The Law of Rent is Easy

Intro

(Skip the intro and formulate the Law of Rent!)

If I had to recommend someone a course of study to help them understand life on Earth, I would recommend two fields: Biology and Economics. In the field of Biology, there is perhaps no theory more important than the Theory of Evolution by Natural Selection. And in the field of Economics, there is no law more important than the Law of Rent.

The very word “economics” turns many people off, and understandably so. Over the last century the field has devolved so markedly that anyone who calls it a “science” is right to be laughed out of the room. Do you, like most, get frustrated at the thought of economics – at the thought of old men trying to explain why you should work harder for less, and at your sense – or perhaps conviction – that no policy they recommend will ever change things for the better? Or, simultaneously, at your own inability to offer an alternative?

Imagine that frustration turned in reverse. Imagine you knew exactly where hardship comes from and how to fix it; that you could explain every real-world human behavior you saw; that not a single economic phenomena were any longer a mystery to you. And then imagine that everyone you tried to enlighten ignored you and just kept nodding at the old, suited men on TV, debating which pint of poison – austerity or labor taxes – will taste better jammed three feet up everyone's asses.

That's what the Law of Rent will do for you once you understand it. It will take you, the casual observer, and make you more qualified to run a country than anyone currently attempting it. And that feeling of frustration as you watch everyone else fail at it? Well, welcome to being a geoist. (There's a chance that knowing the Law of Rent could also turn you into a geo-snob like me.)

Let's Formulate!

The most beautiful aspect of the Law of Rent, given how foundational it is to economics – and how critical its implications are for the fates of civilizations – is its simplicity. There is perhaps no simpler law of bargaining power in all of economics. I'm convinced that anyone, presented with a little bit of context, can formulate it for themselves.

Ready to give it a try? Put on your thinking caps, little Ricardos.

1. Assume that land cannot be produced. (In the real world, this is true. It's the First Law of Thermodynamics.)


2. Assume that land is necessary for all life and production. (Also true.)


3. Imagine you are a living thing – say, a human – who therefore needs to use land. (If this isn't true, contact me about my Imaginary Persons Tea and Cupcake Social.)


4. Now let's say you have two choices: (a) Live and work in the city at Parcel A where your work can get you $60,000 per year, or (b) Live and work at Parcel B in the remote countryside – where nobody else lives, works or wants to – and where your same line of work can get you $10,000 per year.

Question: What is Parcel A's market rental value? Hint: This is not a trick question.

Answer: As you probably intuited, the rent for Parcel A will be the extra earning power it grants you: $50,000 per year.


Did you get it right? Congratulations! You've formulated the Law of Rent*. You now know more about economics than 99% of the population. Would you like to increase that percentage? Consider the implications of this law. You can start with the following considerations:

• Did we mention the word "landowner" anywhere above? No. The rental value of a parcel of land has nothing to do with the name on a title to it. It is determined by users alone.


• What might happen on a large scale if landowners could arbitrarily keep you and other land users off Parcel A?


• What might happen on a large scale if landowners allowed the use of Parcel A but by inefficient users?


• "Good" or "bad," in describing land, refers to its productivity. What allows a user to produce more at a good location than a bad one?


• As more land comes into artificial use -- due to people's arbitrary exclusion from the good land -- what happens to the earnings available on the best unused land? How low can they go? Remember that this is important because it determines what landless workers throughout the economy will be able to keep after paying rent.


• To whom should the rent rightfully go? If it doesn't go to its rightful recipients, what kind of activity is being incentivized? What kind of social and economic diseases might arise?

*Disclaimer: Admittedly, there's a little more going on here. Example: We're assuming that you're the best user for Parcel A -- in other words, that nobody would be able to earn more at the location than you. I wanted to simplify things a little. Sue me.

Hong Kong, Singapore, Geoism & Income Inequality

Geoists, or anyone who has an idea of the magnitude of land rent in modern economies, know that sharing the full rental value of land -- and therefore having an "geonomic" system based on equal land rights -- would result in significantly lower income disparities.  We know this because we know that a third or more of developed economies' GDP is land rent -- value that is collected by a relative few, and value that is unearned because it is collected, imputed or otherwise realized for monopoly control of something costless.

I consider Hong Kong and Singapore the "most geoist" places on Earth; they collect a much higher-than-average amount of land rent publicly and tax wages and capital at much lower rates than average.

A skeptic of geoism might point to the overall income inequality in these jurisdictions (Hong Kong's overall Gini coefficient is 0.54; Singapore's is 0.46) and say that geoism has failed, if that skeptic is looking to geoism as an answer to income inequality.

First, it should be noted that income equality is not the goal of geoism; economic justice is.

Second, it is severely flawed logic to read much into these numbers. Geoism implemented on a widespread scale will likely (1) Raise the economic floor, and (2) Reduce income inequality.  When implemented locally, however, in a greater world of feudalism, it is only capable of the first point: raising that local jurisdiction's floor.


1. Raising the floor

In a feudal system (one of land privilege), the average landless worker will be left with the margin of production after he works and then pays his landlord.  Geoism raises the floor by (a) raising the margin of production itself by effectively prohibiting the inefficient use of land, and (b) making every resident share equally in the jurisdiction's land rent -- either directly via Residents' Dividend, or in-kind through government goods and services.


2. Reducing Income Inequality

While local geoism will evenly distribute income from local land (land rent gini coefficient), it will not necessarily lower overall income inequality.  It isn't difficult to figure out why.  Our example cities, Hong Kong and Singapore (HK&S), have prohibited their locally-produced rents -- a fair amount of them, anyway -- from being claimed by outside rent-seekers, but the rest of the world has not.  There is no law in HK&S saying, "Thou shalt not steal land rent from outside jurisdictions."  Bankers, hedge fund managers and real estate investment vehicles are free to set up shop in HK&S and do what they would do in any other global financial center; they are free to rake in the resulting, lop-sided salaries, and there is simply no reason to expect that HK&S would have income inequality any lower than in New York or London.

New York's gini coefficient is 0.55.  Published figures for London are based on a methodology that includes only wage earners.  This methodology leads to an artificially low gini, so I'm simply not going to reference any of those figures here.  The point is that HK&S have overall gini figures consistent with other global financial centers, and that's the best it's reasonable to expect of them.  Only as more and more of the world's land rent is made common property can we expect greater overall income equality.

And that's fine.  It would be pointless for HK&S to try to force more equal incomes by, for example, imposing a very high income tax on the top bracket.  It would simply drive these global rent-seekers to outside locations.  Keep them in town and there is at least a chance that some of their takings will trickle into local businesses and, eventually, publicly collected rents.


Evidence of Singapore's Higher Floor

Singapore is sometimes lambasted for "relying on" outside labor forces to perform undesirable construction work in the city.  Of course, this is loaded language: Singapore doesn't "rely on" outside workers.  The fact is that Singaporean construction companies simply seek them out because they will accept lower wages than Singaporean residents; Singaporean residents, having a cut of the local surplus (land rent), can simply refuse to do shit work for shit wages.  Without cheap external labor, the construction would still happen; it would simply happen with higher wages being paid to Singaporeans who have accepted them.

Singapore is far from perfect, of course, but anybody who criticizes its employers for "exploiting foreign labor" in this case is focusing his energy in the wrong place.  It is these workers' home cities and countries, through land dispossession, that have forced them to look for shit work at shit wages in a place that actually has employment.  Tell the country of Bangladesh, for example, to mimic Singapore's economic policies, and your effort will be much more likely to help Bangladeshi nationals.

The Land Rent Gini Coefficient

People often talk about the "Gini coefficient" for total income.  But some income is earned (wages and capital yields), while some is not (land rent).  Discussing the Gini coefficient as it applies to all of the income in a nation is a distraction from the real issue, which is how fairly people are being compensated for their exclusion from valuable land.

The Land Rent Gini Coefficient (LRGC) is the only objective measure of true fairness and equality of opportunity in a given jurisdiction.

A Geolibertarian Perspective on Immigration

The immigration "problem," like most problems in the modern world, is not in fact a problem; it is the illusion of a problem.  People perceive the need to exclude foreigners from their own nation's land because they themselves have been excluded, without compensation, from their own nation's land.

In a feudalist state, like the modern United States, residents pay the rental value of land -- "land rent" -- to title holders in exchange for permission to exist.  The only guaranteed existence the average American has is on rent-free land, the worst land in use.  This is called the "margin of production" in economics, and to help you imagine what this is, I'll use the example of an acre of prairie in western Nebraska.

Americans, dispossessed of their own country, constantly perceive their own existence in peril and perceive that they themselves might someday need to escape to rent-free western Nebraska to try to extract more wages from the prairie than their current landlords are allowing them to keep.  In this absurd state of affairs, people are tricked into viewing other human beings always as competitors, never collaborators.  Allowing more immigrants into the country will simply increase the amount of people who might be interested in western Nebraska; if this happens, rent will arise there, meaning that the quality of rent-free land falls.  If western Nebraska is no-longer rent-free, the best rent-free land might become central Wyoming, God help us.  This process is called lowering the margin of production.

(Side note: Land rent has sometimes been referred to as "the value of human collaboration," and although I wouldn't use this description to introduce people to the economic concept, it's accurate in many ways.)

The Real Problem: In a feudalist land ownership society, an increase in population lowers the margin of production.  The problem is not the increase in population; it's the feudalism.


In a fair economic system, United States residents would rent their land from each other.  A resident would always be able to afford land of average value.  Given that as of 2014 the national land rent was upwards of 33% of GDP, or $20,000 per person per year, and rising, this means that people could perpetually afford to live in a city if they wanted to.

Because people live in cities today despite seeing only the intangible psychological and social benefits -- and none of the economic benefits, which are absorbed by land title owners via land rent -- it is reasonable to expect that populations would tend to aggregate more densely around urban cores.  This would draw demand away from the countryside, meaning more efficient land use, which would raise the margin of production.

So long as real, per-capita land rent is rising (which it is even now, despite our grossly inefficient use of land), and as long as that land rent is shared instead of used to fund an aristocracy, we can expect that increases in population will raise the general, national quality of life.

The Real Solution: Open all borders and share the rental value of land.  Whether this sharing happens at a local, regional, state or national level matters little.

Economics is all about alternatives.  All else equal (like the land ownership paradigm), people will seek to leave countries with low margins of production and move to countries with higher ones.  Given that the world's land is all claimed and that all modern nation-states are fundamentally feudalist, we have entered a period of history in which all nations have roughly the same, lowest-possible margin of production: subsistence.  There is nowhere left to go -- nowhere left for a landless person to produce without paying most of his labor to a landlord.  With emigration no longer a beneficial option for the average person, the incentive is to do whatever is necessary to try to raise his own country's margin of production.  Without the knowledge of geoism -- land rights -- the only way to do this is to "keep the foreigners out."

Links on Geoism and Land Economics

(to be expanded and organized with HTML at a later date)


Introductory Stuff

Georgism in 300 Words
Why is the Rent So High? (Video)
Geoism FAQ

Land Economics*

The Law of Rent
All Taxes Come Out of Rents (ATCOR)
The Henry George Theorem

*The latter two concepts follow logically from The Law of Rent.  The Law of Rent simply points out the bargaining power of land -- that title owners can suck up all the economy's extra wealth (beyond the margin of production).  In the macroeconomic short-run, taxes simply reduce the amount of wealth available for landlords to take (ATCOR).

The Henry George theorem states that, per the Wiki page, "...under certain conditions, beneficial investments in public goods will increase aggregate land rents by at least as much as the investments cost."  In my opinion, this has little to do with "beneficial investments in public goods"; rather, it is simply the fact that government is spending wealth back into the economy, where wealth beyond the margin of production will go either to (1) Government in taxes, to be looped into future cycles, or (2) Landlords in rents, to disappear.  In other words, ATCOR describes the short-term, single-cycle action of taxes' diverting wealth from capture by landlords, and the Henry George Theorem describes the long-term action of the taxed wealth being spent and becoming subject once again to the Law of Rent, flowing to its inevitable resting place: the pockets of landlords.

It is important to note that these laws pertain to macroeconomic averages and should not be used to justify taxation (except land value taxation, of course).  Production taxes in rural areas do not come out of rents because in rural areas there are no rents.  In rural areas, only wages exist to be stolen.  Taxes on people using marginal land only make those people simultaneously slaves to and wards of the State.  When you start to understand land economics, you'll start to understand ... well, pretty much everything, but namely, maps like this:

Funny coincidence (not): People tolerate higher taxation
where land rents are higher.

That's a cartogram of the 2012 presidential election returns at the county level, but it may as well be a cartogram of 2012 land values, high and low.


Recessions and Depressions

The 18-year Boom-Bust (Land) Cycle

Although monetary policy can exacerbate it, this cycle is due to the real economics of land.  If you understand that a land price is just the estimated, capitalized value of future rents, then you'll understand the cycle so: (1) The economy chugs along, boosting land values, (2) Because land rent collection is always a free ride, land speculation becomes the only game in town, diverting wealth from wages and capital, (3) Land prices soon reflect more capitalized rents than the dispossessed, underpaid, unemployed producers of the area are capable of producing and paying in the future, especially now that they have no access to highly-priced land, and of course (4) Land prices crash.

Title Owners Are Not Residents

Often, models that seem like solutions are just continuations of the status quo.  Here is an article discussing developer profit-sharing among "residents" ...

As Detroit is Revitalized ...

And my response to the author:

==============================================

Dear Ms. Peters,

I'm writing in response to your article about developers' profit-sharing in Detroit.  Since you seem interested in the topic of urban housing, I should inform you that the model you described is at its core simply a Real Estate Investment Trust (REIT), an entity whose private shareholders own equity in a bundle of land titles.  This model is very much the status quo and represents the fundamental error in our economic system as a whole.

At the end, you mention how the model "could be adapted" to include other residents.  First, it should be noted that a parcel's title owner should never be assumed to be a resident at all -- an assumption your article seems to hold; a community's residents are simply its residents.  Second, I applaud you because by saying it could be adapted to include all residents, you have touched upon the beginnings of economic justice and the concept of equal land rights.

Please keep researching and writing about this issue, and I highly recommend you try to understand the concept of "geoism," a.k.a. "georgism" (which is anti-monopolism, and as a result anti-feudalism) and the following related concepts:

• Citizens' Dividend.  The equal distribution of land rent.  The literal economic implementation of equal land rights.  First requires the public collection of land rent.  Possible methods include the following.
• Location Value Covenants (LVC's). Ideally, these would be implemented alongside 100% income tax exemptions for the owners and occupants of LVC sites.  Best large-scale option, in my opinion.
• Land Value Taxation (LVT).

Community Land Trusts (CLT's) also represent a potential path toward land rights on a smaller scale, although they must be set up the right way.

For practical purposes, "land" most relevantly means "real estate location."  FYI.  Whenever we discuss "housing" affordability, it is actually land affordability and land rights that are at the core of the issue.

Thank you for your time,
+++

A Letter to the Government of Ontario

To Ontario's Public Servants,

It has come to my attention that you want to provide your citizens affordable housing and are entertaining the idea of a basic income. I have good news: a basic income can make "housing" (land) affordable if it is funded the right way.

It is in Ontario's best interest to implement a basic income and fund it with the market rental value of land titles ("land rent"). To occupy land (that is, to exist) is an equal human right, and Ontario is currently on par with the rest of the world in failing to grant that right equally to its citizens, creating poverty and unemployment, artificially reducing wages and destroying its economy. You can choose the path of continued economic failure, like the rest of the world -- a situation that any other funding mechanism for a basic income will NOT fix in the long run -- or you can serve as a shining example to the rest of the world, making it impossible for anyone to compete with you unless they adopt your model, known as geoism.

The few times this model has been attempted -- making land rent common property, or public property in place of taxation -- it has worked economic wonders exactly to the extent it has been attempted; think of the post-WWII "Asian Tiger" economies, for example.

The quickest top-down way to achieve this is through land value "taxation" (LVT), but this is politically almost impossible because of vested interests and a general lack of education. You may want to consider slower, more politically feasible approaches like location value covenants (link below) or the establishment of community land trusts (CLT's) that operate on geoist principles, which not all do.

http://www.sfrgroup.org/Home/location-value-covenants

However you decide to collect land rent, it should be either (1) distributed as a Citizens' Dividend, or (2) used for the public purse in place of income, payroll and sales taxes. I hope you'll do the right thing.

Regards,
+++

A Dirge for LaVoy Finicum

A Dirge for LaVoy Finicum

A working man took some marginal land;
People shrieked, their fury aglow,
Then paid rent to an idle rich man with a title
Who took better land longer ago.



https://www.youtube.com/watch?v=itO7OoKtNUc