Link: Still on the mountaintop: Economically rational racism, by Gavin Putland
... So the key to the Promised Land is to reduce the natural rate of unemployment without creating a new class of working losers. To see how to do that, we must revisit some basic economic principles.
For a century and a half, capitalists and socialists argued about ownership of the means of production as if the assets that make up the "means of production" were all of the same kind. But they're not; they fall into two distinct categories.
- In one category are the assets can be produced by private, competitive effort. For convenience I'll call these house-like assets, although they include not only houses but also other buildings, as well as movable plant and equipment.
- In the other category are those assets that cannot be produced by human effort, or at least cannot be produced by private, competitive effort. For convenience I'll call them land-like assets, although they include not only land but also other natural resources, building rights attached to land, and monopolies and privileges of all kinds.
The returns on house-like assets include
- interest, which is the price of time-preference,
- insurance, which is the reward for bearing (quantifiable) risk, and
- economic profit, which is the reward for bearing (unquantifiable) uncertainty.
Those returns are an incentive to produce house-like assets. Any tax on those returns, or on the assets themselves, reduces the incentive. Conservatives repeat this argument ad nauseam but never acknowledge that it's valid only for house-like assets.
The net returns on land-like assets are usually called economic rent. Some people prefer to call them usury. But whatever you call them, they can't be an incentive to produce anything, because no private person or corporation can produce land-like assets, while the rental values of those assets are produced not by the owners, but by the demand from prospective users.
It follows that any fraction of the rental value of a land-like asset can be diverted into the public treasury without discouraging any productive activity, and therefore without raising prices. In other words, taxes on the values of land-like assets are not inflationary.
But instead of taxing values of land-like assets, governments — including conservative governments — impose punitive taxes on everything that they pretend to encourage, such as work, employment, consumption (which creates demand), saving (which allows investment), and of course investment in house-like assets. Some of these taxes directly impede production. Some of them directly increase the cost of hiring a worker at a given standard of living. But one way or the other, all such taxes feed inflation. Because of this additional upward pressure on inflation, it takes more unemployment to supply the compensating downward pressure; in other words, inflationary taxes raise the natural rate of unemployment.
So the key to reducing the natural rate of unemployment — the key to the Promised Land — is to reduce or eliminate income tax, payroll tax, sales tax, property taxes on values of buildings, and death taxes on house-like assets, and to replace the revenue, as far as that's necessary, with taxes on values of land-like assets. Those taxes can take the form of capital gains taxes, or property taxes on land values only (not including values of buildings), or holding taxes of so many tenths of a percent per year on values of other land-like assets. These land-value taxes and other holding taxes can have tax-free thresholds, so that only the portion of the value above the threshold is taxable. For taxpayers who are asset-rich but income-poor, the holding taxes can be deferred until the assets are sold or bequeathed, in which case the taxes may superficially resemble estate taxes on land-like assets only. It's even possible to set the thresholds on a case-by-case basis so that individual taxpayers are no worse off under the new system than under the old.
Well, I've been looking for a place to stop copying in Gavin's text, and maybe I've come to one. I commend the rest of it to your attention. It is one of the best pieces of writing on the subject I've seen recently!
Comments