Nineteenth-century American economist Henry George blamed poverty and depressions on landlords. George argued that their rents were associated mainly with public investments and should be shared with the community. Show host Gene Tunny speaks with returning guest John August about Georgism—the economic philosophy of Henry George that advocates for a single tax on land value. They explore the ethical and economic arguments behind taxing land, its historical popularity, and how it is perceived today. The discussion covers economic rent, speculation, tax distortions, and housing policy, critically examining Georgism’s assumptions and limitations.
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Timestamps
- Introduction (0:00)
- John August’s Background and Campaign (4:19)
- Georgism and Its Influence (7:25)
- Economic Theory and Georgism (11:35)
- Critique of Georgism (16:19)
- Land Value Taxation and Economic Rent (23:15)
- Impact of Georgism on Economic Policy (31:54)
- Conclusion and Future Discussion (49:33)
Takeaways
- Georgism, developed by Henry George in the 19th century, proposes a radical approach to taxation by advocating for a single tax on land values to address economic inequality and reduce speculation.
- While most economists reject Georgism, the theory continues to have passionate advocates who argue that land value taxation could create a more productive and just economic system.
- The Georgist perspective highlights how public infrastructure and community development can increase land values, creating unearned income for property owners without compensating the broader community.
- Modern Georgists have moved away from the original concept of a 100% land value tax, instead advocating for a significant increase in land value taxation as part of a broader tax reform strategy.
- The theory raises important questions about property speculation, economic rent, and the potential for less distortionary forms of taxation that could promote more equitable economic development.
Links relevant to the conversation
John’s federal election campaign website: John August for Bennelong
https://www.fusionparty.org.au/john_august_bennelong
Grand Pursuit: The Story of Economic Genius – Nasar, Sylvia
https://www.amazon.com.au/Grand-Pursuit-Story-Economic-Genius/dp/0684872986
Fixing Australia’s Housing Crisis: Fusion’s Plan w/ Owen Miller – EP277
Trent Saunders and Peter Tulip’s RBA Discussion Paper “A Model of the Australian Housing Market”:
https://www.rba.gov.au/publications/rdp/2019/2019-01
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Transcript: Rethinking Property and Taxation: The Georgist Approach w/ John August
N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.
John August 00:03
The Georgists make, I think, a very good pace that recessions are associated with, over investment and land and property bubbles and so on. Now, whether you could stay there the cause of it, or just part of the wave that crashes, you know that a more subtle issue. The Welcome
Gene Tunny 00:25
to the economics explored podcast, a frank and fearless exploration of important economic issues. I’m your host, Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode. Please check out the show notes for relevant information. Now on to the show. Hello and welcome to the show. Today’s episode, I’m delighted to welcome back a long time friend of the show, John August. We dig deep into the economic philosophy known as georgism. Georgism is an economic philosophy advanced by 19th century American economist Henry George author of the 1879 bestseller progress and poverty, as Sylvia NASA explained, in Grand pursuit her amazing history of economic thought. George’s premise was that poverty was growing faster than wealth, and that landlords were to blame. They were collecting fabulous incomes not for rendering a service to the community, but merely because they were lucky enough to own real estate, having identified rental income as the cause of poverty, he proposed a massive tax on land as a cure. So that’s a nice, concise summary of georgism from Sylvia NASA. Georgism is rejected by most economists and is not as popular as it once was, although it still has some adherence, as John points out. This episode, I’m pleased to have caught up with John to discuss georgism and its legacy. I need to note that John is the fusion Party candidate for the Federal seat of benne long in the upcoming Australian federal election. If you’re a regular listener, you’ll notice that I’ve had two fusion party candidates on in the last few weeks. That’s not necessarily an endorsement of the party or its policies. It reflects the fact I have a disproportionate number of fusion party members who listen to the show and actively engage with me, which I must say, I enjoy and I’m grateful for. They’re saying interesting things that are worth talking about, and they’re saying them in good faith. And I’ve been happy to have these candidates on my show. I’ve previously had guests from other larger political parties on the show before, and I hope to do so again in the future. Okay, before we get started, a couple of things. If you’ve got any thoughts on this episode, if you’ve got thoughts on what I said, what John said, or if you’ve got thoughts on other episodes, please get in touch. You can email me at contact, at economics explored.com, I’d love to hear your thoughts. Second. I’ve got to give a quick shout out to our sponsor, Lumo coffee. They’re top quality organic beans from the highlands of Peru are packed with healthy antioxidants and economics explore. Listeners can enjoy a 10% discount. Check out the show notes for details. Now, let’s jump into the episode. I hope you enjoy it. John August, welcome back onto the program.
John August 03:40
Yes. Thank you. Gene, good. Good to be back again. Maybe one day, I’ll figure out something more creative to say than that. But never mind, that’ll do for the present. Very good.
Gene Tunny 03:48
Well, yeah, good to catch up. I mean, we’ve been meaning to have a conversation about georgism for a while, based on the economic or the economics and the philosophy of Henry George, so a US economist, you would say, in from the 19th century, who actually had some significant links to Australia. So I want to chat about that. And also want to chat about the fact that you’re running for Parliament too, for Ben, along which is John Howard’s old seed, if I remember. So had
John August 04:22
your that that’s correct. And then there was John Alexander, and then there was Maxine McHugh, and goodness me, um, Jerome, I think is the is the current member. So, yes, but I just happened to be been living in John Howard’s seat. So that’s just coincidence. And I put my hand into the ring multiple times over the last few years, I’ve actually outlived a lot of a lot of candidates. So Jerome like style. To be fair, he has lived in the area for quite some time, so he it’s so not to put down any other candidates, but he certainly has that genuine connection to the area, right?
Gene Tunny 04:58
Yep. So. You’re running for fusion party now. I chatted with one of your colleagues the other week, Owen Miller, who’s running for wills in Melbourne, and we talked about housing policy. So we had a good conversation. I’ve got some interesting feedback on that, so I’ll probably talk about that the next episode. I still have to think about some of it. So I think, you know, the ideas are, what I’d say at the moment is that the ideas are quite, you know, they’re very, what’s the word, not radical. But they’re, they’re different from what most people would be recommending. So they go quite a long way. And so they’ve generated quite a bit of feedback. So,
John August 05:38
well, look, I will say I have listened to a lot of your podcasts over the years. I have to admit, I just missed out on Owens one. Because what I do, I guess, every so often, I go and check your website and download a whole bunch of them. And I will say that I do that, but what I hadn’t read, I hadn’t listened to that particular podcast. But my more general sentiment is that, you know, housing has been an issue for probably as long as we can remember, and I think we really do need to turn things upside down in some ways to make any progress. And I don’t know the details of that episode, but I would certainly say it is time to try something radically new. And I don’t want to sort of cross with what Owen says, but I’ve said for a long time that our economy is out of balance. And obviously, whenever something’s wrong, people say it’s out of balance, and they’ll say, Oh, well, this is what we need to fix. But I do tend to think there’s too much economic energy, for want of a better word, poured into speculation and too little into genuine wealth building. So
Gene Tunny 06:39
Arlen and I did talk about the, you know, his concern about the amount of speculation and housing and what that what that’s doing to property prices and housing affordability. So, yes, well, I mean, if you get a chance here, be great if you can have a listen and let me know what you think.
John August 06:56
I’m intrigued that you’ve had a lot of reaction to it. I mean, you’ve been quite gracious in interviewing me multiple times, and I had people have found our discussions interesting, that the fact that people have sort of reacted to Iowans one, I guess that’s that’s a good thing in its way as well.
Gene Tunny 07:13
Yes, yeah, particularly the proposal regarding taxation of capital gains of owner occupied housing, I think is, is, is controversial.
John August 07:24
I would say that’s a very Georgia sentiment. I would would suggest, you know, whether I want to say land value taxation or however you cut it, yeah. I mean, georgism does emphasize land value taxation, but there’s various different ways of getting to that notion. Yes, so,
Gene Tunny 07:39
so that’s what I want to chat with you about today, because the way this conversation came up is that I think you once asked me, Do you hear much about georgism? Do you hear much about the ideas of Henry George and I had to admit, in the circles that I travel in, I had to say, well, actually no, but apparently you’ve got a different experience. So could you tell us a bit about that, please. John, okay, well,
John August 08:02
when you’re involved in progressive circles and you’re sort of thinking about, you know, what’s wrong, right or wrong with the economy, goodness, goodness me, have them describe it. You, you it’s very easy to stumble across Georges, who, goodness me, you might say, are a very passionate and evangelical. I don’t know whether this will get past the keeper, but, you know, a bit like Scientologists in their way, which is not to obviously, I guess I’m not trying to be too derogatory. I’m saying, Look, they’ve got an interesting point. They’ve got some interesting things to say, but the fact that they’re so passionate about it, and the fact that it’s a movement, you know, one of my metaphors has been, they’re like the drunk guy with a guitar at a party that won’t leave you alone. And for me, having the experience of people who were so passionate advocates. Where do you want to say they’re like Christians or evangelicals or whatever? For me, I really noticed that as a thing, as a movement, and you know, you hadn’t experienced in it. For me, it was a bit of a surprise, because I thought, you know, everybody would bump across a jaw just at least once in their in their life. But also talking to you, it’s possible to be, shall we say, pro land value taxation. Or say, you know, Land tax is a good thing. Now you say it in general terms, you give it a nod, but it’s not something you would prioritize. It’s not a hill you would die on, or something you would, you know, man the barricades for, but George, just take it one step further. Not only do they give it a nod, like I guess a lot of economists would would, but they take it one step further. It’s a cause. It’s something they advocate about. It’s something they they get into and put push forward. So there’s a definite movement out there. And I know there’s the public Australian publication, progress, and I think that’s by the Melbourne group, prosper. And you know, one of the things that they did at once, they don’t know if they’re still doing it, but they were running around in. Melbourne, sort of checking out how many vacant blocks do we have. And then they were doing an analysis of the water usage of blocks of units. And they were saying, Look at all this land being held out of use. And you know, people who were talking about supplies, sort of say, Oh, the government needs to release more land. And they say, Well, hang on. What about all this land that seems to be held out of use. And that was a very good point that they were making. And these are the sort of stories that they tell. But as we move on, I’ll sort of say that there’s a certain thing where I’ve been thinking about georgism so much, partially because you have these passionate people, or at least I’ve experienced these passionate people, you know, sort of pouring their this intellectual force onto me, and a while ago, I actually took the time to think about it very hard and very carefully, and I actually found that while there’s what you might call the minimalist georgism That I endorse, I endorsed it way back when, and I still endorse it, but the more I look at the economic theory behind it, the more I think, hang on, you guys are overstating your case, or you’re getting things wrong. You know, there’s, there’s basically a whole lot of things where, here’s a wheelbarrow, and you’re trying to, you know, load a load of VW into it, rather than a few bags of cement or whatever, you know, but, but, yeah, I guess that’s certainly something we can start to look at. It’s that it’s sort of got to do with, like, here’s the fair point they make, and here’s this broad economic framework that they build around it. And I’m looking at that economic framework and going, I don’t know about that, you know? Yeah, so I suppose, shall we? Shall we get started on that and see, see how we go?
Gene Tunny 11:36
Yeah, absolutely. So I just want to, I just want to convey what I’ve always understood georgism to be about. It’s about the notion that, well, you know, land is the, you know, one of the fundamental factor of production, and there’s a, there’s a rent that’s earned from the land, and the idea is to tax, you know, the bulk of that rent, essentially, isn’t it? It’s to take a huge amount of that, that rent, the ground rent, the rent from the unimproved, or the the unimproved value of the land. So not taxing any betterment, anything that you’ve added to the land, and potentially having a single tax. So georgism is associated with having that site value tax, or land value tax as the single tax. Is that? Is that right? I
John August 12:29
think historically, that was the case. But I think most modern Georges just sort of say that, like, look, it would be good to have a lot more of our tax going via land value taxation. And I think few of them would say, let’s do 100% but they’re more saying, no, let’s double it. Let’s triple it. And you know, as the economy settles and hopefully people get used to it, maybe one day we’ll have 100% but I don’t think many Georgia actively say 100% but you know certainly that historically, I do believe that was the case, right?
Gene Tunny 13:03
And with the So, with, with the georgism. So this is associated with Henry George, who was a an American economist, and he had a link to Australia, and he gave a famous talk in Australia that was well attended in Melbourne. I believe, do you know that store at all?
John August 13:22
Well, I do believe he toured Australia, and he gained a lot of converts. And the other thing is that a lot of our council rates are sort of my understanding is that we tag into the unimproved value because of Henry George’s inspiration. And people were listening and thought, hey, that’s a good idea. But notice that’s how we levy rates, which is a small part of, I guess, the total tax take, the total expenditure of government. And my understanding is that originally, Canberra was also built somewhat along Georgia’s lines. But what they wanted to do was say, we want to have good economic activity. We don’t have speculators sort of sitting on land and sort of using that to sort of make profit with. So Canberra was constructed on a very different basis. Now, you could say that Georgist ideal in Canberra has been diluted lately, and that’s a more complicated story that I’m not really on top of. But you know, it is my understanding those two things in Australia, did have a Georgist inspiration? Yeah,
Gene Tunny 14:24
yeah. So, yeah. Good point about local government rates and and now, I mean, the main tax base in Australia is, is income, okay? So the well, particularly at Commonwealth level. I mean, I guess all over Australia. That’s where the bulk of the tax revenue is is raised from. It’s by taxes on income. Is by taxes on, you know, company profits. And then we’ve got the GST, of course, Goods and Services Tax. So and land value taxes are going to be a much smaller percentage of. Of the of the total tax take. So not really where, you know what the Georges would be advocating for.
John August 15:07
Okay, so, So way back when I think I told you a story, and it’s a story that I still get behind, and I still endorse it, is that if we have a property and you know that the council builds a garbage dump close to us, we’re probably going to, you know, run to government or run to the courts and try to get compensation for that. But if the government builds, let’s say, a railway station about a kilometer distance, obviously, if it’s too close, we might whinge about the noise, but if it’s a kilometer distance, it’s just going to increase our land values. But while in the first case, there’s a cure of people wanting to give the government, wanting compensation of the government, in the second case, there’s no queue of people who have said, Wow, you government who increased my land value, I’m so guilt ridden by that. Here’s your share of that, right? Yeah, that that is a story that I still relate to, and the story that the Georges tell. And certainly it is possible to see that like on the one hand, there’s speculation, there’s buying land, letting its value grow, but there’s this ethical problem where it grows as a result of other people’s effort, and you get that bonus, and there’s a moral problem with that. And I think that’s what the Georgia site, and I do quite agree with that. But you know what you were saying earlier? I think you mentioned two things. One was site value improvements, and then economic rent. Yes, and one of the interesting things, and then you’ve got economic rent. Another interesting story is to do with dead weight loss. But the thing about economic rent is that in classical economics, rent was like unearned income, so it’s just just a bounty that comes in. And according to neoclassical economics, economic rent is any return to something that is in fixed supply. So you have quasi rent, or you say something is in short term shortage, so it will earn a rent. And the georgists love to sort of grab hold of just the definition, the classical economic definition of rent. You know, this is unearned, but they don’t want to acknowledge the neoclassical innovation or change in ideas. And I’m respectful of both these ideas and saying history of ideas. And you know, one idea was for one purpose, another idea was another purpose. Let’s not dismiss any of them. But the other thing is, they love to grab hold of concepts in neoclassical economics, like dead weight loss. Now it’s my understanding that deadweight loss comes from neoclassical economics, so they want to grab the classical economic definition of economic rent, but then ignore the neoclassical definition of economic rent and grab hold of their definition of deadweight loss. So they’re sort of picking and choosing selectively. And if you go to Georges, there’s two ways that they relate to this. One is a conspiratorial approach, and another one is, Don’t look behind the curtains. Now the conspiratorial approach and you will find it. They say that neoclassical economics was developed to defang Georgist economics because it had this critique of capitalism and how land value was accumulating. So people develop now classical economics to defang it. And they also change the definition of rent from the from the, from the classical economic to neoclassical, to defang it. And if you actually look at, I think it was Marshall, one of the people who got behind, I think, the marginal economics revolution, and he actually looked at georgism. And if you look at what you might call the vibe of the thing, you know he was into georgism. He was into justice and understanding economics from a like justice and what’s fair point of view. And he developed marginal economics. And there were a lot of, I think you could say legitimate improvements to economics that came from neoclassical economics. And it was actually someone who was involved in that that did that. So I think it’s a it’s a distortion to say that. And there are some commentators who say, look, one of the things they did was that they did sort of put some of the ideas, if George isn’t, to one side. And, you know, went to went to neoclassical economics. But when I say, that’s the conspiratorial No, that’s the conspiratorial node. And then there’s another one, which I call the Don’t look behind the curtains thing, because, you know, in the pages of the Progress magazine, you actually have someone who is saying, Oh, well, neoclassical economics emphasizes this. Classical economic. Neoclassical economics emphasizes this. You know, George just emphasized this. And here’s. These all different schools of thought which emphasize different things, but it ignores that, you know, classical economics had one definition of economic render. Now, classical economics had a different definition of economic rent. So that’s the narrative that I call the Don’t look behind the curtains narrative. And you know, another thing that you will find in georgism, if you look around is what I call an accounting error. They will say, look, here’s this taxation. It causes a distortion to the economy and and that’s your your your dead weight loss. And obviously their argument would be that land value taxation doesn’t cause dead weight loss. So it’s the more effective form of taxation. Now let’s say, look, there’s a broad sentiment here, which I will actually endorse, say, but in now, it’s nice to have the least distortionary form of taxation, as I say, I think that is where a moderate number of mainstream economists will get on board. As I say, though it’s not a hill they will die on. It’s not saying there were man the barricades about but they will nod and go, yeah, yeah, that that’s that’s a fair point, yeah. So, so they will say that, but then, if you read some of these narratives, it’s like there’s an accounting error. They forget that the tax might actually be spent on a public good, and you might get a return on that expenditure that actually exceeds the distortionary cost of the tax, right? So they’re forgetting one of the accounting columns, which is, yes, your tax, but the tax is actually spent on stuff, and what’s the return on the expenditure associated with the tax. Now, don’t get me wrong, it’s still, there’s still a good argument for saying we should minimize the distortionary effects of every tax. Okay, fair enough. That’s that’s a certain valid concept, so you park it over there. But when you look at the analyzes, they say, here’s the tax, here’s the distortion. And look at how much the distortion sort of messes up the economy, and they forget to mention that the taxes are actually spent on something in the economy. So there’s this sort of administrative error, you might say, or an accounting error, forgetting one of the columns.
Gene Tunny 22:06
Well, I mean, are they arguing that their their land value tax, that’s, that’s the period away way to raise the revenue. So they’d be proposing a tax, a switch, a change in the tax mix,
John August 22:18
that is, that is correct again, you’re, you’re, you’re taking one well, correct me if I’m wrong. It’s my understanding that the dead weight loss concept comes from neoclassical economics. So taking one concept from classical economics, that definition of economic grant, and then grabbing your concept of dead weight loss from neoclassical economics and saying, Look, if we, if we do this, you know, we will have less distortion, and therefore less better prosperity. And that’s an argument which holds weight. I mean, I’m not going to argue with it. But notice, when you do the balance sheet, there are many parts of the balance sheet when they’re making the argument. You like to take my word for it. It’s something I’ve noticed along the way.
Gene Tunny 23:00
Yeah, well, let’s talk about that. So just on the taxes being distortionary, so that’s correct, and that’s because you earn an extra dollar, the government will take a proportion of it, and it takes a higher proportion, the more the higher income you are. And so there’s an argument that, you know, there will be some people who don’t work that extra hour because, well, they only, they don’t keep as much of it as I’d like to keep. So there’s the potential of income tax, in particular, reducing labor supply, of affecting work effort. And there’s, you know, huge literature on that. To what extent does that? Does that occur? But we think, and also commodity taxes or they’re going to discourage some consumption, and there’s going to be a dead weight loss associated with that, a loss of consumer surplus. So we know that those taxes are distortionary. The argument for land value taxation is that if you tax the the unimproved value of the land. If you’re just taxing the the value, or the the return to the the owner of the land that’s generated from it just being where it is, rather than any improvements they’ve they’ve made to the land, then that’s not going to affect behavior, because the land can’t move. I mean, the land’s there, okay, the land’s not mobile. It’s not, you know, if you tax the there’s that whole debate about billionaire taxes or wealth taxes, and one of the common rebuttals, or the or points that’s made is, oh, well, they’ll just leave. They’ll just leave the UK. They’ll just go, they’ll just go elsewhere. Well, the land can’t go anywhere else, so there’s no deadweight loss associated with that. That’s the That’s the view.
John August 24:48
Yeah, well, I would certainly agree with that argument. I suppose taking it a bit further, there’s the distinction between the unimproved value and the value of. Of the, what do they call it? The the add ons, I forget what the word the improvements. That’s right, improvements. And look that there’s a certain logic in that that makes sense. But equally, they’re sort of, they’re forgetting that these things are entangled. Because the more valuable the land is the more flaws you can build and the more flaws you can build profitably. So in a sense, you are making a profit from putting improvements on the land, but you can make more profit from improvements if the value of the land is larger to start with. So in a sense, it’s it’s post both valid to separate these things out. And I think the Georges make a fair point, but what they forget is how entangled these things are as well. And you know, one of the things that Georgia say is land is not created anymore. And there’s a lot of maxims that they say like that, which I guess you say, are true, but misleading. Land is not being created anymore, but possibilities for higher density land use are being created over time. As land becomes more valuable, you can actually put a building with more floors on it, and do that profitably in a way that makes sense. So there’s sort of some of these, as I say, some of these economic maxims that come out of georgism. And I think you sort of think of that and go, maybe it’s sort of true, but there’s a bigger and richer picture here, which is not to say that it’s wrong, I suppose, but you can see there’s, it does feel like George isn’t is missing out on stuff. Because when I think Henry George was operating it, you know the idea that someone would go in and build a 20 story, you know, apartment block. I mean, basically people would build something with two or three stories, if you were lucky. So you know that the world was different back then. So
Gene Tunny 27:01
yeah. So let’s check out his dates, 1839 to 1897 his writing was from Wikipedia. It was immensely popular in 19th century America. Sparked several reform movements of the progressive era, and he inspired the economic philosophy known as georgism, the belief that people should own the value they produce themselves, but that the economic but that the economic value of the land should belong equally to all members of society. And he famously argued for a single tax on land values it would create a more productive and just society. So, yeah, I mean just fascinating. And I mean hugely popular at the time, and apparently they had, when he was buried, there was one of the, you know, was it a fifth of the population of New York City, or turned out for the burial, or something like that? I think I saw. It was just, just extraordinary to
John August 28:01
me. But it sounds quite possible. Yes, apparently he was at the focus of quite a substantial movement. And the interesting thing is that he was somewhat contemporaneous with Marx. And the thing is, in the UK, people being denied land. Wasn’t that strong a thing? I think there was the enclosures movement. There were diggers and levelers and so on. But Mark’s been close to be worried about factory owners paying people the absolute minimum rate, and then they’d be cast off onto the street. And notice Henry George had his sentiment more was rather than the business owners, you know, paying their employees whatever amount. He was saying that people will charge such high rents that people will be on the scrap heap. And it’s interesting. I’m not well, who knows. I’m saying a lot of these things. I’m not sure if anybody else has identified them, but I did notice a certain parallel between marks and George in, in, in in that way that they were both saying, Look, business or landlords or whatever, are going to do certain things and screw people over. And now there’s a certain logic in both of them, I suppose. But it’s interesting that when marks appeared on the scene, you know, all that stuff about diggers, levelers and and the enclosures act and so on, I think that had sort of passed, it seems
Speaker 1 29:23
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Speaker 2 29:29
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now. Back to the show.
Gene Tunny 30:02
So you made that point about the value of the land being improved or increased by infrastructure. I think Cameron Murray did some estimates of how much gold coast light rail increased the the value of of property around around Gold Coast light rail, which I thought was a good study. I’m trying to remember, I think Cameron is he’s a supporter of are they do? They call them Betterment taxes. Is that something that you support? Yeah, Betterment
John August 30:30
taxes. Now, he was originally talking about the right to build higher floors and the right to that space above the thing and being charged for that space. And I have to say, obviously he’s going along the lines of Betterment taxes, but, but it was actually his inspiration that made me think, land may not be created anymore, but opportunities for more intensive land use are being created. And in a sense, it was his perspective that was a bit of a leg up to me developing that particular insight. So, so yes, I have to give a nod to Cameron on that one. And yeah, he was saying that the ability to build buildings, that bit of space should actually be auctioned off. So yeah, and you can wonder what’s going on there is that bit of space more properly attached to the improvement or the land. And again, George, by distinguishing, you know, unimproved value of land from improvements, it’s sort of a useful concept, and I don’t want to deny the worth of it, but when you start to unpack it, my God seems getting muddled and complicated. You know, yeah,
Gene Tunny 31:40
yeah, I think that’s the good point. Difficult. It could be difficult to apply. Yeah, absolutely. John, can I ask about as a What’s your view on the you know, a lot of economists argue that we should move away from stamp duty on property transactions. We should move to, well, land tax increase, increased land taxes. Or have people they can opt out of paying the stamp duty and then switch to land tax. Do you have any thoughts on those type of proposals?
John August 32:14
Well, I’m broadly supported of that because, you know, let’s say it’s an economic abstraction, but you can say, if people can move, they should be able to move. And if you have blockages to that, like people have to play stamp duty, then that’s a disincentive for them to move. And I mean, that’s an abstraction, I think it has a definite amount of validity, and that if you have paid your land value taxation, then when you reach the point of wanting to sell your property or buy someone else’s property, the cost of doing that is like, well, just, you know, whatever legal costs or administrative costs, but there’s No actual Extra, extra financial tax that’s really at the point of point of sale, and that that’s a good thing, because you increase sales. And one economic principle is if everyone buys and sells, and everybody is closer to optimum, or closer to their their maximum happiness, and so on. And you know, I think you can undermine that economic principle, but there’s a certain amount of truth to it, and by implication, if people are moving around, but but going off on a bit of a tangent, we do have the situation at the moment, I think I’ve mentioned it before, where you have reasonably well to do suburbs. They have schools, and the school teachers, the people who clean the schools, the nurses who work in the hospitals. You know the fire is the police can’t actually afford to live in that area. And, like, you have to say, look, there’s something wrong with this picture. And some councils are developing key worker accommodation, which is a particular style of public housing, you might say. So, so yeah, that that’s sort of, I guess, complicating the whole, whole picture of like, stamp duty and like. What I’m trying to say is, it’s good if people are buying and selling to move where they should be, but the deeper story is if people, if police policemen, or police officers and nurses and so on, can’t actually move to be close to where they were. You know, that’s that’s a bit messed up as well. Yeah,
Gene Tunny 34:22
it’s interesting. That whole the fact that they’re having to find, you know, provide key work accommodation. And this is in, you know, this is not someone, somewhere remote where it might be. You know, there’s only so many properties, and it’s costly to build a new one. This is in the middle of, presumably you’re talking about places like northern suburbs of Sydney. Are you North Shore Sydney? Yeah, that’s right. Yeah, right. And because I know, I mean historically, like the education department would provide houses for teachers in remote parts of of Queensland or new. South Wales, I think, and and I visited a town in or I visited a potato processing facility in in the Riverina, and that company, it actually owns them houses in in the town, I think it was Hillston, because for accommodation for their their workers, because they know that otherwise they may not be able to find places to live. It’s extraordinary that they have it schools and and, you know, all councils are having to do that in major cities. It’s extraordinary. Yeah,
John August 35:33
yeah, so, but I suppose, look, we might move on to some other things, I suppose, but I’ll there’s, there’s so many things I can say, but let me try to say a few more things. Now, one of the things that George talks about is they talk about the division of labor, but they don’t talk about skilled labor. And there’s, like, a moderate number of holes in their story. Because one Georgia story is that if you have, let’s just say, a township, and all it’s really got is one railway state, and over time, it builds into a decent sized Township. And George says that between when the township starts up and when it matures, five or 10 years later, the the wages of basic labor will not increase, but the rents will go up, right? And on the one hand, he’s true to say that, but George has also talked about division of labor and specialization, and while that observation, he said, is true, the opportunities for skilled labor in a mature economy will be there that weren’t there when it was first starting out. So so while the way so the wages of unskilled labor may well be the same, it’s quite possible there are now opportunities to skill labor, so the average wage will go up during that growth period, but, but the George’s perspective just focuses on how rent is going to go up, and doesn’t talk about how the economy will change over time. Then there’s sort of quantum, Quantum Leap effects, where, let’s say you have a bookstore, and then the bookstore has to compete with like overseas booksellers on the internet, so it can’t be profitable. And what then happens is those bookstores are replaced with service stations, because basically you have to fight buy petrol from somewhere locally to put in your car, but you can sort of basically buy books by post. And that’s saying that the I guess, the ecosystem economic the diversity in your local economic ecosystem, will sort of be affected as rents go up and opportunities are less so, you know, there’s, there’s some interesting Georgia’s perspectives and, and, oh yes, there’s one or two others like, you know, the idea that Georgia’s taxes will not distort the economy as much. I mean, you have all this picture of, like, macro economics, of, you know, taxation, productivity, inflation, employment, unemployment, and so on. And in all the stuff that I read in Henry of George’s commentary, of all the articles I’ve read, maybe only one, incidentally, spoke about macro economic concepts. I mean, yes, they will bang on about you know, look, this text is less distortionary and, and that’s probably true, but they never go into the whole macro economic picture. Another one is that interest rates are an important part of our economy. And, you know, I think, think what I think I’ve had a separate discussion with you. And, you know, let’s say one of the things you might at the story we’re all told at school is, you know, you go and get a bank loan. And what that means is that, rather than saving for 30 years and then buying a house, you can buy the house now and then pay the loan off for 30 years. And it’s actually better to get that house sooner. And that’s a story that’s told at school. But the problem is, when we go out in the world, it’s not like the houses have a fixed price. It’s more a price that is bidded for. And we go out to the bank and basically get bigger and bigger loans and bid up the price. So it’s not like we’re getting a bank loan for something that was a fixed, fixed cost. The the cost is sort of the purchase price is influenced by the loan that we get and that sort of, you know, the availability of money in the interest rate and so on. And my broad, broad brush approximation is that the front end the developers, there will be, I think, a fixed price for land, and they’ll buy a certain amount based on interest rates and their expectations of future return. But when we buy stuff, the supply is fixed, and we bid up the prices, partly based on on bank loans. Now there are some George’s comment commentators, as I said, 10 years of articles, and maybe one of them talked about interest rates, and it was more saying that if you actually hold. Land, then you don’t have to pay interest on it, or you can get a lower rate of interest. And I know Cameron Murray, he was talking about the idea that people might strike an option and convert their land, and you have the idea of you can be paying interest on land, or if you own it outright, then you’re only paying the opportunity cost of not developing and I think Cameron Murray develops that theory a bit. And so notice this. These are all very interesting stories. And you know, you read 1010, years of George’s publications, and one article might comment on this factor, or another article might comment on that factor. And yeah, it’s a bit strange. It seems that there’s a lot more that could be done with these Georgia’s ideas than it isn’t
Gene Tunny 40:46
a lot more. What do you mean exactly? Where do you think that I’m just trying to, I’m just trying to understand what’s, what are the implications of what you’re saying? I mean, what is your
John August 40:57
there’s economic modeling which sort of says, oh, you know, we increase tax and we reduce economic output, and that’s sort of going to say, you know, what’s the size of the economy, what’s GDP like, what’s productivity like, what’s employment like, what’s inflation like, and so on. And okay, so we change the tax we we change it from what we’re doing, from the mix tax mix we have at the moment, to one that’s based on land value taxation, and what’s the macro economic effects of that? Now, I suspect they would be positive, but apart from just this hand waving argument of, oh, you know, the economy will be less distorted, there’s not really a development of the macro economic consequences of this sort of tax shift, and I suppose also the fact that interest rates do mesh into our story. And, you know, we don’t want, just want to think about, you know, the the escalation in property values. We probably also want to think about what interest rates are doing along the way. And I suppose one thing that the Georges have is they have a particular perspective on business cycles, and that, you know, investment in property is a trigger for business cycle, so they expend a lot of intellectual energy on that particular story. And, yeah, but, but anyway, look, there’s, there’s other things I could say, but maybe I’ll leave it at that for the present, I suppose. Well,
Gene Tunny 42:15
I mean, at times it is. I mean, we know that. I mean, there have been several crashes in Australia, well, and in the US. I mean, there’s been at least one. There was the crash or the recession in the early 90s. I mean, that was preceded by the boom of the late 80s, and a large part of that was, you know, a lot of commercial property investment. And in the US in the lead up to the financial crisis of 2008 we obviously had all of the, you know, the big housing boom there. So, yeah, I mean, clearly, okay,
John August 42:50
well let, let’s say the the thing is that the jaw just make, I think, a very good case that recessions are associated with over investment and land and property bubbles and so on. Now, whether you could say they’re the cause of it or just part of the wave that crashes, you know, that’s a more subtle issue. But certainly property bubbles and property disruptions are associated with recessions and, you know, just have something interesting to say there. But, you know, there’s just no, I guess there’s just so much to think about. You know,
Gene Tunny 43:27
yeah, yeah, absolutely. I mean, I think, I think you raised some important issues. I think we’ll have to come back another time to the impact of of interest rates on or credit and interest rates on property values, because clearly there’s a relationship. And you would have seen, have you seen the Saunders tulip research, the RBA discussion paper on housing there their model? I’ll send you.
John August 43:54
Who knows? I have a vague feeling I’ve glanced at it five or 10 years ago, but yeah, I guess it’s not something I’m mindful at the moment. Let me see. Now you’re talking about, let’s see so, so remind me what was some of the content of that paper.
Gene Tunny 44:11
So trans Saunders and Peter tun who are working at the Reserve Bank at the time. Peter is a colleague of mine at Center for Independent studies now trends now works at Queensland Treasury Corporation down the road from me. At the moment, they developed an econometric model of the Australian housing market and the variables that move property rents and property prices the most interest rates and the population growth, so yeah, or dwelling stock per capita, yeah. Well,
John August 44:46
you’ve probably heard me talk about population growth and infrastructure deficit and this sort of thing. Now that you’ve mentioned it, I do remember one of the stories that Cameron Murray told was that you can, you can rent. Rent a house, or you can rent money from the bank to pay off your house, sort of thing, correct? And that was a very cute sort of way that he had of describing some of these interactions, so that, yes, I would say, like, look, interest rates are part of the picture. I tend to think that what you might call the underlying Georgist ideas about land ownership, injustice might also be a part of the picture, but notice, I’m not going to just focus on Georgia, the Georgia part of the picture. I think there’s a lot of complexity there, and I think interest rates are part of it. As I say that in all the Georgia literature that I’ve read, I mean, I’m not saying I’ve read everything, but obviously you’re in Australia to read the Australian publications. You read them for 10 years, and an interest rates get mentioned maybe once or twice. So for me, there’s a, there’s a rich picture here that seems to be ignored, much as you know, Georges have a part of it, right?
Gene Tunny 45:52
It’s a fascinating philosophy, and one that until, I mean, you know, we had that conversation, and you asked me, Are you running into any Georgist? And I had to say, well, actually, no, but
John August 46:04
Well, I can only suggest that you check out what is it called prosper in Victoria. And they have a website where they sort of basically sing the praises. And if you read it now, whether or not you’re persuaded by it, you can certainly see that this is a movement, and people you know, have strong feelings about this, you know, so that that might sort of, and as I say, I’m surprised that it seemed to me I was stumbling over Georges all over the place that we’re all trying to convert me. Like in some circles, you might stumble over Christians who are all trying to convert you, or whatever, you know, so and you haven’t had that experience. Well, here you go.
Gene Tunny 46:39
No, well, I think a lot of economists will, yeah, they’d be. They skeptical of it, particularly, I mean, he’s known for that argument that. So the idea is this economic rent of land. So the you know, what they people earn from the property just because of the fact that you know it’s there, it’s in a particular location. It’s nothing to do with anything they’ve they’ve done, or improvements they made of the property. The idea is that should be shared by society. So he essentially wants to make land into common property. And I think that’s, yeah, that’s obviously going to be
John August 47:17
something, many things I could bring to bear. And obviously that, it’s hard to crank them out of the top of my head, but I remember I actually looked at, I think, one of the maybe it was business review weekly or or some sort of, some sort of record of, like, the 20 most prosperous businesses in Australia. And of those 20 businesses, maybe two, three, maybe four at the most, were into resources in some abstract way. And like, two of them were in the resources in the sense of mining, and maybe two of them were into property, but the rest of them were into retail or logistics or computer services or whatever. And you know, you’re sort of saying, Well, hang on if you know, if land ownership is such a parasitic growth on our economy? How come there’s so many strong industries in other areas? And, you know, that’s a question I do ask myself. Now, it’s obviously possible that, you know, under the surface, you know, the the landlords are leeching out of out of our society, and that’s quite possible, but it does run a bit counter to just looking at the 20 most successful businesses in Australia, maybe
Gene Tunny 48:23
we have to come back and chat about speculation another episode, because there would be quite a lot to talk about. I mean, the what I’m wondering is, I mean, do you what do you think of the argument that, I mean, a lot of this speculation is necessary to be able to take advantage of new opportunities. I mean, as part of that whole process of creative destruction. I mean, you know, ex post, or after the fact, it becomes obvious that, yeah, okay, so there was a lot of over investment in particular areas. I mean, the original.com boom, the railway mania in the in the 19th century. I mean, you know, I guess the commercial property boom in Australia in the late 80s, there were so there are, you know, so many examples, but ex ante, or before the fact, it may have actually made sense to, you know, to devote all of these resources because, you know, it did look like a, you know, there were profitable opportunities at the time. And you know, who is to judge what is, what are, what are good investments to make, ex ante, other than the people making them? So that’s the that would be the standard economist or, or, you know, rational economist response to these concerns about speculation. So just thought we’d end on that, and whether you have any reflections on that. Okay, well,
John August 49:42
I think you’ve gotta distinguish two elements here, like the Georgia sort of say, look like the the government has built a railway station increase the value of your land. And you know, it’s someone else’s efforts that have increased your value. Mm. So that’s sort of like saying, Look, here is speculation. Someone else has done something to increase your value, and you’re getting a bonus as a result of someone else’s efforts. Now, if it’s a speculation in the sense of like, here’s a radical new product that you’re putting out, okay, and it’s not environmentally effective. You’re paying your staff well, and you’re not, you’re not selling in a manipulative way. But for some reason it goes really well in your business absolutely explodes. That’s, I guess, what you call legitimate speculation. So, you know, I guess there’s what you might call speculation in innovative ideas, where you are actually carrying something forward. And I suppose, look, the whole thing about georgism, and I mean, there’s so many rabbit holes you can go down, but they do celebrate their idea of genuine enterprise. Yes, so. And I would actually say, Look, if somebody starts up a green grocer, and there was no green grocer before, and there was a market for it, and all these people go and say, Oh, those carrots are really good. I’ll buy some or whatever. You know, they are actually helping things along. So I suppose it’s a matter of whether this style of speculation is you are taking a gamble, and you’re not parasitizing or someone else, or if it’s speculation, where you’re doing something and then somebody else does something brand, and you get the benefits of that. Now I think that’s a worthwhile distinction to make. Let’s say some people, I mean, it was Cisco things settled, obviously, but you know, the people originally behind Cisco. They put some money into it, and it really flew. And I have to say, well, good luck to them on that one. You know, I suppose that’s genuine speculation, where it, where it gave an ethical return, I guess you would say, and, and that is a distinction that I will make. And I do actually echo some of the Georgia sentiment, which talks about genuine enterprise, real enterprise or real creativity behind business. And I think I’ll run with that Georgia sentiment, right?
Gene Tunny 52:08
Oh, well, yep. I mean fascinating, fascinating body of of literature, of thought there. So yeah, John, thanks so much for the chat. It’s always great chatting with you, boy. It’s got lots of interesting things to say. Make Me Think about a lot of issues. I’m going to gonna have to do a bit more research on georgism Make sure I fully understand it. And I think you made, made a lot of good points. And yeah, thanks, thanks again for your time, and I hope it all goes well out on the campaign trail. So all the best for that, and look forward to catching up with you sometime again in the future.
John August 52:42
All right, and you know, obviously, if I’m in Brisbane, I’ll look you up. And please do look me up if you’re in Sydney anyway,
Gene Tunny 52:49
will do Okay. Thanks, John, okay, then Sid, righto, thanks for listening to this episode of economics explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via contact at economics, explore.com or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting out lets you, then please write a review and leave a writing. Thanks for listening. I hope you can join me again next week.
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Credits
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