The “Economix” blog at The New York Times today features an article headlined “Interest Rates and the Housing Cycle” by Casey B. Mulligan.
Mulligan, an economics professor at the John D. Rockefeller-founded University of Chicago (read: citadel of privilege), treats “housing” as though it consists entirely of man-made “house” and no God-given land; he therefore leaves any mention of land or land values out of his conceptual framework despite the fact that without maintenance, man-made houses depreciate both in usefulness and exchange value over time while land, which is not a product of labor and exists even without human investment, generally becomes more valuable over time. Thus, confirming his profession’s studiously cultivated blindness to reality, Mulligan writes that “The lower our long-term interest rates, the more weight the market puts on value created in the distant future, and the more houses are worth,” but fails to mention that “houses” sit on LAND, and that the lower long-term interest rates, the more land is worth.
Furthermore, while focusing on interest rates and investment levels, Mulligan fails to tell his readers that significantly increasing the annual ad valorem tax rate on land values — with or without a reduction in taxation of improvements, and with or without a change in interest rates — will itself powerfully stimulate investment in real capital, raise wages and reduce unemployment. He fails to mention that heavy taxation of land values will reduce land prices and make “housing” truly affordable.
…the major factors in the housing boom were something other than low interest rates and are much debated (Paul Krugman and Raghu Rajan recently debated the role of home loan lending standards, and I have written about the role of technical change).
Had the Federal Reserve been able and willing to raise long-term interest rates in the early 2000s, that might have softened the housing cycle but would have worsened a shortage of business capital on which many of our jobs depend.
Mulligan tinkers with superficial trivialities, but doesn’t even mention land speculation, which was the major, fundamental cause of the “housing” boom, nor does he disclose the fact that increasing the effective ad valorem tax rate on land will greatly soften or eliminate the “housing” cycle while simultaneously increasing — not decreasing — the amount of business capital. His profession’s fixation on “either/or” trade-offs stems from a spurious, false, non-essential “shortage” paradigm that would vanish in the presence of heavy land value taxation, especially if combined with the reduction or abolition of taxes on improvements, production, commerce and non-privilege-based incomes.