Re: Taxing Intelligence/Talent (was: 'Waterhole' and land rents)

On Tue, 23 Jan 2007 14:01:08 -0000, "Andy F." <never.mind@xxxxxxxxx>
wrote:


"S. Doo" <none@xxxxxxxxxxxx> wrote in message
news:bvuar21im8qssa07bradj43aem8sn9n8c6@xxxxxxxxxx
On Tue, 23 Jan 2007 02:06:53 -0000, "Andy F." <never.mind@xxxxxxxxx>
wrote:


"S. Doo" <none@xxxxxxxxxxxx> wrote in message
news:7t18r21t35v5lu7qt2g5pt80efslrnu8up@xxxxxxxxxx
On Sun, 21 Jan 2007 14:08:48 GMT, "Dan in Philly" <djr8@xxxxxxx>
wrote:

"Dan in Philly" wrote in message


The real problem is this: some jobs are cushy whereas some are
dirty/difficult/dangerous. So we need some measure of how yucky a job is
before we can tax the 'rent.'

Not at all, you are forgetting what "rent" is: "payment made to a
factor of production in excess of what is required to elicit the
supply of that factor".

So the measure of the rent to the labor of a worker is simple: It's
the amount he is actually paid minus the minimum pay he would accept
to do the same work.

Determining the amount of that rent is simple too: Just keep telling
him "You're fired unless you take pay cut of $X". As long as he says
"OK, then I'll take it", then you say it again. When he says "Damn,
that's too little, I quit", you give him back the minimum pay he
accepted.

Now you've identified the former rent to his labor and have taken it
away from him.

Whether the job is cushy or dirty/difficult/dangerous has nothing to
do with it.

The whole procedure is simple and accurate.

Though I'm not sure it is a practical way to run a business or
administer tax policy.

In that case there's hardly any labor rent, since a rational employer will
only pay the minimum they have to. There would only be 'rent' if the
employer made a mistake or was unusually generous.

Not at all -- there's plenty of such rent collecting all over the
place.

You are assuming that it isn't rational for an employer to pay a high
price that includes a huge amount of rent -- but it can be entirely
rational, profit maximizing and unavoidable.

Keep the definition in mind: "payment made to a
factor of production in excess of what is required to elicit the
supply of that factor".

Consider the water well in the desert town again. The well can produce
exactly so much, and *will* produce that much, for a very minimal
marginal cost, say $0.01 per liter. But due to the limited supply of
water in the town, the fair market price of water by supply-and-demand
might be $1 per liter.

The extra $0.99 that the well owner receives per liter -- a huge 99x
marginal production cost! -- is rent, as it elicits zero extra
production compared to a price of only $0.01.

Yet it is also a true fair market price, and nobody is being stupid or
generous to pay it. In fact, the market price of the water had
*better* be the full fair market price -- if it is cost-controlled
downward as a matter of "fairness" due to its low production cost,
there are going to be shortages, misallocation problems, and a black
market for it.

It's all the same with labor.

A MLB backup utility infielder might happily play pro ball for $100k
or less a year just as his kind did for generations before -- but to a
team like the Yankees, the *one* game he might win (or lose) for them
over a season could be worth literally millions of dollars if it makes
the difference between making the playoffs or not, or winning in the
playoffs or not. So if he's the best utility infielder available, it
can be entirely rational for the Yankees to pay him a couple million
dollars, as the result of rational bidding for his services against
other teams like the Red Sox to whom that game is worth almost as
much.

But then your method of finding out the rent wouldn't work. If you offer the
Yankees player a pay cut, he refuses and goes to work for the Red Sox.

My method....?? Of course it wouldn't work.

"I'm not sure it is a practical way to run a business or
administer tax policy", was meant as perceived understatement. ;-)

You can't literally separate individual workers from the market and
beat the rent out of them. I mean, it would make you personally
unpopular, among other problems.

That near $2 million extra the player gets won't increase the amount
or quality of his play by a single iota --

No, it almost certainly does improve his play. There are many thousands of
talented players working hard at their game in the hope that they might hit
the big time and become millionnaires. If the big money wasn't there, there
would be less competition and the top players wouldn't have to work as hard.

You touch on a vital point the Georgists never accept!

But to get it clear you must take care not to confuse two things.

* Once the individiual ball player is mature with a fixed skill set,
if he gets in a market position to obtain a $2 milllion raise that
extra income is rent to him since he produces zero extra output in
quantity or quality in return.

* The lure of all that million-dollar+ pay may greatly increase the
amount of labor going into ball-playing and investment in developing
ball playing skills, generally, over time. It may greatly increase the
quality of ball players over time. (And surely has).

That is, what clearly is "rent" when taking a static look at the case
of an individual producer may not at all be rent when taking a dynamic
look at market supply over time.

The Gerogists go nuts about #1 and so never consider #2, going into
straight denial over it. This thread is a good example of it.

Look at the water well again.

If a well produces a fixed amount of water at an operating cost of
$0.01 per liter and the market price of water is $1.00 liter, the
Georgists claim that the gain resulting from that profit of 99 x cost
is rent -- which it indeed is, in terms of the single well, since it
generates no extra output compared to a price of $0.011 per liter.

Thus the Georgists demand that this gain for the well owner/operator
be taxed away for "the community".

Ah, but the market cost of water is only as high as it is because
there is so little of it. Suppose there was a second well, three
more, 10, 20 ...? The price of water could plunge by half,
three-quarters, maybe 95%.

Obviously that would be not only hugely beneficial for the community,
but it would also largely wipe out the rent being earned by the owner
of the first well.

And what better way is there to encourage people to go out and find
and develop new well locations than to show them the big profits to
the owner of the first one?

To the extent they do, "rent" drops out of the scheme as high water
prices bring forth more wells, and thus more water, which reduces
water prices, until the point where the net cost of producing a new
successful well (*net* because costly failed attempts occur) equals
the value of the water to be produced from it, ending at the socially
optimal point of production.

But the Georgists so obsess about the evil of the rent in the
individual case, they just deny all the rest.

Obviously, the way *to stop* people from looking for new well sites is
to tax away all the gain from finding one -- and taxing away most of
the gain will slow them down proportionately.

The Georgist answer to this objection is that it doesn't exist.

Other locations for wells? They exist there in the world where Nature
put them, and people of course will find them ... eventually. It will
just happen by itself. No incentives needed. Certainly none in the
form of evil "rent" profits for developers resulting from their dumb
luck of doing no more than stumbling on a water resource that someone
else would have stumbled on ... eventually.

Of course, "eventually" may be after decades of "the community" paying
20x the price for water that it had to ... but there's no need to
think about that! ;-)

Here's an afterthought about the incentives to self-interested
politicians who want to spend tax money to get re-elected.

Two policy options for them to choose from, starting with the position
of having one well:

1) Embrace Georgism openly, slap a confiscatory tax on "rent" income
from the well "for the community", pose as and take all praise for
breaking the "evil monopoly well-water rentier", get re-elected for
this good you've done ... leave the community paying a *high* price
for water forever ... and collect 99% of that price as tax revenue for
your own politically-directed spending that will further assure you
get re-elected.

2) Let the market operate, allow high rent profits on individual wells
that you don't tax to provide a powerful incentive to entrepreneurs to
find and develop new well locations, thusly increase the supply of
water to the people, and lower the price of water to the people
dramatically ... be damned as elections approach for being in the
pocket of the evil water rentiers, as Georgists howl about the very
damning fact that 90+% of the income from existing wells is evil rent
profit to the do-nothing rentiers ... and collect $0, exactly 0.00%,
of what the community spends on water as tax revenue to fund your own
politically-directed spending that will help you get re-elected.

Which option produces better results for the community?

Which option provides the most incentives for self-interested
politicians to choose it?

.

Relevant Pages

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