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> This Economist article points out some of the many small academic works that quibble over details with Piketty and Saez [...] that capital is a positive feedb

by taffer 7y ago

> This Economist article points out some of the many small academic works that quibble over details with Piketty and Saez [...] that capital is a positive feedback loop in a way that labor is not Well the article mentions that: > Matthew Rognlie, now of Northwestern University, argued that the rise in America’s capital share was accounted for by growing returns to housing, not by the shares and bonds which are held disproportionately by the top 1% of American households. So it seems that housing is really the positive feedback circuit.

Marazan 7y ago
Housing is capital
- rayiner 7y ago
  But not the kind of capital people usually think about when railing about billionaires and wealth taxes.
  - js2 7y ago
    Housing is already taxed. In the U.S., property taxes are about 17% of government revenue. https://www.economist.com/finance-and-economics/2013/06/29/levying-the-land https://www.economist.com/finance-and-economics/2013/06/29/l...
    - dcolkitt 7y ago
      True. But housing is also tax-privileged in other ways. Most notable is the mortgage interest on federal income tax. More subtle is the fact that the value of the imputed rent from owning your own home is not taxed. I.e. if you rent your home to someone else, you pay income tax on the rent you collect. But if you "rent to yourself" by owning your own home, you don't pay tax on this implicit form of income.
      - AnimalMuppet 7y ago
        I hate the "implicit income" viewpoint. If I own my own house, I do so because I already paid for it. That cost me more at that time than the person who's renting pays in rent. So why should my owning my house be considered "implicit income" because I don't have to pay rent? It should be considered money I've prepaid. And then there are similar situations. If I've paid off my car, is it implicit income because I don't have a car payment? If I don't own a cell phone, do I have implicit income on the amount of a cell plan? For that matter, the homeless have lots of implicit income. That's not a useful way of analyzing their circumstances, though. I feel like the "implicit income" idea has an unstated assumption: The "normal" situation is for you to be paying out every dime you receive, and if you don't, that part you don't spend is "income". I absolutely reject that view. The world is not entitled to my spending.
        hundt 7y ago
        I don't think that's the assumption that it's based on. It's more like, when you own an asset, you get to benefit from the consumption of that asset. You did not "prepay" for the consumption of that asset. You paid to own the asset, which entitles you to consume it while you own it, but the value you get from consuming it is not deducted from the resale value of the asset. Example: you buy a house in 2010 for $500,000 that would cost you $4,000 a month to rent. In 2012 you sell it for $500,000. During those two years you received $96,000 of value from owning the house. You are now $96,000 richer than if you had rented the house instead of buying it (minus expenses associated with the house, and opportunity costs of having your money tied up in the house). It's true that the same reasoning applies to other assets. I would assume, but don't know, that the reason people don't talk about imputed income for other assets is that the amounts are just much smaller in most cases.
        AnimalMuppet 7y ago
        Well, dcolkitt was talking about imputed income in the context of tax advantages. I assumed (perhaps wrongly) that the subtext was that people who own houses should be taxed on the "imputed income" as if it were real income. That raised my hackles - perhaps wrongly. Still... there's something funny in the "imputed income" accounting. Let's say I buy a house for $500,000. I live in it. I don't pay rent, though the house would rent for $4000/month. Or, let's say I buy the same house, but don't live in it. I live somewhere else instead, paying $4000/month in rent. But I also rent out the house I own, receiving $4000/month in rent for that house. My net is $0... except that I probably pay taxes on the $4000/month I receive. But if dcolkitt's point is not that should have to pay taxes on the "imputed income" of owning my house, then the "imputed income" is exactly offset by the "imputed foregone income" - I could have rented out the house, but I didn't.
    - harryh 7y ago
      Property taxes are not wealth taxes, they are consumption taxes. You can easily tell this because a person who owns a home outright pays the same tax as someone who owns a similar home but has a large mortgage. These two people have different levels of wealth but pay the same tax. This is because their consumption is the same.
      - rayiner 7y ago
        Wow this just blew my mind.
        harryh 7y ago
        Well I will take this small piece of credit in return for all the times your comments have blown my mind. :)
      - shajhansbx 7y ago
        Hmm, I wonder if this is the first good argument for the mortgage interest deduction.
        harryh 7y ago
        I certainly didn't mean it to be. I think the mortgage deduction is an abomination.
      - Domenic_S 7y ago
        Say you and I each buy a house. Yours is new construction and cost $1mm, mine was built in 1970, never remodeled, and is perhaps located somewhere more expensive and also cost $1mm. Common scenario in the SFBA. Is one year of your consumption equivalent to one year of my consumption? Like a car, the longer you use it the higher the likelihood that something expensive goes wrong. But unlike a car, our homes are probably appreciating at close to the same rate.
        harryh 7y ago
        Is one year of your consumption equivalent to one year of my consumption? Yes. That's why both houses cost the same.
    - JimboOmega 7y ago
      Except in California we had proposition 13, so that property taxes are severely hamstrung; I wonder how much impact that alone has on the overall analysis given the size of California as part of the US economy. I really think we should bring them back but it's anathema. The usual argument has something to do with a little grandma living on a fixed income who suddenly can't afford taxes on the home she's owned for 40 years. (And not, say, a landlord who owns dozens of buildings, though it benefits him far more)
      - Domenic_S 7y ago
        I'd have to do the math but to me it seems like ridiculous housing prices make up for prop 13, while also pushing the tax burden to those best equipped to handle it (people in the position to afford to buy expensive houses) So while grandma's only paying taxes on a tax-appraised value of $200k for a home worth $1mm on the open market, people who buy today are paying tax on $1mm+ for homes that "should be" (or would be in other states) worth $200k.
        mdorazio 7y ago
        Not really. See some of the charts here [1]. Key quotes to show the effect: "The year before Proposition 13 passed, property taxes comprised over 90 percent of cities’ and counties’ local tax revenue. Today, that share is less than two–thirds." "Cities’ and counties’ tax revenue per person has declined since Proposition 13. However, looking across all California local governments’ per–person revenue—excluding state and federal funds—revenues increased 36 percent since Proposition 13. In comparison, similar per–person revenues for local governments across the country increased by almost 70 percent over the same period." Basically the state had to struggle to make up the tax revenue difference via other fees and assessments, and it never caught up to where it was before or to where it is in other states without such a measure. [1] https://lao.ca.gov/Publications/Report/3497#What_Happened_to_Local_Government_Revenues_After_Proposition.A013.3F https://lao.ca.gov/Publications/Report/3497#What_Happened_to...
  - sokoloff 7y ago
    Exactly. Tax the capital that those other bastards have. My house? Oh, that’s totally different.
    - CharlesColeman 7y ago
      > Exactly. Tax the capital that those other bastards have. My house? Oh, that’s totally different. So, progressive taxation, basically?
      - refurb 7y ago
        No, not taxing someone who saw a $500,000 gain in their house is kind of the opposite of progressive.
  - Mikeb85 7y ago
    It's capital in economic terms.
    - taffer 7y ago
      It is a combination of land and capital and it is the land that makes up the scarce part of it.
      - deleted 7y ago
        [deleted]
  - beerandt 7y ago
    Which is a big part of the reason that they're not billionaires.
  - dorfsmay 7y ago
    And yet many region have taxe based on the value of the house, so a tax on capital, a tax on wealth. Often the only capital middle and lower class have access to.
BurningFrog 7y ago
Housing is rising in value because of regulatory capture. It's illegal to build competing housing in most major cities. Money is power, and the powerful make the regulations. So maybe regulation is really the positive feedback circuit?
- Nasrudith 7y ago
  I suspect the answer is that there is no "the" positive feedback circuit as not only can things get messed up in many ways interactions between components can make the issue that none involved intended. A simpler comical example is medical marijuana in California. * Federal legislature dogmatically denies a medical usage. * State approves it for medicinal use. * Federal regulators threatens to arrest any doctor perscribing it. * Intended medical gatekeeping loses power Neither party wanted that laxer level of enforcement (regardless of outcome) but together they did so.
- beerandt 7y ago
  Besides zoning laws and building codes, dodd-frank and similar financial regulation has made speculative building of single family homes nearly impossible, if you are not 100% self-financing. Which itself is a capital feedback loop which requires a not insignificant minimum outlay to enter the market.
  - cynusx 7y ago
    can you elaborate on this? I am not familiar with how dodd-frank and other regulations impact building
    - beerandt 7y ago
      Basically, the government said loans are too risky to give to builders, except to build the things the government wants. Longer version: Many people were abusing interest-only loans and similar financing. It was blamed somewhat deservingly for the 2008 crash, as banks had incentives to sell as much financing as possible and then sell-off the loans in packages to others, offloading the risk. Repackage, resell, repeat. Eventually crash. Without getting any deeper into the politics of that, Dodd-Frank was the regulation heavy government response, part of which redefines risk levels of loans, making financing, in general, a lot harder and more expensive to get. Simultaneously, it enacted government guaranteed loan programs for lenders and builders that meet certain criteria. Keep in mind, there was a large army of homebuilders that besides facing a recession, suddenly couldn't sufficiently finance their main product via banks, and needed to find a way to stay in a business that's high-risk, high-capital, slow-cashflow, and low margin. The only government loan programs that allowed similar sized financing to these builders all basically require some sort of public housing participation, the most profitable and easiest of which to qualify for is mid to large scale apartment complexes that would be contractually obligated to accept tenants receiving public assistance from HUD sponsored / affiliated programs. Some programs are available for mixed use or similar developments, usually with the involvement of local government controlled block grants. But this has left a sizable gap between small business residential builders and the larger scale required to take on government sponsored projects. The exceptions to this are generally contractors that have their own sources of capital, or builders that were already big enough to have existing appropriately sized collateral. But it's very applicable, in the context of barriers to business growth, especially capital. When you pass an apartment construction site, start paying attention to how many of them have signs that include a HUD logo. It's a substantial percentage.
simonsarris 7y ago
Yeah the most succinct criticism of Piketty is simple: The gains in r > g are almost exclusively down to housing, not other sources, and you can fix the housing problem without touching (and potentially cocking up) the rest of the economy if you wanted to. Instead, people want to take Piketty's conclusion, not look at where the r > g comes from, and then go on to fuss about with other things (like forms of wealth distribution, taxes, etc), instead of directly addressing the one thing that causes most of the r > g, which is housing, which does not need massive economic intervention to solve, but something entirely different (relaxing of building laws, etc).
- vanderZwan 7y ago
  > which does not need massive economic intervention to solve, but something entirely different (relaxing of building laws, etc). Nitpick: you're probably thinking of directly intervening with the economy through regulations and subsidies, but isn't disrupting the housing market technically going to be a massive economic intervention in practice? As in, kind of by definition? Also, I'm not sure if it's actually that easy to change the laws surrounding housing in such a way that pushes back against wealth accumulation.
  - simonsarris 7y ago
    Well, I agree on both points, but "We should tax X [and maybe redistribute Y]" is very different from "We should de-regulate or fundamentally change Z", is all. It's hard to actually address Piketty's inequality at all if people think it spawns from something fundamentally different from land/real estate appreciation. > I'm not sure if it's actually that easy to change the laws surrounding housing Totally agree, but I don't mean to make any claims about how hard it would be, only that it would actually address the thing in question, whereas other interventions would not.
    - JimboOmega 7y ago
      Couldn't we address the real estate problem by having (more) property taxes? I wonder how much impact prop 13 alone had on the problem (I also wonder how the US analysis would look with California subtracted) Of course such taxes wouldn't automatically create housing, but it definitely disincentivizes hoarding it, and allows the state to capture more of the accrued wealth to redistribute it. It makes real estate look like a less enticing holding and would make people less entrenched in defending its value, etc.

by taffer 7y ago

Marazan 7y ago

Housing is capital

rayiner 7y ago
But not the kind of capital people usually think about when railing about billionaires and wealth taxes.
- js2 7y ago
  Housing is already taxed. In the U.S., property taxes are about 17% of government revenue. https://www.economist.com/finance-and-economics/2013/06/29/levying-the-land https://www.economist.com/finance-and-economics/2013/06/29/l...
  - dcolkitt 7y ago
    True. But housing is also tax-privileged in other ways. Most notable is the mortgage interest on federal income tax. More subtle is the fact that the value of the imputed rent from owning your own home is not taxed. I.e. if you rent your home to someone else, you pay income tax on the rent you collect. But if you "rent to yourself" by owning your own home, you don't pay tax on this implicit form of income.
    - AnimalMuppet 7y ago
      I hate the "implicit income" viewpoint. If I own my own house, I do so because I already paid for it. That cost me more at that time than the person who's renting pays in rent. So why should my owning my house be considered "implicit income" because I don't have to pay rent? It should be considered money I've prepaid. And then there are similar situations. If I've paid off my car, is it implicit income because I don't have a car payment? If I don't own a cell phone, do I have implicit income on the amount of a cell plan? For that matter, the homeless have lots of implicit income. That's not a useful way of analyzing their circumstances, though. I feel like the "implicit income" idea has an unstated assumption: The "normal" situation is for you to be paying out every dime you receive, and if you don't, that part you don't spend is "income". I absolutely reject that view. The world is not entitled to my spending.
      - hundt 7y ago
        I don't think that's the assumption that it's based on. It's more like, when you own an asset, you get to benefit from the consumption of that asset. You did not "prepay" for the consumption of that asset. You paid to own the asset, which entitles you to consume it while you own it, but the value you get from consuming it is not deducted from the resale value of the asset. Example: you buy a house in 2010 for $500,000 that would cost you $4,000 a month to rent. In 2012 you sell it for $500,000. During those two years you received $96,000 of value from owning the house. You are now $96,000 richer than if you had rented the house instead of buying it (minus expenses associated with the house, and opportunity costs of having your money tied up in the house). It's true that the same reasoning applies to other assets. I would assume, but don't know, that the reason people don't talk about imputed income for other assets is that the amounts are just much smaller in most cases.
        AnimalMuppet 7y ago
        Well, dcolkitt was talking about imputed income in the context of tax advantages. I assumed (perhaps wrongly) that the subtext was that people who own houses should be taxed on the "imputed income" as if it were real income. That raised my hackles - perhaps wrongly. Still... there's something funny in the "imputed income" accounting. Let's say I buy a house for $500,000. I live in it. I don't pay rent, though the house would rent for $4000/month. Or, let's say I buy the same house, but don't live in it. I live somewhere else instead, paying $4000/month in rent. But I also rent out the house I own, receiving $4000/month in rent for that house. My net is $0... except that I probably pay taxes on the $4000/month I receive. But if dcolkitt's point is not that should have to pay taxes on the "imputed income" of owning my house, then the "imputed income" is exactly offset by the "imputed foregone income" - I could have rented out the house, but I didn't.
  - harryh 7y ago
    Property taxes are not wealth taxes, they are consumption taxes. You can easily tell this because a person who owns a home outright pays the same tax as someone who owns a similar home but has a large mortgage. These two people have different levels of wealth but pay the same tax. This is because their consumption is the same.
    - rayiner 7y ago
      Wow this just blew my mind.
      - harryh 7y ago
        Well I will take this small piece of credit in return for all the times your comments have blown my mind. :)
    - shajhansbx 7y ago
      Hmm, I wonder if this is the first good argument for the mortgage interest deduction.
      - harryh 7y ago
        I certainly didn't mean it to be. I think the mortgage deduction is an abomination.
    - Domenic_S 7y ago
      Say you and I each buy a house. Yours is new construction and cost $1mm, mine was built in 1970, never remodeled, and is perhaps located somewhere more expensive and also cost $1mm. Common scenario in the SFBA. Is one year of your consumption equivalent to one year of my consumption? Like a car, the longer you use it the higher the likelihood that something expensive goes wrong. But unlike a car, our homes are probably appreciating at close to the same rate.
      - harryh 7y ago
        Is one year of your consumption equivalent to one year of my consumption? Yes. That's why both houses cost the same.
  - JimboOmega 7y ago
    Except in California we had proposition 13, so that property taxes are severely hamstrung; I wonder how much impact that alone has on the overall analysis given the size of California as part of the US economy. I really think we should bring them back but it's anathema. The usual argument has something to do with a little grandma living on a fixed income who suddenly can't afford taxes on the home she's owned for 40 years. (And not, say, a landlord who owns dozens of buildings, though it benefits him far more)
    - Domenic_S 7y ago
      I'd have to do the math but to me it seems like ridiculous housing prices make up for prop 13, while also pushing the tax burden to those best equipped to handle it (people in the position to afford to buy expensive houses) So while grandma's only paying taxes on a tax-appraised value of $200k for a home worth $1mm on the open market, people who buy today are paying tax on $1mm+ for homes that "should be" (or would be in other states) worth $200k.
      - mdorazio 7y ago
        Not really. See some of the charts here [1]. Key quotes to show the effect: "The year before Proposition 13 passed, property taxes comprised over 90 percent of cities’ and counties’ local tax revenue. Today, that share is less than two–thirds." "Cities’ and counties’ tax revenue per person has declined since Proposition 13. However, looking across all California local governments’ per–person revenue—excluding state and federal funds—revenues increased 36 percent since Proposition 13. In comparison, similar per–person revenues for local governments across the country increased by almost 70 percent over the same period." Basically the state had to struggle to make up the tax revenue difference via other fees and assessments, and it never caught up to where it was before or to where it is in other states without such a measure. [1] https://lao.ca.gov/Publications/Report/3497#What_Happened_to_Local_Government_Revenues_After_Proposition.A013.3F https://lao.ca.gov/Publications/Report/3497#What_Happened_to...
- sokoloff 7y ago
  Exactly. Tax the capital that those other bastards have. My house? Oh, that’s totally different.
  - CharlesColeman 7y ago
    > Exactly. Tax the capital that those other bastards have. My house? Oh, that’s totally different. So, progressive taxation, basically?
    - refurb 7y ago
      No, not taxing someone who saw a $500,000 gain in their house is kind of the opposite of progressive.
- Mikeb85 7y ago
  It's capital in economic terms.
  - taffer 7y ago
    It is a combination of land and capital and it is the land that makes up the scarce part of it.
    - deleted 7y ago
      [deleted]
- beerandt 7y ago
  Which is a big part of the reason that they're not billionaires.
- dorfsmay 7y ago
  And yet many region have taxe based on the value of the house, so a tax on capital, a tax on wealth. Often the only capital middle and lower class have access to.

BurningFrog 7y ago

Housing is rising in value because of regulatory capture. It's illegal to build competing housing in most major cities. Money is power, and the powerful make the regulations. So maybe regulation is really the positive feedback circuit?

Nasrudith 7y ago
I suspect the answer is that there is no "the" positive feedback circuit as not only can things get messed up in many ways interactions between components can make the issue that none involved intended. A simpler comical example is medical marijuana in California. * Federal legislature dogmatically denies a medical usage. * State approves it for medicinal use. * Federal regulators threatens to arrest any doctor perscribing it. * Intended medical gatekeeping loses power Neither party wanted that laxer level of enforcement (regardless of outcome) but together they did so.
beerandt 7y ago
Besides zoning laws and building codes, dodd-frank and similar financial regulation has made speculative building of single family homes nearly impossible, if you are not 100% self-financing. Which itself is a capital feedback loop which requires a not insignificant minimum outlay to enter the market.
- cynusx 7y ago
  can you elaborate on this? I am not familiar with how dodd-frank and other regulations impact building
  - beerandt 7y ago
    Basically, the government said loans are too risky to give to builders, except to build the things the government wants. Longer version: Many people were abusing interest-only loans and similar financing. It was blamed somewhat deservingly for the 2008 crash, as banks had incentives to sell as much financing as possible and then sell-off the loans in packages to others, offloading the risk. Repackage, resell, repeat. Eventually crash. Without getting any deeper into the politics of that, Dodd-Frank was the regulation heavy government response, part of which redefines risk levels of loans, making financing, in general, a lot harder and more expensive to get. Simultaneously, it enacted government guaranteed loan programs for lenders and builders that meet certain criteria. Keep in mind, there was a large army of homebuilders that besides facing a recession, suddenly couldn't sufficiently finance their main product via banks, and needed to find a way to stay in a business that's high-risk, high-capital, slow-cashflow, and low margin. The only government loan programs that allowed similar sized financing to these builders all basically require some sort of public housing participation, the most profitable and easiest of which to qualify for is mid to large scale apartment complexes that would be contractually obligated to accept tenants receiving public assistance from HUD sponsored / affiliated programs. Some programs are available for mixed use or similar developments, usually with the involvement of local government controlled block grants. But this has left a sizable gap between small business residential builders and the larger scale required to take on government sponsored projects. The exceptions to this are generally contractors that have their own sources of capital, or builders that were already big enough to have existing appropriately sized collateral. But it's very applicable, in the context of barriers to business growth, especially capital. When you pass an apartment construction site, start paying attention to how many of them have signs that include a HUD logo. It's a substantial percentage.

simonsarris 7y ago

Yeah the most succinct criticism of Piketty is simple: The gains in r > g are almost exclusively down to housing, not other sources, and you can fix the housing problem without touching (and potentially cocking up) the rest of the economy if you wanted to. Instead, people want to take Piketty's conclusion, not look at where the r > g comes from, and then go on to fuss about with other things (like forms of wealth distribution, taxes, etc), instead of directly addressing the one thing that causes most of the r > g, which is housing, which does not need massive economic intervention to solve, but something entirely different (relaxing of building laws, etc).

vanderZwan 7y ago
> which does not need massive economic intervention to solve, but something entirely different (relaxing of building laws, etc). Nitpick: you're probably thinking of directly intervening with the economy through regulations and subsidies, but isn't disrupting the housing market technically going to be a massive economic intervention in practice? As in, kind of by definition? Also, I'm not sure if it's actually that easy to change the laws surrounding housing in such a way that pushes back against wealth accumulation.
- simonsarris 7y ago
  Well, I agree on both points, but "We should tax X [and maybe redistribute Y]" is very different from "We should de-regulate or fundamentally change Z", is all. It's hard to actually address Piketty's inequality at all if people think it spawns from something fundamentally different from land/real estate appreciation. > I'm not sure if it's actually that easy to change the laws surrounding housing Totally agree, but I don't mean to make any claims about how hard it would be, only that it would actually address the thing in question, whereas other interventions would not.
  - JimboOmega 7y ago
    Couldn't we address the real estate problem by having (more) property taxes? I wonder how much impact prop 13 alone had on the problem (I also wonder how the US analysis would look with California subtracted) Of course such taxes wouldn't automatically create housing, but it definitely disincentivizes hoarding it, and allows the state to capture more of the accrued wealth to redistribute it. It makes real estate look like a less enticing holding and would make people less entrenched in defending its value, etc.