| 0:33 | Intro. [Recording date: May 1, 2018.] Russ Roberts: Glen Wyle ... with Eric Posner, he is the author of Radical Markets: Uprooting Capitalism and Democracy for a Just Society, and that book is our topic for today. Glen, welcome to EconTalk.... Russ Roberts: The book is called Radical Markets, and it's radical in many ways. It's an extremely ambitious vision of how to remake emergent markets from the top down using prices and incentives rather than regulation. The sweep of the book is impressive. It covers property, immigration, voting, data issues surrounding social media, antitrust issues. And it seems monopoly and monopsony as the root causes of many of societal challenges. You want to add anything to that short summary before we dive in? Glen Weyl: I think beyond its ambition, the goal is to create a different sort of political coalition. I think that today's libertarians, and today's liberals and progressives, were, in the 19th century both part of a coalition that saw fighting inequality as allied to fighting for freedom, and, you know, more open societies. And, my hope is to break apart the standard Left/Right divide today and try to re-unite that coalition. So, that's an important part of the ambition of the book. Russ Roberts: It comes through. The book, is, in some ways, an attack of both wings--the progressive and libertarian politic economy visions; but it's also an embrace of both of them in different ways. So that's one of the things that made the book so interesting to me. Glen Weyl: I'm glad. Russ Roberts: So, I want to start with housing and land. You see yourself in the tradition of Henry George, and many listeners will not know who that is. Some will be--he has, still-- Glen Weyl: It's funny, Russ, because when I give this talk, I put up a picture of Adam Smith, I put up a picture of Marx; people get that. I then put up a picture of Henry George and I ask the audience if anyone can recognize him. Russ Roberts: One or two people, maybe? Glen Weyl: Well, the [?] one I got was at Google, yesterday, and it was a guy who runs a podcast or radio show about Henry George. Russ Roberts: Yeah. He has a few passionate devotees; and I hear from them every once in a while asking me what I think about Henry George. So, tell our listeners what he was about, and your proposal for restructuring land and property, and how that builds on his vision. Glen Weyl: So, Henry George was probably the best selling author in the English language other than the Bible for about 30 years. He was--his book, Progress and Poverty, was the namesake of the Progressive Movement. He just had an enormous influence on popular culture and intellectual thought for years. And, his central idea was one that wasn't just special to him, but was really shared by many of the founders of the Marginal Revolution in economics--by William Stanley Jevons, and especially Leon Walras. And, it was a concept called competitive common ownership. And the basic idea was that land does not belong naturally to any human being. It was created by God and can't ever belong to any person because no one created it. And, creating private property over land ends up not just creating all sorts of unjust benefits in the hands of a small number of people, but it also keeps land away from its most productive uses. If you, as actually Walras said, make land in big plots, you'll end up with aristocrats grazing their game; and if you put it in small plots, you'll end up with inefficient subsistence agriculture. Only if you have a duly[?] competitive process where no one person can monopolize land, where it's allocated to the person who is able to best use it in some competitive manner, will you be able to have a true free market. And, Henry George wanted to implement this by having a 100% tax on the value of land, and no taxes on everything else. So, our idea is very inspired by the spirit of his idea--the idea that to have truly free markets, you might have to make the value of property partially common. But, we disagree with him on some important details, which are that: he assumed that there was a clear way to make a distinction between land, on the one hand, and human labor on the other. But, if you think about, like, a gold mine: Imagine you were to tax at 100% the value of a gold mine, but, tax at nothing anything that someone had taken out of the gold mine. Well, then, of course, anyone who got control of the gold mine would immediately strip out all the gold and take it for themselves. In reality, everything in the world is some combination of human effort and natural endowments. And, while we agree with the principle of Henry George, we believe that in practice, you need to have a tax that's broader, and that forces people to fully reveal the value of those assets, rather than trying to have some government bureaucrat, as would have had to happen under Henry George, assess what the value of those assets are. Russ Roberts: Before you go on: The 100% tax--is that once?--the Georgian idea? Is it every year? Is it--what was the idea there? And why is it a good idea. Explain--[] the base. Glen Weyl: Yeah; so the Georgian idea was that you would have--yeah, so, Henry George's idea was that there would be 100% tax every year on the rental value of the land. So, that would be an assessment made by the government of how much that land would be worth if no one was occupying it in rent that year. So, essentially, everyone would every year pay the value that they would have to pay if the government owned that land and was leasing it out to them. Russ Roberts: It's a user fee, essentially. Glen Weyl: Yeah. Russ Roberts: Okay. So, the problem with that, as you point out--one of the problems--is that that ignores the complex complementarity between what people do with physical land and what they do with things we'd call property. Obviously you landscape your home. You do all kinds of things. You put fertilizer in the ground, if you are a farmer. There are all kinds of things you do that make the land and your effort somewhat indistinguishable. But the original idea as I understand it also was that, since land is "fixed," you are not going to get some of the disincentive effects you get with other taxes. So, one of the other selling points of the Georgian vision is that taxing land--you can't export land, in theory; you can't take it--you can't hide it. Unlike labor, other forms of economic activity, it doesn't respond--I would say--as much. It does respond, is a problem; but it doesn't respond as much to the incentive effects of the tax itself. Is that a fair point, also? Glen Weyl: Yes; and I think that the idea of that, that we should put greater taxes on things that respond less to effort, and higher taxes on things that are more unique and therefore more prone to monopoly--I think that that is a deep and important insight. I just think the notion that you can cleanly distinguish between something called land and something else called labor is mistaken. And, the basic principle behind the tax we advocate is to take that principle that you should, you know, tax things that are unique and that don't respond too much to work more than other things--that we absolutely agree with. But, what we disagree about is the notion that there is some objective, completely clear categorical line to draw between land and everything else. |
| 9:21 | Russ Roberts: So, in your vision--which I agree with, that part; I think most people do--in your vision, I would state a value for my property, which would be my house at my current address: I'm a homeowner right now, under the illusion I have private property. Under[?] the social construct that may not be productive, called 'private property,' I own it. And if you want to buy it now, you have to offer me a price that makes it worthwhile. And I'm not interested in selling right now, so you wouldn't even know to bother me unless you went door to door. Which people do, in some neighborhoods. But in general, I can look at what's for sale, decide if it's worth it, negotiate with the owners, etc. You want a very different model of how land and housing and other physical property would be exchanged. So, try to lay that out. Glen Weyl: Yeah. So, every owner of significant private property, and let's put aside personal effects and, you know, things from your, um, you know, your grandmother, or your dog, or whatever. But, any significant private property like a house, you would have to list a value for in a public registry, pay a tax on that value, and stand ready to sell it at that value to anyone willing to pay it. Russ Roberts: And the idea of that last part is to give me some incentive to pick a value that is actually close to what its economic value is. Because otherwise you'd just pick a low value. Glen Weyl: That's one way of thinking about it. But another way of thinking about it is that the whole point of the tax is to get you to stand ready to sell your property at some reasonable price. Because, otherwise, there's no opportunity--for example, developers or someone wanting to build a train--to see the values of properties and choose the ones that are the best value both for themselves and for the owners, to build developments, to build a train, to build skyscrapers, etc. Russ Roberts: So, I'm going to give you a chance to lay out the best case you can make for it, in my view, which is Eminent Domain. Currently is the way that we deal with large projects that have to--like the train you mention that have to buy up separate plots. The problem with that of course is that there could be a hold-out problem; and to deal with that owner is--developers will often act in secret to acquire land. But it's still a challenge. It's still a problem. And as a result, it's still a temptation to use the government just to--because it's more fun to just take somebody's land. And arbitrarily give them some assessed market value. Describe how the process would work with, say, an App on your phone, as you do in the book, in your world. Glen Weyl: Well, I think the best is example is: Elon Musk set up this company called Hyperloop that was trying to build a route from the Bay Area, where I think you are based, Russ, down to LA [Los Angeles], to radically-- Russ Roberts: --in the summer. Yeah, go ahead. Enough. Glen Weyl: Oh, in the summer. I see. Yeah, down to LA, directly. And the project--the biggest problem it ran into was the right of way: trying to buy up all those pieces of land that would stretch you all the way from San Francisco down to LA. Right? And, that's an incredibly complicated process. Now, you could bring in the government to try to expropriate people, and you'd have a bunch of judges, and then you'd have to pay people and who knows what you'd pay them. It would be a whole mess. Under this system things would be far simpler. This system would be one in which, simply, all the land would have a going price on it that the owner or possessor would have set. And, the potential purchaser could just look up all of those values in a publicly available App. And, if they found a collection of plots that they wanted to buy and develop, they could just, say, circle them with their finger or with their cursor, and if they have the funds, they could freeze those properties: make the transfer and become the owner within some reasonable surrender period--like, people have to have to get evicted from their house or their apartment or foreclosed on their house. And they would, upon that purchase pay all that money to the owners: So the owners would be effectively determining their own compensation, if the property were taken for this purpose. |
| 13:57 | Russ Roberts: So, that's, I think, the most attractive story: which is that this system would reduce the costs and challenges of developing large projects over large geographical areas. The rest of the story, I don't find so compelling, both on practical grounds and, I'm not sure, on, even on so-called welfare grounds. First, let's talk a little bit about efficient--investment efficiency versus allocative efficiency, as you do in the book. Explain what those issues are and why they are relevant. Glen Weyl: So, the first thing I would say is that, even though the literal geographic of eminent domain is the most eye-catching, there's many other cases where something like this arises. So, in the spectrum, for example, for years, much of the spectrum has been fragmented among people who use over-the-air broadcasting. And if you want to do WiFi or if you want to do 5-G, you face a very similar problem of trying to put together a bunch of spectrum licenses. In intellectual property, there's lots of cases where there are individual patents. Together they can create a new product, but on their own they are not useful. So, in many of these areas you run into this general problem of assembling complementary goods. And, that is one. But there are other examples of the problem of allocative efficiency, which is that: Assets can be owned in a way that is not the best potential economic use--those assets. And that can happen because of hold-out problems, but it can even happen for simpler reasons. You know, the current owner of the asset is going to be interested in earning a profit if they sell, not just selling for the minimum that they'd be willing to accept, but they'll be interested in persuading someone that the asset is really valuable. This is why we end up spending any time we close on a property or buy a used car or any time a company buys an asset: There's always a long and drawn out and complicated process of negotiation which gets in the way of innovation and the best use of assets. So, that's allocative efficiency. However, the tax that I'm describing would limit investment efficiency. So, what's that? That's the idea that if I think that the value that I invest in improving and asset and building a skyscraper, is just going to be taken by somebody else or is going to be taxed away by the government, I will expect less profit on that asset, and I won't be willing to invest as much to improve it. So, our tax, while it improves allocative efficiency, always it reduces investment efficiency. And the optimal tax rate has to trade off between those things. Russ Roberts: And your goal of--just let's--I want you to finish this story and then we'll dig back down into it--the goal is to: Everyone would state the value of their physical property. And let's just stick with houses and ownership of land for the moment. So, I have a vacant lot in Detroit; I'd have to post my--and I'm waiting to see if Detroit does better in the future before I invest in it--and nothing's happening with that land right now, so I'd have to post a price at which I'd be willing to sell it at. The home that's been in my family for 200 years and 12 generations, I'd have to post a value of that. A retail strip mall, the owner of that land would have to post, the owner would have to post the price they'd be willing to sell-that is, their assessed value. And then you are going to tax all that at a particular rate. And then you are going to do stuff with the money. So, talk about what you think the right tax is going to be, approximately. And of course this is going to be on top of local taxes. This is going to be a, presumably a Federal property tax. And what you want to do with the money. Glen Weyl: So, the tax rate would vary by different types of assets, so it would be different for land and intellectual property and so forth. But it would be on average about 7%. And that's a little hard to ponder as a property tax rate. But if you think it through it would roughly mean is that two thirds of the value of all major capital assets would be taken as tax revenue. And, that would raise about 20% of the economy in tax revenue. By comparison, the government currently raises at all levels about 20-30%. So, you could use that revenue to eliminate all other taxes on capital, including the corporation tax, the property tax, to eliminate capital gains taxes; significantly reduce income taxes; pay off much of the national debt. So, that's what we would do. We would do things like that with about half of the revenue. And then, the other half of the revenue we would use as a social dividend of some sort. It would be divided equally as payments to every citizen. So, that could--you could think of it as Universal Basic Income [UBI], or as an ownership stake in the national capital stock. That would even just put half the revenue--generate about $20-25,000 for every family of four in the United States. Russ Roberts: So, just to clarify the numbers for a minute: 7% of the value of the land would be about 20% of, say, GDP [Gross Domestic Product], or somehow like that. Glen Weyl: Right. Russ Roberts: So, the land value--because that might seem impossible, how you can tax 7% of something and get 20% of something. Where does that number come from? Why do you think 7% is a good--what's good about 7? Or that ballpark? Why not 20? Why not 3? Glen Weyl: The rate is based on the turnover rate of different assets. So, the ideal tax is roughly equal to the rate at which assets turn over to new owners every year. And the reason is that when you are thinking about setting your price, if you want people to set it at their true value, you know, one force that makes them want to set it above their true value is that, if they end up selling it, they'll get a higher price if they set a higher value. Right? And that force affects their incentives at about the rate at which assets turn over. And, if you tax at the same rate on that value, that exactly offsets their incentive to set a price that's above their value. So, the turnover rate would rise in our world, because as you set the tax, people lower their values and there will be more turnover of assets. But we think that roughly the current turnover rate strikes a reasonable balance between allocative and investment efficiency. And, the turnover rate of houses in the United States is roughly once every 13 or 14 years, which is about 7%. Other assets have different turnover rates, so that's not meant to be uniform for everything. Many business assets turn over more frequently than that. And the other hand, personal property turns over much less frequently than that. We might want to exempt that entirely or charge a much lower rate. So the rates vary across different asset classes. But, 7% we think is a good representation of what would be typical. |
| 21:37 | Russ Roberts: Are you taking into account the fact that--I don't like to move? Aren't I going to pick a higher price than the "value" because I don't want to endure the transaction costs of finding another property? Glen Weyl: Well, the value--first of all, you have to understand that we mean is not some objective value, like a real estate assessor would come in and tell you now or some government bureaucrat would decide upon. The value is what it's worth to you to stay in that property. And so, yes, absolutely, that would take into account your value of staying there. But an important thing to realize is that for a typical family, this would be an incredibly good deal. So, a median American household has about $90,000 of net equity in their home. And they have, on the other hand, the average family of 4 in the economy--if you take an average of the assets of everyone, they have about a million dollars of net assets. So, the revenue raised by this and redistributed by a social dividend would, on net for a family like that if they priced their property at market values, generate about $21-or so thousand dollars in income. Now, if they decided that they really didn't want to move--so they are going to value their property at 5 times market value--then they would still, on net, make about $15,000 dollars. So, they can get as much stability as they want by raising the price. And, you know, stability always costs. In our society, stability is costly. The wealthy live in, um, homes they own outright in areas that aren't disaster prone. The poor live in areas that are disaster prone and they often rent and can be evicted if the area improves. And so, in this society, too, you would have to pay for more stability, or what would be different is because of the social dividend: Everyone could have an equal chance to afford the amount of stability they want. And, the rich, whose stability costs so much in terms of opportunity to others would have to pay a reasonable price for the externality they create. Russ Roberts: And you are presuming--because we are in a fantasy world right now, or a hypothetical, if you want to be more appealing-- Glen Weyl: yeah-- Russ Roberts: You are assuming that that social dividend would actually be paid. It wouldn't then--the revenue from this wouldn't be used for "other purposes." It wouldn't be like, the Alaskan situation where citizens of Alaska get a dividend based on oil ownership that isn't just, goes into the government coffers-- Glen Weyl: Yeah. I would, I want it to be automatic. You know? I like to think of institutions that you can implement without any or very little need for any discretionary government authority. So, I would think of it--you don't even need to think of it as being raised by the government at all. You can think of there being a corporation that everyone would own shares in that would collect this. And, so, people would be entitled to dividends. Russ Roberts: Yeah, I like those kind of programs, too. It's just that the government doesn't always tolerate them so well; and they like to take control of them, which is sometimes not so good. And, of course it can be: It depends on the situation, institutions, and the structure. |
| 25:09 | Russ Roberts: But, I want to get at the underlying argument that you make, which I find implausible. So, I want to challenge it on why this is a, there is a problem here. So, I certainly agree there are resources that are underutilized. Certainly, people who hold property--they might have a home that they only live in a few times a year, that that's inefficient in some dimension, in some definitions of inefficient. There are a lot of things you could argue are not great about the current market for land. And, of course, one way to fix that--the Georgian way--doesn't have this self-assessment. Doesn't have to have this self-assessment piece. We could just raise a--you could just argue we could just put a Federal tax on land that would make it more costly for people to have, you know, abandoned lots that they're not doing anything with. And we could take that money and re-allocate it. But, the essence of this argument: There's two pieces to it. One is, that my home is up for sale at all times--in theory. And that price, that it would sell for is set by me. And, underlying this is an argument, though--and then, there's a redistributive element. Which is that the larger, more attractive properties would presumably have higher values attached to them by richer people who don't want to have to move. And then that is creating this social dividend for the average, for the median person, say. For a large proportion of the public. But underlying this is an argument that I don't understand, which is an argument that the current market for land has a monopoly element. So, defend that. Explain why that's an issue and why your solution is dealing with it. Glen Weyl: So, the argument, which really goes back to George and Walras, but has a lot of work in the 20th century, is that land is unique. There can be competition between different places to live, but it's very rarely the case that you have truly comparable pieces of land. You know, I just bought a house in a quite liquid market in Hoboken, New Jersey. And, for the apartment that we found, we could find only one really comparable unit that had sold in the last 3 years. And, if we hadn't bought the one unit that we had been interested in, we probably would have ended up renting in New York City. That was our next best alternative. So, that homeowner, you know, had perhaps not the widest reaching monopoly. But, it wasn't as if I had a bunch of closely competing alternatives to that one piece of land. And that is true for a wide range of land uses. And it can lead to lots of potential waste where current owners charge enough to deter a potential better owner of that property from buying up and using that land. And, that may sound abstract. But there's actually a fascinating startup called City Builder, which, what they do is they tell you what the value of different collections of land could be worth if you were to buy them up together. And, for typical contiguous blocks of land, something like 3 times its current value in most cities. So, this is not a--and that's holding fixed zoning regulations, and so forth. So, this is not a, I don't think, a trivial issue. I think that this is quite prevalent, and that there are a huge number of opportunities for making our cities work better, for making our spectrum work better, for making businesses run more efficiently, for building innovative products that are blocked by intellectual property protections. All of which could be addressed if we didn't have this fundamental rigidity that is created by private property standing in the way of assets being turned over to their best use. And, as I mentioned, this argument that I'm making: It's about as classic of an argument in economics as exists. It was first made in the 17th century by the Physiocrats, who were the, you know, founders of modern political economy. It shows up in various forms in Smith. It's very prominent in Walras, who is the, you know, one of the Marginal Revolutionaries. And it also shows up in Jevons, who is another one of them. It's the central theme of Henry George. It was really a central dogma of the field from the 1880s through to roughly the Cold War. And it's fallen out of fashion. But, it's confirmed by Nobel-Prize winning work in a whole bunch of areas of economic theory recently, and by a whole range of empirical work, including but not limited to the App that I was telling you about. |
| 30:43 | Russ Roberts: Well, the City Builder app, it's clearly the case that multiple persons, multiple parcels could have higher value if they were put together; and there's transactions costs of putting things together. I don't think that's literally a monopoly problem. But, just in general, it doesn't strike me as plausible. Your story about Hoboken, it's interesting. It could be true. My example--I moved to Potomac, Maryland 14 years ago and we looked at 20 different houses and we didn't like any of them. And, we finally found one we liked, after--we rented for a year. And then we found one we liked. It was the only one we loved. But, I don't think the owner had any monopoly power over us. They didn't know it was the only one we loved. They were in competition in their own mind--correctly so--with all kinds of parcels that they had no idea what their value was to me or the myriad of people that would be coming in to see them. What's the--try to give me the intuition of why the fact that it's not exactly the same house, exactly the same property gives them market power over me. I don't understand it. Glen Weyl: So, the definition of monopoly power that's used by the antitrust agencies, which you may agree or disagree with, is that if a firm controlling a certain market can raise prices above their marginal cost by 5% for one year, then that constitutes monopoly power. Now, the analogy in a property market would be: If the owner of a property can raise the price above the amount that they'd be willing to sell it for, for 5% for one year, that would be a monopoly power. So, I think it's pretty hard to imagine that that isn't the case for most land. And, in fact, there have been a number of attempts to estimate this that suggest that it's about 15%, is the typical margin that's charged for transactions above the willingness of the seller to accept. But it varies dramatically; obviously it's much greater in these hold-out situations than it is in other situations. So, I think by the standard definition of market power, most land has significant market power over it. And the same thing is true in most corporations. So, when most corporations sell to a, in a merger or buy-out, usually you get 20, 30, 40% premium above the value; and usually it's a long and complicated process, to consummate that. So, I think that it's pretty clear that that sort of market power over assets is quite rampant in the economy. And, in the case of spectrum, I can tell you some quite clear and dramatic examples of precisely that phenomenon. Russ Roberts: Well, spectrum, I don't know anything about. So, I'm going to leave that alone. What I do know about is buying and selling houses: I've done that a few times. I don't know a lot about it. I know a little about it. I've experienced it. And I think many of our listeners have. And, having been on both sides of that transaction--the buyer and the seller--I don't feel like either a monopolist when I'm selling, or the victim of a monopolist when I'm buying. Of course, there's negotiation and uncertainty, and there's a debate between sometimes an owner and an agent about what the true value of the house is. Highly hard to know. It's really hard to know. And I think that's the source of the uncertainty. I don't feel like a victim. I've never felt like a victim. Maybe I'm a fool. I feel like I have lots of choices. And, in fact, I think most people do. I don't see why it being any different than any other market. But I think you probably think monopoly is more rampant in lots of other markets. Glen Weyl: No, I agree. I do think monopoly is pervasive. And I think we accept a fair bit of monopoly. And if we could purge that from the system we would have much more efficient markets. I mean, you know, you look around you: Most things don't have a liquid price on them. It would be very complicated to try to buy them. If we lived in a society where most assets were: you would, you know some price was the going price for them, you would have just a much more competitive dynamic entrepreneurial society, because there would be much more opportunity for using things for better uses. |
| 35:32 | Russ Roberts: Well, I'll just say one more try on the home ownership issue: So, you are suggesting that, when I go to sell my house--let's say, I decide to leave the Washington, D.C. area, which is where I live right now, and I want to live, say, full time, in the Bay Area. And I want to sell my house. And I can--I'm excited because I'm going to be able to get a premium over and above the value I really have for it, because other people are going to be stuck buying it. The person who falls--I have to say: the person who lives across the street from us has the exact same house we have. Literally. Physically. Glen Weyl: Yeah. Russ Roberts: But they did something different. The owners before us, they added an addition in the back. And the people across the street, they re-did the basement. So, they're not anything exactly alike at all. They are very different. They have a slightly different parcel of land. It's shaped a little differently. But, the physical house that started was the same; but now they're different. And someone could walk into my house and fall in love with love it; or could not like it; they could go into their house and say, 'Wow! A finished basement. I've always wanted that. It's great. It will be great for guests,' etc. The person across the street said to me, when they were selling, that they were going to charge a certain price, that I knew was well above or thought was well above the market price. And I said, 'Wow. That's a lot.' And they said, 'Well, it only takes one person to want that house.' And that's true. But it's really hard to find that one person. You don't know who that one person is. In fact, the odds that you would find them are almost zero--that you are going to find the one person who loves the finished basement. So, in what sense does that person across the street have an ability to charge above the price they're willing to accept? It seems unlikely given that there's lots of people willing to sell them-- Glen Weyl: Above the price that they are willing to accept for the house? Well, I mean, you sort of know almost immediately that that's the case, precisely by the process that you described about what will the market bear for this. You set your price not on what you'd be willing to accept for it, but what the, what you think you can get away with charging someone. Russ Roberts: Absolutely. Glen Weyl: So, that is precisely the principle of monopoly. I mean, the principle of competition is, you set the price that you can, you know, that's not based on what you think you can get someone to pay eventually but instead, based on what you'd be willing to accept for that property. Russ Roberts: No--you set the price--and I'm sure there's some real estate agents listening. You set the price based on what are called the comparables. Glen Weyl: Yes. Russ Roberts: You look around at houses that are like yours, and you set a price similar to yours. You don't say, 'Well, I can get more than that because I'm the only one selling this one.' You set the one that you think is comparable. Is that a foolish game we're playing? Is there really no comparable to my house, because it's unique. Glen Weyl: I'll give you another example. One of the places we were considering--just saying--had been on the market for almost two years, even though it was new construction. In a hot market. Because they had tried to get a price that was much better than what, I think, the market would end up, you know, comping that place at. And it's very common. Because the market is relatively thin. And there aren't always those comparable houses available. They went about--they ended up coming down about 10% or almost 20% on that place, over the course of that year and a half, and they still haven't sold it. So, clearly that is a waste of resources. Houses lying vacant for an extended period of time because they were attempting to use the uniqueness of what they had to offer to extract a rent. And that leads to waste. And it adds up across the economy. And it gets much larger, of course, in these hold-out situations we were describing. Russ Roberts: 3928 Well, what I agree with you is that markets for housing and land work imperfectly, because there is uncertainty about the future. And people get overly optimistic. Especially when markets heat up, as you suggested: and people think, 'I can make a lot more.' And it's true that in those settings sometimes it's harder to find a house, if you are moving into that area. But, of course, I'm not sure your setting of that price, self-assessment, is going to solve that problem. Because, in a market where I think there's a lot of demand and people are desperate to move into it, I'm going to pick[?] higher and higher prices, potentially, for my value. Of course, I'm also going to pay a cost in the form of the tax. That's going to discourage that, I suppose. Glen Weyl: Yep. And, not only that, but because the value of all assets would factor in this tax, the value of the assets would fall dramatically. And so, it would be much more like rental. There would be much less up front cost. And, as we know, rentals turn over much more quickly to their best uses than sales do. Sales is a much more cumbersome, burdensome process, precisely because people are thinking about all that speculation on the future, and several other things. |
| 40:39 | Russ Roberts: Let me ask one more practical question, and then we'll turn to a different topic. So, you or I, we both talked about moving into a new area. So, I wanted to move--you wanted to move into Hoboken or somewhere near Hoboken; and I was talking about moving into suburban Maryland. How would I do that, practically, in a world where--every house, potentially is available to me? Kind of exciting? Right? I don't have to wait for a house I really love to go on the market-- Glen Weyl: And, you know all the comparables. You know. You are talking about comparables. You would have so much more information about comparables, because everything would have a market price. Russ Roberts: Yeah. Well, Zillow does that now. It doesn't--we could debate whether it does it well. Glen Weyl: Yeah, it's not so great; but, anyway-- Russ Roberts: Yeah; it's flawed. As would this process be, by the way, I'd have my own challenges to try to figure out my own price. I assume institutions would emerge with brokers that would help me fix it. Help me decide it. But, how am I going to look at a house, in this world? Glen Weyl: That's a great question. So, the idea is that you could freeze the price of a house and pay an inspection fee to the owner to come and look at it in a reasonably timely fashion; and they couldn't change their price once you'd expressed interest. But, you wouldn't be obliged to buy until you completed the inspection of the house. Russ Roberts: So, anybody can come inspect my house any time they want. Glen Weyl: In exchange for a reasonable fee and, you know, on terms of not being intrusive and so forth that are consistent with the way that inspections work for home purchases right now. Russ Roberts: So, one of the things about this idea that's troubling to me is it ignores the cultural norms that have evolved--which is one that you're mentioning now. The idea of somebody coming into my house to look at it whenever they want by paying me a fee, I find--unappealing. Most people do. Yes, when I want to sell a house, that's part of the deal. But in our current culture, the idea that someone could come look at my house--because it's mine. I have this weird idea that it's mine; and you provocatively suggest that that's not a healthy attitude-- Glen Weyl: Yeah-- Russ Roberts: in all kinds of ways, by the way: I want to let listeners know that you don't just say, 'All property is bad.' You have some interesting, very thoughtful ideas about why it would be a better world if we didn't feel as attached to our houses. But right now, we do. So, that's going to be a tough change. Glen Weyl: Yeah. Yeah, I agree it would change culture in a lot of ways. We have a lot of arguments about why that would make culture better; and in fact, we think it addresses many of the most common criticisms of the way that capitalism, you know, pushes people towards possessiveness and a focus on material possessions rather than on communities, a focus on taking advantage of people in negotiations rather than just having mutually beneficial interactions, etc., etc. But, yeah. Those cultural changes would take a while, and that's why we don't want to implement this overnight. This is why we think we could apply it to--and I think you wouldn't object--to applying it to spectrum, intellectual property, natural resource rights, etc., first. And, you could already get to 20% of the capital stock that way. So, that's not nothing. And then you could move on to business assets next, and commercial real estate. And then, you know, gradually walk your way towards this. You could get 50, 60% of the benefits before you'd get towards anything that would really challenge some of these notions of personal attachment. And then, yeah--you've got about 40% of the way to go that would require progressively changing the culture on these things. But, hopefully, by that time, people would already have some exposure through their business dealings to arrangements like this. Russ Roberts: Yes; I like some of those applications. And you are right: those would probably be an improvement. I would just mention--even though I agree with you that we are probably too attached to material items-- Glen Weyl: yeah-- Russ Roberts: and possessions, that our homes might be in a different category. I don't think it's capitalism that makes us possessive of our hearth. I think there's something deeper, more primal there. But, that's probably-- Glen Weyl: Well, yeah. That's a conversation for a longer discussion-- Russ Roberts: Yeah, it's beyond the scope of this. |
| 45:02 | Russ Roberts: Let's move on to some of the other areas in the book. Let's move on, which I'm actually intrigued by rather than skeptical of, which might be more fun--or less fun--which is immigration. And, you make the point--you and Eric Posner make the point that, on the surface, the allocation of human beings to different geographical areas is extraordinarily inefficient. That, there is an enormous benefit potentially for humanity from people moving where they live. And yet, it doesn't happen. There are barriers to migration that are severe. And you suggest a very thoughtful way of getting around those. Describe it. Glen Weyl: Our argument is that the basic inhibition against the sort of value that you are describing from migration is the fact that most middle class, lower middle class people in wealthy countries don't really benefit very much from migration. Whether they actually are harmed by the competition in labor markets or not, is a topic for debate and we don't take a strong position on that. But, it's pretty clear that most of the benefits of migration go to the migrants themselves. Or, to people who live in wealthy cities, where migrants bring diversity via[?] food, and culture, and so forth. Or, more importantly to the employers of those workers, who benefit from access to, you know, competitive labor force. [?] And that, those employers are mostly the owners of capital, or wealthier people. And, because most people in the country don't own a lot of capital, they are not directly benefiting from migration. So, what we want to do, is create a new system of migration where every citizen could benefit more or less equally from the chance to sponsor migrants. And to negotiate with the migrant for a share of the benefits that she would receive from coming to the United States. And, we calculate that, roughly, that would be something like $5000 or $6000 a year, if you sponsored a temporary migrant, possibly more if you sponsored a more permanent migrant, for every migrant sponsored. So that could be a significant source of income for many American workers. Russ Roberts: And, what would sponsorship involve? Glen Weyl: So, sponsorship would involve helping the migrant find a job; living in proximity to the migrant--because we want to foster not just economic value transfer, but a sense of responsibility, cultural exchange, and community with that migrant. So that we, he[?], have a gradual opening of people not just to the economic opportunity that migrants offer, but also to the cultural value that they potentially offer, as well as a sense of responsibility where people wouldn't want to bring in those that might potentially cause cultural conflict or violence and so forth. Russ Roberts: So, how would that work? How would I--how would it work, practically? Glen Weyl: So, you could imagine a variety of arrangements. There could be corporations that set up boarding houses within cities. And, you might not, every day see your migrant; but you might interact with the migrant that you are sponsoring every, you know, couple of weeks; but they would live in some area in your bayou. Or you could imagine putting them up in your home, subject, of course, to some regulation and inspection, because you wouldn't want people to be abused by a potential host. But, you know, there's a program called the Au Pair program where people host migrants in their homes to take care of their children. And, effectively you could think of this as expanding that to other economic functions other than just caring for children. Which only a small part of country can afford someone to full-time care for their children. So, those are a couple of ways that you could put someone up. And, in terms of the economic arrangement, I can imagine several different ways. You can imagine something where the migrant agrees to pay a fixed amount to the sponsor in order to stay in the country--sort of like a visa fee, which, you know, in many contexts, migrants already pay fees like that. Or, you can imagine that they would say, 'Okay, in Pakistan I make $500 a month. In the United States, I might make thousands of dollars a month. Some share of that increase in my wage, I'll share with my host in exchange for putting me up.' Russ Roberts: So, again--I think there's a lot of practical issues here. But the idea of it is interesting. Wouldn't--a lot of people have proposed a simpler version of this, with less potential, I think, for abuse. And I want your reaction to it, which is: Let's just sell the right to come here. So, you know, right now--say, to the United States--of course, we're not the only country people want to come to, but it's the one that's on the minds of a lot of Americans right now. And, right now there's a lot of debate about Mexican immigration. The idea of a wall. I happen to be more of an open-border kind of guy, but I understand that people are concerned about, say, American culture, or they are concerned about the economic impact. I think those effects are small. But, reasonable people can disagree somewhat about those things. So, why don't we just say that anybody can come here who can pay a $10,000 fee? And provide some--and you have a certain amount of time to find a job; and if you don't find it, we send you back? But that opening fee would then be given to people who are concerned at least as some form of compensation. Because that's really what we're talking about, here. We're trying to find ways--you are really suggesting compensating people for accepting migrants. And, of course, that's not going to make other people happy, who would say other people shouldn't be allowed to do that, just like they don't like the idea that corporations or employers should be allowed to do that now. What's wrong with just charging a fee to get a--a big fee? Because right now people pay large fees to get smuggled here. Why wouldn't one want to capture that for the public? Glen Weyl: So, first of all, I agree with you, Russ. I think that would be a major improvement. And I'm quite sympathetic to that idea. And in fact, we mention that idea in the book as an initial foray. But, the reason why we propose--and, by the way, we're not 100% set on the precise structure that we're describing. It's much more important to us, the broader idea--which your proposal would also accomplish--of channeling the benefits from migration more broadly. So, I think we are 90% on the same page. The question is in the details of the proposal, the real difference between yours and mine, is that yours has more of a centralized structure, where you[?] put more of the responsibility of vetting onto some sort of a central agency that would monitor; and you allow it to be a purely economic transaction where people wouldn't really get to know migrants. And so forth. And our perspective is that, that addresses much of the issue, but not all of the issue. I'm worried about people feeling that they don't know exactly where this money that they are receiving is coming from. And, I'm worried that, to build support for migration and for a diverse society, people need not just to receive some economic benefit that's quantitative: they also need to be exposed to the people that they are receiving these benefits from. Because it will make it much more vivid for them. And it will open their minds. And I think that that's what has happened to people like you and me. Probably the reason people you and I are so sympathetic to migration is we spent a lot of time living in, you know, relatively cosmopolitan big cities, where we get lots of benefits from migrants. Not just direct, simple cash, but also, you know, we learn things from them; we have different sorts of food. We enjoy opening ourselves in the context of a mutually beneficial economic transaction. And we think that those cultural aspects are important, as well. And, that the ability of citizens to express their preferences over the sorts of people they want to open their community to. Within reason. You don't want too much blatant racial discrimination or something like that. But, people may have preferences over the languages that people speak in their community. You'd have to think about whether you want people to, you know, have preferences over religion and things like this. But, allowing a little bit more of a decentralized market process for those sorts of determinations rather than forcing it all to just be 100% filtered just through money, we think would be important to dealing with some of the cultural and social aspects of making migration work. |
| 55:11 | Russ Roberts: Y', I don't see that working at all. Let me just say why, respond to your observation about myself. Glen Weyl: Yeah. Russ Roberts: My love of more open borders than we have now is not based on my personal experience--at least I don't think it is. Of course it could be, subconsciously. I do have a Guatemalan housecleaner and have a Vietnamese handyman. And I benefit because they do a good job, and their prices are lower than they would be, I think, if we didn't have a more open society, [?] even less open. So, I benefit financially from it. Culturally, I happen to like lots of different kinds of music--and, so I think there are some personal benefits. For me, it's just a simple matter of justice. It's a reflection of the fact that I'm alive because my ancestors came here in the late 19th century rather than staying in Eastern Europe where I would have been killed--they would have been killed--by the Nazis and I wouldn't exist. So, I'm a big fan of choice. And freedom. So, I think it's really good that people be allowed to live where they live. At the same time, I understand the concerns that people have about culture and its vulnerability to large changes due to large influxes of immigrants. I happen to think, as you do, that many of those changes in culture are healthy. But, I understand why people might not agree. And I don't think your proposal is going to solve that problem. The people who are most alarmed about it are not going to sponsor an immigrant. Not going to come into contact with them. They are going to resent their neighbors for bringing them in. And making money off of them. How do you answer that? Glen Weyl: Well, so, first of all, I think that the economic opportunity will attract many people who are currently hostile. But, second of all, I would allow communities to regulate this. I wouldn't want it to be a one-size-fits-all policy that would be imposed by the Federal government on the whole country. I would prefer it to be, at least partially regulated by communities determining how they want to allow people to exercise these rights within their borders. And then people could move to different communities that had different attitudes based on this because of the opportunity those communities might offer. So, that would give a chance to people to take advantage of things by embracing a more open, cosmopolitan culture. And I think many people would be attracted by that. Not everyone. But, if you think about the number of people who moved to cities from rural areas in response to industrialization and all the opportunities that that offered; and they have moved in China, in response to those economic opportunities, and the way that's changed their culture, and so forth--I think that economic opportunity like that could be a tremendous attraction. |
| 58:03 | Russ Roberts: So, we're almost out of time. There are a lot of other creative ideas in the book--about voting, that people should be allowed to buy the opportunity to vote more intensely for things they--vote more than once about things they care about. Cast more than one vote. There's some interesting ideas about our allocation of investment and large investment banks and investment vehicles--places like Vanguard and Fidelity and whether those are good for the economy or not. There's some interesting discussion about social media and whether we should be--how we might be paid for our data as contributors to the knowledge that Facebook, Google, and others are using. We don't have time to get into those, but they are all interesting, and your analysis of the current situation of all these examples is interesting and provocative as well. But, I am struck by the--my favorite Hayek quote which has had a good run recently on the program--which is: The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design. And, this is a book devoted to design. It's a book saying: 'We need to reorganize all this stuff. We can do a better--there's huge gains that are available if we would just follow some of the ideas here,' that you've outlined. And you are not unaware of the fact that this is--there might be, there are pitfalls. And you are well aware of the fact that it's not going to happen overnight. So, talk a little bit about that issue, and any unease you might have about your willingness to remake society. And then, how you might do it in small steps. Which you mentioned a little bit earlier--you alluded to it. Glen Weyl: Yeah. So, I certainly don't want to overnight re-make the world in these ways that could potentially be very disruptive. For each one of these proposals, we have a set of relatively uncontroversial small steps that would get us a significant part of the way towards these ideas, and also offer testing grounds to learn about the pitfalls that you are just describing. You know--we talked about property, and the way this could be used for spectrum and intellectual property, and so forth; in voting, even though the voting system is quite radical, we already have a startup that's doing it for polling and market research, and we're interested in online aggregation. Russ Roberts: And the name of that is? And we'll put a link up to the site. Glen Weyl: It's called Collective Decision Engines. And, in the immigration system, you could try piloting it in a city, as we talked about--you know, different areas might take different approaches. So, with each one of these ideas we have some very near-term, concrete, relatively uncontroversial steps that you can take in that direction. And, at the same time, there's this growing movement--I don't know if your listeners follow the blockchain space at all, but-- Russ Roberts: Many do. Glen Weyl: Yeah. So, within blockchain, there's a lot of interest in these ideas. And those are sort of experimental communities that are trying out different ways of arranging things. And, my guess is that some of them are likely to experiment with this. One of the leaders of Ethereum, Vitalik Buterin, recently wrote about his interest in these ideas. So, that's another interesting testing ground. But, the reason why I propose these things in such a bold and sort of visionary way, even though I expect there to be increments towards it, is that I think we are desperately missing an alternative vision that people feel could potentially address the problems of inequality and stagnation and political conflict that we are facing as a society. And I think in the absence of an alternative vision, we've seen the emergence of reactionary ideologies of both the Left and the Right--sort of, you know, the state socialism of Jeremy Corbyn and Bernie Sanders. And the nationalist populism of Brexit; and you see it in Italy and in Donald Trump, and so forth. And I think that we desperately need an alternative vision; even if the exact ideas we propose aren't the right ones, or aren't exactly right in the form that's been suggested, we think that they offer a different way of conceiving of political coalitions and social ambitions where markets can play an egalitarian and opening and aggressive role. And, we hope that vision can inspire people even if they don't agree with all of our exact ideas. |
Economist Glen Weyl of Microsoft Research New England and Visiting Senior Research Scholar at Yale University talks with EconTalk host Russ Roberts about his book (co-authored with Eric Posner) Radical Markets. Weyl urges a radical transformation of land and housing markets using a new federal real estate tax based on self-assessment. Owners would be required to sell their houses at the self-assessed price. Weyl argues this would eliminate the market power home owners have in the re-sale market and the revenue tax would could be used to reduce inequality. In the last part of the conversation, Weyl proposes an overhaul of U.S. immigration policy by having residents sponsor immigrants for a fee.
READER COMMENTS
Jim Myles
May 21 2018 at 9:04am
It sounds like Glen wants a centrally managed (controlled) economy. He uses the passive voice in several cases the disguise the fact that he (or people he agrees with) should be in charge. He wants to take away control from the individual and vest in a central authority.
Ohad Osterreicher
May 21 2018 at 11:56am
[Comment removed. Please consult our comment policies and check your email for explanation.–Econlib Ed.]
Andy Wagner
May 21 2018 at 12:20pm
I can’t imagine this system applied to personal (housing) property–at least not in the US. The sense that “a man’s home is his castle” is too strong culturally.
Having said that, one commercial space that would be a particularly good fit would be airport gates and take-off/landing slots. First off, there’s no imagining that airlines “own” this property. It’s leased from municipal airports in most cases, based on auctions of newly available gates, but the auctions are at one point in time–when the gates are new–and don’t reflect market changes or new entrants.
The biggest advantage of experimenting with airport gates is that they are managed uniquely, not by a central body, so the idea could be piloted at one airport without having to convince the entire system to change approaches.
Earl Rodd
May 21 2018 at 12:51pm
There is one thing I found missing which was at least some discussion of “bad actors”. I applaud Glen Weyl on his proposal to try the ideas in small steps to learn how they really work in practice – and find the unintended consequences. So I think he is well aware of the lurking unintended consequences. Still, I would have liked to have heard a few ideas of bad actors thrown around. Maybe a second podcast on some of the other areas mentioned along with thoughts on perhaps obvious bad actor scenarios.
The most obvious I thought of, thought probably not the most important, was someone with a personal grudge and enough money to displace a person from their house. Of course, if the cultural change making us less tied to our “home” took place, this might not be an issue.
Bill Tubbs
May 21 2018 at 1:14pm
Intriguing twist on the land tax but of course too radical to be popular with the public. Private property is too emotional an issue for a reasonable discussion–as some of the vociferous comments above highlight.
Bill Tubbs
May 21 2018 at 1:16pm
I can’t understand his argument that a private individual seller could have a monopoly if he/she can sell their house at a price higher than their willingness to accept. Isn’t this just a symptom of the heterogeneous nature of property?
Can the definition of monopoly even apply in the extreme where a market only has one seller and one product (a unique house in a unique location) and there may be only one, a few, or maybe no potential buyer? As Russ pointed out, I don’t see how the seller has any unusual power in this situation even if they (technically) have a monopoly on their product.
Timothy Lord
May 21 2018 at 1:48pm
I’m looking forward to this one; from the precis, this sounds like someone has successfully stolen a few ideas from my head.
When it comes to property tax, one of my recurring rants boils down to “OK, if that’s the assessed value, can I always and instantly trade it in for that cash value? As in ‘Right now, for cash’?” Now, it’s true that assessed values are *often* (almost always?) conservative — and I think that’s to avoid a pitchfork revolt — but still, they should come with an ironclad wrapper.
(What I don’t like is that critiquing the details sounds like I am OK with the big idea of property tax; feels like complaining about the color of the prison uniforms. But this is more like complaining about the health-threatening conditions within the jail, maybe.)
I also like the phrase and the idea “Radical Contract,” which I think would fit right in here, and which I supply here as a suggestion for the followup book 😉
Rocky Miller
May 21 2018 at 1:59pm
There were many very radical ideas presented in this podcast. In the first half I was listening with an open mind. I had a slow burn to my strong disapproval of these highly dangerous ideas. I eventually identified Mr. Weyl’s provocative property reformation as simply nothing more than a collectivist end-around. It’s a way to take property from anyone and any organization with enough collective will. Extraordinarily frightening notion. By the second half of the podcast Mr. Weyl became less careful with his language dropping buzzwords that signal a certain ideological bias he had masked earlier in the podcast.
There are many areas of where these systems could be tyrannically exploited. Here’s a few: the most wealthy and powerful (probably the government, maybe corporations, maybe insidious foreigner actors) would rapidly dominant this property system. It would become some hybrid form of global feudalism. The immigration sponsorship thing would be used to invade territory legally. Wealthy foreign actors buy the way for their seed population then that seed population exponentially sponsor in selected like peoples and on and on. It’s an invasion that wouldn’t take more than a few decades. The only way to prevent exploitation from clever rent-seekers is a very powerful central government with a massive bureaucracy. Again a major signal of collectivism.
Ralph Casale
May 21 2018 at 3:19pm
I would have ventured into the race horse analogy. The majority of race horses perform in ‘claiming races’ where they are up for sale at the set price of the race each time they race. Not all races however are claiming races, and the better horses perform in stakes and allowance races where they are ‘not for sale’. So a market that has such a system instituted has also evolved to protections at the elite levels. Hard to imagine this market would evolve any differently.
Ralph Casale
May 21 2018 at 3:36pm
[Apologies for split reply]
If there is one thing our political system and I believe our basic psychology show us is that we are protective and possessive of what we have. Wealth, once earned, seeks to protect itself. It won’t be different here.
What we want to protect and encourage is investment. Property rights have proven effective for this, as Russ touches on in his question on ‘investment efficiency versus allocative efficiency’.
tomh
May 21 2018 at 6:57pm
The curious task of podcast commentators is to demonstrate to PhD Economists how little they really know about what they imagine they can design.
Michael Byrnes
May 21 2018 at 7:27pm
This was interesting!
I agree with the commenters here that people aren’t ready now, and may never be, ready for having this system applied to their houses.
But I think it might be interesting to apply a system like this to other types of assets – drug patents being the one that comes most readily to mind.
Stephen Williams
May 21 2018 at 8:30pm
Good conversation, some horrible ideas re private property, I thought that the idea you cannot own land was dead but alas it’s not.
Russ you exposed yourself as one of those elites who just can’t see why importing lots of low skilled people just doesn’t seem a brilliant idea to some others. You state you have a housekeeper and handyman who are both migrants and you believe that this allows you to get the services they provide for less than you would otherwise pay if there was no migration. That is the problem for most people, most of us don’t have housekeepers and handymen, we can’t afford to, only the reasonably well off and wealthy can. The less skilled and well off supply those services to people like you. So when you import your nannies etc you are driving down the pay of those already here, most of them native born.
This may or may not be a good thing, I guess it depends on which end of the equation you are on, however it is a fact, and to me and many others it seems deeply disturbing that you seem to prefer benefiting non citizens over those who are born in the US and at the same time improve your situation.
This is why you get Trump.
JK Brown
May 22 2018 at 12:42am
So would this forced sale only be an annual thing or might you force a sale, move in and then be forced to sale yourself?
Best of all, since land with residences are not productive assets, if you lose your job, you can’t pay your high housing tax or are force to lower your self assessment price, so now you are unemployed and homeless. Yes, you’ll have some cash from the sale, but moving isn’t free so you are on a downward slide every time you are forced out. Even without the job loss, a lot of people are land rich, but cash poor, but have this huge tax that missing means homelessness.
An why would anyone make any long term investments? Would I plant trees for harvest in 40 years if I incur all the cost of planting and the initial management, but I or my heirs have little assurance of being able to take the pay off at harvest? Might a farmer be forced out while his crops are in the field?
An would say Elon Musk be able for forcibly buy of parcels and then combine them so that they are only at risk to is wealthiest competitors? Or might he have to price the undeveloped parcels high to retain them, although without assurance of success, and thus pay out a large tax stream over the perhaps decade long development of his project?
Why might I invest in the building of plant to produce a product if the intellectual property can be forcibly removed from me long before the cost is amortized? Or for that matter, the plant taken from me for other purposes?
I certainly seems the wealthy could collect quite large estates, perhaps even with lower income residents in rental property paying higher rents as the wealthy could afford to price at a level that offered some stability. An interesting way to reinstitute feudalism and villeinage.
Perhaps the book demonstrates more thorough thoughts on consequences, but it didn’t come through in the interview.
Kosta
May 22 2018 at 1:24am
Glen Weyl couldn’t find a house and decided he should be entitled to be able to buy anyone’s. And their labor as well, as a matter of fact. I hope he doesn’t realise this, but in his mind people are tools to be bought and sold, and we all belong to the government.
Prakash
May 22 2018 at 3:55am
I have many questions regarding this system, the most basic of which are of the nature of – are your bank account, brokerage account and crypto wallet considered possessions (untaxed) or property (taxed).
If they are property, then I don’t see any way in which anyone can retire from work in this system. Your rental value is literally being taken away.
If they are possessions, then everyone will seek to move value there. Crypto makes things more interesting, in the chinese curse sense, as it is pseudonymous.
Michael Byrnes
May 22 2018 at 7:25am
I think this would be most usefully applied, at least initially, to assets that are government-granted monopolies. Patents, permits, exclusive licenses, government contracts, property sold by the government. Forcing buyers or recipients of such assets to put an accurate price on them (on which they pay taxes) would lead to better pricing and less ability to defraud the government/public.
Ralph Casale
May 22 2018 at 8:54am
A most thought provoking episode, so thank you. It is not often I continue to dwell on an informative topic at length after it is introduced, but this was one such instance. Unfortunately, the more I think about it the more I dislike the idea of assets ‘always up for sale’ (less so the taxation of assets). Such a system can and will be used by entrenched interests in an anticompetitive fashion. Over time that may result in entrenched interests inefficiently loaded with bloated assets, but the interim period could suppress wealth generation to the point where it would little matter. I think this would drive monopolistic practice rather than inhibit it.
Daniel Konrad
May 22 2018 at 9:35am
His reasoning that land property is a monopoly rests on the fact that, allegedly, sales prices for land property are “approximately 15% above their owners’ willingness to sell,” to paraphrase. How in the world could that be persistent? After the sale, the new owner would presumably have an at least 15% higher minimum price they would accept. And so on, and so on.
Of course one explanation is that buyers buy when they’re very eager to buy, and once their subjective utility from the property decreases below market prices, they sell. Which has nothing to do with monopolies. It just doesn’t make sense to analyze this market that way. You can’t use going market transactions on the margin to assess what’s true for the entire stok of a thing anyway. Especially not for irreproducable things.
The most perfidious aspect is his initial admission that, of course, land values are not purely based on the physical resource, but also on the labor transforming it. A reasonable person would take this as weakening blow for Georgism. But he basically goes on to say, “since that is the case for all capital assets, we may as well apply the framework across the board.” That’s preposterous.
In all cases, be it businesses or land, this would create an insanely stressful tradeoff between security and tax burden. Your choice is to either get starved out of all the money you accumulate, by setting the price at insanely high values, or to have absolutely no planning certainty. The tree you planted for your grandkids to play under? Now cut down by McDonalds. But don’t worry, you can now disposses someone else with the money you got! The new investment you hope will pay off soon? Will now be property of your big competitor who kills the project, as it threatens their revenue base. “The left” thought big oil companies buying out renewable energy technology was bad before? Wait until they can do it with no threat of competition! Given our inclination of risk averseness and possessiveness, this would surely lead to a severe over-pricing of the average asset.
And what’s the benefit of it all? To redcue “inequality.” Those who become rich get their wealth syphoned off, those who are poor will get free money for no reason at all. A huzzah for equality and the herdification of society. Frankly, I care about poor people and their wellbeing. I don’t care about “inequality” at all.
This is really a great example why the Walrasian and Jevonian conception of equilibrium is so dangerous. We’re not atomicons and our failure to realize insane theoretical states is not a justification of political intervention. An equilibrium is when nobody wants to act any longer.
Mike Bates
May 22 2018 at 10:03am
Glen’s concept has its merits, but the application as he has laid out is impractical. I think a discussion of the underlying theories and concepts without the specific impractical application would have been more valuable to me.
Doug Scrimager
May 22 2018 at 10:13am
I rarely comment on anything on the internet. Let me preface with my deep respect and appreciation for Russ Roberts selection of guests and overall stellar quality of this podcast. I can only really think of one or two total dud episodes before this one.
I tried to listen with an open mind – I really did. I stipulate that Americanism included land grab from the indigenous population to which I have no remedy or excuse – which created ‘private’ property in the US.
The theories expoused in this episode are the worst kind of socialism and capitalism muddled together without any shred of value those two systems might have (if any). About halfway through Weyl reveals two things: 1) he mentions foreclose and evict when someone wants to buy your property (without any mention of all the consequences that would result). One knock on effect being that poor who finally acquire land/house are forced to sell after possibly a lot of sweat equity because they cannot afford the taxes if they use a defensive (not forced to sell) pricing strategy. 2) He mentions that he felt the owners, in the area HE wanted to buy, had a monopoly since he personally had challenges finding a home. Socialism at it’s whiny worst and so honestly self-serving to make me disregard almost everything else he said – ‘I cannot get what I want so I want to system to give it to me.’ Nothing stopped him from pursuing purchase of houses that were ‘not on the market’ by offering a premium. NO! He wants to pay market value and ‘allocate’ someones property to him since he will ‘make better use of it’.
He also notes that it forces the sale to people who will make ‘better’ use of the land. Like what – wealthy buying up property and telling people they need to pay rent now or move – so changing schools, uprooting families, imposing the cost of moving? Who determines what ‘better’ means. Hopefully not Weyl since he seems to care about no one else but himself. Sounds like a return to serfdom.
Overall just an intellectually lazy set of ideas with little impact to the real world except for some very limited applications with a shallow economic model attempting to show the benefit.
I wish there were more intellectual depth in which to plumb in this ‘cast – however Weyl just drips elitism and the same lack of rigor/evidence that followers of socialism and communism display.
Harvey Cody
May 22 2018 at 11:02am
“Weyl argues this would eliminate the market power home owners have in the re-sale market and the revenue tax would could be used to reduce inequality.”
Based on what Weyl said in the podcast, this apt introduction to his ideas reveals a confounding ambiguity of the true nature of the proposal. Weyl starts out by casting some extremely enticing bait to those possessing an economic way of thinking. The idea that tremendous economic efficiencies can be gained from a long-overlooked economic theory (eliminating impediments to properties being transferred from low-value uses to higher-value uses) is tremendously compelling and well worth exploring. If those gains are likely to be achieved at a price less than their costs, at a minimum the ideas should be studied and tested. But in the same cast, this fisherman specifies how those gains are to be spent. What’s up with that? There may be benefits from spending the gains in a specified way, but those benefits (assuming there are net benefits from redistribution) are separate, distinct, and independent of the benefits of the first proposal.
(Surely there is a reason Weyl is urging us fish to take the combination of disparate ideas hook, line, and sinker, * which may be necessary as a political proposition.)
To be a viable set of economic propositions, only the components that create net gains should be urged. While it is possible both are advantageous, there are many good reasons to believe neither of Weyl’s propositions will create net gains. What the package will do for sure is take from the “rich” and give to the poor. In the podcast Weyl gives short shrift to the negative consequences of both taking from the rich (and is silent on the effect of increased uncertainty of the cost and risk of owning investment property and the deadweight cost of complying with and gaming the new system) and the negative effects on society, especially the poor, by creating greater disincentives to work (something that any form of UBI inevitably creates).
Weyl’s identification of shortcomings of the existing system and the need for new economic ideas is laudable. Combining a set of highly questionable ideas that might have a chance of becoming politically popular because they serve a popular goal of reducing income-inequality (as opposed to economic gains that help all people everywhere and forevermore—despite the inevitable resulting inequality) is much less laudable, if laudable at all.
__________________________
* The reason appears to be to dress up another Robin Hood scheme, with the rich being anyone who owns property (who are deemed to be monopolist as a justification). That this is the object of the book may be confirmed by what Weyl says at the end, “I think we are desperately missing an alternative vision that people feel could potentially address the problems of inequality and stagnation and political conflict that we are facing as a society.”
Kevin
May 22 2018 at 11:21am
I agree with Mike Bates. The idea of assets for sale is interesting, but the guest started with the absolute worst most elitist conception of it treating normal human lives as mere inconveniences to esoteric concepts of efficiency. Spectrum and govt assets sounds like a great idea to implement such an idea.
Having never heard of this idea applied to land before today let me relate the very beginning of concerns with treating property like this. This really seems like a policy designed to help billionaires do projects and elites have an easier time finding houses on the East Coast.
How long after buying a house against the will of the “current occupant” can I force them out? We have protections for renters, at the very least I expect there would be the same protections we offer renter before we throw the former “owners” on the streets. How often can the property be bought? Every day? Can someone buy it from me than the next day I can buy it back so we are in fact bidding on my own residence? That seems like a very good arbitrage opportunity for corporations to buy homes of families with children in the middle of the school year leaving the parents with the option to upbid their home or move. Because some people have children with friends and school and don’t want to move every time someone perceives their home has gone up in value.
Oh don’t worry – people will fix that problem by raising their own price and taxing themselves more. Because most middle class families have the sophistication and money to fend off potential buyers while trying to balance their lives and normal stresses and risk increasing their own tax rates. I can hardly think of a plan that more empowers the wealthy to control the lives of others that want to be left alone.
Can we buy govt property? Say – how about schools? If I am a billionaire and I want a fancy mansion can I buy the local school or park? If not why not? Govt have property rights but not citizens? Can I buy my competitors business building and force them to move? Maybe right as the small entrepreneur is developing a killer product to compete with me can my corporation buy their building and evict them disrupting their team? Or buy all their houses forcing them all to move? If Costco comes to town can they buy all the local groceries and turn them into parks then raise prices?
Can I buy all the homes of all the black/white/Mexican/Asian people in my town and force them to move? Can I buy the local assisted housing apartments and replace it with a park? If not why not?
At the end of all these objections will be a big huge, “Trust us, the smarter people, who are here to help”. Magically, like never before, we will be angels and independent of political corruption and interests groups and our own class preferences and the smarter people will devise rules that make this all work and are fair and wonderful. Brilliant elites will fix it all despite having no conception of what life is like for the other 99% of Americans….sure I believe that.
One other complaint – when people tell average Americans that the reason immigration is great its because of cool ethnic restaurants they come across as impossibly elitist. Honestly, how out of touch with the concerns of the average American do you need to be to suggest to your less sophisticated fellow citizens that if only they could try some of the amazing food they would finally understand the great benefits for them. How do the Japanese and Chinese survive without this gustatory bounty? And people wonder why populism is on the rise….
Colin
May 22 2018 at 12:22pm
Stephen Williams above says “You state you have a housekeeper and handyman who are both migrants and you believe that this allows you to get the services they provide for less than you would otherwise pay if there was no migration. That is the problem for most people, most of us don’t have housekeepers and handymen, we can’t afford to, only the reasonably well off and wealthy can. The less skilled and well off supply those services to people like you. So when you import your nannies etc you are driving down the pay of those already here, most of them native born.
This may or may not be a good thing…”
Clearly the implication is that this is not a good thing, but I would push back against that. In the short term, it is certainly undesirable that some U.S. citizens are displaced from their jobs or paid less to do them. But in the long term, do we want the U.S. to produce more career cleaners, factor workers etc. or career professionals? While there is much dignity to low skilled work, which I am not disparaging, from an economic prosperity/development perspective, both individual U.S. citizens and the country as a whole would be financially better off if immigrants take the low-skilled jobs and U.S. citizens shift to higher skilled jobs.
You mention Trump and while fully responding to why he won would be beside the point, on a related note, his promise to keep manufacturing jobs in the country (or even have them come back to the U.S.) surely played a role. But do we want these manufacturing jobs in the U.S.? The goods can be produced for less elsewhere while U.S. citizens would be better off in the long run re-training for a higher skilled profession and taking advantage of our robust economy.
Ethan C.
May 22 2018 at 12:32pm
It’s a very interesting thought experiment in its radicalism, and I do think there are some valuable insights from Georgist economic theory that are worth rediscovering.
However, it seems to me that there is a fundamental problem with this scheme that might perversely result in more concentration of resource ownership and monopoly power. Per the discussion of the Hyperloop problem (and as Daniel Konrad and JK Brown also mention above), what happens *after* parcels get combined? There doesn’t seem to be much incentive to divide properties up, and two strong incentives to combine them together: (A) to increase capital utility, and (B) to restrict the number of potential buyers and reduce the overall number of expected transactions. If I own fifty separate lots, I’ll be selling them off all the time, but if I own just one lot fifty times as big, I’ll only have to worry about selling once.
If I were hoping to realize repetitive revenue from my property lot, it might sometimes make sense to divide it up and sell it piecemeal, but that would only apply if I wasn’t realizing any marginal capital benefit from the combination of property, which is not likely to apply in most circumstances. It certainly wouldn’t be the case in the Hyperloop scenario.
So let’s say this system goes into effect tomorrow, and Hyperloop Inc. buys up, say, the whole coastline of California. Now they own all that land in one big property. Who is going to be able to buy it from them? Even assuming that they price it at the market equilibrium point, their only buyers would be other corporations with enough cash assets to equal Hyperloop’s own capital interest in the land. That land will never again be owned by anyone besides a Hyperloop, Inc.-sized entity. The rich will only be in competition with the rich.
The problem only becomes clearer as the scale of ownership increases. Let’s say Hyperloop Inc. gets even bigger, and buys all private property in the entire state of California (which they could theoretically do, since it’s all theoretically for sale). Now what? If they treat it all as a single property, they have close to zero buyers. They merely have to assess its value at just high enough to drive out all the smaller potential purchasers, which is likely to still be far below the rental value of the combined property (especially since they now have the power to use all their land in any way they please with no regard for any of the old-fashioned “property rights” of its residents — great for “efficiency,” not so great for families trying to find stable homes).
The Georgist model seems to presuppose that land is naturally divided up into a multitude of “properties” of discrete extent, when in fact that is an artificial construct. It might have seemed that way in a primarily agrarian economy like Victorian England, but it was as much an artifact of historical conditions then as it would be now. And unless we want to have some sort of pseudo-medieval legal structure that assigns indissoluble identities to properties and prevents them from being legally combined into new entities, the relentless structural pressure of this tax system will be toward larger and larger economies of scale, and fewer and fewer entities capable of participating in that market. Doesn’t sound very anti-monopolistic to me.
Even if this system were to work as advertised, another problem is that it would encourage extracting immediate value from the land, rather than preserving or increasing it for long-term gain. I buy a plot of land and build a factory on it. If I dump so much toxic waste on the property that it becomes unusable in the future, that’s fine, because I can simply price it super low and pay less in tax money. I don’t really care that much, because the moment that the property value dips below the value of the profit that I extract from it, someone will buy it from me and I can quit worrying about it. I never have to care about being possibly stuck with any long-term externalities.
That all being said, it does seem to me that a Georgist tax like this one might be good for intellectual property markets, because in contradistinction to land, IP properties are both (A) much more naturally discrete (though not perfectly so), and (B) naturally non-exclusive (me owning the license to Mickey Mouse does not inherently prevent a million other people from buying that same license). Because of this, I think that maybe a Georgist property ownership tax might work in IP without incurring the same sorts of perverse effects that it would in the land market. At least, I think it’s worth further investigation.
Jason Broander
May 22 2018 at 2:25pm
“I think this would be most usefully applied, at least initially, to assets that are government-granted monopolies. Patents, permits, exclusive licenses, government contracts, property sold by the government. Forcing buyers or recipients of such assets to put an accurate price on them (on which they pay taxes) would lead to better pricing and less ability to defraud the government/public.”
I had the same thought yesterday evening after grappling with the proposal for a while. For property that is not natural, but the result of government force, like those listed above, this scheme seems like it might be a way to ensure that rents extracted aren’t excessive as they often are today and that government monopolies only persist as long as they are economically beneficial. Once no one is willing to bid on them, they should dissolve back into the commons.
But for natural property, which existed long before the powerful centralized state, we should have the humility to recognize legal orders like the common-law property rights system which emerged over hundreds of years are better than any centrally-planned system could ever deliver. The scheme proposed above has so many loopholes and edge case problems that the only way it could succeed is by granting absolute authority to the state to change the rules of the game at any time. Which, I suspect, and the guest seemed to reveal, is the whole point.
“Trust us”, said the Top. Men.
Stephen Williams
May 22 2018 at 6:37pm
I think I’m getting too far off topic but I have to respond to Colin, maybe one day Russ could find a guest to discuss this but it’s a toxic subject. I’ll say no more.
Colin says “While there is much dignity to low skilled work, which I am not disparaging, from an economic prosperity/development perspective, both individual U.S. citizens and the country as a whole would be financially better off if immigrants take the low-skilled jobs and U.S. citizens shift to higher skilled jobs.”
That’s a great sentiment, unfortunately many people just don’t have the abilities required for higher level work, they just don’t. As far as I know the only person who has discussed this problem openly is Jordan Peterson and all he can say is that he has no idea of what can be done for these people. There are and always will be those who have such low cognitive ability that there choices are severely limited. Bringing in more low skilled people to compete with them is terrible for them, it really is. It’s good for those who want cheap services but it really harms those at the bottom.
I think Peterson calculated that around 10% of any population has an IQ below around 83 (I could be wrong on the figure), these unfortunate people can’t do high skilled jobs and they can’t be trained or helped into them. It’s probably the biggest long term problem ahead of us and yet it’s ignored and the elites want more low skilled migration. It’s not going to end well unless we consider these people and act in their interests as well as our own.
Henry
May 22 2018 at 7:39pm
Weyl’s proposed property reform doesn’t make sense to me. When a property owner doesn’t sell to a higher valued user, the owner is already effectively paying a “tax” in the form of opportunity cost. The holdout problem is real, though it can and has been mitigated through various private acquisition strategies, but I’m not sure that Weyl’s self-assessed tax proposal would in fact overcome it. If a property owner knew his property was complementary to that of a potential buyer, he would have the incentive to list a high price- even if this higher price would cause a higher tax liability, the tax would only eliminate this incentive if the tax was confiscatory, but a confiscatory tax rate would of course destroy investment incentives.
This is Benson on eminent domain: http://www.independent.org/pdf/tir/tir_10_2_1_benson.pdf
This is Henderson on eminent domain:
http://www.econlib.org/econlog/archives/2014/07/eminent_domain_2.html
taxpayer
May 22 2018 at 9:43pm
One might assume that the function of Weyl’s book is to propose that, if his boss Bill Gates or any other billionaire gets seriously PO’d at any ordinary person, he could displace us, repeatedly, from our homes. Better to look at the original ideas of Henry George, who proposed to tax land (but not improvements nor personal property) while leaving tenure intact. This tends to make land more available for productive use. Technically, assessment of land value isn’t difficult (see, for example The Assessment of Land Value edited by Daniel Holland), probably easier than the land + building values that assessors focus on nowadays.
George’s ideas can also apply to spectrum, as well as to “intellectual property” if IP is justified at all. The net effect is to remove some barriers to productive activity and reduce rent-seeking.
As for assemblage of contiguous parcels for rights-of-way or other large projects, eminent domain is available. If we can’t trust government to mostly use this power more or less responsibly, why should we trust billionaires?
Oh yeah, and as for mineral deposits, an appropriate severance fee can be used to control the rate at which owners would find it lucrative to extract them. Finally, there’s no reason environmental regulation cannot be used, as it (mostly) is now, to prevent landholders from ruining their land.
Glenn K
May 22 2018 at 11:10pm
Weyl’s proposal is a perfect example of ivory tower economist thinking. He presents macro ideas without consideration of the micro details that will play out over time. Maybe he details them in his book; I’m reacting to what I heard in the podcast.
First, the value I place on my home will not be related to my ability to pay the annual tax.
Second, if someone buys my house, I have to find another place to live. What if I can’t afford to buy another house? This would be a very common scenario for retirees living off of their savings.
Third, people need stability. They have children who attend school. Are they going to be pulled out in the middle of the school year because they have to move? What if I can’t find a place to live within commuting distance of where I work? There are dozens of other scenarios that will make people worse off if they are forced to move. It’s not a stretch to call this system immoral.
I suppose we could make this system optional. People who opt-in would be exempt from all other taxes and be eligible for the other benefits of participating. But even with a voluntary system, concentration of wealth and power will increase, not decrease. People with extreme wealth will be able to buy whatever they want, whenever they want.
David Harold Chester
May 23 2018 at 4:46am
How may LVT be made politically acceptable? By leasing all of the land which is slowly purchased and owned by the nation
Much as I applaud the Single Tax idea of Henry George for having great ethical principles at heart, I find after more than 50 years in our Movement that its introduction is simply not practical. Apart from use of the word “Tax”, which in any case no politician wants to propose, we must eliminate the offense that our proposals for LVT causes to landlords. Obviously they will strongly oppose the proposal for having to pay a new tax (or anything else we might like to call it). The problem then is not to have to fight them, nor try to convince them on moral grounds, but how to make them want to pay for land access rights or revenues.
To achieve this there should be introduced a gradual change in the way that land is being owned, which should be introduced by new laws. Whenever a site or prospect of land is being offered for sale (possibly with its buildings, etc.,) and whenever ownership of such a site is being transferred between family members (and on which an inheritance-tax would normally be paid), the change is that government automatically buys the land at its current normal nominal price. This is done simultaneously when the buildings are sold in the usual way or their ownership is being transferred. (The courts shall be empowered to settle the land-value, if/when doubt is expressed–land-value maps being publicly accessible.)
The previous landlords or their heirs will no longer have any political objection, since the money from the land sale will greatly exceed the subsequent annual lease-fee (see below) for access rights to this land. This change will also eliminate the (hated) inheritance-tax. It is imagined that this process of land sales and governmental purchases will be spread over at least 40 years.
Immediately when the site belongs to the government, this land must be offered for lease to the new or bequeathed owner of any buildings thereon. The lease-fee should be set according to normal amounts of rent for other similar sites, (and again the courts should decide when there is disagreement.) The above “first refusal” for this leasing offer is most necessary, because any buildings of practical use and value on the site, will still be sold or bequeathed as items of durable capital goods, as before.
However, access to the site and its buildings should be denied by the government until the site is leased by someone who can then (and normally would) have purchased (or been given) the building in the usual way. All taxes that are applied to subsequent building developments should be abolished at this time.
A new owner would acquire the building property more cheaply than before, because it is now without the price of the land under and around it. Such a buyer can then give for hire (rent-out) any building for access and use, as if it were any other item of durable capital goods. In the unlikely event of the leaser not owning the buildings, his/her incoming land rent (from the building owner), shall not exceed the out-going lease-fees by more than 2% (say). Should nobody initially lease the site and its buildings (if any), because of there being no demand for their use, the buildings may be pulled down by the next (eventual) leaser, who will be free to re-develop the site (and would naturally want to do so).
The government should borrow the money for site purchase, or can even offer national redeemable bonds to raise money for it. As the lease money begins to flow to the government, it uses this to:
a) repay part of its loan for site purchase, which may be extended,
b) purchase more sites as and when they become available,
c) cover the interest on the loan and on the new bonds and their eventual redemption, and eventually
d) reduce other kinds of taxation.
It will be appreciated that over the long term the lease fees are equivalent to LVT, but due to the greed of landlords (who behave as if they were capitalists), their income from land sales will satisfy them better than their being taxed. Eventually nearly all the land would then be leased from the government.
Nationally leased land, in countries such as Hong Kong, Singapore and Estonia, is close to 100%. This approach is known to be most successful, for the rate of growth of prosperity. Also when the previous landlords have more money to spend, most of it will be invested in durable capital goods, making production costs lower as obsolescent durable items are more easily replaced and so the national prosperity will grow also from the government’s investment in land values.
This proposal is not land nationalization (at least no more than what currently applies), since no additional regulations are placed on how the land is to be used.
Because the selling of land is a natural process which is (if anything) encouraged by the land returning to public benefit, the resulting lower priced buildings will become more easy to sell and this will not place such a limitation on their owners who wish to better develop the sites.
Sam
May 23 2018 at 6:08am
They never address this issue? I guess I will cut my losses at 20 minutes.
Shayne Cook
May 23 2018 at 6:14am
I’m wondering if Mr. Posner and Mr. Weyl actually have the “courage of their convictions”, as it were.
Much of the discussion in this podcast focused on applying their “uprooting capitalism and democracy for a just society” ideas to real estate. But it was mentioned prominently by Russ, Weyl and several commenters that the ideas could and should be applied to intellectual property “monopolies”, as Weyl referred to them, as well. I’ve made a fairly good living, over the years, in intellectual property development (software), so I’m interested in how these authors’ ideas would apply.
I’m curious then why Mr. Posner and Mr. Weyl chose to “publish” their book in the conventional, intellectual property rent-seeking (“monopolistic”) fashion of writing the book, transferring copyrights to Princeton University Press for conversion into book form, for sale on Amazon.
It seems to me that Mr. Posner and Mr. Weyl could and should have maximized the “social dividend” (Weyl’s terminology) of their work, AND provided a real-world “experiment” of the application of their ideas, by merely writing it and posting it for free download to anyone to read on their “Collective Decision Engines” web site.
But instead they chose to “publish” under existing, full, intellectual property (“monopoly”) protection law.
Curious.
benjamin weenen
May 23 2018 at 9:14am
Glen Weyl is correct that compensating those that are excluded from valuable natural resources is a prerequisite for maximising our stock of wealth and welfare.
While a 100% LVT, 100% of the time is only a theoretical ideal, we can certainly get a lot closer to that than we currently are by taxing output (all taxes, except a Poll Tax, being incident to some degree or another on land values).
Therefore, we need not worry too much at this current juncture about valuations. Property taxes can quite easily be modified so they are more reflective of the underlying site values. Once in place, taxes on output can be shifted onto such a property tax.
At some point in the future we can worry about refining valuations in order to squeeze every drop of efficiency and revenue from a LVT, but there is so much low hanging fruit right now, that is an unnecessary complication.
David Zetland
May 23 2018 at 9:15am
Russ — Thanks for holding the line on Glen, who seems more attached to “entrepreneurial efficiency” than some of the OTHER dimensions of property — and home — ownership.
First, as a former real estate agent, I will tell you that he’s wrong to state that prices “the market will bear” are the result of market power. They are clearly based on supply and demand (Detroit anyone?), and the margin above the price sellers are willing to accept is indeed based on transaction costs, risk, etc.
Second (and I have said this to Glen in the past, as I’ve found their idea to be flawed for a long time), what’s to keep a troll from buying your house, just to mess with you. Trump — as bad a business man as he is — could still buy the houses of a few reporters and put them on the street if he wanted to punish them.
Third, while i appreciate the “what if” aspect of these ideas, I deplore their authors’ attempts to take them seriously (i.e., to the point of implementation) when far more moderate, and still quite effective, alternatives are available, i.e., a simple real property tax based on its market value.
Finally, I was a little annoyed to see Glen using “I know a guy” anecdata to make his arguments. I know plenty of guys who would disagree with his logic, so thus his ideas are invalid, right?
David Zetland
May 23 2018 at 9:25am
ps/I just read through a lot of angry, thoughtful and innovative comments above. it’s too bad that PUP and the authors didn’t consider these ideas in advance — unless they did, to sell books in this time of stupid public statements. Luckily for me (and others), this conversation will save me the money, and time, of wading through a book whose strong points on display in this episode indicate it to be a waste of paper.
pps/My ideas on a better property tax
David Zetland
May 23 2018 at 9:54am
ppps/(Sorry about the multiple comments, but I have been reacting as I listen, as Glen’s outrageous ideas are triggering me…)
So. Migrants. First, his idea of “home sponsor” is already in place in Saudi Arabia. I know that many female migrants are raped by their sponsors. I also have spoken to shop keepers there who “live like slaves in fear” of their sponsor pulling their permit. These shop keepers are often forced to transfer their profits to their sponsors.
Second, the entire migration system is run through the central government to reduce costs of processing, protect public safety and public health, and keep the system transparent and fair. The current US system may be imperfect, by Glen’s system is flawed.
Third, the US already has a system to “invite migrants into society” and it’s called “other migrants”! There are hundreds of examples over hundreds of years of such a system of integration working. Glen’s idea of Joe Sixpack inviting in a few Mexicans in exchange for $5k/year is a bit autistic in comparison.
Fourth, $ from Russ’s proposal could go to Americans. I doubt 1% would care about who paid what, but most would prefer some compensation (or perhaps a transparent report on how much migrants actually contribute — far less than is reported — and actually harm — far less than Trump’s delusions would suggest).
Finally, I agree with Glen that it’s a good time to overthrow bad ideas in the current political paralysis. Sadly, his ideas (discussed here) are even worse.
Ben Riechers
May 23 2018 at 11:04am
While I think there are 100s of reasons to doubt this idea, I’ll just say this. There are many countries in the world where this radical “markets” approach could be tried and proved before we try it in the U.S.
Maybe one of the countries in South America trying to make mercantilism or socialism work would be more receptive to it culturally…some with no place to go but up from an economic standpoint.
Or, a country like Brazil which seems to have everything to be successful except good governance.
Cody Custis
May 23 2018 at 1:08pm
Weyl fails to bring up the very important difference between land value versus property (land plus improvement) value. The supply of the former is relatively inelastic as compared to the latter.
Jim Kee
May 23 2018 at 1:22pm
If you redefine the word “monopoly” to mean something that every single owner of everything has, then it is no longer meaningful.
Toby
May 23 2018 at 3:49pm
The implicit assumption seems to be here that the pricing system is free to operate. I don’t have the kind of time that I’d like to update my valuations day to day or month to month. And my valuation depends on the valuations of others because if some comes by and buys my house then I still need a place to live.
Trent
May 23 2018 at 5:59pm
A few thoughts:
* Given the erosion of private property rights and the effective socialization of all land in Mr. Weyl’s proposed scheme, I can’t imagine why he thinks it will garner support among Libertarians/classical liberals.
* Similar to other proposed annual asset taxes, wouldn’t Mr. Weyl’s scheme effectively put more U.S. farms (especially dairy farms) out of business? Wouldn’t businesses that require significant land be at a severe comparative disadvantage on the world stage?
* What really drives home the notion that Mr. Weyl’s scheme is purely theoretical and not realistic is the assumption that the real estate tax would be the sole tax levied by the federal government. Given U.S. political history, I think we’d end up with a federal property tax on top of everything else.
Jaime Roberto
May 23 2018 at 11:18pm
I’m picturing my 90 year old parents living in a rapidly appreciating market in the Bay Area getting kicked out of the home they’ve lived in for 60 years because they misjudged the market. That will go over well.
I maybe can see this scheme working for spectrum and similar assets and would have liked to hear more about that.
Colin
May 24 2018 at 9:14am
Stephen Williams writes “There are and always will be those who have such low cognitive ability that there choices are severely limited. Bringing in more low skilled people to compete with them is terrible for them, it really is. It’s good for those who want cheap services but it really harms those at the bottom.
I think Peterson calculated that around 10% of any population has an IQ below around 83 (I could be wrong on the figure), these unfortunate people can’t do high skilled jobs and they can’t be trained or helped into them.”
This is a very interesting point, which likely warrants consideration when thinking about immigration. One quick point in response is that ideally/theoretically, immigrants coming to America will become high-skilled while in the US. For example, year 1 someone gets their feet on the ground and goes from passable to fluent in English. Years 2-4/5/6 they get training making them higher-skilled, and from then on they are added to the high-skilled labor force rather than pushing out low-skilled workers. A modification on the guest’s immigration plan could help this type of knowledge building for immigrants: rather than physically hosting immigrants, US residents volunteer to be mentors for immigrants with no strings attached (so they can’t kick the immigrant out of their home, country etc.) and help immigrants get connected/started in whatever field they want to pursue. I am thinking of this as similar to first generation college students; these students are at a large disadvantage simply because their parents can’t tell them the ropes and likewise immigrants are disadvantaged from becoming high-skilled by not knowing the best ways to become high-skilled. I have heard of similar programs at the private and local level, although they are perhaps not quite as extensive as mentoring would be.
Second, I was curious about the relative magnitude of low-skilled to high-skilled workers when low cognition for 10% of the population was mentioned (I have no idea how true that is, but I’ll assume it as fact for ease of discussion). I looked into the BLS employment projections for 2026 (giving people time to become high-skilled) and found somewhere between 80 million and 110 million jobs for low-skilled workers are projected to be held in 2026 (details in footnote) out of 170 million total jobs. Obviously that leaves a huge percentage of people between the bottom 10% of cognition and the start of high-skilled workers (around 60-90 million people, or 40-55% of the labor force). So on the whole huge groups of people can re-train from a cognitive perspective, provided they have the resources to do so, which will greatly change/improve the economy. Those without the mental ability to do so might be made worse off both with increased immigration (although not so much if the immigrants become higher-skilled and don’t drive down low-skilled prices) and the shift to higher-skilled work in general, but there are probably a few mitigating factors. For one, low-skilled workers have been somewhat “left behind” in terms of relative income in the past 50 years, but their lives have still greatly improved in terms of comfort, convenience etc. so it’s unclear why this wouldn’t continue to happen. Additionally, at a certain point of low cognition, which I am no expert on and will not pretend to be, holding a job with any sort of complexity would seemingly be challenging, meaning that some familial, charity etc. financial support could be necessary both now and in 30 years. In summary, there are many possible gains from re-training and immigration that surely seem to outweigh the negatives if approached correctly.
Footnote: Data from https://data.bls.gov/projections/occupationProj. Low-skilled (110 million) was determined by anything less than a college degree (incl. associate’s or higher) while 80 million low-skilled workers was the same education but excluded on-the-job training of apprenticeships and medium- and long-term on-the-job training.
Luke Juarez
May 24 2018 at 12:37pm
Interesting episode. I’d never heard of Henry George or any of his ideas, so thank you, Russ.
The idea that, walking down the street, I might see any kind of object — say a sidewalk — and think “Gee, I want to buy this spot because better than a sidewalk, I want a [fill in the blank],” and pay the price + yearly tax… well that has some interesting potential, but I think too disruptive culturally and practically for housing.
JonB
May 25 2018 at 1:57am
“Imagine there is no heaven….it is easy if you try”
1. Elitist utility functions. Academics should consider the possibly that their personal preferences are in no way representative of the general population. Autism spectrum is always enriched in the intellectual professions…it simply not be possible to succeed if one does;t have stereotyped interests. An associated aloofness, detachment from the local culture and personality, probably allows them to move easily from Harvard to Oxford to Google etc. without much psychological trauma.
Normal people are different, If one removes criteria A from the psychiatric diagnosis of PTSD (exposure to life threatening trauma) and looks at the symptoms of PTSD (numbing, detachment, intrusive thoughts, etc) in isolation, it turns out that the most frequent cause of PTSD in the general population is “moving.” The cure for poverty probably is luggage as Russ reminds of us frequently, but not everyone has the resiliency or “grit” to survive in a world without a stability that is not defined by abstract GDP optimization functions. People like their house and their local community.
This is how you get more Trump or Brexit. The average person doesn’t truly care AT ALL about pathological symmetry obsessions about fair income distribution or optimal distribution of spectrum. But once you really try to take their house, slowly or quickly, someone is going to get a bullet in their head.
2. Ignorance of Micro. “Imagine a world with more flexible prices.”. Scott Sumner call your office to talk to Arnold Kling. The macro idea is that the economy is stuck in local minima with transitions between more optimal arrangements constrained by long-term contracts (private property). Supposedly, the government can increase the temperature (randomness function in a hillclimbing algorithm) by breaking these alignments through an optimal taxation scheme, Doodling on a napkin gives a plausible number of 7% annually. This is the model. Is there anyway to test the parameters of this model? No. Is there any reason AT ALL to think the government will find a taxation rate that maximizes the utility function for the general population? Are you kidding me? If we can’t agree after decades of argument about the optimal regime for monetary policy with disastrous consequences in the 1930s and 2008, is there any reason to think that the maximal utility function will be anything other than entrenching the elites in power? This is how you get more Trump and Brexit.
Normal people live in the micro world….price discovery rules everything. It is not very easy to calculate what your home is “worth”, especially over a lifespan. When your children are little, playing with the neighboring kids and going to the local school, it is not clear to me that comps mean anything. When your aging parents move next door, it is not clear that comps mean anything. What is the probability that your best guess will be wrong, integrally over a lifetime. High, NORMAL PEOPLE DONT WANT MORE FLEXIBLE PRICES if that implies more time involved in price discovery. Their price discovery is not only about their current wants but also about a large number of possibilities in the future. Their net quality of life can go down is the coldly optimized world of flexible prices. Read Coase again about the Nature of the Firm…..
This podcast would have been much more compelling if the grandiosity had been edited out and applied to a very small problem, like patents.
Andy McGill
May 25 2018 at 10:34pm
Interesting thought experiment and out of the box thinking.
But of course it is ridiculous in practice. Why would every property owner need to undertake the work and risk of valuing their own property every year? Just to make life easier for the 1% of very rich property developers?
Most of the transactions would be vultures picking off mistakes in pricing for easy profits, and second would be blackmailers seeking to force you to move unless you pay a blackmail fee for them to stop.
Where it would work too well is vast sections of poor areas of a city would be bought en mass and redeveloped. Just think what would happen in NE and SE DC. The racial effects would be huge.
Legally, the seizure of private property is prohibited except for a public purpose by the 5th Amendment, so a Constitutional Amendment would be necessary to implement it.
Steve Hardy
May 26 2018 at 3:19pm
Thanks, Russ. It is always interesting to hear different and provocative ideas.
Ed B
May 27 2018 at 11:18am
Has author considered effect on asset prices if there were an annual 7% tax on value? Price drop will be ENORMOUS. Based on current low real interest rates used to value assets, price drop could be on order of 70-80%
Bill
May 28 2018 at 9:02am
The Economist have done a book review on this titled Sale of the century.
Mike M
May 31 2018 at 4:30pm
Some really great comments already, (hat tip to Tomh and Doug Scrimager) – indeed this is a classic case of an economist treating the complex economic lives of Homo Sapiens as if we were Homo Economicus. But I thought it would be useful to consider these ideas from the moral perspective.
Jonathan Haidt’s Moral Foundation theory picks out the moral impetus behind these theories. Often with ideas such as Weyl’s, (of that political persuasion), the overriding moral imperatives driving them are “Care” and “Fairness”. (The moral imperatives one feels Caring for the less well off and under privileged, and for creating a Fair and Equal world).
Totally ignored, however – as is usually the case with ideas of this political ilk – are the equally important moral imperatives of LIBERTY and SANCTITY.
Weyl runs roughshod over these moral sentiments – which is why, I presume, many people, including myself, found these ideas so morally distasteful.
In Weyl’s world, the Liberty to decide what’s most “efficient” is no longer the right of the individual, nor does he own himself or his labor, in a Libertarian sense. Rather, he exists and is subject to the domain of government and “experts.”
But on a deeper level, Weyl’s total refutation of Sanctity is just as troubling – that certain possessions or things in the world take on a deeper and more important meaning than their simple market value (and Russ alluded to this in the interview).
Nowhere is this more apparent than in one’s home. What value do I put on a home, that is inviolable from the government and outside actors, where I can raise my children, where I can create a stable base from which to interact and deal with the world? That should be for the individual to decide (and for me it is priceless).
As Haidt wrote – there’s more to morality than Harm and Fairness. What he meant was that large swaths of current political and socioeconomic thought are driven solely by these two moral sentiments (care for people, don’t do harm, and create an equal and fair play field). While certainly very important, the focus is to the exclusion of (and often outright hostility to) the other moral imperatives that many of us feel.
Weyl’s theories are quite the example of just that. Where can Liberty and Sanctity reside in a Weyl’s world? The answer, in my opinion, is nowhere.
andy
Jun 1 2018 at 6:17pm
I don’t get it.
Current system: owner pays opportunity costs if he doesn’t allocate to the best opportunity (i.e. buyer)
New system – low taxes: everybody sets price to ‘infinity’ and we are back at current system.
New system – high taxes: I’d guess price drops (because nobody can afford paying high taxes), huge instability at the market. The tax here being essentially government-set price of stability.
Currently the price of stability is roughly 0; how does it improve things when the governement makes stability expensive? One generally can choose these days between buying/renting. How does it improve things being stripped of the choice? There are various rental contracts in place; how does it help having one fixed contract (i.e. 3-months notice) on all property? So we would have government-set price of stability of owning property, that’s a huge effect. When did that work well last time?
The whole things seems to me an egregious idea how to find ‘real’ value of the property because of taxation (and equality, and fairness, and…). With horrible side-effects. Who said taxes are distortive?
SaveyourSelf
Jun 3 2018 at 11:00am
This idea of the government owning all property and ‘renting’ it out to the highest bidder is remarkably similar to the way American Native reservations are run. It’s not worked out so well for them.
Shaun Starsprung
Jun 4 2018 at 4:28am
I’m not knowledgeable enough on the economics to critique the economic theory, but as an engineer working in the security field I tend to think about the security implications here.
I haven’t read Glen’s book, so maybe he touches on this, but compelling homeowners to allow anyone to enter and explore their home for a fee constitutes serious risk to personal safety and the safety of their belongings. It could easily be abused by someone with nefarious intentions to plan a burglary or worse.
When it’s extended to businesses, do I have to let random people walk around secure areas, possibly giving them access to trade secrets so they can determine if they want to buy my business? What if I’m a software company and all of my assets are digital? I have to give them access to my code repositories, potentially exposing myself and my customers to huge security risks?
Craig Miller
Jun 9 2018 at 11:02am
Well, I don’t believe it is worthwhile for me to spend time attempting to address all the problems, issues and unintended consequences that would be associated with such a system. But as a taste, I wonder if as a property owner I would be able to demand that Weyl buy my property for my price inasmuch as he could demand that I sell it to him at any time for the assessed value I reported? Bottom line is that the system Weyl proposes is never going anywhere as a matter of public policy.
Todd
Jul 13 2018 at 11:56pm
Very creative discussion. It is interesting to see how progressives / socialists / Marxists are finding new ways to rationalize the goal of unlimited government control.
Here are some potential negative outcomes of the land idea:
Long term, no one will have a house. All housing will be mobile homes. Why place a permanent structure on land that can be removed from your control at any moment? Nomadic society is good?
Or, to keep houses as permanent structures, let’s say you find your location, ‘purchase’ it, build your house and set up a lease agreement between yourself as land owner and yourself as home dweller at $1 per year for 1000 years. Then turn around and drop your assessed value to $100 for the land. No one will buy the land because there is no way to develop or profit from it due to the lease agreement. And you get to pay $7/year forever on your amazing house.
Consider how this could affect a manufacturing plant with its massive capital investment. Or what about short sellers, setting up their short positions on a company, then using some land gaming strategy to create chaos for that company only for the purpose of gaining from the shorts.
There are many ways to game the system. That cannot be allowed so there must be massive government regulations. After all, no individual naturally owns land, so the government does. They now have a responsibility to control what they own.
Actually, this is not a real idea. It is a sly concept to push the idea that no one can own land. It belongs to everyone, therefore it belongs to the government. And the practical application of the idealized version would be a massive reduction in development generally and related to housing specifically. What you tax reduces activity, why would this be any different.
Spencer Banzhaf
Jul 24 2018 at 5:15pm
Very stimulating discussion.
I do think we need to think more about what problems we are trying to solve with the proposal. There is something odd about the definition of monopoly at work here. (I agree with Mr. Tubbs above on this.)
Weyl says it’s monopoly if I can sell something above my willingness-to-accept (WTA). Now, suppose I buy Microsoft stock and plan to hold it until my daughter begins college, then sell it to pay the tuition. Suppose I figure, if I can sell it for more than $10 I will, otherwise I’ll hold onto it. If the price is more than $10 on the day I sell it, does that mean I have market power in the stock market? That I’ve cornered the market in Microsoft shares?
Obviously not. Weyl’s definition suggests that there can be no producer surplus or consumer surplus in a competitive market. That can’t be right.
Furthermore, I think in the case of housing a big issue is the “wedge” the value of the present occupant has over the next-higher user. If I’m already in a house, I have a big transaction cost for leaving it. The cost can be pecuniary (just paying the movers) and time and it can also be psychic (that’s the tree we planted when we first moved here — look at it now). People’s lowest WTA will include the latter. Would people feel its fair to be taxed on a potential transaction cost?
A related concern here is the revelatory mechanism. The proposal is basically a continuously running first-price auction. First price auctions in general do not give the incentive to reveal the true value. Second-price (Vickrey) auctions do. Ideally, the occupant would be taxed on the value of the next-highest bidder.
Is that less practical? Maybe, but consider the following “amendment” to Weyl’s idea. Instead of everybody stating their value, we could have a baseline like the current property tax. Then there could be a procedure where a developer (or anybody else) can make an offer (bid) on a property. If the current owner says no, and if the bid is above their tax assessment, their assessment automatically goes up to the value of the bid.
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