Lars Doucet — Progress, poverty, Georgism, & why rent is too damn high

1. 0:00 – 1:11

   Intro

   1. LDLars Doucet0:00

      ... over the last century, we've had this huge conflict, all the oxygen's been sucked up by capitalism and socialism duking it out. We have this assumption that you either have to be pro-worker or pro-business, that you can't be both. I have noticed a lot of crypto people get into Georgism, not the least of which is Vitalik Buterin-

   2. DPDwarkesh Patel0:15

      Yes.

   3. LDLars Doucet0:15

      ... who endorsed my book. If you earn a hundred thousand dollars in San Francisco as a family of four, you are below the poverty line. Let's start with just taxing the things nobody has made and that people are gatekeeping access to. Let's tax, essentially, monopolies and rent-seeking. The income tax needs to do this full anal probe on everyone in the country, and then audits the poor at a higher rate than the rich, and it's just this horrible burden we have.

   4. DPDwarkesh Patel0:39

      Okay. Today, I have the pleasure of speaking with Lars Dousset who developed the highly acclaimed, uh, Defender's Quest game, and part two is coming out next year. But, uh, now he's working on a new startup. But the reason we're talking is that he wrote a review of Henry George's Progress and Poverty that won Scott Alexander's book review contest. And now, it has been turned into, and expanded into this book, Land is a Big Deal. So, Lars, welcome to the podcast.

   5. LDLars Doucet1:09

      Great to be here, Dwarkesh.

   6. DPDwarkesh Patel1:10

      Okay, so let's just get int-

2. 1:11 – 3:16

   Georgism

   1. DPDwarkesh Patel1:11

      into it. What is Georgism?

   2. LDLars Doucet1:12

      Okay, so the book is based off of the philosophy of a, um, 19th century American economist by the name of Henry George, from whence we get Georgism. And basically, George's thesis is kind of the title of my book, that land is a big deal. Um, Georgism is often reduced to its main policy prescription, that, um, we should have a land value tax, which is a tax on the unimproved value of land, but not, um, a tax on any buildings or infrastructure on top of the land, anything humans add. Um, but the basic insight of it is that, um, it's, it's kind of reflected in the aphorisms you hear from real estate agents when they say things like, "The three laws of real estate are location, location, location," and, "Buy land. It's the one thing they're not making any more of." It's basically this insight that, um, land has this hidden role in the economy that is really underrated, but if you look at history through the right lens, um, control over land is the oldest struggle of human history. It goes b- beyond human history. Animals have been fighting over land forever. Um, that's what they're fighting over in Ukraine and Russia right now, right? And, um, basically, the fundamental insight of Georgism is that over the last century, we've had this huge conflict, all the oxygen's been sucked up by capitalism and socialism duking it out. We have this assumption that you either have to be pro-worker or pro-business, that you can't be both. And Georgism is genuinely pro- pro-worker and pro-business. Um, but what it's against is, is, is land speculation. And if we can find a way to share the earth, then we can solve the paradox that is the title of George's book, Progress and Poverty. Why does poverty advance even when progress advances? Why do we have all this industrialized technology and new methods and, you know, in George's time, it was industrial technology, in our time it's computers and everything else. We have all this good stuff, we can make more than we've ever made before, there's enough wealth for everybody, and yet we still have inequality. Where does it come from? And George answers that question in his book, and I, you know, expand on it in mine.

   3. DPDwarkesh Patel3:15

      Yup, yup.

3. 3:16 – 7:10

   Metaverse Housing Crises

   1. DPDwarkesh Patel3:16

      Okay, so yeah, w- I'm, uh, excited to get into the theory of all of it in a second. But first I'm curious, um, how much of your interest in the subject has been inspired by the fact that as a game developer, you're constantly dealing with these centralized rent seekers like, um, uh, Steam or iOS, uh, App Store? Is that part of the inspiration behind your interest in Georgism, or is that separate?

   2. LDLars Doucet3:38

      It's interesting, it, I wouldn't say that's what clued me into it in the first place, but I have become very interested in, um, all forms of rent-seeking, right? Um, in this general category of things we call land-like assets that come to first mover advantages in these, in these large platform economies. Uh, I- I've started to think a lot about it basically. Um, but the essence of land speculation is you have this entire class of people who are able to basically gate keep access to a scarce resource that everybody needs, which is land, right? That you can't opt out of needing. And because of that, everyone basically has to pay them rent, and those people don't necessarily do anything, you know? They just, they just got there first and tell everyone else, it's like, "Well, if you wanna participate in the world, you need to pay me." And so, um, where I actually, where the actual connection with game development actually clued me into Georgism is I'd- I'd heard about Georgism before, I'd read about it, I thought it was interesting. But then I started noticing this weird phenomenon in online multiplayer games, going back 30 years repeatedly, of virtual housing crises, which is the most bizarre concept in the world to me. Like, ba- basically a housing crisis in the Metaverse, and, and predecessors to the Metaverse. Um, as early as Ultima Online when I was 19, you know? This is this online game that you could play, and, um, you could, you could build houses in the game and put them down somewhere. And so, um, what I found was that houses were actually, like, fairly cheap. Like, you could work, you know, long enough in the game to be afford to, like, buy blueprints for a house which will let you put it somewhere, but there was no land to put it on. And I, at the time I thought, "Oh, well, I guess the server filled up." You know, I didn't really think much about it. I was like, "This stinks. I didn't join the game early enough, you know, I'm kind of screwed out of housing." And then I kind of forgot about it, and then like 20 years later I check back in, and that housing crisis is still ongoing in that game. That game is still running, you know, a good 25 years later, and that housing crisis remains unsolved. And, um, you have this entire black market for housing, you know? And then I noticed that that trend was repeated in other online games like Final Fantasy XIV, and then recently in 2022, with all this huge wave of crypto games like Axie Infinity and the D- Decentraland and The Sandbox and then, uh, Yuga Labs's, uh, Bored Ape Yacht Club: The Other Side, had all these big land sales. And at the time I was working as an analyst for, um, a video game consulting firm called Novik, um, and...... I told my employers, it's like, "We are gonna see all the same problems happen. We are gonna see virtual land speculation. They're gonna hit a virtual... They're gonna reproduce the conditions of housing crisis in the real world and it's gonna be a disaster." And I, I called it and, and it turns out I was right, and we've now seen that whole cycle kinda work itself out. And it just, it just kind of blew my mind that we could reproduce the problems of the real world so articulately in the virtual world without anyone trying to do it. It just happened, and that, that is kind of the actual connection between, um, my background in game design and, and kind of getting George-pilled, as the, the internet kids call it these days.

   3. DPDwarkesh Patel6:42

      Uh, there's a hilarious clip. Uh, uh, some comedian was on, uh, Joe Rogan's podcast, I think it was, like, Tim Dillon, and they're talking about, I think Decentraland where if you wanna be Snoop Dogg's neighbor in the metaverse, it costs like a couple million dollars or something. (laughs) And, uh, Joe, Joe Rogan was like, "So you think you can afford to live there?" And then, the, Tim Dillon's like, "No, but I'm gonna start another metaverse and I'm gonna work hard." (laughs)

   4. LDLars Doucet7:05

      (laughs)

   5. DPDwarkesh Patel7:05

      Um, (laughs) um, but okay, so let's go into, uh, Georgism itself.

4. 7:10 – 13:53

   Tax Leisure?

   1. DPDwarkesh Patel7:10

      So Tyler Cowen had a blog post a long time ago where he was comparing taxing land to taxing unimproved labor or unimproved capital. Um, and, you know, it's an interesting concept, right? Like, should I... So I have a CS degree, right? Should I be taxed at the same level as an entry-level software engineer, uh, instead of a podcaster because I'm not using my time ef- a- as efficiently...

   2. LDLars Doucet7:35

      Oh, I see.

   3. DPDwarkesh Patel7:35

      ... as possible? Um, and it, it, it... So leisure, in another way, is the, um, labor equivalent of having an unimproved parking lot in the middle of, uh, in the middle of San Francisco. Or capital, if I'm just keeping my capital out of the economy and therefore making it not useful, maybe I should have that capital taxed at the rate, uh, of, like, the capital gains on T-bill. Um, and this way, you're not punishing people for having profitable investments, which you're kinda doing with the capital gains.

   4. LDLars Doucet8:05

      Right.

   5. DPDwarkesh Patel8:06

      Um, how, what, do, what were we thinking of that comparison?

   6. LDLars Doucet8:07

      Yeah, so, uh, really, before you can even answer that question, you gotta go back to ground, moral principles you're operating on. Like, is your moral operating principle like, we just wanna increase efficiency, so we're gonna tax everyone in a way to, like, basically account for the wasted opportunity cost? Which brings up a lot of other questions of, like, well, who decides what that is? Um, but, um, I think the Georgist argument is a little different. We're not necessarily, like, it is efficient, the tax we propose, but it actually stems kind of from a more, uh, from, from a different place, a more kind of fundamental aspect of justice, you know? Um, and from our perspective, if you work and you produce value, your work produced that value, right? And if you save money and accumulate capital in order to put that capital to work to receive a return, you've also produ- you've also provided something valuable to society, you know? You saved money so a factory could exist, right? You saved money so that, uh, a shipping company could, could get off, off the ground. You know, those, those are valuable contributive things. But nobody made the Earth. The Earth pre-exists all of us, and so someone who provides land actually does the opposite of providing land. They un-provide land, and then they charge you for opening the gate. And so, the argument for, um, charging people on the unimproved value of land is that we want to tax unproductive rent-seeking. We want to tax non-produced assets because we think we want to encourage people to produce assets. We want to encourage people to produce labor, to produce capital. We want more of those things, and there's that aphorism that if you want less of something, you should tax it. So, I mean, maybe there is a case for some kind of galaxy-brain take of, you know, taxing unrealized opportunity costs or whatever, but I'm less interested in that, and my moral principles are more about, let's start with just taxing the things nobody has made and that people are gatekeeping access to. Let's tax, essentially, monopolies and rent-seeking, and then, if, if we still need to raise more taxes, we can talk about that later. But let's start with, let, let, let's start with just taxing the worst things in society, and then stop taxing things we actually want more of, because we have this mentality right now where everything's a trade-off and we have to accept the downsides of income taxes, of sales taxes, of capital taxes, um, because we just need the revenue and it has to come from somewhere. And my argument is it's like, it can come from a much better somewhere, so let's start with that.

   7. DPDwarkesh Patel10:39

      Yeah, yeah. So I, I guess, um, if it was the case that we've implemented a land value tax and we're still having a revenue shortfall, uh, and we need another kind of tax and we're going to have to keep income taxes or capital gains taxes, would you, in that situation, prefer, uh, a sort of tax where you're basically taxed on the opportunity cost of your time, rather than the actual income you generated or the returns, the, the interest you've generated on your capital?

   8. LDLars Doucet11:04

      No, uh, I, I think, I think probably not. I think you would probably want to go with some other just, like, simpler tax for the sake of it, 'cause there's too many degrees of freedom in there. And it's like, we can talk about why I will defend the Georgist case for, for property tax assessments, you know, for land value tax, um, but I think it gets different when you start, like, judging what is the most valuable use of your time, because that's a much more subjective question. Like, you're a pod- like, like, okay, are you providing more value to society as being a podcaster or being a CS, you know, per- a computer science person or creating a startup? It's like, that may not be evident for some time. You know what I mean? Like, I can't think of an- example, but, like, think of people who were never successful during their lifetimes, like the guy who invented alt- uh, what was it? Um, FM radio, right? He threw himself out a window because, um, he never got it really adopted during his lifetime, but it went on to change everything. You know? Um, so if we were taxing him during his lifetime based off of what he was doing of being a failure, like, if van Gogh was taxed of his, like-... you know, wasting his life as an artist-

   9. DPDwarkesh Patel12:12

      Sure.

   10. LDLars Doucet12:12

       ... as he thought he was, which ultimately led to his suicide. You know, a lot of these things are not necessarily realized at the time. And, and so, I think that's, um, a- a- and, you know, it would need a much bigger kind of bureaucracy to, like, figure that all out. So I think you should go with a more modest. I mean, I think after land value tax, you should do things like severance tax on natural resources and other taxes on other monopolies and rents. And so, I think the next move after land value tax is not immediately to capital and income taxes and sales taxes, but to other taxes on other rent-seeking and other land-like assets that aren't literally physically land. And then, only after you've done all of those, if you still, you know, absolutely then, then move on to, you know, the bad taxes.

   11. DPDwarkesh Patel12:57

       What- what is a severance tax?

   12. LDLars Doucet12:59

       Severance tax is a tax on the extraction of natural resources.

   13. DPDwarkesh Patel13:02

       Mm-hmm.

   14. LDLars Doucet13:02

       It's what Norway does with their oil, with their oil industry, that has been massively successful and a key reason that Norway has avoided the resource curse.

   15. DPDwarkesh Patel13:09

       Yeah.

   16. LDLars Doucet13:09

       Basically, it's, Joriss purists will say it's essentially a land value tax, but of a different kind. Um, a land value tax, like you can't normally, like, extract just, like, land. Like on this- in this house you're living on, you're like, you're not using up this land. But non-renewable resources, you can use up.

   17. DPDwarkesh Patel13:27

       Yep.

   18. LDLars Doucet13:27

       You know? And so, um, a severance tax is basically... Nestle should be charged a severance tax for the water they're using, for instance. You know? Because all they're doing is enclosing a preexisting natural resource that used to belong to the people, that they've essentially enclosed, and now they're just putting it in bottles and selling it to people. You know? They should be able to realize the value of the value add they give to that water, but not to just taking that resource away.

5. 13:53 – 24:33

   Speculation & Frontiers

   1. LDLars Doucet13:53

   2. DPDwarkesh Patel13:53

      No, that makes sense. Um, okay, so, let- let's, let's go deep into the actual theory and logic of Georgism.

   3. LDLars Doucet14:00

      Okay.

   4. DPDwarkesh Patel14:00

      Um, one thing I was confused by is why property owners, uh, who have land in places that are really desirable are not already incentivized to make the most productive use of that land. So, e- e- even without a property t- or sorry, a land tax, if you have some property in San Francisco, why are you not incentivized to construct it to the fullest extent possible by the law to, you know, get, collect rents anyways? Um, you know what I mean? Like-

   5. LDLars Doucet14:26

      Right.

   6. DPDwarkesh Patel14:26

      ... why are you keeping it then as a parking lot?

   7. LDLars Doucet14:28

      Right, right, right. So there's, there's, there's a lot of reasons. Um, and one of them has to do with, um, there's an, there's an image in the book that, um, this guy, um, put together for me. I'll, I'll show it to you later.

   8. DPDwarkesh Patel14:39

      Cool.

   9. LDLars Doucet14:39

      Um, but what it does is that it shows, uh, the rate of return. What a land speculator is actually optimizing for is their rate of return, right? And so if land appreciates by 10% a year, you know, you're actually incentivized to invest in vacant land or a tear-down property, because the building of a tear-down property is, like, worth negative value. So the land's cheaper because there's garbage on it, you know? Um, then you are to necessarily invest in a property in... You're- you're basically, your marginal dollar is better spent on more land than it is on building up.

   10. DPDwarkesh Patel15:16

       But eventually, shouldn't this be priced into the va- uh, the price of land so that, uh, the returns are no longer 10% or they're just, like, basically what you could get for any other asset? And at that point, then, um, then the rate of return is similar for building things on top of your existing land than buying new land. 'Cause like the new land has, like the, you know, the- the- that- that return has been priced into other land?

   11. LDLars Doucet15:38

       Well, I mean, arguably, empirically, we just don't see that. You know, we see rising land prices as long as productivity and population increases. Um, those productivity and population gains get soaked into the price of the land. It's- it's because of this phenomenon called Ricardo's Law of Rent. And it's- it's been pretty empirically demonstrated. Um, that basically... And it has to do with the negotiation power. But like, why... Um, some people do, of course, build and invest, you know? There's a lot of local laws that restrict people's ability to build. But another reason is just, like, it also has to do with the existing, um, part of it, it par- part of the effect is partially the existing property tax regime actively incentivizes empty lots, because you have a higher tax burden if you build, right? So what actually happens is a phenomena that's similar to oil wells, right? Um, you have... It's not just 'cause of property taxes. Those do encourage you to keep it empty. But there's this, like, there's this phenomenon called land banking and waiting for the land to ripen, right? Sure, I could build it now, but I might have a lot of land parcels I've got. And I don't need to build it now, because I think the prices might go up later, and it would be better to build on it later than it is now. And it's not costing me anything to keep it vacant. Now, if I build now, I'm gonna have to pay a little bit more property taxes. And I know in three years that the price is gonna be even better, so maybe I'll wait to incur those in- construction costs then. And right now, I'm gonna focus more on building over here. And like, I've got a lot of things to do, you know? So I'm just gonna squat on it here. It's the same way like I have... I'm squatting like, you know, I- I... To my shame, like about 30 domain names, you know, most of them bought before I kind of got onto Georgism. And it's like, "Yeah, I'll pay 15 bucks a year to just hold it. Why not?" You know what I mean? "I might use that someday."

   12. DPDwarkesh Patel17:25

       Right.

   13. LDLars Doucet17:25

       And it's like, "I should probably release all the ones I have no intent of using," because I was looking for a domain for my startup the other day and every single two-word.com is taken.

   14. DPDwarkesh Patel17:35

       (laughs) Right, right.

   15. LDLars Doucet17:36

       And has been for like 10 years, you know? And it's a similar phenomena. It's just, it's like some of it is economic, rational following of incentives. And some of it is just, it's like, "Well, this is a good asset. I'm just gonna hold onto it 'cause why not?" And, um, and no one is, is, is... And I don't have any pressure to build right now. And this happens on the upswing and on the downswing of cities. Um, so while the population's growing and while the population's declining, people will just buy a lot of land and hold it out of use, 'cause it's also just a great place to park money. Um, because it's an asset that, you know if the population ever starts growing...... it's gonna keep its value better than almost any other hard asset you have.

   16. DPDwarkesh Patel18:15

       Yup, yup. I, I, I guess another, like, broader criticism of this way of thinking is, listen, this is all- and sorry for using these, like, uh-

   17. LDLars Doucet18:22

       No worries.

   18. DPDwarkesh Patel18:22

       ... podcast lingo of scarcity mindset, but this is all, like, scarcity mindset of, um, you know, land is limited. Why, why, why don't we just focus on the possibility of expanding, uh, the amount of usable land? I mean, there's, like, not really a shortage of, uh, land in the US. Maybe there's a shortage of land in urban areas, um, but let, you know, why don't we, like, expand into the seas? And why don't we expand in the air and space? Why are we thinking in this sort of scarce mindset?

   19. LDLars Doucet18:48

       Right. Okay. So I, I love this question because actually our current status quo mindset is a scarcity mindset and Georgism is the abundance mindset, right? And we can have that abundance if we learn to share the land because right now, um, you know, why don't, why don't we expand? And the answer is we, we, we've tried that. We've done it twice, and it's the story of America's frontier, right? And so like right now there's plenty of empty land in Nevada, but nobody wants it. And you have to ask why, right? You also have to ask the question of how did we have virtual housing crises in the metaverse where they could infinitely expand all they want? Like how is that even possible? You know? And the answer has to do with what we call the urban agglomeration effect. What's really valuable is human relationships, proximity to other human beings, those dense networks of human beings. And so, um, the idea is not necessarily that, like... In, in a certain sense, the, um, the issue is that land is not an indistinguishable fungible commodity. Location really matters. Er, America has a finite amount of land, but it might as well be an infinite plane. We're n- we are not gonna fill up every square inch-

   20. DPDwarkesh Patel19:54

       (laughs) Sure.

   21. LDLars Doucet19:54

       ... of America for probably thousands of years.

   22. DPDwarkesh Patel19:57

       Yeah, yeah.

   23. LDLars Doucet19:57

       If we ever do.

   24. DPDwarkesh Patel19:58

       Yup.

   25. LDLars Doucet19:59

       Right? But what is scarce is specific locations. They're non-fungible, you know, and, um, to a certain extent it's like, okay, if you don't want to live in New York, you can live in San Francisco or any other, like, big city. But what makes New York, New York is non-fungible. What makes San Francisco, San Francisco is non-fungible. That particular cluster of VCs in San Francisco until or unless that city completely explodes and that moves somewhere else to Austin or whatever, you know, at which point Austin will be non-fungible. I mean, Austin is non-fungible right now. And so the point is that the way Georgism unlocks the abundance mindset, let me talk about the frontier. We have done frontier expansion. That is why immigrants came over from Europe, you know, and then eventually the rest of the world, um, to America to, you know, settle the frontier. And the losers of that equation were, of course, the Indians who were already here and got kicked out. Um, but that was the original idea of America. And I, I like to say that America's tragedy, America's problem is that America is a country that has the mindset of being a frontier state, but is in fact a state which has lost its frontier. And that is why you have these conversations with people like boomers who are like, "Why can't the next generation just pull itself up by its bootstraps?" Because America has had at least, um, I would say two major periods of frontier expansion. The first was the actual frontier, the West, the Oregon Trail, the covered wagons, you know, the displacement of the Indians. And so that was a massive ti- that was the time in which Henry George was writing, was right when that frontier was closing, right? When all that land, that free land was being taken and the advantages of that land was now being fully priced in. That is what it means for a frontier to close, is that now the good productive land, the value of it is fully priced in. Bef- when the frontier is open, you can just go out there and take it and you can get productive land and realize the gains of that. And the second frontier expansion was after Henry George's death, was the invention of the automobile. The ability to have a job in the city, but not have to live in the city. The fact that you could quickly travel in, like I commuted in to visit you here, right? That is because of the automobile frontier opening that has allowed me to live in some other city, but be able to do productive work like this podcast by driving in. But the problem is, sprawl can only take you so far before that frontier as well closes. And by closes, I don't mean suburban expansion stops. What I mean is that now suburban homes, you fully price in the value of the benefits you're able to accrue by having that proximity to a city, but still being able to live over here through, of course, Ricardo's Law of Rent.

   26. DPDwarkesh Patel22:37

       Yeah, but I, I feel like this is so compatible with the story of we should just focus on increased ink technology and abundance, uh, rather than trying to estimate how much rent is available now given current status quo, uh, technologies. I mean, um, the, the car is a great example of this, but imagine if there were like flying cars, right? Like there's a, what, you know, the, Where's My Flying Car? There's like a whole analysis in that book about, you know, if you could, uh, if, if people are still commuting like 20 minutes a day, you know, a lot more land is actually in the same travel distance as was before. And then not- now all this land would be worth as much even in terms of relationships that you could, um, you could, like, accommodate, right? So, uh, why not just build like flying cars instead of, uh, focusing on, um, uh, land rent?

   27. LDLars Doucet23:21

       Well, because these things have a cost, right? The cost of frontier expansion was murdering all the Indians and the cost of automobile expansion was climate change, you know? The- so there, there has to be a price for that. And then eventually the problem is you... Eventually when you get to the end of that frontier expansion, you wind up with the same problem you had in the first place. Eventually the problem is the first generation will make out like gangbusters if we ever invent flying cars, even better, like ma- Star Trek matter teleporters.

   28. DPDwarkesh Patel23:46

       Yeah.

   29. LDLars Doucet23:46

       You know, that'll really do it. Then you can really live in Nevada and have a job in New York.

   30. DPDwarkesh Patel23:50

       Yeah.
6. 24:33 – 33:13

   Social Value of Search

   1. LDLars Doucet24:33

      to get that.

   2. DPDwarkesh Patel24:34

      Actually, that raises an- a- another interesting criticism of Georgism. This is actually a paper from, um, Zachary Gouchonar, um, and Brian Caplin where it- it was titled A Socioeconomic Critique of Georgism.

   3. LDLars Doucet24:45

      Yes.

   4. DPDwarkesh Patel24:45

      And the point they made was, um, uh, one of these, like, one way of thinking about the improvement to land is actually identifying that this land is valuable, maybe because you do realize it has like an oil well in it. Maybe you realize that it's like the perfect proximity to these like Chinese restaurants and this mall and whatever. And then just finding which land is valuable is actually something that takes, uh, capital and also takes, you know, like you deciding to upend your life and go somewhere, you know, like all kinds of effort. And that is not factored into the way, uh, you would conventionally think of the improvements to land that-

   5. LDLars Doucet25:21

      Right.

   6. DPDwarkesh Patel25:21

      ... would not be taxed, right? So in some sense, you getting that land is like a subsidy for you identifying that the land is valuable and can be used for productive ends.

   7. LDLars Doucet25:30

      Right. Yeah. Uh, no. So I've read that paper. So first of all, um, the first author of that, Zachary Gouchonar?

   8. DPDwarkesh Patel25:36

      Yeah.

   9. LDLars Doucet25:36

      I (clears throat) I've not been able to pin him down on what exactly he meant on this, but he's made some public statements where he's revised his opinion-

   10. DPDwarkesh Patel25:41

       Mm-hmm.

   11. LDLars Doucet25:41

       ... since writing that paper, and that he's much more friendly to the, to the arguments of Georgism now than when he first wrote that paper. So I'd like, I'd like to pin him down and see exactly what he meant by that 'cause it was just a passing comment. Um, but as regards, um, Caplin's critique, Caplin's critique only applies to a 100% LVT where you fully capture all of the land value tax. And the most extreme Georgists I know are only advocating for like an 85% land value tax.

   12. DPDwarkesh Patel26:06

       All right.

   13. LDLars Doucet26:07

       That would still leave... A- and Caplin doesn't account at all for the negative effects of speculation. He's making a speculation is good actually argument. And even if we grant his argument, he still needs to grapple with all the absolutely empirically observed problems of land speculation, and if we want to make some kind of compromise between maybe speculation could have this good discovery effect, there's two really good answers to that. First, just don't do 100% LVT, which we probably can't practically do anyway because of natural limitations just empirically, you know, in the signal. It's like you don't wanna, you don't wanna do 115% land value tax, that drives people off the land. So we wanna make sure that we, like, have a high land value tax but make sure not to go over. And so that would leave a sliver of land rent that would still presumably incentivize this sort of thing. There's no argument for why, you know, 100% of the land rent is necessary to incentivize the good things that Caplin is talking about. The second argument is when he talks about oil, um, while we have the empirical evidence from the Norwegian massively successful petroleum model that shows, um, in the case of natural resources how you should, um, deal with this. And what Norway does is that they have a massive, massively huge severance tax on oil extraction, and according to Caplin's argument, this would massively destroy the incentive for companies to go out there and discover the oil, and, um, empirically it doesn't. Now, what Norway does is that they figured out, "Okay, so the oil companies, their argument is that we need the oil rents," right? "We need these oil rents or we will not be incentivized for the massive capital costs of offshore oil drilling." But Norway's like, "Well, if you just need to cover the cost of offshore oil drilling, we'll subsidize that. We'll just pay you. We'll just pay you to go discover the oil. When you find the oil, that oil belongs to the Norwegian people. Now, you may keep some of the rents, but most of it goes to the Norwegian people. But hey, it... all your R&D is free. All your discovery is free. If the problem is discovery, we just subsidize discovery." And then the oil companies were like, "Okay, that sounds like a great deal. We don't have to..." Because without that, what the oil companies do is that they're like, "Okay, we're taking all these risks, so I'm gonna sit on all these oil wells like people sitting on domain names 'cause I might use them later and the price might go up later." But now because there's a huge severance tax, you're forced to drill now and you're actually, your actual costs of discovery and R&D and all those capital costs are just taken care of.

   14. DPDwarkesh Patel28:26

       But isn't there a flip side to that where... I mean, one of the economic benefits of speculation, um, uh, obviously there's drawbacks, but one of the benefits is that e- it, um, it give- gets rid of the volatility in prices where a speculator will buy when it's cheap and sell when the price is high. And in doing so, they are kind of, uh, making the asset less volatile over time. And if, if you're basically going to tell people who have oil on their land like, "We're gonna keep taxing you. If you don't take it out, you're gonna get keep, um, you're gonna keep getting taxed," you're encouraging this massive glut of a finite resource to be produced immediately, which is bad if you think we might need, uh, that reserve in the ground 20 years from now or 30 years from now, uh, you know, when oil reserves are running, running low.

   15. LDLars Doucet29:10

       Not necessarily. You know, and so the problem is that speculation in the sense you're talking about, like encouraging people to do arbitrages, good for capital because we can make more capital. But we can't make more land and we can't make more, uh, non-renewable natural resources. And the issue empiric- and I just think the evidence just doesn't support that, um, empirically because if anything, land speculation has causes land values to just constantly increase, not to find some natural part, especially with how easy it is to finance. Two thirds of bank loans just chase real estate up. And that's just like... If you just look at the history of the prices of, you know, of residential real estate in America, it's, it's, it's, it's like... It's not the cyclical graph where it like keeps going back down. It keeps going back down but it keeps going up and up and up just on a straight line along with productivity and it underlines and undergirds major iss- um, everything that's driving our housing crisis which then undergirds so much of inequality and pollution and climate change issues. And so with regards to speculations, like even if I just bite that bullet and it's like, "Okay, speculation is good actually," I don't think anyone's made the case that speculators need to capture 100% of the rents to be properly incentivized to do anything good that comes out of speculation. I think it's some small reasonable percentage.... you know, 5 to 10% of the rents. Maybe 15 if I'm feeling generous. Um, but I don't think anyone's empirically made the case that it should be 100%.

   16. DPDwarkesh Patel30:29

       Yeah, yeah.

   17. LDLars Doucet30:30

       Which is more or less the status quo.

   18. DPDwarkesh Patel30:31

       I mean, uh, uh, with regards to that pattern of the fact that the values tend to keep going up implies that there's nothing cyclical that the speculators are dampening.

   19. LDLars Doucet30:41

       Well, there are cycles, to be sure. But there, it's not like it's something that resets to zero.

   20. DPDwarkesh Patel30:45

       Yeah, but that's also true of, like, the stock market, right? Over, over time, that goes up, but speculators are still have, like, an economic role to play in the stock market of, um, making sure prices are-

   21. LDLars Doucet30:55

       I mean, the difference is that people are now paying an ever-increasing portion of their incomes to the land sector, and that didn't used to be the case. And if it keeps going, it's gonna be... I mean, you have people who are now paying 50% of their income just for rent, and that's not sustainable in the long term. You're going to ha-... The, the cycle you have there is revolution. You know?

   22. DPDwarkesh Patel31:15

       (laughs)

   23. LDLars Doucet31:15

       You, and, and... No, I'm serious. Like, what happens is, like, you look through history, you either have land reform or you have revolution. And, you know, it's, it's either like, either you have a never-ending cycle of, um, of, of transfers of income from the unlanded to the landed. And eventually, the, the unlanded will not put up with that, you know? There was a real chance in the 19th century, at the end of the 19th century, of America going full-on socialist or communist, and the only thing that saved us wa-... And, and George's argument was like, it's either Georgism or communism. And if you want to save capitalism and not go totalitarian, we need Georgism. And then what George failed to anticipate was, of course, the automobile, and the automobile kicked the can down another generation, another couple generations, right? And it came at the cost of sprawl, and, um, that made everyone feel like we had solved the issue. But basically, we just... And, and the costs of sprawl are enormous in terms of pollution and poor land use. Um, just look at Houston right now, right? But, um, now we've come at the end of that frontier, and now we're at the same question. It's like, you see this resurge in interest in leftism in America, and that's not a coincidence, right? Because the rent is too damn high, and poor peop- and, and poor people and young people feel really, really shoved out of the promise and social contract that was given to their parents, and they're jealous of it, and they're wondering where it went.

   24. DPDwarkesh Patel32:36

       Yeah, yeah. Actually, you just mentioned that a lot of bank loans are given basically so you can, like, get a mortgage and get a house. It's like towards land. Um, there was an interesting question on Twitter, um, that I, I thought was actually pretty interesting about this. Uh, I can't find the name of the person who asked it, um, so sorry, I can't give you credit. But they basically asked, uh, if that's the case and if most bank loans are going towards, you know, helping you buy land that's, like, artificially more expensive, but now you implement a land value tax and all these property values crash-

   25. LDLars Doucet33:08

       Oh, yeah.

   26. DPDwarkesh Patel33:09

       ... when, when we see just a... And then all, then all these mortgages are, you know, obviously they

7. 33:13 – 38:51

   Will Georgism Destroy The Economy?

   1. DPDwarkesh Patel33:13

      can't pay them back.

   2. LDLars Doucet33:13

      Right, right. Are we going to destroy the banking sector and-

   3. DPDwarkesh Patel33:15

      Exactly.

   4. LDLars Doucet33:16

      Yeah.

   5. DPDwarkesh Patel33:16

      We'll have like a great Great Depression.

   6. LDLars Doucet33:17

      Well, I mean, if you... Okay, so like, th- this is, this is kind of like... I mean, I'm not s- I'm not trying to compare landlords to slave owners or something.

   7. DPDwarkesh Patel33:25

      (laughs)

   8. LDLars Doucet33:25

      But it's like, it's like the South had an entire economy based off of slavery. This thing that, like, we now agree was bad, right? And it's like, we shouldn't have kept slavery-

   9. DPDwarkesh Patel33:33

      (laughs)

   10. LDLars Doucet33:33

       ... because the, the, the South di-... Like, it really disrupted the Southern economy when we got rid of slavery, but it was still the right thing to do. And so, I mean, there is no magic button I could push, as much as I might like to do so, that will give us 100% land value tax everywhere in America tomorrow. So I think in the actual path towards a Georgist future is gonna have to be incremental. There'll be enough time to unwind all those investments and get to a more sane banking sector.

   11. DPDwarkesh Patel33:58

       Yeah.

   12. LDLars Doucet33:58

       Um, so I mean, like, if we were to go overnight, yeah, I think there would be some shocks in the banking sector, and I can't predict what those would be. But I also don't think that's a risk that's actually gonna happen, because like we just, we just cannot make a radical change like that on all levels overnight.

   13. DPDwarkesh Patel34:13

       Yep, yep, yep. Um, okay, so let's get back to some of these, um, theoretical questions. Uh, one I had was, I, I, I guess I don't fully understand the theoretical reason for thinking that you can collect arbitrarily large rents. Um, why doesn't the same economic principle of competition... I get that there's not infinite landowners, but there are multiple landowners in any region, right? So if, uh, w- for the same reason that profit is competed away in any other enterprise, you know, if one landowner is extracting like $50 of profit a month, and another landowner is extracting, you know, like, uh, wha- wha- whatever, right? Like, a similar amount, uh, $50. One of them... And they're, they're both competing for the same tenant. One of them will decrease their rent so that the, the tenant will come to them, and then the other one will do the same. And the bidding process continues until all the profits are, you know, bidded away.

   14. LDLars Doucet35:04

       Right. So this is Ricardo's Law of Rent, right? And it's... And there's, there's a, there's a section on it in the book with a bunch of illustrations you can show. And so the issue is that, um, we can't make more land, right? And so you might be like, "Well, there's plenty of land in Nevada." But the point is, there's only so much land in Manhattan.

   15. DPDwarkesh Patel35:19

       But, but the people who have land in Manhattan, why aren't they competing against themselves or each other?

   16. LDLars Doucet35:23

       Right. Well, what they do is because the nature of the scarcity of... There's only so many locations in Manhattan, and there's so many people who want to live there, right? And so all the people who want to live there have to outbid each other. And so basically... So like, let me give a simple agricultural exam- model, and then I will explain how the agricultural model translates to a residential model. Basically, when you are paying to live in an urban area, or any, or even a suburban area like here in Austin, what you're actually paying for is the right to have proximity to realize the productive capacity of that location, i.e., uh, like, I want to live in Austin because I can have access to a good job. You know what I mean? Or whatever is cool about Austin, a good school, those amenities. And, um, the problem is you have to pay for those, and you have to outbid other people who are willing to pay for those. And Ricardo's Law of Rent says that the value of the amenities and the productivity of an area, as it goes up, that gets soaked into the land prices. And the mechanism by that is that it's like, okay, say I want to buy a watermelon, right? And there's only one watermelon. We'll have to outbid that guy.... but the watermelon grower's gonna be like, "Oh, a lot of people want watermelons." So next season, there's gonna be more watermelons 'cause he's gonna produce more watermelons. But because there's only so many locations in Austin, you know, within the natural limits of our transportation network, basically it forces the competition on the side of the people who are, uh, uh, uh, of, uh, essentially the tenants, right? It forces us into one side of competition with each other. And that, um... And so, there's an example of, like, a, a simple agricultural example is like, okay, say there is a common field that anyone can work on, and you can make 100 units of wealth if you work on it, right? So, um, and there's another field that you can also earn 100 units of wealth in, but it's owned by a landowner. Why would you, why would you go and work on the landowner's when you're gonna have to pay him rent? You wouldn't pay him any rent at all. You would work on the field that's free. But if the landowner buys that field, and now your best opportunity is a field that's only worth 10 uni- a, a free field that will produce 10 units of wealth, now he can charge you 90 units of wealth because you have no opportunity to go anywhere else. And so basically, as more land gets bought, and, um, subject to private ownership in an area, landowners over time get to increase the rent, not to a maximum level. There, there are limits to it, and the limits is what's called the margin of production, which is... Basically, you can charge up to, and this is where the competition comes in, the best basic, like, free alternative. You know? And, and that's usually... You can realize that geographically. Like out on the margins of Austin, there's marginal land that basically is, is available for quite cheap. You know? And it might be quite far away, and it used to be not so quite far away 20, 30 years ago, you know? And so, as that margin slowly gets privatized, um, landowners can charge up to that margin. The other limit is subsistence. They can't charge more than you're actually able to pay. But, um, the basic example is that... So this is why... This is how frontier expansion works. When the entire continent's free, the first settler comes in, strikes a pick in the ground, keeps all of their wealth. But as more and more of it gets consolidated, then landowners are able to charge proportionately more until they're charging essentially up to subsistence.

8. 38:51 – 43:31

   The Economics of San Francisco

   1. LDLars Doucet38:51

   2. DPDwarkesh Patel38:52

      Yeah. Uh, does, does that explain property values in S- San Francisco? I mean, they are obviously very high, but they... I don't feel like they're that high, where the software engineers who are working at Google are living at subsistence levels. Neither are they at, like, the margin of production where it's like, this is what it would cost to live out in the middle of California and then commute, like, three hours to work or something.

   3. LDLars Doucet39:13

      Right. Well, so it, it has to do with two things. So first of all, it's over the long run. And so it's like when... You've, you've had a lot of productivity booms in San Francisco, right? And so it takes some time for that to be priced in, you know, and it can, it can be over a while. But given a long enough time period, it'll eventually get there. And then when we're talking about stuff, it's also based off of the average productivity. The average resident of San Francisco is maybe not as productive as a high, and like, basically doesn't earn as high an income necessarily as a high-income, productive worker. And so this means that if you are a higher than productive, higher than average productivity person, it's worth it to live in the expensive town, because you're being paid more than the average productivity that's captured in rent, right? But if you're a low, if you're lower than average productivity, you flee high productive areas. You go to more marginal areas 'cause those are the only places you can basically afford to make a living.

   4. DPDwarkesh Patel40:06

      Okay, that's very interesting. That's actually one of the questions I was really curious about, so I'm glad to hear an answer on that. Another one is... So the, the... Yeah, the idea is, you know, cap- uh, land i- uh, is soaking up the profits that capitalists and laborers are entitled to, um, in the form of rent. But when I look at the wealthiest people in America, uh, they're, yeah, they're, they're people who own a lot of land, but they bought that land after they became wealthy from doing things that were capital or labor, depending on how you define starting a company. Like, sure, Bill Gates owns a lot of land in Montana or whatever, but like, the reason he has all that wealth to begin with is because he started a company, you know, that's like basically labor or capital, however you define it.

   5. LDLars Doucet40:43

      Right.

   6. DPDwarkesh Patel40:43

      Um, so how do you explain the fact that all the wealthy people are, you know, capitalists or laborers?

   7. LDLars Doucet40:47

      Well, so the thing is, uh, uh, one, one of the big misapprehensions people have is that, that when they think of billionaires, they think of people like Bill Gates and, um, and Elon Musk and, uh, Jeff Bezos. Those are actually the minority of billionaires. Most billionaires are hedge funds, are people in- involved in hedge funds.

   8. DPDwarkesh Patel41:01

      Yeah.

   9. LDLars Doucet41:02

      You know, bankers, and what are bankers? Most, what, what are two-thirds of banks? It's real estate, you know? And so, um... But more to your point, like if I, if it is like, s- point that directly into it, it's like, I don't necessarily have a problem with a billionaire existing. You know what I mean? If someone, like, genuinely, like, brings something new into the world, and like... You know, I, I don't necessarily buy the narrative that, like, billionaires are solely responsible for everything that good that comes out of their company, you know? I think they, they like to present that image. Um, but I don't necessarily have a problem with a billionaire existing. I have a problem with, you know, working class people not being able to feed their families, you know? And so, like, the, the greater issue is the fact that the rent is too high, rather than that Jeff Bezos is obscenely rich.

   10. DPDwarkesh Patel41:45

       No, no, I, I guess my point wasn't that... Um, like w- I'm not complaining that your solution would not fix the fact that billionaires exist. I also like that b- there, there's billionaires. What I'm, uh, pointing out is, it's weird that if your theory of, um, w- like, where all the surplus in our society is getting m- you know, given away is that it's going to landowners, and yet the most wealthiest people in our society are not landowners. Doesn't that kind of contradict your theory?

   11. LDLars Doucet42:11

       Well, a lot of the wealthy people in our society are landowners, right? And it's just like, it's not the... So the, so the thing is, is that basically making wealth off land is a way to make wealth without being productive, right? And so my point is, is that... So like you said in your interview with Glazer, that it's like, okay, the Googleplex, like the value of that real estate is probably not-... you know, compare that to, like, the market cap of Google. But now compare the value of all the real estate in San Francisco to the market caps of some of those companies in there, you know? Um, look at the people who are charging rent to people who work for Google. That's where the money's actually going, is that... And, and, you know, investors talk about this is that it's like, I have to... Like, if you earn $100,000 in San Francisco as a family of four, you are below the poverty line, right? You know, the money is going to basically upper middle class Americans and upper class Americans who own tons of residential land. And are basically ex- e- and, and also the old and the wealthy, especially-

   12. DPDwarkesh Patel43:12

       Yup.

   13. LDLars Doucet43:12

       ... are essentially this entire class of kind of hidden landed gentry that are extracting wealth from the most productive people in America and young people, especially. And, um, and it just creates really weird patterns essentially, espe- especially with, like, service workers who can't afford to live in the cities where their work is demanded.

9. 43:31 – 46:47

   Transfer from Landowners to Google?

   1. LDLars Doucet43:31

   2. DPDwarkesh Patel43:31

      Yeah. Okay. So, what do you think of this take? This might be economically efficient. In fact, I, I think it probably is economically efficient, but the effect of a land value tax would be to shift, um, to basically shift our sort of societal subsidy away from upper middle class people who own, happen to own land in urban areas and shift that to the super wealthy and also super productive people who, like, control the half an acre that Google owns in, like, Mountain View. Um, so it's kind of like a subsidy, not subsidy, but it's easing the burden on super productive companies like Google and so that they can make even cooler products in the future. Um, but it, but it is in some, in some sense, a little regressive if you're going from upper middle class to, like, you know, tech billionaire.

   3. LDLars Doucet44:14

      Right.

   4. DPDwarkesh Patel44:15

      Um, but, but it, it's, it'll still be economically efficient to do that.

   5. LDLars Doucet44:18

      Well, no, I don't quite agree with that because it's like, although there are a lot of upper middle class Americans who own a lot of the land wealth, it's not the case that they own where the majority of the land wealth is. The majority of the land wealth in urban areas is actually in commercial real estate, is the central business district, if you... And I, I work in mass appraisal, so, um, I've seen this myself in the models we build, is that if you look at the transactions in cities, and then you plot where the land value is in, like, a graph, it looks like this. And this is the city center, and that's not a residential district. So, the residential districts are sucking up a lot of land value, and the rent is too damn high, but the central business district, and this even holds even in the age of Zoom, it's taken a tumble, but it's starting from a very high level. Um, that central residential, um, not residential, but commercial real estate is super valuable, like, orders, like, an order of magnitude more valuable than a lot of the other stuff. And, um, a lot of it is very poorly used. Um, in Houston, especially, it's incredibly poorly used. We have all these central parking lots downtown that is incredibly valuable real estate and just a couple of speculators are just sitting on it, doing nothing with it. And that could be housing, that could be offices, that could be amenities, that could be a million sorts of things. And so when you're talking about a land value tax, those are the people who are going to get hit first. And those are people who are neither, you know, nice, you know, nice, friendly, upper middle class Americans, nor are they hardworking industrialists, you know, making cool stuff. They are people who are doing literally nothing. Now, um, if you do a full land value tax, yeah, it's going to shift, you know, the burden of society somewhat. But I feel that most analyses of property taxes and land value taxes that conclude that they are regressive, um, I think that's mostly done on the basis of our current assessments. And I feel like our assessments could be massively approved- improved, and that if we improve the assessments, we can show where most of our land value is actually concentrated, and then we can make decisions about exactly, you know, are we comfortable with these tax shifts?

   6. DPDwarkesh Patel46:16

      Yeah. Yeah. So, a while back, I read this book, How Asia Works. Uh, uh, you, you must be-

   7. LDLars Doucet46:19

      Yes.

   8. DPDwarkesh Patel46:19

      ... familiar with it.

   9. LDLars Doucet46:20

      Yes, yes, I'm a- I'm a- I'm a fan.

   10. DPDwarkesh Patel46:21

       Yeah. And one of the things, uh, I think Joseph Stiglitz was the author, one of the things he talks about is... So, he's trying to explain why some, um, Asian economies grew gangbusters in the last half of the 20th century. And one of the things he points to is that these economies implemented land reform, um, where basically, I guess, they redistributed land away from, I guess, the, um, existing aristocracy and gentry towards, you know, the people who are, like, working the land.

10. 46:47 – 50:53

    Asian Tigers and Land Reform

    1. DPDwarkesh Patel46:47

       And while I was reading the book at the time, I was kind of confused because, you know, we've... Like, there's something called, like, the Coasian, um, the Coasian way to, like, d- d- I forget the name of the argument. Basically, the idea is, irregardless of who initially starts off with the resource, the incentive of that person will be to, um, for his, to s- for him to, like, give that resource or lend out that resource to be worked by the person who can make most productive use of it. And Stiglitz was pointing out that these, like, small, uh, fa- you know, like, these p- peasant farmers, basically, they will pay attention to detail of crop rotation and making the maximum use of this land to get, like, the maximum produce. Whereas if you're, like, a big landowner, you, you will just, like, try to do something mechanized that's not nearly as effective. And in a poor country, what you have is a shit ton of labor, so you want something that's, like, labor-intensive. Anyways, um, backing up a bit, I was confused when I was reading the book because I was like, "Well, wouldn't, wouldn't the, wouldn't what you would expect to happen in a market that basically the peasants get a loan from the bank to work, uh, to bu- I guess, rent out that land, and then they're able to make that land work more productively than the original landowner, therefore they are able to, like, make a profit, um, and everybody benefits basically. Why, why isn't there a Coasian solution to that?"

    2. LDLars Doucet47:58

       Because any improvement that the peasants make to the land will be a signal to the landowner to increase the rent because of Ricardo's Law of Rent.

    3. DPDwarkesh Patel48:04

       Yup. Okay.

    4. LDLars Doucet48:05

       And that's exactly what happened in Ireland when, um... And George talks about this in Progress and Poverty, is that a lot of people were like, "Why was there famine in Ireland?" It's because the Irish are, you know, bad people. You know, why didn't they... They're, they're lazy. Why didn't they improve? And it's like, because if you improve the land, all that happens is you still are forced into one-sided competition and the rent goes up.

    5. DPDwarkesh Patel48:25

       Yup. Okay. That makes sense. Um, is the goal that the taxes you would collect with the land value tax...... are they meant to replace existing taxes or are they meant to give us more services like UBI? 'Cause I, I, they probably can't do both, right? Like, you either had to choose getting rid of existing taxes or getting rid-

    6. LDLars Doucet48:42

       Well, it depends on how much UBI you want. You know what I mean? It's like you can... You know, it's a sliding scale. It's like, how many taxes do you wanna replace versus how much like... I mean, you can have a budget there. It's like, if you can raise... You know, I, I show in the book the exact figures of how much I think a land value tax could raise, and I forget the exact figures but like, you can pull up a graph and overlay it here of, you know, whether you're talking about the federal level or federal, local, and state. You know, there's $44 trillion of land value in America and I believe we can raise about $4 trillion in land rents annually with 100% land value tax. And we probably do less than that in practice. But, um, even on the low end, and I forget what figure I quote for the low end, like, you could fully pay for any one of Social Security, um, Medicare plus Medicaid together, so the second one is healthcare or defense, entirely with the lowest estimate of what I think land rents could raise. And then I think you can actually raise more than that, um, because I think, and I give an argument in the book for why I think it's closer to like 4 trillion, and that can pay for all three and have room over for a little bit of extra. And so, I mean, it's up to you, like, like that's a policy decision of whether you wanna spend it on spending, whether you want to spend it on offsetting taxes, or whether you want to spend it on UBI. I think the, the best political solution, because like, if I bite the bullet that there might be some regressivity issues left over, you want to do what's called a UBI or what, you know, in George's time was called a citizen's dividend. Right? You know, this will smooth over any remaining regressivity issues. And then, um, but I very much am in favor of getting rid of some of these worse taxes. You know, um, not just because they have dead weight loss and land value tax doesn't, but also because, um, there's this tantalizing theory called ATCOR, All Taxes Come Out of Rent, which suggests that if you reduce other taxes, it increases land values, which means that if it's true in the strongest sense, it means the single tax, right? Land value tax replace all taxes-

    7. DPDwarkesh Patel50:33

       Yeah, yeah.

    8. LDLars Doucet50:33

       ... would always work. Um, and I'm not sure if I buy that. I wanna see some empirical evidence, but I think at least some weak form of it holds, so that when you offset other worse taxes, not only do you get rid of the dead weight loss from those, um, but you also wind up raising at least a little bit more in land value tax revenue.

    9. DPDwarkesh Patel50:52

       Yes.

11. 50:53 – 55:16

    Libertarian Georgism

    1. DPDwarkesh Patel50:53

       Yeah. Um, I mean, as a libertarian or I guess somebody who has like libertarian tendencies, my concern would basically be like, this obviously seems better than our current regime of taxing things that are good, basically, capital and income, but my concern is, the way I'm guessing something like this would be implemented is that it would be added on top of rather than repealing those taxes. And then, um, uh, is so- yeah. I, I guess like we would wanna insure-

    2. LDLars Doucet51:18

       I get this one a lot. Yeah. No. And so I, I, I have, you know, I've been a libertarian in my past and I have a soft spot for libertarianism.

    3. DPDwarkesh Patel51:25

       (laughs)

    4. LDLars Doucet51:25

       I used to be a Ron Paul guy, back in the day, for, for a hot minute. Um, and so I think the thing to assuage your concerns there is what is land value tax? It's property tax without a tax on buildings.

    5. DPDwarkesh Patel51:36

       Yep.

    6. LDLars Doucet51:36

       So, the natural path to actually getting land value tax comes from reforming existing property tax regimes-

    7. DPDwarkesh Patel51:43

       Right.

    8. LDLars Doucet51:44

       ... by reducing an entire category of taxation.

    9. DPDwarkesh Patel51:47

       Sure. Yeah, yeah.

    10. LDLars Doucet51:47

        Which is the tax on buildings. And so that's, that's what I think is the most plausible way to get a land value tax, like in Hous- like in Texas here, if we were to start by just exi- capture the same... Like, what I actually propose for a first step is not 100% land value tax federally. I don't know even know how you get to there. I think what you actually do is you start in places like Texas and like, here, legalize split rate property tax, thus retax buildings and land at separate rates, set the rate on buildings to zero, collect the same dollar amount of taxes. Let's start there. There's proposals to do this in various cities around the nation right now. I think there's one in Virginia. There's a proposal to do it in Detroit. Um, I think there's some talk of it in Pennsylvania and some places. And I'd like to see those experiments run and, and observe what happens there. I think we should do it in Texas. And that would be something that I think would be very friendly to the libertarian mindset because very clearly we're no new revenue, right? And we're exempting an entire category of taxation. Most people are gonna see, um, a savings on their tax bill and the people who own those parking lots downtown in Houston are gonna be paying most of the bill.

    11. DPDwarkesh Patel52:48

        Yeah. By the way, what do you make of... Is there like a Georgist critique of government itself in the sense that-

    12. LDLars Doucet52:54

        Yeah.

    13. DPDwarkesh Patel52:54

        ... uh, government is basically the original, you know, s- uh, land, uh, squatter and it's basically charging the rest of us rents for, you know, staying on rent that and that it's neither productively improving, as, as much as at least it's like getting rents from us for. Like if you think about, um, you know, even your landlord usually is not charging you 40%, which is like what the income tax rate is in America, right? And it's like almost... You can like view America as like the landlord of America and then-

    14. LDLars Doucet53:20

        Well, I mean, it's like, I mean, I mean if you wanna take the full, uh, like if you're asking is Georgism, you know, compatible with full anarcho-capitalist libertarianism? Probably not 100%. (laughs) Um, I think, you know, we can have a little government as a treat. Um, but I, I think, you know, I think it's not a coincidence that if you look throughout America's founding, I don't think it's a coincidence that originally, like people talk about it's like, "Oh, it used to be only white men who could vote." White landowning men could vote. Like, a government by the landowners, for the landowners, of the landowners. Right? And, um, that's very much kind of the traditional English system of government. Um, you know, just neo-feudalism, right? And so I think Georgism certainly has a critique of that, that it's like government is often instituted to protect the interests of landowners. But what's interesting is that if you look throughout history, you know, I'm, I'm very much a fan of democracy, you know, rule of the people. And it's like I think we, you know... I, I kinda sympathize with, um, with, uh, Milton Friedman here, where he's like, you know, he might want to have less government than we have now, but he doesn't believe we can have no government. And then he goes on to endorse, you know, the land value tax as the least worst tax, because, um, income tax especially-... I feel like is a gateway drug to the surveillance state, you know. Um, one of the advantages of land value tax is you don't even care necessarily who owns the land. You're just like, "Hey, 4732 Apple Street. Make sure the check shows up in the mail. I don't care how many shell companies in the Bahamas you've- you've, like, obscured your identity with. Just put the check in the mail, Mr. Address." You know? Uh, whereas the income tax needs to do this full anal probe on everyone in the country, and then audits the poor at a higher rate than the rich, and it's- it's- it's just this horrible burden we have. And then it all- it gives the government this kind of presumed right to know what you're doing about everything you're doing in this massive invasion of privacy.

12. 55:16 – 56:50

    Crypto

    1. LDLars Doucet55:16

    2. DPDwarkesh Patel55:16

       Yeah. No, that- that's- that's fascinating. And speaking of shell companies in the Bahamas, by the way-

    3. LDLars Doucet55:20

       Yes. (laughs)

    4. DPDwarkesh Patel55:20

       (laughs) Um, uh, there's this, uh, interesting speculation about what would happen if crypto really managed to divorce and private- uh, I guess, m- make private your logger transactions or whatever. And then, um, I guess the idea is the only legible thing left at the government is land, right? So it would, like, force the government to institute a land value tax, 'cause, like, you can't tax income or capital gains anymore. That's all on, like, the blockchain and, like-

    5. LDLars Doucet55:44

       Right, right.

    6. DPDwarkesh Patel55:45

       ... obscured in some way. And, yeah, yeah. So th- uh, well, I mean, is, like, crypto the gateway drug to Georgism?

    7. LDLars Doucet55:51

       Well-

    8. DPDwarkesh Patel55:51

       'Cause it'll just move, uh, income and capital to the other realm.

    9. LDLars Doucet55:54

       Yeah, it's just so weird. You know, I've gone on record as being a pretty big crypto skeptic. You know what I mean? But I have noticed a lot of crypto people get into Georgism. I mean, not the least of which is Vitalik Buterin-

    10. DPDwarkesh Patel56:03

        Yes.

    11. LDLars Doucet56:03

        ... who endorsed my book, um, you know, who's a huge fan of Georgism. It's like, I mean, I'll- I'll take fans from anywhere, even- even from people I've had sparring contests with, you know. I'm- I'm generally pretty skeptical that crypto can fulfill all its promises. I am excited by those promises, and if they can prove me wrong, that would be great. Um, and I- I think there's a- some logic to what you're saying, is that if we literally couldn't track transactions, then, I mean, I guess, we don't have much to ta- tax except land. I don't think that'll actually come to pass, just based off of recent events.

    12. DPDwarkesh Patel56:33

        (laughs)

    13. LDLars Doucet56:34

        You know? Um, and then that's basically my position on it. But I have noticed a lot of, um, crypto people just... Th- they are some of the easiest people to convince about Georgism, which was completely surprising to me. Um, but I've- I've learned a lot by talking to them. It's- it's very interesting and- and weird. (laughs)

13. 56:50 – 1:02:30

    Transitioning to Georgism

    1. LDLars Doucet56:50

    2. DPDwarkesh Patel56:50

       Yep, yep. So there were some other interesting questions from Twitter.

    3. LDLars Doucet56:52

       Yeah.

    4. DPDwarkesh Patel56:53

       Uh, Ramon Dario Iglesias asks, "How do you transition from a world today where many Americans have homes, or at least are aspiring to have homes, to a world where..." Um, I mean, obviously it would be, like, a different regime. May- they might still have homes, but who knows? Like, uh, how- like their property will be just be, like, think- thought of in a completely different way. How do you transition to that? Or, like, what would that transition look like for most Americans?

    5. LDLars Doucet57:13

       Right, right, right, right, right. So there's this issue called- that I have to grapple with, which is called Gordon Tullock's transitional gains trap, right? So if you think about taxi medallions in, like, New York City, right? You know, it's like, it's this artificially scarce asset that allows you to operate a taxi, right? And, um, the first generation that got their taxi medallions basically got in cheap, and then afterwards, like, made out like gangbusters. But the second generation had to buy those taxi medallions at the fully priced in value. And now when you come in and you're like, "Oh, okay, we're gonna abolish taxi medallions," if like, say, you were gonna do that, you would screw over that entire second generation who bought in in good faith after the value of the asset had been fully priced in. Even if you admit that the system is now unfair, removing that unfairness screws over the people who played by-

    6. DPDwarkesh Patel57:58

       Yeah.

    7. LDLars Doucet57:58

       ... the "unfair rules." You know? So how do you grapple with that? And I think it's something that Georgists need to grapple with, because we can't just imagine a future utopia without accounting for being fair to people who play by the rules, including people like myself. Like, I'm a homeowner, right? Um, am I intending to screw over myself and everyone like me? And so I think this is where it's really important to do the math of knowing exactly who's gonna be a winner, who's gonna be a loser, who's gonna pay more, who's gonna pay less. I think it's really salient that a lot of the value of land is commercial downtown real estate. And I think that, um, a revenue neutral property tax shift to land where we exempt the taxation of all buildings but collect the same amount in property taxes as we're doing now, but just from the land, and then a modest citizen's dividend, um, is a really good first step. And then over the years, you can raise the land value rate as you also decrease things like income tax and sales tax. I think that's a transition that gets us there without really screwing anyone over. And for any edge case, like a poor sympathetic widow who has no income and- but has a high value home, you just make it so she doesn't have to pay the land value tax until she dies or sells the estate.

    8. DPDwarkesh Patel59:06

       Yeah. Yeah, yeah. Um, a- and like, I guess even in there, the worst case scenario is a status quo where they don't have to pla- pay, uh, land value taxes, which is already the case now, right?

    9. LDLars Doucet59:16

       Right. I mean, nobody cares about the people who are being evicted and displaced by the status quo.

    10. DPDwarkesh Patel59:21

        One, like, I guess, snafu in terms of like figuring out how to price the land is by the time that a land value tax was passed, it'll have been like years after there's political talk of having a land value tax. And that talk will in turn affect the prices of homes that are sold in that time.

    11. LDLars Doucet59:39

        Absolutely. (laughs)

    12. DPDwarkesh Patel59:40

        Um, and so then you'll look at the s- uh, land selling value and be like, "Oh, wow, this- this house on like the outskirts of San Francisco only sold for $200,000." Um, and does- does that mean that, like, the unimproved land there is only worth $100,000? Um, and so w- won't that just con- um, won't that really conflate the data when you actually go about implementing this of like what the actual unimproved land is worth?

    13. LDLars Doucet1:00:02

        Right. Well, so it's important to remember that land selling value is derived from land rental value, not the other way around. So land selling value is the net present value of the future flow of income that can be generated from the property. So the property's inherent productivity is kind of inherent to it, and the selling price of it is based off of, you know, the capitalization of that value minus the expectation of any taxes, right?

    14. DPDwarkesh Patel1:00:31

        Yes.

    15. LDLars Doucet1:00:31

        Right? And so a la- a 100% land value tax will theoretically reduce the selling price to zero.... but the land will still be as productive as it always was.

    16. DPDwarkesh Patel1:00:39

        Yep.

    17. LDLars Doucet1:00:40

        It's just that the flow of those rents are being redirected.

    18. DPDwarkesh Patel1:00:43

        Yep.

    19. LDLars Doucet1:00:43

        Right? And so that's the thing, is that ... And also in mass appraisal, one of the things you do is you decapitalize the effect of, um, of the tax.

    20. DPDwarkesh Patel1:00:52

        No, no, but I'm saying, how do you even figure out ... You don't know in the mind of the property owner or the property seller, like, what is a, what do, what do they think the probability is of a tax. And that, um, since you don't know that, it's like hard to estimate what is the actual, like, capitalization value, you know, the rent value.

    21. LDLars Doucet1:01:09

        Oh, right, right. So, so are you concerned about, like, just the societal effects of the depreciation of land prices? Or are you more concerned about just the calculation issue?

    22. DPDwarkesh Patel1:01:16

        The calculation issue.

    23. LDLars Doucet1:01:16

        So when, here, here's the thing. Empirically, um, if the land value, w- if the land value, um ... Basically, if the land selling price has dropped to zero, then you are fully capturing all of the land rents. And if it's above zero, you have not captured all the f- all of the land rents.

    24. DPDwarkesh Patel1:01:34

        Oh, okay. So like, maybe e- in the first year we implement this, it's like not ... You know, maybe you have only implemented like a, a ... You're, you're like ... Basically, in the first two years you implement this, you would like be trying to mess with the rate?

    25. LDLars Doucet1:01:46

        Right. If, if you's- ... Like, it's like, I mean, it's more complicated than this, but if there's any vacant lots in the area, and they're selling for anything-

    26. DPDwarkesh Patel1:01:52

        Yeah.

    27. LDLars Doucet1:01:53

        ... there's still land rent in that, in, in, in that property.

    28. DPDwarkesh Patel1:01:55

        Gotcha. But so this is not something you would be able to figure out day one? You would have to, like, over a course of years of, uh, fudging the numbers, you would have to-

    29. LDLars Doucet1:02:01

        Well, the same thing. We're doing property tax assessments right now, you know? We're doing mass appraisal all the time right now. And if you just keep it updated every year, I mean, you could do it every six months if you had the right technology, which is something I'm pushing for, you know? And so you can see the prices change in real time as transactions come in, and you can use multiple regression and geographic-weighted regression to work out the difference between the improvements and the land prices. And, um, if you had a r- ... If you had a, if you had a rental registry and knew what everyone was paying in rents, you'd be able to keep even better pr- track on what's going on with

14. 1:02:30 – 1:14:46

    Lars's Startup & Land Assessment

    1. LDLars Doucet1:02:30

       that.

    2. DPDwarkesh Patel1:02:30

       Yeah, this might be actually a good point to talk about, uh, your new startup. This is actually something I don't know about it either, so yeah, what, what, what is the, what is the idea? What are you up to?

    3. LDLars Doucet1:02:38

       Right. So my new startup is, uh, you know, so, um, I'm transitioning out of video games and into, um, mass appraise- m- municipal property tax assessment, mass appraisal. And so, um, my new startup, it's called Geoland Solutions for now. We'll probably have a new name for it by the time that, um, this podcast airs. But the idea is, is that, you know, I think the best criticism to Georgism is, you know, well, how are you actually gonna s- separate land value from improvement, from building value, right? You know, how ... Like, we can't do a land value tax 'til we put a price on every parcel of land. Right? So how are you going to do that? And I thought that was the best, most good faith, you know, criticism there remained. And it seemed like, it's like, well, we gotta get good at that, right? And so, um, I looked into it, and I realized that there is a lot of research papers that have been posted in the last 15 years about how to practically do this. And then I went and I started interviewing a bunch of assessors, and I realized that the state of the practice is pretty far behind. Only 15% of, um, most, um, property tax assessment offices even use, uh, m- even used multiple regression. A lot of them are using the cost approach, which is basically where you, uh, it's what Ed Glaeser talked about in your interview with him, where you estimate the cost of building, and you apply depreciation, and you subtract it from the observed selling price to get, you know, the assumed land price. And that works okay, but a lot of assessment is not only using essentially only that method, but also, um, uh, another issue is that just, um, a lot of those cost tables are very out of date. Um, uh, assessments themselves are not always done every year, and some- ... Uh, it's not unheard of to find places that haven't done reassessments in, you know, more than 10 years. Um, most places, it's like, you know, one to five. Um, but even that, I think we should be doing everything we can to get all the latest mass appraisal technology and research. Um, and so we've hired some people who have ... Like, I basically ... One of our first hires was one of the guys who was just first author on all these papers we were reading.

    4. DPDwarkesh Patel1:04:37

       (laughs)

    5. LDLars Doucet1:04:38

       And, um, we're just here to update, um, municipal property tax assessors on the latest methods, um, so that we can accurately know what all the land in America is worth, you know? And, and then this will solve a lot of regressivity issues too, because we know that a lot of, um, landlords are actually underassessed relative to homeowners, believe it or not. Because, um, because they're more likely to, to protest their property taxes.

    6. DPDwarkesh Patel1:05:03

       Yeah.

    7. LDLars Doucet1:05:03

       And, uh, minorities tend to be overassessed, um, and, um, poor people tend to be overassessed. That's why property taxes are sometimes called regressive, is the assessments, um, need to be fixed.

    8. DPDwarkesh Patel1:05:15

       I see. Um, I, I, I guess because if you have more property, getting your rate changed from like 1% to one point- ... Uh, 0.8% is like a, um, worth thousands of dollars rather than like a- hundreds of dollars.

    9. LDLars Doucet1:05:28

       Right. And there, there's, there's a lot of other issues too, is this. Is like there's more, there's more value in the like, the more pr- ... Uh, there, there's all sorts of reasons that you can have these things. You know, often from no malintent whatsoever, right?

    10. DPDwarkesh Patel1:05:40

        Yeah.

    11. LDLars Doucet1:05:40

        You know? But just like, just out-of-date assessments can, can also cause all sorts of issues.

    12. DPDwarkesh Patel1:05:45

        Yeah, yeah. I guess one worry that people might have is, listen, income taxing is like h- um ... you know, obviously very inefficient. But is the r- ... You, I think you, in the book, you're talking about the, the percentage of income cou- uh, that, w- uh, of taxed income that is literally just spent on figuring out how much income tax to collect, and, uh, how ... whether people have paid or whatever. So I get that. But at least it has this nice property of, there is like th- ... It feels like there is this hard figure that ought to, ought to exist, so like, "I made this much income this year." Whereas figuring out how much land is worth, you know, just like ... I, I, I get that it's basically like, yeah, h- if you g- uh, you know, figure out like the rent value, that's like the value of the land, but it just feels much more murky, and therefore, it m- might potentially enable corruption in the level of like, um, uh, you know, like whoever's doing the assessment, or however that method of assessment is happening, um, they, they'll just like use these fancy algorithms to nudge it one way or another that benefits big corporations or, you know, whoever they want.

    13. LDLars Doucet1:06:43

        Right. So that's a really ... That's a good argument, but the reply to that is that we d- need to move towards more transparency, right? Because land value follows certain rules that should logically make sense, right? We know ...... some things that drive locational value. First of all, we should move towards open source models, right, which is something that we want to do, and open data whenever possible. A lot of these cities will post open data portals. Like, my mission in life is to be able to, like, advance the state-of-the-art of this technology and make it so anyone can kind of check on stuff. You should be able to, in any city in America, some cities have this but not enough, you should be able to look up your property tax assessment on a map and compare it to your neighbor. And what you shouldn't see is a Christmas tree effect, where your neighborhood looks like Christmas tree lights of, like, green and red of people whose property tax assessments, like, massively differ. That's the case in a lot of cities. Like, if the value, like, if the land values have been correctly assessed in this neighborhood, most of these parcels should be about the same. Like, probably the cul-de-sac's worth a little bit more, you know? But, like, your prop- your neighbor's land shouldn't be worth 20% more than yours.

    14. DPDwarkesh Patel1:07:45

        Yeah.

    15. LDLars Doucet1:07:45

        And if it is, it'll stick out on a map like a sore thumb. And if the data and the algorithms are all open source and open data, you should be able to check anyone's math, and you should be able to use that to then protest your taxes if they seem off. And, um, that's kind of the argument for land value taxes is that, I mean, you can hide all kinds of stuff in income taxes and capital taxes. I mean, that's what the Caymans and the Bahamas are for. Um, but if you want to, I'm- I mean, it's very easy to find people who are getting a break on their property taxes. Like, all this corruption, I'm not saying it won't happen, but it'll be very easy to see because you'll be able to see just this mansion that suddenly has this discontinuity on the land value map. It's like, "Well, someone gave this person a break and, um, maybe, maybe we should, maybe we should write an article in the local newspaper about this," and-

    16. DPDwarkesh Patel1:08:35

        Yeah. Uh, uh, it'll be way better than how income taxes work, where none of it's, like, open to potentially even the government itself, right? Um, but, okay, so another concern is, uh, th- that's fine for things that are, like, above ground and legible, but what about, um, you find out through, like, s- yeah, I don't know, like some sort of surveying or whatever, that this land has a lot of oil under it, and then you buy it.

    17. LDLars Doucet1:08:57

        Yeah.

    18. DPDwarkesh Patel1:08:57

        But obviously, you're not gonna tell the government, "Hey, I just found, like, however many liters-"

    19. LDLars Doucet1:09:00

        Oh, so this is the search theoretic critique and-

    20. DPDwarkesh Patel1:09:03

        No, no, no, not even that. It's literally like, you won't declare it, um, so in- in a sense, you're still being a speculator, but in fact, you're incentivized even more to be a speculator in the sense that as soon as you declare that there's oil underneath this ground, then-

    21. LDLars Doucet1:09:15

        Right.

    22. DPDwarkesh Patel1:09:15

        ... the government is gonna, like, start taxing you for it. So, you just wanna, like, hang onto that-

    23. LDLars Doucet1:09:19

        Right.

    24. DPDwarkesh Patel1:09:19

        ... as far a- as, uh, you know, forever, as long as, like, you can, like, you know, keep it private.

    25. LDLars Doucet1:09:23

        Right, right, right, right, right. So, we need to talk about mineral policy in America because especially in the State of Texas, like, mineral rights and land rights are totally different, right? Usually, when you buy land in, in, in Texas, in, in America, like, you actually don't have the mineral rights.

    26. DPDwarkesh Patel1:09:34

        Oh, really? Okay.

    27. LDLars Doucet1:09:35

        Like, those are, those are very severable. Like, a lot of people are very interested in, in getting those mineral rights. And so usually, like, if you're not paying attention, generally speaking, you're not getting the mineral rights-

    28. DPDwarkesh Patel1:09:44

        Mm-hmm.

    29. LDLars Doucet1:09:44

        ... when you're buying land. And if you are, you're paying more for them. And, um, so, I mean, I think a good example of this is probably, like, um, you know, you want to create some sy- I think with the case of minerals, you can't just have a full, um... I think as kind of an acknowledgement of Kaplan's, like, search theoretic thing, like, you have something more like the Norwegian model where you need to basically give some incentive to someone to produce or to not withhold that resource, right? Um, a good example would be the treasure, um, the treasure law in England, because England has all this ancient, like, Anglo-Saxon treasure and Roman treasure. And so before what they would have is someone would find it and, like, go, like, hide it or melt it down 'cause they didn't want the government to-

    30. DPDwarkesh Patel1:10:31

        Hmm.

Episode duration: 1:39:57