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!
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.
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.
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.
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.
I'm re-reading Robert Reich's recent NYT piece, which sits open on my computer:
By 2007, financial companies accounted for over 40% of American corporate profits and almost as great a percentage of pay, up from 10% during the Great Prosperity.
The economy cannot possibly get out of its current doldrums without a strategy to revive the purchasing power of America’s vast middle class. The spending of the richest 5% alone will not lead to a virtuous cycle of more jobs and higher living standards.
If you've seen the film "Inside Job" -- and even if you haven't -- you are probably at least somewhat aware of the extent to which the FIRE sector is, in the immortal words of someone I worked for years ago, "eating our lunch."
A recent column by David Cay Johnston provided an interesting graphic showing officer compensation as a percentage of corporate profits. In recent years, that percentage has ranged from a low of about 23% in 2005 to a high of about 67% in 2002, with the most recent year, 2008, being about 48%. So for 2008, it is "1 for 'us,' 2 for the shareholders." Now his study extends far beyond the top corporate executives; he's looking at an IRS database that includes nearly 1 million corporate officers, and it may well be that the top, say, 2% of that rarified universe takes a hugely disproportionate share of the total compensation. However, DCJ raises a very important question, which I take to be a challenge that someone in Congress should ask the Congressional Budget Office to look into, to determine whether companies -- particularly nonpublic ones -- are understating officer pay by not filing Schedule E. And he says,
Existing IRS corporate tax reports have for years shown us that fewer than 2,600 megafirms own 81% of all U.S. corporate assets. Another 21,000 firms control most of the rest, leaving just 5.6% of corporate assets that are divvied up among the more than 5.8 million remaining corporations.
The 2008 data show that while almost three million corporate officers show up on company tax returns, only 990,077 Social Security numbers do and of those only 838,551 show up as being paid. That may suggest some owners took no pay in the Great Recession year of 2008, but it also hints at how many officers serve multiple corporations.
The officer pay data show huge variations. Just 70 officers of 1,660 Real Estate Investment Trusts averaged $5.2 million in 2008, while 832 officers of 7,670 property and casualty insurers averaged $3.8 million. At the other end, more than 2.1 million officers of S Corporations averaged just $107,403, though many of them must be officers of multiple corporations.
The FIRE sector. Finance, Insurance and Real Estate. Most Americans, even those who were economics majors in college, don't know the mechanisms by which these parts of the economy get to be such amazing sponges. For the most part, the economics majors learned their economics from instructors whose own education was primarily in neoclassical economics, which only sees two main inputs to production -- Labor and Capital -- and somehow tuck Land in as a minor subset of Capital, rather than recognizing, as the classical economists did, that Land -- locations, natural resources and like things -- is unique and vital. The common wisdom knows "Buy land: they aren't making more of it" but doesn't realize the monstrous and far-reaching corollaries. Who does know? Those whose adult reading experience includes the ideas of Henry George, particularly "Progress and Poverty" and "Social Problems." And "The Science of Political Economy" has a lot to say about vested interests and their effects on economics. (You're likely to find some very quotable material!) All three are online.
Joe Stiglitz, last summer at a talk in Queensland, Australia, made remarks that were reported as follows:
The financial sector (the banks and regulators) are the culprits behind the global financial crisis which has crippled the global economy. Apparently, moneylenders have been skimming 40% of the profits from companies that actually make and produce things. His big point was that this is not really the role of the financial sector. The financial sector's job is to support economic growth, not cripple it.
"Finance is a means to an end," he said. "The lack of balance between the financial sector and the economic sector was actually the real problem in this economic crisis (NOT the real estate bubble)."
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.
A note to Tea Party activists: This is not the movie you think it is. You probably imagine that you’re starring in “The Birth of a Nation,” but you’re actually just extras in a remake of “Citizen Kane.”
True, there have been some changes in the plot. In the original, Kane tried to buy high political office for himself. In the new version, he just puts politicians on his payroll.
I mean that literally. As Politico recently pointed out, every major contender for the 2012 Republican presidential nomination who isn’t currently holding office and isn’t named Mitt Romney is now a paid contributor to Fox News. Now, media moguls have often promoted the careers and campaigns of politicians they believe will serve their interests. But directly cutting checks to political favorites takes it to a whole new level of blatancy.
Arguably, this shouldn’t be surprising. Modern American conservatism is, in large part, a movement shaped by billionaires and their bank accounts, and assured paychecks for the ideologically loyal are an important part of the system.
Scientists willing to deny the existence of man-made climate change,
economists willing to declare that tax cuts for the rich are essential to growth,
strategic thinkers willing to provide rationales for wars of choice,
lawyers willing to provide defenses of torture,
all can count on support from a network of organizations that may seem independent on the surface but are largely financed by a handful of ultrawealthy families.
And these organizations have long provided havens for conservative political figures not currently in office. Thus when Senator Rick Santorum was defeated in 2006, he got a new job as head of the America’s Enemies program at the Ethics and Public Policy Center, a think tank that has received funding from the usual sources: the Koch brothers, the Coors family, and so on.
Now Mr. Santorum is one of those paid Fox contributors contemplating a presidential run. What’s the difference?
David Cay Johnston spoke to some of this in his writings about the effort to re-brand the estate tax, which affects a tiny fraction of households, as the "death tax," funded by those who would be beneficiaries. (Remember all that talk about saving the family farm? Think about that family-owned factory farm in Iowa which produces all those eggs. That's the sort of entity we'd be protecting.)
Condemning the post-industrial economy to protracted periods of economic failure, this thought-provoking book documents how the integrity of economics as a discipline was deliberately compromised in the United States towards the end of the 19th century. Several chairs of economics were funded at leading universities to rebrand economics to justify unearned income. The tools for this strategy became neo-classical economics, and, unlike classical economists like Adam Smith who described wealth as the product of three factors — land, labor, and capital — the new theorists reduced these to two: labor and capital, thus treating land as capital. This concealed the benefits enjoyed by those in receipt of the rent from land. The effect, the authors reveal, was to deprive professional economists of the ability to diagnose problems, forecast important trends, and prescribe solutions.
The cover material reads,
Henry George championed social justice and economic efficiency so successfully he had to be stopped. He was. Here's how: 'With the development of democracy . . . Mind control became the urgent need: neo-classical economics was the tool.' Economics was uprooted from reality and we are all paying the price today."
What comes to mind is that the vast majority of those who learned our/their economics from economists and instructors who only know neo-classical economists become highly useful idiots.
I hope you -- and Dr. Krugman -- will take a look at both.
What is it the plutocrats are protecting? The concentration of wealth in this country. If you don't have the statistics top of mind, here's a quick version, from the Federal Reserve Board's 2007 Survey of Consumer Finances, which under-reports the concentration of wealth because it expressly omits the Fortune 400 families, who represent about 1% of aggregate net worth.
1. EQUITY (stock in publicly held companies and equity mutual funds, whether held individually, in trusts, in retirement accounts): 2. BUS (the value of privately held businesses) 3. EQUITY and BUS combined
Distribution of Wealth: Stocks, Privately Held Business, and all other, by percentile of NETWORTH
Last weekend, Ben Stein apparently presented a piece on CBS News, entitled "Raising My Taxes is a Punishment: If Raising Taxes Won't Help Economy, Why Am I Being Punished." Stein, the son of two Chicago-educated economists, writes,
I am a fairly upper income taxpayer. Not anything even remotely close to sports stars or movie stars or financial big boys. But I am above the level Mr. Obama says makes me rich. So, in the midst of a severe recession, I am to have my taxes raised dramatically.
I am not quite sure what my sin is.
I worked for almost every dollar I have, except for a small percentage my parents left me by virtue of hard work and Spartan living, and most of that was taken by the federal estate tax. I have a hell of a lot less than I did before the stock market and real estate market crashes. I didn't get a bailout or any part of a stimulus program, except for traffic jams as the roads in Beverly Hills got worked on for the 10th time in the last 10 years (or so it seems).
I pay my income taxes, and after them and the commissions I pay my agent, I am left with about 35 cents for every dollar I earn.
I own some real estate in California and Idaho and the District of Columbia. Naturally, I pay property tax, supposedly mostly to educate local children. Not far from me, the city of Los Angeles just spent about $600 million to build the most lavish school in America for about 4,000 children. That's my money. Naturally, I had no say in it. My wife and I have no children in public schools and only did for about eighteen months long ago. I still pay my school tax ever year.
I am not asking for any tears. I live a great life, have a fabulous wife, a great son and daughter-in-law, four wonderful, furry dogs and six cats, all adopted. I have more than enough to eat.
But what I don't get is this: There is no known economic theory under which raising my taxes in the midst of a severe recession will help the economy recover. It isn't part of any well known monetarist or Keynesian theory. So if it does no good to raise our taxes, I assume we are being punished.
But for what? I don't own slaves. I employ a lot of people full- and part-time and they are all happy with their pay. When charity calls, I almost always write out a check. I don't have a yacht or ponies or a plane. My wife doesn't wear a tiara. I don't gamble.
What did I do wrong? I know I have often lost my temper with my wife and the cats, but that's not a crime, yet. I tried to be successful, which is what I thought I was supposed to do. When did it turn out that was a crime to be punished? Maybe when the economy recovers, raising my taxes makes sense, but for now, it's just punishment, and I can't figure out what for.
OK, the late, great — and I mean that — Herbert Stein died in 1999. At that time the first $650,000 of an estate was tax-free — $1.3 million for a couple, provided it did what CBO calls “minimally competent estate planning” — with a 55% tax on the amount above that.
So either Ben Stein inherited several million dollars — which, although this may be news to him, is not the experience of most Americans — or he’s just making stuff up.
He did indeed leave some money. By the standards we read about in the Wall Street Journal or Sports Illustrated, it was not worthy of much ink. In any event, because of the class-warfare-based death tax, the amount that will be left is vastly less than what he had saved. As an economist, my father was famous for defending taxes as a necessary evil. But even he was staggered, not long before his death, when he considered the taxes on his savings that would go to the Internal Revenue Service.
The nest egg is going to be taxed at a federal rate of about 55 percent, after an initial exemption and then a transition amount taxed at around 40 percent (and all that after paying estate expenses). When I think about it, I want to cry.
Later, referring to his father's writings,
Some of them will go to the Nixon Library, and some will be on bookshelves in the (very small and modest) house my wife and I own in Malibu, a place he found beguiling because he had always wanted to live by the ocean and write.
Something flashed into my mind — something that my late father used to say, quoting loosely from the economist Henry C. Simons, a founder of the Chicago School of economics: that it is "unlovely" to see the extremes of wealth and nonwealth that are evident in contemporary America.
We may be able to live with it. Some of us may even be able to prosper amid it. But it's not pretty. The rich should simply not be that much richer than everyone else — especially those whose lives protect them from terrorism.
and later in that same piece,
The real problem is the difference between the rich — including rich oil people, of whom there are not many, but there are enough — and the poor. It is up to the government to redress this extraordinary difference in incomes of the rich and the nonrich, even at the margins.
What Congress can do, and should do, is address the stunning underpayment of military men and women and the staggering budget deficits that will be a burden on our posterity for decades, by raising the taxes on the rich. It's fine that there are rich people. It's even fine that there are superrich people.
But if they are superrich, they derive special benefits from life in the United States that the nonrich don't. For one thing, they can make the money in a safe environment, which is not true for the rich in many countries. It is just common decency that they should pay much higher income taxes than they do. Taxes for the rich are lower than they have been since at least World War II — that is to say, in 60 years.
This makes no sense in a world at war, in a nation with so many unmet social needs, in a nation with so many people without health care, in a nation running immense and endless deficits.
America is becoming a nation of many rich people. I recently read that there were close to 10 million millionaire households. I read that there were hundreds of thousands who made more than $1 million a year. Good for them.
But it's unlovely for them to pay as little tax as they now pay. The real problem in this country is only temporarily about oil. That will right itself, or we'll get used to it and adjust.
The real problem is saving a nation that is beset by terrorism, and we cannot do that unless we feel that we are all in the same boat, pulling at the oars together. That includes the rich.
Whatever rationale there may have been in 2001 for lowering their taxes is long gone. It's time for them — us, because it includes me — to pay their (our) share.
It's not about oil. It's about fairness.
Let's go back to his recent comment, "I worked for almost every dollar I have, except for a small percentage my parents left me by virtue of hard work and Spartan living, and most of that was taken by the federal estate tax. ... I own some real estate in California and Idaho and the District of Columbia." and his 1999 comment, "some will be on bookshelves in the (very small and modest) house my wife and I own in Malibu," on which (2010) " ... naturally, I pay property tax, supposedly mostly to educate local children." And if, perhaps, he used those inherited dollars to buy some of his real estate, which has appreciated mightily in the intervening years, his "I worked for almost every dollar I have" is a bit disingenuous (buut consistent with Edward Wolff's findings, which imply that the amount inherited is often a small piece of large fortunes -- ignoring, of course, the contribution that a fully-paid for education in private primary, secondary, college and graduate schools might make, or any inter vivos gifts such as help with a downpayment on a home in the early working years, might make to an eventual fortune -- or sense of entitledment.
I don't know whether Idaho has a lot of children to educate, but California and Washington, D.C., certainly do. And property taxes are generally used to provide the public goods and services which help maintain and increase property value. California property values have risen significantly since he acquired his property; I assume that he attributes that appreciation to his hard work. But an economist who thinks deeply would recognize that he can take no credit for it. Even a small and modest home in that location is worth an amount far beyond what 95% of Americans could afford.
I am reminded of Warren Buffett's 2004 pre-Schwarznegger election interview in the WSJ and his post-election LTE, referring to properties in Malibu Laguna , in which Buffett he pointed out (a) how low those property taxes are; (b) how fast Malibu property appreciated, and (c) how unrelated to the market value of Malibu homes the property taxes of long-time owners are.
"The first Laguna Beach house is a property that I bought in the early 1970s. It has a current market value of about $4 million and, because of the limitations embodied in Proposition 13, carried taxes of only $2,264 in 2003 vs. $2,241 in 2002.
The second house, located just in back of the first, is one that I purchased in the mid-1990s. It has a market value of about $2 million and, simply because I bought it later than the first, carried taxes of $12,002 in 2003 vs. $11,877 in 2002."
and Buffett later continues, "My sympathies are clearly with the "non-billionaire" family purchasing a $300,000 house in Chico today that faces real estate taxes materially higher than those borne by this non-resident billionaire on his $4 million house in Laguna. This family, because of Proposition 13, has been selected to subsidize me."
Back to Stein's "My Father's Estate" (1999):
He never once in my lifetime's recall said that any man or woman deserved special respect for riches -- in fact, like Adam Smith, he believed that the pleadings of the rich merited special suspicion.
If you'd like to read more about how Ben Stein sees wealth concentration, explore this piece in which he explains away any problems with corporations taking advantage. I read it in January (and commented), and heard him deliver it again in April.
The unexpectedly deep plunge in home sales this summer is likely to force the Obama administration to choose between future homeowners and current ones, a predicament officials had been eager to avoid.
Over the last 18 months, the administration has rolled out just about every program it could think of to prop up the ailing housing market, using tax credits, mortgage modification programs, low interest rates, government-backed loans and other assistance intended to keep values up and delinquent borrowers out of foreclosure. The goal was to stabilize the market until a resurgent economy created new households that demanded places to live.
As the economy again sputters and potential buyers flee — July housing sales sank 26 percent from July 2009 — there is a growing sense of exhaustion with government intervention. Some economists and analysts are now urging a dose of shock therapy that would greatly shift the benefits to future homeowners: Let the housing market crash.
It seems as if the suggestion is that we ought to let the housing market crash, and then hope that we will pick up again where we left off, and experience this boom-bust cycle again.
There doesn't seem to be much discussion of the factors that produce the boom-bust cycle, or of the notion that we can actually prevent the next boom-bust cycle through wise policy.
What policy? A tax shift. Shift taxes off wages (starting at the bottom); off sales (starting with essential items); off buildings of all kinds and equipment. What's left to tax?
That which we should have been taxing all along: the value of land. Henry George (b. Philadelphia, 1839; died NYC, 1897) introduced the idea in his 1879 book, Progress and Poverty, which remains 130 years later the best selling book ever on political economy. It sold over 6 million copies by 1900, and George, Thomas Edison and Mark Twain were perhaps the three best-known public figures of their day. George's "remedy" came to be known as the "Single Tax." It was a recipe for small government -- right-sized government, funded by the only legitimate revenue source: value created by nature and by the community. Land, to the classical economists -- Adam Smith, David Ricardo, John Stuart Mill, Henry George, etc. -- was distinctly different from capital. (The neoclassical economists -- and those who only know their sort of economics -- can't seem to see the difference, and conflate them, leading to all sorts of stupid -- and unnecessary -- messes!) Land includes not just the value of locations (on earth, in water, in space) but also electromagnetic spectrum, water rights, non-renewable natural resource values, pollution "rights," and lots of other like things. (Mason Gaffney provides some excellent lists.) Those locations include urban land, land made valuable by favorable climate, water supply, access to ports, to transportation systems, to desirable views, to vibrant cities with jobs, cultural amenities, educational opportunities; geosynchronous orbits; congestion charges; parking privileges, etc. Those of us who claim title to a piece of land ought to be required to compensate the community in proportion to the value of that land, for the right to exclude others from it. That compensation should be paid month in and month out, to the community.
Our current system is perverse. We must purchase the rights to the land from the previous holder at whatever price the market will bear, or what the seller's circumstances require him to accept. Rich landholders can hold out for higher asking prices; poorer ones may be forced to accept lower prices. Few of us enter the market with more than a few percent of the asking price in hand; we mortgage our future earnings in order to pay the seller's asking price.
In most coastal cities, that price is predominately for the location, not for the building itself. A May, 2006, Federal Reserve Board study found that land represented, on average, 51% of the value of single family housing in the top 46 metro markets in 2004; in the San Francisco metro, land represented 88.5% of the value, and in no metro in California did it represent less than 62%. Boston metro was around 75%, NYC metro was about 70% (I'm doing this from memory), Oklahoma City about 20%; Buffalo about 28%. Extrapolating from some of their tables, I found that the average value of a single-family structure across the 46 metros was about $112,000, with a range from perhaps $88,000 in the lowest metro to a high of perhaps $130,000 in the highest. The range of average land values across the 46 metros, though, was much wider, from perhaps $25,000 to $750,000!
Suppose we did let the housing market crash, and then shifted over to George's proposal, collecting our tax revenue first from land rent, and only after we'd collected the lion's share of the land rent, tapping other less desirable revenue sources such as wages, sales and buildings. What would happen?
The selling price of housing would drop to approximately the depreciated value of the structure in which one would live. A large new house would be more valuable than an older house of the same size. A large house would cost more than a smaller one. But one would not pay the seller for value that related to the location of the home.
One would pay, month in and month out, the rental value of the land on which the house sits. Fabulous locations would require high monthly payments; less fabulous ones would have lower monthly payments. Small lots would pay less than larger lots nearby. Owners of condos in a 20-story building would share the cost of the land rent for the site, perhaps in proportion to the quality of their location within the building (fabulous views would pay more than ordinary ones; larger footprints and/or more floors occupied would pay in proportion to their share of the total space).
That monthly payment would go to one's community, and would replace one's property tax, sales taxes, wage taxes. A portion of the payment would be forwarded to one's state, and at the state level, a portion would be forwarded to the federal government.
The selling price of housing would drop, requiring one to borrow far less. The difference would be quite pronounced in San Francisco, Boston, NYC, etc. One's monthly mortgage payment would be significantly lower.
Housing would no longer be an investment, in the sense that one expected to sell a property for more than one paid for it.
Housing would be more liquid; one could own a home, but have a reasonable expectation of being able to sell it if one wanted to move elsewhere.
The credit not used to purchase homes would be available for businesses. Businesses, too, would not be "investing" in land, but would have capital available to invest in equipment and to pay better wages to their employees.
Land which under our current system is both well-located and underused would either be redeveloped by its owners, or come onto the market so that someone else could put it to use. There would be no incentive to keep it underused, as there is today. The redevelopment process itself would create jobs in construction-related businesses, and the resulting buildings would either provide housing or commercial venues -- or both: whatever the market was asking for. And that housing would be at a wide range of points on the income spectrum and the ages-and-stages spectrum: young people starting out, families, retirees, singles, couples -- not just the luxury market. And those newly-created homes would be closer in to the jobs which would support them, rather than separated by long commutes and drive-till-you-qualify.
Land made valuable by public investment in infrastructure and services would provide a continuous revenue stream to the community, providing funding for next year's services, instead of funding for self-selected individuals' retirement.
So if one can't hope to get rich from the appreciation of the land under one's home, how is one to have security? How does one participate in the economy? By investing in businesses that serve customer desires. And when one's housing plus taxes are lower, one has more left over for that. When there is enough housing for all, one isn't paying so much of one's income for it. When no one expects to grow wealthy automatically, people can dream up the business which they will enjoy working in. And with so many businesses competing for workers, wages will tend to rise. With so many businesses competing for customers, services will improve, and specialization increase.
Back to the title of the article: "Grim Housing Choice: Help Today's Owners or Future Buyers?" Maybe economics doesn't HAVE to be the dismal science. Maybe our choices are not so grim after all. Maybe we can put ourselves on a firmer footing, without the boom-bust cycles we've been experiencing so regularly. (See Mason Gaffney's recent book, After the Crash: Designing a Depression-free Economy. And while you're on that site, you might read "The Great Crash of 2008" and "How to Thaw Credit Now and Forever.") Maybe we can leave our children a society in which all can prosper.
Not too much to ask for, is it?
Or shall we leave them a society in which 10% of us are receiving 48% of the income, and 10% of us possessing 71.5% of the net worth.
Almost a month ago (7/12), Martin Wolf, the Financial Times' chief economics commentator, posted a piece to his blog under this title. The last time I looked, perhaps 10 days after his initial post, there were about 150 responses. I circled back recently, and found that the comments count had risen to over 350.
This ended up as a heated debate. Nobody will be surprised if I conclude
that the result of the debate (often surprisingly ill-tempered) was
pro-LVT 10, anti-LVT zero. I am surprised by some of what the anti-LVT
proponents have said. I would have thought they would wish to open their
minds a bit. I did and was persuaded of the case, as a result. Is not
the purpose of such exchanges to learn from one another?
Some of the arguments addressed at the case for LVT are quite extraordinary.
The essential point is quite simple: the value of resources is created
by the economic activity of other factors of production. The owners of
these resources can become hugely wealthy and are often untaxed on that
increase in wealth: the Duke of Westminster is the richest Englishman
simply because he owns a large amount of land in a valuable part of
London. So why should he have command over the labour of so many other
That wealth is, in the strictest sense, unearned. If that rise in wealth
were taxed away, other taxes -- those on labour, capital and
entrepreneurship -- could fall. This would be both efficient (because
taxes on rent do not create distortions, as Ricardo showed) and also
just, because the wealth was unearned. Now, surprisingly, the UK allows
foreign landowners to enjoy the increase in value created by the British
economy, entirely tax-free. This is utterly crazy.
Let me add four other points.
First, throughout history, the main source of wealth was land-ownership.
The parasitic landowner became wealthy on the efforts of others --
peasants, tenants and even developers. Sometimes the parasite was also a
farmer or developer, but that does not change the fact that these are
two distinct economic roles. The parasite built fine castles and palaces
and often sponsored music and culture. But he was still a parasite. The
beauty of capitalism is that many of the wealthiest are no longer
parasites. This is good. But many of the wealthy still are parasites.
Moreover, now everybody wants to get rich by being a mini-landowner.
That is a huge diversion of effort.
Second, the financial system's ills are the result of unchecked
credit-creation. Yes. But unchecked credit-creation would be impossible
without collateral. Land is always the principal form of collateral
(buildings are a depreciating asset). That is why financial bubbles that
do not create credit booms (like the dotcom bubble) are economically
benign, while property bubbles are potentially catastrophic. When the
value of collateral collapses, the financial system implodes.
Third, there is really nothing new about this understanding of the role
of resource rents. They were central to the classical system, from which
modern economics, in its various forms, derives. Ricardo's analysis of
rent remains intellectually impeccable.
Finally, as Herman Daly has noted
(http://steadystate.org/modernizing-henry-george/), today economically valuable
resources are much more than just land (and what lies below it). They
include all the services of the biosphere - those that are appropriated,
those that are appropriable and those that are non-appropriable. If we
do not think seriously and intelligently about how to price resources,
we are likely to go seriously adrift, perhaps even into disaster. Here
land is the least of our problems -- it is appropriable and, by and
large, appropriated. So, at least, the price mechanism works, even
though the distribution of the gain is grossly unjust. But, in other
cases, no appropriation is possible, or at least it is not easy. Nobody
can appropriate the atmosphere. It is nigh on impossible to appropriate
the oceans. How do you own species diversity? These are serious
So, I conclude where I started: resources matter. It was a great mistake
to exclude them from the canonical neo-classical model. It is also a
great mistake not to tax their owners to the hilt.
This article, by David Cay Johnston, is at least a few months old, and I didn't see it when it first came out. I did see a blog post which referred to it, and quoted some passages of it. Here are the ones which caught my eye then:
Without a doubt, the much lower tax rates at the top encouraged people
to realize more income in the tax system. And if the only measure is
that some people made more, then this would be a good.
But let’s ask the question that the
classical economists would have asked back when they were known as
moral philosophers and their leaders spoke of policies that benefited
the majority. Let’s go back to a time before Vilfredo Pareto’s
observations began what is the overwhelmingly dominant orthodoxy today,
neoclassical economics with its focus on gain.
What is the social utility of creating a society whose rules generate a
doubling of output per person but provide those at the top with 37
times the gain of the vast majority? ...
Is a ratio of gain of 37 to 1 from the top to the vast majority
beneficial? Is it optimal? Does it provide the development, support,
and initiative to maximize the nation’s gain? Are we to think that the
gains of the top 398 or 400 taxpayers are proportionate to their
economic contributions? Does anyone really think that heavily
leveraged, offshore hedge fund investments are creating wealth, rather
than just exploiting rules to concentrate wealth, while shifting risks
to everyone else?
Under the overwhelmingly dominant economic theory of today, this is all
good. Pareto argued that if no one was harmed, then all gain was good.
Carried to an extreme, neoclassical economics would say that if the
bottom 99.9999997 percent had the same income in 1961 and 2006, and all
of the gain went to the one other person in America, that would be a
Is our tax system helping us create wealth and build a
stable society? Or is it breeding deep problems by redistributing
benefits to the top while maintaining burdens for the rest of Americans?
Think about that in terms of this stunning fact teased from the
latest Federal Reserve data by Barry Bosworth and Rosanna Smart for the
Brookings Institution: The average net worth of middle-income families
with children whose head is age 50 or younger, is smaller today than it
was in 1983.
But the original has some other important things to say. It begins,
Imagine that all you had to live on was the amount of tax you saved in
your best year because of the many tax rate cuts Congress has put in
place since 1964, when President Johnson signed into law the Kennedy tax
For most Americans, living off income tax savings would mean starvation.
Their income tax savings have been minor, and when looked at over a
long period, say since 1961, increases in payroll taxes have more than
offset their slight income tax reductions.
But for the very few who have gained the most from living in the United
States, the story is quite different. Their tax savings alone from a
single year, invested to earn just 5 percent annually, would be enough
to provide a lifetime income at nearly twice the income threshold for
being in the top tenth of 1 percent.
That's a remarkable decrease for some very privileged folks! Johnston goes on to compare what has happened with incomes at the very top of the scale between 1961 and 2006 with what has transpired for the bottom 90% of us. The bottom 90% saw real income rise from $22,366 to $31,642 (both in 2006 dollars). At the 90th percentile, wages rose from $60,404 to $104,440. DCJ goes on to make some points which Elizabeth Warren and Amelia Tyagi made in "The Two Income Trap:"
That tiny increase in pay does not represent a real increase in wages,
only total income. That is because in the middle of that 45-year era, a
profound transformation took place in America.
In 1961 most families lived on one income, maybe supplemented by some
part-time work by the wife for what was quaintly known back then as "pin
money." Now two-income households are the norm.
The overall wealth of America grew and grew during this era. GDP,
adjusted for inflation and increased population, was up 227 percent. But
wages and fringe benefits did not grow with the economy. For most
workers, they fell. Wages peaked way back in 1972-1973, were on a mostly
flat trajectory for more than two decades, rose briefly in the late
1990s, and then fell sharply in the new century. Airline pilots have
seen their 1990s income cut by more than half; some union factory
workers have seen their pay slashed by two-thirds. Millions are out of
work, and the jobs they once held are gone and are not coming back. And
even if the Great Recession is coming to an end, we face years of jobs
growing more slowly than the working-age population, which could
radically transform America's culture, work ethic, and sense of
In 2006 families worked on average about 900 more hours than families
did in the 1960s and early 1970s. That is a roughly 45 percent increase
in hours worked accompanied by a 41 percent increase in total income.
For many, the reality is that two jobs produce the same or a smaller
after-tax income than just one job did three and four decades ago.
Compare that to the top 400 taxpayers:
The average income for the top 400 taxpayers rose over the 45 years from
$13.7 million to $263.3 million. That is 19.3 times more.
The income tax bill went up too, but only 7.8 times as much because tax
rates plunged. Income tax rates at the top fell 60 percent, three times
the percentage rate drop for the vast majority. And at the top, the
savings were not offset by higher payroll taxes, which are insignificant
to top taxpayers.
The average income tax rate for those at the top in 1961 was 42.4
percent. By 2006 it was down to 17.17 percent. Add on payroll taxes, and
the 2006 rate is 17.2 percent, the same as rounding the income tax
Readers of this site will know that I have no use for income taxes. But until we shift to smart and just taxes, a sharply progressive income tax seems to me to be a better-than-nothing way to fund our common spending.
Johnson ends with this:
Is our tax system helping us create wealth and build a stable society?
Or is it breeding deep problems by redistributing benefits to the top
while maintaining burdens for the rest of Americans?
Think about that in terms of this stunning fact teased from the latest
Federal Reserve data by Barry Bosworth and Rosanna Smart for the
Brookings Institution: The average net worth of middle-income families,
with children, whose head is age 50 or younger, is smaller today than it
was in 1983.
In my humble opinion, DCJ isn't looking quite deep enough. Our tax system -- federal, state and local combined -- is permitting those who own our most valuable common assets (land value and nonrenewable natural resources) to privatize their value, year after year, generation after generation -- and grow hugely wealthy and powerful -- and then merely taxing some of the income from them.
The alternative? Tax the annual value of those resources -- which are rightly COMMON property, provided by the Creator and by the presence of all of us and the spending/investment of the entire Community, not by individuals or corporations -- heavily (say, 90% or 95% of the annual value) and reduce or even eliminate -- starting at the bottom -- the wage and interest and sales taxes and taxes on manmade improvements to land. Think about the ramifications of that reform. They're profound, and point in the direction of a healthier, more stable and more just economy. Will the revenue generated be sufficient to fund all of today's public spending? Probably not. But
1. that's no reason not to shift our taxes off bad taxes onto good ones; and
2. we may find that with good taxes, things change enough that we no longer need to spend large amounts on the social safety net, because a vibrant economy with opportunities for all and a somewhat more equal distribution of income and of wealth and power permits the vast majority of us to be self-sufficient and prosperous.
The bottom 70% or so of us CAN'T save. Large shares of our incomes are devoted to housing and transportation, and to all sorts of FIXED costs. We can't increase our spending on other goods, and we can't save. We have to fix that. We have to do things which distribute the value of that which SHOULD be common, and end the privatization of value which ought to be common.
When there is a benefit to be gained by people congregating in one area rather than spreading themselves out evenly over the entire area of a country such as America, who is entitled to that benefit?
Two people working together produce more than the sum of what they produce separately. How should that surplus be divided?
Should it be divided equally among the workers? Should it be divided in proportion to the contributions of the labor of each worker? Should it all go to the more able of the two workers? Should it go to the fellow who owns the land on which they work? Should it go to those who lent someone money to buy the land? Should it be spent on things which make life more pleasant or work easier where they work?
That figure has been in the news and opinion columns a great deal in the past couple of weeks. It is the percentage of Americans who pay nothing in federal income taxes (as distinct from federal withholding for social insurance).
Some of the articles and related comments have focused on the concept that everyone should be paying something, so that they "have some skin in the game" so that there is an incentive not to vote for spending that others will have to pay for. Some have approached the 47% as "freeloaders."
It is funny that in our largest state, where, for 30+ years, Proposition 13 has put a ceiling on property taxes, so that landholders, who are the primary beneficiary of the effects of state and local spending (and federal funding of state and local projects) can expect their tenants to contribute mightily to the projects they vote for -- and no one has made an impression by pointing this out.
And none of the articles I've seen about the 47% figure -- which went viral after an article by Bob Williams in the WaPo -- have spent much time exploring the policy decisions behind this.
I am reminded that according to our official Federal Poverty Guideline, about 13% of us live "in poverty." And that even the Census Bureau, which collects and reports the data on who lives below the Federal Poverty Threshold (a retrospective figure which relates closely to the FPG) willingly recognizes that the Federal Poverty threshold and guideline are merely a statistical yardstick, with no particular logical relationship to the cost of living anywhere in America.
I am reminded that for the states for which a Self-Sufficiency Standard Study has been published (about 35 in all), the bare-bones cost of living for a young working family typically runs from 180% of the Federal Poverty Guideline -- in the least expensive counties (where very few people live) to perhaps 210% in the major cities of our smaller states to 300% or 400% in the major cities in our larger states.
Should the incomes -- mostly wages -- of our working people whose incomes are insufficient or barely sufficient to meet their own and their families' most modestly defined needs, be taxed?
I am reminded of the Overlooked and Undercounted studies, which typically follow a Self-Sufficiency Standard Study, and seek to quantify the number and percentage of working-age families whose incomes are insufficient to cover their bare-bones cost of living. Significant percentages of these families are at these income levels. 30% to 35% sticks in my mind -- and a larger percentage of America's children.
I am reminded that a large percentage of today's seniors are hugely reliant on their income from Social Security, and that the level of Social Security income is established upon retirement and thereafter only rises to keep up with the CPI-U; our oldest retirees are receiving Social Security incomes which are a function of their wages 30 years ago -- roughly as logical as California property taxes for long-time owners being based on the selling price of California housing 30 years ago!
I am reminded that many people get to deduct their mortgage interest and real estate taxes from their taxable income (they're typically in the coastal states; in the heartland states, the standard deduction often turns out to be higher, since taxes and interest payments tend to be lower ... which may correlate to the percentage of children who attend 4 year colleges).
And I am reminded that state and local taxes fall more heavily on low-income people than they do on high income people. (See "Who Pays? A Distributional Analysis of the Tax Systems in All 50 States", particularly the "Averages for All States" table on page 124 of 130), which shows that, on average, the bottom quintile of us pay 10.9% of our income in state and taxes, while the fourth quintile pays 8.5% and the top 1% pays just 5.2%, on average.
I am reminded of our concentration of income:
10% of us receive 47.19% of the before-tax income
20% of us receive 60.96% of the before-tax income
40% of us receive 79.14% of the before-tax income
60% of us receive 90.37% of the before-tax income [see middle-class agenda, on the next page of this blog]
So the bottom 40% of us receive less than 10% of the before-tax income. And those who think they don't pay enough in taxes would like them to pay more into the system than they already do? The problem is one of low wages, unemployment and underemployment. The best solution to these problems I've come across lies in the ideas of Henry George. The law of wages is something like the law of gravity: we operate in ignorance at our own risk.
I don't know when I've seen a collection of letters to the editor that covered the waterfront so well.
Published: April 6, 2010
To the Editor:
Re “I Saw the Crisis Coming. Why Didn’t the Fed?,” by Michael J. Burry (Op-Ed, April 4):
Indeed, there were many people besides Mr. Burry who saw the economic crisis coming. I recall reading several economists’ warnings in articles and blog posts.
The former Fed chairman Alan Greenspan’s arrogant denial of these voices reveals how much economic theory has become an article of faith rather than an analytical instrument. The nation remains at peril as long as free-market ideologues trim the facts to fit their preconceptions.
Kevin R. McNamara, Houston, April 4, 2010 •
To the Editor:
Michael J. Burry asks how Alan Greenspan missed the rampant abuses and ludicrous underwriting practices in the mortgage market. This is an echo of the “failure of intelligence” in the Iraq war, and countless other examples of government officials abandoning critical thought and backing indefensible policies.
Our legislators and regulators are not stupid or incompetent. Rather, the problem is that they respond to the demands of well-financed special interests, regularly putting aside the common good to facilitate private gain. When things inevitably go awry, the public is treated to a “special investigation” that ends by letting the responsible parties off the hook with the conclusion that no one could have predicted the sadly all too predictable outcome.
Dedham, Mass., April 5, 2010
The writer manages family-owned commercial real estate.
To the Editor:
There are many who blame the citizenry for getting subprime mortgages, but people trusted what they were told, and there was an adage, “you’ll never have money if you don’t own a home.”
There are those who blame people who got in over their heads for racking up credit card debt when there was no option if they wanted to buy food or to pay the gas and electric bill.
Yes, some game the system, but some, like a woman I met, cried because she had two kids to support and three jobs and no health insurance.
Aside from this, the cost of living has outstripped Main Street’s ability to maintain a solid standard of living, and that’s been going on since the Reagan years without being addressed. Now we’ve added outsourcing and vast unemployment to the picture.
Washington should talk to the people on their own turf. Alan Greenspan wasn’t the only one who wasn’t listening. Having some heart as well as serious thought: addressing issues is the only game in town if we’re going to fix our ills.
Bergenfield, N.J., April 4, 2010
To the Editor:
Re “Hedge Fund Pay Roars Back” (Business Day, April 1):
It is immoral and un-American for the top 25 hedge fund managers to pull in a collective $25.3 billion in one year. That these billions are presumably not even treated as income for tax purposes but are counted as capital gains and taxed at lower rates is unconscionable.
Can we have true democracy and promise for the future when there is such outrageous wealth and desperate poverty side by side in a country that purports to be egalitarian?
Everyone knows that a billionaire has instant access to and influence on any elected official from the president on down to city council members. The poor have little power, especially now as they struggle with lost jobs and fewer public resources.
The United States needs tight regulation of the entire financial industry and a progressive income tax that hits hard at the rich.
Berkeley, Calif., April 4, 2010 •
To the Editor:
The top 25 hedge fund managers took home an average of $1 billion each last year (Business Day, April 1). The same day I read that the global community has pledged $9.9 billion over the next three years for disaster relief in Haiti (“Billions of Dollars Are Pledged for Haiti, but Skepticism Remains” news article, April 1).
When I started reading this piece, from The Single Tax Review of 1914, I thought it was going to be a retelling of The Savannah, one of many memorable passages in Henry George's book, Progress and Poverty. But it turned out to be something a little different, and struck me as very topical nearly 100 years later, as we see joblessness and tremendous concentration of wealth in America, this "smartest" of countries, with supposedly expert economists trying to steer us back into something resembling prosperity. Wages tending to a minimum, and jobs disappearing. Individuals and large shareholders in companies who claim ownership of our best land and our natural resources growing rich, while the rest of us struggle to sip from the trickle-down we are told will be ours if we consent to this structure. Those who have read P&P know why the flow is in the other direction.
IT'S MINE—ALL MINE.
(For the Review.)
By BENJAMIN F. LINDAS.
The sun had just slipped
behind a few wisps of clouds that hung above the western horizon, as a
'prairie schooner' came to a stop in the fertile bottom lands on the
banks of a mighty river of the mid-west. A few trees growing in
scattered clusters were all that broke the monotony of the plains that
stretched in every direction as far as eye could see. The only
vegetation was a high, thick, tangled grass that grew in luxuriant
abundance from the rich black soil.
"Guess we had better stop here," said the driver, a
harsh-voiced squatty man of middle age, whose shifty gray eyes peered
out from under his heavy brows. "Soil looks good—no pestering
neighbors," and he tugged at the heavy mustache that hid his tightly
"All right," was the
tired response from his wife, who was slightly younger than her husband,
with traces of beauty still visible in the clear-cut profile and large,
dark, but now lusterless eyes. "But it's dreadfully lonesome, Jim."
The man was busy
unhitching the horses and made no response. He was a man of few words;
morose, hot-tempered and selfish. He had, by the strictest kind of
economy and frugality hoarded together a few hundred dollars, and,
ignorant though he was, he had left the little village in which he had
been reared in answer to an inner voice that kept prompting him to "Get
some land! Get some land!"
My brother (an alum) called this one to my attention. My husband and I are alumni, too, and some years ago, when it came time to look at colleges, our son refused to seriously consider Union because he had seen Schenectady on various visits to campus over the years, and simply couldn't imagine living there for four years. He made a great choice for a college, but I've often mulled over what the article is discussing: that the problems of Schenectady, like much of upstate New York, make it an unhappy place, one where many people would not choose to live, given other options. Its economy is hurting -- and for reasons that can be easily corrected.
Union always had a well-regarded economics department, and being as close to the state capital at Albany, some students did internships in various legislature offices.
So why on earth haven't Union's Economics and Political Science departments applied their sciences -- and talents -- to the problems of Schenectady, and proposed solutions?
Part of the answer might be that for several generations, neither of these sciences have put much thought into the problem that underlies Schenectady's troubles. It hasn't been fashionable to talk about, and many haven't even had the vocabulary. Most of today's economics professors learned their economics at the feet of neoclassical economists. They have a lot to fit into a trimester, and they're not likely to teach that which their own instructors chose to omit. But they're missing something important and relevant. The classical economists had a lot to tell us which points to the root of some of today's most serious problems.
Or perhaps those seeking a better future for Schenectady might turn to the History department, or to American Studies. Students of the last half of the 19th century might be able to tell them about an American philosopher and economist named Henry George (b. 1839, Philadelphia; d. 1897, NYC), who was the best known (due in part to his bestselling book on political economy, Progress and Poverty, which was familiar to anyone who read at all during the last 20 years of that century; it sold about 6 million copies and was widely serialized and translated) of a long continuum of people who called attention to the importance of land and natural resources in our economy, and to the distortions that result when we permit the privatization of their economic value -- or about the movement which followed in the early years of the 20th century. George proposed a simple and just remedy, and I'll bet that not 10 of this year's Union graduates have even heard of it. (That doesn't set Union apart from many other highly regarded colleges, but it is clearly a shame: that these students have spent 3 or 4 years in Schenectady, and not gotten close to some answers about why there is such poverty and underdevelopment in the state of New York, from which many of Union's students come. They come from much richer parts, in general.)
The small cities of upstate New York, like many other places in America, are suffering from the use of the wrong taxes. Schenectady is perhaps an extreme example. When we tax both land value and buildings at the same millage rate, we discourage the sort of development which we claim to want. The answer, of course, is to reduce or even eliminate the tax which falls on buildings, and increase the millage rate on land value.
Union's economics and political science departments owe it to their hometown to take on this topic. First, the faculty must educate themselves. And then they must involve their students, particularly those who come from New York State. They can become a force for good, a force for reform of some miserable policies, and for a shift to superior ones.
They may find themselves coming up against the "real estate interests" -- including alumni, perhaps -- who think that this might not be in their own best interests (and therefore discourage the exploration). (Governor Spitzer, the son of a real estate magnate, would not have been enthusiastic about this, for instance. He convened a panel to try to offer "Property Tax Relief" as an answer to some question -- but it was probably not primarily for homeowners. Remember Leona's wisdom about taxes.) Will Union's best and brightest be able to push through the interested parties' incentives, or will they be derailed by pressure not to study this matter? They have tenure, many of them, and most live in or close to Schenectady.
The political scientists might start with a couple of Google books, such as "Natural Taxation" (by one of the founding partners of Shearman & Sterling) or "The ABC of Taxation." They're available via Google books, and will soon be online in other forms. (Stay tuned here for updates.)
And all might appreciate the writings of Bill Batt, an Albany-based thinker on a lot of important issues which could be of great help to Schenectady.
And if any of them think this might simply be a quaint agrarian idea, I encourage them to read this page, and consider which of these issues don't affect Schenectady or their own futures.
People as diverse as Henry Ford, Theodore Roosevelt, Aldous Huxley, Clarence Darrow, Bernard Shaw, and Leo Tolstoy have embraced these ideas, as have a wide range of wise people from earlier centuries, and contemporaries as diverse as Bill Buckley and Michael Kinsley. They are a fine example of thinking globally and acting locally, and represent a "third way."
Will Union College act -- and in the process, teach its students some important truths -- or simply nibble at the leaves of Schenectady's problems? Go to the root!
Post Script: Union's faculty, and others who care about Schenectady, have an opportunity to get to know these ideas this summer. There will be a conference in Albany, July 12-16, of the umbrella group for North American Georgists. Some of the sessions will be of great interest to those who care about Schenectady, but I mention it here primarily because it will be an opportunity to interact with people who know George's ideas well and are persuaded that they can make an important difference in the world. (This post didn't start out to be a promotion for the conference, but I was glad to find that the conference schedule is now available online. It ends: "The Law of Rent never changes, but our schedule
may - without notice.")
I heard part of a radio interview with Harry Markopolos today. He's the fellow who saw through Bernard Madoff's "investment" scheme, and made every effort to get the SEC to pursue it. I have tremendous respect for Markopolos, and hope he will continue to use his talents for public good.
He was talking about "chasing the bad guys," and it got me thinking that while "chasing the bad guys" -- the ones who abuse the rules, who flout them completely, who betray trust others put in them -- is important, there is something else that also needs to occupy our attention.
We have a structure, which few of us are conscious of, which funnels our nation's wealth into the pockets of a particular class of us, and until we -- a large proportion of ordinary people -- become conscious of the particulars of that structure, we are simply putting our attention in the wrong place.
The theft by Bernard Madoff from some of our wealthiest folks -- I'm guessing that few of his victims were below the top 5% of the net worth distribution, counting just the dollars they sent to Madoff and their other holdings, not the assumed increase in the Madoff "investments" -- may simply serve to divert our attention from noticing that major structural matter to chasing a bad guy.
I discovered an interesting book online this weekend. Hardcopy sits in my library -- from my late grandparents' collection -- but I'd been put off by the title, and never bothered opening it. The title is "The Story of My Dictatorship." It turns out to be funny and interesting -- a telling of a dream, a bit along the line of "A Connecticut Yankee in King Arthur's Courts."
We need people who will play whistleblower on our system, our structure. And we need to listen to them.
I'd missed the article when it was published a week ago, but an LTE brought it to my attention. The author is Richard Thaler, a professor of economics and behavioral science at the newly re-named business school at the University of Chicago (forever to be recalled as GSB by some, despite stern orders in the alumni rag).
He proposes auctioning off "The Buried Treasure in Your TV Dial." But he isn't suggesting leasing it for some finite period of time, with a new auction at the end of, say, 5 or 10 or 15 years, but selling it forever. As one of the LTE's says,
Re “The Buried Treasure in Your TV Dial” (Economic View, Feb. 28), in
which Richard H. Thaler cites an estimate that the government could
reap $100 billion by auctioning the portion of the radio spectrum used
for over-the-air television:
How long would such a sum last, however, in an era of military
adventures and over 700 foreign military bases? What would be permanent
is the loss of both choice and the free reception of radio and
television programming. Ownership of electronic media, and access to
the privatized airwaves, would be as concentrated as cable and
satellite systems are today.
The column says that such an auction would have many national benefits.
But virtually all them, like faster broadband connections for schools,
could be obtained by federal policy, not a fire sale.
Those airwaves belong to the American people, and the American people ought to be collecting full rent on them -- year in, year out -- not giving away licenses and then permitting corporations to make a business in re-selling or leasing out what they choose not to use.
Here's Thaler's article. I look forward to his next suggestions; he has the germ of a good idea, but gets a very important aspect of it wrong. Don't sell our common asset to anyone. AUCTION OFF LEASES. Wait 5 years. Repeat.
HERE’S a list of national domestic priorities, in no particular order:
Stimulate the economy, improve health care, offer fast Internet
connections to all of our schools, foster development of advanced
technology. Oh, and let’s not forget, we’d better do something about
the budget deficit.
Now, suppose that there were a way to deal effectively with all of
those things at once, without hurting anyone. And suppose that it would
make everyone’s smartphone work better, too. (I’ll explain that benefit
I know that this sounds like the second coming of voodoo economics, but
bear with me. This proposal involves no magical thinking, just good
common sense: By simply reallocating the way we use the radio spectrum
now devoted to over-the-air television broadcasting, we can create a
bonanza for the government, stimulate the economy and advance all of
the other goals listed above. Really.
The reason for this golden opportunity may be in your purse or pocket:
that smartphone to which you could well be addicted. The iPhone, the
BlackBerry and competing devices are already amazing technologies. But
precisely because of the nifty features they offer, like the ability to
text photos, stream video and provide GPS directions, the radio
spectrum is looking as crowded as Times Square on New Year’s Eve.
Demand for spectrum is growing rapidly — a trend that will surely
The problem is that the usable radio spectrum is limited and used
inefficiently. Think of it as a 100-lane highway with various lanes set
aside for particular uses, including AM and FM radio, TV and wireless
computer technology. The government — specifically, the Federal
Communications Commission — is in charge of deciding which devices use
Because we can’t create additional spectrum, we must make better use of
the existing space. And the target that looks most promising in this
regard is the spectrum used for over-the-air television broadcasts.
These frequencies are very attractive on technological grounds. People
in the industry refer to them as “beachfront property” because these
low-frequency radio waves have desirable properties: they travel long
distances and permeate walls. We have already allocated parts of this
spectrum for mobile wireless, and the F.C.C. recently auctioned other
parts for $19 billion. That has left 49 channels for over-the-air
Why is the current use of this spectrum so inefficient? First, because
of the need to prevent interference among stations, only 17 percent of
it is actually allocated by the F.C.C. for full-power television
stations. (The so-called white space among stations is used for some
limited short-range applications like wireless microphones.)
Second, over-the-air broadcasts are becoming a nearly obsolete
technology. Already, 91 percent of American households get their
television via cable or satellite. So we are using all of this
beachfront property to serve a small and shrinking segment of the
Suppose we put this spectrum up for sale. (The local stations do not
“own” this spectrum. They have licenses granted by the Federal
Communications Commission.) Although the details of how to conduct this
auction are important, they don’t make compelling reading on a Sunday
morning. Interested readers should examine a detailed proposal made to
the F.C.C. by Thomas W. Hazlett, a professor at the George Mason
University School of Law who was formerly the F.C.C.’s chief economist.
Professor Hazlett estimates that selling off this spectrum could raise
at least $100 billion for the government and, more important, create
roughly $1 trillion worth of value to users of the resulting services.
Those services would include ultrahigh-speed wireless Internet access
(including access for schools, of course) much improved cellphone
coverage and fewer ugly cell towers. And they would include other new
things we can’t imagine any more than we could have imagined an iPhone
just 10 years ago.
But some compelling technology that could use these frequencies already
exists, like wireless health monitoring — to check diabetics’ blood
sugar regularly, for example — and remote robotic surgery that can give
a patient in Idaho a treatment like that available in New York or
Who would oppose this plan? Local broadcasters are likely to contend
that they are providing a vital community service in return for free
use of the spectrum that was put in their hands decades ago. Whether
the local news or other programs are vital services is up for debate,
but their value isn’t the issue, because they can be made available via
cable, satellite and other technologies, including improved broadband.
Say there are 10 million households that still get their television
over the air, including those that can’t afford cable or satellite and
some that generally just don’t care for what’s on TV. (Yes, there are
people who don’t like “American Idol.”) But about 99 percent of these
households have cable running near their homes, and virtually all the
others, in rural areas, could be reached by satellite services. The
F.C.C. could require cable and satellite providers to offer a low-cost
service that carries only local channels, and to give vouchers for
connecting to that service to any households that haven’t subscribed to
cable or satellite for, say, two years.
Professor Hazlett estimates that $300 per household should do it: that
amounts to $3 billion at most. Compared with the gains from selling off
the spectrum, it’s a drop in the bucket. Or, as an interim step, we
could reduce the number of channels available in a community from 49
to, say, 5.
I KNOW that this proposal sounds too good to be true, but I think the
opportunity is real. And unlike some gimmicks from state and local
governments, like selling off proceeds from the state lottery to a
private company, this doesn’t solve current problems simply by
borrowing from future generations. Instead, by allowing scarce
resources to be devoted to more productive uses, we can create real
value for the economy.
Economists are fond of saying that there is no such thing as a free
lunch. Here we have an idea that is even better than a free lunch:
being paid to eat lunch. More paid-lunch ideas will be coming in future
The classical economists might never have heard a radio or seen a television, but they'd immediately recognize broadcast spectrum as "land" -- a gift of nature, finite and scarce -- and would have regarded it as our common treasure. Unfortunately, Professor Thaler is not a classical economist. He is a neoclassical economist, and his training in economics probably glossed over the truths the classical economists saw. And quite likely, that's how he teaches the subject, too.
We can concentrate more wealth in the hands of a few corporations, or we can collect the economic rent on this scarce and valuable resource. (See also Alaska Permanent Fund, in the topic cloud at left.)
I stumbled across a webpage, created by William Domhoff of UCSC, which contains some fascinating data on income distribution and wealth distribution, or, if you prefer, income concentration and wealth concentration.
I've posted the wealth concentration data separately; here, I'll focus on the concentration of income. Table 6 draws on work of Edward Wolff, of NYU, not yet published.
Income Distribution, 1982 and 2006
Turning to Capital Income -- by which I assume they mean income derived not from wages but from other sources, which includes that which the classical economists called land, and which the neoclassical economists subsume under "capital" as if they were identical:
+19.7 percentage points
-4.4 percentage points
-2.6 percentage points
-2.2 percentage points
-10.5 percentage points
Is this something we're proud of, or think we ought to be exporting to other countries? Is it consistent with our ideals, about life, liberty and the pursuit of happiness being the right of every American, of every person on earth?
We're permitting the privatization of things which rightly belong to the commons -- to all of us. What things? The value of natural resources flows into whose pockets? The annual value of urban land flows into whose pockets? The value of water rights flows into whose pockets? The value of the airwaves flows into whose pockets? (Hint: look at the distribution of capital income!) The value of 8am landing rights at LaGuardia flows into whose pockets? The value of geosynchronous orbits so necessary to certain businesses and systems flows into whose pockets? The bottom 80% of us? The next 19% of us? The top 1%? The owners of so-called "small" businesses?
These are privileges. Structures which divert to individuals and corporations things which all of us create. They reap what we together sow, and then we are led to respect them as "self-made men" and success stories.
They are not eternal. They are not immutable. Each can be reformed, and each can provide a significant revenue source to meet our communities' need for revenue for common purposes. Collecting this revenue this way will not damage our economy as our current tax structure does. It will, however, lighten the portfolios of some who are used to considering themselves blessed by our current way of doing things -- those born on 3rd base who think they hit a home run. And create some opportunities for those who want to works, and for those who want to be compensated for their work with wages which begin to line up better to the cost of living.
There IS enough to go around. Not enough for all of us to live like the top 1%, perhaps, but certainly enough for many more of us to live at the sort of level we call middle class, and even at the, say, 70th percentile -- without despoiling the earth.