, and similar choices should be removed from small governing bodies like cities (where many stakeholders want to limit supply for their own benefit).
Will that happen? From here, the answer looks like "No." But seeing the NIMBY madness and price rises in many coastal cities makes me wonder.
Suddenly Lex Lutor's evil plan from Superman : The movie, makes sense.
Home ownership was a no-brainer back when people got a job out of high school or college and worked at that job for decades, got regular raises, then retired with a pension. Nowadays though? Job hopping is the only reliable way of increasing one's income, and "right to work" is very common which means you can lose your job one day just because someone decided they no longer want you.
Not to mention the economic downturns. What did we see during the most recent recession? People lost their jobs first, then they lost their houses because they couldn't pay mortgage anymore. Barely six years have passed and yet people are already losing their minds again about home ownership.
Does home ownership have its advantages? Absolutely. Is it the right choice for everyone? Hell no.
This year, we actually dumped our investment account for a sizeable property in an amazing spot (on the waterfront, where the historic district meets the trendy hipster district), with commercial space on the first floor, an apartment on the second floor, and we'll be financing the expansion to a third floor by selling off the other two houses we have.
I'll be living in a new-construction home above a performing arts space that I own outright, paid for by a second floor apartment I'll be renting out, in a high density, urban environment - because my wife and I bought a house when we were 26.
edit: They removed it, thanks The Economist!
In elections, we prohibit explicit vote selling. But marketing is also about cheap-vote buying. Pepsi advertises because a large number of people just don't care which cola they get. Wal-Marts destroy small towns, but they're profitable because a large number of people will (with no ill intent, or cognizance of this being what they're doing) "vote" against their own communities to save $25 on Christmas shopping.
In culture, the term for very loud or passionate cheap votes is "useful idiots". Startup cheerleaders and the tech press (regulatory arbitrage! so visionary!) are useful idiots for the venture capitalists. The 22-year-olds who work 12 hours per day because they believe their 0.03% slices are just "teasers" and that they'll be introduced to VCs inside of 6 months are cheap votes.
NIMBY is two problems come together, because it's a cheap-vote dynamic on both sides. Among the renters on the losing side, most people don't get involved in local issues, and not voting is a vote. They're selling their vote for the benefit of not having to put time in, and perhaps because they consider the NIMBY problem helpless. On the other hand, the NIMBYs are also cheap votes. They know what's good for society and the rising generation, yet they push for the opposite because they'd rather jerk up their housing prices and get artificial money they don't need (and can't use unless they sell their houses and move to a cheaper place) than do the right thing. They're easily bought.
The story of the "first world" 21st century, in terms of the breakdown of democracy, capitalism, and meritocracy at the hands of a corporate elite, is the story of cheap vote aggregation. Nowhere is this more evident than in venture capital, where passive capital (cheap votes) from teachers' and firefighters' pension funds from Ohio and Nebraska and Montana is siphoned off to the career benefit of well-connected rich kids in California. The people who should care, don't, because it doesn't affect them enough.