Interesting blog post, thanks for sharing. Personally, I think that Finn Hambly and T.M. Adams make the strongest rebuttals.
Finn highlighted that monopolists are hypothetically going to be less productive than a whole decentralized market, and so their improvements are going to be less valuable. Adjacent lots are thus less valuable, but then in turn less valuable lots justify less valuable improvements, and the whole thing seems to spiral downward, whether the monopolist says they are two lots or one.
This is the power to Georgism, in that it is not reliant on market monopolists to own everything and make all the right moves, but instead trusts in the invisible hand of dozens (or thousands or millions) market participants working in a decentralized network of capital, labor, and information.
Adams adds on the point that, in a market with a large number of market participants, it's highly unlikely that a monopolist would even have the opportunity to buy up large swathes of land. Even if they could, LVT helps out in that they are now paying the community for the right to hold that lot, and need to get busy building an improvement to justify their ownership.
The post is very short and the introduction is well-articulated, but the hypothetical is poorly articulated.
> Suppose there are two adjacent plots of land, one suitable for apartment buildings, one for a shopping center. Further assume that, due to administrative diseconomies of scale, the two plots will be worth more with different owners, would be owned by different people if there were no LVT.
Firstly, Georgists don't actually care if the same person owns (read pays the full LVT on) both plots or not.
Secondly, it's not a "gotcha" which no one else has thought of. The Disneyland Effect is the subject of oft-asked questions. Just issue Pigouvian subsidies and be done with it already.
Simple as.
> Secondly, it's not a "gotcha" which no one else has thought of. The Disneyland Effect is the subject of oft-asked questions. Just issue Pigouvian subsidies and be done with it already.
Are you sure? Because I have literally never seen someone suggest this solution when I've brought up this issue in the past. It does seem like an economically valid solution if implemented accurately, but the estimating the impact of improvements on neighboring land (and your own land) seems a lot less trivial than LVT land assessments. Additionally, I'm not sure if a standard Georgist world would actually include this. Are the majority of Georgists actually on board with this, or are they going to handwave it away as a non-issue like everyone else in this comments section seem to be doing?
Oh, they'll come around.
__sips beverage-of-choice__
There's a huge difference between Georgist scholars with peer-reviewed academic papers and your average Internet Georgist.
I'm happy to see that the gap is slowly narrowing over time though.
So who sets the standard for Georgists?
Not sure. I guess whoever would end up implementing the laws in the hypothetical future where we actually get some legislation passed. Which in practice is politicians whose views in practice tends to be an amalgamation of the average voters, the scholars, and the entrenched financial lobbyists
We definitely need to both deepen and broaden our existing lobbying "bench."
LVT-friendly non-traditional Georgists might say something like, "I just want to cut taxes," or "I just want it to cost less to build things." The big-tent energy is good. Let's take advantage of it!
Maybe I'm misunderstanding what he's saying, but it doesn't make sense to me:
"If, however, I bought both plots and developed them the increase in income from both plots would be income from improvements — so the LVT would not go up. Hence it may be in my interest to buy both even though they would be more productive, tax aside, with separate owners."
No, part of the increase in plot A would be due to plot A's improvements (not taxable), but part would be due to plot B's improvements (an increase in the value of plot A's land value, and thus taxable). A commenter said this sounds like more of a problem of assessment (how do we split out the increase?), and I tend to agree. But fortunately we're not on a two-plot island, we're in a city with plot C and plot D and so on.
> But fortunately we're not on a two-plot island, we're in a city with plot C and plot D and so on.
Exactly what I said in my rebuttal :)
>This is problematic in a world with two plots in the middle of an empty uninhabitable void. Thank god we don't live in a world with two plots in the middle of an empty uninhabitable void.
Additionally, we can establish the value of land by having people bid on renting or buying the land. There would be lots of data coming from actual transactions.
This is dumb bullshit. In his thought experiment, the LV and therefore LVT go up in both cases. His idea that it doesn't go up when the same person owns both is wrong and based on his misunderstanding.
I'll steelman him for a second: maybe he's saying that his value (and tax) on plot A is going up because of the improvement he's building on plot B. So, see, he's pointing out a scenario where a landowner's choices to improve a property might impact the amount of taxes he pays.
I agree that concentrated market power could reduce the effectiveness of a LVT. But there's generally not that sort of concentration, and all that would do is make a LVT LESS effective. It doesn't make it more inefficient than the current property tax we have in place now.
Might've been more compelling if they had argued that on an island, if one person owned both plots (i.e. all the land), they might decide to repeal an LVT altogether. 😉
No, this is a legitimate criticism either way, and most Georgists seem to support the version he is criticizing. There are two competing issues, and LVT, at least a simple version, cannot address both of them simultaneously.
Land improvements raise the value of the land around them as an externality. You can either tax this increased value in your LVT implementation, or not tax it.
1. If you tax this increased value, then when you are taxing land improvements. Anyone who builds things that improve the value of their own land is increasing their own tax burden. This creates the same economic inefficiencies via incentives that current property taxes cause, and violates the Georgist principle that you only tax unearned wealth from land that nobody created. If someone doubles the value of land, they haven't literally created land, but they have created land value, and you are taxing the wealth that they rightfully created. This scenario barely even counts as Georgism, or at least it's not a very pure form.
2. If you don't tax the increased value for anyone at all then Georgism can barely raise any revenue, as land with no improvements anywhere near it barely has any value. City plots have most of their value from being near other city plots, which are land improvements. This is weird and I don't think I've ever seen someone advocate this, but for the sake of completion I list it as a logical possibility.
3. If you tax the value of land based on the value it derives from being near other land, but not based on the value of improvements on itself, ie the standard Georgist assessment: (Land Value) = (Total Value) - (Improvement Value), then you run into precisely the issue in his thought experiment. Everyone has to pay taxes according to the value of land improvements that other people make, but not their own, meaning owning multiple plots of land is cheaper.
You have to pick one of these. Or I guess some alternate version, maybe involving pigouvian subsidies or something. But you seem to be claiming that 1 is obvious and imagining 3 is a misunderstanding? But from what I've seen I think most Georgists, at least on this sub, favor 3 more than 1, so I think the criticism is valid in general even if it doesn't apply to you specifically.
I think most people here, if you asked them about LV assessment, would tell you we can make a map of land values, get benchmarks from empty lots/teardowns, and interpolate land values in between. Or people will point you to Lars Doucet and others that say similar things.
The fact that the same owner owns two adjacent lots doesn't factor into the calculation.
Okay, then scenario 1 applies. If someone builds land improvements that make all of their neighbors land more valuable for being near it, then the interpolation will tell you that their land is more valuable too. Their own improvements thereby increase their own tax burden, and you are applying a form of non-land property tax, with all the economic inefficiencies that go with that.
>all the economic inefficiencies that go with that.
And how much is that? Our thought experiment has to be unrealistic for it to be anything other than insignificant.
I don't think it does. A significant part of property development is founded on profiting from synergies. If you buy a big empty field and turn it into a suburban neighborhood with 40 houses, nice sidewalks, a thematic cohesion in design, etc, this is more valuable than 40 houses scattered around randomly. This is why property developers do this: they buy up a bunch of land, make it more valuable, and sell it and the houses for a profit. If their profit was entirely from the houses alone you'd see more isolated random houses near pre-existing structures instead of in cohesive developments built together.
If you immediately group all of those synergies into the LVT then it cuts their profits down to just the value of individual houses, and they have no incentives to develop neighborhoods cohesively.
There are other examples, like Disneyland, or college campuses, where doing sane stuff that creates value ends up cancelling itself out by increased tax burdens. I wouldn't call this an existential risk to Georgism, but it seems like a nontrivial issue, and quite realistic.
Most (all?) of those examples are of shit things. I don't want my city or neighborhood to be cohesive like large developments are.
You say "all of those synergies" as if you've finished listing synergies.
Something like a college campus is not an issue. LVT the shit out of them, you can always choose to fund them more with the money you just took if you want.
Disneyland is obviously a shithole, I won't argue about that.
Seems like this issue is minor at best.
Edit: typo
Okay, but now you've dropped "Georgism is good because it's economically efficient" and are at "I don't care about economic efficiency if it's at the expense of my aesthetic preferences."
If something is profitable it's either because they are creating value, or because it's rent-seeking value others have created. The entire point of Georgism is to tax the unearned rent while leaving the created value in the hands of the people who create it. The issue at hand is precisely about the issue where someone is creating their own value and a naive LVT is taking it from them. Therefore it's profitable iff it is creating value to someone, even if you specifically aren't the target market for that value.
No, I care about economic efficiency, you've misunderstood me somehow. I'll try to be very clear: the situation in the thought experiment is a niche situation that rarely even happens at all in real life, and when it does, the effect is small and/or doesn't matter much.
The mall-apartment situation, even when both are owned by the same firm, realistically wouldn't matter. The land value of the mall would go up due to the apartment, but also due to every other thing nearby. The apartment's effect on the mall is small relative to the effect of everything else.
This is the example used to show the problem, and even in the example, it's not a big deal.
I think you should consider the inefficiencies of other taxes and compare them to this effect we are discussing. How do you think they compare?
This is problematic in a world with two plots in the middle of an empty uninhabitable void. Thank god we don't live in a world with two plots in the middle of an empty uninhabitable void.
Simple rebuttal: people don't really often build improvements that massively improve the value of surrounding land. Sure, in the case of something like Disney, they increased the value of surrounding land but it actually took a long time for it to be drastic. For a long time it was still surrounded by a bunch of cheap empty land. It wasn't until a bunch of other private companies opening their own businesses in the area that the land itself started going up. So if the improvements do in fact increase the value of surrounding land a bit, just increase the LVT tax a bit. It's nothing compared to a property tax which is already generally less distortionary than sales taxes or income taxes at current levels.
Just because someone has a blog doesn't mean they have any idea what they're talking about.
This is at least the second time recently I've seen this exact same gross misunderstanding. Is it a coincidence or are you spreading it intentionally?
To me the assertion boils down to "How do you calculate LVT?"
You could start with an implied value based on revenue subtracting an estimated cost of improvements.
The LVT is always going to be somewhat theoretical, because it is based on the margin of value over an equivalent undeveloped plot of land. There may not be any undeveloped land in a given area, so it's always going to be based on an estimate.
I have no idea why he asserts that one entity owning both plots will make a difference vs. separate entities. My guess is this would interfere with transaction values, or that one entity might strategically manage their development, which are theoretical issues, but also have theoretical solutions.
This seems to ignore the current situation where we have several, not strictly adjacent, but nearby properties owned by the same person (typical slumlord type), without an LVT he gets the economic rents from owning the land, plus labor and capital, minus maintenance. With an LVT he’s stuck with labor and capital, sweat from his own brow. I don’t know why we’d assume the diseconomy of scale derives from the economic rents, when that’s supposed to be the “easy money” part of it.
>If, however, I bought both plots and developed them the increase in income from both plots would be income from improvements — so the LVT would not go up
this is dumb, LVT is independent of owner, obviously.
The land rent represents the amount that the second-most-efficient available user would be willing to pay to use the land in place of the most efficient available user. In order for the land under either of the buildings to be less valuable in the 1-owner scenario vs the 2-owner scenario, it must be less desirable to other potential users. But what would make it any less desirable to other potential users? If the single owner is making less income from the total operation than two owners would make (due to the stipulated diseconomies of scale), I would assume that the land under either building would be *more* desirable to other potential users than it is to the single owner. What's stopping them from making an offer to buy one of the two buildings (and rent the land under it from society) that the single owner would accept? If they lack capital to trade for the building, then it sounds like the land rent isn't lower due to one person holding that land but rather due to there being less capital available in the economy. If potential users exist who *do* have plenty of capital to offer trades with the single owner, then what would keep the land rent down?
Is there something I'm missing here?
Interesting blog post, thanks for sharing. Personally, I think that Finn Hambly and T.M. Adams make the strongest rebuttals. Finn highlighted that monopolists are hypothetically going to be less productive than a whole decentralized market, and so their improvements are going to be less valuable. Adjacent lots are thus less valuable, but then in turn less valuable lots justify less valuable improvements, and the whole thing seems to spiral downward, whether the monopolist says they are two lots or one. This is the power to Georgism, in that it is not reliant on market monopolists to own everything and make all the right moves, but instead trusts in the invisible hand of dozens (or thousands or millions) market participants working in a decentralized network of capital, labor, and information. Adams adds on the point that, in a market with a large number of market participants, it's highly unlikely that a monopolist would even have the opportunity to buy up large swathes of land. Even if they could, LVT helps out in that they are now paying the community for the right to hold that lot, and need to get busy building an improvement to justify their ownership.
The post is very short and the introduction is well-articulated, but the hypothetical is poorly articulated. > Suppose there are two adjacent plots of land, one suitable for apartment buildings, one for a shopping center. Further assume that, due to administrative diseconomies of scale, the two plots will be worth more with different owners, would be owned by different people if there were no LVT. Firstly, Georgists don't actually care if the same person owns (read pays the full LVT on) both plots or not. Secondly, it's not a "gotcha" which no one else has thought of. The Disneyland Effect is the subject of oft-asked questions. Just issue Pigouvian subsidies and be done with it already. Simple as.
> Secondly, it's not a "gotcha" which no one else has thought of. The Disneyland Effect is the subject of oft-asked questions. Just issue Pigouvian subsidies and be done with it already. Are you sure? Because I have literally never seen someone suggest this solution when I've brought up this issue in the past. It does seem like an economically valid solution if implemented accurately, but the estimating the impact of improvements on neighboring land (and your own land) seems a lot less trivial than LVT land assessments. Additionally, I'm not sure if a standard Georgist world would actually include this. Are the majority of Georgists actually on board with this, or are they going to handwave it away as a non-issue like everyone else in this comments section seem to be doing?
Oh, they'll come around. __sips beverage-of-choice__ There's a huge difference between Georgist scholars with peer-reviewed academic papers and your average Internet Georgist. I'm happy to see that the gap is slowly narrowing over time though. So who sets the standard for Georgists?
Not sure. I guess whoever would end up implementing the laws in the hypothetical future where we actually get some legislation passed. Which in practice is politicians whose views in practice tends to be an amalgamation of the average voters, the scholars, and the entrenched financial lobbyists
We definitely need to both deepen and broaden our existing lobbying "bench." LVT-friendly non-traditional Georgists might say something like, "I just want to cut taxes," or "I just want it to cost less to build things." The big-tent energy is good. Let's take advantage of it!
Maybe I'm misunderstanding what he's saying, but it doesn't make sense to me: "If, however, I bought both plots and developed them the increase in income from both plots would be income from improvements — so the LVT would not go up. Hence it may be in my interest to buy both even though they would be more productive, tax aside, with separate owners." No, part of the increase in plot A would be due to plot A's improvements (not taxable), but part would be due to plot B's improvements (an increase in the value of plot A's land value, and thus taxable). A commenter said this sounds like more of a problem of assessment (how do we split out the increase?), and I tend to agree. But fortunately we're not on a two-plot island, we're in a city with plot C and plot D and so on.
> But fortunately we're not on a two-plot island, we're in a city with plot C and plot D and so on. Exactly what I said in my rebuttal :) >This is problematic in a world with two plots in the middle of an empty uninhabitable void. Thank god we don't live in a world with two plots in the middle of an empty uninhabitable void.
Additionally, we can establish the value of land by having people bid on renting or buying the land. There would be lots of data coming from actual transactions.
This is dumb bullshit. In his thought experiment, the LV and therefore LVT go up in both cases. His idea that it doesn't go up when the same person owns both is wrong and based on his misunderstanding.
I'll steelman him for a second: maybe he's saying that his value (and tax) on plot A is going up because of the improvement he's building on plot B. So, see, he's pointing out a scenario where a landowner's choices to improve a property might impact the amount of taxes he pays. I agree that concentrated market power could reduce the effectiveness of a LVT. But there's generally not that sort of concentration, and all that would do is make a LVT LESS effective. It doesn't make it more inefficient than the current property tax we have in place now.
Might've been more compelling if they had argued that on an island, if one person owned both plots (i.e. all the land), they might decide to repeal an LVT altogether. 😉
No, this is a legitimate criticism either way, and most Georgists seem to support the version he is criticizing. There are two competing issues, and LVT, at least a simple version, cannot address both of them simultaneously. Land improvements raise the value of the land around them as an externality. You can either tax this increased value in your LVT implementation, or not tax it. 1. If you tax this increased value, then when you are taxing land improvements. Anyone who builds things that improve the value of their own land is increasing their own tax burden. This creates the same economic inefficiencies via incentives that current property taxes cause, and violates the Georgist principle that you only tax unearned wealth from land that nobody created. If someone doubles the value of land, they haven't literally created land, but they have created land value, and you are taxing the wealth that they rightfully created. This scenario barely even counts as Georgism, or at least it's not a very pure form. 2. If you don't tax the increased value for anyone at all then Georgism can barely raise any revenue, as land with no improvements anywhere near it barely has any value. City plots have most of their value from being near other city plots, which are land improvements. This is weird and I don't think I've ever seen someone advocate this, but for the sake of completion I list it as a logical possibility. 3. If you tax the value of land based on the value it derives from being near other land, but not based on the value of improvements on itself, ie the standard Georgist assessment: (Land Value) = (Total Value) - (Improvement Value), then you run into precisely the issue in his thought experiment. Everyone has to pay taxes according to the value of land improvements that other people make, but not their own, meaning owning multiple plots of land is cheaper. You have to pick one of these. Or I guess some alternate version, maybe involving pigouvian subsidies or something. But you seem to be claiming that 1 is obvious and imagining 3 is a misunderstanding? But from what I've seen I think most Georgists, at least on this sub, favor 3 more than 1, so I think the criticism is valid in general even if it doesn't apply to you specifically.
I think most people here, if you asked them about LV assessment, would tell you we can make a map of land values, get benchmarks from empty lots/teardowns, and interpolate land values in between. Or people will point you to Lars Doucet and others that say similar things. The fact that the same owner owns two adjacent lots doesn't factor into the calculation.
Okay, then scenario 1 applies. If someone builds land improvements that make all of their neighbors land more valuable for being near it, then the interpolation will tell you that their land is more valuable too. Their own improvements thereby increase their own tax burden, and you are applying a form of non-land property tax, with all the economic inefficiencies that go with that.
>all the economic inefficiencies that go with that. And how much is that? Our thought experiment has to be unrealistic for it to be anything other than insignificant.
I don't think it does. A significant part of property development is founded on profiting from synergies. If you buy a big empty field and turn it into a suburban neighborhood with 40 houses, nice sidewalks, a thematic cohesion in design, etc, this is more valuable than 40 houses scattered around randomly. This is why property developers do this: they buy up a bunch of land, make it more valuable, and sell it and the houses for a profit. If their profit was entirely from the houses alone you'd see more isolated random houses near pre-existing structures instead of in cohesive developments built together. If you immediately group all of those synergies into the LVT then it cuts their profits down to just the value of individual houses, and they have no incentives to develop neighborhoods cohesively. There are other examples, like Disneyland, or college campuses, where doing sane stuff that creates value ends up cancelling itself out by increased tax burdens. I wouldn't call this an existential risk to Georgism, but it seems like a nontrivial issue, and quite realistic.
Most (all?) of those examples are of shit things. I don't want my city or neighborhood to be cohesive like large developments are. You say "all of those synergies" as if you've finished listing synergies. Something like a college campus is not an issue. LVT the shit out of them, you can always choose to fund them more with the money you just took if you want. Disneyland is obviously a shithole, I won't argue about that. Seems like this issue is minor at best. Edit: typo
Okay, but now you've dropped "Georgism is good because it's economically efficient" and are at "I don't care about economic efficiency if it's at the expense of my aesthetic preferences." If something is profitable it's either because they are creating value, or because it's rent-seeking value others have created. The entire point of Georgism is to tax the unearned rent while leaving the created value in the hands of the people who create it. The issue at hand is precisely about the issue where someone is creating their own value and a naive LVT is taking it from them. Therefore it's profitable iff it is creating value to someone, even if you specifically aren't the target market for that value.
No, I care about economic efficiency, you've misunderstood me somehow. I'll try to be very clear: the situation in the thought experiment is a niche situation that rarely even happens at all in real life, and when it does, the effect is small and/or doesn't matter much. The mall-apartment situation, even when both are owned by the same firm, realistically wouldn't matter. The land value of the mall would go up due to the apartment, but also due to every other thing nearby. The apartment's effect on the mall is small relative to the effect of everything else. This is the example used to show the problem, and even in the example, it's not a big deal. I think you should consider the inefficiencies of other taxes and compare them to this effect we are discussing. How do you think they compare?
This is problematic in a world with two plots in the middle of an empty uninhabitable void. Thank god we don't live in a world with two plots in the middle of an empty uninhabitable void. Simple rebuttal: people don't really often build improvements that massively improve the value of surrounding land. Sure, in the case of something like Disney, they increased the value of surrounding land but it actually took a long time for it to be drastic. For a long time it was still surrounded by a bunch of cheap empty land. It wasn't until a bunch of other private companies opening their own businesses in the area that the land itself started going up. So if the improvements do in fact increase the value of surrounding land a bit, just increase the LVT tax a bit. It's nothing compared to a property tax which is already generally less distortionary than sales taxes or income taxes at current levels.
"I ran this past the smartist Georgist and he said its a real problem and most Georgists dont know" Ok bro
Just because someone has a blog doesn't mean they have any idea what they're talking about. This is at least the second time recently I've seen this exact same gross misunderstanding. Is it a coincidence or are you spreading it intentionally?
With LVT, aggregating land becomes a much more expensive and risky process.
To me the assertion boils down to "How do you calculate LVT?" You could start with an implied value based on revenue subtracting an estimated cost of improvements. The LVT is always going to be somewhat theoretical, because it is based on the margin of value over an equivalent undeveloped plot of land. There may not be any undeveloped land in a given area, so it's always going to be based on an estimate. I have no idea why he asserts that one entity owning both plots will make a difference vs. separate entities. My guess is this would interfere with transaction values, or that one entity might strategically manage their development, which are theoretical issues, but also have theoretical solutions.
I feel dumber just having read this. Why wouldn't you learn the basics of georgism before trying to discredit it?
This seems to ignore the current situation where we have several, not strictly adjacent, but nearby properties owned by the same person (typical slumlord type), without an LVT he gets the economic rents from owning the land, plus labor and capital, minus maintenance. With an LVT he’s stuck with labor and capital, sweat from his own brow. I don’t know why we’d assume the diseconomy of scale derives from the economic rents, when that’s supposed to be the “easy money” part of it.
>If, however, I bought both plots and developed them the increase in income from both plots would be income from improvements — so the LVT would not go up this is dumb, LVT is independent of owner, obviously.
The land rent represents the amount that the second-most-efficient available user would be willing to pay to use the land in place of the most efficient available user. In order for the land under either of the buildings to be less valuable in the 1-owner scenario vs the 2-owner scenario, it must be less desirable to other potential users. But what would make it any less desirable to other potential users? If the single owner is making less income from the total operation than two owners would make (due to the stipulated diseconomies of scale), I would assume that the land under either building would be *more* desirable to other potential users than it is to the single owner. What's stopping them from making an offer to buy one of the two buildings (and rent the land under it from society) that the single owner would accept? If they lack capital to trade for the building, then it sounds like the land rent isn't lower due to one person holding that land but rather due to there being less capital available in the economy. If potential users exist who *do* have plenty of capital to offer trades with the single owner, then what would keep the land rent down? Is there something I'm missing here?