Land Value Taxation will solve many of the 21st century's most serious social, economic and environmental problems, and promote justice, fairness and sustainability. We CAN have a world in which all can prosper.
Progress and Poverty, by Henry George Here are links to online editions of George's landmark book, Progress & Poverty, including audio and a number of abridgments -- the shortest is 30 words! I commend this book to your attention, if you are concerned about economic justice, poverty, sprawl, energy use, pollution, wages, housing affordability. Its observations will change how you approach all these problems. A mind-opening experience!
Henry George: Progress and Poverty: An inquiry into the cause of industrial depressions and of increase of want with increase of wealth ... The Remedy This is perhaps the most important book ever written on the subjects of poverty, political economy, how we might live together in a society dedicated to the ideals Americans claim to believe are self-evident. It will provide you new lenses through which to view many of our most serious problems and how we might go about solving them: poverty, sprawl, long commutes, despoilation of the environment, housing affordability, wealth concentration, income concentration, concentration of power, low wages, etc. Read it online, or in hardcopy.
Bob Drake's abridgement of Henry George's original: Progress and Poverty: Why There Are Recessions and Poverty Amid Plenty -- And What To Do About It! This is a very readable thought-by-thought updating of Henry George's longer book, written in the language of a newsweekly. A fine way to get to know Henry George's ideas. Available online at progressandpoverty.org and http://www.henrygeorge.org/pcontents.htm
Where Else Might You Look?
Wealth and Want The URL comes from the subtitle to Progress & Poverty -- and the goal is widely shared prosperity in the 21st century. How do we get there from here? A roadmap and a reference source.
Reforming the Property Tax for the Common Good I'm a tax reform activist who seeks to promote fairness and reduce poverty. Let's start with the enabling legislation and state requirements for the property tax. There are opportunities for great good!
This appeared in the Freeport News, and I thought it worth sharing:
Why is it so hard to understand the justice and benefits of capturing the community created value of land for the community?
Classical economists such as Adam Smith and Henry George, defined land as all free gifts of nature (urban land, harbors, etc.).
These get value because people, both local and foreign, want them for personal or commercial use.
So, no matter who 'owns' the gift of nature (land) there is a location value called economic rent which is exclusive of any production on or from that location.
When economic rent goes into private hands (i.e., beaches are given away to corporations, land values are uncollected) legitimate government revenue is lost and taxes like the proposed VAT are applied to the production process.
Not only is land speculation rewarded but building houses, trading goods and services, etc. are punished by taxes.
Naturally people try to avoid these taxes by smuggling and other forms of corruption.
When economic rent goes to honest government it encourages better use of locations as there is no tax penalty to build or work.
It reduces pollution and pays for infrastructure that helped create the economic rent in the first place.
Why is this so difficult to understand? Why is there so much ignorance of it and opposition to it?
The accompanying map says, "Around Grand Central Terminal, towers could be up to twice the size now permitted. Development could also take place along the Park Avenue corridor, where towers could be more than 40% larger. Elsewhere in the district, towers could be 20% larger."
New York’s premier district, the 70-block area around Grand Central
Terminal, has lagged, Bloomberg officials say, hampered by zoning rules,
decades old, that have limited the height of buildings.
Mayor Michael R. Bloomberg wants
to overhaul these rules so that buildings in Midtown Manhattan can soar
as high as those elsewhere. New towers could eventually cast shadows
over landmarks across the area, including St. Patrick’s Cathedral and
the Waldorf-Astoria Hotel. They could rise above the 59-story MetLife
Building and even the 77-story Chrysler Building.
Mr. Bloomberg’s proposal reflects
his effort to put his stamp on the city well after his tenure ends in
December 2013. Moving swiftly, he wants the City Council to adopt the
new zoning, for what is being called Midtown East, by October 2013, with
the first permits for new buildings granted four years later.
administration says that without the changes, the neighborhood around
Grand Central will not retain its reputation as “the best business
address in the world” because 300 of its roughly 400 buildings are more
than 50 years old. These structures also lack the large column-free
spaces, tall ceilings and environmental features now sought by corporate
rezoning — from 39th Street to 57th Street on the East Side — would
make it easier to demolish aging buildings in order to make way for
state of-the-art towers.
it, “the top Class A tenants who have been attracted to the area in the
past would begin to look elsewhere for space,” the administration says
in its proposal.
plan has stirred criticism from some urban planners, community boards
and City Council members, who have contended that the mayor has acted
hastily. They said they were concerned about the impact of taller towers
in an already dense district where buildings, public spaces, streets,
sidewalks and subways have long remained unchanged.
Mr. Bloomberg has encouraged high-rise development in industrial neighborhoods, including the Far West Side of Manhattan,
the waterfront in Williamsburg, Brooklyn, and in Long Island City,
Queens. But with the proposal for Midtown, which is working its way
through environmental and public reviews, he is tackling the city’s
the development potential in this area will generate historic
opportunities for investment in New York City,” Deputy Mayor Robert K.
The initiative would, in some cases, allow developers to build towers twice the size now permitted in the Grand Central area. The
owner of the 19-story Roosevelt Hotel at Madison and 45th Street could
replace it with a 58-story tower under the proposed rules. Current
regulations permit no more than 30 floors.
When zoning changes increase the value of land, who should reap the benefit? The current landholder, or the community? What did the landholder do to earn that windfall? Do you think it comes out of thin air? Do you think it is paid him by other rich people?
Or do you recognize that it is part of the structure which enriches a few and impoverishes the many?
It is easy to fix this one. One just has to recognize the structure, and value the land correctly, and start collecting the lion's share of the land rent for the community. If it is more than NYC can put to use -- and it will be -- then apply the excess to reducing our federal taxes on productive effort. Use it to fund Social Security, or Medicare, or universal health insurance, or something else that will benefit the vast majority of us instead of an undeserving tiny privileged minority. Don't throw it in the ocean, and don't leave it in private pockets, be they American or not.
Collect the land rent. Repeat next year, and the next, and the next. Natural Public Revenue.
Sustained by some of the greatest names — I will say by every name of the first rank in Political Economy from Turgot and Adam Smith to Mill — I hold that the land of a country presents conditions which separate it economically from the great mass of the other objects of wealth.
— PROF. J. E. CAIRNES, Essays in Political Economy, Essay VI., p. 189 (1870).
A tax upon ground-rents would not raise the rent of houses. It would fall altogether upon the owner of the ground-rent, who acts always as a monopolist and exacts the greatest rent which can be got for the use of the ground.
— ADAM SMITH, Wealth of Nations (1776), Book V., Chap. 2, Art. I.
Inside the back cover of the 17th edition of Economics by Samuelson & Nordhaus there is a "Family Tree of Economics" that graphically summarizes the major trends in the discipline's modern history. It presents the most famous exponents of the main schools of economic thought: Mercantilism, the Physiocrats, the Classical School and Neoclassical Economics -- leading to the two modern "endpoints" of Modern Mainstream Economics and Socialism. The book's chart depicts the "value-free" science of economics in a rather partisan way: it places Modern Mainstream Economics center stage as the fulfillment of its precursors -- and leaves Socialism on the far left, trailing off into irrelevance.
In the files I've been digging through, from the late 50s to the early 80s, I found an early draft of a fine paper by Mason Gaffney about California's Proposition 13, for presentation at an August, 1978 conference. I dug around and found a published copy of that paper, and think it worth sharing here. Original title, "Tax Limitation: Proposition 13 and Its Alternatives"
First, a few of my favorite paragraphs, which I hope will whet your appetite for the whole paper. I won't attempt to provide the context (you can pick that up when you continue to the paper, below).
"There is a deferment option for the elderly, bearing only 7% interest (which is about the annual rate of inflation). In California, as also in Oregon and British Columbia, hardly anyone takes advantage of this deferment option. This fact, it seems to me, rather calls the bluff of those who so freely allege that the woods are full of widows with insoluble cash-flow problems, widows who are losing their houses to the sheriff and whose heirs presumptive, will not help keep the property, which they will eventually inherit."
We hear a lot these days about cutting the fat out of the public sector; but there is fat in the private sector too. I interpret "fat" to mean paying someone for doing nothing, or for doing nothing useful. Most economists agree that payments to people. for holding title to land is nonfunctional income, since the land was created by nature, secured by the nation's armed forces, improved by public spending, and enhanced by the progress of society. "Economic rent" is the economist's term, but in Jarvis-talk we may call it the fat of the land or "land-fat." It has also been called unearned increment, unjust enrichment, and other unflattering names. Howard Jarvis has said that the policeman or fireman who risks his life protecting the property of others has his "nose in the public trough." But it has seemed to generations of economists that the owner whose land rises in value because public spending builds an 8-lane freeway from, let us say, Anaheim to Riverside, and carries water from the Feather River to San Diego, is the first to have his nose in the trough. Nineteenth-century English economists who worked this out were more decorous. They said things like "landlords grow rich in their sleep" (John Stuart Mill), or the value of land is a "public value" (Alfred Marshall) because the public, not the owner, gives it value.
Some 43% of the value of taxable real estate in California is land value. When we lower the property tax we are untaxing not only buildings, but also land-fat.
The ownership of property is highly concentrated, much more so than the receipt of income. Economists in recent years are increasingly saying that the property tax is, after all, progressive because the base is so concentrated, and because so little of it can be shifted. But this message has not yet reached many traditional political action groups who continue to repeat the old refrains. Two remedies are in order.
One is to collect and publish data on the concentration of ownership of real estate. The facts are simply overwhelming and need only to be disseminated.
The second remedy is to note how strikingly little of the Proposition 13 dividend is being passed on to renters. This corroborates the belief of economists that the property tax rests mainly on the property owner where it originally falls, and not on the renter.
A high percentage of real property is owned from out of state and even out of the country. The percentage is much higher than we may think. It is not just Japanese banks and the Arabs in Beverly Hills. It is corporate-held property which comprises almost half the real estate tax base. If we assume that California's share of the stockholders equals California's share of the national population, then 90% of this property is absentee-owned; the percentage may be higher because many of these, after all, are multinational corporations with multinational ownership.
No one seems to have seized on the fact that half the taxable property in California is owned by people not voting in the state. Senator Russell Long has suggested the following principle of taxation: "Don't tax you, don't tax me, tax that man behind the tree." Property tax advocates have done well in the past and should do well again in the future when they make their slogan: "Don't tax you, don't tax me, tax that unregistered absentee. Don't tax your voters, they'll retaliate; tax those stiffs from out of state." Chauvinism and localism can be ugly and counterproductive, as we know; but here is one instance where they may be harnessed to help create a more healthy society. The purpose of democracy is to represent the electorate, not the absentee who stands between the resident and the resources of his homeland.
California's legislative analyst, William Hamm, estimates that over 50% of the value of taxable property in California is absentee-owned. This is such a bold, bare, and enormous fact it is hard to believe that Californians will long resist the urge to levy taxes on all this foreign wealth. They may be put off by the argument that they need to attract outside capital, but that carries no weight when considering the large percentage of this property which is land value.
Property income is generally more beneficial to the receiver than is the same income from wages or salaries, because the property owner does not have to work for it.
Property, particularly land, has been bought and sold for years on the understanding that it was encumbered with peculiar social obligations. These are, in effect, part of our social contract. They compensate those who have been left out. Black activists have laid great stress in recent years on the importance of getting a few people into medical and other professional schools. Does it not make more sense that the landless black people should have, through the property tax, the benefit of some equity in the nation's land from which their ancestors were excluded while others were cornering the supply?
A popular theme these last few years is that property owners should pay only for services to property, narrowly construed. Who, then, is to pay for welfare — the cripples? Who is to pay for schooling — the children? Who should sacrifice for the blacks — Allan Bakke? Who should finance our national defense — unpaid conscripts? The concept that one privileged group of takers can exempt itself from the giving obligations of life denies that we are a society at all.
Here is, perhaps, my favorite:
We can ask that a single standard be applied to owners troubled by higher taxes and to tenants troubled by higher rents. When widow A is in tax trouble, it is time to turn to hearts and flowers, forebode darkly, curse oppressive government, and demand tax relief. When widow B has trouble with escalating rents, that touches a different button. You have to be realistic about welfare bums who play on your sympathy so they can tie up valuable property. You have to pay the bank, after all. A man will grit his teeth and do what he must: garnishee her welfare check. If that is too little, give notice. Finally, you can call the sheriff and go to the beach until it's over. That's what we pay taxes for. Welfare is their problem.
Anyway, widow B is not being forced out of her own house, like widow A and so many like her. Jarvis said that taxes are forcing three million Californians from their homes this year. But in truth, while evictions of tenants are frequent, sheriff's sales of homes are rare. Those who do sell ("because of taxes," they say, as well as all their other circumstances) usually cash out handsomely, which is, after all, why their taxes had gone up.
Then there is the fruit tree anomaly. Under Proposition 13, a tree can only be assessed at its value when planted, with a 2% annual increment. The value of a seed thrown in the ground or even a sapling planted from nursery stock is so small compared with the mature tree that this is virtual exemption. This anomaly rather graphically illustrates how Proposition 13 automatically favors any appreciating property over depreciating property. The greatest gain here goes, of course, to appreciating land.
Finally, build no surpluses. Surpluses attract raiders and raiders are often organized landowners. "Property never sleeps," said the jurist Sir William Blackstone. "One eye is always open." Even though the surplus was built up by taxing income, Howard Jarvis made it seem the most righteous thing in the world that it should be distributed to property owners. He was geared up for this because his landlord patrons kept him constantly in the field.
Economists of many generations even before Adam Smith and continuing to the present — have preached on the advantages of land as a tax base. Let me enumerate a few of those.
A tax on land value is the only tax known to man which is both progressive and favorable to incentives. One can wax lyrical only about a tax that combines these two properties, because the conflict between progressivity and incentives has baffled tax practitioners for centuries, and still baffles them today.
A land tax is progressive because the ownership of the base is highly concentrated, much more so than income and even more so than the ownership of machines and improvements.
Also, the tax on land values cannot be shifted to the consumer. The tax stimulates effort and investment because it is a fixed charge based merely on the passage of time.
It does not rise when people work harder or invest money in improvements. Think about this. It is remarkable. With the land tax, there is no conflict but only harmony between progressivity in taxation and incentives to work and invest. In one stroke it solves one of the central divisive conflicts of all time.
The land tax does that because it cuts only the fat, not the muscle. It takes from the taxpayer only "economic rent," only the income he gets for doing nothing. If people could grasp this one overriding idea, then the whole sterile, counterproductive, endless impasse between conservatives who favor incentives and liberals who favor welfare would be resolved in a trice, and we could get on to higher things.
The final paragraphs speak directly to us in 2012. 34 years have passed since this was written.
Summing up, Walter Rybeck, an administrative assistant for Congressman Henry Reuss of Wisconsin, and head of the League for Urban Land Conservation, has sagely suggested that we distinguish two functions of business: wealth-creating and resource-holding. A good tax system will not make people pay for creating wealth but simply for holding resources. Most taxes wait on a "taxable event" — they shoot anything that moves, while sparing those who just sit still on their resources.
If we really want to revive the work ethic and put the United States back on its feet, we had better take steps to change the effect of taxes on incentives. Legislatures have got in the habit of acting as though persons with energy and talent, and with character for self-denial, should be punished, as if guilty of some crime against humanity. We cannot study the tax laws without inferring that Congress regards giving and receiving employment to be some kind of social evil, like liquor and tobacco, to be taxed and discouraged by all means not inconsistent with the rights of property. Little wonder the natives are getting restless. If we tax people for holding resources rather than creating wealth and serving each others' needs, we will be taking a giant step toward a good and healthy society.
If your appetite is whetted by these excerpts, you can read the entire article below:
I'm re-reading Robert Reich's recent NYT piece, which sits open on my computer:
By 2007, financial companies accounted for over 40% of American corporate profits and almost as great a percentage of pay, up from 10% during the Great Prosperity.
The economy cannot possibly get out of its current doldrums without a strategy to revive the purchasing power of America’s vast middle class. The spending of the richest 5% alone will not lead to a virtuous cycle of more jobs and higher living standards.
If you've seen the film "Inside Job" -- and even if you haven't -- you are probably at least somewhat aware of the extent to which the FIRE sector is, in the immortal words of someone I worked for years ago, "eating our lunch."
A recent column by David Cay Johnston provided an interesting graphic showing officer compensation as a percentage of corporate profits. In recent years, that percentage has ranged from a low of about 23% in 2005 to a high of about 67% in 2002, with the most recent year, 2008, being about 48%. So for 2008, it is "1 for 'us,' 2 for the shareholders." Now his study extends far beyond the top corporate executives; he's looking at an IRS database that includes nearly 1 million corporate officers, and it may well be that the top, say, 2% of that rarified universe takes a hugely disproportionate share of the total compensation. However, DCJ raises a very important question, which I take to be a challenge that someone in Congress should ask the Congressional Budget Office to look into, to determine whether companies -- particularly nonpublic ones -- are understating officer pay by not filing Schedule E. And he says,
Existing IRS corporate tax reports have for years shown us that fewer than 2,600 megafirms own 81% of all U.S. corporate assets. Another 21,000 firms control most of the rest, leaving just 5.6% of corporate assets that are divvied up among the more than 5.8 million remaining corporations.
The 2008 data show that while almost three million corporate officers show up on company tax returns, only 990,077 Social Security numbers do and of those only 838,551 show up as being paid. That may suggest some owners took no pay in the Great Recession year of 2008, but it also hints at how many officers serve multiple corporations.
The officer pay data show huge variations. Just 70 officers of 1,660 Real Estate Investment Trusts averaged $5.2 million in 2008, while 832 officers of 7,670 property and casualty insurers averaged $3.8 million. At the other end, more than 2.1 million officers of S Corporations averaged just $107,403, though many of them must be officers of multiple corporations.
The FIRE sector. Finance, Insurance and Real Estate. Most Americans, even those who were economics majors in college, don't know the mechanisms by which these parts of the economy get to be such amazing sponges. For the most part, the economics majors learned their economics from instructors whose own education was primarily in neoclassical economics, which only sees two main inputs to production -- Labor and Capital -- and somehow tuck Land in as a minor subset of Capital, rather than recognizing, as the classical economists did, that Land -- locations, natural resources and like things -- is unique and vital. The common wisdom knows "Buy land: they aren't making more of it" but doesn't realize the monstrous and far-reaching corollaries. Who does know? Those whose adult reading experience includes the ideas of Henry George, particularly "Progress and Poverty" and "Social Problems." And "The Science of Political Economy" has a lot to say about vested interests and their effects on economics. (You're likely to find some very quotable material!) All three are online.
Joe Stiglitz, last summer at a talk in Queensland, Australia, made remarks that were reported as follows:
The financial sector (the banks and regulators) are the culprits behind the global financial crisis which has crippled the global economy. Apparently, moneylenders have been skimming 40% of the profits from companies that actually make and produce things. His big point was that this is not really the role of the financial sector. The financial sector's job is to support economic growth, not cripple it.
"Finance is a means to an end," he said. "The lack of balance between the financial sector and the economic sector was actually the real problem in this economic crisis (NOT the real estate bubble)."
Do tax structures affect aggregate economic growth? Empirical evidence from a panel of OECD countries
This paper examines the relationship between tax structures and economic growth by entering indicators of the tax structure into a set of panel growth regressions for 21 OECD countries, in which both the accumulation of physical and human capital are taken into account.
The results of the analysis suggest that income taxes are generally associated with lower economic growth than taxes on consumption and property. More precisely, the findings allow the establishment of a ranking of tax instruments with respect to their relationship to economic growth. Property taxes, and particularly recurrent taxes on immovable property, seem to be the most growth-friendly, followed by consumption taxes and then by personal income taxes. Corporate income taxes appear to have the most negative effect on GDP per capita.
These findings suggest that a revenue-neutral growth-oriented tax reform would be to shift part of the revenue base towards recurrent property and consumption taxes and away from income taxes, especially corporate taxes. There is also evidence of a negative relationship between the progressivity of personal income taxes and growth.
All of the results are robust to a number of different specifications, including controlling for other determinants of economic growth and instrumenting tax indicators.
Readers of this blog will know that I favor shifting to a tax on land value, and eliminating the portion of the conventional property tax which falls on buildings and other improvements to land. But I'm fascinated that their analysis shows that even taxing buildings and other improvements to land, along with land value, is superior to taxing consumption or personal income or corporate income, in terms of the effects on economic growth.
So I'll leave you with this question: if we know that income taxes and consumption taxes discourage growth more than the conventional property tax does, in whose interest is it that we not rely heavily on the property tax? Cui bono?
Go to the root of the problem. Recognize who benefits from the status quo. They like the current system just fine, and will fund heavily efforts to conserve it.
And when California (Proposition 13 forces reliance on wage and sales taxes to "protect" property owners) and other states, including soon Indiana, start complaining about a lack of economic growth, and when New York State's new Governor Cuomo starts talking about "property tax relief," understand that this is code for "we'll take care of our friends who own the choice urban sites, the ordinary man be damned!" This is called conservatism. Like Aleve, it works for them. Does "landed gentry" still resonate?
Notice that this study has been around for two years now. How many times have you heard about it? (It was news to me.) Even the "FairTax" (23%+ consumption tax) folks haven't mentioned it, as far as I know.
<p><a title="Do tax structures affect aggregate economic growth? Empirical evidence from a panel of OECD countries" href="http://www.oecd.org/LongAbstract/0,3425,en_2649_34325_41487020_119684_1_1_37443,00.html">Do tax structures affect aggregate economic growth? Empirical evidence from a panel of OECD countries</a>.</p> <blockquote cite="http://www.oecd.org/LongAbstract/0,3425,en_2649_34325_41487020_119684_1_1_37443,00.html"><strong>Do tax structures affect aggregate economic growth? Empirical evidence from a panel of OECD countries </strong></blockquote> <blockquote cite="http://www.oecd.org/LongAbstract/0,3425,en_2649_34325_41487020_119684_1_1_37443,00.html">This paper examines the relationship between tax structures and economic growth by entering indicators of the tax structure into a set of panel growth regressions for 21 OECD countries, in which both the accumulation of physical and human capital are taken into account. </blockquote> <blockquote cite="http://www.oecd.org/LongAbstract/0,3425,en_2649_34325_41487020_119684_1_1_37443,00.html">The results of the analysis suggest that income taxes are generally associated with lower economic growth than taxes on consumption and property. More precisely, the findings allow the establishment of a ranking of tax instruments with respect to their relationship to economic growth. Property taxes, and particularly recurrent taxes on immovable property, seem to be the most growth-friendly, followed by consumption taxes and then by personal income taxes. Corporate income taxes appear to have the most negative effect on GDP per capita. </blockquote> <blockquote cite="http://www.oecd.org/LongAbstract/0,3425,en_2649_34325_41487020_119684_1_1_37443,00.html">These findings suggest that a revenue-neutral growth-oriented tax reform would be to shift part of the revenue base towards recurrent property and consumption taxes and away from income taxes, especially corporate taxes. There is also evidence of a negative relationship between the progressivity of personal income taxes and growth. </blockquote> <p style="padding-left: 30px;">All of the results are robust to a number of different specifications, including controlling for other determinants of economic growth and instrumenting tax indicators.</p> <p>The full study, 28 pages, is at <a href="http://www.oecd.org/officialdocuments/displaydocumentpdf?cote=eco/wkp%282008%2951&doclanguage=en">http://www.oecd.org/officialdocuments/displaydocumentpdf?cote=eco/wkp%282008%2951&doclanguage=en</a></p> <p>Readers of this blog will know that I favor shifting to a tax on land value, and eliminating the portion of the conventional property tax which falls on buildings and other improvements to land. But I'm fascinated that their analysis shows that even taxing buildings and other improvements to land, along with land value, is superior to taxing consumption or personal income or corporate income, in terms of the effects on economic growth.<br /> <br />So I'll leave you with this question: <strong>if we know that income taxes and consumption taxes discourage growth more than the conventional property tax does, in whose interest is it that we <em>not rely heavily on the property tax?</em> Cui bono?</strong></p> <p>Go to the root of the problem. Recognize who benefits from the status quo. They like the current system just fine, and will fund heavily efforts to conserve it.</p> <p>And when California (Proposition 13 forces reliance on wage and sales taxes to "protect" property owners) and other states, including soon Indiana, start complaining about a lack of economic growth, and when New York State's new Governor Cuomo starts talking about "property tax relief," understand that this is code for "we'll take care of our friends who own the choice urban sites, the ordinary man be damned!" This is called conservatism. Like Aleve, it works for them. Does "landed gentry" still resonate?</p> <p>Notice that this study has been around for two years now. How many times have <em>you </em>heard about it? (It was news to me.) Even the "FairTax" (23%+ consumption tax) folks haven't mentioned it, as far as I know.</p>
The unexpectedly deep plunge in home sales this summer is likely to force the Obama administration to choose between future homeowners and current ones, a predicament officials had been eager to avoid.
Over the last 18 months, the administration has rolled out just about every program it could think of to prop up the ailing housing market, using tax credits, mortgage modification programs, low interest rates, government-backed loans and other assistance intended to keep values up and delinquent borrowers out of foreclosure. The goal was to stabilize the market until a resurgent economy created new households that demanded places to live.
As the economy again sputters and potential buyers flee — July housing sales sank 26 percent from July 2009 — there is a growing sense of exhaustion with government intervention. Some economists and analysts are now urging a dose of shock therapy that would greatly shift the benefits to future homeowners: Let the housing market crash.
It seems as if the suggestion is that we ought to let the housing market crash, and then hope that we will pick up again where we left off, and experience this boom-bust cycle again.
There doesn't seem to be much discussion of the factors that produce the boom-bust cycle, or of the notion that we can actually prevent the next boom-bust cycle through wise policy.
What policy? A tax shift. Shift taxes off wages (starting at the bottom); off sales (starting with essential items); off buildings of all kinds and equipment. What's left to tax?
That which we should have been taxing all along: the value of land. Henry George (b. Philadelphia, 1839; died NYC, 1897) introduced the idea in his 1879 book, Progress and Poverty, which remains 130 years later the best selling book ever on political economy. It sold over 6 million copies by 1900, and George, Thomas Edison and Mark Twain were perhaps the three best-known public figures of their day. George's "remedy" came to be known as the "Single Tax." It was a recipe for small government -- right-sized government, funded by the only legitimate revenue source: value created by nature and by the community. Land, to the classical economists -- Adam Smith, David Ricardo, John Stuart Mill, Henry George, etc. -- was distinctly different from capital. (The neoclassical economists -- and those who only know their sort of economics -- can't seem to see the difference, and conflate them, leading to all sorts of stupid -- and unnecessary -- messes!) Land includes not just the value of locations (on earth, in water, in space) but also electromagnetic spectrum, water rights, non-renewable natural resource values, pollution "rights," and lots of other like things. (Mason Gaffney provides some excellent lists.) Those locations include urban land, land made valuable by favorable climate, water supply, access to ports, to transportation systems, to desirable views, to vibrant cities with jobs, cultural amenities, educational opportunities; geosynchronous orbits; congestion charges; parking privileges, etc. Those of us who claim title to a piece of land ought to be required to compensate the community in proportion to the value of that land, for the right to exclude others from it. That compensation should be paid month in and month out, to the community.
Our current system is perverse. We must purchase the rights to the land from the previous holder at whatever price the market will bear, or what the seller's circumstances require him to accept. Rich landholders can hold out for higher asking prices; poorer ones may be forced to accept lower prices. Few of us enter the market with more than a few percent of the asking price in hand; we mortgage our future earnings in order to pay the seller's asking price.
In most coastal cities, that price is predominately for the location, not for the building itself. A May, 2006, Federal Reserve Board study found that land represented, on average, 51% of the value of single family housing in the top 46 metro markets in 2004; in the San Francisco metro, land represented 88.5% of the value, and in no metro in California did it represent less than 62%. Boston metro was around 75%, NYC metro was about 70% (I'm doing this from memory), Oklahoma City about 20%; Buffalo about 28%. Extrapolating from some of their tables, I found that the average value of a single-family structure across the 46 metros was about $112,000, with a range from perhaps $88,000 in the lowest metro to a high of perhaps $130,000 in the highest. The range of average land values across the 46 metros, though, was much wider, from perhaps $25,000 to $750,000!
Suppose we did let the housing market crash, and then shifted over to George's proposal, collecting our tax revenue first from land rent, and only after we'd collected the lion's share of the land rent, tapping other less desirable revenue sources such as wages, sales and buildings. What would happen?
The selling price of housing would drop to approximately the depreciated value of the structure in which one would live. A large new house would be more valuable than an older house of the same size. A large house would cost more than a smaller one. But one would not pay the seller for value that related to the location of the home.
One would pay, month in and month out, the rental value of the land on which the house sits. Fabulous locations would require high monthly payments; less fabulous ones would have lower monthly payments. Small lots would pay less than larger lots nearby. Owners of condos in a 20-story building would share the cost of the land rent for the site, perhaps in proportion to the quality of their location within the building (fabulous views would pay more than ordinary ones; larger footprints and/or more floors occupied would pay in proportion to their share of the total space).
That monthly payment would go to one's community, and would replace one's property tax, sales taxes, wage taxes. A portion of the payment would be forwarded to one's state, and at the state level, a portion would be forwarded to the federal government.
The selling price of housing would drop, requiring one to borrow far less. The difference would be quite pronounced in San Francisco, Boston, NYC, etc. One's monthly mortgage payment would be significantly lower.
Housing would no longer be an investment, in the sense that one expected to sell a property for more than one paid for it.
Housing would be more liquid; one could own a home, but have a reasonable expectation of being able to sell it if one wanted to move elsewhere.
The credit not used to purchase homes would be available for businesses. Businesses, too, would not be "investing" in land, but would have capital available to invest in equipment and to pay better wages to their employees.
Land which under our current system is both well-located and underused would either be redeveloped by its owners, or come onto the market so that someone else could put it to use. There would be no incentive to keep it underused, as there is today. The redevelopment process itself would create jobs in construction-related businesses, and the resulting buildings would either provide housing or commercial venues -- or both: whatever the market was asking for. And that housing would be at a wide range of points on the income spectrum and the ages-and-stages spectrum: young people starting out, families, retirees, singles, couples -- not just the luxury market. And those newly-created homes would be closer in to the jobs which would support them, rather than separated by long commutes and drive-till-you-qualify.
Land made valuable by public investment in infrastructure and services would provide a continuous revenue stream to the community, providing funding for next year's services, instead of funding for self-selected individuals' retirement.
So if one can't hope to get rich from the appreciation of the land under one's home, how is one to have security? How does one participate in the economy? By investing in businesses that serve customer desires. And when one's housing plus taxes are lower, one has more left over for that. When there is enough housing for all, one isn't paying so much of one's income for it. When no one expects to grow wealthy automatically, people can dream up the business which they will enjoy working in. And with so many businesses competing for workers, wages will tend to rise. With so many businesses competing for customers, services will improve, and specialization increase.
Back to the title of the article: "Grim Housing Choice: Help Today's Owners or Future Buyers?" Maybe economics doesn't HAVE to be the dismal science. Maybe our choices are not so grim after all. Maybe we can put ourselves on a firmer footing, without the boom-bust cycles we've been experiencing so regularly. (See Mason Gaffney's recent book, After the Crash: Designing a Depression-free Economy. And while you're on that site, you might read "The Great Crash of 2008" and "How to Thaw Credit Now and Forever.") Maybe we can leave our children a society in which all can prosper.
Not too much to ask for, is it?
Or shall we leave them a society in which 10% of us are receiving 48% of the income, and 10% of us possessing 71.5% of the net worth.
Where have all the economic gains gone? Mostly to the top. The economists Emmanuel Saez and Thomas Piketty examined tax returns from 1913 to 2008. They discovered an interesting pattern. In the late 1970s, the richest 1 percent of American families took in about 9 percent of the nation’s total income; by 2007, the top 1 percent took in 23.5 percent of total income.
It’s no coincidence that the last time income was this concentrated was in 1928. I do not mean to suggest that such astonishing consolidations of income at the top directly cause sharp economic declines. The connection is more subtle.
The rich spend a much smaller proportion of their incomes than the rest of us. So when they get a disproportionate share of total income, the economy is robbed of the demand it needs to keep growing and creating jobs.
What’s more, the rich don’t necessarily invest their earnings and savings in the American economy; they send them anywhere around the globe where they’ll summon the highest returns — sometimes that’s here, but often it’s the Cayman Islands, China or elsewhere. The rich also put their money into assets most likely to attract other big investors (commodities, stocks, dot-coms or real estate), which can become wildly inflated as a result.
Meanwhile, as the economy grows, the vast majority in the middle naturally want to live better. Their consequent spending fuels continued growth and creates enough jobs for almost everyone, at least for a time. But because this situation can’t be sustained, at some point — 1929 and 2008 offer ready examples — the bill comes due.
This time around, policymakers had knowledge their counterparts didn’t have in 1929; they knew they could avoid immediate financial calamity by flooding the economy with money. But, paradoxically, averting another Great Depression-like calamity removed political pressure for more fundamental reform. We’re left instead with a long and seemingly endless Great Jobs Recession.
THE Great Depression and its aftermath demonstrate that there is only one way back to full recovery: through more widely shared prosperity.
I think Robert Reich sees part of the problem, but he doesn't see the solution. How do we achieve more widely shared prosperity? By a variation on Alaska's theme. In Alaska, a significant share of the value of the state's natural resources is used to fund state government, and another significant share is placed each year into the Alaska Permanent Fund, which is invested in a broadly diversified portfolio and pays an annual dividend of $1000 to $2000 to every permanent resident of Alaska, of all ages. [See http://www.nytimes.com/2010/09/04/us/politics/04alaska.html for an article mentioning this, and the Alaska Permanent Fund link, at the left of this page.] Alaska has it half right: they collect a decent share of the value of the natural resources, but they don't tax their land value much.
How do we share the prosperity beyond the top 10%? By shifting our incentives so that those who currently grow wealthy in their sleep by collecting economic rent find themselves sharing that rent with the rest of us. Untax wages, starting with incomes under the median. Untax sales. Untax buildings. Tax land value. Tax the value of those things which the classical economists would have recognized as land -- water rights, "rights" to pollute, airport landing rights at congested airports, geosynchronous orbits (which prevent satellites from bumping into each other), electromagnetic spectrum (those airwaves which most people would say "belong to the American people" but which we have permitted corporations -- public and private -- to privatize), natural resources such as oil, natural gas, copper, coal, lithium, etc.. All these things are going into corporate portfolios (here and abroad -- and some of those corporations are families in power, despite attempts at nation-building), week in and week out, and their value accrues to the shareholders of the corporations. Stock ownership is quite concentrated, and these benefits flow into the pockets of a relative few, who, as Reich rightly points out, may or may not spend or invest in America's products. When they do invest, they often acquire our best land and resources, buying thereby the labor of thousands of Americans. When an acre in Manhattan can be worth $400 million, the seller of that land didn't make it valuable. WE did! So why should an individual, or a corporation, or a trust, or a university, or a pension fund -- or any private entity -- get to pocket that value as if they did? (The kindest thing I can say is that we have a bad habit! Something like chattel slavery -- and look at how long it took us to end that.)
Pocketing that value has two sorts of effects: when they sell, they pocket that so-called "capital" gain. It isn't capital! It is land value! Capital depreciates; what rises in value is land, and it rises for reasons which have nothing at all to do with the "fellow" who owns it.
But even when they buy and hold, there are important effects of permitting that privatization. The rich don't need to put the land to its highest and best use, because they can get by with something less while they wait for the community to cause it to grow. (See The Taxpayer at 72nd and Madison. Notice all the surface parking lots in Manhattan, Philadelphia, Hartford and many other cities. See the 4.3 acre "hole in the ground" in Stamford, CT, right near the city's 100% location, vacant since the early 1980s.) They're patient! They can afford to be. The top 10% of us hold 71.5% of the chips, according to the 2007 Survey of Consumer Finances.) Not using the land well reduces the supply of housing close to the center of things (adding to sprawl) and/or of jobs (which we say we want) and contributes to a wide range of our most serious social, economic, environmental and justice problems.
If we collected more of the annual rental value of our urban land, the holders of that land would turn into active users or sell it to someone who would put it to good use. Good use creates jobs, and homes and other things that the market wants. But when the market can't afford them, it does without. People are priced out of housing in the places they'd prefer to live. They lack jobs or are underemployed, and the rich keep getting richer.
Reich advocates extending the EITC, exempting the first $20,000 of wages from payroll taxes, improving and extending early childhood education, making public universities free in return for 10% of the first 10 years of full-time earnings, creating "earnings insurance." He concludes,
Policies that generate more widely shared prosperity lead to stronger and more sustainable economic growth — and that’s good for everyone. The rich are better off with a smaller percentage of a fast-growing economy than a larger share of an economy that’s barely moving. That’s the Labor Day lesson we learned decades ago; until we remember it again, we’ll be stuck in the Great Recession.
OUR CONCLUSIONS point to a solution. It is so radical that it will not be considered if we believe less drastic measures might work. Yet it is so simple that its effectiveness will be discounted until more elaborate measures are evaluated. Let us review current proposals to relieve social distress. For convenience, we may group them into six categories:
1. More efficient government 2. Better education and work habits 3. Unions or associations 4. Cooperation 5. Government regulation 6. Redistribution of land
That 10% of us who hold 71.5% of the net worth also received 41.3% of the current income. [Note that these percentages are understated, since the SCF purposely omits the Fortune 400 families. They hold about 1% of the nation's net worth.]
Picketty & Saez provide annual updates on income concentration. For 2008, they report that the top 10% of us (sorted by income, not net worth) received 45.60% of the income when capital gains are excluded and 48.23% of income including capital gains. (For 1988, the corresponding figures are 38.63% and 40.63%; in 1958, 32.11% and 33.56%. Do we notice a trend here? Do we like it or think it a healthy trend?)
We have permitted and supported a structure which funnels wealth and income into relatively few pockets. We have to reform this structure, and we have to recognize that the current beneficiaries are not likely to be keen on reform -- conservatives have a lot to conserve for themselves -- and those who are dependent for their salaries on being popular with those beneficiaries are not likely to be particularly interested in looking at the underpinnings of the structure with an eye to removing some of the ladders (escalators!!) or gentling the chutes.
Those who get to privatize the value of what ought to be common assets grow wealthy in their sleep. Until enough of us understand the mechanism to constitute a majority, we aren't likely to correct it.
It is a bit disheartening to think how many well-regarded economists live in California, the land of Proposition 13, and haven't lifted a finger or opened their mouths to suggest that it is not in the best interests of California's people. Milton Friedman acknowledged many times that the tax on land values was the "least bad" tax -- and didn't have anything to say about Proposition 13, which was the antithesis of what a wise person or society would do with that information. So I guess I shouldn't be surprised that today's California economists, with very few exceptions, aren't all that concerned with the economic wellbeing of ordinary people any more than economists elsewhere are. Or maybe, as my late mother would have expressed it, their educations have simply been neglected. (At which point she would proceed to fill in my newly-identified knowledge gap.) Economists can start with the links in this post, and then explore from there.
I came across a pamphlet published in 1949 by a foundation on whose board I sit, and while there are some things that I might emphasize differently 70 years later, I thought it worth sharing. It speaks to a category I've just added to the "cloud" at left: Natural Public Revenue.
Today we see some additional privileges which corporations (and individuals) are taking advantage of -- the privilege of polluting the world's finite supply of air and water beyond its carrying capacity and ability to heal itself; the privilege of claiming as their own the supply of various other natural resources: e.g., oil, natural gas, lithium, copper. The privatization by corporations of what ought to be revenue sources for common spending should not go unremarked. And trivializing monopoly, as I think the author does, seems odd in light of what we've seen in the intervening years.
Earned Income: Public and Private by Joseph S. Thompson President, Pacific Electric Manufacturing Corp.
THE FATES of America and Europe are inextricably one. A depression here could ruin us and would ruin Europe. We dread a depression; yet we have done nothing salient or radical to prevent it. The Soviet Politburo eagerly predicts and awaits it.
The basic reason why there are depressions and why prosperity is not normal, general, and constant is that we do not distinguish between TRIBUTE TO PRIVILEGE and RECOMPENSE TO SERVICE, and are indifferent to their diametrically opposite effects.
The fault is not in our political system, the freest and best yet devised. It is not in our industrial system which, based on service, saved the world from German domination and will continue to serve us well unless stifled by "Planned Economy," as planned economy has stifled industry elsewhere.
But when we study our taxation system we find a cancerous growth, developed in the last few years, that threatens to destroy all that makes America great, fostering privilege and hampering industry and service. We take for granted the principles underlying our present taxation system; yet adherence to those principles means national disaster.
The full breadth and importance of Chief Justice Marshall's statement that "The power to tax is the power to destroy" seems never to have been wholly grasped or emphatically enough expressed. Taxation destroys good things as well as bad. The power to tax is the power to control a destructive force and, when used, becomes equivalent to a fine. A fine represses, and a tax represses. Simple reasoning develops the fact that a tax is automatically and undeniably a fine. It is an arbitrary seizure of private earnings or acquirements, based on arbitrary opinion, and the fact that the money is used for public purposes does not justify its imposition.
But since money is required for public purposes, how else is it to be provided? The answer is simple: through earned public income.
We are all familiar with earned private income, earned through labor, service, or investment, but few have inquired as to whether there might be a true, just earned public income -- an income that we all, as the public, create and earn jointly as a common wealth just as the individual creates and earns his income as private wealth -- an income that can be measured by fact and not by opinion, forming the basis for, and fixing the limit of, responsible public budgeting -- A PUBLIC INCOME PUBLICLY EARNED AND TO PUBLICLY COLLECTED.
Those who have inquired have been answered by the Physiocrats, by Thomas Carlyle, by Patrick Dove, by Herbert Spencer, by John Stuart Mill, and, in full and complete analysis, by Henry George in his great book, Progress and Poverty. These men have shown that the public income is closely measured by, and reflected in, and therefore should logically, justly, and intelligently be, the rental value of the land.
The rental value of the land, which is the amount that individuals will pay for its exclusive use, if collected or "taxed" by the public, would provide and define the rightful earned income of the public, to which the budget should conform.
Land costs nothing in human effort or creativeness and gets its value only from the presence of people; so, land rental value might better be called location value; and since location value means land in a desirable place among people, land value and location value are really people value. The landlord's title to the land is a legally created privilege. It represents no contribution on his part but gives him an unearned tribute (and it is unearned even though it was bought with money that was earned). Solely by their presence the people create this value, and it is theirs. The people should collect it and nothing else. Arbitrary assessment might have to be resorted to in time of emergency, but, as it is now understood and imposed, taxation should be reserved as a regulative or repressive curb on acts counter to the public interest.
It sounds like quibbling to speak of abolishing taxes while advocating the public collection of land rent; and, since the assessor would define and impose it, and the tax collector would collect it, it does look like a tax on land. But it is not a tax on land. It is payment for the privilege of an advantageous location among people.
It is easy to "capitalize" such an amount. Figure the capital that would earn interest equal to the rent offered. The value of the land is thus set by the rent. Assess it at that value, tax it at the current interest rate, and the public would then collect the value it creates. Taxes would no longer raise the cost of living.
The public collection of land rental simply means a charge by the public for a choice location in the midst of the public. The parking meter is a perfect example of this principle. If you want to use a desirable part of a public street, you pay the current value into a public fund. The parking meter principle should apply to all land. The simple mechanism to correct our revenue system would use present methods, equipment, and personnel, arriving by the test of the market at the desirability of all parcels and periodically adjusting appraisal and taxation to absorb the rent offered by the occupants. There is nothing of arbitrary opinion in this, nor would the rent be created by enactment. It would be a straight business matter, and little change would be needed in our laws.
Our failure to discern the difference between PRIVILEGE and SERVICE is stupid enough in its direct impact on our revenue policy, but it also creates a by-product, land speculation, which terribly hinders our progress and security. There is nothing spectacular about the land speculator. Quietly and conservatively he comes into possession of the title deed to a location, an area, for the purpose of (1) using it, (2) charging someone else for its use, or (3) selling his title at an increased price. If he uses it, he retains a public revenue. If he charges others for its use, he collects a public revenue. IN NEITHER CASE IS HIS MONEY USEFULLY INVESTED, and in both he hopes that the third purpose will be served. He hopes that more people will need the land, increasing its rental value.
When he buys it for the third purpose, straight speculation, to sell it later at a higher price, he becomes an obstructionist. He serves no good purpose. He does nothing useful. He is a legalized holdup man. He makes building, living, and working more expensive.
He could say to himself and to the community, "Someone will need this location in the near future; the growing population will make it more and more desirable; so, since the people will not collect what they create here, I will. I will get in this someone's way and prevent him from using this place until he pays me to get out of his way. I will not have to perform any service for him; the people will do that. He will not even get 'value received' from me because as soon as he begins to use the place, the people will fine him with 'taxes' for improving it. They fine anyone who builds a home or brings a business or service to their community. But they will not fine me; they are already letting me usurp a part of their wealth. I levy a tribute on progress. I capitalize other men's energies. The more they fine those who produce or render service, the more unearned value I gain." This is the unconscious soliloquy of the land speculator.
You may question this sweeping and positive singling out of land rents. What about Corporations? Monopolies? Bonds and Stocks? Capital?
Corporations are formed to perform service or to exploit through privilege, or frequently, to combine the two. To the extent that they perform service, they should retain their earnings, however great. To the extent that they exploit through privilege, they should not be supported by the law.
Monopolies, other than land, are simply opportunities for someone to get a little more than he deserves for what he gives, until competition or buyer resistance checks him.
Bonds and stocks are simply evidence of ownership in corporations that may be good and useful or evil and leechlike. Remove privilege, and they will adjust with the change.
Capital is a tool, and the man who creates it should retain what he earns from its use. The difference which sharply and cleanly separates land rental from payment for the use of buildings, tools, stocks in trade -- in short, from capital -- is that land costs nothing in human effort. Everything else is humanly produced. Money invested in the privilege of exacting tribute in the form of land rent is not capital. It is not usefully invested. "Capital is wealth used to create more wealth."
Resentment against big corporations is purely habit or label thinking. Most corporations spend fabulous sums in research seeking new products, processes, and economies, and you buy from them, not because you have to, but because you want their product. You can buy something else or do without. But you DO HAVE to have a little space on earth. That is a monopoly you cannot escape.
It would seem to be beyond dispute that the threat of depression would be remotely distant if the imbalance of our stupid taxation and the stifling barrier to our progress, land speculation, were both removed by recognition of this simple fact: THE RENTAL WHICH USERS WILL PAY FOR LAND IS THE TRUE EARNED PUBLIC INCOME. IT IS A VALUE CREATED BY THE PUBLIC. TAXATION OF INDUSTRY AND THE HOME IS UNJUST, ARBITRARY, AND DESTRUCTIVE. IT SEIZES PRIVATE PROPERTY.
When we learn this and adopt it for ourselves, we will be fitted to lead the world to prosperous peace.
Almost a month ago (7/12), Martin Wolf, the Financial Times' chief economics commentator, posted a piece to his blog under this title. The last time I looked, perhaps 10 days after his initial post, there were about 150 responses. I circled back recently, and found that the comments count had risen to over 350.
This ended up as a heated debate. Nobody will be surprised if I conclude
that the result of the debate (often surprisingly ill-tempered) was
pro-LVT 10, anti-LVT zero. I am surprised by some of what the anti-LVT
proponents have said. I would have thought they would wish to open their
minds a bit. I did and was persuaded of the case, as a result. Is not
the purpose of such exchanges to learn from one another?
Some of the arguments addressed at the case for LVT are quite extraordinary.
The essential point is quite simple: the value of resources is created
by the economic activity of other factors of production. The owners of
these resources can become hugely wealthy and are often untaxed on that
increase in wealth: the Duke of Westminster is the richest Englishman
simply because he owns a large amount of land in a valuable part of
London. So why should he have command over the labour of so many other
That wealth is, in the strictest sense, unearned. If that rise in wealth
were taxed away, other taxes -- those on labour, capital and
entrepreneurship -- could fall. This would be both efficient (because
taxes on rent do not create distortions, as Ricardo showed) and also
just, because the wealth was unearned. Now, surprisingly, the UK allows
foreign landowners to enjoy the increase in value created by the British
economy, entirely tax-free. This is utterly crazy.
Let me add four other points.
First, throughout history, the main source of wealth was land-ownership.
The parasitic landowner became wealthy on the efforts of others --
peasants, tenants and even developers. Sometimes the parasite was also a
farmer or developer, but that does not change the fact that these are
two distinct economic roles. The parasite built fine castles and palaces
and often sponsored music and culture. But he was still a parasite. The
beauty of capitalism is that many of the wealthiest are no longer
parasites. This is good. But many of the wealthy still are parasites.
Moreover, now everybody wants to get rich by being a mini-landowner.
That is a huge diversion of effort.
Second, the financial system's ills are the result of unchecked
credit-creation. Yes. But unchecked credit-creation would be impossible
without collateral. Land is always the principal form of collateral
(buildings are a depreciating asset). That is why financial bubbles that
do not create credit booms (like the dotcom bubble) are economically
benign, while property bubbles are potentially catastrophic. When the
value of collateral collapses, the financial system implodes.
Third, there is really nothing new about this understanding of the role
of resource rents. They were central to the classical system, from which
modern economics, in its various forms, derives. Ricardo's analysis of
rent remains intellectually impeccable.
Finally, as Herman Daly has noted
(http://steadystate.org/modernizing-henry-george/), today economically valuable
resources are much more than just land (and what lies below it). They
include all the services of the biosphere - those that are appropriated,
those that are appropriable and those that are non-appropriable. If we
do not think seriously and intelligently about how to price resources,
we are likely to go seriously adrift, perhaps even into disaster. Here
land is the least of our problems -- it is appropriable and, by and
large, appropriated. So, at least, the price mechanism works, even
though the distribution of the gain is grossly unjust. But, in other
cases, no appropriation is possible, or at least it is not easy. Nobody
can appropriate the atmosphere. It is nigh on impossible to appropriate
the oceans. How do you own species diversity? These are serious
So, I conclude where I started: resources matter. It was a great mistake
to exclude them from the canonical neo-classical model. It is also a
great mistake not to tax their owners to the hilt.
This article, by David Cay Johnston, is at least a few months old, and I didn't see it when it first came out. I did see a blog post which referred to it, and quoted some passages of it. Here are the ones which caught my eye then:
Without a doubt, the much lower tax rates at the top encouraged people
to realize more income in the tax system. And if the only measure is
that some people made more, then this would be a good.
But let’s ask the question that the
classical economists would have asked back when they were known as
moral philosophers and their leaders spoke of policies that benefited
the majority. Let’s go back to a time before Vilfredo Pareto’s
observations began what is the overwhelmingly dominant orthodoxy today,
neoclassical economics with its focus on gain.
What is the social utility of creating a society whose rules generate a
doubling of output per person but provide those at the top with 37
times the gain of the vast majority? ...
Is a ratio of gain of 37 to 1 from the top to the vast majority
beneficial? Is it optimal? Does it provide the development, support,
and initiative to maximize the nation’s gain? Are we to think that the
gains of the top 398 or 400 taxpayers are proportionate to their
economic contributions? Does anyone really think that heavily
leveraged, offshore hedge fund investments are creating wealth, rather
than just exploiting rules to concentrate wealth, while shifting risks
to everyone else?
Under the overwhelmingly dominant economic theory of today, this is all
good. Pareto argued that if no one was harmed, then all gain was good.
Carried to an extreme, neoclassical economics would say that if the
bottom 99.9999997 percent had the same income in 1961 and 2006, and all
of the gain went to the one other person in America, that would be a
Is our tax system helping us create wealth and build a
stable society? Or is it breeding deep problems by redistributing
benefits to the top while maintaining burdens for the rest of Americans?
Think about that in terms of this stunning fact teased from the
latest Federal Reserve data by Barry Bosworth and Rosanna Smart for the
Brookings Institution: The average net worth of middle-income families
with children whose head is age 50 or younger, is smaller today than it
was in 1983.
But the original has some other important things to say. It begins,
Imagine that all you had to live on was the amount of tax you saved in
your best year because of the many tax rate cuts Congress has put in
place since 1964, when President Johnson signed into law the Kennedy tax
For most Americans, living off income tax savings would mean starvation.
Their income tax savings have been minor, and when looked at over a
long period, say since 1961, increases in payroll taxes have more than
offset their slight income tax reductions.
But for the very few who have gained the most from living in the United
States, the story is quite different. Their tax savings alone from a
single year, invested to earn just 5 percent annually, would be enough
to provide a lifetime income at nearly twice the income threshold for
being in the top tenth of 1 percent.
That's a remarkable decrease for some very privileged folks! Johnston goes on to compare what has happened with incomes at the very top of the scale between 1961 and 2006 with what has transpired for the bottom 90% of us. The bottom 90% saw real income rise from $22,366 to $31,642 (both in 2006 dollars). At the 90th percentile, wages rose from $60,404 to $104,440. DCJ goes on to make some points which Elizabeth Warren and Amelia Tyagi made in "The Two Income Trap:"
That tiny increase in pay does not represent a real increase in wages,
only total income. That is because in the middle of that 45-year era, a
profound transformation took place in America.
In 1961 most families lived on one income, maybe supplemented by some
part-time work by the wife for what was quaintly known back then as "pin
money." Now two-income households are the norm.
The overall wealth of America grew and grew during this era. GDP,
adjusted for inflation and increased population, was up 227 percent. But
wages and fringe benefits did not grow with the economy. For most
workers, they fell. Wages peaked way back in 1972-1973, were on a mostly
flat trajectory for more than two decades, rose briefly in the late
1990s, and then fell sharply in the new century. Airline pilots have
seen their 1990s income cut by more than half; some union factory
workers have seen their pay slashed by two-thirds. Millions are out of
work, and the jobs they once held are gone and are not coming back. And
even if the Great Recession is coming to an end, we face years of jobs
growing more slowly than the working-age population, which could
radically transform America's culture, work ethic, and sense of
In 2006 families worked on average about 900 more hours than families
did in the 1960s and early 1970s. That is a roughly 45 percent increase
in hours worked accompanied by a 41 percent increase in total income.
For many, the reality is that two jobs produce the same or a smaller
after-tax income than just one job did three and four decades ago.
Compare that to the top 400 taxpayers:
The average income for the top 400 taxpayers rose over the 45 years from
$13.7 million to $263.3 million. That is 19.3 times more.
The income tax bill went up too, but only 7.8 times as much because tax
rates plunged. Income tax rates at the top fell 60 percent, three times
the percentage rate drop for the vast majority. And at the top, the
savings were not offset by higher payroll taxes, which are insignificant
to top taxpayers.
The average income tax rate for those at the top in 1961 was 42.4
percent. By 2006 it was down to 17.17 percent. Add on payroll taxes, and
the 2006 rate is 17.2 percent, the same as rounding the income tax
Readers of this site will know that I have no use for income taxes. But until we shift to smart and just taxes, a sharply progressive income tax seems to me to be a better-than-nothing way to fund our common spending.
Johnson ends with this:
Is our tax system helping us create wealth and build a stable society?
Or is it breeding deep problems by redistributing benefits to the top
while maintaining burdens for the rest of Americans?
Think about that in terms of this stunning fact teased from the latest
Federal Reserve data by Barry Bosworth and Rosanna Smart for the
Brookings Institution: The average net worth of middle-income families,
with children, whose head is age 50 or younger, is smaller today than it
was in 1983.
In my humble opinion, DCJ isn't looking quite deep enough. Our tax system -- federal, state and local combined -- is permitting those who own our most valuable common assets (land value and nonrenewable natural resources) to privatize their value, year after year, generation after generation -- and grow hugely wealthy and powerful -- and then merely taxing some of the income from them.
The alternative? Tax the annual value of those resources -- which are rightly COMMON property, provided by the Creator and by the presence of all of us and the spending/investment of the entire Community, not by individuals or corporations -- heavily (say, 90% or 95% of the annual value) and reduce or even eliminate -- starting at the bottom -- the wage and interest and sales taxes and taxes on manmade improvements to land. Think about the ramifications of that reform. They're profound, and point in the direction of a healthier, more stable and more just economy. Will the revenue generated be sufficient to fund all of today's public spending? Probably not. But
1. that's no reason not to shift our taxes off bad taxes onto good ones; and
2. we may find that with good taxes, things change enough that we no longer need to spend large amounts on the social safety net, because a vibrant economy with opportunities for all and a somewhat more equal distribution of income and of wealth and power permits the vast majority of us to be self-sufficient and prosperous.
The bottom 70% or so of us CAN'T save. Large shares of our incomes are devoted to housing and transportation, and to all sorts of FIXED costs. We can't increase our spending on other goods, and we can't save. We have to fix that. We have to do things which distribute the value of that which SHOULD be common, and end the privatization of value which ought to be common.
When there is a benefit to be gained by people congregating in one area rather than spreading themselves out evenly over the entire area of a country such as America, who is entitled to that benefit?
Two people working together produce more than the sum of what they produce separately. How should that surplus be divided?
Should it be divided equally among the workers? Should it be divided in proportion to the contributions of the labor of each worker? Should it all go to the more able of the two workers? Should it go to the fellow who owns the land on which they work? Should it go to those who lent someone money to buy the land? Should it be spent on things which make life more pleasant or work easier where they work?
That figure has been in the news and opinion columns a great deal in the past couple of weeks. It is the percentage of Americans who pay nothing in federal income taxes (as distinct from federal withholding for social insurance).
Some of the articles and related comments have focused on the concept that everyone should be paying something, so that they "have some skin in the game" so that there is an incentive not to vote for spending that others will have to pay for. Some have approached the 47% as "freeloaders."
It is funny that in our largest state, where, for 30+ years, Proposition 13 has put a ceiling on property taxes, so that landholders, who are the primary beneficiary of the effects of state and local spending (and federal funding of state and local projects) can expect their tenants to contribute mightily to the projects they vote for -- and no one has made an impression by pointing this out.
And none of the articles I've seen about the 47% figure -- which went viral after an article by Bob Williams in the WaPo -- have spent much time exploring the policy decisions behind this.
I am reminded that according to our official Federal Poverty Guideline, about 13% of us live "in poverty." And that even the Census Bureau, which collects and reports the data on who lives below the Federal Poverty Threshold (a retrospective figure which relates closely to the FPG) willingly recognizes that the Federal Poverty threshold and guideline are merely a statistical yardstick, with no particular logical relationship to the cost of living anywhere in America.
I am reminded that for the states for which a Self-Sufficiency Standard Study has been published (about 35 in all), the bare-bones cost of living for a young working family typically runs from 180% of the Federal Poverty Guideline -- in the least expensive counties (where very few people live) to perhaps 210% in the major cities of our smaller states to 300% or 400% in the major cities in our larger states.
Should the incomes -- mostly wages -- of our working people whose incomes are insufficient or barely sufficient to meet their own and their families' most modestly defined needs, be taxed?
I am reminded of the Overlooked and Undercounted studies, which typically follow a Self-Sufficiency Standard Study, and seek to quantify the number and percentage of working-age families whose incomes are insufficient to cover their bare-bones cost of living. Significant percentages of these families are at these income levels. 30% to 35% sticks in my mind -- and a larger percentage of America's children.
I am reminded that a large percentage of today's seniors are hugely reliant on their income from Social Security, and that the level of Social Security income is established upon retirement and thereafter only rises to keep up with the CPI-U; our oldest retirees are receiving Social Security incomes which are a function of their wages 30 years ago -- roughly as logical as California property taxes for long-time owners being based on the selling price of California housing 30 years ago!
I am reminded that many people get to deduct their mortgage interest and real estate taxes from their taxable income (they're typically in the coastal states; in the heartland states, the standard deduction often turns out to be higher, since taxes and interest payments tend to be lower ... which may correlate to the percentage of children who attend 4 year colleges).
And I am reminded that state and local taxes fall more heavily on low-income people than they do on high income people. (See "Who Pays? A Distributional Analysis of the Tax Systems in All 50 States", particularly the "Averages for All States" table on page 124 of 130), which shows that, on average, the bottom quintile of us pay 10.9% of our income in state and taxes, while the fourth quintile pays 8.5% and the top 1% pays just 5.2%, on average.
I am reminded of our concentration of income:
10% of us receive 47.19% of the before-tax income
20% of us receive 60.96% of the before-tax income
40% of us receive 79.14% of the before-tax income
60% of us receive 90.37% of the before-tax income [see middle-class agenda, on the next page of this blog]
So the bottom 40% of us receive less than 10% of the before-tax income. And those who think they don't pay enough in taxes would like them to pay more into the system than they already do? The problem is one of low wages, unemployment and underemployment. The best solution to these problems I've come across lies in the ideas of Henry George. The law of wages is something like the law of gravity: we operate in ignorance at our own risk.
This article describes some of the tax approaches that governments, mostly overseas, are turning to in order to plug holes in their budgets.
It is amazing that none seem to have thought about going back to basics, and drawing a larger share of the needed revenue from the one tax base that can be tapped without distorting the economy, without driving productive activity elsewhere, without taking from producers that which they produce.
It seems to me that a municipality, or state, or federal government should tap the annual value of the land within its borders before it starts to tax the wages or purchases of its people. If the municipality fails to collect that rental value, then the state ought to be able to do it; if the state fails to collect it, then the federal government ought to collect it.
And should the municipalities wise up and collect the lion's share of the land rent within their borders, the state and federal governments have other like tax bases they ought to be tapping: the value of water rights, of the airwaves, of geosynchronous orbits, of airport landing rights at busy airports, pollution, non-renewable natural resources such as oil, natural gas, lithium, etc. [The classical economists called all these things "land," as opposed to capital or labor, the other two inputs to production.]
They don't need to get creative. They need to go back to basics: tax that which nature provides; tax that which the community creates -- not what individuals and corporations create.
My brother (an alum) called this one to my attention. My husband and I are alumni, too, and some years ago, when it came time to look at colleges, our son refused to seriously consider Union because he had seen Schenectady on various visits to campus over the years, and simply couldn't imagine living there for four years. He made a great choice for a college, but I've often mulled over what the article is discussing: that the problems of Schenectady, like much of upstate New York, make it an unhappy place, one where many people would not choose to live, given other options. Its economy is hurting -- and for reasons that can be easily corrected.
Union always had a well-regarded economics department, and being as close to the state capital at Albany, some students did internships in various legislature offices.
So why on earth haven't Union's Economics and Political Science departments applied their sciences -- and talents -- to the problems of Schenectady, and proposed solutions?
Part of the answer might be that for several generations, neither of these sciences have put much thought into the problem that underlies Schenectady's troubles. It hasn't been fashionable to talk about, and many haven't even had the vocabulary. Most of today's economics professors learned their economics at the feet of neoclassical economists. They have a lot to fit into a trimester, and they're not likely to teach that which their own instructors chose to omit. But they're missing something important and relevant. The classical economists had a lot to tell us which points to the root of some of today's most serious problems.
Or perhaps those seeking a better future for Schenectady might turn to the History department, or to American Studies. Students of the last half of the 19th century might be able to tell them about an American philosopher and economist named Henry George (b. 1839, Philadelphia; d. 1897, NYC), who was the best known (due in part to his bestselling book on political economy, Progress and Poverty, which was familiar to anyone who read at all during the last 20 years of that century; it sold about 6 million copies and was widely serialized and translated) of a long continuum of people who called attention to the importance of land and natural resources in our economy, and to the distortions that result when we permit the privatization of their economic value -- or about the movement which followed in the early years of the 20th century. George proposed a simple and just remedy, and I'll bet that not 10 of this year's Union graduates have even heard of it. (That doesn't set Union apart from many other highly regarded colleges, but it is clearly a shame: that these students have spent 3 or 4 years in Schenectady, and not gotten close to some answers about why there is such poverty and underdevelopment in the state of New York, from which many of Union's students come. They come from much richer parts, in general.)
The small cities of upstate New York, like many other places in America, are suffering from the use of the wrong taxes. Schenectady is perhaps an extreme example. When we tax both land value and buildings at the same millage rate, we discourage the sort of development which we claim to want. The answer, of course, is to reduce or even eliminate the tax which falls on buildings, and increase the millage rate on land value.
Union's economics and political science departments owe it to their hometown to take on this topic. First, the faculty must educate themselves. And then they must involve their students, particularly those who come from New York State. They can become a force for good, a force for reform of some miserable policies, and for a shift to superior ones.
They may find themselves coming up against the "real estate interests" -- including alumni, perhaps -- who think that this might not be in their own best interests (and therefore discourage the exploration). (Governor Spitzer, the son of a real estate magnate, would not have been enthusiastic about this, for instance. He convened a panel to try to offer "Property Tax Relief" as an answer to some question -- but it was probably not primarily for homeowners. Remember Leona's wisdom about taxes.) Will Union's best and brightest be able to push through the interested parties' incentives, or will they be derailed by pressure not to study this matter? They have tenure, many of them, and most live in or close to Schenectady.
The political scientists might start with a couple of Google books, such as "Natural Taxation" (by one of the founding partners of Shearman & Sterling) or "The ABC of Taxation." They're available via Google books, and will soon be online in other forms. (Stay tuned here for updates.)
And all might appreciate the writings of Bill Batt, an Albany-based thinker on a lot of important issues which could be of great help to Schenectady.
And if any of them think this might simply be a quaint agrarian idea, I encourage them to read this page, and consider which of these issues don't affect Schenectady or their own futures.
People as diverse as Henry Ford, Theodore Roosevelt, Aldous Huxley, Clarence Darrow, Bernard Shaw, and Leo Tolstoy have embraced these ideas, as have a wide range of wise people from earlier centuries, and contemporaries as diverse as Bill Buckley and Michael Kinsley. They are a fine example of thinking globally and acting locally, and represent a "third way."
Will Union College act -- and in the process, teach its students some important truths -- or simply nibble at the leaves of Schenectady's problems? Go to the root!
Post Script: Union's faculty, and others who care about Schenectady, have an opportunity to get to know these ideas this summer. There will be a conference in Albany, July 12-16, of the umbrella group for North American Georgists. Some of the sessions will be of great interest to those who care about Schenectady, but I mention it here primarily because it will be an opportunity to interact with people who know George's ideas well and are persuaded that they can make an important difference in the world. (This post didn't start out to be a promotion for the conference, but I was glad to find that the conference schedule is now available online. It ends: "The Law of Rent never changes, but our schedule
may - without notice.")
I'd missed the article when it was published a week ago, but an LTE brought it to my attention. The author is Richard Thaler, a professor of economics and behavioral science at the newly re-named business school at the University of Chicago (forever to be recalled as GSB by some, despite stern orders in the alumni rag).
He proposes auctioning off "The Buried Treasure in Your TV Dial." But he isn't suggesting leasing it for some finite period of time, with a new auction at the end of, say, 5 or 10 or 15 years, but selling it forever. As one of the LTE's says,
Re “The Buried Treasure in Your TV Dial” (Economic View, Feb. 28), in
which Richard H. Thaler cites an estimate that the government could
reap $100 billion by auctioning the portion of the radio spectrum used
for over-the-air television:
How long would such a sum last, however, in an era of military
adventures and over 700 foreign military bases? What would be permanent
is the loss of both choice and the free reception of radio and
television programming. Ownership of electronic media, and access to
the privatized airwaves, would be as concentrated as cable and
satellite systems are today.
The column says that such an auction would have many national benefits.
But virtually all them, like faster broadband connections for schools,
could be obtained by federal policy, not a fire sale.
Those airwaves belong to the American people, and the American people ought to be collecting full rent on them -- year in, year out -- not giving away licenses and then permitting corporations to make a business in re-selling or leasing out what they choose not to use.
Here's Thaler's article. I look forward to his next suggestions; he has the germ of a good idea, but gets a very important aspect of it wrong. Don't sell our common asset to anyone. AUCTION OFF LEASES. Wait 5 years. Repeat.
HERE’S a list of national domestic priorities, in no particular order:
Stimulate the economy, improve health care, offer fast Internet
connections to all of our schools, foster development of advanced
technology. Oh, and let’s not forget, we’d better do something about
the budget deficit.
Now, suppose that there were a way to deal effectively with all of
those things at once, without hurting anyone. And suppose that it would
make everyone’s smartphone work better, too. (I’ll explain that benefit
I know that this sounds like the second coming of voodoo economics, but
bear with me. This proposal involves no magical thinking, just good
common sense: By simply reallocating the way we use the radio spectrum
now devoted to over-the-air television broadcasting, we can create a
bonanza for the government, stimulate the economy and advance all of
the other goals listed above. Really.
The reason for this golden opportunity may be in your purse or pocket:
that smartphone to which you could well be addicted. The iPhone, the
BlackBerry and competing devices are already amazing technologies. But
precisely because of the nifty features they offer, like the ability to
text photos, stream video and provide GPS directions, the radio
spectrum is looking as crowded as Times Square on New Year’s Eve.
Demand for spectrum is growing rapidly — a trend that will surely
The problem is that the usable radio spectrum is limited and used
inefficiently. Think of it as a 100-lane highway with various lanes set
aside for particular uses, including AM and FM radio, TV and wireless
computer technology. The government — specifically, the Federal
Communications Commission — is in charge of deciding which devices use
Because we can’t create additional spectrum, we must make better use of
the existing space. And the target that looks most promising in this
regard is the spectrum used for over-the-air television broadcasts.
These frequencies are very attractive on technological grounds. People
in the industry refer to them as “beachfront property” because these
low-frequency radio waves have desirable properties: they travel long
distances and permeate walls. We have already allocated parts of this
spectrum for mobile wireless, and the F.C.C. recently auctioned other
parts for $19 billion. That has left 49 channels for over-the-air
Why is the current use of this spectrum so inefficient? First, because
of the need to prevent interference among stations, only 17 percent of
it is actually allocated by the F.C.C. for full-power television
stations. (The so-called white space among stations is used for some
limited short-range applications like wireless microphones.)
Second, over-the-air broadcasts are becoming a nearly obsolete
technology. Already, 91 percent of American households get their
television via cable or satellite. So we are using all of this
beachfront property to serve a small and shrinking segment of the
Suppose we put this spectrum up for sale. (The local stations do not
“own” this spectrum. They have licenses granted by the Federal
Communications Commission.) Although the details of how to conduct this
auction are important, they don’t make compelling reading on a Sunday
morning. Interested readers should examine a detailed proposal made to
the F.C.C. by Thomas W. Hazlett, a professor at the George Mason
University School of Law who was formerly the F.C.C.’s chief economist.
Professor Hazlett estimates that selling off this spectrum could raise
at least $100 billion for the government and, more important, create
roughly $1 trillion worth of value to users of the resulting services.
Those services would include ultrahigh-speed wireless Internet access
(including access for schools, of course) much improved cellphone
coverage and fewer ugly cell towers. And they would include other new
things we can’t imagine any more than we could have imagined an iPhone
just 10 years ago.
But some compelling technology that could use these frequencies already
exists, like wireless health monitoring — to check diabetics’ blood
sugar regularly, for example — and remote robotic surgery that can give
a patient in Idaho a treatment like that available in New York or
Who would oppose this plan? Local broadcasters are likely to contend
that they are providing a vital community service in return for free
use of the spectrum that was put in their hands decades ago. Whether
the local news or other programs are vital services is up for debate,
but their value isn’t the issue, because they can be made available via
cable, satellite and other technologies, including improved broadband.
Say there are 10 million households that still get their television
over the air, including those that can’t afford cable or satellite and
some that generally just don’t care for what’s on TV. (Yes, there are
people who don’t like “American Idol.”) But about 99 percent of these
households have cable running near their homes, and virtually all the
others, in rural areas, could be reached by satellite services. The
F.C.C. could require cable and satellite providers to offer a low-cost
service that carries only local channels, and to give vouchers for
connecting to that service to any households that haven’t subscribed to
cable or satellite for, say, two years.
Professor Hazlett estimates that $300 per household should do it: that
amounts to $3 billion at most. Compared with the gains from selling off
the spectrum, it’s a drop in the bucket. Or, as an interim step, we
could reduce the number of channels available in a community from 49
to, say, 5.
I KNOW that this proposal sounds too good to be true, but I think the
opportunity is real. And unlike some gimmicks from state and local
governments, like selling off proceeds from the state lottery to a
private company, this doesn’t solve current problems simply by
borrowing from future generations. Instead, by allowing scarce
resources to be devoted to more productive uses, we can create real
value for the economy.
Economists are fond of saying that there is no such thing as a free
lunch. Here we have an idea that is even better than a free lunch:
being paid to eat lunch. More paid-lunch ideas will be coming in future
The classical economists might never have heard a radio or seen a television, but they'd immediately recognize broadcast spectrum as "land" -- a gift of nature, finite and scarce -- and would have regarded it as our common treasure. Unfortunately, Professor Thaler is not a classical economist. He is a neoclassical economist, and his training in economics probably glossed over the truths the classical economists saw. And quite likely, that's how he teaches the subject, too.
We can concentrate more wealth in the hands of a few corporations, or we can collect the economic rent on this scarce and valuable resource. (See also Alaska Permanent Fund, in the topic cloud at left.)
The term "millionaire" used to always be a reference to net worth. Recently, we've started to see it used to refer to people with annual incomes of $1 million or more -- usually in articles suggesting that a significant and growing percentage of us fall into that category and isn't America wonderful?
In 2007, according to the Federal Reserve Data, only 9% of U.S. households had at least $1 million in net worth. That
9% made the majority of charitable contributions, owned the majority of
equity in unincorporated and closely held businesses, and had a
disproportionately large share of investable assets as compared with
the remaining 91% of the population. These “wealthy households” made
53% of all household charitable contributions ($117 billion). They also
owned 93% ($13.7 trillion) of business equity owned by all households
in unincorporated and closely held businesses, and they had 41% ($10.3
trillion) of investable assets owned by all households, i.e. liquid
assets, stocks, bonds, and mutual funds. Typically, wealthy households
do not have million dollar incomes. In 2006, the average wealthy
household income before tax amounted to $354 thousand, while the median
amounted to $159 thousand. Only 6% of millionaire households made as
much as $1 million in 2007. The pattern is similar for unearned income.
The average household unearned income of millionaire households was
$145 thousand in 2006 and the median was $18 thousand. Only 6% of
wealthy households had unearned income of as much as $500 thousand.
Nevertheless, wealthy households received 86% of total unearned income received by all households in 2006.
Among wealthy households, both household income and household assets
are importantly related to charitable giving, but assets, especially
investable assets, are much more important than income. Statistically,
the relationship between the value of assets and the amount of
charitable giving is roughly 7 times stronger than the relationship
between the level of income and the amount of charitable contributions.
Put simply, millionaire households make charitable contributions more
because they are wealthy than because they earn a high income.
Most (more than 90%) millionaires acquired their wealth in their own
lifetimes through business, investment, or service as corporate
executives rather than through inheritance. The majority became wealthy
through growing their own business or investing in businesses of
others. They tend to be entrepreneurial and agents of economic
expansion. In earlier paragraphs we saw that as a group they own 93% of
the equity in unincorporated and closely held businesses owned by all
households in the U.S. Even in retirement millionaires participate in
business opportunities. They contribute to local economic development
as a source of funds, as a potential investor, and as an agent for
creating new businesses and expanding established ones.
This seems to be a paean to trickle-down economics, and even those of us who don't believe in trickle-down economics can be tempted to accept that, since our wealthiest fellow citizens have such a large fraction of the total net worth, trickle-down must be the only relevant model for understanding wealth.
I question the realities behind the statement that "Most (more than 90%) millionaires acquired their wealth in their own
lifetimes through business, investment, or service as corporate
executives rather than through inheritance."
Many of them, I suspect, were given college educations by their parents or grandparents; a private college education today costs about $200,000. Not an insubstantial figure. Graduate school runs about the same amount, particularly in the private universities or for out-of-state students at public universities.
Many of them, I suspect, were given the 20% down payment on a home either by the government or by their parents or other relatives. It might have been 20% of $80,000 or $125,000, which might sound trivial in relation to their 2007 $1,000,000 corpus -- but it made a big difference which the paragraph above fails to acknowledge. (Paying off the other 80% made a relatively small contribution to their "home equity.") The appreciation of the land under that home may be a major contributor to their net worth.
We may call that "investment" but it is really the legalized privatization of that which one's community and one's local, state and federal governments' spending has created. Self made men? Hmph! And the startup funds for their businesses may have come from borrowing on that land equity. -- and of course that interest is deductible on one's federal and, likely, state income taxes. A nice subsidy, huh? And the most profitable businesses tend to be those who own the building and land on which the business is conducted -- and the sites of others' businesses too! Those folks may work hard -- almost as hard as their employees -- but they also get the benefit of the local economic activity as it drives the selling and rental value of their landholdings upward. Bu we permit them to call themselves self-made. Aren't we generous? Or would it be more accurate to say that we're wearing blinders?
We should set the playing field level between landlord businesses and tenant businesses. (Land value taxation would do this.) Landlords do not create land! To permit structures which compensate them as if they do is dumb.
A bit later, the study continues,
According to the Survey of Consumer Finances, sponsored by the Board of Governors of the Federal Reserve, on a national basis households
with net worth of at least $1 million, headed by a person age 60 or
older, comprise 4% of all households but donated approximately 25% of
all household charitable contributions in 2007 (the most recent year for which data is available).
The first paragraph of their 3-paragraph conclusion reads:
During the December 13, 2009 edition of “Meet the Press” former Chairman of the Federal Reserve, Alan Greenspan, touted the importance of rising stock prices to economic recovery. In a broader context Greenspan’s words highlight the importance of wealth to economic growth. During decades of research at the Center on Wealth and Philanthropy we have consistently found that wealthy households contribute disproportionately more to charitable causes both from their household assets and from their foundations, trusts, and donor advised funds.
Perhaps we would have less need for charity if we had a less concentrated distribution of wealth in America. Perhaps, if we funded our local, state and federal spending via taxes on the value of the commons that individuals and corporations and other domestic and foreign entities claim as their own -- instead of taxing sales and wages and buildings -- we'd create more opportunity for more people to earn adequate incomes.
Until we do that, though, shouldn't we be collecting back this land appreciation once per generation, through taxes on the largest estates?
"Unaffordable housing" The term still keeps cropping up. Which part of
a house is not affordable? The roof? The bricks? The drains? The
roofing tiles? The plumbing system? The amount builders have to be paid
to put it all together?
Go into any builders' merchant and check the prices. They are all very
affordable. It costs, at most, £100k to build a decent house. Which is
very affordable when spread over 40 years - £50 a week. So what is
going on to make houses unaffordable? I have asked this question many
times over the past 30 years. Usually, the response is a yawn, so the
resulting problems, are in a sense a richly deserved reward.
Too many have stood aside, not watched what is going on in the world
and failed to try and make sense of it. Hence the talk about
"unaffordable house prices" Anyone who uses the phrase "unaffordable
house prices" without further explanation is guilty of extreme mental
laziness. Which is most of us, and now we are living with the
consequences of our neglect.
This of course includes the Nationwide Building Society, which would do
everyone a good turn if they scrapped their so-called House Price Index
and replaced it with a housing land price index.
That's the slogan on the two-story high advertising mural found recently on a building in Galesburg, Illinois. (Photo here.) It is an ad for Henry George 5 cent cigars. (See also this page of cigar ads.)
The "I am for men" slogan was on a pin I found on ebay a few years ago. The seller made some comment about it being anti-feminist. Well, she or he didn't know much about George.
When I googled the phrase, I found some interesting things. Here's one:
Henry George, a nineteenth-century
American author and political economist, was nominated for the office of mayor
of New York in 1886. He was called to a meeting at the Cooper Institute to speak
to working men. The chairman of the meeting gave him a flowery introduction with
the customary political rhetoric. The chairman concluded by saying, "Henry
George is the friend of the working men." As soon as Mr. George rose to his
feet, slowly and emphatically he said, "I would like to announce that I am
not the friend of the working man." Stunned silence ensued -- a strange kind
of bewilderment. He went on, "Nor am I the friend of capital. I am for men
simply as men, regardless of any accidental or superfluous distinctions of race,
creed, color, class, function, or employment." [source.]
I found a front-page article in the Scranton (PA) Tribune and Kansas City Journal (among others) of October 30, 1897, the day after Henry George's death, which reported some of the campaign speeches George had given on his last day, a few days before the 1897 mayoral election. Here is one of them:
At College Point there were 1,200 common laborers, a rough crowd, closely packed in the hall. Mr. George was introduced as the friend of the working man.
He began: "I have never claimed to be a friend of the workingmen. I do not now make any such claim (there was a pause of dead silence). I have not and do not intend to advocate anything in the special interest of the laboring man (another dead pause; Mr. George walked the full length of the platform and let out his full voice in a shout:). I am for men! (The crowd set up such a cheering and stamping that the room was filled with a choking dust). I am for men! -- the equal rights of all men. Let us be done with asking privileges for the laboring men."
I also found a 1906 book called "Looking Forward," by August Cirkel, which has a chapter by that title which starts with these paragraphs:
"I am for men." This
famous expression, uttered by Henry George, sounds the keynote of the
true spirit in which every public policy should be tested. Does it make
men? Does it make them stronger, or wiser, or better? These are the
all-important questions to be asked, when the effect of any system is
to be noted. If the answer cannot be made affirmatively, sophistical
must be the arguments that support it.
The kind of laws and
institutions any people lives under is the kind of laws and
institutions that that people deserves to live under. Every thing of
life builds the body that it inhabits, and what kind of abode it
constructs for itself, that is the kind of abode it must dwell in.
Every people makes its own government. Where a race is ruled by
tyrants, craven fear smites the hearts of the masses, and rather than
endure the dangers of asserting their divine prerogative of freedom,
they shuffle through life in cowardly submission to a few men no
stronger than themselves.
I found a 1910 speech by Theodore Roosevelt, entitled "New Nationalism" which contains these paragraphs:
I believe in shaping the ends of government to protect property as well
as human welfare. Normally, and in the long run, the ends are the same;
but whenever the alternative must be faced, I am for men and not for
property, as you were in the Civil War. I am far from underestimating
the importance of dividends; but I rank dividends below human
character. Again, I do not have any sympathy with the reformer who says
he does not care for dividends. Of course, economic welfare is
necessary, for a man must pull his own weight and be able to support
his family. I know well that the reformers must not bring upon the
people economic ruin, or the reforms themselves will go down in the
ruin. But we must be ready to face temporary disaster, whether or not
brought on by those who will war against us to the knife. Those who
oppose reform will do well to remember that ruin in its worst form is
inevitable if our national life brings us nothing better than swollen
fortunes for the few and the triumph in both politics and business of a
sordid and selfish materialism.
Near the end of the same speech, TR says this:
One of the fundamental necessities in a representative government such
as ours is to make certain that the men to whom the people delegate
their power shall serve the people by whom they are elected, and not
the special interests. I believe that every national officer, elected
or appointed, should be forbidden to perform any service or receive any
compensation, directly or indirectly, from interstate corporations; and
a similar provision could not fail to be useful within the States.
The object of government is the welfare of the people. The material
progress and prosperity of a nation are desirable chiefly so long as
they lead to the moral and material welfare of all good citizens. Just
in proportion as the average man and woman are honest, capable of sound
judgment and high ideals, active in public affairs; but, first of all,
sound in their home, and the father and mother of healthy children whom
they bring up well; just so far, and no farther, we may count our
civilization a success.
(TR by that time had become quite comfortable with Henry George's ideas. See his party's 1912 platform "A Confession of Faith.")
In 1917, Luke North (James Hartness Griffes) published a book of poetry entitled "Songs of the Great Adventure" which included this:
"I AM FOR MEN"
He stood for Men —
Not for parties, sections, classes;
Not for dogmas, doctrines, isms —
Nor all the minutiae of over-elaborated plans for the future,
Nor for craven caution, dissimulation, equivocation —
Patience that now outrages virtue —
Program'd ways and means which if not followed
The world may stay in hell.
He stood for Men —
For in his soul he knew the line of cleavage
Was not between the robber and the robbed —
Was not marked by external difference,
By rank or class or occupation or wealth or poverty.
He knew that poor men could be very cruel and rich men kind.
He knew the line of cleavage was in the heart — those who care and those
who don't —
This Henry George who wrote "Progress and Poverty."
He stood for Men —
And was he wrong to yield no tithe to classes?
What has now become of all the appeals
To class interest, class consciousness, class solidarity?
The human heart will not respond to them — in every class are tyrants.
The human mass forgets its every interest,
Flings to the wind all self and class advantage
And goes out to die for a word.
He stood for Men —
And showed the world how to unshackle the chains that bind men. He showed how poverty begins,
Where modern slavery has its roots,
And how to tear them up.
The earth is for all men, he said —
And his word has gone around the world —
And now it's time to act!
He stood for Men —
Not creeds and doctrines, nor all the lesser details of future
He bared the earth to man.
It is for us to take it.
He tried to gain it, and was beaten back to his death.
Now we will gain it —
At whatever cost!
Check out this fine book of poetry -- and if you know of a songwriter looking for inspiration, send them to this starting page.
It is ironic that Henry George's name became associated with cigars. He smoked, and that likely contributed to his premature death at age 58. He wrote about cigar-making and taxation as follows, in Chapter 8 of "Protection or Free Trade?"
It is no wonder that princes and ministers anxious to make their
revenues as large as possible should prefer a method that enables them
to "pluck the goose without making it cry," nor is it wonderful that
this preference should be shared by those who get control of popular
governments; but the reason which renders indirect taxes so agreeable
to those who levy taxes is a sufficient reason why a people jealous of
their liberties should insist that taxes levied for revenue only should
be direct, not indirect.
It is not merely the ease with which indirect taxes can be collected
that urges to their adoption. Indirect taxes always enlist active
private interests in their favor. The first rude device for making the
collection of taxes easier to the governing power is to let them out to
farm. Under this system, which existed in France up to the Revolution,
and still exists in such countries as Turkey, persons called farmers of
the revenue buy the privilege of collecting certain taxes and make
their profits, frequently very large, out of the greater amount which
their vigilance and extortion enable them to collect. The system of
indirect taxation is essentially of the same nature.
The tendency of the restrictions and regulations necessary for the
collection of indirect taxes is to concentrate business and give large
capital an advantage. For instance, with a board, a knife, a kettle of
paste and a few dollars' worth of tobacco, a competent cigar maker
could set up in business for himself, were it not for the revenue
regulations. As it is, in the United States, the stock of tobacco which
he must procure is not only increased in value some two or three times
by a tax upon it; but before the cigar maker can go to work he must buy
a manufacturer's license and find bonds in the sum of five hundred
dollars. Before he can sell the cigars he has made, he must furthermore
pay a tax on them, and even then if he would sell cigars in less
quantities than by the box he must buy a second license. The effect of
all this is to give capital a great advantage, and to concentrate in
the hands of large manufacturers a business in which, if free, workmen
could easily set up for themselves.
But even in the absence of such regulations indirect taxation tends to
concentration. Indirect taxes add to the price of goods not only the
tax itself but also the profit upon the tax. If on goods costing a
dollar a manufacturer or merchant has paid fifty cents in taxation, he
will now expect profit on a dollar and fifty cents instead of upon a
dollar. As, in the course of trade, these taxed goods pass from hand to
hand, the amount which each successive purchaser pays on account of the
tax is constantly augmenting. It is not merely inevitable that
consumers have to pay considerably more than a dollar for every dollar
the government receives, but larger capital is required by dealers. The
need of larger capital for dealing in goods that have been enhanced in
cost by taxation, the restrictions imposed on trade to secure the
collection of the tax, and the better opportunities which those who do
business on a large scale have of managing the payment or evading the
tax, tend to concentrate business, and, by checking competition, to
permit large profits, which must ultimately be paid by consumers. Thus
the first payers of indirect taxes are generally not merely indifferent
to the tax, but regard it with favor.
The other passage about cigars which I recalled turned out to be not from Henry George, but from his friend Louis F. Post, who went on to be President Wilson's Secretary of Labor:
Though land value has no effect upon the price of good,
it is easier to sell goods in some locations than in others. Therefore,
though the price
and the profit of each sale be the same, or even less, in good locations
poorer ones, aggregate receipts and aggregate profits are much greater
at the good location. And it is out of his aggregate, and not out of each
that rent is paid, For example: A cigar store on a thoroughfare supplies
a certain quality of cigar for fifteen cents. On a side street the same quality
of cigar can be bought no cheaper. Indeed, the cigars there are likely
poorer, and therefore really dearer. Yet ground rent on the thoroughfare
is very high compared with ground rent on the sidestreet. How, then, can
the first dealer, he who pays the high ground rent, afford to sell as good
or better cigars for fifteen cents than his competitor of the low priced
location? Simply because he is able to make so many more sales with a given
labor and capital in a given time that his aggregate profit is greater.
This is due to the advantage of his location, and for that advantage he pays
a premium in higher ground rent. But that premium is not charged to smokers;
the competing dealer of the side street protects them. It represents the
greater ease, the lower cost, of doing a given volume of business
upon the site for which it is paid; and if the state should take any of
it, even the
whole of it, in taxation, the loss would be finally borne by the owner
of the advantage which attaches to that site — by the landlord. Any
attempt to shift it
to tenant or buyer would be promptly checked by the competition of neighboring
but cheaper land.
Location, location, location! Or, as a friend in the advertising business put it when I told him about George's ideas, Location, Location, Taxation!
As I read and listen to and watch the news -- earthquake, ice storms -- and think about the past year -- floods, fires, mudslides, hurricanes, nor'easters, more earthquakes -- it seems to me that nature provides us plenty of opportunities to exercise our compassion and charity, individually and as a nation, and plenty of spending opportunities for maintaining necessary infrastructure.
We don't need to maintain economic structures which create additional human misery. There is enough without them.
We can't control nature. But we CAN correct man-made structures which victimize our fellow human beings.
We don't need poverty in the world. We could manage just fine without it.
It is time to delve into those structures, and get to the root of them.
When we get to the root, we'll recognize it and know what to do about it.
When we've done that, our safety nets will be there for those who have health problems, or accidents, or are victims of nature's whims. We'll be able to devote our energies and funds to things which can't be avoided -- acts of nature -- instead of trying to patch up the victims of our economic system.
The good news is that economics need not be a dismal science. When viewed through the lenses of the classical economists, a lot more things look a lot more fixable.
Poverty is a structural problem. Nothing we try to do for or with individuals is going to make the least bit of difference in the structures which are producing poverty. While I applaud the hearts and efforts of those who seek to improve the lives of individuals afflicted with poverty through charity, through education, through aid, even through job creation, none of these things is going to end poverty until we correct the structures which take for some that which others create. You might move one person from being a sower to being a reaper, but you aren't going to reduce the problem of some being permitted to reap what others sow until you attack the structures which permit it!
And isn't it government's job to create and promote structures which protect all of us from exploitation by others?
This short article by Steve Hanke, of Johns Hopkins and Cato, begins,
On January 3rd, US Federal Reserve Chairman Ben S. Bernanke delivered a
major speech at the annual meeting of the American Economic
Association. In his formal paper, “Monetary Policy and the Housing
Bubble,” Chairman Bernanke argues that the Fed’s monetary policy was
not responsible for the U.S. housing bubble. He claims that faulty
regulation was the primary culprit.
Chairman Bernanke’s claim is a great canard. The Fed is a serial bubble
blower. Let’s first consider the Fed-generated demand bubbles. The
easiest way to do this is to measure the trend rate of growth in
nominal final sales to U.S. purchasers and then examine the deviations
from that trend. As the accompanying chart shows, nominal final sales
grew at a 5.4% annual rate from the first quarter of 1987 through the
third quarter of 2009. This reflects a combination of real sales growth
of 3% and inflation of 2.4%.
These data talk, and the most interesting thing they say is that every
18 years we can expect the culmination of a credit-fueled real estate
and ensuing business cycle. This, of course, doesn’t imply that all
recessions are preceded by a real estate cycle. It only says that all
real estate cycles have spawned economic downturns.
This knowledge has allowed for some prescient forecasts. The prize in
that department goes to Prof. Fred Foldvary who wrote in 1997: “the
next major bust, 18 years after the 1990 downturn, will be around 2008,
if there is no major interruption such as a global war.”
For a full treatment of the 18-year real estate cycle, I recommend the following items:
Fred E. Foldvary. “The Business Cycle: A Georgist-Austrian
Synthesis.” American Journal of Economics and Sociology Vol. 56, No. 4,
Mason Gaffney. After the Crash: Designing a Depression-Free Economy.
Ed. Clifford W. Cobb. Chichester, U.K.: Wiley-Blackwell, 2009.
Phillip J. Anderson. The Secret Life of Real Estate and Banking. London: Shepheard-Walwyn, 2009.
The reader might wonder why there are several hundred posts on this blog, and rather few comments. Why do I keep on writing?
This blog comes out of an experience which Georgists -- people who are persuaded that Henry George (b. 1839, Philadelphia; d. 1897, NYC) largely got it right -- call "seeing the cat." The phrase refers to an AHA!!! moment once described as follows:
I was one day walking along Kearney Street in San
Francisco when I noticed a crowd in front of the show window of a
store. They were looking at something inside. I took a glance myself,
but saw only a poor picture of an uninteresting landscape. As I was
turning away my eye caught these words underneath the picture: "Do you
see the cat?" I looked again and more closely, but I saw no cat. Then I
spoke to the crowd. "Gentlemen," I said, "I do not see a cat in that
picture; is there a cat there?" Some one in the crowd replied: "Naw,
there ain't no cat there. Here's a crank who says he sees a cat in it,
but none of the rest of us can." Then the crank spoke up. "I tell you,"
he said, "there is a cat there. The picture is all cat. What you
fellows take for a landscape is nothing more than a cat's outlines. And
you needn't call a man a crank either because he can see more with his
eyes than you can with yours."
Well, I looked again very closely at the picture, and then I said
to the man they were calling a crank, "Really, sir, I cannot make out a
cat in that picture. I can see nothing but a poor drawing of a
commonplace landscape." "Why, Judge," the crank exclaimed, "just you
look at that bird in the air. That's the cat's ear." I looked but was
obliged to say: "I am sorry to be so stupid but I really cannot make a
cat's ear of that bird. It's a poor bird, but not a cat's ear." "Well,
then," the crank persisted, "look at that twig twirled around in a
circle; that's the cat's eye." But I couldn't make out an eye. "Oh,
well," returned the crank a bit impatiently, "look at those sprouts at
the foot of the tree, and the grass; they make the cat's claws." After
a rather deliberate examination, I reported that they did look a little
like claws, but I couldn't connect them with a cat. Once more the crank
came back at me as cranks will. "Don't you see that limb off there? and
that other limb just under it? and that white space between?" he asked.
"Well, that white space is the cat's tail." I looked again and was just
on the point of replying that there was no cat's tail there that I
could see, when suddenly the whole cat stood out before me.
There it was, sure enough, just as the crank had said; and the
only reason the rest of us couldn't see it was that we hadn't got the
right angle of view. but now that I saw the cat, I could see nothing
else in the picture. The poor landscape had disappeared and a fine
looking cat had taken its place. And do you know, I was never
afterwards able, upon looking at that picture, to see anything in it
*but* the cat.
To which Nic Tideman added, "In my view, 'the cat' is the possibility of a world without
The goal of this website is to help others see what Georgists see. We look around and see dozens -- hundreds -- thousands -- of social problems which ultimately, if you go to the root, are offshoots of our -- America's, the world's -- failure to recognize that the value of land, non-renewable natural resources and other like things (that which the classical economists would recognize as "land" even if they never saw an airplane [prime landing rights at LaGuardia] or heard a radio or TV [electromagnetic spectrum] or imagined a satellite in geosynchronous orbit, or lived in a place where water wasn't in seemingly infinite supply, or a time when clean air wasn't a given) ought to be socialized -- treated as our common treasure through taxation -- while things which individuals and corporations create ought to be privatized (not taxed).
There! I've written a sentence of a length that only a few can parse. But perhaps it will give you a sense of the Georgist vision and reform.
I write this blog in the hope that a curious journalist, or legislative aide, or reformer, or foundation board member, or simply another person who thinks that there has to be another, better way than what we are currently doing, will find this body of posts, and explore it long enough to start to see the cat, too, and then share it with others who are willing to work for a better country and better world.
I'll close with a quote from Henry George's book, Social Problems, in an essay called "What We Must Do."
"I do not say that in the recognition of the equal
and unalienable right of each human being to the natural elements from
which life must be supported and wants satisfied, lies the solution of all
problems. I fully recognize that even after we do this, much will remain
to do. We might recognize the equal right to land, and yet tyranny and spoilation
But whatever else we do, as along as we fail to recognize the equal right
to the elements of nature, nothing will avail to remedy that unnatural
inequality in the distribution of wealth which is fraught with so much evil
Reform as we may, until we make this fundamental reform, our material progress
can but tend to differentiate our people into the monstrously rich and
frightfully poor. Whatever be the increase of wealth, the masses will still
be ground toward
the point of bare subsistence — we must still have our great criminal
classes, our paupers and our tramps, men and women driven to degradation
from inability to make an honest living."
I wish, however, that Bob Drake's 2006 abridgment, Progress and Poverty: Why there are recessions and poverty amid plenty -- and what to do about it!, a thought-by-thought updating of Henry George's much longer original -- was also available as for Kindle.
Which of the reasons below prevents you from enrolling?
and proceeds to list 7 "reasons" one might propose. Here's the first one:
1.George's ideas may
have been important in the 19th century, but today we're in
an information economy, land doesn't really matter, and besides,
poverty really isn't much of a problem anymore. George
described fundamental principles that always apply
as long as people need a place to live and don't want to work
for nothing. Sure, the economy has changed, but land remains
extremely important. Ask anyone struggling to remain in a
gentrifying neighborhood. Poverty no longer a problem? Worldwide,
by any measure, billions of people remain in poverty. In the
U. S., few of us starve but many of us suffer from high cost
of living, low wages, and poor working conditions. Why should
supporting a family require both parents to have full-time
employment? Why should people have to commute an hour or more
from areas with affordable housing to areas with decent jobs?
These thoroughly modern problems are clearly analyzed in our
The Lincoln Institute of Land Policy, an organization founded back in the 1940s by an industrialist enthusiastic about the ideas of Henry George, who intended that his wealth be used to promote those ideas, publishes a newsletter, the link to which arrived in my inbox last week. One of the articles was by Chip Case, recently retired from Wellesley, and half of Case-Shiller. The article is titled, "Housing, Land and the Economic Crisis" and it appears in "Land Lines."
What I take issue with is this statement:
The expansionary monetary policy pursued during this short period reduced the cost of buying a home by almost a third.
It might be correct to say that monetary policy reduced the cost of borrowing a particular amount of money by almost a third, and I suspect that is what Chip meant to say. But the reality is that instead of a potential buyer being able to purchase a particular house for 1/3 less monthly outlay for mortgage costs, he was able to borrow 50% more for the same monthly outlay -- and indeed, if he wanted to buy that particular house, he was competing for it with other people who WOULD be willing to borrow 50% more, so he would have to. And he needed to accept an adjustable rate mortgage, with all the downside that leads to.
This drove up the transaction prices, and produced the appearance of home equity against which a larger percentage of non-sellers were able to borrow. The spending -- on credit -- has led to profits for retailers and manufacturers, and most certainly for bankers (and thus to greater concentration of our wealth and income) and, as it had to, to a bust of large magnitude and widespread pain.
Have we learned, or are we going to do this again?
The article is titled, "Housing, Land and the Economic Crisis" and it appears in "Land Lines." But the word "land" appears only twice in the article:
second paragraph: "Between 2000 and 2005, the value of residential land and buildings increased from about $14 trillion to $24 trillion. About half of this increase reflected new construction, and half was due to rising land values, primarily on the coasts (Case 2007). But in late 2006 prices began to decline, and by mid-2009 they had fallen roughly 30 percent.
antepenultimate paragraph (I knew I'd have a use for that word someday!): "California represents about 25 percent of all the land value in the United States, and events there have major implications for the rest of the country. The good news is that for the last three months, the indexes for San Francisco, San Diego, and Los Angeles have led the nation in price appreciation. The California Association of Realtors reports substantial increases in home sales volumes except in the Central Valley.
I'm disappointed that neither Case nor Lincoln saw fit to connect the dots.
(And I'll note parenthetically that California and Florida's steeply rising land prices were in part due to their limitations on the property tax under Proposition 13 and "Save Our Homes" respectively. Many of California's problems would get better if they would simply fund their public spending from a tax on their land value, rather than suppressing that tax and relying on taxes on sales and wages, both of which depress any economy.)
Lenders ought not to be lending on speculative land values. Localities ought to be collecting more of the economic rent on the land within their borders, lowering the selling price of land without reducing its value in use -- and arguably increasing it! Localities and states ought to be lowering their taxes on buildings, on wages, on sales, and substitute the revenue from collecting economic rent. See also Mason Gaffney: How to Thaw Credit, Now and Forever, online at his website (above).
I stumbled across a webpage, created by William Domhoff of UCSC, which contains some fascinating data on income distribution and wealth distribution, or, if you prefer, income concentration and wealth concentration.
I've posted the wealth concentration data separately; here, I'll focus on the concentration of income. Table 6 draws on work of Edward Wolff, of NYU, not yet published.
Income Distribution, 1982 and 2006
Turning to Capital Income -- by which I assume they mean income derived not from wages but from other sources, which includes that which the classical economists called land, and which the neoclassical economists subsume under "capital" as if they were identical:
+19.7 percentage points
-4.4 percentage points
-2.6 percentage points
-2.2 percentage points
-10.5 percentage points
Is this something we're proud of, or think we ought to be exporting to other countries? Is it consistent with our ideals, about life, liberty and the pursuit of happiness being the right of every American, of every person on earth?
We're permitting the privatization of things which rightly belong to the commons -- to all of us. What things? The value of natural resources flows into whose pockets? The annual value of urban land flows into whose pockets? The value of water rights flows into whose pockets? The value of the airwaves flows into whose pockets? (Hint: look at the distribution of capital income!) The value of 8am landing rights at LaGuardia flows into whose pockets? The value of geosynchronous orbits so necessary to certain businesses and systems flows into whose pockets? The bottom 80% of us? The next 19% of us? The top 1%? The owners of so-called "small" businesses?
These are privileges. Structures which divert to individuals and corporations things which all of us create. They reap what we together sow, and then we are led to respect them as "self-made men" and success stories.
They are not eternal. They are not immutable. Each can be reformed, and each can provide a significant revenue source to meet our communities' need for revenue for common purposes. Collecting this revenue this way will not damage our economy as our current tax structure does. It will, however, lighten the portfolios of some who are used to considering themselves blessed by our current way of doing things -- those born on 3rd base who think they hit a home run. And create some opportunities for those who want to works, and for those who want to be compensated for their work with wages which begin to line up better to the cost of living.
There IS enough to go around. Not enough for all of us to live like the top 1%, perhaps, but certainly enough for many more of us to live at the sort of level we call middle class, and even at the, say, 70th percentile -- without despoiling the earth.
The University of Chicago was founded with Rockefeller support. He who pays the piper calls the tune.
I think the root of a lot of our current economic problems can be found here. Our prominent economists learned their economics from neoclassical textbooks and instructors and full professors who learned their economics from neoclassicals. I suspect, too, that it is very difficult to teach what one doesn't know. It is difficult to get tenure from neoclassical departments if you aren't hewing the line.
I commend to your attention Mason Gaffney's newest book: After the Crash: Designing a Depression-Free Economy. Unless, of course, you like booms and busts. You can order it at http://www.schalkenbach.org/ or from Wiley.com.
perhaps the answer to Professor Krugman's question is that very few of
the current crop of economists -- saltwater or freshwater (read the
article!) -- ever were guided into reading the work of one of the
foremost writers on political economy.
And perhaps the few who did read it were too embarrassed to challenge their brethren.
But even a look at the textbooks from which most of the college and university economics professors teach their students would demonstrate that Henry George got it right,
and that his ideas, while eclipsed by economists who know where their
own bread is buttered, and which ideas they ought not to embrace while
seeking tenure (during which they forget the little they ever did learn
about this wise man's thought and observations) still shine and still
explain what we see around us better than the neoclassical economists
who are embraced by most teaching and government economists and economics pundits.
I commend to their
attention Henry George's books, all of which are available online and
all of which can be purchased in hardcopy from http://www.schalkenbach.org/:
* Political economy is the science which deals with
the natural laws
governing the production and distribution of wealth and services. Seems like something most of us have a vital interest in understanding ourselves and promoting widespread understanding.
Henry George, along with the other CLASSICAL economists (as opposed
to the NEO-classical economists from whom most of today's students
learn their economics) recognized that there were three factors of
production: land, labor and capital. The Neo-classicals seem to
consider the distinction between land and capital too much nuance for
their taste, and gloss lightly over it, as if land and natural
resources were no longer worth talking about in 20th or 21st century
America -- or the rest of the world. While the classical economists weren't familiar with electromagnetic spectrum, or geosynchronous orbits, or rush-hour landing rights at LaGuardia Airport, or water rights, or pollution rights, or oil as a major energy source, or parking spaces for cars in congested cities, they would immediately recognize each of these things as "LAND," and they would likely agree with Henry George that we are all equally entitled to them, and that permitting some to privatize their value, and forcing others to pay them just as if they'd created them is a poor idea.
We fail to measure the value of these important assets, or we measure them only poorly, or we ignore the implications of valuing these rightly-common assets. Or we ignore the work of those who do measure them. Do you think that land value and natural resource value mattering is just a quaint agrarian idea, in the context of the 21st century?
Remind me again what it is that we and
others go to war over.
Remind me how much of the typical family's
budget is going to the FIRE sector (finance, insurance, real estate -- including the sellers from whom homeowners in coastal states bought their homes, who reaped what they did not sow).
Remind me how much the typical family is paying for energy and other
non-renewable natural resources.
Remind me which direction the average worker's wages are going, and how difficult it is to find work, despite there being so many unsatisfied needs and wants in the world
Remind me how concentrated our
nation's and the global income and wealth is -- and why.
Remind me again of the havoc that our boom-bust cycles create in the lives of Americans and our neighbors around the world.
Remind me again of what sprawl costs us; of what too little exercise costs us; of what long commutes cost us; of what children growing up in families with insufficient income to meet their most modestly defined needs costs us. (These are very closely related, and can be traced to a single underlying fallacy in how we structure our economy. And they can be ameliorated by recognizing and correcting that fallacy.)
Then tell me
again that LAND and natural resources don't matter in the 21st century.
How did economists get it so wrong? To use my mother's phrase, their education was neglected. Even Paul Krugman's as best I can tell.
In the new issue of the Atlantic, there is this very wise pair of paragraphs.
"END ALL TAXES - EXCEPT ONE" by Reihan Salam, Fellow at the New American Foundation
"The property tax may be the most loathsome tax in America. During the
1970s, a number of activists - angry that their tax burdens were rising
as their neighborhoods became more desirable - pushed to abolish it
altogether. President Nixon proposed significantly reducing state
property taxes by implementing a federal consumption tax that would
fund public education across the country. But when this proved a lost
cause, the masses sought instead to strictly limit annual property tax
increases through a series of ballot initiatives. The result hasn't
been pretty. Chronic revenue shortfalls have crippled local governments
ever since, leading to heavier reliance on punishing state income and
sales taxes. What if the problem isn't the property tax at all but rather, well, all
other taxes? In 1879, Henry George, a brilliant if slightly crankish
autodidact, published Progress and Poverty,
a scathing polemic that blamed all economic ills on the private
ownership of land. A staunch believer in laissez-faire economics,
George found it perverse that we tax productive activities like work
and innovative investment while letting landowners grow rich simply
because they scooped up property at the right time. In that spirit,
George called for a "Single Tax" on the unimproved value of land.
There's a certain compelling logic to the Single Tax that stands the
test of time. When you tax income, aren't you punishing people for
working hard? But when you tax an asset like land, you're simply
encouraging the most valuable use of that land. In the years since
George faded from the scene, a number of economists, from Milton
Friedman to Paul Romer have found virtue in the Single Tax, not least
because it creates the right incentives for government. Simply put, the
better you govern, the more valuable the property. The more valuable
the property, the more revenue you raise."
Bravo! From Reihan Salam's pen to the eyes and ears of all who are trying to figure out how to get us out of our current tax and revenue mess.
And if you're curious about what others have said about land value taxation, google "quotable notables" and "quotable nobels"
P.S. This is part of the cover story, entitled "The Ideas Issue: How to Fix the World"
That was the name of a bi-monthly magazine published from 1926 to 1940, successor to The Single Tax Review. I want to share its premise with you. It turns out that it was expressed a bit differently from one issue to the next. These come from the 1940 volumes.
WHAT LAND AND FREEDOM STANDS FOR
Taking the full rent of land for public purposes insures the fullest
and best use of all land. In cities this would mean more homes and more
places to do business and therefore lower rents. In rural communities
it would mean the freedom of the farmer from land mortgages and would
guarantee him full possession of his entire product at a small land
rental to the government without the payment of any taxes. It would
prevent the holding of mines idle for the purpose of monopoly and would
immensely increase the production and therefore greatly lower the price
of mine products.
Land can be used only by the employment of labor. Putting land to its
fullest and best use would create an unlimited demand for labor. With
an unlimited demand for labor, the job would seek the man, not the man
seek the job, and labor would receive its full share of the product.
The freeing from taxation of all buildings, machinery, implements and
improvements on land, all industry, thrift and enterprise, all wages,
salaries, incomes and every product of labor and intellect, will
encourage men to build and to produce, will reward them for their
efforts to improve the land, to produce wealth and to render the
services that the people need, instead of penalizing them for these
efforts as taxation does now.
It will put an end to legalized robbery by the government which now
pries into men's private affairs and exacts fines and penalties in the
shape of tolls and taxes on every evidence of man's industry and
All labor and industry depend basically on land, and only in the
measure that land is attainable can labor and industry be prosperous.
The taking of the full Rent of Land for public purposes would put and
keep all land forever in use to the fullest extent of the people's
needs, and so would insure real and permanent prosperity for all.
Pretty short and sweet, isn't it? It might look out of date in this computer age -- though I would argue that it is not, even and especially in our most dense and developed cities -- but if you don't see its importance in the developed world, can you see that for the other 80%, including many places where American lives are at stake and our dollars being spent, it has huge relevance?
And as a means of ending poverty for the billions who do not get to reap the harvest of their own labor, it is of prime importance.
From the March/April issue:
WHAT LAND AND FREEDOM STANDS FOR
That the earth is the birthright of all Mankind and that all have an equal and unalienable right to its use.
That man's need for the land is expressed by the Rent of Land; that
this Rent results from the presence and activities of the people; that
it arises as the result of Natural Law, and that it therefore should be
taken to defray public expenses.
That as a result of permitting land owners to take for private purposes
the Rent of Land it becomes necessary to impose the burdens of taxation
on the products of labor and industry, which are the rightful property
of individuals, and to which the government has no moral right.
That the diversion of the Rent of Land into private pockets and away
from public use is a violation of Natural Law, and that the evils
arising out of our unjust economic system are the penalties that follow
such violation, as effect follows cause.
We therefore demand:
That the full Rent of Land be collected by the government in place of
all direct and indirect taxes, and that buildings, machinery,
implements and improvements on land, all industry, thrift and
enterprise, all wages, salaries and incomes, and every product of labor
and intellect be entirely exempt from taxation.
Taking the full Rent of Land for public purposes would insure the
fullest and best use of all land. Putting land to its fullest and best
use would create an unlimited demand for labor. Thus the job would seek
the man, not the man the job, and labor would receive its full share of
The freeing from taxation of every product of labor would encourage men
to build and to produce. It would put an end to legalized robbery by
The public collection of the Rent of Land, by putting and keeping all
land forever in use to the full extent of the people's needs, would
insure real and permanent prosperity for all.
California is looking for stimulus money from the Federal taxpayer, or, perhaps more precisely, from the federal taxpayers' children.
Yet for the past 30 years, California law, created under 1978's Proposition 13" has PROHIBITED the taxation of land value at a rate higher than 1% of assessed value, and, in addition, limits the annual increase in assessed value to 2%, even when and where market values rise by 10% or 20% or more, until the property is resold, which results in both a very low and a very uneven taxation of land value.
This forces California into using taxes which both burden the poor and damage their economy: sales taxes, wage taxes.
It also strangles any effort to collect back for the commons that which our common spending creates. 4 shares for the landholder, 1 share for the community ... or , if you've owned your California property for 10 or 20 years, 9 shares for the landholder and 1 share for the community.
Meanwhile, California has one of the lowest homeownership rates in the entire US. For 1Q 2009, the US homeownership rate was 67.3% (down from a peak of 69.1% four years earlier); California's was 56.8%, down from 59.9% 1Q2005. So nearly half of Californians are paying rent, and paying it to landlords who pass only a tiny fraction of it on to the community in the form of taxes -- leaving the tenants to pay sales and wage taxes. Perverse, cruel, dumb, privilege-maintaining.
The classical economists observed hundreds of years ago that all benefits go to the landlord. Landlords grow rich in their sleep. Land rises in value for reasons which have nothing to do with the activity or inactivity of the individual landholder, and everything to do with the presence of the community, the public spending of the community on infrastructure and services. California's voters -- knowingly or unknowingly, but most likely the latter -- said that that was just fine with them, and the young people and the renters be damned!
Please don't come asking the rest of us to tax our wages to fund your "stimulus" when you won't tax your own landholders more than 1% -- and many of them a tiny fraction of 1% -- to meet your own state's needs.
If your current governor, who benefits mightily from Proposition 13, won't lead you in the right direction, elect someone who will.
Polly Cleveland (the Georgist who surprised me some years ago when she told me that she'd initially found Progress & Poverty to be a page-turner, a major contrast to my experience on first reading it) sent out this book review this morning, and, with her permission, I am sharing it here.
REVIEW Unjust Deserts : How the Rich Are Taking Our Common Inheritance
and Why We Should Take It Back, by Gar Alperovitz and Lew Daly
Isaac Newton and Gottfried Wilhelm von Leibniz simultaneously invented
calculus in the 1670's. As Isaac Newton wrote, "If I have seen far,
it is because I have stood on the shoulders of giants." Charles
Darwin mulled over the origin of species for 20 years until jolted into
publication by the arrival of a manuscript from Alfred Russel
Great geniuses and great entrepreneurs make the strongest possible case
for outsize rewards based on merit. Yet as Alperovitz and Daly argue,
these giants drew their ideas from society around them. And they were
often very lucky. For almost any modern invention, there are several
potential claimants -- even if only one actually got the
The authors review the writing of a long line of the economists and
philosophers, starting with John Locke, Adam Smith, David Ricardo, John
Stuart Mill and Henry George, through Thorstein Veblen, Edwin Cannan and
Frank Knight to modern economists and philosophers including Robert
Solow, John Rawls and Amartya Sen, as well as economic journalist David
Warsh. From these, they develop three basic propositions:
Locke: that an individual has a right to that which he actually creates
by his own unique efforts.
Second, from Ricardo: the demonstration that
unearned income -- economic rent -- is created not by individuals but by
Third, from Mill and others: the judgment that such
income should belong to society as a whole.
Alperovitz and Daly add their own original fourth proposition: the more
advanced a society becomes, the more each of us depends not only on those
around us but also on those who came before -- and bequeathed to us their
knowledge. Moreover, "this past buildup of knowledge should be
treated as a common inheritance." The wealthier our society
becomes, the less any individual can rightfully claim a large share of
the wealth. That makes our present growing inequality profoundly
Georgists will find this book a treasure trove of arguments and
quotations from scholars, obscure and famous, expressing views similar to
those of George.
in 1854, Scottish philosopher Patrick
Edward Dove wrote that the "principle of allocating the rent to the
community, instead of to individuals" would "secure to every
laborer his share of the previous labors of the community."
And from George's contemporary, Edward Bellamy, "All that a man
produces today more than his cave dwelling ancestor he produces by virtue
of the accumulated achievements inventions and improvements of the
intervening generations together with the social and industrial machinery
which is their legacy."
According to George, wages depend upon the margin of cultivation,
"the highest natural opportunities" open to labor. Drawing from
George, John Bates Clark created his theory that factors of production
receive their marginal product, wages for workers and interest for
capital. (Clark merged land with capital.) But Clark turned the marginal
product argument against George, claiming that workers in fact
deserved what they were paid. Of course Clark ignored George's
central theme: that the margin in turn depends upon the distribution of
land ownership. Alperovitz and Daly add a further rebuttal to Clark,
citing a 1914 article by Walter Adriance, that Clark's error lies in
"not attributing to the cooperation of the rest of the group any
part of the so-called 'marginal product.'"
Alperovitz and Daly offer the usual liberal proposals for income and
inheritance tax reforms, with which I don't disagree. But although they
identify economic rent as rightly belonging to society, and cite George
several times, they suggest no direct strategies for collecting rent for
public purposes. In fact, they even claim "skyrocketing"
property taxes burden the middle class! If we really hope to take back
our common inheritance, we must strengthen the property tax, which is our
original wealth tax. And we must go after rent wherever it pops up -- not
just land titles, but oil leases, broadcast licenses, patents, bank
charters, pollution "rights", fishing quotas, even taxi
I send Econamici--occasional emails with interesting attachments or
links--to friends who are economists or care about economic issues. If
you can't follow a link, I can send you the actual article. Please let me
know if you want to be removed. Past Econamici are posted to
The top 25 entries, whose 2009 holdings range from £10,800m down to £1,400m, include 16 which came from
The combined value of the top 25 fortunes is £73.88 billion. At 5% per year, that produces £3.7 billion in income -- quite a sizable amount to be shared among 25 families! (£1,400m is $2.1 billion US; £3,700m is $5.6 billion US.)
Notice that each of these fortunes is fundamentally from natural resources. Yes, there is capital involved, and labor. But under the laws of most countries, natural resource holdings and extractions are taxed lightly if at all, and labor is taxed heavily.
The schedule for the annual gathering of Georgists (that is, people who are persuaded that the economist and social philosopher Henry George (b. 1839, Philadelphia; d.1897, NYC), author of "Progress & Poverty" and a book of essays entitled "Social Problems," among others, pretty much had it right) is now online. It is in downtown Cleveland in early August.
Looking over the schedule, I see a lot of familiar names -- people I've come to know since I attended my first CGO meeting in 2001 -- and some people I've not yet met face to face but know online. I'm happy that we have few sessions running side by side, because virtually all of the programs are of interest to me.
My last visit to Cleveland was with 600 delightful women, and included a great and noisy party at the Rock 'n' Roll Hall of Fame. (I just had the pleasure of being on the host committee for the same group's 2009 Annual Meeting!) At that time, I didn't know the significance of the larger-than-life statue nearby of Cleveland mayor Tom L. Johnson. The book he holds in his hand is P&P.
If you would like to see an end to poverty, come join us.
If sprawl and its concomitants concern you, come join us; we know how to slow it and reverse it and channel it into reusing the land already well served by taxpayer-provided infrastructure.
If long commutes -- and the fuel, pollution, spending and time loss involved -- worry you, come join us.
If you would like to see a more stable economy, without the booms and busts which cause such widespread pain and ruin, we have answers.
If you would like to see healthier cities and a more vibrant economy, come listen to what some of these people have to offer.
If unaffordable housing troubles you, come talk to us.
If the extreme concentrations of income and wealth -- particularly of natural resource wealth -- trouble you, we know how to correct it gently and justly.
If you hate the income tax and recognize that sales and consumption taxes damage the economy, but still believe that there are some things government can do better than the private sector, we know how to finance that spending justly.
We come from all over the political spectrum, and share little except a major commitment to creating a better and more sustainable world and society and economy for all. (That's a lot actually!) It is a joy to spend a few days with people so passionate about social and economic justice and with a clear vision of how to get there.
If you're curious about Henry George, you might start where I started, with four of his speeches. I found these as pamphlets in the files of my late grandparents when I took possession of their library and file cabinets and some sentimental treasures. My first pass was for genealogical information. Shortly after that, I started reading a speech entitled "Thou Shalt Not Steal," and it clicked. My paternal grandparents (three of them, actually: my own grandparents, and my step-grandmother, whose first husband was a dear family friend, too, in the 1940s and 50s) were all Georgists. For every landmark occasion in my young life, their gifts included a lovingly inscribed copy of Progress & Poverty (just in case I'd misplaced the previous ones!) But I'd not done more than thumb through it. When I first did get around to reading it, I was in my late 40s; my grandparents were quicker studies, and devoted the second half of their lives to promoting these ideas. My first read of P&P was a slow slog; a friend shocked me when she said she found it a page-turner, a mystery whose solution she was anxious to get to. Now I admit I read it for, and with, pleasure.
Another piece you might read is my grandfather's "An Introduction to Henry George" or my grandmother's more humorous article, "My Introduction to Henry George;" she went on to write delightful short stories for Ladies Home Journal, Colliers, the Saturday Evening Post and many other magazines in the 40s. Things have come full circle -- I'm on the board of two Georgist foundations, including the one my grandfather worked for and with for over 30 years, the Robert Schalkenbach Foundation. And following in the example of my late stepgrandmother, who tried to write an activist letter every day, I try to post comments on either my blog or other blogs or articles online every day. I mostly succeed, though in the past month or two, I've fallen short. And I've created a website to make Henry George's ideas accessible to people coming from a wide range of interests and points of view: http://www.wealthandwant.com/
As I read the obituaries in my local paper, I see a great correlation between age at death and which funeral home (and/or church) is involved. Those who are buried from the black-owned funeral home have a much lower average age ... many people in their fifties and sixties ... while white people in my town tend to live decades longer, on average. I've long believed it was a matter of the stress of dealing with racism and for many, of living in relative poverty in a very expensive part of America. High blood pressure and diabetes are significant factors.
And I think often of the effects of poverty on my small city's children, more than half of whom (at least in the public schools) are from "minority" families, including immigrants from many other parts of the world. Many lack sufficient income to meet their families' most modestly defined needs.
This article in the Economist provides some interesting and useful perspective. I am going to take the liberty of sharing it in its entirety, because I think it matters greatly.
So what are we going to do? Random acts of kindness? Bandaids? Or are we going to seek the structural causes of poverty, the reasons why wealth and income are so concentrated in a country which declares itself dedicated to the proposition that we're all created equal? We permit some of us to privatize that which rightly should be share by all of us: the value of the natural creation; the value of that which we-the-people create via our presence, via our public spending on infrastructure and services and via technological progress. And then we treat those who have figured out how to privatize it as "self made men" and celebrate their accomplishments. They reap what they have not sown ... and the sowers do not get to reap. And their lives are hard --- and their children's lives are harder.
How do we fix this? Get to understand poverty's causes ... click on that link in the cloud of topics out to the left on this page. And then correct them.
I am just a poor boy though my story's seldom told
From The Economist print edition | Apr 2nd 2009
How poverty passes from generation to
generation is now becoming clearer. The answer lies in the effect of
stress on two particular parts of the brain
THAT the children of the poor underachieve in later life, and thus
remain poor themselves, is one of the enduring problems of society.
Sociologists have studied and described it. Socialists have tried to
abolish it by dictatorship and central planning. Liberals have
preferred democracy and opportunity. But nobody has truly understood
what causes it. Until, perhaps, now.
The crucial breakthrough was made three years ago, when Martha Farah of the University of Pennsylvania showed that the working memories of children who have been raised in poverty have smaller capacities than those of middle-class children.
Working memory is the ability to hold bits of information in the brain
for current use — the digits of a phone number, for example. It is
crucial for comprehending languages, for reading and for solving
problems. Entry into the working memory is also a prerequisite for
something to be learnt permanently as part of declarative memory — the
stuff a person knows explicitly, like the dates of famous battles,
rather than what he knows implicitly, like how to ride a bicycle.
A friend in the UK gave me permission to share his post here. You might explore Winston Churchill's writings on the subject, entitled "The People's Land" at wealthandwant.com/docs/Churchill_TPL.html. I'm on the fly today, and didn't copy in Jock's links. You might want to go to his original to pursue them!
People's Budget Day tagged with: * Land Value Tax * 1909 * common birthright * economic liberalism * geo-libertarian * Henry George * house of lords * liberalism * lloyd-george * Revolutionary Liberalism * tax * welfare state
Just a brief post to recall that today, 29th April, is the hundredth anniversary of David Lloyd-George's 1909 "People's Budget". Thanks to the wonders of the interwebs you can now read the whole budget online.
He ended (the main section - in the "Balance Sheet" section) with these words which have stood for a century accusing his successors of all parties for not having solved the problems he set out on the road to do:
"This, Mr. Emmott [in the chair of the Ways and Means Committee to which the budget was addressed], is a War Budget. It is for raising money to wage implacable warfare against poverty and squalidness. I cannot help hoping and believing that before this generation has passed away we shall have advanced a great step towards that good time when poverty and wretchedness and human degradation which always follow in its camp will be as remote to the people of this country as the wolves which once infested its forests."
From the financing of the newly created Old Age Pension and Disability insurance to the funding of the preparations for real war in the form of spending on Dreadnought battleships there was much for Lloyd-George to find in his budget. He didn't miss a trick, and more or less anything that could conceivably be taxed was, in many cases for the first time, taxed.
But for many of us it is for what ended up not being taxed that this budget is most remembered. The debate surrounding this budget, with speeches up and down the country by Lloyd-George himself and more notably perhaps Winston Churchill, must be one of the best documented in history, for it was a first attempt to implement some permanent form of Land Value Taxation. A tax shift that Churchill described as:
"the new attitude of the State towards wealth. Formerly the only question of the tax-gatherer was, "How much have you got?" We ask that question still, and there is a general feeling, recognised as just by all parties, that the rate of taxation should be greater for large incomes than for small. As to how much greater, parties are no doubt in dispute. But now a new question has arisen. We do not only ask today, "How much have you got?" we also ask, "How did you get it?
Did you earn it by yourself, or has it just been left you by others?
Was it gained by processes which are in themselves beneficial to the community in general, or was it gained by processes which have done no good to any one, but only harm?
Was it gained by the enterprise and capacity necessary to found a business, or merely by squeezing and bleeding the owner and founder of the business?
Was it gained by supplying the capital which industry needs, or by denying, except at an extortionate price, the land which industry requires?
Was it derived from active reproductive processes, or merely by squatting on some piece of necessary land till enterprise and labour, and national interests and municipal interests, had to buy you out at fifty times the agricultural value?
Was it gained from opening new minerals to the service of man, or by drawing a mining royalty from the toil and adventure of others?
Was it gained by the curious process of using political influence to convert an annual licence into a practical freehold and thereby pocketing a monopoly value which properly belongs to the State — how did you get it?"
That is the new question which has been postulated and which is vibrating in penetrating repetition through the land."
The galleys that carried Caesar to Britain, the accoutrements of
his legionaries, the baggage that they carried, the arms that they
bore, the buildings that they erected; the scythed chariots of the
ancient Britons, the horses that drew them, their wicker boats and
wattled houses–where are they now? But the land for which Roman
and Briton fought, there it is still. That British soil is yet as
fresh and as new as it was in the days of the Romans. Generation
after generation has lived on it since, and generation after
generation will live on it yet. Now, here is a very great difference.
The right to possess and to pass on the ownership of things that in
their nature decay and soon cease to be is a very different thing
from the right to possess and to pass on the ownership of that which
does not decay, but from which each successive generation must
To show how this difference between land and such other species of
property as are properly styled wealth bears upon the argument for
the vested rights of landholders, let me illustrate again.
Captain Kidd was a pirate. He made a
business of sailing the seas, capturing merchantmen, making their
crews walk the plank, and appropriating their cargoes. In this way he
accumulated much wealth, which he is thought to have buried. But let
us suppose, for the sake of the illustration, that he did not bury
his wealth, but left it to his legal heirs, and they to their heirs
and so on, until at the present day this wealth or a part of it has
come to a great-great-grandson of Captain Kidd. Now, let us suppose
that some one – say a great-great-grandson of one of the
shipmasters whom Captain Kidd plundered, makes complaint, and says:
"This man's great-great-grandfather plundered my
great-great-grandfather of certain things or certain sums, which have
been transmitted to him, whereas but for this wrongful act they would
have been transmitted to me; therefore, I demand that he be made to
restore them." What would society answer?
Society, speaking by its proper tribunals, and in accordance with
principles recognized among all civilized nations, would say: "We
cannot entertain such a demand. It may be true that Mr. Kidd's
great-great-grandfather robbed your great-great-grandfather, and that
as the result of this wrong he has got things that otherwise might
have come to you. But we cannot inquire into occurrences that
happened so long ago. Each generation has enough to do to attend to
its own affairs. If we go to righting the wrongs and reopening the
controversies of our great-great-grandfathers, there will be endless
disputes and pretexts for dispute. What you say may be true, but
somewhere we must draw the line, and have an end to strife. Though
this man's great-great-grandfather may have robbed your
great-great-grandfather, he has not robbed you. He came into
possession of these things peacefully, and has held them peacefully,
and we must take this peaceful possession, when it has been continued
for a certain time, as absolute evidence of just title; for, were we
not to do that, there would be no end to dispute and no secure
possession of anything."
Now, it is this common-sense principle that is expressed in the
statute of limitations – in the doctrine of vested rights. This is
the reason why it is held – and as to most things held
justly – that peaceable possession for a certain time cures
defects of title.
But let us pursue the illustration a little further:
Georgists -- people who have read one or more of Henry George's books*, and are persuaded of the logic and truth of his findings and diagnosis -- have, for over 100 years, had an answer to share with the rest of us about how to make our economy more just, more honest, more vibrant and more stable; make equal opportunity real; protect the environment from despoilment; reduce the excessive concentrations of wealth and income without destroying incentives which encourage productivity.
* e.g., Progress and Poverty; Social Problems; Protection or Free Trade?; The Science of Political Economy; The Land Question,
etc. Henry George (b. 1839, Philadelphia; d. 1897, NYC) was among the
most prominent and widely read Americans of the late 19th century, and
no one has successfully refuted his observations or his prescriptions;
yet few of us, even economics majors, are exposed to his ideas in
the course of even a highly regarded college or university education.
More of us who know his ideas have found them through our own research,
or through a course at a Henry George School (e.g., NYC, Philadelphia,
Chicago, etc.) or online (henrygeorge.org)
Georgists know some things that other people don't seem to know. It is common sense. It is logical, not all that complex.
Paul Harvey's "thing" was to tell us about "the other part of the story." Well, Georgists know a lot about the rest of the story. We know that federal spending on infrastructure is only half the story of stimulating the economy (and even know that it is not necessary!)
If all we "do" is the federal end of stimulus, we aren't going to get anywhere. We may even make some things worse -- unintentionally, of course, but worse nonetheless -- for a significant percentage of us.
Armed with Henry George's observations, we would know how to fix this economy and create a better one. We can reduce the need for consumer credit, freeing up more funds for productive investment by industry. We can undo the machine which creates poverty and simultaneously enriches a particular class of us.
If you spend some time reading this blog, you might come away thinking that I believe that land value taxation is a cure-all, a panacea. (See the "topic cloud" in the left sidebar.) But that isn't the case.
However, I have come around to the point of view that many of our most serious social, environmental, economic and justice problems are not going to be solved -- cannot be solved! -- without the enactment of land value taxation.
That sounds extreme, particularly to those who have never heard of LVT or who have read little about it.
So many of our most serious problems ultimately find their root in the privatization of the natural creation -- that which the classical economists called land, including things that the classical economists would have known nothing about, but would immediately recognize: electromagnetic spectrum, geosynchronous orbits, landing rights at LaGuardia (particularly at rush hour), etc..
Let me be more specific. It isn't the privatization of land, or oil resources, or minerals, or geosynchronous orbits, or water rights themselves that is the problem. Secure title is necessary and important. Rather, the problem is that the economic value of these common resources is currently treated as private treasure rather than as our common asset. But we need revenue for public purposes, so we then tax sales and wages and interest. But those who need land pay others for it (unless they inherited the rights to it) either in the form of rent or in the form of a lump sum, and then are burdened with the sorts of taxes which depress the economy and steal from them that which they produced (in addition to the significant costs of servicing the debt related to that lump sum payment).
Land, in all its forms, is not of human creation. We can't create more of it in response to an increase in demand. In particular, we can't create more land downtown, where it is served by awesomely important infrastructure that took decades and millions or billions to build. We can't create more water, or more frequencies on FM or AM radio. Yet we permit the privatization of the economic value of these and other like vital and fabulously valuable common assets.
Were we to shift our taxes off productive effort, off sales, off buildings, and onto all these things called "land value," we would be on our way to solving many of our environmental problems, our social problems, our economic problems, urban sprawl and its concommitants, and many of our justice problems. We'd have a more efficient economy, a more vibrant one, without the excess burden (deadweight loss) our current system creates. We'd have opportunity, jobs, a growing pie, and lose the boom-bust cycle which plagues us.
What is home equity, and how does it relate to the American Dream?
Sometimes we hear about "building home equity" as if it were some sort of muscular activity. There are two ways to "build home equity." The first, the old-fashioned way, is by paying down the mortgage. This happens fairly slowly. On a 30 year mortgage, and making no extra payments, here is the payoff schedule for several mortgage rates:
Cumulative Mortgage Payoff Schedule for 30-year Mortgage
Mortgage Interest Rate
The other -- and much faster -- part of home equity, of course, is the appreciation we have come to expect. What few people realize is that houses do not appreciate; they are never worth more than what it costs to build them, less depreciation, to account for deterioration, obsolescence of systems, etc. A Federal Reserve Board Study (May, 2006) pegged annual depreciation of single family home stock at 1.5%.
So when housing was rising in value by 5% or 10% per year, what was rising was the price of the land under the houses, not the houses themselves.
What causes land to rise in value? Not individual activity. Not the landholder himself. There is no muscular activity on the part of the landholder here! (Yes, the owner who does a gut renovation adds to his property's total value, though not always as much as the project costs. Most studies suggest that adding a second bathroom to a home which has only one actually adds more to the value of the property than the project itself costs; some say that adding a deck also pays back more than the project costs. Few other projects pay back fully, so while home equity may rise, it is through individual investment, and the owner's net assets do not increase as a result.)
Land rises in value for reasons which have little or nothing to do with the landholder himself:
Local taxpayers invest in goods and services which people value: good schools; well-paved streets; well-equipped fire trucks and ambulances; police trained in CPR and equipped with defibulators; parks; courts, jails; sewers and city water replacing septic and wells; libraries; community colleges; letc.
State and federal taxpayers invest in goods and services which people value: electricity; good transportation systems; infrastructure; "pork"; broadband; public colleges and universities; etc.
Private sector investments: good hospitals; cultural amenities; an active and vibrant local economy; a healthy downtown; private universities; charities; etc.
Technological advancements: elevators (urban land); air conditioning (southern states); earth moving equipment -- advances from WWII equipment (making difficult sites easier to develop); fiberglass boats (waterfront properties); maglev trains; etc.
Population increases: natural fertility increases; assisted fertility; fewer wars or auto or industrial accidents; better outcomes after such events; reduced infant mortality; better health resulting in longer lifespans; people having larger families because of religious beliefs or greater prosperity; local amenities which attract population to the school district or metro area; immigration from other countries; lower cost of living drawing more people;
So if all those things were happening, why did we just experience a crash in land values?
Well, what we experienced was a crash in land prices. Land prices got well ahead of land values in many places. This is known as land speculation. People were "investing" in land, buying homes for outlandish prices, thinking that prices would continue to rise forever. Mortgage lending standard went from 20% down to 10% down to 5% down to 1% down to 105% financing. Private Mortgage Insurance became the norm for first-time buyers. Debt to income ratios rose from 28% to the high 30's, or weren't even discussed. Mortage rates dropped, particularly for Adjustable Rate Mortgages. Interest-only mortgages became available, and negative amortization mortgages were a possibility.
How could we be so stupid?
Did someone yell "FIRE?" (as in the FIRE sector of the economy: Finance, Insurance, Real Estate) The FIRE sector was making money from this. Home builders. Land sellers -- including farmers, land speculators, mom-and-pop subdividers, and many others. Builders. Real estate brokers. Mortgage brokers. Mortgage insurance sellers. Title insurance sellers. Homeowners' insurance sellers.
We considered this private enterprise and pronounced it good.
Go back to the five items listed above, and tell me why a smallish -- or even a largish -- portion of the private sector ought to reap all the benefits for all those things, in proportion to the size and quality of their landholders.
But only the Georgists were aware of what was really happening. What was happening was that we attempted to increase the homeownership rate from the low 60's to the high 60s, under the guise or illusion that by doing so we'd be extending the "American Dream" to an additional 10% of our fellow residents of this country. But of course the homes they could afford were not in the places where land was appreciating, and their attempts to "catch the brass ring" which would, they hoped, make them part of the "rising tide." (Okay, too many metaphors ... but haven't we heard all of them in this context?)
What did the Georgists know? That land value which our system permits landholders to privatize ought to be socialized. Small landholders ... most of the residential owners, that is ... get to privatize some small land value ... a bone to shut them up, while the big landholders -- individuals, family trusts, corporations, REITS, philanthropies, universities, churches and other tax exempts, individual foreign investors, pension funds, private equity funds, foreign sovereign funds, etc. -- get to privatize the BIG land value in our cities. Even in our small cities and medium-sized towns, the businesses which are their own landlords are, on average, far more profitable than those which are tenants, and landlords take a significant share of their tenants' production -- a non-agricultural version of sharecropping, which we honor as if the landlord was actually a producer of some sort.
John Stuart Mill, one of the classical economists, told it this way: Landlords grow rich in their sleep.
So back to the initial question: what is home equity, and how does it relate to the American Dream? Home equity is a sop, thrown to keep the puppies quiet and calm, while the big dogs enjoy the contents of the manger.
We'd be far better off if the vast majority of us -- and our elected officials -- understood and talked openly about what Henry George was telling us, in his landmark book on political economy entitled Progress and Poverty -- subtitled: An inquiry
into the cause of industrial depressions and of increase of want with
Remedy: that we permit the privatization of the economic value of our natural and other rightly-common resources, including urban land value, at our extreme peril.
We turn the American Dream into our common nightmare. Increasing home equity holdings is not the answer to our problems; it is, at bottom, a symptom or sidelight of the problem itself!
We can fix this through a simple and just tax reform.
INFLUENCE OF TAXATION ON THE PROSPERITY OF CITIES
A Paper Read by Lawson Purdy of New
Before the League of American Municipalities,
in Session at
Chicago, September 26, 1906.
In 1873, Enoch Ensley, a wealthy planter of Tennessee, wrote to
Governor Brown asking him to call a special session of the legislature
to amend the constitution so that changes could be made in the tax laws
of Tennessee. The tax rate of Nashville was three and one-half per cent
and of Memphis four per cent, and Mr. Ensley said that the burden on
business was insupportable. Great land owner as he was, however, Ensley
did not urge a search for new sources of revenue, but rather the
application of the "rule or motto" which, he said, "It would be well
for the State to adopt and have cut into the stone at the capitol (in
large letters and have them gilded), in the Senate chamber, the hall of
the House of Representatives and in the governor's office, . . . to-wit:
"Never tax anything
That would be of value to your State,
That could and would run away, or
That could and would come to you."
This rule laid down by Ensley has become an axiom, but before it can be
applied the constitutions of about thirty-five States must be amended
by repealing those despotic limitations on legislative power which are
not found in the earlier constitutions, and which should find no place
in the constitution of any free people. Because of constitutional and
statutory restraints upon the power of cities we need discuss only what
can be accomplished in most cities by executive officials under
Conditions of Prosperity.
City officials often regard the city as apart and distinct from the
individual citizens, and sometimes therefore uphold policies which
appear to be in the interest of the city corporation, although opposed
to the interests of the citizens. This is, of course, a short-sighted
view. In reality nothing can be good for the city which is bad for the
citizen, nor bad for the city which is good for the citizens. Again,
many consider the interest of classes and speak of what will be
advantageous to manufacturers or shopkeepers or land owners. This, too,
is a mistaken attitude. Citizens should be regarded alike as men, and
not as the owners or users of some kind of property. All depend upon
the workers who render service for service, and it is fair therefore to
consider the interest of all citizens as bound up in the interest of
those who earn their living; and that city may be regarded as the most
prosperous in which it is easiest and most agreeable to earn a living.
The interests of the city and of its citizens are identical.
Nevertheless, they may be viewed from both standpoints.
I'll be writing about the first published report from the 2007 Survey of Consumer Finances, which is online at http://www.federalreserve.gov/pubs/bulletin/2009/pdf/scf09.pdf but I thought I'd share something I posted in response to some comments on another blog about Paul Krugman's observation that "families are poorer now than they were in 2001.":
So are we going to complain about it, or are we going to correct it?
Yes, this can be corrected. No, even most university-educated economics majors aren't familiar with how. Their economics texts spend a few pages on it, but in the context of a 10-week trimester or a 15-week semester, most economics professors can't talk about everything in a 700-page text books, and naturally they'll skip what their own instructors skipped.
That doesn't mean the answers don't exist.
The answers come from an earlier and better paradigm in economics. What students learn today is neoclassical economics, which much better suits some of the special interest folks who have over the years given generously to our colleges and universities. If you wanted tenure, what would you choose to teach?
What we need to know is from classical economics. John Stuart Mill, David Ricardo, Henry George ... these are the authors you'll want to get to know.