Land tax

Henry George, a 19th-century American eco¬nomist, believed that taxes should be levied only on the value of land, not on labor or capital. This “single tax”, he asserted in his book, progress and poverty, would end unemployment, poverty, inflation and inequality. Many countries levy some tax on land or property values, although George’s single tax has never been fully implemented. This is mainly because of fears that it would drive down land prices too much or discourage efforts to improve the quality (that is, the economic value) of land. George addressed this concern by arguing that the tax should be levied only against the value of “unimproved” land. Certainly, a land tax has obvious advantages: it is simple and cheap to levy; evasion is all but impossible; and it penalizes owners who do not put their land to work.

Law and economics

Laws can be an important source of economic ¬efficiency – or inefficiency. Early economists such as Adam smith often wrote about the economic impact of legal matters. But economics subsequently focused more narrowly on things monetary and commercial. It was only in the 1940s and 1950s, at the university of Chicago law school, that the discipline of law and economics was born. It is now a substantial branch of economics and has had an impact beyond the ivory towers.
The "economics" of law and economics is firmly in the liberal economics camp, favoring free markets and arguing that regulation often does more harm than good. It stresses the economic value of having clear, enforceable property rights, and of ensuring that these can be bought and sold. It has encouraged many antitrust policy¬makers to focus on maximizing consumer welfare, rather than, say, protecting small firms or opposing big ones just because they are big. It has also ventured into broader sociological issues, for instance, analyzing the economic causes of criminality and how to structure legal incentives to reduce crime.

Leading indicators

Economic crystal balls. Also known as cyclical ¬indicators, these are groups of statistics that point to the future direction of the economy and the business cycle. Certain economic variables, fairly consistently, precede changes in GDP and certain others precede changes in inflation. In some countries, statisticians combine the various different leading indicators into an overall leading index of economic growth or inflation. However, there is not necessarily any causal relationship between the leading indicators and what they are predicting, which is why, like other crystal balls, they are fallible. Contrast with lagging indicators.

Lender of last resort

One of the main functions of a central bank. When financially troubled banks need cash and nobody else will lend to them, a central bank may do so, perhaps with strings attached, or even by taking control of the troubled bank, closing it or finding it a new owner. This role of the central bank makes credit creation easier by increasing confidence in the banking system and minimising the risk of a bank run by reassuring depositors that their money is safe. However, it also creates a potential moral hazard: that banks will lend more recklessly because they know they will be bailed out if things go wrong.

Leveraged buy-out