LVTFan's Blog

The Land Questions: #10 -- Broadcast Frequencies

10.   The advent of digital TV freed up many broadcast frequencies. What should we do with them?

A. Give them to the media companies, in proportion to their current share of market.  Let them decide what to do with them; after all, they are the experts.

B. Give them to the media companies, in proportion to their current share of market.  Let them decide what to do with them; after all, they created them!

C. Auction off the frequencies to the highest bidders, forever, with no further strings attached; they can hold onto them without using them if they choose, for as long as they like, or simply put a test pattern on the air, or whatever they prefer.  When demand rises and they believe they can make a high enough profit, they are welcome to sell them to the highest bidder, forever, and use the profits to enrich their deserving and smart shareholders.

D. Auction off to the highest bidder the licenses, for five year terms, with the auction to be repeated every five years, or the price to be set as a function of the size, wealth, income of the available audience.  Use the revenue to reduce taxes on productive activity.

E. Auction off to the highest bidder the licenses, for five year terms, with the auction to be repeated every five years, or the price to be set as a function of the size, wealth, income of the available audience.  Use the revenue to provide a dividend to every American, something like the Alaska Permanent Fund.

F. Your suggestions?

 

 

The Land Questions: #6 -- Airwaves, Spectrum

6. We say that the airwaves [over the US, that is] belong to the American people.  Who should get the economic rent on their value?

A. The American people, in the form of a Citizen's Dividend (similar to the Alaska Permanent Fund)

B. The American people, in the form of a reduction in payroll withholding for Social Security

C. Those who pay federal income taxes (about 75% of us pay more in withholding  for social insurance than we do in federal income taxes) in the form of a reduction of federal income tax rates -- starting from the bottom?  starting from the top?

D. The corporations which pay corporate income taxes, in the form of a reduction on corporate income taxes

E. The shareholders of the media companies, small, medium and large: let them keep that rent, or just tax it as we do now, as a corporate income tax, and then light taxes on dividends and capital gains

F.  The management of the various media companies, to the extent that they can negotiate good contracts for themselves.

G. The lobbyists for the media companies, to the extent that they are successful in preserving the privileges we currently grant the media companies, their management and shareholders

H. Your suggestion?

0-0-0-0-100

I have a family member who, when Herman Cain says "9-9-9," plays a sound bite of another voice shouting "nein! nein! nein!"

Georgists have a better proposal for how we ought to fund our common spending.

• 0% tax on wages
• 0% tax on sales
• 0% tax on corporate profits
• 0% tax on buildings and equipment
• 100% recovery of our commonwealth

This probably raises several questions in your mind:

• what is "recovery of our commonwealth"?
• how will it affect me?

Our commonwealth includes the value of land -- not the improvements made by the present or previous owner, but the value of the site itself, which is created by the gifts of nature; by the investment of the local, state and national communities in public goods and services (including most "pork"); by the presence of the community and its economic activity.  While good farmland may be worth $5,000 or $10,000 per acre, depending on climate and proximity to markets, suburban residential lots might be $35,000 to $1,000,000 -- or far more! -- per acre, and an acre in midtown Manhattan can be worth $250,000,000 or more.  The landholder doesn't create that locational value.

Our commonwealth includes the value of ecosystem services.  It includes the value of electromagnetic spectrum (the airwaves which most people would agree rightly belong to the American people, not to corporations).  It includes the value of water, particularly fresh water for drinking and water for irrigating crops and for corporate use.  It includes the value of government-granted privileges.  It includes the value of geosynchronous orbits -- those parking spots in space for satellites whose owners and customers would not want to see crashing into each other.  It includes the value of landing rights at busy congested constrained airports, such as LaGuardia or JFK, particularly at their rush hours.   It includes the value of scarce on-street parking in congested cities.  It includes the value of nonrenewable natural resources extracted from below the earth and the oceans, for 200 miles beyond our land borders.  It includes a whole range of other similar things.  

As you look at that paragraph, compare it to the 0-0-0-0 list above, and notice that it collects upfront certain values, and leaves the rest to those who produce.   It is direct taxation rather than indirect, and one could reasonably argue that it isn't even really taxation; rather it is more in the nature of a user-fee.

It is Natural Public Revenue.

Once one has sat with this idea for a while, it seems quite unnatural to permit the value to continue to accrue to private individuals, or to corporations publicly or privately owned, or to entities other than the community as a whole!

Recall how concentrated wealth is in the US: The 2007 SCF [the Federal Reserve Board's Survey of Consumer Finances] reported that aggregate net worth is "distributed" as follows:

• Top 1% of us have 33.8%
• Next 4% of us        26.6% [cumulative: 60.4%]
• Next 5% of us        11.1% [cumulative: 71.5%]
• Next 40% of us      26.0% [cumulative 97.5%]
• Bottom 50% of us    2.5%

Recall also that the Forbes 400 families are specifically and intentionally omitted from the SCF, and that Forbes estimates that they represent 2.5% of aggregate net worth. So add that 2.5% to the numerator and denominator.  And note, as Michael Moore did, that it is very similar to the value of the Net Worth of the bottom 50% of us.

And it seems quite unnatural to tax wages, and sales, and corporate profits, and buildings at all before we've fully collected Natural Public Revenue.

Will Natural Public Revenue be sufficient to meet all the needs of all levels of government? 

Quite possibly not, at least today when we are so reliant on a social safety net because current conditions have kept a significant share of our people from providing well for themselves.   But I regard it as altogether possible that within a generation or two, it could be quite sufficient, in part because it would have the effect of redistributing some of the wealth which today is pouring into the pockets of a relative few of us.

How much of corporate profits are coming from (quite legal) privatization of the value of natural resources, the value of being able to get away with polluting air, water and soil, and the value of other privileges which corporations -- public and private -- are used to enjoying?  One of the interesting findings in the SCF is that the value of privately held businesses [BUS] actually exceeds the value of publicly held ones [EQUITY] in household wealth -- and the value of both is highly concentrated:

                                    EQUITY          BUS              

[value, billions, 2007] $13,694.3    $14,893.7

• Top 1%            36.0%            62.7%
• Next 4%          30.5%            25.5%
• Next 5%            5.5%            12.4%
• Next 40%         19.6%             6.0%
• Bottom 50%       1.5%             0.4%

Source: http://lvtfan.typepad.com/lvtfans_blog/americas-wealth-distribution-2007-wealth-concentration-part-1-of-3.html, lines 19 and 28

Consider, too, how much more of this value the Forbes 400 have!   These two categories represent 21.2% and 23.1% of aggregate net worth held by the rest of us -- a total of 44.3%.  Most of the 2.5% is likely in these two categories.  I'll leave the math to you.

What's an intact tire and your car's alignment worth to you, per year?

How much is it worth to you to have the potholes and cracks in the roads in your town promptly filled in?  Probably roughly what it costs you to have each of your cars fixed a couple of times a year. 

So is it better for the local economy to (1) keep the tire retailers and alignment shops in business; or (2) to pay city employees or contractors to maintain the roads in a condition that minimizes damage to cars and tires?

Fans of small government might opt for the first choice.  Fans of individuals having more money to spend on discretionary purchases or to invest toward their own futures might opt for the second one.

Some things ought to be done by the community, and financed by the community.  

So how should we pay for this sort of public works?

• Should we impose sales taxes on goods sold within the town providing services?
• Should we impose a wage tax on workers within the town providing services?
• Should we tax the buildings within the town?
• Should we throw an extra tax on tobacco, alcohol, cell phone use, cable TV subscriptions, electricity use in the town?
• Should we tax all the cars and trucks garaged within the city limits?
• Should we tax the gasoline and diesel sold within the city limits?
• Or should we finance this by taxing the land value within the town limits?

If you're new to this concept, all these may make equal sense to you. (Indeed, some people argue for "balance" in taxation, or for spreading taxes across many tax bases in order to "keep rates low."  But I think there is one option that is far better than the others. 

Who benefits when we make it less expensive to live within a particular community than it would otherwise be, as we do by improving road maintenance?  Isn't it ultimately those who own land within the city limits -- the landlords (residential and commercial), the homeowners, the business community -- who benefit, both as individuals and as property owners, when people are more prone to drive in their community than in one which does not maintain its roads to the same standards?  Even those who don't own cars benefit.

Some would say that this fails to collect from the tenants -- residential tenants, commercial tenants -- who also benefit, but I'd have to disagree with that argument.  Their landlords can charge them more in the presence of such services than they could charge in the absence of that road maintenance.  Should that benefit accrue to the landlords, or should it be passed through to the community whose spending created it?

I'll return to something a Tennessee business man wrote to his governor in 1873:

"Never tax anything
That would be of value to your State,
That could and would run away, or
That could and would come to you."

The same is true of individual towns, too.   Don't tax jobs, or workers, or buildings, or equipment, or products.

This is not a reason not to raise public revenue; rather, it is a reason to think carefully about what should be taxed -- and what should not be.  Charge for that which the community's presence and activity creates, and the privilege of using that which nature or community provides in limited supply, e.g., water, electromagnetic spectrum, geosynchronous orbits, minerals, oil, natural gas; privileges like franchises for monopolies; landing rights at congested airports; on-street parking; etc.

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? 

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.

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.

Bits and Pieces from a 1914 Bi-Monthly

The bi-monthly to which I refer is The Single Tax Review, whose 1914 volume Google Books has digitized.   Here are some of the goodies I appreciate on this reading:

In fact, if a nation spends great sums in improving roads and canals and bettering the public services, these heavy expenditures increase the value of the nation's land, and this increase is taken by the landlords. If artisans, tradesmen, producers of all kinds concentrate in a locality, the money they spend on building, on the costs of living, their activity and even their presence is sure to increase the well-being of the inhabitants of this locality, a result translated into an increase of land values which the landowners pocket. If a manufacturer builds a factory in an uninhabited spot and constructs dwellings for his workmen it may result in ruin for him if he has not carefully calculated his chances, but in the meantime he will have increased the value of the surrounding land and enriched the landlords.

And this: 

Now here are a few propositions, and a question:

(1) The area of the world's surface is fixed beyond the possibility of adding thereto.

(2) The population of the world is increasing.

(3) The two preceding facts make it inevitable that particular tracts and sites of land will be increasingly more desirable than others.

(4) All of the land is for all of the people; therefore those who wish to occupy the more valuable tracts and sites, should pay the value thereof into a common fund for the use of all the people.

(5) Every man has a natural right to the products of his labor.

(6) Confiscation by the State of any man's labor is a clear violation of a natural right; therefore our present system of taxation is fundamentally wrong. (And the fact that taxes under the present system cannot possibly be, nor have ever been, equitably assessed, is only a logical sequence of violation of verified truth.)

(7) Taxes on any commodity made by individual labor is a tax on individual labor.

(8) Taxes on that which no man has made, which no man can make and -which, therefore, no man has earned, is not a tax on labor.

(9) When the wealth which is created by population is used for public purposes and not for up-building of private fortunes, and when public revenues no longer represent confiscation of the rewards of labor, we shall have taken the road which leads towards pure democracy, and not before.

The foregoing are Single Tax propositions. The Question is: In whose pages, other than those of Henry George, can our friends, the professional economists, find a body of principles of greater "scientific value" than the above propositions? If not in the pages of Henry George, where will they find ideas of greater "scientific value" than those which are directly deducible from self-evident truths?

Paring the Deficit, by Selling Part of the Radio Spectrum

Economic View - Paring the Deficit, by Selling Part of the Radio Spectrum - NYTimes.com.

I'd missed the article when it was published a week ago, but an LTE brought it to my attention.  The author is Richard Thaler, a professor of economics and behavioral science at the newly re-named business school at the University of Chicago (forever to be recalled as GSB by some, despite stern orders in the alumni rag).

He proposes auctioning off "The Buried Treasure in Your TV Dial."  But he isn't suggesting leasing it for some finite period of time, with a new auction at the end of, say, 5 or 10 or 15 years, but selling it forever.   As one of the LTE's says,

Re “The Buried Treasure in Your TV Dial” (Economic View, Feb. 28), in which Richard H. Thaler cites an estimate that the government could reap $100 billion by auctioning the portion of the radio spectrum used for over-the-air television:

How long would such a sum last, however, in an era of military adventures and over 700 foreign military bases? What would be permanent is the loss of both choice and the free reception of radio and television programming. Ownership of electronic media, and access to the privatized airwaves, would be as concentrated as cable and satellite systems are today.

The column says that such an auction would have many national benefits. But virtually all them, like faster broadband connections for schools, could be obtained by federal policy, not a fire sale.

Those airwaves belong to the American people, and the American people ought to be collecting full rent on them -- year in, year out -- not giving away licenses and then permitting corporations to make a business in re-selling or leasing out what they choose not to use.

Here's Thaler's article.  I look forward to his next suggestions; he has the germ of a good idea, but gets a very important aspect of it wrong.  Don't sell our common asset to anyone.  AUCTION OFF LEASES.  Wait 5 years.  Repeat.

HERE’S a list of national domestic priorities, in no particular order: Stimulate the economy, improve health care, offer fast Internet connections to all of our schools, foster development of advanced technology. Oh, and let’s not forget, we’d better do something about the budget deficit.

Now, suppose that there were a way to deal effectively with all of those things at once, without hurting anyone. And suppose that it would make everyone’s smartphone work better, too. (I’ll explain that benefit shortly.)

I know that this sounds like the second coming of voodoo economics, but bear with me. This proposal involves no magical thinking, just good common sense: By simply reallocating the way we use the radio spectrum now devoted to over-the-air television broadcasting, we can create a bonanza for the government, stimulate the economy and advance all of the other goals listed above. Really.

The reason for this golden opportunity may be in your purse or pocket: that smartphone to which you could well be addicted. The iPhone, the BlackBerry and competing devices are already amazing technologies. But precisely because of the nifty features they offer, like the ability to text photos, stream video and provide GPS directions, the radio spectrum is looking as crowded as Times Square on New Year’s Eve. Demand for spectrum is growing rapidly — a trend that will surely continue.

The problem is that the usable radio spectrum is limited and used inefficiently. Think of it as a 100-lane highway with various lanes set aside for particular uses, including AM and FM radio, TV and wireless computer technology. The government — specifically, the Federal Communications Commission — is in charge of deciding which devices use which lanes.

Because we can’t create additional spectrum, we must make better use of the existing space. And the target that looks most promising in this regard is the spectrum used for over-the-air television broadcasts.

These frequencies are very attractive on technological grounds. People in the industry refer to them as “beachfront property” because these low-frequency radio waves have desirable properties: they travel long distances and permeate walls. We have already allocated parts of this spectrum for mobile wireless, and the F.C.C. recently auctioned other parts for $19 billion. That has left 49 channels for over-the-air television.

Why is the current use of this spectrum so inefficient? First, because of the need to prevent interference among stations, only 17 percent of it is actually allocated by the F.C.C. for full-power television stations. (The so-called white space among stations is used for some limited short-range applications like wireless microphones.)

Second, over-the-air broadcasts are becoming a nearly obsolete technology. Already, 91 percent of American households get their television via cable or satellite. So we are using all of this beachfront property to serve a small and shrinking segment of the population.

Suppose we put this spectrum up for sale. (The local stations do not “own” this spectrum. They have licenses granted by the Federal Communications Commission.) Although the details of how to conduct this auction are important, they don’t make compelling reading on a Sunday morning. Interested readers should examine a detailed proposal made to the F.C.C. by Thomas W. Hazlett, a professor at the George Mason University School of Law who was formerly the F.C.C.’s chief economist.

Professor Hazlett estimates that selling off this spectrum could raise at least $100 billion for the government and, more important, create roughly $1 trillion worth of value to users of the resulting services. Those services would include ultrahigh-speed wireless Internet access (including access for schools, of course) much improved cellphone coverage and fewer ugly cell towers. And they would include other new things we can’t imagine any more than we could have imagined an iPhone just 10 years ago.

But some compelling technology that could use these frequencies already exists, like wireless health monitoring — to check diabetics’ blood sugar regularly, for example — and remote robotic surgery that can give a patient in Idaho a treatment like that available in New York or Chicago.

Who would oppose this plan? Local broadcasters are likely to contend that they are providing a vital community service in return for free use of the spectrum that was put in their hands decades ago. Whether the local news or other programs are vital services is up for debate, but their value isn’t the issue, because they can be made available via cable, satellite and other technologies, including improved broadband.

Say there are 10 million households that still get their television over the air, including those that can’t afford cable or satellite and some that generally just don’t care for what’s on TV. (Yes, there are people who don’t like “American Idol.”) But about 99 percent of these households have cable running near their homes, and virtually all the others, in rural areas, could be reached by satellite services. The F.C.C. could require cable and satellite providers to offer a low-cost service that carries only local channels, and to give vouchers for connecting to that service to any households that haven’t subscribed to cable or satellite for, say, two years.

Professor Hazlett estimates that $300 per household should do it: that amounts to $3 billion at most. Compared with the gains from selling off the spectrum, it’s a drop in the bucket. Or, as an interim step, we could reduce the number of channels available in a community from 49 to, say, 5.

I KNOW that this proposal sounds too good to be true, but I think the opportunity is real. And unlike some gimmicks from state and local governments, like selling off proceeds from the state lottery to a private company, this doesn’t solve current problems simply by borrowing from future generations. Instead, by allowing scarce resources to be devoted to more productive uses, we can create real value for the economy.

Economists are fond of saying that there is no such thing as a free lunch. Here we have an idea that is even better than a free lunch: being paid to eat lunch. More paid-lunch ideas will be coming in future columns.

The classical economists might never have heard a radio or seen a television, but they'd immediately recognize broadcast spectrum as "land" -- a gift of nature, finite and scarce -- and would have regarded it as our common treasure.  Unfortunately, Professor Thaler is not a classical economist.  He is a neoclassical economist, and his training in economics probably glossed over the truths the classical economists saw.  And quite likely, that's how he teaches the subject, too.

We can concentrate more wealth in the hands of a few corporations, or we can collect the economic rent on this scarce and valuable resource.  (See also Alaska Permanent Fund, in the topic cloud at left.)

I hope we'll do the latter.

So is the Woodstock Generation going to fix America's most serious problems?

I was a rising senior in high school when Woodstock took place. A fellow waitress in the local deli in which I worked -- Max for Snacks, in King of Prussia, PA -- took off for Woodstock, and the rest of us dreamed of doing so. 

We thought we could change the world.  Many had a vision of a society in which all could prosper, all could succeed.  We sang, we danced, we applauded, we protested.  Gradually we worked our way up.  We educated ourselves, we bought homes, we had children -- not always in that order -- and we became part of the establishment.  We bent the establishment, a bit, perhaps, to our advantage.

But we didn't correct the problems, and arguably, we let them grow worse.  We watched as the benefits of public investment -- local, muncipal, county, state, federal -- accrued not to all of us but to those who own our land and claim title to our natural resources.  We permitted corporations and individuals to lay claim to our common resources, we who grew up hearing about Jed Clampett being somehow entitled to the oil revenue, to the exclusion of the rest of us.

We're so used to the way this aspect of the world was handed to us that few of us think to question it.  And yet the privatization of the economic value of urban land and the privilege of collecting the revenue on non-renewable natural resources on which all of us are dependent together produce some of our most serious social, economic, environmental, poverty and justice problems.  Most wars are fought over these two things.

And until we come to recognize this, all we can do is put bandaids on those problems -- locally, nationally and globally.

These two things are what someone wisely referred to as "Natural Public Revenue" sources.  Yet we largely ignore them, and use taxes which set up perverse incentives -- and wonder why we can't seem to solve any of our biggest problems.

Book Review -- Unjust Deserts: How the Rich Are Taking Our Common Inheritance and Why We Should Take It Back

Polly Cleveland (the Georgist who surprised me some years ago when she told me that she'd initially found Progress & Poverty to be a page-turner, a major contrast to my experience on first reading it) sent out this book review this morning, and, with her permission, I am sharing it here.

REVIEW Unjust Deserts : How the Rich Are Taking Our Common Inheritance and Why We Should Take It Back, by Gar Alperovitz and Lew Daly

Isaac Newton and Gottfried Wilhelm von Leibniz simultaneously invented calculus in the 1670's. As Isaac Newton wrote, "If I have seen far, it is because I have stood on the shoulders of giants." Charles Darwin mulled over the origin of species for 20 years until jolted into publication by the arrival of a manuscript from Alfred Russel Wallace.

Great geniuses and great entrepreneurs make the strongest possible case for outsize rewards based on merit. Yet as Alperovitz and Daly argue, these giants drew their ideas from society around them. And they were often very lucky. For almost any modern invention, there are several potential claimants -- even if only one actually got the patents.

The authors review the writing of a long line of the economists and philosophers, starting with John Locke, Adam Smith, David Ricardo, John Stuart Mill and Henry George, through Thorstein Veblen, Edwin Cannan and Frank Knight to modern economists and philosophers including Robert Solow, John Rawls and Amartya Sen, as well as economic journalist David Warsh. From these, they develop three basic propositions:

• First, from Locke: that an individual has a right to that which he actually creates by his own unique efforts.
• Second, from Ricardo: the demonstration that unearned income -- economic rent -- is created not by individuals but by external forces.
• Third, from Mill and others: the judgment that such income should belong to society as a whole.

Alperovitz and Daly add their own original fourth proposition: the more advanced a society becomes, the more each of us depends not only on those around us but also on those who came before -- and bequeathed to us their knowledge. Moreover, "this past buildup of knowledge should be treated as a common inheritance." The wealthier our society becomes, the less any individual can rightfully claim a large share of the wealth. That makes our present growing inequality profoundly unjust.

Georgists will find this book a treasure trove of arguments and quotations from scholars, obscure and famous, expressing views similar to those of George. For example,

• in 1854, Scottish philosopher Patrick Edward Dove wrote that the "principle of allocating the rent to the community, instead of to individuals" would "secure to every laborer his share of the previous labors of the community."

• And from George's contemporary, Edward Bellamy, "All that a man produces today more than his cave dwelling ancestor he produces by virtue of the accumulated achievements inventions and improvements of the intervening generations together with the social and industrial machinery which is their legacy."

According to George, wages depend upon the margin of cultivation, "the highest natural opportunities" open to labor. Drawing from George, John Bates Clark created his theory that factors of production receive their marginal product, wages for workers and interest for capital. (Clark merged land with capital.) But Clark turned the marginal product argument against George, claiming that workers in fact deserved what they were paid. Of course Clark ignored George's central theme: that the margin in turn depends upon the distribution of land ownership. Alperovitz and Daly add a further rebuttal to Clark, citing a 1914 article by Walter Adriance, that Clark's error lies in "not attributing to the cooperation of the rest of the group any part of the so-called 'marginal product.'"

Alperovitz and Daly offer the usual liberal proposals for income and inheritance tax reforms, with which I don't disagree. But although they identify economic rent as rightly belonging to society, and cite George several times, they suggest no direct strategies for collecting rent for public purposes. In fact, they even claim "skyrocketing" property taxes burden the middle class! If we really hope to take back our common inheritance, we must strengthen the property tax, which is our original wealth tax. And we must go after rent wherever it pops up -- not just land titles, but oil leases, broadcast licenses, patents, bank charters, pollution "rights", fishing quotas, even taxi medallions!

&&&&&&&&&&&&&&&&&

I send Econamici--occasional emails with interesting attachments or links--to friends who are economists or care about economic issues. If you can't follow a link, I can send you the actual article. Please let me know if you want to be removed. Past Econamici are posted to www.georgiststudies.org and www.dollarsandsense.org.

The UK Rich List -- some additional thoughts -- with reference to America, as well

I spent some more time going through the 2000 or so entries on the UK "Rich List," which starts at http://business.timesonline.co.uk/tol/business/specials/rich_list/rich_list_search/.  (See the blog entry below for further comments.)

The top 25 entries, whose 2009 holdings range from £10,800m down to £1,400m, include 16 which came from

• oil
• steel
• property
• mines
• metals
• water
• diamonds and
• mining.

The combined value of the top 25 fortunes is £73.88 billion.  At 5% per year, that produces £3.7 billion in income -- quite a sizable amount to be shared among 25 families!  (£1,400m is $2.1 billion US; £3,700m is $5.6 billion US.)

Notice that each of these fortunes is fundamentally from natural resources.  Yes, there is capital involved, and labor.  But under the laws of most countries, natural resource holdings and extractions are taxed lightly if at all, and labor is taxed heavily.

The Rich List

I'm playing catch-up, after having been occupied with other work for the past month or so, and came across some articles from UK publications listing the sources of wealth for the 2000 or so most wealthy people in the UK. 

I shouldn't be surprised how many of these fortunes come from land, from "property," from oil, minerals and other natural resources.  But this is striking validation of what Henry George told us in 1879, and Winston Churchill told us 100 years ago.   See http://business.timesonline.co.uk/tol/business/specials/rich_list/rich_list_search/

See a few entries down, where Michael Kinsley laid it out this way in the Washington Post:

Perusing the Forbes 400 list of America's richest people, it's striking how few of them made the list by building the proverbial better mousetrap. The most common route to gargantuan wealth, like the route to smaller piles, remains inheritance. The ability to pass money along to your kids may motivate many a successful executive or investor to work harder, but it can't possibly motivate those kids to inherit harder in order to pass it along once again.

Dozens of Forbes 400 fortunes derive from the rising value of land or other natural resources. These businesses are fundamentally different from mousetrap building. Land does not need to become "better" to increase in value, and that value increase doesn't produce more land. Yet other fortunes depend directly on the government. The large fortunes based on health care and pharmaceuticals would not exist if not for Medicare and Medicaid. The government hands out large fortunes even more directly in forms as varied as

• cable-TV franchises;
• cellphone licenses;
• drilling, mining and mineral rights;
• minority small-business loans; and
• other special treatment.

We must conserve the earth -- yes.  But we must also share its bounty with all, not permit the privatization of that bounty.  Henry George put it this way:

We sail through space as if on a well-provisioned ship.  If food above deck seems to grow scarce, we simply open a hatch -- and there is a new supply. And a very great command over others comes to those who, as the hatches are opened, are permitted to say: "This is mine!"

Actually, that's from a recent (2006) modernized abridgment by Bob Drake, available at http://www.progressandpoverty.org/ or http://hgchicago.org/audio.   Here's HG's 1879 original:

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

In case it isn't obvious, I'm not opposed to fortunes which come from creating better mousetraps!  I'm quite in favor of them.  But we need to distinguish between what monopoly privilege creates, and what hard work creates, and LVT does that.

Michael Kinsley - The Senate's Estate Tax Debate

Michael Kinsley - The Senate's Estate Tax Debate - washingtonpost.com.

The online article is titled "Democrats for Rich Heirs?":

But why the populist fury over those AIG bonuses of a few million dollars while no one seems to care much about billions being transferred through inherited wealth? The obvious answer -- that there's a difference between what people do with our hard-earned money and what they do with their own hard-earned money -- isn't actually as persuasive as it seems.

Perusing the Forbes 400 list of America's richest people, it's striking how few of them made the list by building the proverbial better mousetrap. The most common route to gargantuan wealth, like the route to smaller piles, remains inheritance. The ability to pass money along to your kids may motivate many a successful executive or investor to work harder, but it can't possibly motivate those kids to inherit harder in order to pass it along once again.

Dozens of Forbes 400 fortunes derive from the rising value of land or other natural resources. These businesses are fundamentally different from mousetrap building. Land does not need to become "better" to increase in value, and that value increase doesn't produce more land. Yet other fortunes depend directly on the government. The large fortunes based on health care and pharmaceuticals would not exist if not for Medicare and Medicaid. The government hands out large fortunes even more directly in forms as varied as

• cable-TV franchises;
• cellphone licenses;
• drilling, mining and mineral rights;
• minority small-business loans; and
• other special treatment.

LVTfan here: The privilege of calling OUR natural resources MINE is a major one, and we're so used to it that we don't even notice it.

The oil revenue  (and other like revenue -- see Mason Gaffney's article, The Hidden Taxable Capacity of Land for a listing of some of the things which the classical economists would recognize as land), that currently flows to individuals -- be they Jed Clampetts, or large property owners rural or just choice-land owners urban -- or corporations (ditto!) should be treated as OURS.  Then we wouldn't need to tax wages so much -- and maybe not at all.

And we'd all have an equal opportunity under such a scenario.

About Land Value Taxation

If you spend some time reading this blog, you might come away thinking that I believe that land value taxation is a cure-all, a panacea. (See the "topic cloud" in the left sidebar.)  But that isn't the case. 

However, I have come around to the point of view that many of our most serious social, environmental, economic and justice problems are not going to be solved -- cannot be solved! -- without the enactment of land value taxation.

That sounds extreme, particularly to those who have never heard of LVT or who have read little about it.  

So many of our most serious problems ultimately find their root in the privatization of the natural creation -- that which the classical economists called land, including things that the classical economists would have known nothing about, but would immediately recognize: electromagnetic spectrum, geosynchronous orbits, landing rights at LaGuardia (particularly at rush hour), etc..

Let me be more specific.  It isn't the privatization of land, or oil resources, or minerals, or geosynchronous orbits, or water rights themselves that is the problem.  Secure title is necessary and important.  Rather, the problem is that the economic value of these common resources is currently treated as private treasure rather than as our common asset.   But we need revenue for public purposes, so we then tax sales and wages and interest.  But those who need land pay others for it (unless they inherited the rights to it) either in the form of rent or in the form of a lump sum, and then are burdened with the sorts of taxes which depress the economy and steal from them that which they produced (in addition to the significant costs of servicing the debt related to that lump sum payment).

Land, in all its forms, is not of human creation.  We can't create more of it in response to an increase in demand.  In particular, we can't create more land downtown, where it is served by awesomely important infrastructure that took decades and millions or billions to build.  We can't create more water, or more frequencies on FM or AM radio. Yet we permit the privatization of the economic value of these and other like vital and fabulously valuable common assets.

Were we to shift our taxes off productive effort, off sales, off buildings, and onto all these things called "land value," we would be on our way to solving many of our environmental problems, our social problems, our economic problems, urban sprawl and its concommitants, and many of our justice problems. We'd have a more efficient economy, a more vibrant one, without the excess burden (deadweight loss) our current system creates.  We'd have opportunity, jobs, a growing pie, and lose the boom-bust cycle which plagues us.

Change.gov

The new administration is seeking comments.   I'd like to believe they'll be read.  Here's what I posted at http://change.gov/ under "economy":

We need to shift taxes OFF productive effort and ONTO land value and natural resources.    Doing so will have a wide range of benefits.

Progress, and Poverty -- how do they relate?

I suspect that many people relate these two words, without quite knowing why.  A google alert on the two words brings me 4 to 6 items a day which mention the two words fairly close together.  In many the context is "We're making progress against poverty."  In others, the context is more like "we're making progress in many areas, but little progress against poverty." 

Putting those two words into the search field at Amazon yields these books:

• The Poverty of Progress: Latin America in the Nineteenth Century by E. Bradford Burns (1983)
• Progress, Poverty and Exclusion: An Economic History of Latin America in the Twentieth Century (Inter-American Development Bank) by Rosemary Thorp (1998)
• Poverty and Progress: Social Mobility in a Nineteenth Century City (Joint Center for Urban Studies) by Stephan Thernstrom (1981)
• Poverty, Progress, and Population by E. A. Wrigley (2004)
• Poverty and Economic Issues (Africa: Progress & Problems) by Tunde Obadina (2006)
• Progress and Poverty: An Economic and Social History of Britain 1700-1850 by Martin Daunton (1995)
• The Other Bostonians: Poverty and Progress in the American Metropolis, 1880-1970 by Harvard University Press (1999)
• Poverty and social progress, by Maurice Parmelee (1926)
• Poverty and Progress (Down to Earth) by Fred Martin and Aubrey Whittle (1990)
• Poverty and Progress in the Caribbean, 1800-1960 (Studies in Economic & Social History) by J.R. Ward (1985)
• Progress, Poverty and Population: Re-reading Condorcet, Godwin and Malthus by John Avery (1997)
• The Time Has Come: To Confront the Tragedy of World Poverty Through Centers of Village Progress by James Mayfield (2006)
• Poverty and Progress in the U.S. South since 1920 (European Contributions to American Studies) by Suzanne W. Jones and Mark Newman (2006)
• Profits, Progress and Poverty by Richard N. Farmer (1985)
• Poverty and progress;: An ecological perspective on economic development by Richard G Wilkinson (1973)
• Poverty Reduction and the World Bank: Progress in Operationalizing the Wdr 2000/2001 by World Bank (2002)
• The Developing Nations Poverty and Progress (Volume 41, Number 1) by Irwin (Editor) Isenberg (1969)
• Poverty and Progress in New Zealand by W. B. Sutch (1969)

All of these books together can not have come close to the sales of Henry George's 1879 book, Progress and Poverty: An inquiry into the cause of industrial depressions and of increase of want with increase of wealth; the remedy.  By the turn of the century, over 6 million copies had been sold, it had been translated into 30 or so languages, serialized in newspapers in a number of countries. [6 million copies would be a large number today ... think of it in 1885!] Today, there are at least two foundations, created by industrialists of another era (using identical language), whose missions are to share Henry George's ideas, as expressed in Progress & Poverty -- the Robert Schalkenbach Foundation (based in NYC) and the Lincoln Foundation (with offices in Cambridge, MA), founded, respectively, by a printer and an electric utility magnate.  Joseph Fels, of the Fels Naptha soap company (and brother of the endower of the Fels Planetarium at Philadelphia's Franklin Institute) also devoted much of his mature years to promoting these ideas. 

George's Progress & Poverty was the #2 best seller of its decade, second only to the Bible, and the "progress" in its title helped inspire the Progressive movement.  Anyone in English-speaking countries who read at all was likely to be familiar with its ideas, and George was an effective speaker who traveled widely.  In NYC, he ran twice for mayor; the first time, he lost to Abram Hewitt (the Tammany Hall candidate) in 1886, but beat out the 29-year-old Theodore Roosevelt (whose Bull Moose Party platform about 25 years later looked remarkably Georgist; it is said TR learned his George at San Juan Hill, from a hero who died there); the second time, he died a few days before election day in 1897.  His funeral was among the largest ever in NYC.  (Search the NYT's free archives for articles.)

So what sets Henry George's Progress & Poverty apart from the other books which mention those two words in their titles?  Why did he choose that title?  What is the relationship between these two aspects of our society?  Is it a necessary relationship, ordained by immutable natural forces or laws of economics, or is it something created by human structures, and therefore something we can alter?

George saw clearly something that others had seen through a glass darkly.  He laid it out clearly in Progress & Poverty.  Extend your education by reading this book.  It will probably change your mind and your vision forever, and if enough of us understand the workings of the poverty machine, we will be able to retool it, and leave our children a better world, and a country which genuinely lives up to its ideals.

Progress and Poverty.  You might also want to go read the first essay in George's second book, Social Problems.  It is very timely.

I'm not thrilled with our choices in November

I hate the idea of voting for the lesser of two evils because the other candidate scares me more.  I like the rhetoric of one party better than that of the other, but I don't regard either one of the parties or the presidential slates as being good choices. 

I am unable to vote for the libertarian candidate because they pandered to the people who think they should be able to insert themselves into the relationship and decision-making between a woman and her doctor.  They aren't serious about what they claim to stand for.

When I cast my vote, it will because of the sort of Supreme Court nominations I think each is likely to make.   It will be because one candidate seems less likely to fly off the handle than the other.  It will be because I am far more comfortable with one VP nominee than the other, and with the sort of judgment that went into the choice.  It will be because I think one candidate is likely to be consulting people who mean somewhat better for the ordinary American's interests than does the other party, despite both being largely ignorant about how things actually work and how we might intervene to make things more just and more efficient.  It will be because one presidential candidate is a high-stakes gambler, a man who called his wife names he acknowledges are offensive (google "trollope" with his name for more detail), a man with little foresight or depth.  It will be because I prefer a president with a grasp of and respect for constitutional law, particularly after one who abused us with his signing statements.  It will be because one candidate may have some serious health problems which to date he has not considered the business of the voters.  It will be because I care about how the other 95% of the world regards us. It will because I think one slate is more likely to be reality-based than the other, even if neither of them have really good lenses through which to understand reality.

Can I suggest lenses that will clarify their understanding of reality?

Absolutely.  Start with some of Henry George's speeches ... The Crime of Poverty, Thou Shalt Not Steal and Thy Kingdom Come.   Move next to Bob Andelson's essay, "Henry George and the Reconstruction of Capitalism."  Then read Progress and Poverty and Social Problems, a collection of essays.

Am I sufficiently indifferent between the two major party candidates that I will write in the sort of candidate I want?  No.  For me there is enough difference that I must vote for one of them, and continue working to promote my best understanding of how we can transform America into the country we say it is and is meant to be.    

Democracy is not enough to produce widely-shared prosperity.  And our current form of capitalism, which might reasonably be termed land monopoly capitalism, is a poverty machine, a wealth concentration machine -- but a machine which can be very easily transformed into a machine to produce broadly shared prosperity.  All we need is an understanding of the mechanics of that machine, and we'll be on our way to retooling it.  We need to understand which sorts of wealth ought to be socialized, and which ought to be privatized, and then to act on that understanding.

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

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

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

Pulitzer Prize Winner Stresses Ethical Taxation

Pulitzer Prize Winner Stresses Ethical Taxation. Pulitzer Prize Winner Stresses Ethical Taxation September 29th, 2008 · Events · Posted by Behnaz Abolmaali

The fundamental starting point for democratic government began with taxation, said David Cay Johnston, a Pulitzer Prize-winning author and former New York Times investigative journalist, during a speech to McCombs accounting students Sept. 24.

Johnston, who came to UT as part of the Lyceum Speaker Series, told students that the ideas about taxation and society that have prevailed since Ronald Reagan’s time favor a system in which money is systematically funneled from the poor to benefit the rich.

“People who think that taxes are a cost will do virtually anything to eliminate that cost,” Johnson said. “Taxes are not a cost. Taxes are a moral obligation.”

The ancient Athenians, he said, developed democracy by instilling a guiding moral principle in tax laws: that the greater the wealth one has built up, the greater their moral obligation to helping society continue.

As readers of this blog know, I am a great admirer of David Cay Johnston.  I generally think he is on the right track, and/but (shifting metaphors and transportation systems) think he has some blinders on.

In the quote in the preceding paragraph, I think he is bringing up a vitally important matter, but he hasn't followed it to its logical root, and is thereby missing perhaps the most vital aspect of the subject.

Democratic Capitalism ...

Democratic capitalism has given us highly concentrated wealth (source: 2004 SCF, data here):

• the top 1% of us have 33.38% of the net worth (29.5% of the assets);
• the next 4% of us have 24.13% of the net worth (22.2% of the assets);
• the next 5% of us (the remainder of the top 10%) have 11.99% of the net worth (11.4% of the assets);
• the next 40% of us (the remainder of the top half) have 27.95% of the new worth (31.0% of the assets) -- offset by 48.6% of the debt;
• the bottom 50% of us have 2.54% of the net worth (5.8% of the assets -- offset by 24.2% of the debt.

and highly concentrated income (source: Piketty and Saez, 2006 data, Table A3 -- including capital gains)

• the top 1% of us have 22.90% of the income;
• the next 4% of us have 15.51% of the income;
• the next 5% of us (the remainder of the top 10%) have 11.27% of the income;  
• the bottom 90% of us have 50.34% of the income.

And while the top 1% of wealth holders are not precisely the same people as the top 1% of income recipients, there is probably a fair amount of overlap in the top 5% groups.   And, more important, it is quite likely that most of the people in the bottom 50% of the wealth distribution (who in aggregate 2.54% of the net worth) are also in the bottom 50% of the income distribution, which in aggregate likely has less than 10% of the nation's income.  In other words, these low income people are not living off their wealth.

Tell me again about the virtues of Democratic Capitalism, please.

I'm in favor of democracy, and in favor of free market capitalism.  But what we are experiencing is not free market capitalism.  We permit some of us to treat valuable land and natural resources, and the economic value of these vital and scarce assets, as their own treasure, rather than as common treasure.

What we need is to end land monopoly capitalism.

We all contribute to rent. Some of us get to live off it. How does this fit with the notion that we are created equal?

Rent is something most of us give little thought to, and most of those who think about it are not thinking about the sort of rent to which I refer.  The rent I'm talking about is not the payment which goes from tenant to landlord each month.

Rather, the rent to which I refer is the return to land, just as wages are the return to labor and interest is the return to capital.  And, just to expand it a bit further, "land" in this usage refers not just to the sites under our feet, but equally to the remainder of the natural creation and to that which our common investment in infrastructure and services has added to the natural creation: the access created by bridges, highways, railroads, subways, airports, river locks, etc, the value created by schools, parks, public health, courts, systems set up to respond to individual and widescale emergencies, etc.  Land includes natural resources, such as oil, water and air, the electromagnetic spectrum (those airwaves that belong to the American people); airport landing slots (where demand exceeds supply), etc.  

Rent happens.  It happens whenever more than one party wants to use a specific piece of land.  Who should benefit from it?  A small group of us? the first to arrive? Or all of us? 

A Budget is a Moral Document

A few days ago I received a mailing from a friend, incorporating (with permission) something I wrote a while ago, and had mostly forgotten about.  I think it is worth sharing here; I'll expand on bits and pieces of it, as the spirit moves me.

It has been said that a budget is a moral document.  Usually that is construed to refer to the spending side of the budget.  But it is equally and importantly true of the revenue side.  When we tax the wrong things, we get undesirable effects.  When we fail to tax that which we should tax, we get undesirable effects as well.  [I might add that an individual's revenue which comes from stealing from others is also a very poor idea -- even when the theft is legal!  Chattel slavery certainly fit in this category, as did the industrial slavery Douglas Blackmon described in his recent book.]
    
With other Georgists, I seek a shift in how we tax ourselves which will produce a better world for all of us. Land value taxation will have important effects in many areas which concern most Americans:

• slowing, stopping and reversing urban sprawl
• urban blight
• improve wages, without raising the cost of living
• spur job creation -- here
• poverty eradication
• wealth concentration
• education funding
• reduce long commutes
• excessive energy usage
• reducing greenhouse gases
• economic development
• infrastructure finance
• boom-bust cycle

The term LAND includes not just the value of urban land, which is huge (and currently underreported and thus ignored, despite being the underlying source of huge fortunes), but also the rest of the natural creation ...

• broadcast spectrum -- those airwaves which we all say (complete the sentence)  ... belong to the American people, but which have been sold to corporations
• water rights (ditto)
• natural resources, particularly the non-renewables
• congestion in the skies and at location³ airports
• geosynchronous orbits
• and many others -- see Mason Gaffney's paper, The Hidden Taxable Capacity of Land: Enough and to Spare, here

Land Value Taxation (LVT) can solve a lot of problems and set the stage for solving many others.  Most of us believe that without this taxation reform, none of these problems are solvable; all we can do is place small bandages on them and spend a lot of money on programs which help relatively few victims.

We seek a society with NO VICTIMS.

Being born into the Landed Gentry is like holding the winning lottery ticket

The Ianded gentry ...  sounds so noble ... so gentle ...  so aristocratic .... so entitled!

What is it about? 

Valuing life, and applying fiscal stimulus, and setting us all equal

If we are going to claim to value every life, and encourage every pregnant woman to bring every fetus to term, we need to acknowledge that every child born is the equal of every person already born.  Interestingly, Alaska has been doing something important in this regard, for more than 20 years.

Every man, woman and child who lives in Alaska receives an annual income from the Alaska Permanent Fund, which represents dividends from the invested proceeds of Alaska oil revenue, and which, if properly managed, will continue to provide an annual income for every Alaska long after the oil has all been tapped. And Alaska's governor has had the fortitude to increase the share of the public in Alaska's oil revenue due to the high price of oil. (See another post on the subject from a few days ago.)

(And much of Alaska's state government spending comes from oil revenues, too.)

Our oil is not the only resource that needs to be treated this way.  Urban land values can be hundreds of thousands of times the value of an acre of agricultural land.  There is an acre in Manhattan said to be worth $400,000,000 to $1,100,000,000 -- as a teardown.  If we were to tax that land value at, say, 5% per year, at $400,000,000 it would produce $20 million in income for we-the-people, relieving the need for $20 million in sales taxes, or $20 million in payroll taxes, or $20 million in income taxes.  Talk about fiscal stimulus!  Talk about a permanent tax holiday! Talk about getting the incentives right!  

Joe Stiglitz: Turn left for growth

Joe Stiglitz: Turn left for growth
I don't necessarily come out at the same place that Joe Stiglitz does in this article, but I thought this article good and worth sharing.

Both the left and the right in the United States say they stand for economic growth. So should voters trying to decide between the two act as if they are choosing between alternative management teams?

If only matters were so easy! Part of the problem concerns luck. America's economy was blessed in the 1990s with low energy prices, a high pace of innovation, and a China offering high-quality goods at decreasing prices - all of which produced low inflation and rapid growth.

President Clinton and then-chairman of the U.S. Federal Reserve Alan Greenspan deserve little credit for this - though, to be sure, bad policies could have messed things up. By contrast, today's problems - high energy and food prices, and a crumbling financial system - have, to a large extent, been brought about by bad policies.

There are, indeed, big differences in growth strategies, which make different outcomes highly likely. For starters, growth is not just a matter of increasing GDP. Growth based on environmental degradation, a debt-financed consumption binge, or the exploitation of scarce natural resources is not sustainable. Growth also must be inclusive; a majority of citizens must benefit. Trickle-down economics does not work: An increase in GDP can actually leave most citizens worse off. America's recent growth was neither economically sustainable nor inclusive. Most Americans are worse off today than seven years ago.

But there need not be a trade-off between inequality and growth. Governments can enhance growth by increasing inclusiveness. A country's most valuable resource is its people. So it is essential to ensure that everyone can live up to their potential, which requires educational opportunities for all.

To which I would add that there are other resources -- what the classical econommists grouped together under the banner of "land " -- including not only the value of our urban land, but our natural resources and many other assets that are like land: electromagnetic spectrum (the airwaves which we say belong to the American people); water rights; airport landing slots (which the USDOT now asserts belong to the American people -- not the airlines), to name a few. 

We ought to be sharing the value of all these resources equally among all of us, collecting that value as our common treasure, rather than permitting its privatization under the theory of "finders keepers."    We ought to be financing our government spending with that value, and/or investing any excess in a fund, similar to the Alaska Permanent Fund, which pays an annual income to every man, woman and child in that state.

An education which doesn't include familiarity with that idea doesn't get us very far.  Opportunities for all means equality with respect to our natural and common resources; education is a small but important part of that.

Back to the article ...

A modern economy also demands risk-taking. Individuals are more willing to take risks if there is a good safety net. Social protection is more efficient than protectionism.

Failure to promote social solidarity can have other costs, not least of which are the communal and private expenditures required to protect property and incarcerate criminals. It is estimated that within a few years, America will have more people working in the security business than in education. A year in prison can cost more than a year at Harvard. The cost of incarcerating two million Americans - one of the highest per capita rates in the world - should be viewed as a subtraction from GDP, yet it is added on.

Perhaps the reason we have as much crime as we do is that people don't have the opportunities they should have, and, while the mechanics of why they don't are largely unknown to most of us, the effects of that deprivation are very obvious.  People who in a just society would be contributing members simply can't find their place in our current economy.

Returning to the article,

A second major difference between left and right concerns their respective perceptions of the state's role in promoting development. The left understands that the government's role in providing infrastructure and education, developing technology, and even acting as an entrepreneur is vital. In the 19th century, research at America's government-supported universities provided the basis for the agricultural revolution. More recently, the government laid the foundations for the Internet and the modern biotechnology revolutions.

The final difference may seem odd: The left now understands markets, and the role they can and should play in the economy. The right, especially in America, does not. The new right is really old corporatism in a new guise. These are not libertarians. They believe in a strong state with robust executive powers, but one used in defense of established interests, with little attention to market principles.

The list of examples is long, but it includes subsidies to large corporate farms, tariffs to protect the steel industry and, most recently, the mega bail-outs of Bear Stearns, Fannie Mae and Freddie Mac. But the inconsistency between rhetoric and reality is long-standing: Protectionism expanded under Reagan, including through the imposition of so-called voluntary export restrictions on Japanese cars.

By contrast, the new left is trying to make markets work. Unfettered markets do not operate well on their own - a conclusion reinforced by the current financial debacle. Defenders of markets sometimes admit that they do fail, even disastrously, but claim that markets are "self- correcting." During the Great Depression, similar arguments were heard: Government need not do anything, because markets would restore the economy to full employment in the long run.

Perhaps much of what the current economy needs is a shift from land monopoly capitalism to free market capitalism.  The markets might work pretty well if only we taxed that which should be taxed, and untaxed that which should not be taxed!  Efficiency would improve greatly.

But, as John Maynard Keynes famously put it, in the long run we are all dead.

But in the meantime, some of us would have accumulated the valuable toys, the ones which our fellow human beings depend on and therefore are willing to pay us for -- and we get to pass the proceeds to our own children, excluding the children of everyone else.

No government can sit idly by as a country goes into recession or depression, even when caused by the excessive greed of bankers or misjudgment of risks by security markets and rating agencies. But if governments are going to pay the economy's hospital bills, they must act to make it less likely that hospitalization will be needed. The right's deregulation mantra was simply wrong, and we are now paying the price. And the price tag - in terms of lost output - will be high, perhaps more than $1.5 trillion in the United States alone.

The right often traces its intellectual parentage to Adam Smith, but while Smith recognized the power of markets, he also recognized their limits. Even in his era, businesses found that they could increase profits more easily by conspiring to raise prices than by producing innovative products more efficiently. There is a need for strong antitrust laws.

Today, in contrast to the right, the left has a coherent agenda that offers not only higher growth, but also social justice. For voters, the choice should be easy.

Between those two options, the choice is clear -- but Georgist reforms provide a third way, a superior one to my mind -- and according to my heart as well.

We can eliminate the boom-bust cycle which plagues us -- that alone is reason enough!

Transfers of Wealth Overseas

What are the means by which dollars produced in America leave the US and go to other countries?  I can list a bunch of them -- I don't think my list is exhaustive, and would welcome your additions to it.

1. We buy foreign-made goods -- e.g., Wal-mart goods made elsewhere
2. We buy foreign-extracted natural resources -- e.g., oil
3. Foreign aid
4. War
5. Remittances by foreign-born workers to their families overseas
6. Interest on loans made by foreign lenders
7. Return on capital to foreign investors in US business
8. Rent paid to foreign owners of property in the US -- both on land itself (economic rent) and on buildings (more properly called interest)
9. Profits

Thoughts for Barack Obama

A friend sent me a link to a page where one can make policy suggestions to Barack Obama's campaign.  Turns out to be a thinly veiled way to harvest emails.  But maybe somewhere in the campaign, someone might actually read the suggestions.

One of the fields was a dropdown menu so one could categorize one's proposal.  I chose "economy" but made the first line of my policy proposal a list of a number of categories into which mine falls:

Issues: Economy, Energy, Environment, Ethics, Family, Infrastructure, Justice, Labor, Poverty ... and maybe even health --  

The Landed Gentry

We hear the phrase "the landed gentry" from time to time, often in the context of first-time homeowners, lyparticularly those who have bought  in a neighborhood undergoing "gentrification."

But what does it mean to be the landed gentry?  What is it that matters about being landed?  And what is "gentry"?

McCain, Obama stake out divergent paths on taxes - Yahoo! News

Link: McCain, Obama stake out divergent paths on taxes

And neither of them gets it right.  They are proposing different arrangements of the deck chairs, and while one may provide a slightly better view of the orchestra, and the other better accoustics for enjoying the music, neither of them understand either what needs to be done or why.

Oil, Land, Water -- who among us is entitled to privatize their value?

Land, water, oil, air ... none of it is of our creation, and all of us depend on access to them.  If dollars are involved, to whom should they flow, and why?  If royalties are due, who is entitled to them? If rent happens, as it does in any place where there is a scarcity, who is entitled to it?

Is it the fellow whose land is in high demand?  Is it the fellow whose land has valuable minerals in it? Is it the fellow whose property is on a great aquifer?  Is it the great-great-grandchild of the Duke of Westminster, or of the first Caucasian settlers on a particular piece of land, or of someone to whom they sold title?   LVTfan says not. 

Are you going to be part of the problem, or part of the solution?

This was the headline of an email that came into my inbox today.   And it dawned on me that it is a fine angle from which to view the benefits of land value taxation. 

Why Smart People should shun the "FairTax" concept

I came across a piece entitled "Why Democrats should love the FairTax," written by Laurence J. Kotlikoff, a professor of economics at Boston University, an economic adviser to Mike Gravel and a consultant to FairTax.org.

I continue to be amazed how even economists, who should know better -- far better -- than to even think about a sales tax as a solution to anything, can be in favor of such an alternative.

a tax reformer does the family 1040's

I've heard it said that voting and paying taxes are two of the major sacraments of citizenship. Having spent a significant part of the past week working on the machinations of the latter for several different family members, I am weary of the sacramental qualities of income taxes.  It isn't that I think taxes are a bad thing.  But our current system of taxation is both fundamentally wrong and, having said that, unbelievably convoluted.

Most of the commentators I read and hear are only interested in simplifying the income tax. A few propose getting rid of the income tax and replacing it with a sales tax, which I regard as simpler, but nearly as evil as an income tax from a number of points of view.   And that puts aside the question of whether the necessary rate for the so-called "FairTax" is 23% (or 30% in the way we're used to thinking of sales taxes) or closer to 60%, as I understand is more realistically the case.

FCC Raises Record $19.6 Billion In Auction of Wireless Airwaves - washingtonpost.com

Link: FCC Raises Record $19.6 Billion In Auction of Wireless Airwaves - washingtonpost.com.

Why do we sell off assets that rightly belong to "we the people," and which could earn us a growing income?  When will we claim the economic value of these assets as belonging to the American people, not subject to permanent privatization by anyone?