Category Archives: English

Renegade Economists: EU Declaration of Bancrupcy

Karl Fitzgerald

Karl Fitzgerald and Dirk Löhr discuss EU economic pressures with regards to Karl Fitzgeraldenvironmental taxation, the refugee crisis and a central bank ignorant of the danger asset bubbles pose. Here is the

Show 433 of Renegade Economists 

Related links:

Sustainable Public Finance: Double Neutrality Instead of Double Dividend (Journal of Environmental Protection, Vol.7 No.2, February 2016).

Award for excellence: The hidden rent-seeking capacity of corporations

Dirk Löhr

The paper “The hidden rent-seeking capacity of corporations”, published in International Journal of Social Economics has been selected by the journal’s editorial team as the Outstanding Paper in the 2015 Emerald Literati Network Awards for Excellence.

The article can be downloaded from the publisher’s website (click here).


The revival of cities and the urban land premium

By Henri De Groot, Gerard Marlet, Coen Teulings, Wouter Vermeulen

Only a few decades ago many talked about the ‘death of cities’. Today, many cities have emerged as hubs of economic activity. This column argues such a phenomenon is due to spill-overs and agglomeration of human capital. The popularity of certain cities is explained by their attractiveness for innovative enterprises and high-educated top talent. But since locations where top talent clusters are scarce, land rents on these locations are high.

Download the blog article here (please click)

Property taxes: An unexploited resource

Dirk Löhr

“Ask an economist about which are the most efficient kinds of taxes, and property taxes will be high up on the list. They distort behaviour less, and are more growth friendly, than taxes on income, employment or even consumption.”

the economist

The mentioned tax should more properly be called “land value tax” instead of “property tax”.

However, the article

An unexploited resource (click here),

published in The Economist (Jun 27, 2013) tries to give some answers. Considering the discussion about the property tax reform in Germany and other, this article is still valid.


Joseph E. Stiglitz: Rewriting the Rules

Dirk Löhr

A recent report, written by Nobel laureate economist Joseph Stiglitz along with Roosevelt Institute fellows Nell Abernathy, Adam Hersh, Susan Holmberg, and Mike Konczal — sheds another light on the contemporary economic problems.

It is not just one of distribution, the report argues. In fact, the economy is fundamentally broken, shot through with opportunities for the rich to get richer not by building wealth but through exploitation and taking.

The problem, Stiglitz and his co-authors write, is that the rise in wealth isn’t coming from productive investments. It’s coming from what economists call rents. Stiglitz and his co-authors apply the rent concept, which was originally connected with land, on a wide and more modern array of rents (such as patents or copyrights).

“Rent-seeking”, as economists call it, is generally viewed as economically counterproductive. It’s especially counterproductive when it becomes so lucrative as to provide a more attractive outlet for people’s money than real investments. The report’s authors argue that’s exactly what’s happening with Wall Street. Its growth has fueled a big rise in credit — credit that tends to go to those who already have wealth, often in the form of rents, exacerbating existing rent-based problems. Financiers have also identified novel ways to rent-seek.

Also the “too big to fail” status, for example, can count as a rent. It increases the value of firms like Goldman Sachs or JPMorgan Chase not by making them more productive, but by providing an implicit government subsidy. Trading mortgage-backed securities for profit, similarly, does little to actually increase wealth but a lot to redirect it. That makes it attractive as a business activity for banks and hedge funds, redirecting their energies from profitable activities that create wealth.

The report, originally published on May 12 by the Roosevelt Institute, can be downloaded here:

“Rewriting the Rules of the American Economy: An Agenda for Shared Prosperity” (please click)

The analysis is comprehensible, sometimes excellent. Although, the role of land taxation in the concert of expedient instruments proposed should have been stressed more.


Another strike against Piketty: No price like home

Dirk Löhr

Another strike against the argument of Piketty: In a recent paper, launched by Knoll, Schularick and Steger (2014), a different channel of redistribution of wealth has been stressed. The article is tied to the work of Bonnet et al. (2014), who have shown that the late 20th century surge in wealth-to-income ratios in Western economies is largely due to increasing housing wealth. Moreover, in a recent study, also Rognlie (2015) established that (net) capital income shares increased only in the housing sector while remaining constant in others sectors of the economy.

House prices
Mean and median real house prices in 14 countries (source: Knoll, Schularick and Steger, 2014)

In contrast to Piketty (2014), the authors show that higher land prices can push up wealth-to income ratios even if the capital-to-income ratio stays constant. The critical importance of land prices for the trajectory of wealth-to-income ratios evokes Ricardo’s famous principle of scarcity: Ricardo (1817) argued that, over the long run, economic growth profits landlords disproportionately, as the owners of the fixed factor. Since land is unequally distributed across the population, Ricardo reasoned that market economies would produce rising inequality.

The paper of Knoll, Schularick and Steger (2014) traces the surge in housing wealth in the second half of the 20th century back to land price appreciation. The paper presents annual house prices for 14 advanced economies since 1870. Based on extensive data collection, they show that real house prices stayed constant from the 19th to the mid-20th century, but rose strongly during the second half of the 20th century. Land prices, not replacement costs, are the key to understanding the trajectory of house prices. Rising land prices explain about 80 percent of the global house price boom that has taken place since World War II. Higher land values have pushed up wealth-to-income ratios in recent decades.

The paper of Knoll, Schularick and Steger can be downloaded HERE (please click)

See also our blog articles:






More Information and literature

Bonnet, O., P.-H. Bono, G. Chapelle, and E. Wasmer (2014): Does Housing Capital Contribute to Inequality? A Comment on Thomas Piketty’s Capital in the 21st Century, Science Po Department of Economics Discussion Paper.

Knoll, K. / Schularick M. / Steger, T. (2014): No Price Like Home: Global House Prices, 1870 – 2012, CESifo Working Paper No. 5006.

Piketty, T. (2014): Capital in the Twenty-First Century, Cambridge: Harvard University Press.

Ricardo, D. (1817): Principles of Political Economy and Taxation.

Rognlie, M. (2015): Deciphering the Fall and Rise in the Net Capital Share, Brookings Papers on Economic Activity.