But the point was that the vacant lot was somehow "free" to the owner. It's not, he is sacrificing any value he might get by selling it.

If someone sees a better potential use of the land (able to get more value out of it), he can propose to buy it at a higher price.

A land-value taxes is just a multiplier of the opportunity cost, but without any real economic foundation (no one is proposing to buy the land at a higher price).

It's correcting the common market failure of humans undervaluing opportunity costs. The economic foundation is behavioral economics, or maybe a more advanced model of rational actor economics which takes into account the often high cost of measuring opportunity costs.

All value is determined by humans; you can't say that humans undervalue something. That simply doesn't make sense.

What you can say, however, is that humans prefer the statu quo. (Or as you would say, the cost of measuring opportunity costs.)

Any transaction need to provide at least some additional benefit to be considered worthwhile.

For example, I won't sell you my car for only 5% over the market value because it's not worth it for me.

You coming every day and breaking a mirror, a whipper, or steeling a wheel would not correct any economic calculation 'error'.

I think the parallel to draw here is inflation. The Fed sets interest rates low to encourage people to invest or spend their dollars instead of sitting on them. If you have cash in a savings account it loses about 3% of its value year over year.

I see land-value tax as the same economic mechanism applied to vacant lots. There should be some penalty to sitting on land and simply watching its value accrue. Why aren't we treating the land crisis like a deflationary spiral currency crisis?

Well, it operates in a different way from opportunity costs, which could counteract a "pushing on a string" effect.

And perhaps for many properties in the mid-range of site value, the opportunity cost is masked by high information costs, which a land-value tax could make more clear.

Maybe that's a good idea: multiplying the opportunity cost ends up punishing the people who hold valuable land and don't develop it. The more valuable the land, the greater the punishment. That seems exactly what you'd want to do to encourage that West Oakland lot to get developed.

But why do you even want to punish? There's already a cost associated with doing nothing with the land! Why do you consider it's not enough?

Imagine a world where if you take a day off (or just slack off). You not only don't get paid, but also receive a negative salary because 'punishment'. The punishment would also be proportional to the salary of comparable individual (not you, other people). The more they work, the more you must pay for not working in addition of not getting paid.

All this in the name of maximizing your contribution to society... How would you feel about that? Wouldn't you say that 'not getting paid' is plenty already?

^ I agree.

In general I dont understand why people think that government must act (that too via taxation) when they are not getting what they think they are entitled for. None of us are entitled for any cheap land. If someone is spending his own money and hoarding it I have no business complaining about it either.

Hoarding of natural resources is actually well studied and theorized concept in economics and is best explained by using the example of Oil. We all know that as time passes by Oil supply will only go down. But does that necessarily imply that prices of Oil will shoot through the roof ? Not necessarily. Any Oil producer will reduce the supply today if he thinks it can fetch him more value tomorrow. But more he hoards, the future availability goes up and hence the expected prices of Oil in future go down. This is a fine balance that all the people in this business understand and play accordingly. Not to mention the other sources of energy compete for the price too.

Same if true for land. The reason why people keep the land unused is because they think they can get much higher value in future when the land is even more scarce. But the very fact they keep the land vacant ensures supply of land in future and/or at sufficiently high price. If somehow the person if forced to sell of his land today, whatever reduction in land prices we get today, we will have to pay it back in future by even higher real estate prices.

Whether you work or not doesn't cost me anything. But if you're hoarding a natural resource and playing games with the supply then you're costing me in increased rents; not just for me but for everyone around me. Your actions are creating a negative economic externality that I am not being compensated for. Extracting rents is a form of theft from society; a diffuse and difficult to trace theft but real, damaging and if allowed to continue unchecked a threat to the stability of society.