I've just rediscovered this brief exchange over at HPC (comments 20 and 21):
Capitalist: I don't go for this land tax Georgist nonsense. Nor taxing wealth*. Two wrongs don't make a right. The real problem lies with having interest rates set by a group of bureaucrats and government support for fractional reserve. Remove those problems and the rest disappear. The market would have solved the asset pricing problems had interests risen, as you would expect them to do in a credit crunch.
Drewster: Not true. The American writer Henry George wrote his treatise on Land Value Tax in 1879; but the Federal Reserve was only founded in 1913. Land value bubbles existed long before central banking**.
Yup. LVT opponents will resort to any lie, any distortion and any generalisation; and to be able to counter this stuff, you really have to know your stuff and be on your toes, which Drewster clearly does and is.
* The Home-Owner-Ists are keen to portray land 'ownership' as just the same as any other form of 'wealth' (which it quite patently isn't) just to muddy the picture.
** See here for a reprint of an article from 1902 which mentions the bubbles/busts in the USA in 1837, 1857, 1875 and 1893, i.e. the good old eighteen year boom-bust cycle.
Friday 24 September 2010
Killer arguments against LVT, not (68)
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16 comments:
The real problem lies with having interest rates set by a group of bureaucrats
Bear with me here, not only am I trying to think, which is hard enough, but I 'm trying to think about money, which I've never got to grips with at all, but... assuming Capitalist is referring to the central bank lending rate, there isn't really any way that rate can be set directly by the market, is there? Except by abolishing the central bank, but we might find the resulting instability and lack of liquidity made it almost impossible to get mortgages or business loans, which would not be a good thing, AFAICS. Or should I have kept my mouth shut?
Agreed, money is tricky to think about. Particularly when it involves bank credit. But in the absence of a central bank/lender of last resort, the minimum rate of interest is dependent on the rate of borrower default. Basically the bank has to set its interest rate high enough to cover its wage bill plus the amount it loses through defaulting borrowers not repaying loans. The more defaulting borrowers on its books, the higher the interest rate required. Of course there are other costs for the bank to carry such as savers interest, wage bill, shareholder dividend, etc. but the one that's causing the trouble just now is the defaults. So yes, the market can set the minimum level for the rate -- which is just enough to cover future bank costs -- and the maximum -- which is dependent on the banks competing to offer a lower interest rate versus the borrowers willingness to take on expensive loans.
Of course if the defaults are a lot more than the banks expected and they didn't charge high enough interest rates on loans, they end up in big trouble...
"which is dependent on the banks competing"
Aren't all the banks in a big cartel?
Ah, you noticed, [grin]. Of course the cartel (plus the presence of the Bank of England and its ability to "set" base interest rates) means that any resemblance to a free market is purely coincidental. But CIngram was asking if there was any way the market could set interest rates. I was just pointing out how it could, in principle.
Tha "Capitalist" * is a classic Money Reform advocate. They appear to hate land reformers even more than homeownerists because:
- Not invented here
- My idea is better than yours
- What will I do with my life if we resolve it all
- etc. All jealousies
That's why we're trying to integrate both money and land reform. Doing one without the other will deliver an even greater land owning monster. Banks being just the latest manifestion of the currently biggest landlord
Banks are the 21st Century Landlords
Bayard: Yes they are. You need a special state granted license to write cheques to yourself, then buy up a country with that money?
* Capitalists is a much misuesd term. What most people are referring to is a monopolist, who once was a capitalist. Once seen, the light of monopoly power through land ownership, nothing can stop 'em. Temptation was too great.
CI, Derek & Bayard have replied most concisely. My tu'ppence is this: do we need bureaucrats to set exchange rates, minimum or maximum wages; production or import or export quotas; minimum or maximum prices? I'd like to think not.
As an entirely separate issue, this government is hopelessly indebted, so we need a 'Debt Management Office' and we need somebody to watch the banks and insurance companies like a hawk. Neither of these very valuable roles have anything to do with manipulating interest rates.
RS, before one even starts talking or posting about 'reforming' the banking system, it is useful to understand how it actually works, in mechanical terms, by looking at bank balance sheets and so on.
The notion that if you have a banking licence can "write cheques to yourself, then buy up a country with that money" is of course fanciful in the extreme and a wild exaggeration at best.
What the banks do exploit (besides the cartel situation) is the fact that governments will always bail them out, that is the biggest problem.
MW I'm not talking about the high street. I'm talking about bigger brother in the investment arms and how they short a whole nations currency. Maybe you are not aware of Greece and the rest? It also happens on a smaller scale at the corporate level.
Web of Debt by Ellen Brown shows this quite well
RS, I am perfectly well aware of Greece, I know what 'shorting is' and I know that the EU bailed out Greece not for the love of Greece but primarily to indirectly bail out French and German banks (and of course keep the Euro alive somehow).
PS, if a country has a well run and sensibly financed economy, they have nothing to fear from short-sellers or speculators. It is only when governments start pissing about and lying that opportunities are created for speculators (see also George Soros for famous example).
MW If you are just talking about the EU issue, you are talking about the smaller part. I'm talking about what affects the whole.
Every little counts. Right?
Shall we diverge from fear of the little things and concentrate on the BIG issue? The thing that takes real courage to address.
Getting back to the original topic of the posting, I must say that I hate it when LVT opponents say that LVT is a wealth tax. If it is, it must be the world's most easily avoided wealth tax. Just sell your 50 buy-to-let properties or your 5,000 acres of agricultural land and put the money into gold, preferred shares, etc. Hey presto! Tax avoided! Job done!
RS, the main problem is that governments nearly always bail out the big ones. End that practice and the rest sorts itself out.
D, yeah but the opponents don't let you get that far, they start straight off with "Land is just a kind of wealth like any other! You Georgists say that you only want to tax one kind of wealth, but I bet you can't wait to tax all the others like cars or shares or gold. In fact, you're just Communists because you secretly want to nationalise everything"
At which stage I always ask "Can you explain to me why taxing incomes and output of rates approaching fifty per cent is not 'socialist'?" and the bastards never, ever reply.
MW you may still have some thinking to do on this. You have a partial solution. That only deals with internalities.
I understnad that being an accountant means the externalities can be ignored. But that is not sorting the rest out. Is it?
I remember a year ago if I mentioned banks and interest you would go bananas.
Time to think more deeply?
RS, I understand how it works and have solutions. And you? We're agreed on LVT which would sort two-thirds of it out at a stroke, but what else do you have on offer?
http://markwadsworth.blogspot.com/search?q=Killer+arguments+against+LVT%2C+not+
May I suggest the above as a portal as well.
And thanks.
Drewster: Not true. The American writer Henry George wrote his treatise on Land Value Tax in 1879; but the Federal Reserve was only founded in 1913. Land value bubbles existed long before central banking**.
Drewster does not know his history - I suggest he looks at Jackson, Biddle and the bubble.
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