Sunday, October 08, 2006

RE: Broken Law

This is a response to one of Cranky Weasel's latest, a presentation of two characters: a home-growing pot smoker who keeps his weed to himself, and a CEO who buys up a rival corporation and eliminates jobs in the interests of efficiency, showing that the law treats them in the exact opposite manner than they should be treated. Head over and read his blog, then come back to mine. My response follows:

Well, I would argue that neither Frank nor the CEO have done anything wrong. Frank isn't hurting anyone, and certainly should not be arrested for his activities. But then again, neither has the CEO, and let me tell you why. (Note that there is a flaw in the argument... before you stop reading in disgust of a capitalist fallacy, at least try to reach the second part.)

Certainly, when he removes inefficiencies from the new business conglomerate, some people lose their jobs. However, other people do better, and those people who lost their jobs don't necessarily do worse.

Think of the stockholders. Certainly, some of them are fatcats who hardly need any more, but a good many of them are likely people whose primary retirement fund includes shares of this company in their 401(k). For those who are likely to spend that money more immediately, what are they likely to spend it on? Maybe they'll go to resteraunts more often, or buy a fancy car, or go to Disneyland more regularly, or do one of many things that both require money to do, as well as employees... thus, it is very likely that, though some jobs are lost, more are generated in the process.

Now lets look at the facilities that are "liquidated" in the process. We're talking office buildings, or manufacturing facilities, or other types of commercial or industrial real estate. If they're not being used they could be sold to someone else, providing an opportunity for others to go into business for themselves. Some of the layoffs might benefit from this factor directly, while the rest likely have marketable skills; given a healthy economy, they can find other jobs... particularly considering that more jobs have been created.

Now, this argument is a classical Capitalist argument, and it would not only make sense, but would be nearly unassailable, were there not an alternate scenario that, if it's not more likely, at least does enough damage in the long run to eliminate the gains created when the previous scenario is the case. Most "liberals" would simply point out the obvious fact of poverty and class power without bothering to explore the question of why. In the following paragraphs, I will explore the question, why doesn't this scenario actually work?

The other thing the shareholders could do with their money is buy land they have no intention of using. They could buy a summer home in the mountains or on the coast, thus eliminating an opportunity for someone else to make a living there, and raising the cost of living for everyone else that's already there. They could buy some land that could be developed sooner (providing both additional housing and/or jobs, commercial, industrial, and construction), holding it and keeping it out of use in anticipation of future gain. Unlike actual capital goods--for which a demand only stimulates greater production--the demand for "investment land" does no such thing, since land is, truly, a finite resource.

Then there's the unused facilities that go with laid off workers. While the corporation could sell it off right away, it is unlikely to do so. They can count it as collateral to get better leverage when taking out loans, and, of course, as the economy develops, the value of the land will go up, making holding it alone a good opportunity, even as the community in the immediate vicinity of the property blights. The people that used to work there no longer do, and nobody else is allowed to move into the derelict facilities, renovate them, and employ people there, until the corporation is good and ready, likely at an extortionate rate.

There is no need to create onerous bueraucratic regulations to keep this scenario from happening. All that needs to be done is for existing taxes (particularly income and sales) to be replaced with a Georgist Land Tax. The result of this, to both the corporation and the wealthier beneficiaries of the takeover, is that it would be very expensive to hold land they had no intention of using. The average person would not be harmed, since what they would pay in land taxes would probably not exceed what they had already been paying in sales and income taxes (not to mention the opportunity costs of forbidding anyone from going into business who can neither deal with tax laws nor afford the services of a CPA).

The summer-homers and blight-holders, however, would have to pay a great amount to hold land out of use. The corporation would be very likely to unload the unused facilities on much more generous terms (an opportunity for others to do their own business in that location) in order to avoid paying the taxes The wealthier beneficiaries would be much more likely to spend their vacation time in hotels or rentals (providing tourism jobs or, at the very least, leaving the spot open for others at other times of the year) than to purchase a tract of land they intend to use only a few weeks out of a year.

The result would be more, better paying jobs for everyone. As Hentry George put it in his Progress and Poverty, with all that land freed up for use, "For into the labor market would have entered the greatest of all competitors for the employment of labor, a competitor whose demand cannot be satisfied until want is satisfied—the demand of labor itself."

Capitalism does work, as two-hundred years of progress clearly shows. The problem isn't Capital, it is Land--as it always has been. The creation of the "Sturdy English Poor," for example, did not begin with the Industrial Age, which employed millions, but rather with the Enclosure Movement, which booted those millions off their traditional lands in the first place. The grandest deception ever put over the world was when people started counting Land as just another kind of Capital.

It is not.


Cranky Weasel said...

This is a good spinoff discussion. While it certainly takes the case of the CEO substantially deeper than I had intended, you do make a point. As with everything to do with economics, the effects of corporate decisions are complex.

I can see I'll have to pick my comparison cases more carefully!

I do have a respect for your writing style. You tend to be more thorough than I in your treatment of a topic.

Tarvok said...

Thank you for your compliment, Cranky. :) In truth, it's not so much that I treat any topic with more depth (you've got some doozies in your blog, as well), it's just the subject of "political economy" (the old term for a clearer version of the obfuscated field we now call "economics") interests me greatly.

The short version of the post: so long as the underlying rules of an economy are fair, any decision which increases the profitability of a business also benefits society as a whole. My argument is that the rules we presently have are not fair, and that is why society as a whole does not receive the full benefit, and some are ground into poverty.

The idea that Land and Capital are the same thing is one fallacy. I have read that the workings of the Federal Reserve system are another, though I myself don't understand those workings well enough to say anything about it.