crash us economy gdp housing boom

Put Which Tax at the Heart of Economic Recovery?
housing prices jobs land values taxes

US Economy Weakened Years Before the Crash

Funny how powerful is the unearned income from land. That's probably why conventional people call by the income stream by euphemisms like "household balance sheet". We trim, blend, and append two 2012 articles from (1) CNN, July 23, on the economy's operation by R. Salam (of The Daily, the National Review, and e21, a non-partisan economic research group) and (2) Left Foot Forward, Oct 25, on taxing land by J. Jones (leader of the Green Party on the London Assembly).

by Reihan Salam and by Jenny Jones

We think of the 2008 crash as the bomb that caused today's economic woes. Evidence is building that U.S. economy was troubled years before that. If we measure gross domestic product by looking at incomes rather than expenditures, it actually started in the last three months of 2006.

The "housing" boom [i.e., land boom] hid the dire effects of manufacturing layoffs. The 37% rise in housing prices between 2000 and 2007 functioned as a kind of invisible stimulus. People in real estate made more money selling houses, and owners refinanced, taking the equity out of their home (sites).

As owners and people in real estate spent their takings, they created demand for goods and services which created jobs in building homes and other non-diploma fields. That shielded non-college-educated men from most of the fallout from the collapse in manufacturing jobs, 3.5 million of which evaporated over that same period.

One irony of the "housing" boom is that it convinced millions of American men that there was no need to retrain for a new economic landscape, a decision that many might now regret.

Because the over supply of houses for sale that remained when the bubble burst still persists, demand for housing has not yet reignited. And because many owners still owe more mortgage than they could sell their house for, they can't borrow and use debt to finance new consumption. Therefore unemployment of mere high school graduates persists.

The power of the outsourcing issue flows from sharp decline in manufacturing. Though the offshoring of production has greatly benefited the American economy in many important respects -- by lowering the cost of goods and services, by increasing the demand for skilled labor, and by facilitating innovation, among other things -- it has contributed to the deterioration of the labor market position of non-college-educated men.

Automation has played a far larger role in declining manufacturing employment than offshoring, and indeed offshoring can be seen as nothing more than a transitional step as increasingly sophisticated machines start displacing less-skilled foreign labor. But it is offshoring that sparks the most anxiety in American workers.

To read more

JJS: People like to think the boom in the prices for land will make them rich, which it does -- until it doesn’t. But is the socially-generated value of locations something that individual sellers and lenders should speculate in? Or is it a source of wealth that should benefit all members of society equally? If government did recover the value of land and resources for everyone, then economies would operate a lot differently -- without recessions -- and economists would have to find something else to scratch their heads about.

Fairer, smarter taxes are needed for London to recover from the double-dip recession.

A tax on rising land values is one way to promote useful economic activity in a more fair way.

Land value taxation could keep down house prices, finance major transport infrastructure projects, and switch more of the burden of taxation onto unearned wealth.

For example, the £15 billion Crossrail project is expected to benefit many businesses in London, so they were required to contribute to the cost. A Business Rate Supplement has been levied on businesses with a rateable value greater than £50,000, raising £4.1bn towards the cost.

But building this new railway line will also benefit land owners along its route, estimated at a minimum to be a £5.5bn windfall gain.

A land value tax would enable government to reinvest a proportion of these windfall gains into new infrastructure, ensuring everyone who benefits pays their fair share.

The Metropolitan Line was built in the 1930s using a similar principle. The company who built the line bought up land along its length for housing, and used the uplift in land values to pay for the line.

There are many other strong economic arguments for land value taxation -- putting a dampener on the housing market by making it a less attractive option for investors; giving developers with land banks and other owners of brownfield sites a strong incentive to develop; and possibly using the revenue to reduce business rates are just three.

To read more

JJS: It’s very encouraging to see the Greens and the media in the UK taking big ideas seriously. May greens and media in the US catch up. May the whole world get ahead!


Editor Jeffery J. Smith runs the Forum on Geonomics and helped prepare a course for the UN on geonomics. To take the “Land Rights” course, click here .

Also see:

Good Enough for Profit, Good Enough for Populace?

Reclaiming the Commons would obviate ...

Japan prices fall, mild deflation to

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