Hudson on the Piketty Phenomenon

[don]

Re: Hudson on the Piketty Phenomenon

Hudson's perspective is based on a classical economist foundation, ergo Land, Rentier Class, Capital, Labor. He references contemporary FIRE moves within that context.

[Thailandnotes]

Re: Hudson on the Piketty Phenomenon

It's not often I completely disagree with Hudson but I don't think he understands one thing about real estate.

This has come up before on this forum. I think Hudson completely understands real estate and is not talking about an upper middle-class couple who inherits a house and rents it out or buys two houses looking for income.

“In New York City, where I live, the older the building, the more valuable it is because it doesn’t wear out, it’s maintained – most landlords spend about 10% of their income on maintenance and repairs. So the pretence is landlords pretend that their building is like a machine, wearing out, they charge depreciation and because of that they say “I didn’t make any profit, this is a return of capital”. And as soon as they’ve depreciated a building in full they then sell it among themselves or they buy it all over again and start the whole process all over, so you can depreciate the same building, say it’s 100 years old, you can keep depreciating it again and again and again and again as if it’s worn out all these times, and it’s the same building. But the owners and the next owners and the next owner and the next owner doesn’t have to pay any tax on this.”

Basically, the whole argument is about where the super rich store wealth and how they prevent the interest it gains from being taxed. Part two is about suppressing wages to the point where everything in life requires borrowing = tax paid to the lenders.

GRATs, the 65-day rule, and the like are absurd perversions of the tax code. You can listen to Krugman on Moyers and sigh, but he gets some important parts right. 10 billion dollars grabbing 5 % on its investment returns over a million dollars a day. Go to Forbes and check out their historical billionaires list. It’s clear Piketty hit some homeruns with his data. Those lists, as you move through them, are the children of the children of innovators/monopolists

How long should copyright law extend?

“Forever less one year," said Jack Valenti.

[santafe2]

Re: Hudson on the Piketty Phenomenon

My money has an expiration date. It will melt, like a snowman in the sun, and vanish.
I am forced to speculate just to keep even, always trying to find the gaming table where my odds are best this year.

I don't think speculation is required to stay even. There are times when various asset classes are down and it makes sense to invest in them. Today, real estate is a good investment in many areas of the US. If anyone thinks it's tax free or without risk, they should try it and report back. Over the last couple of years I've been investing there and I can assure you, it's neither easy or without serous tax issues. I think EJ has built a couple of real estate funds and can offer his insights.

It's not often I completely disagree with Hudson but I don't think he understands one thing about real estate.

[dcarrigg]

Re: Hudson on the Piketty Phenomenon

+1

This issue vexes me.

My money has an expiration date. It will melt, like a snowman in the sun, and vanish.
I am forced to speculate just to keep even, always trying to find the gaming table where my odds are best this year.

I thought Twain handled the issue well in A Connecticut Yankee in King Arthur's Court.

There has always been inflation. There will always be inflation.

The alternative is no churn and a young generation with no chance.

Those that benefit most are at the top of the pyramid, inflation or no.

[thriftyandboringinohio]

Re: Hudson on the Piketty Phenomenon

...one has to continually work to turnover their depreciating currency to prevent poverty; one cannot simply work hard, save money and become independent of wage slavery without speculating with savings hoping not to end up with a goose egg. In short, money currently has an effective expiration date...

+1

This issue vexes me.

My money has an expiration date. It will melt, like a snowman in the sun, and vanish.
I am forced to speculate just to keep even, always trying to find the gaming table where my odds are best this year.

[Milton Kuo]

Re: Hudson on the Piketty Phenomenon

I would suggest that property taxes should be graduated, like income taxes, so that Harry homeowner wouldn't be hit hard, while Scrooge McDuck, with his 30 story palace, just chalks it up to the cost of ownership. I don't know that anyone is thinking along those lines.

BTW, in some states, like Maryland, where I live, the state and even incorporated municipalities do both income and property taxes.

Scrooge McDuck in Texas has a ranch worth somewhere north of $30mln but due to his having a few cows or something on his sprawling property, it's classified as a farm and he ends up paying something like $10,000/year in property taxes. Meanwhile, a $350,000 house in Houston is assessed over $10,000/year in property taxes.

With the exception of people taking advantage of loopholes such as the one mentioned above, though, property taxes are already somewhat graduated. Those living in more expensive homes do pay more property tax.

[Milton Kuo]

Re: Hudson on the Piketty Phenomenon

So much for europe being this egalitarian paradise. Property taxes are low almost every where in europe. I think I might agree that higher property taxes would be a good thing, if it implied lower income taxes. But I have never seen it offered to voters that way. It's always agree to this tax hike or this spending cut. Part of the problem is that it is the states that do property taxes and the fed that does income taxes. To raise prop and lower income, it would have to be the same branch of government. SC has a fairly hefty income tax--maybe this would be a good way to start. But it's a bit like europe--- we have established property owners that would probably fight against a property tax.

Alternatively, what about a national property tax?

Texas has relatively high property taxes (about 2.5% to 4.0% typically here in Houston) and there is no state income tax. I haven't checked the other states without income taxes but I suspect that they all have higher property taxes relative to the states that have a state income tax. The problem with high, uncapped property taxes, though, is that there is tremendous incentive for the county to dishonestly appraise property prices.

[vinoveri]

Re: Hudson on the Piketty Phenomenon

The big issue I see for money is that people have a different idea about what it is for. Some people think its supposed to hold value. That appears to be what self identified "Austrians" think it should be. Others think its supposed to be a tool of communication between buyers and sellers. The latter position seems associated with Keynesian economics in that it would "devalue the currency" under certain circumstances.

The currency is devalued in ALL circumstances as far as I can tell - and in fact is stated official policy, i.e., inflation targeting. Moreover centralized monetary policy, although not necessarily inherently so, seems to promote the formation of a pyramid where whoever receives the money first benefits more than those who receive it later.

I honestly cannot think of a justification to require that people trade with something that "holds value" rather than smooth transactions. Money is easily converted into something else. So I am not sure what the issue is.

An issue arises because central control of the monetary unit and its value if forced on people, even this itself need not be bad per se, but it is the corruption and the fact again that those who get the money first benefit that is unjust. Letting people deciding what to trade is consistent with freedom.

I also believe the time value of money is overstated. If you save your money for a year on my product, how is that useful to me? Producers chase money in real time. They will keep their door open for a year chasing the money they hope you to spend. If you wait another year they might just give up and close the business. Things rot, rust, and go obsolete. The representative capital of money should also. This is confused with contracts where a delayed purchases is communicated. If its communicated that you don't need a product for two years then a discount rate may be justified.

So again I am not of the school of thought that money has a time value because it is of little use when it is not communicated to the producer.

Here is where philosophy and worldviews come into play. The world is tough and competitive enough. A society that rewards ingenuity, hard work, risk taking directed toward increasing real wealth by providing goods and services that raise standards of living is righty directed imo. A world of centrally managed fiat creation and devaluation means one has to continually work to turnover their depreciating currency to prevent poverty; one cannot simply work hard, save money and become independent of wage slavery without speculating with savings hoping not to end up with a goose egg. In short, money currently has an effective expiration date.

Note this doesn't even touch upon the issue of leverage, and the fact that those with access to easy and unlimited credit causes asset inflation which since it is not uniform causes dramatic inequality. Look what is happening with PE buying up forecloses homes for instance. How close are they to the money spigot vs us?

[gwynedd1]

Re: Hudson on the Piketty Phenomenon

[QUOTE=vinoveri;280339]This is a great interview and Hudson nails some real key points - especially focusing on "fictitious capital", what I call Fiat Capital.
[quote]

It certainly is related to servitude. For example if corporations could convert their workers into slaves then their capital possessions would rise tremendously. We could certainly enjoy lots of cash flow with slaves securing credit. Now imagine if a hog farm had to consider its hog employees. Now they could not be pledged as "capital. A public beach turned into a private asset could make a million dollar asset at the stroke of a pen. Its value is again to reduce those who want to use the beach to a position of servitude having to pay tribute to use the beach.

I just finished reading "confessions of an economic hit man" and this summary above reminds me of exactly what John Perkins described in his book of promising 3rd world countries loans for investment an economic growth, using those loans to grant contracts to American business, and over-indebting the country so essentially it was a debt serf/wage slave . The bastards have applied the same to the domestic economy.

.
[/FONT][/COLOR]
Bingo Bingo Bingo. Have yet heard Hudson state the issue so succinctly and poignantly! The bulk of the financial industry is a friction, unproductive, rent skimming racket.

What I haven't heard anyone point out is the link in the rise of leverage to the rise of fiat currency, which I believe is a direct causation. Hudson, God bless him, for all his insight as with other "Keynesian" types who believe there should be no limit on gov spending will never raise this point about tying the $ to gold or something of intrinsic value, i.e., insuring money is also a store of value. We all have blind spots after all.
[/SIZE]

The big issue I see for money is that people have a different idea about what it is for. Some people think its supposed to hold value. That appears to be what self identified "Austrians" think it should be. Others think its supposed to be a tool of communication between buyers and sellers. The latter position seems associated with Keynesian economics in that it would "devalue the currency" under certain circumstances.

I honestly cannot think of a justification to require that people trade with something that "holds value" rather than smooth transactions. Money is easily converted into something else. So I am not sure what the issue is.

I also believe the time value of money is overstated. If you save your money for a year on my product, how is that useful to me? Producers chase money in real time. They will keep their door open for a year chasing the money they hope you to spend. If you wait another year they might just give up and close the business. Things rot, rust, and go obsolete. The representative capital of money should also. This is confused with contracts where a delayed purchases is communicated. If its communicated that you don't need a product for two years then a discount rate may be justified.

So again I am not of the school of thought that money has a time value because it is of little use when it is not communicated to the producer.

[Polish_Silver]

Hit men!

I think the connection to "hit man" is strong. I had not thought of it, but so much of what's going on is tricking people into loans that they can't pay back, or are just a bad deal. A major point of "hit man" is that the economic gains justifying the loan and capital expense never occurred. I know from other reading that these places are so corrupt, and management so poor, that the project is often not finished. It also stems from a misconception that growth is mainly a "top down" phenomena instead of a "bottom up" process. If you just give people a fair situation, they do most of the growth spontaneously.

Like higher education --- make it so expensive that people have to borrow, then they get psychologically accustomed to being in debt. They borrow for the fancy car, the larger house, everything.

When my girl gets to 18, i'll probably offer her some kind of annual stipend, and whether she goes to college or not is up to her. I don't think it's the "key to the future" the way it's been touted. I mean, can't you get more economics understanding with an i-tulip subscription than by paying tuition at Stanford?

[Polish_Silver]

Re: Hudson on the Piketty Phenomenon

The big problem with high property taxes is that they can cause long-time homeowners to lose their homes. Picture a 60 year-old couple in LA County who bought their home 40 years ago. If they are assessed current value for that property, they will be unable to afford to live in that home, and will be forced to move. Granted, they have a substantial capital gain in that house, but still, the state has basically dictated that people of their income level can no longer live there.

What I had in mind for a graduated tax was not based on the income of the landowner, but on the value of the property. Currently, in Maryland, my understanding is that individuals and businesses pay the same flat rate as a small percentage of assessed value of the property, around 1.1% for Baltimore County, whether they own a shack or a multi-million dollar hotel. For a fixed income homeowner in a $250k house, that's about $2600/year, or about $210/month, which is a struggle for some. For a $10 million property, it's $110k, which for the owner of that property, which is probably netting a return of 8-10% on capital invested, it's just noise.

If property tax were graduated, the homeowner would pay slightly less, but the owner of multi-million dollar properties, substantially more. True, many businesses could pass it on, but it will hurt their cash flow and make it harder to accumulate "Trump-style" massive wealth.

I doubt the mansion is rising so fast in value. The capital gains they make is on equities or something. You are talking about a non-linear tax on residential property, based on the value of each developed parcel, essentially a luxury tax. I hadn't thought of that and it seems like it might work. I don't see how it can be escaped, and it would to some extent cut into "dynaistic wealth". That is a lot simpler than taxing a person on "total property owned" which could be outsmarted via corporations and trusts.

I have the same fear that you do, that higher property taxes would make it impossible for many people to own basic homes. And, given the situation, owning the home is one of the few ways most people can save money. Cash depreciates too fast. Bonds and equities are too volatile. Gold is a forbidden topic. So all you got left is real estate.

You could make the tax very non-linear. Like no tax at all on houses < $90k or something. Fat cats could buy these up for rental, but so what? In a competitive market, the tax savings would be passed on to the renters, so it would still be benefiting the peons.

[RebbePete]

Re: Hudson on the Piketty Phenomenon

I think the problem with a non-linear property tax is this:

I could own 1000 houses in different areas, and can the government track all that ownership?
The advantage of property tax is that you tax each acre on it's value, no loopholes or complexities. The owner cannot escape that.
If you allow a lower rate for little people, the fat cats will create some kind of trust or entity to exploit that.

I do not want a really intrusive government that knows everything about everybody. That limits the sophistication of tax collection schemes.

Actually, though, property taxes are allready non-linear in that in most places commercial property pays much higher taxes than residential. Whether this really works to help the working class I am not sure. A lot of the commercial property is just rental apartments, so the cost gets passed on to tenants anyway. As for businesses, they have to charge customers more or pay employees less to cover the tax. Hudson's best idea was to tax land made valuable by public infrastructure spending---like a house goes up in price because it is near a subway station. The land owner gets rich because of public expense.

The big problem with high property taxes is that they can cause long-time homeowners to lose their homes. Picture a 60 year-old couple in LA County who bought their home 40 years ago. If they are assessed current value for that property, they will be unable to afford to live in that home, and will be forced to move. Granted, they have a substantial capital gain in that house, but still, the state has basically dictated that people of their income level can no longer live there.

What I had in mind for a graduated tax was not based on the income of the landowner, but on the value of the property. Currently, in Maryland, my understanding is that individuals and businesses pay the same flat rate as a small percentage of assessed value of the property, around 1.1% for Baltimore County, whether they own a shack or a multi-million dollar hotel. For a fixed income homeowner in a $250k house, that's about $2600/year, or about $210/month, which is a struggle for some. For a $10 million property, it's $110k, which for the owner of that property, which is probably netting a return of 8-10% on capital invested, it's just noise.

If property tax were graduated, the homeowner would pay slightly less, but the owner of multi-million dollar properties, substantially more. True, many businesses could pass it on, but it will hurt their cash flow and make it harder to accumulate "Trump-style" massive wealth.

[Polish_Silver]

Re: Hudson on the Piketty Phenomenon

I would suggest that property taxes should be graduated, like income taxes, so that Harry homeowner wouldn't be hit hard, while Scrooge McDuck, with his 30 story palace, just chalks it up to the cost of ownership. I don't know that anyone is thinking along those lines.

BTW, in some states, like Maryland, where I live, the state and even incorporated municipalities do both income and property taxes.

I think the problem with a non-linear property tax is this:

I could own 1000 houses in different areas, and can the government track all that ownership?
The advantage of property tax is that you tax each acre on it's value, no loopholes or complexities. The owner cannot escape that.
If you allow a lower rate for little people, the fat cats will create some kind of trust or entity to exploit that.

I do not want a really intrusive government that knows everything about everybody. That limits the sophistication of tax collection schemes.

Actually, though, property taxes are allready non-linear in that in most places commercial property pays much higher taxes than residential. Whether this really works to help the working class I am not sure. A lot of the commercial property is just rental apartments, so the cost gets passed on to tenants anyway. As for businesses, they have to charge customers more or pay employees less to cover the tax. Hudson's best idea was to tax land made valuable by public infrastructure spending---like a house goes up in price because it is near a subway station. The land owner gets rich because of public expense.

[littleshark]

Re: Hudson on the Piketty Phenomenon

Shark, are you down in PR? If so, share your take on living there when you can!

No, I don't live there, but I do vacation there often, usually to the Dorado Beach area which is a wealthy enclave and absolutely beautiful. PR is a great place. It's easy to get to, no passport needed, I think a hidden gem. I can see that in the current FIRE economy, PR could be a great place for a distressed investment/opportunity if you have a long time horizon.

My reason for posting was more to show how more and more tax breaks for the wealthy/businesses get used to help struggling economies. That's not changing anytime soon. Hudson could rant all he wants but this isn't going away, and the more any economy weakens the more tax breaks there will be.

[don]

Re: Hudson on the Piketty Phenomenon

Shark, are you down in PR? If so, share your take on living there when you can!