Wednesday, 19 May 2010

Let’s (not) bash landlords

Everyone’s getting excited about the prospect of watching Bill English bash landlords tomorrow afternoon, with no thought (or just poorly-thought out thoughts) as to what bashing landlords will do to tenants, or to whether or not landlords themselves deserve to be bashed by the double-dipper.

Which of course, they don’t.

But bashing landlords is always fashionable, and those doing the bashing can always count on the support of ignoramuses who can be heard to argue that landlords’ income is unearned—i.e., that their rents and the capital gains they might enjoy from their property are “unearned income” that these (so-called) “greedy scum” don’t deserve to keep.

Now, if you think that sort of argument and this sort of argument sounds just like stale, warmed-over Marxism, you’d be right, as Amit Ghate points out today in a fortunately-timed article entitled ‘The Nonsensical Notion of ‘Unearned Income’.’ 

    “The concept of ‘unearned’ income is the remnant of a long-refuted economic theory known as the ‘labor theory of value.’  Though first proposed by classical economists such as Smith and Ricardo, today it is most closely identified with Karl Marx, who was its last — and most consistent — advocate.
    “Essentially the labor theory of value holds that values are determined by the (physical) labor it takes to create them. Thus physical exertion becomes the measure of an item’s worth. According to  Marx — and to his modern adherents like [Bill English], [Idiot/Savant], [the writers of The Standard] et. al. — any values created in ways other than by brute force are ‘unearned.’ …   So while today’s politicians generally fail to protect the individual’s right to property, they’re openly hostile to so-called ‘unearned’ income and property.  Hence their unabashed support for these new taxes.”

I recommend reading Amit’s explanation of why this idea of “unearned income” is fundamentally wrong, and is the argument behind more than just attacks (and taxes)on landlords.  Hint: it’s all about the mind, grasshopper.

POSTSCRIPT: There’s an added irony about the parasites who attack landlords as “greedy scum” while sucking down as much taxpayers’ largesse as they can.

In general the parasites at The Standard and No Right Turn uphold Marx’s exploded Exploitation Theory (i.e., the theory that “capitalism promotes a system of slavery wherein the labor of workers is exploited to attain profits on behalf of the relatively few businessman or capitalists”) and Marx’s “Iron Law of Wages” (i.e., the theory fallacy that without trades union and benevolent labour-loving government, employers would pay employees whatever they want, driving employees’ wages right down to subsistence level).

But when it comes to landlords, they’re both now arguing against the Exploitation Theory, “arguing that [rents] are set by supply and demand, not at whatever level the landlords want and not at whatever level the tenants want.” See, here’s IowaHawk writing in the comments at The Standard:

    “Rentals are not set by landlords saying:
            ’Gosh Humphrey, I think I deserve an extra $500 a year.”
            ‘Why yes Reginald, that’s only fair. I deserve to make an extra $1000 a year in rent, so I’ve raised the rent on my peons too!’
    “No. Rentals are not set by landlords making up what they want. They are set by supply of rental property vs demand for rental property. Charge too much and you find your property empty – and for landlords with a mortgage that’s very, very expensive.” [Emphasis in the original]

Ironic, don’t you think.  Especially because the same argument they’re using here for rents overturns their own theories about an “iron law of wages”: that is to say, wages are not set by employers making up what they want, [emphasis mine] they’re set by a combination of supply and demand and the productivity of labour. (Read George Reisman’s ‘Classical Economics vs. The Exploitation Theory’ for the full story on this, which also explains the role of the mind in overturning the fallacy.)


  1. Idiot Savant from No Right Turn (NRT) is an unemployed fucker who still lives with his mum so he can go to University. Remember this fucking repeater so called journalist, Barry Soper had stated publicly before, that he finds NRT blog, the most informed one around the blogosphere. No wondered that Barry is a dumbfuck repeater, because he doesn't know what a good blog is.

  2. I considered writing a letter to the thieves in the beehive pointing out to them that if they made it impossible for me to pay the bills for my rental properties then they'd find seven of their voters (+kids) out on the street as I'd have to sell the properties, but I realised quite quickly that they don't actually give a fuck about the downstream effects of their policies, so I saved my time and toner.

  3. The bashing of landlords and property investment in generaL is absolutely appalling.

    People like Hickey are fond of saying it is 'unproductive' or some such. Unproductive for whom?

    It really is a tragedy that Key has the wrong people around him as advisers.

  4. The real problem with the "labour theory of value" is that it completely ignores risk. The landlord income is not "unearned" because he is either putting his capital to risk or, more likely, exposing himself to debt and the concomitant risk.

    Marx attempted to eliminate risk from the equation by making the state responsible for capital investment and risk-taking - with entirely predictable results. No buraucrat likes risk. When the state controls capital there is an immediate death of innovation and a protracted demise of efficiency (as said efficiency gains are almost always initially risky).

  5. Pro-Capitalist19 May 2010, 16:13:00

    Ruth, I agree with you. Fuckers like Bernard Hickey who doesn't produce, but work for someone else has been on the campaign since last year to bankrupt Alan Crafar's farming business. He did it for no other reason, than to raise his profile. He doesn't understand risk in running a business because he had never been exposed to such risk himself. Alan suffers, because he took the risk himself. The market had finally punished him, but what's appalling is that Mr. fucking Hickey was instrumental in the Crafar's downfall. Crafar didn't loan from Hickey in order to run his business. He loaned from the Bank, and the bank/s did bear some of those risks too, knowing well of what the likely consequence of what they approved. Isn't that capitalism? Failure is allowed, but not some self important fuckers like Hickey who campaigned against the Crafars.

  6. I dont actually see any substantial discussion of Bernards main problem with landlords in NZ.

    What I do see is a lot of misrepresentations of his position as one that considerd landlording "unproductive".

    And I also see that rubbish old debating trick of "you dont know man! Its never happened to you!"
    This brilliant tactic is also used by the Greens in relation to their redistribution policies. You lot cant argue with them, because you have never been poor! Utter BS.

    Property investment isn't being bashed per se. Mal-investment is. Incentives that have driven an over-investment in property are. A torch is being shon on the absurdity of the claim that property is not a bubble. Equity problems with the current taxation system are being raised. And intergenerational concerns are being raised, for many, for the first time.

    "... Bernard Hickey who doesn't produce, but work for someone else..."

    Epic fail by the way.

  7. There is not good reason to criticise or 'bash' landlords.

    In my experience, when I have fully depreciated an asset, it fairly soon has to be replaced. Thus the depreciation makes sense from a rational accounting point-of-view. The depreciation rules for property make no sense whatsoever. They are irrational. Therefore they should be changed.

    Presumably you have avoided arguing the facts because you know this to be true.

  8. Dave, either landlords have to be able to depreciate assets that have to be repaired or replaced, or they need to be able to claim all R&M as an expense against income in the year that it's incurred.

    Just because you might be able to sell a house for more than you bought it, doesn't mean it doesn't depreciate.

    The difference between the price you receive when you sell, and the depreciated purchase price is a capital gain, and thus far they have expressly chosen not to tax this.

    Removing the ability to depreciate is just a capital gains tax in disguise.

  9. Whilst the erudite dumbfucks at the Standard now claim a knowledge of 'supply and demand', it's funny they then proceed to consider only the demand side of price equilibrium, and ignore the supply side.

    Reginald and Humphrey can’t raise their rents arbitrarily because there are other suppliers in the market, and the competition will happily supply their property at cheaper prices.

    But if every supplier is hit with new costs (taxes), the cost base for everyone increases - and so will the rent needed by everyone to break even. How anyone remotely connected to reality could think this will lead to *decreases* in rent is beyond me.


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