LVTFan's Blog

NRDC: Ranking States’ Oil Vulnerability and Solutions for Change

Ranking States’ Oil Vulnerability and Solutions for Change
http://www.nrdc.org/energy/states/files/states.pdf

A few lifts from an interesting paper.  It speaks only to oil usage related to cars, putting aside heating oil and other uses of oil.

What it misses is the fact that our incentives are aligned to create sprawl, and that until we realign them, we aren't going to get smart growth.  Readers of this blog know that the first realignment -- necessary, if not sufficient -- is a reform of the conventional property tax, shifting taxation off buildings and onto land value, followed by a shifting of more of the tax burden off sales and wages and onto land value.  When we tax land value heavily, only good things happen --

• from the point of view of the environment,
• from the point of view of efficiency,
• from the point of view of the economy,
• from the point of view of encouraging smart growth,
• from the point of view of job creation and affordable housing,
• from the point of view of dense cities and walkable cities and effective public transit which people want to use and are willing and able to rely on, day in and day out.

The NRDC is not going to achieve its goals without the tool of land value taxation.   "Targets" and "funding" are all well and good, but they don't counteract the current disincentives that our system of taxation creates.  I'd be happy to provide the NRDC folks with material which will help them understand the needed change.

Good public transit systems can be fully funded by the increased land value they create.

From their paper:

America’s dependence on oil is problematic in several ways, including the following:

• The United States has less than 2 percent of the world’s oil supplies but is responsible for about one-quarter of the world’s oil consumption.2 We import almost two-thirds of our crude oil supply from foreign countries, and more and more of the world’s future supply will come from regions that are either politically unstable or unfriendly to U.S. interests.3
• Our unstable supply of oil threatens our national economy, particularly since about 96 percent of our transportation system relies on oil.4
• Oil consumption is a leading contributor to the greenhouse gas (GHG) emissions that cause global warming. In the United States, the oil-based transportation system is responsible for roughly one-third of our global warming pollution

...

Smart growth and public transit. States can reduce oil dependence by integrating land use and transportation policies and designing them to reduce vehicle-miles traveled and promote alternatives to driving. Nineteen states, including Hawaii, Georgia, Tennessee, and Maine, have adopted smart growth measures intended to curb sprawl and reduce the associated traffic and vehicle-miles traveled. Fourteen states have created an agency or other mechanism to develop and coordinate land use policies. Six states have set targets for reducing vehicle-miles traveled. In addition, some states — led this year by New York, New Jersey, and Washington — have prioritized the funding of public transit through the allocation of state funds and/or by transferring portions of their federal highway dollars.

...

• Nineteen states have growth management acts. Among the most comprehensive ways of promoting smart growth is growth management legislation, such as Washington’s Growth Management Act (GMA). This GMA affects 29 counties (95 percent of Washington’s population) and requires, among other things, policies covering sprawl reduction, affordable housing, open space and recreation, environmental protection, natural resource industries, permit processing, concentrated urban growth, regional transportation, historic lands and buildings, and public facilities and services.13 Despite Florida Governor Crist’s weakening of his state’s growth management laws this year, growth management legislation was still one of the areas of greatest improvement from last year, when only 12 states had such laws.
• Only six states have set targets for reducing vehicle-miles traveled. For instance, the state of Washington amended its GMA to make it even more effective at lowering oil consumption, calling for reductions in per capita vehicle-miles traveled (VMT) of 18 percent by 2020, 30 percent by 2025, and 50 percent by 2050.14
• Fourteen states have an agency or other mechanism to coordinate development. Many states have recognized that several different state entities influence development, sometimes in potentially contradictory ways, and have created mechanisms to coordinate public investment that supports development. In 2003, Massachusetts established a powerful Executive Office of Commonwealth Development.15 Such coordination is a vital first step toward smart development, enabling a state to take into account the wide range of relevant influences. We encourage states to use coordinating mechanisms to promote smart growth.
• Some states have prioritized the funding of public transit. Public transit systems, such as bus, commuter rail, subway, and light rail programs, are important components in state efforts to promote smart growth and reduce oil dependence. By creating or expanding reliable and accessible public transit programs, states can reduce the number of single-passenger cars on the road, consequently lowering average VMT. And strong public transit provides a critical transportation alternative as gas prices rise. A case in point: Americans drove 1.4 billion fewer highway miles in April 2008 than in April 2007 because of soaring fuel prices; many took trains or buses instead, leading to a surge in transit ridership.16 In 2008, public transportation saw its highest level of ridership in 52 years.17

States have the ability to “flex” certain federal funds that ordinarily would be spent on highway projects and use them to pay for public transit programs. States that choose not to transfer federal funds to transit programs are not necessarily neglecting transit funding, however, as they may be spending more state dollars on transit. The best way to understand state transit prioritization is to compare the amount of total state spending (including flexed federal funds) on mass transit with the total spent on highway programs, as shown in the far right column of Table 3. By this measure, the top five states prioritizing public transit spending are New York, New Jersey, Washington, Massachusetts, and Utah.

"END ALL TAXES - EXCEPT ONE"

In the new issue of the Atlantic, there is this very wise pair of paragraphs.  

"END ALL TAXES - EXCEPT ONE" by Reihan Salam, Fellow at the New American Foundation
[email protected]
 
"The property tax may be the most loathsome tax in America. During the 1970s, a number of activists - angry that their tax burdens were rising as their neighborhoods became more desirable - pushed to abolish it altogether. President Nixon proposed significantly reducing state property taxes by implementing a federal consumption tax that would fund public education across the country. But when this proved a lost cause, the masses sought instead to strictly limit annual property tax increases through a series of ballot initiatives. The result hasn't been pretty. Chronic revenue shortfalls have crippled local governments ever since, leading to heavier reliance on punishing state income and sales taxes.
 
What if the problem isn't the property tax at all but rather, well, all other taxes? In 1879, Henry George, a brilliant if slightly crankish autodidact, published Progress and Poverty, a scathing polemic that blamed all economic ills on the private ownership of land. A staunch believer in laissez-faire economics, George found it perverse that we tax productive activities like work and innovative investment while letting landowners grow rich simply because they scooped up property at the right time. In that spirit, George called for a "Single Tax" on the unimproved value of land. There's a certain compelling logic to the Single Tax that stands the test of time. When you tax income, aren't you punishing people for working hard? But when you tax an asset like land, you're simply encouraging the most valuable use of that land. In the years since George faded from the scene, a number of economists, from Milton Friedman to Paul Romer have found virtue in the Single Tax, not least because it creates the right incentives for government. Simply put, the better you govern, the more valuable the property. The more valuable the property, the more revenue you raise."

Bravo!  From Reihan Salam's pen to the eyes and ears of all who are trying to figure out how to get us out of our current tax and revenue mess.

And if you're curious about what others have said about land value taxation, google "quotable notables" and "quotable nobels" 

P.S. This is part of the cover story, entitled "The Ideas Issue: How to Fix the World"

Land Value Taxation -- Connecticut's legislature just passed enabling legislation for New London to try it!

I just received word from a friend in New London that the Connecticut legislature, on its next to last day of sessions for this year, passed the enabling legislation for New London to utilize Land Value Taxation.

This permits New London to separate the millage rate on land value from the millage rate on buildings, and to raise the millage rate on land value while lowering the millage rate on buildings.

New London has a lot going for it in terms of location.  It sits on Long Island Sound, near the Groton submarine base and the Thames River.  It is served by Amtrak (including Acela) and by weekday commuter trains to New Haven.  It is the jumping off place for ferries to Block Island, Fishers Island, Montauk Point.  It has the Coast Guard Academy, Connecticut College and Mitchell College, and a large Pfizer research facility.  Years ago, it had trolleys from its suburbs.

It also has a lot of parking lots downtown.  Far more than are healthy.  It has a lot of out of town landowners, who appear to be sitting and waiting for someone else to make their land valuable.

I look forward to watching ReNew London succeed in transforming New London into the small city for the 21st century which its organizers know it can be.  LVT is a good step in that direction.  And I hope the rest of Connecticut will be paying attention.

Post Script: according to Thursday's New London Day, the bill passed the CT House of Representatives unanimously, 148-0:

"The bill, which has strong support from the city's delegation and municipal officials, would create a pilot program limited just to New London, and would permit the city to draft a plan wherein it would tax buildings and unimproved land at differing rates. Supporters believe the system can encourage redevelopment and the improvement of blighted urban areas while promoting smarter land-use policies for cities."

What You Get for... $465,000 - NYTimes.com

Property Values - What You Get for... $465,000 - NYTimes.com.

The three homes listed today are very different from each other:

• a 4 bedroom house in Shelburne Falls, MA, on 2 acres (built 1860);
• a 1 bedroom apartment in San Francisco (1921/1950); and
• a 4 bedroom house on 7 acres in Richmond, KY (unstated). 

Interestingly, the taxes on each are fairly similar: $4,853, $5,208 and $4,650.

What does one get for one's money?  It varies.  In the two small towns, a significant portion of the purchase price is likely to be for the structure, even with the large sites involved.  In San Francisco, the bulk of one's purchase money is not for the structure, which is both small and modest, but for the location -- the proximity to jobs, to transportation, to all the amenities -- both publicly and privately provided -- of city life.

• a 4 bedroom house in Shelburne Falls, MA, on 2 acres -- 2,741 square feet 
• a 1 bedroom apartment in San Francisco  -- 641 square feet
• a 4 bedroom house on 7 acres in Richmond, KY -- 3,233 square feet. 

Quick and dirty, these homes are each probably worth $100 per square foot.  The remainder of the value is locational value.

• a 4 bedroom house in Shelburne Falls, MA, on 2 acres -- 2,741 square feet -> $274,000 house and $181,000 land  (60/40)
  
• a 1 bedroom apartment in San Francisco  -- 641 square feet -> $64,000 house and $385,000 land (14/86)
• a 4 bedroom house on 7 acres in Richmond, KY -- 3,233 square feet. -> $323,000 house and $142,000 land  (69/31)

In the small towns, one is paying the seller mostly for value he (or a previous owner) created.  In cities, one is paying the seller mostly for value he didn't create.

In each situation, property taxes are, more or less, 1% of the asking price.  Assuming that the buyers put down 20% of the $465,000 ($93,000) and finance the remaining 80% ($372,000) with a mortgage at 6% for 30 years, they'll be paying $27,000 per year on the mortgage and $5,000 to their community in the first year.   85% of their carrying cost goes to the lender, 15% to the community.

Viewed another way, if we looked at this as if all the purchase money was borrowed, about 87% of the carrying cost goes to the lender and 13% to the community.   And of that 87%, only 17% is principle; 83% is interest.  That interest all leaves town.  It isn't available for meeting the needs of the community, or of the borrower's family. It doesn't get recycled locally.

And, on top of that, the buyer continues to pay taxes on both the land and the building, and on their purchases and on their wages and most of their other income.

Can you picture how it would be if, instead of paying taxes based on one's wages and purchases and the house one occupies, one's taxes were primarily a function of the value of the land one occupied?

• The buyer of the Shelburne Falls property would be paying on the basis of his $181,000 worth of land
• the buyer of the SF property would be paying based on his $385,000 of land; and
• the buyer of the Richmond property would be paying based on his $142,000 worth of land.

Why is that tiny plot in San Francisco worth so much more? 

1. taxpayer-provided Infrastructure and services: transportation, water, sewage, streetcleaning, emergency, public health, etc.
2. high paying jobs in a vibrant economy, including very specialized jobs
3. proximity to community, culture, etc.

Were we to based our taxes on land value, the seller of the tiny San Francisco apartment would receive, say, $64,000 for his structure.  And the buyer would not be taxed on that value by his community.  Rather, he would be taxed on the value of the land he bought, paying, say, 5% of that value in the form of a tax on his land value: 5% of $385,000 is $19,250 per year.  His mortgage payment on the $64,000 purchase would be $4,650 per year.  And he wouldn't owe any other taxes.

Wouldn't that be a more just system?  He pays San Francisco and California for the right to occupy that choice site.  They recycle those funds locally to provide the services and infrastructure which make that site worth ~$20,000 per year, and send some on to the federal government.

This leaves the mortgage lender out of the loop.  The homebuyer doesn't need to borrow $450,000; he only needs to borrow $64,000.  The other funds are available for more productive purposes: financing businesses.  Creating jobs.  Maybe financing cars or other purchases.

Thou shalt not suffer thyself or anybody else to be stolen from

"Thou shalt not steal." That means, of course, that we ourselves must not steal. But does it not also mean that we must not suffer anybody else to steal if we can help it? "Thou shalt not steal." Does it not also mean, "Thou shalt not suffer thyself or anybody else to be stolen from?"

If it does, then we, all of us, rich and poor alike, are responsible for this social crime that produces poverty. Not merely the men who monopolize land — they are not to blame above any one else, but we who permit them to monopolize land are also parties to the theft. The Christianity that ignores this social responsibility has really forgotten the teachings of Christ. Where He in the gospels speaks of the judgment, the question which is put to men is never, "Did you praise me?" "Did you pray to me?" "Did you believe this or did you believe that?" It is only this: "What did you do to relieve distress ; to abolish poverty ?" To those who are condemned, the judge is represented as saying: "I was ahungered and ye gave me not meat, I was athirst and ye gave me not drink, I was sick and in prison and ye visited me not." Then they say, "Lord, Lord, when did we fail to do these things to you?" The answer is, "Inasmuch as ye failed to do it to the least of these, so also did you fail to do it unto me; depart into the place prepared for the devil and his angels." On the other hand, what is said to the blessed is, "I was ahungered and ye gave me meat, I was thirsty and ye gave me drink,'I was naked and ye clothed me, I was sick and in prison and ye visited me." And when they say, "Lord, Lord, when did we do these things to thee ?" the answer is, "Inasmuch as ye have done it unto the least of these ye have done it unto me."

Here is the essential spirit of Christianity. The essence of its teaching is not, "Provide for your own body and save your own soul!" but, "Do what you can to make this a better world for all!" It was a protest against the doctrine of "each for himself and devil take the hindermost I" It was the proclamation of a common fatherhood of God and a common brotherhood of men. This was why the rich and the powerful, the high priests and the rulers, persecuted Christianity with fire and sword. It was not what in so many of our churches to-day is called religion that pagan Rome sought to tear out — it was what in too many of the churches of to-day is called "socialism and communism," the doctrine of the equality of human rights!

Now imagine when we men and women of today go before that awful bar that there we should behold the spirits of those who in our time under this accursed social system were driven into crime, of those who were starved in body and mind, of those little children that in this city of New York are being sent out of the world by thousands when they have scarcely entered it — because they did not get food enough, nor air enough, nor light enough, because they are crowded together in these tenement districts under conditions in which all diseases rage and destroy. Supposing we are confronted with those souls, what will it avail us to say that we individually were not responsible for their earthly conditions? What, in the spirit of the parable of Matthew, would be the reply from the judgment seat? Would it not be, "I provided for them all. The earth that I made was broad enough to give them room. The materials that are placed in it were abundant enough for all their needs. Did you or did you not lift up your voice against the wrong that robbed them of their fair share in what I provided for all?"

"Thou shalt not steal!" It is theft, it is robbery that is producing poverty and disease and vice and crime among us. It is by virtue of laws that we uphold; and he who does not raise his voice against that crime, he is an accessory. The standard has now been raised, the cross of the new crusade at last is lifted. Some of us, aye, many of us, have sworn in our hearts that we will never rest so long as we have life and strength until we expose and abolish that wrong. We have declared war upon it. Those who are not with us, let us count them against us. For us there will be no faltering, no compromise, no turning back until the end.

There is no need for poverty in this world, and in our civilization. There is a provision made by the laws of the Creator which would secure to the helpless all that they require, which would give enough and more than enough for all social purposes. These little children that are dying in our crowded districts for want of room and fresh air, they are the disinherited heirs of a great estate.

Did you ever consider the full meaning of the significant fact that as progress goes on, as population increases and civilization develops, the one thing that ever increases in value is land ? Speculators all over the country appreciate that. Wherever there is a chance for population coming; wherever railroads meet or a great city seems destined to grow; wherever some new evidence of the bounty of the Creator is discovered, in a rich coal or iron mine, or an oil well, or a gas deposit, there the speculator jumps in, land rises in value and a great boom takes place, and men find themselves enormously rich without ever having done a single thing to produce wealth.

Now, it is by virtue of a natural law that land steadily increases in value, that population adds to it, that invention adds to it; that the discovery of every fresh evidence of the Creator's goodness in the stores that He has implanted in the earth for our use adds to the value of land, not to the value of anything else. This natural fact is by virtue of a natural law — a law that is as much a law of the Creator as the law of gravitation. What is the intent of this law ? Is there not in it a provision for social needs ? That land values grow greater and greater as the community grows and common needs increase, is there not a manifest provision for social needs — a fund belonging to society as a whole, with which we may take care of the widow and the orphan and those who fall by the wayside — with which we may provide for public education, meet public expenses, and do all the things that an advancing civilization makes more and more necessary for society to do on behalf of its members?

Today the value of the land in New York City is over a hundred millions annually. Who has created that value? Is it because a few landowners are here that that land is worth a hundred millions a year? Is it not because the whole population of New York is here? Is it not because this great city is the center of exchanges for a large portion of the continent? Does not every child that is born, everyone that comes to settle in New York, does he not add to the value of this land? Ought he not, therefore, to get some portion of the benefit? And is he not wronged when, instead of being used for that purpose, certain favored individuals are allowed to appropriate it?

We might take this vast fund for common needs, we might with it make a city here such as the world has never seen before — a city spacious, clean, wholesome, beautiful —a city that should be full of parks; a city without tenement houses; a city that should own its own means of communication, railways that should carry people thirty or forty miles from the city hall in a half hour, and that could be run free, just as are the elevators in our large buildings; a city with great museums, and public libraries, and gymnasiums, and public halls, paid for out of this common fund, and not from the donations of rich citizens. We could out of this vast fund provide as a matter of right for the widow and the orphan, and assure to every citizen of this great city that if he happened to die his wife and his children should not come to want, should not be degraded with charity, but as a matter of right, as citizens of a rich community, as coheirs to a vast estate, should have enough to live on. And we could do all this, not merely without imposing any tax upon production; not merely without interfering with the just rights of property, but while at the same time securing far better than they are now the rights of property and abolishing the taxes that now weigh on production. We have but to throw off our taxes upon things of human production; to cease to fine a man that puts up a house or makes anything that adds to the wealth of the community; to cease collecting taxes from people who bring goods from abroad or make goods at home, and put all our taxes upon the value of land — to collect that enormous revenue due to the growth of the community for the benefit of the community that produced it.

LVTfan here.  That was an excerpt from one of my favorite speeches, by Henry George (entitled "Thou Shalt Not Steal.")

Now consider the newest evidence from the Federal Reserve Board's 2007 Survey of Consumer Finances, as reported in a too little noted paper issued a few months ago entitled "Ponds and Streams: Wealth and Income in the U.S., 1989 to 2007"

• 1% of our households hold over 1/3 of America's wealth. 
• 10% of our households possess over 70% of America's wealth.
• The other 90% get to split the remaining 28.5%
• The bottom 50% of us have only 2.5% of that net worth.

Ranked by income:

• 1% of our households receive 21.4% of the income
• 10% of our households receive 47.2% of the income
• The other 90% of our households get to split 52.8% of the income
• The bottom 50% of our households have only 14.6% of that income.

Coheirs to a vast estate.  Hmmm.  In America?

We could out of this vast fund provide as a matter of right for the widow and the orphan, and assure to every citizen of this great city that if he happened to die his wife and his children should not come to want, should not be degraded with charity, but as a matter of right, as citizens of a rich community, as coheirs to a vast estate, should have enough to live on. And we could do all this, not merely without imposing any tax upon production; not merely without interfering with the just rights of property, but while at the same time securing far better than they are now the rights of property and abolishing the taxes that now weigh on production.

Thou shalt not steal, yes.  But also "Thou shalt not suffer thyself or anybody else to be stolen from."  

The first step is to understand the nature of the theft that is structural, legal, even respected and treated as reflective of personal or corporate virtue.  Shine a light on it.  A Mount-Rushmore-at-night illumination. 

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.

How Do We Fix an Ailing Economy?

Georgists -- people who have read one or more of Henry George's books*, and are persuaded of the logic and truth of his findings and diagnosis -- have, for over 100 years, had an answer to share with the rest of us about how to make our economy more just, more honest, more vibrant and more stable; make equal opportunity real; protect the environment from despoilment; reduce the excessive concentrations of wealth and income without destroying incentives which encourage productivity.

* e.g., Progress and Poverty; Social Problems; Protection or Free Trade?; The Science of Political Economy; The Land Question, etc.  Henry George (b. 1839, Philadelphia; d. 1897, NYC) was among the most prominent and widely read Americans of the late 19th century, and no one has successfully refuted his observations or his prescriptions; yet few of us, even economics majors, are exposed to his ideas in the course of even a highly regarded college or university education.   More of us who know his ideas have found them through our own research, or through a course at a Henry George School (e.g., NYC, Philadelphia, Chicago, etc.) or online (henrygeorge.org)

Georgists know some things that other people don't seem to know.  It is common sense.  It is logical, not all that complex.

Paul Harvey's "thing" was to tell us about "the other part of the story."  Well, Georgists know a lot about the rest of the story.  We know that federal spending on infrastructure is only half the story of stimulating the economy (and even know that it is not necessary!)

If all we "do" is the federal end of stimulus, we aren't going to get anywhere.  We may even make some things worse -- unintentionally, of course, but worse nonetheless -- for a significant percentage of us. 

Armed with Henry George's observations, we would know how to fix this economy and create a better one.  We can reduce the need for consumer credit, freeing up more funds for productive investment by industry.   We can undo the machine which creates poverty and simultaneously enriches a particular class of us.

Just What is Home Equity?

What is home equity, and how does it relate to the American Dream?

Sometimes we hear about "building home equity" as if it were some sort of muscular activity.  There are two ways to "build home equity."  The first, the old-fashioned way, is by paying down the mortgage.  This happens fairly slowly.  On a 30 year mortgage, and making no extra payments, here is the payoff schedule for several mortgage rates:

Cumulative Mortgage Payoff Schedule for 30-year Mortgage
	Mortgage Interest Rate
Year	4%	5%	6%	7%	8%
1	1.7%	1.4%	1.2%	1.0%	0.8%
2	3.5%	3.0%	2.5%	2.0%	1.7%
5	9.4%	8.0%	6.7%	5.7%	4.7%
10	20.8%	18.1%	15.7%	13.6%	11.7%
15	34.6%	31.1%	27.8%	24.7%	21.8%
20	51.5%	48.7%	43.9%	40.3%	36.8%
25	73.0%	68.8%	65.5%	62.2%	58.9%
28	86.4%	84.2%	81.9%	79.4%	76.8%
30	100.0%	100.0%	100.0%	100.0%	100.0%

The other -- and much faster -- part of home equity, of course, is the appreciation we have come to expect.  What few people realize is that houses do not appreciate; they are never worth more than what it costs to build them, less depreciation, to account for deterioration, obsolescence of systems, etc.  A Federal Reserve Board Study (May, 2006) pegged annual depreciation of single family home stock at 1.5%.

So when housing was rising in value by 5% or 10% per year, what was rising was the price of the land under the houses, not the houses themselves.  

What causes land to rise in value?  Not individual activity.  Not the landholder himself.   There is no muscular activity on the part of the landholder here!  (Yes, the owner who does a gut renovation adds to his property's total value, though not always as much as the project costs.  Most studies suggest that adding a second bathroom to a home which has only one actually adds more to the value of the property than the project itself costs; some say that adding a deck also pays back more than the project costs.   Few other projects pay back fully, so while home equity may rise, it is through individual investment, and the owner's net assets do not increase as a result.)

Land rises in value for reasons which have little or nothing to do with the landholder himself:

1. Local taxpayers invest in goods and services which people value: good schools; well-paved streets; well-equipped fire trucks and ambulances; police trained in CPR and equipped with defibulators; parks; courts, jails; sewers and city water replacing septic and wells; libraries; community colleges; letc.
2. State and federal taxpayers invest in goods and services which people value: electricity; good transportation systems; infrastructure; "pork";  broadband; public colleges and universities; etc.
3. Private sector investments: good hospitals; cultural amenities; an active and vibrant local economy; a healthy downtown; private universities; charities; etc.
4. Technological advancements: elevators (urban land); air conditioning (southern states); earth moving equipment -- advances from WWII equipment (making difficult sites easier to develop); fiberglass boats (waterfront properties); maglev trains; etc.
5. Population increases: natural fertility increases; assisted fertility; fewer wars or auto or industrial accidents; better outcomes after such events; reduced infant mortality; better health resulting in longer lifespans; people having larger families because of religious beliefs or greater prosperity; local amenities which attract population to the school district or metro area; immigration from other countries; lower cost of living drawing more people;

So if all those things were happening, why did we just experience a crash in land values?   

Well, what we experienced was a crash in land prices.  Land prices got well ahead of land values in many places.  This is known as land speculation.  People were "investing" in land, buying homes for outlandish prices, thinking that prices would continue to rise forever.   Mortgage lending standard went from 20% down to 10% down to 5% down to 1% down to 105% financing.  Private Mortgage Insurance became the norm for first-time buyers.  Debt to income ratios rose from 28% to the high 30's, or weren't even discussed.  Mortage rates dropped, particularly for Adjustable Rate Mortgages.  Interest-only mortgages became available, and negative amortization mortgages were a possibility. 

How could we be so stupid? 

Did someone yell "FIRE?"  (as in the FIRE sector of the economy: Finance, Insurance, Real Estate)    The FIRE sector was making money from this.  Home builders.  Land sellers -- including farmers, land speculators, mom-and-pop subdividers, and many others.  Builders.  Real estate brokers.  Mortgage brokers. Mortgage insurance sellers.  Title insurance sellers.   Homeowners' insurance sellers. 

We considered this private enterprise and pronounced it good. 

Go back to the five items listed above, and tell me why a smallish -- or even a largish -- portion of the private sector ought to reap all the benefits for all those things, in proportion to the size and quality of their landholders.

But only the Georgists were aware of what was really happening.  What was happening was that we attempted to increase the homeownership rate from the low 60's to the high 60s, under the guise or illusion that by doing so we'd be extending the "American Dream" to an additional 10% of our fellow residents of this country.    But of course the homes they could afford were not in the places where land was appreciating, and their attempts to "catch the brass ring" which would, they hoped, make them part of the "rising tide."  (Okay, too many metaphors ... but haven't we heard all of them in this context?)

What did the Georgists know?  That land value which our system permits landholders to privatize ought to be socialized.  Small landholders ... most of the residential owners, that is ... get to privatize some small land value ... a bone to shut them up, while the big landholders -- individuals, family trusts, corporations, REITS, philanthropies, universities, churches and other tax exempts, individual foreign investors, pension funds, private equity funds, foreign sovereign funds, etc. -- get to privatize the BIG land value in our cities.    Even in our small cities and medium-sized towns, the businesses which are their own landlords are, on average, far more profitable than those which are tenants, and landlords take a significant share of their tenants' production -- a non-agricultural version of sharecropping, which we honor as if the landlord was actually a producer of some sort.

John Stuart Mill, one of the classical economists, told it this way: Landlords grow rich in their sleep.

So back to the initial question: what is home equity, and how does it relate to the American Dream?  Home equity is a sop, thrown to keep the puppies quiet and calm, while the big dogs enjoy the contents of the manger.

We'd be far better off if the vast majority of us -- and our elected officials -- understood and talked openly about what Henry George was telling us, in his landmark book on political economy entitled Progress and Poverty -- subtitled: An inquiry into the cause of industrial depressions and of increase of want with increase of wealth ... The Remedy: that we permit the privatization of the economic value of our natural and other rightly-common resources, including urban land value, at our extreme peril. 

We turn the American Dream into our common nightmare.  Increasing home equity holdings is not the answer to our problems; it is, at bottom, a symptom or sidelight of the problem itself!   

We can fix this through a simple and just tax reform.

Oh -- you might be interested in how Henry George dedicated his book, Progress & Poverty:

to those who, seeing the vice and misery that spring from the unequal distribution of wealth and privilege, feel the possibility of a higher social state and would strive for its attainment.

Lawson Purdy: The Influence of Taxation on the Prosperity of Cities

Reprinted in The Public, October 6, 1906

THE INFLUENCE OF TAXATION ON THE PROSPERITY OF CITIES

A Paper Read by Lawson Purdy of New York
Before the League of American Municipalities,
in Session at Chicago, September 26, 1906.

In 1873, Enoch Ensley, a wealthy planter of Tennessee, wrote to Governor Brown asking him to call a special session of the legislature to amend the constitution so that changes could be made in the tax laws of Tennessee. The tax rate of Nashville was three and one-half per cent and of Memphis four per cent, and Mr. Ensley said that the burden on business was insupportable. Great land owner as he was, however, Ensley did not urge a search for new sources of revenue, but rather the application of the "rule or motto" which, he said, "It would be well for the State to adopt and have cut into the stone at the capitol (in large letters and have them gilded), in the Senate chamber, the hall of the House of Representatives and in the governor's office, . . . to-wit:

"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."

This rule laid down by Ensley has become an axiom, but before it can be applied the constitutions of about thirty-five States must be amended by repealing those despotic limitations on legislative power which are not found in the earlier constitutions, and which should find no place in the constitution of any free people. Because of constitutional and statutory restraints upon the power of cities we need discuss only what can be accomplished in most cities by executive officials under existing laws.

Conditions of Prosperity.

City officials often regard the city as apart and distinct from the individual citizens, and sometimes therefore uphold policies which appear to be in the interest of the city corporation, although opposed to the interests of the citizens. This is, of course, a short-sighted view. In reality nothing can be good for the city which is bad for the citizen, nor bad for the city which is good for the citizens. Again, many consider the interest of classes and speak of what will be advantageous to manufacturers or shopkeepers or land owners. This, too, is a mistaken attitude. Citizens should be regarded alike as men, and not as the owners or users of some kind of property. All depend upon the workers who render service for service, and it is fair therefore to consider the interest of all citizens as bound up in the interest of those who earn their living; and that city may be regarded as the most prosperous in which it is easiest and most agreeable to earn a living.

The interests of the city and of its citizens are identical. Nevertheless, they may be viewed from both standpoints.

How Might We Stimulate the Economy -- at minimal expense?

Spending federal dollars is not the only way to stimulate the economy, though it may be a relatively speedy one.  But I think we ought to be considering other ways, too.

The catchphrase "Think Globally, Act Locally" comes to mind.  There are things which states and local areas can do to help unburden the economy.  If someone thinks it isn't time yet to take those steps, I'd like to know how they will know when the time has come.

We heard calls recently for the federal government to provide the funding for state sales tax "holidays"  -- a week here, a week there -- to remove the weight of sales taxes from the consumer.    Well, maybe the states, and the cities and towns which impose sales taxes, ought to consider shifting away from a sales tax.  Alabama and Mississippi impose a sales tax even on groceries.  Sales taxes in Chicago are 10.25%!  No wonder people want a vacation from them.  But wouldn't we simply be smarter to shift away from dumb taxes like the sales tax, rather than shifting consumer spending into a shorter window, causing buyers to finance their purchases and pay interest to the credit card companies?

In the same vein, perhaps states and cities which are concerned about the health of their local economy ought to look at each of the things they tax, and decide whether those taxes help or hurt the economy.

Should Landlords Share in their Tenants' Profits? Should our Urban Landlords be Society's Big Winners?

NYT 2/1/09: Recession Has Landlords of Retail Tenants Extending Discounts of Their Own

As you read this, think about what contributions each landlord mentioned -- or any other you know -- has made to society, in his role as landlord, during his ownership of his building and land, be it 3 years, or 30, or even 300 years.  Think about how we have our incentives set up.

a few lifts to provide the flavor:

That area is now one of the city’s liveliest late-night strips, which made it particularly painful for Ms. Gillis to receive an eviction notice last month because she owed $13,556.26 in back real estate taxes. But in a sudden change of heart, her landlord recently offered to let Ms. Gillis stay for two more years, and even proposed paying part of her future real estate taxes — which retail tenants normally pay. ...

Just a year ago, the owners of New York’s most coveted retail and restaurant spaces held almost unassailable power to dictate the terms of their leases. But the recession is changing that equation, as rapidly rising vacancy rates and bankruptcies are making it hard to find new tenants.

And so some small businesses are finding a silver lining in the recessionary clouds: they suddenly have leverage with their landlords.

Six months ago, for instance, the landlord of the Holland Bar in Hell’s Kitchen terminated the lease because he was confident of finding a higher-paying tenant or developing luxury condos. But when he found no takers, he offered the space back to the bar, at a 20 percent increase in rent. The Holland reopened last week.  ...

That does not mean that all of the city’s landlords, whether in upscale Manhattan districts or shopping strips in Brooklyn and Queens, are cutting their tenants a break; many shops are still facing sharply rising rents as leases come due.

Indeed, many landlords find themselves in a bind because they paid stiff prices for property in recent years and need to cover hefty mortgage payments. On average, Manhattan landlords paid $3,348 per square foot for retail properties in 2008, compared with $538 per square foot in 2004, according to the brokerage Cushman & Wakefield.

All those billions and trillions ... how do they relate to household wealth and household income?

My mind is sometimes boggled by the millions, billions and trillions we hear about in various news stories, so I thought it might be worth putting the figures in some perspective with our wealth and income distribution.   I suspect I'll be adding data points to this one for a while!

Household Income 

	Total Household Income, excluding capital gains, 2006
	Total	$7,365,333 million, or $7.365 trillion
		income range	share of income
	Bottom 90%	0 to $100,626	55.70%
	Next 9%	$100,626 to $332,856	27.04%
	Top 1%	over $332,856	18.24%
	Data Source: Piketty & Saez, 2006 spreadsheet, Tables A1 and A4
	Total Household Income, including capital gains, 2006
	Total	$8,056,298 million, or $8.056 trillion (Capital Gains = $690,965 million or $691 billion
	Bottom 90%	0 to $104,696	50.34%
	Next 9%	$104,696 to $382,593	26.79%
	Top 1%	over $382,593	22.90%
	Data Source: Piketty & Saez, 2006 spreadsheet, Tables A0, A3 and A6

Household Wealth

Aggregate Net Worth, 2007			$64,597.9 billion
share of Net Worth		quantile	dollars (billions)
2.5%		to bottom 50%	$1,611.9
26.0%		to next 40%	16,795.1
	28.5%	to bottom 90%	18,407.0
11.1%		to next 5%	7,157.4
26.6%		to next 4%	17,169.3
	37.7%	to second 9%	24,326.7
33.8%		to top 1%	21,864.3
Data Source: 2007 SCF

Gross Domestic Product: $14,264.6 billion, or $14.26 trillion  http://www.bea.gov/national/ as of 4Q08

Statistics of Income: Mortgage Interest and Real Estate Taxes

I've been exploring the IRS Statistics of Income data for 2006 which permits one to download spreadsheets of data and do one's own calculations on the data.  I've stumbled across some data that tickles my Georgist curiosity.   The tables break returns out by AGI (not the greatest option in the world -- a lot of income disappears before that point) but the observations are still of interest.

Table 2.1 looks at only returns that itemize deductions, 49.2 million returns out of the total 138.4 million filed (35.5%), which are reported on Table 1.2.  I'll use the column numbers provided in the spreadsheet, since I've added dozens more. Column 75 shows the total Home Mortgage Interest deducted as $443 billion, and Column 66 shows the Real Estate Tax deducted as $156 billion -- 35% the amount paid in interest.  39.8 million returns deducted interest; 42.6 million returns deducted Real Estate Taxes.

I'm intrigued that people don't seem to mind paying large amounts of interest to a mortgage lender, for the privilege of paying off the previous owner of their home, but balk at paying roughly 1/3 as much to the community which provides the services which make that home and community a good place to live! 

Further, the federal taxpayers who itemize deducted $265 billion in sales tax and state/local income taxes.  So they deducted a total of $421 billion in taxes, and interest of $443 billion.

A 2006 Federal Reserve Board study found that for the top 46 metro markets, land value represented 51% of the value of single family homes in 2004.   Applying that percentage to the mortgage interest amount deducted, we could say that $222 billion of mortgage interest was deducted that went to paying the interest on land the taxpayer purchased from someone else, and the other $222 billion went for paying for the house on that land.

If we accept that state and local government costs $421 billion, wouldn't we rather be paying $222 billion in interest to finance the purchase of the houses we live in, plus $421 billion in taxes on land value, and not pay either principle to the seller or interest to the lender for the land value?

Cashing in on urban land value ... who is entitled to it?

A couple of articles caught my eye today.  First, a university which owns choice land on the Upper West Side of Manhattan:

Fordham Seeks to Build on Manhattan Campus 
For more than a decade, Fordham University officials have been trying to figure out how to address overcrowding at their Manhattan campus and fill the coffers of their relatively small endowment. They thought the answers to both could be found in one of their most valuable assets: their Manhattan real estate.

So for four years, Fordham officials have been trying to win support from community groups and city officials for plans to turn their four-building site into a far denser 12-building campus in the same space between Amsterdam and Columbus Avenues and 60th and 62nd Streets. Fordham uses the site for various graduate programs and has a larger campus in the Bronx.

The completed campus next to Lincoln Center would have three million square feet of classrooms, libraries and dormitories. It would also include two lots that Fordham would sell to luxury apartment developers, using the profits to bolster the endowment.  ...

Neighbors, zoning experts and community board members who spoke at the hearing expressed concerns that the buildings would be too tall and dense for the neighborhood. Howard Goldman, a land-use lawyer representing a residents’ group, Fordham Neighbors United, said that at three million square feet, the campus would be larger than the Time Warner Center nearby (2.2 million square feet) or the Empire State Building (2.8 million square feet).

Deirdre A. Carson, a lawyer representing Fordham, said the towers would not be as overbearing as critics contend. Some of the towers would be would be 650 feet high, she acknowledged, but they would be spread out over a larger area. She added that the Time Warner site was half the size of the proposed Fordham campus and that the Empire State site was one-third as large. ...

Mr. Goldfischer said that more than 1,100 residents were removed from the neighborhood to build Fordham, which he said complemented Moses’ original plan, as did Lincoln Center, nearby. (Lincoln Center has not commented on the proposal.)

“That land was for public trust,” he said over applause from the crowd. “It’s immoral, illegal and unethical to do something like that.”

Ms. Carson acknowledged that terms of the 1958 purchase included a requirement that the property be used for educational purposes but said the obligation expired in 2006.

and a foreign airline which owns a VERY choice block in midtown Manhattan is realizing that they have a major cash cow which can bear them an awesome amount of milk, forever:

The President advised the government to also consider developing the Roosevelt hotel property in New York owned by the PIA as a source of permanent income without actually selling the property and retaining PIA’s ownership of it.

He said that the government may revisit the earlier decision to place the Roosevelt hotel under the Privatization Commission so as to examine the possibility of developing the property for regular income.

How choice?  The NY Post estimated the selling value of this one-acre whole-block property at $400 million to $1.2 billion as a teardown last summer.  That's $20 million to $60 million per year in land rent.  See these previous LVTfan entries to this blog.

• That block in Manhattan ...
• Hotel Roosevelt For Sale at $1 Billion

And then there was a 3rd article, whose mechanics I don't begin to understand, but which I suspect are similar ... and a bit hedge-fundish:  The New York Times, which in 2007 built a new building between 40th and 41st Street on the west side, is now negotiating a transaction which, by definition, must benefit both sides... I'm led to wonder how much it will cost taxpayers if both sides benefit:

Times Co. Is in Talks to Sell Part of Building
The New York Times Company is in advanced negotiations to sell a substantial portion of its 52-story headquarters building on Eighth Avenue in Midtown Manhattan to W. P. Carey & Company, an investment and management firm that specializes in so-called sale-leaseback transactions, the newspaper company confirmed on Thursday.

Under the deal, the Times Company would sell the 19 floors it currently uses in the building but not the 6 floors it leases to other tenants. The Times Company would continue to occupy and manage its floors and would have the right to buy back the space at a predetermined price when a 10-year lease expires. Designed by the architect Renzo Piano, the building stretches from 40th to 41st Street. It was completed in 2007.

A spokeswoman for the Times Company, Catherine J. Mathis, declined to say how much W. P. Carey would pay for the space, what it would cost to repurchase it or what the rent would be. The Times Company previously said that it was pursuing a sale-leaseback arrangement for up to $225 million and would use the proceeds to repay some of the company’s long-term debt.

“Because we are in continuing discussions, we cannot comment on the status of the sale-leaseback,” Ms. Mathis said Thursday. Guy B. Lawrence, a spokesman for W. P. Carey, declined comment on the discussions.

The Times Company owns 58 percent of the 1.5-million-square-foot tower. The developer Forest City Ratner owns the rest of the building. Forest City’s portion will not be included in the sale.

In a sale-leaseback transaction, the seller maintains control over its space and the responsibility for paying taxes, maintenance and utility costs. W. P. Carey’s investors would be guaranteed a specific return for the life of the lease.

Addendum .... see http://seekingalpha.com/article/115827-inside-the-new-york-times-billionaire-bailout

The question, of course, for all three stories, is WHO IS ENTITLED TO THE LAND RENT?  Land rent is the annual value of an undeveloped piece of land.  It is created by the community, by public spending, by our presence .... and we permit -- even honor* -- its privatization by whoever owns the land.  We take it for granted.  They take it for granted. 

* We call those who acquire choice land and collect land rent from us "self-made men."  We tax labor heavily, and sales, but we  tax landlords but lightly, through local taxes, through federal income taxes, or through estate taxes with loopholes.   We are so nice, so generous! ... and we wonder why things are SNAFUed.  (The good news, though, is that we aren't dealing with FUBAR.  This CAN be remedied simply, elegantly and justly.  LAND VALUE TAXATION)   Leona Helmsley described the situation this way: "We don't pay taxes, only the little people pay taxes."  And Fred Harrison lays it out on YouTube.

This is stupid on our part.   (How's that for understatement?)

Let Us Now Praise the Back Roads of Alabama

Let Us Now Praise the Back Roads of Alabama - washingtonpost.com.

There's a nice article in Saturday's Washington Post about Fairhope, Alabama, a town founded just over 100 years ago to put into action the ideas of Henry George.  It sits on Mobile Bay.

Founded in 1894 as a utopian community based on the fair-tax theories of economist Henry George, the town has long been a magnet for intellectuals, Southern or otherwise; Sherwood Anderson, Upton Sinclair and Clarence Darrow all spent time there. Even today, long since subsumed into the greater Mobile metropolitan area, it remains a popular place for writers, painters and craftspeople to set up shop.

Arden, Delaware, just outside Wilmington, does something similar, and it, too, is a lovely place to live.

The rest of Alabama might learn from Fairhope's fine example.  (There are places in Alabama where sales taxes are as high as 10% ... not quite as bad as Chicago's, but awful nonetheless.)  In most of Alabama, property taxes are quite low (see Susan Pace Hamill's work), and that underlies the state's problems.  In Fairhope, the Single Tax Corporation, which owns a significant chunk of the land, doesn't tax the buildings, but charges each property owner in proportion to the value of the land each occupies.

Upton Sinclair wrote a good article called "The Consequences of Land Speculation are Tenantry and Debt on the Farms, and Slums and Luxury in the Cities."  It begins:

I know of a woman — I have never had the pleasure of making her acquaintance, because she lives in a lunatic asylum, which does not happen to be on my visiting list. This woman has been mentally incompetent from birth. She is well taken care of, because her father left her when he died the income of a large farm on the outskirts of a city. The city has since grown and the land is now worth, at conservative estimate, about twenty million dollars. It is covered with office buildings, and the greater part of the income, which cannot be spent by the woman, is piling up at compound interest. The woman enjoys good health, so she may be worth a hundred million dollars before she dies.

I choose this case because it is one about which there can be no disputing; this woman has never been able to do anything to earn that twenty million dollars. And if a visitor from Mars should come down to study the situation, which would he think was most insane, the unfortunate woman, or the society which compels thousands of people to wear themselves to death in order to pay her the income of twenty million dollars?

The fact that this woman is insane makes it easy to see that she is not entitled to the "unearned increment" of the land she owns. But how about all the other people who have bought up and are holding for speculation the most desirable land? The value of this land increases, not because of anything these owners do — not because of any useful service they render to the community — but purely because the community as a whole is crowding into that neighborhood and must have use of the land.

The speculator who bought this land thinks that he deserves the increase, because he guessed the fact that the city was going to grow that way. But it seems clear enough that his skill in guessing which way the community was going to grow, however useful that skill may be to himself, is not in any way useful to the community. The man may have planted trees, or built roads, and put in sidewalks and sewers; all that is useful work, and for that he should be paid. But should he be paid for guessing what the rest of us were going to need?

Clarence Darrow wrote at least two excellent things I'd like to share:

• How to Abolish Unfair Taxation  which ends with "The "single tax" is so simple, so fundamental, and so easy to carry into effect that I have no doubt it will be about the last reform the world will ever get. People in this world are not often logical; in fact, there is never any considerable number of them that are logical. I am pretty sure the people will never get started in the right direction; they will go a long way around."
• The Land Belongs to the People which includes this: "This earth is a little raft moving in the endless sea of space, and the mass of its human inhabitants are hanging on as best they can. It is as if some raft filled with shipwrecked sailors should be floating on the ocean, and a few of the strongest and most powerful would take all the raft they could get and leave the most of the people, especially the ones who did the work, hanging to the edges by their eyebrows. These men who have taken possession of this raft, this little planet in this endless space, are not even content with taking all there is and leaving the rest barely enough to hold onto, but they think so much of themselves and their brief day that while they live they must make rules and laws and regulations that parcel out the earth for thousands of years after they are dead and, gone, so that their descendants and others of their kind may do in the tenth generation exactly what they are doing today — keeping the earth and all the good things of the earth and compelling the great mass of mankind to toil for them."

and

"Now the theory of Henry George and of those who really believe in the common ownership of land is that the public should take not alone taxation from the land, but the public should take to itself the whole value of the land that has been created by the public — should take it all. It should be a part of the public wealth, should be used for public improvements, for pensions, and belong to the people who create the wealth — which is a strange doctrine in these strange times. It can be done simply and easily; it can be done by taxation. All the wealth created by the public could be taken back by the public and then poverty would disappear, most of it at least. The method is so simple, and so legal even — sometimes a thing is legal if it is simple — that it is the easiest substantial reform for men to accomplish, and when it is done this great problem of poverty, the problem of the ages, will be almost solved. We may need go farther."

And you might be interested in a fine talk given by Ed Lawrence, a current resident of Fairhope, entitled Henry George: The Relevance of His Philosophy Today.

Susan Pace Hamill: The Vast Injustice Perpetuated by State and Local Tax Policy

Hamill-HofstraSubmission.pdf (application/pdf Object). or http://ssrn.com/abstract=1272155

Susan Pace Hamill, one of my heroes, has published a new paper in the Hofstra Law Review, and while I share her concern for the poor and for economic justice, and I respect her scholarship, I think she's missing the most important questions!

Here's the abstract; the emphasis is mine:

State and local tax policy is one of the most important areas of public policy affecting the lives of the most powerless and vulnerable segments of the population – children from low income families. Focusing on the funding of primary and secondary education, especially in high poverty school districts, and the scheme for allocating the tax burden, this article empirically proves that all fifty states have unjust state and local tax policy, with thirty-one states inflicting an extreme level of injustice on poor children and their families. This article argues that the people in most states, as well as their political leaders, are compelled to reform state and local tax policy because they claim to practice Christianity or Judaism, and, in addition to being unjust under secular-based ethical models, their state and local tax policy also violates the moral principles of Judeo-Christian ethics. This article also argues that the moral context of a faith-based appeal offers the best chance to inspire people to support tax policy, requiring greater levels of sacrifice from wealthier Americans, a group that must be part of the reform effort in order to change the state and local tax picture from a vast sea of injustice to a tool of justice protecting our most vulnerable and powerless citizens.

I would counter that our tax policies should not require "greater levels of sacrifice" from anyone.  But Professor Hamill, like 99% of the rest of the people who think about public finance and economic justice, seem to be stuck in a box, and it is the wrong box!

NYT: Property Values - What You Get for ... $850,000

Property Values - What You Get for ... $850,000 - NYTimes.com

As I read this regular column, I generally have several thoughts:

1. The size of the lot is relevant, whether the home is on a city postage stamp, or a country estate.
2. For multi-story multi-family buildings, I'd like to know the number of stories and the footprint of the unit.
3. The age of the building is useful to know; many are quite old and, likely, quite inefficient, even obsolete
4. Right below the Property Tax information, I'd like to see the percentage of the school district's high school graduates who go to 4 year colleges, and the drop out rate from 9th grade to 12th.  (This matters even if the target audience is 2nd home New Yorkers whose children won't attend those schools.)  Generally, there seems to be a strong correlation between high property taxes and quality of local education.

What the typical reader probably doesn't think about is that for most of these properties, it is the location which is valuable, not the house itself.  The writeups sometimes describe the locational amenities: transportation infrastructure and services, views, parks, jobs.  All these things are definitely worth paying for; the question, of course, is who we should be paying, and how.  Should we pay the previous owner, who didn't create any of those things -- or should we pay the community, which did?   Should we pay the community in the form of taxes on our labor, or in the form of taxes on the value of the land we occupy?

See paying twice, paying the wrong party, privilege, windfall, unearned increment, rent, rent is for the community.  There is a better way to finance our common spending than what we're doing now.

Dumbest Thing Voters Did

A friend of mine named Wendell Fitzgerald posted a wonderful comment under that title to an OpEdNews article at http://www.opednews.com/articles/California-s-Legislators-a-by-Sandy-Sand-081228-553.html entitled "California's Legislators and Voters are Among the Dumbest in the Land."  With his permission, I am posting it in its entirety.  (The bolding is mine.)

The most truly stupid thing California voters did a long time ago which is slowly killing the State and underlies everything Sandy is saying is voting for Proposition 13 back in 1978.  The only proper source of revenue to pay for local and state services (physical infrastructure in particular) is to assess against the economic value that those expenditures engender.  All public expenditure and most obviously in the case of expenditure for physical infrastructure results in increasing land values. They do not increase the value of improvements but land value only.  All economists agree.

The appropriate source of revenue to pay for public services, therefore, is to assess against the privately held values public expenditures produce and increase.  That value is land value.  The property tax is the only tax that directly taxes land value.  In that regard, the property tax merely takes back for community use to pay for community provided services the value the community gives to land.  This is the epitome of economic justice.  Unfortunately the property tax is deeply flawed in that it also taxes the value of improvements the value of which is not increased by public services but compared to every other tax that by definition has to fall on labor and capital, the property tax even as flawed as it was/is contains the only just and economically neutral form of taxation there is. The tax on community created land value.

Some Factoids from the CBO on Infrastructure Investment

I'm reading Peter Orzag's statement, from 7/10/08, when he testified before the Senate's Committee on Finance, and thought I'd collect some of the interesting bits and pieces, and offer some observations.

Eisenhower's roads to prosperity

Eisenhower's roads to prosperity - Los Angeles Times.

Tom Lewis describes some of the history of Eisenhower's huge infrastructure initiative, the Interstate Highway system, in the context of Barack Obama's plans to use infrastructure as a job-creation tool.

What most people don't seem to realize is that investments in infrastructure do more than create jobs in the process of the development of the infrastructure and in its maintenance: they also create something else of much larger importance, which we as a society have chosen to pretend is of little or no significance, to our detriment.  (How's that for understatement?)

What is it?  Every worthwhile infrastructure project creates more land value than the project costs.

I'll repeat that.  Every worthwhile infrastructure project creates more land value than the project costs!    Therein lies one of the most important keys to solving many of our most serious problems.

The landowner and the taxpayer

I stumbled across a quote, in someone's sigfile on a forum I hadn't previously been to.  It expresses the effect of permitting the privatization of the economic value of land, and the socialization of our wages through income and wage taxes and taxes on what we produce.  It is, perhaps, a bit stronger than how I'd express it, but I have to agree that Roy has it right:

The landowner effectively owns part shares in millions of part-time slaves called, "taxpayers." -Roy L

We can make our system far more just by shifting our taxes onto land value, and off workers.  The owners of fabulously valuable land are collecting from the rest of us value which they didn't create and we did.  It does not come out of thin air; it comes out of someone's labor.  Yours and mine, even if we've never set foot on that land or even passed within 10 miles of it.  (Would it be any better somehow if it came out of someone else's labor, but NOT ours?)

The Feoffees may sell Little Neck to the tenants ... for ever and ever

For background on this story, you might look at two previous posts (below):

• The Feoffees, their tenants, and the Ipswich public schools  February 20, 2008

• Update on the Feoffees' tenants in Ipswich, Massachusetts  July 8, 2008
  

I was surprised to learn that the Feoffees of Ipswich had decided to sell the property for which they have been trustees for over 300 years.  They have an agreement to sell the 36 acre property to the 167 tenants, who individually own cottages which sit on lots totaling a bit more than half the of the 36 acres; the rest of the land is apparently common property, shared by all the cottage owners (and their tenants) -- and assessed by the town at 10% of what a comparable sized lot with a home on it is assessed for.

Since Chicago has sold off on-street parking to a private entity (a financial services company), and Indiana has sold some toll roads to a foreign corporation, I suppose I should not be surprised that the Feoffees of Ipswich have followed suit.  But I am disappointed.  (I know nothing more of the story than what I read online and I've read everything I can find.)  It seems to me that the fellow who owned the land in the 1600s and chose to donate it to his community, for the ongoing benefit of the town's public schools, did a good thing.  He knew the land was choice (oh -- what a sweet place it appears to be, from all the photos!)   He might not have anticipated that a railroad would make it possible for daily commuters to work in Boston and live in Ipswich, but clearly the sheltered almost-island not far from the Atlantic ocean was a fine site. 

So the articles raise some interesting questions. I'll be curious to see how they get resolved.

1. The agreed-upon purchase price is $26.5 million.  What is the entity that will purchase it?  The tenants' association? 

2. How will the individual lots be valued, when it comes to the shares of ownership in the property?

3. Need one be a tenant to buy either a lot or a share in the Little Neck association?

4. If an individual cottage owner can't afford to purchase his lot, or his share of the $26.5 million, what provisions will be made?

5. Will the 24-year-round and 143-seasonal rule continue?  Will owners of "Seasonal" houses be permitted to buy rights to use their property year-round?  At what price?

6. Will there be tears shed over the folks who can no longer afford their cottages?

I'd like to suggest a model that the Little Neck tenants might want to consider.  Instead of owning the individual lots outright and sharing ownership of the other ~50% of the land through some association, they ought to consider continuing to rent the land out. Arden, Delaware, does this -- has since about 1903 -- and it is a fine place to live.  Like Little Neck, Arden has smallish lots and lots of common spaces, which make a very fine place to live.  Arden collects land rent from every homeowner, sufficient to cover local taxes on the land and buildings, and to provide other services within the community.  Taxes are not placed on buildings.  Land is valued according to its size and its proximity to positive and negative amenities.  In Little Neck, this would mean that lots with better views would pay more than comparably sized lots with more modest views, and, likely, that lots with the rights for year-round occupancy would pay significantly more than those with only seasonal access.  

And the Ipswich assessor ought to watch property values carefully.  When 80-year-old 900-square-foot cottages sell for $300,000 or $400,000 -- just for the cottage, not for the cottage and its land -- the full economic rent is not being collected.  (See http://lvtfan.typepad.com/lvtfans_blog/2008/07/update-on-the-f.html.)

$26,500,000 divided by 167 cottages works out to a mere $159,000 each. What a deal!

I'm amazed that the Feoffees would accept such an offer.

Looking at current real estate listings,

• there is a property asking $625,000. The assessor values the land at $294,300 and the 1910 building at $90,300, for a total of $384,600. That's one of the larger lots. Across the road is a vacant lot half the size, valued by the assessor at $27,600.
• Another property, listed at $339,900 consists of a 1935 cottage, valued at $81,800 and a lot valued at $185,500, for a total assessed value of $267,300.
• A third is listed at $465,000; the 1930 cottage is valued at $109,500, and the lot at $185,500, for a total assessed value of $295,000.
• A fourth is listed at $495,000; the assessor values the cottage at $102,900, and the land at $228,700, for a total of $331,600. (A nearby lot, the same size, is valued at $18,500.)

How on earth can the Feoffees justify accepting only $26.5 million for this fabulous land? $159,000 each, on average. Incredible. What a deal for the tenants. What a lousy deal for the beneficiary, Ipswich's schools, forever.

Land rent is a powerful thing.  Good things happen when it is collected and used for the benefit of the community.  Using it for common purposes -- schools, infrastructure, public health, emergency services, transportation systems, to name a few -- leads to healthy communities which are both fine places to live and fine places to visit, and fine places to run a business.  Letting it sit in private pockets generally leads to expensive housing, land speculation both in the residential and commercial neighborhoods, sprawl, old buildings, -- and, worst of all, reliance on sales taxes and taxes on wages, neither of which should be taxed at all.

I'll probably be revising this post a bit, but thought I'd publish it sooner rather than later.

This blog has more observations and history on this story.  See them collected at  http://lvtfan.typepad.com/lvtfans_blog/feoffees-land/.

Daily Kos: One Person's Lot is Person's Loot

Daily Kos: One Person's Lot is Person's Loot.

Eron Lloyd has an excellent post over at Daily Kos.  He's writing about Philadelphia, but could just as well be writing about most American cities and towns.  He writes,

At the Mayor's third town hall meeting last week on the budget cuts, I was handing out our Philadelphia LVT brochure to people before the meeting as usual when I had a brief but interesting exchange. A man walking into the building took a quick look at my brochure and handed it back, shaking his head. He said that he works for the city, and that "there's no money in land" to solve the city's problems. ...

After the meeting, I decided to test this person's belief while walking along Girard Ave. back to my car. Across the street were some vacant lots that looked like they'd been empty for years. It appeared to be about 3-5 lots in size, with huge weeds and junk all over the place. Rather than describing it in detail, have a look for yourself.

Eron goes on to describe the property, the public records on it, and the location, and then tells us that the property is for sale.  I'll leave it to you to read the rest of his post, and to consider how we currently finance public spending, and how the incentives affect our economy -- local and national.

A Property Tax Cut Could Help Save Buffalo - WSJ.com

A Property Tax Cut Could Help Save Buffalo - WSJ.com.

Here's what I tried to post on the WSJ website; the topic, not surprisingly, was "locked."

Cutting property taxes is not the answer.  Rather, the answer is reforming property taxes so that we stop taxing, or at least severely limit, the tax on buildings, and place most -- or better, all -- of the property tax on land value.  Not only Buffalo, but also Schenectady, Albany and a number of other hurting cities and towns would benefit from this reform.

When we tax buildings, what we get are (a) fewer buildings; (b) poorer maintenance; (c) slower redevelopment of blighted neighborhoods; (d) less investment.

When we tax land value, what we get are (a) redevelopment of underused properties; (b) vacant lots and parking lots blossom with buildings that will help pay the land value tax; (c) better maintenance of existing buildings because the landlords suddenly realize that they need tenants to help pay their property taxes.   All these contribute to a healthy local and national economy.

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.

Bailing out the Private Equity crowd

As I listened to bits and pieces of today's hearings re: the Big 3 US auto companies, I am led to wonder --

(a) how the overseas divisions of Ford, GM and Chrysler are doing; I suspect they might be in rather good financial shape, and that their boards might quite reasonably apply cash flow from overseas operations to the problems they are having in the US.

(b) how the remainder of Cerberus Capital is doing.  Are all its businesses hurting, or is it just this one?  What share of their equity is in Chrysler?  (And should we care?  Should we be protecting their shareholders from their managements' poor judgments?)

(c) who owns Cerberus Capital.  I suspect that the owners are the sort of individuals and entities who can apply their own capital to solving the problems they've created.   Perhaps the same folks who have brought us all the benefits that hedge funds and private equity have wrought for the other 90% of the public might be asked to provide working capital for Chrysler, instead of borrowing those funds and asking our children to repay them.
    
(d) how the remainder of these companies are doing.  GM owns Ditech.  Chrysler has Chrysler Capital.   These are diversified corporations.  Are these divisions having difficulty?  Are they not harvesting enough? 

(e) what sort of transfer pricing activities these companies have been engaging in, and what sort of federal income taxes they've paid in, say, the past 5 years.  I'm not a fan of corporate income taxes, but we ought to be collecting from all who turn a profit on an approximately equal basis.

When I hear their pleas for help, what flashes through my mind's eye is a graph from the film "An Inconvenient Truth" about US CAFE standards (fuel economy) compared to what other countries' manufacturers were already doing.  I can't seem to find the graph online, but what struck me when I saw it a few years ago was how stubborn and stupid America's major auto manufacturers were being, and, equally, how Congress was enabling them to be stupid.

Trickle-Up Economics

http://www.youtube.com/watch?v=6ZkfmY1PMng

That's the link to a film which explains rather neatly, in about 7 minutes, how one very significant aspect of trickle-up economics works.

The film is called Ricardo's Law ~ The Great Tax Clawback Scam  and I commend it to your attention.

Should we tax action, or tax inaction?

Joshua Vincent, of the Henry George Foundation in Philadelphia, is a keen observer of the scene, particularly of Philadelphia's scene.  This week he had an article in The Bulletin in that city, and he comes up with what I think is an interesting observation:

... on the revenue side we still depend too much on the taxation of action.

He continues,

The fact is Philadelphia relies on tax revenue from two things - labor and capital - that can be hidden, can vanish or can flee. Both are being whipsawed by forces beyond Philadelphia's control. There are few places to hide, especially from high tax rates on those two things.

Change Needed to End Boom-Bust Cycles

John Fisher wrote an excellent Letter to the Editor, published in the Chatham Daily News, which I think worth sharing:

Sir:
Re: Boom and Bust Cycles.

No matter how many billion-dollar crutches (bailouts, stimulus) are thrown at the current economic downturn, up-and-down cycles will continue until the "experts" get back to Economics 101.

Adam Smith, David Ricardo, Henry George and other classical economists correctly defined land (free gift of nature), labour and capital as the three factors of production. Land or nature, not being created by labour, is not capital. Unlike privately created wealth, nature only gets value from the presence and activity of the community as a whole.

The economy is often compared to a house or a ship, but usually without reference to the lot or water upon which they absolutely depend. All the good things the experts now suggest to improve the house or ship will ultimately determine the value of the underlying natural base, depending of course on human pollution, over and restricted use, etc.

Giving nature a value like we do now for land and then capturing it for the social good would reduce urban sprawl and waste of resources, while rewarding quality and quantity in the production process.

Many classical economists, including Henry George, would shift taxes from private wealth (the house) to public wealth (the land). In other words, pay for what you take from nature and not what you make privately. With little cost to government, this simple tax shift would remove unearned income from resource speculation and enable tax reductions on wages and business.

Until economic justice and reason prevail with a major tax shift from production (jobs, houses, trade) to resource values (raw land, water, oil) the world will continue to suffer from monopolies of nature and economic turmoil.

If you'd like to know more about these subjects, from a Georgist point of view, you might explore these pages:

boom-bust cycles  | Adam Smith |  David Ricardo  |  Henry George | classical economists  | land  | labor |  capital | factors of production | well-provisioned ship  |  all benefits go to the landholder | growing rich in one's sleep  | technological progress | population growth  |  he who produces | pollution  |  pay for what you take |  unearned increment | land speculation  | privatization  | commons  |  enclosure  | sprawl

John packed a lot into a single letter, and I'm glad the editor had the sense to print it.  Now, if only more of us understood what John does.

High-Income Households ... some additional SCF data, relevant to Obama's SS tax options

A Note: What is the Appropriate Tax-Base for President-Elect Obama's High-Income Household Tax? by David P. Bernstein.

Here's the abstract for a paper recently posted to SSRN at http://ssrn.com/abstract=1296188

President-elect Obama has proposed taxing high-income individuals and using the funds to improve the solvency of the Social Security and Medicare Trust funds. Existing taxes used to fund Social Security and Medicare have only been applied to wages. Current proposals have been vague about what type of tax base might be used in the new tax. This note utilizes data from the Survey of Consumer Finances to compare potential advantages and disadvantages of a wages-only tax base proposal to a broader tax base proposal. Four different tax base options,

• broad income over $250,000,
  
• wages over $250,000,
  
• broad income over $500,000 and
  
• wages over $500,000
  

are considered. The results presented here indicate the tax base (taxable income) on broadly defined household income over $500,000 could be 28 times larger than the tax base on wages over $500,000. ($737 billion compared to $26 billion.) The tax base on broadly defined household income over $250,000 is $1,134 billion compared to a tax base of $460 billion for household wages over $250,000. The broad income tax base allows for lower marginal tax rates, lower reductions in labor force participation among two-income households, and less substitution between wages and other forms of compensation than the wage-only tax base.

Let me lay that out.

• Aggregate household wage income over $250,000 of households with wages over $250,000 is $460 billion.  That is the total of wages if we exempt the first $250,000 of wages.  That's 2.5% of the population
• Aggregate household income wage income over $500,000 of households with wages over $500,000 is $26 billion. That is the total of wages if we exempt the first $500,000 of wages.
• Aggregate broadly defined household income over $250,000 of households with income over $250,000 is $1,134 billion. That is the total of income if we exempt the first $250,000 of income of any kind.
• Aggregate broadly defined household income of households with income over $500,000 is $737 billion. That is the total of income if we exempt the first $500,000 of income of any kind.  That's 0.8% of the population

Wealth Concentration, Income Concentration, and Ups & Downs in Consumer Spending

It occurs to me that if more of us had more money in our pockets and our portfolios, consumer spending might not be so seriously affected when the economy catches a cold.

But then again, if we shared justly among ourselves that which ought to be shared among all of us, the economy might not catch cold so much and would be pretty well inoculated against pneumonia.

Americans and Mass Transit

An article in Salon last week, entitled Who says Americans won't ride mass transit? contained some interesting factoids:

• Like mass transit systems across the country, BART has experienced record ridership this year. In 2007, Americans took 10.3 billion trips on public transportation, the highest number since the Model T and its progeny took over the nation.
• Back in 1926, Americans each year took 147 transit rides per capita.
• By 1950, Americans took just 113 transit rides per capita, and by 1956 that number had plummeted to just 66. By 2006, Americans took just 33 transit trips a year per capita. In the decades since World War II, it has been only in the dense financial centers, like New York, Chicago and San Francisco, where transit has been able to stubbornly resist the rise of the car, remaining a major way for many residents to get around.
• In 1960, some 12 percent of all U.S. workers used transit to get to work. By 2000, that number was down to 4.7 percent, and in the past couple of years it has just barely ticked up to 4.9 percent.
• Since the early '80s, 15 major American cities, including San Diego, Portland, Ore., Denver, Houston, St. Louis, Salt Lake City and Los Angeles, have built new light-rail systems from the ground up. Dozens of other cities are considering proposals for similar systems, or have them in development, such as Phoenix and Seattle.

So how do we go about making our cities and towns mass-transit-friendly?  Seems to me that measures that lead to increased density will help support mass transit ... and that mass transit will support increased population density.

The best measure I know is shifting taxes onto land value.  Sites well-served by infrastructure (e.g., roads, bridges, highways, airports, public transportation systems, ports, city water and sewer, stormwater runoff and, where needed, levees or hurricane protection, etc.) -- and services (e.g., schools, emergency response for small- and large-scale emergencies, public health, courts, etc.) -- and in places made desirable by nature (e.g., good views, waterfront, access to recreation, an appealing climate, a reliable supply of clean water, etc.) and good laws (e.g., limiting pollution, unpleasant smells, noise, etc.), efficient and uncorrupted government, and a healthy economy (with smart incentives and few disincentives to productivity, good infrastructure, logical and efficient services provided by the government, particularly in natural monopolies) have tremendous value.  For a good example of this, see this post.

When we tax land value lightly, those who own choice sites can choose whether to sit and wait -- without lifting a finger -- for the rise in land value they can reasonably expect to occur, or put the land to good use now.  Putting the land to good use now creates jobs, housing, offices, retail spaces, density.  Sitting and waiting produces nothing on that site, and leads to sprawl at the fringes.  Should our landholders have that choice, or is putting such sites to something approaching their highest and best use sufficiently important to the community as a whole that we ought to have incentives to good land use?  I'd say that reducing and reversing sprawl is sufficiently important that we ought to be taxing land value heavily. 

And there are many other good reasons to do so beyond this one.

That acre in midtown Manhattan: $800 million -- as a teardown!

I don't know how reliable the estimates involved are, but this article from a Pakistan website came across a google alert today.  The property is a 1-acre teardown within a short walk of Manhattan's Grand Central Terminal: 

Roosevelt Hotel to be sold out Naveed Miraj ISLAMABAD: The government has finally decided to sell the famous PIA-owned Roosevelt Hotel in a bid to add some foreign exchange to the national exchequer and has asked the Privatization Commission to arrange open bidding to this end. The commission hopes to get a minimum offer of eight hundred million US dollars as compared to two hindered million dollars the Shaukat Aziz-led government had expected for the hotel located in the busiest commercial area of Manhattan in New York. The previous government was in haste to sell off the hotel apparently to oblige some of its blue-eyed officials but shelved its plan following the Supreme Court's ruling in the Pakistan Steel privatisation case. In the wake of the current economic crunch, the government has decided to sell the hotel in the hope of getting handsome foreign exchange.

If you are one who thinks that land rent -- the value which the land itself would rent for each year -- is not a large enough tax base to provide much in the way of revenue, consider that this single acre, taxed annually at 5% of its proposed selling price, could provide $40 million each year in income to support the spending needs of NYC, NYS and the federal government.   I don't know what NYC is collecting in property taxes on land and buildings, but it isn't much -- which is part of why the asking price can be so high.

Think what it would mean to shift $40 million worth of taxation off wages, off sales, off buildings! 

PIA is the airline of Pakistan.

See previous posts about this site at That block in Manhattan ... and Hotel Roosevelt For Sale at $1 Billion

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.

Bob Herbert: A Fool’s Paradise

A Fool’s Paradise - NYTimes.com.

The article describes the fact that wages have stagnated for most of us, and that a series of events, including the entrance of wives and mothers into the workplace, and the increasing tolerance for debt, have been what has kept the bottom three quarters of the income spectrum afloat.  It ends,

The economy won’t be saved by bailing out Wall Street and waiting for that day that never comes when the benefits trickle down to ordinary Americans. It won’t be saved until we get serious about putting vast numbers of Americans back to work in jobs that are reasonably secure and pay a sustaining wage.

And that won’t begin to happen until we roll up our sleeves and begin the immensely hard and expensive work of rebuilding a nation that unconscionably was allowed to slip into a precipitous state of decline. We’ll end up spending trillions for the wars in Iraq and Afghanistan and another trillion, at least, to clean up after the madmen on Wall Street.

Now we need to find the money and the will to put Americans to work rebuilding the nation’s deteriorating infrastructure, revitalizing its public school system, creating a new dawn of energy self-sufficiency and rethinking our approach to an economy that remains tilted wildly in favor of the rich.

So how do we do that?   Herbert's answer is "That's what the presidential campaign should be about."

But I'll submit that neither of the major party candidates, and, likely, none of the third party candidates, have the answer.   That isn't to say there isn't an answer.  We just haven't heard anything about it yet from any of these candidates.

I think the answer lies in the observations of Henry George, and that the Remedy he laid out in his landmark book, Progress and Poverty (1879).  The subtitle to that book, An inquiry into the cause of industrial depressions and of increase of want with increase of wealth ... The Remedy," seems pretty timely.

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.

Not Everyone Should Own a Home - WSJ.com

Not Everyone Should Own a Home

It begins,

Maybe only a friendly foreigner could say this. But America needs to realize that not everyone can own a home. The American Dream of home ownership for all is a fraud. Politicians who pimped this dream created an unsustainable mortgage industry whose collapse is only surprising because it didn't happen earlier. America's mortgage industry will not recover, nor deserve to recover, unless it is prepared to challenge this politically unpalatable reality.

I agree.  Not everyone can or should own a home.  For all sorts of reasons.  But that doesn't mean that those who don't own homes aren't entitled to their per capita share of America's growth, or that one's share of America's growth should go disproportionately to those who own our choices sites -- be they residential or commercial, one home or 10 properties or 50 properties.

We need to examine this with a megapixel lens.  Most of us have not acquired the necessary lens yet -- even many college-educated and even PhD economists.

We ought to have affordable housing for all, but that isn't the same thing as homeownership, as recent events have clearly shown.

We've made a secular religion of homeownership

I heard this phrase from a guest on Diane Rehm's NPR program today.  And I think it is essentially a correct statement, and reflects our lack of understanding of the underlying dynamics.

We see that homeowners fare better than renters, and think that the answer to wealth distribution might be to make more renters into homeowners as a way to help them fare better.

But as a society, we could do a lot better if we all -- owners and tenants alike -- shared in the appreciation of land value, which currently accrues only to owners.  If you've never thought about it before, this will sound very odd to you.  But consider that
(1) houses, like cars and machinery, do not appreciate.  They depreciate.
(2) land appreciates, for reasons which have nothing to do with the individual landholder.  It appreciates because of public spending on infrastructure and services (schools, libraries, roads, highways, bridges, public health, emergency response at both the individual and community level, police, courts, jails, prisons, social workers, food stamps,  It appreciates because of natural amenities like great views.  It appreciates because of the presence of a healthy local and/or national economy.  It appreciates because of increases in population, whether from increased fertility, decreased mortality because of better health care or fewer accidents or disabilities, immigration or migration. It appreciates because of advances in technology -- faster trains, air conditioning, elevators, earthmoving equipment advances, subways, bridge design.

Why on earth should landholders -- residential or, far more significantly, commercial -- be the beneficiaries of this appreciation?  Why shouldn't we treat this value as our common treasure, since we're all equally responsible for it?  Shouldn't we use this as our natural revenue base, to benefit all of us -- those who consider ourselves owners, those who are residential tenants, and those whose work is on land owned by others? 

The way we do it now, tenants get nothing (and get to pay for some of that public spending, which raises next year's rent to their landlord), residential owners do pretty well, and commercial property owners, who own our best-served-by-valuable-infrastructure downtown sites (like that block in Manhattan) make out magnificently.  That "magnificent" doesn't come out of thin air. It comes from the labor of all of us, often at wages well below what they should be.

Another benefit of civilization and government

A recent Boston Globe article about a small town in Alaska (also described elsewhere as the state's 4th or 6th largest city, depending on whether one accepted a population figure of something like 6,000 or another estimate of 8,000) mentioned that as recently as the past decade, it had no building codes, and that its mayor seemed to be quite proud of that during her tenure. 

It seems to me that building codes and their enforcement by inspectors during the construction process are one of the very worthwhile protections that increasing population density and civilization brings us.  If I am thinking about buying an improved property, I want assurance that it was properly built, that it was built to reasonable standards at the time.  I want it to be built to withstand earthquakes, if those are a known issue in the area, and hurricanes, if those are a real possibility locally.  I don't want to have to research the reputation and finances of the builder at the time he built the building, or take it on faith that all was done properly. 

DIvision of labor is a fine thing, and it seems worthwhile to me to have such services be part of what one pays for through user fees and local taxes on land value.

When I am elected President ...

That was the title of a talk I heard some months ago, by my friend Mike Curtis, and with his permission, I'm sharing it here.  [The links are my additions.]

When I am elected president I will initiate legislation that will end poverty.  It will create full employment, raise wages, and make housing affordable for all Americans.  It will increase the return on savings,  stop inflation, and end recessions.  It will rejuvenate our cities, outlaw pollution, and generate a socially-created fund to pay for national health care and social security. 

This legislation, once enacted, will deliver an abundance of opportunity, strengthen the incentives, and protect the rights of property.   Revenues will come from the value of benefits received —— exclusive privileges assigned by the government.

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? 

An Election Season Thought

Wealthandwant.com: John Stuart Mill.

"Lord, enlighten thou our enemies. Sharpen their wits, give acuteness to their perceptions, and consecutiveness and clearness to their reasoning powers: we are in danger from their folly, not from their wisdom; their weakness is what fills us with apprehension, not their strength." — John Stuart Mill, "Essay on Coleridge"

This struck me as particularly relevant in this election season.  Perhaps I'd revise it from "enemies" to "adversaries" or even "leaders" ... or politicians and their advisors.

Some thoughts about paying taxes...

I saw a comment, deep in a long thread at Daily Kos, whose topic had varied a bit from the original post:

Daily Kos: Is Palin also a tax cheat?. I don't hate taxes ... anymore than I hate paying for my food or housing. Taxes pay for services, and they are a reasonable way to provide an economy of scale we could not otherwise afford.

Continue reading "Some thoughts about paying taxes..." »

(With a nod to Mark Twain!) The OT lesson in my church today was from Exodus, about God raining bread from heaven for Moses and his people. 

In the evening quails came up and covered the camp; and in the morning there was a layer of dew around the camp. When the layer of dew lifted, there on the surface of the wilderness was a fine flaky substance, as fine as frost on the ground. When the Israelites saw it, they said to one another, "What is it?"  For they did not know what it was.  Moses said to them, "It is the bread that the LORD has given you to eat."

Can you imagine if some of us claimed the land onto which that bread had fallen as our own, and told those who wished to collect their share of that bread that they must first pay us rent for the privilege?  Can you imagine if some of us gathered it, and sold it to our fellow human beings at high prices?  Can you imagine if we permitted the landholders to charge their fellow human beings for access, and then turned around and imposed an income tax on the general community, pretty much ignoring land value in the process?

A google alert today says that the owner of a choice block --roughly one acre -- in midtown Manhattan might be ready to sell it.  My browser seems to crash every time I try to read either of the two articles referring to it, but the property involved is a single block, a short walk from Grand Central Terminal, which, according to my research earlier in the year, was said last summer to be worth $400 million to $1.2 billion as a teardown.  But the owners seemed to be satisfied with $15 to $20 million per year in operating profits from its current use.  The property is about an acre.

$15 million annual on a $400 million property is not much of a return -- 3.75%.  But it isn't bad while one waits for the taxpayers of NYS and NYC and the federal government, as well as the private sector's activities, to cause the land to appreciate. Covers the carrying costs, and employs a number of people!  The city doesn't impose much of a tax on the land value.   And so a year's appreciation could be significantly more than a year's operating profits!  What a sweetheart deal we give to the owners of our choice urban land.

My previous post on the subject is here.

A 21st Century Georgist in the Revised Common Lectionary

(With a nod to Mark Twain!) The OT lesson in my church today was from Exodus, about God raining bread from heaven for Moses and his people. 

In the evening quails came up and covered the camp; and in the morning there was a layer of dew around the camp. When the layer of dew lifted, there on the surface of the wilderness was a fine flaky substance, as fine as frost on the ground. When the Israelites saw it, they said to one another, "What is it?"  For they did not know what it was.  Moses said to them, "It is the bread that the LORD has given you to eat."

Can you imagine if some of us claimed the land onto which that bread had fallen as our own, and told those who wished to collect their share of that bread that they must first pay us rent for the privilege?  Can you imagine if some of us gathered it, and sold it to our fellow human beings at high prices?  Can you imagine if we permitted the landholders to charge their fellow human beings for access, and then turned around and imposed an income tax on the general community, pretty much ignoring land value in the process?

That block in Manhattan ...

A google alert today says that the owner of a choice block --roughly one acre -- in midtown Manhattan might be ready to sell it.  My browser seems to crash every time I try to read either of the two articles referring to it, but the property involved is a single block, a short walk from Grand Central Terminal, which, according to my research earlier in the year, was said last summer to be worth $400 million to $1.2 billion as a teardown.  But the owners seemed to be satisfied with $15 to $20 million per year in operating profits from its current use.  The property is about an acre.

$15 million annual on a $400 million property is not much of a return -- 3.75%.  But it isn't bad while one waits for the taxpayers of NYS and NYC and the federal government, as well as the private sector's activities, to cause the land to appreciate. Covers the carrying costs, and employs a number of people!  The city doesn't impose much of a tax on the land value.   And so a year's appreciation could be significantly more than a year's operating profits!  What a sweetheart deal we give to the owners of our choice urban land.

My previous post on the subject is here.