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You're making two very bold claims in your post. Are you really sure about that? Because I've learned to be suspicious of people who speak about economics and p

You're making two very bold claims in your post. Are you really sure about that? Because I've learned to be suspicious of people who speak about economics and politics as matters of fact.

ianai 10y ago
Taxes definitely diminish demand and central banks definitely print money. The term hyperinflation comes to mind.
eru 10y ago
You are right to be suspicious. So let me be a bit more nuanced and guarded and explain my claims. I claimed two things. First, the central bank can always increase aggregate demand. My argument follows standard market monetarist lines. Demand is just another word for money that's being spent. The central banks can increase that amount by `printing money'. In practice, this has meant buying government bonds, but the central bank could buy all kinds of assets (like real estate or stocks). http://www.wsj.com/articles/new-tool-for-central-banks-buying-corporate-bonds-1470350276 http://www.wsj.com/articles/new-tool-for-central-banks-buyin... talks about the Bank of England buying corporate bonds. Or they just drop the newly printed money from helicopters. (https://en.wikipedia.org/wiki/Helicopter_money https://en.wikipedia.org/wiki/Helicopter_money) (And as a second prong to my argument: if buying assets would not increase inflation, the Bank of England could just buy up eg all of America, and give each Brit a nice big ranch. And if helicopter money would not increase inflation, the Bank of England could just infinitely finance a lavish basic income for everyone directly.) If any central bank in charge of a fiat currency ever seems to have problems creating arbitrary large amounts of demand, that's purely a political issue holding them back, not lack of ability. (I explicitly say `in charge of a fiat currency'. Eg a gold standard makes it much harder to `print money'.) Of course, ideally we the central bank would create enough steady demand to avoid layoffs and economic slumps, but not drive inflation above something innocuous like a 2% target. We don't want Zimbabwe style inflation. Instead of targeting the growth of the price level (= inflation), a better approach is to target the trajectory of the price level over time directly; or to target the trajectory of nominal aggregate income. For historical reasons the latter approach is called nominal GDP level targeting. (https://en.wikipedia.org/wiki/Nominal_income_target https://en.wikipedia.org/wiki/Nominal_income_target) Second, I claimed that land value would be a good base for taxation. My argument follows standard Georgist lines, and is basically mainstream economic orthodoxy. (See eg https://en.wikipedia.org/wiki/Land_value_tax https://en.wikipedia.org/wiki/Land_value_tax and http://www.henrygeorge.org/rem42.htm http://www.henrygeorge.org/rem42.htm) That claim has two parts: (a) there's enough land value to be taxed to create significant revenue, (b) taxing land value would not disturb the economy. What do we mean by a land value tax (lvt)? An lvt is a recurring tax on the unimproved value of land. `Unimproved' means that we subtract the value of any structure built on top. The aim is to tax land as a factor of production, not capital or labour. Actually, we want to be taxing the recurring income that accrues from land. Whether income ever hits the market or not, as in the case of an owner-occupier. The easiest way to do that is to tax a proxy, the land value. When you tax anything, you usually get less of it. That's welcome in the case of eg alcohol consumption or sulphur emissions, but not in the case of working or investing. Mark Twain famously quipped "Buy land, they're not making it anymore." That means, that no matter how we tax or subsidies land, we are going to have the same amount of it in a specific territory. The landlord also won't be able to pass on the tax to tenants or leasing companies. (See https://en.wikipedia.org/wiki/Tax_incidence https://en.wikipedia.org/wiki/Tax_incidence for why that is so.) There is already a lot of land rent to go around, but when we decrease other taxes, the land rent increases. (You can see that empirically in the areas around eg the Swiss/German border: the Swiss side has lower taxes and higher land values.) The idea is to shift all (or almost all) taxation from labour and capital to land. Anything questionable about these things?
- soVeryTired 10y ago
  > Anything questionable about these things? Yep, always :) I mostly buy your argument about central banks creating demand. But I think the phrase "The central bank can print arbitrary amounts of money" is ambiguous enough to warrant questioning. It'd be more convincing to say "The central bank can print arbitrary amounts of money, subject to political constraints". Because I do think those political constraints are non-trivial. But fair enough. Your other claim was that land could be taxed "without disturbing the economy". I'm not sure I'm convinced. A land tax would undoubtedly modify land use, which would change how the economy operates. So maybe you meant it could be done without adverse consequences? In general I think a land tax is a good idea: it would encourage efficient use of land. It would also mean that people pay their fair share for infrastructure improvements that they benefit from. On the other hand, I don't think it's fair to say that a land tax can't have adverse consequences. Consider what might happen if a very high land tax was imposed. It might incentivise people to move to lower-value areas, pushing up urban sprawl and commute times. It might also increase the risk of starting up certain types of small business (will my city centre coffee shop go under because I can't afford the tax payments?). So I don't think it's fair to say there would be no unintended consequences.
  - eru 10y ago
    At this rate, we will hit the (soft) limits on HN's reply-thread depth. ;) I am happy to continue via email and publish any results in a blog, if you want to. The common fears were always that fiat money would get inflated away, if we are not careful. And that politicians would be the ones pushing for inflation. Instead, major (fiat) currencies have been experiencing below-target price level growth; and politicians like PM Theresa May have been asking the Bank of England to stop the money printing, instead of asking for more. What a topsy-turvy world. Yes, there are clear political constraints on the central banks---whether real, anticipated or just imagined. Perhaps an average nominal wage level target could help. Instead of talking about inflation (`the cost of living') growing too slowly, the central bank could talk about wages growing too slowly. About land taxes: I meant to specifically talk about `deadweight loss of taxation' (https://en.wikipedia.org/wiki/Deadweight_loss https://en.wikipedia.org/wiki/Deadweight_loss). You are right, that in some aspects land tax will have `negative deadweight loss' and thus is even better than a tax that has no effects: it has good effects. I assume we are always talking about a land _value_ tax, and not by area. Taxed by area, a very high tax could have lead to people abandoning ownership when taxes exceed rents they receive. Taxed in proportion to value, that will not happen: the market value of the land will just drop until the tax is bearable. As a simple mathematical model we have: yearly land rent = land value * (prevailing interest rate + land value tax) Often, we can't observe the yearly land rent directly especially for owner-occupied housing. For a given rent, interest rate and tax rate, there's always a land value that will work out. But yes, right now a landowner can subsidize their own grossly inefficient use of land, by just using the land himself sub-optimally instead of making more money by renting it out to the highest bidder. (And that subsidy would not be visible, as it never hits the market to get explicitly valued in terms of dollars.) Under a land value tax system, that implicit subsidy would need to be made explicit---since mere land-ownership doesn't provide an implicit income.

You're making two very bold claims in your post. Are you really sure about that? Because I've learned to be suspicious of people who speak about economics and politics as matters of fact.

ianai 10y ago

Taxes definitely diminish demand and central banks definitely print money. The term hyperinflation comes to mind.

eru 10y ago

You are right to be suspicious. So let me be a bit more nuanced and guarded and explain my claims. I claimed two things. First, the central bank can always increase aggregate demand. My argument follows standard market monetarist lines. Demand is just another word for money that's being spent. The central banks can increase that amount by `printing money'. In practice, this has meant buying government bonds, but the central bank could buy all kinds of assets (like real estate or stocks). http://www.wsj.com/articles/new-tool-for-central-banks-buying-corporate-bonds-1470350276 http://www.wsj.com/articles/new-tool-for-central-banks-buyin... talks about the Bank of England buying corporate bonds. Or they just drop the newly printed money from helicopters. (https://en.wikipedia.org/wiki/Helicopter_money https://en.wikipedia.org/wiki/Helicopter_money) (And as a second prong to my argument: if buying assets would not increase inflation, the Bank of England could just buy up eg all of America, and give each Brit a nice big ranch. And if helicopter money would not increase inflation, the Bank of England could just infinitely finance a lavish basic income for everyone directly.) If any central bank in charge of a fiat currency ever seems to have problems creating arbitrary large amounts of demand, that's purely a political issue holding them back, not lack of ability. (I explicitly say `in charge of a fiat currency'. Eg a gold standard makes it much harder to `print money'.) Of course, ideally we the central bank would create enough steady demand to avoid layoffs and economic slumps, but not drive inflation above something innocuous like a 2% target. We don't want Zimbabwe style inflation. Instead of targeting the growth of the price level (= inflation), a better approach is to target the trajectory of the price level over time directly; or to target the trajectory of nominal aggregate income. For historical reasons the latter approach is called nominal GDP level targeting. (https://en.wikipedia.org/wiki/Nominal_income_target https://en.wikipedia.org/wiki/Nominal_income_target) Second, I claimed that land value would be a good base for taxation. My argument follows standard Georgist lines, and is basically mainstream economic orthodoxy. (See eg https://en.wikipedia.org/wiki/Land_value_tax https://en.wikipedia.org/wiki/Land_value_tax and http://www.henrygeorge.org/rem42.htm http://www.henrygeorge.org/rem42.htm) That claim has two parts: (a) there's enough land value to be taxed to create significant revenue, (b) taxing land value would not disturb the economy. What do we mean by a land value tax (lvt)? An lvt is a recurring tax on the unimproved value of land. `Unimproved' means that we subtract the value of any structure built on top. The aim is to tax land as a factor of production, not capital or labour. Actually, we want to be taxing the recurring income that accrues from land. Whether income ever hits the market or not, as in the case of an owner-occupier. The easiest way to do that is to tax a proxy, the land value. When you tax anything, you usually get less of it. That's welcome in the case of eg alcohol consumption or sulphur emissions, but not in the case of working or investing. Mark Twain famously quipped "Buy land, they're not making it anymore." That means, that no matter how we tax or subsidies land, we are going to have the same amount of it in a specific territory. The landlord also won't be able to pass on the tax to tenants or leasing companies. (See https://en.wikipedia.org/wiki/Tax_incidence https://en.wikipedia.org/wiki/Tax_incidence for why that is so.) There is already a lot of land rent to go around, but when we decrease other taxes, the land rent increases. (You can see that empirically in the areas around eg the Swiss/German border: the Swiss side has lower taxes and higher land values.) The idea is to shift all (or almost all) taxation from labour and capital to land. Anything questionable about these things?

soVeryTired 10y ago
> Anything questionable about these things? Yep, always :) I mostly buy your argument about central banks creating demand. But I think the phrase "The central bank can print arbitrary amounts of money" is ambiguous enough to warrant questioning. It'd be more convincing to say "The central bank can print arbitrary amounts of money, subject to political constraints". Because I do think those political constraints are non-trivial. But fair enough. Your other claim was that land could be taxed "without disturbing the economy". I'm not sure I'm convinced. A land tax would undoubtedly modify land use, which would change how the economy operates. So maybe you meant it could be done without adverse consequences? In general I think a land tax is a good idea: it would encourage efficient use of land. It would also mean that people pay their fair share for infrastructure improvements that they benefit from. On the other hand, I don't think it's fair to say that a land tax can't have adverse consequences. Consider what might happen if a very high land tax was imposed. It might incentivise people to move to lower-value areas, pushing up urban sprawl and commute times. It might also increase the risk of starting up certain types of small business (will my city centre coffee shop go under because I can't afford the tax payments?). So I don't think it's fair to say there would be no unintended consequences.
- eru 10y ago
  At this rate, we will hit the (soft) limits on HN's reply-thread depth. ;) I am happy to continue via email and publish any results in a blog, if you want to. The common fears were always that fiat money would get inflated away, if we are not careful. And that politicians would be the ones pushing for inflation. Instead, major (fiat) currencies have been experiencing below-target price level growth; and politicians like PM Theresa May have been asking the Bank of England to stop the money printing, instead of asking for more. What a topsy-turvy world. Yes, there are clear political constraints on the central banks---whether real, anticipated or just imagined. Perhaps an average nominal wage level target could help. Instead of talking about inflation (`the cost of living') growing too slowly, the central bank could talk about wages growing too slowly. About land taxes: I meant to specifically talk about `deadweight loss of taxation' (https://en.wikipedia.org/wiki/Deadweight_loss https://en.wikipedia.org/wiki/Deadweight_loss). You are right, that in some aspects land tax will have `negative deadweight loss' and thus is even better than a tax that has no effects: it has good effects. I assume we are always talking about a land _value_ tax, and not by area. Taxed by area, a very high tax could have lead to people abandoning ownership when taxes exceed rents they receive. Taxed in proportion to value, that will not happen: the market value of the land will just drop until the tax is bearable. As a simple mathematical model we have: yearly land rent = land value * (prevailing interest rate + land value tax) Often, we can't observe the yearly land rent directly especially for owner-occupied housing. For a given rent, interest rate and tax rate, there's always a land value that will work out. But yes, right now a landowner can subsidize their own grossly inefficient use of land, by just using the land himself sub-optimally instead of making more money by renting it out to the highest bidder. (And that subsidy would not be visible, as it never hits the market to get explicitly valued in terms of dollars.) Under a land value tax system, that implicit subsidy would need to be made explicit---since mere land-ownership doesn't provide an implicit income.