Thought you might be interested in this post to another list.
The free market can handle 100,000 or 1 million decisions a day without much of a problem.
Governments really can’t keep a centrally planned economy working efficiently for very long. They begin to patch and repair until there are more patches than policies.
This is hidden by the fact that our ability to produce is enormous, which gives them lots of slack in which to be inefficient.
Unfortunately, Land rents and prices are not controlled by the price mechanism, so the market doesn’t work with this Classically defined “Factor of Production”. The other two Classical Factors are Labor and Capital which are controlled by the price mechanism.
Trouble is that the neo-Classicals (spurred on by the Austrians) mixed Land in with Capital, a silliness that makes reasonable analysis all but impossible.
This is why we have a “housing bubble” in which the cost of building a house hasn’t much changed – may even have gone down – while land values (uncontrolled by the market price mechanism) soar higher and higher.
Japan had a land value crash (saw an item recently that land values have actually moved up a smidgen for a change after more than a decade). The Eastern banking collapse was the result of ‘unwise investment in real estate’. Our savings and loan crisis of almost two decades ago led to the failure of more than 1,000 banks because “many S&Ls lent far more money than was prudent, and to risky ventures which many S&Ls were not qualified to assess.” (Wikipedia)
The “risky ventures” and the “unwise investment” were land speculation.
You’ll recall I posted a history of Chicago land speculation over a century which included 5 major depressions caused by out-of-control land prices. The only change since then has been much increased government interference in the economy.
It’s not as if we don’t know how these crises happen. It’s just that in neo-Classical economics “Land” – a natural resource supplied by nature with no help from humanity – is placed in the same box as a lathe, or a car factory, or a cruise ship, products that would not exist were it not for us. Also, the neo-Classicals seem unaware of why a Factor uncontrolled by the market price mechanism can be mixed together with a Factor that is.
So, modern economists are hamstrung by the inadequacies of their own “science” and we suffer from that incompetency.
This means that instead of attacking the land problem, they concentrate on the effects. So the Japanese land value crash, the Eastern banks’ unwise ventures in real estate, and our ‘housing bubble’, become a banking and currency crisis.
As I’ve said before it reminds me of the story of the man on his hands and knees in the kitchen looking for a contact lens. “Where did you lose it?” asks a friend. “Out in the hall,” says the man.
“Why not look there?” presses the friend.
“The light is better here.”
The economic fraternity will never find their “contact lens” if they persist in looking where the light is better rather than where the problem is.
Henry George School of Los Angeles
Tujunga CA 91042