LVTFan's Blog

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.

Council of Georgist Organizations Conference: Cleveland 2009

Council of Georgist Organizations Conference: Cleveland 2009.

The schedule for the annual gathering of Georgists (that is, people who are persuaded that the economist and social philosopher Henry George (b. 1839, Philadelphia; d.1897, NYC), author of "Progress & Poverty" and a book of essays entitled "Social Problems," among others, pretty much had it right) is now online.  It is in downtown Cleveland in early August.

Looking over the schedule, I see a lot of familiar names -- people I've come to know since I attended my first CGO meeting in 2001 -- and some people I've not yet met face to face but know online.  I'm happy that we have few sessions running side by side, because virtually all of the programs are of interest to me.

My last visit to Cleveland was with 600 delightful women, and included a great and noisy party at the Rock 'n' Roll Hall of Fame. (I just had the pleasure of being on the host committee for the same group's 2009 Annual Meeting!)  At that time, I didn't know the significance of the larger-than-life statue nearby of Cleveland mayor Tom L. Johnson.  The book he holds in his hand is P&P.

• If you would like to see an end to poverty, come join us.
• If sprawl and its concomitants concern you, come join us; we know how to slow it and reverse it and channel it into reusing the land already well served by taxpayer-provided infrastructure. 
• If long commutes -- and the fuel, pollution, spending and time loss involved -- worry you, come join us.  
• If you would like to see a more stable economy, without the booms and busts which cause such widespread pain and ruin, we have answers. 
• If you would like to see healthier cities and a more vibrant economy, come listen to what some of these people have to offer. 
• If unaffordable housing troubles you, come talk to us. 
• If the extreme concentrations of income and wealth -- particularly of natural resource wealth -- trouble you, we know how to correct it gently and justly.
• If you hate the income tax and recognize that sales and consumption taxes damage the economy, but still believe that there are some things government can do better than the private sector, we know how to finance that spending justly.

We come from all over the political spectrum, and share little except a major commitment to creating a better and more sustainable world and society and economy for all. (That's a lot actually!)  It is a joy to spend a few days with people so passionate about social and economic justice and with a clear vision of how to get there.

If you're curious about Henry George, you might start where I started, with four of his speeches.  I found these as pamphlets in the files of my late grandparents when I took possession of their library and file cabinets and some sentimental treasures.  My first pass was for genealogical information.  Shortly after that, I started reading a speech entitled "Thou Shalt Not Steal," and it clicked. My paternal grandparents (three of them, actually: my own grandparents, and my step-grandmother, whose first husband was a dear family friend, too, in the 1940s and 50s) were all Georgists.  For every landmark occasion in my young life, their gifts included a lovingly inscribed copy of Progress & Poverty (just in case I'd misplaced the previous ones!)  But I'd not done more than thumb through it.   When I first did get around to reading it, I was in my late 40s; my grandparents were quicker studies, and devoted the second half of their lives to promoting these ideas.  My first read of P&P was a slow slog; a friend shocked me when she said she found it a page-turner, a mystery whose solution she was anxious to get to.  Now I admit I read it for, and with, pleasure.

Another piece you might read is my grandfather's "An Introduction to Henry George" or my grandmother's more humorous article, "My Introduction to Henry George;" she went on to write delightful short stories for Ladies Home Journal, Colliers, the Saturday Evening Post and many other magazines in the 40s.  Things have come full circle -- I'm on the board of two Georgist foundations, including the one my grandfather worked for and with for over 30 years, the Robert Schalkenbach Foundation.  And following in the example of my late stepgrandmother, who tried to write an activist letter every day, I try to post comments on either my blog or other blogs or articles online every day.  I mostly succeed, though in the past month or two, I've fallen short.   And I've created a website to make Henry George's ideas accessible to people coming from a wide range of interests and points of view: http://www.wealthandwant.com/

People's Budget Day: the Centennial

A friend in the UK gave me permission to share his post here.  You might explore Winston Churchill's writings on the subject, entitled "The People's Land" at wealthandwant.com/docs/Churchill_TPL.html.  I'm on the fly today, and didn't copy in Jock's links.  You might want to go to his original to pursue them!

http://jockcoats.me/peoples_budget_day

People's Budget Day
tagged with:  * Land Value Tax    * 1909    * common birthright   * economic liberalism    * geo-libertarian   * Henry George
* house of lords   * liberalism   * lloyd-george  * Revolutionary Liberalism  * tax   * welfare state

Just a brief post to recall that today, 29th April, is the hundredth anniversary of David Lloyd-George's 1909 "People's Budget". Thanks to the wonders of the interwebs you can now read the whole budget online.

He ended (the main section - in the "Balance Sheet" section) with these words which have stood for a century accusing his successors of all parties for not having solved the problems he set out on the road to do:

"This, Mr. Emmott [in the chair of the Ways and Means Committee to which the budget was addressed], is a War Budget. It is for raising money to wage implacable warfare against poverty and squalidness. I cannot help hoping and believing that before this generation has passed away we shall have advanced a great step towards that good time when poverty and wretchedness and human degradation which always follow in its camp will be as remote to the people of this country as the wolves which once infested its forests."

From the financing of the newly created Old Age Pension and Disability insurance to the funding of the preparations for real war in the form of spending on Dreadnought battleships there was much for Lloyd-George to find in his budget. He didn't miss a trick, and more or less anything that could conceivably be taxed was, in many cases for the first time, taxed.

But for many of us it is for what ended up not being taxed that this budget is most remembered. The debate surrounding this budget, with speeches up and down the country by Lloyd-George himself and more notably perhaps Winston Churchill, must be one of the best documented in history, for it was a first attempt to implement some permanent form of Land Value Taxation. A tax shift that Churchill described as:

"the new attitude of the State towards wealth. Formerly the only question of the tax-gatherer was, "How much have you got?" We ask that question still, and there is a general feeling, recognised as just by all parties, that the rate of taxation should be greater for large incomes than for small. As to how much greater, parties are no doubt in dispute. But now a new question has arisen. We do not only ask today, "How much have you got?" we also ask, "How did you get it?

• Did you earn it by yourself, or has it just been left you by others?
• Was it gained by processes which are in themselves beneficial to the community in general, or was it gained by processes which have done no good to any one, but only harm?
• Was it gained by the enterprise and capacity necessary to found a business, or merely by squeezing and bleeding the owner and founder of the business?
• Was it gained by supplying the capital which industry needs, or by denying, except at an extortionate price, the land which industry requires?
• Was it derived from active reproductive processes, or merely by squatting on some piece of necessary land till enterprise and labour, and national interests and municipal interests, had to buy you out at fifty times the agricultural value?
• Was it gained from opening new minerals to the service of man, or by drawing a mining royalty from the toil and adventure of others? 
• Was it gained by the curious process of using political influence to convert an annual licence into a practical freehold and thereby pocketing a monopoly value which properly belongs to the State — how did you get it?"
  

That is the new question which has been postulated and which is vibrating in penetrating repetition through the land."

Currents & Undercurrents, Rolling Tides, and Ponds & Streams

In 2003, Arthur Kennickell wrote a paper entitled A Rolling Tide: Changes in the Distribution of Wealth in the U.S., 1989-2001, summarizing the 2001 Survey of Consumer Finances.

The 2006 study, of 2004 data, was entitled Currents and Undercurrents: Changes in the Distribution of Wealth, 1989-2004.  Aggregated tables adapted from that study are at http://www.wealthandwant.com/issues/wealth/90-9-1_Tables.html and more detailed tables are at  http://www.wealthandwant.com/issues/wealth/50-40-5-4-1.htm.

I awaited the newest study with curiosity both for what it would show and how AK would title it. 

The 2009 study, of 2007 data, is entitled Ponds and Streams: Wealth and Income in the U.S., 1989 to 2007.

The title is well chosen: it recognizes that wealth is a stock, and income a flow.  The study doesn't find large changes in wealth distribution since 2004, but it goes more deeply into the interconnections of wealth and income.

The studies are based on the Survey of Consumer Finances, conducted every third year since 1989 by the Federal Reserve Board.

Here are some highlights:

• In 2007, the wealthiest 1 percent of families owned 33.8 percent of total family wealth, the next wealthiest 9 percent owned 37.7 percent, and the rest owned 28.5 percent.
• The Gini coefficient for income was 0.575 in the 2007 survey, about 30 percent smaller than the corresponding value for wealth.  (The Gini coefficient is a measure of concentration of ownership, and ranges from 0.00 to 1.00; a Gini of 1.00 indicates that 1% of the population owns 100% of the asset.) 
• Over the 1989–2007 period, capital gains rose more markedly than mean income, which rose about 28 percent in real terms. As an indication of the size of the capital gains, house prices, according to the OFHEO House Price Index adjusted simply using the CPI-U-RS, rose 46 percent over this time, and publicly traded shares, according to the correspondingly adjusted Wilshire 5000 Index, rose 179 percent.
• The strongest signal ...  is a 3.9 percentage point decline in the share of total wealth held by the group between the 50th and 90th percentiles of the wealth distribution, with the top 5 percent of the distribution approximately absorbing the shift.

Reviewing the extremely detailed tables, I want to share a few highlights from the 2007 data, first on net worth, from Table A3a:

• The bottom 50% of us had 2.5% of the net worth.  The next 40% of us had 26.0% of the net worth.  That left 71.5% to be shared among the top 10%, of which the aforementioned top 1% held 33.8%. [Table A3a] 
• The bottom 50% of us had 6.1% of the assets.  The next 40% had 29.0%, and the top 10% held 64.9%; the top 1% held 29.6% of assets.
• Debt is distributed differently: The bottom 50% of us had 26.7% of the debt; the next 40% had 46.6%, leaving only 26.7% for the top 10%, of which 5.3% is held by the top 1%.
• 68.6% of us owned homes; 48.7% had mortgage debt against those homes.  (The comparable figures from the 2004 SCF were 69.1% and 47.9%; the former difference is significant; the latter may not be.)
• Looking at households ranked by net worth:

1. the bottom 50% of households, which had 2.5% of the net worth, received 22.4% of the income 
2. the next 40% of households, who had 26.0% of the net worth, received 36.3% of the income
3. The next 5% of households, with 11.1% of the net worth, received 8.3% of income
4. The next 4% of households, with 26.6% of the net worth, received 16.6% of the income
5. The top 1% of households ranked by net worth, with 33.8% of the net worth, received 16.4% of the income.  

Turning to the data on households ranked by income [Table A4a and A4b]:

• The bottom 50% of us received 14.6% of the income.  The next 40% received 38.2% of the income.  That left 47.2% for the top 10%, of which 21.4% went to the top 1%.  (In 2004, the bottom 50% received 15.8% of the income, then next 40% received 41.4%, leaving 42.7% for the top 10%, of which 17.2% went to the top 1%.)

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.

Child Labor in 1906; Child Poverty in 2009

More than one in six of all the children in the United States from ten to sixteen years of age are employed in some gainful occupation — that is, in working for wages for some employer. That comes perilously near the child of any reader of these pages. The margin of safety is too small. The danger to democratic institutions, which must depend on the vigor and intelligence of our citizenship, is too great. Child Labor strikes at the roots of democracy, and presents the greatest moral issue the American people have had to face since the Civil War. Our States cannot afford to let individuals enslave themselves before they have reached the age of discretion. —Samuel McCune Lindsay, in Woman's Home Companion for September (1906).   [Cited in The Public, October 13, 1906.]

In 2006, 17.4% of our children lived below the poverty level. (In 2006, the FPG for a family of four was $20,000; for 2009, it is $22,050.)
In 2006, 20.7% of our children under 6 years lived below the poverty level, and 43.3% lived at less than 200% of the FPG.

I don't have drop-out rates at my fingertips, but do you doubt that there is a correlation?

Marketing the Goodness of God

This single-paragraph blurb comes from the October 13, 1906, issue of The Public, a weekly newspaper published by Louis F. Post.   The dollar figures may be out of date, but the observation is quite current:

James J. Hill has bargained to sell a large collection of ore deposits for $400,000,000 — the equivalent of the labor of 80 million men for a day, of a quarter of a million for a year, of 10 regiments for 20 years, and of one man for seven times the historical period of the world, at the liberal average wages of $5 a day. When did God give to James J. Hill those ore deposits and consequently the control over all that labor of mankind?

Post script, from the same issue:

OUR NATIVE LAND.

Chicago Daily News, (Ind.).-Oct. 6.— An extraordinary transaction was completed in New York yesterday when James J. Hill sold to the United States Steel corporation many millions of tons of iron ore for many millions of dollars. It was Hill's ore because he had come into control of the land containing it. Now the ore passes to the great steel company at a price that is satisfactory to Hill. In the next hundred years or so the ore will be transformed into iron and steel and will be purchased by consumers all over the world at prices fixed by its manufacturers. Since the one huge corporation has now obtained control of practically all the great ore beds within its field of operations it is in fair condition to fix extortionate prices for its products. Such mineral lands as still are a part of the public domain should be retained by the government as affording the public some protection against private monopoly.

and from a later (11/10/06) issue:

WHERE'D JIM HILL GET IT?

From the St. Louis Mirror of October 25, 1906.

What is believed to be the largest transaction in the history of this country was the sale of approximately 760,000,000 tons of iron ore on October 6 to the United States Steel Corporation by President Hill of the Great Northern Railroad Company. It was said that the deal was accomplished by five men in two hours' time at the New York office of the Steel Trust. This is interesting. Who gave Jim Hill his title to that iron ore? What right had he to that wealth of the earth?

Does it actually belong to anyone—this wealth— until some one by labor has dug it out for the use of mankind? Does it not actually belong to all the people? Should not all the people have the benefit of that natural wealth in the land? Should not the value of it be taxed into the public treasury as the value of a natural resource, leaving to whomsoever might develop the field all the profit that might hereafter accrue from the working? Who made this wealth? Not Jim Hill. Did he buy it? No: he bought only the right to keep it out of the possession of others until such time as increased demand for such wealth might enhance the value of the product. And now he turns it over to the United States Steel Corporation in order that that corporation may keep the field out of occupancy and productivity lest its output under the working of others should prevent that corporation from keeping up the profits on the restricted output of the other iron fields under their control.

If this vast field were taxed to its full value, not only as mere land but as land covering and containing iron ore, think you that it could be held out of use at any profit? Not at all. Either the field would be worked by others or the occupants of other fields would reduce their prices on the product of those other fields. If a tax on the value of the iron lands were levied heavy enough to make it necessary either to work the fields or quit holding them, wouldn't there be 750,000,000 tons of free iron ore threatening the profits of the existing and now worked fields? There would. Would not that materially weaken the Steel Trust? You bet it would. That ore value belongs to the people so far as it is ore land. All values coming to those who might bring it into the service of the public would rightly belong to such servitors of the public. But as it is, the value goes to enhance the value of other iron fields, simply by keeping this field out of use. This iron is used by non-use to put up the price of other iron and steel. The public's property is used as an engine to plunder the public by means of high prices.

This tremendous transaction is a beautiful example of the evil that is wrought by our failure to get, by taxation of land values, the benefit for the public of the values of the public's own possessions. The forestallers of the land and the engrossers thereby of the land products are the vampires draining the body politic of its public wealth. Why not drive these vampires away by a trial of the Single Tax?

The ‘W’ Word, Re-engaged - ["Welfare"]

The ‘W’ Word, Re-engaged - NYTimes.com.("Welfare," that is)

These colliding instincts — pro-safety net, anti-welfare — each draw on legitimate concerns. One side sees poverty amid plenty, and an economy that heavily favors the few even when times are good. It trusts the impulse to help.

The other fears taxation, warning that it can quash initiative and choke an economy. This side also stresses moral hazards, warning that while feeding the hungry may be necessary, it can discourage people from feeding themselves.

“This tension waxes and wanes — but it remains a tension, absolutely,” said Isabel V. Sawhill, a researcher at the Brookings Institution. “Americans understand that some people are poor through no fault of their own. On the other hand, they suspect that some people aren’t doing all they could to help themselves. It’s pretty deep-seated in our national mindset, this belief that you can succeed.”

So let's talk about how we might solve this.  As readers of this blog know, not all taxes are created equal: the ones we rely on currently do have a tendency to quash initiative and choke the economy.   But that doesn't mean that the same is true of all taxes.  The taxes that are exceptions to that rule, though, turn out to be ones which don't favor the few, and whose utilization could reduce poverty greatly. 

The powers that be don't want to touch a system that works satisfactorily for them, and so all we're likely to hear about is the so-called "FairTax," which would greatly reduce taxes for our highest income people and increase them for most of the rest.

SNAFU?  Yes.  FUBAR?  No.  

But it is time to move toward implementation of Henry George's remedy.  Start by reading his books, "Progress & Poverty" and "Social Problems" and some of his speeches.  You'll come away newly educated and hopeful.  You'll know why we have poverty, and how to end it.  You'll know why our economy is limping so badly, and how to fix it.  You'll know why we experience booms and busts, and how we can prevent them through radical tax reform -- that is, tax reform that goes to the root of the problem.

Not FUBAR.  There IS a solution.

Time to simplify ... and then end ... the federal income tax

And I do not advocate replacing the federal income tax with a tax on sales, which is what most people who object to the income tax seem to see as our only (and therefore their best) option.  (They call it the "FairTax" but I can't figure out who it is fair to.  It is certainly favorable to our highest income people, but I don't think it is fair to anyone -- or good for our economy.)

Who among you fills out his or her own income tax forms with simply pencil and paper and calculator?  Who among you does a relative's tax filing that way?

When people who are completely able -- and very motivated! -- to hire the very best tax accountants cannot manage to file a complete and accurate tax return, it is clearly time to simplify our tax code.  That is the right first step, and ought to happen rather quickly, with the understanding that the replacement will be a temporary one.

There is a far better tax base available to us, and we ought to be moving rapidly to adopting it.  No, not the so-called FairTax -- that's the last thing the bottom 95% of us, or our economy, need.  

What ought we to tax?  Let's eliminate the things we ought not to tax.  When we tax something created by humans, we get less of it.  That's the law of supply and demand at work.

We shouldn't tax labor.  We shouldn't tax activities which create jobs.  We shouldn't tax buildings.  We shouldn't tax sales.  We shouldn't, for that matter, place the costs of healthcare on employers.  What's the line ... no good deed will go unpunished?

Adam Smith provided us wise guidelines in how to judge a tax.  How many of our legislators know them?  (How many legislators think that the more important guideline is what best suits their largest contributors?)  How many of our taxpayers, even those who were economics majors -- or government or political science members, for that matter -- know them?  His guidelines were known as the Canons of Taxation.  You can read about them at http://www.wealthandwant.com/themes/Canons.html

We ought not to be discussing tax policy without a full discussion of each option in light of this perspective.

.

Who do we mean when we say "Main Street?"

This was from my drafts file, late September ... so parts of it are a bit dated ... but I thought it worth putting online nonetheless.

With all the upheaval on "Wall Street," there has been a lot of talk about looking out for "Main Street."  But let's look closely at what we mean by Main Street.

It conjures up images of older towns, populated by small shops and larger ones, walkable towns.  Merchants who know their customers, who live locally and employ local people.  Doctors, dentists, lawyers, accountants, all self-employed and serving and knowing their community.  Perhaps of dollars being circulated locally.  Perhaps of a community with little poverty, with opportunity for all; a place where children who grow up there both want to stay and can afford to live .  I think of a sign I saw over the summer suggesting that shopping locally kept one's dollars recirculating locally.

Well, Main Street tends to be a bit more complex than that.  Often the reality is that Main Street is composed of two different classes: the landlord class and the tenant class.  Businesses whose business is landlording do very well.  Businesses which own their own building and the land under it do very well.  Those who are tenants to others are in a constant struggle, a constant race, a constant balancing act.

Sharecropping on Madison Avenue, NYC

Even Luxury Stores Can’t Afford Madison Ave - NYTimes.com

a few paragraphs from the middle of the article:

Madison Avenue has traditionally catered to the wealthy, but until Polo Ralph Lauren opened at the former Rhinelander Mansion on 72nd Street in 1986, most of the shops were private boutiques like E. Braun. In 1998, the stretch on Madison Avenue known as the Gold Coast surpassed Causeway Bay in Hong Kong as the most expensive shopping strip in the world, Cushman & Wakefield reported, with annual rents averaging $550 a square foot. By then, Giorgio Armani had two 16,000-square-foot stores on Madison and Hermès was about to move there from 57th Street.

For many international retailers, a Madison Avenue address was viewed as essential for promoting their brand, even if sales were not robust enough to justify the rent. Often, part of the rent came out of the marketing budget —a practice that brokers say is fast disappearing.

Rents began escalating rapidly a few years ago, after the stores on the Madison Avenue side of the General Motors Building, at Fifth Avenue on 58th and 59th Streets, were expanded and began commanding annual rent of more than $1,000 a square foot, said Benjamin Fox, the president of Winick Realty Group, a New York retail brokerage.

In 2007, fancy jewelers clustered on the avenue, especially between 61st and 64th Streets. They were able to afford higher rents because their costly merchandise could fit into smaller spaces and more revenue could be squeezed out of every inch. Rents skyrocketed to $1,250 a foot or even more. (Even so, Fifth Avenue between 49th and 59th Streets is now ranked as the world’s costliest shopping strip, with asking rents as high as $2,000 a foot. Its luxury tenants share the avenue, however, with shopping-mall clothing chains like Diesel and Abercrombie & Fitch.)

Retailers typically expect their rent to equal about one-tenth of their sales volume. “In a prime location like Madison Avenue, most retailers will change that to 25 percent,” said Joel Isaacs, the president of Isaacs & Company, a retail brokerage. Even under that formula, a tenant paying $1.25 million for 1,000 square feet would need to have nearly $5 million in annual sales.

One tenth of sales volume!  One quarter of sales volume in prime locations!!  And that isn't for a fancy, well-outfitted building; it is for the prime location.  It used to be that retailers marked up the goods they bought at wholesale by 100%.  If that is still the case, then landlords are getting 1/5 of gross sales in ordinary location and 1/2 in prime locations.

Landlords, as the classical economists recognized, grow wealthy in their sleep.  Having acquired excellent sites, they need do nothing further.  They are permitted to reap what others sow, and we're so used to it we don't even notice.  Their trusts can collect the rental income in perpetuity, long after they're dead.  Remember the name Astor?

If we relieved the landlords of the portion of that "take" which is a function of the value of the location, we would no longer need to tax wages, and sales, and buildings.  Wages would rise.  Entrepreneurial opportunities would rise as prime sites got put to better use.  

Remember Leona Helmsley's oft-quoted statement?  It WASN'T about tax evasion; it was about how we have things set up:

"We don't pay taxes, only the little people pay taxes."

See also Winston Churchill, at quoted at http://lvtfan.typepad.com/lvtfans_blog/2008/07/leona-helmsleys.html.   .... 100 years ago, in 1909 ...

See also http://www.wealthandwant.com/themes/Sharecropping.html.  see in particular Joe Stliglitz's comment:

My concern that I expressed about land is that in many developing countries, you have most land owned by a few rich people, and the land is relatively little taxed. But the land is worked in a system of sharecropping in which workers have to pay the landlord 50% of their output. In a way, you can look at that 50% as a tax. The sharecroppers are paying a 50% tax to the landlord. But it's worse than a tax. Because it's not a land tax, it's a tax on their labor. And it's a tax that goes to the landlord rather than to society.

Who should that tax go to?  We the people, or the lucky-duck landholders of NYC??   

Is this a structure that serves us well?

Who is entitled to the economic rent on Bolivia's trove of lithium?

In Bolivia, a Tight Grip on the Next Big Fuel - NYTimes.com.

Lithium is needed to power the next generation of hybrid and electric cars.  Bolivia has half of the world's supply.  To whom should the economic returns on this natural resource go?

a. The shareholders of Mitsubishi, GM, Nissan, Ford and BMW
b. Whoever gets the rights to mine it
c. The landholders in Bolivia
d. The landholders in Bolivia who are Bolivian citizens
e. The indigenous people of Bolivia
f. The citizens of Bolivia who can prove 30 years residency
g. All of Bolivia's people in the form of relief from taxes on sales and wages
h. All of Bolivia's people in the form of infrastructure and services, like excellent schools

Here's a bit of background:

Demand for lithium, long used in small amounts in mood-stabilizing drugs and thermonuclear weapons, has climbed as makers of batteries for BlackBerrys and other electronic devices use the mineral. But the automotive industry holds the biggest untapped potential for lithium, analysts say. Since it weighs less than nickel, also used in batteries, it would allow electric cars to store more energy and be driven longer distances.

With governments, including the Obama administration, seeking to increase fuel efficiency and reduce their dependence on imported oil, private companies are focusing their attention on this desolate corner of the Andes, where Quechua-speaking Indians subsist on the remains of an ancient inland sea by bartering the salt they carry out on llama caravans.

The United States Geological Survey says 5.4 million tons of lithium could potentially be extracted in Bolivia, compared with 3 million in Chile, 1.1 million in China and just 410,000 in the United States. Independent geologists estimate that Bolivia might have even more lithium at Uyuni and its other salt deserts, though high altitudes and the quality of the lithium reserves could make accessing the mineral difficult.

While estimates vary widely, some geologists say electric-car manufacturers could draw on Bolivia’s lithium reserves for decades to come.

Slum Dog Millionaire, India and America

I've not yet seen the film "Slum Dog Millionaire," but an article in the Washington Post sent me to google to see what the Gini indexes for income are for the US and India.  The Gini index is a measure of the inequality in a society; it ranges from 0.00 to 1.00.  An income Gini of 1.00 means that all the income is going to the top 1% of the country; a Gini near 0.00 means that income is evenly distributed.  If you need to know more, you might search on Gini or on Lorenz Curve; the Gini index is a measure of the area under that curve, which is a graphic which shows for each cumulative percentage of a society's population, what percentage of its income (or wealth) resides in that population.  In a perfectly equal society, the Lorenz Curve would be a 45 degree line.  (No such societies exist.)  Many different shapes of Lorenz curve can have identical Gini coefficients.

Well, the wikipedia entry I got was this, and it shows some interesting data.

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!

The Landlord's OTHER Prayer

In June, I posted a Landlord's Prayer, published in Henry George's weekly newspaper, The Standard, on January 22, 1887.  That one was for landlords to be prayed by others, and appeared in Anglican prayerbooks.  Now, another prayer, this one for the use of landlords, which apparently appeared in the London Democrat, and was picked up in the very first issue of The Standard, on January 8, 1887, recently posted at http://savingcommunities.org/docs/george.henry/standard0101.html:

Lord, keep us rich and free from toil,
For we
Are honored holders of Thy soil,
Which democrats would now despoil
With glee.
O! Lord, our fathers got the land
For serving those whom Thy right hand
Had chosen to be great and grand
As kings.
Tho' ta'en by force, we're not to blame,
Thou know'st, O! Lord, it is a shame
To say to us - of titled name,
Such things.

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

- London Democrat

Madoff Greatest Ponzi Scheme? Real Estate Magnitudes Greater -- The Inspired Economist

Madoff Greatest Ponzi Scheme? Real Estate Magnitudes Greater -- The Inspired Economist.

I'm going to take the liberty of sharing with you a post which I wish I'd written.  It is by Fred Etchevery:

Madoff Greatest Ponzi Scheme? Real Estate Magnitudes Greater.

Written by Fred Etcheverry | Published on December 22nd, 2008

Bernard Madoff was arrested December 12, 2008 for an alleged $50 billion investor fraud and released on $10 million bail. While the press heralds this as the biggest ponzi scheme in history, it’s a pittance compared to the real estate schemes that have created the present financial crisis.

Like Madoff’s scheme, the house market became dependent on a steady price increase. Buyers were willing to pay high prices with the expectation that they could later sell for a profit.

Eventually, without substantial inflation, houses had to become unaffordable. House prices had reached levels that often required most of a household’s income. Subprimes were just a frantic attempt to continue this pyramid. Like every ponzi scheme, some means must be found to get more money from new “investors” to payoff old.

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?)

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.

hear, read, mark, learn, and inwardly digest

This phrase comes from an Anglican prayer book, but it came to my mind when I was writing to a foundation which claims to be in favor of a just society.  Examining their website, I could see no sign of any familiarity with Henry George's ideas, and this phrase, whose origins I could not bring to mind, popped into my head. 

Hear ..., read, mark, learn, and inwardly digest ...  The reference is to scripture, but I think it might apply nearly as well to Henry George's ideas, if you regard any of these as important:

• ending poverty
• improving wages
• sharing nature's bounty more evenly among us
• protecting the environment from despoilment
• reducing, even reversing, sprawl
• making housing affordable
• making cities more vibrant
• creating jobs
• making effective public transportation systems realistic 

(I'd be happy to see any one of those ... and thrilled to see all of them.  Dayenu!)

 Well, Henry George has been called "The Prophet of San Francisco" -- that's where he wrote Progress & Poverty -- and many people consider him to have answers to problems that most people think are completely intractable.

Hear, read, mark, learn and inwardly digest ... and then get to work creating a more just society, for yourself, your neighbors, and all our children and future generations.

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.

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.

Leo Tolstoy -- The Last Station -- and Henry George

I'm listening to Diane Rehm interviewing Christopher Plummer on the occasion of the publication of his memoirs.  He mentions that he plays Leo Tolstoy in a film which, according to IMDB, is in post production, due for release in 2009.  (I missed part of the interview, so don't know all details.)  The film title is "The Last Station" and it is based on a novel published in 1990, and in paperback in 2007.

The novel was reviewed this way by Publishers Weekly:

Alternating narrators from Count Leo Tolstoy's household tell of his attempts to balance his philosophy of poverty and his privileged lifestyle by living humbly in his final days. "In the end, it is not the people around him who speak most eloquently for Tolstoy, but the sincerity of his own words--and those of Parini in his kaleidoscopically rich and skillful novel," said PW.

There is also a review in the NYT of 7/17/90, which ends with

As for his portrait of Tolstoy, Mr. Parini plays down the raging conflicts (religious, sexual and philosophical) that animated the latter part of his life, and instead makes him the still center of this book. While the other characters are scheming, arguing and maneuvering, while the press and sychophantic supporters vie noisily for his attention, Tolstoy himself sits alone in his study, quietly contemplating the great questions of faith and justice. We are shown letters he wrote to Gandhi and George Bernard Shaw in which he discusses God and love and evil; and we are given an excerpt from ''What Then Must We Do?'' in which he sets forth his own guilty observations about poverty in Moscow.

In the end, Tolstoy decides to leave the chaos at home, setting off, at the age of 82, to find a purer, more spiritual life. ''My position in this house has become intolerable,'' he writes his wife. ''Along with everything else, I can no longer abide these luxurious conditions. What I am now doing is what old people have commonly done - leave their worldly life behind to spend their last days in peace and solitude.''

Needless to say, he fails to find that peace. Taken ill at a local railroad station, he dies in the stationmaster's house, while family members, followers, reporters and photographers hover about, waiting to record his last words, his final moments.

Why am I bringing this up?  Leo Tolstoy was a great admirer of the ideas of Henry George. He died in 1910, about 13 years after HG.  The following year, Bolton Hall, an American Georgist, published a book called "What Tolstoy Taught," with the approval of Tolstoy, which described things as Tolstoy saw them.  Henry George's most famous book was Progress and Poverty.

For more information, you might see these pages:
http://www.cooperativeindividualism.org/lebrun_victor_on_tolstoy_and_george.html
http://www.wealthandwant.com/auth/Tolstoy.htm which includes this:

On a well-provisioned ship, how is it that 6% of us consume ~25% of the resources?

As we, perhaps, become somewhat more appealing to the other 94% of the globe's residents as a result of the choice the voters made on Tuesday, we still need to consider the question of the rightness and the sustainability of a country which has 6% of the world's people consuming about 25% of the world's resources.

There is the theory of American exceptionalism. A Google search provides the Wikipedia definition of American exceptionalism; The second thing Google brings up is a recent book review from The American magazine:

Understanding American Exceptionalism

By Karlyn Bowman Monday, April 28, 2008

An ambitious new book explains how and why the U.S. is so different from other countries around the world.

“America is indeed exceptional by any plausible definition of the term and actually has grown increasingly exceptional [over] time.” This is the conclusion of the editors of a new volume, Understanding America: The Anatomy of an Exceptional Nation (PublicAffairs, $35). At an American Enterprise Institute conference on April 22, Peter H. Schuck and James Q. Wilson introduced the collection of essays, which is designed to probe Alexis de Tocqueville’s observation that America is “exceptional,” or qualitatively different from other countries. The book, which examines 19 different areas, marshals the best and most current social science evidence to examine America’s unique institutions, culture, and public policies.

During his introductory remarks, AEI president Christopher DeMuth said that no effort to understand the meaning of American exceptionalism had been “more ambitious and far-reaching” than this book. Not only does it describe the ways — both good and bad — in which Americans differ from people in other nations, DeMuth said, it also considers whether American exceptionalism is likely to continue, and how it matters to the world. DeMuth noted that Americans are more individualistic, self-reliant, anti-state, and pro-immigration than people in many other countries. They work harder, are more philanthropic, and participate more in civic activities. On the negative side, America also has a higher murder rate than some other countries. 

Wilson noted that one of the best ways to understand American exceptionalism is to look at polls. Three-quarters of Americans say they are proud to be Americans; only one-third of the people in France, Italy, Germany, and Japan give that response about their own countries. Two-thirds of Americans believe that success in life depends on one’s own efforts; only one-third of Europeans say that. Half of Americans, compared to one-third of Europeans, say belief in God is essential to living a moral life. 

Three-quarters of Americans say they are proud to be Americans; only one-third of the people in France, Italy, Germany, and Japan say that about their own countries.

Negative views of America in polls today have been shaped by the Iraq war and by the response to President Bush, Wilson noted, but criticism of America has a long history, particularly among elites. He quoted Sigmund Freud as saying, “America is a great mistake.” “Anti-Americanism was an elite view,” Wilson continued, “but it has spread deeper to publics here and abroad.” 

Schuck said that Understanding America casts a new light on American exceptionalism by examining it at a micro level. He identified seven overarching themes that connect the essays. 

(1). American culture is different. Its patriotism, individualism, religiosity, and spirit of enterprise make it different. The United States, Schuck said, “is more different from other democracies than they are from one another.” 

(2). American constitutionalism is unique in its emphasis on individual rights, decentralization, and suspicion of government authority. 

(3). Our uniquely competitive, flexible, and decentralized economy has produced a high standard of living for a long time, even though it now generates greater inequality. 

(4). America has been diverse throughout its history. Schuck cited research by historian Jill Lepore, who found that the percentage of non-native English speakers in the United States was actually greater in 1790 than it was in 1990. The thirst for immigration, he said, has transcended economic booms and busts. 

(5). The strengths of civil society here make America qualitatively different. No other country, he said, allocates as much responsibility for social policy to the nonprofit sector. 

(6). The characterizations of the United States as a welfare-state laggard compared to Europe miss an element of American distinctiveness: its reliance on private entities to provide certain benefits. 

(7). We are exceptional demographically with our relatively high fertility rate. 

... The editors of Understanding America, Schuck and Wilson, believe that the “stakes in understanding America could hardly be higher. For better or worse, America is the 800-pound gorilla in every room in the world.” 

Karlyn Bowman is a senior fellow at the American Enterprise Institute and a contributing editor to THE AMERICAN.

Americans are consuming roughly 25% of the world's natural resources, despite representing only 6% of the world's people.  As others  see themselves as our equals -- equally entitled to the world's resources, including the carrying capacity of the environment to handle the pollution we spew out, how are we going to reconcile the notion that all men are created equal with their very reasonable expectation that they are equally entitled -- and further, that future generations are entitled to inherit a world that works and a planet with resources available to meet their needs, too -- not to mention, within the US, the younger generation's very reasonable right to not be paying for our generation's wars and mistakes?

And then remember that within the US, the top 1% of wage-earners are getting 12% of wages; the top 10% are getting nearly 36% of wages.  When we look at all income excluding capital gains, the top 1% of income recipients are receiving nearly 20% of income and the top 10% are receiving 47% of income.  When we look at income including capital gains -- the most inclusive measure -- the top 1% are receiving nearly 23% and the top 10% nearly 50% of income.   [Source: Piketty & Saez, 2006 data]

And when we look at the accumulated net worth of Americans, in 2004 the top 1% of wealthholders had over 33% of the net worth; the top 10% of wealthholders held nearly 70% of America's household wealth. [Source: FRB Survey of Consumer Finances, 2004.]

How much of that wealth is created out of thin air, without the use of natural resources?   We've learned a bit about assets created from thin air, and we may have reason to worry greatly in coming months about the moods and portfolios of those who invested heavily in hedge funds.  But I'm willing to bet that were we to get a new snapshot of the same statistics for, say, October 31, 2008, the wealth concentration would be little a bit higher than 2004's.  (The 2007 data will likely be available in January, if previous publication patterns hold.) 

Natural resources and resources which are rightly common property -- the economic value of land, of broadcast spectrum, of water rights, of landing rights, of many other like things, which the neoclassical economists would recognize as "land," as opposed to "capital"  -- have been privatized -- quite legally -- to produce the wealth and income concentration which America lives with.  They've played by the rules -- but the rules aren't just or right.  It is time to revise the rules and the structures. 

By doing so, we can do something about our excessive use of the world's scarce resources; reduce urban sprawl; shorten commutes; increase urban density; encourage job creation, raise wages, reduce wealth concentration, improve the economy's efficiency, remove much of the deadweight loss, motivate the private sector to provide, at a profit, affordable housing for all.   And reduce our overuse of the world's natural resources significantly, making us an example to the rest of the world of what to do and how to do it, rather than the opposite.

Too much to ask of one reform?  Too much to ask for?  NO!

 

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.

Stock Market Gyrations and Gun Purchases

ABC News reported this evening that gun sales had jumped significantly since Tuesday's election, because many people think that the new administration and/or Congress will seek to limit gun sales.

This led me to wonder whether some significant part of the recent gyrations in the stock market might be a function of an expectation that the new administration will raise capital gains taxes from the current low rates.   If it is true that there are significant unrealized capital gains in non-retirement accounts, and not a whole lot of cash in retirement accounts, there may be far more sellers than buyers.

You might open this post in another window:Those Shareholders who are being wiped out ... who are they? - or, "How's it trickling?" and also take a look at Wealth Concentration Tables from 2004 SCF: 50-40-5-4-1

If we look at holdings of Stocks (line 08), Non-Money-Market Mutual Funds (line 09) and Retirement Assets (Line 10), by wealth quantile, here's what we see for 2004: (trillions of dollars)
.................. Stocks ....... NMMMF ..... Retirement Assets   ... Ret Assets as Pct of Holdings
Bottom 50% .       21 ............     23 ..........        226  .................84%
Next 40% .....    382 ............    564 .........      2,587 ................. 73%
Next 5% ......    375 ............    332 .........      1,321 ................. 65%
Next 4% ...... 1,045 ............ 1,016  ........      1,701 ................. 45%
Top 1% ....... 1,888 ...........  1,169 .........         917 ................. 23%
Total ..........3,711 ...........  3,101 .........      6,752 ................. 50%

The folks who have holdings of individual stocks and non-money market mutual funds in retirement accounts don't have enough to buy up all that those who hold their stocks and mutual funds in non-retirement accounts might choose to sell before anticipated increases in capital gains taxes.  They certainly don't have enough cash sitting around to buy up the stock that the top 5%, or even just the top 1%, might put up for sale if they were concerned about a change in tax laws.  [For an estimate of holdings of unrealized capital gains, see "Capital gains and wealth" in the SCF study Currents & Undercurrents: Changes in the Distribution of Wealth, 1989-2004, particularly for the top 1%.] 

Capital gains are taxed at a maximum of 15%, and the next president may raise that to 20%, a 33% increase, for SOME taxpayers.   Some sources say that the rate might be as high as 25% -- a 67% increase.  Might that be enough to cause some who hold stocks and mutual funds in non-retirement accounts to choose to sell?  Possibly. 

Keep in mind, however, that many kinds of capital don't appreciate. Buildings depreciate.  Cars depreciate.  Machines depreciate -- even with the best of maintenance.  What appreciates?  Something that isn't "capital": the classical economists called it LAND.  Not just sites, but also natural resources and many other things not of human production.  And through our laws on residential property appreciation and 1031 exchanges, we exempt much of the appreciation in land from taxation.  To our detriment.  But that's another story.

Ben Franklin, technological progress and moral progress

I heard an interesting quote from Ben Franklin on Bill Moyers NOW program a few minutes ago, which sent me searching because it put the opening passage in one of my favorite books in a different light.  The first thing that turned up on Google was this, at http://www.thenewatlantis.com/publications/the-scientific-mind-of-ben-franklin:

This article appears in the WINTER 2007 issue of The New Atlantis

The Scientific Mind of Ben Franklin 

Jerry Weinberger

Had Benjamin Franklin managed to outwit the Grim Reaper, he would have turned three hundred years old in 2006, and would probably have been making plans for another three hundred. Journalist, scientist, diplomat, and vendor of the virtues, Franklin stands in our imagination as the iconic “First American,” the self-made man and proud inventor of the future. His scientific achievements were indeed interesting and impressive — especially his research on electricity and his invention of the lightning rod. But equally interesting, and far more complicated, was Franklin’s idea of science. He was, you might say, our first home-grown Baconian — seeing scientific ingenuity as the greatest delight and truest redeemer of human life.

In 1780, Franklin complained to his friend and fellow natural philosopher Joseph Priestley of the disparity between scientific and moral progress: so badly constructed were most human beings, said Franklin, that Priestley should have killed boys and girls instead of innocent mice in his experiments with mephitic air. How much better than the bratty kids were the results of these experiments. Scientific progress, Franklin commented,

occasions my regretting sometimes that I was born so soon. It is impossible to imagine the height to which may be carried in a thousand years, the power of man over matter. We may perhaps learn to deprive large masses of their gravity, and give them absolute levity, for the sake of easy transport. Agriculture may diminish its labor and double its produce; all diseases may by sure means be prevented or cured, not excepting even that of old age, and our lives lengthened at pleasure even beyond the antediluvian standard.

Later on, in letters to other friends, Franklin trimmed his timetable by a full nine hundred years, saying that a mere one hundred would see modern science produce discoveries of which he could have “no conception.” And he said again that the “art of physic” would advance so far and so fast that mankind would be able to avoid diseases and live as long as “the Patriarchs in Genesis; to which I suppose we should make little objection.”

A new film: "The End of Poverty?"

A new film entitled The End of Poverty? is making its way around the film festivals. It premiered at Cannes in May, as an Official Selection of the 2008 Cannes Film Festival Critics Week as well as an Official Selection at over a dozen international film festivals.   This week, it was shown at Leeds, in the UK.  Here's the description from the festival's program:

The End of Poverty? + Oxfam Panel Discussion

The End of Poverty? asks a simple question: ‘with so much wealth in the world, why is there still so much poverty?’ Looking beyond the popular ‘solutions’, director Philippe Diaz asks if the true causes of poverty in a modern, globalised world originated in colonial times. From the barrios of Latin America to the slums of Africa, leading economists, politicians and activists warn how the developed nations are plundering the planet at a pace that outstrips its capacity to support life. Followed by a panel discussion event organized by Oxfam.

Contrary to appearances, Oxfam was not involved in the production of the film, but I'd be very interested to hear about the discussion which followed the film's showing. 

The film was financed by the Robert Schalkenbach Foundation, based in NYC, whose mission is to share the ideas of Henry George, known to readers of this blog.   (For those who arrived here by searching on the film's title, welcome!  Have a look around!  And check out this blog's sibling site, http://www.wealthandwant.com/)

Here are comments from two bloggers who saw the film:

http://rolamcclary.blogspot.com/2008/11/end-of-poverty.html

Thursday, 6 November 2008
The End of Poverty?

Once again, reminding me of one of the first posts I ever made, Leeds International Film Festival is upon us, with a catalogue full of films I plan to go and see.

I made a start tonight, with a film from Oxfam: The End of Poverty? I went keeping in mind that perhaps the bias of the people behind the film would hinder its objectivity. However, I was pleased to say that I was presented with a greatly informed account of the events that have led up to the current, torrid global situation. I feel much less ignorant for it, and more able to speculate on the worsening future.

http://www.theendofpoverty.com/
Posted by Laura Stubbs at 14:56
Labels: environment, film, human rights

http://fancy-plants.blogspot.com/2008/11/leeds-film-festival-day-3.html

Fancyplants' Cracked Pot
My little cracked plant pot. Mind the roots.

Thursday, 6 November 2008
Leeds Film Festival - Day 3

The End of Poverty? (US) (site)

Created in partnership with Oxfam, this film deals with the question of why, when there is so much wealth in some parts of the world, there is destitute poverty in so many others. The film works from the time of the Spanish Conquistadores, who were the first western (labelled 'northern' in the film) power to start carving up the African and Asian land to invade, colonise and take over. Of course, Britan, alongside Holland, Portugal, France, Germany, Japan and many others followed and became owners of the lands that were not the property of anyone, and the indigenous peoples became part of the deal also. The capitalist engine thrived upon this influx of cheap slave labour and a culture of individualism (rather than a community sharing its resources) and forced Christianity reaped all it could from the soil and the rock of these countries, leaving the natives with barely anything they could call theirs.

As time passed and slavery was abolished, the western hunger could not stop there, and so in a number of repackaging exercises, slavery was reinvented time and time again, each one requiring a little less work by the owners and more by the slaves themselves. The slavery continues in various forms today, often because the country is mired in heavy debt it can never repay and so is at the mercy of the world bank and the multinationals who have set up industry, extracting raw materials and shipping the result back to the 'mother land'. It is this that leads to the statistic that far more money flows from poor to rich countries than the other way around.

It is a film packed with insights into how we have ended up in the situation we are in now, with some countries enjoying prosperity whilst others cannot seem to progress. It covers such a massive subject very well, almost like a super-documentary to which all others on the subject handle but a subset of the problem, and I would recommend it to anyone remotely curious as to why and how we in the west manage to live so well. 8/10

Again, Oxfam was not involved in the production of the film (though I'm sure RSF would welcome their interest), and I'd be interested in hearing about the discussion which followed the showing at Leeds.  Please post comments!

(I'll be posting more information on the film as time goes on.)

Wealth Concentration and the Corruption of Government

The more corrupt a government the easier wealth can use it. Where legislation is to be bought, the rich make the laws; where justice is to be purchased, the rich have the ear of the courts. And if, for this reason, great wealth does not absolutely prefer corrupt government to pure government, it becomes none the less a corrupting influence. A community composed of very rich and very poor falls an easy prey to whoever can seize power. The very poor have not spirit and intelligence enough to resist; the very rich have too much at stake. -- Henry George, Political Dangers (The second essay in Social Problems, 1883)

I've been rereading this fine book of essays, and decided I needed to put it onto the Wealth and Want website.  Putting it up is, of course, fairly easy, but indexing it into the system of themes there -- something approaching 1000 different themes, last time I looked -- takes time.  But this is so timely that I've posted the essay without waiting to finish the cross-referencing.  (To see what I'm talking about, take a look at the first essay, The Increasing Importance of Social Questions, noticing particularly the sidebar to the right.  You'll see themes like technological progress, infrastructure, conservatism, prosperity, justice, charity and wealth concentration.  If you follow one of those links, you'll find excerpts of various Georgist writings -- Henry George's own writings, or writings of others, which speak to that topic.  And in the right sidebar of each theme, you'll find links to other related themes.  Themes are something like tags, which I wasn't familiar with when I started creating WealthandWant.com.)

The premise of the Wealth and Want website is that a democratic republic alone is not enough to produce widely-shared prosperity.  And I'm pretty sure that no one in either of the two main parties knows what it takes to produce widely-shared prosperity, either.  I believe that a thorough reading of the 25 or so "essential documents" on the Wealth and Want site would put a new administration on the road to knowing. 

And then we circle back to the point that Henry George was making in the paragraph I quoted above. If you need a reminder about the degree of concentration of wealth in America, take a look at this post: Spreading the Wealth and these pages: Wealth Concentration Tables from 2004 SCF: Bottom 90%, Next 9% and Top 1% and Wealth Concentration Tables from 2004 SCF: 50-40-5-4-1

If you want details on concentration of income, read this post:  Spreading the "wealth" -- this time, let's talk about income.

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.

Fareed Zakaria: How to Spread Democracy

Zakaria: How to Spread Democracy -- Newsweek.com

I just came across this piece, from the September 29th issue of Newsweek, and want to applaud:

How Not to Save the World

Valiant efforts are being made every day to end hunger, reduce poverty, save lives. But if we truly want to solve the world's problems, here are five things we need to do.

Democracy: If You Want to Free Your Country, First Liberate Its Land
By Fareed Zakaria | NEWSWEEK

So you want to spread democracy. By now, it's pretty obvious that this is easier said than done. George W. Bush's stirring rhetoric about freedom has suggested a too-simple path: just rid the country of its tyrant and the people will be free. Bush often asserts that people in every country and culture yearn for democracy and are capable of it. To argue otherwise represents cultural condescension. It's not that President Bush is wrong at the abstract level — if Nazi Germany and fascist Japan could become democratic, it can happen most anywhere — but the argument holds at such an elevated plane that it becomes meaningless when applied on the ground. ...

Spreading the "wealth" -- this time, let's talk about income

The people who are offended by the concept of "spreading the wealth" are offended at the idea that income they might receive might be "redistributed" downwards, and assume that they would be the logical targets, the folks from whom income would be taken in order to provide more income to people below them on the income spectrum -- people they suspect do not work as hard as they do, or display virtues they feel they excel in.  But I suspect that most of those who boo on cue are not in the top 1%, or even the top 10%, who receive a significant share of the wage income and in fact all kinds of income. 

Let's look at income distribution.  The data come from Piketty and Saez's annual spreadsheet, at http://emlab.berkeley.edu/users/saez/TabFig2006.xls.

1. Wages (P&S, Table B2):

2006
Top 1%: 12.00% of wages    Next 9%: 23.82% of wages      Bottom 90%: 64.18% of wages

For comparison, we might look at 1968:
Top 1%: 5.24% of wages     Next 9%: 20.36%                     Bottom 90%: 74.40%

1953:

Top 1%: 5.61% of wages     Next 9%: 18.52%                     Bottom 90%: 75.87%

1928:
Top 1%: 8.87% of wages     Next 9%: 20.24%                     Bottom 90%: 70.89%

2. Income excluding Capital Gains* (P&S, Table A1):

2006:
Top 1%: 18.24% of income excl capgains   Next 9%: 27.04% of income excl capgains  Bottom 90%: 54.70% of income excl capgains

1968:
Top 1%: 8.35% of income excl capgains     Next 9%: 23.63% of income excl capgains  Bottom 90%: 68.02% of income excl capgains

1953:
Top 1%: 9.08% of income excl capgains     Next 9%: 22.30% of income excl capgains   Bottom 90%: 68.62% of income excl capgains

1928:
Top 1%: 19.60% of income excl capgains    Next 9%: 26.49% of income excl capgains  Bottom 90%: 53.91% of income excl capgains
* Note: Capital gains are excluded both from the income and from the rankings.  That is, one can't compare directly the top 1% ranked by income excluding capital gains and the top 1% ranked by income including capital gains.

3. Income including Capital Gains

2006:
Top 1%: 22.90% of income incl capgains   Next 9%: 26.79% of income incl capgains   Bottom 90%: 50.34% of income incl capgains

1968:
Top 1%: 11.21% of income incl capgains   Next 9%: 23.63% of income incl capgains   Bottom 90%: 65.15% of income incl capgains

1953:
Top 1%: 9.90% of income incl capgains    Next 9%: 22.41% of income incl capgains   Bottom 90%: 67.69% of income incl capgains

1928:
Top 1%: 23.94% of income incl capgains   Next 9%: 25.35% of income incl capgains   Bottom 90%: 50.71% of income incl capgains

4. Capital Gains income as a percentage of income excluding capital gains: (calculated from Table A0)

2006:   9.38%
2000: 10.76%
1986: 13.49%
1968:   6.61%
1953:   1.74%
1928:   8.94%

5. Capital Gains Income as a percent of total income, by income fractile, 2006 (P&S, Table A8, panel B -- including capital gains income in defining the fractiles):

• 90th to 100th percentile: 17.3% of income is from capital gains [income above $104,696] -- 10% of us, who get 49.66% of the aggregate income
• 90th to 95th percentile: 3.9% of income is from capital gains [income $104,696 to $148,423]  -- 5% of us, who get 11.27% of the aggregate income
• 95th to 99th percentile: 8.6% of income is from capital gains [income $148,423 to $382,593] -- 4% of us, who get 15.51% of the aggregate income
• 99th to 100th percentile: 29.3% of income is from capital gains [income above $382,593]   -- 1% of us, who get 22.90% of the aggregate income

Looking at that top 1% more closely, we can break it into its bottom half, next 40%, next 9% and top 1%:

• 99th to 99.5th percentile: 12.9% of income is from capital gains [income $382,593 to $597,584] -- 0.5% of us, who get 4.29% of the aggregate income
• 99.5th to 99.9th percentile: 20.9% of income is from capital gains [income $597,584 to $1,898,200] -- 0.4% of us, who get 7.05% of the aggregate income
• 99.9th to 99.99th percentile: 32.9% of income is from capital gains [income $1,898,200 to $10,659,283] -- 0.09% of us, who get 6.13% of the aggregate income
• 99.99th to 100th percentile: 49.6% of income is from capital gains [income above $10,659,283]  -- 0.01% of us, who get 5.46% of the aggregate income

[The income thresholds come from Piketty and Saez's Table A6; the percentages of aggregate income are from Table A3.  Notice that the 17.3% of income in the top decile coming from capital gains does not relate directly to the 9.38% figure for 2006 shown in Section 4, above.  The corresponding figure would be 9.38/109.38, or 8.56%]

Somewhere I read that the one party's derisive references of "spread the wealth" is intended to conjure up thoughts of "welfare queens."  They've found a way to divide working people.  But the unemployed and the working poor and our lower- and middle- middle classes are not the problem here.  Rather, the problem is a system that funnels such a large share of our production into the pockets of so few of us.  We've created a poverty machine.

How do we retool that machine?  Henry George has some good analysis and advice for us.

For more about "spreading the wealth," see also http://lvtfan.typepad.com/lvtfans_blog/2008/10/spreading-the-wealth.html   and http://lvtfan.typepad.com/lvtfans_blog/2008/10/spreading-the-wealth-some-kinds-of-wealth-ought-to-be-spread.html

Spreading the Wealth

When we listen to one party complaining that the other's candidates want to "spread the wealth," it behooves us to pay attention to how concentrated wealth is.  In 2004, it looked like this:

• Top  1% of wealthholders:     33.38% of the net worth
• Next 9% of wealthholders:     36.12% of the net worth
• Other 90% of wealthholders: 30.50% of the net worth [source]

I'll venture the guess that most of those who turn out at the campaign rallies and boo when the words "spread the wealth" are said fall into the bottom 90%. We can split out the bottom 50% and the next 40%:

• Bottom 50% of wealthholders: 2.54% of the net worth
• Next  40% of wealthholders:  27.95% of the net worth [source]

We can look at income for the same groups (note that this is different from looking at a ranking of households by income level)

• Top 1% of wealthholders:      13.62% of the income
• Next 9% of wealthholders:     22.56% of the income
• Other 90% of wealthholders: 63.83% of the income

We can split out the bottom 50% and the next 40%:

• Bottom 50% of wealthholders: 23.80% of the income
• Next 40% of wealthholders:     40.03% of the income

The preceding data come from the Federal Reserve Board's triennial Survey of Consumer Finances. That study suggests that the concentration of wealth may actually be understated in their data.

You might look at the line in the tables (line 19) which reports "business equity," which represents privately held companies and what we fondly refer to as "small businesses." (it represents about 20% of aggregate net worth.)

• Bottom 50% of wealthholders: 0.3% of the business equity
• Next 40% of wealthholders:     9.2% of the business equity
• Next 5% of wealthholders:       5.7% of the business equity
• Next 4% of wealthholders:     22.4% of the business equity
• Top 1% of wealthholders:      62.3% of the business equity

The forces which have concentrated that wealth so narrowly are not the benign workings of free market capitalism, and those who turn out to loudly boo on cue the concept of spreading the wealth are not net beneficiaries of our current system. Wages are low, and most of us struggle.

It need not be this way, and I don't think that the party talking about spreading the wealth knows how to do it justly or well, and that the party deriding the idea has serious concern for the interests of the bottom 95% of us.  What wonders me is that so few of us and so few of our talking heads seem to know or care.

A bit of reading and study of Henry George's ideas about what is rightly private property and what is rightly the common property of the community as a whole would do wonders: start with Progress and Poverty or Social Problems.  Or explore wealthandwant.com.  We can have the society we say we are.

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

Progress, and Poverty -- how do they relate?

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

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

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

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

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

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

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

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

I'm not thrilled with our choices in November

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

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

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

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

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

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

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

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.

Henry George was right ...

That's the headline on a flyer put out by the Henry George School of Chicago.  It shows a graph with a dropping trend line and goes on to say,

This financial meltdown, like the previous ones, could have been avoided by intelligent public policy.  How can we recover now?  How can we prevent the next one?

Henry George School of Chicago
Free programs on topics of current interest
Cheap classes on economic fundamentals.
www.hgchicago.org/go          312-362-9302

And not only do they have classes, they also have -- new this week -- the 2006 modern-language abridgment of Henry George's landmark book, Progress & Poverty, in MP3 format, read by Bob Drake, who edited it.  You can download it to your computer or your MP3 player or ipod, and listen as you commute or exercise.  Download at http://www.hgchicago.org/audio/.   Read the book online at progressandpoverty.org or henrygeorge.org.  Order it in paperback from schalkenbach.org or amazon.com.  (Check out the reviews there and here.)

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.

Rich in Natural Resources

But what if our natural resources are in private hands?  Are we rich in natural resources if the Jed Clampetts own the land under which our natural resources reside?

Or are we rich in privileged people, whose trickling down the rest of us must be content with?

A significant share of Alaska's oil revenue flows to the state and to the Alaska Permanent Fund because the oil sits under state-owned land.  But in the lower 48, our oil is on privately owned property, or under corporate property, and the revenues flow not to the American people, or to the people of one of our states, but to private portfolios.

Is this consistent with the notion that we hold it to be self-evident that all men are created equal?   Discuss.

Pulitzer Prize Winner Stresses Ethical Taxation

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

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

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

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

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

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

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

The World Distribution of Wealth, part III: Deciles of Wealth Distribution.

Part I .... Part 2 ... This is part 3 of my extracts from The World Distribution of Household Wealth, by James B. Davies, Susanna Sandström, Anthony Shorrocks, and Edward N. Wolff, February, 2008, found here.

Table 2 has two panels.  The upper panel shows the world's worth deciles, plus the top 5% and top 1%.

The bottom decile has no wealth; the average wealth, expressed in American dollars, is less than $1.  The next 10% of us have 0.1% of the wealth; the 3rd decile holds 0.2% of the wealth; the 4th 0.3%, the 5th 0.5%; the sum of these is about 1.1%.

The 6th decile has 0.8%.  The 7th decile has 1.4%.  The 8th decile has 2.7% of the world's household wealth, and the 9th decile has 8.7% of the wealth -- not too far from their per capita share, but still below it.

How is the remaining household wealth distributed?

• The top decile -- the top 10% of us -- has 85.2% of the world's household wealth. 
• The top 5% of us have 70.7% (which suggests that the second 5% have 14.5%). 
• The top 1% have 40.1% of the wealth; the next 4% have 30.6% of the world's household wealth.

How is it that 1% of the world's people hold 40.1% of the world's wealth?  What sort of forces are at work here?  Natural talent? Industriousness?  Good laws and structures that favor business?   Wise government that fosters  -- what?   God is on their side (and thus not on the side of the other 99%)? 

Or is it structures that steal wealth from others, or structures which steal their labor?

Does our assertion that all men are created equal illuminate the question at all?

That's the top panel.

The second panel is even more revealing. It lists the regions of the world down the rows, and the deciles of wealth across the columns -- North America, Latin America and the Caribbean, Europe, Africa, China, India, Rich Asia-Pacific, Other Asia-Pacific, and World: 

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.

Those Shareholders who are being wiped out ... who are they? - or, "How's it trickling?"

Some will try to tell you that stock ownership in America is very broad, and that the middle class is going to be suffering -- as shareholders -- if we don't bail out ... whoever.  The oil companies, the banks, etc.

They are telling the truth, sort of.  Not the whole truth, of course, but the sort of truth that leads you to the conclusions they need for you to reach.  The sort of truth, too, that most of us would like to believe is true.

Much depends on how we define the "middle class."  I'm going to pick a definition that I don't think is ideal, but for which the data is readily available.  It comes out of the Survey of Consumer Finances, as reported in a Federal Reserve Board Study called Currents and Undercurrents: Changes in the Distribution of Wealth, 1989-2004.  I'm going to define the middle class here as the 40% of us whose net worth places us above the median in net worth, but below the top 10% of the wealth spectrum.   By that measure, half of us are below middle class, and 10% of us above it. Here is how aggregate net worth is divided among the three groups:

When a mortgage rate adjusts, who gets what? (#2 in the Mortgage series)

Here's the second in a series of posts about mortgages.  The first, about fixed rate mortgages, is here.

I ran a spreadsheet that looks at the effect of a 2% increase in mortgage rates.  It assumes a 30 year term, principal of $100,000, and a range of mortgage starting rates from 3.5% to 6.5%, which adjust up by 2% at the end of the first year.  Here are a few factoids:

1. Monthly Principal and interest payment per $100,000 of principal:

• At 3.5%, $449
• At 5.0%, $537
• At 6.5%, $632

2. Allocation of First Payment:

• At 3.5%, 35% of one's first mortgage payment is principal; 65% is interest.  ($157 principal and $292 interest)
• At 5.0%, 22% is principal, 78% is interest.   ($120 and $416)
• At 6.5%, 14% is principal and 86% is interest.  ($90 and $541)

3. Allocation of Twelfth Payment:

• At 3.5%, 36% of one's 12th payment is principal
• At 5.0%, 24% of one's 12th payment is principal
• At 6.5%, 15% of one's 12th payment is principal

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.