…The left’s agenda is a disservice to [the poor], as well as to society. …The agenda of the left — promoting envy and a sense of grievance, while making loud demands for “rights” to what other people have produced — is a pattern that has been widespread in countries around the world. This agenda has seldom lifted the poor out of poverty. But it has lifted the left to positions of power and self-aggrandizement, while they promote policies with socially counterproductive results.
3 Replies to “Thomas Sowell”
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The welfare state does not work but it is simplistic to condemn the left without analysis of why the left has come about in the first place.
Land, being in fixed supply and having locational advantage has characteristics of a monopoly. It is a natural resource just as essential to life as the atmosphere and the sunlight. Neoclassical economics, the paradigm since the late 1800s, blurred the distinction between land (and all its natural resources) and man -made capital.
The owner of land may build or renovate to unlock the value that is anchored in the location and for that added value is entitled to a return on labour and capital.
As far as the land itself goes increase in value is pure unearned income – the capital gain that investors pursue. If the investor has to work hard to pay off a mortgage that is irrelevant to the change in value of the land. If he had paid cash and then lapsed into a coma it would make no difference to the land value. As far as the investor knows or cares he just had to ride the business cycle and not get the buy or sell timing too wrong.
In the real world though there are no free lunches. The value comes from the community for reasons such as population growth, the collective work of every single individual in society, and infrastructure paid for from taxation. It comes from the community just as surely as if it was delivered as a welfare payment via Centrelink.
Over time this process concentrates wealth to an ever smaller proportion of the population. To state the obvious those who own land can leverage up to buy more while the landless (usually the young without wealthy parents to assist) find it increasingly difficult to “get on the housing ladder” until an ever greater proportion become lifelong renters. They are then much more likely than home owners to be welfare dependent in old age or illness.
They are also more likely to be unemployed as business has to pay a speculative premium for sites and also is restrained by tax on labour and capital and by high private housing debt restricting demand.
Lack of access to affordable land in Britain and Europe would have driven colonization to the new world. Now that release valve is no longer available because the colonists took with them the rentier system that penalises work with taxation and rewards monopolisation of land by allowing its community created economic rent to be privatised. In Australia it has only taken 200 years for the younger generations to be locked out of access to land. USA had a crash in prices but this article by Peter Schiff suggests that it is hedge funds, not owner-occupiers who are returning to the housing market.
http://www.businessinsider.com/the-great-reflation-2013-5?IR=T
As Thomas Sowell is the Rose and Milton Friedman Senior Fellow on Public Policy one could have hoped that he would have been aware of these comments by Milton Friedman on taxation:-
In 1978 and again in 2006 Milton Friedman called land value tax the “least bad tax”:-
Question: I find income tax totally antagonistic to true free enterprise. Can we run the country without income tax?
Dr. Friedman: There’s a sense in which all taxes are antagonistic to free enterprise . . . and yet we need taxes. We have to recognize that we must not hope for a Utopia that is unattainable I would like to see a great deal less government activity than we have now, but I do not believe that we can have a situation in which we don’t need government at all. We do need to provide for certain essential government functions – the national defence function, the police function, preserving law and order, maintaining a judiciary. So the question is, which are the least bad taxes? In my opinion the least bad tax is the property tax on the unimproved value of land, the Henry George argument of many, many years ago.
[Reprinted from The Times Herald, Norristown, Pennsylvania; Friday, 1 December, 1978]
Q Is there no tax you like?
A Yes, there are taxes I like. For example, the gasoline tax, which pays for highways. You have a user tax. The property tax is one of the least bad taxes, because it’s levied on something that cannot be produced — that part that is levied on the land. So some taxes are worse than others, but all taxes are bad.
— Milton Friedman, interview with Scott Duke Harris,
San Jose Mercury News, Sunday November 5, 2006
Neither Friedman nor Sowell appear to have made the connection between the lack of community collection of economic rent of land being the cause of the boom/slump of the land cycle and the ever increasing wealth gap. Any increase in production from Friedman’s low tax , low regulation economic policies would just have flowed through to higher land values. The private welfare handout to the owners of land (and other natural resources) is the way that some live off the work of others with the resulting need for state welfare for those on the losing side of the game.
Perhaps I am cynical but I do not believe that these economists do not make the connection. To upset the power elites of society would be a very bad career move. They would probably be relegated to obscurity like Henry George or Professor Michael Hudson.
Agree with what you say, but a major contributing factor to the rising wealth gap is the outperformance of financial assets — stocks and bonds — compared to real estate.
True, but I think the rules we make about how we share access to natural resources, particularly land, is the foundation on which the superstructure of society is built.
If a small proportion of the population is collecting much more than their fair share of the benefits of land and nature, they will be ones with funds available for further investing in stocks and bonds, and this will escalate the unfair advantage.
When you invest in stocks you are investing in a business and if economic rents are collected the business, even if it is a REIT, will already be making their fair contribution. You should be entitled to the full capital gains from such investment, which is different from the capital gain from ownership of nature.
Fred Foldvary’s comment on self-ownership is pertinent:-
“Complete and equal self-ownership implies that each person fully owns his body, life, and time. Self-ownership therefore implies that a person owns his labor and therefore the wage of his labor and the products of labor. Any tax on wages and goods violates self-ownership. Moreover, when a worker saves some of his wage, and loans that portion of wages to someone else, the interest obtained is fully owned by the worker lender, and when a worker borrows funds and pays the interest from his wage, that interest payment is also wages, and all such wages should be non-taxed. Also, if a worker chooses to give some of his wage to another person, that fund is still a wage, and should not be taxed as a gift or inheritance. Hence, all further transactions of the original wage, and gains from lending or investing the wage, have to be free of taxation.”
http://www.progress.org/2013/fold806.htm
He has a blog
http://foldvary.blogspot.com.au/
This from 14/4/13
“But, contrary to Pearlstein’s assertion, the US has been moving away from a market economy. Frequent governmental crises – the fiscal cliff, budget deadlines, ever changing tax rates – threaten the stability of financial, industrial, and labor markets. The subsidies to real estate and its financial allies have never been greater. The domination of the Federal Reserve over money, banking, and interest rates has reached historic heights. The tax reforms of the 1980s have been reversed by Congress, which has made income taxes ever more complex. Costly regulations continue to pour out of Washington DC by the thousands each year. And now the government will dominate medical provision like never before.”
The unjust faondations of society determine the superstructure.