Inflation as experienced by a police officer

At a COVID-safe Super Bowl party, one of the guests was a police officer who lives in our building. She was chatting with a guy who works for a small video production company. He talked about the challenge of paying rent that had gone up more than 10 percent, health insurance that was going up almost as fast, and similar inflation woes. She expressed amazement that an employer wouldn’t provide health insurance. “The company keeps the headcount below 50 so that the Obamacare rules don’t apply,” said the pinched private sector worker.

The police officer described receiving automatic pay raises in lockstep with official government inflation numbers, which she acknowledged did not keep up with the rising cost of housing here in South Florida. Although only in her 20s, she was already looking forward to retirement. “It’s based on your highest three years of earnings,” she said. “So if you work a lot of overtime near the end of your career you can get a pension that is higher than your full-time salary.”

We asked what the real world speed limit was. “I don’t pull anyone over for speeding,” she replied. “If they’re speeding, that’s a risk that they’re taking for themselves. The State Troopers, however, will even give me tickets.”

Was it worth getting a license plate celebrating law enforcement or applying stickers evidencing a donation to a police-oriented cause? “Those are the people I worry about the most,” she said, “because I know they’ll have a gun in the car.”

What about our minivan, with its “Support Education” specialty tag? (example below)

She said “Any officer who pulls over a minivan needs to reevaluate his or her priorities in life. I won’t pull over a minivan.”

Our Jupiter, Florida police department sends in the SWAT team any time there is a search warrant to be executed. “Jupiter doesn’t have a lot going on,” she responded. “I can do that too if I want. If I pull someone over and there is a warrant outstanding, I can turn it over to SWAT.”

What about enforcement of coronapanic orders? (she worked for a police department down towards Miami, where muscular governmental intervention in the life of a respiratory virus is popular) “I won’t ticket people for not wearing a mask,” she said.

We learned that one shouldn’t be too upset when the police come to investigate a neighbor’s noise complaint. “It won’t hold up in court if there isn’t a calibrated noise measurement and we don’t have any meters,” she said.

(Why was the party “COVID-safe”? Everyone in the room was following the same mask protocols that the spectators in the stadium that we saw on TV were following and we know that California Follows the Science.)

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CVS marked down COVID-19 tests before Joe Biden’s arrived in the mail

The 6-year-old and I found COVID-19 tests on sale today at CVS in Jupiter, Florida:

I placed my order for taxpayer-funded tests (“free”) on January 19, the advertised first day in “The Biden Administration to Begin Distributing At-Home, Rapid COVID-⁠19 Tests to Americans for Free (whitehouse.gov) and haven’t gotten anything yet except an email from USPS promising an update “once your package ships.”

In other words, relief from the central planners will arrive some weeks after CVS was forced to mark COVID-19 tests down due to oversupply.

I remarked on the low price and ample quantity available, saying “Those would have been very valuable a month ago.” The 6-year-old immediately responded, “let’s buy some now and keep them at home and then sell them for $20.99 during the next wave.”

I’m not going to leave him alone with any Dr. Seuss books (re-sold for up to $1,700 on Amazon before being banned there)!

Readers: Did your tests from the central planners arrive? If so, when? It was supposed to be “seven to 12 days” from January 19.

Speaking of COVID-19, let me take this opportunity to give a shout-out to selfless front-line workers, such as the physician (see the license plate) who parked this Ferrari on the street near the above-mentioned CVS:

Who knows Ferraris well enough to say what model this is and estimate the value? My guess is a Portofino retractable hard top (worth about 250,000 in 2022 mini-dollars).

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Inflation Chronicles: meatballs and spec houses

“Annual American inflation hit 7.5%: A near 40-year high” (CNN, today):

A key measure of inflation climbed to a near-40-year high last month. Economists are hopeful that America will reach the peak of the pandemic-era price increases in the early months of 2021. Here’s to hoping.

The consumer price index rose 7.5% in the 12 months ending January, not adjusted for seasonal swings, the Bureau of Labor Statistics said Thursday. It was the steepest annual price increase since February 1982 and worse than economists had forecast.

(Note that these are “pandemic-era” increases, not “Biden-era”.)

Which economists are “hopeful”? The article itself cites only an economist who suggests that the price increases will be persistent.

“There will be plenty of persistence from soaring house prices pushing shelter costs this year,” said Sal Guatieri, senior economist at BMO, in a note to clients.

How does it feel on the ground? (“on the swamp”?) Across from our beloved Abacoa neighborhood is Alton, a newer development. The Italian restaurant inside Alton is Lynora’s and, through 2021, they were famous for $2 meatballs on Mondays (example). For 2022, the meatballs are $3 each (an annual inflation rate of 50%).

What about the new houses in Alton? You used to buy one pre-construction or at least pre-completion, thus enabling the selection of colors, styles, finishes, and options. The result would be paying a June 2021 price and moving into a December 2021 house. Inflation is now so high that this approach to business has become untenable. Starting in 2022, the developer will no longer sell any house until it is complete and therefore it is no longer possible for a buyer to customize anything.

What does a house with in Alton look like? Here’s one for $3 million (5,000 square feet, helpful alligator ramp from the “lake”):

Or you could live in a townhouse for $950,000 (2,252 sq. ft.):

Despite the stratospheric-by-2020-standards prices, this neighborhood is actually inferior to Abacoa in many ways. People don’t like the public schools as much (though both neighborhoods are served by the same Palm Beach County system). There is much less green space in Alton. There are fewer trees and they’re scrawny so there is precious little shade. There is so little space between houses that your single family home’s living room probably ends in the neighbor’s bathroom. Why are people willing to pay so much? There is a significant premium for new construction in Florida, where people believe sic transit gloria mundi when it comes to developer-built housing exposed to sun and humidity. (As Dan Quayle is famous for pointing out, Latin is more commonly spoken here due to the proximity to Latin America.)

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More bad news for Americans in the slavery zone ($100,000 per year)

The U.S. is a great place to be on welfare. Except for France, we spend the largest percentage of our GDP on government handouts such as free housing, health care, food, and smartphone (Washington Post). Marijuana is legal in a lot of states (and “essential” so it will be available through any COVID-19 shutdowns), booze is cheap, and Medicaid will buy you a suitcase full of opioids.

The U.S. is also a great place to be rich. There is no limit to corporate executive pay. After the shareholders have been thoroughly mined, there are plenty of swank neighborhoods in which to hang out with other rich people. At least until 2020, there was a huge supply of low-wage service workers to meet the needs and wants of those in the rich enclaves. Unlike Europe, we have no massive value-added tax to discourage consumption. (Depending on the state, rich people are much more exposed to family court predators than in Europe; see Real World Divorce.)

There is a slavery zone in the middle, though, where an American earns too much to get subsidized housing, health care, food, etc., but not enough to have a spending power or material standard of living substantially higher than what someone on welfare enjoys (quantified by state). He/she/ze/they will pay a crushing array of taxes as well in order to support the comparable material lifestyles of those who don’t work at all.

American slaves seem to be prevented by economics from reproducing. From $50,000 per year to nearly $200,000 per year, fertility is lower than for those on welfare and for the elites. A chart from 2019:

The Wall Street Journal (2/7/2022) says the trend is toward additional oppression of these slaves. “In Covid-19 Housing Market, the Middle Class Is Getting Priced Out”:

At the end of last year, there were about 411,000 fewer homes on the market that were considered affordable for households earning between $75,000 and $100,000 than before the pandemic, the study found. At the end of 2019, there was one available listing that was affordable for every 24 households in this income bracket. By December 2021, the figure was one listing for every 65 households.

For households earning between $75,000 and $100,000, five of the top six metro areas with the fewest affordable homes for sale per household were in California, NAR found, led by the San Jose metro area. The state’s shortage of affordable housing helps explain why many people left California’s coastal cities during the pandemic and moved inland.

Is it safe to say that the future of the American middle-class slave is apartment living and a one-child max? The population keeps growing while land and roads are more or less fixed. Construction costs go up much faster than wages. A median earner in China can’t afford a single family home. As the U.S. approaches Chinese levels of population, why would we expect someone near the median here to own a single family home?

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How an asset bubble that inflates and deflates makes a lot of people worse off

One might think that an asset bubble that inflates and deflates doesn’t hurt that many people. After all, if you just stay in your house, what difference does it make if the value goes up to 3X and then comes back down to 1.2X?

Jeremy Grantham, the G in the asset management firm GMO, points out that people caught up in bubble fever adjust their consumption (i.e., spend like drug dealers). From his January 20 newsletter (a friend who has managed $billions sent it to me):

All 2-sigma equity bubbles in developed countries have broken back to trend. But before they did, a handful went on to become superbubbles of 3-sigma or greater: in the U.S. in 1929 and 2000 and in Japan in 1989. There were also superbubbles in housing in the U.S. in 2006 and Japan in 1989. All five of these superbubbles corrected all the way back to trend with much greater and longer pain than average.

Today in the U.S. we are in the fourth superbubble of the last hundred years.

One of the main reasons I deplore superbubbles – and resent the Fed and other financial authorities for allowing and facilitating them – is the underrecognized damage that bubbles cause as they deflate and mark down our wealth. As bubbles form, they give us a ludicrously overstated view of our real wealth, which encourages us to spend accordingly. Then, as bubbles break, they crush most of those dreams and accelerate the negative economic forces on the way down. To allow bubbles, let alone help them along, is simply bad economic policy.

What nobody seems to discuss is that higher-priced assets are simply worse than lower-priced ones. When farms or commercial forests, for example, double in price so that yields fall from 6% to 3% (as they actually have) you feel richer. But your wealth compounds much more slowly at bubble pricing, and your income also falls behind. Some deal! And if you’re young, waiting to buy your first house or your first portfolio, it is too expensive to get even started. You can only envy your parents and feel badly treated, which you have been.

If your house goes from being worth $800,000 to $1.6 million, as the houses in our Florida neighborhood have done within the past two years, Grantham predicts that you’ll sign up for that lavish vacation, buy the fancy new car, splurge on clothing and jewelry (see “Cartier’s Dazzling Festive Season Bodes Well for Luxury Stocks” (WSJ): “Overall, U.S. jewelry sales increased 32% year-over-year from Nov. 1 to Dec. 24”), pay $1.2 million for a piston-powered unpressurized airplane, etc. We see this with governments as well. States that are raking it in from temporarily turbocharged capital gains taxes build new spending programs that will need to be funded every year, even if capital gains tax revenues collapse due to asset values stagnating (but maybe inflation can help, since capital gains tax calculations don’t adjust for inflation and, therefore, even assets that actually lost value will result in taxes being owed on a nominal profit).

Where does Grantham, an elder statements of the equity markets, think we’ll end up?

The key here is that two things are true: 1) the higher you go, the lower the expected future return; you can gorge on your cake now or enjoy it piece by piece into the distant future, but you can’t do both; and 2) the higher you go, the longer and greater the pain you will have to endure to get back to trend – in the current case to a trend value of about 2500 on the S&P 500, adjusted for the passage of time, from whatever high point the market might reach (currently at nearly 4700).

In other words, the S&P crashes to 2,500 or, assuming sufficiently clever manipulation of all the control wheels by wizards in Washington, D.C., stays more or less where it currently is, adjusted for inflation, for a decade or so.

(Maybe “spend like drug dealers” above isn’t the best expression for today? How about “spend like crypto early-adopters”?)

Related:

  • Grantham warned us of a bubble in January 2021 (and if you’d followed his advice by going short or moving to inflation-savaged cash you’d be pretty miffed right now!): “We at GMO got entirely out of Japan in 1987, when it was over 40% of the EAFE benchmark and selling at over 40x earnings, against a previous all-time high of 25x. It seemed prudent to exit at the time, but for three years we underperformed painfully as the Japanese market went to 65x earnings on its way to becoming over 60% of the benchmark! But we also stayed completely out for three years after the top and ultimately made good money on the round trip. Similarly, in late 1997, as the S&P 500 passed its previous 1929 peak of 21x earnings, we rapidly sold down our discretionary U.S. equity positions then watched in horror as the market went to 35x on rising earnings. We lost half our Asset Allocation book of business but in the ensuing decline we much more than made up our losses.” The Jan 2021 piece includes the figure below.
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At-home test kits are back in stock; triumph of central planning?

As of last night, CVS in the Palm Beach area has at-home test kits back in stock.

Do we call this a failure of central planning? The site to order “free” (i.e., paid for by us via taxes) kits went live only on January 19 delivery time was supposed to be “within seven to 12 days” (USA Today). In other words, the central planners’ fix for the shortage will not ramp up until after the shortage is over.

Or do we call this an example of the success of central planning? Secure in the knowledge that Joe Biden is sending them four kits per household, Americans have ceased their panic buying of test kits at retail.

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How’s transitory inflation in your area?

From the in-house economics Nobel-winner at the New York Times (December 2021):

Even once the inflation numbers shot up, many economists — myself included — argued that the surge was likely to prove transitory. But at the very least it’s now clear that “transitory” inflation will last longer than most of us on that team expected.

In other words, all inflation is transitory, but some transitory inflation is more transitory than others.

(Dr. Jill Biden’s colleague Professor Dr. Krugman, M.D., Ph.D. previously successfully predicted the stock market crash that lasted throughout the dark Donald Trump years.)

Readers: What are you seeing for the stuff that you buy? If you’re in business, what are customers saying when you raise prices to them? Is it better to multiply by 1.4X once or 1.1X every few months until your revenue recovers its former purchasing power?

We took our Odyssey in for an oil change. The Honda dealer’s showroom contained only used cars, as did the lot. A new Accord or Odyssey was available for $3000 over sticker and a 1-2-month wait. “Some dealers are charging more,” the salesman said. This would be about $7,000 more than we paid for our in-stock Odyssey a year ago (i.e., roughly comparable to the 20% annual inflation in housing, though it would have been much higher for similar delivery time (buy out someone else’s order for $5,000 extra?)).

Honda plainly isn’t charging a market-clearing price for wiper blades. The dealer had just one of the two front blades in stock. Regarding the passenger-side blade, the advisor said “They’ve been on backorder.”

Our Cirrus SR20 needs its “reefing line cutters” replaced every 6 years. These are required every time that the pilot, or a nervous passenger, elects to land via parachute. Owners have mentioned long delays in getting parachute components for the Cirrus so I emailed our mechanic recently, three months before we actually need the part. Here was his response:

I will order you a set of line cutters as this has been on back order … be advised aircraft parts are increasing in price almost every day!

In 2021, Robinson Helicopter Company, founded in 1973, imposed its first-ever mid-year price increase. Order your aviation stuff now (13 percent price increase from Lycoming) describes a first-in-many-decades mid-year price increase from Lycoming.

Aviation costs, even for parts, seem to go up more like U.S. labor costs than like the costs of stuff that you can buy in Walmart. Aircraft parts, due to certification requirements, can’t be made by multiple competing Chinese and Mexican factories. The volume is low so it isn’t worth automating. Even if you’re just buying a bolt, which for a jet can cost $thousands, you’re essentially buying labor and health insurance.

Here is a line cutter in action. I think you’re seeing a $1,000 part (there are two for redundancy and both must be replaced every six years; then there is the $15,000 currently-unobtainable re-packed parachute every 10 years):

The used aircraft market is still booming, with airplanes worth 2X what they went for in 2019, but I wonder if a few years of transitory inflation will change that. Not everyone’s income goes up with inflation. Someone who bought a plane budgeting $X/year for hangar, maintenance, and insurance will now be paying $2X per year. At some point, won’t that person begin to ask “Why do I need this airplane? I can do most meetings via Zoom. I can move to Florida and have popular vacation destinations within a short drive. President Harris can’t keep up the mask requirements on commercial airlines forever.”

Related:

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The Federal Reserve Bank president who said not to print money

Happy Lucky 13 day! Given the recent headlines, e.g., “Inflation rises 7% over the past year, highest since 1982” (CNBC), let’s look at “The Fed’s Doomsday Prophet Has a Dire Warning About Where We’re Headed” (Politico).

In 2010, Hoenig was president of the Federal Reserve regional bank in Kansas City. As part of his job, Hoenig had a seat on the Fed’s most powerful policy committee, and that’s where he lodged one of the longest-running string of “no” votes in the bank’s history.

Between 2008 and 2014, the Federal Reserve printed more than $3.5 trillion in new bills. To put that in perspective, it’s roughly triple the amount of money that the Fed created in its first 95 years of existence. Three centuries’ worth of growth in the money supply was crammed into a few short years. The money poured through the veins of the financial system and stoked demand for assets like stocks, corporate debt and commercial real estate bonds, driving up prices across markets. Hoenig was the one Fed leader who voted consistently against this course of action, starting in 2010. In doing so, he pitted himself against the Fed’s powerful chair at the time, Ben Bernanke, who was widely regarded as a hero for the ambitious rescue plans he designed and oversaw.

Hoenig lost his fight. Throughout 2010, the FOMC votes were routinely 11 against one, with Hoenig being the one. He retired from the Fed in late 2011, and after that, a reputation hardened around Hoenig as the man who got it wrong. He is remembered as something like a cranky Old Testament prophet who warned incessantly, and incorrectly, about one thing: the threat of coming inflation.

So… he predicted inflation but was off by about 12 years as to when it would arrive? How is that different or better than predicting a big stock market crash at some point in the future?

But this version of history isn’t true. While Hoenig was concerned about inflation, that isn’t what solely what drove him to lodge his string of dissents. The historical record shows that Hoenig was worried primarily that the Fed was taking a risky path that would deepen income inequality, stoke dangerous asset bubbles and enrich the biggest banks over everyone else. He also warned that it would suck the Fed into a money-printing quagmire that the central bank would not be able to escape without destabilizing the entire financial system.

The Fed is now in a vise. Inflation is rising faster than the Fed believed it would even a few months ago, with higher prices for gas, goods and automobiles being fueled by the Fed’s unprecedented money printing programs. This comes after years of the Fed steadily pumping up the price of assets like stocks and bonds through its zero-percent interest rates and quantitative easing during and after Hoenig’s time on the FOMC. To respond to rising inflation, the Fed has signaled that it will start hiking interest rates next year. But if that happens, there is every reason to expect that it will cause stock and bond markets to fall, perhaps precipitously, or even cause a recession.

How does centrally-planned inflation work?

When the Fed kept interest rates low during the 1970s, it encouraged farmers around Kansas City to take on more cheap debt and buy more land. As cheap loans boosted demand for land, it pushed up land prices — something that might be expected to cool off demand.

But the logic of asset bubbles has the opposite effect. Rising land prices actually enticed more people to borrow money and buy yet more land because the borrowers expected the land value to only increase, producing a handsome payoff down the road. Higher prices led to more borrowing, which led to higher prices and more borrowing still. The wheel continued to spin as long as debt was cheap compared to the expected payoff of rising asset prices.

The bankers’ logic followed a similar path. The bankers saw farmland as collateral on the loans, and they believed the collateral would only rise in value. This gave bankers the confidence to keep extending loans because they believed the farmers would be able to repay them as land prices increased. This is how asset bubbles escalate in a loop that intensifies with each rotation, with the reality of today’s higher asset prices driving the value of tomorrow’s asset prices ever higher, increasing the momentum even further.

And the central planners, back in the 1980s messed up the flip side of this too, causing bank failures when farmland prices fell only 27 percent.

I recommend the article for its historical perspective. Don’t complain if you don’t find a solution to our current situation (high inflation; mediocre economic growth once adjusted for population growth). Part of this banker’s point was that there is no good way to stop printing money.

What did cars look like the last time inflation was this high? Here’s an example from a classic car gathering in our neighborhood:

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Exploring the land value tax

The U.S. Congress is getting back to “work” soon, trying to figure out how to squeeze enough tax revenue from Xbox-oriented Americans to fund all of the government programs that we dream of enjoying plus the $10 trillion in coronapanic spending that we indulged in.

Let me recommend “Does Georgism Work? Part 1: Is Land Really A Big Deal?” (12/8/2021) and “Lars Doucet On Taxing The True Value Of Land” (12/15/2021), which is on one of my favorite topics, a Land value tax. The basic observations are (1) an income tax discourages people from working and earning money, which is what most of us want our fellow citizens to do (exception: those of us with jobs in the welfare-industrial complex, homeless-industrial complex, and migrant-industrial complex), (2) a property tax on the value of buildings discourages people from creating nice buildings, which is what most of us want our fellow citizens to do (exception: me, because I am sick with envy when someone else has a nicer house than our 2BR apartment). From these observations, it then becomes obvious that taxing the value of underlying land is a good idea because no matter how high the tax is, the land won’t go away (since it is neither produced nor destroyed by human effort).

Unlike most folks who are enthusiastic about this form of taxation, Doucet has put some thought into what a transition would look like. Some excerpts from the 12/15 piece:

To start things off: a friend of mine bought an apartment near a future station on the not-yet-built extension of the New York subway, thinking the value of the apartment would rise once the station opened. Obviously she didn’t build the subway, and didn’t pay for it any more than any other New York taxpayer. Can you talk about that example from a Georgist perspective? Under Georgism, what would happen to taxes in a neighbourhood when something like a new train station gets built?

Lars: So when you buy land in a major city, or next to planned areas of development, hoping that the value will go up, what you’re really hoping for is to profit off of the hard work and investment of your neighbors and government spending. Imagine two locations for a hot dog stand: the middle of the desert, and an empty lot next to the Empire State Building. Obviously I’ll sell more hot dogs in the second location, but clearly it’s the people and city of New York that have made that second location more valuable.

The example you bring up is particularly salient because we have this trap where we expect the government to provide us with services, but then those services cost money, so we tax people’s income (labor) and investments (capital) to fund them, or just put the government in debt to do it (which ultimately manifests as indirect taxes on labor and capital in the form of interest payments and inflation). And then, land values for properties closest to those services rise. Who captures that added value? Whoever was smart enough to buy up land real cheap before We The People started doing some public spending. So essentially our current scheme creates this bizarre cycle where we tax both the labor and the savings of Americans in order to provide public works, which have the side effect of subsidizing people who speculate on land, who not only aren’t doing anything for the economy, but are actively making the housing crisis worse by bidding up the price of land.

Land value tax is already better than neutral. The point isn’t just that it “doesn’t distort” the economy, it un-disorts the economy, because the “private tax” levied by the gatekeepers of land, location, natural resources, and other monopolies is already imposing a productivity drain on our economy.

Just to drive the point home, we’re not wanting to tax land just because it’s more “efficient,” or whatever. We’re doing it because land is scarce and rival. To own land means to exclude others from it. Given there’s only so much of it, and we can’t all use the same land, and we all absolutely fundamentally need land, it’s a simple matter of justice to say that if you want to exclude the rest of society from a piece of land, you should compensate society, since you did nothing to make that land exist in the first place.

There are three things that come together when humans produce things — land, labor, and capital. We call these inputs the “factors of production.” We can increase labor, and we can increase capital, but there’s not a dang thing we can do to increase land — “it’s the one thing they’re not making any more of.”

But what does it mean when the owner of the land “provides” land? It’s not like they created it, and it’s not like if we don’t pay them for access to it the factor will somehow go away, which is what happens when you stop paying labor and capital. Gatekeeping access to land isn’t productive, but in our society it entitles you to a share of the produce that labor and capital produced. And as I’m prepared to show, it entitles you to a really huge outsized share at that, essentially a private tax on the entire economy.

Lars: Right, so the problem is if you try to knock down the housing ladder all by itself, you’re going to make a bunch of people really mad because they only did what was rational under the old system, broken as it was. That feels like a rug pull and it’s certainly a political headwind you have to take seriously, and it’s also a matter of fairness.

Gordon Tullock calls this the “transitional gains trap,” using the example of taxi medallions. The first generation that buys into the system gets in cheap and enjoys outsized gains, but the next generation has to pay “full price” for it. Sure houses appreciate over time because of the land values, but the person who just bought one had to really shell out for that privilege and hasn’t had much time to reap the rewards. So even if transitioning to a non broken system makes everybody better in the long run, the pain to change over is too much for some people.

There are four different ways to do it. The first is just to phase in land value tax gradually over time, like say, over 20-40 years. The challenge with this is that’s going to be quite a political feat to get it to stick over many generations of politicians.

The second is to levy land value tax as a sort of lien, something that you don’t have to pay until you sell the property, or pass it on to your heirs. So grandma and Farmer Brown aren’t going to be kicked out of their homes because of the land value tax. And just for the record, Farmer Brown’s land value isn’t going to be super high anyways — farmland is pretty cheap, it’s urban land that’s expensive. Farmer Brown will likely just get a tax break compared to what he’s currently paying in property taxes.

I hope that I’ve inspired you to read “Does Georgism Work? Part 1: Is Land Really A Big Deal?” and “Lars Doucet On Taxing The True Value Of Land” and then, for the next step, that you become a U.S. Senator and can actually act on your knowledge. Perhaps you can replace Senator Karen and Elon Musk won’t be distracted from creating the minivan-with-dog-mode that I crave.

Mangrove trees in Fort Lauderdale. Nobody told them “they aren’t making any more land.”

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Inflation chronicles: when a $120 steak dinner is underpriced

One of my favorite restaurants is Bern’s Steak House in Tampa. If you don’t order any wine, you could probably get out of there for $120 per person including tax and tip (menu with some $50 entrees, but you’re going to need an appetizer and you can’t go to the separate dessert room without ordering dessert (and you can’t go to Bern’s without going to the dessert room!).

How is $120 plus wine underpriced? You need to book 90 days in advance to get a table (we recently tried for a Tuesday and a Wednesday evening, a week in advance and then a month in advance, and failed on both attempts). Bern’s would have to raise prices substantially to reduce demand to the point that the restaurant was full and bookable by those who can’t plan their meals three months in advance.

Maybe it was always like this? Not in 2014. A group of us made a last-minute reservation while at Sun ‘n Fun in nearby Lakeland.

Maybe they’re afraid to raise prices to what would ordinarily be considered a market-clearing level, even if they can discount during slow summer months. They wouldn’t want people to walk away saying “The food wasn’t any better than at a restaurant with lower menu prices.”

What if they auctioned the seats, though, the way that a European discount airline does? Charge people a reservation or booking fee, that could be $1 (90 days in advance of a Monday night in the summer), $75 per person (3 days in advance of a Friday night in December), or $150 per person (last-minute Saturday night table). By the time the bill for the actual meal comes, the customer might have forgotten the pain of having paid for the reservation. Right now it seems as though the restaurant is leaving at least $30 per customer in pure profit on the sidewalk as well as disappointing those who are willing to pay the market-clearing price.

Related:

  • From 2014 (“BB” (Before Bidenflation)) … “Want To Dine Out? You May Need To Buy Tickets — Or Bid On A Table” (NPR): Other restaurants are even pondering auctions for tables, selling them off to the highest bidder. And even though Alinea doesn’t do that, bidding already occurs for Alinea tickets on other websites. … A new ethics-challenging startup called ReservationHop is another. In its initial form, ReservationHop booked tables at popular restaurants under assumed names, and then sold those reservations on its website.
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