Spreading the Wealth: Some kinds of wealth OUGHT to be spread!

One candidate speaks of spreading the wealth.  The other derides the notion as socialism.  But I suspect that neither of them have read, or thought deeply, or discussed in any context what sorts of wealth OUGHT to be spread around, and what sorts OUGHT NOT to be spread?

Not all wealth is the same.  We can divide it first into that which is created by individual or corporate human effort and that which is provided by nature or by the workings of the community as a whole. The former can rightly be privatized.  The latter must not be.

Today we don't differentiate properly between the two types.  We permit the privatization of value created by the public, and then tax that which individuals create, socializing it.

Let's socialize that which rightly belongs to all of us, and stop tolerating its privatization.  Let's privatize that which rightly belongs to the individual and the investor, and stop tolerating its socialization.  Or at least stop tolerating its socialization until we have fully socialized that which ought to be socialized. 

I suspect that we will find that our need for spending on safety nets and poverty programs and the like will fall precipitously when we start socializing the value of urban land, broadcast spectrum, landing rights, water rights, natural resources and the other things which the classical economists categorized as "land."  No individual, no family, no tribe, no religion, no corporation, no pension fund, no university endowment, no trust has a claim superior to that of the community as a whole on any such form of wealth.

How do we make our structure consistent with that truth?  Don't alter title.  Simply restructure our tax and royalty system.  Jed Clampett, sorry!  Exxon-Mobil, sorry!  Goldman Trust, sorry!  Helmsley Trust, sorry!  That's ours, and we are going to start collecting its value for public purposes starting in X years. 

Unjust?  No more than ending slavery was unjust to the slaveholders.  Sorry, guys.  Certain things are inherently private.  Some things are inherently public, and should be treated accordingly ... socialized.  The word may sound scary, just as the word "liberal" is difficult for some people to hear   But think deeply about what ought to be private, and what ought to be public, and how we achieve justice and widely shared prosperity, and perhaps the word "socialize" won't bother you so much.

Comments

[James Bowery]

You wrote: "Or at least stop tolerating its socialization until we have fully socialized that which ought to be socialized."

Did you really mean to say: "Or at least stop tolerating its socialization after we have fully socialized that which ought to be socialized."

?

I agree that there are two kinds of wealth and that drawing a distinction between them is crucial for rational political economy. Moreover I agree that George had it basically correct -- particularly in a frontier environment where natural resources (mainly land) were being developed at such a rapid rate and therefore formed such a large component of what many call "economic rent".

But nowadays there is a desperate need to more carefully define our terms lest we end up with another "New Deal" under Obama, as we did when FDR passed a so-called "Wealth Tax" in 1935 that was simply a graduated income tax. Warren Buffet, the wealthiest man in America, is providing this kind of rhetoric today for Obama's "brain trust". It is a terribly dangerous situation given the centralization of wealth -- that is net assets -- that has occurred during recent decades and been taken to catastrophic levels by the so-called "rescue" of Wall Street.

For a simple example, there is Internet domain name "squatting" where people with insider connections can cheaply buy up huge swaths of domain name spaces for the sole purpose of preventing their use until someone who actually has a use comes along. There are, of course, many other examples of private sector rent-seeking out there that do not involve natural resources but do involve government-enforced property rights that benefit from windfall capital gains increases due to general economic growth.

I've been involved with Georgists since the mid 1980s and have come to the opinion that the best way to quantify the economic rent stream of any property is to take its in-place liquidation value and fund a citizen's dividend from it at the risk-free Interest rate (usually the short term Treasury rate) used in the Capital Asset Pricing Model of Modern Portfolio Theory.

[LVTfan]

James,

What I intended is that we not tolerate the socialization of wage income until we have fully socialized economic rent. If, when we have fully socialized economic rent, rent turns out to be insufficient to meet the agreed upon spending needs of government at all levels, then I would tolerate taxing wages to some degree (probably quite progressively, with most people paying no taxes on their wages, and a few who earn very high wages paying a significant load on some portion of their wages.

I say it this way because I am pretty sure that the reforms produced by utilizing Land Value Taxation would reduce the need for many kinds of safety nets to a much lower level than we see right now. In a more just society, many more of us would be able to meet our families' needs, and our land tax, and have wages left to save and invest. We'd no longer be paying twice (to a landlord AND then wage and sales taxes, or to a mortgage lender and then wage and sales and property taxes) and with the increase in wages I'd anticipate because of a much more active economy (deadweight loss largely gone, no middlemen reaping some of our taxes, etc.), I think virtually all of us would be far more prosperous. (The exception would be those who today profit from land speculation; they would not be happy campers, though even they would benefit, as long as land speculation was not the only thing they engaged in.)

And while George's ideas are often perceived as primarily relevant in agrarian societies, he was an urbanist, and his concern was for the poverty in cities. Yesterday, I read that a one-acre property in midtown Manhattan was expected to sell for $800 million, as a teardown. The contrast between urban land values and the value of good agricultural land continues to expand. An acre of good ag land might be worth $5,000 to $10,000, depending on its location. $800 million is 160,000 times the lower of those two numbers!

To your point about internet domain name squatting, I don't think insider connections matter at all. Dollars and foresight do. (I've reserved a few impetuously after in-the-shower inspirations.) And while the right name for one's website can be a tremendous advantage, one can manage with the almost-right name. Yes, there are definite parallels with prime urban locations. And yes, someone is collecting rent annually from those who might not be putting a prime site to use, and who may be speculating in it. (And if I had my druthers, it would be we-the-people pocketing that revenue, not a private entity.) But human ingenuity can transform an almost-right name into a fine name. -- the same can't be said of choice urban land.

I'm of several minds about the citizen's dividend. I'm in favor of the CD if, after funding the legitimate spending of government, there are funds left over. I'm opposed to it if we start collecting rent as public treasure, but leave the dumb and economy-injuring and unjust taxes we now rely on in place, and say that, oh well, people can pay those dumb taxes with their citizen's dividend. I realize that reasonable people can differ about what the "legitimate spending of government" consists of -- but that isn't a new conversation.

Separately, I wonder about the concept of "capital gains." Houses depreciate -- a Federal Reserve Board study in 2006 pegged it at 1.5% per year. Buildings depreciate -- the IRS permits the depreciation of commercial buildings over ~27 years (and the same building gets depreciated over and over by a series of owners, generally from higher and higher starting points, which, to any Georgist, is clearly depreciating land). Empty houses depreciate faster. Machines, even well maintained, depreciate. Tools, even well maintained, depreciate.

What appreciates? Land -- both the earth under our feet and the other things which the classical economists recognized as land and, by extension, similar things today which were beyond their knowledge then: e.g., broadcast spectrum, airport landing rights, geosynchronous orbits, etc.

[James Bowery]

First let me dispel the thought that I might be for keeping other taxes around. Indeed, I see the most general case involving no taxes at all but internalization of all economic acts through what might be thought of as positive and negative environmental impact rents attributed to their sources. So, certainly, when we enter into a Lockean social contract to form a government, we invest our individual sovereignty which necessarily, due to simple carrying capacity limits, entail a certain amount of necessary animal territory -- subsistence or homestead land -- an investment for which we should be compensated as beneficiaries of the land trust called a "nation" which was established by our forefathers to benefit their posterity.

I have just described the source of the citizen's dividend. Certainly, as with any corporate structure, including a land trust, there are voting rights corresponding to the rights of the beneficiaries to vote themselves dividends or to empower the trustees (government) to reinvest those dividends in the Trust. But I would argue that social contracts upholding property rights are, by their nature, best structured to let the various Parties take their dividends to invest in creation or spend on transfer of private property rights -- property rights that are upheld under the terms of the contract. The only question then is, what are those terms? Again, I would argue that the rational sovereign would not agree that the mere fact that some assets are more subject to depreciation than others is the proper basis to decide that some assets are more subject to positive externalities (windfalls) or to negative externalities (environmental degradation). A better estimate for the rents of _all_ property upheld by the social contract is that portion of the in-place liquidation value attributable to the risk-free interest rate used in calculating total asset value.

I am even prepared to argue that military and police functions may be privatized under such a radically just political economy.

[LVTfan]

James,

I don't know enough of the nuance behind some of what you're saying to reply confidently. When you say "necessary animal territory," are you saying that there should be only the number of people who could survive by farming the land with the sort of techniques that were available several generations ago, and that each of them is entitled to that amount of land, or that share of the total land value, and could permanently transfer their individual right to land to someone else for a price? That doesn't leave room for the next person born, and it leads to a situation where some have no land and have sold their own rights, and others have acquired them. I don't see the good in it.

And when you say "by our forefathers to benefit their posterity," are the descendants of those men, or all those who make America their home, or something in between?

I don't see the depreciation/appreciation thing as relevant to deciding whether something is rightly common or rightly private. He who produces it is entitled to the value, as long as he has compensated the community for that which he has privatized, and has not produced negative externalities imposed on his fellow humans or the ecosystem (e.g., pollution beyond what the ecosystem can carry).

[James Bowery]

When you say "necessary animal territory," are you saying that there should be only the number of people...

No. Of course not. I am saying that land allocations preexist government-upheld property rights and that, however much carrying capacity a government controls -- carrying capacity that may change with technological advances, etc. -- it should be considered held in trust, with the government as trustee, for the posterity of the founders of the government. That is assuming governments have any legitimacy at all, which I hope we can assume since we are really discussing the terms of our social contract with one another. In the absence of such a social contract -- a government -- a rule of law -- we have simply our animal territory -- be it farmed, hunted or gathered. If posterity increases in population, it means simply that carrying capacity must be either expanded through technology, frontier settlement or both.

As for "posterity" being the beneficiary of the land trust it must go without saying that unlimited population cannot be supported on any limited land. Anyone serious about land value tax must give carrying capacity primary attention. As for how that population is limited -- that is really a question of the terms of the social contract. In the case of the US Constitution, it is clear that the words "our posterity" meant an extended family -- a family extending from the founding families by descent, marriage or adoption as it is with all extended families. Others might be resident within the boundaries of the land trust, but those others are not intended to be the beneficiaries of the land trust. That much is clearly stated in the preamble.

Here's the fundamental problem: Externalities can be positive as well as negative. The presumption that positive externalities that fall on land must ultimately derive from nature is merely a pragmatic concession to the difficulties inherent in approximating ideal economic justice. One of the most pernicious problems afflicting civilization is the way cultural creativity spreads wealth to all but frequently at a cost that is dear to the creator. The land owner collects these positive externalities as rents and all we can hope a land value tax will do is return most of those rents to the public coffers. Now it is true that Henry George talked about things like prize awards for technological advancement, such as the Longitude Prize, as a way of reducing this terrible affliction, but if you look even at the Longitude Prize you will see an example where the inventor was nearly deprived of his reward after a life-time of creative labor.