Special Guest Essay
The Relevance of Henry George in Today's Economy
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Most famous economists have been European and based their theories on their own European backgrounds. But when you look at America's foremost economist you find a different, more optimistic, less pedantic, perspective. The Progress Report today welcomes Kenneth E. Barden, who writes of his experiences in discovering the economic ideas of Henry George. |
by Kenneth E. Barden
Despite studying economics while a college student in the 1970s, I really did not know much about Henry George and his teachings until recently when I had the chance opportunity to learn more about Georgist principles through course work. I must admit that at first glance, I had some skepticism about the relevancy of his principles to modern economic society. However, as I have read the texts of Henry George’s many works, as well as commentaries by advocates of his economic philosophy, many of the reservations I had at first harbored have since been resolved. Eager to learn more, I have recently joined as a member of the Henry George Institute. While there are still some concepts I am struggling to fully understand and apply to current circumstances, I continue to be amazed at the comprehensive outlook and foresight that Mr. George applied in developing his economic principles and their continuing relevancy to modern economic society.There are at least three recent events that I believe that the relevancy of Henry George’s ideas can be illustrated.
One is in the realm of oil and energy. Certainly oil is one of the resources that can most clearly illustrate Henry George’s argument regarding the community’s interest in natural resources. While certainly the extraction of oil from the ground represents an economic activity of individuals, the resource itself is from nature and not the product of human activity. Therefore, as oil prices continue to rise, one must wonder why it is not the community benefiting as a whole rather than just a few oil profiteers who are exerting no greater productivity than before. Under Georgist economics, as oil prices continue to increase, the impetus should be on the community to invest in alternative energy resources. Such alternatives could be funded, at least in part, through the rent or tax levied on the increased “value” of the oil in the ground. This may become even more apparent as the continuing “war” in Iraq consumes even greater financial resources of the United States, while at the same time consumers face unprecedented gasoline and other oil-based energy costs. With the further disruption in oil flows due to Hurricane Katrina in the Gulf region, such results will be further amplified.
The second area in which Georgist principles are to be illustrated is in the recent trend to make mortgage financing easy in light of a housing boom and the corresponding rise in delinquencies and foreclosures. For various reasons, banks and other financial service providers have enabled a much larger segment of the American consumer population to obtain mortgage financing, while at the same time liberalizing interest rates (ostensibly, anyway) and payment terms. Very often, the mortgage terms are for interest only with a balloon payment in a few years ahead. Furthermore, application requirements have been loosened so that a much larger segment of the population can afford much larger, more expensive housing than had been the case before.
While such changes seem on the surface to be pro-consumer and to have expanded the opportunity of many Americans to become home-owners, it is really a “speculator’s dream in disguise”. In fact, many of these customers are now in debt much beyond their financial capacity. The numbers of instances where mortgages are in default and foreclosure proceedings are being instituted have increased astronomically. For instance, the Dayton, Ohio metropolitan area now ranks as one of the jurisdictions with the highest rate of foreclosures, with more than 5 full pages of newspaper ads DAILY advertising properties being sold at sheriff’s auction to satisfy judicial foreclosure proceedings.
The “Trojan horse” in this scenario is that land speculators will grab many of these properties at foreclosure sales on much more beneficial terms than they could on the open market. Judicial foreclosures tend to attract fewer buyers than listed properties and with the requirement in many jurisdictions that purchases as auctions be made in cash, the pool of available and financially ready buyers is limited. Within a few years, look for massive shifts in land ownership in many metropolitan areas due to these foreclosure sales.
The third area is that of eminent domain rulings which have recently come out of American courts. The recent Kelo decision of the United States Supreme Court, affirming a municipality’s exercise of eminent domain power to acquire land for private economic development, has Georgist issues on both sides. On one side, the court affirmed the interest of a community or municipality to acquire property needed for economic development. This holding would support Georgist concept that land should be put to useful purpose and not held in unproductive status by speculators wishing to “ride” the boom in increasing land values. The Court in supporting a municipality’s eminent domain powers supports the concept that the furtherance of a community’s economic well-being should not be held captive by land speculators. That all sounds good in theory. It basically means that if a property owner does not wish to sell but that the land could be put to a higher economic purpose for the welfare of the community, the municipality can exercise its right to acquire that property.
However, much more problematic is how this theory is put into practice. And it is here that the other side can invoke Georgist principles for its position. In practice, some municipalities have exercised eminent domain over residential properties of homeowners under the guise of “neighborhood blight” and have then transferred the properties in “fee simple” title to private developers. While it can be undisputed that many of these properties were in fact urban slums and blight, the fact is that there are other properties, which although could be considered by some as marginal properties, serving as residences for lower-income or elderly which have been taken and transferred in the name of economic development to private developers. What is particularly bothersome is that, although the owners of the properties being taken are “compensated” for the taking, such compensation, in most cases, tends toward lower values that if sold at arms-length for a similar transaction. The properties, once acquired by the municipality, are then generally transferred to the private developer at greatly reduced values, even sometimes subsidized by the municipality. The end result is this massive transfer of land (and its inherent intrinsic value) from poor property owners to wealthier developers. Because of the variety of situations and the unique circumstances of each individual case, this article will not address whether such transfer is warranted in some or all cases, or whether it should be prohibited in some or all cases. But it does seem to represent a lost opportunity for the municipality to obtain some benefit from the resulting economic development. Instead of transferring title to the developers, the municipality should retain title and charge a tax or rent on the land tied in the success of the development. In that way, the community would enjoy part of the benefits from the economic development as does the private developer. Such a notion is contrary, however, to many municipalities who, in addition to providing the land, will also generally give significant tax concessions to the developer.
As I continue my educational process with Henry George, I am much more aware of these opportunities in which Georgist principles have relevancy. Perhaps the leaders of our communities can learn of these principles and apply them in their policy decisions, especially in the coming years when the economy begins to show the wear and tear of decisions made in the past.
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