Sunday, September 19, 2010

20/20 Hindsight

In retrospect, it's obvious that the saying, "Invest in real estate--they're not making more land!" is foolish. It's not immediately obvious why that would be the case, however.

People were thinking of land as a purely physical thing, and not as an economic input. Land as an economic input, however, is what creates most of its value (desert land, for instance, isn't worth all that much, so it doesn't cost that much). Like most economic inputs, we use land more efficiently over time. For example, over the last two hundred years, the wheat yield from an acre of land has risen nine-fold. To produce the same harvest, we need only 11% as much land. How is that any different from creating new land? All of that land we no longer need to devote to wheat can be allotted to other purposes.

Iceland isn't the only place that can create new land.


Blogger Noumenon said...

I like this one, I'll have to condense it down to a "snappy answers to stupid slogans."

5:56 AM  
Anonymous Roger Kovaciny said...

Ranchers out West get about 300 pounds of beef per acre. Back when the cattlemen ran longhorns, it was six. And then there's machinery making it more productive: it takes a peasant and a water buffalo 25 hours to plant an acre of rice; farmers do it today with one minute of airplane time. Size also makes farms more productive. One reason Ukraine is poor is all the one and two-acre farms.

11:32 AM  

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