P = R/(T+C)

This post is to explain the equation P = R/(T+C), which explains what up-front price a land title will sell for if a tax is promised to be levied on that same price in perpetuity given the conditions below.

I came up with this formula a while ago. I recently learned I'm not the only one, so I'm certainly not saying that makes me special -- just that it's intuitive to me and I "get it."

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The conditions are as follows. These may be obvious, but I'm stating them in case they're not:

1. R is independent. It's what the bidder would bid as rent to leasehold the title at the time bidding on the up-front price takes place. It's the true value of the title -- again, at the time of the title auction. (Or "sale" as it might be called colloquially, since we don't have proper auctions in the modern world).

2. T is independent. It's the number the government has communicated it will apply to the selling price of the title in order to determine the periodic amount the title holder will pay to the government.

3. I'm used to writing the cap rate as C. In any case, it's also independent.

***

There are a number of angles from which to approach an explanation. I'm unlikely to choose the one that works best for you, but I'll give it a shot.

Let's start with the usual price equation in the absence of taxes: P = R/C.

Well, the government has come in and said, "Potential landowners will no longer have the full 'R' to capitalize into a bid price. After bidding P_B, they will pay a monthly fee of 'TP_B' to hold the title."

In other words, any theoretical bid price, P_B, will tell the bidder what his periodic payment will be into the public purse: TP_B. The government has given the bidder all the information he needs in order to determine whether he, bidding P_B, can retroactively justify bidding that price. This is not a causal problem because each bidder can determine their range of justifiable bid prices before actually bidding.

I don't know how to write the chain of dependency mathematically, but in English, it is like this:

"A bid price of P_B will cause the landowner to have a periodic liability to the public of TP_B. This will leave the landowner with only (R-TP_B) periodically. In other words: (R-TP_B) will be all that's available to capitalize into a price right now. Thus any bid price P_B must be less than or equal to the capitalization of this still-available rent ... in other words, P_B must be less than or equal to (R-TP_B)/C."

• P_B immediately yields (R-TP_B)/C, which is essentially just a "check number".
• If that result, (R-TP_B)/C, is greater to or equal to the P_B that fed into it, that P_B can be afforded as a bid price.

The bidder can do a plug-and-chug spreadsheet, or he can just cut to the mathematical chase by skipping to the maximum acceptable bid price, the one where P_B yields (R-TP_B)/C such that P_B = (R-TP_B)/C.

At this point, I'm just going to chop the P_B back down to P to make this writing easier on myself:

• P = (R-TP)/C
• CP  = R-TP
• CP + TP = R
• P(T+C) = R
• P = R/(T+C)

The maximum price the bidder would pay is R/(T+C), if we're defining R as the rent that bidder would pay. If we're defining R as the market rent, then the formula can equally well be applied to determine what the up-front market price of the title will be.

(No up-front price on a land title, of course is a true "market price," since it represents force being used to prevent the landowner from paying the full market rent.)

Infrastructure Comes from Land Rent (not Vice Versa)

There is a misconception among some geoists that some portion of land rent is owed to public goods and services. This is nonsense, of course, as land rent is just that: LAND rent. It does not come from infrastructure. That is, public goods and services do not "generate" land rent, as some say.

How do I know? Because if no public goods and services existed and yet exclusive land titles were still enforced -- which is an act of violence, not a good or service -- rent would still exist. Rent comes from two things alone: (1) Exclusion, and (2) The difference between what can be produced at the site and what can be produced at the margin of production. Competitive demand for good locations -- especially locations near people -- exists with or without public goods and services.

Public goods and services (PGS) can of course aid in production, but those public goods and services have an opportunity cost. If the PGS were funded by production taxes, the PGS exist at the expense of whatever choices would have been made if the taxes had never been collected; if the PGS were funded by land rent, they represent the loss of whatever choices would have been made if the rent had been issued as a Dividend to each individual instead.

If a PGS is truly useful, then it can maintain itself by charging user fees just like any privately owned capital. This, in my opinion, is the best way to maintain infrastructure after it has been built from land rent because it allows producers to pay for the manmade things they use and then leaves no doubt that the land rent they pay thereafter is for LAND and not manmade things. This gives Geo-Authoritarians one less leg to stand on when they want to steal from the Dividend and pay for infrastructure that has already been paid for.


Since it must be spelled out, here is how a geoist economy works, from the top. Note, this version concedes maintaining PGS from land rent although they should really be forced to maintain/justify themselves through user fees. The point here is to illustrate that PGS result from land rent, not vice-versa:

Cycle 0:

1. Land users produce.

2. Land users pay market rent to the public purse for the use of land.

3. A Dividend is paid back out per capita, net of what is deducted to fund the building of public infrastructure in the next cycle.


Cycle 1: 

1. Land users produce. This includes those who are being paid by the previous cycle's deducted rent to produce infrastructure.

2. Land users pay market rent for the use of land.

3. A Dividend is paid back out per capita, net of what is deducted to fund the building/maintenance of public infrastructure in the next cycle.


Cycle 2:

1. Land users produce. This includes those who are being paid by the previous cycle's deducted rent to produce/maintain infrastructure.

2. Land users pay market rent for the use of land.

3. A Dividend is paid back out per capita, net of what is deducted to fund the next cycle's building/maintenance of public infrastructure.


Cycles 3 - Infinity:
See Cycle 2.


If costs go a little high in any Cycle's step 1, then sure, withhold a little extra in step 3 to cover the overrun.

Geoists' Top Semantic Sins

It's hard enough being a geoist. Freehold land ownership is a powerful meme, a disease of almost perfectly optimal virulence. Even a geoist with perfect word choice and a great personality faces a steep climb on the path to winning hearts and minds. (Which is why I recommend we don't even try.)

But many make it harder on themselves than necessary. I'm part of several online discussion groups, and when I see someone make the semantic errors below, it's impossible to tell whether the person committing them is simply a hard-boiled geoist who understands land economics but plays fast and loose with words -- or if he is a self-identified "geoist" who actually doesn't know what he's talking about.

If I can't tell, neither can the average internet user, and that's a problem.

I'm compiling this list for two audiences: (a) People who are interested in geoism but remain unconvinced due to our poor word usage, and (b) Geoists who want to improve their language and widen their appeal.

Without further ado, please:



1. Don't say "land" when you mean "land value" or "land rent."


Example A
"We must make land common property."

This was Henry George's one-sentence summary for how to cure humanity's ills. Surrounded by hundreds of pages of context in Progress and Poverty, this sentence is acceptable; uttered alone on Facebook to Joe Average -- from whom so much is constantly stolen -- it's a red flag.

Geoists see freehold land ownership for what it is: a giant screw plunging billions into the muck by the very energy they use trying to ascend it. Everyone else, screw-bound, sees only rising, spinning muck and the salvation of the spiral stair.  In practical terms, this means that Joe Average's land -- he calls it "his house," and we'll just agree even though he owes $500,000 on it -- is all he's got. It's all anyone's got.  His world is full of takers; you must be out to take his land; why don't you just oil his boots and shove him muckward?

Of course, Henry George had no intention of taking anybody's land. What he meant was, "We must make land rent common property." While this sentence isn't much better on its own, it has the advantage of resulting in confusion ("What the f*** is land rent?") instead of violent backlash. The confusion opens the door for you to do what you should have done in the first place and be a little more systemic in your explanation. I like to say, "Geoism means that instead of paying banks, hedge funds, private equity firms and other large corporations for access to land, we pay each other on the basis of exclusion." Maybe that'll help Joe see why he doesn't own land but in fact is owned by landowners.


Example B
"80% of United States land is owned by the top 10%."

It blows my mind that geoists still say stuff like this. I'll flog it 'til I'm blue in the face: Land area doesn't matter. Land value does.

In my experience, few people are intellectually triggered by land area ownership, and they are right to be so apathetic: If everyone had guaranteed access to a couple of acres of rural land, it would affect their well-being -- and the health of Earth in general -- literally not at all. Rural land is what we call marginal land, land where earnings are shit. Put that shit between the twin buns of today's wage and capital taxation, and working on marginal land yields you a nice shit sandwich.

We want people to have equal access to land by its QUALITY, or rental value. This means guaranteed access to constantly improving communities, which is the way humans are wired to live. Let's use language that communicates that.


2. Don't say "growth" when you mean "efficiency."

I'm pretty passionate about wildlife conservation. I know that geoism is the path to effiency. By the simple stroke of ending economic theft, it will undo suburban sprawl and create cities as efficient and compact as zoning laws will allow. I believe that roads and cars as we know them will become largely obsolete, as will industrial monoculture farming. Eco-friendly food production methods will rule the day for the simple reason that they can sustain themselves without subsidies (and they yield better food output per acre). "Growth" may happen; it may not; but it doesn't matter because growth (output) is not as important as efficiency (output per input).

I think some of my fellow geoists use the word growth just because it's fashionable in mainstream media to support growth. The popularity of this word stems, of course, from land rent dispossession -- the constant theft that leads people to believe more work and more production is the answer to poverty when the answer is simply to stop the theft.

It is a mistake to cater our language to growth-lovers. Sustainability is a hot enough topic that for every growth-lover we may sway to the side of geoism, we will lose at least one green-minded person. It is both inaccurate and politically foolish to say that geoism promotes growth; it promotes efficiency and prosperity by ending theft.
   

3. Don't say "Development" when you mean "Best Use."
See #2 above. People sometimes say geoist policy will cause more land to be developed. This is inaccurate and, again, scares as many people as it intrigues. What geoist policy will do is cause different locations to be developed: Good locations (urban centers) will be developed first because that's where the demand is, and less-demanded locations (the countryside and wilderness) will be developed last because that's where the demand isn't.


4. Be careful about the word "wages."

First, when you do use the word "wages," try to use it by its useful, classical definition: the earnings that workers keep after paying market rent for the use of land.

Second, be aware that most people are completely unfamiliar with this definition. If you are referring to this, it might be more illustrative to use a phrase like "post-rent wages" (even if to us that is redundant) or "kept wages" or even just be a bit wordy and say "the earnings you keep after paying rent for the use of land." Or maybe "the earnings you keep after paying the landlord, whether that's an apartment owner or a mortgagee bank."

Use your imagination. Just be aware.

Geoists Need a Spot in the Tournament

I'm going somewhere with this, I swear. TLDR: I think geoists should focus on starting a viral city over any other strategy.

I'm on Twitter @urbanlandrights.

 ***

Outside of Geo-Libertarianism, I'm part of another niche community, the "Melee community." We play Super Smash Brothers Melee ("Melee"), a fighting video game, competitively.

In Melee, anyone is allowed to enter a tournament. Anyone, if they are good enough, can win. But only 5-6 people in the world are the best; with few exceptions in the last several years, anyone who has faced them has lost.

Not all of these top players are popular. One in particular, going by the tag "Hungrybox," is known for being ruthlessly un-sexy, sometimes running out the 8-minute clock during matches to win. This is "boring" or "lame" to many in the community.

What do you suppose would happen if tournament winners were decided by vote? Would Hungrybox win? No. Would he ever have won? Probably not. Would the game be fun, interesting or competitive? Not even close. Players would argue online about how THEIR play-style is the best, and they would back up their claim with pictures of their kissing babies, shaking the hands of construction workers, or cutting the ribbon at the opening of a free health clinic. The game would likely not be played at all.

The concept seems absurd, but that's what democracies do with economic policy: They poll, by vote, the dogma and feelings of the majority, grant a monopoly to the prevailing ideas and let them determine the fate of an entire nation for the next four years or whatever the term may be.

Participating in politics-as-usual, in my opinion, is a waste of time for geoists. We are the Hungrybox of economic policy. People won't even know their own ideas suck until they see us compete. Asking the average person to become a geoist is like asking them to vote for Hungrybox to win a tournament because he kisses babies. Why should they think he's different from any other player who kisses babies? Any player can make promises and kiss babies.

What we need is a spot in the tournament. Right now, there are 195 or 196 nation-state players, and although there are some skill differences among them, they all suck. Their play styles are ass. They're frauds. But people can't really know that because those 196 shitty play styles are the only ones they've seen in action. Expecting a majority to vote for any significant change in any jurisdiction, no matter how you draw it, is a fool's game -- or at least one for which I doubt we have time. Our overrated species is crashing fast. We could try to convince the proverbial lizard to warm itself by wearing a coat -- condemning ourselves to eternal frustration -- or we could simply point to other, coat-wearing lizards so the naked one can say, "Why don't I have that?" An observation is worth a thousand explanations.

I realize the irony of what I'm saying: in order to get an land-monopoly-ending economic system, we first need to break the land monopoly. But it's already been done to a small degree with Special Economic Zones (SEZ), and examples like Shenzhen in China show how explosive the growth can be even for a non-geoist city. A rent-sharing geoist city even in a relatively small, low-population area should have no problem.

If there's anything I know about human beings, it's that, no matter how impossibly crappy their lives are, they will vote for change in piecemeal at best, and likely not at all. They are creatures of fear. The mere existence of SEZ's shows we neither must nor should depend on their votes for progress.

So let's do it. Or maybe we can somehow convince Singapore to make the transition, since they're already pretty well structured for it?

Why Only Geoists Are Libertarians

Funny how so-called “libertarians” (monarchists) believe that as long as you can violently “protect” a chunk of land, you should have an unconditional claim to it.

With today’s technology, I think it would be relatively easy for one person to “protect” 100 acres. So under the aforementioned “libertarian” worldview, Earth would have 360 million fence-erecting landowners controlling 100% of the planet's landmasses, pointing guns at and charging rent from the remaining 7 billion of us for nothing more than permission to exist — under whatever rules they dictate — on "their" planet.

…and yet somehow those 360 million landowners aren’t a government.

It’s almost like these so-called "libertarians" haven’t thought about what a government is. Or what freedom is.

Scott Santens Starting to See the Cat

We geoists have been hen-pecking prominent basic income advocate Scott Santens for a while, and it looks like he might be starting to come around.

https://www.weforum.org/agenda/2017/04/extreme-wealth-inequality-alaska-model

First, THANK YOU to Scott for writing this. You're a big voice, and we need you.

But of course I'm picky. Scott takes the approach of caution, saying: "Even with a land-value tax functioning to create a more progressive distribution of wealth after taxes, it still doesn’t confront the question of why national productivity is being so unequally distributed in the first place."

It does, and I must try to make this clear because it shows why public land rent collection is so important.

The best way I can think to explain it is by repeating what it seems I try hardest to make people understand: land value "taxation" is not a tax. It is the market rental value of land titles. It is what land users willingly pay to exclude other land users from a location due to its productive advantage. "Incomes" -- what people have before paying market land rent -- will always be grossly unequal because some people are using excellent locations while others are using shitty ones.

In the current economy, it's even worse, of course, because land users don't keep the rent at all; they pay it to title holders: banks, private equity firms, REITs, etc. It's really just a few tens of thousands of people throughout the world who are collecting in any significant way the unearned rent of land.

Rent -- the rental value of privilege -- explains all unequal and unearned income distribution. The only other way to derive income, fundamentally, is by creating labor or capital -- in other words, by earning it.

Another Immigration Post Because It's So Hot Right Now

The “immigration issue” is a land tenure issue. And people desperately need an education. In short: There is no argument for closed borders.

1. No wall is big or strong enough to protect you from the consequences of fencing off the commons. That's because a nation that fences itself off from the rest of the world has typically already fenced its own people out of the best land within its borders. It has already impoverished its children and begun the path to internal collapse. There is no safety argument for raising fences.


2. Immigrants, as well as your fellow countrymen, are trying to pay you rent for their use of your country. But this value was long ago securitized by your government and sold to private parties: These securities are called freehold land titles. They are held in a closed-end fund (land is fixed in supply) and trade, at the whim of existing owners, at a monopoly price (land is necessary for all life and production). Your economic trouble is caused by your government, not by immigrants; there is thus no economic argument for raising fences. 

There are very few terrorists in this world who can inflict more damage on a country than the institution of private, freehold land ownership already has. It's reasonable enough to screen for such terrorists, but any restriction on residence beyond a simple background check is, really, just the act of serfs trying to make other serfs more servile than themselves.

Here's a post I wrote last year that goes into another aspect of the economics.