I offer comments not as an economist but as a former business manager and market analyst at Fannie Mae with 35 years in the trenches, so to speak, of the property markets. What I observed and learned is as follows: The full answers to the cause of economic cycles are emerging from economics who are examining the basis for rent-seeking behavior associated with land markets broadly defined. Banking practices exacerbate the speculation-driven activity of the cycle but are not the primary cause. Price does not function as a market-clearing device for land as its does for labor, goods or even credit. In a period of rising land prices the supply curve for land is leftward leaning because of land hoarding. This problem can be resolved by only one public policy change: a dramatic increase in the annual tax on the value of land, a tax that comes close to the potential annual rental value of land. Adam Smith understood this well and wrote extensively on the subject. Short of taxing rents at sufficiently high levels, the one measure that would slow the upward speculative climb of the new cycle is to prohibit any financial institution that accepts government-insured deposits from extending credit for the purchase of land or acceptance of land value as collateral for land. This would protect banks from themselves and the taxpayers from the banks. The impact on residential property markets would be to return the markets to conditions prior to the widespread availability of private mortgage insurance; potential homebuyers were required to make a 20 percent cash down payment. Thus, the homebuyer was essentially paying cash for the land parcel and borrowing funds to purchase the actual housing unit. It would help if economists would correct the media conception that we experienced a "housing" bubble. What burst is the land market. When the land market crash is sufficiently broad, such as in parts of Cleveland, Las Vegas and parts of Florida, property prices fall below the cost of replacement of actual housing units. The normal relationship between supply and demand has disappeared. Owners of land will in such a circumstance pull land off the market and hold land for years until demand recovers. Owners of vacant improved properties (such as banks) face significant negative cash flows, normal depreciation and potential damage from vandals and thieves. Banks are not equipped to manage real estate assets over long periods of time and will end up selling to speculators. In short, our entire system is inherently dysfunctional and doomed to experience crashes every 18-20 years. The next downturn is likely to be even worse because of the fact that so many young adults remain underemployed, unable to accumulate savings and therefore not in a position to acquire starter homes. Those currently living in smaller town homes and condominiums or small single-family homes are then less able to move up into larger homes. The future, in my view, does not looking promising.
It is no surprise that your answer is More Tax. It is not surprising that having worked for Freddy and Fanny you are advocating more government control through legislation. You say 'Price does not function as a market-clearing device for land as its does for labor, goods or even credit. ' Yet you explain none of the mechanism which causes it. It is also no revelation that you say "the normal relationship between supply and demand has disappeared" Yet you offer no explanation or give none of the understanding of why this is so with land alone. You infer that speculators are undesireable with the sentence " will end up selling to speculators." It is NOT at all surprising that it appears those economists at Fanny and Freddy had no understanding of the coming crash even though the US was in a debt spiral which has only increased over the past 6 years. Did you? You don't explain why speculators are economically undesireble and not a desireable force in the market. - I would like to hear why.
Rob Mews You set down a gauntlet of challenging questions for me, Rob. Some have to deal with very basic economic principles and analysis. The economic literature going back to the great political economists -- Richard Cantillon, Anne Robert Turgot and Adam Smith -- all dealt with the operation of land markets as a distinct factor of production. They debated the wisdom, even the necessity, of public collection of the rental value of land in order to achieve the combined objectives of sustained economic growth and a just distribution of wealth (i.e., wealth kept by producers rather than claimed by a rentier class). This debate never ended but was relegated to obscurity among modern economists trained in neoclassical theory that treats nature as just another form of capital good. The best analysis of the theoretical problem I can refer you to is the 19th century political economist Henry George. I was introduced to his writings in the 1970s by a city planner who was working on land use planning and urban revitalization efforts. After that, I began to discover the writings of a long list of economists who continued in their writings to distinguish land from capital goods. This list includes people like Harry Gunnison Brown, C. Lowell Harriss, Mason Gaffney, Fred Foldvary, Nicolaus Tideman and Nobel Prize winner William Vickrey. As for my own advocacy of more government, I admit to believing in community planning. Not top down decision-making but planning decisions agreed upon by the people who will be directly affected. I have come to agree with the perspective of Professor Tideman (who teaches at Virginia Polytechnic Institute) that most public revenue should be collected at the local level via the taxation of land rents (exempting property improvements, exempting earned income in the form of wages and salaries, exempting commerce) and shared upward with "higher" levels of government. A number of economists estimate that the rent fund associated with land value, if fully collected, would be sufficient to pay for all reasonable and appropriate public goods and services. The side-effect would be a significant strengthening of the economy by removing a primary source of profit from speculation that causes our periodic economic crashes. How do I know this to be true? Again, the work of the above economists has shown the dysfunctional nature of our system of land tenure and taxation and that of how government currently raises its revenue. Back in the early 2000s, I was enlisted by the British economist Fred Harrison to provide research for his book on economic cycles. His book came out in 2005 and predicated the coming crash and explained the reasons for the crash. If you read nothing else, read Fred Harrison's book, titled "Boom-Bust..." I will end here. I cannot possibly provide the details of why I have come to the conclusions I have reached. I can only suggest to you that the answers are known, if not widely understood.
I am surprised that none of the big shot experts ever talked about or even mentioned the word FIAT CURRENCY-the root of all evils and questioned the very existence of the federal reserve. Just goes to show how deeply ingrained Keynesian thoughts are in the public and expert consciousness.
Fiat money is NOT the root of all evil. The gold standard is not the medicine for all macroeconomic diseases. Anybody who thinks that they have the 'simple' solution to all monetary and financial problems in the world ought to have their heads examined, because... there ain't no such thing.
Dow was 950 silver dollars in 1966 and is 850 silver dollars 48 years later. Dow was $950 US paper dollars in 1966 and is $17,000 paper dollars in 2014. US public debt was $300 Billion in 1964. US public debt today is $18 TRILLION. Figure it out. It's a paper money counterfeit currency bubble. The rich become billionaires and middle class is wiped out by printing unlimited counterfeit currency. Real prices are in silver dollars, not paper dollars. These are not record highs for stocks. These are record lows for paper dollars.
I offer comments not as an economist but as a former business manager and market analyst at Fannie Mae with 35 years in the trenches, so to speak, of the property markets. What I observed and learned is as follows:
The full answers to the cause of economic cycles are emerging from economics who are examining the basis for rent-seeking behavior associated with land markets broadly defined. Banking practices exacerbate the speculation-driven activity of the cycle but are not the primary cause. Price does not function as a market-clearing device for land as its does for labor, goods or even credit. In a period of rising land prices the supply curve for land is leftward leaning because of land hoarding. This problem can be resolved by only one public policy change: a dramatic increase in the annual tax on the value of land, a tax that comes close to the potential annual rental value of land. Adam Smith understood this well and wrote extensively on the subject.
Short of taxing rents at sufficiently high levels, the one measure that would slow the upward speculative climb of the new cycle is to prohibit any financial institution that accepts government-insured deposits from extending credit for the purchase of land or acceptance of land value as collateral for land. This would protect banks from themselves and the taxpayers from the banks. The impact on residential property markets would be to return the markets to conditions prior to the widespread availability of private mortgage insurance; potential homebuyers were required to make a 20 percent cash down payment. Thus, the homebuyer was essentially paying cash for the land parcel and borrowing funds to purchase the actual housing unit.
It would help if economists would correct the media conception that we experienced a "housing" bubble. What burst is the land market. When the land market crash is sufficiently broad, such as in parts of Cleveland, Las Vegas and parts of Florida, property prices fall below the cost of replacement of actual housing units. The normal relationship between supply and demand has disappeared. Owners of land will in such a circumstance pull land off the market and hold land for years until demand recovers. Owners of vacant improved properties (such as banks) face significant negative cash flows, normal depreciation and potential damage from vandals and thieves. Banks are not equipped to manage real estate assets over long periods of time and will end up selling to speculators.
In short, our entire system is inherently dysfunctional and doomed to experience crashes every 18-20 years. The next downturn is likely to be even worse because of the fact that so many young adults remain underemployed, unable to accumulate savings and therefore not in a position to acquire starter homes. Those currently living in smaller town homes and condominiums or small single-family homes are then less able to move up into larger homes. The future, in my view, does not looking promising.
It is no surprise that your answer is More Tax. It is not surprising that having worked for Freddy and Fanny you are advocating more government control through legislation. You say 'Price does not function as a market-clearing device for land as its does for labor, goods or even credit. ' Yet you explain none of the mechanism which causes it. It is also no revelation that you say "the normal relationship between supply and demand has disappeared" Yet you offer no explanation or give none of the understanding of why this is so with land alone. You infer that speculators are undesireable with the sentence " will end up selling to speculators." It is NOT at all surprising that it appears those economists at Fanny and Freddy had no understanding of the coming crash even though the US was in a debt spiral which has only increased over the past 6 years. Did you? You don't explain why speculators are economically undesireble and not a desireable force in the market. - I would like to hear why.
Rob Mews
You set down a gauntlet of challenging questions for me, Rob. Some have to deal with very basic economic principles and analysis. The economic literature going back to the great political economists -- Richard Cantillon, Anne Robert Turgot and Adam Smith -- all dealt with the operation of land markets as a distinct factor of production. They debated the wisdom, even the necessity, of public collection of the rental value of land in order to achieve the combined objectives of sustained economic growth and a just distribution of wealth (i.e., wealth kept by producers rather than claimed by a rentier class). This debate never ended but was relegated to obscurity among modern economists trained in neoclassical theory that treats nature as just another form of capital good. The best analysis of the theoretical problem I can refer you to is the 19th century political economist Henry George. I was introduced to his writings in the 1970s by a city planner who was working on land use planning and urban revitalization efforts. After that, I began to discover the writings of a long list of economists who continued in their writings to distinguish land from capital goods. This list includes people like Harry Gunnison Brown, C. Lowell Harriss, Mason Gaffney, Fred Foldvary, Nicolaus Tideman and Nobel Prize winner William Vickrey.
As for my own advocacy of more government, I admit to believing in community planning. Not top down decision-making but planning decisions agreed upon by the people who will be directly affected. I have come to agree with the perspective of Professor Tideman (who teaches at Virginia Polytechnic Institute) that most public revenue should be collected at the local level via the taxation of land rents (exempting property improvements, exempting earned income in the form of wages and salaries, exempting commerce) and shared upward with "higher" levels of government. A number of economists estimate that the rent fund associated with land value, if fully collected, would be sufficient to pay for all reasonable and appropriate public goods and services. The side-effect would be a significant strengthening of the economy by removing a primary source of profit from speculation that causes our periodic economic crashes.
How do I know this to be true? Again, the work of the above economists has shown the dysfunctional nature of our system of land tenure and taxation and that of how government currently raises its revenue. Back in the early 2000s, I was enlisted by the British economist Fred Harrison to provide research for his book on economic cycles. His book came out in 2005 and predicated the coming crash and explained the reasons for the crash. If you read nothing else, read Fred Harrison's book, titled "Boom-Bust..."
I will end here. I cannot possibly provide the details of why I have come to the conclusions I have reached. I can only suggest to you that the answers are known, if not widely understood.
I am surprised that none of the big shot experts ever talked about or even mentioned the word FIAT CURRENCY-the root of all evils and questioned the very existence of the federal reserve. Just goes to show how deeply ingrained Keynesian thoughts are in the public and expert consciousness.
Fiat money is NOT the root of all evil. The gold standard is not the medicine for all macroeconomic diseases. Anybody who thinks that they have the 'simple' solution to all monetary and financial problems in the world ought to have their heads examined, because... there ain't no such thing.
its really not a nobel price. he never ever made an economic price. its a bank who made it and gave it hes name, long after he died
It is
Dow was 950 silver dollars in 1966 and is 850 silver dollars 48 years later. Dow was $950 US paper dollars in 1966 and is $17,000 paper dollars in 2014. US public debt was $300 Billion in 1964. US public debt today is $18 TRILLION. Figure it out. It's a paper money counterfeit currency bubble. The rich become billionaires and middle class is wiped out by printing unlimited counterfeit currency. Real prices are in silver dollars, not paper dollars. These are not record highs for stocks. These are record lows for paper dollars.
It ain't the animal spirits.
NOBEL PRIZE???? REALLY? LMAO