Thursday, April 17, 2008

The Orange Tree

Anyone who knows me between 'moderately' and 'intimately' on the 'know-me' shitty facebook ap results, knows that from multiple choice question two of two before having to compulsorarily invite 18 friends to install the ap in order to obtain the dissapointing result, knows that I like analogies.
And I thought of a simple one for explaining the merits of resource rentals - the labor market. But resorting to a simple analogy is not characteristic of someone who 'loves' analogies. No I must come up with one that on the exterior seems superficially simple but is in fact much less simple than saying 'the labour market works on a rent based efficiency, why shouldn't land?'
So here it is - the Orange Tree.
Maybe the correct word is hypothetical? I don't know, but I do know that my love of analogies is so great that I would gladly have Bill O'Reilly tell advocates of hypotheticals to 'shut up' and appluad fox news for being 'fair and balanced'.
So an old man happens to own an Orange tree that has a fixed amount of Oranges on it 200 or so. And being old he has actually reached a stage where he is unable to make Orange Juice himself, but is happy to provide his Oranges to enterprising youths for a small token fee. He sees he has two choices, he can make the young boys pay for what they take (Oranges), or pay for what they make (Juice).
Of course the one that makes the most sense is to charge them for the amount of Juice they produce. I mean its just common sense.
So three boys with big dreams turn up and ask Old Man Peters (who I've just decided to call Peters) for some oranges, and the old man says 'sure help yourself, just come back to me with the Juice you've made and I'll charge you 25c for every litre you produce. Which of course Old Man Peters will reinvest on the boys behalf back into the community. Now something about the orange tree, its magic, and if picked the Oranges stay fresh for a week and then rot instantly and the tree produces the same amount of oranges overnight. I think that magic will make my Analogy work.
At anyrate the three boys get straight to business.
The first Bobby, picks about ten Oranges and then using a conical plastic device and a knife, extracts the juice and pours it into a jug, from his ten oranges he manages to produce 2 litres of Juice.
The second Timmy, picks about 68 Oranges and then proceeds to sit Orange after Orange on a slatted outdoor table with a corresponding Jug sitting approximately under the gap between slats that the orange sits on. He then repeats a laborious process of dropping a massive rock on orange after orange to crush out the juice which partially runs throgh the slats into the jug but mostly splatters wastefully ont Timmy and the surrounding environs. (Not to mention the damage he does to community property by dropping a massive rock on a table) through this laughably inefficient use of Oranges Johnny manages to extract 1 litre from his 68 oranges.
The last one Jimmy, picks the remaining Oranges which become his property, he does nothing with them knowing they will stay fresh for a week and have after observing Timmy and Bobby, knows they are the only Oranges in town.
Bobby and Timmy go to old man Peters to declare their juice production, Old man peters notes that Bobby owes 50c for his two litres, Timmy owes 25c for his one and Jimmy owes nothing at all, having produced no Juice.
Timmy and Bobby hand over their hard earned canadian quarters and then head off to market to recoup their losses. Jimmy registers his Oranges on ebay.
Timmy and Bobby after two days eventually sell their Orange Juice stores, critics acclaim Bobby's juice as 'fresh as summer rain' and Timmy's as 'earthy with subtle hints of oak or pine' nevertheless cashed up, Timmy and Bobby look for new raw materials to use, finding Jimmies on auction on ebay, Bobby has the most cash having sold two litres for a grand total of a dollar, and timmy has 50c.
They bid furiously over the Oranges remaining of which conveniently their are 136 enough for two liters in Timmy's method and thirteen by Bobby's. Thus Timmy's maximum rational bid is 99c where after paying 50c for the Juice provided he will emerge 1c better off having sold his 2l for the going price of a dollar and Jimmy earns 99c from speculation on the Orange market. For Bobby however the juice he plans to produce will amount to $3.25 paid to old man peters and he can sell the juice for $13 so his maximum rational bid is $12.99 but with only Timy to beat he need only bid $1 so Bobby makes a bid of $1 pays $3 more to old man peters and discovers demand isn't what it used to be and only manages to sell $8 worth of juice and wastes hours of his life because I hate Bobby and his enterprising efficiency.
Jimmy makes $1 for no work at all apart from commandeering as much of the Orange supply as he can, so assured he determines to get up early the next week and take all the Oranges to sell to Bobby and Timmy.
Old Man Peter's system is perfect, Timmy eventually becomes unable to bid and dies of malnutrition having no income, Bobby happily pays his dues to Old man Peters and pays his supplier Jimmy for Oranges that Jimmy picks and then makes available on ebay at no expense to himself.

And now looking at the ridiculous option of pay for what you take (Oranges) Old man Peters decides to charge the boys 5c per Orange they pick calculating that the most efficient use of Oranges is 1l per 5 sold at 50c per litre according to market value for juice so he taxes the oranges at 50% of their realisable value.
Timmy thus faces going into debt if he doesn't adopt more efficient practices. Jimmy also risks going into debt because if he simply picks the oranges and Timmy and Bobby refuse to buy them off him, he is still liable for the paying his dues to Old man Peter at the end of the week. So he has to either use them for Juice or don't ick the fucking Oranges at all.
(Did I mention Old Man Peters is particularly harsh on tax evasion, impossible to hide when he never sleeps and watches who takes what oranges all the time). Thus Timmy, gets out ahead by picking all the oranges and using them efficiently, Old man Peters uses his proceeds to encourage competition by using a community enterprise scheme to buy Timmy and Jimmy knives and Orange Juicer things so they enter the market the next week and stop Bobby from having a crippling Orange juice monopoly.
SO plainly, one can see that the most effective way to redistribute income in society is charge people tax on their income to prevent them from getting too wealthy through efficient business practices and handing over their income to someone who has never worked but happens to own all the property available for these wealthy 'elites' to live on.
Thereby those who don't work efficiently at all can be forced onto the street and the government ensures that the revenues gained from the working elites can be redistributed in societies best interest to the noble property owners through tax refunds on the losses they make on bank loans in property speculation (apologies for not working out a way to add negative gearing into the Orange Tree analogy, I'm sure one day it will come with time).

So the simple way would have been to say if we treated land like labor then one would note that the appeal of firing an employee is derived from the fact that they cost a company money, so they either make money for the company or they don't. Now a large part of how effective an employee is, is actually dependant on the quality of management of the company hence the costs to firing to encourage employers to actually take some responsibility. But fundamentally it holds true, people talk a lot about he 'productivity' of their workforce, and almost never about the 'productivity' of land holdings.
If you had to constantly fork over cash to sit on land then you would sell it the moment it made you less money than it cost.
If on the other hand you treated labor like land, you could recruit every graduate out of university (providing you have the capital) then 'shelve them' until other productive employers came to beg you to sell your employees, you would then rent them at a profit having done nothing at all when compared to the desperate people that actually need employees.
Furthermore if capital is an issue, you should lobby for a tax break on interest charged for any lone when you fail to rent out, or rent an employee at a loss.
What a perfect system.

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