The General Economics Thread

What you've just done there is create a different version of the "gold standard", in this case by making the aggregate value of land the limiting factor in a country's ability to conduct monetary and fiscal policy. It is a nice idea, but we tried it in the early United States and it was vastly inadequate.

Not to mention the obvious corollary: speculation in real estate would make or break entire economies. Rather than a simple fiscal crisis, 2006-2008 would have seen the U.S. economy depreciate by something on the order of 50%. No country can survive that kind of shock. We'd be shooting each other for meat.

edited 19th Dec '12 2:32:27 PM by Fighteer

I...see that ending in most companies just "renting" the land from the state. Furthermore, many millionaires, and billionaires don't really own land. In fact, I think the people who own the most land are either the people who work the land, or agricultural companies. End effect? Food prices (which are currently subsidized) skyrocket. As do the prices for sustenance.

edited 19th Dec '12 2:26:41 PM by DrTentacles

Quite. Especially if you're not American. A Democrat/Republican economic debate is, quite frankly, irrelevant, especially as everyone's economy is different*

While everyone's economy may be different, economics as a whole has fundamental principles that don't change just because you cross a line on a map.

Whether you live in America, Europe, or Australia, you still have to deal with supply and demand, the laws of capitalism, taxation, social spending, and the like.

edited 19th Dec '12 2:35:58 PM by Fighteer

I'm aware of that — that's what I meant by discussing the theories. I just want the Politics out of this thread as much as possible, since the Black Hole of the US would crush everything else out of existence and it'll turn into another debate — isn't that what the US Politics Thread is for?

edited 19th Dec '12 2:39:48 PM by Greenmantle

No, we didn't really try it in the US. Certain parts, briefly, but in general we've always had strong property rights. Some countries that do have a land value tax, but usually less than George would have recommended. Nevertheless, there is some evidence that it has a positive effect.

The theory is that the price of land would actually go down, because a lot of valuable land*

If you just want to punish millionaires and billionaires, Marx may be the one you're looking for. The important thing to George was not how rich the rich are, but where the money comes from. In his analysis, land revenues are leeched from producers, while revenues from labor and capital come from adding to the productive process. Unlike many economists, he considered labor and capital closely related, since capital is the result of labor and it consists of things that increase the productivity of labor.

edited 19th Dec '12 2:40:01 PM by Topazan

@Topazan: You do realize that the economic model of land = value was obsolete by the 20th century in industrialized countries, not merely the 21st? Modern economies generate value in vastly more ways than mere ownership and exploitation of resources.

Other than some forms of entertainment, what do we do that doesn't involve either resources or location?

Some e-based economies are like that: try Second Life or any game where you can make real life money converting the intangible. <shrugs>

edited 19th Dec '12 2:57:34 PM by Euodiachloris

@134 - Yep, that would fall under the category of "some forms of entertainment". If I wanted to get nitpicky, I'd point out all the stuff that goes into running both the client-side computers and the servers, but even if the value came entirely from the labor of the creators, it would still be too tiny a fraction of our economy to invalidate the whole idea.

That is to say, you could not run the entire economy this way. Even if you work in a business like that, you're going to expect to be paid in money that's good for physical goods. Your labor may be intangible, but at least part of your reward is not. You would benefit from a reform that helped out the tangible product side of the economy just the same.

edited 19th Dec '12 3:08:45 PM by Topazan

Two problems. First, Resources are even easier to outsource than labor. Secondly, usually it's not the people working/owning the land who tend to be the problem. It's the people making money (stocks, futures, banks) off the people making money off the land who are the problem. (And by problem I mean encourage oligarchies, and create unstable economic conditions.)

It may be emotionally satisfying to attack the rich for being rich, but I think it's more constructive to identify the specific problems with the distribution of wealth and propose policy changes to rectify those problems, as George did.

Anyways, those institutions do benefit from being part of the same system of exchange as land values. Look at banks and their real estate mortgages.

I don't hate the rich for being rich. I hate them for being rich at the cost of the majority of the populace.

Edit: I agree that banks and investments are necessary for economic growth. However, unregulated investment, loans, and speculation have been behind every financial crisis we've had in the past century. That says to me that the government needs to keep them on a tight leash. (Sorry, I'm a compulsive self-editor. I always think of something else to say right after I've hit the post button.)

edited 19th Dec '12 3:23:42 PM by DrTentacles

I agree with that, but I think the solution is to find the specific ways that their wealth comes at the expense of the majority, and land revenues are a big one. Unlike other forms of wealth, land is a zero-sum game. You cannot own land without depriving someone else of it.

EDIT: As far as investment, I think the most important thing new regulation should do is stop shielding them from the consequences of their actions.

No problem, same here. :)

edited 19th Dec '12 3:25:19 PM by Topazan

That's a big start. Right now, Corporation has come to mean making gains private, and losses public. I'm not entirely sure how to fix it-I'd start by mimicking what FDR did with the FDIC and other organizations after the Great Depression, but that's just a start.

The key, I think, is changing how the stock market culture works. Basically, there is a heavy emphasis coming from the shareholders on maintaining profit margins, meaning any new corporate taxes, union price hikes, or anything else that would increase overhead are encouraged to be passed directly to the consumer.

As long as that emphasis remains, you can't do a lot to curtail corporate behavior without shafting the general public, since it almost always amounts to prices rising.

Austrian economics isn't remotely scientific. They explicitly reject the empirical method and base their "theory" entirely on a priori reasoning.

I've heard an argument that as an alternative to the convoluted deposit insurance schemes many countries use to safeguard against bank runs, banks should simply be required to keep a full reserve for all deposit accounts. Loanable funds could instead come from C Ds and bonds with a given maturation date. Banks would know well in advance how much money they're going to need to pay back bondholders at a given time, so there's no danger of an unexpected shortage.

One consequence of this would be that deposit accounts would no longer earn interest, and may even need to be charged a service fee. They would only be used for checking and similar functions. Savings would be held in one of the above securities. If you needed to cash out early, you could try to sell the bond to a third party who would hold it until it matures.

I don't really know much about banking, would this be feasible and/or an improvement over the current system?

edited 19th Dec '12 4:14:03 PM by Topazan

No, that wouldn't work; the banking system is built around loaning deposits. Credit is a good thing when not abused because it puts money to use that would otherwise sit in savings.

Deposits funding loans is not really the critical issue here — it was unregulated investment banking that crashed the system in 2008.

edited 19th Dec '12 4:48:41 PM by Fighteer

Yes, that's how the banking system currently works, but the question is if it could work the other way. Deposits funding loans isn't an issue because banks are insured against bank runs, but it seems to me this is one of many ways they're protected from the consequences of their own actions.

There would still be a source of loanable funds, and there would still be an opportunity for interest-bearing savings. The only difference would be that these functions would be separate from regular, day-to-day checking accounts. It seem like it would save a lot on overhead.

edited 19th Dec '12 4:53:43 PM by Topazan

A page back:

Krugman is definitely no Einstein. The difference is that when you cite Einstein, what you're really referring to is a core theory that Einstein has worked on, firsthand. It's Einstein's own work on relativity, quantum physics, etc. There's a stronger synonymy between Einstein and his work in physics.

Krugman isn't a firsthand source. For Keynes's own theory, we should have some information from him and not primarily Krugman. For the development of Keynesianism after Keynes's own work, we should cite primarily the contemporaries that worked on the development.

I believe that's the point Greenmantle wants to address. If we're citing Krugman all the time, then we're talking about "Krugmanian economics", his work on developing on a Keynesian ground. So what is Krugmanian economics? If it's nothing more than reasserting Keynesian principles, then he's not a primary source.

I do question where you propose loans come from if not deposits. Banks dont magically keep a running surplus of spare monies. They make money via using money deposited into them to make investments and loans with.

edited 19th Dec '12 5:57:08 PM by Midgetsnowman

As I said, bonds, certificates of deposit, and similar securities. The difference is that these can only be cashed after a specified date, rather than whenever the owner wants. If the customer wants their money early, they can try to sell the security to a third party who will hold it until it matures, but the bank won't have to provide any funds until then.

The problem with that system it is makes the entire thing horrifically reliant on people who are willing to trust banks with risking their money on loans, and could very well bring the economy to a grinding halt the second consumer confidence falters.

edited 19th Dec '12 7:10:28 PM by Midgetsnowman

It more or less destroys the banking industry. The whole point of banks is that they use consumer deposits to make loans. That's why they exist in the first place.