LVTFan's Blog

Most Americans Wish U.S. was Like Sweden

AllGov - News - Most Americans Wish U.S. was Like Sweden.

Most Americans Wish U.S. was Like Sweden           Friday, September 24, 2010

Americans really want to live like they’re in Sweden, even if they don’t realize it.

Researchers from Harvard and Duke Universities surveyed a group of Americans on the subject of income inequality and found people’s preferred model of wealth distribution was that of the Swedes — after being given the choice of sticking with what the United States has to offer these days.

When shown the wealth distribution of the U.S. and Sweden’s (without labels), 92% of respondents chose the Swedish one.

The research also revealed that Americans “vastly underestimated the actual level of wealth inequality in the United States,” believing that the wealthiest 20% of the population currently controls about 59% of the wealth, when the actual number is closer to 84%.

When asked how much of the country’s wealth the richest 20% should hold, respondents said no more than 32%.      -- Noel Brinkerhoff

Building a Better America – One Wealth Quintile at a Time (by Michael I. Norton, Harvard Business School, and Dan Ariely, Duke University) (pdf)

Don't miss the three graphics in this short -- 13 page -- PDF. [2 are available here]

Here's the abstract:

Disagreements about the optimal level of wealth inequality underlie policy debates ranging from taxation to welfare. We attempt to insert the desires of “regular” Americans into these debates, by asking a nationally representative online panel to estimate the current distribution of wealth in the United States and to “build a better America” by constructing distributions with their ideal level of inequality.

• First, respondents dramatically underestimated the current level of wealth inequality.
• Second, respondents constructed ideal wealth distributions that were far more equitable than even their erroneously low estimates of the actual distribution.

Most important from a policy perspective, we observed a surprising level of consensus: All demographic groups – even those not usually associated with wealth redistribution such as Republicans and the wealthy – desired a more equal distribution of wealth than the status quo.

Addendum:  I'm borrowing shamelessly from James Fallows' post.  Notice that the first bar shows the actual distribution of wealth; the following ones show the respondents' estimates and description of their ideal distributions.

"The chart below conveys the central point: people think the distribution of wealth is more equal than it actually is; and they think it should be much more equal than their already unrealistically-equal notion of its current state. Eg: the top 20% of the US wealth distribution actually controls nearly 85% of total wealth; people think the top 20% controls under 60%; and they think it should control just over 30%



Similarly: people feel that the bottom 20% of the economic pyramid "should" have about 10% of the total pie; they think it actually has about 3% or 4%; in fact, its share appears to be too small to show up on the chart.

After the jump, another chart showing how these misperceptions break down among income groups. The de-middle-classing of America is a familiar story, but since it will be seen as one of the huge trends of this stage of history it deserves even more attention than it gets.

_____
Another chart, showing estimates of what that wealth distribution is, and what it should be, among people in three income groups (under $50,000, $50,000 to $100,000, and above $100,000.) Main variation: the more money people make, the larger the share they think should go to the top 20%.

Ben Stein's Money

Last weekend, Ben Stein apparently presented a piece on CBS News, entitled "Raising My Taxes is a Punishment: If Raising Taxes Won't Help Economy, Why Am I Being Punished."  Stein, the son of two Chicago-educated economists, writes,

I am a fairly upper income taxpayer. Not anything even remotely close to sports stars or movie stars or financial big boys. But I am above the level Mr. Obama says makes me rich. So, in the midst of a severe recession, I am to have my taxes raised dramatically.

I am not quite sure what my sin is.

I worked for almost every dollar I have, except for a small percentage my parents left me by virtue of hard work and Spartan living, and most of that was taken by the federal estate tax. I have a hell of a lot less than I did before the stock market and real estate market crashes. I didn't get a bailout or any part of a stimulus program, except for traffic jams as the roads in Beverly Hills got worked on for the 10th time in the last 10 years (or so it seems).

I pay my income taxes, and after them and the commissions I pay my agent, I am left with about 35 cents for every dollar I earn.

I own some real estate in California and Idaho and the District of Columbia. Naturally, I pay property tax, supposedly mostly to educate local children. Not far from me, the city of Los Angeles just spent about $600 million to build the most lavish school in America for about 4,000 children. That's my money. Naturally, I had no say in it. My wife and I have no children in public schools and only did for about eighteen months long ago. I still pay my school tax ever year.

I am not asking for any tears. I live a great life, have a fabulous wife, a great son and daughter-in-law, four wonderful, furry dogs and six cats, all adopted. I have more than enough to eat.

But what I don't get is this: There is no known economic theory under which raising my taxes in the midst of a severe recession will help the economy recover. It isn't part of any well known monetarist or Keynesian theory. So if it does no good to raise our taxes, I assume we are being punished.

But for what? I don't own slaves. I employ a lot of people full- and part-time and they are all happy with their pay. When charity calls, I almost always write out a check. I don't have a yacht or ponies or a plane. My wife doesn't wear a tiara. I don't gamble.

What did I do wrong? I know I have often lost my temper with my wife and the cats, but that's not a crime, yet. I tried to be successful, which is what I thought I was supposed to do. When did it turn out that was a crime to be punished? Maybe when the economy recovers, raising my taxes makes sense, but for now, it's just punishment, and I can't figure out what for.

As Krugman pointed out in his blog,

OK, the late, great — and I mean that — Herbert Stein died in 1999. At that time the first $650,000 of an estate was tax-free — $1.3 million for a couple, provided it did what CBO calls “minimally competent estate planning” — with a 55% tax on the amount above that.

So either Ben Stein inherited several million dollars — which, although this may be news to him, is not the experience of most Americans — or he’s just making stuff up.

And in an October, 1999, column in Slate, entitled "My Father's Estate,"  Stein wrote,

He did indeed leave some money. By the standards we read about in the Wall Street Journal or Sports Illustrated, it was not worthy of much ink. In any event, because of the class-warfare-based death tax, the amount that will be left is vastly less than what he had saved. As an economist, my father was famous for defending taxes as a necessary evil. But even he was staggered, not long before his death, when he considered the taxes on his savings that would go to the Internal Revenue Service.

The nest egg is going to be taxed at a federal rate of about 55 percent, after an initial exemption and then a transition amount taxed at around 40 percent (and all that after paying estate expenses). When I think about it, I want to cry.

Later, referring to his father's writings,

Some of them will go to the Nixon Library, and some will be on bookshelves in the (very small and modest) house my wife and I own in Malibu, a place he found beguiling because he had always wanted to live by the ocean and write.

In the NYT in 2006, in a business story entitled "You're Rich?  Terrific.  Now Pay Up" he wrote,

Something flashed into my mind — something that my late father used to say, quoting loosely from the economist Henry C. Simons, a founder of the Chicago School of economics: that it is "unlovely" to see the extremes of wealth and nonwealth that are evident in contemporary America.

We may be able to live with it. Some of us may even be able to prosper amid it. But it's not pretty. The rich should simply not be that much richer than everyone else — especially those whose lives protect them from terrorism.

and later in that same piece,

The real problem is the difference between the rich — including rich oil people, of whom there are not many, but there are enough — and the poor. It is up to the government to redress this extraordinary difference in incomes of the rich and the nonrich, even at the margins.

What Congress can do, and should do, is address the stunning underpayment of military men and women and the staggering budget deficits that will be a burden on our posterity for decades, by raising the taxes on the rich. It's fine that there are rich people. It's even fine that there are superrich people.

But if they are superrich, they derive special benefits from life in the United States that the nonrich don't. For one thing, they can make the money in a safe environment, which is not true for the rich in many countries. It is just common decency that they should pay much higher income taxes than they do. Taxes for the rich are lower than they have been since at least World War II — that is to say, in 60 years.

This makes no sense in a world at war, in a nation with so many unmet social needs, in a nation with so many people without health care, in a nation running immense and endless deficits.

America is becoming a nation of many rich people. I recently read that there were close to 10 million millionaire households. I read that there were hundreds of thousands who made more than $1 million a year. Good for them.

But it's unlovely for them to pay as little tax as they now pay. The real problem in this country is only temporarily about oil. That will right itself, or we'll get used to it and adjust.

The real problem is saving a nation that is beset by terrorism, and we cannot do that unless we feel that we are all in the same boat, pulling at the oars together. That includes the rich.

Whatever rationale there may have been in 2001 for lowering their taxes is long gone. It's time for them — us, because it includes me — to pay their (our) share.

It's not about oil. It's about fairness.

Let's go back to his recent comment, "I worked for almost every dollar I have, except for a small percentage my parents left me by virtue of hard work and Spartan living, and most of that was taken by the federal estate tax.  ...  I own some real estate in California and Idaho and the District of Columbia." and his 1999 comment, "some will be on bookshelves in the (very small and modest) house my wife and I own in Malibu," on which (2010) " ... naturally, I pay property tax, supposedly mostly to educate local children."    And if, perhaps, he used those inherited dollars to buy some of his real estate, which has appreciated mightily in the intervening years, his "I worked for almost every dollar I have" is a bit disingenuous (buut consistent with Edward Wolff's findings, which imply that the amount inherited is often a small piece of large fortunes -- ignoring, of course, the contribution that a fully-paid for education in private primary, secondary, college and graduate schools might make, or any inter vivos gifts such as help with a downpayment on a home in the early working years, might make to an eventual fortune -- or sense of entitledment.

I don't know whether Idaho has a lot of children to educate, but California and Washington, D.C., certainly do.  And property taxes are generally used to provide the public goods and services which help maintain and increase property value.    California property values have risen significantly since he acquired his property; I assume that he attributes that appreciation to his hard work.  But an economist who thinks deeply would recognize that he can take no credit for it.   Even a small and modest home in that location is worth an amount far beyond what 95% of Americans could afford. 

I am reminded of Warren Buffett's 2004 pre-Schwarznegger election interview in the WSJ and his post-election LTE, referring to properties in Malibu Laguna , in which Buffett he pointed out (a) how low those property taxes are; (b) how fast Malibu property appreciated,  and (c) how unrelated to the market value of Malibu homes the property taxes of long-time owners are.

• "The first Laguna Beach house is a property that I bought in the early 1970s. It has a current market value of about $4 million and, because of the limitations embodied in Proposition 13, carried taxes of only $2,264 in 2003 vs. $2,241 in 2002.
• The second house, located just in back of the first, is one that I purchased in the mid-1990s. It has a market value of about $2 million and, simply because I bought it later than the first, carried taxes of $12,002 in 2003 vs. $11,877 in 2002."

and Buffett later continues, "My sympathies are clearly with the "non-billionaire" family purchasing a $300,000 house in Chico today that faces real estate taxes materially higher than those borne by this non-resident billionaire on his $4 million house in Laguna. This family, because of Proposition 13, has been selected to subsidize me."

Back to Stein's "My Father's Estate" (1999):

He never once in my lifetime's recall said that any man or woman deserved special respect for riches -- in fact, like Adam Smith, he believed that the pleadings of the rich merited special suspicion.

Enough said.

If you'd like to read more about how Ben Stein sees wealth concentration, explore this piece in which he explains away any problems with corporations taking advantage.  I read it in January (and commented), and heard him deliver it again in April.

 

Quarter days

Quarter days - Wikipedia, the free encyclopedia.

In British and Irish tradition, the quarter days were the four dates in each year on which servants were hired, and rents were due. They fell on four religious festivals roughly three months apart and close to the two solstices and two equinoxes.

The significance of quarter days is now limited, although leasehold payments and rents for business premises in England are often still due on the old English quarter days.

The quarter days have been observed at least since the Middle Ages:

"These have been the days when accounts had to be settled, days when magistrates paid their visits to outlying parts in order to determine outstanding cases and suits. There is a principle of justice enshrined in this institution: debts and unresolved conflicts must not be allowed to linger on. However complex the case, however difficult to settle the debt, a reckoning has to be made and publicly recorded; for it is one of the oldest legal principles of this country that justice delayed is injustice. Among the provisions that the barons wrested from the extortionate and unjust King John in Magna Carta of 1215, a safeguard for gentry like themselves and hungry peasants alike, was the promise that 'To none will we sell, or deny, or delay right or justice'. Days of assize ensure openness, assurance and timeliness of justice, justice not sold, not denied, not delayed."

In England

The English quarter days (also observed in Wales and the Channel Islands) are:
* Lady Day (25 March)
* Midsummer Day (24 June)
* Michaelmas (29 September)
* Christmas (25 December)

Lady Day was also the first day of the year in the British Empire (excluding Scotland) until 1752 (when it was harmonised with the Scottish practice of 1 January being New Year's Day). The British tax year still starts on 'Old' Lady Day (6 April under the Gregorian calendar corresponded to 25 March under the Julian calendar).

The cross-quarter days are four holidays falling in between the quarter days: Candlemas, May Day (1 May), Lammas, and All Hallows (1 November). The Scottish term days, which fulfil a similar role as days on which rents are paid, correspond more nearly to the cross-quarter days than to the English quarter days.

Well, I sometimes think that part of why people dislike the conventional property tax is that it is billed twice a year, and one must write a fairly large lump sum check.   Those who escrow their taxes as a condition of their mortgage aren't faced with this.  The vast majority of one's income taxes and payroll taxes are withheld biweekly or monthly.

Technology has come a long way, and it would probably make sense for our land value taxes to be paid once a month, just as mortgage payments are.  Many people would opt for an automatic withdrawal from their checking account, as mortgages and car payments are often handled.

Sidelight: my understanding is that Candlemas, which is on the same date that the US celebrates Groundhog Day, is the middle of winter, and one should have remaining half the candles one needs to get through the winter.

The Feoffees of Ipswich (Mass.) are still considering selling Little Neck!

Little Neck appraisal should be released - Ipswich, MA - Ipswich Chronicle.

Remarkably, the Feoffees (trustees) for the 360 year old trust created for the benefit of the public schools of Ipswich by a forward-thinking and public-spirited landholder when he donated to his community -- forever -- a beautiful 32-acre almost-island in trust.   The conditions included the provisions that (1) the Feoffees should collect market-level rents and (2) that the land could never be sold.    Little Neck has 167 lots, and the tenants own their cottages, the majority of which are 70 to 90 years old and under 1000 square feet, on lots of 3000 to 5000 square feet.  The tenants pay land rent to the Feoffees, which is supposed to be paid to the schools of Ipswich.

Well, the Feoffees have failed to collect market rents, and the tenants seem to think that that might be sufficient reason for them to be able to buy the land -- and at a very moderate price!

After the jump, you can read three recent articles, and the comments to date.

As you read this, remember that about 1/4 of the Little Neck tenants are also year-round residents of inland Ipswich, and are likely well-known to the Feoffees.  This may tend to create some conflicts of interest between the Feoffees' role as trustees of this property for the benefit of the public school system -- forever --  and their role as good neighbors to some of Ipswich's long-time residents.

Click on the "Feoffees' land" link at left to read all the posts on this topic; I've been intrigued with this story since I first read about it in 2008.

The newest appraisal is 50% higher than the previous one -- but still only about half of what I estimate Little Neck's land to be worth.

Independent Voters

I came across an interesting statistic about Connecticut's voters this week:

• Registered Democrats 792,934
• Registered Republicans 433,057
• Registered Independents 914,893

That totals to 2,140,884, and the percentage split is

• Registered Democrats       37.0%
• Registered Republicans     20.2%
• Registered Independents  42.7%

It is interesting to contemplate this in connection to at least two of the current races:

• Republican candidate Linda McMahon is spending $115,000 per day of her own WWE (World Wrestling Entertainment) fortune to blanket Connecticut's airwaves with ads which disparage her opponent, long-time Attorney General Richard Blumenthal.  She has vowed to spend up to $50 million to win the seat.
• Democrat Dan Malloy of Stamford is running for Governor; his opponent is Tom Foley, another self-financed candidate, also from Greenwich.   Malloy is relying on $6 million in public financing. 

Connecticut has not elected a Democrat as governor since 1986.  Foley's comment?  “I think people in Connecticut are smart, and they want some adult supervision in Hartford,” he said.

All four candidates are from the two towns farthest from the state capitol in Hartford, and the two towns with the highest Grand Lists in the state.

How will the voters respond to the ads they see and the debates they hear?

How to Increase America's Saving Rate: Rich Americans Save Tax Cuts Instead of Spending

Rich Americans Save Tax Cuts Instead of Spending, Moody's Says - Bloomberg.

Well, from time to time, we hear that Americans aren't saving enough, and sometimes columnists ask for suggestions of how we might increase America's savings rate.

Moody's has provided the answer: cut federal income taxes on the highest income people, and they will save a significant portion of it.   (The question arose because some say that in order to facilitate job creation, we ought to avoid increasing federal income taxes on the portion of taxable income over $250,000 per year.)

If the goal is to produce savings at the median, or at the 25th or 75th percentiles, or at the 10th or 90th percentiles, reducing taxes on the highest-income 2% or so is not going to serve the purpose.   But it will satisfy the "increase America's saving rate" goal.

Before we went into this recent "bust" portion of our 18-year boom-bust cycle, a shocking proportion of Americans lacked sufficient savings to provide even a poverty-line existence for their families for as short a period as 3 months.  (Edward Wolff of NYU wrote the study on this.)   Most of us live paycheck to paycheck.

The notion of saving for a "rainy day," or even of saving to buy one's next car for cash, seems quaint and of-another-era, with so many of us paying more than 40% of our income for housing.  (Yet we don't complain about owing our soul to the company store.  Now it is the FIRE sector we owe.)    And look at the measures we've used to substitute for people's inability to save a 20% down payment on a starter home!

But the best-off among us -- both those who have large amounts of wealth and many of those who receive high wages or high profits on their "labor" (even if their labor consists of reaping that which other people sowed, they do regard it as labor, and sometimes the IRS does, too -- unless they run hedge funds, in which case it gets treated just as if they'd actually invested their own capital in a way a corporation could use to enhance its operations!) -- can and do save and invest.   And clearly this is an aspect of the wedge driven through society which Henry George described 130 years ago, driving some up and the vast majority down.

The wealthiest among us own, and take opportunities increase their holdings of, the corporations -- public and private -- which hold our best land (urban, oil-laden, etc.) and our non-renewable and/or otherwise finite natural resources.  (See "stock ownership" in the tag cloud at left for the data.)  We praise them as if they are somehow self-made, and let them parade about as such, and we gratefully accept their charity -- tulips and swimming holes on Park Avenue -- as if it made up for what they and their ancestors stole from us and ours, and what their children will reap from the labor of our children.   We don't see the structures by which they do it -- we're so used to them that they are, like the air we breathe, invisible to us.   But 120 years ago, most Americans did understand them.  (Explore the free NYT archives, 1880 to 1900, for the name of Henry George, and do some reading.  I suspect even the American history and American Studies majors will be surprised.)

 

We’re No. 1(1)!

Op-Ed Columnist - We’re No. 1(1)! - NYTimes.com. from Tom Friedman's op-ed column on 9/12/10:

“The larger cause of failure is almost unmentionable: shrunken student motivation,” wrote [WaPo columnist Robert] Samuelson. “Students, after all, have to do the work. If they aren’t motivated, even capable teachers may fail. Motivation comes from many sources: curiosity and ambition; parental expectations; the desire to get into a ‘good’ college; inspiring or intimidating teachers; peer pressure. The unstated assumption of much school ‘reform’ is that if students aren’t motivated, it’s mainly the fault of schools and teachers.” Wrong, he said. “Motivation is weak because more students (of all races and economic classes, let it be added) don’t like school, don’t work hard and don’t do well. In a 2008 survey of public high school teachers, 21 percent judged student absenteeism a serious problem; 29 percent cited ‘student apathy.’ ”

There is a lot to Samuelson’s point — and it is a microcosm of a larger problem we have not faced honestly as we have dug out of this recession: We had a values breakdown — a national epidemic of get-rich-quickism and something-for-nothingism. Wall Street may have been dealing the dope, but our lawmakers encouraged it. And far too many of us were happy to buy the dot-com and subprime crack for quick prosperity highs.

I wonder whether we might consider the possibility that students are perceiving that the rewards to honest labor -- and even the opportunities for same -- are increasingly limited, and that with this in mind feel there is little reason for them to exert themselves.

Get-rich-quickism and something-for-nothingism.  How about "becoming wealthy off others' labor"?   See also rent-seeking. Wall Street is certainly a piece of this, but I doubt that Mr. Friedman is going to identify the real estate part of the FIRE sector as also sucking up -- quite legally -- a disproportionate share of America's productivity.   (His father-in-law is a beneficiary of this, and I suspect he is not going to challenge the structure that produces that effect.  Nor are Eliot Spitzer or Richard Blumenthal, both good people on many important issues, but respectively son and son-in-law of real estate magnates.)

When some reap what they don't sow, others don't get to reap what they did sow.    It doesn't come out of thin air.  And that excessive reaping contributes mightily to income concentration, to wealth concentration, to human misery, and to a wide range of societal effects that a just and wise people should seek to avoid.

Are we a just and wise people?

Maybe.  But first we need to recognize that we are generally ignorant on the subject of land economics, and that our ignorance has been reinforced by the economics departments of most of our major universities, which simply don't teach their students how land economics impact ordinary people.  (I can't say whether the Real Estate Institutes at, say, Penn or Harvard teach their students this explicitly or not; I suspect they don't.  All they know is that this system, like Aleve, works for them, and they learn how to make it work a little better in our academies.)

An aphorism comes to mind ...

He who knows not and knows not he knows not: he is a fool - shun him.

He who knows not and knows he knows not: he is simple - teach him.

He who knows and knows not he knows: he is asleep - wake him.

He who knows and knows he knows: he is wise - follow him.

How do we reduce the popular ignorance of land economics? Well, you could start by reading a bit of Henry George.  He knew, and knew that he knew.   Start with one or more of his speeches:

• Thou Shalt Not Steal
• The Crime of Poverty
• Thy Kingdom Come

(If your frame of reference is not theological, don't be put off by the language; the points he makes don't require acceptance of God-language to make sense.)    And then move on to "Progress and Poverty," either in the original unabridged, or in a modern abridgment.  You can read a very short version here. 

We can create a society in which our young people will regard themselves as stakeholders, or we can continue to uphold the structures which funnel nearly 3/4 of our net worth into the pockets of just 10% of us, and wonder why the vast majority of our young people "aren't motivated."

When our best and brightest were motivated and incentivized to use their talents in basic research, in medicine, in civil engineering, etc., they used them to serve society as a whole.  Today, our best and brightest seem to go into finance and consulting, and get to skim the cream that ought to be homogenized for the good of all of us.   That leaves less for the rest of us to share, and less opportunity for the vast majority of our young people.

FIRE Sector Strikes Again: Resale Fees That Only Developers Could Love

Resale Fees That Only Developers Could Love - NYTimes.com.

What a story!  The developers of some subdivisions have slipped into their covenants a 1% resale "commission" which anyone who sells a property they developed must pay them ... not just once, but at every transaction for 99 years!    How's that for a tax imposed by the private sector?   Here are some excerpts from the article.

"But four months later, when a local television reporter was doing a story on housing taxes in their subdivision, the Dupaixs discovered that their sales contract included a “resale fee” that allows the developer to collect 1 percent of the sales price from the seller every time the property changes hands — for the next 99 years. ....

A growing number of developers and builders have been quietly slipping “resale fee” covenants into sales agreements of newly built homes in some subdivisions. In the Dupaix contract, the clause was in a separate 13-page document — called the declaration of covenants, conditions and restrictions — that wasn’t even included in the closing papers and did not require a signature.

The fee, sometimes called a capital recovery fee or private transfer fee, has been gaining popularity among companies that have been frantically searching for new ways to gain access to cash in the depressed housing market. ...

Freehold Capital Partners, a real estate financing firm founded by the Texas developer Joseph B. Alderman III, has been leading the charge. According to William White, Freehold’s chief operating officer, the firm has signed up more than 5,000 developers who are adding the covenant to developments worth hundreds of billions of dollars that will be built out over the next decade in 43 states.

Many developers see the resale fee as a creative way to get new financing. They are hoping to one day use the trickle of cash from these fees as collateral for a loan, or to get cash up front if pools of the fees are packaged into securities to be bought and sold on Wall Street. Freehold has begun shopping the idea of securitizing the resale fees, much as subprime loans were packaged and sold to investors.

Someone selling a home for $500,000, for example, would have to pay the original developer $5,000. If the home sold again two years later for $750,000, the second seller would have to pony up $7,500 to the developer, and so on. Even if a home declines in value, the seller still must pay the 1 percent fee. Freehold gets a cut of the resale fee; if the fees are securitized, it retains a percentage of the cash generated from the securitization.

Freehold’s principals and lawyers have been aggressive in sales pitches to developers, but have declined to give details on their clients, securitization efforts or the company itself. Freehold moved its corporate office from Round Rock, Tex., to New York this year as it stepped up efforts to securitize the resale fees.

Mr. White characterizes the resale fee as a win-win deal for the developer and the home buyer. The fees let developers spread out the cost of building the roads, utilities and other infrastructure across all homeowners in a subdivision, rather than just the initial buyers. As a result, he said, the developer can lower the initial price of a home to the first buyer.

For example, he says, a typical $250,000 home may be able to sell for about $5,000 less. “The fee is a fair and equitable way to spread development costs, and results in lower costs to the average consumer,” Mr. White says. ...

Jeff Moseley, founder of Badger Creek Development in Brunswick, Ga., says he signed up with Freehold after watching his business tank with the economy. “I can’t sleep at night,” he says, adding that he had laid off all 32 of his employees.

He is hoping Freehold’s resale fee program will breathe new life into his business. “I thought it was an intriguing and compelling story,” says Mr. Moseley, who owns two development projects, encompassing about 220 lots.

Under his deal with Freehold, he will get about two-thirds of the revenue from the securitized fees while Freehold and other parties will get one-third. ...

A COALITION of real estate trade groups, including the National Association of Realtors, the American Land Title Association and the Center for Responsible Lending, opposes resale fees and is lobbying federal and state authorities to ban them.

“The idea that someone who has no ownership stake or interest can continue to collect revenue off of a property that they may have built up to 99 years ago exploits an already complex transaction and doesn’t pass the smell test,” says Justin Ailes, director of government affairs at the land title association. The fee could hurt real estate values in the future if buyers are reluctant to purchase properties that have a 1 percent fee attached. ...

The Federal Housing Finance Agency is considering a proposal to prohibit the transfer fees on all mortgages financed by Fannie Mae, Freddie Mac and the Federal Home Loan Banks. And 17 states have either banned or placed conditions on the practice.

Some bankers say Freehold will have a tough time selling the idea to Wall Street. The uncertain economy and housing market have made it next to impossible to predict when and how often a home will sell, or where home prices are headed — information that is needed to estimate cash flows to value the securities.

And some worry that an all-out ban of resale fees by states or the federal government could make the securitized paper worthless.

Dave Ledford, a senior vice president at the National Association of Home Builders, says he’s not sure Freehold can deliver on its big promises. “It’s almost in the category of ‘too good to be true,’ ” Mr. Ledford says.

Mr. White dismisses the criticism as sour grapes. He contends that Realtors oppose the fee because homebuyers might pressure them to lower their commissions to offset it. “Apparently 6 percent to a Realtor is justified, yet 1 percent to pay for roads and utilities isn’t,” Mr. White says. He says he believes title companies are worried that they might face legal claims if they miss the fee during a search.

 

LVTfan here: 1% to pay in 2050 or 2090 for roads built in 2010?   Right ....  Tell us another one.

See also http://www.wealthandwant.com/docs/Gross_Rent.html  Rent-seeking is alive and well -- and these folks are reaping what they didn't sow -- and won't sow.   It doesn't come out of thin air.  It will come out of the pockets of future owners and users of the property.

Shouldn't we-the-people -- the public sector -- get that benefit?

This seems a bit like the Baltimore land rent story: private parties getting to collect value today, in return for someone paying a bit less 50 or 100 years ago to buy a house. 

And both situations ignore what those who have read Henry George know: that land rent ought to be used by the commons to finance our common spending, not privatized by any individual or corporate entity.

Little people pay the taxes ... and we're paying to the wrong parties.  When private entities get to collect what we-the-people create, there's something badly wrong with the structure.  It forces us to rely on sales taxes, wage taxes, building taxes, and other taxes which burden the economy and steal from those who produce in order to enrich those who speculate in land value.

Wise states will implement the legislation necessary to wipe out such structures.

Housing and Commercial Real Estate: Why a Recovery in One Can’t Come Soon Enough for the Other

Housing and Commercial Real Estate: Why a Recovery in One Can’t Come Soon Enough for the Other | The New York Observer.  Robert Knakal writes,

The first-time home buyer's tax credit has put many people into homes with virtually no skin in the game.

In fact, an examination of the numbers shows that the government was actually paying people to buy houses. When the tax credit was implemented, the average home price in the U.S. was $178,000. Mortgages were primarily provided through the F.H.A. at that time, which required a maximum of a 3.5 percent down payment. Therefore, on the average home, a down payment of about $6,200 was required. The first-time home buyer's tax credit was $8,000. The result was that buyers were handed a deed to a house and a check for $1,800. We have seen that movie already and know how it ends.

Based upon this tax credit program, which steals transaction volume from subsequent periods, was it any surprise that home sales plunged 27 percent after the expiration of the program?

I'd not seen the math before, but I think he's quite right in his observation.    And every one of the sellers was enabled to go on about his life, armed with home equity or at least freed of his debt, perhaps to buy a move-up house in a better location.

Later in the article, he continues,

GIVEN THESE CONDITIONS, economists have projected a growing likelihood of a double dip in the national housing market. A double dip would have negative implications for our commercial real estate market. Let's connect the dots.

We have previously discussed the importance of employment on commercial real estate fundamentals. Small businesses are the leading contributor to job creation and growth in the U.S. The fact is that home equity withdrawal and credit card borrowing are the primary financing sources for the majority of small businesses. Given new regulation in the credit card industry, which was ironically initiated to "protect" consumers, credit availability has shrunk and that which is available is more expensive than it was. Therefore, small business has restricted access to this form of financing. This places even more importance on home equity.

To the extent that home equity grows, it provides existing and potential small-business owners with a source of financing for job creation. Additionally, home equity creates a "wealth effect" that stimulates personal consumption. With consumer spending making up nearly 70 percent of our gross domestic product, this has important implications for our economy at large. Second-quarter 2010 G.D.P. growth was adjusted downward from an initial estimate of 2.4 percent to just 1.6 percent. This is far below the 6 to 8 percent growth rate normally seen at this point in a recovery. An increase in consumer spending would lead to healthy G.D.P. growth.

Do we really want to repeat this boom-bust cycle business again?  Do we have a reason to think that "this time it will be different" somehow?

Seems to me that we'd be better off if we followed Mason Gaffney's advice in "How to Thaw Credit, Now and Forever." While you're at it, take a look at "The Great Crash of 2008" and "After the Crash: Designing a Depression-free Economy.  All are available at http://www.masongaffney.org/.

Or maybe you'd like to see us repeat this last few years again.  I know: you'll be smart, and know when to get out of the "housing" -- land -- market, and make out just fine, won't you?  It is just the other poor suckers who will suffer next time, right?

If you want to enable and encourage those potential small-business owners, the best thing you -- WE! -- can do is implement policies which bring DOWN the selling price of land and reduce the disincentives to development of well-located sites to something approaching their highest and best use.

The folks who consider their best hopes to be from reaping the appreciation in land values -- be it as real estate brokers, mortgage brokers, title insurance brokers, speculators, "investors," "capital" gains takers -- as well as the credit card companies financing business startups at 22% annual interest -- will not like this much.  But they're much less concerned about US as a society than they are about what might be great for their sector.   Yes, they have a lot of influence over policy.  And until a significant minority of us come to understand the economics of land, and how it can be used as a force for the common good rather than for private gain, they will continue to spend enough to influence our votes, and tell us it is in OUR best interests.  Ever heard of hiding behind the widows' skirts?  This is a fine example.

Read Gaffney.

As Stadiums Vanish, Their Debt Lives On

As Stadiums Vanish, Their Debt Lives On - NYTimes.com.

"Paying for arenas and stadiums that are now gone or empty is a result of a trend that stretches back decades. Until the 1960s, public works were often defined as bridges, roads, sewers and so on: basic infrastructure that was used by all and was unlikely to be built by the private sector. With few exceptions, like County Stadium in Milwaukee, teams constructed their own stadiums."

Isn't it amazing what some special interests will manage to get defined as "public works"?

The article continues,

Some politicians in New Jersey applaud the Jets and the Giants for building their own stadium. But the old Giants Stadium generated about $20 million a year for the authority. Now, the agency will receive only $6.3 million in lease payments from the teams, and needs additional state subsidies.

The authority has promoted Xanadu, a privately built retail complex that has yet to open next to the Izod Center. But desperate to plug holes, the authority has spent the entire $160 million in rent payments it received from the developers. Some of the money was meant to pay off debt associated with the arena and the stadium, and was supposed to last 15 years.

The whole thing reminds me of a friend's sigfile:

"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.

back to the NYT article:

"How municipalities acquire so much debt on buildings that have been torn down or are underused illustrates the excesses of publicly financed stadiums and the almost mystical sway professional sports teams have over politicians, voters and fans.

Rather than confront teams, they have often buckled when owners — usually threatening to move — have demanded that the public pay for new suites, parking or arenas and stadiums."

Do professional sports team owners really have a mystical sway over voters?  Or is it mostly over politicians?

Obama to Call for $50 Billion Public Works Plan

Obama to Call for $50 Billion Public Works Plan - NYTimes.com.

WASHINGTON – President Obama on Monday is to call for as much as $50 billion in government spending to start up a long-term public works plan emphasizing transportation projects – roads, rail and airport runways – over the next six years.

Okay.  Sounds good.  This is what some people have called Pork, when the money has been invested in other people's congressional districts. 

Good infrastructure projects are very worthwhile, and, properly conceived, well designed and well executed, will serve the public for decades, perhaps many generations.  Look at what the CCC accomplished during the Depression.  Look at the Interstate Highway system.  Look at the service that commuter rail and, in some places, intercity rail offers.

But local government has failed to follow through.  Federal investment in infrastructure is the "1" of the "1-2 punch," but if local, county or state governments fail to respond appropriately, much of the benefit is lost.

Every worthwhile infrastructure project creates (or in the case of necessary maintenance, maintains) far more land value than the cost of the project.  Consider:

• the George Washington Bridge across the Hudson created how much land value in northern New Jersey?
• the Golden Gate Bridge created how much land value in Marin County, California?
• the Tappan Zee Bridge across the Hudson created how much land value in Rockland and Westchester Counties?
• the Northway created how much land value north of Albany, New York?
• the Verrazano Narrows Bridge created how much land value on Staten Island?

Who benefited?  The landholders!  Federal dollars were poured into these projects, and individual landholders reaped the windfall we created.  Their communities and counties and states could have taken two simple steps to recycle that value -- and still can!:

1. Assess the land value every few years.  (Assessing land value is not expensive or difficult to do well, if one sets out to do it.  Unfortunately, many assessments are focused on buildings, or on the property as a whole, and only later assign a land value, which may bear little relation to market values.)
2. Collect some significant portion of the value which results from federal, state, county and local investment in infrastructure and services.   Don't tax the buildings.  Don't tax sales.  Don't tax wages.  Just the land value. 

And if the local, county and state governments don't see fit to collect that value for local, county or state purposes, the federal government ought to be able to step in and collect it.  After all, WE created it.  It doesn't belong in private pockets.  And if we collected it, we could reduce or eliminate the dumb taxes which burden our economy.

Which is the whole point of stimulating the economy, isn't it?

Unless, of course, we're doing it for the benefit of the 10% of us who receive about 48% of the income, or the slightly different 10% of us who own 71.5% of the net worth, in which case this is a very poor idea.  Remember what Leona Helmsley told us:  "WE don't pay taxes.  The little people pay taxes."

Shall we create more unearned income for them?  Or shall we create incentives for localities and states to recycle that value, with the option of collecting it for federal purposes if they choose not to?

Housing Choice - Help Today’s Owners or Future Buyers?

Housing Choice - Help Today’s Owners or Future Buyers - NYTimes.com.

Here are the opening paragraphs:

The unexpectedly deep plunge in home sales this summer is likely to force the Obama administration to choose between future homeowners and current ones, a predicament officials had been eager to avoid.

Over the last 18 months, the administration has rolled out just about every program it could think of to prop up the ailing housing market, using tax credits, mortgage modification programs, low interest rates, government-backed loans and other assistance intended to keep values up and delinquent borrowers out of foreclosure. The goal was to stabilize the market until a resurgent economy created new households that demanded places to live.

As the economy again sputters and potential buyers flee — July housing sales sank 26 percent from July 2009 — there is a growing sense of exhaustion with government intervention. Some economists and analysts are now urging a dose of shock therapy that would greatly shift the benefits to future homeowners: Let the housing market crash.

It seems as if the suggestion is that we ought to let the housing market crash, and then hope that we will pick up again where we left off, and experience this boom-bust cycle again.

There doesn't seem to be much discussion of the factors that produce the boom-bust cycle, or of the notion that we can actually prevent the next boom-bust cycle through wise policy.

What policy?  A tax shift.  Shift taxes off wages (starting at the bottom); off sales (starting with essential items); off buildings of all kinds and equipment.  What's left to tax?  

That which we should have been taxing all along: the value of land.   Henry George (b. Philadelphia, 1839; died NYC, 1897) introduced the idea in his 1879 book, Progress and Poverty, which remains 130 years later the best selling book ever on political economy.  It sold over 6 million copies by 1900, and George, Thomas Edison and Mark Twain were perhaps the three best-known public figures of their day.  George's "remedy" came to be known as the "Single Tax."  It was a recipe for small government -- right-sized government, funded by the only legitimate revenue source: value created by nature and by the community.  Land, to the classical economists -- Adam Smith, David Ricardo, John Stuart Mill, Henry George, etc. -- was distinctly different from capital. (The neoclassical economists -- and those who only know their sort of economics -- can't seem to see the difference, and conflate them, leading to all sorts of stupid -- and unnecessary -- messes!)  Land includes not just the value of locations (on earth, in water, in space) but also electromagnetic spectrum, water rights, non-renewable natural resource values, pollution "rights," and lots of other like things.  (Mason Gaffney provides some excellent lists.)   Those locations include urban land, land made valuable by favorable climate, water supply, access to ports, to transportation systems, to desirable views, to vibrant cities with jobs, cultural amenities, educational opportunities; geosynchronous orbits; congestion charges; parking privileges, etc.    Those of us who claim title to a piece of land ought to be required to compensate the community in proportion to the value of that land, for the right to exclude others from it.  That compensation should be paid month in and month out, to the community.

Our current system is perverse.  We must purchase the rights to the land from the previous holder at whatever price the market will bear, or what the seller's circumstances require him to accept.  Rich landholders can hold out for higher asking prices; poorer ones may be forced to accept lower prices.   Few of us enter the market with more than a few percent of the asking price in hand; we mortgage our future earnings in order to pay the seller's asking price. 

In most coastal cities, that price is predominately for the location, not for the building itself.  A May, 2006, Federal Reserve Board study found that land represented, on average, 51% of the value of single family housing in the top 46 metro markets in 2004; in the San Francisco metro, land represented 88.5% of the value, and in no metro in California did it represent less than 62%.  Boston metro was around 75%, NYC metro was about 70% (I'm doing this from memory), Oklahoma City about 20%; Buffalo about 28%.   Extrapolating from some of their tables, I found that the average value of a single-family structure across the 46 metros was about $112,000, with a range from perhaps $88,000 in the lowest metro to a high of perhaps $130,000 in the highest.  The range of average land values across the 46 metros, though, was much wider, from perhaps $25,000 to $750,000! 

Suppose we did let the housing market crash, and then shifted over to George's proposal, collecting our tax revenue first from land rent, and only after we'd collected the lion's share of the land rent, tapping other less desirable revenue sources such as wages, sales and buildings.  What would happen?

• The selling price of housing would drop to approximately the depreciated value of the structure in which one would live.  A large new house would be more valuable than an older house of the same size.  A large house would cost more than a smaller one.  But one would not pay the seller for value that related to the location of the home.
• One would pay, month in and month out, the rental value of the land on which the house sits.  Fabulous locations would require high monthly payments; less fabulous ones would have lower monthly payments.  Small lots would pay less than larger lots nearby.  Owners of condos in a 20-story building would share the cost of the land rent for the site, perhaps in proportion to the quality of their location within the building (fabulous views would pay more than ordinary ones; larger footprints and/or more floors occupied would pay in proportion to their share of the total space).
• That monthly payment would go to one's community, and would replace one's property tax, sales taxes, wage taxes.  A portion of the payment would be forwarded to one's state, and at the state level, a portion would be forwarded to the federal government.
• The selling price of housing would drop, requiring one to borrow far less.  The difference would be quite pronounced in San Francisco, Boston, NYC, etc.   One's monthly mortgage payment would be significantly lower.  
• Housing would no longer be an investment, in the sense that one expected to sell a property for more than one paid for it. 
• Housing would be more liquid; one could own a home, but have a reasonable expectation of being able to sell it if one wanted to move elsewhere.
• The credit not used to purchase homes would be available for businesses.  Businesses, too, would not be "investing" in land, but would have capital available to invest in equipment and to pay better wages to their employees.
• Land which under our current system is both well-located and underused would either be redeveloped by its owners, or come onto the market so that someone else could put it to use.  There would be no incentive to keep it underused, as there is today.   The redevelopment process itself would create jobs in construction-related businesses, and the resulting buildings would either provide housing or commercial venues -- or both: whatever the market was asking for.  And that housing would be at a wide range of points on the income spectrum and the ages-and-stages spectrum: young people starting out, families, retirees, singles, couples -- not just the luxury market.   And those newly-created homes would be closer in to the jobs which would support them, rather than separated by long commutes and drive-till-you-qualify.
• Land made valuable by public investment in infrastructure and services would provide a continuous revenue stream to the community, providing funding for next year's services, instead of funding for self-selected individuals' retirement.
• So if one can't hope to get rich from the appreciation of the land under one's home, how is one to have security?  How does one participate in the economy?   By investing in businesses that serve customer desires.  And when one's housing plus taxes are lower, one has more left over for that.  When there is enough housing for all, one isn't paying so much of one's income for it.  When no one expects to grow wealthy automatically, people can dream up the business which they will enjoy working in.  And with so many businesses competing for workers, wages will tend to rise.  With so many businesses competing for customers, services will improve, and specialization increase.

Back to the title of the article: "Grim Housing Choice: Help Today's Owners or Future Buyers?"    Maybe economics doesn't HAVE to be the dismal science.  Maybe our choices are not so grim after all.   Maybe we can put ourselves on a firmer footing, without the boom-bust cycles we've been experiencing so regularly.  (See Mason Gaffney's recent book, After the Crash: Designing a Depression-free Economy.  And while you're on that site, you might read "The Great Crash of 2008" and "How to Thaw Credit Now and Forever.")   Maybe we can leave our children a society in which all can prosper. 

Not too much to ask for, is it?

Or shall we leave them a society in which 10% of us are receiving 48% of the income, and 10% of us possessing 71.5% of the net worth.

Which side are YOU on? 

Could a Peanut Paste Called Plumpy'nut End Malnutrition? - NYTimes.com

Could a Peanut Paste Called Plumpy'nut End Malnutrition? - NYTimes.com

This is a wonderful story, but it begs the question: after it gets young children in impoverished countries through the critical first few years, will it reduce poverty in any way, or does it leave in place virtually all the structures which impoverish the people of these countries?

Henry George wrote about "the robber that takes all that is left." Plumpy'nut makes sure there is more left for that robber.

The final paragraphs touch ever so lightly on this:

Collins asks, “How are they addressing the need for poor people in Haiti not to be dependent on outside intervention in the first place?”

This question hung, unanswerable, over Salem’s journey through Haiti. Salem went there with a promise to donate a shipping container filled with $60,000 worth of Nutriset-patented products to Partners in Health, the charity run by her friend Paul Farmer. While grateful, the organization still preferred to manufacture its own product, Nourimanba, with the profits accruing to local farmers. But even this program was more a principled exercise than a development strategy. Haiti’s endemic problem of malnutrition wasn’t something you could solve with peanuts. Partners in Health also took Salem on a couple of home visits. At a one-room shack in Cange, a mother presented her 3-year-old daughter, saying she had gained 11 pounds on a regimen of Nourimanba. But the mother complained that there was no help for other serious problems she faced, like the fact that she had no job and the tin roof of her shack leaked.

Out in the hills, down a muddy path shaded by coconut palms, the health workers checked in on a small wooden farmhouse. Two children living there were on a regimen of ready-to-use food — and six were receiving nothing. The older ones watched as their little sister wolfed down an entire cup of peanut paste for the benefit of the visitors. The children’s grandmother, who was looking after them, was asked why malnutrition had been diagnosed in these two and the others not. She said she couldn’t really say, except that there simply wasn’t enough food to go around. There was no foil-wrapped answer to the maddening persistence of poverty. All that existed was a determination to meet the challenge with all the fallible tools of human ingenuity.

 

The fallible tools of human ingenuity.   Perhaps some of that ingenuity could be applied to understanding and correcting the structures which pour the wealth of nations into the pockets of a relative few in each nation.  Those structures are neither "natural" nor "necessary."    Start with reading Henry George -- a couple of his speeches, perhaps "The Crime of Poverty" and "Thou Shalt Not Steal," followed by a recent abridgment of Progress and Poverty.  You'll know more about poverty and its causes -- and what needs to be reformed in order to end involuntary poverty -- than many of the world's "experts," who seek to tweak poverty while not disturbing the status quo -- not rocking any yachts or luxury cruiseships.  Leave more for the robber who takes all that is left, if you will.

George used his ingenuity to understand the structures and to describe them clearly to his readers and listeners. 

How to End the Great Recession

Where have all the economic gains gone? Mostly to the top. The economists Emmanuel Saez and Thomas Piketty examined tax returns from 1913 to 2008. They discovered an interesting pattern. In the late 1970s, the richest 1 percent of American families took in about 9 percent of the nation’s total income; by 2007, the top 1 percent took in 23.5 percent of total income.

It’s no coincidence that the last time income was this concentrated was in 1928. I do not mean to suggest that such astonishing consolidations of income at the top directly cause sharp economic declines. The connection is more subtle.

The rich spend a much smaller proportion of their incomes than the rest of us. So when they get a disproportionate share of total income, the economy is robbed of the demand it needs to keep growing and creating jobs.

What’s more, the rich don’t necessarily invest their earnings and savings in the American economy; they send them anywhere around the globe where they’ll summon the highest returns — sometimes that’s here, but often it’s the Cayman Islands, China or elsewhere. The rich also put their money into assets most likely to attract other big investors (commodities, stocks, dot-coms or real estate), which can become wildly inflated as a result.

Meanwhile, as the economy grows, the vast majority in the middle naturally want to live better. Their consequent spending fuels continued growth and creates enough jobs for almost everyone, at least for a time. But because this situation can’t be sustained, at some point — 1929 and 2008 offer ready examples — the bill comes due.

This time around, policymakers had knowledge their counterparts didn’t have in 1929; they knew they could avoid immediate financial calamity by flooding the economy with money. But, paradoxically, averting another Great Depression-like calamity removed political pressure for more fundamental reform. We’re left instead with a long and seemingly endless Great Jobs Recession.

THE Great Depression and its aftermath demonstrate that there is only one way back to full recovery: through more widely shared prosperity.

via www.nytimes.com

I think Robert Reich sees part of the problem, but he doesn't see the solution.   How do we achieve more widely shared prosperity?  By a variation on Alaska's theme.  In Alaska, a significant share of the value of the state's natural resources is used to fund state government, and another significant share is placed each year into the Alaska Permanent Fund, which is invested in a broadly diversified portfolio and pays an annual dividend of $1000 to $2000 to every permanent resident of Alaska, of all ages.  [See http://www.nytimes.com/2010/09/04/us/politics/04alaska.html for an article mentioning this, and the Alaska Permanent Fund link, at the left of this page.]   Alaska has it half right: they collect a decent share of the value of the natural resources, but they don't tax their land value much.

How do we share the prosperity beyond the top 10%?  By shifting our incentives so that those who currently grow wealthy in their sleep by collecting economic rent find themselves sharing that rent with the rest of us.  Untax wages, starting with incomes under the median.  Untax sales.  Untax buildings.  Tax land value.  Tax the value of those things which the classical economists would have recognized as land -- water rights, "rights" to pollute, airport landing rights at congested airports, geosynchronous orbits (which prevent satellites from bumping into each other), electromagnetic spectrum (those airwaves which most people would say "belong to the American people" but which we have permitted corporations -- public and private -- to privatize), natural resources such as oil, natural gas, copper, coal, lithium, etc..   All these things are going into corporate portfolios (here and abroad -- and some of those corporations are families in power, despite attempts at nation-building), week in and week out, and their value accrues to the shareholders of the corporations.  Stock ownership is quite concentrated, and these benefits flow into the pockets of a relative few, who, as Reich rightly points out, may or may not spend or invest in America's products.  When they do invest, they often acquire our best land and resources, buying thereby the labor of thousands of Americans.  When an acre in Manhattan can be worth $400 million, the seller of that land didn't make it valuable.  WE did!  So why should an individual, or a corporation, or a trust, or a university, or a pension fund -- or any private entity -- get to pocket that value as if they did?   (The kindest thing I can say is that we have a bad habit!  Something like chattel slavery -- and look at how long it took us to end that.)

Pocketing that value has two sorts of effects: when they sell, they pocket that so-called "capital" gain.  It isn't capital!  It is land value!  Capital depreciates; what rises in value is land, and it rises for reasons which have nothing at all to do with the "fellow" who owns it.  

But even when they buy and hold, there are important effects of permitting that privatization.  The rich don't need to put the land to its highest and best use, because they can get by with something less while they wait for the community to cause it to grow.  (See The Taxpayer at 72nd and Madison.  Notice all the surface parking lots in Manhattan, Philadelphia, Hartford and many other cities.  See the 4.3 acre "hole in the ground" in Stamford, CT, right near the city's 100% location, vacant since the early 1980s.) They're patient!  They can afford to be.  The top 10% of us hold 71.5% of the chips, according to the 2007 Survey of Consumer Finances.)   Not using the land well reduces the supply of housing close to the center of things (adding to sprawl) and/or of jobs (which we say we want) and contributes to a wide range of our most serious social, economic, environmental and justice problems.

If we collected more of the annual rental value of our urban land, the holders of that land would turn into active users or sell it to someone who would put it to good use.  Good use creates jobs, and homes and other things that the market wants.  But when the market can't afford them, it does without.  People are priced out of housing in the places they'd prefer to live.  They lack jobs or are underemployed, and the rich keep getting richer.

Reich advocates extending the EITC, exempting the first $20,000 of wages from payroll taxes, improving and extending early childhood education, making public universities free in return for 10% of the first 10 years of full-time earnings, creating "earnings insurance."  He concludes,

Policies that generate more widely shared prosperity lead to stronger and more sustainable economic growth — and that’s good for everyone. The rich are better off with a smaller percentage of a fast-growing economy than a larger share of an economy that’s barely moving. That’s the Labor Day lesson we learned decades ago; until we remember it again, we’ll be stuck in the Great Recession.

Well, 130 years ago, Henry George spoke to some of the kinds of measures that have been proposed over the years for reducing poverty and promoting widely shared prosperity.  See "Part VI -- The Remedy" and particularly "Ineffective Remedies" and "The True Remedy"

"Ineffective Remedies" begins,

OUR CONCLUSIONS point to a solution. It is so radical that it will not be considered if we believe less drastic measures might work. Yet it is so simple that its effectiveness will be discounted until more elaborate measures are evaluated. Let us review current proposals to relieve social distress. For convenience, we may group them into six categories:

1. More efficient government
2. Better education and work habits
3. Unions or associations
4. Cooperation
5. Government regulation
6. Redistribution of land

That 10% of us who hold 71.5% of the net worth also received 41.3% of the current income. [Note that these percentages are understated, since the SCF purposely omits the Fortune 400 families.  They hold about 1% of the nation's net worth.] 

Picketty & Saez provide annual updates on income concentration.  For 2008, they report that the top 10% of us (sorted by income, not net worth) received 45.60% of the income when capital gains are excluded and 48.23% of income including capital gains.   (For 1988, the corresponding figures are 38.63% and 40.63%; in 1958, 32.11% and 33.56%.   Do we notice a trend here?  Do we like it or think it a healthy trend?)

We have permitted and supported a structure which funnels wealth and income into relatively few pockets.   We have to reform this structure, and we have to recognize that the current beneficiaries are not likely to be keen on reform -- conservatives have a lot to conserve for themselves -- and those who are dependent for their salaries on being popular with those beneficiaries are not likely to be particularly interested in looking at the underpinnings of the structure with an eye to removing some of the ladders (escalators!!) or  gentling the chutes.

Those who get to privatize the value of what ought to be common assets grow wealthy in their sleep.  Until enough of us understand the mechanism to constitute a majority, we aren't likely to correct it.

 

It is a bit disheartening to think how many well-regarded economists live in California, the land of Proposition 13, and haven't lifted a finger or opened their mouths to suggest that it is not in the best interests of California's people.   Milton Friedman acknowledged many times that the tax on land values was the "least bad" tax -- and didn't have anything to say about Proposition 13, which was the antithesis of what a wise person or society would do with that information.    So I guess I shouldn't be surprised that today's California economists, with very few exceptions, aren't all that concerned with the economic wellbeing of ordinary people any more than economists elsewhere are.  Or maybe, as my late mother would have expressed it, their educations have simply been neglected.  (At which point she would proceed to fill in my newly-identified knowledge gap.)    Economists can start with the links in this post, and then explore from there.

What labor unions should demand is freedom » Ventura County Star

What labor unions should demand is freedom » Ventura County Star

Gary Calles, professor of economics at Pepperdine University wrote an excellent piece in the Ventura County Star. These are the final few paragraphs; I commend the entire piece to your attention.

Especially around Labor Day, unions reiterate long-debunked assertions that they benefit all workers. But their domestic and international protectionism by its nature harms the vast majority of workers, as George recognized.

He also saw that they did not really believe their own propaganda because “Protectionists are only protectionists in theory and politics. When it comes to buying what they want, all protectionists are free traders.”

That is why George’s work justifies renewed attention from workers and policy makers. It reveals that union protectionism “has been invented merely to serve the purpose of its inventors,” and that for workers to advance their true interests, “instead of accepting protection, what labor should demand is freedom.”

Read more: http://www.vcstar.com/news/2010/sep/04/what-labor-unions-should-demand-is-freedom/#ixzz0ybOqqXaD - vcstar.com