Episode 11 What Would Henry George Say?

Drawing from Henry George’s 1879 book Progress and Poverty, this conversation explores his argument that rising land values and rent extraction distort markets, suppress wages, and concentrate wealth.

From feudal land ownership to modern private equity leveraged buyouts, the discussion traces how income derived from ownership often outpaces income derived from productive work. Examples include leveraged acquisitions of major retail brands, Amazon’s relationship with third-party sellers, and the broader concept of “rent extraction” in financialized markets.

The episode also examines a widely circulated Substack memo imagining AI agents eliminating middlemen across the economy. If automation removes friction between buyers and sellers, what happens to companies built on intermediation? And if publicly funded research underpins transformative technologies, should society retain a financial claim on their returns?

Along the way, the hosts consider Portugal’s property tax adjustments, golden visa programs, government-funded innovation, and whether Henry George’s proposal — taxing unimproved land while minimizing taxes on productive activity — offers a framework for addressing today’s structural imbalances.

Links of shows and episodes mentioned in this episode

Citrini Research – The 2028 Global Intelligence Crisis: https://www.citriniresearch.com/p/2028gic

Market CRASH After Viral AI Doom Post: https://youtu.be/kNInY3ZAMWo?si=zXJL3h0jQdYgENQ1

Episode Show Notes

• Henry George and Progress and Poverty (1879)
• Adam Smith’s framework of rent, wages, and profit from The Wealth of Nations (1776)
• Concept of rent extraction in modern economies
• Private equity leveraged buyouts explained
• Examples discussed: Toys R Us, Neiman Marcus, Sports Authority, Gymboree, Payless Shoes, Red Lobster
• Substack investor memo projecting AI-driven disintermediation
• AI agents and the potential elimination of middlemen
• Amazon FTC lawsuit regarding third-party sellers and Fulfilled by Amazon
• Portugal property tax designations (habitable vs. occupied)
• Portugal golden visa program and housing pressures
• Government-funded R&D and private commercialization
• Project Pele and defense-funded foundational technologies
• Books referenced:
  • Makers and Takers by Rana Foroohar
  • The Value of Everything by Mariana Mazzucato
  • Winners Take All by Anand Giridharadas

Episodes Timestamps

00:00 – Introduction
01:38 – Who was Henry George?
04:00 – Land ownership, wealth accumulation, and historical examples
05:44 – Adam Smith: rent, wages, and profit
06:45 – Rent extraction explained
08:42 – Private equity and leveraged buyouts
11:54 – Retail bankruptcy case studies
14:39 – Substack memo on AI and economic disruption
17:21 – “Rent extraction layer” quote discussion
18:47 – Amazon FTC lawsuit and third-party sellers
23:00 – Henry George’s single land tax proposal
27:19 – Idle land, housing supply, and incentives
31:00 – Portugal property tax changes and golden visas
37:00 – AI agents and the future of middlemen
40:19 – Shared AI Prosperity Act concept
44:30 – Public R&D and private profit
46:36 – Wealth creation vs. wealth extraction
48:00 – Defense-funded foundational technologies
50:09 – Internet origin and Cold War context
50:53 – Henry George’s core premise revisited

Entities mentioned

People

• Henry George
• Adam Smith
• Simon Bolivar
• David McWilliams
• Karl Marx (referred to as “Marx”)
• Rana Foroohar
• Mariana Mazzucato
• Anand Giridharadas

Organizations / Institutions / Government Bodies

• Citrini Research (spelled “Citrini” in transcript)
• Amazon (amazon.com)
• US Federal Trade Commission (FTC)
• AWS (Amazon Web Services)
• Apple
• Financial Times
• Department of Defense (DOD) (US and UK mentioned)
• DARPA
• Congress
• European Union (EU)

Companies / Brands / Services / Platforms

• KKR
• Aries Management
• Toys R Us
• Neiman Marcus
• Sports Authority
• Gymboree
• Payless Shoes
• Red Lobster
• Expedia
• Kayak
• Substack
• Wayfair
• Home Depot

Places (Countries, Cities, Regions, Historical Places)

• Denmark
• North America
• United States
• Europe
• Venezuela
• New Granada
• New York
• New Amsterdam
• Ireland
• Portugal
• Canada
• Toronto
• Barcelona
• Soviet Union
• UK (United Kingdom)
• Middle East
• Asia
• South Africa
• Australia

Books

• Progress and Poverty by Henry George
• The Wealth of Nations by Adam Smith
• Substack investor memo referenced in discussion
• Makers and Takers by Rana Foroohar
• The Value of Everything by Mariana Mazzucato
• Winners Take All by Anand Giridharadas

Laws / Policies / Programs / Initiatives (Named)

• Fulfilled by Amazon
• Golden Visa program (Portugal)
• Shared AI Prosperity Act (fiction, maybe satire)

Economic / Finance Concepts (Terms Mentioned)

• rents
• rent extraction
• wages
• profits
• dividends
• bonds
• interest
• private equity
• leveraged buyout
• bankruptcy protection
• monopoly practices
• third party sellers
• buy box
• SaaS companies
• stock sell off
• stock valuations
• capital gain
• capital appreciation
• unearned income
• income tax
• sales tax
• VAT tax
• property tax
• sovereign wealth fund
• royalty
• household transfers

Technology / Products / Technical Terms

• AI agents
• software agent
• smartphones
• iPhone
• Internet
• wifi
• geo positioning
• touch screens
• computer voice interaction
• command and control system
• torpedoes

Historical Periods / Events

• 19th century
• 1776
• 1879
• Cold War
• feudalism
• nuclear missile exchange

Other (Referenced Group / Topic)

• Epstein files
• global elites

About the Podcast

Hosted by Kevin Carney and Emanuel Petrescu, two curious minds exploring ideas, culture, and everything in between. Curious Pundits is a conversational podcast where each episode starts with a topic that caught our attention and unfolds into thoughtful, unscripted discussion. We follow curiosity wherever it leads, across disciplines, opinions, and perspectives, without pretending to have all the answers. Their main ventures are https://1307.digital/ (Emanuel) and https://organicgrowth.biz/ (Kevin)

Listen to the Curious Pundits Podcast on Your Favorite App

Website: https://curiouspundits.com/
YouTube: https://www.youtube.com/@curiouspundits
Podbean: https://curiouspundits.podbean.com
Apple: https://podcasts.apple.com/us/podcast/curious-pundits/id1874614249
Spotify: https://open.spotify.com/show/4nvSoNRrgPPBkdZiLGanYh
Amazon: https://music.amazon.com/podcasts/26ab96d9-ab37-4369-bccc-fe2cf937f950
iHeartRadio: https://iheart.com/podcast/321051634
Soundcloud: https://soundcloud.com/curiouspundits

Follow the Curious Pundits on Social Media

Facebook: https://www.facebook.com/curiouspundits/
Instagram: https://www.instagram.com/curiouspundits
Threads: https://www.threads.com/@curiouspundits
YouTube: https://www.youtube.com/@curiouspundits
LinkedIn: https://linkedin.com/company/curiouspundits
TikTok: https://www.tiktok.com/@curiouspundits
X: https://x.com/CuriousPundits
Pinterest: https://www.pinterest.com/curiouspundits/
Reddit: https://www.reddit.com/user/curiouspundits/
Medium: https://medium.com/@curiouspundits
Tumblr: https://www.tumblr.com/blog/curiouspundits

Transcript

[00:00:00] Announcer: This is the Curious Pundits Podcast hosted by Kevin and Emmanuel. They explore bits of everything through thoughtful conversations, prioritizing curiosity over conclusions, and they thank you for joining them now onto the podcast.

[00:00:18] Emanuel: Hi everyone. My name is Emanuel. 

[00:00:20] Kevin: My name is Kevin. 

[00:00:22] Emanuel: And we’re the Curious Pundits, your favorite podcast for the past couple of weeks or so.

If you like…

[00:00:30] Kevin: Well, hopefully in time. 

[00:00:31] Emanuel: Yeah.

[00:00:31] Kevin: We’re still building an audience. 

[00:00:33] Emanuel: We’re building an audience. One episode at a time. If you like what you’re seeing today.

[00:00:37] Kevin: Actually, can I make a comment? 

[00:00:38] Emanuel: Please do. 

[00:00:40] Kevin: We had a download on a podcast episode from somebody in Denmark, so we’re branching out, outside of North America. 

[00:00:47] Emanuel: We’re international. We’re… expanding… somebody that we didn’t know, right? So that’s an important aspect.

So if you want to be one of those people that we don’t know, but listen to us, go to curiouspundits.com, and over there you’ll find links to our YouTube channel, to Spotify, to Apple Podcast to… all the places where you listen to your favorite podcast.

That being said, this will be one of the episodes where Kevin talks and Emanuel listens again, as it has been for the past couple of episodes as well.

The title of the episode is What would Henry George Say?

It comes from the Episode 10. If you haven’t listened to it, go back and do so, and I would say let’s jump right into it.

But before that, I have a question. Who’s this Henry George chap? 

[00:01:38] Kevin: Well, I’ll answer that question in just one moment. I just want to add that as… as the last episode was ending, the last episode being about the Epstein files, you made a comment about how all of the… I’ll call it dynamics or issues related to the Epstein files have an economic component.

So there is a set of global elites who are so rich and so powerful that literally they are beyond consequences for their action. And there’s a whole bunch of other people who are really angry about that and feel that like it’s not right that it is that way.

And then I mentioned that this guy named Henry George, back in 1879, published a book where he attempted to answer the question…

Now in the 19th century, he had a more like geographically focused concept of the idea, but it was… how come in the areas of the greatest affluence do we also find the greatest poverty?

And I thought his ideas were really… I thought he came up with a really good answer to the question. I thought some of his policy ideas… he basically had one policy idea, but I thought it was super interesting.

But the… the issue that he spoke about is actually bigger and broader today because of the hyper financialization of the economy that has occurred since his time. And I thought like… let’s just talk about the big picture concept.

[00:03:16] Emanuel: I’m assuming you’re going to… 

[00:03:16] Kevin: And then how he fits into it. 

[00:03:18] Emanuel: Yeah. I’m assuming you’re going to tell us what his principles are and what that one thing that he’s doing and all those things.

But what I’m assuming he’s not around anymore. 

[00:03:29] Kevin: Oh yeah. I mean, there’s no way he’s… I don’t know how old he was in 1879, but I mean… In order to be alive today, he’d have to be like 150 years old. 

[00:03:39] Emanuel: Yeah, a little bit. Okay. I missed that part when you said 1879. 

[00:03:44] Kevin: So his basic idea… I’m just going to give a very brief outline of his basic idea and then we’re going to take a little trip through history to explain… like extreme examples of his concept. So… 

[00:03:59] Emanuel: We’re all ears. 

[00:04:00] Kevin: If you guys remember from the episode on Simon Bolivar, I mentioned that the Bolivar family was incredibly rich because some guy arrived in an area of relatively low value real estate ’cause nobody lived there, got a bunch of it, and then eight or nine generations later, his descendants were just enormously rich because that land had acquired… incredible value and lots of productive uses that generated money for the family.

And that’s how Simon Bolivar and his siblings were amongst the richest people in… it wasn’t Venezuela yet, but the colony of New Granada… at that time. By virtue of eight generations earlier, somebody got worthless land that was now incredibly valuable.

This also happened to the Roosevelt family in the United States. It’s not commonly known, but the Roosevelt family has been in New York since it was New Amsterdam.

But Henry George’s basic idea is someone arrives at a new town, acquires land that really has no value. Over time, more and more people show up.

Public projects in infrastructure and water systems and sewage systems and roads and all that kind of stuff happen. The individuals or the people who own the land haven’t necessarily directly contributed to any of that, but by virtue of all of that happening around them, their land becomes very valuable.

Now… I’m going to take a jump back to 1776.

Adam Smith published a book called The Wealth of Nations, in which he identified the components of price as wages, profits, and rents.

So Henry Georgia’s proposition is that rents consume more and more of a share of what things sell for, that it leaves a smaller and smaller share for wages and profits.

[00:06:03] Emanuel: Say that again, please. 

[00:06:05] Kevin: Rents… the payment of rents… consume a increasing share of the price of things over time because the land becomes more valuable and the rents go up, leaving a smaller percentage of the money available for wages and profits.

And according to Henry George, that’s why people who showed up recently have to pay higher rents. Wages are being suppressed because landlords are taking as much as they can. And that that’s the reason why we have pockets of extreme poverty in areas of great affluence. 

[00:06:45] Emanuel: I don’t think it’s more true than today. 

[00:06:48] Kevin: It’s true today in… 

[00:06:52] Emanuel: The bigger… 

[00:06:53] Kevin: …more complex ways. So the basic… the phrase that’s bantered around today for that concept is called rent extraction.

The basic concept is you get paid because of rights of ownership.

So other forms in which it shows up today is… you own stocks, you earn dividends, you own bonds, you earn interest, you own land and buildings, you earn rent. So these are all various forms of what are now generically called rents.

To really hit home in terms of extreme examples of it…

First, we’re going to go a thousand years back in European history when the economy, the economic form was feudalism. And everybody gets it from a feudalism perspective.

Relatively few people own the land. A lot of people work the land and some of the output of what these people produce is owed to the landlord.

So this is a direct manifestation of Henry George’s ideas where very few own, that which represents wealth in the society. And things are taken from everybody else to compensate or to give to the people who own the land.

That’s a very extreme example of wealth extraction.

However, there’s examples of wealth extraction in modern society or modern economies, and one of the most egregious examples of them is the private equity leveraged buyout.

Do you know how they work? 

[00:08:42] Emanuel:  I know how they work. Maybe you want to explain a little bit in details and what exactly private equity is, as you mentioned we have subscribers from all over the world, including Denmark. I’m assuming people know in Denmark what private equity is, but there’s many places where this is not as common or they use a different term.

So first, what’s private equity and what’s… in our today’s context, what does it refer to? 

[00:09:10] Kevin: Well, private equity in and of itself is not necessarily the problem, but the leveraged buyout is a huge problem. So all that private equity is… is a private company buys the equity of other companies and takes the company private, so the shares are no longer publicly traded.

But by virtue of owning the shares, they’re entitled to payments by right of ownership. There’s nothing fundamentally wrong with that.

But the private equity leveraged buyout is when a private equity company raises money for purposes of buying another company, and they use the company they’re buying as collateral to secure the loan that they’re taking out.

So for example, I’m going to use a couple specific examples and just for… this is for viewers more than listeners because I had a lot of advanced notice of what the topic would be I’ve done some research, so when I look to my right, it’s ’cause I’m checking my notes in my other monitor.

So, a private equity company called KKR took out a significant loan, although I didn’t record the amount of the loan… in the past… to purchase Toys R Us.

I’ll use them as a tangible example. So Toys R Us was used as collateral to secure the loan. The loan was made to KKR, not to Toys R Us. KKR used the money to purchase Toys R Us. Toys R Us had a lot of cash in the bank. And then KKR transferred… not all the money, but almost all the money that Toys R Us had access to, to KKR as a management fee, which they then distributed to KKR shareholders and then they left the responsibility for paying that debt with Toys R Us.

This is the standard format, so the private equity company who buys the other company borrows money with which to do it. Then the responsibility for making payments on that loan belonged to the company whom they’ve acquired. And then they basically transfer money from the company they’ve acquired to the private equity company as a management fee of some sort, which they distribute to shareholders.

And the problem is it leaves the company with a significant mandatory monthly payment, being the interest payment on the loan. So later when that company hits some kind of financial trouble, and maybe it’s not when, but it’s if that company hits some financial trouble… 

[00:11:54] Emanuel: Say when. 

[00:11:55] Kevin: Their options are more limited because every month they’ve gotta make this mandatory payment no matter what, and that gives them fewer options in terms of how to deal with whatever the shock is, the downturn in business or whatever.

So I’ve actually compiled a list of pretty notable private equity leveraged buyouts, which… these are brands that people know about.

So KKR purchased Toys R Us in 2005. Toys R Us petitioned for bankruptcy protection 12 years later.

A company called Aries Management purchased Neiman Marcus in 2013. They filed for bankruptcy protection seven years later. Now, Neiman Marcus was restructured and they emerged from bankruptcy. Toys R Us was… liquidated.

Sports Authority was purchased via a leveraged buyout in 2006. And they petitioned for bankruptcy protection 10 years later, and were liquidated.

Gymboree was purchased in 2010. They filed for bankruptcy protection seven years later, and they were liquidated.

Payless Shoes were purchased in 2012. They petitioned for bankruptcy protection five years later, and were liquidated.

And Red Lobster… purchased in 2014, filed for bankruptcy protection 10 years later, and they were restructured and still exist.

[00:13:18] Emanuel: So all not…

[00:13:19] Kevin: And I’ve…

[00:13:21] Emanuel: …mostly US… US brands, US companies. You have a connection? 

[00:13:25] Kevin: Yeah. This is… I don’t if this is exclusively in American practice, but it’s pretty rampant in the United States. 

[00:13:30] Emanuel: The practice in itself how it’s called, maybe more in this framework… North American, but it’s nothing new… it always happens since the dawn of time.

Right. So it’s a way of, you know… leveraging your, your power towards it. But is there an international example or something that… the reason I’m saying this is because I know I come from Europe. I know some of the cultures there. I live in North America for a couple years now, so I know the culture here.

I was also very well versed into the existing North American culture, but the reality is that for many people around the world, Red Lobster doesn’t say anything. Toys R Us…

[00:14:10] Kevin: That’s true. It did not occur to me in the terms of doing my homework to find a European example. I just went with well-known brands, well-known being…

[00:14:20] Emanuel: It happens everywhere and most likely everybody will know it in Europe and you never heard of it as well. So it’s goes by versa. Right? And it’s happening probably in some Asian… Asian continent as well. So it’s not something new, but go along. I just made this comment, this side note as I like to do.

[00:14:39] Kevin: Yeah yeah, it’s a very valid question and I feel like I should have anticipated. 

Anyway, now I want to talk a little bit a bit about that Substack post you sent me, and I’m calling it the Substack post that seems to have triggered the stock sell off. 

[00:14:54] Emanuel: Yeah and to give some context, somebody shared with me a… fiction, not short fiction story… about what would happen in 2029, I think it was.

And apparently it went viral a little bit and I’ll let Kevin talk about it more and we’ll drop a link somewhere in the description so you can check it out and read it for yourself.

And after Kevin will describe it, I’m going to give my solicited 2 cents about it as well.

[00:15:23] Kevin: We’ll post links to all this stuff in the show notes.

So there is a investment research firm called… Citrini. I hope I’m pronouncing it correctly. Citrini Research and, and an analyst not with Citrini Research, but someone they know, someone who actually works at an investment fund… wrote a investor memo… dated 30 months in the future, looking back.

And basically it was about the various ways that AI agents had essentially wrecked havoc on the economy by eliminating middleman companies who make money, dealing with the fact that there are frictions between consumers… between buyers and sellers.

So we as humans, we don’t really have the patience to go to a hundred different websites to check out airfares and car rentals and hotel rooms.

[00:16:28] Emanuel: Most people…

[00:16:28] Kevin: But a software agent… 

[00:16:29] Emanuel: I know a few that actually go and do that. 

[00:16:33] Kevin: A hundred? 

[00:16:34] Emanuel: I know a few people that actually go in and do that, but…

[00:16:37] Kevin: I believe they’re the exception, not the rule, but their point is like a software agent is not going to get frustrated and consider that to be a waste of time and look for an easy route, right?

So a software agent that does that has the potential to eliminate the need for websites like Expedia and Kayak and… and travel sites in general.

And then they extrapolated that concept to the economy overall. And it made for a really fascinating read.

There’s one sentence in particular, which I’m going to read that jumped out at me from that… I don’t know what to call it, research memo, satire, fictional story, whatever it was intended to be.

[00:17:20] Emanuel: Sure 

[00:17:21] Kevin: And the sentence is…. “Over the past 50 years, the US economy has built a giant rent extraction layer on top of human limitations. Things take time, patience runs out, brand familiarity, substitutes for diligence, and most people are willing to accept a bad price to avoid a few more clicks”.

And I know I’ve done that .

At some point… how much time am I going to invest in looking for a better price for a rental car? And even though I know this one’s going to cost more… you know, a little bit more, the hassle of… saving, you know, 5%… it’s like… it’s just not worth it. I’m not going to do it. But a software agent will do it on your behalf. You just gotta wake up and say, okay, according to the software agent, book this flight, rent this car, stay in this hotel. You’re good.

So next I want to talk a little bit about… the company who is maybe the largest such middleman, and it’s the retail giant of amazon.com.

I’m not sure how many people are aware, but the US Federal Trade Commission filed a lawsuit against Amazon for monopoly practices, and the basis of the lawsuit is not how they treat consumers, it’s how they treat third party sellers.

[00:18:47] Emanuel: Which… 

[00:18:47] Kevin: So the basic claim… 

[00:18:48] Emanuel: …implies… which represents the significant… except their AWS… their e-commerce business is made out of third party sellers. They have the…

[00:19:02] Kevin: Yeah, slightly more than 60% of total sales on Amazon are of products provided by third party sellers. 

[00:19:11] Emanuel: And to give some context again, internationally, Amazon is a e-commerce store that sells everything essentially.

I know it sounds weird, but people in North America, yes, in Europe, some… but outside very little know what Amazon is. Oh, they sell everything. It’s like the Alibaba of America. 

[00:19:30] Kevin: Yeah. 

[00:19:31] Emanuel: It would everyone describe that. And they also have another business where they make the actual money called AWS and we’ll probably talk on another episode about.

How actually impactful AWS is in our… in the world’s economy, in our day-to-day lives. But nevertheless… 

[00:19:53] Kevin: Well, Amazon makes money on retail sales as well, and they make a lot of money on retail sales. 

[00:19:57] Emanuel: A lot of money, but not… incompatible. AWS. Many people say that AWS in itself is the most valuable company on the planet.

And actually being part of the… 

[00:20:09] Kevin: I have to look that up to confirm it, but that could very well be. 

[00:20:12] Emanuel: …being bundled with Amazon doesn’t do justice to AWS. But you said you are starting about the lawsuit against the…

[00:20:21] Kevin: Oh, the lawsuit alleges that as the third party seller, you need to show up in what’s called the buy box.

And the buy box on Amazon is where the Add to Cart or Buy Now buttons show up. Amazon has a bunch of criteria that third party sellers have to meet in order to show up in the buy box. And the easiest way to meet those criteria is to subscribe to an Amazon service called Fulfilled by Amazon. So basically you store your products at some Amazon distribution facility, and then you pay Amazon a fee for every one of your units that they fulfill.

So the lawsuit alleges that Amazon is unfairly coercing third party sellers to use Amazon fulfillment services in order to make money on Amazon fulfillment services, and that they have market power in which to do that.

Well, if this is true, and I don’t think this lawsuit has been decided yet, and in fact I don’t even know if it’s still going.

I mean, it’s entirely possible the Trump administration may or may not have dismissed it. I don’t know. Right.

But if it’s true, this is yet another form of rent extraction. Amazon is basically forcing something on smaller companies that they would rather not have if they didn’t have to. That’s the allegation.

[00:21:42] Emanuel: So rent extraction is another, is a more financially fancy term for tax protection money… kind of. 

[00:21:52] Kevin: Well, it is reasonable to characterize it as a tax, but it’s a tax that’s being paid by one company to another company. 

[00:22:02] Emanuel: Yeah, by one company…

[00:22:03] Kevin: It’s not necessarily a tax that’s being paid to a government.

[00:22:07] Emanuel: Yeah, tax protection. I’m thinking of like in the early 1900s, and even in some communities right now, think of the New York, right… in the Italian neighborhoods, the organized friend come in and take their protection money.

[00:22:21] Kevin:  Yeah, that’s how people describe it. It’s legal because the legal statutes of our economy say that it’s legal, but people compare it to organized crime protection money.

So I want to get back to a Adam Smith quote, and this is, well actually it’s two Adam Smith quotes, and this is to illustrate his concept of what constitutes the components of price and then the place of rent in that story.

So the first quote is… “In every society, the price of every commodity finally resolves itself into some one or other, or all of those three parts, rent, wages, and profit”.

And the next quote is… “The rent of land”, which in his day… 1776 rent really meant the rent of land with or without buildings… “The rent of land therefore considered us the price paid for the use of the land is naturally a monopoly price. It’s not at all proportioned to what the landlord may have laid out, but to what the farmer can afford to give”.

And that’s very in sync with Henry George’s idea of the landowners are basically charging as much as they can get, and the people who need a place to either live and or establish their business have no choice but to pay those rents. And because so much money is being diverted, if you will, to the landlords, that leaves less money available for profits and wages. That’s the basic idea.

Now Henry George’s idea, and I just love this idea, although it definitely needs to be updated for modern economies… but Henry George’s idea is that we should not tax improvements to the land. So if you build a building, the building should not be taxed. If you manufacture a product in that building, the products you sell should not be taxed.

The people buying those products should not pay a tax on that, and that in an economy there should only be one kind of tax, and that’s a tax on the value of the land as if it had been unimproved. Now, there’s one exception that I recall from the book, and the one exception is… if you own a piece of land that could be used for some productive purpose but isn’t, it should be taxed higher to encourage you to put that land into some productive use and that the taxes raised by that should be used to pay for roads and lighting and water treatment and sewage and the library and all that kind of stuff. And the police…

[00:25:13] Emanuel: Theoretically, this is how our society kind of like works more or less, right? Even so, and even if you go for example, a big company is make, making a significant investment infrastructure.

Or let’s say a warehouse or a factory, somewhere… outside… they usually get some benefits, some tax cuts, some… you know… they waive some taxes for a certain number of years, or they don’t pay income tax for a certain number of years. If a company invests this much money for this long and employs this many local people to work at their facility and stuff like that, theoretically and to an extent it’s happening kind of like all over the world.

[00:25:58] Kevin: All over the world, we have a variety of other taxes that we’ve layered on top of it. So we actually have situations where somebody will own a piece of land and because it’s just empty dirt, their taxes are low. But if they build a building on the land, they’ve got to pay taxes on the improvements to the land.

So it actually incentivizes them not to build a building and just wait until the land becomes more valuable and they sell it at a profit. So Henry George is like, don’t do it that way. Like, don’t tax any of the improvements. Don’t tax any of the productive uses. No consumption taxes, no income taxes, just tax the value of land as if it was unimproved and land that is not being put to a productive use should be taxed higher.

Now the taxes on land would have to be pretty high in order to compensate for the fact that all other taxes have gone to zero. 

[00:27:00] Emanuel: It’s about the value of the land as well. Because theoretically, and we know from a who… not Smith the market will push the value of of a land, of any property… any good essentially.

Right? So he’ll be incentivized to put that land to work to make him more money. The owner of that land… 

[00:27:19] Kevin: Not necessarily. So one of the economists I pay attention to is Irish economist David McWilliams. And he’s constantly complaining about policies in Ireland encourage land developers to not develop land.

So they’ll buy a big track of land out in the middle of nowhere and they’ll just wait for the government to run a highway through the land. And then they’ll either develop it and or sell it.

And David McWilliams is not a diehard… 

[00:27:51] Emanuel: It’s still a purpose. At the end of the day, it’s still. Its purpose is to wait until it can make enough money to justify the administration and all the hustle of, you know, buying it, own it.

[00:28:08] Kevin: Well, the purpose, if you were to frame this, then the language of Henry George, the purpose is to wait until either rent extraction is more popular and or it can be sold from maximum capital gain. 

[00:28:20] Emanuel: Exactly. 

[00:28:20] Kevin: But those aren’t productive uses. Homes are not being built, factories are not being built, it’s not being used for food production. It’s just sitting idle.

And their main point, both Henry George and David McWilliams is… that is… it’s kind of a hidden cost to society. One of the reason that houses… housing is expensive is ’cause we just don’t have enough of it. Well, let’s build more. But there are incentives built into not building more, in some countries.

[00:28:54] Emanuel: Yeah. And it can go even to the extent where it… even right now in Canada, especially Toronto, the market is not exactly how many would wish it would be, so… 

[00:29:03] Kevin: mm-hmm. 

[00:29:04] Emanuel: Not even the realtors won’t give you showings. So they have listings, but if you call, you don’t even can make an appointment because they know that they won’t get the price that they want to get.

[00:29:13] Kevin: Right.

[00:29:14] Emanuel: Then I’m going insert a keyword here in the conversation. Private… private property and, you know, private implies that I do what I want with it. Where does Marx fit into this? Again, I keep referring to Marx for the past episode. I think this is the third or fourth time when I come back to him, right?

Because at the end of the day I have a lens… then you kind of like force me to… tax me higher. And where would that lead to? Essentially? Maybe you’ll think okay, you are not putting it to good use, I tax you higher. Maybe you are not suited to manage that land, that property, that good maybe, you know, we should manage it.

We, the people who, the entities that put the tax aka the government, that’s my first thought. That’s where the path leads to in my mind. 

[00:30:07] Kevin: The most I’ve personally read of Marx, and this is decades ago… is I laboriously slogged my way through chapter one, which is Commodities. 

[00:30:19] Emanuel: He’s not an easy read though.

[00:30:20] Kevin: He’s a terrible writer. Right. It’s just this like, I don’t know how many pages, but you know, 80 page stream of consciousness about how commodities are valued in price and all this kind of stuff, and like it was an effort just to get through that. And I never read another word. So I’m not a hundred percent sure what Marx would or would not say.

Now, there’s a general acceptance of the idea that a communist economy doesn’t have private property, and that’s not what Henry George is talking about. And in economies that have a concept of private property, there are still a bunch of rules over… what are the rules in terms of owning private property, and what Henry George is proposing is that the rules be we only pay tax on land.

We don’t pay tax on any improvements, and I can see how those rules would provide incentives to put land into productive use. And I kind of like that aspect of it.

And there was another… so I follow… I don’t log into Twitter, but like twice a year anymore. But I follow David McWilliams on Twitter and at some point he just tweeted out… “That’s how you do it.”, and there was a link. And I thought, well, that’s how you do what? So I clicked on it and it was about a property tax change that the government of Portugal had just implemented.

So in Portugal, there’s apparently two designations for every property that someone might live in.

Designation one is, is it habitable? And that’s just a yes or no. Apparently there’s a lot of buildings in Portugal that are either ancient ruins or are uninhabitable for whatever reason.

And then the next designation is… is somebody living there? And that’s a yes or no, right?

So if a property was habitable, but unoccupied, the property taxes were higher until such time as somebody moved in, and I thought, you know, that actually makes sense.

Right? 

[00:32:24] Emanuel: Yeah. 

[00:32:24] Kevin: You know, like many countries in the world, Portugal is having a bit of a housing crisis and they don’t want… habitable homes lying idle.

[00:32:34] Emanuel: Is this…

[00:32:34] Kevin: So they’re like, well, if you’re not going to have anybody living in it, we’re going to charge you more property tax. 

[00:32:37] Emanuel: Is this indirectly aiming at the Airbnbs, and again, many of the private equity companies that purchased a significant amount of properties in places like Portugal.

Altogether, the, probably the biggest example is Barcelona, right? Where locals can’t actually afford to buy anything. And most of the good Airbnb rentals are owned by companies from all over the world. Many from North America, private equity companies that have purchased, and I’ll give them for rent. 

[00:33:11] Kevin: The article that I read that David McWilliams had linked to didn’t frame it that way.

It was more linked to the fact that Portugal had run a golden visa program for many years, like, give us some money, move to Portugal, everything’s good. And it worked well beyond their wildest imaginations and they were just… more people came and they’re just running out of places for people to live.

[00:33:37] Emanuel: All of the countries do this the same. Right? Even in the US. Even Trump. Give us a million dollars and you’re good right. 

[00:33:42] Kevin: I don’t think it was a million dollars, but same basic concept. It was a lower amount of money, right? And you had to either buy a property and or invest in a business.

[00:33:51] Emanuel: 250 thousand euros. One thing about difference between North America and Portugal, Portugal is quite nice, so it’s a beautiful country. All those things, all those places that says inhabitable or habitable are actually nice.

And there’s another, I call them gimmicks. There’s another thing about that. There’s many historical monuments and the European Union throws in significant amount of money.

So there’s a interest in getting some of that money to renovate, to preserve, keep the cultural aspect of it, right? So let’s say you want to renovate a building cost 2 million euros, but something more historical that’s been around for this many years and has been a significant point, or in, I know they sign a treaty or something like that can significantly increase its value and the money that… it can be absorbed through renovation. So I’m all also considering the economic aspect of many decisions or why something is that and why it’s not. 

[00:34:56] Kevin: So, in the case of Portugal, the way the article framed it is this was an unintended consequence of the success of the Golden Visa program. Like nobody thought they would run out of houses or housing, and then they ran out of housing.

Now they didn’t like a hundred percent run out, but housing became sufficiently scarce that everybody’s rents went up. 

[00:35:19] Emanuel: For bigger context… Portugal is part of the European Union. Once you have a residency there. It’s like you can travel all over Europe without many restrictions.

[00:35:28] Kevin: Right. 

[00:35:29] Emanuel: And since I think it was 180,000 or 200,000 euros, which comes about, let’s say ballpark, 300,000 US dollars, for many people around the world, that’s peanuts, essentially.

Yeah. I’m far from being one of those peoples, but no, there’s many people around the world who can’t travel, don’t get the visa for Europe or for the United States, but actually have the money.

So they simply purchase a property there, make some investments, maybe rent it out as Airbnb or whatnot, and they get the benefits of having a residency in EU. And not necessarily for themselves, but for their family, their children, or their whatnot. And when you have that kind of money, you don’t stay there and you don’t make investments.

You go to the hotels with all the other places. 

[00:36:20] Kevin: No, absolutely. And… 

[00:36:22] Emanuel: And there’s plenty of those people because I know a few as well that made these investments, which are investments at the end of the day. 

[00:36:29] Kevin: So I don’t have a breakdown of the nationalities of the people who took advantage of Portugal’s Golden Visa program.

But the framing was that they were not from the EU. 

[00:36:40] Emanuel: No. Yeah..

[00:36:40] Kevin: They were from the United States, Canada, South Africa, Australia, you know, and for whatever reason… 

[00:36:45] Emanuel: Middle East and Asia. 

[00:36:48] Kevin: Oh, yeah. That makes sense. 

[00:36:49] Emanuel: Yeah. 

[00:36:49] Kevin: So I want to continue this whole discussion about like rent extraction versus is there anything that we can do about it?

And I want to get back to this Substack post.

The Substack post, and I’ll put a link to this in the show notes as well, but is being, I don’t know, accused… considered… to having actually triggered a stock sell off in some high tech stocks. They kind of predicted a… diminishing revenues and therefore stock valuations for SaaS companies.

Like if your entire reason for being as a company is you are a middleman between people who supply and people who consume, in their world of these autonomous AI agents, you don’t need to exist anymore. Yeah, bye, it’s been fun. Get out of here.

And..

[00:37:41] Emanuel: How much does a plane ticket cost at the end of the day?

Because it, there’s a big difference. There’s not a big difference between 850 to 875, but there’s a big difference between 850 and 1,100. 

[00:37:55] Kevin: Yeah, absolutely. So if your AI agents are going to do all the shopping for you. These middleman sites in theory will go away… and it potentially… now this is stretching it.

Amazon is big and Amazon is powerful, but Amazon is a big powerful middleman, right? So in theory, a supplier of something could just bring up their own website, provide the data in the right format to make it accessible to these agents. And these agents could just connect people who want stuff with people who sell stuff.

And even cut out a company like Amazon. In theory. I mean that’s like not months down the road, that’s years down the road. But it’s not impossible. 

[00:38:34] Emanuel: I’m going to tell you a story. I’m like to overthink stuff. So a small purchase will take even a 50 bucks purchase can take months. Even years and lots of research.

So I’m looking for a wallpaper, a sticky wallpaper with a nice color that I like maybe for this wall behind me, or I have some ideas, right?

[00:38:56] Kevin: Yeah.

[00:38:56] Emanuel: So I started researching here and if you Google stuff, you’ll find all kinds of the Wayfairs, the Home Depots, the some companies that are dedicated. I have a bunch of two or three shops right here next to me in Toronto.

Somehow I still come back to Amazon because of… the multiple selections that mm-hmm. I can actually have. Now I know we’re talking about agents as well, but the agent will act on your instruction and at the end of the day, it’s not working in your best interest. It’ll not work in your best interest.

It will work in its best interest. That may or may not be your best interest. Does that make sense? 

[00:39:43] Kevin: It does. 

[00:39:44] Emanuel: This is my…

[00:39:45] Kevin: But of course it opens up a whole other line of questioning, like, what are the interests of the software agent? 

[00:39:51] Emanuel: It’s philosophical, right? Yeah. Why I’m a software agent. Do I exist? I buy, I purchase a ticket for my owner, therefore I exist.

That’s something that we could tackle for another time. I think we’re already 40 something minutes in… back to Henry George.

[00:40:12] Kevin: Well, actually I want to point out another thing that was in that Substack Post. 

[00:40:17] Emanuel: Substack. Yeah, sorry. 

[00:40:19] Kevin: So, ’cause it all ties in, right? They’re talking about like, well, how do you deal with the fact that if AI agents become incredibly pervasive and they basically just cut out the middleman layer of the economy?

How do you deal with the fact that there’ll be mass unemployment because entire sectors of the economy will just go away, right?

And I love this quote, so they’re talking about those ways of dealing with it. It was…

“The most radical proposal on the table goes further”. Now, this is fiction. There is no such act in Congress. They’re just speculating. “The Shared AI Prosperity Act would establish a public claim on the returns of the intelligence infrastructure itself. Something between a sovereign wealth fund and a royalty on AI generated output, with dividends funding household transfers”. Transfers being just payments to households. “Private sector lobbyists have flooded the media with warnings about the slippery slope”.

As of course they would, right. What I find very interesting is based on my reading of Progress and Poverty, this is likely something that Henry George would advocate for, right?

This is such a pervasive part of the economy. It needs to be designated as a public good, if you will, and it needs to be taxed in a similar way of a land tax. Because it’s a source of wealth extraction based on rights of ownership. Like it’s not a stretch to think that Henry George would go there. 

[00:42:00] Emanuel: Fair point, fair point. I what I’m more curious about.

Is that’s, this is a scenario that’s been going on for a couple of years now, since the emergence of what we call now AI. Why is this Substack blog post has gone more viral, viral than others? Is it because of the authors, because of the company behind it? Is it because of the time that was released?

Why would this, because…

[00:42:28] Kevin: My personal opinion is… because it’s well written. It makes sense. They don’t make any extreme outlandish claims. You know, this index fell by 8% over the course of this many months. Well, that’s actually not, that’s not like an incredible stretch. That’s a credible amount that, you know, the S&P 500 might have slid by 15% in the last eight months, for example.

Don’t quote those exact numbers. But they didn’t make any claims that were incredibly outlandish. They used the right language of finance. The writer wrote about the diminishing price, what we call value of these various assets that investors own, just decreasing over time and the the feedback loop, if you will, of this entire… skillset… this entire sector of the economy is not needed. Therefore, these people get laid off. They do get other jobs, but they were making 180,000 in the old job. They’re making 45,000 in the new job, right? Which means that their purchasing power has decreased and it created this… I’m going to call it negative feedback loop, but I don’t mean negative feedback loop in the system control way, but you know, it just, over time, it just degrades the amount of money that flows through the economy.

With the exception of these AI companies are making money hand over fist and people who own their stock are receiving generous, either capital appreciation and or dividends as a result. And there’s other areas. I mean, this is a hypothetical. I shared this post with some other people and I said, you know, we can think of this as satire or fiction or whatever, but it’s incredibly well written, have a read.

And the fundamental complaint being made exists in other industries. Like for whatever reason, it’s not well known that pharmaceutical companies, when they do basic research on drugs, get these incredibly generous grants from the US government to fund R&D efforts. 

[00:44:38] Emanuel: Yeah. 

[00:44:39] Kevin: And then when they have a drug that can be sold and make money, the fact that the US government provided a very, you know, a hundred million dollar grant to fund the R&D does not result in the US government getting any payments in the future.

So you can actually take this… fictional Substack post and kind of like translate it into the pharmaceutical industry and say, well, here’s a real world example where there was a public expense towards the development of a product. So the development of the product was to a certain extent, socialized, but all of the benefits are being privatized.

And there’s an argument to say like there’s a better way. 

[00:45:29] Emanuel: Most technologies have been like that. Tesla’s battery ion was developed in the universities and I think Musk has benefited directly from one of these grants to research further. His company, something like that. As far as I remember, as I need to research, but many have been… most of the innovations that change society for the past couple of, let’s say a hundred years or so, were somehow tied to the government… US government investment. And I’m pretty sure you mentioned the project with the nuclear… small nuclear…

[00:46:03] Kevin: Project Pele. 

[00:46:04] Emanuel: Pele. Yeah, I’m pretty sure that in a couple years some other private companies could be, I think I’m following right now, and there’s another one that develop these kind of technologies will benefit from that research and probably won’t get too much.

Well, they can give credit no problem, but they won’t give a kickback to the government, which is, I mean, at the end of the day, it’s about an equilibrium. It’s about everything being reasonable. You know, you have a… 

[00:46:36] Kevin: Oh, absolutely. but I want to close… we are like, it’s almost, well it’s over 45 minutes.

And I do want to close with the fact that this discussion about wealth creation versus wealth extraction… there are people out there in the world who will not shut up about this idea. There’s three specific books that I’ve read over the past few years. One is called Makers and Takers by Rana… I’m going to butcher her last name, Foroohar.

And she’s a… I’m going to call her a financial journalist, I think with the Financial Times.

The Value of Everthing by Mariana Mazzucato. And she’s an academic Economist. I think she teaches at a university in the UK.

And Winners Take All by a guy named Anand Giridharadas.

And these books are all about that topic and they’re all current. They were published between 2016 and 2018.

But Mazzucato in particular, points out something very interesting in her book, and that’s that five of the base technologies that make our smartphones smart, specifically wifi Internet, geo positioning, touch screens, and computer voice interaction. They were all initially funded as R&D projects by departments of defense.

[00:48:09] Emanuel: Oh, okay. 

[00:48:09] Kevin: Touchscreens came out of a DOD project in the UK. The other four came out of DOD projects in the United States. But the same thing happens. So public money was spent creating these, I’m going to call them base technologies, and once the base technologies existed, then private companies like Apple could make use of them to develop a product such as the iPhone.

Now, what I find very interesting in this dynamic is there is no world in which I can imagine the Department of Defense developing a smartphone. Like it’s not going to happen. That’s not what they do. Like, you know, it’s just not going to happen. I would no more want the government to open a hamburger restaurant than I would want them to like start making iPhones.

It’s just not their piece of the puzzle, if you will. But by the same token, if the base technology components don’t exist, Apple can’t create an iPhone.

So there’s been this… and it’s been going on for about 600 years. There’s been this 600 years…

[00:49:20] Emanuel: The Internet was a research project. 

[00:49:22] Kevin: What’s that? 

[00:49:23] Emanuel: The Internet was a research project, right?

[00:49:25] Kevin: Yeah, yeah. Out of the US Department of Defense. Do you know the origin story? 

[00:49:30] Emanuel: DARPA, between communicating between them? I know many, maybe you want to tell?

[00:49:35] Kevin: Well, my understanding is the specific intent behind what later became the Internet, was there were concerns about a Cold War nuclear missile exchange between the United States and the Soviet Union.

And the Americans were…

[00:49:51] Emanuel: I would say nuclear missile exchange is like they were coming, okay, here’s yours, here’s mine, give it to yours. 

[00:49:57] Kevin: But the US Department of Defense was concerned that a well-placed nuclear missile could disable the entire US ability to fire their missiles. 

[00:50:09] Emanuel: Ah. 

[00:50:10] Kevin: So they wanted a command and control system that couldn’t be disabled by the destruction of any individual nodes, and that became the Internet.

[00:50:20] Emanuel: I think I read about that as well. I know it was about communication. 

[00:50:24] Kevin: Wifi started as a means of radio guiding torpedoes. Like all of these things started to make it, I’m going to like describe this in really horrific terms, but all of these things started as basic R&D… how can we kill more people at scale, in the event that it’s necessary to do so?

Like that’s where these five technologies came from. 

[00:50:48] Emanuel: In conclusion, Henry George… 

[00:50:53] Kevin: Well, the basic idea is income earned from the ownership of something should be taxed at a very high rate and productive activities… the producing of stuff and the consuming of stuff that gets produced should be taxed at a very low rate, if at all.

Like that’s his basic premise, and I’m actually kind of sympathetic to it. And currently we do exactly the opposite. So unearned income is taxed at a lower rate than income taxes… well, not so much in the US, in the US sales taxes are relatively low, but in Europe they have the VAT tax. So VAT taxes and income taxes tend to be significantly higher than taxes on unearned income.

And Henry George is like, you’re doing it backwards, and I think he’s right. 

[00:51:49] Emanuel: There’s something to that. I need to read his book and sleep on it for a while. Rewatch this episode as well. That said, thank you for watching us.

Curiouspundits.com, that’s where you’ll find links.

We do make… I won’t call it mistakes… we do confuse terms and names, so we’ll probably going to release a special episode correcting all the things that we said that are not accurate. For example, in one of the previous episodes I was saying Marcus Aurelius, when in fact I was thinking about Mark Anthony. 

[00:52:22] Kevin: And I made two errors in the Joan of Arc episode.

[00:52:24] Emanuel: Yeah. Both are MA, but a few hundred years difference and yeah, significantly different outcomes altogether. So we’ll release that, but curiouspundits.com. 

Until then, my name is Emanuel. 

[00:52:37] Kevin: My name is Kevin. 

[00:52:38] Emanuel: Talk to you soon. See you soon.

[00:52:40] Announcer Thank you for listening to this episode. If you like the podcast, please like, subscribe, and tell others. Visit curiouspundits.com to learn more and stay tuned for the next episode.