Tuesday, June 06, 2006

Real Estate Boom. Real Estate Bust.

Affluent Americans sour on real estate - Jun. 6, 2006

This morning I was thinking what I could write about and so I went to CNN.com and the number two story grabbed me right away. Boom and bust cycles are caused by speculation in land markets. As these so called investors (some are investors, but most are speculators) learn that the return on the investment is negative, this unprecedented rise in real estate values will be followed by and unprecedented crash in the land markets, which in turn will lead to serious recession.

The macro junkies will crunch out the inflation numbers and unemployment figures for us and we will see a resurgence of the new-Keynesians, which will do nothing to solve the crises.

The problem isn’t with people “investing” in the land. The problem is with the speculators removing land from production and infecting us with this boom-bust cycle.

The solution is simple: Tax land values and not the improvements on land. Shift the burden of taxation away from payroll and sales taxes and towards land values.