Re: increase in value = increase in wealth?
- From: "jwpgarrett@xxxxxxxxx" <jwpgarrett@xxxxxxxxx>
- Date: Tue, 4 Mar 2008 09:03:03 -0800 (PST)
On Mar 3, 7:22 pm, RichD <r_delaney2...@xxxxxxxxx> wrote:
Let's say an object you purchased - an 'investment' - goes up
in value; a painting, land, house, ... kudos
And let's say the increase in market price is greater than
inflation. Hence this rise in value is demand driven; the
object is worth more today than yesterday.
Now, can we say there is a net gain of wealth, if no
new products or services have been generated? It
seems to me this is purely a zero sum situation -
something else must have dropped in value.
(consider: the house has deteriorated over time, it
should depreciate!)
No, there isn't a net gain of wealth. It is a zero sums game, meaning
the process is redistributive only. Whether this hurts someone really
depends on the type of market we are looking at. Take a painting for
instance; Garcon a la Pipe, a painting by picasso, was sold for 104
million dollars. Obviously, the increase of value wasn't due to its
wealth producing abilities, but due to its rarity. With only one
Garcon a la Pipe in existence, the painting had an inelastic supply,
whereby the value was determined completely by demand (and by selling
for 104 million dollars, there was a lot of demand for it). While the
process was redistributive (no wealth was created, the painting has
not gained any new paint chips on it), no one was truely a loser
because the auctioneers got the money they wanted, the buyer got the
painting he wanted, and since they were the only two affected by this
deal, the redistribution ends there.
However, if we were to take something such as land, the consequences
would be different. Just like the painting, land is inelastic because
no one can created matter, so its value is determined by demand.
Unlike a painting, land is necessary for all processes which produce
wealth, whether it be for natural resources or location. What makes
the demand for land increase is not because of the land owners actions
(he can only increase the value of his capital, i.e. his house), but
the synergy of soceity. Rising population and Infrastructure (which
is paid through OUR taxes on labor and capital) are the biggest two.
What we can see now is that some of the wealth soceity is creating is
being crystalized into land values and pocketed by land owners,
meaning the gain of the landowner is the loss of soceity. This
applies to both the rent which land commands and the capital gains
which comes from land.
You could analyze it strictly in monetary terms - if
there's more money spent on the object, less must be
spent elsewhere - but it's not so simple, as perhaps no
money changed hands, the gain is 'on paper', so to speak.
Analyzing this in monetary terms, the value of land is roughly 20% of
the U.S GDP. That's 20% of all wealth going into the hands of those
who don't produce wealth. That's parasitic.
How does conventional economics answer this?
--
Rich
The solution to this problem is to make the beneficiary of increasing
land values be the Government by levying a tax on land. This kills
many birds with only one simple stone. First off, it pays for public
spending (which is currently 18.5% of the GDP) without the need to tax
wealth producing activies (sales taxes, income taxes, etc). Because
taxing land is taxing the economic rent of land (the excess needed to
put land into production), it will not distort production and cause
deadweight losses. Then it is progressive (the very rich own the
highest value land), it contains urban sprawl (caused by land
speculation which becomes impossible under a 100% Land Value Tax
regime), it forces owners to put land into its highest productive use
or sell it to others who will, and the LVT is transparent, making it
difficult to bribe, hide, and cheat on the LVT.
Of course the location of land shouldn't be the only thing that's
taxed, other publicly created rents should be used for revenue
collection as well. Taxi medallions, fishing quotas, and pollution
rights (to name a few) can be auctioned off to the highest bidder.
.
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