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!
I wonder if Morgan the Pirate,
When plunder had glutted his heart,
Gave part of the junk from his ships he had sunk
To help some Museum of Art;
If he gave up the role of "collector of toll" And became a Collector of Art?
I wonder if Genghis the Butcher, When he'd trampled down nations like grass.
Retired with his share when he'd lost all his hair, And started a Sunday school class;
If he turned his past under and used half his plunder In running a Sunday school class?
I wonder if Roger the Rover,
When millions in looting he made,
Built libraries grand on the jolly mainland
To honor Success and "free trade;"
If he founded a college of natural knowledge Where Pirates could study their trade?
I wonder, I wonder, I wonder,
If Pirates were ever the same,
Ever trying to lend a respectable trend
To the jaunty old buccaneer game;
Or is it because of our Piracy Laws That philanthropists enter the game?
—Wallace Irwin, in Life. -- reprinted in The Painter and Decorator, a union journal, 1907
Well, not quite. The film's a little older than I am.
Watched that film last night ... great quote:
Billie: Because when ya steal from the government, you're stealing from yourself, ya dumb ass.
And when we allow others to steal from the commons what rightly belongs to the community, what are we? Some of that theft we all recognize as theft, and other kinds are perfectly legal, even honored, under our current laws. I find the latter even more troubling than the former.
And when neither our economists nor our leaders even SEE it, it is fair to call that a corruption of what their businesses are supposed to be.
Equity, therefore, does not permit property in land. For if
one portion of the earth's surface may justly become the
possession of an individual and may be held by him for his sole use
and benefit as a thing to which he has an exclusive right, then
other portions of the earth's surface may be so held; and eventually
the whole of the earth's surface may be so held; and our planet may
thus lapse into private hands.
— HERBERT SPENCER, in 1850, Social
Statics, Chap. IX.
In the early ages of society it would have been impossible to
maintain the exclusive ownership of a few persons in what seems at
first sight an equal gift to all (the land) — a thing to which
everyone has the same claim.
— WALTER BAGEHOT (1826-1877),
Economic Studies, Essay I., Part I., p. 31.
That any human being should dare to apply to another the epithet
"pauper" is, to me, the greatest, the vilest, the most unpardonable
crime that could be committed. Each human being by mere birth
has a birthright in this earth and all its productions; and if they
do not receive it, then it is they who are injured, and it is not
the "pauper," oh, inexpressibly wicked word! — it is the well-to-do
who are the criminal classes.
— RICHARD JEFFERIES, The Story of
My Heart, Chap. X., p. 122.
Here's a piece from a 90 year old journal. There are acres in Manhattan whose value is far higher today -- and the landlords are still reaping what the working people and visitors to New York are sowing.
APPROPRIATING THE GIFTS OF NATURE By Walter Thomas Mills.
There are portions of New York City in which the land is valued at $40,000,000 an acre. That means $8000 each day from each acre for the landlord, and that entirely unearned by him, before there is a penny for any other purpose. Probably not less than two and one-half million dollars a day, or almost a billion dollars a year, must be earned by the people of New York City and turned over to landlords for permission to use the island, which is a gift of nature, and for the advantages that are protected and maintained by the industry and enterprise of all of the people.
In The Great Adventure, April, 1921
Think what NYC -- and America -- would be like if that "permission to use the island" money was treated as our logical public revenue source, instead of as individuals', corporations' and trusts' private revenue source.
Recall the wisdom of Leona Helmsley: "WE don't pay taxes. The little people pay taxes."
The taxation of all property at a uniform rate is made necessary by the constitutions of about three-fourths of the States of the Union. The taxes on chattels, tools, implements, money, credits, etc., find their condemnation from the Single Taxer's point of view in those ethical considerations which differentiate private from public property. Where there arises a fund known as "land values," growing with the growth of the community and the need of public improvements, it is not only impolitic, it is a violation of the rights of property to tax individual earnings for public expenses.
The value of land is the day-to-day product of the presence and communal activity of the people. It is not a creation of the title-holder and should not be placed in the category of property. If population deserts a town or portions of a town, the value of land will fall; the land may become unsalable. When treated as private property the owner of land receives from day-to-day in ground rent a gift from the community; and justice requires that he should pay taxes to the community proportionate to that gift.
"Land value" or "ground rent" as the older economists termed it, is a tribute which economic law levies upon every occupant of land, however fleeting his stay, as the market price of all the advantages, natural and social, appertaining to that land, including necessarily his just share of the cost of government.
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.
This is a paragraph from a letter my grandfather wrote to a colleague in the mid 70's. He's writing about a conversation with an economics student:
He is convinced that under the pressure of the massive readings required of graduate students of economics today, these students are necessarily accepting, as valid, current evaluations by leading scholars in judging those of the past believed to be of lesser importance. They are not going to the actual works of these authors. Instead they are relying on the judgments of such as Stigler or Heilbroner, for instance, instead of reading George himself.
So how might a student -- or an economics instructor or full professor -- learn about George's works himself?
A fine starting point would be Weld Carter's "An Introduction to Henry George." It makes no attempts to draw any conclusions; rather, it introduces the reader to what George has to say.
If you teach a college, university, or even high school, course in economics, and you don't include Henry George in what you want your students to know at the end of the term, I commend this to your attention.
Those who do not know history are doomed to repeat it.
He who knows not, and knows not that he knows not ...
Henry Georg's ideas are worth knowing. You could even fix the world.
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:
It is frequently pointed out by Georgists that there are no really good rebuttals to land value taxation.
This excerpt from a 1971 letter to my grandfather from a colleague describes where the opposition comes from:
There may be be no "arguments that actually oppose LVT" as Bill says, but there are plenty of people who not only actually but actively oppose it. These are the people who are making hundreds of millions of dollars a year on the unearned increments land speculation gets as a result of land being so undertaxed that the landowner puts up only a trifling share of the enormous community investment needed to make his land reachable, livable and readily saleable. Of 7 million-odd New Yorkers I would guess that perhaps 70,000 people profit by today's misapplication of the property tax while 7 million lose by it, but the problem is that the 7 million have no idea of what they are losing while the 70,000 jolly well know that they have a good thing going for them and fight to keep it.
I've been trying for a year to get my friend, J___ C___, past president of the Realtors and Chairman of the Realtors Economic Research Committee to stop fighting LVT, but he keeps coming back to how his father bought some land near San Diego for $20 an acre before 1900 and sold it for $4,000 an acre around 1950 and his father could not have held it all that time if he had had to pay more than a nominal tax.
I don't think anyone should take the equity argument seriously. Just because the ownership of underused land has been subsidized for years does not entitle its owners to expect the subsidy to be continued forever, and likewise, for those who bought land in the expectation that the subsidy would be permanent. The equity objection to increasing the tax on land would apply almost equally to any other tax increase.
A week later, another letter includes this:
Just because landowners have had a wonderful subsidy racket going for them in the past should not give them any claim on having that subsidy continue ad infinitum. I do agree with Lowell that the transition to LVT would raise problems, and in any area with a high tax rat on property I can see that the transition would have to be staggered over a period of years, probably not less than five or more than ten, dpending on how big a tax rate was to be shifted off improvement values onto location values.
In the same file, a copy of a 1969 letter from the same person to Lowell (Harriss):
I don't see how tripling the tax on land could fail to force almost all owners of underused land to get busy and put it to better use. Conversely, I don't see how taking the equivalent of a 51% sales tax off improvements could fail to be a tremendous stimulant to improvements. If a 7% Federal tax credit on improvements was so effective, what would wiping out a 50% tax do!
Pointing to the recent declines at the top, Mr. Kaplan argues the Occupy protesters have accused the wrong villain by focusing on inequality, which he called an inevitable byproduct of growth. “If you want to reduce inequality, all you need to do is put the economy in a recession,” he said. “If you want the economy to do well, as all of us do, then you’ll get more inequality.”
Well, maybe at the University of Chicago, that is what is taught, but is it true?
It may be inevitable under our current structures, but if one gets outside that box, and looks deeper, one finds other answers.
I would suggest that Mr. Kaplan, who teaches economics at the Graduate School of Business at the U of C, look beyond the interests of the university's and b-school's founders and big donors and alumni and current students, and consider that we're all in this together, and that when we permit a few to monopolize and privatize things which rightly are our common treasure, inequality is the inevitable byproduct.
Mr. Kaplan might start by exploring the ideas of Henry George. They were in his freshman economics texts, but most likely his instructor didn't lecture on them, or include them in exams (most likely because his own instructors hadn't!)
Read what those textbooks have to say, and then think about whether it is in Mr. Kaplan's personal career interests to speak of an idea that could rock the yachts of alumni and donors and others who like our current structures just fine, thank you! The privileged like their privileges, and would prefer that we not notice that they are privileges, or, if we do notice, think that THEIR privileges are somehow in OUR best interests.
I alternately find it amusing and very sad that commentators reason from such observations to "gee, there's nothing wrong with our structures! It is just a law of nature!"
No! We've set things up so that a relative few benefit greatly from the value of natural resources, and another (likely overlapping) group* benefit greatly from the results of federal, state and local spending on infrastructure and services, and then we consider it a "mathematical law" that 1% of us get such a large share of the pie!
*I refer to the owners of urban and suburban land, well-served by infrastructure and a myriad of services, many of whom make more from land value increases than they do from their labor. An acre of Manhattan land can be worth 50,000 times what an acre of ordinary agricultural land is worth -- and its owner didn't contribute any more than anyone else to that value! Great fortunes are based on such "activity."
And rich people's useful idiots bless such analyses and give them a gloss of "scholarship."
.... this time because perhaps his targets are the well-situated, those in a position to contribute the funds which political campaigns need. Keep in mind that NYS's former governor, though previously an attorney general, is also the scion of a real estate fortune.
Urban real estate investors live off the fruit of the land, the fruits of the community's sowing, and we praise them as philanthropists when they toss us a few tulips in the median strips or parks.
And notice that the refusal continued even Harry Markopolis testified before a congressional committee about his repeated and data-filled attempts to bring Bernard Madoff's obvious Ponzi scheme to the attention of the SEC (January, 2009). Talk about tone-deafness on the part of those we pay to monitor things for us. As someone else recently wrote, small government or weak government? And government of, for and by WHICH people??
I hope some upstate legislators will push at this issue. Their constituents ought to expect it of them.
The writer is a Reuters columnist. The opinions expressed are his own.
By David Cay Johnston
(Reuters) - Each year New York State lets real estate investors evade at least $200 million of taxes. In peak years the figure likely rises to $700 million, if known tax cheating in another state is any indication. Some of the investors who cheat New York State also cheat New York City out of at least $40 million annually.
Back in the 1990s Jerry Curnutt figured out how to finger such cheats when he was the top partnership specialist at the Internal Revenue Service. Curnutt's computer sifted through tax returns until he learned how to separate thieves from honest taxpayers. The tax-evasion estimates of $200 million and $40 million are his.
Six New York state tax auditors took classes Curnutt taught in June 2000 and gave stellar evaluations. California's top tax auditor praised Curnutt's course as "effective, relevant and most importantly, appreciated and understood by our auditors."
Why has nothing been done for more than 11 years to make the cheats in New York pay what the law requires?
New York state and city are strapped for cash, slashing services for the poor, disabled and elderly. With penalties of up to 50 percent plus interest at penalty rates, the state is easily due more than $5 billion from years still open to collection, I calculate.
Every state has similar issues, but New York matters most as the epicenter of highly leveraged real estate investment pools.
Curnutt found that real estate investment partnerships with depreciated properties often misreport gains when they sell. That such cheating is widespread screams about tax law enforcement looking the other way when those at the top steal. In contrast, New York State has a well-deserved reputation for going after people whose mistakes cost the state as little as three dollars.
GO AWAY, THEY SAY
Yet in letter after letter since 2001, New York state tax officials told Curnutt to go away, smugly insisting there were no untaxed millions.
As head of audits for New York State, Thomas Heinz wrote Curnutt in 2003 that the state was "not interested in pursuing you or any other consultant on the matter" of systematic cheating by real estate partnership investors. Months later Heinz wrote a second letter that made it clear he had not understood what Curnutt was proposing, while reiterating that there were no untaxed millions to be found.
A year ago Curnutt again was told to go away because there was no money going untaxed.
And yet in Pennsylvania, Curnutt's research "resulted in the taxation of over $700 million in unreported income," the Pennsylvania Revenue Department wrote in a letter to tax administrators across the country in reference to a single instance.
"Without his assistance, our staff would have spent numerous hours getting to the crux of the issues, in that especially complex case," Pennsylvania tax authorities said.
Pennsylvania has relied on Curnutt since 2002, calculating that every dollar spent on his research and subsequent audits was worth $10 of tax.
So why are sightless sheriffs ignoring massive cheating by the most affluent among us?
The likely reason became clear nearly a decade ago when one Kentucky tax official told Curnutt that the governor's office did not want his services because it would uncover tax cheating by influential citizens, meaning campaign donors.
It is time for New York's three top state officials, all Democrats with higher ambitions, to do their duty, especially since the thieves are virtually certain to include some of their campaign contributors.
LAWMEN AND THEIR DUTY
Governor Andrew Cuomo, who harbors ambitions to be president, made his name as a state attorney general who appeared to get tough with Wall Street. Lieutenant Governor Bob Duffy rose from Rochester street cop to chief and would love to be governor. So would Attorney General Eric T. Schneiderman, elected in 2010 on a promise to be tough on white-collar crime.
Mayor Michael Bloomberg, an independent, has a similar duty to go after tax cheats even if these should turn out to include some of his friends.
New York law gives authorities leverage aplenty. The mere threat of public exposure through civil lawsuits would prompt many to write checks. For repeat offenders, the threat of indictment for tax evasion would produce checks even faster. Faced with the prospect of civil or criminal charges, many in positions of public trust would be ruined if their names got out.
The general partners -- those in charge in the partnerships Curnutt investigated -- took calculated steps to cheat and the most serious offenders should face indictment and, upon conviction, years of prison time. But many limited partners may have assumed their K-1 tax statements were reliable. Innocent victims owe taxes and interest, but not penalties. Those with multiple untaxed gains are not innocents.
As lawmen Cuomo, Duffy and Schneiderman all understand leverage. They have enough to lift billions into the state treasury where it belongs just by indicating in letters that failure to pay will result in disclosure of names. Will they?
Until Cuomo, Duffy, Schneiderman and Bloomberg enforce the law, their official inaction lends credence to billionaire Leona Helmsley's remark, quoted by her housekeeper, that "we don't pay taxes; only the little people pay taxes."
This column will keep you posted on whether these officials act or not. (Editing by Howard Goller)
I'm glad to see DCJ quoting Leona Helmsley -- but I don't think he yet fully "sees the cat" or realizes that Leona Helmsley's reference could just as accurately have been to tax STRUCTURES, not to tax evasion.
Buildings do not appreciate. Even with the best of care and occasional renovations, they depreciate, as technologies advance, efficiencies improve. What rises in value is land -- the location -- and it rises for reasons which have nothing to do with the individual or corporate landholder (resident or absentee), and everything to do with the community and with public investment in infrastructure and services. These owners are evading taxes which support that spending. In multiple ways, they are reaping what they do not -- cannot! -- sow. These companies are in it for the so-called "capital" gains, which aren't "capital" at all, but land gains.
Another example of the FIRE sector gobbling up the profits of the productive portions of our economy. Their "free lunch" is at the expense of the rest of us. And the phrase "rich people's useful idiots" comes to mind.
The goal is a fair field and no favor. But I don't think that's what this crowd is looking for.
I recently came across an 1889 article by Thomas G. Shearman, co-founder of the NYC law firm Shearman & Sterling, entitled "The Owners of the United States." It seems rather timely, and might be of particular interest to the Occupy Wall Street movement. It appeared in The Forum, in November, 1889. It refers to an earlier article in the September 1889 issue of the same journal, which appeared under the title, "Henry George's Mistakes." (Based on its content, it seems to me that it would have more accurately been titled "Henry George's 'Mistakes'.")
The Owners of the United States
by Thomas Gaskell Shearman
It has been and still is the boast of the American people, that wealth is more equally distributed here than in any other part of the world. While every one admits that the old days of New England, in which none was very rich and none was very poor, have passed away, yet it is still believed that the land, buildings, and personal property of this country are owned mainly by the majority of its people, and that there is no danger of any such concentration of wealth in a few hands among us as exists in older and more aristocratic nations. Statistics as to the wide distribution of wealth, shown by the deposits in American savings banks, by the large number of American farms, and by the supposed high standard of American wages, have been consistently set forth as conclusive evidence that American wealth is substantially owned by the mass of the American people. The object of the present inquiry is not to determine whether such a condition would be desirable or not, but simply to ascertain whether it actually exists.
Interesting as such an inquiry must be, especially to that laboring class on whose behalf it was supposed that labor commissions were established, little effort has been made by any of them to solve this problem. The very able gentleman at the head of the National Labor Bureau, after taking statistics of industrial depressions, convict labor, and strikes, seems to have felt that he had exhausted all subjects of special interest to the laboring classes; and he therefore directed the energies of all his assistants to an investigation of the subject of divorce -- the one subject, among all grave social questions, with which the masses of laboring men have the least practical concern. One who desires to investigate the great problem of the distribution of wealth in this country must, therefore, feel this way, without much assistance from the official representatives of the very class which has the deepest interest in the question.
In the "effete monarchy" of Great Britain, where the laborer, deprived of all the blessings of a protective tariff, has no representative in the national government, no bureau, no commissioner, and only five members of Parliament among 1200, there is nevertheless no serious difficulty in the way of forming a pretty close estimate of the distribution of wealth. The income-tax returns, combined with those of the probate and succession duties, furnish the means of estimating, at frequent intervals, the proportions in which wealth is distributed among different classes of the nation; while a return of rent rolls, made in 1872, enables us to determine with considerable accuracy the proportions in which the land of the whole country is owned. Mulhall's estimate is as follows:
DISTRIBUTION OF BRITISH WEALTH, 1877
Wealth in Millions
Wealth per Family
From this table it will be seen that one thirtieth part of the English people own two thirds of the national wealth. With what scorn we have long pointed to these figures; and with what pride have we bade foreign nations to look upon our own beloved land, where such things no only did not exist, but were made impossible by our republican form of government!
Can any light be thrown upon the distribution of American wealth by a study of English statistics? Let us see. By adding to the published returns of the personal estates of British decedents a capitalization of the rental value of their estates, at 4% interest, we may form a tolerably accurate estimate of the aggregate wealth, real and personal, of the richest noblemen and bankers of England who have died within the last quarter of a century. We may then compare these figures with the known wealth of a few American citizens, and thus obtain a starting point for further comparisons.
In this way, we find that the richest of the Rothschilds, and the world-renowned banker Baron Overstone, each left about $17,000,000. Earl Dudley, the owners of the richest iron mines, left $20,000,000. The Duke of Buccleuch (and the Duke of Buccleuch carries half of Scotland in his pocket) left about $30,000,000. The Marquis of Bute was worth, in 1872, about $28,000,000 in land; and he may now be worth $40,000,000 in all. The Duke of Norfolk may be worth $40,000,000, and the Duke of Westminster perhaps $50,000,000.
There is no official classification of British wealth or rents. But incomes derived from the profits of business, exclusive of railways, mines, etc., are classified as follows:
British Incomes from Business Profits, 1884
50,000 and over
10,000 to 50,000
5,000 to 10,000
4,000 to 5,000
3,000 to 4,000
2,000 to 3,000
1,000 to 2,000
400 to 1,000
200 to 400
The great law of averages may be relied upon as confidently in America as in Europe. We need only find a starting point; then we may safely proceed to calculations based upon general experience as to the average increase in the number of persons owning wealth, in proportion to the decrease of the amount owned by each individual. To find this starting point, it will be necessary to give a list of Americans whose wealth is approximately known. The writer abstains from mentioning in this list a single name concerning which he has any information which might possibly be confidential; and, to make quite sure of this, he omits the names of all gentlemen with whom he has any confidential relations. The names of person who have died (six of them within one year) will be included, more accurate information being obtainable concerning their affairs than in any other cases. Their estates are nearly all either undivided or in the hands of so small a number of persons as to make no practical difference, while the number of names which have been omitted will far outweigh all possible errors in the list. No name is given which is not believed, for good reasons, to represent an individual wealth of at least $20,000,000. The figures indicate the wealth believed to be possessed on the average by each of the persons whose names follow:
J. J. Astor, Trinity Church
C. Vanderbilt, W. K. Vanderbilt, Jay Gould, Leland Stanford, J. D. Rockefeller
Estate of A. Packer
John I. Blair, Estate of Charles Crocker
Wm. Astor, W. W. Astor, Russell Sage, E. A. Stevens, Estates of Moses Taylor, Brown & Ives
P. D. Armour, F. L. Ames, Wm. Rockefeller, H. M. Flagler, Powers & Weightman, Estate of P. Goelet
C. P. Huntington, D. O. Mills, Estates of T. A. Scott, J. W. Garrett
G. B. Roberts, Charles Pratt, Ross Winans, E. B. Coxe, Claus Spreckels, A. Belmont, R. J. Livingston, Fred. Weyerhauser, Mrs. Mark Hopkins, Mrs. Hetty Green, Estates of S. V. Harkness, R. W. Coleman, I. M. Singer
A. J. Drexel, J. S. Morgan, J. P. Morgan, Marshall Field, David Dows, J. G. Fair, E. T. Gerry, Estates of Gov. Fairbanks, A. T. Stewart, A. Schermerhorn
O. H. Payne, Estates of F. A. Drexel, I. V. Williamon, W. F. Weld
F. W. Vanderbilt, Theo. Havermeyer, H. O. Havermeyer, W. G. Warden, W. P. Thompson, Mrs. Schenley, J. B. Haggin, H. A. Hutchins, Estates of W. Sloane, E. S. Higgins, C. Tower, Wm. Thaw, Dr. Hostetter, Wm. Sharon, Peter Donohue
Trinity Church is included in this list because it is practically an individual owner. For the purpose of estimating the distribution of wealth, it is obvious that this corporation, which has no stockholders, must be treated as a unit.
It will be said that these estates could not be readily sold for their estimated value. In a few cases this is true; but it is immaterial, because it is equally true of the property of farmers and other small owners, and so does not change the relative proportion of wealth, which is the only important question. Our estimate of the whole national wealth is based upon the census of 1880, in which the capital and debts of railway, telegraphy, and steamboat companies were included at par. But in the foregoing estimates of individual wealth the current market value is adopted, which is much less than par. For purposes of comparison between different classes the census valuations ought to be adopted all around. But if they were, the wealth of Mr. Gould would be fixed at over $125,000,000, and that of Messrs. Crocker and Huntington at nearly as much; and the proportionate share of the very rich would be greatly increased.
Making the largest allowance for exaggerated reports, there can be no doubt that these 70 names represent an aggregate wealth of $2,700,000,000, or an average of over $37,500,000 each. The writer has not especially sought for information concerning any one worth less than $20,000,000, but has incidentally learned of 50 other persons worth over $10,000,000, of whom 30 are valued in all at $450,000,00, making together 100 persons worth over $3,000,000,000; yet this list includes very few names from New England and none from the South. Evidently it would be easy for any specially well-informed person to make up a list of 100 persons averaging $25,000,000 each, in addition to ten averaging $100,000,000 each. No such list of concentrated wealth could be given in any other country in the world. The richest dukes of England fall below the average wealth of a dozen American citizens; while the greatest bankers, merchants, and railway magnates of England cannot compare in wealth with many Americans.
Lists were lately published of 67 millionaires residing in Pittsburgh, of 63 residents of Cleveland possessing in the aggregate $300,000,000, and of 60 persons residing in three villages near New York whose wealth was said to aggregate $500,000,000. One of the gentlemen included in the last estimate said that if it included one of his neighbors, with whose affairs he is intimately acquainted, it was entirely too low: $750,000,000 would be none too much. The Goelet estate, in New York City, pays taxes on $25,000,000 real estate. The mayor of Chicago says that four gentlemen of that city are worth over $20,000,000 each; but only two are included in the above list. The Boston "Advertiser" lately asserted that there were not 50 millionaires in Boston; but the official tax-list shows that more than 50 families pay taxes on over $1,000,000 each, and 200 persons pay taxes on amounts which clearly show that they are really millionaires.
The facts already stated conclusively demonstrate that the wealthiest class in the United States is vastly richer than the wealthiest class in Great Britain. The average annual income of the richest 100 Englishmen is about $450,000; but the average annual income of the richest 100 Americans cannot be less than $1,200,000, and probably exceeds $1,500,000. It follows, inevitably, that wealth must be far more concentrated in the United States than in Great Britain; because, where enormous amounts of wealth are placed in a few hands, this necessarily implies that the great mass of the people have very small possessions. On the other hand, we know with tolerable certainty what are the average earnings and possible savings of the masses. The earnings of fully fourth-fifths of American families do not average as much as $500 per annum. As the average age of busy men is less than 40 years, their savings cannot spread over more than an average period of 20 years. Farmers being always more economical than mechanics or other laborers of the same income, the savings of farmers, represented by their farms, will afford a maximum standard for the classes to which they correspond. According to the census of 1880, the average value of 25% of farms was $635, of another 25%, $1,750, and of about 35%, $3,500; the remaining 15% being held by wealthy owners. To allow, in marketable property, $750 each to the mass of the community, $2,000 each to the next class and $3,500 each to the small tradesmen, highly-skilled mechanics, and others whose condition corresponds with that of the best class of ordinary farmers, will be quite as much as facts will justify; especially when we take out of this highest class, as we must, a considerable number (say one sixth) who, by saving one third to one half of their income, have accumulated four or five times as much as their fellows.
In 1877 the number of British capitalists possessed of over $25,000 each was about 222,000, while the number of persons deriving profits of over $1,000 per annum each from business was nearly 200,000. The two classes of persons were not at all the same; on the contrary, probably not one third of either class, possibly not even one fifth, was included in the other. Yet, in the absence of any detailed information as to the distribution of wealth, the classification of incomes must be taken, with much reserve, as the only attainable guide. But incomes, in their very nature, are much more equally distributed than wealth. Millions have inomces who have practically no wealth. Therefore, a computation on this basis will greatly underestimate the concentration of wealth in the higher figures, while it will lead to such an overestimate of wealth in the lower figures as to make it gradually quite misleading. Such a computation is indeed of no use whatever outside of the first 250,000 families, and must be greatly modified long before reaching that number.
Bearing these considerations in mind, we proceed to estimate the distribution of American wealth. Judging from the rate of increase in wealth indicated by the last census, it is probably that (estimated by the same method) it now amounts to nearly $1,000 per head, or $65,000,000,000 in all. In 1880, $2,000,000,000 was invested in public buildings, churches, colleges, charitable institutions, etc.; and this item must be about $2,500,000,000 now.
Taking the number of British incomes exceeding 200 pounds as a basis for comparative classification, starting on the basis of known facts about American wealth, and modifying the figures gradually, for the reasons already stated, we arrive at the following conclusions:
DISTRIBUTION OF AMERICAN WEALTH, ON THE BASIS OF BRITISH INCOME RETURNS.
Average Wealth in Thousands
Total in Millions
Public property, churches, etc.
Condensing this table, so as to arrange it in three great classes, we arrive at this result:
DISTRIBUTION OF AMERICAN WEALTH
Wealth in Millions
Average per Family
On this basis, 50,000 families would appear to own one half of the national wealth.
In this table small farmers, skilled mechanics, foremen, conductors, engineers, etc., are included in the "working class," and $968 has been allowed as the average savings of each family in this class -- more than double the highest claim made on behalf of the same class in England, and nearly treble the average deposit in American savings banks. This amount is certainly too large. The number of the very largest millionaires has been kept down to very nearly the limit of the writer's personal information; while in his judgment there must have been at least as many more, of whom he has never heard. If this surmise is correct, it would add at once $2,500,000,000 to the share of wealth belonging to the millionaire class, and would confirm the writer's rough estimate in the FORUM for September, that 25,000 persons own just about one half of all the wealth of the United States.
Objection will doubtless be made to any estimates based upon British statistics. Fortunately, Massachusetts furnishes a purely American basis for estimates of the distribution of American wealth. A list of the largest individual taxpayers in Boston, published this year, including all (exclusive of corporations and executors) who paid more than $1,000 in taxes, and who were therefore assessed at more than $75,000 (the tax being 1.33%) showed the following results:
BOSTON TAX LIST FOR 1888
Amount of Tax
Average Assessed Wealth
$50,000 to 75,000
40,000 to 50,000
30,000 to 40,000
20,000 to 30,000
10,000 to 20,000
5,000 to 10,000
1,000 to 5,000
It may be safely assumed that every one who is assessed at $400,000 is really worth $1,000,000; because large estates are never assessed at their full value, and because these assessments include no shares in corporate stock, nor government, municipal, or mortgage bonds, in which a vast proportion of the wealth of the very rich is invested. For the same reasons, an assessment of $75,000 represents in actual wealth not less than $150,000. The wealth of the very rich is always more under-estimated by assessors than that of men in moderate circumstances. Assessments of $400,000 and over are therefore multiplied, in the next table, by two and one half, while those below that line are only doubled. In both cases the increase is too small. Boston has less than a forty-fifth part of the nation's wealth, and less than a hundred and thirtieth part of its population. Multiplying the Boston figures by only 45, it would follow that there are in the United States more than 56,000 persons worth over $150,000 each, of whom at least 8,500 are worth over $1,000,00. Classifying men of wealth in conformity to the proportion in which assessment returns show that their wealth is divided in Boston, but adding the 70 persons who have been specifically named as averaging $37,500,000, we arrive at the following estimate, which errs only on the side of moderation:
DISTRIBUTION OF AMERICAN WEALTH, ON THE BASIS OF BOSTON TAX RETURNS
Wealth in Thousands
Average Wealth in Thousands
Total Wealth in Millions
Distribution in Classes
Wealth in Millions
Average per Family
On this basis, 40,000 persons own over one half of the wealth of the United States, while one seventieth part of the people own over two thirds of the wealth.
It will be seen that in these tables, which are prepared upon the basis of purely American statistics, the concentration of wealth appears to be much greater than in tables prepared upon the basis of British statistics. By either table, 70% of the national wealth appears to be concentrated in the hands of a very small minority of the people; but dividing this wealth in proportion to the English ratio, it is distributed among 235,000 families, while dividing it according to the Boston ratio, it is possessed by only 182,000 families. The truth probably lies between the two; and it may safely be assumed that 200,000 persons control 70% of the national wealth, while 250,000 persons control from 75 to 80% of the whole.
These conclusions are of course very unpalatable to comfortable optimists. But what other results could possibly be expected, in view of well-known facts? No one can entertain a reasonable doubt that there has been an accumulation of wealth in a few individual hands in the United States, during the last 25 years, vastly in excess of any which has taken place in other parts of the world. In no other country have railroad-managers, manufacturers, oil-refiners, mine-owners, bankers, and land speculators accumulated fortunes so rapidly as they have in this. In no other country, and least of all in England, during the last 30 years, has the burden of taxation been cast so exclusively upon the working class, or the machinery of public taxation been used so unscrupulously for private profit.
In Great Britain, although indirect taxation still constitutes the greatest part of the public revenue, a large share of direct taxation has been maintained, and, as far as possible, all tribute levied by the rich upon the poor, under the pretense of taxation, has been abolished. The natural consequence is that the disproportion between the rich and the poor in Great Britain is less today than it was 40 years ago, that wealth is more widely distributed, that the middle class is much more numerous, and that the masses are rapidly gaining in power and influence.
In America the drift has been in precisely the opposite direction. Federal taxation has increased 6-fold since 1860, and the whole of this increase has been taken out of the relatively poorer classes. At the same time, the profit which is secured to the wealthier classes by the adjustment of indirect taxation in their interest has been increased not less than 10-fold. The wealthy classes, collectively, have made a clear profit out of the indirect effects of taxation to an amount far exceeding all that they have paid in taxes, although this profit has been absorbed by a minority of even the rich. But, apart from this, the whole system of taxation is and has been such as to take from the rich only from 3% to 10% of their annual savings, while taking from the poor 75 to 90%. It is true that the same system existed, in form, before the war; but, taxation being light, the amount taken from each individual was far less, and the disproportion between the rich and the poor not so great, while the profit levied from the poor by the rich was much smaller. The amount of the burden has increased, and it has been more and more shifted over upon the poor.
It is childish to imagine that, under such circumstances, the concentration of wealth can go on less rapidly here than in Europe. On the contrary, it has gone on far more rapidly here; and it will continue to do so, at a tremendous pace.
It is intended to confine this paper to a simple investigation of facts, without suggesting remedies; but, to avoid misapprehension, the writer wishes it to be distinctly understood that he is opposed, on principle, to all schemes for arbitrary limitations of individual wealth, whether by a graduated income tax, a heavy succession tax, or otherwise; that he is utterly opposed to communism, socialism, and anarchism; and that he is of opinion that the enormous wealth of the few in this country has been forced upon them by the votes of the very masses who have been impoverished for their benefit. Populous vult decipi. The farmers insist upon throwing away their inheritance; and since they are determined to heap their earnings upon somebody, it is well that the list of their chief beneficiaries should be, upon the whole, so respectable. And, indeed, has it not been clearly explained to us that it makes no sort of difference who owns the wealth of the nation, so long as it is kept at home?
But the facts should be known, without regard to the inferences which may be drawn from them; and we are now prepared to answer the question: "Who own the United States?"
The United States of America are practically owned by less than 250,000 persons, constituting less than 1 in 60 of its adult male population.
Within 30 years, the present methods of taxation being continued, the United States of America will be substantially owned by less than 50,000 persons, constituting less than one in 500 of the adult male population.
In my inbox this morning, a blast-from-the-past from Mason Gaffney, one of the most respected Georgists and a wonderful writer. Unlike many of us, he came to these ideas as a young person, having read Henry George while still in high school.
Mase's cover note: It was November 1942. I had just turned 19, and received Greetings from Uncle Sam. Funny how fast one catches on, with the evidence lying outdoors all around you; and funny how southern California today replicates Chicagoland in 1942. Funny, too, how economics profs had their ways of signaling you that looking into land speculation was, well, just not done in elite circles. How little progress we have made since then in understanding and coping with this phenomenon and its derivative ills.
Taking the Professor for a Ride The Freeman, November, 1942
The writer of this article, MASON GAFFNEY, is a young Chicago Georgist who recently matriculated at Harvard. Perusal of the piece suggests that Freshman Gaffney's chances of becoming teacher's pet in the economics class are decidedly slim.
UNRUFFLED, composed, like a patient father straightening out a wayward son, he said, "You see, my boy, this Henry George lived at a time when the country was growing rapidly, when land values were skyrocketing and great fortunes were being made from speculation. Not being a 'trained economist,' George attached disproportionate importance to this . . . er . . . er . . . land question. Land is, of course, of minor importance in 'economics,' and speculation, well, . . . of trifling significance."
I should like to take this man, my "economics" teacher at Harvard, for a ride from the North Shore area near Chicago straight west on Illinois 58. A well-built-up residential district, one-half to a mile deep, runs far north along the lake shore, to end abruptly in a wilderness of sidewalks, street signs, fire plugs and weeds -- but not buildings. Along the roads which gridiron this wasteland speed trucks and pleasure cars, burning gas, tired and time to bridge the miles which, to no purpose, stand between the metropolis and outlying communities.
"Yes," my boss told me as we were riding to work one day, "there was a time when we thought there would be a lot of building out here. Guess I've still got some Land Company bonds in the Wilmette Bank. The company gave the farmer one-third down and agreed to pay the rest when the land was sold. Lots of poor farmers have got the land back now, with stiff taxes to pay on the improvements. Improvements, hell! Those fire plugs don't even have water pipes attached to them."
Ten miles of this and we reach Des Plaines, an oasis called by the natives a "successful development." "Thirty-one minutes to the Loop," boasts the Northwestern R. R. "These Homesites Best Speculation in Chicago Land," exults the land promoter.
Five miles farther west, about fifteen miles from Lake Michigan, the land is at last completely given over to farms. The speculator fires a parting shot at us as we reach the junction with Arlington Heights Road. "The Idle Rich of Today Bought Acres Yesterday," reads his sign.
Yes, I would like to ride with this "economist" out here. He would have trouble then convincing me that speculation is of trifling significance. Probably he would say: "But the men who hold this land are men of great foresight, very valuable men. You can't refuse to reward foresight; it's a virtue. Of course a little planning might alleviate these dreadful conditions, but, tut, tut, my boy, do you want to destroy free enterprise?"
Reward foresight indeed! Foresight in itself deserves no economic reward. Hitler and Baby-face Nelson at times showed great foresight, yet their loot is by no means sanctified on that account. Only one kind of exertion deserves an economic reward, and that is exertion directed toward the gratification of human desires. Foresight, an attribute of labor, exerted in producing wealth, deserves a reward, and in the free market will bring a reward. But foresight no more justifies speculation in land than superior firepower justifies conquest.
Perhaps it is asking too much to expect a Harvard man to understand this, however. His salary, after all, is paid in part from the proceeds of the foresight of certain friends of the institution who bought up much of the land on which the slums and business districts of Cambridge now stand.
Questions about the sources and rightness of high salaries, particularly in sectors of the economy in monopoly positions or able to skim wealth from the productive economy, are not new. Here's an editorial from the October 14, 1905, issue of "The Public:"
The envious policy holder
It is perhaps quite natural for policy holders in the Mutual Life to be indignant upon learning that their president gets a salary of $150,000 a year; that his son's salary is $30,000; and that his son-in-law's commissions have amounted to $932,823 since 1893 -- about $75,000 a year. But let these policy-holding creatures beware. There is good professorial and priestly authority for saying that indignation like theirs springs from envy, and is the mark of a covetous mind. Is not the laborer worthy of his hire?
Professorial and priestly authority ... hmmm ... Have you seen the documentary film "Inside Job" yet? (It comes out on DVD in a couple of weeks, I have in mind.) Have you read Mason Gaffney and Fred Harrison's 1990 book, "The Corruption of Economics"? Does the phrase "rich people's useful idiots" ring a bell?
A check of an inflation calculator shows that the $150,000 salary referenced for 1904 (paid to the president of a mutual life insurance company!) equates to $4.2 million in 2011. This onger article comes from the following issue of The Public, the October 21, 1905, issue. $100,000 then equates to $2.8 million in 2011. The FIRE sector -- Finance, Insurance, Real Estate -- has been skimming the cream for a long, long time.
We have become accustomed of late years to the contemplation of enormous salaries.
The payment of such salaries is sauctioned upon the pretext of the equivalent value of the recipient's services. If a protest against the payment of a hundred thousand dollars a year to the president of a mutual insurance company is offered, the answer is made that the rare qualifications demanded in the manager of such in enormous and complex business not only justify but necessitate the payment of such a salary. "The office demands the highest ability, and a hundred thousand dollars is none too much for that."
Defenders of the high salary sometimes make comparisons between a particular salary in question and certain other salaries of equal value, or salaries somewhat less but attaching to positions of less responsibility, under the impression that such citations establish the equity of their cause. And what is of vastly greater and more portentous significance—the general public, though perhaps doubting, yet not knowing how to answer, suffers the case to go by default.
Yet to the clear thinking man who has a comprehensive knowledge of fundamental economic law, the question presents no difficulties, and the verdict will be promptly and emphatically adverse.
In the common field of wage labor, so called, the arbitrament of competition, though it does not indicate the absolute value of theservice rendered, nevertheless does determine, with some approach to equity, the relative values.
True, competition is not free even here; some wages are artificially advanced. But the discrepancy is insignificant in comparison with the difference between, say, the $8,000 salary of a judge and the $150,000 salary of the president of an insurance company. Some carpenters may receive 30 percent higher wages than some other carpenters of equal capacity; but some salaried men receive 1800 percent more than others of equal capacity!
Yet the claim that such enormous salaries are necessary in order to secure the services required, is equivalent to asserting that the salaries are competitive A very little reflection should expose the absurdity of that claim.
President Alexander, of the Equitable Assurance Society, received a salary of $100,000. With whom was he in competition? Did he ever have a chance to get such a salary in any other connection? Will he ever have another chance?
Mr. Paul Morton has succeeded Mr. Alexander, as being fitter for the place, at a reduction of $20,000 in salary. But if the salary were competitive, Mr. Morton being conceded to be much the better man for the place, would have received an advance, instead of a cut.
Of course, in this particular case, the real reason of Mr. Morton's voluntary acceptance of the reduced salary was that the United States public was in no mood to be trifled with at the moment. Mr. Morton, and everybody else, knew perfectly well that a considerable part of the $100,000 salary was graft, pure and simple, and as the ostensible purpose of his selection for president of the company was the elimination of its scandalous excess of graft, he wisely began where the permanent graft was greatest—in the president's salary.
But the salary still is $80,000. Is it an equitable salary? Or (to get away from this particular case, which I have cited only as a means of illustration), are the notoriously large salaries justified by the services rendered by their recipients?
No. And that they are not is easily demonstrated.
If any individual is entitled to higher pay than another, it is because he renders greater service to society than that other. The interposition of the employer between the workman, for instance, and the public does not alter the case. The most efficient group, including employer and employes, will outstrip the less efficient in the competition—that is, in service to the public—and will, as a group, receive cominensurately a greater reward.
The law holds, either as to the individual or the group of individuals. The question of reward does not depend upon the amount of an individual's product, but on the amount that he imparts. He must get his reward by exchanging his product for the product of others; and therefore in order to get more than his competitors he must impart more.
That would be the case if the principle of competition were universally free to act. And the moment that you exempt an individual from the law of competition you thereby concede his inability to command an increased reward without such exemption. Else why exempt him? By exempting him you help him to an increased income; an increase which he could not get without such help, and which, therefore, he does not earn, but receives by special privilege.
Since, then, naturally—that is, under purely competitive conditions—increased reward comes only from increased service to society, it follows that under such conditions an exceptionally high salary would indicate a general rise in the level of social conditions; and that a large number of very high and frequently advancing salaries would indicate a very much improved and frequently rising general standard of living, reaching down to the lowest level of wage-earners.
I repeat that the rapidly rising standard of living would embrace the common laborer. This is the most important fact of the whole problem. The laborer's wage is the criterion of general service value. All advance in income starts from the wage-level of Common Labor. All advance in service-value, therefore, starts from the service-value of Common Labor. The test of alleged exceptionally high service-value, is, therefore, the condition of the Common Laborer.
It follows that if the exceptionally large incomes now prevailing (whether these incomes are in the form of $100,000 salaries or of $1,000,000 profits), are earned, then the condition of Common Laborers generally has risen by leaps and bounds within the last few years.
But statistics prove that in the United States the cost of living has increased beyond any advance in wages. The conclusion is inevitable, therefore, that large incomes exceed the recipients' earnings.
How much do these incomes exceed earnings? No one can tell. The fact of paramount importance for our consideration in this connection is that the great incomes are indisputably beyond the effective influence of those natural laws which tend toward social equity.
The individual laborer's wages are modified by the wages that his fellow consents to work for. The wages of the mechanic bear a manifest competitive relation to the wages of common labor. The profits of the green-grocer, the draper, the teacher, etc., all are competitively related to the wage rate of common labor. Only through exceptional service to those below, can those above maintain their positions in the competitive field.
But there is no comparison whatever between the common-laborer wage and the hundred-thousand-dollar salary. There is no natural relation between them. The wages of the common laborer are the just compensation for valuable service rendered—minus the laborer's enforced contribution to the incomes outside the influence of competition. The great incomes are, at best, in small part compensation for valuable service rendered—plus the maximum of graft that special privilege is able to extort from the occupants of the competitive field; and. at the worst, they are, in their entirety, graft, pure and simple.
What should be the maximum salary, or the individual income of whatsoever name?
It should be just what a man can get, under conditions of universal freedom of competition, in a world where natural opportunities are free to all men. Abolish all special privilege, and the man of high abilities would earn his greater compensation as the just reward of benefits imparted to the whole body of society.
Under such conditions all society, including the humblest servitor, would rise in affluence in proportion to the increase in productivity. Which is to say that if our productivity should increase as fast in the next 40 years as it has in the last 40, the poorest class would be ten times as affluent as now, plus its hitherto withheld equity in the current product of today.
Today, the difference between the extremes of income measures the difference between the opportunities of individuals. Abolish all forms of special privilege, and the difference between the extremes of income would measure the difference in the social service of the individual recipients, and the maximum income would be the just reward of the largest contributor to the sum of human welfare.
Amid criticism that academic economists' ethical lapses were partly to blame for the U.S. financial crisis, the American Economic Association said Thursday that it will consider providing new ethical guidelines to its membership.
"The executive committee of the American Economic Association voted unanimously to create a committee to consider the association's existing disclosure and other ethical standards and potential extensions to those standards," the AEA said in a statement here as its annual meeting opened.
The AEA's effort comes as economists face greater scrutiny for their ties to Wall Street banks, hedge funds and other firms. The documentary film "Inside Job," released in October in the U.S., drew widespread public attention to influential academic economists' ties to Wall Street firms through directorships and consulting jobs.
In a recent paper, two economists from the University of Massachusetts, Amherst — Gerald Epstein and Jessica Carrick-Hagenbarth — noted that a number of economists who published comments on financial reforms failed to fully disclose potential conflicts of interest.
This week, Mr. Epstein and Ms. Carrick-Hagenbarth sent a letter, signed by about other 300 economists, to AEA President Robert Hall. It urged the association to "adopt a code of ethics that requires disclosure of potential conflicts of interest that can arise between economists' roles as economic experts and as paid consultants, principals or agents for private firms."
"I think there are many economists who are just as concerned about the issues of disclosure and ethical standards as people outside the profession," said Janet Currie, a Columbia University economist who is a member of the AEA's executive committee.
The AEA has considered adopting ethical guidelines in the past, but decided against it on the grounds that they would not be enforceable. Other than academic journals it publishes, the association exercises no real authority over economists' professional lives, said Harvard economist Lawrence Katz.
"I think the AEA can play a leadership role, but I don't think it can moderate people in any way," he said. That will be a role that the universities that employ the economists will have to take, he added.
Write to Justin Lahart at email@example.com and Mark Whitehouse at firstname.lastname@example.org
If you've not seen the film yet, I commend it to your attention. But you're probably going to have to live in a town with an independent film house to see it in a theater. Interestingly, it is being distributed by Sony Classics. Spend a bit of time exploring the website, at http://www.sonyclassics.com/insidejob/
It contains priceless scenes of people -- academic economists, including the deans of prestigious universities, who have made awesome sums from private "industry" -- who couldn't imagine ever being embarrassed by anyone for lending their prestige and the prestige of their institutions, including Columbia University -- starting to "get it" that perhaps some ordinary Americans might feel they'd done something wrong, and had reaped huge bonuses from the folks who screwed the ordinary folks.
Watch it, too, for Eliot Spitzer's interviews; they turn out to be eloquent and telling, not about Spitzer but about Wall Street.
In a recent column in the NYT, entitled "Description is Prescription", David Brooks made references to Tolstoy, and it sent me looking to see whether a book I remembered was available via Google Books. The book was written in 1905 by Bolton Hall, and it is entitled "What Tolstoy Taught." Its next-to-last chapter, "The Great Iniquity," follows. (Below this post is the final chapter from Hall's book.)
(This history-making article, dated July, 1905, first appeared in the London Times of August 1, 1905. We give the essence of the article verbatim as it appeared in the Times, for which it was translated from the Russian by V. Tchertkoff (editor of the Free Age Press, Christchurch, Hants, England), and I. F. H. It is expressly declared to be free from copyright. — Ed.)
Russia is living through an important time destined to have enormous results. One need only for a time free oneself from the idea which has taken root amongst our intellectuals, that the work now before Russia is the introduction into our country of those same forms of political life which have been introduced into Europe and America, and are supposed to insure the liberty and welfare of all the citizens — and to simply think of what is morally wrong in our life, in order to see quite clearly that the chief evil from which the whole of the Russian people are unceasingly and cruelly suffering cannot be removed by any political reforms, just as it is not up to the present time removed by any of the political reforms of Europe and America. This evil — the fundamental evil from which the Russian people, as well as the peoples of Europe and America, are suffering — is that the majority of the people are deprived of the indisputable natural right of every man to use a portion of the land on which he was born. It is sufficient to understand all the criminality, the sinfulness of the situation in this respect, in order to understand that until this atrocity, continuously committed by the owners of the land, shall cease, no political reforms will give freedom and welfare to the people, but that, on the contrary, only the emancipation of the majority of the people from that land-slavery in which they are now held can render political reforms, not a plaything and a tool for personal aims in the hands of politicians, but the real expression of the will of the people.
The other day I was walking along the highroad to Tula. It was on the Saturday of Holy Week; the people were driving to market in lines of carts, with calves, hens, horses, cows (some of the cows were being conveyed in the carts, so starved were they). A young peasant was leading a sleek, well-fed horse to sell.
"Nice horse," said I.
"Couldn't be better," said he, thinking me a buyer. "Good for plowing and driving."
"Then why do you sell it?"
"I can't use it. I've only two allotments. I can manage them with one horse. I've kept them both over the winter, and I'm sorry enough for it. The cattle have eaten everything up, and we want money to pay the rent."
"From whom do you rent?"
"From Maria Ivanovna; thanks be to her she let us have it. Otherwise it would have been the end of us."
"What are the terms?"
"She fleeces us of fourteen roubles. But where else can we go? So we take it."
A woman passed driving along with a boy wearing a little cap. She knew me, clambered out, and offered me her boy for service. The boy is quite a tiny fellow with quick, intelligent eyes.
"He looks small, but he can do everything," she says.
"But why do you hire out such a little one?"
"Well, sir, at least it'll be one mouth less to feed. I have four besides myself, and only one allotment. God knows, we've nothing to eat. They ask for bread and I've none to give them."
With whomsoever one talks, all complain of their want and all similarly from one side or another come back to the sole reason. There is insufficient bread, and bread is insufficient because there is no land.
"What is man?" says Henry George in one of his speeches. [lvtfan note: The Crime of Poverty, 1885 -- NYC in February, per NYT article; Burlington, Iowa in April]
"In the first place, he is an animal, a land animal who cannot live without land. All that man produces comes from the land; all productive labor, in the final analysis, consists in working up land, or materials drawn from land, into such forms as fit them for the satisfaction of human wants and desires. Why, man's very body is drawn from the land. Children of the soil, we come from the land, and to the land we must return. Take away from man all that belongs to the land, and what have you but a disembodied spirit? Therefore he who holds the land on which and from which another man must live is that man's master; and the man is his slave. The man who holds the land on which I must live can command me to life or to death just as absolutely as though I were his chattel. Talk about abolishing slavery — we have not abolished slavery; we have only abolished one rude form of it, chattel slavery. There is a deeper and more insidious form, a more cursed form yet before us to abolish, in this industrial slavery that makes a man a virtual slave, while taunting him and mocking him in the name of freedom.
"Did you ever think (says Henry George in another part of the same speech) of the utter absurdity and strangeness of the fact that all over the civilized world the working classes are the poor classes? Think for a moment how it would strike a rational being who had never been on the earth before, if such an intelligence could come down, and you were to explain to him how we live on earth, how houses and food and clothing and all the many things we need were all produced by work, would he not think that the working people would be the people who lived in the finest houses and had most of everything that work produces? Yet, whether you took him to London or Paris, or New York, or even to Burlington, he would find that those called the working people were the people who lived in the poorest houses."
The same thing, I would add, takes place in a yet greater degree in the country. Idle people live in luxurious palaces, in spacious and fine abodes. The workers live in dark and dirty hovels.
"All this is strange — just think of it. We naturally despise poverty, and it is reasonable that we should. . . . Nature gives to labor, and to labor alone; there must be human work before any article of wealth can be produced; and in the natural state of things the man who toiled honestly and well would be the rich man, and he who did not work would be poor. We have so reversed the order of nature that we are accustomed to think of the working man as a poor man. . . . The primary cause of this is that we compel those who work to pay others for permission to do so. You may buy a coat, a horse, a house; there you are paying the seller for labor exerted, for something that he has produced, or that he has got from the man who did produce it; but when you pay a man for land, what are you paying him for? You are paying for something that no man has produced; you pay him for something that was here before man was, or for a value that was created, not by him individually, but by the community of which you are a part."
It is for this reason that the one who has seized the land and possesses it is rich, whereas he who cultivates it or works on its products is poor.
"We talk about over-production. How can there be such a thing as over-production while people want? All these things that are said to be over-produced are desired by many people. Why do they not get them ? They do not get them because they have not the means to buy them; not that they do not want them. Why have not they the means to buy them? They earn too little. When the great mass of men have to work for an average of $1.40 a day, it is no wonder that great quantities of goods cannot be sold.
"Now, why is it that men have to work for such low wages? Because if they were to demand higher wages there are plenty of unemployed men ready to step into their places. It is this mass of unemployed men who compel that fierce competition that drives wages down to the point of bare subsistence. Why is it that there are men who cannot get employment? Did you ever think what a strange thing it is that men cannot find employment? Adam had no difficulty in finding employment, neither had Robinson Crusoe; the finding of employment was the last thing that troubled them.
"If men cannot find an employer, why cannot they employ themselves? Simply because they are shut out from the element on which human labor can alone be exerted. Men are compelled to compete with each other for the wages of an employer, because they have been robbed of the natural opportunities of employing themselves; because they cannot find a piece of God's world on which to work without paying some other human creature for the privilege.
"Men pray to the Almighty to relieve poverty. But poverty comes not from God's laws — it is blasphemy of the worst kind to say that; it comes from man's injustice to his fellows. Supposing the Almighty were to hear the prayer, how could He carry out the request so long as His laws are what they are? Consider, the Almighty gives us nothing of the things that constitute wealth; He merely gives us the raw material, which must be utilized by men to produce wealth. Does He not give us enough of that now? How could He relieve poverty even if He were to give us more? Supposing in answer to these prayers He were to increase the power of the sun, or the virtue of the soil? Supposing He were to make plants more prolific, or animals to produce after their kind more abundantly ? Who would get the benefit of it? Take a country where land is completely monopolized, as it is in most of the civilized countries, who would get the benefit of it ? Simply the landowners. And even if God in answer to prayer were to send down out of the heavens those things that men require, who would get the benefit?
"In the Old Testament we are told that when the Israelites journeyed through the desert they were hungered, and that God sent manna down out of the heavens. There was enough for all of them, and they all took it and were relieved. But supposing that the desert had been held as private property, as the soil of Great Britain is held, as the soil even of our new States is being held; suppose that one of the Israelites had a square mile, and another one had 20 square miles, and another one had 100 square miles, and the great majority of the Israelites did not have enough to set the soles of their feet upon which they could call their own — what would become of the manna? What good would it have done to the majority? Not a whit. Though God had sent down manna enough for all, that manna would have been the property of the landholders, they would have employed some of the others perhaps to gather it up into heaps for them, and would have sold it to their hungry brethren. Consider it; this purchase and sale of manna might have gone on until the majority of Israelites had given all they had, even to the clothes off their backs. What then? Then they would not have had anything to buy manna with, and the consequences would have been that while they went hungry the manna would have lain in great heaps, and the landowners would have been complaining of the over-production of manna. There would have been a great harvest of manna and hungry people, just precisely the phenomenon that we see today.
"I do not mean to say that even after you had set right this fundamental injustice there would not be many things to do; but this I do mean to say, that our treatment of land lies at the bottom of all social questions. This I do mean to say, that, do what you please, reform as you may, you never can get rid of widespread poverty so long as the element on which and from which all men must live is made the private property of some men. It is utterly impossible. Reform government; get taxes down to the minimum; build railroads; institute cooperative stores; divide profits, if you choose, between employers and employed — and what will be the result? The result will be that the land will increase in value — that will be the result — that and nothing else. Experience shows this. Do not all improvements simply increase the value of land — the price that some must pay others for the privilege of living?"
The same, I shall add, do we unceasingly see in Russia. All landowners complain of the unprofitableness and expense of their estates, whilst the price of the land is continually rising. It cannot but rise, since the population is increasing and land is a question of life and death for this population.
And therefore, the people surrender everything they can, not only their labor, but even their lives, for the land which is being withheld from them.
There used to be cannibalism and human sacrifices; there used to be religious prostitution and the murder of weak children and of girls; there used to be bloody revenge and the slaughter of whole populations, judicial tortures, quarterings, burnings at the stake, the lash; and there have been, within our memory, "running the gauntlet" and slavery, which have also disappeared. But if we have outlived these dreadful customs and institutions, this does not prove that institutions and customs do not exist amongst us which have become as abhorrent to enlightened reason and conscience as those which have in their time been abolished and have become for us only a dreadful remembrance. The way of human perfecting is endless, and at every moment of historical life there are superstitions, deceits, pernicious and evil institutions already outlived by men and belonging to the past; there are others which appear to us in the far mists of the future; and there are some which we are now living through and whose overliving forms the object of our life. Such in our time is capital punishment and all punishment in general. Such is prostitution, such is flesh eating, such is the work of militarism, war, and such is the nearest and most obvious evil, private property in land.
The evil and injustice of private property in land have been pointed out a thousand years ago by the prophets and sages of old. Later progressive thinkers of Europe have been oftener and oftener pointing it out. With special clearness did the workers of the French Revolution do so. In latter days, owing to the increase of the population and the seizure by the rich of a great quantity of previously free land, also owing to general enlightenment and the spread of humanitarianism, this injustice has become so obvious that not only the progressive, but even the most average people cannot help seeing and feeling it. But men, especially those who profit by the advantages of landed property — the owners themselves, as well as those whose interests are connected with this institution — are so accustomed to this order of things, they have for so long profited by it, have so much depended upon it, that often they themselves do not see its injustice, and they use all possible means to conceal from themselves and others the truth which is disclosing itself more and more clearly, and to crush, extinguish, and distort it, or, if these do not succeed, to hush it up.
But what has happened? Notwithstanding that at the time of their appearance the English writings of Henry George spread very quickly in the Anglo-Saxon world, and did not fail to be appreciated to the full extent of their great merit, it very soon appeared that in England, and even in Ireland, where the crying injustice of private landed property is particularly manifest, the majority of the most influential educated people, notwithstanding the conclusiveness of Henry George's arguments and the practicability of the remedy he proposes, opposed his teaching. Radical agitators like Parnell, who at first sympathized with George's scheme, very soon shrank from it, regarding political reforms as more important. In England almost all the aristocrats were against it, also, amongst others, the famous Toynbee, Gladstone, and Herbert Spencer — that Spencer who in his "Social Statics" at first most categorically asserted the injustice of landed property, and then, renouncing this view of his, bought up the old editions of his writings in order to eliminate from them all that he had said concerning the injustice of landed property.
The chief weapon against the teaching of Henry George was that which is always used against irrefutable and self-evident truths. This method, which is still being applied in relation to George, was that of hushing up. This hushing up was effected so successfully that a member of the English Parliament, Labouchere, could publicly say, without meeting any refutation, that "he was not such a visionary as Henry George. He did not propose to take the land from the landlords and rent it out again. What he was in favor of was putting a tax on land values." That is, whilst attributing to George what he could not possibly have said, Labouchere, by way of correcting these imaginary fantasies, suggested that which Henry George did indeed say.
People do not argue with the teaching of George, they simply do not know it. And it is impossible to do otherwise with his teaching, for he who becomes acquainted with it cannot but agree.
Yet, notwithstanding all, the truth that land cannot be an object of property has become so elucidated by the very life of contemporary mankind that in order to continue to retain a way of life in which private landed property is recognized there is only one means — not to think of it, to ignore the truth, and to occupy oneself with other absorbing business. So, indeed, do the men of our time.
Political workers of Europe and America occupy themselves for the welfare of their nations in various matters: tariffs, colonies, income taxes, military and naval budgets, socialistic assemblies, unions, syndicates, the election of presidents, diplomatic connections — by anything save the one thing without which there cannot be any true improvement in the condition of the people — the reestablishment of the infringed right of all men to use the land. Although in the depth of their souls political workers of the Christian world feel — cannot but feel — that all their activity, the commercial strife with which they are occupied, as well as the military strife in which they put all their energies — can lead to nothing but a general exhaustion of the strength of nations; still they, without looking forward, give themselves up to the demand of the minute, and, as if with the one desire to forget themselves, continue to turn round and round in an enchanted circle out of which there is no issue.
However strange this temporary blindness of the political workers of Europe and America, it can be explained by the fact that in Europe and America people have already gone so far along a wrong road that the majority of their population is already torn from the land (in America it has never lived on the rural land) and lives either in factories or by hired agricultural labor, and desires and demands only one thing — the improvement of its position as hired laborers. It is therefore comprehensible that to the political workers of Europe and America — listening to the demands of the majority — it may seem that the chief means for the improvement of the position of the people consists in tariffs, trusts, and colonies, but to the Russian people in Russia, where the agricultural population composes 80 percent of the whole nation, where all this people request only one thing — that opportunity be given them to remain in this state — it would seem it should be clear that for the improvement of the position of the people something else is necessary.
The people of Europe and America are in the position of a man who has gone so far along a road which at first appeared the right one, but which the further he goes the more it removes him from his object, that he is afraid of confessing his mistake. But the Russians are yet standing before the turning of the path and can, according to the wise saying, "ask their way while yet on the road."
If Russian political workers do speak about land abuse, which they for some reason call the "agrarian" question — probably thinking that this silly word will conceal the substance of the matter — they speak of it, not in the sense that private landed property is an evil which should be abolished, but in the sense that it is necessary in some way or other, by various patchings and palliatives, to plaster up, hush up, and pass over this essential, ancient, and cruel, this obvious and crying injustice, which is awaiting its turn for abolition not only in Russia, but in the whole world.
People have driven a herd of cows, on the milk products of which they are fed, into an enclosure. The cows have eaten up and trampled the forage in the enclosure, they are hungry, they have chewed one another's tails, they low and moan, imploring to be released from the enclosure and set free in the pastures. But the very men who feed themselves on the milk of these cows have set around the enclosure plantations of mint, of plants for dyeing purposes, and of tobacco; they have cultivated flowers, laid out a racecourse, a park, and a lawn tennis ground, and they do not let out the cows lest they spoil these arrangements. But the cows bellow, get thin, and the men begin to be afraid that the cows may cease to yield milk, and they invent various means of improving the condition of these cows. They erect sheds over them, they introduce wet brushes for rubbing the cows, they gild their horns, alter the hour of milking, concern themselves with the housing and treating of invalid and old cows, they invent new and improved methods of milking, they expect that some kind of wonderfully nutritious grass they have sown in the enclosure will grow up, they argue about these and many other varied matters, but they do not, cannot — without disturbing all they have arranged around the enclosure — do the only simple thing necessary for themselves as well as for the cows, take down the fence and grant the cows their natural freedom of using in plenty the pastures surrounding them.
Acting thus, men act reasonably, but there is an explanation of their action; they are sorry for the fate of all they have arranged around the enclosure. But what shall we call those people who have set nothing around the fence, but who, out of imitation of those who do not set free their cows, owing to what they had arranged around the enclosure, also keep their cows inside the fence, and assert that they do so for the welfare of the cows themselves?
Precisely thus act those Russians, both Governmental and anti-Governmental, who arrange for the Russian people, unceasingly suffering from the want of land, every kind of European institution, forgetting and denying the chief thing: that which alone the Russian people requires — the liberation of the land from private property, the establishment of equal rights on the land for all men.
The true bread-supporters of these European parasites are the laborers they do not see in India, Africa, Australia, and partly in Russia. But it is not so for us Russians; we have no colonies where slaves invisible to ourselves feed us for our manufacturing produce. Our bread-winners, suffering, hungry, are always before our eyes, and we cannot transfer the burden of our iniquitous life to distant colonies, that slaves invisible to us should feed us. Our sins are always before us.
And behold, instead of entering into the needs of those who support us, instead of hearing their cries and endeavoring to satisfy them, we, instead of this, under pretext of serving them, also prepare, according to the European sample, socialistic organizations for the future, and in the present occupy ourselves with what amuses and distracts us, and appears to be directed to the welfare of the people out of whom we are squeezing their last strength in order to support us, their parasites.
One need only enter into the unceasing sufferings of millions of the people; the dying out from want of the aged, women, and children, and of the workers from excessive work and insufficient food — one need only enter into the servitude, the humiliations, all the useless expenditures of strength, into the deprivations, into all the horror of the needless calamities of the Russian rural population which all proceed from insufficiency of land — in order that it should become quite clear that all such measures as the abolition of censorship, of arbitrary banishment, etc., which are being striven after by the pseudo-defenders of the people, even were they to be realized, would form only the most insignificant drop in the ocean of that want from which the people are suffering.
There was a time when In the name of God and of true faith in Him men were destroyed, tortured, executed, beaten in scores and hundreds of thousands. We, from the height of our attainments, now look down upon the men who did these things.
But we are wrong. Amongst us there are many such people, the difference lies only here — that those men of old did these things then in the name of God, and of His true service, whilst now those who commit the same evil amongst us do so in the name of "the people," "for the true service of the people." And as amongst the former there were men insanely self-convinced that they knew the truth, and there were others, hypocrites, taking up their position under the pretext of serving God, and there was a crowd without consideration following the more dexterous and bold, so also now those who do evil in the name of serving the people consist of men insanely self-convinced that they alone know the truth — of hypocrites and of the crowd. Much evil have the self-proclaimed servants of God done in their time, thanks to the teaching which they called Theology, but the servants of the people, thanks to the teaching which they call Science, if they have done less evil, it is only because they have not yet had time to do it, but already on their conscience there lie rivers of blood and great divisions and exasperation amongst men.
Of all indispensable alterations of the forms of social life there is in the life of the world one which is most ripe, one without which not a single step forward in improvement in the life of men can be accomplished. The necessity of this alteration is obvious to every man who is free from preconceived theories. This alteration is not the work of Russia alone, but of the whole world. All the calamities of mankind in our time are connected with this condition.
[This is perhaps an example of Tolstoy's general statements; so broad as to seem absurd at first glance. But it is clear that every improvement in the condition of the earth, whether agricultural, mechanical, political, social, ethical, educational or even religious, must go eventually and mainly to the benefit of the owners of the earth. If, then, Tolstoy's idea is correct, that our land system is the root of our economic evils; all the "improvements" which go to make it less hideous, result in the main in strengthening the system.—Ed.]
Without religion one cannot really love men, and without loving men one cannot know what they require, and what is more, and what is less necessary for them. Only those who are not religious, and therefore do not truly love, can invent trifling, unimportant improvements in the condition of the people without seeing that chief evil from which others are suffering, and which they themselves are partly producing. Only such people can preach more or less cleverly-constructed abstract theories supposed to render the people happy in the future, and not see the sufferings the people are bearing in the present and which demand immediate and practical alleviation. As it were, a man who has deprived a hungry man of his food is giving him his counsel (and that of a very doubtful character) as to how he should get food in the future, without deeming it necessary immediately to share with him that part of his own abundance consisting of the food he has actually taken away from the man.
Fortunately, great beneficial movements in humanity are accomplished not by parasites feeding on the life-blood of the people, whatever they may call themselves — Governments, Revolutionists, or Liberals — but by religious people — that is, by people who are serious, simple, laborious, and who live not for their own profit, vanity, or ambition, and not for the attainment of external results, but for the fulfillment before God of their human vocation.
Such men, and only such, by their noiseless but resolute activity, move mankind forward. Such men will not, desiring to distinguish themselves in the eyes of others, invent this or that improvement in the condition of the people (there can be an endless number of such improvements, and they are all insignificant if the chief thing is not done), but will endeavor to live in accordance with the law of God, with conscience, and in endeavoring to live so they will naturally come across the most obvious transgression of this law, and for themselves, and for others will search for the means of freeing themselves from it.
"Great social reforms," says Mazzini, "always ve been and will be the result of great religious movements."
And such is the religious movement which is now pending for the Russian people, for all the Russian people, for the working classes deprived of land as well as, and especially for, the big, medium, and small landowners, and for all those hundreds of thousands of men who, although they do not directly possess land, yet occupy an advantageous position, thanks to the compulsory labor of the people who are deprived of land.
This sin can be undone, not by political reform, nor socialistic schemes for the future, nor by revolutions in the present, and still less by philanthropic assistance or governmental organization for the purchase and distribution of land among the peasants. Such palliative measures only distract attention from the essence of the problem and thus retard its solution.
No artificial sacrifices are necessary, no concern about the people — there is only necessary the consciousness of this sin by all those who commit or participate in it, and the desire of freeing themselves from it.
It is only necessary that the undeniable truth which the best men of the people always knew and know — that the land cannot be the exclusive property of some, and that the non-admission to the land of those who are in need of it is a sin — that this truth should become generally recognized by all men; that people should become ashamed of retaining the land from those who want to feed themselves from it; that it should become a shame in any way to participate in this retention of the land from those who need it, a shame to possess land, a shame to profit by the labor of men compelled to work only because they have been deprived of their legitimate right to the land.
Possessing hundreds, thousands, scores of thousands of acres, trading in land, profiting one way or the other by landed property, and living luxuriously, thanks to the oppression of the people, possible through this cruel and obvious injustice — to argue in various committees and assemblies about the improvement of the conditions of the peasant's life without surrendering one's own exclusively advantageous position growing from this injustice, is not only an unkind but a detestable and evil thing, equally condemnable by common sense, honesty and Christianity. It is necessary, not to invent cunning devices for the improvement of men deprived of their lawful right to the land, but to understand one's own sin in relation to them, and before all else to cease to participate in it, whatever this may cost. Only such moral activity of every man can and will contribute to the solution of the question now standing before humanity.
The land question has at the present time reached such a state of ripeness as fifty years ago was reached by the question of serfdom. Exactly the same is being repeated. As at that time men searched for the means of remedying the general uneasiness and dissatisfaction which were felt in society, and applied all kinds of external governmental means, but nothing helped nor could help whilst there remained the ripening and unsolved question of personal slavery, so also now no external measures will help or can help until the ripe question of landed property be solved. As now measures are proposed for adding slices to the peasants' land, for the purchase of land by the aid of banks, etc., so then also palliative measures were proposed and enacted, material improvements, rules about three days' labor, and so forth. Even as now the owners of land talk, about the injustice of putting a stop to their criminal ownership, so then people talked about the unlawfulness of depriving owners of their serfs. As then the Church justified the serf right, so now that which occupies the place of the Church — Science — justifies landed property. Just as then slave owners, realizing their sin more or less, endeavored in various ways without undoing it to mitigate it, and substituted the payment of a ransom by the serfs for direct compulsory work for their masters and moderated their exactions from the peasants, so also now the more sensitive landowners, feeling their guilt, endeavor to redeem it by renting their land to the peasants on more lenient conditions, by selling it through the peasant banks, by arranging schools for the people, ridiculous houses of recreation, magic-lantern lectures and theaters.
The question will be solved, not by those who will endeavor to mitigate the evil or to invent alleviations for the people or to postpone the task of the future, but by those who will understand that, however one may mitigate a wrong, it remains a wrong, and that it is senseless to invent alleviations for a man we are torturing, and that one cannot postpone when people are suffering, but should immediately take the best way of solving the difficulty and immediately apply it in practice. And the more should it be so that the method of solving the land problem has been elaborated by Henry George to such a degree of perfection that, under the existing State organization and compulsory taxation, it is impossible to invent any other better, more just, practical, and peaceful solution.
"To beat down and cover up the truth that I have tried tonight to make clear to you [said Henry George], selfishness will call on ignorance. But it has in it the germinative force of truth, and the times are ripe for it. . . . The ground is plowed; the seed is set; the good tree will grow. So little now; only the eye of faith can see it."
And I think Henry George is right, that the removal of the sin of landed property is near, that the movement called forth by Henry George was the last birth-throe, and that the birth is on the point of taking place; the liberation of men from the sufferings they have so long borne must now be realized. Besides this, I think (and I would like to contribute to this, in however small a measure) that the removal of this great universal sin — a removal which will form an epoch in the history of mankind — is to be effected precisely by the Russian Slavonian people, who are, by their spiritual and economic character, predestined for this great universal task — that the Russian people should not become proletarians in imitation of the peoples of Europe and America, but, on the contrary, that they should solve the land question at home by the abolition of landed property, and show other nations the way to a rational, free and happy life, outside industrial, factory, or capitalistic coercion and slavery — that in this lies their great historical calling.
I commend the whole article to your attention (it runs 3 pages). But I'll focus on a few paragraphs which particularly intrigue me. DCJ begins,
Will President Obama cave on yet another of his campaign promises, this time by giving in to Republican demands to extend all of the temporary Bush tax cuts? The president signaled this on his Asia trip when he said his principal concern was retaining the middle-income tax rates.
Republican congressional leaders have said they will let all of the Bush tax cuts expire unless the president bows to their demand that the top 3 percent of Americans be included in any tax cut extension.
Obama should call their bluff.
I don’t think the Republicans are so stupid that they would let all the Bush tax cuts expire if they cannot continue tax cuts for billionaires and the affluent on all of their income. But let’s assume that the Republican leaders on Capitol Hill are that dumb, or so beholden to the antitax billionaires funding their campaigns, that they would force universal tax increases.
The Republicans cannot pass any legislation the Democrats choose to block. Further, the Republicans have no chance of overriding a veto, which requires a two-thirds vote of those present in both houses. The Republicans control the House, but they have only as much power to enact laws as Obama and Senate Democrats give them.
More important than any political gain, however, is what calling the GOP bluff could do to get our nation back on the path to prosperity and to stop policies that are pushing us into economic disaster, thanks in huge part to the Bush administration’s combination of revenue-losing tax cuts, wars, and wild spending.
By calling the Republicans’ bluff, Obama can get us talking about taxes and the future of America, instead of protecting what the richest among us already have.
The president could speak about Wall Street handing out record bonuses this year — an estimated $144 billion to a relative handful of people, many of whom get richer by destroying wealth, including assets of state and local government pension funds whose losses we have to make up for with more taxes.
Those bonuses, by the way, are about 2.4 times expected Wall Street profits.
How about a presidential lecture on entitlements focused on Lloyd Blankfein, whose firm’s bad bets taxpayers paid off at 100 cents on the dollar? The Goldman Sachs boss whines about making only $9 million last year because of his ‘‘sacrifice’’ and plans an extra-big payday this December to make up for last year.
The president could change the terms of our economic debate by talking about how much the vast majority props up many of those at the very top, starting with Blankfein. He could tell people about the trillion dollars a year of tax favors for corporations and the rich, as documented by the Shelf Project. (For the article, see Tax Notes, July 5, 2010, p. 101, Doc 2010-13081, or 2010 TNT 129-4.) Obama should explain how soak-the-middle-class and sink-the-poor policies damage economic growth.
Obama could also talk about how America has stopped being number one in many other categories because of tax policies that are hollowing out our nation’s economy and destroying the commonwealth on which private wealth building relies.
I am an admirer of DCJ, appreciate his two books, and look forward to his third -- but I don't think he yet sees the half of it! (And need I say that none of our current parties do either?)
Skipping ahead again:
Calling the GOP’s bluff would let the president raise the issue of whether we want to cut Social Security and Medicare benefits so Peterson and his peers can have even more. Is Peterson’s use of a multimillion-dollar helicopter just to avoid the summer traffic between Manhattan and his Hamptons mansion enough? Or should we all pay more so he can buy a new helicopter?
The president could explain that the tax system helps Peterson’s billions float on a sea of tax credits, tax breaks, and tax deferrals. Obama could read to people from 1950s newspaper stories about old ladies eating cat food. The president could stop in at food banks where families who worked hard and played by the rules were crushed by the machinations of Wall Streeters.
He could talk about how a single working person making the median wage of just over $26,000 paid nearly a third larger share of her income in federal taxes than the top 400 taxpayers, who each made almost $1 million a day in 2007.
And Obama could tell taxpayers about all those people with billion-dollar annual incomes who legally pay no current income taxes, while the rest of us get dinged before we get paid. Let me play speechwriter for Obama on this one:
The Republicans took away your tax savings, every penny of it, but first they made sure that hedge fund managers will not have to pay any taxes this year unless they choose to.
Hedge fund managers make billions of dollars each year, but they get to delay paying their taxes for years or even decades — and then pay taxes at less than half the rate that other highly paid people must pay.
Do these hedge fund managers build factories?
Do they create software or new technologies?
Do they create the jobs America needs?
No! They are speculators, speculating with borrowed money.
The Republicans want to cut your Medicare and cut your Social Security.
Now if that’s what you want, then I urge you to support the Republicans. But if you think the highest-paid workers in the history of the world — people who can and often do make a billion dollars in a year — should pay taxes, pay their taxes in full, and pay them now, then you need to show your support for my policies.
If you want your tax cuts back, you need to stand with me. You need to petition, to demonstrate, to call and write to your representative and senators, telling them this kind of favoritism has got to stop and stop right now.
I'm glad to see that DCJ is calling attention to this particular form of speculation -- skimming the cream off the economy without producing anything.
... moneylenders have been skimming 40 percent 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)."
I've not heard of Stiglitz saying this where the American media might catch on, but appreciate his willingness to state it elsewhere.
How do we encourage the sorts of business activity which create jobs, create housing which is welcoming and affordable for people at all points on the income and wealth spectra? By getting our incentives right, and by straightening out what we tax, what we don't, and the rates at which we tax each.
A 2007 OECD study compared some of the commonly-used tax bases for their effects on economic growth, and concludes that the personal income tax is an inferior tax. What does it endorse? Interestingly, the conventional property tax! Those who read this blog regularly know that the conventional property tax is an unfortunate marriage of two taxes with very different effects -- one quite desirable, and the other largely negative in its effects.
Elsewhere, I came across this table:
Distributional Effects of Allowing All Expiring Tax Provisions to Expire, 2011
Increase in Federal Taxes
Millions of Dollars
Less than $10,000
$10,000 - $20,000
$20,000 - $30,000
$30,000 - $40,000
$40,000 - $50,000
$50,000 - $75,000
$75,000 - $100,000
$100,000 - $200,000
$200,000 - $500,000
$500,000 - $1 million
$1 million and over
Total, all taxpayers
Source: Joint Committee on Taxation (July 30, 2010
If I am reading the table correctly, it says that while the folks in the $1 million plus income category would experience an 11.0% increase in their federal taxes, those in the $10,000 to $20,000 range would see a 19.9% increase, and those in the $20,000 to $30,000 range would have a 20.8% increase in their federal taxes. Admittedly, these are small numbers -- I assume that they exclude social security and medicare payroll taxes, which are much higher than federal income taxes for perhaps 75% of us. But does it make sense to increase income taxes on those whose incomes are sufficiently low that they likely spend virtually 100% of what comes in by twice as much as the income taxes on those who have plenty of discretionary income?
We need better taxes. Search this page for the OECD study, or search for "canons of taxation" on the wealthandwant.com website. Smart taxes are smart. Dumb taxes are dumb.
I'd read this a few years ago, but on a recent re-reading, some other things jumped out at me. (The emphasis is mine.) It references a number of the themes of this blog (at left). See also a related essay, The Incredible Shrinking Dollar.
Henry George foreboded that landowners might take a growing wedge of the national “pie”, or product. Labor’s wedge might grow absolutely, as the whole pie grows, but still fall as a fraction. It might even shrivel.
In our times, George’s grimmer scenario is coming true. Since about 1975, labor’s wedge of the pie is shrinking as an absolute. “Real” wage rates have been falling since about 1975. “Family wage” used to mean a breadwinner’s wage high enough to support a family; now it means the combined wages of two adults. Many of these are “DINKS” (Double Income, No Kids) because that is all they can afford without cutting their customary material and educational standards.
What is this “real” wage rate? It is a ratio: the nominal money wage rate on top, divided by an index to the Cost of Living (COL) on the bottom. The higher the COL, the lower the real wage. Landowners cut into labor’s share from both the top and the bottom, because the COL includes many products of land (like building materials and energy) and land itself (like homesites). Shelter costs are by far the largest part of household budgets.
The standard index to the COL is the Consumer Price Index (CPI), calculated and published regularly by the Bureau of Labor Statistics (BLS). This index is, we will see, a political football.
Henry George said little about inflation because it was not a threat in his day. That was a time of “hard money” and the gold standard. Prices were stable or falling; DEflation was the great bugbear. Today, though, to check on George’s forecast, we have to distinguish between nominal money wages, and real wages.
An old Kingston Trio classic offered the following folk wisdom about survival in The Everglades: “If the skeeters don’t gyitcha then the gators will.” If the skeeters of life are nicks taken from money wages, the big gator now is the price of buying and owning a home.
Why deny inflation? Those in power have several reasons to understate rises in the cost of living (COL), measured by the CPI.
1. To mask the fall of real wage rates. This is supposed to placate working voters. It is supposed to support orators declaiming that our standard of living is ever rising, and we should all feel good. Actually, real wage rates have fallen steadily since peaking in about 1975. That is using the official Consumer Price Index (CPI) to measure rises in the COL. If the CPI understates rises in the COL, real wage rates have fallen even faster than the data show.
As a by-product, this denial of inflation supports those who like to dismiss George as a false prophet of doom.
2. To mask the fall of real interest rates, making savers and lenders feel better, and more willing to lend to governments. In this age of massive and growing federal debts, the U.S. Treasury depends on willing lenders more and more, to stay solvent.
3. To cut the real value of social security payments. This point is straightforward. These payments are also indexed to the CPI. If the CPI understates the COL, real social security benefits fall every year. Congress gets to spend the savings on wastes like Alaska’s “bridge to nowhere”, redundant imperialistic ventures, tax cuts for major campaign contributors, and no-bid contracts for the well-connected.
4. To cut rises in labor union and other wage contracts that are indexed to the CPI. The Federal minimum wage, like most state minima, is also indexed to the CPI.
5. To give the Federal Reserve Bank credit for having “tamed inflation”, when in fact inflation of land prices is running wild.
6. A lesser point today, but important before Congress leveled out the rise of tax rates with income, is to slow the rise of income tax brackets. That is because these brackets are indexed to the CPI. That is, when the CPI rises by, say, 5%, the income level at which you pass into a higher tax bracket also rises by 5%. Congress, briefly in a reasonable mood, enacted this sensible provision when enough people became aware that they were victims of “bracket creep”. Bracket creep is when inflation boosts your money income into a higher tax bracket, although your real income has not risen.
However, if the true COL rises by 10%, while the CPI rises by only 5%, this provision no longer protects us against bracket creep. It just gives a talking point to those who claim to protect us. Sneaky! That is why you, dear reader, may have had a hard time following the bean under one of the three shells. Politicians, of course, are good at withdrawing promises. The sneakier the method, the easier it is for them to cover their tracks
That is the “Why” of veiling inflation. Now let us look at the “How”. There have been two major steps in recent decades.
First was removing the costs of buying and owning homes from the CPI. The Bureau of Labor Statistics (BLS), the agency that calculates the CPI, did this from 1983 onwards. They didn’t remove it altogether, that would have been too transparent. Instead they substituted the “rental equivalent” of housing. This is supposed to be what your house would rent for, or what you would pay to rent a similar house. It is a hypothetical and casual figure - sloppy and unverifiable, that is - based simply on questionnaires to a sample of homeowners. It takes no account of the fact that some people will, and therefore everyone must pay a premium to own, because of expected higher future rents and resale values.
The “rationale” (cover story) for doing this is that a home is both an investment and a residence, and only the residence cost belongs in the cost of living. In fact, the annual economic cost of owning a home is the market value times the interest rate (plus the property tax rate, homeowners’ insurance, depreciation, etc.). When prices are rising we may deduct annual gain from the cost, but when prices are falling we then must add the annual loss to the cost of ownership, and now that losses are becoming current, there is no thought of adjusting the CPI for that. If the BLS were constructing a true measure of the COL they would be on top of this point; but they do not balance their act. They seize on reasons to lower the CPI, not to raise it.
Thus the land boom of 1983-89 was mostly blanked out of the official published CPI of those years. The CPI rose gently as though the land boom never happened. Again, in 2004 housing prices rose by 13%, while these “rental equivalents” rose only by 2%.
The CPI also takes no account of the price of extra land around some houses. It takes inadequate account of recreational lands, which now have displaced farming and forestry over whole counties and regions. And can we believe that the price of access to recreational lands has advanced as slowly as other prices? In 1946 a summer family membership in the Dorset Field Club, Vermont, cost $100, giving access to the links, tennis courts, and clubhouse privileges for three months. Today there is no access for non-members. A membership costs about $30,000, by private negotiation, and annual dues were $3,000 in 2003. Meantime, in the big leagues, Donald Trump is asking $300,000 or so for a membership in Ocean Trails C.C.; and even Rupert Murdoch is complaining about the green fees at Pebble Beach, $450 for one round. I am grateful that I got my fill of golf when I was young and dad could afford it.
The second major step was the Boskin Commission Report of 1995 (Newt Gingrich was dominating Congress), and its acceptance and implementation. Michael Boskin of the Hoover Institution was called upon to legitimize allegations that the CPI overstated inflation. He and his Commission obliged, and supplied the rationale for several rounds of trimming down the CPI even more.
The Boskin Commission’s advanced methodology included a lot of old-fashioned cherry-picking. They accumulated evidence supporting the foregone conclusion, and omitted contrary evidence. Most tellingly, they were silent about the biggest factor by which the CPI understates inflation: that is the use of “rental equivalence” in place of home prices. Now, shelter costs are about 40% of consumer budgets, and hence of the true COL. To accept an extreme understatement of shelter costs, while distracting us with lesser factors and arcane methodology, shows bias.
Most professional economists, sad to say, treat Boskin’s report as holy writ. They come on like preachers, salesmen, or just cheer-leaders, not like scientists exercising independent judgment. I have recently surveyed 20 current texts in Macroeconomics. They all list the same four “biases”, in the same order, that they allege make the CPI overstate inflation. These are:
a. Substitution bias. When the price of something rises, you use less of it, so it should be weighted less in the index.
b. Quality improvement bias. Products of the same name keep getting better, so they say.
c. New product bias. The CPI lags in showing how new gadgets raise our welfare. Microchip products, of course, are the example of choice.
d. “Discount bias”. The CPI scriveners assume that products sold in discount stores are of lower quality, when they really are just as good, according to Boskin et al.
As to point “a”, above, when the price of food rises elderly pensioners turn to cat food, so now the cost of fresh fruits and veggies counts for less in their cost of living, and they have shown a preference for cat food, whose weight in the CPI should rise, and they are as well off as ever. Hmmm – something fishy there.
Let’s take point “b”, above, quality improvement bias. The texts give some examples, but not a single counter-example. Here are a few of the latter.
2x4 dimensional lumber is no longer 2x4, but 15-20% smaller in cross-section, and of lower grade stock
salmon is no longer wild, but farm raised in unsanitary conditions, and dyed pink (ugh)
“wooden” furniture is now mostly particle-board
“wooden” doors are now mostly hollow
new houses have remote locations, far from desired destinations
ice cream is now filled out with seaweed products
the steel in autos is eked out with fiberglass, plastic, and other ersatz that crumbles in minor collisions
airline travel is no longer a delight but a series of insults and abuses
gasoline used to come with free services: pumping the gas, checking tire pressure and supplying free air, checking oil and water, cleaning glass, free maps, rest rooms (often clean), mechanic on duty, friendly attitudes and travel directions. They served you before you paid. Stations were easy to find, to enter and exit. Competing firms wanted your business: now most of them have merged.
cold fresh milk was delivered to your door
clerks in grocery and other stores brought your orders to the counter; now, many clerks, if you can find one, can hardly direct you to the right aisle
suits came with two pairs of pants and a vest, and they fitted the cuffs free. Waists came in half-sizes
socks came in a full range of sizes
shoes came in a full range of widths; the clerk patiently fitted the fussiest of customers
the post office delivered mail and parcels to your door or RFD, often twice a day
public telephones were everywhere, not just in airport lobbies. Information was free; live operators actually conversed with you, and often gave you street addresses
public transit service was frequent, and served many routes now abandoned
live people, living in America, used to answer commercial telephones, with no telephone tree to climb, and tell you what you actually wanted to know
autos used to buy “freedom of the road”; now they buy long commutes at low speeds and rage-inducing delays. One must now travel farther and buck more traffic to reach the same number of destinations. Boskin et al. dwell on higher performance of cars, and the bells and whistles, but rule out taking note of the cost-push of urban sprawl.
classes keep getting larger, with less access to teachers and top professors, and more use of mind-numbing “scantron” testing.
before world war II, an Ivy-league college student lodged in a roomy dorm with maid service and dined in a student union with table service, and a nutritionist planning healthy meals. All that, plus tuition and incidentals, cost under $1,000 a year. Now, to maintain your children’s place and status in the rat race, you’d put out $40,000 a year for a claustrophobic dorm and junk food. On top of that, a B.A. no longer has the former value and cachet. Now you need time in graduate and professional schools to achieve the same status. Many students emerge with huge student loan balances to pay off over life, with compound interest.
warranties on major appliances cost extra, aren’t promptly honored, and expire too soon. Repair services and fix-it shops used to abound to maintain smaller appliances. Now, most of them are throwaway.
replacement parts for autos are hard to find, exploitively overpriced, and are often ersatz or recycled aftermarket parts
musical instruments are mass-produced and tinny instead of hand-crafted and signed
piano keys were ivory; now plastic
many new “wonder drugs”, if you can afford them, have bad side-effects, while old aspirin still gets the highest marks
a rising array of taxes and other payroll deductions stand between one’s nominal income and consumer goods it might buy. Income and social security taxes are not counted as part of the CPI.
Medical doctors once made house calls, in the dim mists of history. Since then, access has become progressively more difficult, until today ... well you know, you’ve been there. In many small towns there is no doctor at all.
In 1998 the BLS dropped auto finance charges from the CPI. I do not find the cost of other consumer credit in the CPI (although I stand subject to correction). Certainly the largest cost of consumer credit, mortgage interest, has been removed by use of the “rental equivalent” substitute, with never a squawk from Boskin.
In 1995 the BLS eliminated an “upward drift” in the “rental equivalent” index, with no explanation. It is probably relevant that Congressman Newt Gingrich was in the saddle.
One could go on, but the point is that Boskin et al. seem not to have considered counterexamples to their foregone conclusions. If they did this where we can observe them, what else did they do under cover of black box models? The BLS, succumbing to the political pressure, keeps modifying the CPI to show less inflation, even while our daily experiences and shrinking savings tell us there is more. A 1999 study of the changes in the 20 years between 1978 and 1998 showed the cumulative effect of many changes had been to lower the CPI substantially (Monthly Labor Review, 6-99, p.29).
George warned that landowners might take most of the fruits of progress, leaving labor barely enough to survive. Critics then and now have urged us, instead, to don rose-colored glasses. The rosiest of these is the CPI as manipulated to screen out bad news, especially news about soaring land prices. Let us be aware of who is manipulating the news, why, and how.
 Your old geometry teacher called this a “sector”.
Every election year, 1/3 of the seats in the U.S. Senate are up for election. This year as you vote, consider the content and goals of the television commercials you've been subjected to, from all sorts of directions (beyond the candidates themselves), and remember that a significant portion of the commercials have been enabled by the recent Citizens United decision issued by a Supreme Court dominated by "conservative" justices. (I commend the article at that link to your attention. In fact, I'll copy the essay, Corporations, Democracy, and the U. S. Supreme Court, by Mason Gaffney, in below the fold.)
Consider that it is the senators we elect who vote on the Supreme Court nominees presented by the president we elect, and think about who it is that YOU want voting on the next nominee. Justices can serve for many decades, far beyond the time the average senator is in office.
The person you elect to the Senate will serve for 6 years -- 2 in Obama's first term, and 4 in the term of whomever the American people elect in 2012, aided in their decision-making by the well-crafted and well-funded advertising made possible by the Citizens United decision -- and will likely be voting to fill at least one Supreme Court seat.
Whose interests should they -- the Senators and the Supreme Court nominees -- have at heart?
Do we want people who will seek to promote the concentration of wealth, income, privilege and power -- more and more, to fewer and fewer -- or to promote the interests and prosperity of ordinary Americans? Be sure you know; your options may not be wonderful, but at least your criteria should be thought out.
I commend this to your attention --
Corporations, Democracy, and the U. S. Supreme Court Mason Gaffney, February 24, 2010
On Jan 21 2010 our High Court shocked Americans by ruling in Citizens United v. FederalElections Commission that a corporation may contribute unlimited funds advertising its views for and against political candidates of its choice – in practice, the choice of its CEO or Directors. The ideas behind this are that a corporation is a “legal person”, with all the rights (if not all the duties) of a human being; that as such it has a right of free speech; and that donating money is a form of speech. Already K&L Gates, a top Washington lobbying firm, is advising its clients how to funnel money through lobbying groups or “trade associations”. This culminates a long series of actions and reactions (decisions, legislative acts, and electoral results) that bit by bit have raised the power of corporations in American economic and public life. Herein I will take the fall of the corporate income tax as a simple metric of the power of corporations. Nothing about corporations is that simple, however, so I must also touch on other aspects of power.
Some critics react apocalyptically, calling Citizens United a death blow to democracy; some cynically, calling this merely making de jure what is already de facto; some legalistically, saying the Court ruled more broadly than justified by the case brought before it. Supporters, naturally, take this contentedly as righting an injustice of long standing. Some economists would applaud this as a step toward sunsetting the corporate income tax, by electing more candidates beholden to corporate money. Many of them – not all – have been seeking this end for years in their learned journals and op-eds. Even the late Wm Vickrey, otherwise an egalitarian, gave high priority to this change.
This writer does not applaud either sunsetting the tax, or this step. I agree with Joseph Stiglitz that the corporate income tax is mainly a tax on economic rent. That means that a high tax rate does not destroy the tax base. Martin Feldstein, an economist who is as conservative as Stiglitz is liberal, also sees the corporate income tax as a tax on economic rent (JPE 85(2); April 1977, p. 357). It is not the ideal form of such a tax, but it beats any tax on work, or sales of the necessities of the poor, or value-added, or gross sales. Both Vickrey and Stiglitz rate high in the profession and garnered Nobels, so we cannot simply appeal to “authorities”. To prepare our minds, let us review some milestones in the history of corporations, especially in America.
I thought a couple of the observations in this column quite useful, both from Fallows and from others he chooses to quote. It comes off the brouhaha that started a few weeks ago when a University of Chicago Law School professor put in his blog a whine about how even with his and his (MD) wife's joint income of $400,000 or so, he had little disposable income. The response to his blog post was strong enough that he has removed the post, but it remains, at least for a while, available via google's cache. (Fallows and Brad DeLong both link to it.)
I particularly liked this one:
(1) >>If no one else says this, or no one says it more succinctly, could you please incorporate into the discussion the implicit idea that extends across pretty much all of the posts? It basically goes like this: "once professional success is achieved, life isn't supposed to be hard or uncertain anymore". It's there in the original post and it's there in the backdoor-trickle-down economics of the east-coast lawyer. Somewhere along the last 50 years our "meritocracy" started to incorporate the idea that once you achieved a certain amount in life, you wouldn't have to try anymore.
This idea is, from my point of view (as a 30-something professional who anticipates that retirement will become an antiquated concept by the time I reach such an age) grandfather to the current state of affairs in which high school and college students expect grades to symbolize the extent of their effort rather than the quality of their work. As Clint Eastwood said snarled in "Unforgiven": "deserve's got nothing to do with it". How about we agree on this: if you need to ask yourself if you are rich (or better yet mount some kind of argument about how you aren't rich), then you probably are in fact rich.<<
and this -- emphasis mine:
(2) >>I wonder if part of the issue stems from the fact that there seems to be an implicit promise that attending one of these top schools will inevitably make you rich. I went to Stanford, and from the very beginning we were reminded of all the luminaries who also hold Stanford degrees (or at least attended classes). Larry Page came and gave a speech during freshman orientation, and Phil Knight and Jerry Yang both donated buildings while I was there. Part of the selling point of these universities is the idea that all of these great, successful, rich people went to this school, and it impacted them so profoundly that they have donated millions of dollars for its improvement. Even if you are making $250,000 or $500,000, it really doesn't seem like all that much when compared to what the people who are getting their names on the buildings make. Presumably working at a university makes this even more evident.
And in the end, you still have the same degree as these people who are actually rich. Who's to say you won't someday get there yourself? Why would you want to punish your future self with higher taxes?<<
and this, which speaks to payroll taxes for ordinary people vs an increase in the top bracket for the highly-compensated (though it doesn't quite note that since the UChi professor's wife is also well-paid, they are paying a bit more in payroll taxes):
(3) >>I wanted to weigh in on your latest, the two defenders who cited the costs of private education. I'd just like to note that these $250,000 + level professionals are getting a substantial break on their social security taxes. Every dollar of my sub-$100,000 salary is taxed at 6.2% paid by me, over and above state and federal income taxes, and 6.2% paid by my employer. In contrast, the majority of these poor, pitiable professionals' salaries are exempt from the tax. The ceiling this year is $106,800, so the rest of their salary is free and clear of this 6.2% coming out of their paycheck. To boot, the proposal is to raise their taxes on the amount exceeding $250,000, so taxwise, they have it easy, compared to the rest of us.
4% of the amount exceeding 2 times $106,800 is a lot less than 6.2% of the first $106,800 or $213,600, until one reaches rather high levels.
Those who have spent much time browsing this blog will know that I'm not enthusiastic about taxes on wages. They're a poor, blunt instrument for collecting what we ought to be collecting before we start taxing wages. But to the extent that we do utilize taxes on wages, those taxes ought to be highly progressive, and ought not to be levied on the first dollars of wages.
I have a sense that a large percentage of Americans have high hopes -- and even high expectations -- of eventually, somehow, becoming very wealthy, and are willing to accept special privileges for high-income people, and/or wealthy people, because they'd like such rules to apply to them in the (in reality highly unlikely) chance that they might be so awesomely lucky.
Those accepted at our highly selective colleges have confirmation of their specialness, and are thus likely, as the second comment above, to think it in their likely best interests to protect privilege for the wealthy.
And no wonder those who profess economics or political science at such colleges and universities are unlikely to include favorably in their courses the ideas of heterodox economists or philosophers who seek merely to create a level playing field. THAT is not what their students seek! They seek to get a good bead on the angle of the slant, and how best to exploit it. And of course, so do their parents, and the agencies that lend those students the funds to attend.
You might appreciate "The Corruption of Economics" to understand this further. But recognize that most instruct-ors and profess-ors of economics don't even know what they're omitting from their teaching. How could they? It was in their texts and maybe even their reading lists, but their attention was directed in other directions. How many generations of such teaching does it take to extinguish an idea from the vast majority of universities? If it doesn't support the interests of the major donors, and something has to be omitted, what would you omit?