Re: Relative Appropriation of Economic Rents

On Fri, 19 Jan 2007 00:31:55 -0500, S. Doo <none@xxxxxxxxxxxx> wrote:

On Thu, 18 Jan 2007 13:42:53 -0600, Michael Scheltgen
<mjs818@xxxxxxxxxxxxx> wrote:

w_b_ryan@xxxxxxxxx wrote:
"Can you provide any evidence for your statement
that land appropriates zero economic rent in our
economy? Any at all?"
...
Land does not "appropriate" rent or anything else
without development, and that requires investment.

Then you agree that landowners appropriate economic rent when there's
investment/development? That's what I meant. It cannot possible be zero.

Landowners don't "appropriate" anything -- they *pay money* to
purchase a prospective flow of rental income, paying a market rate
that reflects considerable risk of loss.

Pretty much as slave owners did. So, you're saying slave owners did
not appropriate anything from their slaves...? After all they PAID
MONEY to purchase a prospective flow of labor income, paying a MARKET
RATE that reflected a considerable RISK OF LOSS (unlike land, slaves
could sometimes run away...).

Now if you don't believe the "considerable risk of loss" facing land
investors, just remember the notorious boom-bust cycle for real
estate, and consider the "bust" part. Land is a classical example of
an item that has a volatile price due to fixed supply, which causes
the market response to demand changes to be expressed *entirely*
through change in price, as mitigating change in supply is not
possible.

And unless you borrowed money to buy your land, you can just ride out
the bust.

Since land investors can switch to investing in anything else if the
expected risk-adjusted returns from anything else are higher than from
land, and investors in everything else can switch to investing in land
if the expected returns from land are higher, and such switching must
necessarily equalize expected risk-adjusted returns from land and
everything else,

Wrong, as I have explained before: people are mortal; land is not.
Because people steeply discount returns that will happen long after
they are dead, land is almost always underpriced relative to other
investment vehicles, and its long-run returns are consequently higher
than those of any other major class of asset.

it follows that land provides the same risk-adjusted
return as anything else -- like anything other investment, you just
buy it if it fits your portfolio needs.

Except that it very obviously doesn't. If you own land, you are on
the escalator. If you don't, you are in the stairwell. It really is
just exactly that simple.

Thus, land investors don't "appropriate" anything any more than do
investors in stocks, bonds, antiques, old baseball cards, whatever.

Even slaves...?

What you refuse to know is the fact that owning the land is itself an
appropriation, because it violates others' rights to use the land.

Governments "appropriate" income and wealth. Risk-taking investors
earning the market return on what they pay for their investments don't
appropriate a gosh darn thing.

Refuted above.

So do you think those who hold land receive more of this sort of income
than those who hold IP rights? That's my question. Thanks.

Why do all the rent-o-phobes always talk only about rents to landlords
and IP?

What about rents to labor?

I agree that economic rents to labor-related privileges such as
barriers to entry in law and medicine, union certification laws, CEO
stock options, etc. are very large, certainly a significant fraction
of land rent's magnitude.

The definition of economic rent is: "payments made to a factor of
production that are in excess of what is required to elicit the supply
of that factor".

That's _one_ definition, and a rather uninformative -- in fact,
anti-informative -- one.

A much clearer and more accurate definition of economic rent is:
"economic benefits obtained through legal control of others' access to
economic opportunities, without the need to make any contribution to
production."

I.e.: the extra payment to the producer doesn't result in any extra
production. The producer keeps it as a payment for which he produces
nothing.

In terms of labor this means "economic rent" to workers equals the
excess of the amount they are actually paid over the minimum amount
they would voluntarily accept to do the same work.

Obviously, the intention here is to define any wage in excess of
subsistence as "economic rent."

You know, for generations middling-talent major-league baseball
players accepted on the order of $50,000 per year to play second base,
today they get millions of dollars, literally. So the wage payments
of one who gets $2.5 million are 98% economic rent.

Blatant non sequitur. Professional athletes' wages are almost
certainly almost all rent, but you have not proved it here.

Brad Pitt happily worked as an actor at normal human wage rates for a
good number of years before he became a multi-million dollar
per-picture star. Do you think newsreaders like Katie Couric wouldn't
do the same work very happily for hundreds of thousands of dollars per
year instead of multi-millions per year? Etc.

All these people earn >90% of their "labor" income as economic rent.

You forgot the CEOs who schmooze and lobby and bribe and otherwise
move heaven and earth to get their jobs... and then demand tens of
millions of dollars in return for doing them badly.

I guarantee you, the % of the total income of these people that is
attributable to "economic rent" is VASTLY larger than that of
landlords and investors in IP who earn only a risk-adjusted market
return on their investment portfolios.

You are evidently unaware of the large economics literature devoted to
rent seeking behavior. The fact that competition for rents drives the
cost of appropriating them to a market return does not mean they
aren't rents, any more than the slave owners' market returns to their
investments somehow meant that they were not robbing their slaves.

But where is the deep concern over this from the rent-o-pobes?

Right here. IMO, about 100 years ago, organized labor made a deal
with the Devil: in return for the privilege of appropriating job
rents, unions would shut up about land rents. To this day, you can't
get a straight answer about land from any union bigwig.

Where is the outrage?

Only so many hours in a day...

Where are the populist proposals to impose a 90% tax on the wage
incomes of sports stars, newsreaders and Hollywood actors over, say
$200,000 per year?

In the trash, with all the other Band-Aid solutions that only hack at
the branches of rent, rather than striking at its root.

[Hey, if you want to see how fast Hollywood can turn right-wing..!<g>]

Yes, you're almost certainly correct on that score.

-- Roy L
.

Relevant Pages

  • Re: Land, Labour and Capital Taxation....
    ... >Impossible you still do not understand what economic rent means. ... people will only use 0 rent land if it is marginal land. ... No, it will not sell for a positive price, because the owner will not ...
    (sci.econ)
  • Re: Profit versus Interest
    ... Profit is the return from all factors in production. ... Ricardian rents are not the only land rents. ... minor slip of the pen where he infers that rent is a sort of profit. ... It is also economic rent and it is often Ricardian ...
    (sci.econ)
  • Re: Land, Labour and Capital Taxation....
    ... >>Land value is not rent. ... MArket value is not rent. ... THE MARKET DOES NOT CALCULATE ECONOMIC RENT. ...
    (sci.econ)
  • Re: Land, Labour and Capital Taxation....
    ... >> In this case the rest does not matter, because the rent need only be ... >> established relative to that of other land. ... 20% or whatever and the free market determines the value. ... ECONOMIC RENT IS INTRINSIC ...
    (sci.econ)
  • Re: Land, Labour and Capital Taxation....
    ... You do not not know the difference between market and economic rent. ... INVESTMENT IS NOT PART ... >>NO ONE can change the intrinsic value of the land. ... Some land is flat making it easy to build. ...
    (sci.econ)
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