Land Value Taxation will solve many of the 21st century's most serious social, economic and environmental problems, and promote justice, fairness and sustainability. We CAN have a world in which all can prosper.
Progress and Poverty, by Henry George Here are links to online editions of George's landmark book, Progress & Poverty, including audio and a number of abridgments -- the shortest is 30 words! I commend this book to your attention, if you are concerned about economic justice, poverty, sprawl, energy use, pollution, wages, housing affordability. Its observations will change how you approach all these problems. A mind-opening experience!
Henry George: Progress and Poverty: An inquiry into the cause of industrial depressions and of increase of want with increase of wealth ... The Remedy This is perhaps the most important book ever written on the subjects of poverty, political economy, how we might live together in a society dedicated to the ideals Americans claim to believe are self-evident. It will provide you new lenses through which to view many of our most serious problems and how we might go about solving them: poverty, sprawl, long commutes, despoilation of the environment, housing affordability, wealth concentration, income concentration, concentration of power, low wages, etc. Read it online, or in hardcopy.
Bob Drake's abridgement of Henry George's original: Progress and Poverty: Why There Are Recessions and Poverty Amid Plenty -- And What To Do About It! This is a very readable thought-by-thought updating of Henry George's longer book, written in the language of a newsweekly. A fine way to get to know Henry George's ideas. Available online at progressandpoverty.org and http://www.henrygeorge.org/pcontents.htm
Where Else Might You Look?
Wealth and Want The URL comes from the subtitle to Progress & Poverty -- and the goal is widely shared prosperity in the 21st century. How do we get there from here? A roadmap and a reference source.
Reforming the Property Tax for the Common Good I'm a tax reform activist who seeks to promote fairness and reduce poverty. Let's start with the enabling legislation and state requirements for the property tax. There are opportunities for great good!
What is there in our economic life more significant than the fact that a majority must pay the relatively few for the privilege of living and of working on those parts of the surface of the Earth which geological forces and community development have made desirable?
"In a study of 2010 nationwide property tax rates, the average homeowner paid a median of 1.14 percent of home value that year, according to the Tax Foundation, a research group. In Manhattan, that figure was 0.78 percent. For the $88 million apartment at 15 Central Park West, 0.78 percent would be $686,000. But this year, the property taxes due on that penthouse were $59,000."
Just think how much productive activity we could untax were we-the-people to collect some portion of that annual land rent for public purposes. And consider how unproductive the Lords of Land are. What have they done to earn that land rent? Is our "tradition" -- to let them keep it -- a wise or just one, or is it part of our wealth concentration structure?
Here are the two articles, with a couple of calculations added: (Notice that acreage is not even mentioned!)
NYC Trump Co-Op Dwellers Face Million-Dollar Bills By Oshrat Carmiel Nov 6, 2014 4:16 PM ET
The ground beneath Trump Plaza, at 167 E. 61st St., is up for sale as land prices break records. Manhattan’s surging land costs are leaving the shareholders of an East Side luxury co-operative with a tough choice: pay a hefty price to buy the land under the building, or face increasing bills to keep renting it.
The ground beneath Trump Plaza, at 167 E. 61st St., is up for sale as land prices break records. The co-op board has offered to buy the property for $185 million, a cost that would saddle residents with assessments that, for some, would top $1 million, said Adam Leitman Bailey, a New York real estate attorney who has been contacted by owners concerned about the deal before it goes into contract.
“People are calling me to stop this from happening,” said Bailey, who has reviewed board documents but hasn’t been officially retained. “People want to stop the assessment.”
The 31-year-old co-op, which makes annual rent payments to the family that owns the ground, is weighing its financial future at a time when rising prices for land make it attractive for investors to buy such property for a reliable stream of rental income. The board opted to put in a bid as it otherwise faces the prospect of a steep rent increase when the lease resets in 2024, Bailey said.
“The fact that the family put it up for sale should terrify the co-op,” said Joshua Stein, a Manhattan real estate attorney who isn’t involved in the transaction.
“Whatever opportunistic investor buys the land will probably be way more aggressive about the rent reset than either an estate or a group of heirs,” he said. “Someone who is buying it, is buying it specifically to squeeze out every last dollar of rent.”
Marc Cooper, president of the co-op board and vice chairman of investment-banking firm Peter J. Solomon Co., didn’t return a phone call left at his office yesterday seeking comment on the plan to purchase the ground.
Co-op residents buy shares in a corporation that owns the building, rather than getting a deed to the apartment itself, as they would in a condominium. Shareholders make monthly maintenance payments that collectively cover building costs such as mortgage payments, ground rent and operating expenses.
A Trump Plaza shareholder with a 1,000-square-foot (93-square-meter) one-bedroom apartment whose monthly maintenance fee is now about $2,100 would pay about $9,800 after the rent is recalculated in 10 years, Bailey said, citing a projection by the building’s co-op board. The rent increase would be about 8 percent of what the land value is in 2024, he said.
Buildable lots in Manhattan sold for an average of $657 a square foot in the third quarter, up 29 percent from a year earlier and an all-time high for the period, according to Massey Knakal Realty Services. Three purchases completed in the quarter were for more than $1,000 a square foot, the firm’s data show.
LVTfan here: That $657 per square foot is NOT per square foot of land (at 43,560 sq ft per acre, that would be just $28.6 million per acre, laughably low in Manhattan). Rather, it is per buildable square foot. Quick and dirty, if a, say, 20 story building can be built on a 10,000 sf footprint, constituting 200,000 sf, the calculation would be 200,000 times $657, or $131.4 million, for that 1/4 acre, which works out to over $500 million per acre. $500 million per acre -- compared to an acre of good agricultural land, at $5,000 per acre, that's 100,000:1. (And for those 3 purchases over $1,000 psf, add 50% to that ratio.)
Possibly difficult for those of us who see land which sells for $5,000 or $50,000 or even $500,000 per acre to fathom $500 million per acre. But that's reality!
Trump Plaza’s situation is different from most other co-operatives in Manhattan, which do own the land on which the building sits and make no rent payments. Co-op units with ground leases tend to sell at a discount because they have higher maintenance costs and buyers sometimes face challenges getting mortgage financing. Other ground-lease co-ops in New York include 995 Fifth Ave., the Excelsior at 303 E. 57th St. and Carnegie House at 100 W. 57th St.
The ground beneath the 324-unit Carnegie House was purchased for $285 million to a group that includes Rubin Schron’s Cammeby’s International and real estate investor David Werner, Christa Segalini, a spokeswoman for Cammeby’s, said today. The 21-story building, with an entrance on Sixth Avenue, occupies an entire block front from 56th Street to 57th Street, according to real estate website Streeteasy.com.
For shareholders at Trump Plaza, buying the land beneath them means coming up with large sums of cash up front. Each owner was assessed a fee of about $2,329.40 a share, according to Bailey.
A resident of a two-bedroom unit who holds 440 shares in the corporation, for example, would be charged $1.02 million, Bailey said. A 1,600-square-foot three-bedroom apartment, worth 671 shares, would get a $1.56 million assessment. Residents get more shares the higher up their apartments are in the 39-story building.
The 154-unit Trump Plaza, at 61st Street and Third Avenue, was completed in 1983, according to StreetEasy. A 2,800-square-foot unit on the 32nd floor with views of Central Park is listed for sale at $3.95 million. The monthly maintenance charge for the three-bedroom, four-bathroom apartment is $7,228, according to the website.
LVTfan here: One might reasonably wonder how much (a) the sellers of the land were paying NYC in property taxes; (b) how much of the monthly "maintenance charge" for the condo is paid by the condo complex to the city in property taxes (which pay for the schools and lots of other public services) and how much is for the building and its services to the condo owners; and (c) how much the land share of that 32nd floor unit is. If a 1600sf apartment gets a $1.56 million assessment, the 32nd floor apartment, at 2800sf should be roughly twice that, or about $3 million. Thus, the $3.95 million asking price on the 32nd floor is about 4/7 of the total value, or 56%; the other 44% is land value.
The sale of the ground beneath the tower hasn’t gone into contract yet. Douglas Harmon and Adam Spies, brokers at Eastdil Secured LLC, are representing the owners, who are listed in public records as the estate of Donald S. Ruth and members of the Ruth family. Spies declined to comment on plans for the sale.
A purchase of the land by the co-op ultimately would add resale value to the building’s apartments, Stein said. Extinguishing the ground lease permanently removes the threat that rents will reset to unaffordable levels. With that uncertainty gone, future buyers would be willing to pay more for a unit in the tower, he said.
“If you’re the co-op, getting rid of that threat is a really good thing,” Stein said. “There’s a lot of value being created.”
To contact the reporter on this story: Oshrat Carmiel in New York at firstname.lastname@example.org
To contact the editors responsible for this story: Kara Wetzel at email@example.com Christine Maurus
Carnegie House at 100 West 57th Street (Photo credit: Google)
David Werner, a Borough Park investor who has wowed New York City with a series of big buys this year, partnered with Rubin Schron and the Cohen family to pay $285 million for the land under 100 West 57th Street, sources told The Real Deal. The 324-unit Carnegie House cooperative building is the ground tenant on the property.
A person close to the deal said the investment group closed yesterday on the purchase of the property, which is located at the corner of Sixth Avenue and 57th Street.
Insiders expect to see more pricey sales of land under co-op buildings with resets looming.
In fact, the sale is being mirrored nearby with the marketing of the ground under the Trump Plaza at 167 East 61st Street, which has a rent reset in 2024. Eastdil Secured brokers Doug Harmon and Adam Spies have that listing.
The co-op building has a ground lease that runs for another 51 years with the property owner, currently paying about $4.4 million per year. In approximately 10 years, the rent for the ground lease payments will reset. That reset will be based on market values.
an average of $13,600 per year per family -- ignoring the commercial tenants
Ground resets typically price the new rent at about 6 percent of the current market value.
Investment sales broker Robert Knakal, chairman of Massey Knakal Realty Services, estimated the value of the land to be at least $1,200 per square foot and up to $1,500 per foot, if the value of the retail is taken into consideration. Knakal is not involved in this property.
At that value, the land with 377,000 square feet of development rights, would be worth $452 million. That could work out to an annual rent payment of $27 million per year, if reset today, according to an analysis by TRD.
An average of $83,300 per family -- ignoring the commercial tenants
To help fund the purchase, the group obtained a $180 million loan from Natixis Capital Markets in a deal arranged by Drew Anderman, a senior managing director at the mortgage brokerage firm Meridian Capital Group, insiders familiar with the deal said.
I posted this comment elsewhere, and thought it worth sharing here:
I've not read far into the book yet -- and it is available online as a PDF file -- but by the time I was into the first chapter, it was clear that Dr. Piketty's economic education, extensive as it might be, entirely omitted the ideas of the classical economists who described a 3-factor economy: land, labor and capital. Piketty, like nearly everyone educated in economics in the past 40 to 80 years, writes as if there were only two factors -- labor and capital -- treating land as if it were a mere subset of capital, with no reason to recognize it as differentiated.
Land -- not only urban sites, but also the other things the classical economists would recognize as Land, such as water rights, oil, electromagnetic spectrum (our airwaves which we all say belong to the American people, but which are in reality owned by corporations), landing rights at busy landlocked airports, geosynchronous orbits, urban street parking, the value of dozens of other non-renewable natural resources -- is completely different in character from that which is created by labor. To fail to recognize that difference lies at the bottom of our inequality problem.
That which individuals and corporations produce is rightly individual property. That which the community and nature produce is rightly common property, belonging to all of us. Conflating Capital and Land leads us to permit the privatization of that which is rightly our common treasure.
You might be interested to know that the Landlord Game, invented by 1902, was intended to teach this concept. You have probably played Monopoly, which was based on this game, played with very different rules.
Explore the ideas of Henry George. Between 1885 and 1900 or so, everyone knew the name and many well understood his ideas. You might start with "Social Problems" or the more analytical "Progress and Poverty," or his speeches, "The Crime of Poverty," "Thou Shalt Not Steal," among others, online at http://www.wealthandwant.com. See also http://lvtfan.typepad.com.
Dr. Piketty and others whose education in economics has omitted George's ideas should not be treated as experts; they've mixed apples and oranges and not noticed that what they've created impoverishes the vast majority of us -- and enriches a few. (Parenthetically, consider who donates heavily to our universities.)
Interesting comments on a number of things, including doctors, slaves, soldiers, income inequality, sobriety, thrift, poverty,
Bad as we are, I believe that if we all understood how we are living,
and what we are doing daily, we should make a revolution before the end
of the week. But as we do not know; and as many of us, forseeing
unpleasant revelations, do not want to know; I can only assure you that I
am in perfect concord with standard economists when I state that
competition is the force that makes our industrial system self-acting.
It produces the effects which I have described without the conscious
contrivance or interference of either master on the one hand, or slave
on the other. It may be described as a seesaw, or lever of the first
order, having the fulcrum between the power and the weight.
The so-called right of private property is a convention that every man
should enjoy the product of his own labour, either to consume it or
exchange it for the equivalent product of his fellow labourer. But the
landlord and capitalist enjoy the product of the labour of others, which
they consume to the value of many millions sterling every year without
even a pretence of producing an equivalent. They daily violate the right to which they appeal when the socialist
attacks them. Nor is their inconsistency so obvious as might be
expected. If you violate a workman's right daily for centuries, and
daily respect the landlord's right, the workman's right will at last be
forgotten, whilst the landlord's right will appear more sacred as
successive years add to its antiquity. In this way the most illogical
distinctions come to be accepted as natural and inevitable. One man
enters a farmhouse secretly, helps himself to a share of the farm
produce, and leaves without giving the farmer an equivalent. We call him
a burglar, and send him to penal servitude. Another man does precisely
the same thing openly, has the impudence even to send a note to say when
he is coming, and repeats his foray twice a year, breaking forcibly
into the premises if his demand is not complied with. We call him a
landlord, respect him, and, if his freebooting extends over a large
district, make him deputy-lieutenant of the country or send him to
Parliament, to make laws to license his predatory habits.
One might be led to ask, how many is enough, and how we might go about encouraging our best and brightest into careers that serve others instead of rent-seeking. Two generations ago, many became doctors, engineers and teachers.
What changes in public policy will reduce the returns now funneled so generously to the rent-seekers, leaving more for the folks who labor in the productive sectors of the economy?
Why do we pay so little attention to rent-seeking?
Why is rent-seeking taught to our MBAs, but the impacts of rent-seeking not taught to our liberal arts, social sciences, political science, public policy students?
D'ya think that the rent-seekers might really really like it this way??
Shiller: Too Many Graduating Seniors Go Into Finance
Too many of the our brightest people may be choosing careers in finance,
undertaking economically and socially useless — and even harmful —
activities, Robert Shiller, a Yale University economics professor,
writes in an article for Project Syndicate.
survey of elite U.S. universities showed that 25 percent of Harvard
graduating seniors, 24 percent of Yale graduating seniors and 46 percent
of Princeton graduating seniors were going into financial services in
2006, notes Shiller, co-creator of the Case-Shiller home price index.
While those proportions have fallen more recently, he explains that might only be a temporary effect of the financial crisis.
more are going into speculative fields like investment banking rather
than traditional finance such as lending, he says, citing a study by
Thomas Philippon of the Stern School of Business, New York University
and Ariell Reshef of the University of Virginia.
need some traders and speculators, Shiller concedes, as they provide
some useful service — sorting through information about businesses and
trying to judge their real worth.
"But these people's activities
also impose costs on the rest of us," he explains. Much of their
speculation and deal making is "pure rent-seeking."
other words, it is wasteful activity that achieves nothing more than
enabling the collection of rents on items that might otherwise be free."
working in speculative finance fields are like a feudal lord installing
a chain across a river to charge fees on passing boats, he argues.
Making no improvements to the river, the lord does nothing productive
and helps no one but himself. Few people will use the river if enough
lords put chains across it to collect fees.
working in speculative fields, he says, "skim the best business deals,
creating a 'negative externality' on those who are not party to them."
For example, they can reject bad assets, such as subprime mortgage securities, offloading them to less knowledgeable investors.
repeal of the Glass-Steagall Act, which blocked commercial banks from
investment banking, allowed bankers to act more and more like those
feudal lords collecting fees.
"In fact, the main advantages of
the original Glass-Steagall Act," he says, "may have been more
sociological than technical, changing the business culture and
environment in subtle ways. By keeping the deal-making business
separate, banks may have focused more on their traditional core
A paper by economists at Columbia University and Princeton published on the Social Science Research Network website
showed that over-the-counter (OTC) traders allowed informed dealers to
extract excessive rents and to undermine organized exchanges by
"cream-skimming" the best deals.
informational rents in OTC markets in turn attract too much talent to
the financial industry, which would be more efficiently deployed as
real-sector entrepreneurs," the paper asserts.
Plus, OTC dealers'
rents tend to increase "as there are more informed dealers, because the
greater cream-skimming by dealers worsens the terms entrepreneurs can
get for their assets on the organized exchange, and therefore their
bargaining power on OTC markets."
What we have is a crisis of imagination. Albert Einstein said that you cannot solve a problem with the same mind-set that created it. Foundation dollars should be the best “risk capital” out there.
There are people working hard at showing examples of other ways to live in a functioning society that truly creates greater prosperity for all (and I don’t mean more people getting to have more stuff).
Money should be spent trying out concepts that shatter current structures and systems that have turned much of the world into one vast market. Is progress really Wi-Fi on every street corner? No. It’s when no 13-year-old girl on the planet gets sold for sex. But as long as most folks are patting themselves on the back for charitable acts, we’ve got a perpetual poverty machine.
It’s an old story; we really need a new one.
But perhaps Buffett's most important observation is this one:
"Inside any important philanthropy meeting, you witness heads of state meeting with investment managers and corporate leaders. All are searching for answers with their right hand to problems that others in the room have created with their left."
To which I can only insert ... "and are benefiting from."
He also points out,
As more lives and communities are destroyed by the system that creates vast amounts of wealth for the few, the more heroic it sounds to “give back.” It’s what I would call “conscience laundering” — feeling better about accumulating more than any one person could possibly need to live on by sprinkling a little around as an act of charity.
But this just keeps the existing structure of inequality in place. The rich sleep better at night, while others get just enough to keep the pot from boiling over. Nearly every time someone feels better by doing good, on the other side of the world (or street), someone else is further locked into a system that will not allow the true flourishing of his or her nature or the opportunity to live a joyful and fulfilled life.
I hope Mr. Buffett will take the time to read Henry George's "Progress and Poverty." He might be better able to identify the particular structures that create and maintain poverty and the concentrations of wealth, income and power. And, based on that last sentence, I think Buffett would appreciate the final section of P&P. (Bob Drake's 2006 abridgment is a fine starting place, but the unabridged is a pleasure of its own.)
One of the reasons for our poor economic performance is the large distortion in our economy caused by the tax system. The one thing economists agree on is that incentives matter — if you lower taxes on speculation, say, you will get more speculation. We’ve drawn our most talented young people into financial shenanigans, rather than into creating real businesses, making real discoveries, providing real services to others. More efforts go into “rent-seeking” — getting a larger slice of the country’s economic pie — than into enlarging the size of the pie.
It doesn’t have to be this way. We could have a much simpler tax system without all the distortions — a society where those who clip coupons for a living pay the same taxes as someone with the same income who works in a factory; where someone who earns his income from saving companies pays the same tax as a doctor who makes the income by saving lives; where someone who earns his income from financial innovations pays the same taxes as a someone who does research to create real innovations that transform our economy and society. We could have a tax system that encourages good things like hard work and thrift and discourages bad things, like rent-seeking, gambling, financial speculation and pollution. Such a tax system could raise far more money than the current one — we wouldn’t have to go through all the wrangling we’ve been going through with sequestration, fiscal cliffs and threats to end Medicare and Social Security as we know it. We would be in sound fiscal position, for at least the next quarter-century.
to which I posted a response. The last time I looked, it was the only one, out of about 430, which discussed the issue of rent seeking. Here's what I wrote:
How do we unstack it? Collect the rent. Treat it as our COMMON treasure, not something subject to privatization by individuals, corporations, foundations, universities, etc.
Will it fund everything? We don't know. We can't know. We don't even collect the data that would permit us to calculate its magnitude. (Funny thing about that. Wonder who benefits from that. Could it be the rent-seekers?) Start collecting it, and using it to fund public goods.
At the same time, start reducing, even eliminating the dumb taxes which burden the economy: taxes on sales, buildings, wages, starting with the lowest wages earned. Watch the 99% recover. Watch the economy recover. The 1% will do all right under such a set up, but the rest of us will begin to thrive. Most likely, we'd be able to reduce the amount we need to spend on the social safety net, so that collected rent might cover a large share of our internal revenue needs.
What else might we collect revenue from? How about the privileges we've given out -- the privilege of using the airwaves (think how much a strong radio signal sells for in a large city) and the entire electromagnetic spectrum; franchises of various kinds, landing rights at LaGuardia, particularly at rush hour;
Then there are our nonrenewable and scarce natural resources: water, oil, natural gas, various metals. Royalties on many of these things are trivial, or they are going into private pockets, instead of being treated as our common treasure.
We are laying the foundations in this state for a greater
distinction of classes than exists in any state of the Union at the
present day — as great as that which exists in England, where one man
rolls in wealth and another can scarcely keep body and soul
together. We are not much over twenty years old, and have in this
great empire of our own hardly half a million people. Yet, there is
already one man among us who is worth nearly ten million dollars,
and quite a number who are worth from one to seven, while the best
part of our land is divided off into estates, which in a little
while, when population becomes denser, will make their owners as
rich as the Duke of Argyll, or the Marquis of Bute.
There is a constantly increasing tendency to the concentration of
wealth. The greater the fortune, the more rapidly it grows; and
though the people who hold these great aggregations of money may be
constantly changing, as they are changing in England, there will
constantly remain the distinction between the very rich and the very
poor. These two classes are the correlatives of each other; one man
cannot become enormously rich without other men becoming
proportionately poor. If not for our own sakes, at least for the
sake of our children, is it not time for us to stop and ask what is
the cause of this tendency of property to accumulate in a few hands? There is
certainly nothing in the laws of Nature which requires the giving to
one man of as much as can be had by ten thousand of his fellows.
-- Henry George, March 17, 1873, in the (San Francisco) Daily Evening Post, quoted by Kenneth Wenzer in Henry George: Collected Journalistic Writings, Volume 1, pp. 69-70
THE power of a special interest, though inimical to
the general interest, so to influence common thought as to
make fallacies pass as truths, is a great fact, without
which neither the political history of our own time and
people, nor that of other times and peoples, can be
understood. A comparatively small number of individuals
brought into virtual though not necessarily formal agreement
of thought and action by something that makes them
individually wealthy without adding to the general wealth,
may exert an influence out of all proportion to their
numbers. A special interest of this kind is, to the general
interests of society, as a standing army is to an
unorganized mob. It gains intensity and energy in its
specialization, and in the wealth it takes from the general
stock finds power to mold opinion. Leisure and culture and
the circumstances and conditions that command respect
accompany wealth, and intellectual ability is attracted by
it. On the other hand, those who suffer from the injustice
that takes from the many to enrich the few, are in that very
thing deprived of the leisure to think, and the
opportunities, education, and graces necessary to give their
thought acceptable expression. They are necessarily the
"unlettered," the "ignorant," the "vulgar," prone in their
consciousness of weakness to look up for leadership and
guidance to those who have the advantages that the
possession of wealth can give. — The Science
of Political Economy — Book
II, Chapter 2, The Nature of Wealth: Causes of Confusion as
to the Meaning of Wealth
Quite belatedly, I found an interesting article on Taxi Medallions and Rent-Seeking. I particularly like the juxtaposition of the sidebar and the article's primary content; read the sidebar first.
Why did I include in the "categories" for this post "all benefits go to the landholder"? Because a taxi medallion is a privilege, which, in classical economics, is another form of "land." Read the sidebar!
There is an easy solution: auction off those privileges for limited periods of time. Lather, rinse, repeat!
The sidebar quotes Adam Smith "... the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce," which leads me to think about Henry George's axiom that
"The fundamental principle of human action — the law that is to political economy what the law of gravitation is to physics — is that men seek to gratify their desires with the least exertion." [Progress & Poverty Book III, Chapter 6 — The Laws of Distribution: Wages and the Law of Wages]
One quote from the body of the article:
Studies of economic losses due to rent-seeking and the resulting
monopolies have produced figures ranging from 3 to 12 percentage points
of national output for the US.
All of these are possible reasons why the city of Milwaukee might want
to limit the number of cab permits, but they do not imply that the
existing owners must have a permanent right to them.
The city could simply auction 321 licences every year or two and capture
all of the economic rents for itself. Another argument is that a permit
acts as a pension for drivers that would otherwise not have a business
they could sell on retirement. But that is true only for the first,
lucky generation of owners.
Here are the opening paragraphs of a recent article about the complexities of Ground Lease contracts. I commend the entire article to your attention. It helps flesh out why and how the entire FIRE sector -- Finance, Insurance and Real Estate (as well as their attorneys) -- is receiving such a large share of the profits produced by the productive sectors of the economy. The owner of land, and the entities which lend on land, and insure the buildings and the revenue flow, all reap significant shares of what the tenants labor to create. Modern sharecropping. And the recipients of the ground rent get to parade as self-made men, people of awesome foresight and wisdom -- and even philanthropists (think Brooke Astor, the Fishers, and others in your own community) when they donate a small share back to a charity! As you read this, think both of Manhattan land and of land in your community's central business district, and along its major roads. (Location, location, location!)
If one wonders why (true) small business struggles, one might consider the complexity and expense of their ground leases, and contrast that with the Georgist alternative: that one's taxes would be simply the current rental value of the land, while the value of the building remains one's private property, not subject to taxation or going pouf! at the end of a ground lease.
The land lord is "supplying" something he didn't create. We ought to ease him out. Land value taxation is the obvious tool for reducing, and -- slowly or not -- eliminating, his "take" on those who do create. Think what it would mean if working people had that spending power, instead of the lords of the land.
All that land rent could be used to fund our community's needs, instead of lining the pockets of a few very "lucky" -- privileged -- duckies. (The analogies to chattel slavery are not a long stretch, once one starts to think about it. We should all own ourselves, and reap the fruits of our own labors.)
A lease is a lease is a lease – or so you may think. Yes, real property leases grant an estate in land to a tenant for a period of time. And yes, the tenant pays for that right of possession. But the action in a lease isn’t in the conveyance provisions; it’s in the contract provisions. Multiply out the rent and other annual monetary obligations by the length of the lease term (in years), and you’ll see that it might be (and often is) a big dollar contract. Even more important, unlike the vast majority of contracts whose obligations are satisfied in days or weeks, a lease contract goes unfulfilled for 50, 75, “99,” and even 500 years. That takes it beyond the life of the parties involved in its creation, and the future brings surprises. Neither Nostradamus nor Jules Verne got everything right.
Why a Ground Lease?
If a tenant has to build its own building (as is often the case), and has all of the burdens of ownership, why would it lease a property knowing that at the end of the lease term it has nothing left to show for its money and efforts? There are a number of common reasons, principal among them is that the owner won’t sell the land and the tenant has no alternative.
Real property often carries a long term unrealized gain, waiting to be taxed upon its sale.
Not every landowner is interested in making further active real property investments. This makes a like kind exchange unappealing.
Ground leasing the same land keeps ownership in the family. At the owner’s death, because of the current estate tax “stepped up basis” arrangement, the built in gain may never be taxed.
The hospitals (of England) are full of the ancient. . . . The
almshouses are filled with old laborers. Many there are who get
their living with bearing burdens, but more are fain to burden the
land with their whole bodies. Neither come these straits upon men
always through intemperance, ill-husbandry, indiscretion, etc.; but
even the most wise, sober and discreet men go often to the wall when
they have done their best. . . The rent-taker lives on the sweet
morsels, but the rent-payer eats a dry crust often with watery eyes.
—Robert Cushman, Plymouth, 1621, in Young's "Chronicles of the
As soon as I see landed property established, then I see unequal
fortunes, and from these unequal fortunes must there not necessarily
result different and opposed interests, all the vices of riches, all
the vices of poverty, the brutalisation, the corruption of civil
—Jean Jacques Rousseau, "Douies sur L'Otdre Naturel."
When there is even one billionaire, there will be several
half-billionaires and many hundred-millionaires. The fact will
be an indication of a tremendous concentration of wealth, and of the
dwindling proportion of wealth held by the farmers and wage-earners
of this country. The billionaire will bring an army of paupers
in his train. Possibly the actual average wealth of farmers
and mechanics then may be a little greater than it is now.
Optimists of that day may assure them that they are richer, by ten
dollars each, than their ancestors were; and therefore that all is
for the best in this best of all possible worlds. But the
discontent of the masses, under a system which gives to one man a
larger amount of wealth than can ever be attained by a million of
his fellow citizens who are fully his equals in skill and merit and
far his superiors in industry, is certain to be great and ever
increasing. Indeed, universal experience demonstrates that
discontent among the masses is far greater than when the weight of
oppression is somewhat diminished than it was before.
The vast majority of any community must
always have incomes so small that they cannot help spending three
fourths of what they receive. But the small minority of large
property-owners do not need to spend one eighth of their incomes,
and as a rule they do not spend one half. Looking at the
subject with reference to accumulated wealth, the man who is worth
$1,000 usually spends at least $500 a year on the support of his
family, while the man who is worth $1,000,000 rarely spends
$50,000. Indirect taxation, therefore, obviously bears at
least ten times as heavily upon the former as upon the latter.
Under absolutely direct taxation, no poor man would ever pay a
larger share than a rich man, and, indeed, most of the working
classes would pay no taxes at all; because the collection of direct
taxes from them would be too laborious and expensive to be
Direct taxation, on a large scale, is near at hand. The men
who bought and paid for the present Congress can now choose what its
form shall be. They can have a general income tax, or they can
have something less open to fraud, less inquisitorial in its nature,
less oppressive upon honest men, and offering no premium to
perjury. But they know nothing about the science of taxation,
and they do not care to learn; so that the whole matter will be left
over to the new Congress, and a general income tax, objectionable as
it is, seems most likely to be adopted.
The Coming Billionaire
The Forum, January, 1891, page 546-557
In the FORUM for November, 1889, the question was asked, "Who owns
the United States?" and reasons were given for the belief that one
half of all the national wealth is owned by 40,000 families and that
three fourths of it is in the possession of fewer than 250,000
families. These estimates were based in part upon official tax
returns, but in part, also upon private information as to the wealth
of 70 estates, specifically named, each estimated to be worth
more than $20,000,000 and averaging $37,500,000. The
correctness of these statistics, as well as that of the inferences
drawn from them, has been somewhat bitterly denied. Hostile
critics have assumed that the estimates of individual wealth were
based entirely upon newspaper reports; and many newspaper editors,
acting presumably upon their own experience, have unhesitatingly
declared that such statistics are necessarily worthless.
But not one tenth of these names were given upon the authority of
newspaper estimates, while a large majority were given upon very
trustworthy private information. It has been said that no one
can tell what a man's wealth amounts to without access to his books,
which, it has been assumed, is impossible. In several
instances, however, the information came from persons who had access
to the necessary books or had been permitted to inspect the
securities; in some cases it was obtained from tax returns; and in
other cases it was taken from the oral or written statements of the
owners themselves. For example, one gentleman, whose wealth
was set down at $100,000,000 had actually exhibited $75,000,000 in
securities, and had testified in a court of law to the possession of
$10,000,000 more of one kind, all encumbered. During the year
which has now elapsed, not one tenth of these names have been
specified by any one as erroneously entered upon the list or as
seriously overrated, and in only three instances has any probable
error been established. These names might be omitted, and
their places might be supplied by others of the twenty million
grade. Errors of understatement have been discovered which
largely counterbalance all overstatements. The least that can
be said is that there are 70 American estates that average
$35,000,000 each, not including Trinity Church, which perhaps should
not be classed with strictly individual owners. During the
year, by the consolidation of two estates, one individual has become
worth at least $200,000,000. Two brothers, whose property is
held as a unit, together own even a larger amount than this.
Some great estates have been divided up by inheritance, but others
have been divided up by inheritance, but others have been still more
concentrated by that means.
Government's role in income inequality in the U. S.
The federal government has emerged as one of the most potent factors behind the rise in income inequality in the United States - especially in the nation’s capital. Income is increasingly being redistributed up, not just down, through tax cuts and to a growing upper class of contractors, lobbyists and lawyers.
Massachusetts, home to America’s best schools and best-educated workforce, has seen income inequality soar. Why? The poor are losing an academic arms race with the rich. READ MORE
The Undeserving Poor
The American welfare state is bigger than ever, but so are the ranks of the poor. As the U.S. focuses on those deemed most worthy, millions of adults get squeezed. That is clear in Indiana, which has seen a surge in poverty. READ MORE
DEMOCRACY is like a bicycle: if you don’t keep pedaling, you fall. Unfortunately, the bicycle of Greek democracy has long been broken. After the military junta collapsed in 1974, Greece created only a hybrid, diluted form of democracy. You can vote, belong to a party and protest. In essence, however, a small clique exercises all meaningful political power.
For all that has been said about the Greek crisis, much has been left unsaid. The crisis has become a battleground of interests and ideologies. At stake is the role of the public sector and the welfare state. Yes, in Greece we have a dysfunctional public sector; for the past 40 years the ruling parties handed out government jobs to their supporters, regardless of their qualifications.
But the real problem with the public sector is the tiny elite of business people who live off the Greek state while passing themselves off as “entrepreneurs.” They bribe politicians to get fat government contracts, usually at inflated prices. They also own many of the country’s media outlets, and thus manage to ensure that their actions are clothed in silence. Sometimes they’ll even buy a soccer team in order to drum up popular support and shield their crimes behind popular protection, as the drug lord Pablo Escobar did in Colombia, and as the paramilitary leader Arkan did in Serbia.
In 2011, Evangelos Venizelos, who was then the finance minister and is now the leader of the socialist party, Pasok, instituted a new property-tax law. But for properties larger than 2,000 square meters — about 21,000 square feet — the tax was reduced by 60 percent. Mr. Venizelos thus carved out a big exemption for the only people who could afford to pay the tax: the rich. (Mr. Venizelos is also the man responsible for a law granting broad immunity to government ministers.)
It seems to me that I also heard that the property tax law only applied to land with buildings on it -- it was collected via electric utility bills! Thus, vacant land, even in choice locations, seemed to be excluded.
How to kill an economy!
Such shenanigans have gone on for decades. The public is deprived of real information, as television stations, newspapers and online news sites are controlled by the economic and political elite.
The article goes on to detail other corrupt things, and then concludes:
This is all unfolding at a time when Greece is walking a tightrope above the abyss of bankruptcy, while the coalition government is instituting new taxes on the lower classes. Half of young Greeks are unemployed. The economy is shrinking at an annual rate of 6.9 percent. People are scrounging for food. And a neo-Nazi party, Golden Dawn, is on the rise, exploiting the resentment and rage toward the ruling class.
The Greek people must remount their bicycle of democracy by demanding an end to deception and corruption. Journalists need to resist manipulation and rediscover their journalistic duties. And the government should revive Greece’s ancient democratic heritage — instead of killing the messenger.
An extract from an address delivered by the late
Thomas G. Shearman at Portland, Ore., June 17, 1889. This address, just
as it was taken down by the stenographer at the time, was reproduced In
the September (1900) number of "Why?", an excellent little periodical
published by Frank Vierth at Cedar Rapids, Ia. As the editor of "Why?"
says: "The lapse of nearly 12 years gives the speech added interest and
Some cause has been at work during the last 25
or 30 years, which has resulted in a tremendous widening of the social
chasm between the rich and poor. Some
cause has, within the recollection probably of the majority of those
who are present, entirely transformed the face of American society.
Our old equality is gone. So far from being the most equal people on
the face of the earth, as we once boasted that we were, ours is the
most unequal of civilized nations. You talk about wealth of the
British aristocracy, and about the poverty of the British poor. There
is not in the whole of Great Britain and Ireland so striking a
contrast, so wide a chasm between the rich and the poor, as there is in
these United. States of America. There is no man in the whole of Great
Britain and Ireland who is as wealthy as one of some half a dozen
gentlemen who could be named in this country; and there are few there
who are poorer than some who could be found in this country. It is
true, I think, even yet, that there is a larger number of the
extremely poor in Great Britain and Ireland than there is in this
country. Haw long that will remain true it is difficult to say; but it
is unquestionably not true that there is any greater mass of riches
concentrated in a few hands in any country than in this.
Whereas, 40 years ago a man worth $100,000 was,
even in our great city of New York, an object of remark and envy, such
a man is now utterly obscure and unnoticed, and is considered to have
laid merely the beginnings of a very moderate part of the capital which
would be necessary for him to make a living.
Whereas, 40 years ago, there was but one man in
the United States who was supposed to be worth more than $5,000,000,
there are several Astors now, each of whom is generally reputed to be
worth at least $50,000,000. There are probably ten times as many men
today who are worth $20,000,000 as there were 40 years ago who were
worth $1,000,000; and there are now several men, who are worth over
This state of things is developing more and more
rapidly. In every corner are men and women buried in obscurity, until
we learn by some accident that they are worth their $10,000,000 or
$20,000,000. A single member of a banking firm in, the city of
Philadelphia lately died, leaving more than $21,000,000. There are at
least four surviving partners in that firm having equal shares with
the deceased. Two Philadelphians, of no public fame, recently died,
having $22,000,000 each. One lady in my own city of Brooklyn is worth
certainly not less than $30,000,000. We see evidences of this enormous
accumulation on every side. And, it can be demonstrated with great ease by statistics which are
undisputed, that at the present day less than 100,000 persons,
constituting as a matter of fact only about one two-hundredth part of
our working force, are possessed of incomes which enable them to save
about three-fifths of all the wealth that is annually saved in this
country. And as wealth is substantially all reproduced within less
than 30 years, this means that within 30 years 100,000 persons are
destined to own three fifths of the entire wealth of the United States;
land, houses, improvements, goods, chattels, personal property of every
Everybody knows that
this state of things is undesirable. This enormous amount of wealth
concentrated in a few hands brings to them no particular pleasure, no
additional comforts, certainly does not bring to them anything like
Published weekly, by Henry George,
at the office of The Standard, 25 Ann Street, New York
October 22, 1887
printed in The Standard,
October 8, 15 and 22, 1887
Mr. Edward Atkinson is a gentleman of whom I have no disposition to
speak in any other terms than those of respect and esteem. He
has done a vast amount of useful work; he is sincerely desirous of
promoting the welfare of mankind; he has done much for the
dissemination of sound ideas on economic questions, and he is always
sincere and earnest. His weakness is mostly in a too strong
conviction of his own infallibility, in the full persuasion that he
knows just what needs to be done, how it is to be done and when it
must be done, and a consequent peremptory method of disposing of
everybody as something very like a fool who does not agree with him
upon all these details. Thus, he has been for many years in
favor of free trade, and in former years he strenuously insisted
upon the vital importance of reform in that direction. He has
not recanted his opinions; but he has become more interested in
other questions, and now he has very little patience with, and
indeed, something very like contempt for, men who hold his opinions
as to free trade and think that issue more important than the new
questions which have recently attracted Mr. Atkinson's mind.
In May last Mr. Atkinson addressed the Boston labor lyceum,
ostensibly on the subject of the proposed eight hour law, but really
on the question, "How are the profits divided?" His address,
as revised, has but just come into my hands, and it raises some
issues which need further consideration and a broader view. In
reviewing its conclusions, it may be as well to accept its statement
of facts and statistics without dispute, for it is so evident that
Mr. Atkinson has overlooked important elements of the problem, upon
his own showing, that it is not worth while to enter into
controversy as to the facts or figures.
Mr. Atkinson claims that in $1,100,000 worth of cotton sheeting
there is not more than $145,000 profit to capitalists, while $15,000
go in taxes and $940,000 to labor. He makes no allowance
whatever for rent, except perhaps for the rent of the ground upon
which the mill stands. He assumes that 1,400 bales of cotton
can be grown upon land which pays no rent and costs nothing to the
cotton grower. Of course he makes no allowance for rent in the
cost of supplies, machinery, repairs, freight, etc. In one
place he says that rent does enter into the cost; in another he says
that if the landlord is taxed upon his rent he will add the tax to
the rent, and so it will enter into the cost; and finally he says
that rent amounts to a trifle less than 1% of sales, anyway.
Now the truth is that before this $1,100,000 worth of cotton
sheeting can get into the hands of the people there must be paid out
of the proceeds rent, or the interest on the cost of the land, which
is the same thing, on the land where the cotton is grown, on which
the supplies are manufactured, on which the railroad is laid, on
which the repairs are done, on which the sheeting mill is situated,
on which the great stores where the sheetings are sold stand, and,
finally, on which the residences of the 3,400 persons said to be
engaged in producing these goods also stand. All this is
plainly stated in Mr. Atkinson's "Distribution of Products."
We will leave Mr. Atkinson to reckon the amount of these items,
simply remarking that upon his own estimates the single item of the
rent of the stores in which the goods are sold would add $100,000 to
their cost, and that, making the most moderate allowance for the
rent of the other land used in this work of production, it is
obvious that rent alone would far exceed the whole sum Mr. Atkinson
has allowed to go to compensation for capital.
In the next place, Mr. Atkinson has fallen, for the moment, into the
old idea, long ago exploded by Adam Smith, but still current among
unthinking people, that what is spent by the rich in their personal
luxuries is as truly employed for the general good as that which is
spent in productive enterprise. He seeks to reduce the
$145,000 appropriated by capital by showing that much of this is
spent in employing labor. He might just as well include the
whole of it, because even the money which he charges to waste, as
spent on champagne, etc., is all paid out for labor of some kind.
The true rule is that nothing should be charged to labor except that
which is expended usefully and so as to promote reproduction.
A lord who employs a hundred servants to wait upon his idle and
useless person, not only wastes the money which he pays to them, but
also wastes their time and skill in occupations which neither help
him nor them to serve mankind any better than they would have done
before. Every dollar thus spent is devoted to waste, not to
THE DISTRIBUTION OF WEALTH BY THOMAS G. SHEARMAN. II.
An Irish landlord, writing to the London Times, called particular attention to the fact
that, in case all the landlords should be expelled, the whole of
Ireland, outside of the large towns, would be left without a single
person whose annual income would exceed $1,500. To the wealthy
landlord who owns the Times,
this appalling fact seems to afford such conclusive proof of the
desolation and misery which would follow home rule that he deems it
superfluous to add a word of comment. He considers it quite enough
to say that no such state of things exists in any civilised country.
That it should be eventually brought about in Ireland, he evidently
believes, must be considered by every sane man as one of the most
frightful disasters which could befall the human race.
I am writing in Germany, the country from which have proceeded the
most important additions to the intellectual wealth of the world
during the last fifty years. The man who knows nothing of the
contributions made to history, to theology, to science, whether
abstract or applied, by German students, knows practically nothing
at all. What have been the income of the men who have thus enriched
the world! Rarely so much as $1,500; generally not half that amount.
Some of the world-famous German scholars accomplished their great
achievements on an income of less than $600 a year.
New England developed a marvelous degree of intellectual activity in
the colonial period of our history, though confined within a narrow
circle. But that was a period of small incomes and very little
accumulated wealth; nor did the few wealthy men contribute anything
of importance to the intellectual or moral development of the
people. What have the wealthy Irish landlords done for the
development of the Irish people in religion, morality or intellect?
What contribution has any wealthy Irish landlord ever made to
literature, science, art or high thought of any kind? What benefit
have these men of wealth conferred upon any part of the world in any
direction? They have just held a solemn meeting to answer these
questions, and their own testimony affords the best evidence against
them. They claim to have advised their tenants to improve their
stock, to introduce better methods of cultivation and to qualify
themselves generally to pay higher rents, while they themselves have
set excellent examples to their inferiors by taking good care of
Many years ago a practical joker inserted an advertisement in a
daily paper to the following effect: "Wanted, by a young gentleman
of good birth and breeding, board in a respectable family, where his
Christian example would be considered sufficient compensation for
his board." The Irish landlords do not advertise, but they get
precisely that for which the young man advertised in vain. Their
Christian example, however, has been chiefly directed toward
hunting, horse racing and hard drinking. Certainly, down to a period
less than fifty years ago, all accounts of Ireland agreed in this;
and except that the drinking is conducted with more moderation,
there seems no reason to believe that there has been any change.
This, the third and final instalment, appeared in The Standard, October 22, 1887:
DISTRIBUTION OF WEALTH.
BY THOMAS G. SHEARMAN.
Having reached the conclusion that indirect, or as the writer first
called it five years ago, "crooked" taxation is certain to produce
enormous inequality of wealth, that it is palpably and indisputably
unjust, and that it inevitably leads to that worst form of
inequality which involves the perpetual ownership of more than half
of the wealth of a country by less than the one-hundredth part of
its inhabitants, we are prepared to take up the next and final
question in our series.
What can be done to effect a more equal distribution of wealth,
without diminishing its production?
Again let us waive the discussion of rent. Having purposely avoided
all consideration of that tender subject, we will not take it up
just now. Assuming that rent can rightfully be private property, and
that the community is not to claim it, simply as rent — conceding
all that the champions of private property in land claim — let us
inquire what, nevertheless, remains to be done and ought to be done,
in order to prevent the unjust use of government to the injury of
the poor, and to check the artificial tendency toward the monopoly
of wealth by a hundredth part of the population.
A few snippets from the season premier of Downton Abbey and a preliminary program about the estate where it is filmed.
Like many others, I'm a fan of the Downton Abbey series. I think a lot about the economics of maintaining an estate that size -- how many people are involved -- how many breadwinners employed, and for whose benefit -- what the products are, what the opportunities are for local residents to live without being either employees or tenants, and what percentage of their annual income goes to support the owners of the land. Large spreads of land certainly reduce the pool of employers.
5,000 acres is 7.8 square miles. 5 times Central Park, I think they said. That's a circle of 1.57 miles radius. A long way from one's nearest non-tenant neighbor, even if they live right at one's perimeter! Small by Texas standards, perhaps, but its location within a reasonable radius of London makes it far more valuable.
It was 20% bigger when the current owner's grandfather owned it. Taxes "chipped away" at it. (Cui bono?)
The program focuses on the people involved in keeping the castle itself and its immediate grounds going; it doesn't mention the tenant farmers.
Watching the program about the Highclere property, I am reminded of a presentation I heard in Newport, Rhode Island, this fall, about the gardeners and property managers of the great estates there. They seemed to have more employers to choose from, since the typical estate in Newport might be a few acres.
Ah, there's a Rothschild in the picture! The wife of the 1890's occupant ... with a dowry.
Against all odds, Highclere survived ... in other words, they didn't need to sell off land to other people?
1500 acres of grazing ... an important source of income for generations ... and oats for the queen's (and others') racehorses. (Do the royals watch Downton Abbey?)
A straight-on view of one side of the castle suggested that one side was about 17 windows wide. I grew up in a subdivision "colonial-style" home, built about 1963, which was 5 windows wide on its front side. I thought it was huge!
The 3rd season premier:
@14 minutes: "The estate must be a major employer and support the house!"
This excerpt from an 1890 article in The Arena seems relevant as we look at gun violence and other contemporary problems created by lack of employment and income -- and hope.
It would be far better for society if instead of speculating on the
forms of punishment we turned our attention to the means of preventing
the crimes for which we punish the offenders. It has been observed that
most of the murders occur among the poor people, and upon the top floors
of tenement houses; that is to say, among the poorest of the poor. The
connection between poverty and the crime of murder, like the connection
between poverty and all other crime, is demonstrably close. If we could
cure the social disease of poverty, the seeds of crime would be
destroyed. The people rarely think of this. They think it is our
business to punish crime; but it is our best business to prevent it. Our
present organization of society manufactures criminals faster than we
can possibly take care of them. Poverty degrades men; it robs them of
leisure, which is absolutely necessary for the development of mind, and
the proper control of the passions; it keeps the people hungry and
fierce; it imbrutes them; it makes Ishmaels of them — their hand is
against society as the hand of society is against them. Plant a
generation of paupers, and you will reap a crop of criminals.
If we are wise we will turn our attention to the most important problem
of this or any age: how to so enrich the people that the temptations to
crime will be minified to the last possible degree. The solution of the
problem is as simple as it is important. For every millionaire we shall
have a thousand tramps; for every monopolist we shall have a hundred
burglars; for every woman who lives in idleness upon the fruit of
others’ toil, filched from them under the name of interest or rent, we shall have a score of prostitutes; for
every vacant land owner and money limiter — the twin man-starvers — we
shall have a murderer. One is the seed from which the other grows.
Eliminate your monopolists, the king of whom is the owner of vacant
land, and your problem of crime is settled. With open opportunities for
men to apply their labor to natural wealth productions, tenfold more
wealth would be produced and equitably distributed; and with wealth many
times multiplied and equitably distributed, a criminal would be more of
a curiosity than the original three-toed horse.
If memory serves, Hugh Pentecost was an Episcopal priest, perhaps in Newark. The title of the article from which these paragraphs come is "The Crime of Capital Punishment."
I like the word "minified." Maybe there is a useful slogan there: Minify Taxation! ("To make smaller or less significant; reduce.") We could collect the revenue we need with lower taxes were we to concentrate our taxes on land value, in all its manifestations. And in the process, we would reduce poverty, reduce the cost of living, reduce wealth concentration, reverse sprawl, naturally create employment and self-employment opportunities, and stabilize our economy. It seems to me that any one of these goals is worthy, and if this reform would move us closer to any of these goals, it is worth pursuing.
And, importantly, with less need to rely on a social safety net, spending could be signficantly reduced.
We worked through spring and winter,
through summer and through fall.
But the mortgage worked the hardest
and steadiest of them all;
It worked on nights and Sundays, it
worked each holiday;
It settled down among us and it never
Whatever we kept from it seemed almost as bad as theft;
It watched us every minute and it
ruled us right and left.
The rust and blight were with us
sometimes, and sometimes not;
scowling mortgage was forever on the spot.
The weevil and the cutworm they went
as well as came;
The mortgage stayed forever, eating
heartily all the same.
It nailed up every window, stood
guard at every door,
And happiness and sunshine, made
their home with us no more;
Till with falling crops and sickness
we got stalled upon the grade.
And there came a dark
day on us when the interest wasn't paid.
And there came a sharp foreclosure,
and I kind o' lost my hold.
And grew weary and discouraged and
the farm was cheaply sold.
The children left and scattered, when
they hardly yet were grown;
My wife she pined and perished, and I found myself alone.
What she died of was a mystery, and
the doctors never knew;
But I knew she died of mortgage — Just
as well as I wanted to.
If to trace a hidden sorrow were
within the doctors art.
They'd ha' found a mortgage lying on
that woman's broken heart.
Worm or beetle, drought
or tempest, on a farmer's land may fall.
But for a first-class
ruination, trust a mortgage 'gainst them all.
How much of a farmer's mortgage is for the value of the land itself, and how much for the present value of the improvements which previous owners have made, such as clearing, draining, fencing, irrigating, building structures, plus, perhaps, equipment purchased with the land and buildings?
For that matter, how much of a homeowner's mortgage is for the value of the land itself --including its access to community-provided services such as city water and sewer, fire hydrants, and the like -- and how much for the purchase price of the landscaping and structures on the property, built by any of the previous owners?
To what degree is the modern buyer including in his formal calculations or his underlying assumptions the notion that the land will increase in value during his tenure? (See Case & Schiller, 2003.)
are nearing the season of the year when the society columns of the
newspapers will report that "everybody is out of town." "Everybody!"
What a world of impertinence and aristocratic insolence there is in that
word! Yet no phrase is more commonly used on the piazzas and lawns and
beaches and golf links of our fashionable summer resorts.
a matter of fact, the whole great city goes straight along thru the
year, taking no heed of heat and cold, rains or droughts. All its myriad
enterprises move along as if there were no differences of weather or
street is as busy in the summer as it was in the winter. Not a single
trolley car has been taken from the rails. Every egg-box tenement is
packed as full as ever. Every shop and mill and factory and store is as
busy with its ordinary activities as if the thermometer registered fifty
instead of ninety degrees.
thru the sweltering days of June, July, and August, when even at the
cool beaches the idle pleasure-seekers are gasping for breath and
wishing themselves in Labrador, when the city has become a great oven of
brick and stone, there are still apparently as many workers as ever
jostling one another on the street cars and in the over-heated
truth is that those who leave the city for the summer are in most cases
not missed. The fashionable set is only a handful of dudes and dolls,
who can come and go whenever they please without having any effect upon
the serious work of the world.
speaking, they are the nobodies of our cities. They do no useful work
and their relation to the real worker is about the same as that of the
potato-bug to the potato. They are nobodies, yet such is this queer
social system of ours that if it were not for them the useful workers
would not have to work so hard and so long during the hot summer months.
There would be shorter hours and vacations for all. — Boyce's Weekly -- reprinted in "The American Cooperator."
I stumbled across an excerpt from this in The American Cooperator, and when I couldn't find the material in any of George's other books, I went looking for the source, an 1887 book with chapters by 16 authors.
Enjoy! (It prints out as about 9 pages, if you're so inclined)
THE HISTORY, PURPOSE AND
POSSIBILITIES OF LABOR ORGANIZATIONS
IN EUROPE AND AMERICA; GUILDS, TRADES-
UNIONS, AND KNIGHTS OF LABOR; WAGES AND PROFITS;
HOURS OF LABOR; FUNCTIONS OF CAPITAL; CHINESE LABOR:
COMPETITION; ARBITRATION; PROFIT-SHARING AND
CO-OPERATION; PRINCIPLES OF THE KNIGHTS OF
LABOR; MORAL AND EDUCATIONAL AS-
PECTS OF THE LABOR QUESTION.
EDITED BY GEORGE E. McNEILL,
First Deputy of Mass. Bureau of Statistics of Labor; Sec.-Treas. of D. A. 30, Knights of Labor.
ASSOCIATE AUTHORS: TERENCE V. POWDERLY, G. M. W., K. of L.; DR. EDMUND J. JAMES, University of Pennsylvania; HON. JOHN J. O'NEILL, of Missouri;
HON. J. M. FARQUHAR, of New York; HON. ROBERT HOWARD, of Massachusetts; HENRY GEORGE, of New York;
ADOLPH STRASSER, Pres. Cigar Makers' Union; JOHN JARRETT, of
Pennsylvania; REV. R. HEBER NEWTON, of New York; F K. FOSTER, of
Massachusetts; P. M. ARTHUR, Chief Engineer Locomotive Brotherhood; W.
W. STONE and W. W. MORROW, of California; FRANKLIN H. GIDDINGS,
"Springfield Union"; JOHN McBRIDE, Secretary Coal Miners' Union;
D.J.O'DONOGHUE, of Toronto, Canada; P. J. McGUIRE, Secretary Carpenters'
NEW YORK: THE M. W. HAZEN CO.
Copyright 1886, by
A M. BRIDGMAN & CO.
CHAPTER XXIII. THE LAND QUESTION.
MAGNITUDE OF THE QUESTION — FIRST PRINCIPLES — THE
LAND-OWNER THE ABSOLUTE MASTER OF MEN WHO MUST LIVE ON HIS LAND — THE
ORDER OF NATURE INVERTED — EQUAL RIGHTS TO THE USE OF THE EARTH —
SELFISHNESS, THE EVIL GENIUS OF MAN — THE IRISH PEOPLE FORCED TO BEG
PERMISSION TO TILL THE SOIL — APPROPRIATION OF THE CHURCH-LANDS — LAND
IN ITSELF HAS NO VALUE — THE GREAT CAUSE OF THE UNEQUAL DISTRIBUTION OF
WEALTH — NO HOPE FOR THE LABORER, SO LONG AS PRIVATE PROPERTY IN LAND
EXISTS — NOTHING MYSTERIOUS ABOUT THE LABOR QUESTION — THE DIFFICULTY IN
FINDING EMPLOYMENT — NATURE OFFERS FREELY TO LABOR — NATURAL MEANS OF
EMPLOYMENT MONOPOLIZED — SPECULATION IN THE BOUNTIES OF NATURE.
BENEATH all the great social questions of our time lies one of primary
and universal importance, the question of the rights of men to the use
of the earth.
The magnitude of the pecuniary interests involved, the fact that the
influential classes in all communities where private property in land
exists are interested in its maintenance, lead to a disposition to
ignore or belittle the land question: but it is impossible to give any
satisfactory explanation of the most important social phenomena without
reference to it; and the growing unrest of the masses of all civilized
countries, under conditions which they feel to be galling and unjust,
must at length lead them, as the only way of securing the rights of
labor, to turn to the land question.
To see that the land question does involve the problem of the equitable
distribution of wealth; that it lies at the root of all the vexed social
questions of our time, and is, indeed, but another name for the great
labor question in all its phases, it is only needful to revert to first
principles, and to consider the relations between men and the planet
We find ourselves on the surface of a sphere, circling through
immeasurable space. Beneath our feet, the diameter of the planet extends
for eight thousand miles; above our heads night reveals countless
points of light, which science tells us are suns, that blaze billions of
miles away. In this inconceivably vast universe, we are confined to the
surface of our sphere, as the mariner in mid-ocean is confined to the
deck of his ship. We are limited to that line where the exterior of the
planet meets the atmospheric envelope that surrounds it. We may look
beyond, but cannot pass. We are not denizens of one element, like the
fish; but while our bodies must be upheld by one element, they must be
laved in another. We live on the earth, and in the air. In the search
for minerals men are able to descend for a few thousand feet into the
earth's crust, provided communication with the surface be kept open, and
air thus supplied; and in balloons men have ascended to like distances
above the surface; but on a globe of thirty-five feet diameter, this
range would be represented by the thickness of a sheet of paper. And
though it is thus possible for man to ascend for a few thousand feet
above the surface, or to descend for a few thousand feet below it, it is
only on the surface of the earth that he can habitually live and supply
his wants; nor can he do this on all parts of the surface of the globe,
but only on that smaller part, which we call land, as distinguished
from the water, while considerable parts even of the land are
uninhabitable by him.
By constructing vessels of materials obtained from land, and
provisioning them with the produce of land, it is true that man is able
to traverse the fluid-surface of the globe; yet he is none the less
dependent upon land. If the land of the globe were again to be
submerged, human life could not long be maintained on the best-appointed
Man, in short, is a land-animal. Physically considered, he is as much a
product of land as is the tree. His body, composed of materials drawn
from land, can only be maintained by nutriment furnished by land; and
all the processes by which he secures food, clothing and shelter consist
but in the working up of land or the products of land. Labor is
possible only on condition of access to land, and all human production
is but the union of land and labor, the transportation or transformation
of previously existing matter into places or forms suited to the
satisfaction of man's needs.
Land, being thus indispensable to man, the most important of social
adjustments is that which fixes the relations between men with regard to
that element. Where all are accorded equal rights to the use of the
earth, no one needs ask another to give him employment, and no one can
stand in fear of being deprived of the opportunity to make, a living. In
such a community, there could be no "labor question." There could be
neither degrading poverty nor demoralizing wealth. And the personal
independence arising from such a condition of equality, in respect to
the ability to get a living, must give character to all social and
On the other hand, inequality of privilege in the use of the earth must
beget inequality of wealth and power, must divide men into those who can
command and those who are forced to serve. The rewards which nature
yields to labor no longer go to the laborers in proportion to industry
and skill; but a privileged class are enabled to live without labor by
compelling a disinherited class to give up some part of their earnings
for permission to live and work. Thus the order of nature is inverted,
those who do no work become rich, and "workingman" becomes synonymous,
with "poor man." Material progress tends to monstrous wealth on one
side, and abject poverty on the other; and society is differentiated
into masters and servants, rulers and ruled.
If one man were permitted to claim the land of the world as his
individual property, he would be the absolute master of all humanity.
All the rest of mankind could live only by his permission, and under
such conditions as he chose to prescribe. So, if one man be permitted to
treat as his own the land of any country, he becomes the absolute
sovereign of its people. Or, if the land of a country be made the
property of a class, a ruling aristocracy is created, who soon begin to
regard themselves, and to be regarded, as of nobler blood and superior
rights. That "God will think twice before he damns people of quality,"
is the natural feeling of those who are taught to believe that the land
on which all must live is legitimately their private property.
"Of course the fact that a chief or land-owner has bought and paid
for a particular privilege or species of taboo, or has inherited
from his fathers, doesn't give him in any moral claim to it. The
question is, Is the claim in itself right and reasonable? for a
wrong is only all the more a wrong for having been long and
— GRANT ALLEN, The British
Barbarians. (Words spoken by Bertram.)
Pigou, a key bridge figure in the history of his field, was one of the earliest classical economists to notice that markets do not always produce the best possible social outcomes. The pollution generated by a factory imposes costs on those who live downstream or in the path of its airborne emissions. The risks assumed by banks leading up to the recent financial crisis imposed costs on just about everybody. Market transactions often generate what economists call “externalities” — side effects, sometimes positive but often negative, that affect people who do not participate in the transaction.
Pigou, having recognized the problem, was the first to propose a solution. Society should tax the negative externalities and subsidize the positive ones. This simple notion — if you want less of something, tax it — is why his ideas periodically bubble up in the service of combating a recognizable cost to society, like pollution. We think that his approach offers an answer to another great problem of our time: inequality.
Does the extreme degree of inequality in America today really create, as Pigou would put it, negative externalities? Does the fact that hedge-fund manager Mr. Jones rakes in 100 or 1,000 times what office manager Mrs. Smith earns impose costs on everybody else? Plenty of Americans think not. Defenders of our skewed income distribution point out that a free-enterprise system requires some inequality. Unequal rewards give people an incentive to work hard and acquire new skills. They encourage inventors to invent, entrepreneurs to start companies, investors to take risks. It’s fine in this view that some people get astronomically rich. As Mitt Romney likes to say, “I’m not going to apologize for being successful.”
On the other side, many of us have a gut feeling that inequality has gone too far. Our times are reminiscent of the Gilded Age’s worst excesses. Hence the popularity of the Occupy Wall Street movement’s slogan, “We are the 99 percent.”
LVTfan here: Wouldn't it be better to prevent the inequality by such measures as treating the natural creation as our common treasure, instead of permitting its privatization and then taxing back what is taken? Treating the natural creation, and that which the community creates by its presence and its investment in public goods -- schools, roads, libraries, etc. -- as our COMMON treasure would create equal opportunity for all, a much better idea than permitting some to capture it and then taxing some of their booty back after the fact. When we let some reap what others sow, and then take back a share after the fact, we're still permitting them to reap which deprives the sowers of that right. Whether it be nature doing the sowing, or the community as a whole, no good can come of permitting the privatization of that. Henry George, in "Progress and Poverty" and "Social Problems" showed the logical, efficient, just way to do better.
... many Americans are facing the likelihood of not having sufficient income in retirement unless they increase their savings, work longer, or significantly decrease their expenditures in retirement if they hope to make ends meet.
The Employee Benefits Research Institute recently published an analysis of 2010 Survey of Consumer Finances data. It demonstrates how few people have the traditional defined-benefit retirement plans, and the account balances people of various demographics have in their individually-directed retirement accounts.
Here are some statistics worth considering as we think about the effects of a system which permits a few of us to capture a large share of the nation's net worth and a large share of its income, and to unduly influence our elections with advertising which works to conceal and reinforce the structures of that system:
38% of all families -- of all ages -- had a family member with a retirement plan. [Figure 2]
of those 38%, 18% had only a defined benefit plan; 61% had only a defined contribution plan; 21% had both. 82% had a 401(k) type plan, and of that 82%, 22% also had a defined benefit plan
Among those families whose head was 55-64, 43% had a member with a retirement plan; among those 45-54, 53% did.
Interestingly, the top 75% of the net worth spectrum all had rates in the 41% to 46% range; in the bottom 25%, only 21%.
Among families whose head was under 65 and working, 52% had a member participating in a retirement plan [Figure 3].
Among households with income abov e $100,000, 76% had retirement plans; in the $50,000 to $100,000 income range, 64%; in the lower income groups, the rate ranged from 44% down to 9%
In the 55-64 age group, 59% had a retirement plan; in the 45-54 group, 61%.
Within this working-age universe, similar trends held: the top 50% had roughly 61-67% availability of employment-related retirement plans; for the next 25%, only 53%; for the bottom 25% of working families, only 29%.
IRAs and Keogh plans: 28% had one or both; median value, $40,000 (up from $34,574 in 2007). Among those 55-64, 41% had one or both; median value $60,000 (down from $68,101); among those 45-54, 29% had one or both; median value $40,000, up from $37,717. [Figure 5]
Even among those in the top 10% of the net worth spectrum, only 77% had IRA or Keogh accounts, median value $200,,000, up from $142,487 in 2007; in the next 15% of the net worth spectrum, median value was $60,000.
Of all families, 64% had some sort of retirement account from a current or previous employer (down from 66% in 2007)
Retirement assets in Defined Contribution plans and IRAs typically [that is, at the median] represent 61% to 66% of total financial assets, which is to say that most have less in mutual funds, stocks, checking and other accounts than they do in their retirement accounts. [Figure 8]
Only in the top 10% do retirement assets represent less than half of financial assets.
As is typical of median/average ratios, average holdings are considerably higher -- that is, the holdings of the top few are huge, and most of us are below average. The average balance is $173,232; in the top 10% of the net worth spectrum, average balances are $519,034. For the next 15% of us, the average balance is 147,061 -- well below the average of all of us! [Figure 9] Recall from Figure 6 that 64% of us have such a plan; the other 36% have no balance at all (and likely a significant percentage have very small account balances).
For those in the 65-74 age group, the average balance is $324,199; for those in the 55-64 group, the average balance is $297,903.
For those in the top 10%, average account balance is $519,034. One might reasonably guess that the top 5% have the lion's share of this.
It might be worth noting that a 70 year old must withdraw at least 1/27 of his IRA per year. Based on that 65-74 age group average balance, that's $12,000 per year. (Another rule of thumb says that if one only withdraws 3% per year, one's account should last forever. That would be $9,725 per year, for that "average" -- not median -- family in the 65-74 age group.
Enough said. Time to circle back to the study's conclusion:
... many Americans are facing the likelihood of not having sufficient income in retirement unless they increase their savings, work longer, or significantly decrease their expenditures in retirement if they hope to make ends meet.
What public policy reforms might one suggest based on these data points?
Find a way to raise wages for ordinary workers
Find a way to lower the cost of living for ordinary workers and retirees
Find a way to reduce the sum of the taxes we pay and the costs of housing without reducing the public goods which those taxes provide (unless it is by reducing the demand for social safety net
If you have other suggestions, I'd like to hear them.
But the reason for this blog is that I believe I have found the public policy reform which would accomplish these goals, in collecting the lion's share of the annual rental value of our land, and in collecting for the commons certain other kinds of natural public revenue which our current system permits to accrue to individuals and corporations. I didn't invent it. Henry George is the clearest exponent of it, but not the first or last. Is it perfect? No, but it is vastly superior to what we've got now, and I believe it is consistent with the ideals to which Americans pay the most honor.
The game’s true origins, however, go unmentioned in the official literature. Three decades before Darrow’s patent, in 1903, a Maryland actress named Lizzie Magie created a proto-Monopoly as a tool for teaching the philosophy of Henry George, a nineteenth-century writer who had popularized the notion that no single person could claim to “own” land. In his book Progress and Poverty (1879), George called private land ownership an “erroneous and destructive principle” and argued that land should be held in common, with members of society acting collectively as “the general landlord.”
Magie called her invention The Landlord’s Game, and when it was released in 1906 it looked remarkably similar to what we know today as Monopoly. It featured a continuous track along each side of a square board; the track was divided into blocks, each marked with the name of a property, its purchase price, and its rental value. The game was played with dice and scrip cash, and players moved pawns around the track. It had railroads and public utilities — the Soakum Lighting System, the Slambang Trolley — and a “luxury tax” of $75. It also had Chance cards with quotes attributed to Thomas Jefferson (“The earth belongs in usufruct to the living”), John Ruskin (“It begins to be asked on many sides how the possessors of the land became possessed of it”), and Andrew Carnegie (“The greatest astonishment of my life was the discovery that the man who does the work is not the man who gets rich”). The game’s most expensive properties to buy, and those most remunerative to own, were New York City’s Broadway, Fifth Avenue, and Wall Street. In place of Monopoly’s “Go!” was a box marked “Labor Upon Mother Earth Produces Wages.” The Landlord Game’s chief entertainment was the same as in Monopoly: competitors were to be saddled with debt and ultimately reduced to financial ruin, and only one person, the supermonopolist, would stand tall in the end. The players could, however, vote to do something not officially allowed in Monopoly: cooperate. Under this alternative rule set, they would pay land rent not to a property’s title holder but into a common pot—the rent effectively socialized so that, as Magie later wrote, “Prosperity is achieved.”
Readers of this blog know that Lizzie Magie had created her game and started to promote it by the Fall of 1902.
“Monopoly players around the kitchen table”—which is to say, most people—“think the game is all about accumulation,” he said. “You know, making a lot of money. But the real object is to bankrupt your opponents as quickly as possible. To have just enough so that everybody else has nothing.” In this view, Monopoly is not about unleashing creativity and innovation among many competing parties, nor is it about opening markets and expanding trade or creating wealth through hard work and enlightened self-interest, the virtues Adam Smith thought of as the invisible hands that would produce a dynamic and prosperous society. It’s about shutting down the marketplace. All the players have to do is sit on their land and wait for the suckers to roll the dice.
Smith described such monopolist rent-seekers, who in his day were typified by the landed gentry of England, as the great parasites in the capitalist order. They avoided productive labor, innovated nothing, created nothing—the land was already there—and made a great deal of money while bleeding those who had to pay rent. The initial phase of competition in Monopoly, the free-trade phase that happens to be the most exciting part of the game to watch, is really about ending free trade and nixing competition in order to replace it with rent-seeking.
This is a good article, and I commend it in its entirety to your attention. It also provides links to Tom Forsythe's new site, http://landlordsgame.info/, whose graphics show many early versions of the Landlord's Game, which I look forward to exploring. I learned for the first time that the game layout that I had thought was an early one, with a lake in the center, was actually a 1939 version, based on Lizzie Magie's design but published by Parker Brothers. (I ought to have figured that out sooner, since the board includes her married name!)
It is interesting that one of the earlier versions -- 1909 -- was based on Altoona's streets. In the past year, Altoona has shifted to taxing land and not taxing buildings to fund its municipal spending. (This was a gradual shift, accomplished over a number of years; they must have liked the effect!)
As I listen to the rhetoric of the presidential and vice-presidential candidates about equal opportunity for women -- seeking equal opportunities for their daughters and granddaughters as for their sons and grandsons -- it occurs to me that they haven't asked that their sons and daughters have opportunities equal to the sons and grandchildren of Mitt Romney, who apparently share a trust fund currently worth over $100 million.* Even divided among 5 sons and 18 grandchildren, that's about $4 million per descendant, enough to throw off $90,000 per person per year without diminishing (and without them working -- or even having finished grade school). And that's before we start to talk about the $100 million IRA they are likely to inherit, which continues to appreciate free of taxes.
The Earth-for-All Calendar contains a number of items which speak to equality of opportunity for all in our current generation, and for all in future generations. When some of us start life with all the advantages, and others, because of the design of our society's systems, have few or no advantages, how do we continue to maintain the fiction that we believe we are all created equal, that our nation is founded on this proposition and its laws and customs said to conform to and support this proposition?
The advantages of our wealthiest didn't come out of thin air. They aren't "no-cost" to the rest of us, and they don't benefit the rest of us by any form of "trickle down." The trickle flows the other direction. To the extent that our society pretends that this comes out of thin air, we are permitting ourselves to be fooled -- treated as fools, taught by rich people's useful idiots.
And when some of us have the money to devote to promoting points of view that benefit ourselves, at the expense of the common good, to influence elections, where does democracy get us?
The accompanying map says, "Around Grand Central Terminal, towers could be up to twice the size now permitted. Development could also take place along the Park Avenue corridor, where towers could be more than 40% larger. Elsewhere in the district, towers could be 20% larger."
New York’s premier district, the 70-block area around Grand Central
Terminal, has lagged, Bloomberg officials say, hampered by zoning rules,
decades old, that have limited the height of buildings.
Mayor Michael R. Bloomberg wants
to overhaul these rules so that buildings in Midtown Manhattan can soar
as high as those elsewhere. New towers could eventually cast shadows
over landmarks across the area, including St. Patrick’s Cathedral and
the Waldorf-Astoria Hotel. They could rise above the 59-story MetLife
Building and even the 77-story Chrysler Building.
Mr. Bloomberg’s proposal reflects
his effort to put his stamp on the city well after his tenure ends in
December 2013. Moving swiftly, he wants the City Council to adopt the
new zoning, for what is being called Midtown East, by October 2013, with
the first permits for new buildings granted four years later.
administration says that without the changes, the neighborhood around
Grand Central will not retain its reputation as “the best business
address in the world” because 300 of its roughly 400 buildings are more
than 50 years old. These structures also lack the large column-free
spaces, tall ceilings and environmental features now sought by corporate
rezoning — from 39th Street to 57th Street on the East Side — would
make it easier to demolish aging buildings in order to make way for
state of-the-art towers.
it, “the top Class A tenants who have been attracted to the area in the
past would begin to look elsewhere for space,” the administration says
in its proposal.
plan has stirred criticism from some urban planners, community boards
and City Council members, who have contended that the mayor has acted
hastily. They said they were concerned about the impact of taller towers
in an already dense district where buildings, public spaces, streets,
sidewalks and subways have long remained unchanged.
Mr. Bloomberg has encouraged high-rise development in industrial neighborhoods, including the Far West Side of Manhattan,
the waterfront in Williamsburg, Brooklyn, and in Long Island City,
Queens. But with the proposal for Midtown, which is working its way
through environmental and public reviews, he is tackling the city’s
the development potential in this area will generate historic
opportunities for investment in New York City,” Deputy Mayor Robert K.
The initiative would, in some cases, allow developers to build towers twice the size now permitted in the Grand Central area. The
owner of the 19-story Roosevelt Hotel at Madison and 45th Street could
replace it with a 58-story tower under the proposed rules. Current
regulations permit no more than 30 floors.
When zoning changes increase the value of land, who should reap the benefit? The current landholder, or the community? What did the landholder do to earn that windfall? Do you think it comes out of thin air? Do you think it is paid him by other rich people?
Or do you recognize that it is part of the structure which enriches a few and impoverishes the many?
It is easy to fix this one. One just has to recognize the structure, and value the land correctly, and start collecting the lion's share of the land rent for the community. If it is more than NYC can put to use -- and it will be -- then apply the excess to reducing our federal taxes on productive effort. Use it to fund Social Security, or Medicare, or universal health insurance, or something else that will benefit the vast majority of us instead of an undeserving tiny privileged minority. Don't throw it in the ocean, and don't leave it in private pockets, be they American or not.
Collect the land rent. Repeat next year, and the next, and the next. Natural Public Revenue.
Henry George is the most famous American popular economist you've never heard of, a 19th century cross between Michael Lewis, Howard Dean and Ron Paul. Progress and Poverty, George's most important book, sold three million copies and was translated into German, French, Dutch, Swedish, Danish, Spanish, Russian, Hungarian, Hebrew and Mandarin. During his lifetime, George was probably the third best-known American, eclipsed only by Thomas Edison and Mark Twain. He was admired by the foreign luminaries of the age, too -- Leo Tolstoy, Sun-Yat Sen and Albert Einstein, who wrote that "men like Henry George are unfortunately rare. One cannot image a more beautiful combination of intellectual keenness, artistic form and fervent love of justice." George Bernard Shaw described his own thinking about the political economy as a continuation of the ideas of George, whom he had once heard deliver a speech.
Later, she writes,
George found most mysterious about the economic consequences of the
industrial revolution was that its failure to deliver economic
prosperity was not uniform -- instead it had created a winner-take-all
society: "Some get an infinitely better and easier living, but others
find it hard to get a living at all. The 'tramp' comes with the
locomotives, and almshouses and prisons are as surely the marks of
'material progress' as are costly dwellings, rich warehouses and
magnificent churches. Upon streets lighted with gas and patrolled by
uniformed policeman, beggars wait for the passer-by, and in the shadow
of college, and library, and museum, are gathering the more hideous Huns
and fiercer Vandals of whom Macaulay prophesied."
diagnosis was beguilingly simple -- the fruits of innovation weren't
widely shared because they were going to the landlords. This was a very
American indictment of industrial capitalism: at a time when Marx was
responding to Europe's version of progress and poverty with a wholesale
denunciation of private property, George was an enthusiastic supporter
of industry, free trade and a limited role for government. His culprits
were the rentier rich, the landowners who profited hugely from
industrialization and urbanization, but did not contribute to it.
had such tremendous popular appeal because he addressed the obvious
inequity of 19th century American capitalism without disavowing
capitalism itself. George wasn't trying to build a communist utopia. His
campaign promise was to rescue America from the clutches of the robber
barons and to return it to "the democracy of Thomas Jefferson." That
ideal -- as much Tea Party as Occupy Wall Street -- won support not only
among working class voters and their leaders, like Samuel Gompers, but
also resonated with many small businessmen. Robert Ingersoll, a
Republican orator, attorney and intellectual, was a George supporter. He
urged his fellow Republicans to back his man and thereby "show that
their sympathies are not given to bankers, corporations and
I commend the entire post, adapted from Freeland's new book, Plutocrats. It ends with these paragraphs:
today urgently needs a 21st century Henry George -- a thinker who
embraces the wealth-creating power of capitalism, but squarely faces the
inequity of its current manifestation. That kind of thinking is missing
on the right, which is still relying on Reagan-era trickle-down
economics and hopes complaints about income inequality can be silenced
with accusations of class war. But the left isn't doing much better
either, preferring nostalgia for the high-wage, medium-skill
manufacturing jobs of the post-war era and China-bashing to a serious
and original effort to figure out how to make 21st century capitalism
work for the middle class.
and the technology revolution aren't going away -- and thank goodness
for that. Industrialization didn't go away either. But between 1886,
when George lost the mayoral race, and the presidency of FDR, American
progressives invented, fought for and implemented a broad range of new
social and political institutions to make capitalism serve the whole of
society -- ranging from trust-busting, to the income tax, to the welfare
are living in an era of comparably tumultuous economic change. The
great challenge of our time is to devise the new social and political
institutions we need to make the new economy work for everyone. So far,
that is a historic task neither party is taking on with enough energy,
honesty or originality."
Along the same lines, you might find interesting an earlier post here, an article by Thomas Shearman entitled "Henry George's Mistakes." (He was a co-founder of Shearman & Sterling, and went on to write some excellent articles on plutocracy in The Standard, October, 1887.)
His next task, and indeed the most hazardous he ever undertook, was
the making a new division of their lands. For there was an
extreme inequality among them, and their State was overloaded with a
multitude of indigent and necessitous persons, while its whole
wealth had centered upon a very few.
A friend uses as his sig file the quote from Senator Boies Penrose of Pennsylvania:
"I believe in the division of labor. You send us to
Congress; we pass laws under which you make money ... and out of your
profits, you further contribute to our campaign funds to send us back
again to pass more laws to enable you to make more money."
-- Senator Boies Penrose (R-Pa.), 1896, citing the relationship between his politics and big business.
I assumed, without giving it a great deal of thought, that Senator Penrose must
have been a local machine boss of some sort. But today I came across a reference to
a paper he co-authored, circa 1886, which said that he had a Bachelor's
degree from Harvard:
City Government of Philadelphia. By Edward P. Allinson, A. B. (Haverford) and Boies Penrose, A. B. (Harvard).
Equity, therefore, does not permit property in land. For if
one portion of the earth's surface may justly become the
possession of an individual and may be held by him for his sole use
and benefit as a thing to which he has an exclusive right, then
other portions of the earth's surface may be so held; and eventually
the whole of the earth's surface may be so held; and our planet may
thus lapse into private hands.
— HERBERT SPENCER, in 1850, Social
Statics, Chap. IX.
In the early ages of society it would have been impossible to
maintain the exclusive ownership of a few persons in what seems at
first sight an equal gift to all (the land) — a thing to which
everyone has the same claim.
— WALTER BAGEHOT (1826-1877),
Economic Studies, Essay I., Part I., p. 31.
There has been a lot of political rhetoric lately centered around the "Job Creators," and what we can do to encourage them to create jobs (in America). Most of it seems to be centered around (1) creating some sort of "certainty" for them regarding what sorts of taxes they might be expected to pay if the jobs they deign to create are successful in increasing their profits; and (2) lifting the supposedly onerous regulations we put on them regarding product safety, environmental protection, and perhaps royalties on what they withdraw from the earth's supply of non-renewable natural resources and other services they receive from our common ecosystem.
I contend that those who frame it this way are leading us astray.
First, the jobs that the so-called Job Creators actually create occur when (a) they want more personal services -- haircuts, manicures, acupuncture, botox, dry cleaning, catering; (b) they want more goods -- dinners out, boats, cars, swimming pools, airplanes, motorcycles, jewelry, wardrobe, fancy foods, alcohol, tobacco, etc.; (c) when they decide to build or rebuild a home, and furnish it.
The real job creators are those whose demand for products and services create jobs. A few percent of us have sufficient current income -- or sufficient wealth to draw on -- that it is fair to say that virtually all of their needs and many of their wants are being met. But the vast majority of us have unmet needs and certainly more wants. And I think it is fair to say that while it is human nature to want something for nothing, and that all of us want to meet our needs and wants with the least possible effort, it is also true that virtually all of us are willing to work, to serve others with products and services, in return for wages, be they from a single employer or a collection of customers.
So what's the problem? Why can't this supply of labor get together with this demand for labor, to the general benefit of our entire society?
I can point to several problems.
First, much of the nation's capital is in the portfolios of a very small proportion of our society, and that process of concentration shows no signs of slowing down, much less reversing. (Not surprising, since we've done nothing to correct the structural causes which produce it!) Joe Stiglitz has said that the FIRE sector is harvesting something like 40% of the profits of the productive sectors of the economy. This cannot be permitted to continue if we seek to create prosperity for all.
Second, ownership of America's choicest sites -- mostly in the central business districts of our biggest cities, but also in some of the scenic coastal areas and the suburbs surrounding those cities -- is in the portfolios of a very small proportion of our society (as well as in portfolios of foreign landlords). This may not appear to some to be a problem, but I assert that it is -- and a big one. (The good news is that it is readily fixable.) An acre of Manhattan land can be worth $250 million or more, while an acre of good farm land might be worth $5,000 -- a difference of 50,000 times! That is, 50,000 acres of farmland might be worth the same amount as a single acre of Manhattan land!!) A single 25x100 residential building lot in Manhattan -- 0.058 acre -- can be worth $10 million ... that works out to $172 million per acre.
Third, we tax labor income -- wages -- to fund federal and state spending. We tax the first $105,000 or so of wages at 15% or so to fund Social Security and Medicare (that includes both the employee's and the employer's contribution, as economists agree is appropriate). After exempting some amount of income in proportion to family size ($15,200 for a family of 4) and some additional for a standard deduction ($11,900 for married filing jointly) or some combination of itemized deductions (which go mostly to high-end urban/suburban homeowners in northeastern states, with big mortgages and significant property taxes, and California owners, with big mortgages and more modest property taxes), the Federal Income Tax taxes the next dollar of wages at 10%, and the rate rises to 15%, 25% 28%, and, for a tiny but noisy minority of us (adjusted income over $217,450 after exemptions and deductions, for married filing jointly -- which Romney calls the middle class), to 33% and 35% on the marginal dollars (not on all of one's income). But 86% of us pay more in payroll taxes than we do in federal income taxes, when the employer's portion is taken into account. [source: http://www.cbo.gov/publication/43373, table 8.] It is worth noting that 15% [social insurance] plus 10%, the federal tax rate on the first dollar after deductions and exemptions, is 25%, but that for those whose household income is well above the $105,000 cut-cutoff, the 35% bracket is not all that much higher than what comes out of the pockets of the low-income worker.
So 25% to 35% of the portion of our wages beyond that allowance for some basic expenses, are being taken to fund federal spending, and in most states, more for state spending.
The federal spending, and much of the state spending, goes to projects whose effect is to increase local land values in specific places -- infrastructure, public goods of various kinds. Oddly, we fund it via taxes on wages! Wouldn't we be wiser to fund it via taxes which fall on those land values, which are so concentrated into a relative few pockets -- pockets which are currently not asked to contribute much, but receive so much from those who need to occupy those choice urban sites. I do not begrudge the owner of a luxury building the right to keep the portions of the rent he receives which can be attributed to (a) the qualities of the building itself and (b) the services he as landlord provides, but much of that rent is attributable to neither of those factors; rather, it is a function of .... (all together, now) Location, Location, Location, and value which is created by the community, not by that landlord!
Fourth, most of us of working age, and particularly our young people, are paying at least 30% of our income for housing, and many, many people are paying a far larger portion of their income. On top of that, many have student loans, car loans, and perhaps credit card debt, and live paycheck to paycheck. Many young people who bought a home during the 2002 to 2010 period are upside down on their mortgages, owing the lender more than they could sell the property for, and are thus effectively trapped in those homes until prices rise or someone does something to renegotiate their mortgage, or they win big in the Lottery. Thus they cannot move to meet their families' changing needs, or leave the area to accept a job in another part of the country.
So what does this have to do with Job Creation? Well, if those of us who don't live on the really choice bits of urban or coastal land were relieved of some portion of their tax burden, including the 15% that goes for social insurance, we'd have more to spend on satisfying our other needs and wants, and virtually all of that would create jobs. Here, in the U. S.
Any settlement of the land of a country that would exclude the
humblest man in that country from his share of the common
inheritance would be not only an injustice and a wrong to that man,
but moreover would be an impious resistance to the benevolent
intentions of the Creator.
The labor of the tiller of the soil gives the first impulse. That
which his work makes the land produce beyond his personal needs is
the sole fund for the wages which all the other members of society
receive in exchange for their work.
— TURGOT, On the Formation and
Distribution of Wealth (1766), Sec. 5.
I'm reading through the first issues of Henry George's newspaper, "The Standard," a weekly which was published in NYC beginning in January, 1887. It was started shortly after the mayoral race of 1886 (chronicled in Post & Leubuscher's December, 1886 book), and in the 4th issue there is a very explicit article about the role that Rome was attempting to play in NYC politics by removing from the priesthood an activist priest, the much-loved Dr. Edward McGlynn, of St. Stephen's Church, on 28th Street in Manhattan, the largest parish in the city. (This was before the creation of New York City by combining the five boroughs.)
For over 20 years, McGlynn had been living among New York's poor, hearing the confessions of the poor, and knew how hard their lives were. He knew the situation in Ireland which had brought many of them to the U. S., and when he read Henry George's 1879 book, "Progress and Poverty," he found the cause of their suffering, and saw how to correct the underlying cause of poverty.
The article to which I refer is entitled, "From a Brooklyn Priest"
The Body of the
Catholic Clergy Sympathize With Dr. McGlynn
The Brooklyn Times prints an interesting
interview with “a well known parish priest” of that city. His
name is not given "for obvious reasons,” but those acquainted
with the Catholic clerics of Brooklyn have little difficulty in
attributing it to the most popular and influential of the
Catholic clergy of that city. We make the following extracts:
“The sympathy of the body of the Catholic clergy in New
York and Brooklyn is undoubtedly with Dr. McGlynn. I have talked
with a great many of my brother priests of both cities on the
matter, and almost without exception, they have taken Dr.
McGlynn's side in the controversy, though they would be loth to
do so publicly for manifest reasons. The sentiment of the body
of the Catholic clergy of the two cities is that whatever has
been done in Dr. McGlynn's case has been done by inspiration from this side. Of course the question at issue does
not at all touch matters of faith. It is purely a question of
discipline. The authorities at Rome know little or nothing of
the real state of affairs at this side of the Atlantic except as
they are inspired by the archbishop of the different provinces.
Archbishop Corrigan is in daily communication with Rome by
cable, and the views of the controversy between Dr. McGlynn and
his superior that are entertained at Rome pending the personal
appearance of Dr. McGlynn in the Eternal City, are the views of
the archbishop of New York that are telegraphed and written
“I do not mean to imply that Archbishop Corrigan would
willfully misrepresent the situation here, but I do say that Dr.
McGlynn, with all his experience as a priest in the American
metropolis, with all his practical knowledge of the condition of
the poor and of the working classes in that city, is a better
judge of the political needs of the masses in New York than
Archbishop Corrigan is, who has spent the greater part of his
career as an ecclesiastic in the state of New Jersey; and I hold
that Dr. McGlynn and every other Catholic priest has the right
to take an active part in the politics of the country. To say
that a man of the acknowledged piety and the blameless life of
Dr. McGlynn sympathizes with anything that smacks of communism
or anarchy is the veriest nonsense to anyone who knows him — and
who does not know everything about him today? Dr. McGlynn, as a
priest, knows the awful burdens which the laboring classes of
New York city have to bear through political misrule and the
corrupt combination of capital to oppress them. He knows how
anomalous that condition of things is which allows one man to
accumulate a hundred millions of dollars within 25 years and compels another to work for a dollar a day, nay, while
thousands, anxious for work, are starving for the lack of it.
Hence his support of the candidate of the labor party for mayor.
Dr. McGlynn did not believe that anarchy or communism would
follow in the wake of the election of Henry George to the
mayoralty of New York any more than he believed that Mr. George,
as the chief executive of the municipal government across the
East river could put his land theories into practical operation
in the metropolis. Any possible change in the government of New
York city must be a change for the better, so far as the poor
“If the bishops of the dioceses in the United States
were taken by Rome from among the clergy of these dioceses who
thoroughly understand the social and political conditions of
their people, there would be none of these disciplinary
troubles. What sense is there in sending an Italian priest to
Canada or an Irish priest to Guatemala as bishop? Or why should
a bishop be transferred from a city in the state of New Jersey
to preside over the archdiocese of New York when there are many
able and holy priests in the metropolis worthy of election to
the prelacy who have spent their lives among the masses of the
people? In countries where the canonical law of the church is in
practical application the parish priests of a diocese in which
the bishopric becomes vacant send three names to Rome by majority
vote. One is set down as dignus, or worthy, another as dignior,
or more worthy, and a third as dignissimus, or most worthy. Any
one of the three may be selected, and it sometimes happens that
it is the lowest on the list who is chosen. The pope has the
absolute power to go outside the list sent to him from the
diocese in which a vacancy occurs, but it is a power rarely
exercised and only for the most exigent reasons. If the canon
law applied in America, which is only yet a missionary country
and subject to the propaganda at Rome, Dr. McGlynn could not
have been turned out of St. Stephen's church as he has been and
his salary would have run on despite his suspension until his
case was finally decided at Rome.
“It is most unfortunate that the canon law does not
apply in the United States, and that the political, social and
educational situation in this country is not better understood
at Rome. Wealthy Catholic politicians have too much to say on
church policy in this country; and unfortunately that is today
the trouble in New York city. The masses of the Catholic clergy
say, 'Hands off.' As long as bishops, with whom wealthy
politicians are most powerful, practically say who shall be
elected to the prelacy in the United States there will be a
chance for trouble among the laity.
“I am satisfied that if a majority of the Catholic
clergy of the dioceses of New York and Long Island could do it
Dr. McGlynn would have been elected archbishop and Archbishop
Corrigan would have been allowed to remain in New Jersey. I
unhesitatingly say that if the votes of the Catholic clergy in
these two dioceses could do it Dr. McGlynn would be restored to
St. Stephen's parish tomorrow. No old priest of New York city
wanted to succeed Dr. McGlynn in that parish, for they all knew
how his congregation idolized him. I am also free to say that if
Archbishop Corrigan had not been brought from the state of New
Jersey to New York city this trouble would never have occurred.
“Mgr. Preston is the bitterest foe that Dr. McGlynn has
in the diocese of New York. I do not mean to imply that the
monsignor entertains personal animosity toward the ex-rector of
St. Stephen's church, but he is utterly opposed to what Dr.
McGlynn stands for as an American citizen. Mgr. Preston is an
aristocrat and the associate of aristocrats. Even converts to
the Catholic church who know Father Preston well have admitted
that the monsignor dearly loves the privileges which attach to
church dignitaries in Catholic countries, and is inclined to ape
the civil ceremonial of such communities in his intercourse with
his flock. Dr. McGlynn is poor, is of the poor and loves to
associate with the poor. He is in this respect the antithesis
of Mgr. Preston, and the latter is a confidential adviser of
This article, more than anything else I've read, brings home to me the extent to which the rich manage even the Church for the benefit of the rich, to the detriment of the poor. When a priest who seeks to correct the unjust structures is deprived of his priesthood because he might upset the privileges of the rich, the country and the church are both in trouble.
When churches benefit from contributions from wealthy contributors, they will tend to act to enforce the structures which enrich those wealthy contributors, rather than rocking the boat in any way. When economic structures funnel the community's wealth into a relative few pockets, the Church will tend to embrace those pockets, not challenge the structures. Money in elections is not the only corrupting force.
That which is yet wanting on your part to be done is this, to see
that the oppressor's power be cast out with his person; and to see
that the free possession of the land and liberties be put into the
hands of the oppressed commoners of England.
— JERRARD WINSTANLEY,
Epistle Dedicatory to Oliver Cromwell, in
The Law of Freedom in a
Platform, or True Magistracy Restored.
"But how is it that you allow these chiefs — landlords, don't you call them? — to taboo the
soil, and prevent you all from even walking on it? Don't you see
that if you choose to combine in a body, and insist upon the
recognition of your natural rights — if you determined to make the landlords give up
their taboo, and cease from injustice, they'd have to yield to you?
And then you could exercise your natural right of going where you
pleased, and cultivate the land in common for the public benefit,
instead of leaving it as now, to be cultivated anyhow, or turned
into waste, for the benefit of the tabooers?"
— GRANT ALLEN, The British
Barbarians (Words spoken by Bertram).
The nobility and gentry and even those holy men, the abbots, not
content with the old rents that their farms yielded, nor thinking it
enough that they, living at their ease, do no good to the public,
resolve to do it hurt instead of good. . . . As if
forest and parks had swallowed up too little of the land, those
worthy countrymen turn the best inhabited places into solitude.
The post below this one, "Mitt Romney's 'Fair Share' " refers to his fair share of the costs of providing public goods.
But perhaps an equally important question is the nature of one's fair share of the output of our economy and the output of the earth. Some of the former output is the result of individual efforts, and one ought to be able to keep that portion. But at the same time we must recognize how much comes from the division of labor, from drawing down on the non-infinite supply of non-renewable natural resources on which all of us today must depend and on which future generations of human beings must rely. Those who draw down more than their legitimate share owe something to the rest of the community. Our wealthiest tend, we suspect, to use many, many times their legitimate share, and the median American likely draws far more than their share, when one considers the planet as a whole.
Perhaps "legitimate" is not the right word here. It refers to what is permissible under current law. (The word gets misused a lot -- see the discussion on "legitimate rape," which seemed to be about the circumstances under which a woman has a right to make a specific very personal, decision, and when it is considered by some to not be left to her and is the province of government, legislators or others.)
What is one's "fair share" of natural resources? America is using a hugely disproportionate share of the world's resources. Are we entitled to it because we're somehow "exceptional"? Because "our" God is somehow better than other nation's Gods? Or do we genuinely believe that all people are created equal, and intend to live our lives accordingly?
Our output of greenhouse gases exceeds our share of the world's population. This is not without consequences for the world, and for peace on earth.
We ought to be re-examining our incentives so that they move us in the direction we ought to be going, which is, to my mind, using less. We can build transportation infrastructure which will permit many more of us to move around with less impact on the environment. We can fund that through collecting the increases in land value that infrastructure creates. We can correct the incentives which cause us to use today's inferior technologies to extract natural resources from the earth in ways which damage the environment, as if ours was the final generation, or the only one worth serious consideration.
Better incentives could reduce, eliminate, even reverse urban sprawl. I refer specifically to land value taxation as a replacement for the existing property tax, particularly in places where assessments are for one reason or another not consistent with current property values -- e.g., California and Florida, parts of Delaware and Pennsylvania which currently use assessments from the 1970s, and many other places where assessments are simply out of whack with current reality!) We should be replacing sales taxes, wage taxes, building taxes with taxes on land value and on natural resources. Most of that value is flowing generously into private or corporate pockets, to our detriment. It concentrates wealth, income, and, of course, political power.
Collecting the rent, instead of leaving the lion's share of it to be pocketed by the rent-seekers, would go a long way to making our society and our economy healthier. Eliminating the privilege of privatizing that which in a wisely designed society would be our common treasure would make our society a better place in which to live, a place in which all could thrive and prosper without victimizing their fellow human beings.
A major theme of the underlying political debate in the United States is the role of the state and the need for collective action. The private sector, while central in a modern economy, cannot ensure its success alone. For example, the financial crisis that began in 2008 demonstrated the need for adequate regulation.
Moreover, beyond effective regulation (including ensuring a level playing field for competition), modern economies are founded on technological innovation, which in turn presupposes basic research funded by government. This is an example of a public good – things from which we all benefit, but that would be undersupplied (or not supplied at all) were we to rely on the private sector.
Conservative politicians in the US underestimate the importance of publicly provided education, technology, and infrastructure. Economies in which government provides these public goods perform far better than those in which it does not.
But public goods must be paid for, and it is imperative that everyone pays their fair share. While there may be disagreement about what that entails, those at the top of the income distribution who pay 15% of their reported income (money accruing in tax shelters in the Cayman Islands and other tax havens may not be reported to US authorities) clearly are not paying their fair share. ...
I have to disagree with the second sentence of this next paragraph. And I think Stiglitz knows better, if he stops to think about it:
Democracies rely on a spirit of trust and cooperation in paying taxes. If every individual devoted as much energy and resources as the rich do to avoiding their fair share of taxes, the tax system either would collapse, or would have to be replaced by a far more intrusive and coercive scheme. Both alternatives are unacceptable.
We don't need intrusive or coercive; we just need to start collecting the lion's share of the rent! Well, I suppose some rent-seekers would find this extremely intrusive -- it intrudes on their habit of self-enrichment by privatizing of what is rightly and logically our PUBLIC treasure, the logical way of financing PUBLIC goods. And Professor Stiglitz is quite aware of the value of natural resources; he may not be quite as conscious of the value of urban and other well-situated land.
Our national recordkeeping doesn't even collect the valuations of land and natural resources on any consistent basis! (One could reasonably argue that this failure-to-measure is a form of corruption!) What we don't measure we can't do anything about. And the powers that be are quite content with how we do things; the benefits accrue to them! And several generations of college-educated people know nothing about the issue, which was well known and widely discussed 100 years ago. (Look into the extensive Single Tax literature and the ideas of Henry George.)
Some more excerpts:
The billionaire investor Warren Buffett argues that he should pay only the taxes that he must, but that there is something fundamentally wrong with a system that taxes his income at a lower rate than his secretary is required to pay. He is right. Romney might be forgiven were he to take a similar position. Indeed, it might be a Nixon-in-China moment: a wealthy politician at the pinnacle of power advocating higher taxes for the rich could change the course of history.
But Romney has not chosen to do so. He evidently does not recognize that a system that taxes speculation at a lower rate than hard work distorts the economy. Indeed, much of the money that accrues to those at the top is what economists call rents, which arise not from increasing the size of the economic pie, but from grabbing a larger slice of the existing pie.
Those at the top include a disproportionate number of monopolists who increase their income by restricting production and engaging in anti-competitive practices; CEOs who exploit deficiencies in corporate-governance laws to grab a larger share of corporate revenues for themselves (leaving less for workers); and bankers who have engaged in predatory lending and abusive credit-card practices (often targeting poor and middle-class households). It is perhaps no accident that rent-seeking and inequality have increased as top tax rates have fallen, regulations have been eviscerated, and enforcement of existing rules has been weakened: the opportunity and returns from rent-seeking have increased.
Today, a deficiency of aggregate demand afflicts almost all advanced countries, leading to high unemployment, lower wages, greater inequality, and – coming full, vicious circle – constrained consumption. There is now a growing recognition of the link between inequality and economic instability and weakness.
There is another vicious circle: Economic inequality translates into political inequality, which in turn reinforces the former, including through a tax system that allows people like Romney – who insists that he has been subject to an income-tax rate of “at least 13%” for the last ten years – not to pay their fair share. The resulting economic inequality – a result of politics as much as market forces – contributes to today’s overall economic weakness.
Then he says: "If I am born into the earth, where is my part? Have the goodness, gentlemen of this world, to show me my wood lot, where I may fell my wood, my field where to plant my corn, my pleasant ground where to build my cabin."
"Touch any wood or field or house-lot on your peril," cry all the gentlemen of this world; "but you may come and work in ours for us, and we will give you a piece of bread."
The ordinary progress of a society which increases in wealth is at all times to augment the incomes of landlords — to give them both a greater amount and a greater proportion of the wealth of the community, independently of any trouble or outlay incurred by themselves. They grow richer as it were in their sleep, without working, risking or economizing. What claims have they, on the general principles of social justice, to this accession of riches?
— JOHN STUART MILL, Principles of Political Economy, Book V., Chap. 2, Sec. 5
Sir, Joseph Stiglitz is concerned that America has become less egalitarian, and no longer the land of opportunity (June 26). He mentions reducing rent-seeking as a solution, but he does not mention the paradigmatic form of rent-seeking: collecting the ground rents of land. If an increasing share of gross national product is going to the top 1 per cent, it is at least in part because they are the people who own most of the valuable land, and the rents of land are absorbing a larger share of production. No one is making more land to keep the price down by competition.
I'll leave it to you to go read the rest. (Registration is free.)