Economic Misinformation shot down

Sir Millard Mulch
Creative Commons License photo credit: rick

A few months ago Bryan Kavanagh had this excellent piece published in the Age – Breaking In on the Rent Seekers.

It solicited a response from the IPA’s Sinclair Davidson. I probably should have stripped it apart at the time, but was satisfied that Davidson was given much less prominence than Kavanagh and our colleague Gavin Putland tore it up on the LVRG blog here and here.

However, Treasury officials have other agendas and invited Davidson to present to the Treasury on his opinions about Land Tax. Please don’t have a heart attack! We have submitted 6 major submissions to the Henry Review and haven’t been quoted in the Treasury’s consultation paper.

Read the scathing critique of Davidson by our American colleague Roy Langston below. A little bit hot-headed, but when you live with the constant frustration of 2 dimensional economists getting continual airplay, it does get a little infuriating. This is Roy’s opinion reprinted for information. No doubt there are other opinions.

Why Do Economists Lie About Land? as published in the Failed Experiment blog
by Roy L ~ May 2nd, 2009
the quoted content is Davidson’s

One of the more significant relationships in economics is that between success and eminence in the profession and the enthusiasm with which one chants whatever lies favor the interests of the privileged. On March 13, 2009, Sinclair Davidson, a professor at Australia’s Royal Melbourne Institute of Technology and senior fellow at the Institute of Public Affairs, decided to advance his career prospects by reiterating some oft-exploded anti-geoist lies in “The Age,” a venerable Melbourne broadsheet. Why would Davidson write this idiotic garbage? Who paid him to do it, and why did The Age decide to publish it? Certainly The Age hasn’t published any factual material on land economics recently. But Davidson will certainly be rewarded for lying to the public about land. Count on it. He will be getting some lucrative appointment or “consulting” job before very long.

The relationship between an economics profession (one cannot call it a science) dominated by liars for hire like Davidson, the current global financial crisis caused by lending for land speculation, and the recent multi-trillion-dollar giveaways of taxpayers’ money to rich landowners and the wealthy shareholders and obscenely overpaid top executives of financial institutions may not be entirely coincidental.

Davidson’s nonsense is so absurd, so dishonest, so transparently fallacious that it cannot possibly be the result of innocent error:

The mistaken idea that there is some monopoly return to land ownership, geo-rent, that can be taxed with impunity simply won’t die.

Because it is the truth.

It doesn’t help, of course, that many textbooks use land tax as an example of a tax that cannot be passed on to consumers, or back to suppliers.

The fact that textbook authors who understand economics far better than Davidson use land taxation as an example of an unshiftable tax might be a clue to the good professor…

Yet there is big difference between reality and textbook example

Right: the political jurisdictions in textbook examples don’t have liars for hire like Davidson polluting all public discussion of land taxation with idiotic and dishonest bull$#!+.

The early Greeks viewed direct tax on land as the mark of tyranny.

Oh? Which early Greeks might those have been? Early Greek landowners, perhaps….?

The fact is, ancient Athens raised a substantial fraction of its public revenue by leasing out publicly owned lands, as did Rome. Is it an accident that those two cities marked the acme of classical civilization, and were both destroyed only after their major landowners contrived to shirk their rightful share of the tax burden?

So too do modern taxpayers.

Oh? Which modern taxpayers might those be? Landowners, perhaps….?

The American social reformer and journalist, Henry George,

How telling that Davidson refuses to countenance George as an economist, despite the fact that his name appears in the indexes of more economics textbooks than all but a handful of the most eminent
19th C economists.

popularised the notion of a geo-rent tax to correct social injustice and collect revenue. In particular, George argued that a geo-rent tax could generate enough income to replace all other forms of taxation.

Which was indisputably true at the time, as even the quite modest levels of land and property taxation then in effect often accounted for the majority of all government revenues in countries like the USA, Canada, Australia and Japan.

He also took the view that land was a “free gift of nature”.

And was indisputably correct in that view.

Existing landlords had a monopoly access to land (independent of usage) and should pay the monopoly profit as a tax. This would keep land in productive private ownership, reduce speculation in land and raise sufficient revenue that all other taxes could be abolished. The linchpin to this theory is that land is “free” and fixed in supply.

Both of which are indisputably correct.

Even Friedrich von Hayek says: “If the factual assumptions on which it were based were correct, the argument for its adoption would be very strong”. While land is fixed in geographic terms, land as an economic asset is not.

Yes, of course it is. The supply of land is the same no matter what price it trades (or rents) for. Davidson is just spouting complete anti-economic nonsense that he must surely know is false.

Land, like capital, can be allocated from one usage to another.

But of course, that is completely irrelevant to the fact that the supply of land is fixed. Any factor in fixed supply can be allocated from one usage to another. A Rembrandt can be hung in a public museum, a private gallery, a corporate HQ, a living room, or a broom closet. Davidson KNOWS that fact, and he knows that it does not
somehow make the supply of Rembrandts anything but fixed. He just decided to lie that it made the supply of land something other than fixed, because he is being paid specifically to lie about land, not Rembrandts.

As John Bates Clark argued: “The idea that land is fixed in amount… is really based on an error which one encounters in economic discussions with wearisome frequency.”

Readers should verify for themselves that contrary to Davidson’s claim, that is not, in fact, an argument at all. It is just a bald, unsupported, and false assertion by the the very prototype of anti-geoist liars, a man who disgraced his own name and reputation for all time by his relentlessly dishonest campaign of anti-land-tax

The argument is quite simple. Money does not grow on trees and nature does not yield economic value easily. At any level of economic activity above hunter-gathering natural produce must be combined with capital, labour, and entrepreneurial insight before economic value can be created. Adam Smith arguing for the notion of geo-rent used the example of collecting kelp to make soap. But the kelp itself did not generate a return; the knowledge that alkaline salts can be derived from kelp and turned into soap generated the returns.

No, that is just another flat-out lie on Davidson’s part. True, the kelp itself did not generate the return, because it was there for eons before there was any return. But the knowledge of how to use kelp to make soap also did not generate the return, because that knowledge was used in other places where kelp beds were freely accessible to kelp gatherers, and it generated no such return.

What generated the return, self-evidently, and as Smith explained so very clearly, was the landowner’s privilege of depriving others of access to the kelp beds unless they paid his extortion demands. Like all other anti-geoist propagandists without exception, Davidson will say and believe ANYTHING WHATEVER in order to avoid knowing that self-evident and indisputable fact of objective physical reality.

The geo-rent is not inherent in the land itself; it is a return to entrepreneurial discovery.

No, that is simply another of Davidson’s bald, transparent lies. The entrepreneur and discoverer do not get the rent of land. The landowner does, and he doesn’t have to make any “entrepreneurial discovery” — or any other contribution to production whatsoever — in order to get it. He just owns the privilege of demanding it. How is
soap production aided by the landowner’s demand that others pay him for access to the kelp nature provided for free? Lying apologists for landowner privilege like Davidson will do anything to avoid answering that simple question. I dare him to answer it here in this forum (or in our forum below).

Land is an input into the wealth creation process just as any other factor of production.

No, that is just another lie: unlike labor or capital, land is already there, ready to use, with no help from the landowner or anyone else.

So, a tax on “land” is not a free lunch.

Right. It is, rather, the end of the landowners’ free lunch at the expense of the productive.

It is a tax on either capital or labour.

That is just another flat-out lie by Davidson, as proved above. Economists have known for 200 years that a land tax comes out of land value, and from nowhere else.

Of course, government likes the land tax because it has pleasing theoretical qualities,

Oh? Which government, anywhere in the world, has recently expressed by its actions any liking for the land tax?

Certainly there have been governments in the past that did so — and reaped the resulting economic miracles: Meiji Japan, Kiaochow, the California water districts, Denmark, Akbar the Great’s government in Mughal India, Kang Xi’s administration in China, Australia in the late 19th century, plus ancient Egypt, Athens and Rome.

but the taxpayer knows the reality of the situation.

Heh. Not if he believes any of Sinclair Davidson’s stupid lies about land, he doesn’t.

Editor: Re the John B Clark mention above, make sure you read The Corruption of Economics (in our bookshop too) – the robber barons were in effect way before the World Bank et al.

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