Effects of the Citizens Dividend: Tough Question Answered
|July 1, 2006||Posted by Jeffery J. Smith under Archive|
Question: Would a Citizens Dividend really result in a net benefit for people? I think each and every increase in income serves only to entice sellers and merchants to raise their prices, endlessly, around and around, like the magical brooms who panicked Mickey Mouse in the Disney cartoon, The Sorcerer’s Apprentice.
Jeff Smith, president of the Geonomy Society, answers:
Certainly, this does happen, even without animation. A merchant in an upscale neighborhood does charge more for the same pair of jeans compared to a cut-rate chain near a freeway exit (only the labels differ). It’s not only merchants who are aware of their clientele’s likely income. Landowners, too, are quick to figure out when they can charge more. Landlords whose tenants are the toney boutiques do raise the rent to claim a hefty slice from those higher prices charged to customers.
It doesn’t matter to owners where their clients get the money – whether from wages, profits, or a citizens dividend. As people receive more disposable income, they become more willing to trade convenience for price and spend less time shopping around for a bargain. Clients with money let merchants and landlords jack up their prices.
To preclude land price inflation, should we cut wages and cap profits? That’s neither feasible nor necessary. The upward pressure on price is kept in check by competition – the entry of new merchants and landlords in the market, eager to capture a portion of the higher disposable incomes.
While it’s not too hard for a merchant to open a new outlet, it is hard for a wannabe landlord to create a new location. So, while more income may raise the price of products that merchants sell in some places for some time, higher incomes inflate the cost of land at a much faster rate. Look at Alaska, which pays its residents a dividend from the oil royalty. When those annual checks show up in the mail, so does an Arctic blizzard of advertisements for all sorts of goodies and exotic junkets. Some merchants offer deals at even LOWER prices. But what’s happened to the price of residential land in Alaska since the oil share was instituted? It has shot up, faster than inflation.
What should we do with these land rents, with the money people spend on the nature they use? Four options present themselves. (1) Privatize rent, as now, letting owners of prime sites and resources borrow against it and really push up land values, over and over. (2) Let the government spend it, which also pushes up site values. And since government would have that steady income, it could borrow against it and keep over-spending and debauching currency. (3) Throw it all into the sea, depriving everyone of it, forcing government to “double tax”, once to collect the seaward rent and again to fund itself. Since taxes shrink their base, government would have less wherewithal for more obligations, driving them deeper into debt, worsening inflation. (4) Pay a Citizens Dividend!
As long as the citizens dividend is funded from sources other than land rents, it does inflate prices. Only when it comes from land rents does income outpace inflation and outgo. In a geonomy (an economy where rents are collected then disbursed), every rise in the value of land will be matched by an increase in one’s share of rent.
At first glance, it seems residents will do no better than just tread water. Yet most people only own residential land (if that much), they don’t own commercial or industrial or mineral or sylvan land. If they just own the land beneath their home, then a rise in residential site values will push up their land dues, but a rise in the value of all other sites will only fatten their land dividend. Meanwhile, competition will keep down the prices for people-made products.
Furthermore, having to pay land dues introduces competition among landlords (at long last). If a landlord lacks a tenant, yet still must pay land dues, that constant drain makes landlords tenant-friendly, eager to strike a deal, by lowering their price. Hence in a geonomy, with more sites available for homes and apartments, residential values might not rise at all but fall.
In the business district, on the other hand, the absence of taxation and the fast-paced volume of trade will increase site values. As land owners raise what they charge, so will the locally governing jurisdiction raise what it charges for recording and defending titles. This jump in the annual deed fee for commercial lot owners will serve only to fatten the residents’ dividends.
The combination of land dues and zero taxes also get at the root cause of true inflation, the deflating value of currency. Land dues make it impossible to use land as collateral (no bank wants to take on a liability, only an asset). Zero taxation makes it impossible for governments to qualify any longer as the borrower of first choice. Without land as collateral, consumers can not go so deeply into debt. Without the power to tax anything that moves, governments can not go deeply into debt. With debt shrunken to a serviceable amount, banks can not lend into existence a surfeit of fiat-backed notes. With just the right amount of sound dollars in circulation, inflation is halted.
Yet even with sound money, prices don’t stay fixed for long. The inexorable drive of techno-progress continues to get more from less. People-made products are actually cheaper now than they’ve ever been. We just can’t tell because the money we use is slightly debauched, relentlessly pushing prices upward. In a geonomy, inflation becomes a distant memory and real deflation – a constant fall in the cost of living – becomes the rule of the day.
Thus a rent-funded citizens dividend does increase disposable income without inflating prices. Some people might choose to live way out in the boonies where their land dues would come close to zero, yet still receive the same size land dividend as everyone else. They’d have almost enough to live on, not having to work much to meet all their needs. They could work less and live more. Thus the CD lets civilization get back to the workweek enjoyed by our primitive ancestors, and lets humanity advance to heights barely envisioned.