Mark Wadsworth

This is a spare 'blog in case my main 'blog at markwadsworth.blogspot.com isn't working

Four or five economic thought experiments rolled into one

Ralph Musgrave, who did a good summary of Modern Monetary Theory, emailed me a link to a splendid article titled How to exit the Euro which is ostensibly about Quebecois independence, on which the author has no strong views one way or another, but also builds in the following:

i. What Modern Modern Theory is, i.e. fiscal and monetary policy boiled down to a single variable.
ii. Why there’s no need for deficit spending
iii. How to introduce a parallel currency
iv. Why taxes on land values are far better than taxes on income, output and profits
v. Introducing a Citizen’s Income by the back door.

There’s no point me cutting and pasting bits, as you have to read the whole article, which might take you ten or fifteen minutes to understand, but we can use this model as a non-confrontational way of introducing a Georgist system where taxes on land values are used to pay a Citizen’s Income, as follows:

1. The government issues every UK citizen with one thousand special tokens (whether physical or electronic does not matter), maybe 500 for kids and 2,000 for pensioners.

2. So it has issued (say) 75 billion of these tokens.

3. It then values each house and each building and each plot of land and demands the payment of exactly 75 billion of these tokens from the owners of all UK land and buildings, proportional to the value of the land and buildings.

4. So some households end up with a surplus, and some end up with a deficit. Let’s say a mum dad two kids family gets three thousand tokens and the payment demanded for an average home is three thousand tokens (75 billion tokens divided by 25 million homes).

5. How surpluses and deficits (and hence net redistribution) are distributed is illustrated by the Georgist Flag (click to enlarge):6. All the surplus tokens are put up for auction, and because the surplus which some have is exactly equal to the shortfall which other people have, they will somehow end up with a market price in £-s-d for each token, that might be 1p, it might be £10, I do not know and do not particularly care.

7. The auction would be run in the same way as stockbrokers match bid and ask prices, i.e. every seller sets the minimum price at which he will sell; and each purchaser sets the price which he is willing to pay, with the bolt-on that all tokens are then redeemed/sold at this price (to prevent unwilling sellers holding out for an unreasonable price). Let’s guesstimate that the market price comes out at £2 per token.

8. The next step is to somehow replace the existing tax system; if we remember the lessons of Modern Monetary Theory, it’s actually quite simple: you just reduce other taxes in absolute terms and other cash (non-token funded) spending in real terms. So in Year Two, we scrap VAT or Employer’s NIC (or whichever your most hated tax is). The dynamic revenue shortfall is usually only half the static shortfall, so cash tax receipts go down by (say) £50 billion and people end up better off by (say) £75 billion because they get not just the cash value of the tax cut, but the benefit of lower dead weight costs.

9. Most of that extra £75 billion flows through into higher house prices or rents, so next year, when the government repeats the exercise with 75 billion tokens, the market value is miraculously bid up to £3 per token (instead of £2).

10. Then you just keep cutting other taxes and allowing the market to sort out how much should be redistributed from land owners to citizens. The two groups overlap to a large extent so the net redistribution is only a sixth of the total value of all tokens, i.e. assuming they change hands for £3 each, total revenues/spending is not 75 billion x £3 = £225 billion, it’s more like £40 billion (i.e. the area on the flag between the vertical axis, the blue line and the red line).

11. No doubt the Homeys and Faux Libs will cry foul, but hey. At least we can find out in practice what people really think of Georgism. If a majority of people (who end up with a surplus of tokens) really think nothing of it and are happy for people on whom society bestows the most benefits to continue to enjoy them tax free, then they are free to set a price for their surplus tokens of nil, or 1p each (thus cutting off their noses to spite their faces as they are giving away money), or to hand them over to charities collecting tokens for the Poor Widows In Mansions Benevolent Fund and nothing actually changes either.

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