Hudson on AIG's Lawsuit

[vinoveri]

Re: Hudson on AIG's Lawsuit

OK. "I see your logic" . . .
You and dcarrigg may be right -- it is possible that I misjudged Hudson's intent.
Thank you for taking the time to spell out your viewpoint for me . . . .

However, it's really impossible to know for sure from his very brief response, and I could see it either way.
I guess we'll find out if Hudson really did "see my logic", if in the future articles he will point the finger at the "predatory" system rather than the "predatory" landlords. Somehow, I doubt it . . . but we shall see.

Here's one example of Hudson's reference toward landlords as "rent-seeking predators":

Toward this end they provide a wealth of references tracing how economics was turned into a propaganda exercise for financiers, landlords, monopolists, insiders, fraudsters and other rent-seeking predators whom classical economists sought to tax and regulate out of existence. http://michael-hudson.com/2012/12/reality-economics/

Here is where I get the communist vibe . . . .
What is wrong with being a landlord? I work, I save up money for many years, I buy a property, and I let someone live there by paying a rent determined in the free market.
What is wrong with rent-seeking per se? How is investing money in a property and collecting rent different than investing money into machinery that is used to make profits from the goods that the machinery produces?

Now, if Hudson were to point the finger at the system and say that the system is "predatory" in that it gives unfair subsidies to landlords, I would be OK with that. But in the past he consistently lumps landlords in with fraudsters, insiders, monopolists, etc. In the words of Tricky Dick, "I am not a crook!"

2 points:

The difference in your example is that the land has always existed and is not the result of anyone's labor whereas the capital equipment is.

Say my great great freat grandfather immigrated to America in the 18th century, pioneered to western tennessee and staked a claim to 5,000,000 acres. Should his descendants get to keep that land tax free simply b/c the pioneer was the first to show up? Some think so, but I think not. Say he discovers an oil well on the land. Does the pioneer and his descendants own the oil outright? Property law, thank goodness, says yes but oil is a scarce resource needed by all, should the owner get to keep all the profits from the oil produced even though he did not CREATE the oil (not saying he should not be rewarded for exploration and all the costs and risks incurred by getting the oil out of the ground), but it is the "free part" that should be taxed at a higher rate, the natural resources which already exists.
I appreciate Hudson writings b/c they allowed me to see this distinction although I likely do not agree with him on a lot of other points.

Hudson's "equitable solution" to the rentier is to tax profits from so called "free lunch" income and cycle those back for the "good" of the whole society. His complaint, at least the way I read him, is that the Rentiers are not only not being taxed like everyone else, but are getting incentives to engage in the rentier behavior (e.g., subsidized loans with deductible interest, reduced capital gains tax etc.). Don't get me wrong, I'm not for high taxes, but if you have to tax, then the "free lunch" income seems to be a good/equitable place to start.

[raja]

Re: Hudson on AIG's Lawsuit

You're not just wrong, you're extremely wrong.

If you actually read and remember his work, you'd have noticed that he's never, ever promoted communism or even socialism.

Consistently his solutions involve carrying through existing regulations or adding/re-instituting regulations to rein in free market excesses. He furthermore consistently attacks 'free rent' - which again you've failed for whatever reason to understand.

Yes, if you're a rentier, baby rentier, or rentier wannabe, then he is persona non grata.

For everyone else, he has identified what he considers to be the problem, continues to educate and point on ongoing aspects of said problem, and continues to push for what he considers a solution.

It isn't a solution everyone agrees with, but nonetheless it is a free market solution.

It just is not a laissez faire free market one.

c1ue,

I think Hudson does promote communism . . . just not in name.

He says:

Toward this end they provide a wealth of references tracing how economics was turned into a propaganda exercise for financiers, landlords, monopolists, insiders, fraudsters and other rent-seeking predators whom classical economists sought to tax and regulate out of existence. http://michael-hudson.com/2012/12/reality-economics/

Is not eliminating landlords "out of existence" part of communist doctrine? Property is owned by the People and controlled by the State . . . landlords are relieved of their predatory existences.

I don't see anything wrong with being a landlord per se, and that's where Hudson has it wrong. He lumps landlords in with fraudsters, insiders, monopolists and "other rent-seeking predators" whom he would like to "tax and regulate out of existence."

Another problem is that he treats landlords as a homogenous class.

As a landlord, how do I get "free rent"?
I bought my properties without a mortgage, so no mortgage deduction. The cost of the properties was an expense, so why shouldn't it be depreciated. (If I later sell the property, I have to pay recaptured depreciation.) I have ongoing costs, such as property taxes, insurance, repairs, replacement maintenance (roof, appliances, etc.), court costs, non-paying renters, etc. How is this "free rent"? How does this make me a "predator"?

I don't have the statistics, but I presonally know many landlords in a similar position.
That doesn't mean that some or even a large majority of landlords don't benefit from unfair government subsidies.
So then change the system, don't eliminate landlords "out of existence."

Unless, of course, you are a communist.

Note: I don't always fully understand everything Hudson writes, so my understanding of his positions may be incorrect. If this is the case now, please enlighten me . . . ."

[raja]

Re: Hudson on AIG's Lawsuit

The difference in your example is that the land has always existed and is not the result of anyone's labor whereas the capital equipment is.

Nobody gave me my rental properties -- I had to work to earn the money to buy them . . . and I think many landlords did the same.

If Hudson is basing his policy recommendations on something that happened 300 years ago that has no bearing on the reality of today, then his policy is worthless.
If there are still families who are living off windfall property acquisitions of three centuries ago, go after them . . . don't blame all landlords for that.

Rentiers are not only not being taxed like everyone else, but are getting incentives to engage in the rentier behavior (e.g., subsidized loans with deductible interest, reduced capital gains tax etc.). Don't get me wrong, I'm not for high taxes, but if you have to tax, then the "free lunch" income seems to be a good/equitable place to start.

I'm all for making the tax code more just.

So fix the system then . . . don't label all landlords as "rent-seeking predators", as Hudson does.
There is nothing wrong with seeking rent, per se.

[Thailandnotes]

Re: Hudson on AIG's Lawsuit

Don't label all landlords as "rent-seeking predators", as Hudson does.
There is nothing wrong with seeking rent, per se.

I don't think Hudson is doing that...

Read more at http://www.nakedcapitalism.com/2013/...GPIUiPTeuqX.99

"Land is the economy’s largest asset. A site’s rental value is set by market conditions – what people pay for being able to live in a good location. People pay more to live in prestigious and convenient neighborhoods. They pay more if there is local investment in roads and public transportation, and if there are parks, museums and cultural centers nearby, or nice shopping districts. People also pay more as the economy grows more prosperous, because one of the first things they desire is status, and in today’s world this is defined largely by where one lives.

"Landlords do not create this site value. But speculators may seek to ride the wave by buying property on credit, where the rate of land-price gain exceeds the interest rate. This “capital” gain is the proverbial free lunch. It is created by public investment, by the general level of prosperity, and by the terms on which banks extend credit. In a nutshell, a property is worth whatever a bank will lend, because that is the price that new buyers will be able to pay for it.

"This logic was more familiar to the public a century ago than it is today. A property tax to collect this “free lunch” rent is paid out of the rent. This leaves less to be capitalized into new interest-bearing loans – while freeing the government from having to tax labor and industrial capital. So this tax not only is “less bad” than others; it is actively desirable to reduce the debt overhead. Rent levels are not affected, but the government collects the rent instead of the property owner or, at one remove, the mortgage banker who turns this rent into a flow of interest by advancing the purchase price of rent-yielding properties to new buyers.

"Real estate was the major source of rising net worth and wealth for America’s middle class for over sixty years, from the return to peace in 1945 until the 2008 financial collapse. Rising property prices were fueled largely by banks providing mortgage credit on easier terms. But by 2008 these terms had reached their limit. Interest rates were seemingly as low as they could go. So were down payments (zero down payment) and amortization rates (zero, with interest-only loans) and property values were becoming fictitious as a result of a tidal wave of fraud by the banking system’s property appraisers, while the income statements of borrowers also was becoming fictitious (“liars’ loans,” with the main liars being the mortgage writers).

"If the rise in real estate prices (mainly site values) had been taxed, there would have been no financial overgrowth, because this price-gain would have been collected as the tax base. The government would not have needed to tax labor either via income tax, FICA wage withholding or consumer sales. And taken in conjunction with the government’s money-creating power, there would have been little need for public debt to grow. Taxing rent extraction privileges thus would minimize debt levels and taxes on the 99%."

Many interesting comments below the excerpt. Here's just one...

"I also wanted to add something I have written about concerning land values and the cycle of corruption between local officials and developers and land brokers, especially in light of my environmental experience in New Jersey in the 1990′s: is not the local governmental power to zone land, next to the power of the Federal Reserve, the greatest “wealth” creating force in the hands of government – although clearly your would dispute the value of the type of wealth it does create? For readers who don’t follow local zoning, the ability of – in NJ – local governments, not the counties – have the land-use powers, subject to state legislation for special areas and categories – have the ability to take land zoned at one house per five acres – a typical upper middle class surburban situation, and allow the owner to jump to 10 or 20 units per acre – condos!! That suddenly changes the value of the land, in itself and as bank collateral: voila, wealth creation at quite a multiplier…of course, this type of zoning density change doesn’t have as much value creating potential if it isn’t accompanied by funding for the infrastructure…No wonder environmentalists have such a tough time with enacting “social democracy” for people and nature by interventions into these markets, which has been successfully done at times in NJ: Pinelands, Hackensack Meadowlands and Highlands – but not along the Jersey coast, as I know you know!"

[don]

Re: Hudson on AIG's Lawsuit

That is ridiculous. I am a stock investor but carry no illusions about the some of its exploitive nature. I also own a home with a ground rent. but that's the point. To even eek out a meager existence you have to rely on rentier income because of a system we designed. He is hero. Heroes subject themselves to risk and fight violence with violence. I have no problem with rentiers who attack the same systems that rewards them. Its the only source of wealth capable of doing so. What you want apparently is a martyr. Try being one yourself and see why its often the road not taken.

But then I am very much a believer in natural selection. Those who refrain from rentier income will become the welfare class by natural selection while those who do collect rentier income will become wealthy. You cannot deal with natural selection without dealing with the environment because it will select against individuals who take the moral stand. The Michael Hudson you want may never even have the funds to become a professor.

And if you are both rentiers, he is the one who has spoken out against it.

+1 Hardnosed appreciation that yes, we all have to survive in this less than ideal environment, which hardly precludes critical anaysis like Michael Hudson's. Hurrah for being a grownup. Let's do lunch!!!

[Chris Coles]

Re: Hudson on AIG's Lawsuit

Except that there is another case; where the inventive entrepreneur has no interest whatever in becoming a "rentier" and to keep their mind centred upon the whole concept of industrial production, they take the VERY short end of the stick on principle.

Some time ago now I came across an example of a once prominent scientist in the old Soviet Union pictured sweeping a staircase, rather than submit to an overbearing communism; and in that instant moment, I understood why I am also where I am today; "temporally" naturally selected to be poor.

You cannot be an honest man and pretend that theft is sometimes OK; and, in which case, sometimes; principles must come before a personal gain. Leastways, as I see it.

[vinoveri]

Re: Hudson on AIG's Lawsuit

There is nothing wrong with seeking rent, per se.

I see your logic. It is those who seek to limit the free lunch of rent seeking that are the problem.

Fortunately you are Dead Wrong and their are folks like MH with a platform to illustrate this.Seeking to live off the labor of others is dead wrong, and that is exactly what rent seeking entails.

[raja]

Re: Hudson on AIG's Lawsuit

Seeking to live off the labor of others is dead wrong, and that is exactly what rent seeking entails.

vinoveri, you do not understand because you can't see that there are two sides of the equation . . . .
Hudson doesn't understand because he's a commie

As a landlord, the renters are living off MY labor . . . the work I performed in earning the money to buy the rental property. The renters are actually living "in" the fruits of my labor.
Of course, they pay me a fair rent for the privilege of using the fruits of my labor to shelter themselves, so everything balances out.

I'll say it once again . . . I've got no problem with Hudson railing against a system that gives unfair advantages to any profession or class. I do have a problem when he vilifies "rent-seeking" as if it were a crime perpetrated by "predator" landlords. Mao would hire Hudson in an instant to head up a campaign Land for People, Not for Predators -- Death to the Running Dog Capitalist Landlords!

[Milton Kuo]

Re: Hudson on AIG's Lawsuit

Here's one example of Hudson's reference toward landlords as "rent-seeking predators":

Toward this end they provide a wealth of references tracing how economics was turned into a propaganda exercise for financiers, landlords, monopolists, insiders, fraudsters and other rent-seeking predators whom classical economists sought to tax and regulate out of existence. http://michael-hudson.com/2012/12/reality-economics/

I do wonder if Hudson has a specific type of landlord in mind when he uses the term "landlord" because, as we all know, not all landlords are the same. Hudson in the past has pointed out specific cases of landlords who are parasites. These are the people who buy a property (typically with high leverage), do the absolute minimum work possible to maintain or improve the property, depreciate the property (after it had already been fully depreciated by previous owners), and collect the heavily tax-advantaged capital gain which occurs when the government improves the area around the property with various infrastructure projects.

Hudson has advocated for taxing away any increase in land values due to government improvements thus forcing the landlords to earn their profits by through improvements to the land. He has stated this type of policy would discourage slum-lording. I believe he is correct on this account. Residential buildings in New York City are a pretty good example of what happens when you have predatory policies that greatly reward rent-seeking behavior.

Here is where I get the communist vibe . . . .

I wouldn't call Hudson a Communist but, as I noted in an earlier post, it does seem that he leans toward larger government.

What is wrong with being a landlord? I work, I save up money for many years, I buy a property, and I let someone live there by paying a rent determined in the free market.
What is wrong with rent-seeking per se? How is investing money in a property and collecting rent different than investing money into machinery that is used to make profits from the goods that the machinery produces?

If you buy in cash as you have stated that you do (no leveraging as the Wall Street rentiers always do) and rent out a maintained property to someone as a means of earning an income stream on the cash you've put into the property, my opinion is that there's nothing wrong with that. In this context, it's my opinion based on what I've read of his work that I don't think Dr. Hudson would consider you a predator.

Perhaps it's an unfortunate case where the words landlord and rent, which generally don't have negative connotations in everyday language, have meanings in the context of economics that typically describe undesirable things.

I can give you an example of rent-seeking behavior in the area of real estate that is the kind of behavior Hudson condemns. I have (unsuccessful) friends who are constantly looking to buy land, preferably unimproved to minimize taxes, near where they anticipate the city will build some sort of infrastructure (light rail, mixed use district) near it, which will greatly increase the selling price of the property. During the time they own the property, they put absolutely no money into improving or maintaining it. The entire game is to let the city--the taxpayers in other words--improve the surrounding area for them while they reap the unearned rewards (the rent). They seek to be the very definition of the so-called absentee landlord.

[vinoveri]

Re: Hudson on AIG's Lawsuit

vinoveri, you do not understand because you can't see that there are two sides of the equation . . . .
Hudson doesn't understand because he's a commie

As a landlord, the renters are living off MY labor . . . the work I performed in earning the money to buy the rental property. The renters are actually living "in" the fruits of my labor.
Of course, they pay me a fair rent for the privilege of using the fruits of my labor to shelter themselves, so everything balances out.

I'll say it once again . . . I've got no problem with Hudson railing against a system that gives unfair advantages to any profession or class. I do have a problem when he vilifies "rent-seeking" as if it were a crime perpetrated by "predator" landlords. Mao would hire Hudson in an instant to head up a campaign Land for People, Not for Predators -- Death to the Running Dog Capitalist Landlords!

raja, I can see your side, and am not taking any issue with your being a landlord, but I wonder if you can see the other side. I see you didn't take issue with my assertion that living off another's labor is wrong.

say you worked and saved and used your savings to buy rental property and leased out at fair/market rate; I don't think anyone including MH would object to that or call that "rent-seeking" in the abstract. He would say that any increase in the value of the LAND (not improvements) should be taxed.

This of course brings up a larger issue. What is the value/cost of the property when we live in a world of leverage and speculation? If government policies have led to real estate speculation which has pushed the prices of "homes" (something we all need) to values which are "unsustainable" b/c of the income levels of the community but have been sustained by leverage, Fed policies etc. then many will be priced out of ownership and they will have to pay more in rent b/c the landlord had to pay more for the house (and a lot of investors buy with leverage - which means the cost to carry, therefore the cost of rent is heavily tied to the loan costs, and therefore the bank, which gets to lend "new" money out at interest gets the free lunch).

[raja]

Re: Hudson on AIG's Lawsuit

Milton,

Again, thank you for taking the time to express your viewpoint in detail.
Unfortunately, I have responded in greater detail, resulting in a lengthy post . . . my apologies.

I do wonder if Hudson has a specific type of landlord in mind when he uses the term "landlord" because, as we all know, not all landlords are the same.

If you recall, in my email to Hudson I said, "I don't know if you think we really are "predators", or if your description is meant to apply only to some types of Landlords . . . but I think there are many, many people in the US who have similar situations as we do." And, "If you see a difference between the predators and us, is there a way that you could be more precise in your writings when you finger the villains?"

I did give him the opening to acknowledge that there are different types of landlords -- that was the whole point of my email to him -- but he totally ignored it.

Hudson in the past has pointed out specific cases of landlords who are parasites. These are the people who buy a property (typically with high leverage),

What's wrong with using leverage? That's the way of the modern world, right?
Almost everyone who buys a house uses leverage. Almost all businesses borrow.
Why shouold landlords be denied that right? Why single them out for blame?
With leverage comes risk, and the landlords who use leverage are assuming the risk . . . the higher the leverage, the higher the risk.

. . . do the absolute minimum work possible to maintain or improve the property,

It's a free market . . . we don't live under communism (yet), and renters have the right to move if they don't like how the landlord keeps up the property.

Besides, I don't know if you have ever been a landlord, but in my experience 90% of renters leave my properties in worse condition when they leave. Sometimes they live in disgusting conditions, letting roaches proliferate, bringing in fleas, allowing pets to pee on the floor, etc. Two weeks ago, I had a renter steal the washer, the dryer and the gas heater. When I had the gas company turn on the gas, the house filled with gas because the renter just cut the gas line rather than unscrewing it.
Why should a landlord do any more than the minimum to maintain or improve the property, when many renters don't seem to care how they live, and will frequently do damage?

But more importantly, doing "the absolute minimum work possible" still means meeting health and safety regulations, so what's wrong with that? Are landlords required to be charitable and improve properties just to make it nicer for their renters?
By the way, the majority of times that I have been charitable, I got burned. For example, the guy who stole the washer, dryer and heater also owed me $1950 in back rent. I let him fall behind because his wife had an operation and couldn't work. He never paid it. When I called the police and they made him return the stolen stuff (I didn't press charges), I noticed that he was driving a big new truck. I guess that's where the rent money went.

. . . depreciate the property (after it had already been fully depreciated by previous owners)

This is how the tax system works. If you don't like the system, blame the politicians, but don't blame all landlords, because most of them had nothing to do with creating the system. Don't vilify landlords as "predators" for a problem they didn't create, which Hudson does.

. . . collect the heavily tax-advantaged capital gain which occurs when the government improves the area around the property with various infrastructure projects . . . . Hudson has advocated for taxing away any increase in land values due to government improvements thus forcing the landlords to earn their profits by through improvements to the land.

Doesn't this work both ways? Sometimes neighborhoods go down due to government actions, leading to capital losses. Detroit comes to mind. Sometimes government projects are cancelled. Should not risk be rewarded by increased profit?

And . . . would a tax penalty also apply to capital gains that would be earned by a businessman who locates his business in an area improved by the government, or a homeowner who later sold their property for a profit? Why single out the landlords when many others may gain in the same way?

As for "tax-advantaged" capital gain, there is some logic behind having lower tax rates than for ordinary income. If I buy a property, and sell it several years later for a higher amount, I am paying inflation tax due to government-created Dollar devaluation. My profits are taken in devalued dollars, therefore are worth less. Short-term income does not suffer from inflation tax.
This inflation tax is inflicted upon every any asset held long term, not just RE.

He has stated this type of policy would discourage slum-lording.

The existence of slums is a problem caused by society and human nature, not landlords.

My wife and I have two "nice" rental properties -- I would be happy to live there -- and two that I would not wish to live in (one is a trailer). The nice ones cost us more to buy, and we are rewarded with higher rents from them.

Why do some of our renters choose to live in the lower quality housing? Probably they aren't smart enough or ambitious enough to get well paying jobs. Or maybe there aren't enough jobs in the area. Or perhaps they squander their money on lottery tickets, drugs, gas guzzling cars, eating out, etc.
As a landlord, am I at fault for that? Am I to blame because they cannot afford better living conditions? Where would these people live if I didn't provide a "slum" for them to live in?

As long as I follow the health codes, that's as far as my obligation goes.
If these renters came to me and said, "We'll pay you more rent if you improve the property," I would do it. But believe me . . . that will never happen.

If you don't like slums, blame the renters, blame the government, blame the society . . . but don't blame the landlords.

I wouldn't call Hudson a Communist but, as I noted in an earlier post, it does seem that he leans toward larger government.

There are many degrees of communism. For example, some communists may advocate violent revolution, while others would prefer to work for peaceful change. But the main thrust is shifting control from capital to labor. When Hudson writes that he wants to tax and regulate landlords "out of existence", that is communism. Such talk would make Mao smile in his grave.

it's my opinion based on what I've read of his work that I don't think Dr. Hudson would consider you a predator.

I am a landlord. He describes landlords as "rent-seeking predators." Nowhere in his writing have I ever seen him make a distinction between landlords such as myself, and those who follow different practices that he considers predatory. He may not think of me, or those like me, as predators, but he certainly keeps it to himself . . . .

Perhaps it's an unfortunate case where the words landlord and rent, which generally don't have negative connotations in everyday language, have meanings in the context of economics that typically describe undesirable things.

Let's assume that you are right . . . that when Hudson uses the terms "landlord" and "rent", he is using them with their traditional definitions in economic terminology . . . which I suppose means the landed-artistocracy landlords who passed down great estates through generations, and forced the peasants to labor upon them and pay rent.
If that's the case, Hudson is not only a communist, he's an idiot.

After all, Hudson is a professor at a major university, and he should have the intelligence to understand that effective communication requires using language that your audience can understand. He's publishing articles that are all over the internet, his YouTube videos are everywhere, he's constantly interviewed, and he even gets emails from the general public like me. Why would he use terms with esoteric meanings when he know his audiece understands those terms in an entirely different way?

Hudson is probably not an idiot. I think he knows exactly what the general public understands by the words "landlord" and "rent", and when he says that landlords should be put "out of existence", he means landlords as defined by the common vernacular. He's not an idiot . . . just a communist.

I can give you an example of rent-seeking behavior in the area of real estate that is the kind of behavior Hudson condemns. I have (unsuccessful) friends who are constantly looking to buy land, preferably unimproved to minimize taxes, near where they anticipate the city will build some sort of infrastructure (light rail, mixed use district) near it, which will greatly increase the selling price of the property.

How is this any different from a businessman who seeks to profit by establishing a business that will gain more customers from the improved transportation? He too would gain profits he would not otherwise gain, just like your landlord friend. Are these businessmen "predators", too?

Taking a wider perspective, who else will benefit from this this improved transportation? Certainly the people who already live in the area, as they will have better access to jobs and other conveniences. Should we tax them also for profiting from this improvement? Conversely, people in some other areas of the city will not benefit from the government project, why should their taxes go to benefiting others? Perhaps they should get a tax credit?

And, what about the iTuliper who believes that the government is going inflate the money supply causing gold to soar upwards. Is this not profiting from government action without having to do any work, while those who are goldless suffer government-caused hardships? Should there be a windfall profits tax on gold sales to address this injustice?

And, finally, what if your friend buys the land and the proposed project falls through? He will suffer a loss. Don't you think there should be some rewarded for taking this risk?

During the time they own the property, they put absolutely no money into improving or maintaining it. The entire game is to let the city -- the taxpayers in other words -- improve the surrounding area for them while they reap the unearned rewards (the rent). They seek to be the very definition of the so-called absentee landlord.

Why should landlords improve the property? Is it their charitable duty to increase the quality of life for the renters and receive nothing in return for this expenditure?
As for maintenance, how can they avoid maintaining the property without violating health codes, and thus be punished? They can't, if government is doing its job.

What's wrong with being an "absentee landlord"? I don't live next to my rental properties now, so I am absent. When I'm too old to do the maintenance or deal with the renters, I'll hire someone to do it for me. So what's wrong with that?

In answering your post, I have come to realize that Hudson is demonizing a lot of behavior that is not bad, per se. There is nothing wrong with being a landlord, or being an absentee landlord, or seeking one's income from rent, or buying property on margin, or investing in something that profits off government actions. So, just what is a predatory, rent-seeking landlord????

There is something wrong with unfair tax codes, and Hudson should focus his speaking out on that instead of promoting his communist, anti-landlord agenda.

[raja]

Re: Hudson on AIG's Lawsuit

say you worked and saved and used your savings to buy rental property and leased out at fair/market rate; I don't think anyone including MH would object to that or call that "rent-seeking" in the abstract. He would say that any increase in the value of the LAND (not improvements) should be taxed.

If I sell the rental property for a profit, I am taxed on the increase in the value of the land and the house at the time of sale. Right?
So what is Hudson talking about?

Perhaps you are suggesting that I am profiting continuously from the land, not just when I sell it, because there is a house on it from which I collect rent. I couldn't have the profit from the house without the land.
But look at it from this perspective . . . .
It is the existence of the house that creates the continuous profit, not the land. If the house were not there, I would not make any profit from the land. In fact, I would lose money due to property tax.
Since it's the house that brings the profit, let the rent profit from the house be taxed.

Anyway, I'm paying property tax on the land, sales tax when I sell the land, tax on rental income, and tax when I sell the house. Isn't that enough taxes? What . . . are you a communist or something

This of course brings up a larger issue. What is the value/cost of the property when we live in a world of leverage and speculation? If government policies have led to real estate speculation which has pushed the prices of "homes" (something we all need) to values which are "unsustainable" b/c of the income levels of the community but have been sustained by leverage, Fed policies etc. then many will be priced out of ownership and they will have to pay more in rent b/c the landlord had to pay more for the house (and a lot of investors buy with leverage - which means the cost to carry, therefore the cost of rent is heavily tied to the loan costs, and therefore the bank, which gets to lend "new" money out at interest gets the free lunch).

Yes, that is "a larger issue," and my solution for that is to "Boycott the Big Banks, Vote Out the Incumbents." Hold the bastards feet to the fire . . . and leave the landlords alone!

[don]

Re: Hudson on AIG's Lawsuit

The small businessman's classic dilemma - from the neck down he's indistinquishable from, and often works harder than, the class he despises - labor. From the neck up he feels a second cousin kinship with those he both fears and admires, the truly wealthy and powerful. Historically his group has played a pivotal role in great social change.

[c1ue]

Re: Hudson on AIG's Lawsuit

Is not eliminating landlords "out of existence" part of communist doctrine? Property is owned by the People and controlled by the State . . . landlords are relieved of their predatory existences.

Nowhere has Hudson said that landlords and rentiers must be destroyed.

He consistently has merely stated that the 'free lunch' they enjoy - which by the way is not all of their rental income - needs to be taxed away. He's given many specific examples of this: for example that if a public improvement increases property values around it, that government can and should tax back at least some of this increase.

As for the system, I think you are unwilling to recognize what he's saying. As gwynedd noted, you can be a beneficiary from a flawed or evil system without necessarily being its promulgator. Being an unknowing and early entrant into a pyramid scheme, for example, is one case where the system is clearly evil but the entrant might both be personally ignorant and make tons of money.

Having a low property tax, for example, is an excellent way to make money for owners of real estate - particularly commercial or residential rental real estate.

This is because rental real estate functions as an arbitrage between real estate capital costs + carrying costs vs. incomes. Lower property taxes increase the capital needed to buy property - thus forcing more renters. Lower property taxes also decrease carrying cost, thus making it easier for a rentier to survive cash flow swings.

Now, if you refuse to understand this dynamic, that's your prerogative. The reality is that this dynamic isn't an accident and isn't a function of historical inevitability - it has arisen entirely due to the machinations of FIRE.

[don]

Re: Hudson on AIG's Lawsuit

Well said, c1ue.

The reality is that this dynamic isn't an accident and isn't a function of historical inevitability - it has arisen entirely due to the machinations of FIRE.

FIRE is brilliant in pulling in a host of very junior partners, from M&P landlords, with deferred capital gains, to home 'owners' with their mortgage interest deduction (which FIREs up home prices and their concomitant fees & debt) to workers' pension plans held hostage to TBTF speculators. An effective cloak of invisibility - FIRE-proof, in its own special way.