Hudson on the Piketty Phenomenon

[vinoveri]

Re: Hudson on the Piketty Phenomenon

We're all unwitting collaborators to greater or lesser extents; it's impossible not to be! If you own stocks or insurance, use Federal Reserve Notes, pay any financial service fees or interest on debt, you're playing in FIRE's playground. The idea is to stay solvent during the death throes of the FIRE economy, then be part of the building of the TECI economy.

Disagree, what you describe is participation in the system, the word I used was Collaboration, eg review Nazi collaborators for example. My point is that the line between the two is not bright and many, including apparently many here as well, don't want to think about that.

So TECI is the new religion hey? dream on for the coming of utopia if you must. History is replete with failed visions built on millions of corpses

[shiny!]

Re: Hudson on the Piketty Phenomenon

Disagree, what you describe is participation in the system, the word I used was Collaboration, eg review Nazi collaborators for example. My point is that the line between the two is not bright and many, including apparently many here as well, don't want to think about that.

So TECI is the new religion hey? dream on for the coming of utopia if you must. History is replete with failed visions built on millions of corpses

Thank you for making the distinction between the words "participation" and "collaboration". I stand corrected. We are participators in the system, not collaborators. I don't think you'll find FIRE collaborators at iTulip. People here seem to think about these issues a lot.

I consider a TECI economy to be an investment concept, not a religion or utopia. Sorry if my words gave you the wrong impression.

Just as the FIRE economy replaced the manufacturing/productive economy before it, TECI industries will hopefully replace FIRE type industries as good investments. By "good investment" I mean beneficial for society and beneficial for my portfolio as well. I would simply like to preserve my assets in these hard times, invest in TECI companies as FIRE investments fail, and then ride the wave up. I feel no religious zeal about this at all. Don't know why the idea upsets you so much.

[Polish_Silver]

Re: Hudson's lack of distinctions

This has come up before on this forum. I think Hudson completely understands real estate and is not talking about an upper middle-class couple who inherits a house and rents it out or buys two houses looking for income.

“.

I have never heard him make that distinction. I think I'd agree that there are lots of tax loop holes for the bigger fish, not so many for the small and medium ones. I don't think rental apartments make gobs of money for their owners, and I have yet to see Hudson give specific numbers on that.

[Thailandnotes]

Re: Hudson's lack of distinctions

I’ve known 2 families land poor, then land rich, farmers whose fathers and grandfathers made a living on 300 acres outside a metropolis that eventually…generations later expanded to gobble up their land. The break-even existence of the grandfather became the comfortable sell 20-acres-send-a-kid-to-college father which became the gigantic windfall of the son who had to decide how many millions to dole out to the fourth generation.

I think Hudson’s fundamental point on real estate is obvious: When the property you own has increased immaculately, you need to pay more tax. If you can’t pay the tax, sell and move. Obviously, there are clauses that let people stay in their homes till death, but after that, tax the hell out of the corner of 11th avenue.

You make this HUGE windfall on being in the right place at the right time. Congratulations, but don't expect your great great grandkids to be royalty.

[Polish_Silver]

what is inflation?

Nothing wrong with inflation per se if it is reflective of economic growth, i.e., the money supply must grow to keep up with economic growth per Friedman approach.
. . .

If money supply keeps pace with economic output, prices will not rise unless velocity increases.

Under a gold standard, prices are very stable. Contrary to what is usually said, it is not a gold standard that causes deflations, but leveraged lending.

[Polish_Silver]

Re: Hudson's lack of distinctions

I’ve known 2 families land poor, then land rich, farmers whose fathers and grandfathers made a living on 300 acres outside a metropolis that eventually…generations later expanded to gobble up their land. The break-even existence of the grandfather became the comfortable sell 20-acres-send-a-kid-to-college father which became the gigantic windfall of the son who had to decide how many millions to dole out to the fourth generation.

I think Hudson’s fundamental point on real estate is obvious: When the property you own has increased immaculately, you need to pay more tax. If you can’t pay the tax, sell and move. Obviously, there are clauses that let people stay in their homes till death, but after that, tax the hell out of the corner of 11th avenue.

You make this HUGE windfall on being in the right place at the right time. Congratulations, but don't expect your great great grandkids to be royalty.

I don't think this is the central FIRE problem. Hudson complains about people who milk the system in a sustainable way.
This family started out lower middle class and sold property to be wealthy for a few generations. That involves no corruption, political manipulation, or sucking people into debt. The people who buy the small lots will pay plenty of taxes.

Hudson's example was a downtown landowner, whose property becomes more valuable because a subway is built nearby. It makes sense to levy a special property tax on property enriched by other tax payers.
However, the land does not continue rising in value. After 10 years or so, the tax rate should be the same as everywhere else. The wealthy would pay more, because they own more property.

If the real estate market is competitive, then any lowering or raising of taxes will be passed on to tenants. If it is not competitive, then fix that problem. Land in valuable areas does not rise in value faster than other areas. It rose faster 50 years ago, and retains a higher price. Shiller discusses this in irrational exuberance. Although land in Boston is more expensive than land in Milwaukee, both rise at the rate of inflation.

[santafe2]

Re: Hudson's lack of distinctions

Hudson's example was a downtown landowner, whose property becomes more valuable because a subway is built nearby. It makes sense to levy a special property tax on property enriched by other tax payers.

This is exactly how property taxes work here. Property is regularly reassessed to its current value. If it works the same way in NYC, no special tax should be required. It makes sense for counties to distinguish between dwellings used as a primary family residence and dwellings operated as a business. Because our primary residence has been in our family for about 30 years, it is taxed at about 1/2 the rate of our rental properties. Some families in Santa Fe have owned their homes for well over 100 years and are taxed at a small percentage of current rate. If they were taxed at anything close to the prevailing rate they would not be able to keep their homes.

[Polish_Silver]

Re: Hudson's lack of distinctions

Good point. Over time, the increased property value would pay off the subway construction cost. However, the owner could sell as soon as the subway was finished, paying only 1 year of higher tax.

Old land owners:
This was also the impetus behind California's proposition 13. Property taxes were going up far faster than incomes for many people. I am not sure it's fair that you can pass on dirt cheap taxes to children, but it's far from the top of my worry list.

[santafe2]

Re: Hudson's lack of distinctions

I am not sure it's fair that you can pass on dirt cheap taxes to children, but it's far from the top of my worry list.

It is a hot issue around here as well but since the people that benefit the most are the families who have been here for several generations their issues have so far prevailed. There is a family at the end of our street who have lived in the same house for many generations. In fact, they used to own the street and other land around us. It would definitely be a hardship for them if they had to pay prevailing tax rates. On the other hand my neighbors who recently moved in and have no children, pay twice as much tax as we do and that's not fair either so it's a complex issue.

[Polish_Silver]

real estate tax breaks

I don't think speculation is required to stay even. There are times when various asset classes are down and it makes sense to invest in them. Today, real estate is a good investment in many areas of the US. If anyone thinks it's tax free or without risk, they should try it and report back. Over the last couple of years I've been investing there and I can assure you, it's neither easy or without serous tax issues. I think EJ has built a couple of real estate funds and can offer his insights.

It's not often I completely disagree with Hudson but I don't think he understands one thing about real estate.

Eastham capital has acknowledged "tax favored status" for real estate ventures. The tax breaks seem to be mainly for the big fish. You should see the k-1's coming back from them: "no income" 3 years running. Listen to EJ's conference "I survived the real estate bubble" It used to be on the front page. Even the real estate magnates are laughing about the absurd tax breaks they get. Now some of that savings will get passed on to tenants, but the market is not perfectly competitive. If it were, returns would be low.


If you just buy a house and rent it out, you have taxes and risk up the wazoo, which is why I fought my wife tooth and nail not to do that!

[Polish_Silver]

Re: Hudson's lack of distinctions

It is a hot issue around here as well but since the people that benefit the most are the families who have been here for several generations their issues have so far prevailed. There is a family at the end of our street who have lived in the same house for many generations. In fact, they used to own the street and other land around us. It would definitely be a hardship for them if they had to pay prevailing tax rates. On the other hand my neighbors who recently moved in and have no children, pay twice as much tax as we do and that's not fair either so it's a complex issue.

I think that's what happens to most families who inherit land. After a few generations, there is not much wealth left. I am not sure how big of a problem "dynastic wealth" is . Hard to get information because people who have dynastic influence would want to keep quiet about it.

[gwynedd1]

Re: what is inflation?

If money supply keeps pace with economic output, prices will not rise unless velocity increases.

Under a gold standard, prices are very stable. Contrary to what is usually said, it is not a gold standard that causes deflations, but leveraged lending.

Yes it is true that gold standards do not cause depressions. The issue is that when there is a depression there is no remedy to fix it. Credit can and will grow with gold and then two generations are lost. First is the Austrian complaint. That is to say mis-allocated resources. However a gold standard will cause a second. That is the non-allocation of resources, the complaint raised by MMT.

You cannot allow the best financial investment to be money, especially now. At least under a gold standard, gold mines always ran deficits. A balanced budget has no new supply of money and is purely one of credit expansion and contraction.

[Polish_Silver]

Re: Hudson on the Piketty Phenomenon

No, I don't live there, but I do vacation there often, usually to the Dorado Beach area which is a wealthy enclave and absolutely beautiful. PR is a great place. It's easy to get to, no passport needed, I think a hidden gem. I can see that in the current FIRE economy, PR could be a great place for a distressed investment/opportunity if you have a long time horizon.

My reason for posting was more to show how more and more tax breaks for the wealthy/businesses get used to help struggling economies. That's not changing anytime soon. Hudson could rant all he wants but this isn't going away, and the more any economy weakens the more tax breaks there will be.

Is there any good snorkeling or scuba diving? What about hiking?

[Polish_Silver]

Depressions and gold

Yes it is true that gold standards do not cause depressions. The issue is that when there is a depression there is no remedy to fix it. Credit can and will grow with gold and then two generations are lost. First is the Austrian complaint. That is to say mis-allocated resources. However a gold standard will cause a second. That is the non-allocation of resources, the complaint raised by MMT.

You cannot allow the best financial investment to be money, especially now. At least under a gold standard, gold mines always ran deficits. A balanced budget has no new supply of money and is purely one of credit expansion and contraction.

Fixes you could use under a gold standard:

Spend savings previously accumulated.
Borrow against future revenue
Debt forgiveness.
Sell assets.

Currency depreciation and deficit spending is really just a covert way of doing the first three of these things.


Depressions occur because of excess lending. If banks were not allowed to lend amounts greater than deposits, there would be no endogenous financial cycles. Five nobel prize winners, including Akerloff, are backing Kotlikoff's limited purpose banking. Under that system, aggregate lending is less than or equal to aggregate savings.

Another advantage is that savers would have the choice of risk free, non-interest bearing accounts. These would not require any FDIC insurance. Considering the interest bearing accounts, the interest getter (investor) would take all the risk, not the bank. No need for FED, since the banks could never fail to return what they owed. Nor would they ever need "over night loans" , bailouts, or what have you. The banks would not be making much money in this system. Boo, hoo !

[don]

Re: Hudson on the Piketty Phenomenon

Hudson on why he's embraced and what's missing . . .