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Killer Bunny

14 Nations' H Ps 1870-2012

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Not a bubble, Ricardo (a classical economist) was right.

Ricardo (1817) argued that in the long run, economic growth disproportionally profits landlords as the owners of the fixed factor. Since land is highly unequally distributed across the population, market economies produce ever-rising levels of inequality.

Which is why that fixed factor should be taxed, as a first resort. Of course it isn't, indeed land ownership is subsidised.

Our political system, purely represents established land and capital interests. Not us, and never has done. Only under threat of insurrection has it been forced to comprise.

You will not get change via the ballot box

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The paper does not call it a bubble.

Though the adjective "booming" is used in a side header with regard to land prices.

Semantics question: can someone tell me whether there is a difference between "boom" and "bubble"?

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Though the adjective "booming" is used in a side header with regard to land prices.

Semantics question: can someone tell me whether there is a difference between "boom" and "bubble"?

I would have thought that a boom could be for sound fundamental reasons, while a bubble is usually characterised by speculation and a separation of prices from economic values. At its most rampant,a bubble will have a number of greater fool investors - those buying inthe knowledge that something is over valued, in the hope that they can sell at a higher price before the market collapses.

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Our results have potentially important implications for the much-debated long-run trends in the distributions of income and wealth (Piketty and Zucman 2014).1 We offer a lens for reinterpreting Ricardo’s famous principle of scarcity. Ricardo (1817) argued that in the long run, economic growth disproportionally profits landlords as the owners of the fixed factor. Since land is highly unequally distributed across the population, market economies produce ever-rising levels of inequality.

The problem with capitalism is that sooner or later you end up with everybody elses money (land)

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Surely this article is arguing that land/housing is not a bubble, that the "flatlining" of land/housing prices in the 19th century through to the mid 20th century was driven by the one off factor of declining transport costs, which brought a large supply of previously low value land into play?

"Writing in the 19th century, Ricardo was mainly concerned with the price of agricultural land, and reasoned that as population growth pushes up the price of corn, the land rent and the land price would continuously increase. In the 21st century, we may be more concerned with the price of housing services and residential land, but the mechanism is similar. The decline in transport costs kept the price of residential land constant until the mid-20th century. The price surge in the past half-century could be an indication that Ricardo might have been right after all."

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Not a bubble, Ricardo (a classical economist) was right.

Which is why that fixed factor should be taxed, as a first resort. Of course it isn't, indeed land ownership is subsidised. Our political system, purely represents established land and capital interests. Not us, and never has done. Only under threat of insurrection has it been forced to comprise. You will not get change via the ballot box

Yep.

...the integrity of economics as a discipline was compromised towards the end of the nineteenth century with the rise of neo-classical economics. Classical economists like Adam Smith had described wealth as the product of three factors – land, labour and capital, whereas the neo-classical school reduced this to two – labour and capital, subsuming land within capital.

While this paradigm change was a successful political ploy at the time, undermining arguments in support of the controversial economic reform called for by Henry George in Progress and Poverty, the authors point out it deprived professional economists in the capitalist world of the ability to diagnose problems, fore-cast trends and prescribe solutions, thereby condemning the 20th century and beyond to protracted periods of economic failure. Socialist and Marxist economists were no better: they too failed to recognise the significance of land in the economy, leading to even worse levels of environmental degradation.

If the full potential of the market economy, the economics of abundance, is to be enjoyed by everyone, the authors argue, taxes must be transferred from the production and consumption of wealth onto the rent of land. This tax reform would lead to a more efficient economy, a more equitable distribution of wealth and greater protection for the environment...

http://www.shepheard-walwyn.co.uk/product/the-corruption-of-economics/

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Surely this article is arguing that land/housing is not a bubble, that the "flatlining" of land/housing prices in the 19th century through to the mid 20th century was driven by the one off factor of declining transport costs, which brought a large supply of previously low value land into play?

"Writing in the 19th century, Ricardo was mainly concerned with the price of agricultural land, and reasoned that as population growth pushes up the price of corn, the land rent and the land price would continuously increase. In the 21st century, we may be more concerned with the price of housing services and residential land, but the mechanism is similar. The decline in transport costs kept the price of residential land constant until the mid-20th century. The price surge in the past half-century could be an indication that Ricardo might have been right after all."

Indeed. That article (like Piketty) is arguing that inequality (real land prices) is a function of capitalism. Real growth (capitalism) in the long run is captured in land prices (absent mechanisms to increase supply i.e. railways or re-distribution i.e. taxes)

Thats not to say you cant also have bubbles from time to time, such as the derivatives bubble (2004-2007) but they are typically >2 sigma events of c 3.5 years duration (Grantham et al)

c. 2000 onwards has been a very peculiar period (I would suggest) due to the sudden one-off increase in global labour supply due to China entering the global trading system forcing down the return to labour and demand for developed land. The other point to note is that periods of falls in real house prices tend to be accompanied by depressions and world wars.

Edited by R K

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And runaway credit.

Japan has cured its problem 30 times with QE.

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Really? Must have missed that in the 90s...

You also missed the words "tend to"

and "bubbles from time to time" i.e. Thatcher/Lawson bubble and Major/Lamont collapse

(your 90s example is barely noticeable on the long run chart which is probably why you missed it)

Edited by R K

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You also missed the words "tend to"

and "bubbles from time to time" i.e. Thatcher/Lawson bubble and Major/Lamont collapse

(your 90s example is barely noticeable on the long run chart which is probably why you missed it)

Sorry, I was being a bit facetious.

What I meant to imply was that the subject of your sentence should have been the other way around i.e. depressions and world wars tend to be accompanied by falls in real house prices. Given the charts show falls real house prices in the early 80s, early 90s and (to a lesser degree) post-2008 at least half of all the falls in real house prices during the period covered occurred without world wars or depressions (more than half if we don't think that there is any more damage from 2008 stored up in the economy and yet to be dished out), so even to say that real house price falls "tend" to be accompanied by either of these events is an overstatement of the data. On the other hand depressions and world wars are always accompanied by real house price falls during the period covered so to say that they tend to be accompanied by real house price falls would be an entirely accurate representation of the data. Changing the subject of the sentence also implies a different direction of causation, your earlier sentence might have been wrongly interpreted to imply that real house price falls in some way precipitate depressions and world wars.

I'm not sure why you think the 90s fall was barely noticeable when it's broadly the same size fall as that which occurred during WWII? The 90s fall is smaller in terms of percentage of overall price but this isn't what's being represented graphically.

I don't think that assets which are poorly traded (i.e. in very low volumes in relation to the overall stock) work their way through financial cycles to the same timeframes as those which are frequently traded. It's hard to look at the largely post-millennial dislocation of real house prices from real construction costs and not see this entire period as a speculative bubble, for instance:

schularick_fig3.png

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Sorry, I was being a bit facetious.

What I meant to imply was that the subject of your sentence should have been the other way around

Since it was my sentence I can put the subject of it anywhere I please.

Similarly you can put yours wherever you want.

At risk of repeating myself (bzzz - repitition) I said "bubbles from time to time" and went on to add "Thatcher/Lawson" and the 2004-2007 derivatives bubble (securitisation etc) hence why (contrary to domestic political folklore) it wasn't (just) Labour wot done it. Apart from that "world wars".

Clearly the most interesting aspect ain't the (from time to time) bubbles it's the (long run) post-war trend in (global) land prices which has persisted irrespective of the (short run) bubbles (from time to time). I don't buy that bubbles persist longer that c 3 years, though trends of course can and do. I'm content that the US housing bubble ran from 2004 to 2007 (i.e. it was actually a derivatives bubble) and burst thereafter. I'm also content that the UK housing (securistisation) bubble started around 2004 and ended in 2007 but as we know hasn't yet fully burst back to the long run trend on that chart. However, it's clear this is skewed somewhat by London/SE and rest of UK (see other threads for details) saw real falls of c. 35%.

I accept you may view the world differently and I'm perfectly fine with whatever your interpretation might be, without personally sharing it. Nor do I care if you share mine.

Re-arrange the subject of those sentences!

Edited by R K

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Since it was my sentence I can put the subject of it anywhere I please.

Similarly you can put yours wherever you want.

Okay, well in that case you were just plain wrong.

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