Mike Bird on the Land Trap and How the History of Housing Impacts the Global Economy

Mike Bird is the Wall Street editor for The Economist magazine and is the author of The Land Trap: A New History of the World’s Oldest Asset. Mike returns to the show to discuss the conclusion of Abenomics, the origins of land as an asset, the surge in housing prices during the COVID-19 Pandemic, the unsuspecting story of Wolf Ladejinsky, how housing impacted Japan’s lost decade, the modern history of land in China, and much more.

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This episode was recorded on November 4th, 2025

Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you notice an error, please reach out to [email protected]. 

David Beckworth: Welcome to Macro Musings, where each week we pull back the curtain and take a closer look at the most important macroeconomic issues of the past, present, and future. I am your host, David Beckworth, a senior research fellow with the Mercatus Center at George Mason University, and I’m glad you decided to join us.

Our guest today is Mike Bird. Mike is the Wall Street editor for The Economist magazine and formerly was a reporter for The Wall Street Journal. Mike has a new book, hot off the press, that is titled The Land Trap: A New History of the World’s Oldest Asset, and he joins us today to discuss it and the history of land and its role in the global economy. Mike, welcome back to the program.

Mike Bird: David, thank you very much for having me back on again.

Beckworth: It’s great to have you on. You’ve been on two times. You first appeared way back in 2018, a few years after the podcast got started, so you’re one of the early pioneers that helped make this show, so thanks to you, Mike. In 2019, you returned. And now you have your own podcast. Tell us about your podcast.

Bird: I do. I’m one of the presenters. There’s three of us, but we present Money Talks, which is the flagship business, finance, and economics podcast for The Economist magazine. It’s a great pleasure. We have guests on. We’ll have to have you on at some point, David.

Abenomics

Beckworth: Yes, absolutely. Now, Mike, last time you were on, we discussed Abenomics, which ran 2012 to 2020, roughly. Of course, named after the prime minister. It was an amazing time because you, like me, were part of that generation of bloggers and writers right after the Great Financial Crisis. The world, the advanced economies, there was a slow recovery, tepid growth, and we were thinking through different policy approaches.

Here comes Japan, something really radical, the three arrows of Abenomics: aggressive monetary policy with an explicit 2% target, flexible fiscal policy, and then structural reforms to boost productivity. Here we are now, 2025. How do you think that project ended?

Bird: If I’m honest, disappointingly. I think that reflects two things, one of which is, I would say, failures in implementing the program, and then the second is just the macroeconomic reality transformed. It—thinking about what we were talking about in 2018, 2019—feels like so long ago now, and everything is so different. Certainly, with the three arrows, the structural reform, I ended up being disappointed by.

I think some wonderful stuff was done in terms of Japanese corporate governance, but in terms of other kinds of reforms, Japan’s services sector productivity is incredibly low. In terms of improving that, I think I was a bit disappointed. The fiscal arrow just didn’t fire. It’s understandable when someone says they’re doing fiscal stimulus that you just believe them, but in Abe’s case, the government was actually much more fiscally hawkish than I think the perception is.

They raised the consumption tax, debt-to-GDP didn’t rise during Abe’s time in office for the first time in quite a long time. Those two elements of it, I think, fell way below what you might have expected when he came into office in 2012.

Beckworth: I do, though, want to recognize Japan does have an inflation now running above 2%, which is pretty amazing. It’s actually 2.5% to 3%, so maybe they’re a little uncomfortable with it. Japan was the one country that actually had an explicit nominal GDP target. As you know, Michael, I’m a big champion of that. Now, to be clear, this was not the Bank of Japan. This was the government itself, the prime minister. He set it, I believe, for 600 trillion yen by 2020.

Just a year or two ago, we finally got to 600. There was some progress, but as you said, it was halting and not quite what they had hoped for and anticipated. Now, I bring this up because, one, it’s fascinating. They did a lot of experiments. They also did yield curve control, a lot of radical approaches. The Bank of Japan was the first one to try QE, 2001 to 2006. All of this is part of history and the stuff that we care about. It’s also going to be tied into a discussion later in our conversation about Japan’s lost decade, and what are some of the consequences of it.

Motivations for The Land Trap

I think you can tell a story from land boom to the lost decade in the ’90s to what we were just talking about now. Let’s talk about your book. It was a fun read. I learned a lot of history. I learned a lot about Henry George and really the connection to land throughout the history of the global economy of the past few hundred years. Actually, in fact, you take it back to the Sumerian or Babylonian civilization 5,000, 6,000 years ago, with a story at the very beginning that was really interesting.

Some of the only documented history we have is of land transactions. Your book title is The Land Trap: A New History of the World’s Oldest Asset. Now, again, great book. We’ll link to it. I encourage listeners to read it. It’s one of those sweeping narratives of history that ties together a common theme, and that’s land and the issues it creates. Mike, how did you get on this? What motivated you to write this book?

Bird: It’s a good question. I suppose that the very origins of it go back to exactly what we were talking about, the interest in the very slow recovery after 2008 in the Western world. I lived in the UK at the time, and I did until 2018. I was very preoccupied with declining affordability of housing, and obviously, the housing-related elements to the Global Financial Crisis. I was interested in these things then. It wasn’t until I moved to Hong Kong that I think I started really circling in on the themes of the book. That was in 2018. 

Hong Kong, particularly interesting to me for a couple of reasons. First of all, if you think you’ve lived somewhere with high house prices, you may not have actually experienced the levels seen in Hong Kong. It’s a place where, regularly over the past 30 years or so, house price-to-income ratios have been at 20 or above. For comparison, expensive cities in the Western world, they’ve been considered really, really pricey at 10 times. That was very interesting.

The reason it compounded my interest being in Hong Kong was that the government owns all the land in Hong Kong. The government makes a large portion of its revenue through sale of land leases, which they last for decades and decades, and then they’re renewed. The government makes money from auctioning off this land to the highest bidder. That fascinating question of how you can have extraordinarily high house prices in an environment where the government owns and is leasing all the land was a confusing thing to me initially. It’s one of the reasons that I really dug into things.

I think the more you start thinking about land as an asset and trying to find it in various places, the more it pops up. Elements of history that I had been thinking about and thought I knew a bit about, suddenly discovering that they had a land-based component to them. The importance of land in finance as well, that was all really interesting to me over the subsequent years. China’s property bubble, I was covering that. From Hong Kong, I moved to Singapore. Singapore’s got this fascinating system of land management, the use of land as an asset.

That process made me much, much more interested in it. I suppose I started pulling together what I initially thought were disparate threads, and they eventually became the book.

Beckworth: Yes. Let’s talk about the key arguments of your book, and that is the land trap. What is the land trap?

Land as a Different Kind of Asset

Bird: I suppose the easiest place to start is to say that the conceit of the book is that land as an asset is very different to other assets, that it behaves in different ways. As a result of those behaviors, I can happily go into them, why land is different to other assets. As a result of those behaviors, when land becomes a very large portion of national real wealth, when it makes up a large portion of household wealth especially, but also when it’s extremely important to the financing of corporates as it was in Japan, as it was in parts of the US during the run-up to the Global Financial Crisis, when land is a really, really important part of national wealth, it’s very, very tough for land prices to either rise or fall without serious issues emerging in either direction.

Land prices rise, it increases the sense of unmerited wealth inequality. I think one of the things about land is that the ownership of it, unlike business wealth, unlike wealth that’s come from some innovation, is seen as quite random, luck-oriented, it’s not particularly entrepreneurial, doesn’t require you to be an innovator in any way, it’s all fairly chance-related. Land prices rise, you raise that element of unmerited inequality, to my mind, and also I think you see this coming up again and again through history when land prices rise really rapidly.

The problem with land prices then going down is this intimate relationship between land and finance that I think was one of the more interesting things for me to write about in the book. Land is extraordinarily useful as collateral in the banking system, mostly in the form of residential and commercial real estate, which, in the most expensive places in the world, is largely land value. Basically, if you have a system where a huge amount of lending is collateralized against land, then falling land prices put that entire system at risk.

Again, we’ve seen this over and over again, banking systems in particular that become very, very sensitive to cycles in the price of land. You end up in a position where your uncomfortable land prices are high, but a move in either direction, land prices going up or land prices going down, has huge danger. I think even more broadly than that, there’s a political economy point that because of the way land works, you can get yourself into certain circumstances that are having damaging effects, and it’s very difficult to get out of. That is the nature of the land trap.

Beckworth: If land prices rise, it generates inequality and unease, and political frictions. If it goes down, we get business cycles and financial challenges. Damned if you do, damned if you don’t kind of situation.

Bird: Yes.

Beckworth: In the US, we talk a lot about the housing shortage, which is really tied to land, and you outline this in your book. One of the key tensions, which is what you just spoke to, is for many Americans, housing is their main asset. It’s how they save for retirement. They need their home values to go up for that to happen. They need their home values to rise. They’re very careful and mindful of what happens around them. That’s where we get this NIMBYism, “Not in my backyard, are you going to put that multifamily structure up.” 

At the same time, housing is also a consumption good. We all need housing to live. We have this big tension in America where we have this thing, land, housing, which is both an asset and also a consumption good, and which part of that tension wins out. It seems like, for the past few decades or more, the asset side of that argument has been winning out over the consumption one. Now we have all these challenges in America tied to that.

Bird: Absolutely. I think that’s part of the core problem. You see governments all over the world dueling with this, the two instincts. One is to promote homeownership, promote asset accumulation through homeownership, which requires that there’s some relatively inexpensive entry point for first-time buyers of property, and at the same time, retaining the asset wealth and really the growth in the asset wealth of people who’ve owned housing for a long time.

Governments struggle with this. I think they almost always end up siding with the existing landowners. Typically, older, typically they vote more, are more established in a given area. The potential people who might own homes in a place are disparate. They’re often spread around. They’re not concentrated in the same way. They’re not as politically influential. Yes, that is a huge part of it. You’re quite right to highlight the split between the consumption side and the asset side because I think this is a source of a lot of confusion when we talk about land and housing.

It’s also a source of a lot of the conflict and the friction that you see. When you see financial mania emerge and land bubbles, where you do see that happen, the split between the consumption and the asset side is also a really useful signal that something’s going wrong, where you end up thinking of the consumption side basically as rents and the asset side basically as the asset price. When you start to see these really drift apart, the asset price is going up much, much faster than the value of rents, that’s the interesting signal to me that something is really changing, usually for the worst.

Beckworth: I see this in my own life in two very vivid ways. You mentioned the older generation having the housing stock, the wealth. We all have parents. Maybe they’re in homes. The baby boomers, they have this wealth and they want to preserve its value for understandable reasons. Then I also have children. I’m a little bit older than you, Mike. I have college-aged children now. I’m thinking about their future homes, and they’re thinking about it. They’re beginning to see the writing on the wall. “I may have to move back in with dad and mom because I can’t afford to get a new home.”

We don’t see all these starter homes of the housing stock growing fast enough to keep up with it. I see it in my own life firsthand. You’ve documented it well in the book. It is this tension that we see in society today. Now, I want to also talk briefly about, before we get to some of the interesting historical stories in your book, another element of this story, a key part of it that we just talked about, and that’s the business cycle, the financial stress that a sudden decline in housing prices can make.

Now, for many of us, particularly you and me, we vividly remember 2007, 2009, the Great Financial Crisis, or the great recession, depending on how you look at it. I remember a paper from around then by Ed Leamer, I believe, “Housing Is the Business Cycle.” Very great timing on that paper. Very true. There are other stories besides that one, though. You mentioned Japan in the 1980s. We’ll come back to that. China today. Hong Kong, you already alluded to it.

COVID-19 Housing Prices

One example, though, that defies that trend, or is interesting, at least to me, is the COVID-19 recession. We did not see a housing bust. We saw the opposite, in fact. We saw housing prices soar. How do we weave that story into the important role that housing and land does play? How would you look at that?

Bird: That’s a great question. It’s a great question I suppose, in part, I would attribute that to a couple of things. The very rapid response of monetary and fiscal policy to the COVID recession, which was extraordinarily brief, especially in the US. Basically, we’re, to some extent, politically and economically living, still arguably with the consequences of all of that. I think I would probably mostly attribute it to that. You saw the interest rate reductions immediately, which tends to boost the housing market, in part, because land is a nondepreciating asset. It’s got extraordinary duration, really.

The cash flows from land going out very, very far into the future are much more important than they are for other assets, because you’re not expecting a significant change in the asset’s absolute value. When it comes to financing interest rates, interest rate reductions rapidly increase the value of land. I think it’s partly that. I would mostly attribute it to the very, very rapid general recovery encouraged by monetary and fiscal policy. It may be that there are some behavioral elements there as well.

You can sit at home on Zillow or Rightmove, or whatever your platform of choice is, shopping for houses. You also saw, I suppose, the extraordinary increase in savings, especially among wealthier Americans, especially among higher-income Americans, which may have encouraged some of that behavior. You’ve got the combination of suddenly saving more money for down payments or whatever, and the reduction in interest rates. I think I would attribute it mostly to those things.

I’d also say the US housing market, in particular, goes into that recession in an extraordinarily strong position relative to the one it went into in 2007. If you look at a graph of mortgage-debt-to-GDP in the US, it’s really, really declined quite a long way. That’s quite important, I suppose, in not creating the fuel for an initial blow-up.

Beckworth: That’s a great point. More equity and household wealth, so they could take a hit. They could handle the hit should it happen. I agree with your first point. I think it has a lot to do with macroeconomic policy. I had to use this opportunity to make this point. Nominal incomes were restored quickly. I think that’s key. In a world where our financial contracts are typically defined in fixed nominal terms, fixed dollar terms, maintaining stable dollar incomes is very pivotal to financial stability.

Now, I know there were other things happening. There were some mortgage modifications and other things happening as well. Yes, we dramatically overshot what we needed to maintain nominal incomes. I will concede that point. I will also be gracious to policymakers at that time, because they were flying blind. We didn’t know that vaccines would work. We didn’t know exactly what would happen. Yes, there were some, like Larry Summers, who predicted too much. In the fog of war, sometimes it’s hard to calibrate perfectly.

I do want to take the win from that period. I want to look back at that period and say, “Look, a valuable lesson is that if you stabilize nominal incomes, some of these financial problems do take care of themselves. There might be some sorting that has to go on.” We saw that. People moving to different housing markets, housing prices soared. To me, that’s a valuable lesson, that stabilizing nominal incomes, even if imperfect, is a far better outcome than the alternative, which would have been something like 2008.

Bird: Absolutely. I 100% agree with that, to be clear. I’m not at all a critic really, of especially the 2020 response to the pandemic. I always think the consequences of undershooting are just more severe to me than the ones of overshooting, even though we’re dealing with that, and I don’t want to downplay them. I was probably too sanguine during the 2010s and going into the pandemic about the inflationary potential, partly because in my lifetime, we’ve never seen a significant inflationary burst. I didn’t really, I think, grasp the political and equity, and destabilizing effects that you have from that.

At the same time, I think that the consequences of undershooting would have been worse, and a lot of what I think the fuel for the overshooting was came toward the very end of the pandemic when potentially it had become a bit more politicized, and policymakers maybe got over their skis there. I don’t think the mistakes were made February, even May, June, even toward the end of 2020. It’s really stuff coming after that that was the problem.

Beckworth: I agree completely. The excesses were ’21 and later. It’s important to keep that in mind, but also to keep in mind the right counterfactual. How bad could it have become? I think that’s something that’s easy for critics to forget. Now, going back to the key point here that land is so pivotal to this story, this narrative of your book. You bring up a point that, despite the fact that the world’s grown rapidly, despite the fact that intangible assets have grown rapidly, land is still a huge and growing part of the stock of assets. It’s a bit of a puzzle, right?

Land as an Enduringly Important Asset

Bird: Yes, it is. I think I try to address it precisely through the example of Munnabittu, the Babylonian in question at the beginning of the book. Basically, I don’t want to give people the wrong impression, it’s not an ancient history book. The book fairly quickly restarts at about 1650 after that. I think land for the vast majority of the period in between early recorded history and the 17th century had a pretty similar vibe to it.

The richest people in the world owned the most productive and high-yielding, large-scale agricultural output. They owned mines. Basically, land was valuable for the things you could grow from it, the things you could get out of it. Sometimes it could be militarily important. There were some relatively small cities, but it was mostly a food and commodities game, land ownership, and that was true for most of human history, recorded or otherwise. There’s lots of state power that has developed through that.

Things start to change in the 17th century, really. The beginnings of industrialization, and they really rapidly change in the 19th century and 20th century as agglomeration becomes enormously important, as you get these huge cities developing, as the world’s population starts to seriously urbanize at pace. It’s basically a rounding error in the national accounts of most rich countries. Genuinely, very, very small percentage of GDP. I think it’s below 2% in most rich countries.

It’s, I believe, about 5% globally, maybe even less than that now. It’s really, really small. The reason land has retained its importance is because of the agglomeration and the urbanization. Land is fixed in supply. You can’t make more of it. You can’t bring more of it to cities that are very popular. You’re dealing with a fixed stock of this asset on which everyone has to live. Everyone has to consume some amount of land, unlike almost any other asset. Everyone has to be involved with this.

You’ve been left in a position where the value of it is created entirely by the economic activity going on around it. You build a new train station. You move 50,000 additional people into the city. The land prices go up because of the additional activity going on, because of the additional competition for the space. It’s retained its value in an astounding way. I think if you tried to explain this to someone from 500, 600 years ago, this is the element they’d find most confusing. Thinking about the world as it is now, you’ve got all this technology that would seem to anyone else to be like magic, but land, this asset that was so crucial to them, is extraordinarily crucial still today.

Beckworth: In 2003, Mike, I was living in Washington, DC. I’d just finished grad school. I was convinced that there was a housing bubble, that we should not buy a house. I told my wife, “This is going to kill us if we get into it.” We rented in Washington, DC. We were in an apartment, and there was another resident there. We ran into them in the gym, and they told us they had bought a condo right on the metro line. Right by the tracks. They had just started building it. Six months later, the value had doubled of that investment.

Here I was in the apartment feeling really like, “Man, I blew it. I was convinced the bubble—” Ultimately, I was right, but it took several years before we got to that. The key thing is that land was so valuable, being near a metro station, being accessible. Similar story to the individual back thousands of years ago. Land and location was key. 

Wolf Ladejinsky

Now, a nice thing about your book is you bring out lots of personalities, people, stories. It’s not just some dry economic text. This is a very interesting, riveting tale of land and people and personalities. One of the ones I want to get into, because you go through history, as you mentioned, you go from the colonial periods. There’s a lot we could do there. We could go to what happens in the UK, the British history. I want to go to post-World War II and talk about an individual named Wolf Ladejinsky. I did not know who he was, but a very important person, as you outlined. Tell us about the role he played in Japan, Korea, and Taiwan during this time.

Bird: Absolutely. A bit of background. Wolf Ladejinsky was born in, I believe, the very end of the 19th century. He’s a young man at the time of the Bolshevik Revolution. He flees Ukraine. He’s in a Jewish landlord family there. It wasn’t looking like it was going to be a potentially great time for landlords in Ukraine after the Bolsheviks took over. He flees, and he ends up in the US. He does a number of things, but he eventually ends up being an agricultural economist. He studies as an economist, and he ends up working for the US Department of Agriculture. For most people, I think who work as economists at the US Department of Agriculture, that is more or less where it ends as well. 

Wolf Ladejinsky is there at this extraordinary moment, which is during and at the end of World War II. He’s specialized in the agricultural economics of rural Asia. This is exactly the person that’s needed at the moment where the Japanese Empire is defeated largely by America, and the rebuilding of Japan, largely shepherded by America, begins.

Ladejinsky is a technocrat, but he’s also a passionate advocate for land reform, the redistribution of large concentrated rural plots, often owned by absentee landlords, to the tenants that work them. In Japan, he gets to practice this. He goes to Japan in 1945. General MacArthur, who is at that point running Japan functionally, he is holding, I think, probably more power in a single place than any American has held over anywhere ever. He’s able to veto things that come from the Japanese government. He’s able to functionally tell them what to do.

Ladejinsky and a few other reformers convince MacArthur of the crucial element of land reform. It turns out MacArthur’s not that difficult to convince. He had a long period of time in the Philippines and believes basically that concentrated land ownership has done huge damage to the Philippines. He sees the merits of this, and he pushes the Japanese government to do it. Wolf Ladejinsky is one of the key people responsible for this enormous redistribution of land in Japan.

Huge proportion of Japanese rural land is transferred to peasants, agricultural laborers who’ve worked the land, often multigenerational and away from absentee landlords who are not compensated particularly generously for the transfer. This is then repeated to a large degree in Taiwan and South Korea, which both do their own very large-scale land reform programs, very extensive redistributions. There’s some really interesting, I think, political dynamics here as to why this works, one of which in Japan is obviously that if you get MacArthur to do it, MacArthur can just tell the Japanese government what to do. It is a subjugated people at this point. They’ve lost a huge conflict.

In Taiwan and Korea, it’s slightly more complicated, but you have these dual things going on. One is a lot of American influence at the time. The second is the extraordinary and very immediate fear of communism. The reality is that if you’re a landlord in South Korea or Taiwan, you might not be very happy about your land being taken off you, but the major political alternative is a communist revolution, which is not particularly attractive if you’re a landlord either, as Wolf Ladejinsky found out in the very early 20th century.

These were these enormous, fascinating moments. Wolf Ladejinsky is really at the core of this, and he spends the rest of his life trying to repeat the trick elsewhere in the world. He’s a fascinating character, a really, really interesting guy. He did have a lot of influence in those parts of East Asia for a five, six, seven-year period, basically from the end of World War II to the end of the Korean War.

Beckworth: The land reforms in these countries, Japan, Korea, Taiwan, they were successful. Would you say they were important to the rapid growth that followed, an important step in getting to becoming a fast-growing economy?

Bird: This is a really interesting question. It’s one that I don’t actually have a firm view on anymore. I think I thought when I started writing and researching the book that that probably was true. That the basic model for this is that if tenants have the land instead of landlords, they’re much more focused on raising the productivity of the land because they, and not an absentee landlord, benefit from the yield on the land.

Now, the absentee landlord has some element of attachment to that, but probably a weaker one than the peasants do, and that the peasants, on doing this, on becoming smallholders, they invest, and most importantly, they use the surplus that they generate. Agricultural productivity does go up sharply in these countries. They use the surplus they generate to invest in education, particularly the education of their children. You end up with a much more skilled workforce.

At this point, you’re off to the races. This is the beginning of the rapid development model. Joe Studwell, who wrote How Asia Works, tells this story very well, and I think makes a compelling case. I don’t disagree with it. I would have said when I started that was my preface. Oliver Kim, who’s a researcher and economist, wrote a very, very interesting paper that was published earlier this year on the Taiwanese experience. It’s one of the few papers that have actually been published, trying to look seriously into whether this effect is true. It finds a very mixed picture.

The suggestion, I believe, is that the first wave of Taiwanese land reform, some of the expropriation of the very largest estates which had been Japanese-owned up until the end of the Second World War, that that did boost agricultural productivity and did assist in the development model, but that the later, further, and more extensive reforms, it’s much more muddled and doesn’t seem to have done as much of the heavy lifting.

I’m not sure 100% what I think of this, but this is definitely the driving force behind land reform at the time. People genuinely believed that this would revolutionize the whole economic model. Certainly, it seems to have potentially played a part. There is an ongoing argument there, but the argument is not finished. It’s not that the land reform advocates have lost, but I think there is a little bit of muddying of the picture.

Beckworth: This is fascinating for me to read this history because often we hear the stories of land reform failures. You mentioned the other ones in your book, India, Vietnam, other places where it was an abysmal failure. I think part of the reason there might be institutions, wars, corruption. There’s a lot of moving parts, but if you have some of these other parts in place, at least it appears on the surface that in these three countries, land reform was useful.

This is part of a bigger story in your book that, coming out of medieval ages into modern times, there was this issue of what do we do with people who are tenants on land. There’s some form of feudalism. How do we empower them? Land reform is one big push. Now, again, probably a lot of people, the first reaction to land reform is going to be some story, Zimbabwe in Africa, or you mentioned Kenya or India, where it’s really a failure, but these three cases are super fascinating because they at least suggest that there is a path forward here. In fact, Ladajinsky, he was doing this to fight communism.

I know you note in the book later, he was accused of being a communist by promoting some of these policies and his origins, but he actually was doing land reform to prevent communism, prevent the peasants from uprising. It was interesting to see this perspective. I guess where I want to go with this, Mike, is to the extent that this story is true, again, a big question mark, as you note, but to the extent that these three countries needed to experience land reform to get where they had rapid growth, this really, in my mind, paints a more complicated picture of the example that I often throw out and many economists throw out when we compare North Korea to South Korea.

It’s a wonderful, natural experiment. Capitalism versus communism or socialism. Cut and dry. Lights are on in the South, they’re not in the North. It’s more than just capitalism. You had to have the land reform story, too. If this is true, there had to be other steps along the way. Some people may not view land reform as a capitalistic way of doing things. It was interesting to see this story fleshed out with land reform, not just pure markets, capitalism, and the such. Of course, South Korea’s history is also filled with autocrats and other, less-than-maybe-ideal liberal democratic regimes. It’s interesting to see that perspective, at least for me.

Bird: I think there’s a huge amount to that. I think even if you accept or even if you don’t believe the fact that the idea that land reform contributed massively to the East Asian growth story, leave that out of it, I think it’s perfectly plausible that land reform contributes to the important bedrock of having a roughly capitalist democracy. These are three countries in East Asia that really stand out in that sense of being largely capitalist democracies in a region that doesn’t have too many of them.

If you look across Southeast Asia and South Asia, it’s much more of a mixed picture as well. You can definitely believe that. There’s a parallel story happening in the Western world as well, in the 50 years that preceded the Second World War, or maybe in the 20 or 30 years that preceded the Second World War, in the sense that you have countries like Britain struggling with the reality of becoming a mass-franchised democratic country where at the beginning of the First World War, best estimate, maybe 10% of people own property. It’s not a sustainable equilibrium, let’s put it that way.

It’s not a sustainable equilibrium to have mass concentrated land ownership and a democratic society. It runs the risk of revolutionary sentiment. I do think that it’s an enormously important vein of history. It’s something that people don’t always understand. In America, for example, land ownership was always much less concentrated than it was in Europe or Asia, dramatically so, for pretty obvious historical reasons. It really is important, I think, this land component of how capitalist democracies, mass landowning, often mass homeowning countries developed and remained roughly capitalist and democratic at the same time.

Beckworth: Having skin in the game in terms of ownership of land is important to having democratic capitalistic systems. Of course, the flip side of that we touched on earlier, it also makes them fragile when prices go up and there’s inequality, or they come down suddenly and there’s crashes. Again, this is a catch 22 here. It’s a tough spot to be in, but it’s an essential part, I think, moving forward, having the land reform for these countries.

We didn’t have time to cover this. It’s in the book. The history of America that Mike has in the book is fascinating. The Revolutionary War. We’ll come back to Henry George later, but there’s a lot of history in the US that’s tied to land. Again, you call it the invisible architecture of power. Land is this thing that links and holds together a lot of different stories. 

Japan from 1980s Onward

Let’s move forward for the sake of time. I want to get to some parts of the world that are more recent and some that are still happening. Let’s go to Japan in the 1980s. We talked about Japan earlier. We talked about Abenomics, some of the things we were interested in in the past few years. That story has its origins in the 1980s land grab, the land story of Japan. Walk us through what happened in 1980, which then led to the lost decade of the 1990s, and then leads us to where we started with Abenomics.

Bird: Absolutely. Japan goes through its own extraordinary rapid growth story. You can date it from the early or mid-1950s until the very end of the 1980s. Extraordinarily rapid growth for large portions of this period, especially the ’60s is growing at 10-plus percent a year. The growth rates that we really associate with China in the 1990s and early 2000s. Extraordinarily rapid growth, and really pioneering the model that lots of East Asian countries then took on afterwards.

Land becomes enormously important to this model. Land prices understandably rise. Japan is urbanizing again. It’s urbanizing. It’s also a country that’s practicing financial repression. The banking system is deliberately put under pressure to assist with the funding of big Japanese companies. To enable their ability to access very easy funding, very low interest loans, consumers, depositors, have to face low interest on their deposits as well. There’s not a huge range of financial products. There’s not a booming equity market or anything through most of this period.

For ordinary Japanese households and companies, land is a pretty useful investment. It’s going up in price. It seems to be a pretty sure bet. You see something develop that’s referred to, tochi shinwa, as the land myth in Japan during this period. The idea that land prices will only continue going up, obviously called a myth after the fact. In the 1980s, the middle of the 1980s, this all gets put basically on steroids.

You see a number of changes to Japan’s financial architecture. A lot of financial liberalization. Japan is struggling in its relationship with the United States. It’s struggling over some of the same things that China and the US are struggling over with today, trade-related issues, and the idea that Japan is holding consumption at this artificially low level, investing too much, exporting too much at too low prices. It’s suppressing the value of the yen. In response, Japan liberalizes a lot of its financial system.

For those people who’ve seen HBO show Chernobyl, it’s the boron tip to the control rods. You get this attempt to slow down what is happening with Japanese financial system that perplexingly only accelerates the land-related element. Land prices absolutely explode in the second half of the 1980s. They rise several hundred percent, especially in commercial property areas of urban Japan. At the same time, the economy is actually slowing down. Real growth is a little bit slower by this point, and banks become enormously leveraged to the value of land.

This is the era of lending more than 100% of the value of plots of land, taking it as collateral. Huge amounts of lending is going to real estate developers and construction companies, and just companies of all sizes that are pledging land and real estate as collateral to lend against. This all comes to a head right at the end of 1989. A man, a former Bank of Japan governor, Yasushi Miyano, takes over and explicitly, very clearly wants to pop the bubble.

He’s not making any bones about this. This was not an accident. He didn’t intend for it to go as badly as it did, but he makes clear that he thinks interest rates have to go up to deliberately derail all of this and makes clear that he would be happy with a moderate-size depreciation in land prices and stock prices at this point in Japan. He does this, but what happens isn’t a shallow or moderate depreciation. Basically, he sets the ball rolling. Land prices begin to fall the end of 1990, stock prices the end of 1989, and this web of lending that’s been assembled during the 1980s starts to be unfurled.

A company that had borrowed against land suddenly finds that the value of the land isn’t going up anymore. It can’t continue borrowing more. At the same time, the banks don’t want to lend anymore because the value of the collateral that their loans are secured against is falling. Any of these people default, you’re no longer coming to repossess an enormously valuable plot of land. You’re possessing one that might have fallen in value by 20% or 30%. This rolls on and on and on. This becomes a vicious cycle to which Japanese policymakers don’t really respond aggressively enough at any point through the 1990s. As a result, you see this unfurling financial crisis.

Land prices in the end fell by more than 80% in commercial urban Japan. Just extraordinary, so much larger in scale than during the aftermath of the 2008 crisis in the US or really anywhere in that era. It permanently derailed Japan’s growth model. You see Japan go from creeping up in purchasing power terms toward real economic parity with the US, to where it is now, somewhere below richer European countries, let alone the US. It’s never really recovered from this bust. It has a number of other problems; Japan’s demographic structure is very bad for growth now. It really starts with the popping of the land bubble.

I think it’s fascinating because, to me, it’s a story that people don’t know necessarily that much about, and especially about the deliberate element of the attempt to derail it. Really, one, to me, of the most fascinating land-related crisis stories, one of the things that really got me into the idea of writing the book when I was reading about it.

Beckworth: One key lesson is central bankers, macroeconomic policymakers think they have more ability than they actually do to land policy with precision. They can’t pop a bubble without necessarily blowing things up. Let me ask this question: What could they have done differently, or what was needed to be done after the bust that would have made things quicker, better recovery?

Bird: There’s the Richard Koo argument, which I think is, I would say, probably fairly close to consensus or consensus adjacent, which is basically that at this point, I would say monetary policy is tapped out. I believe that the Bank of Japan cut interest rates far too slowly. By the late 1990s, it’s a zero interest rate policy. It’s starting to think about experimenting with quantitative easing and things like that.

Richard Koo, who is the head of the Nomura Research Institute and very influential in this space, his argument was that basically, you have what’s called a balance sheet recession. All the sectors of the economy—the corporates, the banks, the households—they’re all trying to reduce their leverage at the same time. They’re all essentially trying to save rather than spend at the same time. This is fine for any one business. It’s the rational decision for any one household, business, bank. In the collective terms, you end up in the Keynesian paradox of thrift. You end up in a protracted recession, which is what happened in Japan.

Now, there’s a reasonable argument there, I think, that Japan could have cut interest rates to much lower levels much more aggressively, that monetary policy could have done more of the heavy lifting. What you also had in Japan in terms of the prolonged element of it is extraordinary reluctance in that context for fiscal policy to pick up any of the slack. The Japanese government repeatedly announces stimulus bills, but in reality, when the spending is all said and done, they end up being much more shallow.

When we talk about the large deficits, I think people have an idea that Japan began running large deficits in this period. It did, but it wasn’t really stimulus spending. It was all down to the collapse in revenues because of the bubble collapsing. It’s mostly coming from that rather than a concerted deliberate attempt to prompt an economic recovery. There’s also a financial supervision angle, in that Japan didn’t have a financial supervision agency when the bubble began collapsing. They simply didn’t understand, at the center of the Japanese government, how large the problem was.

Every year through the ’90s, they’re coming up with new estimates for the volume of these nonperforming loans, usually collateralized by land. Loans that aren’t being repaid. They’re going up and up and up from what looks like a manageable problem to one that is absolutely astounding by the late 1990s. I would say that the thread running through all of those, whichever camp you fall on in terms of what the macro response should have been, is a constant reluctance to truly address the scale of the problem.

That is true whether you take the mostly, it should have been a monetary policy response, it should have been a fiscal policy response, or whether you think it could have mostly been done around reordering and thinking about financial stability. None of these were done at speed, and it’s why you had Japan still in the early 2000s dealing with some of the aftermath of these problems.

Beckworth: There was a reluctance to deal with the issue, and that, in part, was due to the fact they didn’t know fully what was happening or the scale of the problem. If they could have, one solution would have been to write down all the debt. Now, that’s a massive coordination issue. I also imagine there would have been political resistance, or there was political resistance. This is an aging society, and probably a lot of the elderly people who could vote probably didn’t want to write down certain asset values, and have to maybe lose funds they had lent out to somebody else. There’s probably political reasons they couldn’t take the necessary steps.

Land in China

I bring this up because, Mike, I want to use that to segue into China. Now, I wanted to talk to you about Hong Kong, and I encourage listeners to go check it out, but for the sake of time, we can’t get to it. It’s a place with a perpetual boom/bust cycle tied to the land, so it’s really fascinating. Let’s go to China and where we are today. Tell us the story of China, how it’s similar, and maybe what lessons it could learn from Japan moving forward.

Bird: Absolutely. Well, I think there’s a definite mirror here in the sense that China pursued a model of development that took some things from the Japanese experience. It didn’t take everything. It’s much more state-oriented. There’s a number of things going on that the Japanese experience didn’t have. What it did have was the same model of financial repression. Even in periods of very rapid growth, it’s been extraordinarily difficult for Chinese households in particular to find anything with a decent yield, with a decent return. The financial products available to them have been pretty bad. Bank deposits have negative real returns for most of modern Chinese history, outstripped by inflation repeatedly.

The Chinese stock market is an awful long-term investment. I encourage you to go look at a graph of the Shanghai Composite. It’s been absolutely terrible during a period where the Chinese economy has ballooned in size. What they’ve been left with is land, so there’s been a huge appetite for investment in apartments, in homes, which have really gone up very, very aggressively in value. What China took from Hong Kong was the model of owning the land outright, so the Chinese government owns the land. It sells land leases.

What happened in 1994 was that the Chinese government changed the way in which local and central governments are financed. Basically, they, to cut it short, put a huge financial responsibility on local governments. Local governments eventually amped up this model of land sales. You have these two forces, as I see it, in China. You have the local governments, with extraordinary needs for revenue, but most of their revenue-raising methods have been stripped away from them. You have households with an extraordinarily high savings rate and very little to invest in. The meeting of these two forces is what causes the extraordinary rise in Chinese house prices.

You see these crazy real estate developers emerge. And it’s a fascinating story, and they have to grow extraordinarily quickly. They become very indebted themselves. There’s some ludicrously shady behavior. It’s a very fun boom time story. It’s very engaging. The real estate developers are really just an intermediary between those two massive forces, the local governments and the households.

Five years ago now, the central Chinese government effectively called time on all of this. They pulled the rug out from under the real estate developers. They brought in a policy called the three red lines, which stopped most of the Chinese developers from seriously expanding from borrowing anymore. Many of them were only permitted to borrow if they violated one or two of the three red lines, which are financial metrics of how heavily leveraged they are. The ones that only violated a couple were allowed to refinance their debt, no expansion. The ones that were violating all three, which was a great many of them, weren’t even allowed to do that. They weren’t allowed to borrow at all.

This has really changed the financial structure of China. It’s been five years. They’re still dealing with the consequences of this. There has been no resolution to pulling the rug out from under the developers. There still is nothing that a Chinese household can really invest in that produces a decent return. There still is no great way of local governments making money. It’s something that the Chinese government is still dealing with the consequences of.

I think in terms of learning the lesson from Japan, I’m astonished, frankly, as to how little the lesson of what a prolonged decline in land and housing and real estate-related asset prices can do. I don’t know whether a resolution will come here. The Chinese government is extraordinarily resistant to the sort of consumption-driven fiscal stimulus that Richard Koo would advocate for, for example.

When we talk about the Chinese economy at the moment, a lot of it’s focused on manufacturing, on exports, on the friction with the US. I would say we should be devoting a lot more attention at the moment to what’s happening in the real estate market, which it seems like it’s fallen off the map for a lot of people.

Beckworth: Is it fair to say China is experiencing the first half of its own lost decade? Is it going to follow what happened in Japan and slowly begin to recover after a decade or so?

Bird: It’s a good question. The difference between China and Japan on that front is partly that the Chinese financial system is so much more state-oriented. I think people who live in Western or at least capitalistic market-oriented societies have an idea that it’s a what-goes-up-must-come-down sort of thing. There must be a financial bust somewhere. This must come.

Now, if the Chinese government, I should say, can continue papering over the consequences of this through the state banking system, as they think they really have done so far—there’s been no major bank blow-ups because of this—then it will be a different outcome. I think where the outcome will present itself is more through China’s long-term productivity, the productivity of capital investment, the productivity of investment generally, which I try to go into in the book. There’s ludicrous examples of the ways in which investment in real estate has distorted Chinese productivity growth in the last 20 years, especially in the peak bubble era running up to the three red lines being introduced.

I think that’s the place to look for the consequences. It will look different to Japan, but I think you can’t escape them completely. Just because the banking system’s state-oriented, they’re just going to crop up somewhere else. Because this hasn’t been resolved, you are going to see it in the growth statistics. Personally, you can already see it in the growth statistics quite clearly. This is at a point in which China’s still a much poorer country on a per-capita basis than the United States or in Europe either. I think this is a really important story.

Beckworth: Okay. The government will not allow some dramatic crash or financial instability, but we will see it manifest in real growth, real centers of living. Another similarity between Japan and China is demographics. Japan’s losing, in an absolute sense, people every year. I had a podcast guest on a few years ago, mentioned roughly 500,000. Maybe that number has gotten bigger. Every year, a small US city is disappearing from Japan, the size of a small US city. That’s a sizable number. Now, if you go to China, I’ve seen anywhere from 1 to 2 million. They also are experiencing an absolute decline in population. What bearing might that have on this trajectory for the Chinese economy?

Bird: It’s a great question. If you look at just the housing market, it should be having a much bigger impact already. The thing that happened during the peak of the bubble in China is asset prices for housing, what we were talking about earlier, became so divorced from the consumption side. You had rental yields of 1%, less than 1% in some Chinese cities, which is crazy when a bond will offer you 4%. You could buy a Chinese government bond that would give you a much better return than that.

That divorcing, you also saw a huge amount of the purchasing of second and third homes. Because if you’re using it purely as the only funnel for turning savings into investment, it doesn’t matter whether you’re buying another one. It doesn’t need to have a tenant. It doesn’t need to have anyone living in it. You just keep buying and buying. There were points toward the end there, 2018, ’19, when a huge amount of Chinese home purchases were being done by second and third home buyers.

The demographic effect should have a big effect on the housing market. The fact that it hasn’t, I think, is evidence that China is still in a state of suspended animation when it comes to the housing market. It’s a bust that’s been frozen in aspic. It’s neither recovering from, nor significantly worsening in a Japan in the 1990s sense. 

For the Chinese economy, I think it’s very bad for the real growth prospects. I think people don’t often grasp just how bad. Japan is now the East Asian country with the highest fertility rate, developed East Asian country. I think Mongolia’s is still higher. Significantly higher now than Korea or than Taiwan and it’s higher than China’s and much higher than the urban Chinese cores. You go to places like Shanghai, the fertility rate is astoundingly sub 1. This is a problem that hasn’t been resolved, and it will continue to have huge effects, I think.

Henry George

Beckworth: Okay. In the time we have left here, I want to go back in your book to another great character that’s central to the story that you’ve told me. We’ve mentioned him briefly, and that’s Henry George. He wrote a book, Progress and Poverty, 1879. To the surprise of myself and maybe some of our listeners, that was probably one of the most influential books in US history over the past few hundred years, though many of us today probably are not familiar with it. We may be familiar with Henry George’s ideas of taxation. Maybe close by telling us Henry George’s place in the story of your book.

Bird: Absolutely. Henry George I find to be a fascinating figure, in large part because he rose to this astounding prominence after the publication of Progress and Poverty. He ran for New York mayor in 1886. He really generated one of the first nonreligious, secular, ideological, international veins of thinking. Georgism becomes massive in Britain. It becomes massive in Australia. You get revolutionary leaders all over the developing world who are fascinated by Georgism and land.

George basically proposes a 100% tax on the income value of land. He sees the technological progress of the late 19th century being eaten up by land monopolies, by landlords. This is particularly exciting in America because the frontier is closing. American cities are getting much bigger. This sort of urban destitution is becoming an issue in a way that it wasn’t through American history. You have this fascinating period.

Then from some point in the early 20th century, I suppose you could probably put the peak of George’s thinking maybe after his death. He dies in 1897. I think you could probably put the peak in the first decade of the 20th century when he has thinkers in state houses, in city halls, in the British government in Westminster, the very top levels who quite strongly believe in his ideas about land value taxation. They’re trying to push these things through. Thirty or 40 years later, he’s like the difficult pub quiz question. His ideas are nowhere 30 or 40 years later. The astounding retreat that they have from public life and from popular thinking is amazing.

You had people who were enormous single tax and Henry George clubs across the US. Massive influence in Democrat politics and some influence in Republican politics as well, and then it’s all gone. Basically, I think it collapses in on itself for two reasons. One is mass homeownership begins. The project to the right in response to the large-scale franchise, in response to democratic society. We have to promote homeownership or these people are going to be revolutionaries and they’re going to overthrow the existing order.

On the left, you have thinking that develops with no role for land. Karl Marx doesn’t have a role for land. Most socialist revolutionaries think of land as a part of capital. Capital is generally the thing to be undermined. The capitalist, not the landowners, are the important thing to overthrow. The landowners come with them, but it’s not a distinction that a lot of communists make. You see these two pincer movements against Georgism that completely reduce its effect globally, especially in the US and the UK. You see it being wiped out really as a political force.

I find this story fascinating again because it really doesn’t have any prominence in public life or in our understandings of history. In the late 19th century, this was one of the biggest things going on in the world.

Beckworth: From one bestseller to the next, and that next bestseller is The Land Trap: A New History of the World’s Oldest Asset. Be sure to check it out. Get your copy. We’ll provide a link. Mike, thank you so much for coming on the program once again.

Bird: David, it has been an absolute pleasure. Thank you for having me.

Beckworth: Macro Musings is produced by the Mercatus Center at George Mason University. Dive deeper into our research at mercatus.org/monetarypolicy. You can subscribe to the show on Apple Podcasts, Spotify, or your favorite podcast app. If you like this podcast, please consider giving us a rating and leaving a review. This helps other thoughtful people like you find the show. Find me on Twitter @DavidBeckworth, and follow the show @Macro_Musings.