LSE Events | Prof. Jean Tirole | Economics for the Common Good

Recorded on 17 October 2017
When Jean Tirole won the 2014 Nobel Prize in Economics, he suddenly found himself being stopped in the street by complete strangers and asked to comment on issues of the day. His transformation from academic economist to public intellectual prompted him to reflect on the role economists and their discipline play in society. The result is Economics for the Common Good, a passionate manifesto for a world in which economics is a positive force for the common good.
Jean Tirole, the winner of the 2014 Nobel Prize in Economics, has been described as one of the most influential economists of our time. He is chairman of the Toulouse School of Economics and of the Institute for Advanced Study in Toulouse and a visiting professor at the Massachusetts Institute of Technology. His many books include The Theory of Corporate Finance and Financial Crises, Liquidity, and the International Monetary System.
Wouter den Haan is Co-director for the Centre for Macroeconomics and Professor of Economics at LSE.
The Department of Economics at LSE (@LSEEcon) is one of the largest economics departments in the world. Its size ensures that all areas of economics are strongly represented in both research and teaching.
The Centre For Macroeconomics (@CFMUK) brings together world-class experts to carry out pioneering research on the global economic crisis and to help design policies that alleviate it.

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The fundamental challenge to creating a world where full employment is the norm, and all persons have the equality of opportunity to achieve one’s potential in life is that our systems of law and taxation have at their roots the protection of monopoly privileges. The presence of such entrenched privileges guarantees all of the negative outcomes we experience in the world.
If one reads the great political economists carefully - from Adam Smith and Anne Robert Jacques Turgot to Henry George - the depth of privilege is clearly described. Henry George’s interpretation of Turgot meant by “laissez-faire” - “a fair field with no favors” - leads one to analyze a society’s socio-political arrangements and institutions. George took Smith’s and Turgot’s analysis to its broader, ethical and logical application to laws relating to property. What is legitimately private property, and what is legitimately societal property.
George argued that nature is our commons and cannot ethically be owned by any individual or entity. Access to nature in order to protect equality of opportunity ought to be allocated to private interests under leaseholds obtained by competitive bidding. However, because so much of the commons had been given or sold to private interests, the practical public policy was to rely on taxation to achieve the ethical outcome.
Politics aside, the ideal source of public revenue is the potential annual rental value of locations and of natural assets with an inelastic supply.
Locations are the parcels in towns and cities, the rental value of which is determined not by what any owner does or does not do with land held but by locational advantage. Such advantage is in some instances created by nature, in almost all instances by the quality of public amenities available. Thus, locations in the financial district of a city are valued by the square meter; locations in outlying residential/commercial regions by the a portion of a hectare; rural land based on the yield potential per hectare for agricultural use, forestry or mining. More recently, locational advantage is strongly influenced by highest, best use changing to wind or solar farms.
Natural assets with an inelastic supply include frequencies on the broadcast spectrum and take-off and landing slots at airports (based on the different demand given the time of day and the fact that no two airplanes can safely occupy the same space at the same time).
If we are to tax individual income, the key is to distinguish between income earned as wages or salaries producing goods or providing services, and income DERIVED from passive and speculative investment. Tax efficiency, tax equity and simplification of compliance and administration can be achieved by a structure that exempts all individual incomes up to some amount (e.g., the national median income), eliminating all other exemptions or deductions. Above the exempt amount, ranges of income would be taxed at an increasing rate of taxation, the ranges and rates determined as part of the legislative process to achieve a balanced budget. The assertion here is that incomes at the highest ranges can be taxed at a very high rate of taxation without materially impacting individual consumption, and that this level of income is largely rent-derived from speculative activity in financial instruments and land.
Edward J. Dodson, M.L.A.
Director
School of Cooperative Individualism
www.cooperative-individualism.org