“No-one saw this coming?” Balderdash!

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The widely believed proposition that this financial crisis was “a tsunami that no-one saw coming”, and that could not have been predicted, has been given the lie to by an excellent survey of economic models by Dirk Bezemer, a Professor of Economics at the University of Groningen in the Netherlands.

Bezemer did an extensive survey of research by economists or financial market commentators, looking for papers that met four criteria:

“Only analysts were included who:

  1. provide some account on how they arrived at their conclusions.
  2. went beyond predicting a real estate crisis, also making the link to real-sector recessionary implications, including an analytical account of those links.
  3. the actual prediction must have been made by the analyst and available in the public domain, rather than being asserted by others.
  4. the prediction had to have some timing attached to it.”

On that basis, Bezemer found eleven researchers who qualified:

Researcher Role Forecast Date
Dean Baker, US Co-director, Center for Economic and Policy Research 2006
Wynne Godley, US Distinguished Scholar, Levy Economics Institute of Bard College 2007
Fred Harrison, UK Economic Commentator 2005
Michael Hudson, US Professor, University of Missouri 2006
Eric Janszen, US Investor & iTulip commentator 2007
Stephen Keen, Australia Associate Professor, University of Western Sydney 2006
Jakob Brøchner Madsen & Jens Kjaer Sørensen, Denmark Professor and Graduate Student, Copenhagen University 2006
Kurt Richebächer, US Private consultant and investment newsletter writer 2006
Nouriel Roubini, US Professor, New York University 2006
Peter Schiff, US Stock Broker, investment adviser and commentator 2007
Robert Shiller, US Professor, Yale University 2006

Having identified eleven researchers who did “see it coming”, Bezemer then looked for the common elements in the way that these researchers analysed the economy. He argued that if there were common elements—and if these differed from the approach taken by the overwhelming majority of economists, who didn’t have a clue that a crisis was approaching—then the only useful economic models would be ones that included these common elements.

He identified four common elements:

  1. “a concern with financial assets as distinct from real-sector assets,
  2. with the credit flows that finance both forms of wealth,
  3. with the debt growth accompanying growth in financial wealth, and
  4. with the accounting relation between the financial and real economy.”

A non-economist might look at these elements in puzzlement: surely all economic models include these factors?

Actually, no. Most macroeconomic models lack these features. Bezemer gives the topical example of the OECD’s “small global forecasting” model, which makes forecasts for the global economy that are then disaggregated to generate predictions for individual countries—like the ones touted recently as indicating that Australia will avoid a serious recession.

He notes that this OECD model includes monetary and financial variables, however these are not taken from data, but are instead derived from theoretical assumptions about the relationship between “real” variables—such as “the gap between actual output and potential output”—and financial variables. As Bezemer notes, in the OECD’s model:

“There are no credit flows, asset prices or increasing net worth driving a borrowing boom, nor interest payment indicating growing debt burdens, and no balance sheet stock and flow variables that would reflect all this.”

How come? Because standard “neoclassical” economic models assume that the financial system is like lubricating oil in an engine—it enables the “real economy” to work smoothly, but has no driving effect—and that the real economy is a miracle machine that always returns to a state of steady growth, and never generates any pollution—like a car engine that, once you take your foot off the accelerator or brake, always returns to a steady 3,000 revs per minute, and simply pumps pure water into the atmosphere.

The common elements in the models developed by the Gang of Eleven that Bezemer identified are that they see finance as more akin to petrol than oil—without it, your “real economy” engine revs not at 3,000 rpm, but zero—which can contain large doses of impurities as well as hydrocarbons. The engine itself is seen as a rather more typical gas-guzzler that pumps not merely water and carbon dioxide, but sometimes unhealthy amounts of carbon monoxide as well.

That’s encapsulated in the flowchart that Bezemer copied from a paper by Michael Hudson, shown below. Without credit from the Finance sector, producer/employers don’t get the finance needed to run their factories and hire workers; but with credit they accumulate debt that has to be serviced from the cash flows those businesses generate.

The component left out of the above flowchart—but incorporated in all the models praised by Bezemer for seeing the crisis coming—is that the finance system can fund not merely “good” real economy action but “bad” speculation on financial assets and real estate as well. This also leads to debt, but unlike the lending to finance production, it doesn’t add to the economy’s capacity to service that debt.

The growth in thus unproductive debt was the common element identified by Bezemer’s “Gang of Eleven”, which was why we most definitely did see “It” coming.

I’ll finish this analogy-laden article with a sideswipe at an inappropriate one—that this crisis is “like a tsunami”. Though that image captures the suddenness and devastating nature of the crisis, it is wrong not merely once but twice in characterizing how it came about.

Firstly, unlike a tsunami, this crisis was predictable by economists who take what Bezemer characterized as a “Flow-of-fund or accounting” approach. Secondly, a tsunami is actually caused by a huge shift in the planet’s tectonic plates, and the shift itself relieves the tension that caused the tsunami in the first place: in a sense, the tsunami resets the system to a tranquil state.

This financial tsunami was caused by the bursting of asset price bubbles driven by excessive levels of debt, but the bursting of those asset bubbles hasn’t eliminated the debt—far from it. Instead, economic performance for the next decade or more will be driven by the private sector’s attempts to reduce its debt levels, and this will depress economic activity for years. Unlike a tsunami, a debt crisis is a wave of destruction that keeps on rolling unless the debt is deliberately eliminated.

Everything that is being done by policy makers around the world is instead trying to restart private borrowing. A better analogy is therefore not a tsunami but a drug overdose—and our “neoclassical” economic doctors are attempting to bring the patient back to health by administering more of the same drug.

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253 Responses to “No-one saw this coming?” Balderdash!

  1. dojufitz says:


    i agree with you.

  2. Philip says:

    I see that a LVT should be seen as similar to the capital gains tax on equities: doesn’t prevent stock market bubbles and doesn’t replace the income tax but provides a useful revenue stream to the government. If combined with Steve’s mortgage idea, it could become viable.

  3. evokadevo says:

    Steve, congratulations on qualifying for Professor Bezemer’s list. That is an achievement to be proud of.
    First:-I believed that the reason Hong Kong has a high LVT and low income tax was because over the centuries the Chinese have perfected the art of running apparently successful businesses that produce no taxable income. On the other hand, you can’t avoid a property or land tax.
    Second. With regard to LVT in Australia.I just received my annual rates from the Hills Shire Council. My 285.5 sq meter plot in this shire is valued by the NSW Valuer General at $195,000.00 ie $683.00 per sq metre. The total are of the Hills Shire is 380 sq km. If you extrapolate it out, say only ten percent of the area at this “median” valuation, the Hills Shire would be valued at approx. $25,954,000,000,000.00 dollars.i.e twenty five trillion nine hundred and fifty four billion dollars.The entire USA national debt is less than that! I have heard of Enron Accounting and Alan Bond valuations! Is this simply a Government initiated and underwritten Ponzi scheme to keep local rates, all land values and real estate prices HIGH? I know there are multi-variant analyses and other factors, but this is what is under-pinning property prices in Australia. If it collapses the whole local and State Govenment finances collapse. That is why the Federal Government is doing “whatever it takes” to prop up the whole property house of cards for as long as possible. This is also probably why Steve’s prediction of a 40% drop in real estate pices is taking so long to eventuate, as per other reasonings above, which I agree are contributing factors.

  4. spadijer89 says:


    Agreed, culture is very important. I don’t think there was any disagreement about that? Indeed, I was not simply referring to the British tendency to treat a rent owning class with reverence, but the entire Anglo-American culture of worshipping revenues from rent, rather than from labour or capital. Anglo-American cultures are associated with common sense, patience, do not like rapid change, and like hard facts (i.e. pragmatism).

    Hence, pilot schemes are the only way to legitimise a LVT: the old virtues of pragmatism live on. If I can say “look, unemployment is low in these areas is VERY low, home ownership is VERY high, higher education rates, higher income levels etc, we should implement this everywhere”. Otherwise, how can you EXPLAIN this to people? You get propaganda from the property lobby which would claim otherwise- if you have clear EVIDENCE then that cuts off any such arguments.

    Moreover, just because “most participants incomes will be effected” is not a reason not to implement them (actually, what on earth do you mean by that: people IN the zones or people OUTSIDE the zones?). If you mean people in the zones, Georgist theory actually predicts, that incomes in these ZONES will rise: of course, they will rise- rents would plummet (meaning more can go into capital and labour) and if ALL other taxes are abolished, well that speaks for itself as productivity would spurt and investment would be diverted away from the land market and into the labour and capital markets (as it has EVERYWHERE a LVT has been the predominate source of revenue). People outside the zones would be somewhat disadvantaged: actual production, the tax incentives would shift to the single tax zones (another reason to EXTEND the zone). I am also unclear what you mean by “gamed”.

    Plus, the reason I said the ACT and the NT would be the place to begin these schemes is because: (A) the state de facto owns the land and is somewhat regulated, (B) there are no constitutional restrictions, (C) debt per capita in these areas tends to be lower, (D) I recommend Fred Harrison’s “Ricardo’s Law”, which shows people in poor areas (i.e. Western suburbs) are essentially billed twice: first through the services they pay in normal taxes, and second through higher land values and rents. We use the latter to fund the former.
    Furthermore, my reference to the squattocracy was more emblematic of what we should become: I think in our cultural evolution we should free ourselves from the attitudes of the old world, of feudalist speculators in asset prices, and be creators of our own destinations, of worshipping enterprise and hard work over speculation.

    Also, reason, on inheritance tax, recall that most goods that are “inherited” tend to be land related (houses, property’s etc). I do not see any problems with inheriting a business: no doubt a monopoly, which I would argue was formed due to the strategic ownership of land, sites etc as well as investment in assets which allow people to assert their monopoly in the market place. Perhaps, the word “central tax” rather than “single tax” is a better phrase, although the latter communicates the ideals of Georgism: targeting rents and inflated assets, not wages or profits. This is a moot point in your discussion, though.

    Also, no one was equating landowners with squattocracy, but merely pointing out the cultural tendency to worship rents. Thus, your Switzerland point is precisely my point: they have a different culture, my precise point is just that: they have a political system, which nurtures critical thinking, and hence the culture (that is, my implicit point is that the constitutional system impacts on the culture and direction of a nation). So, my response to that is, yes, I know these institutional circumstances are just as important as culture, and in fact, influence one another. The Swiss people do not have corrosive real estate bubbles, but one of the best economies in the world (as does Hong Kong). Perhaps, if Australia, if it ever becomes a Republic, adopts a decentralised system of government like Switzerland and citizen initiated referenda, some serious policy changes may occur… NB: The Swiss produce, the Americans consume – both economically and culturally (that is, they have no critical thinking skills). Hence, Goman’s comment about his friend saying Prop. 13 allowed him to buy his home: if they had introduced a higher tax, it might actually be more affordable!

    Evokadevo, Hong Kong also adopted it because the Chinese(formerly German) colony near it which had a 6% single tax on land, and managed to fund all its services and still remain in surplus. It worked so well that Hong Kong adopted it as well. Also, the answer is yes, rates are delaying the downturn – if these valuations did not occur not only would revenues collapse, so too would the entire financial sector. Low rates and land taxes, can, actually inflated land values (small land owners may sell their land to big ones). Single taxers just want a 100% tax.

  5. spadijer89 says:

    Steve, I agree that a pure LVT will not eliminate bubbles altogether, but can you actually name me a bubble which generated a depression that was not preceded by a land boom? I think you’re answer will be no. All major US Depressions were preceded by land booms, most financial crisises involved real estate malinvestments (1955, 1970) and the South Sea Bubble and even the Tulip bubbles also had land speculation present (indeed, recent research suggests the latter may have been more a tulip land buying bubble, rather than tulip bubble itself). And even these downturns were quite sharp, acute even. The property sector absorbs most of the financial, building, human capital more than any other sector and therefore underpins the entire financial system and economy itselfg.

    Stock prices etc always go up and down, but they do not generate a depression (at best a mild downturn, if that). Indeed, consider the stock market. Did the 1996 stock market downturn generate a depression? No. 1987? No. 1929? No (as the economy was already in recession). 1890? No. I recall that you said the 1987 downturn could of caused a depression had the central bank not intervened. While I agree with your analysis of debt, I disagree with you overlooking initial shocks which may cause a downturn (to the capital structure of the economy) and inability to pay the debt – the stock market is never powerful enough to corrode the entire economy, but the land market is (e.g. during the great depression the first shock came in construction sector, which was 25% of GNP in the 1920s and most bank failures were the result of falling land prices)- most real resources fall mercy and orbit the land market (not many real resources really get locked up in the stock market, e.g. construction).I doubt a stock market bubble will force construction AND manufacturing AND services sector AND mining to orbit it in the same way as the land market (or accumulate such debt). So, sure, there will be debt, perhaps, at most, a mild downturn, but not a depression (most of the business errors are confined to the stock market, but not throughout the economy). Thus, your views on bubbles can be maintained, but are historically inconsistent with the data: land, not other speculative bubbles, hurts the economy more deeply.

    Nevertheless, I do agree the solution is two-fold: LVT (fiscal policy) *and* a return to the REAL DOCTRINES BILLS of the 1850s (i.e. businesses lend not on property or stocks, but only business related issues).

  6. spadijer89 says:

    “When it burst we would then have a debt-driven bankrupt private sector and a government sector devoid of revenue…”

    – Simple case studies refute this hypotheis: Hong Kong during the Asian Financial Crisis, Pittsburgh during the current downturn and any downturn in the last 100 years and the German colony of Kiauchau (for reasons I outlined above: no “bubble” can absorb that many resources as land, particularly if there is a real doctrines bill around and people become occupied with hardwork, not the unearned increment of the land market; no other taxes means the economy can adjust more quickly, businesses can get back on work; indeed, Fred Harrison would even say the property market drives the business cycle, not the other way around). Moreover, even during the Tullip bubble, parts of Holland ran surplus with land rates (although not the parts which experienced the land and tullip bubble).

    And even if this is wrong, the above argument also excludes the fact that if we are do adopt Keynesian public works during this purported downturn, the infrastructure built is desposited into higher land values (in the areas purportedly suffering from unemplomyment). So, projects fund themselves as the economy turns back up.


  7. MACCA says:

    There is generational change in the US. Spending is not only dying, it is starting to be perceived as a secular trend.


    “For the first time since Harry S. Truman was in the White House, Americans are paying back their debts,……”

    ““We’ve never seen a pullback like this,” Goldman’s chief U.S. economist, Jan Hatzius, said in an interview from his New York office. “We are seeing an adjustment, and it’s very painful and there’s a lot of collateral damage.”
    ““If you look at various measures of debt in the system, they suggest what we’re doing is getting started on this adjustment; we still have several years to go,” Goldman’s Hatzius said. “We’re going to be at saving levels that are much, much higher than they were in 2006 and, in many cases, permanently.’

  8. whereisthetruth says:


    Thank you for your comments. While I agree that capitalism has some serious downsides, ie. that competition and the pure profit ethic almost guarantees oscene wastage of natural resources, and the potential for massive corruption of the political sphere.

    However, it is obvious that socialism has had little to boast of either. The biggest examples of the central planning model have all demonstrated the propensity for an equal or greater wastage because of gross ineficiency, along with a tendency to treat their populations with contempt in the name of the ‘big picture’.

    In theory the best model should be a benign centrally controlled economy that can efficiently martial productivity with minimum waste toward economic activities that enhance, not endanger, the populace.

    Unfortunately, I think that economics is a bit like politics, to paraphrase Winston Churchill’s famous proverb ‘free-enterprise capitalism is the worst economic system ever devised, except for all the others’.

    Doesn’t make one all warm and fuzzy thinking about that though, does it?

  9. Philip says:


    I find the contrast between state capitalism (corporate capitalism) and state socialism (communism) to be a bad joke. Under state socialism, unelected unaccountable state central planners dictate economic decisions to the rest of society. Under state capitalism, unelected unaccountable corporate central planners dictate economic decisions to the rest of society.

    Under state capitalism, power is slightly more dispersed within the economy as there are multiple competing firms. However, at least in theory, state socialist central planners were to make decisions that directly benefited the citizens. Under state capitalism, the only ones who benefit are shareholders and managers.

    State capitalism is an awful economic system. The usual knee-jerk reaction of those who defend this system is to immediately compare it to state socialism and to say that nothing could be worse. Of course any system could look good compared to the 20th century communist societies.

    I think that both systems have appropriated the prestige afforded to markets and socialism. What we live under are the state variants of both and its effects upon society are clearly demonstrated.

    Market capitalist and libertarian socialist economies have more in common with each other than they do with their state variants. Both offer a vision of a decentralized, accountable, democratic, and equitable economy.

    In Australia, we do not have a market capitalist economy. We have a state capitalist economy, with increasing free-market discipline for workers and the middle class. As our economy is increasingly strengthened in favor of the rich, this necessitates even more social welfare intervention for those who fall behind. The United States is the prime example of this.

    The only way the corporate sector can even continue to function is that no economist has bothered to aggregate the costs that it imposes upon society. The only example I have come across was a fairly conservative (limited) analysis by a CPA in a book called Tyranny of the Bottom Line.

    In the year of 1994, the US corporate sector made $US530 billion in profit (going to the top 10% who own the vast majority of debt and equity) while it imposed $US2.68 trillion of costs upon society (the vast majority of people being middle & working class). Thus costs were 506% greater than benefits.

    Fast forward to today in the US. Just the bailout of the banking and financial sector may reach $US23.7 trillion. Add on to this all other negative externalities, state protection and crimes committed by the corporate sector. Its costs may well reach over $US30 trillion a year.

    As long as the benefits of state capitalism are trumpeted by its religious defenders whilst little to nothing is said about the massive costs it imposes upon society, very little will change.

  10. reason says:

    Steven (spadijer89)

    Thanks for your long reply.

    I think you have misunderstood my point about enterprise zones – “only part of most peoples income will be affected”. The problem is that these zones are not countries – people can easily use accounting tricks to just use the zones to avoid tax. I think it will be difficult to stop this sort of distortion.

    As for inheritance tax, we have to disagree. I also think it is not right for business ownership to become too concentrated over generations. I’m certain that people have done simulations where relative small random differences can be multiplied over time – because money makes money (there are other rents – not just land rents). A new guilded age is a danger – with or without LVT. Money brings with it power, and distorts the whole fabric of society. I’ve got nothing against individuals who make extraordinary contributions, receiving extraoardinary rewards, but I don’t think they should give extraordinary advantages to all their descendents.

  11. reason says:

    I don’t understand what you mean by “state capitalism” or what the alternative “free enterprise” would in reality look like. I think you need to explain your terms carefully. I’m sceptical of people using jargon without being able to point to specific examples to show that what they are talking about is in fact feasable.

    I’m inclined to think that if there is one thing guaranteed to be worse than the status quo, it is a utopia. As whereinthetruthsaid.

    That said, I’m optimistic that intelligent reform can bring progress. History bears that out.

  12. reason says:

    Steven (spadijer89)

    I think you misunderstood Steve Keen. He was disputing that a LVT is sufficient to stop land price bubbles. And I think Hong Kong is an example he might point to.

  13. reason says:

    While I think of it,
    in Germany there is a sort of property title, where people get to own the house, but don’t own the land (usually the land is owned by Church or some similar sort of trust). It reduces the price of the property, but you don’t get capital gains. They aren’t very popular, partly because of potential disputes when the lease get renewed, but partly because you potentially are priced out of the market if you want to move. Potentially your special enterprise zones could have the same problem.

  14. reason says:

    Everybody – to correct a misunderstanding, it was Steven (spadijer89) who brought up culture not me. I said I thought institutional factors were at least as important as culture (and I live in Germany, and have an uncle who lives in Switzerland – but I’m a born and bred Aussie – educated in the same place and almost same time as Steve Keen).

  15. reason says:

    Steve Keen,
    regulating the size of loans, tends to go a bit against the flow of a free enterprise system. But I think having penalties that kick in at the appropriate place would acchieve the same thing without the heavy hand.

  16. reason says:

    Steve Keen,
    nice story about Cassander – people were wondering. Maybe there is a WordPress expert amongst the commenters here?

  17. reason says:

    Steve Keen,
    I was just thinking about your suggestion on limiting mortgages. Isn’t the answer to look hard at the rights of the mortgager to the property and put the limits in there. Then it is not market interference at all, but property rights that are being adjusted.

  18. reason says:

    Just a comment on the Georgians here – without being personal I hope. There is an argument to be made (and I think John Quiggin made it about “Austrians”) that the problem with Austrian or Georgian economics, is not Austrian or Georgian economics, but the true believers. I haven’t yet been convinced that that is not the case. There is a tendency to sweep potential problems under the carpet and ignore refuse to consider alternative views appearing that is a bit disheartening.

  19. MMitchell says:

    Whereisthetruth and Philip,

    I have still not heard any convincing arguments against Prout economics. Ak did criticise them on the basis of their use of co-operatives, but it seems he was basing his assessment largely on socialist experiments, and other models are probably possible (I can think of some). One question I do have is how it deals with land ownership. I don’t know if anyone here can enlighten me on that? Maybe Prout doesn’t help with regard to LVT?

  20. Philip says:

    Interesting news article from Bloomberg: “Bernanke Gets Top Marks as Investors Say Economy Is Past Worst”


    “Global investors give Federal Reserve Chairman Ben S. Bernanke top marks for combating the worst financial crisis since the Great Depression and overwhelmingly favor his reappointment amid optimism that the world economy is on the mend.”

    No wonder global ‘investors’ favor Bernanke. He is one of the foremost corporate socialists in history. Fed action became so twisted that it involved fiscal policy by extending massive subsidized loans to unnamed corporations.

  21. reason says:

    Hong Kong property bust


    David Brin’s address to the Libertarian Party (warning about being too doctrinaire)

  22. spadijer89 says:

    Dear reason,

    “These zones are not countries – people can easily use accounting tricks to just use the zones to avoid tax. I think it will be difficult to stop this sort of distortion”

    Firstly, oh, SORRY…WAIT I see you MEAN…people overseas. Ah. Well, if people use the zones as tax havens, good on them. That’s the idea: I support economic freedom. Curiously, I do not recall this problem occurring in too much in any US enterprise zones or those in the UK. But if that’s the best argument you have against single tax zones, I do not think that is particularly compelling: in fact, it may even be desirable. Quasi Switzerland and Liechtenstein seem ok to me. If their own countries do not support freedom, (parts) of my country will. It may not be good per se for the country whose citizen’s avoid the tax, but I don’t think it will hurt the people in the zones. Also, the “priced out of the market” I think is a good thing: a person who wants the piece of land REALY REALLY badly, implying they will use it productively, will go for it – curiously, in Sydney the areas where government owns waterfront sites (so the state government leases out to eat outs, cafes etc) make the largest profits in the Northern beaches and are very productive (this is where I partly got the enterprise zone idea from). It makes people question whether this is the area for their business (so it promotes similar businesses in similar areas: chemists operate near chemists, lawyers near more viable lands etc). So, again, your claims are easily refuted when one looks at the empirical data.

    Secondly, you’ve missed my point completely. Most of these businesses, which are inherited, ENTAIL large LAND BASED assets: farms, properties, homes, cool apartments etc. To maintain these assets under LVT, the person running the business have to CONTINUE making the business viable and use these assets appropriately (or move over for someone who will). Furthermore, Frank Stillwell finds that most inherited wealth (82%) is backed on some sort of land value (and in that report it EXCLUDES business locations, which themselves are based on land value). Frankly, there aren’t too many business which are inherited which are not quid pro quo: a business’s viability depends on the individuals who run it. You can ask James Packer that (including all the mansions he owns). Again, reason, I would appreciate an RATHER than an . My argument here is I think you have a point that LVT is not the WHOLE solution, but it certainly deals with the MOST SERIOUS parts of the problem. Indeed, 1) most inheritance somehow relates to land value assets and 2) business success, inherited or not, depend on a quid pro quo rule: to remain viable the people who inherit it must possess some degree of competence and exchange goods which benefit the people who buy that good.

    Finally, if I was being dogmatic, reason, I would not have come out and said we need a real doctrines bill in banking, now would I? Furthermore, a difference between Austrian true believers and Georgists is we are hardcore empiricists – we use the facts, not just logic, to back up our arguments. So we have something to be dogmatic about; nevertheless, that is not the case here. You weren’t being personal, just silly.

    Ps Yes, we know I brought up culture, and it seems to me you’ve conceded the point that constitutional arrangements influence the outcomes of one’s culture and vica versa.

  23. spadijer89 says:

    Reason may be right I may have misunderstood you. I got the impression you were talking about bubbles in general, and hence, OTHER debt bubbles (say in stocks or tullips) might lift up land values owned by banks or farmers: “but I expect that thinking a LVT would eliminate bubbles is misguided”. When such bubble burst, so do land values and the government’s revenue base. Then again, you do talk about it in the context of house prices, so I suppose reason’s interpretation is also valid. The reason I assumed this was because I thought it was obvious a 100% tax on land would eliminate land bubbles, and hence, I assumed Keen was talking about OTHER types of bubbles.

    Either way, I disagree with the premise for reasons outlined previously and because, I don’t think Steve Keen (albeit I cannot speak for him), would seriously argue that a 100% tax on land wouldn’t stop land speculation. True, maybe a 5%, even a 15% tax would not stop a speculative bubble (AGREED!), but a 100% tax certainly would – why invest something you will be taxed in? Indeed, it just happens to be the case that in all the places in the US with a high property tax, e.g. New Hampsire, are the areas with the least foreclosures and continue to be the states’ best economic performers, something Karl Case pointed out when he was in Australia, which Steve himself as in the audience. Hong Kong was hardly hit by the Asian Financial Crisis, due to its LVT, and most of the speculation that does occur because of exemptions and crony-ism, both of which can be remedied quite easily. Curiously, remember that 1910 article from the New York Times? Well, they had a 6% single tax and had no land bubbles (instead investment was diverted in business expansion and production). Likewise, in Pittsburgh, a LVT taxing city in the US, and its most productive city, while land values across the US were rising by 30%, there they only rose 6%. This is certainly the case if you combine LVT and the real doctrines bill. As if you would invest in land when all your capital gains (actually, capital does not gain) goes to the state lol. So the empirical data and economic theory easily refutes those views. My conclusion remains.

    pps Reason, your Hong Kong point is invalid as during that period the government actually relaxed LVT, and put it higher in the advent of the Asian Financial Crisis. Notice that the article says ‘in Hong Kong we do not have many homeless families’ – see Georgism promotes equality, too. Furthermore, Hong Kong derives its revenues from land sales (some of which are speculative), rather than land taxes per se. I prefer Switzerland and the US as case studies as they involve land taxes, not quasi crony state owned sales (I used Hong Kong as an example of the fact land derived revenues can fund government services).

  24. reason says:

    I don’t find the argument about “a businesses viability depends on the people who run it” convincing, as
    1. you can hire people to run it – many fortunes are now distributed ownership of many businesses
    2. there is plenty of plant and machinery in inheritances (not to mention good will and knowhow and patents) that gives concentrated unearned returns.
    And the point that inheritances (NOW) contain lots of land values – well (doo!) you are arguing that in present circumstances surplus value accumulates in land. To claim that surplus value won’t be passed on in some other way if LVT decreases land values is assuming something you don’t know. Evidence please!

  25. reason says:

    Foreigners? No just people who run businesses or live and work inside and outside the special economic zones.

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