The Power of the Poor

I just watched the Free to Choose Network’s new documentary featuring Hernando de Soto, The Power of the Poor. I was going to write a review for, but, since New Zealand is in the middle of nowhere and my copy didn’t arrive until after the program aired in the states, I’ll offer some briefs thoughts here.

The central idea of the program, as in most of de Soto’s work, is that formal titling allows people to leverage their property to take out loans and pull themselves out of poverty through entrepreneurship. The show has some great examples of this.

What I was most impressed with, though, was de Soto’s willingness to understand the reasons people have for opposing his views. Despite being the target of an assassination plot by the Maoist thugs Shining Path, de Soto empathizes with the group’s supporters. Whenever people feel excluded from capitalism, they’ll seek alternatives. For rural peasants whose interests are not served by the state, Maoism seems like an attractive option.

When people do evil things, it is seldom because they have evil intentions. It takes a great man to recognize that is true even of those who would have you killed.

Thanks to Max Borders of Free to Choose for sending me a copy. If I lived in the States and neglected to mention that, by the way, I would be risking an $11,000 fine.

Where my Georgists at?

Many libertarians accept that government, and therefore taxation, is necessary. If taxation is unavoidable, the economically literate libertarian should prefer a tax system with minimal distortionary effect and injustice. I think the Georgist idea of a single tax on the unimproved value of land is clearly the best tax on both counts, but is seldom discussed by economists or policy wonks.

Taxation distorts economic activity by discouraging the taxed activity. If we tax income, people will work less. That’s bad. Given that (almost) all the land there’s ever going to be is already in existence and can’t be destroyed, a tax on the unimproved value of land wouldn’t have these distortionary effects. Of course, there’s really no such thing as the unimproved value of land: the value of a particular piece of land depends on improvements made in neighbouring areas. Still, such a tax would surely be less distortionary than other forms of taxation.

Many libertarians will object that efficient theft is still theft, and therefore wrong. I’ve never completely bought in to the taxation is theft line, since I think property rights are themselves morally problematic. I really like property rights, and I think it’s pretty indisputable that we’d all be poor and miserable in a world without them.

I don’t like the quasi-mystical overtones of the “mixing one’s labour” metaphor, but I think some version of homesteading principle is the only way to think about just and reasonable acquisition. The Lockean proviso that we leave enough and as good for others, though, is never completely met in reality. Even if there’s an abundance of unclaimed land, location remains important. If I claim exclusive right to a piece of land, I am reducing the options available to everyone else.

I don’t like Nozick’s move of interpreting the Lockean proviso as being met if everybody is better off in a system of private property rights than the alternative. This neglects the intermediate possibility of attenuated property rights. It seems fairly plausible that everyone would prefer a system in which people could claim private ownership of land, but only on the condition that they compensate others – in Georgist terms, paying rent to the community. There are some problems in terms of justice, but, to me, there much less serious than the problems of current tax systems.

Milton Friedman once called it “the least-bad tax” (but to my knowledge never discussed the possibility in any depth). I’d go further and say it could be a positively good tax. If we could design a government and ensured it remained within predefined bounds, a nightwatchman state funded by a single land tax could be preferable (in expected value terms) to anarchism. (Constraining government in this way is impossible, though, which is why I’m an anarchist. Still, the “imagine a perfect government; wish really hard” approach is the dominant one in political discourse.)

Why, then, is the idea largely confined the certain portions of the left-libertarian fringe? With few exceptions, free market economists have neglected the possibility of replacing income or consumption taxes with land taxes. Fred Foldvary has done some great work, but that’s about it.

I don’t get it. Any ideas?