LVTFan's Blog

Is "growing the pie" sufficient?

Or do we have a problem when a small segment of us -- the top 1% of the income spectrum -- capture 121% of the growth?

The reference is to the newest year of income concentration data provided by Piketty and Saez, table 1, column 4.

The Earth-for-All Calendar: August 7 -- Thorold Rogers and Ede

I can easily imagine a great proprietor of ground rents in the metropolis calling attention to the habitations of the poor, to the evils of overcrowding, and to the scandals which the inquiry reveals, while his own income is greatly increased by the causes which make house-rent dear in London, and decent lodging hardly obtainable by thousands of laborers.

— PROF. THOROLD ROGERS, Work and Wages, Chap. XX., p. 550.

Efforts should be made to prevent the increase of value which is occasioned by the growth of the population of towns enriching private individuals.

— The REV. W. MOORE EDE, Honorary Canon of Durham, The Church and Town Problems, p. 88, note.

Sagacity

This is a paragraph from a book written about 100 years ago about Dr. Edward McGlynn, a much-loved Roman Catholic priest in Manhattan (St. Stephen's Church) who, with Henry George, was active in the Anti-Poverty Society in the last 15 years of the 19th century.  It comes from a section listing "Thoughts of Dr. McGlynn."

Sagacity

It was told of a recently deceased Judge of the Supreme Court of the United States, a man who sat in the Senate of the United States, one of the most eminent men of his generation, how he, a poor lawyer, in a comparatively poor western town, had been able to accumulate some two or three millions of dollars worth of property. How? By "sagacity" in investing in lands at some distance from villages and towns, with foresight that in the course of a few years the growth of those communities, the industry, thrift, talent, virtue, patience of large communities would all keep adding to the value of his property, and in course of time cities, towns and villages would grow up on these lands, and he would be able to command an enormous price for land that cost him but a song. Now, while the law tolerated or even sanctioned what he was doing, he was guilty of an iniquity, of reaping where he had not sown, of exacting tribute where he had contributed nothing.

The Land Questions: #36 -- the land in the path of progress (2)

36.  He worked hard.  He played by the rules. He bought up land before the interstate highway was announced, and his widow and orphans now have a very valuable land portfolio, for which others will pay a high purchase price or high -- and rising -- lease prices, for generations.  Is it right to change our tax code to tax -- heavily -- year in and year out, the economic value of that land?

"It was there for the taking"

When the structures that our laws and traditions create provide opportunities for someone to capture a windfall, should we blame the fellow who "takes advantage" of those structures, or should we respond by studying and correcting those structures and laws?

Winston Churchill, in his speeches under the baanner "The People's Rights," in 1909, said this:

I hope you will understand that when I speak of the land monopolist I am dealing more with the process than with the individual landowner. I have no wish to hold any class up to public disapprobation. I do not think that the man who makes money by unearned increment in land is morally a worse man than anyone else who gathers his profit where he finds it in this hard world under the law and according to common usage. It is not the individual I attack, it is the system. It is not the man who is bad, it is the law which is bad. It is not the man who is blameworthy for doing what the law allows and what other men do; it is the State which would be blameworthy were it not to endeavour to reform the law and correct the practice. We do not want to punish the landlord. We want to alter the law.

The 99% need to start identifying the laws and structures that must be adjusted.  This is not easy work.

What individuals produce, and corporations produce, should not be "there for the taking" -- be it by corporate management in the form of hugely generous compensation packages and golden parachutes, or by simply saying "these resources are OURS, not everyone's" or by establishing monopolies or duopolies or other such structures.  We-the-people need to educate ourselves about how things are done now, who benefits from that, and what alternatives exist.  It won't be easy.  We'll be challenging special interests who somehow think they're entitled to their advantaged positions, and the rest of us exist to keep them comfortable.

Labor should get its share, and capital should get its share, and we-the-people should get land's share.  That last could fund a large portion of our common spending, on infrastructure and services, and permit us to reduce or eliminate the dumb taxes which take which individuals and corporations legitimately create.  That "keeping what we create" extends, also, to "externalities," to being responsible for the pollution we create, and setting up incentives so that it is minimized, for the good of all of us now here and the good of future generations.

I think it is quite possible, even likely, that a few years after we've made this shift in who gets what, we'll find that we don't need nearly so robust a social safety net, and that we-the-people may get some of "land's share" back in the form of a Citizen's Dividend, just as all permanent residents of Alaska receive an annual dividend from the Alaska Permanent Fund. 

In any case, letting some corporations and some individuals grab that which we all create together is just plain wrong.  Letting it be "there for the taking" is insanity and injustice.  And don't we pledge "liberty and justice for all?"

Our ancestors may have granted some privileges to some lucky folks for one reason or another.  That doesn't mean that we can't, politely and firmly, revoke those privileges.  A couple of centuries is plenty.  Experience has shown us that those privileges don't serve the greater good, and it is time to revoke them.  Will the privileged give up those privileges graciously?  Quite possibly not.  But the first step is to identify them, and then to seek to change the system so that those rightly-common assets aren't "there for the taking."

Congress: Trading stock on inside information?

Congress: Trading stock on inside information? - CBS News.

Perhaps you saw "60 Minutes" last Sunday (11/13).  Just in case you didn't, here are some excerpts from the transcript.  I commend the whole thing to your attention.  It begins:

The next national election is now less than a year away and congressmen and senators are expending much of their time and their energy raising the millions of dollars in campaign funds they'll need just to hold onto a job that pays $174,000 a year.

Few of them are doing it for the salary and all of them will say they are doing it to serve the public. But there are other benefits: Power, prestige, and the opportunity to become a Washington insider with access to information and connections that no one else has, in an environment of privilege where rules that govern the rest of the country, don't always apply to them. ...

Most former congressmen and senators manage to leave Washington - if they ever leave Washington - with more money in their pockets than they had when they arrived, and as you are about to see, the biggest challenge is often avoiding temptation.

Peter Schweizer: This is a venture opportunity. This is an opportunity to leverage your position in public service and use that position to enrich yourself, your friends, and your family.

Schweizer says he wanted to know why some congressmen and senators managed to accumulate significant wealth beyond their salaries, and proved particularly adept at buying and selling stocks.

Schweizer: There are all sorts of forms of honest grafts that congressmen engage in that allow them to become very, very wealthy. So it's not illegal, but I think it's highly unethical, I think it's highly offensive, and wrong.

Steve Kroft: What do you mean honest graft?

Schweizer: For example insider trading on the stock market. If you are a member of Congress, those laws are deemed not to apply.

Kroft: So congressman get a pass on insider trading?

Schweizer: They do. The fact is, if you sit on a healthcare committee and you know that Medicare, for example, is-- is considering not reimbursing for a certain drug that's market moving information. And if you can trade stock on-- off of that information and do so legally, that's a great profit making opportunity. And that sort of behavior goes on.

Kroft: Why does Congress get a pass on this?

Schweizer: It's really the way the rules have been defined. And the people who make the rules are the political class in Washington. And they've conveniently written them in such a way that they don't apply to themselves.

The buying and selling of stock by corporate insiders who have access to non-public information that could affect the stock price can be a criminal offense, just ask hedge fund manager Raj Rajaratnam who recently got 11 years in prison for doing it. But, congressional lawmakers have no corporate responsibilities and have long been considered exempt from insider trading laws, even though they have daily access to non-public information and plenty of opportunities to trade on it.

Schweizer: We know that during the health care debate people were trading health care stocks. We know that during the financial crisis of 2008 they were getting out of the market before the rest of America really knew what was going on. 

...

While Congressman Bachus was publicly trying to keep the economy from cratering, he was privately betting that it would, buying option funds that would go up in value if the market went down. He would make a variety of trades and profited at a time when most Americans were losing their shirts.

...

Peter Schweizer thinks the timing is suspicious, and believes congressional leaders should have their stock funds in blind trusts.

 

Schweizer: Whether it's uh-- $15,000 or $150,000, the principle in my mind is that it's simply wrong and it shouldn't take place.

But there is a long history of self-dealing in Washington. And it doesn't always involve stock trades.

 

Congressmen and senators also seem to have a special knack for land and real estate deals. When Illinois Congressman Dennis Hastert became speaker of the House in 1999, he was worth a few hundred thousand dollars. He left the job eight years later a multi-millionaire.

Jan Strasma: The road that Hastert wants to build will go through these farm fields right here.

In 2005, Speaker Hastert got a $207 million federal earmark to build the Prairie Parkway through these cornfields near his home. What Jan Strasma and his neighbors didn't know was that Hastert had also bought some land adjacent to where the highway is supposed to go.

Strasma: And five months after this earmark went through he sold that land and made a bundle of money.

 

Kroft: How much?

Strasma: Two million dollars.

Kroft: What do you think of it?

Strasma: It stinks.

We stopped by the former speaker's farm, to ask him about the land deal, but he was off in Washington where he now works as a lobbyist. His office told us that property values in the area began to appreciate even before the earmark and that the Hastert land was several miles from the nearest exit.

 

But the same good fortune befell former New Hampshire Senator Judd Gregg, who helped steer nearly $70 million dollars in government funds towards redeveloping this defunct Air Force base, which he and his brother both had a commercial interest in. Gregg has said that he violated no congressional rules.

It's but one more example of good things happening to powerful members of Congress. Another is the access to initial public stock offerings, the opportunity to buy a new stock at insider prices just as it goes on the market. They can be incredibly lucrative and hard to get.

Schweizer: If you were a senator, Steve, and I gave you $10,000 cash, one or both of us is probably gonna go to jail. But if I'm a corporate executive and you're a senator, and I give you IPO shares in stock and over the course of one day that stock nets you $100,000, that's completely legal.

And former House Speaker Nancy Pelosi and her husband have participated in at least eight IPOs. One of those came in 2008, from Visa, just as a troublesome piece of legislation that would have hurt credit card companies, began making its way through the House. Undisturbed by a potential conflict of interest the Pelosis purchased 5,000 shares of Visa at the initial price of $44 dollars. Two days later it was trading at $64. The credit card legislation never made it to the floor of the House.

...

Brian Baird is a former congressman from Washington state who served six terms in the house before retiring last year. He spent half of those 12 years trying to get his colleagues to prohibit insider trading in Congress and establish some rules governing conflicts of interest.

Baird: One line in a bill in Congress can be worth millions and millions of dollars. There was one night, we had a late, late night caucus and you could kind of tell how a vote was going to go the next day. I literally walked home and I thought, 'Man, if you-- if you went online and made-- some significant trades, you could make a lot of money on this.' You-- you could just see it. You could see the potential here.

So in 2004, Baird and Congresswoman Louise Slaughter introduced the Stock Act which would make it illegal for members of Congress to trade stocks on non-public information and require them to report their stock trades every 90 days instead of once a year.

Kroft: How far did you get with this?

Baird: We didn't get anywhere. Just flat died. Went nowhere.

Kroft: How many cosponsors did you get?

Baird: I think we got six.

...

Baird: When you have a bill like this that makes so much sense and you can't get the co-sponsorships, you can't get the leadership to move it, it gets tremendously frustrating. Set aside that it's the right thing to do, it's good politics. People want their Congress to function well. It still baffles me.

 

But what baffles Baird even more is that the situation has gotten worse. In the past few years a whole new totally unregulated, $100 million dollar industry has grown up in Washington called political intelligence. It employs former congressmen and former staffers to scour the halls of the Capitol gathering valuable non-public information then selling it to hedge funds and traders on Wall Street who can trade on it.

 

Baird: Now if you're a political intel guy. And you get that information. Long before it's public. Long before somebody wakes up the next morning and reads or watches the television or whatever, you've got it. And you can make real-- real-time trades before anybody else.

Baird says its taken what would be a criminal enterprise anyplace else in the country and turned it into a profitable business model.

Baird: The town is all about people saying-- what do you know that I don't know. This is the currency of Washington, D.C. And it's that kind of informational currency that translates into real currency. Maybe it's over drinks maybe somebody picks up a phone. And says you know just to let you know it's in the bill. Trades happen. Can't trace 'em. If you can trace 'em, it's not illegal. It's a pretty great system. You feel like an idiot to not take advantage of it.

 

 

 

Sharing the burden of the cost of providing public services

Here's another from a 1926 issue of Tax Facts, a California-focused, business-focused, Single Tax monthly.  While I find the intended focus of the article spot on, what caused me to share it here was the horse-grist-stone analogy in the final paragraph.   

A SURE THING

Buy real estate in Southern California, says the real estate editor of the Los Angeles Times. Use common sense in making the purchase. Hold on to the property. It will make you independent and your children wealthy.

Fifty-nine years ago Alonza E. Horton bought 960 acres for $265, think of it, at the rate of 27 cents an acre. That . property today is the heart of the San Diego business section. It is worth something like $50,000,000.

The editor goes on to say that since Mr. Horton bought his 960 acres of land at 27 cents an acre millions of people have come to Southern California to live, and the same inducements that brought them will bring millions more. "So don't delay," the editor says, "but buy Southern California real estate while you have the opportunity." And he adds; "It is the fellow with the foresight and the decision to back his jugdment that gathers in the shekels."

This is the counsel of the go-getter. Southern California is an attractive place. Many people have come here. There are indications that many more people will come in the next few years. All these people must have land upon which to live, to do business, and to raise crops. They may bring with them all manner of goods and supplies, but they must use the land that is already here.

Hence, buy that land now, says the realtor, and sell it or lease it to those who come after. To the man who comes to Southern California next year, fix the price a little above the price of this year. Next year add again to the price; the year after, increase it again, and so on, always adding all you dare, short of an amount that will drive the builder away. This is the way the "fellow with the foresight and the decision to back his judgment" reaps the wealth of soil and climate that nature supplied in such perfection. When Mr. Horton came to San Diego in 1867 he bought land at 27 cents an acre. But the man who wants to use that same land today must pay fifty thousand dollars an acre.

This is the law and custom. We must have permanent possession, in order to secure the best use of land. But is there any reason why we should tax alike lands that increase in value so fabulously, and buildings and goods that deteriorate with age?

Some governments do not tax all property alike. Pittsburgh, Pa., taxes machinery and goods not at all, and taxes buildings at one half the rate of land. Mr. Moody, the far-seeing assessor of San Diego, taxed buildings at less than half the rate of land, until he was enjoined by the court. His policy was very popular with the people — business men and residents — excepting a grouchy land owner who evoked the aid of the courts.

When the assessor was compelled to follow the letter of the law there was great distress among the builders of San Diego. Men had built larger and finer buildings because the taxes were lighter on improvements than on land. So great was the burden when the court ruled that they be taxed alike that efforts were made to have the legislature legalize the practice of the far-seeing assessor.

It will come. What has been done in Pittsburgh can be done in San Diego, Los Angeles and San Francisco. It may take time. For years the countryman balanced his grist on the horse's back by putting the meal in one end of the sack and a stone in the other. One day it occurred to him that he could secure the same result by dividing the meal — and save the horse the weight of the stone.

Realtors are merely human when they advise people to buy land on speculation. It is their business. And the man who buys land, and lets it lie idle, while labor and capital build up the community around it, he, too, is human, and is acting within the law.

But what shall be said of the voters who control the laying of taxes? Are they as careful in looking into the tax laws as they are in watching their business affairs?

In the old days when government was simple and taxes were light it did not so much matter, but now it is different. There is hope. The voters will learn to divide the meal, and save the weight of the stone.

Play "Brer Fox an' Brer Rabbit," a UK version of "The Landlords Game" (Monopoly)

Pursuing some leads on Lizzie Magie (see the related posts, below this one, and in the Landlords Game links at left), I came across a December, 2010, paper by Frances Hutchinson, about the British version of the Landlords Game, called Brer Fox an' Brer Rabbit.  She makes some very interesting points, and I learned some things about the games. I commend the entire paper to your attention, and am taking the liberty of posting the last third here:

Brer Fox an’ Brer Rabbit

Georgists argued that a system of land taxation could be introduced gradually, following informed public debate on the issues involved. To that end, during the early decades of the twentieth century they devised a series of hand-made games designed to portray the evils of the selfish system of monopoly land holding, with a view to introducing socially responsible reforms of land holding based upon the Georgist Single Land Tax proposals. The games, which circulated throughout the USA and UK, often under the title The Landlord’s Game, were played in three phases. Phase 1, based upon the existing laws of land ownership, finance and taxation, demonstrates the effects of unchecked greed and self-interest in patterns of monopoly capitalism. In Phases 2 and 3 the rules are altered to eliminate the ability of powerful players to benefit from their greed.

The creators of the game held a profound faith in the human capacity for action based upon reasoned argument. The games were designed to be played co-operatively, providing a focus for discussion which took place at each of the three phases of the game. Monopoly was later developed from Phase 1, where powerful, self-interested individuals reign supreme. The later two phases, which each form games in themselves, demonstrate the potential for communities to regain ecologically and socially viable forms of access to land.

Brer Fox an’ Brer Rabbit is an early version of The Landlord’s Game which circulated in the UK. After some years of research we managed to bring together a copy of the original board with a matching set of rules. Despite the title, this is not a children’s game. However, we have found that a major obstacle to the successful use of this original version of the game as a teaching aid, is the almost universal pernicious influence of the selfish, zero-sum game of Monopoly. Phase 1 does not run as smoothly as the polished version of the commercial version, and it can be difficult to shift to the different mindset envisaged in Phases 2 and 3.

The thoughtful playing of Phases 2 and 3 of the Landlord’s Game raises some veryinteresting questions, such as the relationship between the ‘real’ and the ‘financial’ values of land, traditional patterns of common management of land, and the whole question of landless waged-labour. What emerges most forcefully, however, is the role of the Banker, the mysterious figure whose presence is not explained in the Georgist literature, but who is able to pay out ‘wages’ to the players to enable them to continue to participate in the game. This brings into focus the whole question of the wage/salary-slavery system that is corporate capitalism in the world economy of the twenty-first century.

Playing the Game

Monopoly was developed from Phase 1 of The Landlord’s Game, which demonstrates the effects of a greedy selfish pattern of monopoly land-holding. The object of Monopoly is to buy, rent and sell property with sufficiently focused and ruthless skill to bankrupt the other players and thereby force them out of the game. In real life, the Robber Barons of the American Golden Age dominated steel, oil and other essential resources not by creating wealth, but by dominating the field. Mirroring assumptions of economic orthodoxy, the number of houses and hotels in Monopoly are deliberately kept scarce. The game is so designed that all cannot improve their properties equally, and collaboration is prohibited. “Monopoly models the foundation assumption of economics: the principle of scarcity. Every opportunity you act on is thereby denied to another player.”11

To play a version of The Landlord’s Game it is necessary to step back in time, to forget the rush, bustle and constant worry of the twenty-first century and take time to imagine one is alive in the idyllic years before the First World War. Although the commercially designed Monopoly can be played out in a single playing session, several leisurely sessions need to be set aside for playing The Landlord’s Game. The specific uses of the sites laid out on the board would have been familiar to the players, and would have given rise to discussion of local examples. Thus the game offers a refreshing opportunity to reflect on the purposes of the various ‘money making’ institutions on the board, including the actual money-maker, the bank itself.

Devised over a hundred years ago as a DIY exercise, boards, cards and playing pieces were normally assembled from household materials. Playing tokens were buttons, badges, charms, or anything to hand. Brer Fox an’ Brer Rabbit, produced and patented by the Newbie Games Company of Dumfries, Scotland, in 1913, has been reproduced in the attached format* so that all three phases of the game can be played. The family resemblance to Monopoly is immediately obvious. Bearing in mind the history of Monopoly just described, the leisurely playing of all three phases is an excellent consciousness-raising exercise. The later two phases, which form games in themselves, demonstrate the potential for communities to regain access to land by regaining control over all forms of economic activity, including banking. Personally, I tend to agree with Karl Marx, that “in point of theory, the man [Henry George] is a back number”. The notion that an individual should have the right to buy a piece of land simply by right of landing on it when it is free, is original to the game. Equally, the Georgist game does not raise the question of money creation, the role of finance and banking in the economy or the whole question of wage-slavery upon which the edifice of global corporate capitalism rests. But that does not prevent twenty-first century players from using the sites and situations of Brer Fox an’ Brer Rabbit to review accepted assumptions about the institutions of society which govern access to wealth, property, income and power. The game offers at least as much of interest to present-day campaigners for peace, social justice, monetary reform and political sanity as it did a century ago. We look forward to opening a dialogue with groups who have played the games successfully.

Then go here: http://douglassocialcredit.com/poeticlicence.php  to print out the rules, board, cards, and money to play this game yourself.

Lizzie Magie's 1902 commentary on The Landlords' Game, on which Monopoly is based

Digging through primary sources can provide some great thrills.  I stumbled onto this article about The Landlords' Game in the Autumn, 1902, number of The Single Tax Review (then a 64-page quarterly, later more frequent) .   It was the Landlord's' Game which was later revised to create the board game Monopoly.   As I've written earlier here, the Landlords' Game (probably in later editions than what is referred to here) came with 2 sets of rules, one which would create widespread prosperity, and the other which would create a winner-take-all situation.

Magie's comments are quite relevant to understanding the game of Monopoly, too:

from The Single Tax Review, Autumn, 1902

THE LANDLORDS' GAME.

AN INTERESTING INVENTION OF A YOUNG LADY IN WASHINGTON BY WHICH CHILDREN AT THEIR PLAY MAY BE TAUGHT THE TRUE LAWS OF ECONOMICS.
Miss Lizzie J. Magie, a single taxer of Washington, D. C has invented an ingenious game, played with checkers and dice as is parcheesi, and thus describes it for the Review:

"It is a practical demonstration of the present system of land-grabbing with all its usual outcomes and consequences," says Miss Magie. " It might well have been called the 'Game of Life,' as it contains all the elements of success and failure in the real world, and the object is the same as the human race in general seem to have, i. e., the accumulation of wealth.  Representative money, deeds, mortgages, notes and charters are used in the game; lots are bought and sold; rents are collected; money is borrowed (either from the bank or from individuals), and interest and taxes are paid. The railroad is also represented, and those who make use of it are obliged to pay their fare, unless they are fortunate enough to possess a pass, which, in the game, means throwing a double. There are two franchises: the water and the lighting; and the first player whose throw brings him upon one of these receives a charter giving him the privilege of taxing all others who must use his light and water.

"There are two tracts of land on the board that are held out of use—are neither for rent nor for sale—and on each of these appear the forbidding sign: 'No Trespassing. Go to Jail.' One of these tracts of land (the largest on the board) is owned by Lord Blueblood, of London, England, and represents foreign ownership of American soil. A jail is provided for any one  who trespasses upon this land, and there the unfortunate individual must linger until he serves out his time or pays the required fine. 'Serving out his time' means waiting until he throws a double.

"Before the game begins, each player is provided with a certain amount of cash, sufficient to pay all necessary expenses until he is well enough along in life to earn his living. Should any one be so unlucky, or so reckless and extravagant, as to become 'broke,' there is a nice little poor house off in one corner where he may tarry until he makes a lucky throw or until some  friend takes pity on him and lends him enough to set him on his feet again. And here is where he generally gets 'soaked,' for the other players, taking advantage of the unfortunate one's necessities, demand an enormous rate of interest which the impecunious individual must pay before he can complete his round and get his wages.
 
"The rallying and chaffing of the others when one player finds himself an inmate of the jail, and the expressions of mock sympathy and condolence when one is obliged to betake himself to the poor house, make a large part of the fun and merriment of the game.

"Each time around the board represents so much labor performed, for which so much wages are paid. When a player has been the rounds ten times he retires from his labors, although he still remains in the game, which is not finished until the last player has made his tenth round. It takes forty moves to make a round and there is in each round one little black-bordered spot marked 'Legacy,' and whenever a player stops on this he receives a cash legacy. In each round there are three spots marked 'Luxury,' and these the player may indulge in or not, according to his inclinations or finances, but each luxury purchased counts the player so much more at the end of the game.

"General directions for playing the game accompany this description, but it is difficult to make a set of rules that will cover all contingencies since no two games are alike. The combination of circumstances are so many that almost every time the game is played new situations are brought out. Thus it is a game that is always interesting—never monotonous. It was the original intention of the author simply to work out a demonstration of how the landlord gets his money and keeps it, but while doing this there gradually developed a game which has proven one of amusement as well as of instruction and one which has attractions for both old and young.

"Children of nine or ten years and who possess average intelligence can easily understand the game and they get a good deal of hearty enjoyment out of it. They like to handle the make-believe money, deeds, etc., and the little landlords take a general delight in demanding the payment of their rent. They learn that the quickest way to accumulate wealth and gain power is to get all the land they can in the best localities and hold on to it. There are those who argue that it may be a dangerous thing to teach children how they may thus get the advantage of their fellows, but let me tell you there are no fairer-minded beings in the world than our own little American children. Watch them in their play and see how quick they are, should any one of their number attempt to cheat or take undue advantage of another, to cry, 'No fair!' And who has not heard almost every little girl say, 'I won't play if you don't play fair.'  Let the children once see clearly the gross injustice of our present land system and when they grow up, if they are allowed to develop naturally, the evil will soon be remedied."

 To read more about The Landlord's Game, explore the two "Monopoly and the Landlord's Game" tags in the cloud (I can't seem to meld them into a single one!)  It is quite an interesting story.

Few Fortunes Survive Three Generations?

"There is nothing to fear," says the complacent Robert Collyer, "from the multimillionaire." The reason for Mr. Collyer's confidence is his assumption that "few fortunes survive three generations." This assumption is a pleasant tradition, formerly phrased as "three generations from shirt sleeves to shirt sleeves;" but it has long since ceased to express a fact, since John Jacob Astor showed Americans how to establish fortunes they have become as stable in America as in England.

But even if the tradition were as true today as it was in the earlier periods of the settlement of this new country, what satisfaction could a thoughtful man draw from it?

The social evil is not great fortunes. It is great poverty among those who earn so much wealth that they do not get.

To them it can make no difference whether fortunes are stable or not.

The great, obtrusive, undeniable and invariable fact is that no matter who may be rich nor how long his fortune may remain intact, the mass of those who do the work of the world, and without whose work there would be fortunes for nobody, are permanently poor and dependent.

To borrow a suggestive illustration from the gambling table, what matters it to the many who never win if the few who do soon lose their winnings again?

-- from "The Public,"  June 9, 1900.

Some random thoughts on Monopoly and Life

I heard something this morning on the radio which tickled my funny bone, and then got me thinking.  The program was "Wait, Wait -- Don't Tell Me" and they were spinning yarns for a contestant to pick out the real one from the two made-up news stories.  The theme was about how the wealthy are different, and there was a tale of rich people, perhaps in some form of noblesse oblige, choosing to play the board games Life and Monopoly with $1,000 less in starting money than the rules call for.

Well, my imagination was off and running. (I was stuck in traffic.) 

Look at what happens in the board game Monopoly.  Everyone starts with the same amount of money, and each one earns the same salary ($200 for each pass around the board).  And yet some become wealthy and most end up penniless.  The rules and structures are designed to create that situation.    Some of it is random, or at least appears to be: what happens to you depends in part on a throw of the dice.  Assuming all the players are using the same dice, one assumes that much is due to "chance."  There is even a deck of cards by that name, each of which produces a different turn outcome. 

Imagine Monopoly if the rules were a little different: that some started the game with a bit more money, or an undeveloped property they already owned, or a block or neighborhood with single family houses on them.  After all, we weren't all born the same year.

Or imagine that instead of all players receiving $200 each "year," some of us received $400 or $600, and others received only $80 or $150.  

Or combine those two assumptions.

Or imagine that the amount each player receives begins at $80, and for some rises and for others does not.

Or assume that some of us receive nothing, since there is a finite amount of money in the game, and if the powerful players have it all tucked under their side of the board, it simply isn't available when you pass "GO." 

Or assume that when you do go to buy a house, having assembled your 2- or 3-lot neighborhood, there aren't any available: the supply is fixed, and the existing players have bought them all up.  You'll have to wait, and keep paying rent until they replace them with hotels.  (Sounds like California under Prop 13, doesn't it?  One of the lowest homeownership rates in the US, except among seniors, whose homeownership rate exceeds that of their counterparts in the rest of the country!)

Those who have explored this blog may know that the board game Monopoly was not created during the 1930s depression, but is a direct descendant of a turn-of-the-century board game called The Landlord's Game, which was created to teach the ideas of Henry George.  Elizabeth Magie (later Phillips) patented it in 1904, and later versions in the 1920s. (See a modern rendering here.)  I've also seen pictures of another board for the Landlord's Game, showing a community surrounding a lake; one advances around the board.

The game came with two sets of rules, one called the Landlord Rules, rather similar to the game we know today.  The other set was called the Prosperity Rules.  You might enjoy the recent article in Land & Liberty (pages 14 & 15).   Don't miss the last couple of paragraphs.

David Stockman - Four Deformations of the Apocalypse

Op-Ed Contributor - Four Deformations of the Apocalypse - NYTimes.com.

It is not surprising, then, that during the last bubble (from 2002 to 2006) the top 1 percent of Americans — paid mainly from the Wall Street casino — received two-thirds of the gain in national income, while the bottom 90 percent — mainly dependent on Main Street’s shrinking economy — got only 12 percent. This growing wealth gap is not the market’s fault. It’s the decaying fruit of bad economic policy.

I am sometimes amazed by the extent to which people who I wouldn't expect to speak to the issues that matter to ordinary people actually publish something relevant.  David Stockman said something I didn't expect to hear from something in his party.

The four deformations:

IF there were such a thing as Chapter 11 for politicians, the Republican push to extend the unaffordable Bush tax cuts would amount to a bankruptcy filing. The nation’s public debt — if honestly reckoned to include municipal bonds and the $7 trillion of new deficits baked into the cake through 2015 — will soon reach $18 trillion. That’s a Greece-scale 120 percent of gross domestic product, and fairly screams out for austerity and sacrifice. It is therefore unseemly for the Senate minority leader, Mitch McConnell, to insist that the nation’s wealthiest taxpayers be spared even a three-percentage-point rate increase.

More fundamentally, Mr. McConnell’s stand puts the lie to the Republican pretense that its new monetarist and supply-side doctrines are rooted in its traditional financial philosophy. Republicans used to believe that prosperity depended upon the regular balancing of accounts — in government, in international trade, on the ledgers of central banks and in the financial affairs of private households and businesses, too. But the new catechism, as practiced by Republican policymakers for decades now, has amounted to little more than money printing and deficit finance — vulgar Keynesianism robed in the ideological vestments of the prosperous classes.

This approach has not simply made a mockery of traditional party ideals. It has also led to the serial financial bubbles and Wall Street depredations that have crippled our economy. More specifically, the new policy doctrines have caused four great deformations of the national economy, and modern Republicans have turned a blind eye to each one.

• The first of these started when the Nixon administration defaulted on American obligations under the 1944 Bretton Woods agreement to balance our accounts with the world. ...

• The second unhappy change in the American economy has been the extraordinary growth of our public debt. ... 

• The third ominous change in the American economy has been the vast, unproductive expansion of our financial sector.   ... But the trillion-dollar conglomerates that inhabit this new financial world are not free enterprises. They are rather wards of the state, extracting billions from the economy with a lot of pointless speculation in stocks, bonds, commodities and derivatives.  ...

• The fourth destructive change has been the hollowing out of the larger American economy.

Reminds me a bit of something Joe Stiglitz said in Australia last week.

Stockman concludes:

The day of national reckoning has arrived. We will not have a conventional business recovery now, but rather a long hangover of debt liquidation and downsizing — as suggested by last week’s news that the national economy grew at an anemic annual rate of 2.4 percent in the second quarter. Under these circumstances, it’s a pity that the modern Republican Party offers the American people an irrelevant platform of recycled Keynesianism when the old approach — balanced budgets, sound money and financial discipline — is needed more than ever.

When are we going to turn our attention to creating a stable economy in which all of us can prosper -- those who do the basic work which needs to be done but doesn't required extended specialized training or long experience, as well as those whose education or training equips them for more specialized jobs?  We will continue to need farm workers, and janitors, and fast food workers, and dozens of other occupations, and it seems to me that we ought to favor a structure which makes a decent life possible for them as well as the more trained and educated.  When 1%, 5%, of us get such a large portion of the products of the total labor in this land, something is wrong.  The amount that is left to be divided among the other 99% or 95% is insufficient to properly compensate everyone for their labor.  A few are reaping what they didn't sow, and we maintain the impolite fiction that they somehow earned it.

And there ARE answers.  There ARE solutions.  I happen to think that the best solutions -- probably the only solutions, but I'll leave it to you to propose something better -- are likely to come from the thought associated with Henry George.  He was not original; he's part of a long continuum of people over many centuries who saw things similarly.  But he was perhaps the most eloquent, and, in his first book, Progress and Poverty, very methodical and thorough in laying out his analysis.  We, as 21st century people of good will, would do well to understand his analysis and argument, and see for ourselves whether we have a better answer to offer.

The Landlord's Prayer -- Archer's version

THE LANDLORD'S PRAYER OFFERING IN THE TEMPLE

O God, I thank Thee that I am not as other men. Thou art very wonderful and very kind — for Thou hast made me Thine own selected one!

All Thy works praise Thee — and yield their tribute to me! The earth, created Thou it — and gavest it to me!

The sea also is Thine, but Thou hast given me its bed for a long distance out from the shore — so that none may ride upon its waters without paying toll to me.

The firmament of the Heavens is Thine, and Thou hast set the sun therein to give light and warmth by day, likewise the moon and the stars whereby to radiate through the gloom and the darkness of the night, and these also enrich my exchequer.

Thou ridest Thy chariots in the clouds and causeth the winds to blow, and dost thereby still further increase my plenteousness.

Thou hast decreed that the non-elect of mankind shall live by labour, and hast conferred on me the power to make them hand over annual tribute to me and mine for the opportunity of so doing.

Thou hast ordained that the earth which Thou gavest me shall rise in value through the operation of natural laws and social factors, and hast appointed me to collect these enhanced values and to use them for myself and my house.

In further manifestation of Thy concern for me and mine, Thou hast commanded that the non-elect shall forge weapons for defending that which Thou hast given to me; that they — the non-elect — shall provide forces to use these weapons on my behalf, that they shall pay the capital costs thereof, and that they shall further provide out of their own common labors such funds as may be needed for feeding and clothing themselves and their dependents, and of providing compensation for the dependents of those who fall or are maimed and bruised whilst engaged in safeguarding Thy gifts to myself, in order that no toll shall be made upon Thy goodness to my house. Yea, Lord, I thank Thee that I am Thine own elect, and that Thy wonderful goodness is made plain in the tribute which Thy created handiwork brings to me and to my house. Amen, Amen, and yet again Amen.

—john Archer

This version was printed in Land and Freedom in 1917.

In another version, the final paragraphs read slightly differently:

Wealth Concentration, Income Concentration and the Economy

I came across an interesting paragraph in the January, 1887, issue of The Democrat, a British publication, which speaks to our 21st century economy:

The Rothschilds all over Europe are calculated to possess a yearly income of at least six millions. Suppose they spend only one million, laying aside five, what does this really mean? It means that they demand from the producers a tribute of six millions a year, not in goods, but in money; to raise this tribute-money, the producers have to sell six million pounds' worth of their productions in a market in which the Rothschilds purchase only one million's worth, having no requirements for more goods, their spending capacity, viz., their demand: for necessities and luxuries, not having increased so fast as their income. The producers — the people at large — cannot fill the gap by purchasing these remaining five million pounds' worth of goods, much as they need them, because they have to pay the proceeds of their labour as a tribute to the Rothschilds to the tune of £6,000,000 a year. Here, then, is the solution of the great problem, why goods are not saleable, why labour can find no employment, though the greatest need for goods exists.

It is attributed to Michael Flurscheim, a manufacturer in the Grand Duchy of Baden.

America's FIRE sector -- Finance, Insurance, Real Estate -- continues to harvest huge amounts of the production of American workers who are fussy enough to want a place to live.  They don't have sufficient cash to buy the land and structure outright, and 15-year mortgages have given way to 30-year mortgages, fixed rates to adjustable rates, 20% downpayments to 10% and 5% and less -- with private mortgage insurance -- and $8,000 tax credits often are the equity in a newly purchased home.    And the top few hundred employees of each behemoth pay themselves and each other awesomely high bonuses, on top of salaries which would alone place them in the top 1% of our income spectrum.  Our best and brightest students are drawn, not to medicine, or scientific research, or engineering, or production management, or any of a number of fields in which they could make a positive impact on the lives of their fellow human beings (and be comfortably compensated with opportunities for leaving their children well-situated as well), but into Finance and Consulting, where the goal is to suck the vitality out of productive companies and out of wage-earning individuals. 

The alternative?  It is remarkably simple.  So simple that "smart" people scoff at it.  It is also wise, and just, and efficient, and conducive to solving many of our most pressing -- and supposedly intractable -- social, economic, environmental and justice problems.

47 percent

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.

America's Wealth Distribution -- 2007 -- Wealth Concentration, Part 1 of 3

The Survey of Consumer Finances is published every three years by the Federal Reserve Board.  The most recent published is the 2007, the report on which was titled Ponds and Streams: Wealth and Income in the United States, 1989 to 2007.  It contains voluminous tables, with very useful detail.  This page reports data from Table A3A.  Definitions of the various kinds of assets are on page 70 of that report.

You can read trend data in Part 2 and Part 3 of this series, for aggregate NETWORTH (Line 01 in this table) and more data is available in the SCF Chartbook. 

This data may understate the concentration of wealth, since the Fortune 400 families are specifically excluded from the SCF.  Their holdings represent roughly 1% of the value.

Comments follow this table.

This provides 29 lines directly from the SCF, and an additional 33 lines which combine various related kinds of assets, or assets and their related debts.

Distribution of Net Worth in Total and by Component, 2007 Dollars in billions of 2007 dollars
					Percentile of the distribution of family net worth
					Original Reported Data from Ponds and Streams						Top 1%, Next 9%, Bottom 90%				Top 5%, everyone else
	Item	All Total	Column pct		<50 Share	50-90 Share	90-95 Share	95-99 Share	99-100 Share		<90 Share	90-99 Share	99-100 Share		<95 Share	95-100 Share
		(1)	(2)		(3)	(4)	(5)	(6)	(7)		(8)	(9)	(10)		(11)	(12)
01	NETWORTH	64,597.9	100.0%		2.5%	26.0%	11.1%	26.6%	33.8%		28.5%	37.7%	33.8%		39.6%	60.4%
02	ASSET	75,866.7	117.4%		6.1%	29.1%	10.6%	24.7%	29.6%		35.2%	35.2%	29.6%		45.7%	54.3%
03	FIN	25,703.5	39.8%		2.7%	25.1%	12.4%	28.2%	31.5%		27.8%	40.7%	31.5%		40.3%	59.7%
04	LIQ	2,822.5	4.4%		6.5%	33.0%	11.4%	26.2%	22.9%		39.4%	37.6%	22.9%		50.8%	49.2%
05	CDS	1,041.2	1.6%		3.1%	46.6%	11.5%	23.7%	15.1%		49.7%	35.2%	15.1%		61.2%	38.8%
06	SAVBND	113.7	0.2%		6.1%	55.4%	11.3%	19.7%	7.6%		61.5%	31.0%	7.6%		72.7%	27.3%
07	BOND	1,070.5	1.7%		0.0%	1.5%	4.8%	31.2%	62.4%		1.6%	36.0%	62.4%		6.4%	93.6%
08	STOCKS	4,597.5	7.1%		0.6%	9.0%	8.0%	30.5%	51.9%		9.6%	38.5%	51.9%		17.6%	82.4%
09	NMMF	4,093.0	6.3%		0.4%	11.6%	10.3%	30.9%	46.7%		12.0%	41.3%	46.7%		22.3%	77.7%
10	RETQLIQ	8,904.6	13.8%		3.8%	36.7%	16.9%	28.0%	14.5%		40.5%	44.9%	14.5%		57.5%	42.5%
11	CASHLI	834.6	1.3%		6.5%	38.5%	13.3%	19.4%	22.3%		44.9%	32.7%	22.3%		58.2%	41.8%
12	OTHMA	1,682.2	2.6%		0.9%	19.4%	13.5%	26.8%	39.4%		20.3%	40.3%	39.4%		33.9%	66.1%
13	OTHFIN	543.7	0.8%		5.8%	27.4%	10.0%	25.8%	31.0%		33.2%	35.8%	31.0%		43.2%	56.8%
14	NFIN	50,163.2	77.7%		7.8%	31.1%	9.6%	22.8%	28.7%		38.9%	32.5%	28.7%		48.5%	51.5%
15	VEHIC	2,224.7	3.4%		28.6%	45.9%	8.0%	10.9%	6.6%		74.5%	18.9%	6.6%		82.5%	17.5%
16	HOUSES	24,104.2	37.3%		12.6%	48.9%	11.0%	18.1%	9.4%		61.5%	29.1%	9.4%		72.5%	27.5%
17	ORESRE	5,358.5	8.3%		2.2%	23.4%	14.6%	35.2%	24.6%		25.7%	49.7%	24.6%		40.2%	59.8%
18	NNRESRE	2,911.3	4.5%		1.2%	17.0%	10.8%	35.2%	35.8%		18.2%	46.0%	35.8%		29.0%	71.0%
19	BUS	14,893.7	23.1%		0.4%	6.0%	5.5%	25.5%	62.7%		6.3%	31.0%	62.7%		11.9%	88.1%
20	OTHNFIN	670.8	1.0%		4.0%	21.3%	11.1%	23.6%	40.0%		25.3%	34.7%	40.0%		36.4%	63.6%
21	DEBT	11,268.8	17.4%		26.7%	46.6%	7.7%	13.7%	5.3%		73.3%	21.4%	5.3%		81.0%	19.0%
22	MRTHEL	8,418.6	13.0%		25.3%	50.1%	7.6%	12.9%	4.1%		75.5%	20.4%	4.1%		83.0%	17.0%
23	RESDBT	1,140.8	1.8%		5.8%	34.8%	12.9%	32.9%	13.6%		40.6%	45.8%	13.6%		53.5%	46.5%
24	INSTALL	1,144.8	1.8%		52.8%	35.5%	4.3%	3.2%	4.2%		88.3%	7.5%	4.2%		92.6%	7.4%
25	OTHLOC	49.8	0.1%		10.8%	36.7%	3.0%	16.7%	32.7%		47.6%	19.7%	32.7%		50.6%	49.4%
26	CCBAL	392.3	0.6%		43.1%	45.8%	5.6%	4.3%	1.2%		88.9%	9.9%	1.2%		94.4%	5.6%
27	ODEBT	122.5	0.2%		28.9%	22.4%	6.6%	17.6%	24.5%		51.3%	24.2%	24.5%		58.0%	42.0%
28	EQUITY	13,694.3	21.2%		1.5%	19.6%	12.4%	30.5%	36.0%		21.1%	42.9%	36.0%		33.5%	66.5%
29	INCOME	9,784.9	15.1%		22.4%	36.3%	8.3%	16.6%	16.4%		58.7%	24.9%	16.4%		67.0%	33.0%
	LVTfan's Calculated Aggregations
					Share of Assets Held by Each Quantile						Share of Assets Held by Each Quantile				Share of Assets Held by Each Quantile
		All Total	Column pct		<50 Share	<50 Share	90-95 Share	95-99 Share	99-100 Share		<90 Share	90-99 Share	99-100 Share		<95 Share	95-100 Share
31	STOCKS+NMMF	8,690.5	13.5%		0.5%	10.2%	9.1%	30.7%	49.4%		10.7%	39.8%	49.4%		19.8%	80.2%
32	STOCKS+NMMF+RETQLIQ	17,595.1	27.2%		2.2%	23.6%	13.1%	29.3%	31.8%		25.8%	42.4%	31.8%		38.9%	61.1%
33	STOCKS+BUS	19,491.2	30.2%		0.4%	6.7%	6.1%	26.7%	60.1%		7.1%	32.8%	60.1%		13.2%	86.8%
34	STOCKS+BUS+NMMF	23,584.2	36.5%		0.4%	7.5%	6.8%	27.4%	57.8%		8.0%	34.2%	57.8%		14.8%	85.2%
35	STOCKS+NMMF+RETQLIQ+BUS	32,488.8	50.3%		1.3%	15.5%	9.6%	27.6%	45.9%		16.9%	37.2%	45.9%		26.5%	73.5%
36	STOCKS+BUS+NNRESRE+NMMF	26,495.5	41.0%		0.5%	8.6%	7.3%	28.3%	55.4%		9.1%	35.5%	55.4%		16.4%	83.6%
37	STOCKS+BUS+NNRESRE+NMMF+ ORES	31,854.0	49.3%		0.8%	11.1%	8.5%	29.4%	50.2%		11.9%	37.9%	50.2%		20.4%	79.6%
38	STOCKS+BUS+NNRESRE+NMMF+ ORES+OTHMA	33,536.2	51.9%		0.8%	11.5%	8.8%	29.3%	49.7%		12.3%	38.0%	49.7%		21.1%	78.9%
39	STOCKS+BUS+NNRESRE+NMMF+ ORES+OTHMA+BONDS	34,606.7	53.6%		0.8%	11.2%	8.6%	29.3%	50.1%		12.0%	38.0%	50.1%		20.6%	79.4%
40	STOCKS+BUS+NNRESRE+NMMF+ ORES+OTHMA+BONDS+RETQLIQ	43,511.3	67.4%		1.4%	16.4%	10.3%	29.1%	42.8%		17.8%	39.4%	42.8%		28.2%	71.8%
41	BUS+NNRESRE	17,805.0	27.6%		0.5%	7.8%	6.4%	27.1%	58.3%		8.3%	33.5%	58.3%		14.7%	85.3%
42	BUS+NNRESRE+ORES	23,163.5	35.9%		0.9%	11.4%	8.3%	28.9%	50.5%		12.3%	37.2%	50.5%		20.6%	79.4%
43	BUS+NNRESRE+ORES+HOUSES	47,267.7	73.2%		6.9%	30.5%	9.7%	23.4%	29.5%		37.4%	33.1%	29.5%		47.1%	52.9%
44	BUS+NNRESRE+ORES+HOUSES minus MRTHEL-RESDBT	37,708.3	58.4%		2.8%	26.0%	10.0%	25.4%	35.7%		28.8%	35.5%	35.7%		38.9%	61.1%
45	VEHIC+HOUSES	26,328.9	40.8%		14.0%	48.6%	10.7%	17.5%	9.2%		62.6%	28.2%	9.2%		73.4%	26.6%
46	VEHIC+HOUSES-MRTHEL-INSTALL	16,765.5	26.0%		5.6%	48.8%	12.8%	20.7%	12.0%		54.4%	33.5%	12.0%		67.2%	32.8%
47	VEHIC+HOUSES+RETQLIQ	35,233.5	54.5%		11.4%	45.6%	12.3%	20.1%	10.5%		57.1%	32.4%	10.5%		69.4%	30.6%
48	VEHIC+HOUSES-MRTHEL-INSTALL+RETQLIQ	25,670.1	39.7%		5.0%	44.6%	14.2%	23.2%	12.9%		49.6%	37.5%	12.9%		63.9%	36.1%
49	HOUSES minus MRTHEL	15,685.6	24.3%		5.8%	48.3%	12.8%	20.8%	12.2%		54.1%	33.7%	12.2%		66.9%	33.1%
50	NFIN other than HOUSES & VEHIC	23,834.3	36.9%		1.0%	11.7%	8.4%	28.8%	50.2%		12.7%	37.1%	50.2%		21.0%	79.0%
51	FIN other than RETQLIQ	16,798.9	26.0%		2.2%	18.9%	10.1%	28.4%	40.5%		21.1%	38.4%	40.5%		31.2%	68.8%
52	NETWORTH other than VEHIC & HOUSES minus MRTHEL minus INSTALL	47,832.4	74.0%		1.4%	18.0%	10.5%	28.6%	41.5%		19.4%	39.1%	41.5%		29.9%	70.1%
53	NETWORTH other than RETQLIQ, VEHIC & HOUSES minus MRTHEL minus INSTALL	38,927.8	60.3%		0.8%	13.7%	9.0%	28.8%	47.7%		14.6%	37.8%	47.7%		23.6%	76.4%
54	LIQ+CDS+SAVBNDS	3,977.4	6.2%		5.6%	37.2%	11.4%	25.4%	20.4%		42.8%	36.8%	20.4%		54.2%	45.8%
55	BOND+STOCKS+OTHMA+NMMF	11,443.2	17.7%		0.5%	10.8%	9.4%	30.2%	49.2%		11.3%	39.5%	49.2%		20.6%	79.4%
56	CASHLI+OTHFIN	1,378.3	2.1%		6.2%	34.1%	12.0%	21.9%	25.8%		40.3%	33.9%	25.8%		52.3%	47.7%
57	HOUSES+ORESRE	29,462.7	45.6%		10.8%	44.3%	11.6%	21.2%	12.2%		55.0%	32.8%	12.2%		66.7%	33.3%
58	NNRESRE+BUS	17,805.0	27.6%		0.5%	7.8%	6.4%	27.1%	58.3%		8.3%	33.5%	58.3%		14.7%	85.3%
59	MRTHEL+RESDEBT	9,559.4	14.8%		23.0%	48.3%	8.2%	15.3%	5.2%		71.3%	23.5%	5.2%		79.5%	20.5%
60	INSTALL+OTHLOC+ODEBT	1,317.1	2.0%		48.9%	34.4%	4.5%	5.0%	7.2%		83.3%	9.5%	7.2%		87.8%	12.2%
61	"all other assets" (exc VEHIC, HOUSES & RETQLIQ)	40,633.2	62.9%		1.5%	14.7%	9.1%	28.6%	46.2%		16.2%	37.7%	46.2%		25.2%	74.8%
62	"all other debts" (except MRTHEL & INSTALL	1,705.4	2.6%		16.2%	36.5%	10.5%	24.8%	12.1%		52.7%	35.2%	12.1%		63.2%	36.8%
Source: Ponds and Streams: Wealth and Income in the United States, 1989 to 2007 (http://www.federalreserve.gov/pubs/feds/2009/200913/200913pap.pdf), Table A3A and LVTfan calculations.  Definitions of asset and debt detail at page 70.

Comments:

Line 01, NETWORTH, is quite concentrated.  5% of us hold 60% of it.  10% of us hold over 70% of it.  Depending on how you define "Middle Class," the "Middle Class" might have as much as 30% of it.  Half of our population owns a total of 2.5% of NETWORTH.

NETWORTH is the sum of ASSET (Line 02) and DEBT (Line 21).  ASSET is the sum of FIN (Line 03 -- Financial Assets) and FIN (Line 14 -- Nonfinancial Assets).  Within FIN, the largest category is RETQLIQ (Line 10 -- Retirement Qualified Liquid Assets, such as IRAs and 401(k) accounts; this does not include the value of pensions in defined benefit plans).  Within NFIN, there are two large items: Line 16 HOUSES and Line 19 BUS, the value of privately held businesses.

Within DEBT, which represents 17.4% of NETWORTH or 14.8% of ASSETS, the largest category is Line 22, MRTHEL -- Mortgages and Home Equity Lines of Credit.

Two additional lines appear in the original report:

• LINE 28 reports EQUITY, which is the value of publicly held stocks, whether they are in STOCKS, NMMF or RETQLIQ.  They represent 21% of the aggregate NETWORTH, about 10% less than privately held BUS.  (See below.)
  
• Line 29 reports INCOME.  33% of INCOME goes to the top 5% of NETWORTH holders (Column 12).  22% goes to the bottom 50% of NETWORTH holders (Column 3).   Aggregate INCOME is equivalent to 15.1% of aggregate NETWORTH.
  

Some Notes about the Additional Aggregations

1. Stocks and Businesses  We frequently hear advertising campaigns which suggest that the majority of Americans own stock.  True enough -- I think the figure is 51%.  But the more important reality is that ownership of stock is quite concentrated.   Line 08 STOCKS shows individually held stocks; you'll note that 82% of the value belongs to the top 5% of us, and 52% to the top 1%.  The bottom half of the wealth distribution holds less than 1% of the value.

Stocks may also be held in Mutual Funds.  Line 09 is "Non-Money Market Mutual Funds," and represents stocks, bonds, real estate investment trusts.  You'll note that 78% of the value of NMMF's belongs to the top 5% of us.  (These are mutual funds held outside of retirement accounts.)   The bottom 50% of us have less than 1/2 of 1% of these assets.

Stocks might also be part of IRA's.   IRA's and 401(k) accounts are reported in Line 10, RETQLIQ.   RETQLIQ represents nearly 14% of aggregate NETWORTH (Column 2), slightly more than stocks and mutual funds combined.     Ownership is less concentrated: a mere 42.5% is held by our top 5%, and our bottom 50% hold nearly 4% of the value.  The next 40% of us have nearly 37% of retirement assets.

The big category, though, is Line 19, BUS.  This is the value of privately owned companies and private equity.  It represents 23% of aggregate NETWORTH.  The top 1% of Americans hold nearly 63% of this value, and the top 5% hold 88% of it.   These include the value in the so-called "small business" sector.  (There are also many businesses, particularly ones which are tenants rather than landlords, which have little or no value to count.)

Lines 31 to 44 show various combinations of investment-related and business assets.   Line 35 collects these four classes of assets.  Together, they represent 50.3% of aggregate NETWORTH (column 2).   The top 5% of us hold 73.5% of that value, and the top 10% hold all but about 17% of that value.

Line 41 shows BUS and NNRESRE (non-residential real estate), which together represent over a quarter of aggregate NETWORTH.  The top 5% of us hold over 85% of these assets.  Line 42: Add to that "ORES" -- Other Residential Real Estate -- and the top 5% have 79% of the value.   Line 43 adds in HOUSES, which are a widely held asset.   Line 44 nets out the debt against these assets, and we find that when debt is accounted for,  the top 5% of the NETWORTH holders have 61% of the value -- in categories which together represent 58% of aggregate NET WORTH.

2. Assets Commonly Held by Ordinary People.    Line 45 combines vehicles and houses.  These two classes of assets represent almost 41% of aggregate NETWORTH.   The top 5% hold a third of the value; the bottom 50% of us hold 14% of the value.

Line 46 nets out the debt against these assets; the top 5% of us hold 32.8% of the value.

Line 47 adds in another asset which is relatively widely held, RETQLIQ (IRA and 401(k) accounts) and omits the debt.  The combined assets represent 54.5% of aggregate NETWORTH, and our top 5% hold 30.6% of them.  The bottom 50% of us hold 11.4%, and the next 40% of us -- which some will call our "Middle Class" --  hold 45.6% of the value.

Line 48 nets out the mortgage and installment debt.  The combined categories represent almost 40% of aggregate NETWORTH, and are the assets most widely held.   The bottom 50% of us have 5% of the value; the next 40% of us have almost 45%; the next 5% have 14%, the second 4% have 23%, and the top 1% have 13%.

Line 53 is everything which is not in Line 48.  Almost 48% of that value is owned by the top 1%ers, and over 76% by the top 5%. 

Two related pages will follow: Part 2 looks at the distribution of Income to the various quantiles of NETWORTH holders, and how it has changed from 1989 to 2007.  Part 3 looks at the changes in the distribution of NETWORTH from 1989 to 2007.

In Progress and Poverty, Henry George wrote of "an immense wedge . . . being forced, not underneath society, but through society. Those who are above the point of separation are elevated, but those who are below are crushed down."  If you'd like to understand why wealth concentrates, I commend Progress and Poverty to your attention.  And that book provides a simple, logical, just, efficient and economy-invigorating remedy, which can put us well on the road to solving some of our supposedly-intractable social, economic, climate and energy problems.

America's Wealth Distribution -- 2007 -- Wealth Concentration, Part 2 of 3

America's Wealth Distribution, Part 2: Middle Class: Trends in Net Worth Distribution by Income Quantile.

This is the first of a pair of pages which show trends in how America's household Net Worth is distributed.  The data source is the Survey of Consumer Finances Chartbook 2007.

They follow Part 1, which shows detail on Net Worth distribution in 2007.   Part 3, by Net Worth Quantile, is here.

While the distribution of wealth and the distribution of income are both rather concentrated, they are different distributions.  That is, a young high-earning couple with two jobs on Wall Street may not yet have accumulated much in the way of Net Worth, but their income could place them in the top 5% or 1% of the income distribution.  People with a lot of assets may not need or want to earn a great deal of income in order to live comfortably; even if their assets produce few dividends, they can sell off some each year to meet their needs. Also, assets which appreciate year to year, such as urban land and natural resources produce so-called "capital" gains which the owners do not "recognize" until they sell.  Many of the highest income families in any particular year are people who have cashed in on an asset which has been quietly appreciating for a number of years, not incurring any taxes or notice from the IRS; such gains are taxed at 15%.  (If you are interested in the relationship between income and wealth distributions, you might appreciate some of the graphics contained in Ponds and Streams: Wealth and Income in the United States, 1989 to 2007.) 

This page shows, by quantile of income, how NETWORTH is distributed, and what has happened to this distribution between 1989 and 2007.  Part 3 shows the distribution of NETWORTH according to quantiles of NETWORTH.   As with Parts 1 and 3, the concentration of NETWORTH is likely understated, because the SCF omits the Fortune 400 families from the study.  Their aggregate wealth and income is equal to the aggregate holdings of a large segment of America.

This page was inspired, in part, by my puzzlement about why Tea Party enthusiasts are so incensed about redistribution of income to those below them on the income spectrum.   A comment I read online recently made some sense to me:

"If you are “middle class” and you already feel taxed to the hilt. And someone comes along saying they want “rich” people to pay more taxes, well, it isn’t rocket science for the “rich” people to come along and tell the “middle class” hey! they’re robbing “us” blind!!!!"

The Chartbook, page 43, provides the mean value of net worth, by income quantile, for each of the 7 triennial studies. From that, I've computed the aggregate holdings for each quantile in order to calculate the share of aggregate holdings for each quantile.  My calculations overstate the holdings of the bottom quintile somewhat, because they are based on the mean holdings for those with holdings, and not all households actually have holdings.  But we'll put that aside.  (All are in 2007 dollars.)

Table 1: Mean value of net worth for families with holdings, by income quantile [000's of 2007 dollars)
	Quantile of Income
SCF Year	Bottom Quintile [20%]	Second Quintile [20%]	Middle Quintile [20%]	Fourth Quintile [20%]	Second Decile [10%]	Top Decile [10%]
1989	$ 39.7	$ 105.8	$ 163.1	$ 219.0	$ 358.0	$ 1,579.6
1992	47.6	92.9	146.4	203.8	327.6	1,390.5
1995	60.1	106.9	138.3	218.1	348.1	1,471.6
1998	60.8	122.4	161.0	262.7	415.0	1,971.9
2001	61.8	134.8	190.3	344.3	534.8	2,650.7
2004	79.8	133.5	213.8	375.1	538.0	2,792.0
2007	105.2	135.0	210.4	375.8	609.1	3,315.6
source: SCF Chartbook, page 43 Note: these are the mean holdings for families with holdings

The average NETWORTH among families in the middle income quintile in 2007 was $210,400. That is not the same as the median, which was $88,100.  (That is, half of families in the middle income quintile had NETWORTH higher than $88,100, half had less.  The average is always higher than the median, which means that most of us are below average.  In fact, according to the Chartbook, the median NW in the fourth income quintile was $205,800.)  

Multiplying the average holdings in each quantile by the percentage of households in that quantile, I get this.  Notice that this does not account for the increase in population from one period to another -- but every quantile grew by the same amount.   Keeping in mind that the first four quantiles are all of equal sizes -- and the last two together the same size as the others, the differences are striking:

Table 2: Aggregate Net Worth Dollars by Income Quantile
	Quantile of Income						Total
SCF Year	Bottom Quintile	Second Quintile	Middle Quintile	Fourth Quintile	Second Decile	Top Decile
1989	794	2,116	3,262	4,380	3,580	15,796	29,928
1992	952	1,858	2,928	4,076	3,276	13,905	26,995
1995	1,202	2,138	2,766	4,362	3,481	14,716	28,665
1998	1,216	2,448	3,220	5,254	4,150	19,719	36,007
2001	1,236	2,696	3,806	6,886	5,348	26,507	46,479
2004	1,596	2,670	4,276	7,502	5,380	27,920	49,344
2007	2,104	2,700	4,208	7,516	6,091	33,156	55,775
source: SCF Chartbook, 2007, page 43, and my calculations.  Note that these are calculated from Table 1, multiplying by the percentage of households in that quantile. This does not account for population growth, but does reflect the shares each holds.  It overstates holdings in the bottom income quintile, since not all households have positive net worth, and, as noted elsewhere, understates holdings for the top quantile due to the omission of the Forbes 400 families from the SCF sample.

Next, we calculate the shares of Net Worth held by each income quantile:

Table 3: Shares of Net Worth by Income Quantile
	Quantile of Income						Total
SCF Year	Bottom Quintile	Second Quintile	Middle Quintile	Fourth Quintile	Second Decile	Top Decile
1989	2.7%	7.1%	10.9%	14.6%	12.0%	52.8%	100.0%
1992	3.5%	6.9%	10.8%	15.1%	12.1%	51.5%	100.0%
1995	4.2%	7.5%	9.6%	15.2%	12.1%	51.3%	100.0%
1998	3.4%	6.8%	8.9%	14.6%	11.5%	54.8%	100.0%
2001	2.7%	5.8%	8.2%	14.8%	11.5%	57.0%	100.0%
2004	3.2%	5.4%	8.7%	15.2%	10.9%	56.6%	100.0%
2007	3.8%	4.8%	7.5%	13.5%	10.9%	59.4%	100.0%
point change, 1989 to 2007	+ 1.1 pts	- 3.3 pts	- 3.4 pts	- 1.1 pts	- 1.1 pts	+ 6.6 pts
Source: SCF Chartbook 2007 and my calculations.  See Notes for Table 2.

If you explore Table 3, it becomes evident that since 1989, the top 10% of Income recipients have increased their share of America's Net Worth from 52.8% in 1989 to 59.4% in 2007.  Depending on how you define "Middle Class," here's what you get:

1. If the Middle Class is the middle 60% of the income distribution, the Middle Class has seen its share of the Net Worth drop from 32.6% to 25.9%.  But of the 6.7 percentage points they've lost, 1.1 was picked up by the bottom 20% of the income distribution, and 5.7 points went to the top 20%.  So it seems a bit puzzling that the Tea Party enthusiasts are complaining about "wealth redistribution to the poorest."   It seems misdirected.   (What was it the bank robber said about why he robbed banks?)

Table 4: Shares of Net Worth, by Income Quantile
SCF Year	Income Quantile
	Bottom 20%	Middle 60%	Top 20%
1989	2.7%	32.6%	64.7%
1992	3.5%	32.8%	63.6%
1995	4.2%	32.3%	63.5%
1998	3.4%	30.3%	66.3%
2001	2.7%	28.8%	68.5%
2004	3.2%	29.3%	67.5%
2007	3.8%	25.9%	70.4%
pt chg 1989-2007	+ 1.1 pts	- 6.6 pts	+ 5.7 pts

The Tea Party folks seem to have little curiosity about how wealth that was in the middle class in 1989 has slid into the top 20%.

2. If one defines the Middle Class as the 50% of us between the 40th percentile and the 90th, here's how the same data looks:

Table 5: Shares of Net Worth by Income Quantile
SCF Year	Income Quantile
	Bottom 40%	Next 50%	Top 10%
1989	9.7%	37.5%	52.8%
1992	10.4%	38.1%	51.5%
1995	11.7%	37.0%	51.3%
1998	10.2%	35.1%	54.8%
2001	8.5%	34.5%	57.0%
2004	8.6%	34.8%	56.6%
2007	8.6%	31.9%	59.4%
pt chg 1989-2007	- 1.1 pts	- 5.6 pts	+ 6.6 pts

3. Finally, if one defines the Middle Class as the 30% of us between the 60th and 90th percentiles, here's how the Net Worth distribution looks:

Table 6: Shares of Net Worth by Income Quantile
SCF Year	Income Quantile
	Bottom 60%	Next 30%	Top 10%
1989	20.6%	26.6%	52.8%
1992	21.3%	27.2%	51.5%
1995	21.3%	27.4%	51.3%
1998	19.1%	26.1%	54.8%
2001	16.6%	26.3%	57.0%
2004	17.3%	26.1%	56.6%
2007	16.2%	24.4%	59.4%
pt chg 1989-2007	- 4.2 pts	- 2.2 pts	+ 6.6 pts

Is this progress?  As time goes on, and technological progress continues, and public investment in effective infrastructure continues, and we invest in education and public health, and all sorts of public goods which should elevate us all, the NETWORTH share of the highest income portion of our society grows by leaps and bounds, and the share going to the remainder of us falls. 

By this time, I suspect someone is going to point out that over the course of 18 years, some people who were in the bottom income group, by whatever quantile definition you choose, are likely to have advanced into a higher income group, so what's the problem?   Our low-income 18 year old becomes a 36 year old; our 36 year old a 54 year old -- and our 54 year old a 72 year old. (You can find the age-related income and net worth data in the Chartbook.) But relatively few of us ever make it into the top 10%, where the bulk of the goodies go.

The kinds of assets held by our highest-income people seem to be appreciating faster than those of the rest of us.  (They're also more likely to have spare cash and borrowing power for down payment and mortgages on same, at favorable terms.)  This is consistent with the notion that part of what we're seeing is the appreciation of well-located land -- the kind that sits under Manhattan condos and office buildings and suburban single-family homes.  And it is consistent with the notion that ownership of corporate stock and privately held businesses often includes the ownership of such assets and of nonrenewable natural resources -- oil, water rights, airport landing slots, geosynchronous orbits, electromagnetic spectrum, and a host of other such assets.  All these things collect economic rent from the rest of us.  Few of us understand much about it; even college and graduate-level economics majors don't learn much about it at most colleges and universities.

In Progress and Poverty, Henry George wrote of "an immense wedge . . . being forced, not underneath society, but through society. Those who are above the point of separation are elevated, but those who are below are crushed down."  If you'd like to understand why wealth concentrates, I commend Progress and Poverty to your attention.  And that book provides a simple, logical, just, efficient and economy-invigorating remedy, which can put us well on the road to solving some of our supposedly-intractable social, economic, climate and energy problems.

Monopoly History

Monopoly History

This is one of a number of sites which describes the history of the board game Monopoly.  It doesn't get it quite right, but is directionally correct.  I'll share my corrections here:

1. "Goal" is actually "Gaol" -- what we know as Jail.
2. The "Prosperity" rules were not similar to the rules of the Monopoly game as we know it.  Rather, they were similar to the original rules, which produced a VERY dull game.  No big winners, no losers.  Just a sustainable situation in which all could prosper.  Not much fun on a Sunday afternoon, but a good model for real life.  The OTHER rules are similar to the Monopoly game we know today.

The point of "The Landlord's Game" -- Lizzie Magie's original 1903 game -- was to teach the ideas of Henry George (1839-1897), and show by a simulation why they produced a just, logical, sustainable economy and community, in which all could live as equals.  George saw that the economic rent -- the annual rental value of the land within a community's borders -- ought to be collected by the community and used to fund goods and services which would benefit the community, while that which individuals and corporations create should be the private property of those individuals and corporations.  The game demonstrated how things would work under this scenario.  (Think about SimCity as a teaching tool.) 

This website is missing the richest part of the story!

You might appreciate these two pages:

The Landlord's Game and Prosperity, at https://docs.google.com/fileview?id=0B5SHdsI4Ysi_ODQ4Y2FjZWMtNGFkMS00ZjZkLWFhNzYtMjNkNjFjMDJiZGE3&hl=en_GB

and the 1923 patent application, at http://www.google.com/patents?pg=PA1&zoom=4&id=lD1cAAAAEBAJ#v=onepage&q=&f=false

I'll post more on the subject over time.

Boston Globe article on Little Neck, the Feoffees and the tenants

Little Neck trustees, homeowners seek to change 17th-century will to allow sale of Ipswich land - The Boston Globe.

The article seems like a pretty good summary, other than that it bends over backwards to suggest that the tenants somehow have reason to think they should either (1) be able to buy this property at a bargain price or (2) continue to pay bargain rents.

The photo suggests more 2-story cottages with porches than I've observed in the photos I've seen of individual homes; this may be a variation relating to the terrain in that particular spot.

I was heartened to read that a law school property law expert thought the 1650 will would still hold:

But a probate judge must first decide if Paine’s will should be changed. And despite being more than three centuries old, the Colonial-era document could still pass legal muster, one legal scholar said.

“Judges are very reluctant to set aside, or change, the words of a will,’’ said David Seipp, a professor of English legal history and property law at Boston University School of Law. “It has always been a bedrock principle of common law, that instructions about what is to be done with property at the time of a death . . . our wishes are obeyed.’’

A judge also will be most concerned about how the change would impact the Ipswich schools, as the beneficiary of Paine’s will. “A court will look out for the future generations of schoolchildren in Ipswich,’’ Seipp said. “They would not take into consideration the economic relations of the renters.’’

The math in the article was a little weak: 

Since 2006, the two sides have been locked in a legal tussle over rents, leases, and even threats of eviction. The Feoffees proposed more than doubling rents, from $5,000 to $9,700 per year for seasonal residents. For the 24 year-round residents, rent would increase from $5,500 each year, to $10,800. Most tenants balked at the increase, and sued the Feoffees in Essex Superior Court.

That represents slightly less than a doubling of rents.  And capitalized at 5%, would represent a value of $32,926,000.  But this is still far less than the sellers of cottages are valuing the land at. 

Cottages assessed at $64,200 to $88,400 carry asking prices of $175,000 to $620,000!  These cottages range from 800 to 1779 square feet, and were built between 1910 and 1940.  Most have 2 bedrooms, 1 bath, no heat.

The difference between the assessed value of the cottages and the asking price is capitalized land value, over and above the current rents of $9,700 to $10,800.

Are the building assessments too low? I doubt it; assessors tend to overassess buldings and underassess land.  It is tough to justify a, say, $80,000 assessment for a non-winterized 900 square foot cottage: that's $88 per square foot.  Check construction costs today for a modest cottage, and then depreciate that (1.5% per year for 75 years).  Even in suburban Boston. 

Here are some recent listings of cottages on Little Neck.  Keep in mind that all the tenants currently own is the buildings.  Yet their asking prices are many times the assessed value of those buildings.

 

		Assessment		Ask as % of  bldg assessment			Asking minus Bldg Assessment	Bldg Assessment Per Square Foot
	Asking Price	Bldg	Land		Sq ft	Built
	(1)	(3)	(3)	(4)	(5)	(6)	(7)	(8)
River Rd	$620,000	$84,500	$347,800	734%	1779	1910	$535,500	$48
Hilltop Rd	579,900	88,400	195,800	656%	not given	1935	$491,500	N/A
Baycrest Rd	339,900	82,200	195,800	413%	926	1935	$257,700	$89
Bay Rd	259,900	64,200	222,800	405%	800	1910	$195,700	$80
Cove Rd	175,000	78,200	195,800	223%	924	1930	$96,800	$85

 

So how much should rents be to meet the Grantor's requirement of "Market Rents?"  Quick and dirty, enough to bring Column 1 down to roughly Column 2.  How do we calculate that?  Quick and dirty, use a capitalization rate of 5% -- known sometimes as "20 years' purchase" -- and multiply it by Column 7.  Add that to the current rents of $9,700 for seasonal cottages and $10,800 for year-round cottages.    Yes, it will vary by location within Little Neck.  Great views, waterfront, proximity to positive amenities, distance from any negative amenities, and, of course, lot size will all play a role -- just like anywhere else (location, location, location!) and, of course, year-round rights are worth far more than $1,100 per year ($22,000 capitalized at 5%).  I'm guessing that the first two listings above might be year-round.

I recommend that the Feoffees announce that they will raise rents on a 5 year schedule to bring rents in 2015 up to what they ought to have been in 2010, and by 2018, raise them to what they should have been in 2015.  Then they should watch the price of the houses, which should sell for no more than their depreciated value. 

They will have continued to provide a bargain to the existing tenants (via a 5- and then 2-year lag), but by announcing and sticking to the schedule, they will begin to collect something approaching what they were charged to collect.   Cottage selling prices will come down to earth (as soon as the market believes the Feoffees will stick to the schedule), and the schools of Ipswich will have a solid income, as William Paine intended.

Yes, some tenants will lose a windfall they'd been counting on.  But the Feoffees will not be taking from them anything which the tenants created other than their dreams of the windfall.  And they will be living up to what William Paine's trust requires of them.  If the current team of Feoffees aren't the men and women for the job, I'm sure Ipswich can find good people who will take it on and live up to the terms, for the benefit of the schools now and forever.

This blog has more observations and history on this story.  See them collected at  http://lvtfan.typepad.com/lvtfans_blog/feoffees-land/.

Mason Gaffney: Corporations, Democracy and the US Supreme Court

 Mason Gaffney has written an interesting piece entitled Corporations, Democracy, and the U. S. Supreme Court at http://www.masongaffney.org/essays/Corporations_Democracy_and_the_US_Supreme_Court.pdf about the recent Supreme Court ruling which said that a corporation can contribute unlimited funds for promoting its views for and against candidates.

He begins:

On Jan 21 2010 our High Court shocked Americans by ruling in Citizens United v. Federal Elections 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.

Skipping ahead,

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.

This is not a paper on the theory of tax incidence. Such a paper is needed, but would take a heavy tome, most of it devoted to fine-spun and pretentious theories that appear in academic journals, and which fail to convince because the authors are weak on distinguishing land from capital. My own postulates here, in brief, are

1) that corporations own a large fraction of the wealth in the country;
2) much of that wealth is land;
3) taxes that do fall on capital are in part shifted to land;
4) pure land taxes would be better but are not the subject here; and
5) payroll taxes are worse and must bear most of the burdens that are shifted off corporations.

I'll skip over a lot of interesting and useful historical material -- which I commend to your attention -- and share the final section:

All along, though, an accumulation of small actions was helping corporations at the expense of labor. The Warren Court, 1953-69, did many notable deeds for the common man and woman, but it did not stop the decremental fall of the share of corporate income tax revenues in Federal finance. 1968 was the milestone year when the payroll tax quietly surpassed the corporate tax as the second biggest source of Federal Revenue. Just think: the corporate income tax of 1907 antedated the payroll tax of 1935 by 28 years, and it was another 33 years, 1935-68, before the payroll tax took in more money than the corporate tax did. That was a revolution indeed, but so quiet and gradual that most people never noticed. Nor was that the end of it: by 2008 the corporate tax raised just 11% of Federal revenues, compared with 38% for the payroll tax, nearly 4 times as much. That is a measure of the growing power of corporations in politics.

On top of that, personal income taxes on corporate dividends and capital gains have been singled out for preferentially low rates. In 2003 President Bush and his Congress lowered the tax rate on both dividends and capital gains to 15%, so that a smaller share of the personal income tax now comes from corporate  shareholders. As late as in the Tax Reform Act of 1986, dividends were taxed like other “ordinary” income. So, briefly, were capital gains. President George H. W. Bush then devoted most of his presidency, and sacrificed a second term, to get a token cut in the capital gains rate. It was the thin end of a wedge, leading soon to the present cap of 15%. “Capital gains,” so-called by Congress, derive from many sources, but one of the biggest is sales of corporate stock.

And so things stood until January 21, 2010, when the High Court authorized corporate leaders to contribute unlimited amounts of their shareholders’ cash to political causes. This poses a challenge to our tabloid-and-TV-numbed generation. Will “ordinary” taxpayers rebel, as they did in the American Revolution, Emancipation, the Progressive Age of Reform, and the New Deal; or will corporate power wax unchecked until it replaces democracy altogether? Cyclical theory says we will have another anti-corporate reaction, but history also records tipping points in the decline of nations from which they do not recover for generations, if ever. This one may be a squeaker.

Here is a summary from that brief history of the problems with treating corporations as “legal persons.”

1. Corporations never die, never pay estate taxes, never divide their wealth among succeeding generations. In this they resemble medieval Churches that agglomerated over many years so much land they threatened the state itself -– resulting often in massive confiscations, as by Henry VIII.

2. Besides not dying, corporations merge with or otherwise acquire other corporations, progressing, if unchecked, from competition to cartel to oligopoly to monopoly.

3. A corporation is by nature a combination in restraint of trade -– that is, a union of many individuals with their wealth to act as a unit, dealing with customers, suppliers, and workers. It took Thorstein Veblen, a thinking man, to bring out this fact that should be so obvious. The courts, historically, have borne down on labor unions as illegal combinations while, as a matter of course, treating this combination of lands and capitals as an individual.

4. Corporations enjoy the legal privilege of limited liability.

5. The ownership of corporations is, or may be made, secret. Many stocks are recorded in “street names” -– a favorite being “Cede and Co.” Hugo Chavez is one such owner whose name has been revealed: others might be Al Qaeda, the Nazi Party, the heirs of Mao tse-Tung, La Cosa Nostra, or anyone. No citizenship is required for a corporation to sway American government more than almost any citizen.

6. No person is easily held responsible for corporate acts. The first duty of CEO’s is to the shareholders, so they say, to dodge guilt for any outrage against others. Most shareholders, in turn, have little idea what their CEO’s are doing.

7. The internal governance of most corporations is intensely undemocratic

8. The corporation cannot be jailed, and its officers seldom are, as they have great opportunities to pass the buck

9. The corporation has no spiritual counselor or confessor to prick its conscience.

10. Before January 21 the attitude, as expressed by Justices White and Rehnquist in the 1970s, has been that corporations are “creatures of the law,” not equal to natural persons in their civil rights. Suddenly to reverse this now is to upset many expectations that relied on the previous rule.

Finally, what can we do about the High Court’s marriage to corporate power? I first list what I consider ineffective remedies, and then those that can work, and work quickly.

1. Ineffective remedies

a. Justices may be impeached. This has succeeded only once, to my knowledge, in 1804, when a justice was obviously insane.

b. Within a State a Justice may be recalled, as Rose Bird was. There is no such provision for Federal judges.

c. A President can appoint anti-corporate judges as vacancies occur. This will happen at best over a long time-span, but it needs to happen fast because with their newfound pecuniary “free speech” corporations will soon control both Congress and the Executive even more than they do now.

d. Congress can tighten restrictions on foreign corporations contributing through American subsidiaries. This is better than nothing, but does not affect American-chartered corporations, whoever actually owns them.

e. Congress might ban political advertising by any non-citizen, including any group that includes a non-citizen. This would entail forcing corporations to identify their shareholders. This proposal may entail too many steps to be implemented quickly, if at all. As a layperson I would refer that point to learned counsel.

2. Effective remedies

a. The Executive and the Congress can play hardball by drafting new legislation to curb corporate contributions, and threatening covertly to raise the corporate income tax as a bargaining chip -– a big chip! This calls for a leader who sees the imminent danger, and is willing and able to act firmly and decisively, and communicate credible threats covertly without breaking any rules, a la FDR. Washingtonians are skilled and experienced in this sort of thing.

b. The Executive can introduce legislation modeled on the 1937 Reorganization of Judiciary Act. This act would have given the President power to appoint six new justices. It was a credible threat that worked by turning FDR’s 4-5 minority into a 5-4 majority, in spite of a great outcry against it. It is what we need today. It is radical, yes; but the Court’s ruling is radical, and calls for a remedy equally strong or stronger.

c. Could a simple act of Congress declare that a corporation is not a legal person? Perhaps so, perhaps no, we need learned counsel to tell the odds. However, a straight line is the shortest distance between two points, and this action would bring the issue quickly to a head.

In summary, we have seen that the United States was born in rebellion against corporations. The U. S. Supreme Court soon began restoring their power. When it overreached, strong executives and popular movements set it back: under Andrew Jackson, Abraham Lincoln, Teddy Roosevelt, and FDR. Today it has overreached again; it remains to see if a new movement or leader will arise to set it back again..

 

The only thing I can add to this is to provide the data on the concentration of wealth in America, specifically four items reported in the Survey of Consumer Finances:

• BUS (privately held businesses, including "small business;" 
• STOCKS,
• NMMF (non-money market mutual funds) and
• RETQLIQ (retirement assets such as IRAs and 401(k)s). 

(The latter two categories could include bonds as well as equities.)  I'll also report "all other, net of debt."  (For most of us, that's cars and houses.)  The data is from the 2007 SCF, and somewhat understates the concentration, since the holdings of the Fortune 400 are omitted from both numerator and denominator. Quick and dirty, add 1% to numerator and denominator.

	BUS	STOCKS	NMMF	RETQLIQ	combined	All other, net of DEBT	NET WORTH
percentage of aggregate NETWORTH (row percent)	23.1%	7.1%	6.3%	13.8%	50.3%	49.7%	100.0%
Distribution of Holdings: (column percent; sums to 100.0%)
Top 1% of wealthholders	62.7%	51.9%	46.7%	14.5%	45.9%	21.6%	33.8%
Next 4%	25.5%	30.5%	30.9%	28.0%	27.6%	25.6%	26.6%
Top 5%	88.2%	82.4%	77.6%	42.5%	73.5%	47.2%	60.4%
Next 5%	5.5%	8.0%	10.3%	16.9%	9.6%	12.6%	11.1%
Top 10%	93.7%	90.4%	87.9%	59.4%	83.1%	59.8%	71.5%
Next 40%	6.0%	9.0%	11.6%	36.7%	15.5%	36.6%	26.0%
Bottom 50%	0.4%	0.6%	0.4%	3.8%	1.3%	3.7%	2.5%
source: 2007 Survey of Consumer Finances

So what SHOULD we tax?  Urban land value, and the value of natural resources are a fine start.  That is value which ought to be socialized, treated as our COMMON property, not as the private treasure and asset of rich individuals; of family trusts of people living -- or people dead 10, 20, 30, 50, 100 or more years for the benefit of their heirs or pet causes; of corporations of any kind (no matter how much free speech they are now entitled to); of foreign landholders; of private "equity" funds; of real estate investment trusts; of pension funds (public or private sector); of foreign or domestic churches; of insurance companies; of universities or other "philanthropic" entities; or anyone else. [See, for example, the blog posts below on Stuyvesant Town, on the NYC Roosevelt Hotel, including links to earlier related stories.]

The way to make that real is to place significant taxes on the annual rental value of the bare land, and the value of those natural resources, and other things the classical economists would recognize as "land" even if they never heard a radio or cell phone, saw an airplane, thought of a satellite, or imagined that fresh air or clean water could be scarce.   

Treat that value as the revenue source for our common spending.  Lighten up on taxes on wages, on sales, on buildings, on equipment.

Taxing urban land value will not cause a single acre to move offshore, or a single land speculator to "invest" in another property; rather it will encourage the better use of sites in choice locations, creating jobs and housing and venues for carrying on business where it is most efficient to do so: in the center of town, not at the fringe.

Doing this would reduce the tremendous wealth concentration in America.  The economic value of certain kinds of assets which currently line the pockets of rich individuals as business owners or as holders of corporate stock or as salaries, bonuses and golden parachutes to top management, would be pre-distributed back to the commons, recycled locally or nationally, for public purposes.   Those owners would still have the use of the assets each year, AFTER they had paid society for what they were privatizing that year. 

If you've gotten this far, you might want to read Bob Andelson's fine essay, "Henry George and the Reconstruction of Capitalism, linked from the front page of Wealth and Want, as an "essential document."

Is "chasing the bad guys" the highest good?

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.

That $1 billion acre in Manhattan

Current rupee-dollar exchange rate.

About the possibility of selling PIA-owned Roosevelt Hotel in New York to pay for past losses, he said it is not the appropriate time to sell a billion-dollar property when real estate market is still recovering in US.

“Besides, what is the point in selling a business which earns PIA $7-8 million annually?”

So the Roosevelt Hotel, which occupies an acre near Grand Central Terminal in NYC, has a net income of $7 million or $8 million per year.

This suggests some questions one might ponder:

1. Should an acre in NYC worth a billion dollars be earning a mere $8 million?  Seems to me that this is a rather low return -- at $1 billion valuation, that's 0.8% per year.

2. If this property is worth $1 billion, the land rent, at 5% -- "20 years' purchase" -- is $50 million per year.   How much does the Roosevelt Hotel pay the City of New York in property taxes each year?

3. How much do the guests at the Roosevelt Hotel pay NYC and NYS in hotel occupancy taxes per year?

4. How much do the employees at the Roosevelt Hotel pay NYC in wage taxes per year?  Wouldn't it be better to collect this amount via taxes on land value?

5. How much do the employees at the Roosevelt Hotel pay NYC in sales taxes and property taxes per year?  Wouldn't it be better to collect this amount via taxes on land value?

6. When Pakistan International Airlines decides to sell this "taxpayer," for $1 billion, and that $1 billion, created not by PIA or the people of Pakistan, or the hotel management or the hotel employees, leaves this country, will that be a good thing, or something which should have been avoided?

7. Shouldn't the beneficiaries of NYC's land value be NYC, NYS and the American people, instead of a private entity of any kind -- be it PIA, an American REIT, an NYC-based corporation, a family-owned real estate dynasty, one or more American pension funds (corporate or public), a British church, a middle eastern sovereign fund, a mutual fund, or any other private entity?

That site is valuable not because of anything its current owner is doing or is not doing.  It is valuable because of the presence of millions of residents in the surrounding area, and of millions more who visit NYC on business and as tourists in the course of a year.  It is valuable because we-the-people have invested and will continue to invest in infrastructure and services which protect and serve these sites.  Why on earth does a private entity get to pocket what we create? 

It doesn't come out of thin air.  

For more background on this story, see some previous posts here:

• That block in Manhattan ...
• Hotel Roosevelt For Sale at $1 Billion
• Cashing in on urban land value ... who is entitled to it?

Debt in America

A new study on the Federal Reserve Board site provides some interesting data from several years' worth of Survey of Consumer Finances data.  The data is not new, but it is stark, and worth paying attention to.  The study is a working paper entitled The Finances of American Households in the Past Three Recessions: Evidence from the Survey of Consumer Finances.

While the working paper is focused on modeling what has happened to various parts of our population since the 2007 SCF (this is not an analysis of the return to the 2007 panelists in 2009, which will be out later in the year), what I'm presenting here is actual SCF data.  It comes from Tables 5 and 7.

		1989	2001	2007
All households
	1. Percent of households holding debt:	72%	75%	77%
	2. Percent of households holding mortgage debt:	40%	45%	49%
	3. Median ratio of debt to income:	0.5	0.8	1.1
	4. Percent of HH with debt payments >40% of income	10%	12%	15%
Households by Income Percentile:
	1. Percent of households holding debt:
	Bottom 40%	53%	60%	61%
	Next 40%	82	84	87
	Top 20%	91	88	89
2. Percent of households holding mortgage debt:
	Bottom 40%	16%	20%	22%
	Next 40%	47	53	60
	Top 20%	72	76	79
3. Median ratio of debt to income:
	Bottom 40%	0.3	0.5	0.7
	Next 40%	0.6	0.9	1.4
	Top 20%	0.6	0.9	1.2
4. Debt payments >40% of income
	Bottom 40%	19%	22%	23%
	Next 40%	8	9	14
	Top 20%	3	3	6
Age of Head:
1. Percent of households holding debt:
	<45 years	84%	86%	85%
	45 to 64 years	78	81	85
	>64 years	38	43	48
2. Percent of households holding mortgage debt:
	<45 years	45%	48%	48%
	45 to 64 years	48	56	61
	>64 years	15	21	28
3. Median ratio of debt to income:
	<45 years	0.6	0.9	1.3
	45 to 64 years	0.5	0.8	1.1
	>64 years	0.2	0.4	0.7
4. Debt payments >40% of income
	<45 years	10%	11%	14%
	45 to 64 years	10	12	15
	>64 years	9	15	15

Do you notice the trend?  An increasing proportion of us are helping to make the FIRE sector --  the shareholders in the finance, insurance and real estate businesses -- wealthy. 

Nearly half of retirees have debt, up 1/3 from 1989, and median debt has n tripled.  Nearly 3 in 10 retirees have mortgages, and 15% of retirees (or is that of the retirees with debt?) have over 40% of their income devoted to debt payments.

Among our young people -- <45 years of age, 85% have debt, and at the median, their debt is 1.3 times their income, more than double the ratio 18 years earlier. 

A wealth concentrating machine.  The FIRE sector -- the banks, the insurance companies, the real estate interests -- are have been permitted to create a giant wealth machine, too big to fail.

But not too big to correct.  There ARE things that can be done.  I encourage you to take a look at Mason Gaffney's new book, After the Crash: Designing a Depression Free Economy.  (read the interview linked at http://www.masongaffney.org/, or find the book at schalkenbach.org's bookstore.

Nation Building -- abroad and at home

Nation Building creates RENT -- economic rent.  To whom should it belong?

• Should the rent in, say, Iraq, belong to America since we're investing American dollars and American lives in building infrastructure and creating order in Iraq?
• Should the rent in Iraq belong to those who currently own the land made valuable by the infrastructure and order we're helping to create there?  (Some would say that that is the "American way;" at least it is what we do.)
• Should the rent in Iraq be collected and used to fund government services and more infrastructure for the people of Iraq?

And in America, as we consider investing in maintaining existing infrastructure -- roads, bridges, railroads, water mains, sewage systems, airports, etc. -- and building new (e.g., high speed rail), who should reap the benefit in terms of the land value such maintenance and building maintains and creates?  Should it be privatized, or recycled for public purposes?

There is a passage in Henry George's book Progress & Poverty which has been excerpted under the title "The Savannah" which I think is relevant here.  I'll share it in a moment. 

The Top 400, and the Rest of Us

The Top 400 and the Rest of Us

2/23: I added a postscript to this one ... scroll down!

David Cay Johnston, first known to many of us as the tax reporter for the NYT, and more recently the author of Perfectly Legal and Free Lunch, and as a columnist for tax.com, last week brought to popular attention a story which the IRS posted to its website without the normal fanfare which announces a new piece of information there.  Even more interesting is the fact that it represents a return to the IRS reporting data which was customarily furnished during the Clinton years and suppressed by the Bush administration, who brought us substantial tax cuts for the highest-income Americans -- and for the highest-value (top 1%) decedents.  As Andrew Leonard put it in Salon,
 

This is America, right? We've come to expect shocking statistics on income inequality. They're practically our birth right.

But then came the kicker:

The annual top 400 report was first made public by the Clinton administration, but the George W. Bush administration shut down access to the report. Its release was resumed a year ago when President Obama took office.

Because you know, if you are going to reward the richest Americans with tax cuts, it's best if you keep the rest of us in the dark as to just how much money they're making, and how little they are paying Uncle Sam.

The new information relates to the top 400 income taxpayers.  The data published brings forward the series data, previously published for 1992 to 2000 (See http://www.irs.gov/pub/irs-soi/00in400h.pdf, published in 2003) to 2007.

Here are some of the highlights of the 2007 data:

• The adjusted gross income threshold for being among the top 400 taxpayers rose from $24.4 million in 1992 to $138.8 million in 2007.   In constant dollars, that was approximately a quadrupling in 15 years.
• The average AGI among the 400 taxpayers rose from $46.8 million (192% of the cutoff) in 1992 to $344.8 million in 2007 (248% of the cutoff).
• In 1992, the total AGI of the 400 represented 0.52% of the total AGI for all taxpayers.  In 2007, the 400 represented 1.59% of the total AGI.   In those years, total taxpayers increased from113.6 million to 143.0 million.  The 400 represented .00035% of the households in 1992, and .00028% in 2007.
• Over the same period, the average AGI for the remaining taxpayers increased from $31,781 to $59,798.
• Salaries and Wages represented 26.22% of the Top 400's AGI in 1992; by 2007, that had decreased to 6.53% -- an average of $29.4 million per taxpayer, for the 306 who reported such income.  306 is the lowest figure since 1992.
• All 400 reported Taxable Interest income.   On average, they reported $27.1 million.  In total, their taxable interest exceeded their salaries and wages.   In total, their taxable interest was 4.04% of total US taxpayer interest.
  
• All 400 reported Dividend income, and their average was $24.5 million.  Their dividends were 4.14% of total US taxpayer dividends.
• The vast majority of their reported taxable income was in "Net capital Gains less Loss in AGI": an average of $228.6 million each.  Their capital gains equaled 66.29% of their AGI, and 10.07% of total US taxpayer capital gains.
• Virtually all of their capital gains -- $226.4 million on average --were subject to preferential rates; this means they were "long-term" holdings, and were taxed at 15%.  [And of course none was subject to FICA, on which the vast majority of those who labor pay 14% (more precisely, (7.65*2)/107.65, or 14.2%).] 
• 49 reported net business income, averaging $3.2 million.  More, 84, reported net business losses, averaging $2.6 million -- they represented 3.06% of the US aggregate.  
  
• 202 reported Partnership and S Corporation net income, averaging $83.0 million.  185 reported Partnership and S Corporation net losses, averaging $25.2 million -- 3.52% of the US aggregate.
• Their itemized deductions averaged $49.4 million, 1.46% of the US aggregate; the average itemized deductions limitation was $5.4 million -- they represented 5.4% of the US aggregate.
• On average, they claimed "taxes paid" deductions of $13.9 million, and "interest paid" deductions of $9.9 million.  Their "taxes paid" deductions represented 1.17% of aggregate deductions for taxes paid.
  
• Almost all claimed contributions deductions, averaging $28.5 million -- 5.73% of the US aggregate.  (Interesting that this is roughly equal to salaries and wages, or to dividend income, or to taxable interest income!)
• Their Taxable Income grew from an average of $42.2 million to $296.2 million.  In constant dollars, it increased 376%.  In 1992, their taxable income represented 0.70% of the aggregate; by 2007, theirs was 1.95% of the total.
• Their federal income taxes averaged $57.3 million; in total, the 400 represented 2.05% of the total paid, up from 1.04% in 2007.  [Compare the former percentage to their 1.59% share of AGI, and their 1.95% share of Taxable Income.] Their average federal tax rate was 16.62% in 2007, down from 26.38% in 1992. 
• If we add the amount they claimed as a deduction for taxes paid to their federal income tax, their taxes represented 20.57% of their AGI in 2007, down from 32.12% in 1992.   Their other taxes paid dropped from 5.74% of AGI in 1992 to 3.95% in 2007.
• These 400 taxpayers paid a total of $28.4 billion in taxes, federal and other, in 2007, on AGI of $137.9 billion and taxable income of $74.7 billion.
  
• In 2007, they paid $28.4 billion in taxes, federal and other.  Had their tax rate in 2007 equaled their tax rate in 1992, they would have paid $44.3 billion in taxes, federal and other, or about $110.7 million on average, instead of $70.9 million.
  

Johnston's Tax.com article also points out:

The top 400 reports understate actual top incomes because of deferral rules. For example, managers of offshore hedge funds who deferred their gains may not be counted in the top 400 reports, which are based on the figure on the last line of the front page of Form 1040.

At least three hedge fund managers made $3 billion in 2007. It is not known how much, if any, of their income they deferred.

and

Only 7 of the top 400 have shown up in the report every year, the IRS data showed. Of the 6,400 returns covered by the 16 years of the report, the IRS said that 2,515, or almost 40 percent, appeared one time.

The previous report (before the Bush administration suppressed publication), said that less than 25% of the then 3600 returns appeared more than once between 1992 and 2000.  

A very useful table in DCJ's column shows that the income of the bottom 90% of taxpayers has increased by a mere 13% (in constant dollars) over the 16 years.

The IRS data is in a pdf at http://www.irs.gov/pub/irs-soi/07intop400.pdf

The data prompts a number of questions:

• How much of this income do you think they spent on consumer goods? 
• What do you think they did that helped stimulate our economy?   
• How many people do you think they employed, and what sort of wages did they pay?
• What do you think this year's portion of each fortune will be worth upon the death of the recipient? 
• What do you think they invested their windfalls in?   I'm guessing that a lot of it went into land -- urban land -- and non-renewable natural resources of one kind or another -- that which Will Rogers and others have pointed out is not being made anymore. 
• What industries do you think these fortunes are coming from?  How have these people benefited from the boom-bust cycle which has victimized millions of Americans?  What privileges have we-the-people granted them to reap what we-the-people sow?  To what degree have they benefited from privatizing the commons -- things which rightly belong to all of us?  What sort of contribution do you think these companies have made to pollution, to personal bankruptcies, to concentrating America's wealth in the pockets of a relative few?  How many jobs have they moved offshore?  Are they being paid in shares or stock options that burden their employer's shareholders?   What sort of wages have they paid their employees at various levels on the pyramid?   What sort of influence will they have over our next elections -- Senators, Congressmen, Governors, President, etc., -- and over future decisions to go to war in various resource-rich parts of the world?  They can certainly afford to spend to influence public opinion in ways which benefit their interests, and to guarantee that they won't be taxed heavily, even if workers, who end up with little, are.   

Postscript: See also NYT opinionator blog post, The Great Goldman Sachs Fire Sale of 2008.

The article lists a number of people who will likely be in the 2008 second tier -- not the top 400, but clearly well into the top half percent, based on their selling Goldman Sachs stock; the article isn't clear about what their basis might have been in the stock -- but one sold shares worth $17.6 million plus $55.7 million (he may not be an American).  Another, who ran the merchant banking business, sold $29 million worth.  The article suggests that most of these sellers still have considerable amounts of Goldman Sachs stock; Lloyd Blankfein's 3.3 million shares are now worth more than $500 million.  Should he sell, he'd be well onto the Top 400; the 2007 threshold was $139 million.  

I'm guessing that many on the top 400 list in any particular year are people who have sold a privately held business to a large corporation.   They've paid 15% on the capital gains, and will likely rail against paying an estate tax on the other 85%.

Looking Forward

Looking for the phrase "I am for men" (see an earlier post, below) I came across a 1906 book by August Cirkel (circa 1870-1946), of Chicago, entitled "Looking Forward."  His prefatory note is as follows:

An apology is, peradventure, due the memory of Edward Bellamy for the semi-plagiarism in the title of this book.  It is true that "Looking Backward" suggested the name I have given it. The ideally happy condition of all the people, that Mr. Bellamy pictured as resulting from socialism, I look forward to as a result of a higher development of individualism.

The variety of topics considered may make the work seem presumptuous.  But though the subjects are various, the same strain runs through all.   Like the Irishman with his shillalah at the county fair, wherever I have seen a monopoly head, I have taken a whack at it.  If there are any sore pates or broken craniums on account of my impartial and promiscuous blows, I shall know that I have not labored in vain.

A.C.

A passage in the middle of "Looking Forward" caught my eye, and I added the preceding ones for setting the scene.  In this age of "too big to fail" and 10% of our households having over 70% of the aggregate net worth, a lot still rings true after 100 years:

We have one concern controlling far more than half the oil, another more than half the iron, another half the coal, another forming to control much more than half the copper, a few combinations working towards ownership of all the railroads and steamship lines; another, meat; in our large cities, the public service corporations are one by one being gobbled up by the same group of capitalists who control these other companies. It is probably safe to say that the so-called trust crowd now controls at least forty percent of the business and wealth of the country; moreover, the portion so controlled is organized on such a basis that the profits exacted each year reach the public with almost the directness of a tax. Without exception each one of these gigantic monopolies makes millions in the way of earnings disbursed to pay interest on bonds and dividends on stocks.

The profits of the Standard Oil Company have averaged forty percent per annum for many years; others of these companies are nearly as successful. In ordinary business only the very few after a period of twenty or thirty years can show a larger capital than they had at starting, and many fall by the wayside; but each, and every one, of these giant corporations makes tremendous gains. The public seems to have acquiesced in their right to fix the tribute that they will levy each year, and has grown so accustomed to their demands as not to analyze this right.

A few years ago Henry George tried to stir the people to a realization of the wrongs contained in the private ownership of land; but excepting the few Single-tax Leaguers who still try to keep alive the fires he kindled, few have given serious consideration to this matter, and many think him to be a vain dreamer of impossible conditions.

His theory as to the manner of applying a remedy has doubtless estranged many who accede to the correctness of his views as to existing wrongs. His argument as to the natural right of all mankind to the earth, the air, and the waters on the earth or underneath it, cannot well be refuted.

Let us suppose ten families occupy an island, and that this island constitutes all the land on the earth. Now, assume that they organize a regular government, the rights of each and all being fully considered and agreed to by every one, and, further, that every individual is perfectly satisfied that justice has been done him. Suppose that they agree to divide the island into ten equal parts, giving each family an equal portion, for which a patent is issued by the government, each soul on the island being satisfied that the division is fair and also satisfied with his allotment. There being no one on earth except the ten families, and as they are all content and happy, at first blush it might appear that they had a right to make this apportionment, and that there is no element of wrong concealed anywhere in the transaction. In doing this they certainly would be doing no more than has been done by nearly every people in history, and on a much more equitable basis. They overlooked, however, the changes to be wrought by time. After the apportionment, let us say that the islanders, being ordinary human men and women, went about their vocations in the usual manner, and led their lives as humankind generally does; let us say that there existed among them the same differences in capacity and temperament and habit of life that commonly prevail among people — some being thrifty and industrious, others improvident and idle, as men have been, are now, and perhaps always will be. What would probably happen? In a short space of time possibly fifty percent of the population would sell their share in the island to the provident class, and in the course of time twenty-five percent might come to hold absolute title to all the land. In consequence, the children born of the families that sold their holdings would have no land. The children born to the twenty-five percent would own it all.

If the laws of the island were based on the same principles as now obtain in the laws of the United States, it would be perfectly lawful for the twenty-five percent to say to the seventy-five percent that they might work the land on shares, giving the landlords half of the product of their labor. As there would be no possibility of procuring a livelihood otherwise, this offer would have to be accepted, if the laws were obeyed.

Normally, it is hard enough for a laborer to gain his living by the sweat of his brow, though he gets the full product of his labor. How much more difficult the situation when half of all he produces must be handed to another! In Ireland the situation was parallel to this; the poor Irish tenants tilled the soil of their native land, but instead of getting the full product of their labor, a large portion was pitilessly exacted by alien landlords. In lesser degree in nearly every country on earth the situation is comparable to this, the burden being disguised in various ways.

We, then, have seventy-five percent of the islanders giving up to the twenty-five percent one half of the product of their labor. Assuming that the original ten families that organized the government and apportioned the island have all died, by what God-given principle should the seventy-five percent of the population be required to give half of the fruits of their efforts to the twenty-five percent? Yet under our own laws would this not be possible, yea, natural? Without doing anything whatever, the twenty-five percent would be getting a revenue one and a half times as great as they could produce if working on an equal basis with the others. Because their fathers had got possession of the island, these few without toil get half again as much as they could produce if toiling, while the rest, though constantly laboring, get only half of the results of their labor. There are doubtless those who will say that the thrift of the original provident islanders should entitle them to transmit their gain to their children. Very good, but how about the thrift of the seventy-five percent now? The twenty-five percent may be compared with the original spendthrifts, as they squander without toiling, and by a just continuance of the rule, the children of the thrifty toilers should get back the island. On the face of the proposition this would manifestly be impossible. Let us go a step farther. Suppose the twenty-five percent, grown haughty with power, exercise it so arbitrarily that the others object, would it not be possible under laws like the laws of the United States, for the minority to refuse the majority employment except on the terms of the minority? What must be the consequence? Either submission to slavery by the seventy-five percent or starvation, if the laws are obeyed, or revolution and rebellion, if they are not. It cannot be an answer to the argument to hold that the ordinary principles of morality would restrain the minority in their exactions. History has not demonstrated that those who grow great with power never grow greedy. Then, if there is no justice in requiring the seventy-five percent to give up half their labor, is there justice in a situation or in laws which compel this result?

In the United States we have not even been as fair as the islanders, no equal division ever having been made, nor has every person been satisfied that his share is just; yet most of the land has been passed to the possession of private owners by patent from the government, and the average man has always thought, and the average man now thinks, that as a general proposition this was just, although knowing and admitting the possibility of minor wrongs. People have had the notion of private ownership of land so thoroughly grounded by long custom, that it seems the natural, rather than the artificial, manner of holding. Community of interest is repugnant to most minds. Socialism is believed to be a theory that might answer the requirements of angels, but finds small space for application among the wingless crowd on earth. Yet if the principle of private ownership is wrong as applied to the island, is it not equally wrong with us?

A few years back, owing to financial stress in the business world, vast numbers of men were idle from inability to find employment. Coxey gathered together a tatterdemalion army of the riffraff, tramps, and bums of the country, and marched them to Washington to emphasize to Congress the hardship of the situation, and to beg relief. He was derided and jeered at every hand. The public looked upon the idea as one of a crank, laughed at it, and dismissed it from their minds. Yet out of this army of thousands, how many possibly were sincerely desirous of a chance to earn an honest livelihood? The country at that time was infested with tramps, but since times improved the majority of them have gone to work again, and Coxey is forgotten. But way down deep, unperceived by the casual thinker and busy every-day man, some elemental principle had been violated, and in consequence the deplorable condition resulted. These men had a right to live. They had a right to labor. They had as good a right as any one of us to use God's soil, and to breathe God's air, and pity for them on our part by no means fulfilled our duty towards them. Somehow, little they knew how; somewhere, little they knew where; some time, little they knew when,— they had been cheated of the rights that are due to every human being that comes upon this earth.

The Declaration of Independence holds it to be a self-evident truth, that all men are entitled to life, liberty, and the pursuit of happiness. What a grim sardonic joke this would be, if read some Fourth of July to a ragged army of a hundred thousand starving men, women, and children, willing to labor, but with naught to lay their hands to! Hollow, indeed, would it sound, and the mockery would be so apparent to the multitude that I doubt not they would feel that somehow a terrible injustice had been done them.

When the ten families divided the island they allotted what belonged to God, and not to themselves, except as a blessing flowing from Him. They had no right to alienate the title from the whole community. The island belongs to every child who is born upon it, and each has as good a right to its benefits as every other. The ten families deeded away what they had no right to. Posterity was not considered, but the child then unborn owed no duty to the agreements made adverse to his interests by incompetent, reckless, luckless, or improvident ancestors, who bartered away his birthright. It was not theirs to give.

We must all, high and low, rich and poor, young and old, somehow or other, directly or indirectly, get our living from the earth. Necessity compels every one to eat to live. How fulfill this necessity except by application to Nature? What right has any government so to shape its laws that one single human being is debarred from his God-given right to labor in order to sustain his life? Organize society as you will, if provision is not fully made to protect the unborn souls to come, an injury is done, a seed is planted that will grow and bear suffering.

Henry George's theory is correct. The land belongs to all, the air and the water belong to all. If we are on earth for a purpose, and the God of chance is not ruling our destiny, as no man who thinks deeply can believe, it behooves us to conform to Nature's laws. The rules of conduct prescribed by people hundreds of years ago should have no binding force upon us today against our reason. Because people have always divided the land, it is not proof positive that their methods have been correct. Humanity has not reached the acme of advancement by any means. Some things are done vastly better today than ever before in history. It seems as if progress is being made. The world seems to be growing better. Yet how would this be possible but by the correction of previous wrong conceptions? Progress can never be made contrary to Nature's law; the decay of the nations of history proves the inexorableness of her workings. Conformity to her decrees, through principles of justice, of liberty, of equality, has ever led to advancement at a tremendous pace; but selfish interests have always injected into the laws of the nations the virus of destruction; decay ensues, the people become enfeebled, corruption reigns, and dissolution follows through the onslaughts of vigorous, lusty races that have grown strong through meting out the justice which the older nations had forgotten.

No government is good that does not give the greatest consideration to its lowliest citizens.

Let's talk about "our lowliest citizens."  Recall that 10% of us have title to 71.5% of the aggregate net worth. The bottom 75% of us have an amazing 12.7% of the aggregate net worth.  A slightly different 10% of us receive 47.2% of the before-tax income, and 20% of us get 61.0% of the pre-tax income.  The bottom 60% of us share --  are you ready? -- 20.9% of the pretax income -- and most economists agree that we're paying 15% of that in social insurance taxes on our wages, plus federal and state income taxes, sales taxes, taxes on our buildings and on our land (if we own any).  (Remember Leona Helmsley's observation about who pays taxes.)

Looking forward ... to more of the same?  To a society which doesn't automatically enrich a small segment of us at the expense of the rest, who, most of us would agree, work equally hard, even if we're not in privileged categories of the real estate, finance, insurance or natural resources sectors, or otherwise endowed with a monopoly which feeds them so abundantly at the expense of others.

In many fast examinations of the Gilded Age, Edward Bellamy's book on socialism, "Looking Backward" is mentioned in the same sentence with Henry George's book best-selling "Progress & Poverty."  The former book seems to be more widely assigned reading, in courses which bring in original sources.  This is a shame.

The Monkeys Disgrace

A friend sent me this poem, which seems a complement to Uncivilized, by Edmund Vance Cooke (1866-1932).  I first heard Uncivilized at a CGO meeting in Alburquerque perhaps 5 or 7 years ago, when Everett Gross recited it from memory.  The third verse of this one seems to me to be a direct reference to Uncivilized.

The Monkeys Disgrace

Three monkeys sat in a coconut tree
Discussing things as they're said to be.
Said one to another, "Now listen, you two,
There's a certain rumor that cannot be true,
That man descends from our noble race -
The very idea is a disgrace.

No monkey ever deserted his wife,
Starved her babies and ruined her life;
And you've never known a mother monk
To leave her babies with others to bunk,
Or pass them on from one to another
Til they scarcely know who is their mother.

And another thing you'll never see -
A monk build a fence around a coconut tree
And let the coconuts go to waste,
Forbidding all other monks to taste.
Why, if I put a fence around this tree,
Starvation would force you to steal from me.

Here's another thing a monk won't do -
Go out at night and get on a stew,
Or use a gun or club or knife
To take some other monkey's life;

Yes, Man Descended - That ornery cuss -
But, brother, he didn't descend from us!"

     - anonymous

Uncivilized begins,

An ancient ape, once on a time,
Disliked exceedingly to climb,
And so he picked him out a tree
And said, "Now this belongs to me.
I have a hunch that monks are mutts
And I can make them gather nuts
And bring the bulk of them to me,
By claiming title to this tree." 

[read the entire poem here]

One source attributes The Monkeys Disgrace poem to Nettie Bates Thomas, another to Ogden Nash.   Yet another compares it to a 1950s Broadway show tune, which you can hear here.

But I've also found a lot of other attributions for it, some which date it back to within Cooke's lifetime: 

2009Q4 Labor Underutilization Problems of US Workers by 2008 Income Decile

Labor Underutilization Problems of U.S. Workers Across Household Income Groups at the End of the Great Recession: A Truly Great Depression Among the Nation’s Low Income Workers Amidst Full Employment Among the Most Affluent by Andrew Sum and Ishwar Khatiwada, of the Center for Labor Market Studies at Northeastern University.  (This is the study Bob Herbert referred to in his recent column "The Worst of the Pain.")

"We ranked the household incomes of all households in the U.S. in 2008 in ascending order and calculated the cutoff points for each decile (ten percent) of the income distribution (See Appendix A). The bottom decile included all households with annual incomes at or below $12,160 while the top decile was comprised of all households with pre-tax, annual incomes above $138,800.

We then assigned each employed person in the October-December 2009 period into the 2008 household income decile that came closest to matching their reported household income on the 2009 CPS interview."

The study shows the underemployment rates among those 16+ who were employed in 4Q-2009 for each 2008 income decile (Table 1).  It ranges from 1.6% in the top income decile to 20.6% in the bottom one.

Table 3 shows the 4Q-2009 Unemployment Rate and Underemployment Rate by 2008 income decile.

"The underutilization rate for workers in any income group can be interpreted in the following manner: for every 100 members in the adjusted civilian labor force in the fourth quarter of 2009, how many were left unemployed, underemployed, or a member of the labor force reserve."

"The unemployment rates of workers in the fourth quarter of calendar year 2009 varied extremely widely across the ten household income deciles.8 Workers in the lowest income decile faced a Great Depression type unemployment rate of nearly 31% while those in the second lowest income decile had an unemployment rate slightly below 20% (Table 3 and Chart 2). Unemployment rates fell steadily and steeply across the ten income deciles. Workers in the top two deciles of the income distribution faced unemployment rates of only 4.0 and 3.2 percent respectively, the equivalent of full employment. The relative size of the gap in unemployment rates between workers in the bottom and top income deciles was close to ten to one. Clearly, these two groups of workers occupy radically different types of labor markets in the U.S."

Table 4 is the most striking. It shows, by income decile, the number of unemployed people, underemployed people, and the "labor force reserve" -- those who would like to work, but are not considered part of the labor force.   It also shows an "adjusted labor force" total and calculates an underutilization rate for each decile.  Take a look, and ponder it for a while:

Table 4: The Number of Unemployed and Underemployed Persons, Members of the Labor Force Reserve, the Pool of Underutilized Labor, and Labor Underutilization Rate by Decile of the Household Income Distribution, 4th Quarter 2009
Decile	2008 Income [from Appendix Table A]	(A) Unem- ployed	(B) Under- employed	(C) Labor Force Reserve	(D) Under- utilized Pool	(E) Adjusted Labor Force	(F) Under- utilization Rate
Lowest	$12,160 or less	2,523,484	1,172,379	869,399	4,565,292	9,093,930	50.2%
Second	$12,160 – 20,725	1,377,456	1,005,855	488,993	2,872,304	7,700,944	37.6%
Third	$20,725 – 29,680	1,885,492	1,330,302	642,565	3,858,359	12,958,122	29.8%
Fourth	$29,680 – 39,000	1,686,509	1,012,634	527,184	3,226,327	14,342,149	32.5%
Fifth	$39,000 – 50,000	1,018,953	632,966	350,506	2,002,065	11,726,027	17.1%
Sixth	$50,000 – 63,000	925,351	594,148	311,318	1,830,817	12,169,020	15.0%
Seventh	$63,000 – 79,100	972,009	622,585	29,492	1,894,0367	15,456,882	12.2%
Eighth	$79,100 – 100,500	875,080	599,808	308,478	1,783,366	17,882,399	10.0%
Ninth	$100,150 – 138,700	650,691	388,038	246,145	1,294,879	16,689,379	7.8%
Top	$138,700+	353,899	174,407	156,885	689,195	11,301,726	6.1%
All (1)		14,698,791	8,915,147	5,360,039	28,974,310	158,787,138	18.5%
(1) Note: The totals for “All” include persons with missing household incomes on the October/December 2009 files.

Findings on the estimated sizes of the unemployed, underemployed, and labor force reserve groups can be combined to estimate the overall labor underutilization rates for workers in each of the household income deciles.11 The calculations for the underutilization rates for each income group are displayed in Table 4 and for selected decile in Chart 5. The range in these labor underutilization ratios is extremely wide as one would have expected given the huge gaps in each form of underutilization between the bottom and top deciles of the income distribution. The underutilization rate for workers in the lowest decile was slightly over 50% and remained just under 38% for those in the second lowest decile. These extraordinarily high rates of labor underutilization among these two income groups would have to be classified as symbolic of a True Great Depression. Workers in the two deciles in the middle of the distribution (the fifth and sixth) faced underutilization rates of 15 to 17 percent, representative of a severe recession. In substantial contrast, workers in the top two income deciles encountered underutilization rates of only 6 to 8 percent. Given their very low official unemployment rates of 3.2% and 4.0% for the top and second highest deciles respectively, one would have to characterize their labor market situation as a near “full employment environment.

11 One cannot simply add the three percentages in Table 4 to generate an underutilization rate since the denominator of the three ratios are somewhat different for each measure. The unemployment rate is based on the official civilian labor force, the base for the underemployment rate is the number of employed, and the labor force reserve is based on the adjusted civilian labor force.

Here are the final two paragraphs of the study:

At the end of calendar year 2009, as the national economy was recovering from the recession of 2007-2009, workers in different segments of the income distribution clearly found themselves in radically different labor market conditions. A true labor market depression faced those in the bottom two deciles of the income distribution, a deep labor market recession prevailed among those in the middle of the distribution, and close to a full employment environment prevailed at the top. There was no labor market recession for America’s affluent.

In testifying before a Congressional committee in the late 1960s on the need for a sub-employment index to capture the high variations in labor market conditions in different neighborhoods and local labor markets, Secretary of Labor Willard Wirtz was asked how workers were doing on “on average”. He reportedly replied, “When you have your head in the freezer and your feet in the oven, on average you are doing Ok.” Similar remarks apply to the state of American labor markets today. Who will tell the people? Does anybody care?

As this blog has pointed out, when it comes to income, most of us are below average.  Lake Wobegon in reverse. 

I am reminded of Henry George's statement:

It is as though an immense wedge were being forced, not underneath society, but through society. Those who are above the point of separation are elevated, but those who are below are crushed down.

Look at Table 4.  What do you see?

Bob Herbert's column on this study ends with this:

Those who believe this grievous economic situation will right itself of its own accord or can be corrected without bold, targeted (and, yes, expensive) government action are still reading from the Ronald Reagan (someday it will trickle down) hymnal.

I think there is a better way.  I think it can be found in the ideas of Henry George.    Let's not make the situation worse by trying to aid those who are affected without going to the root of the problem. Seek the root, and eradicate it.  Don't hack at the leaves.

The House of Tranquillity: A "Middle Class Agenda"

Op-Ed Columnist - The House of Tranquillity - NYTimes.com. Finally, Biden was asked to come up with a middle-class agenda. This is a surprisingly difficult job because many of these programs — credits for college affordability and child care — fairly reek of Clintonism. This is an administration that is staffed by Clintonites but does not want to appear Clintonian in any way.

Let's talk about America's middle class.  How should we define the middle class?  If we define it in terms of income, we find that the middle quintile of households in 2007 had median net worth of $88,100.  That is, of the middle 20% of us, half had household net worth of less than $88,100, and half had more.  That's not a whole lot of money to fall back on, particularly when one considers that much of that is home equity.

The same middle-income quintile had a median before-tax family income of $47,300.  That is, half had more, half had less.

That middle income quintile accounted for 10.9%  -- no!  that was the the 1989 figure.  By 2007, it was 7.54% -- of America's net worth in 2007. 

Here's how the net worth was distributed across the income quantiles in 2007:

• 	Top income decile:	59.45% of the net worth
  	Second income decile:	10.92% of the net worth
  Top income quintile:		70.37% of the net worth
  Second highest income quintile:		13.48% of the net worth
  Middle income quintile:		7.54% of the net worth
  Fourth highest income quintile:		4.84% of the net worth
  Bottom income quintile:		3.77% of the net worth

    [source: SCF chartbook, p. 43, and my calculations]

If we define the middle class more broadly -- as the middle 60% of the income distribution -- our "middle class" has 25.86% of the net worth.

And here's how the before-tax income was distributed across the same income quantiles:

	Top income decile:	47.19% of the before-tax income
	Second income decile:	13.77% of the before-tax income
Top income quintile:		60.96% of the before-tax income
Second highest income quintile:		18.18% of the before-tax income
Middle income quintile:		11.23% of the before-tax income
Fourth highest income quintile:		6.72% of the before-tax income
Bottom income quintile:		2.92% of the before-tax income
[Source: SCF Chartbook, page 7 and my calculations]

Using the broader definition of middle class -- again, the middle 60% of the income distribution -- our "middle class" has 36.13% of the before-tax income.

(Think of this quantile data as you read Bob Herbert's recent column "The Worst of the Pain.")

Alternatively, if we define the middle class in terms of net worth -- erase the above income-based definitions from your mind for the moment! -- here's the corresponding data:

The median household arranged according to net worth had net worth of $120,600 [source: SCF Chartbook, p. 39]  That doesn't sound so bad, does it?

Let's look at the net worth quantiles:

	Top net worth decile:	71.46% of aggregate net worth
	Second 15% of net worth holders:	15.83% of aggregate net worth
Top net worth quartile:		87.29% of aggregate net worth
Second highest net worth quartile:		10.21% of aggregate net worth
Third highest net worth quartile:		2.60% of aggregate net worth
Bottom net worth quartile:		-0.10% of aggregate net worth
[Source: SCF Chartbook, 2007, page 73]

The middle 50% of us, arranged according to net worth have 12.81% of the net worth.

If you define our middle class as those between the 50th and 85th percentiles of the net worth distribution, our middle class owns 26.04% of the net worth.

How is the income distributed across those same net worth quantiles?

	Top net worth decile:	41.25% of before-tax income
	Second 15% of net worth holders:	16.56% of before-tax income
Top net worth quartile:		57.81% of before-tax income
Second highest net worth quartile:		19.76% of before-tax income
Third highest net worth quartile:		13.80% of before-tax income
Bottom net worth quartile:		8.63% of before-tax income

The middle 50% of us, arranged according to net worth, have 33.56% of before-tax income

If you want to define our middle class as those between the 50th and 85th percentiles of the net worth distribution, our middle class is getting 36.32% of the before-tax income.  35% of us getting 36% of the income.  That's middle, I guess.

If you've gotten this far, I'll bet that you will think that we might want to tax income more heavily at the upper end of the income spectrum, or tax large estates more heavily.

I'm going to propose something different.  Something which digs deeper, and seeks the source, the cause of the problem, rather than trying to redistribute the income or net worth after the fact.

Henry David Thoreau, in Walden, wrote this:

There are a thousand hacking at the branches of evil to one who is striking at the root, and it may be that he who bestows the largest amount of time and money on the needy is doing the most by his mode of life to produce that misery which he strives in vain to relieve. It is the pious slave-breeder devoting the proceeds of every tenth slave to buy a Sunday's liberty for the rest. Some show their kindness to the poor by employing them in their kitchens. Would they not be kinder if they employed themselves there? You boast of spending a tenth part of your income in charity; maybe you should spend the nine tenths so, and done with it. Society recovers only a tenth part of the property then. Is this owing to the generosity of him in whose possession it is found, or to the remissness of the officers of justice?

Henry George wrote this, in the opening chapter ("The Problem") of Progress & Poverty (1879), describing the first 100 years of America's existence as a nation:

It is true that wealth has been greatly increased, and that the average of comfort, leisure, and refinement has been raised; but these gains are not general. In them the lowest class do not share. I do not mean that the condition of the lowest class has nowhere nor in anything been improved; but that there is nowhere any improvement which can be credited to increased productive power. I mean that the tendency of what we call material progress is in no wise to improve the condition of the lowest class in the essentials of healthy, happy human life. Nay, more, that it is to still further depress the condition of the lowest class. The new forces, elevating in their nature though they be, do not act upon the social fabric from underneath, as was for a long time hoped and believed, but strike it at a point intermediate between top and bottom. It is as though an immense wedge were being forced, not underneath society, but through society. Those who are above the point of separation are elevated, but those who are below are crushed down.

Now go back and look at the distributions of income and of net worth in America in 2007.  I've not provided the trend data here, but the 2007 snapshot tells the story well enough.

"I Am For Men"

That's the slogan on the two-story high advertising mural found recently on a building in Galesburg, Illinois.  (Photo here.)  It is an ad for Henry George 5 cent cigars.  (See also this page of cigar ads.)

The "I am for men" slogan was on a pin I found on ebay a few years ago.  The seller made some comment about it being anti-feminist.  Well, she or he didn't know much about George.

When I googled the phrase, I found some interesting things.  Here's one:

Henry George, a nineteenth-century American author and political economist, was nominated for the office of mayor of New York in 1886. He was called to a meeting at the Cooper Institute to speak to working men. The chairman of the meeting gave him a flowery introduction with the customary political rhetoric. The chairman concluded by saying, "Henry George is the friend of the working men." As soon as Mr. George rose to his feet, slowly and emphatically he said, "I would like to announce that I am not the friend of the working man." Stunned silence ensued -- a strange kind of bewilderment. He went on, "Nor am I the friend of capital. I am for men simply as men, regardless of any accidental or superfluous distinctions of race, creed, color, class, function, or employment."  [source.]

I found a front-page article in the Scranton (PA) Tribune and Kansas City Journal (among others) of October 30, 1897, the day after Henry George's death, which reported some of the campaign speeches George had given on his last day, a few days before the 1897 mayoral election.  Here is one of them:

At College Point there were 1,200 common laborers, a rough crowd, closely packed in the hall.  Mr. George was introduced as the friend of the working man.

He began: "I have never claimed to be a friend of the workingmen.  I do not now make any such claim (there was a pause of dead silence).  I have not and do not intend to advocate anything in the special interest of the laboring man (another dead pause; Mr. George walked the full length of the platform and let out his full voice in a shout:).  I am for men! (The crowd set up such a cheering and stamping that the room was filled with a choking dust).  I am for men! -- the equal rights of all men.  Let us be done with asking privileges for the laboring men."

I also found a 1906 book called "Looking Forward," by August Cirkel, which has a chapter by that title which starts with these paragraphs:

"I am for men." This famous expression, uttered by Henry George, sounds the keynote of the true spirit in which every public policy should be tested. Does it make men? Does it make them stronger, or wiser, or better? These are the all-important questions to be asked, when the effect of any system is to be noted. If the answer cannot be made affirmatively, sophistical must be the arguments that support it.

The kind of laws and institutions any people lives under is the kind of laws and institutions that that people deserves to live under. Every thing of life builds the body that it inhabits, and what kind of abode it constructs for itself, that is the kind of abode it must dwell in. Every people makes its own government. Where a race is ruled by tyrants, craven fear smites the hearts of the masses, and rather than endure the dangers of asserting their divine prerogative of freedom, they shuffle through life in cowardly submission to a few men no stronger than themselves.

I found a 1910 speech by Theodore Roosevelt, entitled "New Nationalism" which contains these paragraphs:

I believe in shaping the ends of government to protect property as well as human welfare. Normally, and in the long run, the ends are the same; but whenever the alternative must be faced, I am for men and not for property, as you were in the Civil War. I am far from underestimating the importance of dividends; but I rank dividends below human character. Again, I do not have any sympathy with the reformer who says he does not care for dividends. Of course, economic welfare is necessary, for a man must pull his own weight and be able to support his family. I know well that the reformers must not bring upon the people economic ruin, or the reforms themselves will go down in the ruin. But we must be ready to face temporary disaster, whether or not brought on by those who will war against us to the knife. Those who oppose reform will do well to remember that ruin in its worst form is inevitable if our national life brings us nothing better than swollen fortunes for the few and the triumph in both politics and business of a sordid and selfish materialism.

Near the end of the same speech, TR says this:

One of the fundamental necessities in a representative government such as ours is to make certain that the men to whom the people delegate their power shall serve the people by whom they are elected, and not the special interests. I believe that every national officer, elected or appointed, should be forbidden to perform any service or receive any compensation, directly or indirectly, from interstate corporations; and a similar provision could not fail to be useful within the States.

The object of government is the welfare of the people. The material progress and prosperity of a nation are desirable chiefly so long as they lead to the moral and material welfare of all good citizens. Just in proportion as the average man and woman are honest, capable of sound judgment and high ideals, active in public affairs; but, first of all, sound in their home, and the father and mother of healthy children whom they bring up well; just so far, and no farther, we may count our civilization a success.

(TR by that time had become quite comfortable with Henry George's ideas. See his party's 1912 platform "A Confession of Faith.")

In 1917, Luke North (James Hartness Griffes) published a book of poetry entitled "Songs of the Great Adventure" which included this:

"I AM FOR MEN"

He stood for Men —
Not for parties, sections, classes;
Not for dogmas, doctrines, isms —
Nor all the minutiae of over-elaborated plans for the future,
Nor for craven caution, dissimulation, equivocation —
Patience that now outrages virtue —
Program'd ways and means which if not followed
The world may stay in hell.

He stood for Men —
For in his soul he knew the line of cleavage
Was not between the robber and the robbed —
Was not marked by external difference,
By rank or class or occupation or wealth or poverty.
He knew that poor men could be very cruel and rich men kind.
He knew the line of cleavage was in the heart — those who care and those who don't —
This Henry George who wrote "Progress and Poverty."

He stood for Men —
And was he wrong to yield no tithe to classes?
What has now become of all the appeals
To class interest, class consciousness, class solidarity?
The human heart will not respond to them — in every class are tyrants.
The human mass forgets its every interest,
Flings to the wind all self and class advantage
And goes out to die for a word.

He stood for Men —
And showed the world how to unshackle the chains that bind men.
He showed how poverty begins,
Where modern slavery has its roots,
And how to tear them up.
The earth is for all men, he said —
And his word has gone around the world —
And now it's time to act!

He stood for Men —
Not creeds and doctrines, nor all the lesser details of future contingencies.
He bared the earth to man.
It is for us to take it.
He tried to gain it, and was beaten back to his death.
Now we will gain it —
At whatever cost!

Check out this fine book of poetry -- and if you know of a songwriter looking for inspiration, send them to this starting page.

It is ironic that Henry George's name became associated with cigars.  He smoked, and that likely contributed to his premature death at age 58.   He wrote about cigar-making and taxation as follows, in Chapter 8 of "Protection or Free Trade?"

It is no wonder that princes and ministers anxious to make their revenues as large as possible should prefer a method that enables them to "pluck the goose without making it cry," nor is it wonderful that this preference should be shared by those who get control of popular governments; but the reason which renders indirect taxes so agreeable to those who levy taxes is a sufficient reason why a people jealous of their liberties should insist that taxes levied for revenue only should be direct, not indirect.

It is not merely the ease with which indirect taxes can be collected that urges to their adoption. Indirect taxes always enlist active private interests in their favor. The first rude device for making the collection of taxes easier to the governing power is to let them out to farm. Under this system, which existed in France up to the Revolution, and still exists in such countries as Turkey, persons called farmers of the revenue buy the privilege of collecting certain taxes and make their profits, frequently very large, out of the greater amount which their vigilance and extortion enable them to collect. The system of indirect taxation is essentially of the same nature.

The tendency of the restrictions and regulations necessary for the collection of indirect taxes is to concentrate business and give large capital an advantage. For instance, with a board, a knife, a kettle of paste and a few dollars' worth of tobacco, a competent cigar maker could set up in business for himself, were it not for the revenue regulations. As it is, in the United States, the stock of tobacco which he must procure is not only increased in value some two or three times by a tax upon it; but before the cigar maker can go to work he must buy a manufacturer's license and find bonds in the sum of five hundred dollars. Before he can sell the cigars he has made, he must furthermore pay a tax on them, and even then if he would sell cigars in less quantities than by the box he must buy a second license. The effect of all this is to give capital a great advantage, and to concentrate in the hands of large manufacturers a business in which, if free, workmen could easily set up for themselves.

But even in the absence of such regulations indirect taxation tends to concentration. Indirect taxes add to the price of goods not only the tax itself but also the profit upon the tax. If on goods costing a dollar a manufacturer or merchant has paid fifty cents in taxation, he will now expect profit on a dollar and fifty cents instead of upon a dollar. As, in the course of trade, these taxed goods pass from hand to hand, the amount which each successive purchaser pays on account of the tax is constantly augmenting. It is not merely inevitable that consumers have to pay considerably more than a dollar for every dollar the government receives, but larger capital is required by dealers. The need of larger capital for dealing in goods that have been enhanced in cost by taxation, the restrictions imposed on trade to secure the collection of the tax, and the better opportunities which those who do business on a large scale have of managing the payment or evading the tax, tend to concentrate business, and, by checking competition, to permit large profits, which must ultimately be paid by consumers. Thus the first payers of indirect taxes are generally not merely indifferent to the tax, but regard it with favor.

The other passage about cigars which I recalled turned out to be not from Henry George, but from his friend Louis F. Post, who went on to be President Wilson's Secretary of Labor:

Though land value has no effect upon the price of good, it is easier to sell goods in some locations than in others. Therefore, though the price and the profit of each sale be the same, or even less, in good locations than in poorer ones, aggregate receipts and aggregate profits are much greater at the good location. And it is out of his aggregate, and not out of each profit, that rent is paid, For example: A cigar store on a thoroughfare supplies a certain quality of cigar for fifteen cents. On a side street the same quality of cigar can be bought no cheaper. Indeed, the cigars there are likely to be poorer, and therefore really dearer. Yet ground rent on the thoroughfare is very high compared with ground rent on the sidestreet. How, then, can the first dealer, he who pays the high ground rent, afford to sell as good or better cigars for fifteen cents than his competitor of the low priced location? Simply because he is able to make so many more sales with a given outlay of labor and capital in a given time that his aggregate profit is greater. This is due to the advantage of his location, and for that advantage he pays a premium in higher ground rent. But that premium is not charged to smokers; the competing dealer of the side street protects them. It represents the greater ease, the lower cost, of doing a given volume of business upon the site for which it is paid; and if the state should take any of it, even the whole of it, in taxation, the loss would be finally borne by the owner of the advantage which attaches to that site — by the landlord. Any attempt to shift it to tenant or buyer would be promptly checked by the competition of neighboring but cheaper land.

Location, location, location!  Or, as a friend in the advertising business put it when I told him about George's ideas, Location, Location, Taxation!

Do We Really Have to Create Man-made Misery to Supplement What Nature Provides?

As I read and listen to and watch the news -- earthquake, ice storms -- and think about the past year -- floods, fires, mudslides, hurricanes, nor'easters, more earthquakes -- it seems to me that nature provides us plenty of opportunities to exercise our compassion and charity, individually and as a nation, and plenty of spending opportunities for maintaining necessary infrastructure.

We don't need to maintain economic structures which create additional human misery.  There is enough without them.

We can't control nature. But we CAN correct man-made structures which victimize our fellow human beings.

We don't need poverty in the world.  We could manage just fine without it.

It is time to delve into those structures, and get to the root of them.

When we get to the root, we'll recognize it and know what to do about it. 

When we've done that, our safety nets will be there for those who have health problems, or accidents, or are victims of nature's whims.  We'll be able to devote our energies and funds to things which can't be avoided -- acts of nature -- instead of trying to patch up the victims of our economic system.

Here and abroad.

Go to the root of the problem.

Where do you start?  Read Henry George.  Start with the speeches linked from the front page of http://www.wealthandwant.com/, and then, if something in his thought resonates, move on to Social Problems (ditto) and then "Progress & Poverty, at http://www.progressandpoverty.org

The good news is that economics need not be a dismal science.  When viewed through the lenses of the classical economists, a lot more things look a lot more fixable.

Poverty is a structural problem.  Nothing we try to do for or with individuals is going to make the least bit of difference in the structures which are producing poverty.   While I applaud the hearts and efforts of those who seek to improve the lives of individuals afflicted with poverty through charity, through education, through aid, even through job creation, none of these things is going to end poverty until we correct the structures which take for some that which others create.  You might move one person from being a sower to being a reaper, but you aren't going to reduce the problem of some being permitted to reap what others sow until you attack the structures which permit it!

And isn't it government's job to create and promote structures which protect all of us from exploitation by others?

10 of the largest endowments in N.E.

10 of the largest endowments in N.E. - Boston.com.

This slideshow lists 10 of the top 11 university endowments in New England (MIT did not reply).  They range from Harvard's $25.62 billion down to Smith College's mere $1.09 billion.

It strikes me as odd that the homeowners and businesses in each of their home towns and cities are asked to subsidize them by exempting their landholdings from the local tax base.

This is particularly stark since relatively few of the students at these universities are graduates of the local high schools.

Cui bono?

And who pays?

What a subsidy, often from poor people to rich ones.

And it makes one think of the wisdom of Leona Helmsley.

Urban land is our most valuable resource, and those who occupy it ought to be compensating their neighbors.  Universities are large, and often growing, landholders, forcing out tax-paying neighbors, and increasing the share of the burden of supporting municipal services paid by the remaining non-exempts.

Solution?  Exempt the buildings, but require such entities to pay their full share of the tax burden based on the value of their land.  (Exempt everyone else's buildings, too, of course!)

Ben Stein's Farewell to C. Lowell Harriss, professor of economics - Dec. 29, 2009

Farewell to C. Lowell Harriss, professor of economics - Dec. 29, 2009.

I finally got the time to sit down and read through some of the obituaries and tributes to Lowell Harriss, who died in late December (just after Paul Samuelson).  His name was one I grew up with; he was a younger and much respected colleague of my late Georgist grandfather, and participated in the Committee on Taxation, Resources and Economic Development in the 1970s, and, likely, beyond.

The tribute I'm reading right now is interesting in light of data I've reported here recently, and in light of yesterday's Supreme Court decision on corporate free speech.  The data I report has only been gathered in its current form since the 1980s, and I have no idea what the earlier data sources on the subject might have been.

The tribute comes from Ben Stein, who young people know from "Win Ben Stein's Money,"  and a film or two, and those who watch the nightly news sponsored by the pharmaceutical companies may recognize from Visine commercials.  He is the son of two economists, and writes for Fortune Magazine.  He was a student of Lowell's at Columbia University in the mid 1960s.  He wrote, in tribute to Lowell,

But when Professor Harriss started talking about how corporations manage their affairs, he said, "Now assume that the stockholders of the corporation, the owners and beneficiaries of the corporation, are all widows and orphans."

This was an eye-opener indeed. And it made total sense. Of course, except in the rarest of cases in those days, then, and even now, the biggest companies are owned by legions of pension funds, mutual funds, (now, also ETFs and index funds). They are not owned by the Rockefellers or the Astors, as Professor Harriss used to say. They are owned by our parents and by us. The corporations are the people every bit as much as the workers are the people.

This insight, seemingly rarely taught in today's universities, has enabled me to ask -- for example -- why we as a nation would be angry at the oil companies, when we as a nation and as families own the oil companies, when the oil companies employ our fellow Americans at a decent wage, and when the oil companies pay us Americans as savers and retirees oil company dividends. Why would we hate any company without understanding that -- generally speaking, definitely not always -- its managers are simply trying to do the best for the widows and orphans and retirees who own the company? The companies are not a cancer on the society: they are the society.

Let's look closely at that second paragraph in light of the Survey of Consumer Finances data (2007, the newest available).

The SCF doesn't report pension fund assets.*  Others do -- see Ed Wolff's work.  But it is widely understood that a small and diminishing portion of the workforce today has a defined benefit pension -- that which we think of as a pension.  Some of today's workers still have some pension assets, either from a current employer who is no longer contributing to the pension fund, or from a previous employer.

The SCF reports several relevant categories, all mutually exclusive, and then an aggregate called "EQUITY."  The individual categories which might include stock or mutual funds are STOCKS; the category NMMF -- non-money-market mutual funds -- which represents holdings of mutual funds (which includes bonds as well as equities) outside of retirement assets; and RETQLIQ represents total holdings of such retirement assets as IRAs, 401(k) accounts, and other similar individually controlled retirement funds, which likely includes stocks, bonds and mutual funds.   The SCF also reports an aggregate called EQUITY.  Here are the ownership rates, and the distribution of holdings for 2007:

Table 1: Ownership Rates (2007)
	Stocks		Mutual Funds		Retirement Assets		Equity
			[NMMF]		[RETQLIQ]
Total:	17.9%		11.4%		52.6%		51.1%
Bottom 50%	7.2%		2.3%		33.6%		29.7%
Next 40%	22.7%		15.0%		68.3%		68.2%
Next 5%	43.7%		36.5%		83.3%		86.9%
Next 4%	59.5%		47.6%		85.3%		92.0%
Top 1%	65.4%		52.7%		87.8%		92.8%
Table 2: Share of Holdings (2007)
Total:	100.0%		100.0%		100.0%		100.0%
Bottom 50%	0.6%		0.4%		3.8%		1.5%
Next 40%	9.0%		11.6%		36.7%		19.6%
Next 5%	8.0%		10.3%		16.9%		12.4%
Next 4%	30.5%		30.9%		28.0%		30.5%
Top 1%	51.9%		46.7%		14.5%		36.0%

So while it might have been true that the young people sitting in Lowell's classes were likely to be beneficiaries of the corporations as shareholders, I think it is safe to say that the larger society was not, unless the distribution of stock holdings has concentrated even more precipitously than I suspect it has between 1964 and today.  The widows and orphans were far more likely to be in the bottom half of the wealth distribution, which, as of 2007 shared 1.5% of the EQUITY value.   

Today, it is clear that many corporations are not being managed even for the long-term benefit of their shareholders.  It is the top tier of employees whose interests are being served.

But perhaps one other piece of data ought to be considered: the distribution of the owners of holdings. This is the sort of figure which corporate advertising refers to when they talk about stock ownership being broad.  The "Total" line matches the first distribution; the others add to that total.

Table 3: Distribution of Holders of Assets (2007)
	Stocks		Mutual Funds		Retirement Assets		Equity
			[NMMF]		[RETQLIQ]
Total:	17.9%		11.4%		52.6%		51.1%
Bottom 50%	3.6%		1.2%		16.8%		14.9%
Next 40%	9.1%		6.0%		27.3%		27.3%
Next 5%	2.2%		1.8%		4.2%		4.3%
Next 4%	2.4%		1.9%		3.4%		3.7%
Top 1%	0.7%		0.5%		0.9%		0.9%

   

Do you feel better now?  The top 1% folks represent less than 2% of those who own EQUITY!  What's the big deal?  Look how many more of EQUITY owners are from the bottom 50%!  Isn't America wonderful?  Does Ben Stein's memory of Lowell's classroom statement sound right now?

One more table.  This one looks at the relative holdings across the holders in each wealth quantile.  It divides the dollar holdings for each group by the percentage in Table 3.  Data is comparable both across columns and up and down each column.

Table 4: Average Dollar Holdings per 1% of Households Who Hold
	Stocks		Mutual Funds		Retirement Assets		Equity
			[NMMF]		[RETQLIQ]
Average:	221		309		146		231
Bottom 50%	7		11		17		12
Next 40%	39		68		103		85
Next 5%	145		200		312		337
Next 4%	508		573		629		977
Top 1%	3,142		3,127		1,271		4,577

Notice what percentage of us are "below average."  Compare each figure to the average in its column.

Let me throw in one other set of figures:   The Table 4 data for BUS -- equity in privately held companies.  Average: 1,069.  Bottom 50%: 24   Next 40%: 137; Next 5%: 443; Next 4%: 1,507; Top 1%: 10,960.  (That's what the Astors and Rockefellers of today own.  And much of it is land value and the value of other natural resources, value which we permit them to privatize.)  We call much of it "small business" and permit the owners to style themselves as self-made successes.

To return to Ben Stein's questions:

This insight, seemingly rarely taught in today's universities, has enabled me to ask -- for example -- why we as a nation would be angry at the oil companies, when we as a nation and as families own the oil companies, when the oil companies employ our fellow Americans at a decent wage, and when the oil companies pay us Americans as savers and retirees oil company dividends. Why would we hate any company without understanding that -- generally speaking, definitely not always -- its managers are simply trying to do the best for the widows and orphans and retirees who own the company? The companies are not a cancer on the society: they are the society.

The nonrenewable natural resources belong to the people, not exclusively to those who extract them from the soil, or their shareholders, even if 100% of us were shareholders in name.  Until our system collects the royalties on those natural resources from those who we currently permit to privatize our COMMON asset, Stein is just plain wrong.  Fortune Magazine's subscribers may appreciate his assertions, but the rest of us ought to be very very skeptical.   

*  Postscript, 1/30/2010:

I came across some data about stock ownership which showed where pension funds fit in the picture, at least in the 1990s.  See Pension Fund Capitalism, by G. William Domhoff, at http://sociology.ucsc.edu/whorulesamerica/power/pension_fund_capitalism.html, Table 1, which shows that Corporate Pension Funds held 18% of Corporate Stock, and Public Pension Funds held 8% in 1994, compared to Households, which held 48% and Mutual Funds which held 12%.  He sources the data to Margaret M. Blair, Ownership and Control, 1995)

MLK: An edifice which produces beggars needs restructuring

Beyond Vietnam--A Time to Break Silence

Reverend King gave this speech at the Riverside Church in New York on 4 April 1967, a year before his death.   I was intrigued to note how frequently he mentions land reform as important.

Perhaps the most stirring paragraph is this one:

A true revolution of values will soon cause us to question the fairness and justice of many of our past and present policies. On the one hand, we are called to play the Good Samaritan on life's roadside, but that will be only an initial act. One day we must come to see that the whole Jericho Road must be transformed so that men and women will not be constantly beaten and robbed as they make their journey on life's highway. True compassion is more than flinging a coin to a beggar. It comes to see that an edifice which produces beggars needs restructuring.

I think of the wealth distribution within America (2007) or throughout the world.  I think of some paragraphs from Henry George's book "Protection or Free Trade" (Chapter 25) which speak of "the robber that takes all that is left."  I'll share them at the bottom of this post. I think of some writings on the subject of piracy.

Middle Class Wealth

One of my google alerts, for the words "wealth distribution," took me to a blog post about the tragedy which has occurred in Haiti, which referred to America being different because it had a large middle class.  Since I'd recently posted on this blog some new data about the distribution of wealth, I took a look at that data with the "middle class" in mind.

Here's the data on the distribution of Net Worth, copied from the post below:

	Top 1%:		34.6%
	Next 4%:		26.4%		Top 5%:		61.0%
	Next 5%:		10.8%		Top 10%:		71.8%
	Next 10%:		13.3%		Top 20%:		85.1%
	Next 30%:		12.4%		Top 50%:		97.5%
	Bottom 50%:		2.5%

Do we define as "middle class" the people who hold the middle third of our wealth?  That's the 9% of us who hold 37.2% of our wealth.   Those below that cutoff must be "lower middle class" or "poor."

Do we define as "middle class" the people between the 50th and 80th percentiles of the wealth distribution?  That 30% has a mere 12.4% of our wealth.  The 50% below them only have 2.5% of the net worth.

Do we define as "middle class" the people between the 50th and 90th percentiles? They hold 25.7% of the wealth.

If America's strength is its broad middle class, they certainly aren't reaping much of a reward.  The Chartbook for the Survey of Consumer Finances, page 42, shows this:

Median Value of Net Worth for Families with Holdings, 1989, 1998 and 2007, by Income Quantile in thousands of 2007 dollars: Income Quantile: 1989 1998 2007 1989 to 2007 Bottom Quintile (20%) 2.9 7.4 8.1 +5.2 Second Quintile (20%) 38.8 42.2 38.1 -0.7 Middle Quintile (20%) 67.1 68.0 88.1 +21.0 Fourth Quintile (20%) 107.0 143.0 205.8 +98.8    Second Decile (10%) 211.2 240.0 356.2 +155.0    Top Decile (10%) 625.4 575.9 1,119.0 +493.6

From the following chart in the Chartbook, Mean Value of Net Worth for Families With Holdings, I calculate the following shares of Net Worth:

Share of Holdings, 1989, 1998 and 2007 -- by Income Quantile
Income Quantile:			1989		1998		2007		1989 to 2007
Bottom Quintile	(20%)		2.65%		3.38%		3.77%		+ 1.12 percentage points
Second Quintile	(20%)		7.07%		6.80%		4.84%		- 2.23 percentage points
Middle Quintile	(20%)		10.90%		8.94%		7.54%		- 3.36 percentage points
Fourth Quintile	(20%)		14.64%		14.59%		13.48%		- 1.16 percentage points
Second Decile	(10%)		11.96%		11.53%		10.92%		- 1.04 percentage points
Top Decile	(10%)		52.78%		54.76%		59.45%		+ 6.67 percentage points

   

By this standard, who is our middle class? 

• The 20% of us between the 40th and 60th percentiles, who have  7.54% of the net worth? 
• The 60% of us between the 20th and 80th percentiles, who have 25.86% of the net worth?   
• The 70% of us between the 20th and 90th percentiles, who have 36.78% of the net worth?
• The 50% of us between the 40th and 90th percentiles, who have 31.94% of the net worth?

The top 10% of us, sorted by income, have 59.45% of the net worth -- $6 out of every $10 of net worth in America!!

What does this suggest to you about how we might tax ourselves?

What does this suggest to you about who we might ask to support the aid to Haiti after its tragedy?  

What does this suggest to you about the notion that the strength of America is its large healthy middle class?

What does this suggest to you about the notion that our taxes ought to be based on income?

Does it put Leona Helmsley's comment -- "WE don't pay taxes.  The little people pay taxes." -- in a different light?

A caution about the data: This post shows two different distributions of net worth: according to net worth in the first part, and according to income in the second part.  Don't confuse them -- it is easy to do.  But all the data is based ultimately on the Federal Reserve Board's Survey of Consumer Finances, and I've never heard anyone claim that the SCF overstates the concentration of wealth.    If you need help differentiating, post a question, and I'll try to help.

Wealth Concentration data

I stumbled across a bit of data on wealth concentration which I thought worth sharing.  Previously I've reported data from the 2007 Survey of Consumer Finances, which was published just about a year ago.  The data on Net Worth as reported shows top 1%, next 4%, next 5%, next 40% and bottom 50%:

Top 1%:		33.8%
Next 4%:		26.6%		Top 5%:		60.4%
Next 5%:		11.1%		Top 10%:		71.5%
Next 40%:		26.0%		Top 50%:		97.5%
Bottom 50%:		2.5%

Ed Wolff, of NYU, is quoted here as reporting this distribution of Net Worth for 2007:

• Top 1%:        34.6%
• Next 19%:     50.5%
• Bottom 80%:  15.0%

Since the source is a working paper not yet published online, I don't know the underlying data source, but I'm guessing that Wolff might be working with the SCF 2007 data and following up on the statement in Arthur Kennickell's Ponds & Streams, the Federal Reserve Board paper which published the 2007 SCF, that the wealth holdings of the Forbes 400 are omitted from the SCF data, and that Wolff is adding that data both to the top 1% and the aggregate to come up with these data. (If I'm wrong, I'd welcome correction!) If I'm correct, his 50.5% for the "next 19%" indicates that the distribution of Net Worth is roughly as follows:

• Top 1%:     34.6%
• Next 4%:    26.4%   Top 5%:    61.0%
• Next 5%:    10.8%    Top 10%:  71.8%
• Next 10%:   13.3%   Top 20%:  85.1%
• Next 30%:   12.4%   Top 50%:  97.5%
• Bottom 50%: 2.5%

Those figures include housing wealth.

The same table which reported that Net Worth data also reports Wolff's findings for Financial Wealth, which he defines as Net Worth minus the [gross] value of one's home:

• Top 1%:  42.7%
• Next 19%: 50.3%
• Bottom 80%: 7.0%

The same article reports some useful measurements of stock ownership -- that is, ownership of shares in publicly held companies, whether directly, through retirement accounts or mutual funds.

• Top       1% own 38.3% of the stocks
• Next    19% own 52.8% of the stocks
• Bottom 80% own  8.9% of the stocks

and

• 48.1% of us owned no stocks in 2007
• 51.9% of us owned some amount of stocks in 2007
• 17.5% of us owned stocks worth less than $10,000 in total
• 31.6% of us owned stocks worth more than $10,000

What do you conclude from this data? 

Do you conclude that the bottom 80% of us are simply shiftless folks who must not be working very hard, or stupid folks who don't work very well, or invest what little we save very well, or do you think there might be something else going on?  What is it that the bottom 80% of us lack?

Does it seem to you that if only we shift some more of our wealth to the top 1%, benefits will somehow begin to trickle down to the rest of us, perhaps in the form of job creation by wealthy benefactors?

Does it seem to you that increasing homeownership is (or was ever) the solution to these problems, or do you think we might need to dig deeper to find the root of the problem?

We have permitted a wealth-concentrating machine to be created, sustained and, within the adulthood of the boomer generation, strengthened.

Few understand this machine, but I submit that the first step to understanding it is to read a 130 year old bestseller.

Progress & Poverty begins with the questions "why, despite awesome technological progress which has the potential to wipe out poverty, do we still have poverty?" and "why is wealth so concentrated?"   It examines the standard answers to those questions (you'll recognize them all) and finds them wanting.  It then sets out to find a more satisfactory answer, and to examine its implications.  It proposes a remedy -- the remedy -- and explores what that remedy means for the individual and a society with America's ideals.

If you've never read Progress & Poverty or your acquaintance with it goes back a decade or two, take a look at it in light of these issues.  You can read a modern abridgment at http://progressandpoverty.org/, listen to it at http://hgchicago.org/audio/, or get more information at http://www.wealthandwant.com/George_P&P.html

Income Concentration

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
	1982	2006	Change
Top 1%:	12.8%	21.3%	+8.5 points
Next 19%:	39.1%	40.1%	+1.0 points
Bottom 80%:	48.1%	38.6%	-9.5 points

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:

		1979		2003
Top  1%		37.8%		57.5%		+19.7 percentage points
Next 4%		20.1%		15.7%		-4.4 percentage points
Next 5%		8.8%		6.2%		-2.6 percentage points
Next 10%		10.2%		8.0%		-2.2 percentage points
Bottom 80%		23.1%		12.6%		-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.

Children in Poverty, Children in low-income families

As I listen to the discussions about the health care legislation, and the effort to write abortion coverage out of the plans, I am reminded of some data I came across recently.  It comes from a series of studies called "Overlooked and Undercounted" which are siblings to the Self-Sufficiency Standard studies I've posted about from time to time. 

Most people acknowledge that what the Census Bureau says about the Federal Poverty Guideline is true: it is merely a statistical measure, with no particular relevance to the cost of living anywhere in America, much less in the places where most people live.  Places with relatively low cost of living have higher official poverty rates, and places with relatively high cost of living often have lower, even negligible, official poverty rates.

The Self-Sufficiency Standard studies work with a highly reproducible and logical methodology to develop a bare-bones, no-frills, just-getting-by cost of living, in a lifestyle in which all of a family's most basic needs -- including the age-appropriate child-care which permits all the adults to be employed full time -- would be met, but with no room for savings, for debt repayment, for anything but a home-cooked meal, for gifts, or entertainment; with no provision for replacing the necessary clunker every few years.  The SSS studies provide this analysis for individual states, by county, for various configurations of families.   They are called SSS because they represent the cost of living without depending on anyone for free childcare, or meals, or other necessities. They take into account local tax structures, including tax credits, and are based on all meals prepared at home under the USDA low-cost food plan, which requires careful shopping and a fair amount of food preparation time and allows (October, 2009) about $2.06 per person per meal for a family with two school-age children.

In the least expensive counties in America, the SSS is about 170% of the Federal Poverty Guideline.  Relatively few people live in those counties; they're rural, with few jobs and few of the amenities that larger communities offer. 

Many more of us live in places where the SSS is 200%, or 300% or even 400% of the FPL.  And in the places where the SSS is high, there is still a need in the workplace for people to perform the tasks which aren't very well paid: janitor, child-care, retail, etc.  

The Overlooked and Undercounted studies quantify the number of households in a particular state whose income falls below the SSS in their particular county for their particular household configuration, and break out various demographics.

But I think the most important figure of all is one they have failed to provide: the percentage of America's children who are growing up in families with insufficient income to meet everyone's most simply defined needs.

I've calculated this figure for all the studies I could find.  Doing so required making a single assumption: the average number of children in a family with 4 or more children (3 or more in Connecticut).  I assumed 4.5 (3.5 in CT).

Here's what I found.  The percentage of children living in families with less income than the FPL and the local SSS for their configuration of family:

State	Census data year	Below FPG	Above FPG but Below SSS	Total Below SSS	Above FPG as pct of Below FPG
	(1)	(2)	(3)	(4)	(5)
Colorado	2000	9.8%	24.9%	34.5%	254%
Mississippi	2007	26.3%	17.5%	43.8%	67%
California	2007	15.0%	34.0%	49.4%	227%
Washington	2000	11.3%	22.6%	34.0%	200%
Connecticut	2000	9.0%	22.9%	32.0%	254%
Pennsylvania	2007	13.5%	21.7%	35.3%	161%
New Jersey	2005	9.7%	22.5%	31.5%	232%
Source: Overlooked and Undercounted Studies

The next question is, what percentage of the children below the SSS are in families with more children?

• Colorado: 13.4% of all children are in 4+ child families; but they represent 26.0% of children who live below the poverty line and 25.6% of children who live below the SSS.  36.9% of all children live in families with 3 or more children; they represent 54.8% of children who live below the SSS. Two thirds of Colorado children in 4+ child families live below the local SSS.  Even in married couple households, over half of children in 4+ child families live below their SSS level.
• Mississippi: 14.6% of all children are in 4+ child families; they represent 27.3% of those who live below poverty line and 24.1% of children who live below the SSS.  38.1% of all children are in 3+ child families; they represent 54.9% of children who live below the SSS and 52.7% of those who live below the SSS.   Even in married couple households, over half of children in 4+ child families live below their SSS level. 
• California: 16.9% of all children are in 4+child families; they represent 33.1% of children in poverty and 26.9% of children below the SSS. Children in 3+ child families represent 42.1% of all children, but 63.3% of children below the FPG and 57.2% of children below the SSS.  Even among married couple households with 4+ children, 74.6% of children live below the SSS.
• Washington: 14.7% of children are in 4+ child families; they represent 30.2% of children below FPG and 27.1% of children below the SSS.
• Connecticut: 37.1% of children are in 3+ child families; they represent 53.4% of children below FPG.  Even in married couple households, 35% live below the SSS level.
• Pennsylvania: 14.7% of children are in 4+ child families; they represent 30.4% of children below FPG, 29.1% of children between FPG and SSS, and 29.6% of children under the SSS level.  25.2% of children in married-couple families live below the FPG; in the 4+ child category, they are 33.8%.
• New Jersey: only 10.9% of children are in 4+ child families; they represent 22.7% of those below FPG, 20.9% of those between FPG and SSS, and 21.9% of those below SSS.

So we are going to take away the possibility of employer-provided health insurance which provides abortion coverage to women who want it?  

Do we really mean to promote policies which make it difficult for American couples to control how many children they bring into the world?   Birth control isn't 100% reliable, and despite all best efforts, even married couples often can simply not afford another child.

Here are the statistics, straight from the O&O studies: The percentage of families (not of children) with incomes below their local SSS:

The Percentage of Families with Various Numbers of Children Whose Incomes Fall Below Their Local Self-Sufficiency Standard Level
	1-child families	2-child families	3-child families	4+ child families	all families w/children	childless families
1. Colorado	22%	26%	43%	66%	29%	14%
2. Mississippi	32%	34%	53%	72%	39%	25%
3. California	34%	38%	60%	79%	43%	20%
4. Washington	22%	26%	41%	63%	29%	15%
5. Connecticut	21%	25%	46% (3+ children)		27%	12%
6. Pennsylvania	21%	26%	43%	71%	29%	15%
7. New Jersey	22%	24%	39%	63%	27%	14%
range:	21% -  34%	24% -  38%	39% - 60%	63% -  79%	27% -  43%	12% -  25%
Source: Overlooked and Undercounted studies

These seven states are widely dispersed geographically, and together represent a significant share of US population.  I'm guessing their data is fairly representative of the US as a whole.

Children in larger families are significantly more likely to live in situations without sufficient income to meet their most modestly defined needs. Should we promote policies which lead to more children?

Shouldn't we be looking for the underlying cause of insufficient wages?  They aren't inevitable.

And those who have explored this blog will probably know that the underlying cause is a structural one, not an individual one.  Or has your town figured out how to get along without school bus drivers, janitors, retail or child care workers, to name just a few categories of low-paid workers we rely on.  Are they entitled to have children, to have a life, or are you willing to support policies which ensure that their children will be brought up under straightened circumstances?  (I'd always thought that was spelled "straitened" -- as in "dire straits," but just discovered I was wrong.)

Income and Poverty Among Older Americans in 2008

The Congressional Research Service has recently published "Income and Poverty Among Older Americans in 2008"  which I found at http://benefitslink.com/articles/guests/RL32697_Oct_2009.pdf.

It contains some sobering statistics, ones which ought to get most of us thinking about whether the way we've structured our economy and our society is serving the common good, or is designed to meet some other objective.

Many studies find that older people have far more in assets than younger people, and to some extent, that makes a lot of sense; they've worked for a long time to accumulate what they've got, and we might accept that as a sign that hard work is rewarded, and that savings are rewarded.  If the older people have a huge amount of assets, and our younger people must mortgage themselves to purchase from their elders a place to live, perhaps this is not so good.

Here are some of the highlights of the CRS study:

1. In 2008, Social Security paid benefits to 86% of individuals aged 65 and older and to 89% of households in which the householder or the householder’s spouse was 65 or older.

2. Social Security is the largest single source of income among the aged.

• Sixty-nine percent of Social Security beneficiaries aged 65 or older received more than half of their income from Social Security in 2008.
• For 41% of elderly recipients and 28% of elderly households, Social Security accounted for more than 90% of total income in 2008.

3. Of the 37.8 million Americans aged 65 and older who were living in households in 2008, 20.4 million (54%) received income from assets, such as interest, dividends, rent, and royalties. Most received small amounts of income from the assets they owned.

4. Among individuals aged 65 and older who received income from assets in 2008, half received less than $1,054.

5. Of households with a householder or spouse aged 65 or older, 59% received income from assets in 2008. Among these households, median income from assets in 2008 was $1,542.

6. Median income for individuals over 65 varied by age:

• 65 to 69 . . . $22,057
• 70 to 79 . . . $17,573
• 80+  . . . . . . $16,491

That means that half of each age group receives more, half less.  And that takes into account income from all sources.

7. Asset income for individuals over 65:

• 65 to 69:  55.2% have asset income; half of them have less than $1,015 
• 70 to 79:  54.2% have asset income; half of them have less than $1,069
• 80+:         52.3% have asset income; half of them have less than $1,150 in 2008.

8. At the household level among households whose head is over 65:

• 65 to 69: 60.4% have asset income; half have less than $1,500 (and the average is $10,020 per household)
• 70 to 79: 58.6% have asset income; half have less than $1,600 (and the average is $10,217 " ")
• 80+:        57.55 have asset income; half have less than $1,500 (and the average is  $8,236 " ") 

9.  Median and Mean Social Security income are not all that different from each other, for elderly individuals:

• 65 to 69: mean $13,010; median $12,480
• 70 to 79: mean $12,786; median $12,113
• 80+         mean $12,818; median $12,557

The proposed $250 one-time payment would be about the equivalent of an extra week's worth of Social Security.

10. At the household level, Median and Mean Social Security income are further apart

• 65 to 69: mean $17,314; median $15,804
• 70 to 79: mean $18,256; median $16,229
• 80+         mean $16,589; median $14,400

And clearly, more than half of these households are "below average" -- so when you hear about "the average household" recognize that only a minority are above average.  Lake Wobegon in reverse.

Are we structuring ourselves appropriately?  I don't think so.  I think Henry George pretty much got it right.  We have permitted the creation of a machine which concentrates wealth in a small percentage of our population, leaving the rest to scramble and try to cope -- and blame themselves for not being in the top few percent, above the wedge George called attention to.

The Landed Gentry ... this time, in Pakistan

but Pakistan is just an example.  A standing google alert brought an article at http://www.defence.pk/forums/national-political-issues/31924-who-rules-pakistan.html which includes this paragraph:

The democracy in Pakistan is fledgling at best. There are powerful vested interests such as the landed aristocracy. A vast majority of the members of the Assemblies are landed gentry; they do not pass any legislation that hurts big landlords, nor do they allow any taxes on themselves. Then there is the military; the government survives at the mercy of the army chief.

What is so special about the landed gentry?  Here's what Henry George said:

It is a well-provisioned ship, this on which we sail through space. If the bread and beef above decks seem to grow scarce, we but open a hatch and there is a new supply, of which before we never dreamed. And very great command over the services of others comes to those who as the hatches are opened are permitted to say, "This is mine!"

and

What largely keeps men from realizing the robbery involved in private property in land is that in the most striking cases the robbery is not of individuals, but of the community. For, as I have before explained, it is impossible for rent in the economic sense — that value which attaches to land by reason of social growth and improvement — to go to the user. It can go only to the owner or to the community. Thus those who pay enormous rents for the use of land in such centers as London or New York are not individually injured. Individually they get a return for what they pay, and must feel that they have no better right to the use of such peculiarly advantageous localities without paying for it than have thousands of others. And so, not thinking or not caring for the interests of the community, they make no objection to the system.

It recently came to light in New York that a man having no title whatever had been for years collecting rents on a piece of land that the growth of the city had made very valuable. Those who paid these rents had never stopped to ask whether he had any right to them. They felt that they had no right to land that so many others would like to have, without paying for it, and did not think of, or did not care for, the rights of all. .

See also http://www.wealthandwant.com/themes/underpop/landed_gentry.htm and http://www.wealthandwant.com/themes/underpop/landlordism.htm

Nothing particularly special about Pakistan in this regard.  But perhaps it might lead us to think about America's most landed gentry, and the windfall we grant them, at the expense of the commons and the ordinary working person.

Follow the Money: A Close Look at Recent Southern California Foreclosures

31 page PDF at http://www.areuea.org/conferences/papers/download.phtml?id=2133

A May, 2009, paper by Michael LaCour-Little, Eric Rosenblatt and Vincent Yao entitled "Follow the Money: A Close Look at Recent Southern California Foreclosures" provides some interesting data about single-family residential real estate in one part of the US.

Briefly, the paper looks at loans in five southern California counties which went into foreclosure in November in 2006, 2007 and 2008.  It traces the collateral and loans from purchase to foreclosure, and provides some useful findings.  Here's their abstract:

Abstract

The conventional wisdom is that households unfortunate enough to have purchased at the top of the market during the recent housing bubble are those most at risk of default due to recent price declines, upward re-sets of adjustable rate mortgage instruments, the economic downturn, and other factors. Here we use public record data to study three cohorts of Southern California borrowers facing foreclosure in 2006, 2007, and 2008. We estimate property values as of the date of the scheduled foreclosure sale with the automated valuation model of a major financial institution and then track sales prices for those properties that actually sold, either at auction or later as REO. We find that borrowers did not, in general, buy at the top of the market and virtually all had taken large amounts of equity out of the property through refinancing and/or junior lien borrowing. Given sales prices of collateral thus far, aggregate losses to lenders will reach almost $1.0 billion dollars compared to almost $2.0 billion dollars of equity previously extracted by property owners.

They do for mortgage foreclosures what Elizabeth Warren (et al)'s, study did for understanding the role which uninsured medical expenses play in personal bankruptcy filings.  California may be a more extreme case, for reasons which relate to the perverse incentives involved in the 1978 Proposition 13 property tax limitations.  But my interest is not the same as what the authors were driving after.

I took their data and created a small spreadsheet to look at the data from a different point of view.

Their sample is composed of 4,258 properties which went into foreclosure in Novembers of 2006, 2007 and 2008.  On average, the properties in each of the three cohorts had been purchased in 2002, and for an average price of $356,200.  By November 2006, the properties which went into foreclosure that month had an average value of $519,000 (as calculated by a commercial proprietary Automatic Valuation Model).   I made the assumption that the properties which were foreclosed on in November 2007 and November 2008 had the same AVM valuations in November 2006.

My calculations proceed as follows: I compare the average 2002 purchase price of $356,200 (a weighted average of the three cohorts) with the 2006 AVM valuation of $519,000, which provides a 4-year appreciation of $162,800 per property.  Assuming that each homeowner's annual property taxes started at 1.25% of their 2002 purchase price, and rose by the Prop 13 maximum of 2% per year, they each paid, on average, $19,578 in property taxes over 4 years. 

Houses don't appreciate.  They depreciate at about 1.5% per year. They're never worth more than what it would take to reproduce them. Taking 65% as an estimate of the share of the value of single family homes in southern California which can be attributed to land (1998 was 64.9% and 2004 was 78.7% in Los Angeles, according to Davis & Palumbo, May, 2006), 65% of the 2002 purchase price of $356,200 is $231,535.  Let's assume that the house doesn't depreciate at all, to account for owner-made improvements.  Land value, then, rose from $231,535 on average in 2002 to $394,300 by 2006.

So what produced that rise in land prices? 

• Some of it has to be attributed to the increase in population during that period of time -- due to fertility, improved public health, immigration from other countries and other states.  New relationships and broken relationships both contribute to the demand for housing. Since the quantity of land is fixed, land prices tend to rise with population.
• Some of it has to be attributed to relaxed lending standards, which permitted more people to borrow more money
• Some of it has to be attributed to changes in interest rates, which permitted more borrowing for the same monthly payment.
• Some of it has to be attributed to Proposition 13, which limited property taxes to 1.0% (in practice, roughly 1.25%) of the original purchase price, with an annual increase capped at 2%.  The annual rental value of land is generally 5% of the purchase value, so the 3.75% to 4% difference gets capitalized into the selling price of the land.

But let's think, too, of why people were willing to pay more to live in these five counties.  It was due to the schools, to jobs, to the roads, the sewers, the water system, the police and other emergency services, buses and trains, airports, the courts, jails and prisons, the universities, the hospitals and libraries, and public health and a myriad of other publicly provided goods.  The homeowners as homeowners paid only about $20,000 in taxes, and received, if the AVM is correct and they sold in 2006, $162,800 in appreciation on their land. 

The study shows that those who were in the 2006 foreclosure cohort had total average housing-related debt by November, 2006, of $469,000, up from the original loans of about $334,400.  So they'd taken out an average of $134,600 by borrowing against their home equity.

Did the services which contributed to raising that land value by over $160,000 over 4 years really only cost $20,000 per property?  No.  Sales taxes, and wage taxes and other taxes also financed those services.  And they were paid not just by landholders -- the roughly half of southern California residents who own their own homes -- but also by the other half, who rent their homes from others.

So homeowners reaped a huge windfall, and those who were not homeowners ended up financing it.  And as we attempted to increase the homeownership rate by a few percent by relaxed lending standards, they got to pay another time.

Most people think there is no viable alternative.  They're so used to the current structure -- and in California, Proposition 13 is sometimes referred to as the "Third Rail" of California politics" (touch it, and you die!) that few stop to consider that our taxes are at the root of our most serious problems.

So what's the alternative?  Sanity would be for all those public goods whose effect is to support and increase property values to be financed by a tax on land value.  Justice -- ditto.  Efficiency -- ditto.

California is floundering because it can't fund its spending.  And yet these 4,258 households stood to collect from buyers, if they sold in 2006 after buying in 2002, an aggregate windfall of $693 million: I've aggregated the data for these November foreclosures and here's the story.

Total Households:	4,258
Aggregate purchase price, approx 2002:	$1,516,735,000
Aggregate down payment:	$263,551,350
Aggregate value in 2006:	$2,209,902,000
Aggregate appreciation 2002 to 2006:	$693,167,000
Aggregate 4-year appreciation as percent of down payment	263%
Aggregate real estate taxes paid (@1.25% of purchase price, rising by 2% annually)	$78,142,339
Aggregate appreciation as percent of property taxes paid	887%

Folks who think they and people like them stand to reap a gain of $700 million on an investment of $264 million in 4 years, while paying just $78 million in property taxes may not consider it to be in their best interests to shift taxes off wages, off buildings, off sales.

Had Proposition 13 not been in place, and property owners paid just 1.25% of their properties' market value each year, aggregate property tax would have been $97,500,000, or about 25% more (assuming straight-line increase from 2002 purchase to 2006 average value of $519,000).  Still a tiny fraction of the appreciation.

The study's sample was only the November foreclosures.  To approximate the figures for all the foreclosed properties in the five counties in those 3 years, one might multiply by 12.  And recall that foreclosures are still a tiny fraction of all single-family residential properties in these five counties, and that these are relatively newly purchased properties.  Think of how much could be collected in the form of a tax on land value if everyone, no matter what year they bought their property, paid at the same millage rate on their true market value, instead of some paying on values based in the 1970s.

We-the-people created that appreciation.  Should homeowners and other landholders get to keep it as if they created it?  Does the answer to that question hinge on whether the homeownership rate is 30%, or 50%, or 65%, or 75% in that particular place, or in our country as a whole?  Or is the homeownership statistic irrelevant to the justice or logic of this privatization?  (Remember that residential real estate is frequently NOT the biggest piece of this: the urban real estate owned by corporations, REITs, foreign investors including airlines and sovereign funds, pension funds, philanthropies, 150-year trusts, private equity funds and other private entities, appreciates far faster.  (Remember Leona Helmsley's description: we don't pay taxes; the little people pay taxes.)

On the other hand, when one takes into account the fact that the run-up in prices this situation has led to a situation in which all these people have been foreclosed on, a large and rising proportion of mortgages are "under water" and observers are saying that the "bust" portion of this boom-bust cycle is going to leave something like 50% of mortgage holders "under water" by 2011, perhaps one might reach the conclusion that even if one is not convinced of the justice of revising our system, one might choose it strictly on the basis of avoiding boom-bust cycles being wise.

Conservatism

"Cardinal Newman says that a conservative is a man who is at the top of the tree, and knows it, and means never to come down."

Quoted in "The Public" October 31, 1903, a few days before election day.

To that might I add that some of today's conservatives aren't at the top of the tree, but have high hopes that they will get there, and want the privilege of being held up should they somehow managed to get there.

I seem to recall reading that 19% of us consider ourselves to be in the top 1%.  And if that is so, how many more think that they will actually make it into the top 1%?? 

Lottery ticket sales and gambling revenues suggest that many of us think our best chance lies in that department, rather than in labor, saving and investment.

High and Low Finance - 2005 Tax Break for Repatriated Funds Didn’t Work as Billed

High and Low Finance - 2005 Tax Break for Repatriated Funds Didn’t Work as Billed - NYTimes.com

It was called the “Homeland Investment Act,” and was sold to Congress as a way to spur investment in America, building plants, increasing research and development and creating jobs. It gave international companies a large one-time tax break on overseas profits, but only if the money was used for specified investments in the United States.

The law specifically said the money could not be used to raise dividends or to repurchase shares.

Now the most detailed analysis of what actually happened — using confidential government data as well as corporate reports — has estimated what happened to the $299 billion companies brought back from foreign subsidiaries. About 92 percent of it went to shareholders, mostly in the form of increased share buybacks and the rest through increased dividends.

And who owns our stock?  The 2007 Survey of Consumer Finances shows us how concentrated stock ownership is:

• 17.9% of households owned STOCKS outright -- that is, outside of mutual funds and retirement accounts.
• Individual stocks represent 7.1% of aggregate household wealth.
• The bottom 50% of us owned 0.6% of the STOCKS
• The next 40% of us owned 9.0% of the STOCKS
• The top 10% of us owned 90.4% of the STOCKS
• The top 1% of us owned 51.9% of the STOCKS
• The next 4% of us owned 30.5% of the STOCKS -- so the top 5% owned 82.4% of the value
• The second 5% of us owned 8.0% of the STOCKS
  

What about Mutual Funds? (This might include holdings of bonds as well as equities.)

Thou shalt not suffer thyself or anybody else to be stolen from

"Thou shalt not steal." That means, of course, that we ourselves must not steal. But does it not also mean that we must not suffer anybody else to steal if we can help it? "Thou shalt not steal." Does it not also mean, "Thou shalt not suffer thyself or anybody else to be stolen from?"

If it does, then we, all of us, rich and poor alike, are responsible for this social crime that produces poverty. Not merely the men who monopolize land — they are not to blame above any one else, but we who permit them to monopolize land are also parties to the theft. The Christianity that ignores this social responsibility has really forgotten the teachings of Christ. Where He in the gospels speaks of the judgment, the question which is put to men is never, "Did you praise me?" "Did you pray to me?" "Did you believe this or did you believe that?" It is only this: "What did you do to relieve distress ; to abolish poverty ?" To those who are condemned, the judge is represented as saying: "I was ahungered and ye gave me not meat, I was athirst and ye gave me not drink, I was sick and in prison and ye visited me not." Then they say, "Lord, Lord, when did we fail to do these things to you?" The answer is, "Inasmuch as ye failed to do it to the least of these, so also did you fail to do it unto me; depart into the place prepared for the devil and his angels." On the other hand, what is said to the blessed is, "I was ahungered and ye gave me meat, I was thirsty and ye gave me drink,'I was naked and ye clothed me, I was sick and in prison and ye visited me."