LVTFan's Blog

The November U.S. Senate Elections

Every election year, 1/3 of the seats in the U.S. Senate are up for election.  This year as you vote, consider the content and goals of the television commercials you've been subjected to, from all sorts of directions (beyond the candidates themselves), and remember that a significant portion of the commercials have been enabled by the recent Citizens United decision issued by a Supreme Court dominated by "conservative" justices.  (I commend the article at that link to your attention.  In fact, I'll copy the essay, Corporations, Democracy, and the U. S. Supreme Court, by Mason Gaffney, in below the fold.)

Consider that it is the senators we elect who vote on the Supreme Court nominees presented by the president we elect, and think about who it is that YOU want voting on the next nominee.  Justices can serve for many decades, far beyond the time the average senator is in office.

The person you elect to the Senate will serve for 6 years -- 2 in Obama's first term, and 4 in the term of whomever the American people elect in 2012, aided in their decision-making by the well-crafted and well-funded advertising made possible by the Citizens United decision -- and will likely be voting to fill at least one Supreme Court seat.

Whose interests should they -- the Senators and the Supreme Court nominees -- have at heart?

Do we want people who will seek to promote the concentration of wealth, income, privilege and power -- more and more, to fewer and fewer -- or to promote the interests and prosperity of ordinary Americans?  Be sure you know; your options may not be wonderful, but at least your criteria should be thought out.

 

I commend this to your attention --

Corporations, Democracy, and the U. S. Supreme Court
Mason Gaffney, February 24, 2010

On Jan 21 2010 our High Court shocked Americans by ruling in Citizens United v. Federal Elections Commission that a corporation may contribute unlimited funds advertising its views for and against political candidates of its choice – in practice, the choice of its CEO or Directors. The ideas behind this are that a corporation is a “legal person”, with all the rights (if not all the duties) of a human being; that as such it has a right of free speech; and that donating money is a form of speech. Already K&L Gates, a top Washington lobbying firm, is advising its clients how to funnel money through lobbying groups or “trade associations”. This culminates a long series of actions and reactions (decisions, legislative acts, and electoral results) that bit by bit have raised the power of corporations in American economic and public life. Herein I will take the fall of the corporate income tax as a simple metric of the power of corporations. Nothing about corporations is that simple, however, so I must also touch on other aspects of power.

Some critics react apocalyptically, calling Citizens United a death blow to democracy; some cynically, calling this merely making de jure what is already de facto; some legalistically, saying the Court ruled more broadly than justified by the case brought before it. Supporters, naturally, take this contentedly as righting an injustice of long standing. Some economists would applaud this as a step toward sunsetting the corporate income tax, by electing more candidates beholden to corporate money. Many of them – not all – have been seeking this end for years in their learned journals and op-eds. Even the late Wm Vickrey, otherwise an egalitarian, gave high priority to this change.

This writer does not applaud either sunsetting the tax, or this step. I agree with Joseph Stiglitz that the corporate income tax is mainly a tax on economic rent. That means that a high tax rate does not destroy the tax base. Martin Feldstein, an economist who is as conservative as Stiglitz is liberal, also sees the corporate income tax as a tax on economic rent (JPE 85(2); April 1977, p. 357). It is not the ideal form of such a tax, but it beats any tax on work, or sales of the necessities of the poor, or value-added, or gross sales. Both Vickrey and Stiglitz rate high in the profession and garnered Nobels, so we cannot simply appeal to “authorities”. To prepare our minds, let us review some milestones in the history of corporations, especially in America.

Trickle Down Economics: The Very Useful Idiocy of Christine O’Donnell (Frank Rich, NYT)

Op-Ed Columnist - The Very Useful Idiocy of Christine O’Donnell - NYTimes.com

"Rove’s flip-flop was no doubt hastened by his own cohort’s assaults on both his ideological purity and masculinity. The blogger Michelle Malkin labeled him an “effete sore loser,” and Sarah Palin publicly instructed him to “buck up.” But surely the larger motive for his retreat was the dawning recognition of just how valuable O’Donnell is to the G.O.P.’s national aspirations in November — even should she ultimately lose her own race in blue Delaware. Whatever her other talents, she’s more than willing to play the role of useful idiot for her party. She gives populist cover to the billionaires and corporate interests that have been steadily annexing the Tea Party movement and busily plotting to cash in their chips if the G.O.P. prevails."

While O’Donnell’s résumé has proved largely fictional, one crucial biographical plotline is true: She has had trouble finding a job, holding on to a home and paying her taxes. In this, at least, she is like many Americans in the Great Recession, including the angry claque that found its voice in the Tea Party. For a G.O.P. that is even more in thrall to big money than the Democrats, she couldn’t be a more perfect decoy.

By latching on to O’Donnell’s growing presence, the Rove-Boehner-McConnell establishment can claim it represents struggling middle-class Tea Partiers rather than Wall Street potentates and corporate titans. O’Donnell’s value is the same as that other useful idiot, Michael Steele, who remains at the Republican National Committee only because he can wave the banner of “diversity” over a virtually all-white party that alternately demonizes African-Americans, Latinos, gays and Muslims.

 

LVTfan here:  I keep hoping that an interviewer or moderator will ask Ms O'Donnell whether she supports or is opposed to the Federal government continuing to fund the regular replenishment of the sand on the ocean beaches of Delaware and Maryland.  Many of the voters throughout Delaware own well-located beach homes in one state or the other, on which they pay annual property taxes well under $2,000 per year -- including many homes which collect summer rents of $20,000, $30,000 and (far) more.  These are often modest homes, made valuable by their proximity to the beaches; those which have had no building-permit work have annual taxes well under $1,000.   [The state and county each collect 1.5% of the purchase price at closing when homes change hands -- perhaps 20 years' worth of property taxes!  And renters may pay a 3% rental tax -- which may be more than the owners pay annually!]    The Atlantic Ocean beaches of Delaware and Maryland are "the nation's summer capital," the playground for residents of the Washington, D.C., Baltimore, Philadelphia and Wilmington metro areas.   Traditionally, they have been funded by federal taxes.

I suspect that the answer to that question may be a useful one for many voters all over Delaware, and will be of interest to southern Delaware's small business owners, and to people who vacation on and near those beaches.

I look forward to O'Donnell's answers.

Self-Pitying Wealthy Poor: The Fancy-School Factor - James Fallows

Self-Pitying Wealthy Poor: The Fancy-School Factor - James Fallows - National - The Atlantic.

I thought a couple of the observations in this column quite useful, both from Fallows and from others he chooses to quote.   It comes off the brouhaha that started a few weeks ago when a University of Chicago Law School professor put in his blog a whine about how even with his and his (MD) wife's joint income of $400,000 or so, he had little disposable income.  The response to his blog post was strong enough that he has removed the post, but it remains, at least for a while, available via google's cache. (Fallows and Brad DeLong both link to it.)

I particularly liked this one:

(1) >>If no one else says this, or no one says it more succinctly, could you please incorporate into the discussion the implicit idea that extends across pretty much all of the posts? It basically goes like this: "once professional success is achieved, life isn't supposed to be hard or uncertain anymore". It's there in the original post and it's there in the backdoor-trickle-down economics of the east-coast lawyer. Somewhere along the last 50 years our "meritocracy" started to incorporate the idea that once you achieved a certain amount in life, you wouldn't have to try anymore.

This idea is, from my point of view (as a 30-something professional who anticipates that retirement will become an antiquated concept by the time I reach such an age) grandfather to the current state of affairs in which high school and college students expect grades to symbolize the extent of their effort rather than the quality of their work. As Clint Eastwood said snarled in "Unforgiven": "deserve's got nothing to do with it". How about we agree on this: if you need to ask yourself if you are rich (or better yet mount some kind of argument about how you aren't rich), then you probably are in fact rich.<<

and this -- emphasis mine:

(2) >>I wonder if part of the issue stems from the fact that there seems to be an implicit promise that attending one of these top schools will inevitably make you rich.  I went to Stanford, and from the very beginning we were reminded of all the luminaries who also hold Stanford degrees (or at least attended classes).  Larry Page came and gave a speech during freshman orientation, and Phil Knight and Jerry Yang both donated buildings while I was there.  Part of the selling point of these universities is the idea that all of these great, successful, rich people went to this school, and it impacted them so profoundly that they have donated millions of dollars for its improvement.  Even if you are making $250,000 or $500,000, it really doesn't seem like all that much when compared to what the people who are getting their names on the buildings make.  Presumably working at a university makes this even more evident.

And in the end, you still have the same degree as these people who are actually rich.  Who's to say you won't someday get there yourself?  Why would you want to punish your future self with higher taxes?<<

and this, which speaks to payroll taxes for ordinary people vs an increase in the top bracket for the highly-compensated (though it doesn't quite note that since the UChi professor's wife is also well-paid, they are paying a bit more in payroll taxes):

(3) >>I wanted to weigh in on your latest, the two defenders who cited the costs of private education.  I'd just like to note that these $250,000 + level professionals are getting a substantial break on their social security taxes. Every dollar of my sub-$100,000 salary is taxed at 6.2% paid by me, over and above state and federal income taxes, and 6.2% paid by my employer. In contrast, the majority of these poor, pitiable professionals' salaries are exempt from the tax. The ceiling this year is $106,800, so the rest of their salary is free and clear of this 6.2% coming out of their paycheck. To boot, the proposal is to raise their taxes on the amount exceeding $250,000, so taxwise, they have it easy, compared to the rest of us.

4% of the amount exceeding 2 times $106,800 is a lot less than 6.2% of the first $106,800 or $213,600, until one reaches rather high levels.

Those who have spent much time browsing this blog will know that I'm not enthusiastic about taxes on wages.  They're a poor, blunt instrument for collecting what we ought to be collecting before we start taxing wages.  But to the extent that we do utilize taxes on wages, those taxes ought to be highly progressive, and ought not to be levied on the first dollars of wages.

I have a sense that a large percentage of Americans have high hopes -- and even high expectations -- of eventually, somehow, becoming very wealthy, and are willing to accept special privileges for high-income people, and/or wealthy people, because they'd like such rules to apply to them in the (in reality highly unlikely) chance that they might be so awesomely lucky.  

Those accepted at our highly selective colleges have confirmation of their specialness, and are thus likely, as the second comment above, to think it in their likely best interests to protect privilege for the wealthy.

And no wonder those who profess economics or political science at such colleges and universities are unlikely to include favorably in their courses the ideas of heterodox economists or philosophers who seek merely to create a level playing field.  THAT is not what their students seek!  They seek to get a good bead on the angle of the slant, and how best to exploit it.  And of course, so do their parents, and the agencies that lend those students the funds to attend.

You might appreciate "The Corruption of Economics"  to understand this further.   But recognize that most instruct-ors and profess-ors of economics don't even know what they're omitting from their teaching.  How could they?  It was in their texts and maybe even their reading lists, but their attention was directed in other directions.  How many generations of such teaching does it take to extinguish an idea from the vast majority of universities?  If it doesn't support the interests of the major donors, and something has to be omitted, what would you omit?

Krugman: Fear and Favor

Op-Ed Columnist - Fear and Favor - NYTimes.com.  Paul Krugman's column today

A note to Tea Party activists: This is not the movie you think it is. You probably imagine that you’re starring in “The Birth of a Nation,” but you’re actually just extras in a remake of “Citizen Kane.”

True, there have been some changes in the plot. In the original, Kane tried to buy high political office for himself. In the new version, he just puts politicians on his payroll.

I mean that literally. As Politico recently pointed out, every major contender for the 2012 Republican presidential nomination who isn’t currently holding office and isn’t named Mitt Romney is now a paid contributor to Fox News. Now, media moguls have often promoted the careers and campaigns of politicians they believe will serve their interests. But directly cutting checks to political favorites takes it to a whole new level of blatancy.

Arguably, this shouldn’t be surprising. Modern American conservatism is, in large part, a movement shaped by billionaires and their bank accounts, and assured paychecks for the ideologically loyal are an important part of the system.

• Scientists willing to deny the existence of man-made climate change,
• economists willing to declare that tax cuts for the rich are essential to growth,
• strategic thinkers willing to provide rationales for wars of choice,
• lawyers willing to provide defenses of torture,

all can count on support from a network of organizations that may seem independent on the surface but are largely financed by a handful of ultrawealthy families.

And these organizations have long provided havens for conservative political figures not currently in office. Thus when Senator Rick Santorum was defeated in 2006, he got a new job as head of the America’s Enemies program at the Ethics and Public Policy Center, a think tank that has received funding from the usual sources: the Koch brothers, the Coors family, and so on.

Now Mr. Santorum is one of those paid Fox contributors contemplating a presidential run. What’s the difference?

David Cay Johnston spoke to some of this in his writings about the effort to re-brand the estate tax, which affects a tiny fraction of households, as the "death tax," funded by those who would be beneficiaries.  (Remember all that talk about saving the family farm?  Think about that family-owned factory farm in Iowa which produces all those eggs.  That's the sort of entity we'd be protecting.)

Might I encourage you to go read "The Corruption of Economics" by Mason Gaffney and Fred Harrison.  Here's the product description:

Condemning the post-industrial economy to protracted periods of economic failure, this thought-provoking book documents how the integrity of economics as a discipline was deliberately compromised in the United States towards the end of the 19th century. Several chairs of economics were funded at leading universities to rebrand economics to justify unearned income. The tools for this strategy became neo-classical economics, and, unlike classical economists like Adam Smith who described wealth as the product of three factors — land, labor, and capital — the new theorists reduced these to two: labor and capital, thus treating land as capital. This concealed the benefits enjoyed by those in receipt of the rent from land. The effect, the authors reveal, was to deprive professional economists of the ability to diagnose problems, forecast important trends, and prescribe solutions.

The cover material reads,

Henry George championed social justice and economic efficiency so successfully he had to be stopped.  He was.  Here's how:
'With the development of democracy . . . Mind control became the urgent need: neo-classical economics was the tool.' Economics was uprooted from reality and we are all paying the price today."

What comes to mind is that the vast majority of those who learned our/their economics from economists and instructors who only know neo-classical economists become highly useful idiots.

Schalkenbach.org may be your best source, at $16.  And any purchase over $10 gets you a free copy of Henry George and the Reconstruction of Capitalism.

I hope you -- and Dr. Krugman -- will take a look at both.

What is it the plutocrats are protecting?  The concentration of wealth in this country.  If you don't have the statistics top of mind, here's a quick version, from the Federal Reserve Board's 2007 Survey of Consumer Finances, which under-reports the concentration of wealth because it expressly omits the Fortune 400 families, who represent about 1% of aggregate net worth.   

1.  EQUITY (stock in publicly held companies and equity mutual funds, whether held individually, in trusts, in retirement accounts):
2. BUS (the value of privately held businesses)
3. EQUITY and BUS combined

Distribution of Wealth: Stocks, Privately Held Business, and all other, by percentile of NETWORTH
	Value (billions)	Percent Aggregate NETWORTH	Percentile of Wealth Distribution (NETWORTH)					Bottom   95%	Top 5%
			0 to 50th	50 to 90th	90 to 95th	95 to 99th	99 to 100th
EQUITY	$13,694	21.2%	1.5%	19.6%	12.4%	30.5%	36.0%	33.5%	66.5%
BUS	$14,894	23.1%	0.4%	6.0%	5.5%	25.5%	62.7%	11.9%	88.1%
EQUITY+BUS	$28,588	44.3%	0.9%	12.5%	8.8%	27.9%	49.9%	22.2%	77.8%
everything else, including debt	$36,010	55.7%	3.7%	36.7%	12.9%	25.6%	21.1%	53.3%	46.7%
NETWORTH	$64,598	100.0%	2.5%	26.0%	11.1%	26.6%	33.8%	39.6%	60.4%
memo:
HOUSES, net of mortgages	$15,686	24.3%	5.8%	48.3%	12.8%	20.8%	12.2%	66.9%	33.1%
Source: Ponds and Streams, reported at http://lvtfan.typepad.com/lvtfans_blog/ americas-wealth-distribution-2007-wealth-concentration-part-1-of-3.html

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%.

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.

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.

For Social Security, a Birthday Makeover

Op-Ed Contributors - For Social Security, a Birthday Makeover - NYTimes.com.

There were a couple of really interesting tidbits in the six suggestions offered by Social Security experts in the NYT recently.

The first one started off with this:

Do you want to know how much LeBron James pays in Social Security taxes each year? Bill Gates? Oprah? Your dermatologist? $6,622. That’s the maximum anyone pays in Social Security taxes, because earnings above $106,800 are not taxed.

and went on to provide a statistic that reflects how concentrated wage income is in America today:

16% of earnings in this country are completely untaxed by Social Security.

That means that the portion of wages above $106,800 represents 16% of total wages!  The expert, Monique Morrissey of the Economic Policy Institute, doesn't tell us what percentage of wage-earners are in that particular part of the pool, or how many individuals are involved.

She says that if that cap were slowly raised -- by 2% each year until it went from 84% to 90% of all income, roughly 1/3 of the projected shortfall in SS could be eliminated. 

She goes on to say that we could eliminate 70% of the current projected shortfall if we eliminated the cap on the employer side, so that while LeBron James would still pay a mere $6,622, his employer would pay $900,000 in Social Security taxes on his $14.5 million salary.  (That, by the way, is the equivalent of what is paid in by 136 workers earning at the current cap level.  -- and their 401(k) contributions are exempt.)

I take Morrissey's statement to mean that if we eliminated the cap on both the employer and employee amounts, the shortfall would evaporate. 

Another contributor, Congressman Ted Deutch (D-Florida), includes this statement in his recommendation:

This legislation would also close the long-range solvency gap predicted in 2037 by phasing out the $106,800 cap on income subject to the payroll tax. Over seven years, a few more weeks of taxes would be added to the paychecks of the highest earners until they joined the 95 percent of Americans who already contribute year-round.

So that would suggest that the 16% of wage income which is not subject to SS taxation is coming from 5% of workers (in addition to the portion of their wages which are subject to the SS tax).

That, of course, excludes awesome amounts of what most of us would call wages which hedge fund managers report instead as capital gains.

Who is entitled to Ground Rent? The Vicar's Wife, or someone(s) else?

There is an interesting story coming out of Rosses Point, County Sligo, Ireland, that a Church of England vicar and his wife are seeking to be paid ground rent on some land that her great, great grandfather, William Middleton, acquired sometime before 1875.  He owned the entire community, except for the church. Apparently the people who have resided on that land over the intervening years are supposed to have been paying annual ground rent to his heirs, or "buying out" the ground rent.  Either would benefit his heirs with value to which neither he nor they have contributed anything other than what nature provided.  (I think we can reasonably assume that any improvements he made to the land -- fences, drainage, stumping, septic systems, etc -- are long gone after 135 years.)

Most of the Middleton family left Ireland, some as long as 90 years ago.  Apparently no ground rent has been paid in the past 35 years.

According to one of the articles,

In the 1970s, locals traced Middleton family members across the globe, and reached a deal where many bought their ground rent for sums of around IR£100.

But some did not clinch agreement, leaving uncertainty over the ground on which their homes was built, which is in one of the most valuable locations in the north-west.

This raises all sorts of interesting questions about the logic and justice of our laws.  Who has made that land worth anything?  Is it the heirs of William Middleton?  Is it the taxpayers of the community in which the land is located, who presumably have supplied services to these properties?  Is it the people who live in or work in or visit that community?

And then comes the important question.  Putting aside what the law says, who is entitled to that land rent?  Is it the descendants of the 1875 owner?  Is it the current tenants?  Is it the community in which those lots are located?

Which of these is a logical and just way to run a society so that all of us can thrive and prosper?  How should we fund the public goods and services which make a community a good place to live?   Taxing sales within the borders?  Taxing the wages of residents or workers within the border?  Taxing the buildings within the border?  Or collecting some, even all, of the annual rental value of the land for public purposes?

There are properties in midtown Manhattan owned by trusts "granted" by people who have been dead for many decades.  Those who want to use that land pay land rent, year in and year out, to the beneficiaries of those trusts, decade after decade.   Mostly likely that rent escalates over time, as the residents, taxpayers and tourists who use Manhattan contribute their tax dollars and their presence to providing the services which make Manhattan what it is.  So why on earth do we tax wages, sales, hotel rooms, buildings of all kinds, rather than collecting the rent for public purposes?

The Rosses Point heir's husband is quoted as follows:

Mr Chave-Cox said: “You know I am a vicar. Vicars are honest and clear about things. All we want is what’s right and fair and sort things out. Presumably that means people buying up the ground rent.”

I wonder how much they feel they are entitled to receive in 2010.

I seem to remember it being said that "The Earth is the Lord's."   Which Lord?   And what are the implications for ordinary people?

You can read more at

• http://www.independent.ie/national-news/landlords-lay-claim-to-property-at-scenic-spot-2307972.html
• http://clericalwhispers.blogspot.com/2010/08/vicars-wife-defends-her-claim-to.html
• http://revjph.blogspot.com/2010/08/church-of-england-vicar-in-irish-land.html
• http://www.irishdigest.com/?p=10099

The End of Poverty? Think Again!

"For decades, poverty reduction and development programs have failed to confront the different forms of power and the structural violence that hold more than two-thirds of the world in dire straits.  Our chosen economic model has created a global situation in which today less than 25% of the world's population uses more than 80% of the planet's resources while creating 70% of its pollution."

That's from the recent documentary "The End of Poverty? Think Again" (available at Amazon, Netflix and some Redbox locations).

So how do we reduce our demand for non-renewable natural resources?  (I don't see much long-term upside in increasing the supply of energy by using more of our soil -- or water or fuel -- to provide biofuel, though it may be a boon in dealing with the supply problem short-term.)

The right question, I submit, is how we do we adjust our incentives to produce a reduction in demand for oil, coal, natural gas, so as to leave a decent quantity of each for all the future generations and for the people of other nations.  (And, not so incidently, to reduce the pollution we produce which now shows signs of exceeding the ecosystem's ability to carry it.)

What is it that we do now that we can do differently?

Well, we can adopt measures that encourage people to

• live closer to their work
• use public transportation more
• use cars less
• live in modern homes constructed with energy-conserving technologies and design

We can adopt measures which make it affordable to live closer to their work -- if they choose that.  I'm not talking about subsidies, incidently.  More precisely, I'm not talking about adding subsidies. 

Some will say, as George H. W. Bush did in 1992 at the Earth Summit, that "The American way of life is not negotiable."  

Dick Cheney is quoted (May, 2001) as saying that "Conservation may be a sign of personal virtue, but it is not a sufficient basis for a sound, comprehensive energy policy."   As irritating as I found most of his pronouncements to be, I can see a germ of truth in this one.

I have friends who seek to reduce their water usage in order to save the environment.  They save the water in which they wash vegetables, and measure their use by the cupful.  It seems to me that while their efforts are admirable, in the absence of changes to the incentives which permit some people or other entities to continue to use water heedlessly to water lawns and rinse driveways, their efforts are pointless and maybe even counterproductive.  (Problem? What problem? Why do we large users need to change our ways?)  WE HAVE TO CORRECT THE INCENTIVES!

It seems to me that a carbon tax is a step in the right direction.  Establish it, announce it, implement it on some predictable schedule.  Industry will adjust.  Individuals will adjust.     And make sure that carbon tax applies to energy used in global commerce and travel, as well as domestically.

But the single reform which I think will make the biggest difference is a tax shift.  If we were to shift our taxes off buildings, and onto land value, here's what we could expect to happen:

• Urban land which now sits vacant or underused would be put to something approaching its highest and best use.  That might be more housing, or more commercial venues, or some combination thereof.
• Developers of well-located land would be competing with each other to provide what the market wants, be it housing or more grocery stores or more shops, or more office space.  Landlords competing for tenants would lower their asking rents and tune their offerings to meet the demand, at all levels on the income spectrum, not just the high end.
• The density this redevelopment would create would provide the platform for better public transportation -- more frequent buses, more subways, more commuter options.
• People who would prefer to live closer to their work or to the cultural or other amenities which larger cities can offer would be able to find housing they can afford.  Those who want to live in the suburbs on the 1-acre lot with the picket fence would have less competition for such homes, and be able to afford to buy one closer to the center of things for less of their income or a shorter mortgage.

I attend a liberal suburban church where every week the Prayers of the People include this statement:  "The world now has the means to end extreme poverty.  We pray that we have the will."  

We need to act locally -- through basic tax reform -- to shift the incentives which currently nudge us toward using cars more, polluting more, living in older houses which consume more energy and create more pollution -- and rewarding land speculators more than we encourage the sorts of entrepreneurs who create jobs.

IT is ALL INTER-RELATED.  But relatively few of us see the connectedness yet.  

Small Investors Flee Stock Market Even as Companies Recover

Small Investors Flee Stock Market Even as Companies Recover - NYTimes

I wonder to what extent this is a matter of people drawing down their holdings in order to live on them. 

From the FRB's Survey of Consumer Finances, here's the distribution of stock ownership in 2007 (Total value: $4.598 trillion): 

• Top 1%:      51.9%
• Next 4%:    30.5%
• Next 5%:      8.0%
• Next 40%:     9.0%
• Bottom 50%: 0.6%

And here's the distribution of mutual fund ownership (outside of retirement assets).  This includes stock and bond and REIT funds, but does not include money-market funds.  (Total value: $4.093 trillion.)

• Top 1%:      46.7%
• Next 4%:    30.9%
• Next 5%:    10.3%
• Next 40%:   11.6%
• Bottom 50%: 0.4%

Retirement assets -- IRAs, 401(k) accounts, etc -- (total value $8.905 trillion)

• Top 1%:       14.5%
• Next 4%:      28.0%
• Next 5%:      16.9%
• Next 40%:     36.7%
• Bottom 50%:   3.8%

Aggregating these three categories (total value $17.595 trillion)

• Top 1%:      31.8%
• Next 4%:     29.3%
• Next 5%:     13.1%
• Next 40%:    23.6%
• Bottom 50%:  2.2%

Here are the dollars, so that the relative amounts each quantile holds in each category can be compared.  Recall that the article's title speaks of "small investors."

Holdings of Selected Assets by Net Worth Quantile, 2007 billions of dollars
		Total	Bottom 50%	Next 40%	Next 5%	Next 4%	Top 1%
08	STOCK	4,597.5	29.8	412.3	368.7	1,402.1	2,384.6
09	NMMF	4,093.0	15.2	475.3	423.3	1,266.6	1,912.5
10	RETQLIQ	8,904.6	338.0	3,272.1	1,508.9	2,490.8	1,294.8
32	combined	17,595.1	383.0	4,159.7	2,300.9	5,159.5	5,591.9
	distribution	100.0%	2.2%	23.6%	13.1%	29.3%	31.8%
07	BOND	1,070.5	0.2	16.4	51.7	333.9	668.2
Source: Federal Reserve Board's Survey of Consumer Finances, 2007, behind tables at http://lvtfan.typepad.com/lvtfans_blog/ americas-wealth-distribution-2007-wealth-concentration-part-1- of-3.html Note: this understates the holdings of the top 1%, since the Fortune 400 families are excluded from the SCF. See Ponds & Streams.

Here are some excerpts from the NYT article. I wonder how "small investor" is defined.  Does it mean all individuals, as opposed to foundations, pension funds, university endowments and the like?  Does it mean those in the bottom 95% of the Net Worth distribution, who own just 40% of the value held by households?

Investors withdrew a staggering $33.12 billion from domestic stock market mutual funds in the first seven months of this year, according to the Investment Company Institute, the mutual fund industry trade group. Now many are choosing investments they deem safer, like bonds.

If that pace continues, more money will be pulled out of these mutual funds in 2010 than in any year since the 1980s, with the exception of 2008, when the global financial crisis peaked.

Small investors are “losing their appetite for risk,” a Credit Suisse analyst, Doug Cliggott, said in a report to investors on Friday.

One of the phenomena of the last several decades has been the rise of the individual investor. As Americans have become more responsible for their own retirement, they have poured money into stocks with such faith that half of the country’s households now own shares directly or through mutual funds, which are by far the most popular way Americans invest in stocks. So the turnabout is striking. ... 

To be sure, a lot of money is still flowing into the stock market from small investors, pension funds and other big institutional investors. But ordinary investors are reallocating their 401(k) retirement plans, according to Hewitt Associates, a consulting firm that tracks pension plans.

Until two years ago, 70 percent of the money in 401(k) accounts it tracks was invested in stock funds; that proportion fell to 49 percent by the start of 2009 as people rebalanced their portfolios toward bond investments following the financial crisis in the fall of 2008. It is now back at 57 percent, but almost all of that can be attributed to the rising price of stocks in recent years. People are still staying with bonds.

Another force at work is the aging of the baby-boomer generation. As they approach retirement, Americans are shifting some of their investments away from stocks to provide regular guaranteed income for the years when they are no longer working.

And the flight from stocks may also be driven by households that are no longer able to tap into home equity for cash and may simply need the money to pay for ordinary expenses. ...

Fidelity reported that hardship withdrawals and loans from 401(k) accounts in their custody are up.  But as one commenter pointed out,

Hardship withdrawals are truly an indication of economic distress.

Loans? I don't think so. When buying a new car to replace my 10+ year old car, I took out a 401(k) loan instead of going to the bank. I'd rather pay interest to myself and guarantee myself a 4.5% (or so) return on the 401(k) funds I took out.

I'll bet you that lots of people are resorting to 401(k) loans for similar reasons, and that the growth in loans has something to do with the difficulty in getting any kind of credit today.

His strategy makes sense to me.  4.5% is a whole lot more than money markets are paying, and less than one pays for a car loan.

Fidelity also reported that the average 401(k) in their custody was worth $61,800.   It would be interesting to know the median value.  I'm guessing it might be about 75% of the average.

Some random thoughts on Monopoly and Life

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

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

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

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

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

Or combine those two assumptions.

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

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

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

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

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

Why were resources expunged from neo-classical economics? | Martin Wolf's Exchange

Why were resources expunged from neo-classical economics? | Martin Wolf's Exchange

Almost a month ago (7/12), Martin Wolf, the Financial Times' chief economics commentator, posted a piece to his blog under this title. The last time I looked, perhaps 10 days after his initial post, there were about 150 responses.  I circled back recently, and found that the comments count had risen to over 350.  

Here is his response, posted 7/23:

This ended up as a heated debate. Nobody will be surprised if I conclude that the result of the debate (often surprisingly ill-tempered) was pro-LVT 10, anti-LVT zero. I am surprised by some of what the anti-LVT proponents have said. I would have thought they would wish to open their minds a bit. I did and was persuaded of the case, as a result. Is not the purpose of such exchanges to learn from one another?

Some of the arguments addressed at the case for LVT are quite extraordinary.

The essential point is quite simple: the value of resources is created by the economic activity of other factors of production. The owners of these resources can become hugely wealthy and are often untaxed on that increase in wealth: the Duke of Westminster is the richest Englishman simply because he owns a large amount of land in a valuable part of London. So why should he have command over the labour of so many other people?

That wealth is, in the strictest sense, unearned. If that rise in wealth were taxed away, other taxes -- those on labour, capital and entrepreneurship -- could fall. This would be both efficient (because taxes on rent do not create distortions, as Ricardo showed) and also just, because the wealth was unearned. Now, surprisingly, the UK allows foreign landowners to enjoy the increase in value created by the British economy, entirely tax-free. This is utterly crazy.

Let me add four other points.

First, throughout history, the main source of wealth was land-ownership. The parasitic landowner became wealthy on the efforts of others -- peasants, tenants and even developers. Sometimes the parasite was also a farmer or developer, but that does not change the fact that these are two distinct economic roles. The parasite built fine castles and palaces and often sponsored music and culture. But he was still a parasite. The beauty of capitalism is that many of the wealthiest are no longer parasites. This is good. But many of the wealthy still are parasites. Moreover, now everybody wants to get rich by being a mini-landowner. That is a huge diversion of effort.

Second, the financial system's ills are the result of unchecked credit-creation. Yes. But unchecked credit-creation would be impossible without collateral. Land is always the principal form of collateral (buildings are a depreciating asset). That is why financial bubbles that do not create credit booms (like the dotcom bubble) are economically benign, while property bubbles are potentially catastrophic. When the value of collateral collapses, the financial system implodes.

Third, there is really nothing new about this understanding of the role of resource rents. They were central to the classical system, from which modern economics, in its various forms, derives. Ricardo's analysis of rent remains intellectually impeccable.

Finally, as Herman Daly has noted (http://steadystate.org/modernizing-henry-george/), today economically valuable resources are much more than just land (and what lies below it). They include all the services of the biosphere - those that are appropriated, those that are appropriable and those that are non-appropriable. If we do not think seriously and intelligently about how to price resources, we are likely to go seriously adrift, perhaps even into disaster. Here land is the least of our problems -- it is appropriable and, by and large, appropriated. So, at least, the price mechanism works, even though the distribution of the gain is grossly unjust. But, in other cases, no appropriation is possible, or at least it is not easy. Nobody can appropriate the atmosphere. It is nigh on impossible to appropriate the oceans. How do you own species diversity? These are serious challenges.

So, I conclude where I started: resources matter. It was a great mistake to exclude them from the canonical neo-classical model. It is also a great mistake not to tax their owners to the hilt.

Learning To Get Out Of The Way « Aldous Huxley | This I Believe

Learning To Get Out Of The Way « Aldous Huxley | This I Believe.

In every one of the higher religions, there is a strain of infinite optimism on the one hand and on the other, a profound pessimism. In the depths of our being, they all teach there is an inner light, but an inner light which our egotism keeps, for most of the time, in a state of more or less complete eclipse. If, however, it so desires, the ego can get out of the way, so to speak, can dis-eclipse the light and become identified with its divine source, hence the unlimited optimism of the traditional religions. Their pessimism springs from the observed fact that though all are called, few are chosen for the sufficient reason that few choose to be chosen.

To me, this older conception of man’s nature and destiny seems more realistic, more nearly in accord with the given facts than any form of modern utopianism. In the Lord’s Prayer, we are taught to ask for the blessing, which consists in not being led into temptation. The reason is only too obvious. When temptations are very great or unduly prolonged, most persons succumb to them. To devise a perfect social order is probably beyond our powers, but I believe that it is perfectly possible for us to reduce the number of dangerous temptations to a level far below that which is tolerated at the present time. A society so arranged that there shall be a minimum of dangerous temptations — this is the end towards which, as a citizen, I have to strive.

In my efforts to achieve that end, I can make use of a great variety of means. Do good ends justify the use of intrinsically bad means? On the level of theity, the point can be argued indefinitely. In practice, meanwhile, I find that the means employed invariably determine the nature of the end achieved. Indeed, as Mahatma Gandhi was never tired of insisting, the means are the end in its preliminary stages.

Men have put forth enormous efforts to make their world a better place to live in. But except in regard to gadgets, plumbing, and hygiene, their success has been pathetically small. Hell, as the proverb has it, is paved with good intentions. And so long as we go on trying to realize our ideals by bad or merely inappropriate means, our good intentions will come to the same bad ends. In this consists the tragedy and the irony of history. Can I, as an individual, do anything to make future history a little less tragic and less ironic than history past, and present? I believe I can. As a citizen, I can use all my intelligence and all my goodwill to develop political means that shall be of the same kind and quality as the ideal ends which I am trying to achieve. And as a person, as a psychophysical organism, I can learn how to get out of the way so that the divine source of my life and consciousness can come out of eclipse and shine through me.

English novelist Aldous Huxley was born into a family of scientists and writers. He is best known for his books “Brave New World" (1932) and “Point Counter Point" (1928), but also wrote poetry, essays, screenplays and children’s books. Huxley died in 1963.

According to the closing words Bob Edwards added after listening to this essay, Aldous Huxley, C.S. Lewis and John F. Kennedy all died on the same day.   This radio series came from the 1950s, but I've not been able to tie down the date any closer than that.

My ears perked up when I heard Huxley's name mentioned.  In his forward to the 2nd edition of Brave New World, circa 1947, he says that were he to re-write the book, he would include the possibility of a third way.  Here's my abridgment:

In the meantime, however, it seems worth while at least to mention the most serious defect in the story, which is this. The Savage is offered only two alternatives, an insane life in Utopia, or the life of a primitive in an Indian village, a life more human in some respects, but in others hardly less queer and abnormal. ... Today I feel no wish to demonstrate that sanity is impossible. ...  If I were now to rewrite the book, I would offer the Savage a third alternative. Between the utopian and the primitive horns of his dilemma would lie the possibility of sanity -- a possibility already actualized, to some extent, in a community of exiles and refugees from the Brave New World, living within the borders of the Reservation. In this community economics would be decentralist and Henry-Georgian, politics Kropotkinesque cooperative. Science and technology would be used as though, like the Sabbath, they had been made for man, not (as at present and still more so in the Brave New World) as though man were to be adapted and enslaved to them. Religion would be the conscious and intelligent pursuit of man's Final End, the unitive knowledge of the immanent Tao or Logos, the transcendent Godhead or Brahman. And the prevailing philosophy of life would be a kind of Higher Utilitarianism, in which the Greatest Happiness principle would be secondary to the Final End principle -- the first question to be asked and answered in every contingency of life being: "How will this thought or action contribute to, or interfere with, the achievement, by me and the greatest possible number of other individuals, of man's Final End?"

Huxley was not the only person to find in Henry George's ideas a "third way."  Bob Andelson wrote an excellent essay called "Henry George and the Reconstruction of Capitalism."

To return to the excerpt from Huxley's "This I Believe" essay -- "To devise a perfect social order is probably beyond our powers, but I believe that it is perfectly possible for us to reduce the number of dangerous temptations to a level far below that which is tolerated at the present time" --  This brings to mind something that has run through my head from time to time, that there is huge individual temptation to support -- actively or passively -- the maintenance of an inequitable system, even one by which one is currently victimized, if one thinks one might be able to join the portion of society which benefits from that structure.   "I might win the lottery; therefore I should support measures that preserve the privileges of those with huge wealth!" -- or so the thought pattern goes -- and goodness knows the wealthy like that thought pattern just fine!   Particularly those whose fortunes have been made based on privileges like the ownership of land well-served by taxpayer-provided infrastructure, or scarce natural resources, or anything the classical economists would recognize as "land."

Henry George starts with the premise that "man seeks to satisfy his desires with the least effort" and it flows from this that there is certainly a tendency to exploit one's fellow human beings if structures permit one to, even if one doesn't understand the mechanism of that exploitation.

From there, my musing takes me to the thought that in that same prayer, perhaps the one most used by Christians of any prayer, we ask forgiveness for our trespasses and agree to forgive those who trespass against us.  I wonder how that phrase must have seemed to people enslaved in the American south (or north).

And then my musing leads me into one of my favorites of Henry George's speeches, "Thy Kingdom Come."  A lift:

“Our Father!” “Our Father!” Whose? Not my Father — that is not the prayer. “Our Father” — not the father of any sect, or any class, but the Father of all humanity. The All-Father, the equal Father, the loving Father. He it is we ask to bring the kingdom. Aye, we ask it with our lips! We call Him “Our Father,” the All, the Universal Father, when we kneel down to pray to Him.

But that He is the All-Father — that He is all people’s Father — we deny by our institutions. The All-Father who made the world, the All-Father who created us in His image, and put us upon the earth to draw subsistence from its bosom; to find in the earth all the materials that satisfy our wants, waiting only to be worked up by our labor! If He is the All-Father, then are not all human beings, all children of the Creator, equally entitled to the use of His bounty? And, yet, our laws say that this God’s earth is not here for the use of all His children, but only for the use of a privileged few!

There's that word again: privilege.

Back to George:

Why, consider: “Give us this day our daily bread.” I stopped in a hotel last week — a hydropathic establishment.  A hundred or more guests sat down to table together. Before they ate anything, a man stood up, and, thanking God, asked Him to make us all grateful for His bounty. And it is so at every mealtime — such an acknowledgement is made over well-filled boards. What do we mean by it?

If Adam, when he got out of Eden, had sat down and commenced to pray, he might have prayed till this time without getting anything to eat unless he went to work for it. Yet food is God’s bounty. He does not bring meat and vegetables all prepared. What He gives are the opportunities of producing these things — of bringing them forth by labor. His mandate is — it is written in the Holy Word, it is graven on every fact in nature — that by labor we shall bring forth these things. Nature gives to labor and to nothing else.

What God gives are the natural elements that are indispensable to labor. He gives them, not to one, not to some, not to one generation, but to all. They are His gifts, His bounty to the whole human race. And yet in all our civilised countries what do we see? That a few people have appropriated these bounties, claiming them as theirs alone, while the great majority have no legal right to apply their labor to the reservoirs of Nature and draw from the Creator’s bounty.

Thus it happens that all over the civilized world that class that is called peculiarly ‘the laboring class’ is the poor class, and that people who do no labor, who pride themselves on never having done honest labor, and on being descended from fathers and grandfathers who never did a stroke of honest labor in their lives, revel in a superabundance of the things that labor brings forth.

and, skipping ahead,

Nothing is clearer than that if we are all children of the universal Father, we are all entitled to the use of His bounty. No one dare deny that proposition. But the people who set their faces against its carrying out say, virtually: “Oh, yes! that is true; but it is impracticable to carry it into effect!” Just think of what this means. This is God’s world, and yet such people say that it is a world in which God’s justice, God’s will, cannot be carried into effect. What a monstrous absurdity, what a monstrous blasphemy!

If the loving God does reign, if His laws are the laws not merely of the physical, but of the moral universe, there must be a way of carrying His will into effect, there must be a way of doing equal justice to all of His creatures.

There is. The people who deny that there is any practical way of carrying into effect the perception that all human beings are equally children of the Creator shut their eyes to the plain and obvious way. It is, of course, impossible in a civilization like this of ours to divide land up into equal pieces. Such a system might have done in a primitive state of society. We have progressed in civilization beyond such rude devices, but we have not, nor can we, progress beyond God’s providence.

There is a way of securing the equal rights of all, not by dividing land up into equal pieces, but by taking for the use of all that value which attaches to land, not as the result of individual labor upon it, but as the result of the increase in population, and the improvement of society. In that way everyone would be equally interested in the land of one’s native country. Here is the simple way. It is a way that impresses the person who really sees its beauty with a more vivid idea of the beneficence of the providence of the All-Father than, it seems to me, does anything else.

I've wandered a bit, but perhaps in a sense come full circle, back to Huxley's "This I Believe."

Borrowing on Expectations of Land Appreciation

Borrowers Refuse to Pay Billions in Home Equity Loans - NYTimes.com.

Here is an excerpt from an article in the NYT of 8/12/2010.  I am sharing it here for several reasons:

1. It demonstrates how ignorant most of us are about land economics;
2. It demonstrates how important this ignorance has been, and how expensive it has been to ordinary people.

Here's the NYT excerpt:

Lenders wrote off as uncollectible $11.1 billion in home equity loans and $19.9 billion in home equity lines of credit in 2009, more than they wrote off on primary mortgages, government data shows. So far this year, the trend is the same, with combined write-offs of $7.88 billion in the first quarter.

Even when a lender forces a borrower to settle through legal action, it can rarely extract more than 10 cents on the dollar. “People got 90 cents for free,” Mr. Combs said. “It rewards immorality, to some extent.”

Utah Loan Servicing is a debt collector that buys home equity loans from lenders. Clark Terry, the chief executive, says he does not pay more than $500 for a loan, regardless of how big it is.

“Anything over $15,000 to $20,000 is not collectible,” Mr. Terry said. “Americans seem to believe that anything they can get away with is O.K.”

But the borrowers argue that they are simply rebuilding their ravaged lives. Many also say that the banks were predatory, or at least indiscriminate, in making loans, and nevertheless were bailed out by the federal government. Finally, they point to their trump card: they say will declare bankruptcy if a settlement is not on favorable terms.

“I am not going to be a slave to the bank,” said Shawn Schlegel, a real estate agent who is in default on a $94,873 home equity loan. His lender obtained a court order garnishing his wages, but that was 18 months ago. Mr. Schlegel, 38, has not heard from the lender since. “The case is sitting stagnant,” he said. “Maybe it will just go away.”

Mr. Schlegel’s tale is similar to many others who got caught up in the boom: He came to Arizona in 2003 and quickly accumulated three houses and some land. Each deal financed the next. “I was taught in real estate that you use your leverage to grow. I never dreamed the properties would go from $265,000 to $65,000.”

Apparently neither did one of his lenders, the Desert Schools Federal Credit Union, which gave him a home equity loan secured by, the contract states, the “security interest in your dwelling or other real property.”

How soon will we forget the learning experience we've just undergone as a nation, as an economy, as a society?  When will we start to make sure that ordinary people understand the importance of land, and the workings of the market in land, and, most important, how this force can be turned to public good?

Those who are familiar with the ideas of Henry George know this, and most others are operating in ignorance.  I do not say this as an accusation; I say it in sadness.  Fortunately, ignorance can be remedied.

And if enough of us studied the topic, perhaps we would reach the conclusion that this is a fine time to enact Henry George's wise remedy, so that this will never happen again. 

Where might one study this?  If you're in NYC or Chicago or Philadelphia, classes are available at the Henry George School of Social Science.  Otherwise, you might explore the online course offerings at the Henry George Institute or start reading on your own.  Start with Progress and Poverty, in a modern abridgment or one of the essays in George's book Social Problems.

A few more lifts from the same article:

• “No one had ever seen a national real estate bubble,” said Keith Leggett, a senior economist with the American Bankers Association. “We would love to change history so more conservative underwriting practices were put in place.”

• Since the lender made a bad loan, Mr. Hairston argues, a 10 percent settlement would be reasonable. “It’s not the homeowner’s fault that the value of the collateral drops,” he said.

It might be relevant to note that it isn't the homeowner's fault when the value of the collateral rises, either.  He didn't create that value; it is due to the increase in the value of the land, which is a result of the activity of the community, not of the landholder or his tenant.    

A lot of people have grown wealthy on our ignorance.  The FIRE sector loved it, and there are those who are ready for a repeat of the upside of the bubble.  Like Aleve, it works for them!

Michael Hudson: The Road To Serfdom (2006)

Hudson: The Road To Serfdom

Doing some housecleaning, I came across the May, 2006, issue of Harper's Magazine, whose cover story was entitled "The Road to Serfdom: An Illustrated Guide to the Coming Real Estate Collapse."  On the promotional half-cover, the headline said "THE HOUSE TRAP: How the MORTGAGE BUBBLE Will Bankrupt Americans -- in 20 East Steps."

I looked online, and found a copy of the article in PDF format here, which permits me to throw away my hardcopy. 

Never before have so many Americans gone so deeply into debt so willingly. Housing prices have swollen to the point that we’ve taken to calling a mortgage — by far the largest debt most of us will ever incur — an “investment.” Sure, the thinking goes, $100,000 borrowed today will cost more than $200,000 to pay back over the next thirty years, but land, which they are not  making any more of, will appreciate even faster. In the odd logic of the real estate bubble, debt has come to equal wealth.

And not only wealth but freedom — an even stranger paradox. After all, debt throughout most of history has been little more than a slight variation on slavery. Debtors were medieval peons or Indians bonded to Spanish plantations or the sharecropping children of slaves in the postbellum South. Few Americans today would volunteer for such an arrangement, and therefore would-be lords and barons have been forced to develop more sophisticated enticements.

The solution they found is brilliant, and although it is complex, it can be reduced to a single word — rent. Not the rent that apartment dwellers pay the landlord but economic rent, which is the profit one earns simply by owning something. Economic rent can take the form of licensing fees for the radio spectrum, interest on a savings account, dividends from a stock, or the capital gain from selling a home or vacant lot. The distinguishing characteristic of economic rent is that earning it requires no effort whatsoever. Indeed, the regular rent tenants pay landlords becomes economic rent only after subtracting whatever amount the landlord actually spent to keep the place standing.

Most members of the rentier class are very rich. One might like to join that class. And so our paradox (seemingly) is resolved. With the real estate boom, the great mass of Americans can take on colossal debt today and realize colossal capital gains — and the concomitant rentier life of leisure — tomorrow.

If you have the wherewithal to fill out a mortgage application, then you need never work again. What could be more  inviting — or, for that matter, more egalitarian?

That’s the pitch, anyway. The reality is that, although home ownership may be a wise choice for many people, this particular real estate bubble has been carefully engineered to lure home buyers into circumstances detrimental to their own best interests. The bait is easy money. The trap is a modern equivalent to peonage, a lifetime spent working to pay off debt on an asset of rapidly dwindling value.

Most everyone involved in the real estate bubble thus far has made at least a few dollars. But that is about to change. The  bubble will burst, and when it does, the people who thought they would be living the easy life of a landlord will soon find that what they really signed up for was the hard servitude of debt serfdom.

From there, Hudson proceeds to list the 20 steps, each illustrated with a graphic.  I encourage you to look up the original; the graphics are generally quite helpful to making the point -- but the text is valuable here.

David Stockman - Four Deformations of the Apocalypse

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

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

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

The four deformations:

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

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

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

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

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

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

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

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

Stockman concludes:

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

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

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

Public Wealth and Private Wealth

I'm taking the liberty of posting a few paragraphs from Keith Gardner's blog post, which popped up on a Google alert today.  He titles the post, Answering Criticism from Anarcho-Socialists « Liberty Revival.

Public wealth is unearned wealth, found wealth, wealth earned by the public rather than by an individual, or wealth held in common or shared by the public. Public wealth includes rent, monetary expansion, often necessary to prevent deflation caused by population growth or economic growth, and interest charged on rent or monetary expansion. Rent includes wealth found through land value and through the extraction and sale of natural resources. Land value destroyed through the extraction and consumption of non-renewable natural resources or waste disposal can also be considered negative rent.

Private wealth is wealth earned by an individual, either through labor, through the production and use of capital, such as tools, organization, technology, or education, or through interest charged through risking and loaning private wealth to another individual.

This struck me as a short and clear delineation between what is rightly our common treasure and what is rightly the private property of individuals and corporations.

It seems clear what we ought to be taxing -- collecting -- to fund education, to fund infrastructure, to fund all the services which are best funded by all of us.  Tax public wealth to the extent that policies give individuals and corporations title to it.  Stop taxing private wealth, until we have collected all the public wealth sitting in private pockets.  End that free lunch, that windfall.

Stimulating the Well-Off to Stimulate the Economy

All the discussion about what income tax structure will stimulate the country while not reducing the incentives of America's wealthiest -- recall that 1% of us hold 1/3 of the net worth and 10% have over 70% of the net worth.

We're taxing the wrong things. We expend a lot of energy talking about income tax brackets, ignoring the extent to which US income is concentrated among a relative few of us.

We'd be wiser if we started paying attention to how income has become so concentrated: through granting of privileges such as the privilege of pocketing most of the value of natural resources; the privilege of collecting what is mostly land rent not building rent, both month by month or in the form of "capital" gains upon sale of urban land; the privilege of using the electromagnetic spectrum without paying one's community for the privatization of this scarce resource; geosynchronous orbits; landing rights at Laguardia and other congested and constrained airports; water rights; rights to pollute.

If you're not familiar with the statistics on how concentrated the benefits of such privileges are, read the Survey of Consumer Finances data on Equity (publicly held stocks) and "BUS" (the value of privately held companies) at LVTFAN. A few percent of us own awesome percentages of these privileged assets and reap what the rest of society sows through its labor and presence.

And our economics education neglected to mention this detail. (Should we be surprised?)

Life on a tilted playing field -- and we're so used to it that we don't even realize the tilt.

The wealthy can be stimulated to do the things which create jobs and drive wages upward for ordinary workers -- but it isn't through fiddling with income taxes.   We may need to fiddle with them in order to reduce the effects of our terrific income concentration and our need for revenue for legitimate common purposes, but it isn't the answer to stimulating the economy.

The Buyout of America: How Private Equity Will Cause the Next Great Credit Crisis, by Josh Kosman

The Buyout of America: How Private Equity Will Cause the Next Great Credit Crisis, by Josh Kosman « Econamici.

Polly Cleveland posted a fine piece by Josh Kosman, which I commend to your attention.  It provides a concrete example of something Joe Stiglitz described in his talk at the University of Queensland last week:
 

The financial sector (the banks and regulators) are the culprits behind the global financial crisis which has crippled the global economy. Apparently, moneylenders have been skimming 40 percent of the profits from companies that actually make and produce things. His big point was that this is not really the role of the financial sector. The financial sector's job is to support economic growth, not cripple it.

"Finance is a means to an end," he said. "The lack of balance between the financial sector and the economic sector was actually the real problem in this economic crisis (NOT the real estate bubble)."

Kosman's article won't take long to read.  But it gives a good sense of one of the reasons why wealth is concentrating in America, and the extent to which the legitimate interests of ordinary working people are being subordinated to the privileges of our wealthiest.

Still in the Time of Economic Anxiety - NYTimes.com

Letters - Still in the Time of Economic Anxiety - NYTimes.com.

Wednesday's NYT has a series of letters, responding to four different articles published in recent days.  I think they're worth sharing in their entirety.  I commend to the writers of these letters the ideas of Henry George, which provide a way out of what many of us see as a dead-end street.

• joblessness
• insecurity -- financial, emotional and physical -- leading to health problems
• growing gulf between rich and poor
• trickle-down economics hasn't worked
• hedge-fund roulette
• lack of an effective safety net
• homelessness while we can afford to wage wars
• so-called conservatives mortgaging the country
• "Tax and Spend" Democrats have been upstaged by "Spend and Don't Tax" Republicans

The answer doesn't relate to tweaking the income tax brackets, though I must admit that under the current circumstances, I think we must increase the share of taxes which are coming from our highest-income compatriots, particularly the ones whose income has come from the FIRE sector who have not created much except for havoc in the lives of the rest of us.  They've not created jobs; they've funneled into their own pockets the wealth of our economy.  These paragraphs come from an earlier post about Joe Stiglitz's talks in Australia:

The financial sector (the banks and regulators) are the culprits behind the global financial crisis which has crippled the global economy. Apparently, moneylenders have been skimming 40 percent of the profits from companies that actually make and produce things. His big point was that this is not really the role of the financial sector. The financial sector's job is to support economic growth, not cripple it.

"Finance is a means to an end," he said. "The lack of balance between the financial sector and the economic sector was actually the real problem in this economic crisis (NOT the real estate bubble)."

 
Here are the LTE's:

To the Editor:

Re “Welcome to the Recovery,” by Timothy F. Geithner, the secretary of the Treasury (Op-Ed, Aug. 3):

Forgive me, Mr. Geithner, if I remain skeptical. Recovering? I think a very temporary remission is more accurate.

“We suffered a terrible blow, but we are coming back,” you say. No one I know went anywhere. Their savings went, their investments went, their jobs went, their homes went. And those who took them — and received obscene bonuses for doing so — are coming back for even more.

My question is, Where are we going? We, the public, the average person upon whom the health and well-being of the nation rests. The reality is that there are not enough good jobs for everyone, housing prices are still far too high, lenders are making it increasingly hard to borrow, credit card companies are still being allowed to charge exorbitant interest and no one that I know is saving; every penny goes to keep body and soul together.

Insecurity — financial, emotional and physical — is creating increasing health problems, yet crucial public services, which could at least help in the short term, are being cut to the bone.

What I have learned in the last few years is that the private sector plays fast and loose with the public welfare, and no one seems to care. The gulf between rich and poor is huge and getting wider every day.

Coming back? We’re still on the edge, and it’s still crumbling.

Susan A. McGregor
North Kingston, R.I., Aug. 3, 2010

•

To the Editor:

Re “Defining Prosperity Down,” by Paul Krugman (column, Aug. 2):

Maybe now we can finally admit that “trickle down” economics doesn’t work. We’ve had 25 years of tax cuts (cuts in income taxes, estate taxes and capital gains taxes) for the wealthiest Americans. The myth was that the wealthy would invest that money in ways that would create more jobs and prosperity for the rest of us. It’s not working, obviously.

Our return for trickling so much of our wealth upward was supposed to be good jobs and a solid income for the middle class. Instead we’ve got the wealthy playing hedge fund roulette on Wall Street, while one-sixth of American workers are unemployed or underemployed.

Trickle-down policies increased the wealth gap, but didn’t create jobs. The only time in the past decade that we’ve approached full employment was when the middle class went into debt and spent virtually 100 percent of its income or even more, as it did over the four years before 2008. That “mortgage and credit” bubble taught us that the real “jobs engine” is middle-class spending.

To get our economy running again (instead of wheezing along), we need to eliminate the Bush tax cuts, eliminate the tax break for hedge fund managers and establish a meaningful estate tax. Keep that money out of the Wall Street casino; invest instead in the middle class.

John Ranta
Hancock, N.H., Aug. 2, 2010

•

To the Editor:

Re “99 Weeks Later, Jobless Have Only Desperation” (front page, Aug. 3):

The story of Alexandra Jarrin’s odyssey from middle-class striver to unemployed and homeless graphically illustrates the terrifying underside of what’s left of the American dream.

A week after the 9/11 terror attacks, I was laid off from my position as head of public relations at a publishing house. For the next year and a half, with increasing desperation, I tried to claw my way back into a corporate life in which I had thrived for nearly 20 years.

As it turns out, I was actually one of the lucky ones. My skills were transferable to the entrepreneurial world, and I eventually started an independent public relations firm. But what I learned from that experience is just how far one can fall — and is allowed to fall — in the 21st-century United States.

There is very little safety net in this country. For those who make it, this can still be the land of opportunity. But for those who, for whatever reason, lose their grip on what we take for security — job, home, bank account — the drop is very long indeed, with no one or nothing to catch you.

Alan Winnikoff
Sleepy Hollow, N.Y., Aug. 3, 2010

•

To the Editor:

In what state of callous cruelty is this country living when it can allow a sizable number of its people to live in cars or on the streets because their unemployment has run out during this long and protracted recession — all while it still manages to send expensive armaments halfway around the world?

Should we start a citizens’ emergency fund, or a clearinghouse where people can donate available housing, or a sponsorship program where you can help someone for six months, since the government does not seem to have the will to do any of this?

Forget about will, how about heart? Where is it?

Shameful, shameful, shameful.

Lynn Lauber
Bridport, Vt., Aug. 3, 2010

•

To the Editor:

Re “Four Deformations of the Apocalypse,” by David Stockman (Op-Ed, Aug. 1):

During the past 30 years in which Republicans largely dominated the White House and Congress, these so-called conservatives have mortgaged our country to the brink of bankruptcy via reckless spending, borrowing from abroad and giving tax breaks to the rich only to run up today’s obscene national debt and trigger our current deep recession.

And when President Obama increases deficits to stimulate the moribund economy — a strategy recommended by virtually all reputable economists — the irresponsible Republicans have the nerve to blame his administration for our national debt.

Will the American voters see through this charade? Given our propensity to run up personal debt to buy stuff we don’t need with money we don’t have, I fear that the answer is no. What a legacy we are leaving future generations.

James G. Goodale
Houston, Aug. 1, 2010

•

To the Editor:

To David Stockman’s perceptive analysis, one must add the basic Republican financial strategy dating back at least to Ronald Reagan: Pushing up the deficit makes it difficult or impossible for the Democrats to finance, increase or develop programs disfavored by Republicans. It’s that simple.

The Republican arguments for deficit reduction fly in the face of fact, as the Bush administration’s policies so clearly show. “Tax and spend” Democrats have been upstaged by “spend and don’t tax” Republicans. The cynicism exceeds imagination.

Doug Giebel
Big Sandy, Mont., Aug. 1, 2010

 

Joe Stiglitz: the people are being cheated and the economy is getting poorer

Joe Stiglitz made some important observations in a talk on July 26 at the University of Queensland.  Here are the first few paragraphs from an article on the University's website:

Inadequate taxes on mining means the people of Australia are being cheated and the economy is getting poorer, a Nobel Prize-winning economist told a crowd of 1400 people at The University of Queensland last night.

Professor Joseph Stiglitz shared his thoughts on the proposed mining tax in response to a question from an audience member during the seventh UQ Centenary oration.

“Natural resources lead to an appreciation of the currency and that leads to an imbalanced economy because it's hard for any other sector to do well, competing with imports or exporting,” Professor Stiglitz said.

“You're selling off your assets and in many cases you're selling them off at a very low price.

“If you are taking resources out of the country and you are not reinvesting those resources in one way or another – a stablisation fund, human capital, infrastructure – then your economy is getting poorer, not richer, and a good accounting framework can show that,” he says.

“When you're taking out natural resources from an economy you ought to have a subtraction from GDP - a firm that held a resource and was selling it off would take off depreciation and that would show up in its books as depreciation.”

A bit of searching returned another account of that same evening:

Professor Stiglitz told a packed UQ Centre that Australia's economic stimulus package was the best designed in the world.

AND he said natural resources - coal, iron ore - should be properly valued at market just like the electromagnetic spectrum.

The government auctions the spectrum to the highest bidders who want to operate mobile phone networks, cable companies, television and radio stations. 

Basically, a country - like Australia - will end up poor if doesn't get the best price for its assets - and natural assets are not renewable, once they are gone they are gone. If the proceeds from the sale of these assets are not invested in infrastructure to support and grow other sectors the economy (manufacturing and value-adding, goods creation) then a country and it's people will not prosper - HELLO! HELLO! Drowning not waving.

"It should be subtracted from Gross Domestic Product (GDP)," he said. "You are selling off assets at a very low price if you don't have adequate taxes on mining - you are being cheated," he said to audience applause.

He thinks resources should be auctioned off to the highest bidder - the free market at work. Of course, the mining industry will make all kinds of threats.

To everyone's amusement he joked about how mining companies bamboozled, threatened and bribed governments of developing, fragile nations. 

"I assume that's not the case in Australia," he mused.

To prosper, a country needs to set up a stabilization fund (from a mining tax, if not a resources auction) for nation building.

This is what he calls an investment fund for building infrastructure and to grow value-adding industries, maintain education, job creation.

Not only that but the sell-off of natural resources should appear on a country's accounts as a kind of depreciation of assets - otherwise the accounts are not accurate. ...

He made these comments at the end of the oration after he explained the difference between the financial sector and the economy - the economy is not the financial sector.

The financial sector (the banks and regulators) are the culprits behind the global financial crisis which has crippled the global economy. Apparently, moneylenders have been skimming 40 percent of the profits from companies that actually make and produce things. His big point was that this is not really the role of the financial sector. The financial sector's job is to support economic growth, not cripple it. 

"Finance is a means to an end," he said. "The lack of balance between the financial sector and the economic sector was actually the real problem in this economic crisis (NOT the real estate bubble)."

The second account concludes with:

And as for Climate Change and the price of carbon and waiting for the rest of the world before we do anything?

Economies are not restructuring because there is no carbon price. The western world worries about the growing and changing consumption patterns of China and India.

Professor Stiglitz doesn't believe the West should begrudge them at all.

It's not consumption that's evil - it's profligacy. WASTE! Now, I wonder who wastes more the West or countries raising people out of poverty?

India and China will follow the wasteful ways of the West if the world fails to set a carbon price and force everyone to consume less to save the planet - the planet will force us to change in the end (*he says).

"If we had agreed to have a price on carbon at Copenhagen that would have been the answer," he said. "It would have provided an increase in global aggregate demand (global economic spending) as firms all over the world needed to retrofit (their business to meet pollution standards)."

So why is the US not hearing this advice?   There is a lot here that speaks to issues which Americans would be wise to attend to.   Alaska pays for a large portion of its costs by taxing its natural resources, and also provides an annual income to every permanent resident, of any age, from the proceeds of investing oil revenue into a broadly diversified portfolio, through the Alaska Permanent Fund.   We have sacrificed many American lives in Iraq, but not produced a situation in which Iraq's oil revenue gets used either to finance infrastructure and government-provided services OR to provide an income to every citizen.

Re-read these excerpts with Iraq in mind, and then thinking of Afghanistan, and then of America.

Postscript:  see also Karl Fitzgerald's account of Stiglitz's 7/30 talk.

The Woodpeckers' Tree System

The Woodpeckers' Tree System

The Woodpeckers were advancing in civilization and took up something like the English land system.  It was shown that holes in a tree trunk were fixed improvements which could not be made unless ownership of the tree was secure.  Full title to the trees was, therefore, confirmed to various Woodpeckers.

Thereupon the more active and long-headed Woodpeckers began to affix to each vacant tree a little red leaf like a seal, so as "to hold it until is is wanted."

The Woodpeckers increased in number so that there were not unclaimed trees enough for everybody; later all the convenient trees were full, and there were still more applications.

Income Concentration: Piketty & Saez data through 2007

One of my standing Google Alerts brought me to someone's blog post about income concentration in the US, which took me back to my spreadsheets on the subject.  My spreadsheets start with Piketty & Saez's annual spreadsheet, and then add in some calculations.  Many people who report on their data seem to me to miss the most important columns.  What many people report is this breakout:

• Top .01%
• Top .1%
• Top .5%
• Top 1%
• Top 5%
• Top 10%

The data is powerful.  Looking at income including capital gains and fractiles defined using that income definition (their Table A3), we find the following income shares for 2007:

• Top .01%:   6.04%
• Top .1%    12.28%
• Top .5%    19.31%
• Top 1%     23.50%
• Top 5%     38.67%
• Top 10%    49.74%
• and by inference, bottom 90%  50.26%. 

But where it gets interesting is to break out the fractiles individually, and then to look at trends.  Here are a few selected years from the P&S tables, which start in 1913:

Income Concentration, selected years 1913-2007
Year	Top .01%	Next .09%	Next .4%	Next .5%	Next 4%	Next 5%	Bottom 90%
distribution per 10,000 population	1	9	40	50	400	500	9,000
1913	2.76%	5.86%	6.11%	3.23%	n/a	n/a	n/a
1917	3.37%	5.04%	5.94%	3.39%	12.90%	9.87%	59.49%
1920	1.66%	3.69%	5.79%	3.69%	13.49%	10.69%	60.99%
1935	2.19%	4.20%	6.24%	4.04%	15.61%	12.21%	55.51%
1944	1.16%	2.59%	4.50%	3.02%	11.48%	9.75%	67.49%
1953	0.97%	2.09%	3.97%	2.88%	12.11%	10.29%	67.69%
1960	1.17%	2.07%	3.88%	2.91%	12.54%	10.90%	66.52%
1970	1.00%	1.78%	3.48%	2.77%	12.64%	10.96%	67.37%
1981	1.37%	2.20%	3.67%	2.78%	13.02%	11.51%	65.46%
1991	1.96%	3.17%	4.86%	4.48%	14.36%	11.82%	60.45%
2002	3.14%	4.20%	5.70%	3.83%	15.20%	11.75%	56.18%
2007	6.04%	6.24%	7.04%	4.19%	15.17%	11.07%	50.26%
chg 2002-2007	+2.90%	+2.04%	+1.34%	+0.36%	-0.3%	-0.68%	-.5.92%
chg 1991-2007	+4.08%	+3.07%	+2.18%	-0.29%	+0.81%	-0.75%	-10.19%
chg 1970-2007	+5.04%	+4.46%	+3.56%	+1.42%	+2.53%	+0.11%	-17.11%
Source: Piketty and Saez 2007 spreadsheet, Table A3 (includes capital gains in both income and fractile definitions) and LVTfan calculations

One way to read this is that of the 17.11% of income which the bottom 90% lost between 1970 and 2007, nearly 30% went to the 1-in-10,000 fellow, 26% went to the 9-in-10,000, 21% went to the 40-in-10,000, and the remaining 24% went to the 950-in-10,000.   I'm willing to guess (or concede, if you will) that half or more of those 50-in-10,000 in 2007 were not in the top 50-in-10,000 37 years earlier (and that many in the 1970 top 50-in-10,000 were no longer alive in 2007).

Henry George wrote about a wedge driven through society.  That was 130 years ago.

So what's your guess for 2008? 

• Do you think the bottom 90% of us will have more than 50% of the income, or drop below 50%?
• Do you think the share of the 90th to 95th percentile will rise or fall?

The data is due out shortly.  I'll report it when I see it.

Wealth concentration in China exceeds US

Global Times - Wealth concentration in China exceeds US. In the US, the wealthiest 5 percent people hold 60 percent of the wealth of the country, but the middle-class families enjoy the largest part of the incomes.

Let's see what the data says.  My source is the 2007 Survey of Consumer Finances, from the Federal Reserve Board.   One can look at it a number of different ways.  Here are two.

1. The top 1% of wealthholders have 33.8% of the Net Worth; the top 5% hold 60.4% of the NW.  The next 45% hold 37.1% of the NW.   The top 1% of wealthholders have 16.4% of the income; the top 5% have 33.0% of the income.  The next 45% have 44.6% of the income.    If the 50th to 95th percentiles of the wealth distribution constitute America's middle class, the article's statement is true.   Source: http://lvtfan.typepad.com/lvtfans_blog/2010/04/americas-wealth-distribution-2007-wealth-concentration-part-1-of-3.html

2. The top 10% of income recipients get 59.4% of the income.  The top 20% of income recipients get 70.3% of the income.  The 40th to 80th income percentiles receive 21.0% of the income; the 40th to 90th receive 31.9% of the income.  Source: http://lvtfan.typepad.com/lvtfans_blog/2010/04/americas-wealth-distribution-2007-wealth-concentration-part-2-of-3.html, Table 3.

Are some of those top 10% income folks part of our "middle class?"

How would you advocate viewing the data, and what conclusion would you reach?

Why Do People Become Terrorists?

I heard an NPR story about this woman's work and have not yet tracked it down; in my search, I found this recent NYT article, which pretty well covers what I heard on the radio.  
Private Trauma Gives Jessica Stern Insights on Terrorism

Here are a few paragraphs -- please read the whole thing online, because I've omitted some important material!:

“I’ve really been studying perpetrators and violence all my life.”

How she came to this realization is the subject of her new book, “Denial: A Memoir of Terror,” which Ecco published last week. The book recounts how, in 1973, when Ms. Stern was 15, she and her younger sister were raped at gunpoint in their home in Concord, Mass. The police disbelieved the girls’ account and bungled the investigation; their father, in Europe at the time, didn’t think it necessary to cut his trip short and return. The whole community, she writes, seemed to be in denial.

The experience created in Ms. Stern a kind of emotional numbness — a calmness, even a fearlessness, that has proved oddly useful in her current work.

“I am fascinated by the secret motivations of violent men,” she writes in “Denial,” “and I’m good at ferreting them out.” She found that terrorists would talk openly to her, she said, because she could “go into a state where I almost tried to become that person, and where I felt that if I allowed myself even the tiniest judgmental thought, they could probably sense it.” ...

Not the least of her contributions, he went on to say, was that she was one of the very first terrorism scholars to realize that the way to discover what terrorists were thinking was to go and talk to them.

“She was asking the right questions of the right people,” he added, “and if some of that comes from her own experience of being terrorized, then the lessons were very fruitful.”   ...

She began to come to terms with what was a traumatic family history even before the rape: her mother died when she was 3; her father, a German émigré who had been persecuted by the Nazis, remarried but six years later divorced his second wife, leaving his daughters with her for almost two years while he lived on his own.

And with the help of an investigator, Ms. Stern even tracked down the story of her rapist, who served 18 years in prison and then hanged himself. He turns out to have been responsible for at least 44 rapes or attempted rapes between 1971 and 1973, all with a trademark methodology that the police somehow failed to pick up on. Among other things, he found most of his prey at girls’ boarding schools or at Radcliffe College, and many of his attacks involved two or more young women. ...

Ms. Stern interviewed friends or relatives of the rapist and uncovered a long and depressing history of parental abandonment (he was adopted, though he didn’t know it for years, and a woman he thought was his aunt was really his mother); confused sexual identity; drug use (he even dropped acid once with Timothy Leary); and possible childhood molestation (his parish church harbored a series of predatory priests). He had probably been traumatized himself, and then in the classic fashion went on to traumatize others.   ...

Writing the book, she added, taught her a lot about the effects of post-traumatic stress syndrome, of which she now considers herself a victim, and also helped refine her thinking about terrorism. Her researches have taught her that there is no common denominator in determining why people become terrorists, but she has identified a checklist of risk factors. These include alienation, coming from a society with a youthful population bulge or a high male-to-female ratio and, for the people who wind up being used as cannon fodder by the terrorists, poverty.

To the list she would now add sexual humiliation, and in January she published an article in Foreign Affairs in which she pointed out that sexual abuse of boys in the Islamic religious schools known as madrasas is not uncommon, and neither is the rape of boys in Afghanistan, especially on Thursday, known as “man-loving day,” because Friday prayers are thought to absolve a sinner of all his guilt.

“I’ve known about this for years,” Ms. Stern said, “but until I wrote this book, I didn’t make the connection. I’m not sure how you study it, but I do think it’s there. Humiliation is definitely a risk factor, and this may be a particular kind of it.”

She paused and added: “But why humiliation in some places and some people but not others? Harvard is a humiliation factory, and yet we don’t produce a lot of terrorists.”

Most of those at Harvard come from a lot of money, and/or can expect to earn a lot of money in this society, which probably cushions them greatly from the effects of any humiliation they might suffer at the hands of their classmates or teachers.  Who cushions the poor from what they suffer as ordinary humans in a society which is structured to concentrate income and wealth in relatively narrow slices of the spectrum?

Or is this an inconvenient thing we ought to continue to ignore?

Relatedly, one might think about how someone who is in the 20% of America which receives, say, 4% of America's income might feel about those who are in the 1% who receive about 20% of America's household income, and what their opportunities are to move up even a quintile or two.

See also the next post, about a neurologist looking at his own family history, and the difference that a secure and serene childhood can make in one's chances in life.  I heard these two stories within a couple days of each other -- what a juxtaposition!

A Neuroscientist, Nature and Nurture, and America's Children in Financial Distress

A Neuroscientist Uncovers A Dark Secret : NPR.

This is a fascinating story, and I commend it to your attention. The link takes you to the transcript and the option to listen to the story.  It describes a university neuroscientist who looks into his own family history and, with the cooperation of family members, brainscans and DNA of a number of others descended from the same line:

About four years ago, Fallon made a startling discovery. It happened during a conversation with his then 88-year-old mother, Jenny, at a family barbecue.

"I said, 'Jim, why don't you find out about your father's relatives?' " Jenny Fallon recalls. "I think there were some cuckoos back there."

Fallon investigated.

"There's a whole lineage of very violent people — killers," he says.

One of his direct great-grandfathers, Thomas Cornell, was hanged in 1667 for murdering his mother. That line of Cornells produced seven other alleged murderers, including Lizzy Borden. "Cousin Lizzy," as Fallon wryly calls her, was accused (and controversially acquitted) of killing her father and stepmother with an ax in Fall River, Mass., in 1882.

A little spooked by his ancestry, Fallon set out to see whether anyone in his family possesses the brain of a serial killer. Because he has studied the brains of dozens of psychopaths, he knew precisely what to look for. To demonstrate, he opened his laptop and called up an image of a brain on his computer screen.

The story is fascinating.  I'm sharing it here because of the final lines.  First, a bit more of the story:

After learning his violent family history, he examined the images and compared them with the brains of psychopaths. His wife's scan was normal. His mother: normal. His siblings: normal. His children: normal.

"And I took a look at my own PET scan and saw something disturbing that I did not talk about," he says.

What he didn't want to reveal was that his orbital cortex looks inactive.

"If you look at the PET scan, I look just like one of those killers."

Skipping ahead:

Still, he says the evidence is accumulating that some people's brains predispose them toward violence and that psychopathic tendencies may be passed down from one generation to another.

The Three Ingredients

And that brings us to the next part of Jim Fallon's family experiment. Along with brain scans, Fallon also tested each family member's DNA for genes that are associated with violence. He looked at 12 genes related to aggression and violence and zeroed in on the MAO-A gene (monoamine oxidase A). This gene, which has been the target of considerable research, is also known as the "warrior gene" because it regulates serotonin in the brain. Serotonin affects your mood — think Prozac — and many scientists believe that if you have a certain version of the warrior gene, your brain won't respond to the calming effects of serotonin.

Fallon calls up another slide on his computer. It has a list of family members' names, and next to them, the results of the genotyping. Everyone in his family has the low-aggression variant of the MAO-A gene, except for one person.

"You see that? I'm 100 percent. I have the pattern, the risky pattern," he says, then pauses. "In a sense, I'm a born killer."

Fallon was prompted to study his brain after his mother, Jenny, told him his ancestry was full of alleged murderers.

Fallon's being tongue-in-cheek — sort of. He doesn't believe his fate or anyone else's is entirely determined by genes. They merely tip you in one direction or another.

And yet: "When I put the two together, it was frankly a little disturbing," Fallon says with a laugh. "You start to look at yourself and you say, 'I may be a sociopath.' I don't think I am, but this looks exactly like [the brains of] the psychopaths, the sociopaths, that I've seen before."

I asked his wife, Diane, what she thought of the result.

"I wasn't too concerned," she says, laughing. "I mean, I've known him since I was 12."

Diane probably does not need to worry, according to scientists who study this area. They believe that brain patterns and genetic makeup are not enough to make anyone a psychopath. You need a third ingredient: abuse or violence in one's childhood.

That's why I'm sharing this one here.  35% to 40% of America's children live in families where the household income is insufficient to meet the most modestly defined needs of a family of that size and configuration in that location.  (See "Self-Sufficiency Standard" for more information.)   How many more live in families which have below-average income, little financial security, little in savings, shaky housing situations, unemployment or underemployment?

Our nation's concentration of income and concentration of wealth mean that about 80% of us are below average.  Every time you see a report about average wealth, or average income, please recognize that we live in Lake Wobegon in Reverse.  Most of our children live in families that are below average, particularly those who were born to young parents, to less educated parents, to single parents, or who made unfortunate choices of who their parents would be, or what pressures their parents' marriages would come under, particularly financial pressures.

We have a poverty machine.  The rich keep getting richer, and the rest -- including the families of a very large proportion of our children -- are struggling to keep their heads above water.

How do we fix this poverty machine?  How do we transform it into a rising prosperity-for-all machine?  For that, you'll have to do some reading.  Start with the works of Henry George --

• a speech or two at www.wealthandwant.com -- say, The Crime of Poverty, or Thou Shalt Not Steal;
• a reading of Progress and Poverty at progressandpoverty.org;
• your choice of chapters from Social Problems at wealthandwant.

Then, you might read Bob Andelson's Henry George and the Reconstruction of Capitalism at wealthandwant.

How do we reduce the chances that conditions in a child's life will cause them to become people who victimize others as adults?   By assuring that all get what they need as children, and are protected from victimization by adults and by other children.

Just a thought.

Tackling America's Drug Addiction

Tackling America's Drug Addiction : NPR.

I heard parts of this when it was initially broadcast, and hunted around for the text version.   It contains some statistics that surprised me.   Here's the first part of the interview:

MICHELE NORRIS, host:  Earlier this week, Mexican President Felipe Calderon defended Mexico's war against the drug cartels, and cast some blame on his neighbor to the north: the U.S. The origin of our violence problem begins with the fact that Mexico is located next to the country that has the highest level of drug consumption in the world, Calderon wrote in a newspaper editorial. It is as if our neighbor were the biggest drug addict in the world.

Harsh words, to be sure. It got us wondering about the appetite for drugs in the U.S., and whats being done to curb it.

For answers, we turn to Joseph Califano, the former secretary of Health, Education and Welfare, and now director of the National Center on Addiction and Substance Abuse at Columbia University.

Mr. Califano, welcome to the program.

Mr. JOSEPH CALIFANO (Director, National Center on Addiction and Substance Abuse, Columbia University): Nice to be here.

NORRIS: Now first, any truth in President Calderon's statement? Is it fair to characterize the U.S. as the biggest drug addict in the world?

Mr. CALIFANO: The U.S. is 5 percent of the world's population. We consume two-thirds of the world's illegal drugs. So there is a lot of truth...

NORRIS: Hmm.

Mr. CALIFANO: ...in what President Calderon said.

NORRIS: Let me ask you about the war on drugs right now. The current administration is trying to focus on a balance between interdiction and treatment: drug courts, for instance, followed by mandatory treatment, things like that.

Will that shrink the domestic market for drugs - since when you're talking about treatment, there are so many issues surrounding access to treatment?

Mr. CALIFANO: You're absolutely right. The rhetoric of the administration is good, but the dollars haven't changed. We're still putting roughly two-thirds into interdiction and enforcement, and one-third into treatment and prevention. Interestingly, when President Nixon started the war on drugs, his first budget was two-thirds for prevention and treatment, and one-third for interdiction.

NORRIS: Oh, so it's flipped.

Mr. CALIFANO: It's flipped totally. Now, we have to look at a lot of systems to really do something about this. The drug courts are great. We've analyzed them at our center. They work. And the prison population is important because 65 percent of the people in prison meet the medical criteria for drug or alcohol abuse and addiction. That's a wonderful - in a sense, captive audience. But we don't provide much treatment for them.

NORRIS: So it's just a wasted opportunity. They're not getting treatment.

Mr. CALIFANO: About one in 10 that need treatment gets some kind of treatment. But most of it is not good.

There's a Medicaid population: 30 percent of the beneficiaries of Medicare have drug and alcohol problems. We have to go after those populations. That's the short-run - in a sense - solution to this problem.

There's a longer-run solution. We know from our research that if you get a child through age 21 without getting into this stuff, that child is virtually certain to be home free for the rest of his or her life. And when you say a drug-free society - and there will always be drugs being used - what you're really talking about is that population of children - and that's parents, that's schools, that's people that are dealing with that. And they've got to get focused on it.

NORRIS: Is the U.S. serious enough about the war on drugs?

Mr. CALIFANO: No, we're not. I'll tell you - and we're not serious. The government is not serious enough. You can barely hear any of the leaders in the government talk about it. The medical profession is not serious enough. The public-health profession is not serious enough.

Think about it.  The richest nation in the world.  And our wealth is quite concentrated in a relatively small portion of our population: 1% of us have over one third of the net worth.  10% of us have over 71% of the net worth.

And 10% of us get nearly half of the pre-tax income, and 20% of us get 61%, and 40% of us get 80%, leaving not much for the rest.

The rest of us keep talking about our nation's ideals, as if we'd already achieved them and we should all be content.  But clearly our concentration of wealth and concentration of income are producing effects which burden a large number of us and then get transmitted to other parts of the world.  (Am I a master of understatement?)

Income Mobility and the Persistence Of Millionaires, 1999 to 2007

The Tax Foundation recently published a study which apparently seeks to comfort those of us who are concerned about the concentration of income in the US -- what they call "the rising gap between the rich and poor."  It suggests that "snapshots of income inequality" should be considered in light of "the mobility of people up and down the income ladder."

The first graph is from Piketty and Saez, and shows the percentage of income going to the top 1% of income recipients.  It shows the 1980 share as 10% and the 2007 share approaching 23.5%.   The text mentions that the share of income received by the top 10% has risen from 34.6% in 1980 to 49.7% in 2007, also sourced to P&S.

The paper then goes on to show, from IRS data, the extent to which people moved from one income quintile to another between 1999 and 2007:

Table 1  More than 50 Percent of Taxpayers Moved Out of the Bottom Quintile Between 1999 and 2007
	2007 Income Quintile/Percentile
1999 Income Quintile/Percentile	Lowest	Second	Third	Fourth	Fifth	Total	Top 10%	Top 5%	Top 1%
Lowest	42.5%	25.1%	16.3%	10.4%	5.7%	100.0%	2.2%	0.8%	0.1%
Second	32.2%	34.7%	17.3%	10.8%	5.0%	100.0%	1.7%	0.7%	0.1%
Third	14.4%	26.0%	32.8%	17.8%	8.9%	100.0%	3.4%	1.2%	0.1%
Fourth	7.7%	10.7%	25.7%	37.7%	18.3%	100.0%	6.2%	2.2%	0.3%
Fifth	3.1%	3.8%	7.5%	23.3%	62.3%	100.0%	36.5%	20.0%	4.3%
Top 10%	2.7%	2.4%	4.4%	13.3%	77.1%	100.0%	56.7%	34.8%	8.0%
Top 5%	2.4%	1.9%	3.0%	8.2%	84.5%	100.0%	72.7%	54.2%	14.7%
Top 1%	2.3%	1.4%	1.4%	4.5%	90.5%	100.0%	85.5%	78.3%	44.6%
Note: Computations by author from the 1999-2007 SOI Individual Tax Panel.

They cite the good news that only 43% of those in the bottom income quintile in 1999 remained in that quintile in 2007.  A similar percentage of those who were in the top 1% in 1999 were again in the top 1% in 2007.    Less than 10% of the 1999 Top 1%'ers had fallen out of the top quintile 8 years later.  It was far more likely that a top-quintile taxpayer would remain in the top quintile -- 62% -- than anyone else remain where they were. 

(Might I be forgiven for wishing that the study showed what percentage of income over the 9 years went to the people in each quantile in 1999, and then again for each quantile in 2007?  One might come away with a different understanding.)

The remaining tables/figures show, for three different measures of income, how many taxpayers were "millionaires" for 1, 2, 3, 4, 5, 6, 7, 8 or all 9 years.  (The appendix shows that the top 1% began at $339,600 in 1999, and $549,200 in 2007.)  

Working with Gross Income, 675,000 tax payers had income over $1,000,000 during at least one year between 1999 and 2007.  Of those, half were in that category for just one year, and only 6% -- 38,000 taxpayers -- were in the $1,000,000+ category for all 9 years.   This is apparently intended to demonstrate that many more of us have one fabulous year than have consistent reported income at that level, and that this must mean that there is opportunity for all.

Narrowing the definition of income to exclude capital gains, a similar table shows that 431,000 taxpayers fell into the $1,000,000+ category at least once, of whom 175,000 were only once.  So 36% of those who were "income millionaires" by the Gross Income definition were not "IM's" when capital gains were excluded.

Excluding (instead) "Business Income," the ever-an-income-millionaire universe drops to 555,000 taxpayers, and 55% of them were one-year-only income millionaires.

It would be interesting to see the aggregate income during the 9 years for each group.  The author clearly has the data.

Appendix B Persistence/Transience of Millionaires: Data Underlying Figures 2, 3 and 4
	Number of Years a Millionaire
	One	Two	Three	Four	Five	Six	Seven	Eight	Nine	Total
Gross Income
Returns (1,000s)	338	102	54	50	29	23	24	17	38	675
Percent	50%	15%	8%	7%	4%	3%	3%	3%	6%	100%
Gross Income Excluding Capital Gains
Returns (1,000s)	175	77	41	38	22	17	17	13	29	431
Percent	41%	18%	10%	9%	5%	4%	4%	3%	7%	100%
Gross Income Excluding Business Income
Returns (1,000s)	307	81	44	35	23	18	13	11	23	555
Percent	55%	15%	8%	6%	4%	3%	2%	2%	4%	100%
Source: Computations by author from the 1999-2007 SOI Individual Tax Panel.

I suppose their conclusion is that since so many more people have one year of $1,000,000+ income than have 9 years of it, we ought not to worry about the actual distribution of income, which, as I've previously reported, is as follows:

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

Moving from the bottom quintile to the fourth highest quintile may be considered mobility by the Tax Foundation.  But when the top quintile receives 61% of the income, and 62% of those who were in the top quintile in 1999 are again in it in 2007, even a lot of mobility doesn't get one very far, in terms of economic security or return on one's labor.

Look at it this way:

• 67.6% of those in the lowest quintile in 1999 are still in the bottom 40% in 2007
• Of those in the second quintile in 1999, 66.9% are still in the bottom 40% in 2007.  More have moved down a quintile than have moved up a quintile (and almost as many have moved down as have moved up in total: 32.2% down, 33.1% up).
• Of those in the middle quintile in 1999, more have fallen into the bottom 40% than have moved into the top 40% in 2009
• Of those in the fourth quintile in 1999, only 56% are in the top 40% in 2007.  More have moved down a quintile than have moved up a quintile (25.7% vs 18.3%).
• Of those in the top quintile in 1999, 85.8% are in the top 40% in 2007
• Of those in the top 10% in 1999, only 23% are in the bottom 80% in 2007
• Of those in the top 5% in 1999, only 15% are in the bottom 80% in 2007
• Of those in the top 1% in 1999, only 10% are in the bottom 80% in 2007.

This is structural.  We have permitted the creation and maintenance of income- and wealth-funneling machines. 

You can read more about the nature of the machine, and how to harness it to make things better, in Henry George's books, including Progress and Poverty, and Social Problems (the latter is a book of essays, and the link will take you to some material which will help you choose one of interest).  Certain things in society rightly belong to all of us, and our failure to treat them accordingly is at the root of our income- and wealth concentration problems (and many others, including sprawl, joblessness, boom-bust cycles, pollution -- and I think most of us would be happy to see that there is a solution to any one of these, much less something that will lead to a solution of all of them).

Income mobility in a society where so few of us control so much is a salable proposition only to the gullible.  If every one of us could spend 3 months of our lives in the top 0.25% of income recipients, then maybe our top-20%-gets-61%, top-1%-gets-23% might be consistent with our ideals of equal liberty.  Maybe, kinda sorta.

Tax Foundation, look into the wisdom of Henry George.  Unless, of course, your funders' interests are not the interests of ordinary Americans. 

The Prayer of the Landless

A friend sent me two prayers, both by John Archer, of Huddersfield, in the UK.  I'm guessing they might be 100 years old.

The Prayer of the Landless.

O THOU, who didst decree all things, and who didst breathe upon us, giving us life, for what purpose didst Thou create us?

For we are aliens upon the soil which gave us birth, and we are trespassers in the land of our fathers.

Thou didst fashion us in nakedness, and didst bid us break the bread we eat in the sweat of our brows.  But though we would fain comply with Thy command, we may not do so without the consent of others.

And the price of such consent is so exacting that our lives are made bitter by hard bondage.

We plough the fields and scatter the good seed o'er the land, but a mere pittance of the golden grain is our portion of the harvesting.

We spin and weave, but it is the bodies of others which are kept warm by the cloth our hands doth make.

We build ships and carry over the face of the deep the fruits of the labours of our brethren, and we return laden with the fruits of Thy beneficence and other men's labours in the lands we have visited, but others than ourselves and our brethren appropriate the fruits of our activities.

Down, down we go into the deeps of the mind, and through danger attended with discomfort we dig and hew the coal which shall give warmth and glow to the hearthstones of our homes; but divers rents, royalties and wayleaves impoverish the hire of our labour in order to enrich the exchequer of those who neither toil nor spin.

The rights of the birds of the air and of the beasts of the field to their place on this planet of Thy creation is acknowledged, but ours is challenged.  We have not where to lay our heads, we have not where to place the soles of our feet -- without permission.  And we may only secure such permission by the payment of annual tribute known as ground-rents.

Jesus, our elder Brother, who taught us to believe that Thou art equally the Father of us all; didst also command us to render to Thee the things which belong to Thee.

The earth, created Thou it! Hast Thou given the title deeds thereof to those who refuse to us the right of a standing and a resting place thereon, unless we pay rent to them annually?

If Thou hast bestowed on them the title deeds, wherein have we sinned against Thee, and wherein have they so pleased Thee, that they should be thus lifted above compliance with Thy decrees and ordinances, and we be so penalised that our children languish for lack, their mothers droop and die, thus causing many of us to curse the day we were born.

If these things be not of Thy ordering, so incline the hearts of all Thy people to the issues of justice, that they may be made to realise they but mock Thee with vain petitions when they pray, "Thy will be done on earth as it is in heaven," until they right this wrong which dishonours Thee and which enslaves and destroys Thy disinherited children.  Amen.

It may not be immediately obvious to those who haven't thought about this before that the alternative is for every individual who possesses land to pay to the commons each year the annual value of the land itself -- that size lot in that location.  Each pays for what he uses, and thus keeps for himself no more than what he is actually using.  This creates an economy in which valuable sites get used for valuable purposes, not held out of use as someone's nestegg for their children or grandchildren.  No one grows wealthy off others' labor, and this flow of land rent gets used for common purposes rather than pouring into the portfolios of a select few.

Click on this link to see all the Landlord and Landless prayers I've got on a single page.

The Landlord's Prayer -- Archer's version

THE LANDLORD'S PRAYER OFFERING IN THE TEMPLE

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

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

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

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

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

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

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

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

—john Archer

This version was printed in Land and Freedom in 1917.

In another version, the final paragraphs read slightly differently:

William Allan's Landlord's Prayer

I've found a longer version of a Landlord's Prayer which Henry George published in The Standard (late 1880s, or early 1890s).  This one was reprinted in December, 1920 in an IBEW publication, and is sourced there to the Dundee People's Journal.

LANDLORD'S PRAYER.
(By William Allan.)
Lord, keep us rich and free from toil
For we
Are honored holders of thy soil,
Which democrats would fain despoil
With glee.
O Lord, our fathers got the land
For serving men whom Thy right hand
Had chosen to be great and grand,
As kings.
Tho' taken by stealth, we're not to blame;
Thou knowest, O Lord! it is a shame
To say to us of titled name
Such things.

Lord, let us live in wealth's content
And peace;
Lord, we are by Thy mercy meant
To rule mankind and make our rent
Increase.
The birds that hunt the moors and hills,
The fish that swim in streams and rills,
The beasts that roam as nature wills,
We own.
E'en Lord, the minerals that lie
Beneath the earth's periphery
Belong to us -- Thou knowest why
Alone.

Lord, on the rugged rabble frown,
For they
Are foes to us, Thy church and crown;
Lord, bare Thine arm and grind them
down
To clay.
O Lord, our God! we make their laws,
Which they reject with wild applause;
Be Thou a buckler to our cause
And caste.
They scorn our love, Thy name and word,
They reverence neither squire nor lord;
Lord, them consume with fire and sword
At last.

Lord, they are poor and ignorant,
And worse.
Compared with us, how different
In manner, garb, and lineament,
And purse!
Lord, never let them get or see
The power which lies in unity.
Keep us apart from them -- for we
Are men.
Protect us from their greedy hands,
Protect us from their vile demands,
Protect us in our wealth and lands,
Amen, amen!

--Dundee People's Journal.

The Larger Struggle - David Brooks

Op-Ed Columnist - The Larger Struggle - NYTimes.com.

On the one side are those who believe in democratic capitalism — ranging from the United States to Denmark to Japan. People in this camp generally believe that businesses are there to create wealth and raise living standards while governments are there to regulate when necessary and enforce a level playing field. Both government officials like President Obama and the private sector workers like the BP executives fall neatly into this camp.

On the other side are those that reject democratic capitalism, believing it leads to chaos, bubbles, exploitations and crashes. Instead, they embrace state capitalism. People in this camp run Russia, China, Saudi Arabia, Iran, Venezuela and many other countries.

Many scholars have begun to analyze state capitalism. One of the clearest and most comprehensive treatments is “The End of the Free Market” by Ian Bremmer.

Bremmer points out that under state capitalism, authoritarian governments use markets “to create wealth that can be directed as political officials see fit.” The ultimate motive, he continues, “is not economic (maximizing growth) but political (maximizing the state’s power and the leadership’s chances of survival).” Under state capitalism, market enterprises exist to earn money to finance the ruling class.

The contrast is clearest in the energy sector. In the democratic capitalist world we have oil companies, like Exxon Mobil, BP and Royal Dutch Shell, that make money for shareholders.

In the state capitalist world there are government-run enterprises like Gazprom, Petrobras, Saudi Aramco, Petronas, Petróleos de Venezuela, China National Petroleum Corporation and the National Iranian Oil Company. These companies create wealth for the political cliques, and they, in turn, have the power of the state behind them.

It might be worth looking at these assertions in light of how wealth is distributed ... concentrated might be a better description ... in America.  The 2007 Survey of Consumer Finances, from the Federal Reserve Board, reports the following distribution of "Equity," which includes individual stocks and equity mutual funds, whether held in retirement or non-retirement accounts:

Bottom 50%      1.5%
Next 40%        19.6%
Next 5%          12.4%
Next 4%          30.5%
Top 1%           36.0%

The SCF also reports the distribution of holdings of "BUS" -- the value of privately-held businesses:

Bottom 50%      0.4%
Next 40%          6.0%
Next 5%            5.5%
Next 4%          25.5%
Top 1%           62.7%

The two categories are of roughly equal size: Equity $13.7 trillion and BUS $14.9 trillion.   So one might reasonably estimate that the top 1% have roughly 50% of the aggregate value of these two categories, and the next 4% have about 28% -- leaving 22% for the bottom 95% of us.

If state capitalism puts, say, 80% of business in the hands of the top 5%, is it that much worse than what we've got?  In some ways, yes -- but the question is worth pondering.

Brooks closes with this:

We in the democratic world have no right to be sanguine. State capitalism taps into deep nationalist passions and offers psychic security for people who detest the hurly-burly of modern capitalism. So I hope that as they squabble, Obama and BP keep at least one eye on the larger picture.

We need healthy private energy companies. We also need to gradually move away from oil and gas — the products that have financed the rise of aggressive state capitalism.

More than "needing healthy private energy companies" we need to start collecting for the commons more of the value of the natural resources they draw from our common supply -- not to mention forcing them to privatize the environmental risks associated with drilling.  Remember what Henry George said about a well provisioned ship?  He who controls the hatches controls his fellow human beings.

And of course, we need to be undertaking the shift of incentives which will redirect sprawl into the underused sites in our cities.  Land value taxation -- untaxing buildings, and uptaxing land value -- will produce the urban density which will lead to walkable cities and populations which will support effective public transportation systems.  It will provide technologically modern housing affordable to people at all levels of the income spectrum, close to their work -- for those who want that.  The reduced pressure on the suburban markets will lower prices there, too, for those who want that.   That urban redevelopment will also create more commercial venues in the centrally located places where specialized businesses thrive.  And of course all that building activity creates jobs, and those new technologies will produce buildings which use less energy and produce less pollution.  And because untaxing buildings removes the penalties associated with things like solar power, all the incentives will be pointing in the same direction.

t

New plan to make millions in profits without any investment - PakTribune

New plan to make millions in profits without any investment

A standing google alert on the "Roosevelt Hotel" in NYC brought me this article on another way for the foreign owner of this excellent acre in Manhattan to make money without selling the site.  It suggests that this method might be quite profitable for a number of individuals in that country's government. 

The back story, as I've gleaned it, is contained in some earlier posts to this blog.

The article slightly mis-states the situation.  It is not the Roosevelt Hotel which is worth $300 to $400 million; rather, it is the ground under the hotel, which is a well-located full-block, roughly an acre, in midtown Manhattan.  Estimates of its value a few years ago, as a tear-down, ranged from $400 million to $1.2 billion.  When the real estate market went soft, it was clear that waiting a few years for it to revive would be quite profitable.

This article, though, suggests that a lot of individual politicians stand to make individual profits through a different strategy.

Remember what Leona Helmsley told us:  "WE don't pay taxes.  The little people pay taxes."    The little people's taxes provide the services which make this acre worth $400 million.

The oil and gas billionaire, and estate taxes

The New York Times reported recently that Dan Duncan died in March, leaving an estate estimated by Forbes Magazine to be $9 billion.   He started with $10,000 and two propane trucks, and "and built a network of natural gas processing plants and pipelines that made him the richest person in Houston."

I do not begrudge his heirs the value of the plants themselves, other than the value created by any sort of monopoly they might benefit from -- which may be considerable -- and the value of the well-located land on which they sit.  But the pipelines run over rights of way whose value has probably gone very lightly taxed, just as the value of railroad rights of way has traditionally been under-valued and therefore taxed lightly.

The estate includes over 100 million shares of the stock of Enterprise GP Holdings, worth $43 per share at the time of his death, shares which likely have appreciated hugely over the years without being taxed.  Because Duncan's estate escaped paying estate tax, the value of the shares was not stepped up, so when the shares are sold someday, a 15% "capital" gains tax will be due, and his heirs will keep the other 85%.

Had Mr. Duncan died in 2009, while the estate tax was still in place, the $4.3 billion of shares would have resulted in a $2 billion estate tax. (That ignores his other holdings, including a 5,500 acre hunting ranch.)

The estate tax is an imperfect tool, but it is better than no tool at all to collect back for the community value which individuals during their lifetimes have managed to privatize. 

The best solution, though, would be for each of us who privatize something from the commons to be required to compensate the commons, month in and month out, for that which we claim title to.  Buildings, machines and pipelines are rightly private property, but the land on which they sit and the nonrenewable natural resources which they draw down are OURS, not the rightful property of any individual or corporation, and when we permit some to privatize that value without compensating society, we create wide channels for TRICKLE-UP.  We're so used to it that we don't even notice.

Recall that a huge something over 70% of America's net worth is owned by just 10% of us, and over 34% is owned by 1% of us.  Mr. Duncan's children are in that 1%.  They have inherited the reins to a corporation which we've permitted to privatize the value of what ought to be common property.

Those who have high hopes and sincere expectations of someday winning a large jackpot in the Powerball Lottery may think it appropriate to defend the privileges associated with having large amounts of wealth (Powerball winnings, however, are income -- that's a detail) and they may think it to be in the best interests of their future lucky self to protect privileges associated with privatizing the commons.  (They might want to take a look at the odds in their favor compared to the odds associated with the privilege of access to America's or the world's natural resources.)

What an Estate Looks Like to the Taxman

What an Estate Looks Like to the Taxman - NYTimes.com.

But where does that dynastic plutocracy begin? There is an astronomical gap between Mr. Buffett’s fortune, which Forbes estimated at $47 billion, and two retirees in Marin County, California, whose life’s work might have allowed them to leave their heirs $3.5 million in assets, mostly in the value of a house.

Oh, I was so pleased to read someone expressing it so clearly.  Tell me about that house in Marin County.  Let's see.  Let's say our retirees bought it in, say, 1980, for, say $200,000.  They probably put down 10% or 20% in those days (borrowing standards were a little different then).   Let's say that they had a mortgage for, say $160,000, at 8%.  They finished paying it off last year.  The monthly mortgage payment was $1,174. Over the course of 30 years, they paid off $160,000 of principle, and paid the lender about $266,000 in interest.  To rise from the $200,000 purchase price to today's value of $2 million, the average annual appreciation was about 8.3%.  Obviously, some years it was more, some less.  But 8.3% is an average.

What the paragraph quoted doesn't explain is how our hard-working retirees caused their property to appreciate by 8.3% per year over 30 years. 

The reality is that houses depreciate.  What rises in value is the land, and it rises for reasons which have nothing to do with the individual landholders, or even all the landholders in aggregate.  Land appreciates as a result of the presence and growth of population and a healthy economy; as a result of the public provision of goods and services which people value and which make a community or state a better place to live.  Advances in technology can also contribute to increases in land value -- consider elevators in cities, air conditioning in the American south, fiberglass boats in waterfront communities.

Our retirees experienced an 8.0% average annual growth in the value of their residence.  Paying off their mortgage raised their equity by the $160,000 they originally borrowed. Appreciation, provided by their community and their nation, provided $1,800,000 -- over 10 times as much!   Their hard work paid the mortgage, but their community contributed FAR more.

But, you might argue, they did pay property taxes all those years.  Yes.  Under Proposition 13, their property tax is based on 1% of the assessed value of the property, and the assessed value of the property can only rise by 2% per year, no matter how much the market value has risen.  Voters can approve additional payments in the form of parcel taxes, which might bring taxes up to perhaps 1.25% of the assessed value of the property. 

At 1.25%, over those 30 years, our hardworking Marin retirees have paid in $109,514 in property taxes.   The rest of their "hard-earned"  appreciation comes from

• the scarcity of housing close to California's cities, compared to the number of people who would like to live close in;
• spending supported by taxes on sales and wages -- which come not only from their own pockets but from the pockets of the 50% of California residents who are renters because they can't afford to buy;
• federal dollars spent on California infrastructure
• effects created by changes in mortgage interest rates and mortgage lending policies, including loan-to-value ratios, underwriting standards related to income ratios, etc.

Does it seem churlish to collect back a portion of the value we-the-people have created once per generation?  We'd be much wiser to collect it year-in and year-out, in the form of a tax on the value of the land itself, and let our workers keep their wages and not pay taxes on their purchases or homes.

Does it seem churlish that the Marin retirees' children should not be entitled to keep all that value we-the-people created just as if the retirees had created it themselves?  After all, other people's children, including those of tenants, don't get to keep that value, but they've contributed to creating it.

A 15% capital gains tax on the $1,800,000 somehow seems an insufficient share for the commons.  Even a 50% estate tax seems a bit insufficient, too.

This is trickle-up economics at work, and saying that some of it trickles to people we might consider middle class doesn't change the fact that some grow wealthy in their sleep, while others simply grow poor despite working hard for decades.   The two situations are not unrelated.   (And a $3.5 million estate doesn't fall into most definitions of middle class in America.)

Paying for Transportation Infrastructure is simple

A friend passed along this excellent piece, from the City Club of New York just over 100 years ago.  It is long, but highly instructive, and quite relevant in the 21st century.  

Do you want to know the mechanisms by which we concentrate wealth into the portfolios of a narrow slice of our population?  Read this.  Read Fred Harrison's Wheels of Fortune. Watch Fred's brief video, Ricardo's Law: The Great Tax Clawback Scam:

And consider a town or city you know.  Is your experience any different?

Why on earth would we finance infrastructure any other way?  Well, California's Proposition 13 is designed to make sure California can't.  No wonder the state is in such trouble.

Remember what Leona Helmsley told us: "WE don't pay taxes.  The little people pay taxes."  She wasn't talking about tax evasion; she was describing tax structure. THIS is how wealth concentrates.

The reference to Spuyten Duyvil is to the point where today the Henry Hudson Bridge, on the parkway of the same name, crosses from upper Manhattan into Riverdale, in The Bronx. (It refers to devilish currents in the rivers, which menace unsuspecting rowers.)

Building of Rapid Transit Lines In New York City By Assessment Upon Property Benefited

A Memorandum Addressed to the Board of Estimate and Apportionment
And The Public Service Commission of New York City.

The City Club of New York
55 West 44th Street
October 2, 1908

The Board of Estimate and Apportionment and the Public Service Commission:

Dear Sirs:

The City Club respectfully submits for your consideration the results of inquiries made through its Transit Bureau with relation to the feasibility of meeting the cost of future subway extensions by means of assessments on the property benefited.
 
The city urgently needs more rapid transit roads. Private capital seems disinclined, at present at least, to finance the work of building. The city's borrowing power is utterly inadequate to cover the need, and will be until relief may be secured through the slow process of constitutional amendment. If the necessary lines are to be built, it seems self-evident that other methods must be considered.

The Club's investigations show that in the outlying districts reached by the present subway, and to some degree the nearer sections, the value of the property served has increased to an extraordinary degree. This added value would have paid for the cost of the work several times over. While the city as a whole has benefited greatly, the scale of local benefit is naturally much greater. In our judgment, it would not only be helpful as a solution of the problem, but far more equitable to charge a proportion of the cost of constructing a rapid transit line to the property most benefited by such construction.

The argument is elaborated, and the exact results of the Club's investigation given, in the accompanying memorandum. We trust that this may have your examination, and that if the plan commends itself to your judgment, the future policy of the city may be shaped accordingly.

Very respectfully yours,
Homer Folks, Chairman, Transit Committee.

Henry C. Wright, Bureau Director.

BUILDING OF RAPID TRANSIT LINES IN NEW YORK CITY
BY ASSESSMENT UPON PROPERTY BENEFITED

For many years the city has deemed it just to assess upon abutting property the cost of opening streets and building sewers. The theory of such a tax upon property is that it receives almost the exclusive benefit from the construction of a street or sewer adjacent to it. The question naturally arises, does not a transit line, by the benefit that it confers, fall in the same class as new streets and sewers? If a street railroad or rapid transit line be extended into an undeveloped territory, is it not built primarily for the purpose of furnishing  transit facilities to future residents in that section? People will buy this property primarily because it has good transit facilities and the value placed upon it is largely based upon its accessibility. This being true and universally admitted, why should not the property thus enhanced in value by the extension to it of a transit line pay for the construction of such line, to the extent that the increased value warrants it, instead of receiving such increased value as a present from the city. This principle, in a modified and unofficial form, is operated in Berlin. The assessment is not collected by the city, but the street car company when extending a line to outlying territory requires the owners of the property benefited to guarantee to the company a certain return upon the cost of such extension.

Is Our Tax System Helping Us Create Wealth?

tax.com: Featured Articles: Is Our Tax System Helping Us Create Wealth?.

This article, by David Cay Johnston, is at least a few months old, and I didn't see it when it first came out.  I did see a blog post which referred to it, and quoted some passages of it.  Here are the ones which caught my eye then: 

Without a doubt, the much lower tax rates at the top encouraged people to realize more income in the tax system. And if the only measure is that some people made more, then this would be a good.

But let’s ask the question that the classical economists would have asked back when they were known as moral philosophers and their leaders spoke of policies that benefited the majority. Let’s go back to a time before Vilfredo Pareto’s observations began what is the overwhelmingly dominant orthodoxy today, neoclassical economics with its focus on gain.

What is the social utility of creating a society whose rules generate a doubling of output per person but provide those at the top with 37 times the gain of the vast majority? ...

Is a ratio of gain of 37 to 1 from the top to the vast majority beneficial? Is it optimal? Does it provide the development, support, and initiative to maximize the nation’s gain? Are we to think that the gains of the top 398 or 400 taxpayers are proportionate to their economic contributions? Does anyone really think that heavily leveraged, offshore hedge fund investments are creating wealth, rather than just exploiting rules to concentrate wealth, while shifting risks to everyone else?

Under the overwhelmingly dominant economic theory of today, this is all good. Pareto argued that if no one was harmed, then all gain was good.

Carried to an extreme, neoclassical economics would say that if the bottom 99.9999997 percent had the same income in 1961 and 2006, and all of the gain went to the one other person in America, that would be a good. ...

Is our tax system helping us create wealth and build a stable society? Or is it breeding deep problems by redistributing benefits to the top while maintaining burdens for the rest of Americans?

Think about that in terms of this stunning fact teased from the latest Federal Reserve data by Barry Bosworth and Rosanna Smart for the Brookings Institution: The average net worth of middle-income families with children whose head is age 50 or younger, is smaller today than it was in 1983.

But the original has some other important things to say.  It begins,

Imagine that all you had to live on was the amount of tax you saved in your best year because of the many tax rate cuts Congress has put in place since 1964, when President Johnson signed into law the Kennedy tax cuts.

For most Americans, living off income tax savings would mean starvation. Their income tax savings have been minor, and when looked at over a long period, say since 1961, increases in payroll taxes have more than offset their slight income tax reductions.

But for the very few who have gained the most from living in the United States, the story is quite different. Their tax savings alone from a single year, invested to earn just 5 percent annually, would be enough to provide a lifetime income at nearly twice the income threshold for being in the top tenth of 1 percent.

That's a remarkable decrease for some very privileged folks!  Johnston goes on to compare what has happened with incomes at the very top of the scale between 1961 and 2006 with what has transpired for the bottom 90% of us.  The bottom 90% saw real income rise from $22,366 to $31,642 (both in 2006 dollars).  At the 90th percentile, wages rose from $60,404 to $104,440.  DCJ goes on to make some points which Elizabeth Warren and Amelia Tyagi made in "The Two Income Trap:"

That tiny increase in pay does not represent a real increase in wages, only total income. That is because in the middle of that 45-year era, a profound transformation took place in America.

In 1961 most families lived on one income, maybe supplemented by some part-time work by the wife for what was quaintly known back then as "pin money." Now two-income households are the norm.

The overall wealth of America grew and grew during this era. GDP, adjusted for inflation and increased population, was up 227 percent. But wages and fringe benefits did not grow with the economy. For most workers, they fell. Wages peaked way back in 1972-1973, were on a mostly flat trajectory for more than two decades, rose briefly in the late 1990s, and then fell sharply in the new century. Airline pilots have seen their 1990s income cut by more than half; some union factory workers have seen their pay slashed by two-thirds. Millions are out of work, and the jobs they once held are gone and are not coming back. And even if the Great Recession is coming to an end, we face years of jobs growing more slowly than the working-age population, which could radically transform America's culture, work ethic, and sense of progress.

In 2006 families worked on average about 900 more hours than families did in the 1960s and early 1970s. That is a roughly 45 percent increase in hours worked accompanied by a 41 percent increase in total income.

For many, the reality is that two jobs produce the same or a smaller after-tax income than just one job did three and four decades ago.

Compare that to the top 400 taxpayers:

The average income for the top 400 taxpayers rose over the 45 years from $13.7 million to $263.3 million. That is 19.3 times more.

The income tax bill went up too, but only 7.8 times as much because tax rates plunged. Income tax rates at the top fell 60 percent, three times the percentage rate drop for the vast majority. And at the top, the savings were not offset by higher payroll taxes, which are insignificant to top taxpayers.

The average income tax rate for those at the top in 1961 was 42.4 percent. By 2006 it was down to 17.17 percent. Add on payroll taxes, and the 2006 rate is 17.2 percent, the same as rounding the income tax figure alone.

Readers of this site will know that I have no use for income taxes.  But until we shift to smart and just taxes, a sharply progressive income tax seems to me to be a better-than-nothing way to fund our common spending.

Johnson ends with this:

Is our tax system helping us create wealth and build a stable society? Or is it breeding deep problems by redistributing benefits to the top while maintaining burdens for the rest of Americans?

Think about that in terms of this stunning fact teased from the latest Federal Reserve data by Barry Bosworth and Rosanna Smart for the Brookings Institution: The average net worth of middle-income families, with children, whose head is age 50 or younger, is smaller today than it was in 1983.

In my humble opinion, DCJ isn't looking quite deep enough.  Our tax system -- federal, state and local combined -- is permitting those who own our most valuable common assets (land value and nonrenewable natural resources) to privatize their value, year after year, generation after generation -- and grow hugely wealthy and powerful -- and then merely taxing some of the income from them. 

The alternative?  Tax the annual value of those resources -- which are rightly COMMON property, provided by the Creator and by the presence of all of us and the spending/investment of the entire Community, not by individuals or corporations -- heavily (say, 90% or 95% of the annual value)  and reduce or even eliminate -- starting at the bottom -- the wage and interest and sales taxes and taxes on manmade improvements to land.   Think about the ramifications of that reform.  They're profound, and point in the direction of a healthier, more stable and more just economy.   Will the revenue generated be sufficient to fund all of today's public spending?  Probably not.  But

1. that's no reason not to shift our taxes off bad taxes onto good ones; and

2. we may find that with good taxes, things change enough that we no longer need to spend large amounts on the social safety net, because a vibrant economy with opportunities for all and a somewhat more equal distribution of income and of wealth and power permits the vast majority of us to be self-sufficient and prosperous.

The bottom 70% or so of us CAN'T save.  Large shares of our incomes are devoted to housing and transportation, and to all sorts of FIXED costs.   We can't increase our spending on other goods, and we can't save.   We have to fix that.  We have to do things which distribute the value of that which SHOULD be common, and end the privatization of value which ought to be common. 

What's the real cost of living, in Pennsylvania?

Pennsylvania is a diverse state.  Its major cities and their suburbs tend to have higher costs of living, and its smaller cities and rural counties are much less expensive.  But even the least expensive counties have bare-bones cost of living far about the Federal Poverty Guideline.

Here are the Federal Poverty Guidelines for 2009, which were extended into at least mid-2010:

• 1-person family:   $10,830
• 2-person family:   $14,570
• 3-person family:   $18,310
• 4-person family:   $22,050
• larger families: add $3,740 per person

This week, the newest Self-Sufficiency Standard Study was published, for Pennsylvania.  I've collected the SSS data for some selected counties, and added some data from the Census Quick Facts site (county population, median family income 2008, and persons per square mile).  A few observations:

• The barebones cost of living in the least expensive counties is over 150% of the FPG for a single adult; and nearly twice the FPG for adults with children.
• A similar lifestyle would cost far more in Pittsburgh (about 250%, with children) and Philadelphia (about 300%, with children.  In suburban Pittsburgh, the figure is slightly higher than in the city itself.  In Lancaster County, the costs are similar to suburban Pittsburgh's.
• And in the suburban counties of Philadelphia, that still-bare-bones lifestyle costs more yet: 325% to 350% of the Federal Poverty Guideline.
• Few people live in the rural counties, where costs are low. (So are wages and opportunities!)
• Most people live in the urban and suburban counties, where costs are higher.  (And if they tried to live in the rural counties and work in the urban ones, their high transportation costs would eat up much of the difference.)
• High population density goes with high median income; low population density goes with low median income.

All these places need janitors, and nurses' aides, and fast-food workers, and retail clerks, and many other jobs which pay wages which are insufficient for an adult to live independently on, much less support a family on.  (And most places have zoning regulations which prohibit more than a few unrelated adults from living in a single housing unit, which would be a way to reduce the cost of living.)   Encouraging individuals to seek more education to move beyond these jobs is fine, but it doesn't mean that those jobs won't be needed in a hypothetical more-educated future.   Do we really expect that they will be filled by people who will be content with dormitory living, and not having children, or supporting an elderly relative, or that young people will fill these jobs briefly and then move into higher-paying jobs when they marry and have children?  Really?

Trickle-down economics doesn't speak to how all these people can afford to live.   The SSS is not a middle-class lifestyle, at least not the way most of us think of "middle class."  It is the just-getting-by-without-depending-on-help (though it does take into account EITC, CCTC and CTC; the EITC is only relevant in a few rural counties -- see the tables starting at page 42).  We need to understand why wages are so low, and why our wealth and income are so concentrated.  And we need to understand the structures that create this situation, in order to correct them.

Area	Population	Median Family Income	Persons per Square Mile	1 Adult	1 Adult, 1 Preschooler	1 Adult, 1 Preschooler, 1 Schoolage	2 Adults, 1 Preschooler, 1 Schoolage
Federal Poverty Guideline	source: Census Quick Facts site, except for Allegheny County: Pittsburgh city data			$10,830	$14,570	$18,310	$22,050
Erie County	280,291	$44,005	350	$17,344	$35,928	$46,676	$53,077
% of FPG				160%	247%	255%	241%
Allegheny County: Pittsburgh	312,819	$56,300 source: SSS	6,019	$17,431	$36,412	$47,857	52,009
% of FPG				161%	250%	261%	236%
Allegheny County: excluding Pittsburgh	total county: 1,218,494	$48,778 source: 2008 ACS	1,756	$20,013	$38,957	$50,226	$56,865
% of FPG				185%	267%	274%	258%
Philadelphia	1,547,297	$37,090	11,461	$21,392	$41,863	$54,705	$59,501
% of FPG				198%	287%	299%	270%
Bucks County	626,015	$75,701	985	$27,886	$51,253	63,821	71,846
% of FPG				257%	352%	349%	326%
Chester County	498,894	$85,547	573	$28,160	$51,853	$63,639	71,296
% of FPG				260%	356%	348%	323%
Lancaster County	507,766	$55,824	496	$19,223	$37,612	$48,400	$54,821
% of FPG				177%	258%	264%	249%
Bedford County	49,579	$39,754	49	$17,221	27,916	35,445	43,756
% of FPG				159%	192%	194%	198%
Juniata County	23,118	$42,705	58	$16,545	$27,412	$34,985	$42,355
% of FPG				153%	188%	191%	192%
Total	12,604,767	$50,702	274

Mother’s Eyes See Trouble With Tax Rolls

Politics - Mother’s Eyes See Trouble With Tax Rolls - NYTimes.com.

Let's free a few of the slaves.  We wouldn't want to burden the "good" slaveholders, would we?

This is a NYT story about a woman in California -- an MBA with a child in the Menlo Park public schools -- who wants to half-fix Proposition 13, by changing its provisions only as they affect commercial property, and leaving it in place for residential property.  Her goal is to increase the funding of the public schools.

Prop 13, now 30 years old, required the assessor to ignore the market value of all properties when assessing them for tax purposes.  The assessment is based on the owner's purchase price (or the 1976 assessment, whichever is newer) plus annual appreciation of no more than 2% per year.  It has led to neighboring properties with identical homes carrying vastly different assessments and therefore tax bills.  It has led to a tight housing market, to high land prices, to unaffordable housing, to extremes of boom-bust, to foreclosures.  And older homeowning Californians love it, and so do their heirs, who stand to inherit property made valuable by it.  And their heirs even get to keep that grandfathered valuation and low property tax bill.

And all this woman wants to change is how commercial property is affected.

I'm sure she means well, for her own child and his classmates.

She says, though:

“If every Californian understood the situation, and they decided they didn’t want to do anything about it, that would be fine with me,” Ms. Bestor said. “But nobody seems to know about this.”

I wonder if she'd include in that sentiment the 50% of California residents who DON'T own the homes they live in, and those among the homeowners who recognize the injustice Prop 13 creates.  Or are they below the radar level?

“Any time you bring this up people start saying you’re talking about overturning Proposition 13,” Ms. Bestor said. “That’s not what this is about.”

BUT IT SHOULD BE!

Lobby to free a few of the slaves, but be sure you don't harm the interests of any slaveholders in the process!

The Labour Problem ... population? or something else?

Here's another interesting article from the January 1, 1887 edition of The Democrat.  It speaks to some very 21st-century issues: wealth concentration, population growth, access and ownership of land and natural resources, and equality of opportunity -- to name a few.  I've Americanized the spellings to make it an easier read for US readers.   "Labor" refers to us, ordinary folks who need to work for a living -- not to organized labor specifically.

THE LABOR PROBLEM.

By An American.

The signs of dissatisfaction on the part of the laboring classes are clearly apparent everywhere. Labor organizations, strikes, boycotts, labor journals -- all these mean something, and what that something is we cannot find out too soon.

Is the dissatisfaction of labor simply the result of human perverseness, the envy and jealousy of idleness and carelessness at the better success of industry and thrift, or are there unjust forces operating on society producing vicious inequalities?

Has every man the same chance? Can all men attain to the same fortune if all are equally industrious and thrifty? Is there a fair field and no favor?

Certainly there is, cries a host of respondents. Is not each man the architect of his own fortune? And they quote case after case of men who began at the foot of the ladder, but who with indomitable pluck gained step after step until they conquered fortune, while others who began at the same point, neglected their opportunities and are still toiling in poverty, where they are destined to stay to the end of the chapter.

Is society so constructed that to all there is the same chance? Can all by exercising the same industry and thrift become equally wealthy? This question goes directly to the core of the labor problem. If there is the same chance to all, then what reason has the laborer to complain? A little consideration answers this question.

In how many years could society with its utmost exertions and greatest economy accumulate enough so that toil would be no longer necessary, and forever after all succeeding generations could live in idleness. No more plowing in spring, no reaping in harvest, no toiling in the mine, no sailing on the ocean — a huge, everlasting pic-nic!

Never! Toil, to restore the faded or to replace the worn out, must be as lasting as the race. Toil, toil, toil, is the inevitable.

"Men may come and men may go,
But toil goes on for ever."

Note that as fact number one and put fact number two alongside it.

And fact number two is this: Certain families now have the power of living for ever without toil. They organize no industry, invent no machine, do nothing to furnish supplies for themselves or their fellows — drones in the human hive, and yet their cruse of oil never fails.

Now, put these two facts together:

1st. Toil must be lasting as the race;

2nd. Some are now eternally exempt from toil;

Therefore, as certain as any therefore can be, some are endowed with privileges from which the rest of the race must be by an inexorable physical law for ever excluded.

Wealth Concentration, Income Concentration and the Economy

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

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

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

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

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

When 2+3=6, who is entitled to the "extra" 1?

When there is a benefit to be gained by people congregating in one area rather than spreading themselves out evenly over the entire area of a country such as America, who is entitled to that benefit?

Two people working together produce more than the sum of what they produce separately.  How should that surplus be divided? 

Should it be divided equally among the workers?  Should it be divided in proportion to the contributions of the labor of each worker?  Should it all go to the more able of the two workers?  Should it go to the fellow who owns the land on which they work?  Should it go to those who lent someone money to buy the land?  Should it be spent on things which make life more pleasant or work easier where they work?

47 percent

That figure has been in the news and opinion columns a great deal in the past couple of weeks.  It is the percentage of Americans who pay nothing in federal income taxes (as distinct from federal withholding for social insurance).

Some of the articles and related comments have focused on the concept that everyone should be paying something, so that they "have some skin in the game" so that there is an incentive not to vote for spending that others will have to pay for.  Some have approached the 47% as "freeloaders."

It is funny that in our largest state, where, for 30+ years, Proposition 13 has put a ceiling on property taxes, so that landholders, who are the primary beneficiary of the effects of state and local spending (and federal funding of state and local projects) can expect their tenants to contribute mightily to the projects they vote for -- and no one has made an impression by pointing this out. 

And none of the articles I've seen about the 47% figure -- which went viral after an article by Bob Williams in the WaPo -- have spent much time exploring the policy decisions behind this.

I am reminded that according to our official Federal Poverty Guideline, about 13% of us live "in poverty."  And that even the Census Bureau, which collects and reports the data on who lives below the Federal Poverty Threshold (a retrospective figure which relates closely to the FPG) willingly recognizes that the Federal Poverty threshold and guideline are merely a statistical yardstick, with no particular logical relationship to the cost of living anywhere in America.

I am reminded that for the states for which a Self-Sufficiency Standard Study has been published (about 35 in all), the bare-bones cost of living for a young working family typically runs from 180% of the Federal Poverty Guideline -- in the least expensive counties (where very few people live) to perhaps 210% in the major cities of our smaller states to 300% or 400% in the major cities in our larger states.

Should the incomes -- mostly wages -- of our working people whose incomes are insufficient or barely sufficient to meet their own and their families' most modestly defined needs, be taxed?

I am reminded of the Overlooked and Undercounted studies, which typically follow a Self-Sufficiency Standard Study, and seek to quantify the number and percentage of working-age families whose incomes are insufficient to cover their bare-bones cost of living.  Significant percentages of these families are at these income levels.  30% to 35% sticks in my mind -- and a larger percentage of America's children.

I am reminded that a large percentage of today's seniors are hugely reliant on their income from Social Security, and that the level of Social Security income is established upon retirement and thereafter only rises to keep up with the CPI-U; our oldest retirees are receiving Social Security incomes which are a function of their wages 30 years ago -- roughly as logical as California property taxes for long-time owners being based on the selling price of California housing 30 years ago!

I am reminded that many people get to deduct their mortgage interest and real estate taxes from their taxable income (they're typically in the coastal states; in the heartland states, the standard deduction often turns out to be higher, since taxes and interest payments tend to be lower ... which may correlate to the percentage of children who attend 4 year colleges).

And I am reminded that state and local taxes fall more heavily on low-income people than they do on high income people. (See "Who Pays?  A Distributional Analysis of the Tax Systems in All 50 States", particularly the "Averages for All States" table on page 124 of 130), which shows that, on average, the bottom quintile of us pay 10.9% of our income in state and taxes, while the fourth quintile pays 8.5% and the top 1% pays just 5.2%, on average.

I am reminded of our concentration of income:

• 10% of us receive 47.19% of the before-tax income
• 20% of us receive 60.96% of the before-tax income
• 40% of us receive 79.14% of the before-tax income
• 60% of us receive 90.37% of the before-tax income [see middle-class agenda, on the next page of this blog]

So the bottom 40% of us receive less than 10% of the before-tax income.  And those who think they don't pay enough in taxes would like them to pay more into the system than they already do?   The problem is one of low wages, unemployment and underemployment.  The best solution to these problems I've come across lies in the ideas of Henry George.  The law of wages is something like the law of gravity: we operate in ignorance at our own risk.

Looters in Loafers - Krugman

More about what our best and brightest have been doing.  Are you old enough to remember the days when our b&b went into research, medicine, or engineering, or other roles in which they could put their talents to use for the benefit of their fellow human beings?  Krugman writes,

Sure enough, last week the Securities and Exchange Commission accused the Gucci-loafer guys at Goldman of engaging in what amounts to white-collar looting.

I’m using the term looting in the sense defined by the economists George Akerlof and Paul Romer in a 1993 paper titled “Looting: The Economic Underworld of Bankruptcy for Profit.” That paper, written in the aftermath of the savings-and-loan crisis of the Reagan years, argued that many of the losses in that crisis were the result of deliberate fraud.

Was the same true of the current financial crisis?

Most discussion of the role of fraud in the crisis has focused on two forms of deception: predatory lending and misrepresentation of risks. Clearly, some borrowers were lured into taking out complex, expensive loans they didn’t understand — a process facilitated by Bush-era federal regulators, who both failed to curb abusive lending and prevented states from taking action on their own. And for the most part, subprime lenders didn’t hold on to the loans they made. Instead, they sold off the loans to investors, in some cases surely knowing that the potential for future losses was greater than the people buying those loans (or securities backed by the loans) realized.

What we’re now seeing are accusations of a third form of fraud.

We’ve known for some time that Goldman Sachs and other firms marketed mortgage-backed securities even as they sought to make profits by betting that such securities would plunge in value. This practice, however, while arguably reprehensible, wasn’t illegal. But now the S.E.C. is charging that Goldman created and marketed securities that were deliberately designed to fail, so that an important client could make money off that failure. That’s what I would call looting.

Krugman concludes with,

The main moral you should draw from the charges against Goldman, though, doesn’t involve the fine print of reform; it involves the urgent need to change Wall Street. Listening to financial-industry lobbyists and the Republican politicians who have been huddling with them, you’d think that everything will be fine as long as the federal government promises not to do any more bailouts. But that’s totally wrong — and not just because no such promise would be credible.

For the fact is that much of the financial industry has become a racket — a game in which a handful of people are lavishly paid to mislead and exploit consumers and investors. And if we don’t lower the boom on these practices, the racket will just go on.

Perhaps if we make financial engineering less lucrative, some of the next generation of smart kids will find other ways to apply their talents.  They might even be able to grow the pie, instead of merely gobbling larger shares for themselves.

Hope rises for real financial reform - WaPo

How does wealth concentrate?  Let us count the ways ... Tell us again about the wonders of trickle-down economics, folks.  The trickle flows the other way: to the shareholders of our natural resources companies and the FIRE sector -- Finance, Insurance and Real Estate.  This article from the Washington Post gives some useful data.   $1 per gallon, going into the pockets of the oil companies and the too-big-to-fail speculating banks, and particularly their top "hired help,"  who are highly compensated whether or not their shareholders also make out well. 

(And if you've forgotten the statistics about stock ownership, read http://lvtfan.typepad.com/lvtfans_blog/2010/04/americas-wealth-distribution-2007-wealth-concentration-part-1-of-3.html and the data at the bottom of http://lvtfan.typepad.com/lvtfans_blog/2010/03/mason-gaffney-corporations-democracy-scotus.html and at http://lvtfan.typepad.com/lvtfans_blog/2010/01/farewell-to-c-lowell-harriss-professor-of-economics---dec-29-2009.html)

Harold Meyerson - Hope rises for real financial reform.

The Goldman Sachs scandal has done the unthinkable: It's made it possible that legislation reining in Wall Street's casino may actually be enacted.

The odds against real reform are still steep. Wall Street remains the most deep-pocketed lobby in the land. And the problem isn't just Republican opposition. "A lot of our members up here just want a bill passed," says one Democratic legislator. "They don't think that people are watching that closely. But this matters immensely to people. This is a which-side-are-you-on moment."

The clearest way for senators to demonstrate that they're not on Wall Street's side would be to support the bill that Arkansas Democrat Blanche Lincoln plans to bring before the Senate Agriculture Committee on Thursday. Going well beyond the bill that the House passed and the legislation that came out of Connecticut Democrat Chris Dodd's Senate Banking Committee, Lincoln's bill aims squarely at the big banks' most highly leveraged, profitable and risky-to-the-rest-of-us business: their trade in derivatives. (The Ag committee has jurisdiction because derivatives historically were used to trade commodities.)

Lincoln's legislation would require the firms that buy and sell derivatives -- 95 percent of such deals in the United States, according to the Comptroller of the Currency, are done by Goldman, Morgan Stanley, J.P. Morgan Chase, Bank of America and Citibank -- to do their trading openly on exchanges and to post some actual money behind their trades. Today, the market is unregulated. But if Lincoln's legislation passes, no longer would deals with the potential to threaten the nation's economic stability be invisible to regulatory agencies; no longer would businesses seeking to buy derivatives have to accept banks' terms with no ability to shop around or even ascertain the going price for such contracts. No longer would trades with foreign entities be exempt from regulation. And no longer would banks that our government backs up with deposit insurance and access to the Federal Reserve's discounted interest rates be able to put taxpayers on the hook for their speculative bets: They could either continue as derivative-trading casinos or as governmentally insured banks, but not both. In fact, Lincoln's bill goes a good deal of the way toward meeting Paul Volcker's proposal to remove banks' proprietary trading from the umbrella of federal protection.

On Tuesday, leaders of industries that actually need to lock in prices on real commodities -- in particular, oil -- went to the Senate to endorse Lincoln's bill.  "In 2008," said James May, president of the Air Transport Association of America, "we burned the same amount of fuel we burned in 2003, but we paid $42 billion more." The difference, he said, was the result of the vast increase in oil speculation carried on through derivatives. Over the past half-decade, for instance, the largest holder of home heating oil often has not been an energy company but, rather, Morgan Stanley. Such speculation, estimated Sean Cota of the Petroleum Marketers Association of America, has increased the cost of gas at the pump by about a dollar a gallon.

 "We need predictability in prices," Cota said Tuesday. "The banks want volatility. . . . Old-fashioned bonds built Hoover Dam, but they were paid off over many years. The banks are only interested in trades that pay off in the next 30 seconds. . . . They have no concern for the future of the larger economy."

Just another wealth-concentrating machine.  A $1 per gallon "tax" going to line the pockets of our smart and privileged, out of the pockets of ordinary working people.   And, by the way, any of those smart folks who die this year will be able to leave their estates to their heirs untouched by even "death taxes." 

There is no such thing as a free lunch.  Their windfall comes out of the pockets of the rest of us, not out of thin air.

Aren't markets wonderful?  I am reminded of the statement about neoclassical economists being rich peoples' useful idiots.