117: Lars Doucet - Land Is A Big Deal

In this episode, we're joined by Lars Doucet to discuss his new book, Land Is A Big Deal. You can buy it here: https://www.shacksimplepress.com/product-page/land-is-a-big-deal Jarvis 0:05

Hey folks, welcome to narratives. narratives is a podcast exploring the ways in which the world is better than in the past, the ways that is worse in the past towards a better, more definite vision of the future. I'm your host, William Jarvis. And I want to thank you for taking the time out of your day to listen to this episode. I hope you enjoy it. You can find show notes, transcripts and videos at narratives podcast.com.

Unknown Speaker 0:41

Well, Lars, how are you doing today?

Lars Doucet 0:43

I'm doing pretty good except for the fact that I'm a little sick. But other than that, I'm alright. So that's great. Walter off in my mouth right now.

Will Jarvis 0:51

Let's get you prepared. Well, today's a special day. You've got a big, big release coming out. Can you talk about that a little bit?

Lars Doucet 0:58

Well, he's just arrived in the mail yesterday. Land is a big deal. Why rent is too high wages too low what we can do about it. Your book? Yeah, this is. So it publishes today with shock. Simple press. We've got the physical book, we've got an ebook and an audio book. And yeah, it's I've been working on it for gosh, least. Yeah, better part of the year. Let's put it that way.

Will Jarvis 1:26

That's awesome. That's awesome. Can you talk a little bit about what the book is, and the main thesis behind

Lars Doucet 1:31

it? Okay, so it's right there in the title, land is a big deal. And the double entendre is 100%. Intentional, like land is a big deal as in land is a very important matter. And then land is a big deal as in, it's just like, it's an awesome deal. Like, you know, there's there's a very valuable, like, business arrangement, if we pay attention to it, you know, there's a lot of value that's locked up in land. And the basic thesis of the book is that real estate is the world's largest asset class. And then the major driving force behind the value of real estate is land appreciation. And, for some reason, just contemporary economics, even though like if you scratch the surface, and like dig down to all acknowledge that this is true, but then in terms of like our public policy, we kind of just ignore it. And it's so strange, because land has this huge weight on the economy. And when we have bad Land Policy, it may makes everything worse. It's basically the root cause of the housing crisis, which in turn, is the root cause of all these other problems in our lives. And the book is here to basically just elucidate why land is a big deal. And how it causes our ignorance of that fact, how it causes all these problems in our lives and what we can, how we can take that knowledge and fix things.

Will Jarvis 2:53

That's great. That's great. I want to talk first on what land is, and then how big of a deal it is, like you mentioned, it's the largest asset class in the world real estate, and the primary driver of that is land. What is land? And then how, like, how big is it in turn, if we compare it to the different things like, you know, financial assets, or you know, real capital or things like that,

Lars Doucet 3:14

right. So one of the things I wanted to do with this book is I always get really frustrated with a lot of political and policy arguments where people just argue from vibes, like the other thesis of this book is just is just shut up and do the math. Yeah. So basically, when I talk about, some of the things I do in the book is go out to measure all of America's land values is like a major portion of the book. Right? And so the first talk about what land is and why it's important land is basically everything humans don't produce. I mean, that's obviously like the most obvious example that is like literal land, right? Like just dirt. But it's also like locations, right? You know, you the real, the real estate agents, just give it right away Location, location, location are the three most important things in real estate. And then they'll also have this this this fate, this phrase, they like to say buy land, it's the only thing they're not making any more of. Yep. And so the fundamental problem is, I mean, just kind of paraphrase William F. Buckley here is that there's infinite capacity to increase labor and also to increase capital but no capacity to increase land, we can't make another earth we can't make another Manhattan, you know, and so, because whenever you're doing anything in the economy, basically, the results of any productive behavior gets split up between people providing three things, people providing labor, people providing capital and people providing land. And we can make more land. I mean, sorry, we can make more labor. People can work harder, less hard or more people can work. And we can make more things, more tools, more factories, more machines, whatever, you know, to make ourselves more productive. But because we can't make more land, land really holds the whip hand in the economy, and land takes its share. error of production in rent. And the problem with land is that everybody needs it, you know, land as an asset has three unique properties. And those are that it's strictly scarce, it is necessary for production. And you can't make any more of it. I mean, sorry, I already said that it's scarce. What the third one really is, is that it obtains value from its location, right. And this is a perfect recipe for what we call rent seeking. And economics, which is basically collecting value extracting value from the hard work of others without contributing anything yourself. And when I say land is necessary for production, it's literally true, like, it's impossible for you to do anything without being in a location to do that, right. And the way I like to say it is that you can't work, eat, sleep, or even poop, without access to land to do those things on. And if you do any of those things in the wrong place, or someone doesn't want you to do it, or you don't have the right to use their land for that purpose, you will get in a lot of trouble. Right? You know, even something as innocuous as sleeping, you know, you sleep on a park bench, there's a very good chance we'll get arrested by the police. Right? You know, and so was the lands necessary for production and just all human activity, everybody needs it, you can't opt out of out of needing it. And then because we can't produce any more of it, you know, especially when we talk about valuable locations, that creates this kind of local monopoly with every piece of land, that gives the owners of land intense leverage to extract value from the rest of us. And then there's a third part, land obtains value from its location. This essentially is so so like, if you imagine you operate a hotdog stand? Do you want to operate that hotdog stand in the middle of the desert? Or do you want to operate it like next to Times Square, right? If you own a parcel of land next to Times Square, that's very valuable. And putting a hotdog stand there, you'll get a lot of traffic because of all the rest of the contributions of New York City, right? Things that you didn't do things that the community provided, but yet, you're able to extract that value, because you're adjacent to it. And so when those three things add together, basically, land becomes this asset class that really distorts the economy when we, when we don't have policies that treat it well. And right now, we do not have policies that treat it well.

Will Jarvis 7:20

But that that's really well thought that's really well put, I want to double click on something interesting you did there. If you remember, probably a couple of years ago, there's a book that came very popular was by a French economist named Piketty. I'm sure I'm butchering his pronunciation there, I've only read it. But it was called capital in the 21st century. And it was all about how over time, you know, capital has sucked up more and more. It's driven a lot of inequality, because it's sucking up more and more of the economic production and taking away from labor. And he divides things between capital and labor, you divided things between capital, labor and land, which I think is a really important thing to do here and split these things out. Can you talk about why that is kind of it's not a unique approach, and that people have been thinking about this for a long time. But oftentimes, land just kind of gets lumped in with capital in a way that I think, you know, misconstrues things in people's minds,

Lars Doucet 8:17

right? Yeah, you're absolutely right. So the thing is, if you go in any classical book of economics, the even some, a lot of them will just say the three factors of production are land, labor, and capital, but then land will get treated as if it's just a species of capital, right? It's just a thing that people own that helps them get more wealth. And, and so land is really a separate category by itself, because it doesn't behave like capital at all, one of the major things about capital is that you can move capital, you can't move land. And secondly, I mean, some capital can be moved. But you can also make more capital and you can't make more land. And then the other big thing, and this relates to Thomas Piketty, or Thomas Piketty, I don't speak French. Is that capital also depreciates right, you know, capital has maintenance costs. Now, land generally doesn't depreciate land, generally, if anything appreciates over time as demand for those locations goes up. And because of this, treating land, as if it's a species of capital really distorts the whole thing. Like you can put them both together and call it capital. And then yes, Pickety is right, the return to capital is growing faster than the economy itself is growing. And that seems bad and it is bad, right? But this guy called Rome Lee did a really good analysis of Pickety his work, and points out that when you decompose picket ease category of capital into regular capital assets and housing, you know, the majority of whose appreciation is due to land, then you see that all of the increasing returns to capital are really just to the housing sector, right? All of the returns to just regular capital like tools and factories and other things like that is flat that. Because once you appreciate once you account for depreciation. And so it's really even even using Pickety his own data, what he's showing is that yes, like the returns to the capital sector are outpacing the growth in the economy. And that's bad. But it's not because of, of capital. It's because of land. Right? Right. And so it's essentially a category area error, error.

Will Jarvis 10:24

Make sense? Make sense. I want to move on now. And talk about, you know, how big of a deal land is. So a lot of people, you know, would agree with you all the way up to here like Paul Krugman, he's like, yes, like, you know, you know, this makes sense, Lars, but he's like, I don't think land is that big of a deal. Actually, like, I just don't think it's that big of a problem. It's not this huge asset class that you talk about. Can you talk about just how big land is as an asset class and how important it is?

Lars Doucet 10:49

Yeah. And so a real important thing to just like kind of contextualize here is that it's like here we are recording a podcast remotely in the in the the work from home revolution in the future with a Metaverse on the horizon and stuff. Oh, yes, we're more disembodied and atomized than ever like, like, like when, when, and then some weirdo like me comes on like ranting about land. It's like, what am I some 18th century peasant? Like, what is land matter in the economy? Well, I have a lot of figures in my book, this was the whole point of shut up and do the math. Right. So I wanted to, you know, see if land was a big deal. And you can define that in several ways. And here's the ways land is a big deal. Most of the value of urban real estate is land, everyone knows with all these million dollar, tiny, tiny houses in San Francisco and Manhattan, that are worth millions, millions of dollars, you're not paying for the building, you're paying for the dirt, you're paying for the location, location, location, location, right. And I have a lot of data in the book that that supports exactly how shocking that disparity is, then Americans land rents, if we were to take all the value of all of America's land, and just take it into, like the annual land rental income value could get from renting that land down, equals a really sizable portion of the government of government spending, you know, so we could replace a lot of sales and income taxes, with a shift to will what's known as a land tax. And the exact values depend on which budget, you're looking at state versus federal, etc. The other thing is that land represents a significant percent of all major bank loans. So bank loans over the past century have just been increasing increasingly, increasingly just chasing real estate. China's an extreme example of this, let me get some figures for you here. So over, in around 1880, bank loans are somewhere like 35%, of all real of all bank lending was real estate. And then 1920, you know, that had fallen to like 15%. Now in 2010, it's like, it's well over 50%. It's like 58%, or something in 2010. And the graph, the graph, I have only goes till then. So I think it's probably increased since up to 2020. And this is all over the world. It's New Zealand, it's the UK, it's, you know, Finland, Italy, Australia, Sweden, you know, and then China. It's like this graph I have here that goes to 2007 in 2007. That was, like, what, 15 years ago? Yeah, 87% of Chinese bank loans were for real estate. And we see right now with their massive crisis that they're having right now. So not only is land this huge, it's also the largest asset class in the world, According to McKinsey shown that real estate is 68% of the value of all real assets and real assets, or if you take paper assets and decompose them into the actual atoms that they point to. And it's like just the physical stuff in the world that people own 68% of all that value is real estate, and of the portion that you could consider non produced assets, which includes land mineral rights, and that's about 40%. You know, so it's this huge part of the economy, banks then chase this. And when banks chase it, it pours fuel on the fire because they just constantly bid up the price. Right? Right. You know, of a scarce asset that allows you to extract value from other people, right off of stuff, you didn't contribute to the economy. It's pretty bad. And then Thomas Piketty, his own work he has some excellent graphs of capital in Britain and capital in France, and capital in Spain. And if you look at these you see these like shifts were back 100 200 300 years ago, all the value majority of the value of real assets was locked up in agricultural land. And there's been almost this perfect transition of like, like half of the world's like real value being tied up in agricultural land. Shifting almost perfectly to residential land. So yeah, we all moved to the cities and we got we're not peasants anymore. We're not dependent on farming for a living. But we are dependent on needing to pay rent somewhere so that we can have a job. And so that so so we still have aristocrats and landlords who basically rule the world.

Will Jarvis 15:24

Yes, yes. And the remote relative revolution has not, you know, we've hit some equilibrium there where it's maybe a third of jobs or something like that. But it doesn't seem like, you know, it's Lux Metaverse, you know, 35 daily active users. That was the big news from yesterday. And it doesn't seem like we will have much more innovation in that space for at least 100 years or something like that. So we are stuck in the real world for the time being. And so land still really matters, it seems like

Lars Doucet 15:51

well, and also the thing is, it's not like a bunch of people can move to, you know, some podunk town with good internet and not increase the land values there. Right, exactly. There's this phenomenon called Ricardos law of rent, that when you increase the productivity of an area, the rents basically go up proportionately. And so the issue is like, everyone's like, Okay, I'm gonna work from home, I'm gonna move three hours out of the city to this nice little sleepy suburb that's really cheap. And it's cheap for about a hot minute until you all your friends come to. And now it's expensive, because people like, oh, well, you're making a really high salary from your work from home tech job. So I'm gonna raise the rent.

Will Jarvis 16:29

Yep, exactly, exactly. And it's this vicious cycle? Well, Lord, so I think we've established land is a big deal. In fact, you know, this is like, perhaps this thing that is true that few people realize. And so it's super interesting to me, personally. What's to be done about it? You know, what should we think about what policy interventions would help alleviate this kind of stranglehold that land has on the global economy?

Lars Doucet 16:55

Right? Well, there's a couple. Right, so the one that most people will be familiar with is just the NIMBY ism, you know, the yes, in my backyard movement to basically just save us from the strangling force and people who are like, Oh, we're in a housing shortage, don't ever build any more housing. You know, so just pushing back on that is good that the problem is, is that there's still a stranglehold on land, right. And the, the solution actually comes to us from famous economist from the 19th century by the name of Henry George, who at a time was probably the most famous political economist of his time. And the first third of the book is basically a book review of his seminal work, progress and poverty. And his basic thesis was, why is it that as progress advances, you still have poverty, and in fact, sometimes worse, poverty in the most advanced cities side by side, with all this progress, like in San Francisco, major tech hub, there's just homeless people on the streets right next to just some of the wealthiest people in the world. Right. And George predicted this, you know, over 100 years ago, and he also gave us the solution. And since then, basically, every economist ever basically agrees he was right, which is why it's so puzzling, why they haven't put his policies into effect. And his policy prescription is a land value tax. Now, we have property taxes already, the way a land value tax differs is that you don't tax the buildings, and then you raise the rate of the land value tax to almost equalize the amount of income or benefit you're receiving from the land, what we call the land rent. Basically, if I owned, you know, a piece of land, like a perfect example would be if I own a parking lot, like right next to the Empire State Building, I should basically be paying a tax about up because like a parking lot, it's like basically doing nothing with the land. Right, right. And I can basically rent that out through just the demand for parking and parking fees, you know, that represents kind of like the natural income of completely unimproved land, like you should tax me at basically 100% of that parking income, right. And you should also tax the Empire State Building the same rate is the idea. The idea is property taxes, punish people for building, right, and they are essentially encouraging and subsidize people for buying empty lots in the heart of big cities. You know, I know of cases in cities where like people have bought large, large empty lots and held them out of use for like 10 years and then sell them for 10x what they paid for them, because they know that as the location, the population increases in that area, there will be more demand for land. And it encourages people not to develop which is really perverse. And the other thing is, and there's another section of my book that deals with this, is that there's really strong evidence that land value tax is one of the only taxes that can't be passed on to its, you know, to the consumer, which in this case would be a tenant, you know, who's renting from a landlord has to do Some special properties about land, but essentially, land value taxes, because you can't make any more land. There's a saying, if you want less of something, tax it well, because land is a perfectly inelastic good, it's perfectly fixed supply. If you tax it, you don't get less land, nobody makes land. So you just eat into the rent seeking of the person who owns the land, which encourages them, only to hold land if they're going to do something productive with it, which means if we tax land, we'll get a lot more housing, we'll also make housing more affordable. And we'll also be able to use the revenue from a land value tax to offset much more inefficient taxes. We know with income tax, that it's it's it's a drag on labor, you know, it disincentivize, we get less labor than we could, because it disincentivizes people to work as hard as they could. And then sales taxes are regressive. They fall mostly on the poor. And they're also disproportionately bad for small businesses, like the cost of compliance are way easier for large businesses and for small businesses. And so we can replace our tax system with one that's more fair. And that's more efficient. And that will encourage more investment, more capital and invest and encourage more, more, more hard work, you know, more labor. And so basically Henry George's thesis, there's kind of an extreme version of it called the single tax, which is that the only thing we should tax is land. And my position is, that's nice work if you can get it. I show a lot of numbers in the book of you know, whether that is or isn't possible. But I think we can get actually pretty close to it, even if we couldn't realize the ultimate dream in one fell swoop. And it certainly would make things a lot better than they are today. So that's that's the main policy prescription is the land value tax.

Will Jarvis 21:41

Yes, absolutely. And I'm a big fan of this, actually, from a just an economic growth angle. Charles Goodhart of good hearts law, he's actually still alive, I think this is great. He wrote a paper last year called post Corona super stimulus. And he talks about the potential economic effects of implementing land tax a shift to a land tax, it can increase US GDP in the US by as much as 15 to 25%, which can help us escape kind of this this great stagnation, we find ourselves and it's actually not unheard of, you know, we've had three or four shifts and taxations of this size in the United States since our founding. So it's not like it's this this crazy thing that's completely out of the possibility space, it is very much an achievable thing to do something we should strongly consider.

Lars Doucet 22:26

Yeah, I mean, I agree. And the other thing is that there's another aspect of Georgia ism. Beyond land. Remember, I said, there's this thing called a land like asset, so there's literal land, but there are other things that behave like land, right? One of those is things like electromagnetic spectrum, right? So like, Froggy 99.7, is occupying a fixed location in the electromagnetic spectrum. And those are resources that we need to allocate efficiently. Satellite space, right? Only, like if you're occupying under a certain orbital lane, another satellite can't be there. That's a scarce resource. And we need to manage those well, and there's also there's also depletable natural resources like oil, like natural gas, and then renewable natural resources, which are tied to locations like Henry George famously basically predicted solar power by basically saying that like, as technology improves, certain locations will become more valuable, like a patch of desert could become more valuable. If there was ever humans ever devised a way to capture this the power of the sun's rays, which we now can do. And we are seeing what we call a locational, rents accrue to certain areas. And one thing that's interesting is that the Kingdom of Norway aside, I'm, I'm a dual American Norwegian citizen, Norway has been doing some interesting things lately, with its natural resource management, they have a long history stretching back over 100 years of explicitly Georgist management of their natural resources, starting with hydropower. And then their oil, their oil management system was also set up under effectively a Georgist regime. And the basic idea there is simply that it's the people who own the resource, right. And so there's a very strong severance tax on the extraction of the resource. But then in order to make sure that there's still an incentive to discover the resource, they have some subsidies, and to cover those costs, so that you're taxing the paths of extraction of the resource. That's because if you don't do that, you get the kind of situation where we see here more in the United States, where people will squat on a natural resource node and then political connections get tied into things and production gets pushed out further and further and further into more marginal resource nodes because the best ones are being being kind of squatted on waiting for the price to go up. And the Norwegian model has been a huge success. Natural Resource Management. And the current ruling coalition is now pushing for Georgist management of natural resources and other sectors. And what I would recommend is that they start looking at the largest resource sector of all, which is land, because Norway famously has very high income taxes. And I think those income taxes are a drag on the economy, and they could replace those with taxes on land. And then maybe all the poor students in Oslo who can't afford anywhere to live, because housing costs are through the roof would also get a break. So I think it's, there's, there's more to Georgia ism, which is the philosophy of Henry George than just land value tax would fix this. But, but that's kind of the core of the philosophy. But to expand further, you go into natural resource management. That's great.

Will Jarvis 25:44

Could you talk a little bit about just the crypto angle and potential applications in Aetherium, as well?

Lars Doucet 25:50

Oh, yeah, this is funny. One of the things is, so I've worked as a consultant in the video game space for a while writing about video games. And there was this whole trend of crypto based video games. And some, some of the people who become really interested in GA ism come from a crypto background, which was kind of surprising to me. Vitalik Butyrin was very taken with the philosophy He graciously endorsed my book. And he wrote a paper recently that I thought was very interesting about the Etherium Name Service, which is kind of this domain name service that's tied to Aetherium. Basically, like dot ens, because that's a scarce it's kind of like electromagnetic spectrum. It's scarce, right? And how do you allocate those efficiently? And so he wrote basically, this philosophy of, you know, how can we allocate these effectively so that people don't just buy like, cool dot ens, cool dot eath, or Lars dot efe and hold it out of use forever, right waiting for like, Get everyone knows, there's all these people who squatted all the best domains, and so and so he like wrote out a policy paper inspired by Georgist philosophy of how to deal with that. One of the things in the digital world that's a little different than the physical world is that sometimes we can create more of whatever our virtual land is, and so that you can kind of kick the can down the road that way. But in some contexts, you can't. And a lot of that has to do with when the locational aspect sets in. For instance, in a lot of the metaverse type games, they've had a problem that rhymes with what we've seen in online games, just old school games, like Ultima Online going back 30 years, which is virtual housing crises, which is what's valuable is other people in proximity to other people. So even if you have 10 servers, you know, or 50, or 100, with as much virtual land as you want, people want to be next to wherever all the people are. So the digital equivalent of Manhattan will behave much in an economic way similar to the real Manhattan, where land virtual land values will rise, and you will have virtual land speculators who hold land out of use, and don't use it productively and charge everyone else for the privilege. And then you can't afford rent in the metaverse, which is hilarious to me that that has also happened, that we've so digital, we've been so diligent that we've managed to recreate the problems of the real world, in the digital one.

Will Jarvis 28:21

It's amazing. Zuckerberg, if you're listening, we have some policy prescriptions for you here for the for the amount of hours. That's great. That's great. Well, Lars, thanks so much for coming on.

Lars Doucet 28:31

Let's talk about the book. Where can people find it? Where should people? Where should we send people to pick up a copy? Yeah, so it's at its real simple. www dot land is a big deal.com. For now, you can only order it directly from the publisher for boring publishing industry reasons. We're going to have Amazon links and all the other stuff and like worldwide distribution in about a month. And so but for now, you have to order it directly from the publisher at WWW dot land is a big deal.com. and international shipping is a little pricey right now, but we do have an audio book and an ebook version that don't need to be shipped. So all of our international customers, you know, that might be a good option. If you absolutely insist on buying on Amazon, we have a waitlist you can sign up for on land is a big deal.com and we'll notify you, but we'd really appreciate it if you picked up whichever the three formats is most convenient for you today.

Will Jarvis 29:24

I highly endorsed the book and especially the audiobook, you might get to hear yours truly on in a couple tracks. Yeah, it's a it's really good. I really enjoyed the book. I everyone that's read it has really enjoyed it. So I highly, highly encourage everyone to go pick up a copy.

Unknown Speaker 29:38

Thanks very much. Appreciate it.

William Jarvis 29:43

Thanks for listening. We'll be back next week with a new episode of narratives.

Transcribed by https://otter.ai