Our editor published The Geonomist which won a Californian GreenLight Award, has appeared in both the popular press (e.g., TruthOut) and academic journals (e.g., USC’s Planning and Markets), been interviewed on radio and TV, lobbied officials, testified before the Russian Duma, conducted research (e.g., for Portland’s mass transit agency), and recruited activists and academics to the Forum on Geonomics. A member of the International Society for Ecological Economics and of Mensa, he lives in America’s Pacific Northwest.
Chips need rare metals, economies need precise prices
Dwindling of Rare Metals Imperils Innovation
Scientists keep finding better ways to make the gizmos we like, but more and more of us like them, buy them, and deplete the reserves of the rare metals that go into them. Are we between a rock and a hard place? It might not be so bleak as some prognosticators think – if we start recycling now. But how could recycling compete with mining?
by Jeffery J. Smith June, 2007
Were using up the ingredients for our favorite hi-tech devices. Without these key components, we could not make anything from cell phones to solar panels. The stuff we put into liquid-crystal displays indium and plan to turn into next-generation semiconductors hafnium might no longer be found in nature by 2017 (InformationWeek, 29 May 2007).
David Cohen writes in his audit of “Earth’s natural wealth” that reserves of elements from:
* platinum (used in cars catalytic converter and in fuel cells) to
* indium (used in flat-screen TVs and computer monitors) and
* tantalum (used in mobile phones)
are “being used up at an alarming rate.” These are elements; unless Merlin figures out how, we can not synthetize any substitute substance.
As India and China and other rapidly developing economies consume more common metals like zinc and copper, even those once plentiful supplies dwindle. Over the last year as the price of copper soared, so have thefts of copper from power lines and electrical substations. Some predict the world’s zinc will be gone by 2037.
These shortages could hinder the development of more efficient solar panels. At a time when our world is getting low on oil and hot from burning fossil fuels like coal, better solar panels could come in handy. Without them, China would resort to burning its millions of tons coal; already on Americas Pacific coast, 10% of the air pollution is from Chinese factories and powerplants.
People who estimate these reserves disagree widely. Yet whoevers right, some day we must deplete them. As we do, we provide yet another reason why Moore’s Second Law the cost of developing new and more complex chips increases geometrically is true. (via reader Stewart Goldwater).
However, while its good for worriers to have another problem to worry about, the alarm was not raised by a recycler. Each year, America throws away as much metal as it consumes. Logically, for at least one year, America need not mine one new ton of ore if we recycle.
Why dont we recycle now? The expense. Why is it cheaper to dig up ores and pile up broken and worn out electronic devices in landfills than to leave land alone and recycle valuable parts and ingredients? The answer is not mere convenience. Mining is not easier than recycling. And its not consumer preference. Buyers dont know if the metal in their laptop used to be in an ancient desktop or recently under tons of cubic earth.
The answer is politics. Modern, efficient recycling costs more than wasteful mining as a byproduct of entrenched policy. As a hangover from the century before last, we favor mining corporations, specifically with taxes and subsidies.
Who wouldn’t want to be a prospector given these breaks?
* To claim the public land which harbors precious ore, they get to pay the same number of pennies per acre that they paid back in 1872.
* What do we charge them for despoiling the land and leaving behind waste (called tailings)? Anything from little to nothing.
* What size of tax write-off do we offer for using heavy equipment? Heavy ones. What size for hiring workers to do things like take apart old TVs? None.
Get the picture? When you pay taxes that become subsidies, you buy the most effective way to run out of rare metals. So, if you want to reuse the ingredients in old computer monitors, what should you do? Reverse public policy. Make people pay taxes for what they take, not for what they make.
And let people get a share of the value of nature. Spreading the natural wealth around, more people could invest their money where their heart tells them for greens, into recycling. And getting an income supplement, more people could afford to take off time to advance their own ideas, like a better way to recycle or an alternative to a basic ingredient.
Sure, feel alarmed that our appetite for rare metals roars undiminished. But realize there is something we can do. Correct prices by correcting taxes and subsidies a new policy called geonomics.
Not long ago, there were no billionaires. Then came Gates and crew. Recently some managers of hedge funds received paychecks of more than $1 billion each, way more than theyve been paid in the past.
by Jeffery J. Smith May, 2007
If you can pickem, youre set. While the Standard & Poor’s 500 index returned 15.8% last year, many hedge funds did 40%. Centaurus Energy, before fees, posted 317%; it hasn’t done less than 200% since its founding in 2002.
Hedge funds pool the capital of very rich individuals or institutions such as pension funds who meet financial minimums set by the SEC. Unlike the more regulated stocks and bonds bought by mutual funds, hedge funds buy derivatives and other exotic debts which can hit the jackpot or swallow an entire investment. Hedge fund managers typically take 2% of the fund’s assets and 20% of its returns. (AP writer Tim Paradis, 1 May 2007)
Even if you cant afford a hedge fund, your stock should be paying off big, since the biggest factor in share value is not individual company performance but overall stock market performance. And how it has performed! The Standard & Poor’s 500 index is flirting with its historic high of 1527.46 set in 2000. The Dow Jones Industrial Average crossed 13000 for the first time in its history.
Such booms on Wall Street defy factors that used to keep stocks down. GDP is slowing, due to the housing-market slump. Gasoline tops $3 a gallon.
Businesses merely shrug given markets beyond the US borders. China and other emerging giants are lucrative. Plus, US exports have found buyers enjoying the growth of the economy in Europe, where more than half of foreign-affiliate profits come from.
Are giant corporations any longer national? Companies like IBM, Coca-Cola, and Intel all among the 30 in the Dow Jones Industrial Average derive well over half their revenue from abroad. In the final quarter of 2006, US-based corporations saw the earnings of their foreign affiliates surge to an annualized level of $272 billion, up 38% from the pace in 2005s Q4. That amounts to 15% of all US corporate profits.
Flushed with global profits, companies buy back their own stock and purchase that of others they merge. Both actions pump up share value. Media companies such as Dow Jones and Yahoo are among the stocks that have surged on rumors of acquisition (by News Corp. and Microsoft, respectively).
If youre on the sidelines, its hard to watch records be set and not want to jump on the bandwagon. However, if its darkest before dawn, its also brightest before dusk.
May 2007, the share price for the S&P index is about 16 times the earnings for its 500 companies. That not as outlandish as in early 2000, just before the dotcom stock bubble burst, but its not cheap either.
Some of those stocks performing the best are companies that typically do well during downturns relatively “safe” industries such as healthcare, utilities, and telecommunications.
An old adage on Wall Street advises, “Sell in May and go away.” Historically, from May through October share prices average lower than during the winter-to-spring period.
Like farming, football, and fashion, markets are cyclical, too. As the US economy the globe’s largest economy that imports the most goods slows, other economies must slow, too. Those places will quit returning such fat profits to US firms. (Mark Trumbull, The Christian Science Monitor, 8 May 2007)
All booms must bust. As the price of land and resources rise, consumers have less money to spend on goods and services, the things that people do produce. As producers lose customers and cut back, the rest of the economy recedes, too.
To temper our bipolar economy, dont let societys surplus collect in few pockets, enabling an elite to bid up the price of land, resources, stocks, and bonds. Instead, direct bounty into everyones pockets by (a) charging full market value for such privileges as everything from corporate charters to resource leases then (b) paying citizens a dividend, a la Alaskas oil share. Some guys might not make their billion a year, but everyone will be much better off.
There are a few US politicians talking solutions to oil profits, oil shortages, and global climate change. A couple of bills now before Congress would tone down the subsidies for big oil, and one presidential candidate suggests an oil dividend. These are steps toward geonomics, the policy that rewards people for efficient use of Mother Earth.
by Jeffery J. Smith May, 2007
Exxon Mobil kicked off 2007 with a 10% rise in profits, its best-ever first quarter; the world’s largest publicly traded oil company earned $9.3 billion in the January-March period. That gain beat Wall Street expectations, since the market price for crude oil was down more than $5 a barrel in the first quarter versus a year ago, and the price for natural gas also was lower. Sen. Bob Casey (D-PA) introduced legislation to curtail rising gas prices; it would impose a windfall profits tax and close certain tax loopholes for big oil companies - the wealthiest phenomena in human history. (AP, April 26)
On our own site, we posted highlights from the World Bank Group report. In 2005, public institutions such as the World Bank and U.S. agencies such as the Export-Import Bank provided more than $3 billion to the international oil and gas industry; over the past year, lending for oil projects in poor countries increased more than 75%. Instead of alleviating poverty, most oil and gas projects have exacerbated corruption, worsened economic inequality, increased local conflict, and intensified global climate change. Hence Congressman Maurice Hinchey (D-NY) on April 17, 2007 introduced a bill to help end international subsidies to Big Oil.
Then on April Fools Day while being interviewed on ABCs This Week, Republican candidate, former Health and Human Services Secretary, and former four-term governor of Wisconsin, Tommy Thompson, a senior partner in a law firm, said Iraqi oil revenues should be dealt with like the state of Alaska: one-third should go to the federal government, one-third to the territorial governments, and the remaining third split “to every man, woman and child. If the self-described reliable conservative can call for an oil dividend for Iraq, then everyone should be able to call for a dividend for all humanity from all natural resources, you think?
Ending subsidies and paying dividends are half of a sound energy policy. The other half is ending taxes upon our efforts while recovering the values of land and resources. Both halves together - totaling the geonomic shift of taxes and subsidies - would speed the transition to sources of energy that are alternatives to oil and other fossil fuels.
Government could quit subsidizing oil companies and instead subsidize no energy firm, not even solar. Like Thoreau said, the best thing government can do for business is get out of it. Likewise, quit taxing earned profit; those taxes hamper investment in technological development. And quit taxing wages; those taxes create a disadvantage for labor-intensive businesses, and most energy alternatives use more labor per dollar than do the petrol firms; e.g., going back and insulating older buildings takes more workers than does drilling for oil.
What government could do with its power to tax is to charge for pollution, and for monopoly claims on resources. Having to pay for the resources they take and the pollutants they emit, companies would likely raise their prices to cover these charges. A number of their customers would cut back and find alternatives like solar and fuel cells.
Oil companies would realize less profit — and less political clout in Congress and legislatures. Might that mean fewer wars for oil? One can only hope.
When government targets the value of nature, something that society in general generates, it could look beyond oil and resources and recover the value of surface land, too. In metro regions, that would spur owners, especially owners of prime downtown sites, to quit speculating and procrastinating and get busy and turn their vacant lots and parking lots into sites bearing beautiful buildings. Thats what happened wherever a city has shifted its property tax off buildings, onto land. Cities get in-filled, which both shortens trips and makes it convenient for some to switch from driving to riding buses and bikes even walking. Any way you get people out of the car, you save fuel, curb emissions, and improve health.
On this level playing field of zero subsidies and zero taxes on what you make, just taxes on what you take, then the relative advantages of each energy source will show up in price. You, the consumer would pay more for polluting power sources like fossil fuels, and less for clean ones like wind. In a few years, both types of energy sources will switch market shares and the energy crisis will be over, letting the planet breathe a sigh of relief. In April of 2007, two Congressmen and one candidate headed us further along this sensible geonomic path.
Iraq has a lot of oil, but the Iraqi people have very little money. Almost all the revenue from oil goes to corruption. But it doesn’t have to be that way, not if some right wing voices – echoed by left wing pundits – are heard. If it’s good enough for Alaska, it should suit Iraq as well.
by Jeffery J. Smith April, 2007
Presidential candidate Tommy Thompson told ABC’s “This Week” that Iraqs oil revenues should be shared as does Alaska, with a split “to every man, woman and child.” This liberal recommendation comes from a Republican who describes himself as the reliable conservative. (CNN, 2007 April first) No joking; Thompson is but the latest right-winger to call for sharing oil revenue.
George Schultz, ex of Ronald Reagans cabinet who came from Bechtel (which, among other activities, rebuilds foreign nations after US wars tear them apart), on the TV show Charlie Rose a couple years back just before Christmas (2005 Dec 22) said: Some portion of the oil revenues [should] be put into a trust and then distributed to the people of Iraq.
From the Heritage Foundation in Washington DC, their commentator, Ariel Cohen, wrote: As in the Alaska model, part of the [oil] revenue should be distributed directly to the bank accounts of every Iraqi. (2004 March 4, Backgrounder #1730)
Paul Bremer, while the US administrator of Iraq, wrote in The New York Times (2003 July 13): We believe that a method should be found to assure that every citizen benefits from Iraq’s oil wealth. One possibility would be to pay social benefits from a trust financed by oil revenues. Another could be to pay an annual cash dividend directly to each citizen from that trust.
Both Republican Senators from Alaska, Ted Stevens and Lisa Murkowski, plus another oil-state senator, Mary Landrieu (D-LA) urged the Bush administration to consider the oil dividend for Iraqis (Los Angeles Times, 2003 May 1)
A former Exxon executive, Bruce M. Everett, when safely at Tufts University, wrote in The Christian Science Monitor (2003 September16): Iraq should distribute its oil revenues directly to its 25 million citizens, with each individual receiving $600 to $700 per year or $3,000 to $3,500 for a family of five. Beyond supporting basic human needs, much of this cash would be invested in small businesses, services, agriculture, and the other ingredients of a vibrant economy without political strings.
The press, both conservative and, well, hardly liberal by European standards, echoed the call, including The Financial Times (London) and The Wall Street Journals Deputy Editor George Melloan (2003 April 15 and 22). The New America Foundation in Washington DC pushed the Iraqi oil dividend on The Charlie Rose Show on PBS (2003 April) and in The New York Times (2003 April 9). The Washington Post (2003 April 13) and The Los Angeles Times ran op-eds, the latter by Barbara Ehrenreich (2003 May 2).
Lesser known publications beat the same drum: New Yorks Newsday, The Washington Times (2003 Feb 21), UPI (2003 May 14), The San Diego Union-Tribune, The Daily Oklahoman, The Tulsa World, The Edmonton Journal, The Record of Kitchener-Waterloo (Ontario), and Pensions and Investments (magazine).
Foreign Affairs published an article, Saving Iraq From Its Oil (2004 July 20, Volume 83 No. 4) stating, There is only one way for Iraq to resist the oil curse: by handing over the proceeds directly to the Iraqi people.
Pennsylvanias Democratic governor, Ed Rendell, said we should have made some payment from Iraq’s oil revenues to each citizen; as little as $20 each would tell Iraqis that we viewed it as their oil, not ours (MSNBC with Chris Mathews). Reason on line (2005) and The Weekly Standard (2005 September 6) made similar arguments.
Besides for Iraq, an oil dividend is promoted for other places, too. The IMF did so for Nigeria (IMF Working Paper No. 03/139). Newsweek International mentioned the oil dividend as one way to reform Russias oil industry (2005 Sept. 12). Eluniversal.com (2005 August 9) and Petroleum.com published Michael Rowans The Sinkhole, which urged an oil dividend for Venezuelans.
Besides the ongoing dividend, theres a one-time dividend. In oil-rich New Mexico, Governor Bill Richardson (his press release of 2003 October 22) and prominent members of the state legislature advocated a $50 tax rebate per person. In early 2006, Alberta shared its oil revenue surplus with residents, sending out one-time checks of $C 400 (Globe & Mail, 2005 November 10).
The New York Times (2003 September 10) opined: Divide the money equally. Give each Iraqi his share on the first day of every month. That is essentially the same idea in vogue among liberal foreign aid experts, conservative economists and a diverse group of political leaders in America and Iraq.
No wonder the wide consensus. Its an easy call to make. Oil is extremely valuable and absolutely labor-free; that pricey gooey stuff lying underground got there without the help of anyone and even untouched its worth a fortune.
So how long must the Iraqis and the rest of the world wait? Perhaps until a US president actually mandates it. Then after the Iraqis, may the rest of the world be next.
Geonomics is …
a study of Earth’s economic worth, of the money we spend on the nature we use, trillions of dollars each year. We spend most to be with our own kind; land value follows population density. Besides nearness to downtowns, we also pay for proximity to good schools, lovely views, soil fertility, etc. These advantages, sellers did not create. So we pay the wrong people for land. Instead, we should pay our neighbors. They generate land’s value and deserve compensation for keeping off ours, as they’d pay us for keeping off theirs. It’s mutual compensation: we’d replace taxes with land dues – a bit like Hong Kong does – and replace subsidies with “rent” dividends to area residents – a bit like Alaska does with oil revenue. Both taxes and subsidies – however fair or not – are costly and distort the prices of the goods taxed and the services subsidized. By replacing them and letting prices become precise, we reveal the real costs of output, the real values of consumers. Then, just by following the bottom line, people can choose to conserve and prosper automatically. A community could start by shifting its property tax off buildings, onto land – a bit like a score of towns in Pennsylvania do; every place that has done it has benefited.
China to share steep values
In order to avoid a possible market crash, China has tried again to dampen speculation in its sizzling real estate market. Starting from the first of 2007, the government no longer exempts foreign investors from its land taxes. Closing the loophole creates a more even playing field for domestic and overseas companies. Domestic companies by themselves have had to pay these taxes and fees for nearly two decades. Meanwhile, the Chinese government also tripled annual land-use tax rates, depending on the size of the city and types of land use. (Jang Group Online, Jan 8)
FROM THIS PEN’S PERCH
Zenith tardy, buds early
Like Einstein said, everything’s relative. While in most major American metro regions, housing prices – actually, housing site prices (the homes themselves are older, more worn out) – are leveling, even falling, here in the Pacific NW, as economic refugees from the rest of the nation keep coming here, and some of them with big bucks after selling houses in California or Boston, land prices keep climbing up. Like, when a wave hits a beach, the whole front does not arrive at the same time, the end of it lags behind the center; same thing in the land price cycle. Here we watch our imminent fate played out by the rest of the country. Meanwhile, NW sellers still get to feel smart or lucky or greedy while buyers get to feel dumb or cursed or profligate. The only silver lining is since some are still buying homes, landlords can raise what they charge for apartments only so much – for now; change is in the air. This new weather we call “Junuary”, since nowadays flowers can bloom any warm week after MLK Day. That might mean global calamity some decade, but right now I got a tennis match to catch. See you on the court.
Free land in Quixote-ia
In Spain, the average price of an existing house is $282,000 – equal to nine years’ salary. In Marinaleda, a small town in the Spanish province of Seville, the city gives away the land to anyone who needs a house, together with a grant, as long as the new owner helps work on its construction or pays for someone to do so. The attached cottages have 880 square feet distributed in two floors with three rooms, living room, bedroom, bathroom, kitchen and a small terrace plus 980 square feet of courtyard. Each costs the same price as two movie tickets with a big bag of popcorn. The same house, but with a courtyard half the size in Villaverde, the cheapest neighborhood in Madrid, would cost $557,000 and would take a monthly mortgage of about $2,688 lasting 30 years. Marinaleda buys or expropriates land. The mayor states, “The land to build is a necessity, a right, and it should be a common good as water or air. Land is about 60% of the final value of a house so by giving it away, its final price is already reduced by more than half.” Mayor Juan Manuel Sánchez Gordillo has won all seven municipal elections in Marinaleda since the reinstitution of democracy in 1979. (Town of Marinaleda’s official website, via Caspar Davis) A couple years ago, small towns in mid-America did the same.
1k people have $3.5 trillion
Strong equity markets combined with rising real estate values and commodity prices pushed up already huge fortunes. Forbes found 946 billionaires, 178 of them newcomers; 17 climbed back into the ranks after being absent for a year or more. The nouveau riche include 19 Russians, 14 Indians, 13 Chinese, 10 Spaniards – Spain’s sizzling real estate market created nine of them – plus the first billionaires from Cyprus, Oman, Romania, and Serbia. In Europe, Russia’s mostly young, self-made tycoons are catching up to Germany’s often-aging heirs and heiresses. Russia now has 53 billionaires (2 shy of Germany’s total), but they are worth $282 billion ($37 billion more than Germany’s richest). After a 20-year reign, Japan is no longer Asia’s top spot for billionaires: India has 36, worth a total of $191 billion, followed by Japan with 24, worth a combined $64 billion. The average billionaire is 62 years old, two years younger than in 2005. This year’s new billionaires are seven years younger than that. Two-thirds of last year’s billionaires are richer. Only 17% are poorer, including 32 who fell below the billion-dollar mark. The billionaires’ combined net worth climbed by $900 billion to $3.5 trillion. They made money in everything from media and real estate to coffee, dumplings, and ethanol. Are there billionaires Forbes missed? They didn’t uncover Ireland’s Denis O’Brien, who pocketed $800 million in a junk bond offering, until 13 days after they’d locked in fortunes, so he is not reflected in the rankings. (Forbes website, March 8)
Falling farther behind
In 2000, the top 1% of the world’s population – some 37 million adults with a net worth of at least $515,000 – accounted for about 40% of the world’s total net worth. The bottom half of the population owned merely 1.1% of the globe’s wealth. The net worth of the world’s typical person – whose wealth was above that of half the world’s population and below that of the other half – was under $2,200. The US accounted for 4.7% of the world’s population but 32.6% of the world’s wealth. Nearly 4 out of every 10 people in the wealthiest 1% of the global population were American. The average American had a net worth of nearly $144,000, ranking behind the average Japanese, who had $180,000, at market exchange rates; the average person in Luxembourg, who had $183,000; and the average Swiss, who had $171,000. Among Americans, wealth is distributed about as unequally as it is around the globe; the richest 1% of Americans held 32% of the nation’s wealth in 2001 and rake in a higher share of the nation’s income than at any time since the 1920s. (New York Times, December 6, via Ed Dodson)
Rich get new subsidies
After Hurricane Katrina, the government gave out nearly $5.3 billion in aid to rebuild New Orleans. Besides purchase food and construction materials, it was used to pay for guns, strippers, and tattoos. At least 162,750 homes that didn’t exist before the storms may have received a total of more than $1 billion in illegal payments. Conversely, some deserving people were improperly denied aid. The Justice Department so far has prosecuted more than 400 people for storm-related fraud, and $18 million has been returned to FEMA or the American Red Cross. A block-by-block survey of flooded areas also shows that about 10,000 properties in New Orleans remain in a state of withering neglect. (Seattle Times, Feb 7) While cheating the government is wrong, is lobbying it any better?
Katrina and Rita turned 300 miles of coast into wasteland. Yet in response to wealthy owners of high-risk land along Florida’s Gulf Coast and on Jekyll Island, a vacation spot off Georgia’s coast, Congress agreed to include them in the federal subsidized insurance program. The federal flood portfolio carries 5.4 million policies and recently eclipsed $1 trillion in coverage. It takes in just $2 billion a year in premiums; more than a third of that – nearly $720 million a year – is eaten up by interest on debt; the program owes the US Treasury $20 billion. Subsidizing rich landowners makes it possible for them to build on sites that are environmentally sensitive and disaster-prone. Now rich owners of beachfront in Alabama, Texas, and elsewhere are lobbying Congress for their own cheap coverage. (Associated Press, 2006 Dec 29)
Cowboys ride on taxpayers
The Forest Service and Bureau of Land Management announced the new fee of $1.35 per cow/calf pair, per month, down from $1.56 last year. The new fee is as low as it can legally be. A small number of Western livestock operators, producing less than three percent of the beef we eat, pay less per month to feed their cows than it costs to feed a hamster. Meanwhile those cows are befouling our rivers, accelerating erosion, and driving rare species toward extinction on lands that belong to the American people. The federal grazing program operates at a deficit of at least $123 million annually. Independent economists have estimated that the costs may be closer to $500 million annually. It estimated that in order to cover costs, the Bureau of Land Management would have to charge $7.64 per animal-unit-month and the Forest Service would have to charge $12.26. (Center for Biological Diversity, February 05; via Paul Metz)
Tolls to unclog highways
Some number of travelers will always be willing to pay a price to save several minutes, while others would rather save a few dollars and take the chance of being stuck in traffic. Addressing the preferences of the former, the administration’s proposed $2.9 trillion fiscal 2008 budget allocates $130 million to build congestion-pricing systems. A few such experiments already operate in the US. On a portion of California Route 91 in Orange County, drivers can choose between the free road and the less-traveled pay-per-drive adjacent lanes, in which tolls vary throughout the day and throughout the week. Driving eastbound in the express lanes at 4 PM Thursday costs $9.25, compared with $1.85 at noon the same day. To the south in San Diego, on an eight-mile stretch of Interstate 15, motorists who pay fees that vary throughout the day depending on traffic conditions, can use the high-occupancy toll, or H.O.T., lanes. (NY Times, Feb 11, via Heather Remoff)
US lets our oil go for free
A study, which the Interior Department refused to release for more than a year, estimates that current tax breaks let oil companies drilling in the Gulf of Mexico dodge tens of billions of dollars in royalties. The US government’s usual take – royalties plus corporate taxes – is about 40% of revenue from oil and gas extracted on federal property; worldwide, governments average about 60 to 65%; that figure excludes countries where government alone extracts oil. Starting this year, Britain raised its tax on petroleum revenue from the North Sea, pushing the government’s share to 50%. Norway keeps at least 70% of revenues; as oil prices rise, the government share increases and tops out at 78%. Several Canadian provinces have adopted similar policies; Alaska’s new tax system kicks in as oil prices climb above $55 a barrel. Given the nearly fourfold increase in oil prices from $15 a barrel in 1999 to more than $70 2006 summer, do oil companies really need tax breaks? (New York Times, Dec 22, via Alanna Hartzok)
In 2006, the world’s largest oil company netted $39.5 billion, making it the most profitable year for any company ever. It tops the last record, also set by Exxon, in 2005 by 9.3%. Exxon’s annual net income soared despite fourth-quarter earnings falling 4.3% from last year’s record quarter. Exxon’s profit equals roughly $132 for every US resident, more money generated per minute, $75,150, than 90% of the US population earned all year. Exxon raked in record profits even though the price of a barrel of oil ended 2006 at $61.05 where it started – $61.04 a barrel at the end of 2005. It benefited over the summer when oil prices spiked to a high of $77.03 a barrel. (USA Today, Feb 2)
SEC Chairman Christopher Cox said the timing of stock option awards to executives “appears to be a pandemic of crooked accounting.” Companies had to erase more than $5 billion in earnings and fire more than 60 senior officers and directors – including 18 Cheat Executive Officers. The founder and CEO of the company that popularized the graphic “Grand Theft Auto” video games, Ryan A. Brant, pleaded guilty. A former top executive of the company that runs another popular feature of American culture, the Monster job search Web site, admitted he backdated millions of dollars in stock option grants. They were the sixth and seventh executives to be criminally charged in the wave of government investigations. The Justice Department and the Securities and Exchange Commission have 130 or so companies under investigation. Some critics want prosecutors to pick up the pace of enforcement actions in corporate America’s biggest fraud of 2006. (Associated Press, Feb 16)
Along with back-dating, there’s trading-ahead. The Financial Times (Feb 15, via Phil Anderson) highlighted several examples of the length some stock traders go to, to disguise their knowledge and then trading of non-public information. Which will still affect price, of course, diluting returns to those not in the know. Federal prosecutors at the Securities and Exchange Commission charged that an inside trading ring at three “top tier” Wall Street firms – UBS, Morgan Stanley and Bear Stearns – operated for five years, involving hundreds of tips and thousands of relatively small trades, netting the insiders $8 million. (USA Today, Mar 1)
Big paycheck gap bigger
The top five Wall Street firms (Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch, and Morgan Stanley) were expected to award from $36 billion to $44 billion worth of bonuses to their 173,000 employees. That averages between $208,000 and $254,000, with the bulk going to the 1,000 or so highest-paid managers. An amount less than half of the combined bonuses awarded by the five Wall Street firms for one year, $15.4 billion, is how much the combined annual earnings of the 93 million production and nonsupervisory workers (exclusive of farmworkers) rose from 2000 to 2006. That’s $3.20 a week, an increase of 1%. Yet those workers’ productivity, the amount of output per hour of work, from 2000 to 2006 rose by 18%. They earned bigger rewards, but the bonuses went instead to the tiptop. Meanwhile, the US savings rate has dropped to below zero, and more Americans file for bankruptcy than for divorce. (NY Times, Jan 8, via Heather Remoff)
In 2006, productivity slowed to its lowest rate in nine years – in 1997 the gain was 1.6%. Since hitting 4.1% in 2002, productivity has declined: in 2005 it was 2.3%, last year it was 2.1%. But that was still nearly a full percentage point above average annual gains from 1973-93 when oil price shocks made doing business more costly. Then high-tech tools such as computers began to boost worker efficiency. Labor’s wages for each unit of output rose 3.2% for all 2006, up from 2% in 2005 and the fastest rise in wages and benefits since a 4.2% increase in 2000. Following a 3.2% rate of increase in the third quarter, for the fourth quarter wages fell back to just 1.7%. (AP, USA Today, Feb 7)
Wealth gap popular worry
American overwhelmingly see the growing gap between rich and poor as a serious national problem; in an LA Times poll, three quarters worried about the yawning income/wealth gap. Among people earning less than $40k annually, 84% called the disparity a major challenge; almost as many among the $40-$60k/yr group felt the same way; among those making over $100k/yr, it was three in five. Even a majority of Republicans – 55% – called the situation serious. Even an ex-vice chair of the Federal Reserve – which wields enormous power, creating so much new money which investors use to bid up assets, making the rich richer – expressed concern (Ms. Alice Rivlin by name) about the inequality. The portion of national income claimed by the top quintile topped 50%, up from 45.6% 20 years ago; the bottom three quintiles earned 26.6%, down from 29.9% in 1985. Average pay for CEOs rose to 369 times that of the average worker last year, up from 131 times in 1993 and 36 times in 1976. While we slide into a two-class society, there is nevertheless some head-in-the sand; about two thirds of Americans called their own finances secure and expected housing values in their neighborhood to stay up in the first half of 2007. (Seattle Post-Intelligencer, Dec 14; via Meta Heller)
Housing costly, crime up
In cities like New York, LA, Boston, and San Francisco, less than 10% of households can afford a median-priced home. Nationally the average is about 50%. In the star cities, many homes are kept empty much of the year by rich owners who live in multiple dwellings. (Wall Street Journal, Feb 13) After a lull between 2001 and 2004, robberies and murders in America rose in the first half of 2006, from big urban areas to small cities. At 3.7%, the violent crime rate was on pace for a second straight annual increase; in 2005, violent crime rose 2.2%. Some of the biggest jumps were in robberies at 9.7% and in arson at 6.8%. (The Oregonian, Dec 19)
Small caps, big dividends
To share profit with investors at year-end, fewer US companies, particularly big-name ones, raised dividend payments to shareholders in December than in the same month a year earlier. Some small and midsize companies chose another route: one-time, or extra, dividend payments. A total of 221 companies, the highest since 1978, declared extra dividends in December, up 13% from the 196 companies that paid them a year earlier. Companies typically pay extra dividends when they want to reward shareholders but don’t want to commit to paying the same amount each year. The number of companies that raised their regular dividends in December was 154, down from 166 a year earlier. For the full year, 1,969 companies raised their regular dividends, up 1% from 1,949 in 2005. Many companies used excess cash to buy back stock last year rather than raise dividend payments. (LA Times, January 5)
Few corps split their stock
Only 37 companies in the Standard & Poor’s 500 index split their stock last year. That’s almost 40% below the average number of yearly splits since 1979 and 60% below the 91 that split in 1999 as the last bull market was peaking. Companies split their stock in half to keep their per-share price low. Small investors like the idea that they own twice as many shares and that they can purchase stock at a lower per-share price. Data show splits are meaningless; stocks that split from 1988 to 2005 had nearly identical 12-month performance to those that didn’t. Some guesses for last year’s drought of splits: The Google effect. Having a high per-share price is a status symbol. Some investors see Google at $500 and Berkshire Hathaway at $100,000 as a badge of honor.
Fear of a market correction. It’s been 51 months since the market corrected 10% or more. That makes companies nervous. If their share price falls after a split, it may be lower than management wanted.
The get-even factor. While the Dow Jones industrial average was near a high, many stocks were still lower than were they were five years ago. The S&P 500 was still 6.3% below its high. (USA Today, Jan 22)
Home prices down again
“In all the developed countries put together, real estate prices have risen by more than $30trn over the past five years. That’s equivalent to 100% of their combined annual GDPs. This eclipses the 1990s stock market bubble (an increase over five years of 80% of GDP), and Wall Street’s bubble of the late 1920s (55%).” (Fred Harrison, author of Boom, Bust: House Prices, Banking and the Depression of 2010 in Money Week, Jan 30)
By last year, a median-priced American home cost nearly eight times average annual earnings, up from about five times earnings in 1980. The number of unoccupied homes for sale has reached a record 2.7% of all homes that are normally owner occupied. (Christian Science Monitor, Feb 7)
The S&P/Case-Shiller method showed that home prices rose 0.4% in the fourth quarter of 2006 compared with the same period a year earlier. It was their smallest gain since 1993 Q2. (USA Today, Mar 1)
In December, home prices in the top 10 metro areas fell 0.8%, the largest monthly drop since 1991. (CBS MarketWatch, Feb 27)
In January, sales of new homes fell by double digits, the sharpest in 13 years, since January 1994. New homes account for 15% of the market. The median price of an existing home fell to $210,600, a decline of 3.1% from a year ago, the third-biggest drop in history and the sixth straight month of decline. (CBS MarketWatch, Feb 16)
Of 55 economists polled Jan. 18-24, 9% said the housing decline ended in 2006, 42% said the downturn will end in the first half of 2007, and 45% said it will bottom out in the second half. (USA Today, Feb 5)
Cracks in the façade?
In the final quarter of 2006, as borrowers with meager means faltered, late mortgage payments shot up to a 3 1/2-year high and foreclosures surged to a record high. The percentage of payments that were 30 or more days past due for all loans tracked jumped to a seasonally adjusted 4.95% rate in the October-to-December quarter. That marked a sharp rise from the third-quarter’s delinquency rate of 4.67% and was the worst showing since the spring of 2003, when the late-payment rate climbed to 4.97%. The percentage of mortgages that started the foreclosure process rose to 0.54%, a record high. The previous high, 0.50%, occurred in the second quarter of 2002 as the economy was recovering from the blows of the 2001 recession. The late-payment rate for all subprime loans jumped to 13.33% in Q4, from 12.56% in the prior period and the highest in four years. The delinquency rate for subprime borrowers with adjustable-rate mortgages was even higher – 14.44%, also the highest in four years. The Mortgage Bankers Association, the source of the data, altered its December forecast of when housing prices would turnaround, from 2007′s middle to this year’s end. (USA Today, March 13) Not only did poor borrowers overextend, so did their lenders, and the lenders to their lenders. Next, some banks should fail, followed by some businesses who needed their poor customers. How far it spreads depends on how rational voters and government react; expect the bankruptcies to spread widely.
Cycle signals point down
US debt enjoys demand. Despite war abroad, oil exporters increased their holding of Treasuries to $97.1 at the end of November, up from $79.3 billion a year ago; China went from $303.9 billion a year before to $347 billion. As demand for US bonds rises, their yields fall. Normally, the yield of a 30-year bond stays 1.5 percentage points above the Fed funds rate. But to slow growth, the Fed has raised their basic rate 16 times since 2004 (still well below their 1981 rate of 19%). That has pushed up the yield of short-term bonds, as demand lowered the yield of long-termers. When short-terms pay more than long, watch out; since 1960, such inversion has preceded a recession, the lone exception being 1966. Lately the 30-year bond yield has dipped below the fed funds rate, and the 10-year Treasury note, often used as a benchmark for 30-year fixed-rate mortgages, has kept below six-month Treasury bills for eight-straight months, the longest such period since 1981. Yields have been inverted 11 of the past 13 months. Yet does an inversion still matter? US companies can borrow overseas at lower rates; while the Fed’s funds rate is 5.25%, the European Central Bank rate is 3.5%. (USA Today, Feb 13) Yet cheap loans can’t buoy business when their customers go broke.
Meanwhile, high-end office space rents are higher in Moscow than in New York City, $21 per square foot higher, at $95 per square foot. To capture those rents, investors are building a 93-story office tower, which will be Europe’s tallest building. (Parade Magazine, Dec 24) If it’s darkest before down, it’s also brightest before sunset. It’s at the end, the peak, of the land price cycle when investors put up the newest, tallest building.
FROM THE OP-ED PAGES
NY State on split-rate
“A split-rate tax would benefit many upstate New York cities and villages with aging infrastructure and high property taxes that have resulted from diminishing tax bases. Nearly all of the Pennsylvania cities using the split-rate tax experienced an increase in development after the split-rate tax was implemented.” (In ex-Governor Pataki’s Report on Quality Communities, page 95, November 2006)
By taxing land more than buildings, cities can encourage valuable sites to be used productively, rather than banked by investors hoping for even higher prices. (Rich Nymoen et al, St. Paul Pioneer Press, Nov 27, linked to Planetizen: Urban Planning and Development Network, the popular website of planners)
Lower taxes on buildings would encourage renovation and new construction, because there’d be less of a penalty for doing the work. Also, there would be a greater incentive for people to replace abandoned buildings and parking lots with useful structures such as affordable housing. (Jeffrey P. Cohen, Barney School of Business, U of Hartford; The Hartford Courant, 2006 December 17)
The New York Observer, March 12, by Tom Acitelli: “It’s more than a century since Henry George’s Progress and Poverty was a best-seller, but his memory lingers on.”
Others on full land tax
Scrapping Kansas City’s 1% tax on workers’ earnings and replacing it with a land tax would help the city compete more successfully with other metropolitan areas and slow the migration of businesses and workers to distant suburbs. Henry George, a social reformer in the 19th century, campaigned to replace all other taxes with a single tax on land. Haslag’s model suggests a 10% tax on land value, in addition to the current 1.44% tax on land and building. (Joseph Haslag, U of Missouri at Columbia, published by the Show-Me Institute; St. Louis Post-Dispatch, Jan 24, Kansas City Business Journal, Jan 25, The Kansas City Star, Jan 26)
Henry George knew that state ownership of land would never be tolerated, so he proposed that the state confiscate all unearned increment of land values as a single tax. (Charleston Gazette, Feb 9; Huntington News Network, Feb. 12)
How to shift to alternative energy and oil conservation: how to pay for it? One way would be serious tax reform, not only by eliminating the Bush tax cuts, but also by heavily taxing non-productive asset transactions through restoration of higher capital gains taxes, shutting down offshore tax havens, a universal land-use tax on rents and mineral rights, or higher taxes on earnings from privatized public utilities and interest. (Richard C. Cook, who worked in the Carter White House and NASA before spending 21 years as an analyst with the US Treasury Department. He is the author of Challenger Revealed, called by Publisher’s Weekly, “easily the most informative and important book on the disaster.” Dissident Voice, Feb 18. He spoke in the Basic Income Group track at the Eastern Econ. Assoc. annual)
The Christian Science Monitor (March 14): “An increasing number of liberals, such as Al Gore, and conservatives, such as Texas oil billionaire T. Boone Pickens, are publicly supporting the idea of taxing energy more and work less. All across Europe – where energy taxes are already much higher than in the US – governments are already cutting payroll taxes. Payroll taxes increase the costs of hiring workers.”
English left, Scottish greens
“We do not get richer as a society from rising house prices. We merely transfer a burden to future generations who have to pay more for their houses. We shut out the have-nots who cannot tap their parents for a deposit. We lock in a permanent underclass who have no hope of ever getting on to the property ladder. Need this have happened? No. Residential property in Britain jumped by £410bn in value last year. Only about 2% of that gain was taxed by stamp duty or inheritance tax. Would prices have risen so far so fast if land values were taxed more? No. The discussion of land value tax, which has been around since the days of Adam Smith and David Ricardo, is gaining ground again as people reflect on the absurdities of the housing boom. Next week sees the launch of an edited and abridged version of the classic 1879 work by the American economist Henry George, Progress and Poverty by Bob Drake. George is widely seen as the father of land value taxation and his ideas are as relevant today as they were in the aftermath of the US civil war.” (One of several recent endorsements in The Guardian, this in their e-Unlimited by Ashley Seager Feb 19, via Mark Monson)
“Greens support a land value tax. The land value of a location is community-created. Land value is not created by property owners who should therefore not benefit from it when it becomes incorporated in higher capital or rental values.” (Mark Ballard MSP for Lothians since 2003, Green speaker on Finance and Public Services, and Rector of Edinburgh University, and Peter McColl, researcher for Mark Ballard, Scottish Left Review, Issue 38)
Asia and Down Under
The Australian, the daily national broadsheet, published a prize-winning essay, here extracted: “There is the economic opportunity cost of all the investment going into property. Unlike investment in shares or loans to business, investments in land ownership generate no increase in productivity or output. They simply rely on population increase and general increases in societal wealth to increase demand for, and thus the price of, land. In this respect, untaxed land ownership steals income from those involved in production: in 1911 land owners received only 8% of national income with workers and entrepreneurs getting 85%. Today it is 27% and 41% respectively. Ultimately, land monopolies act as a constraint on continued economic growth as more income passes from businesses and their employees to landlords.” (Tony Healy, Dec 18)
Punjab News (Jan 28): “Pay for what you take, not for what you make. Businesses should not be taxed for hiring people or for earning a profit, but should be charged for using resources and polluting the planet. People should not be taxed for earning an income or purchasing products but should be charged for the value of land they own and the resources used in the products they buy. Taxing unearned income (resources, land) and not earned income (jobs, profits) will reduce the rich-poor gap since the rich are always in a better position to capture unearned or windfall income by their ability to hold assets that they do not have to consume.” (G.S.Bhalla, Commerce and Business Management, Guru Nanak Dev University, Amritsar, India; via Ed Dodson)
FROM THE ARCHIVES
Historical Society on HG
His name was Henry George, and he was perhaps the most original economic theorist this nation has produced. In his own day he was as well known as, say, Ralph Nader is today. He had something to say still worth listening to, and he put it all down in a book called Progress and Poverty, published in 1879 as the pinnacle of what might be called an intellectual success story by Horatio Alger. As he himself once observed, “… if I have been enabled to emancipate myself from ideas which have fettered far abler men, it is, doubtless, due to the fact that I was led to think a good deal before I had a chance to do much reading.” (American Heritage Magazine, 1978 April-May, and their website)
Capitalism’s Next Stage
In Capitalism 3.0: A Guide to Reclaiming the Commons, (Berrett-Koehler), Peter Barnes, founder of Working Assets, argues in 166 pages that each stage of capitalism spawns its own operating system. In Capitalism 1.0, a time of shortages and scarcity, people survived on the land until the enclosure movement shrank the commons; then they moved into cities where they became a reluctant and restive industrial workforce. Capitalism 2.0, from the late 19th century to the late 20th century, is characterized by surplus. The challenge was to persuade people to want output and extend them the credit to buy it. The costs are inequality, stressful lives, and corporate revenues and power that exceed those of many nations. In Capitalism 3.0, the Commons is no longer simply a pasture but the gifts we inherit or create together. The land as Commons is an idea from the earliest days of the American Republic. Tom Paine proposed paying citizens compensation for their loss of “natural inheritance, by the introduction of the system of landed property.” In the late 19th century, Henry George and his followers advocated a tax on land, to compensate the public for its investment that created the land’s market value. Even a cursory investigation suggests that the level of givings in this country is 100, perhaps even 1000 times greater than the level of takings. Rather than relying on government to protect the Commons, Barnes argues for a trust to disburse revenue gained from creating a property right in the Commons, which could ameliorate poverty. (David Morris, co-founder and VP of the Inst. for Local Self Reliance in Minneapolis; AlterNet, Independent Media Inst, Jan 5)
Ricardo’s Law revisited
A new book by Fred Harrison brings into sharp focus the root cause of our continuing failure to address poverty and the growing gap between rich and poor. Ricardo’s Law takes its title from a much neglected piece of economic theory, David Ricardo’s Law of Rent, which explains how much of the wealth generated through economic activity ends up in increased land values, enhancing the wealth and wellbeing of those who own land, and doing little for those who contribute most to its creation. (Guardian Unlimited, by Mark Braund, Feb 22)
In Ricardo’s Law, journalist Fred Harrison adds his voice to the moral crusade to which Tom Paine and Henry George devoted themselves. Paine had joined the best of his age’s moral philosophers in calling for the public collection of “ground rents” to cover the costs of government and provide an income supplement to many citizens. George described how market dynamics determine the amount of ground rents available for public collection. Paine’s efforts helped secure republican governance and democratic processes. George and his supporters formed the Progressive vanguard fighting for an end to monopoly privilege. Tragically, they failed. Armed with data produced by government and other experts, Harrison’s analysis challenges a long list of conventional wisdoms. (Ed Dodson continues his review of 2006 November on his webiste, the School of Cooperative Individualism.)
Fed head explains inflation
Before he became Federal Reserve Chair, Ben Bernanke told the National Economists Club (2002 Nov 21): “Government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many dollars as it wishes. By increasing the number of dollars in circulation, government can reduce the value of a dollar in terms of goods and services, which is equivalent to raising prices.”
Mason Gaffney, UC-Riverside (Feb 4): “As for inflation, the main cause is the failure of governments to collect enough taxes, so they resort to deficits, financed by central banks issuing new money.”
The federal deficit for the four months, Oct. 1 to Jan 30, totaled $42.2 billion. From the same period in fiscal 2006, it was down 57.2%, since revenues were up 9.7%, climbing to $834.1 billion, a record for the period. Government spending was up 2.1% to $876.3 billion, also a record for the period. (USA Today, Feb 13)
Consumer prices in 2006 rose 2.5%, the slowest rise since 1.9% in 2003. Core inflation, which excludes volatile energy and food costs, rose 2.6%, the fastest increase since 2.7% in 2001 (2.7% for 27 years will double prices). (LA Times, Jan 18) In January, consumer prices rose 0.2% while core prices rose 0.3%, largest gain in seven months. Medical costs – prescription drugs and doctor services – rose 0.8%, steepest rise since 1991 August. (USA Today, Feb 21)
Since prices for copper and zinc have inflated, some people melt down pennies and sell the metal. In 2006 the US Mint made melting down pennies and nickels illegal. No one has yet made it illegal for the US to over-issue new money, making possible inflation in the first place.
LA Times aggra on agri-biz
The Los Angeles Times on farm subsidies (Feb 4): “Why should Americans care? First, because other nations retaliate against US exports. Second, because subsidies kill competition with foreign growers that would ultimately lower prices on some produce in this country. Third, because taxpayers are shelling out roughly $20 billion a year to an agribusiness juggernaut that neither needs nor deserves the money at a time of ballooning deficits. And fourth, because the poor countries most harmed by our trade policies are the ones most likely to become failed states, embittered by our hypocritical preaching on the merits of ‘free trade’.”
In recent years, ever more Americans don’t trust government to spend their money wisely. On Medicare, most surveyed sided with Democrats’ desire to have the government negotiate drug prices with manufacturers. On Social Security, a more narrow majority sided with President Bush in his effort to make individual accounts part of the government retirement program. The findings are from public policy groups, both left- and right-leaning: the Heritage Foundation, a conservative think tank, and Public Agenda and Viewpoint Learning, two liberal groups. All three favor deficit reduction and have spent the past year working to educate the public and seek feedback about the nation’s fiscal condition. (USA Today, 2006 Dec 12)
To skirt the waste inherent in spending OPM (Other People’s Money), let’s shift discretionary spending from politician and bureaucrat to the citizenry, paying ourselves a dividend rather than more subsidized “services”.
One pro, one con land tax
M. Jastifer, ex-Michigan assessor now advising remodelers on real estate and property tax matters (Feb 21): “The ad valorem property tax is the most fair tax in America. Everyone in America can get a house if they just work. What do you want to do? Give all the land to the people and everyone has to be equal?”
Editor: The property tax is fair in part because part of it falls on the socially-generated value of land. But the part that falls on the building is not fair; that value is generated by somebody’s labor and capital. And there’s many people working hard who lack homes, so work by itself is no solution. Left up to me, I’d not give land to anyone, just leave land titles in the hands of whoever pays the land dues. What I’d give is the land value to everyone, since it’s everyone who generates it and nobody creates the land. Then people could enjoy equal rights.
Hollywood Writer: “Why should somebody who paid for land once have to pay again?”
Editor: They paid the wrong person. They paid neither whoever made land nor who makes land value. While your neighbors did not create land either, they do create its value. Your paying them compensates them for keeping off your land, a portion of our common heritage, as their paying you compensates you for same. And you keep paying them as long as you want them to respect your property, provide police patrols, maintain roads, teach your kids, etc, as they’ll keep paying you for the same, each paying land dues in and everyone getting “rent” dividends back.
John Kromkowski, Baltimore lawyer (Mar 13): “In some states, a constitutional uniformity clause has been written or interpreted in such a way as to require any tax on property to fall on both land value and improvement value equally. To skirt this clause and tax a kind of personal property – cars – lawmakers called their tax on automobiles/vehicles a title tax. Currently, property title fees are a just flat filing fee, relating not at all to the value of the real estate. A geoist legislature could raise it to the value of the land. Of course, just as some people try to drive without registrations, some would skip paying the land title fee. What to do about such a landowner? Such a risk-taker could not defend his land against adverse possession in court. Rather than confiscation, a state could create a cloud on his title, making mortgages and the sale of the property complicated. To avoid that and to use state courts, almost all owners would pay up.”
Editor: If compliance wouldn’t be a problem, then eventually deed fees might morph into real land dues.
In the media, on a podium
I extended an invitation to our local network to a Winter Solstice celebration, which drew some who demonstrated that knowledge, too, can be bliss – as long as there’s good company to laugh about it with. A couple weeks later, Jan 7, presented to Portland’s Humanists, about 80 strong. The lively discussion recruited volunteers and spun off a restaurant dinner to further discuss geonomics and how Humanists might help the cause. With Salemite Richard Reid we emailed and visited a dozen elected representatives at the start of Oregon’s biennial legislative session; we brought around some new leaders, especially Republican Rep. John Dallum who had read our stuff in advance was enthused to move forward. We got a bill into Legislative Council for official drafting but not back in time to meet a new deadline self-imposed by lawmakers. Our bill might get incorporated into someone else’s, but at this point that’s our only chance.
Basic Income in New York
In February, thanks to support from the Henry George School and the Robert Schalkenbach Foundation, in New York City I spoke in the Basic Income Track within the annual conference of the Eastern Economic Association. Their new president, Nobel laureate Joseph Stiglitz, fired from being Chief Economist at the World Bank for articulating inconvenient truths, drew a bigger audience than yours truly! Stanley Aronowitz, unionist now at the City University of New York, from the podium agreed with recovering site values, but thought taxes on other values would be necessary, too. Senator Eduardo Suplicy, Brazilian Federal Senate, who may be the next mayor of Sao Paulo, liked the idea of recovering site values in order to fund housing assistance for all residents, a bit like Aspen CO does. The reception at the Henry George School was the highlight of the week. There I met many old friends and Nibaldo Aguilera, new advisor to the new president of Chile; we brainstormed ways we might catalyze geonomics in Latin America. Returning to Portland, the cabbie from the airport liked my report on my trip so much, he halved my fare!
Newcomers, old stayers
The fall Geonomist elicited enough renewals and newals to cover the costs of copying and postage: from patron Marion Sapiro (ret. CA prof); super stalwarts Hanno Beck (MD computer consultant), Richard Biddle (ret. Philly teacher), Jake Himmelstein (Philly accountant), stalwarts Polly Cleveland (NY economist), Michael Cykana (TX computerician), Wendell Fitzgerald (new groom and ret. CA oil manager), Everett Gross (ret. Nebraskan), Mel Leasure (ret. VA communitarian), Michael Neil (CA healer), Mark Sullivan (NY manager), Nic Tideman (VA prof); sustainer Jeff Strang (Portland bldg. inspector); super supporter Paul Justus (AR planner), supporters Gil Herman (CT activist), Greg Young (MO caregiver); and subscribers Trevor Acorn (Democratic Freedom Caucus), Christopher Thacker (MO student), the Robert Schalkenbach Fdn itself (NY), among others. Big thanks to all for re/joining, donating, and granting. If you don’t see your name above and know it belongs there, just send a check. We’ll know what to do with it.
The Robert Schalkenbach Foundation has contracted with us to produce the monthly e-newsletter, The Georgist News. It’s free, fact-packed, and timely. If you’d like a sample copy, let me know.
WHERE FROM HERE?
What you can do
Attend the Exploring Innovation Conference, May 2-4, St. Louis MO, hosted by the Federal Reserve Bank. See their invitation online. The early bird fee, $275, lasts til March 29. Dr. Tom Gihring and I will speak and network with locals Al Katzenberger and friends.
Prof Hovhanness I Pilikian (Dec 20): “I forward your communication to over fifty of the choicest on my mailing-list; I included you to let you have a copy!”
Editor: Big thanks. Knowledge is power. If anyone else has a list, tell them about this knowledge source.
What else you can do
Edward Clarke, ret., OMB (January 5: “I’m embarrassed that I didn’t get you my usual year-end donation. Will correct that ASAP. Keep up the great work.”
Scott, the Roots (Jan 2): “I’ve been using PayPal and it’s been great; instant payment makes it so easy to donate. If I had to take the time to make out a check for a small amount I probably wouldn’t. Is PayPal on your website? I’ll head over there to donate $5.”
Michael A. Neil, California health provider (Jan 15): “Your web site needs, right at the top, a button, ‘Make a Contribution’. Thought I’d re-up there but it’s still the paper way I guess. Your check is in the mail.”
Editor: Big thanks, fellows. Our webmaster is a volunteer who’s so busy. We are enrolled at Pay Pal. At their site, they ask you to open an account for yourself then to send to my e-address. If you have any trouble, I’ll resolve it. Visit: http://www.paypal.com/cgi-bin/webscr?cmd=p/ema/index-outside
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Imagine getting an income just for being a member of a society with a surplus. You’d have so much security, you could choose to do only useful work. You’d have time to enjoy your brief stay on this planet.
Back in 1985 in the UK Parliament, the Labour Land Campaign sponsored a bill to craft a dividend paid to citizens from the recovered values of sites and resources. Dave Wetzel worked on that campaign and works for the “rent” dividend now. He wields some clout among civic leaders worldwide; he’s a VP in the capitol’s mass transit agency, Transport for London.
Something similar to this dividend is the Basic Income Grant (BIG). Some of its advocates note the payment should come from “rent” – the money we spend on the nature we use (sites, resources, EM spectrum, ecosystem services). Most proponents, however, are silent on how to fund BIG. The Scottish Green Party advocates both a “Citizen’s Income” and a tax on land value but does not connect the two – a case of the left hand not knowing what the right hand is doing.
Among the BIGists are some fairly big (no pun intended) names. Prime Minister of Finland, Matti Vanhanen of the Centre Party, in joining his nation’s debate on BIG, said that the current wide range of benefits could be replaced by a BIG of about 600 or 700 euros per month, supplemented by incentives to encourage people to work. The Finnish Greens had accused the Social Democrats of using false reasons to reject this extra income for everyone.
Several newsworthy Germans have endorsed BIG, including sociologist Ulrich Beck, author of “The Risk Society,” and chairperson of the left party PDS, Kayja Kipping. One of the 500 richest Germans, Gotz Werner, owner of over 1700 drug stores with annual sales of 3.7 billion euros said, “Like almost all entrepreneurs, I wanted more and more in the past. Today maximizing meaning is my top priority. I have read the classics, Goethe, Schiller. I understand my own success is not everything. I want to help others succeed. ‘Nothing is stronger than an idea whose time has come,’ Victor Hugo said. Two years ago BIG was something for a few experts. When I give lectures today the halls are full.”
In behalf of Africa, the UN Commission for Social Development praised Namibia’s basic income grant proposal. The Lutheran World Federation (LWF) urged its member churches to consider poverty reduction initiatives like Namibia’s BIG proposal. The LWF also praised Namibian Lutherans for their work promoting the BIG in South Africa.
In Australia, John McDonnell has been an MP for the Australian Labour Party since 1997. Now he campaigns to become the next Labour leader and endorsed social rights to a Citizen’s Income (or BIG). If his campaign succeeds, he’d be poised to become Prime Minister of Australia next general election, after which he could likely get his Citizen’s Income implemented.
In South America, Uruguayan member of the Parliament Pablo Álvarez (Frente Amplio, left wing coalition) presented at the Chamber of Representatives of the National Parliament a proposal to create the “Uruguayan National Network for Basic Income”. The Parliament approved the creation of a Committee to study the political meaning and feasibility of BIG. A committee can be a graveyard for new ideas, but at least the discussion is underway.
In North America, participants in a survey by the [Canadian] National Council on Welfare ranked the Guaranteed Livable Income (another name for BIG) number one for action to permanently reduce poverty. Three Canuck politicos declared their support: Conservative Senator Hugh Segal, Green Party Leader Elizabeth May, and the Green Party of Manitoba. Ontario Green Party leader Frank de Jong wrote us (May 26), “I just got around to reading your amazing piece on the citizen’s dividend in Common Ground. You inspire me greatly.” US BIG posted on the web a copy of “Can a Citizens Dividend Replace Welfare?” What do you think the answer is?
FROM THIS PEN’S PERCH
Gulfs and support widen
Summer’s already begun and here I am in a New York airport, after the Ecological Economics meeting, stranded by a hard rain, trying to wrap up this summer issue. Sitting butt-numb, wondering what’s next as some basic trends keep moving apart. Some guys get a billion dollars a year while others must keep working past the old retirement age. Subsidies and oil account for ever more of the income gap. Bankruptcies pile up while, too late, home (site) prices drop. The environment worsens yet investors appear oblivious as the stock market hits new highs and the newest world’s tallest building nears completion. In the Pacific Northwest, it’s different. Land prices are still high – they always follow the rest of the nation – and its environmentalists keep ahead of the pack, getting local governments to address both climate change and peak oil, altho’ one problem seems to cure the other. And the solution to this myriad of ailments along economic lines keeps making more friends, more in Britain and Asia than in America, yet the coming housing bust could change that. Enough middleclass Americans lose all their savings by defaulting on mortgages and they may become ready to hear what works. It’d be a hard way to learn, but sometimes it seems only pain gets thru. On the bright side, once the rules on property are fixed right, they’re fixed forever.
Iraqi oil funds bad guys
Between 100,000 and 300,000 barrels a day of Iraq’s declared oil production over the past four years is unaccounted for. Using an average of $50 a barrel, the discrepancy was valued at $5 million to $15 million daily. It’s possible that Iraq has been consistently overstating its oil production. However, Iraq has a history of corruption – the “resource curse”. Bush’s Administration has spent billions of US tax dollars to improve Iraq’s oil industry while output has dropped. These new figures reinforce longstanding suspicions that smugglers, insurgents, and corrupt officials control significant parts of the country’s oil industry. (James Glanz, International Herald Tribune, May 13) That oil corrupts and absolute oil corrupts absolutely is not peculiar to Iraq; it happens in the US, too. One current and two former Alaska legislators – all Republicans – were indicted for accepting bribes to back a pipeline negotiated by a former governor. More than just cash, the bribes included a job offer in Barbados. Yet businesses lavishing politicians with perks and campaign contributions is how permits, taxes, and subsidies get passed – until we realize the worth of Earth belongs to us all. One US presidential candidate, Tommy Thiompson, does call for giving the oil revenue to the Iraqi people, something Bush’s administrator Brenner talked about doing, too.
Rich from oil & subsidies
According to the United Nations, in 2006 the net transfer of capital from poorer countries to rich ones was $784 billion, up from $229 billion in 2002. (In 1997, the balance was even.) Even the poorest countries, like those in sub-Saharan Africa, are now money exporters. Rich-country governments spent $283 billion in 2005 to support and subsidize their own agriculture, mainly companies like Archer Daniels Midland and Cargill. They undercut small farmers in poor countries who stop farming; three-quarters of the world’s poor people are rural. Then their nation buys food from the North. (NY Times, March 25, via Heather Remoff)
While income for the lower 55% of the world’s 6-billion-plus people declined or stagnated last year, the total wealth of the global ruling class grew 35%, topping $3.5 trillion USD. It came mostly from speculation on equity markets, real estate, and commodity trading, rather than from technical innovations. One hundred millionth of the world’s population owns more than over 3 billion people. Over half of the current billionaires (523) come from just 3 countries: the US (415), Germany (55) and Russia (53). (James Petras at stwr.net)
The oil-rich, former Soviet Union, including billionaires in Russia, Ukraine and Kazakhstan, would rank second to America as home to 65 billionaires. Turkey is home to 25; Hong Kong accounts for 21; but France has only 15. Quite a few of these billionaires in emerging markets, such as Mexico and Russia, were helped along the way by cronyism and weak antitrust laws. (Los Angeles Times, March 17)
Topping off tallest of all
Burj Dubai, the iconic super-tower, is now the tallest structure in the Middle East and Europe and it is not finished. Already at 110 levels and 380 meters high, Burj Dubai shares the honor of having the largest number of floors in any building in the world, alongside Sears Tower in Chicago. At the current unfinished height, the tower is also the world’s ninth tallest building. Burj Dubai is only one meter shorter than the Empire State Building, the second tallest in the US. It is the centerpiece of the AED 73 billion (US$20 billion) Downtown Burj Dubai, a mixed-use project in the heart of Dubai featuring residences, commercial space, hospitality projects, and several retail outlets including The Dubai Mall, the world’s largest shopping and entertainment destination. Burj Dubai is on course to become the world’s tallest building. (Emaar Properties PJSC press release, March 3, via Phil Anderson) Every time the newest world’s tallest building opens, it has been just after the 18-year land-price cycle peaked.
Buy bottled air? Got to.
Take a deep breath. Or, maybe not. Not if you’re in the Indian city of Calcutta. Traffic has so dirtied the air that 70% of its residents suffer from lung disease, including breathing difficulties, asthma, and lung cancer. The worst offenders are the 50,000 rickshaws – half of them unregistered – that burn “kantatel”. This fuel is a deadly concoction of kerosene and petrol. Government cannot force rickshaw drivers to convert to a cleaner fuel because they’re protected by powerful trade unions. What government has done is soothe the headaches of police who breathe the worst smog at work. The city equipped traffic offices with oxygen concentrators, the kind used by patients in hospitals. Doctors caution, however, that the oxygen cannot dislodge pollutants buried deep in the lungs. (17 May, BBC News) We already have the technology: fuels, motors, and mass transit that’d emit less pollution. But we still choose the same old entrenched smoggy ways because they’re cheaper, made cheaper by subsidies while the more efficient clean ways are made more expensive by taxes. Stop letting drivers pollute for free and start recovering the socially-generated value of sites and resources, then cities won’t be choked with traffic and the air with smog. Denizens could breathe again.
Retire when? Not soon.
After falling for more than 100 years, the retirement age edged up; in the 1980s, 18% of over-65s kept on working, now 29% do. What choice do those Boomers have? Aging has gotten spendy and benefits scarce. (LA Times, May 30) Slow trends that are so hard to sense can only get worse until people feel right about getting an extra income apart from their labor, one from the value of the land in their region, a value that all residents contribute to just by contributing to population density, one of the main factors by which society generates the value of locations.
Congress to tax oil?
The World Bank Group reports in 2005, public institutions such as the World Bank and US agencies such as the Export-Import Bank provided more than $3 billion to the international oil and gas industry; over the past year, lending for oil projects increased more than 75%. Instead of alleviating poverty, most oil and gas projects have exacerbated corruption, worsened economic inequality, increased local conflict, and intensified global climate change. Hence Congressman Maurice Hinchey (D-NY) on April 17 introduced a bill to help end international subsidies to Big Oil. (The Progress Report)
Despite the market price for crude oil and natural gas being lower than a year ago, in Q1 Exxon Mobil, the world’s largest publicly traded oil company, saw profits rise 10% to $9.3 billion. Sen. Bob Casey (D-PA), introduced a bill to impose a windfall profits tax and close certain tax loopholes for big oil companies. (AP, April 26)
Ethanol subsidy to land
When we subsidize them, farmers can make money farming or by selling or leasing land. On one hand, returns from farmland have averaged 10.9% annually the last 15 years (Bloomberg, February 20). On the other hand, the growing demand for ethanol has pushed up corn prices an average of 63% to $3.31 a bushel during the first quarter of 2007. So farmers nationwide expect to plant 16% more acres to corn this year. In Iowa, the value of good farmland shot up 16% over the last 12 months, with 7%, or nearly half the total increase, coming in the first quarter of 2007. (Des Moines Register, May 29) Dr. Fred Foldvary, Sta Clara U, uses this example to show how higher prices for goods get capitalized into higher land values. In this case, it is corn, as subsidies to ethanol drive up corn prices. Who benefits? Owners of corn farms.
Pay for rich golfer’s links
The more you can afford to pay, the less you have to. Bill Gates, Michael Jordan, and Don Johnson have all hit the links at the Bandon Club in central Oregon. To play golf there, rich CEOs fly into the nearby Bend airport on 5000 private jets per year at a cut rate, thanks to their shareholders kicking in and taxpayers paying $31 million for the airport and its new expansion. Golfers pay $200 each and altogether play 120,000 rounds each year, besides drink, dine out, and hire hotel rooms. Despite raking in tens of millions each year, Bandon also gets a break on its property tax and the local government’s power of eminent domain to take land for a reservoir in that dry part of the state. (David Cay Johnston, The Oregonian, June 15, via Gil Herman) While not a major rip-off, it is exemplary of how the elite-state partnership works. It’s spending like that that makes government expensive and a bad bargain and that keeps the rich rich since they can slough off their costs onto everyone else. It’s why discretionary spending should reside not with politicians but with citizens – pay public revenue to citizens directly, equally, by paying them a monthly dividend from raised revenue, from charging for granting privileges like land titles, resource leases, utility franchises, charters, and … airport landing slots.
Showy insider confesses
CNBC TV’ Jim Cramer, host of Mad Money: “A lot of times when I was short (in debt for stocks) at my hedge fund – meaning I needed it (the stock to go) down – I would create a level of activity beforehand that would drive the futures. It’s a fun game, and it’s a lucrative game.” Cramer told how he’d make bets that gave the impression insider investors were predicting a stock’s future. Cramer said everything he did was legal but added that illegal activity is common in hedge funds, where regulation is lax. He said some hedge fund managers spread false rumors about a company to the media and large trading desks to drive a stock price lower. He said this practice is illegal, but easy to do “because the SEC doesn’t understand it.” He said, “The way that the market really works is to have that nexus hit the brokerage houses with a series of orders that push it down, then leak it to the press, and then get it on CNBC.” (Matt Krantz, USA Today, March 23,)
For 2006, some managers of hedge funds were paid more than $1 billion each, way more than they’ve been paid in the past. While the Standard & Poor’s 500 index returned 15.8% last year, many hedge funds did 40%. Centaurus Energy, before fees, posted 317%; it hasn’t done less than 200% since its founding in 2002. Hedge funds pool the capital of very rich individuals or institutions such as pension funds who meet financial minimums set by the SEC. Unlike the more regulated stocks and bonds bought by mutual funds, hedge funds buy derivatives and other exotic debts – which can hit the jackpot or swallow an entire investment. Hedge fund managers typically take 2% of the fund’s assets and 20% of its returns. (AP, Tim Paradis, May 1)
Stocks defy gravity
Are giant corporations any longer national? Companies like IBM, Coca-Cola, and Intel – all among the 30 in the Dow Jones Industrial Average – derive well over half their revenue from abroad. The growing economies of Europe, China, and other emerging giants absorb US exports. US-based corporations saw the earnings of their foreign affiliates in 2006 Q4 surge to an annualized level of $272 billion, up 38% from the pace in 2005 Q4. That amounts to 15% of all US corporate profits.
Flushed with global profits, companies buy back their own stock and purchase that of others – they merge. Both actions pump up share value. The price of shares for the Standard & Poor’s 500 index is about 16 times the companies’ earnings. The S&P 500 is flirting with its historic high of 1527.46 set in 2000. The Dow Jones Industrial Average crossed 13000 for the first time. All this despite the housing-market slump and gasoline topping $3 a gallon.
An old adage on Wall Street advises, “Sell in May and go away.” Historically, from May through October share prices average lower than during the winter-to-spring period. Some of the stocks performing the best are companies that typically do well during downturns – relatively safe industries such as healthcare, utilities, and telecommunications. Like farming, football, and fashion, markets are cyclical, too. As the US economy – the globe’s largest and the one that imports the most goods – slows, other economies must slow, too. Those places will quit returning such fat profits to US firms. (Mark Trumbull, Christian Science Monitor, May 8)
Income gap 2x 1980′s
Income inequality grew significantly in 2005, with the top 1% of Americans – those with incomes that year of more than $348,000 – receiving their largest share of national income since 1928. Their incomes rose to an average of more than $1.1 million each, an increase of more than $139,000. The top 10%, roughly those earning more than $100,000, also reached a level of income share not seen since before the Depression. Average incomes for those in the bottom 90% dipped slightly compared with the year before, dropping $172. The new data also shows that the top 300,000 Americans collectively enjoyed almost as much income as the bottom 150 million Americans. Per person, the top group received 440 times as much as the average person in the bottom half earned, nearly doubling the gap from 1980.
Defaults up, prices down
In California, Florida, Nevada and Arizona, speculators walked away from properties since home prices fell as interest rates rose. Late payments and foreclosures on adjustable-rate home mortgages spiked to all-time highs in 2007 Q1, up from 14.44% to 15.75%. The percentage that started the foreclosure process climbed from 2.7% to 3.23%, the highest on record. Among lenders of loans with teaser rates, 30 have gone bankrupt this year. In Q1, the number of all mortgages starting the foreclosure process rose to 0.58%, a record that surpassed the previous high in 2006 of 0.54%. (Jeannine Aversa, AP, June 14)
Sales of existing homes in May fell by about 10% from last year to the lowest level in four years, and prices dipped for the 10th month in a row. The inventory of properties on the market has swelled to an 8.9-month supply, highest in 16 years. The median price for an existing home fell about 2% to $223,700 from a year ago. (AP, June 26)
Home prices in the 10 cities fell 2.7% on a year-over-year basis, the largest decline since September 1991. Meanwhile, prices in 20 cities dropped a record 2.1% year over year. Price appreciation has slowed for 17 consecutive months. (MarketWatch, June 26)
Commercial real estate, which lags behind residential, seems to have peaked in February. See the iShares Dow Jones US Real Estate index (an ETF and NYSE: IYR). Go to the YTD or 1-year chart.http://finance.google.com/finance?q=IYR
Land eats up our budget
The number of households spending more than half their income on housing increased in one year by 1.2 million to 17 million in 2005. That year, records were set for home sales, single-family starts, and house-price appreciation. Then in 2006, while median house prices increased at least 10% in 23 of 149 metropolitan areas, they fell in 34 metros. Of the 11 metros that had declines of greater than 3%, nine were in economically depressed areas in the Midwest. The amount of home equity cashed out set a record. (MarketWatch, June 11)
Employees who’re asked to relocate balked, fearing losing money were they to sell their home. Some companies are losing prized recruits or paying higher relocation costs, as much as $100,000. (Amy Hoak, Market Watch, May 11, 2007)
Freddie Mac, which bundles and resells mortgages as securities, lost $211 million in Q4. The report marked Freddie Mac’s first on-time filing of a quarterly report in five years. Freddie Mac paid a then-record $125 million civil fine in 2003 for management misconduct in their faulty accounting. (AP, June 14, USA Today)
FROM THE OP-ED PAGES
British influenced world
New Statesman (June 4) ran “50 ideas for Brown’s Britain”, asking five leading think tanks to suggest ten-point plans for the Gordon Brown premiership. The second point in the submission from Compass reads: “Tax Land – It is often public investment in schools, roads and other supply-side measures that creates unearned gains by landowners. A land tax would stabilise house prices, slow speculation, and rebalance regional and wealth inequalities.” (via Dave Wetzel)
The Herald (May 8): “Amid the council taxation debate, the Scottish Green Party wants to tax land value rather than property price for both homes and businesses … to spur owners to bring unused shops and brownfield sites into use.”
The Sunday Herald, Deputy Business Editor Antony Akilade: “The Greens propose a land value tax. As such, it compensates the community for the private gains made from public investment in the infrastructure and financial assistance to attract development.”
Financial Express, F. H. M. Masoom (March 20): “The owners of properties whose value increases year to year enjoy the unearned increment without contributing anything towards the development of the country. To tax them is most justified and not to tax them is unethical.”
Sun Star, Antonio V. Osmeña (April 11): “In many urban areas, particularly those of high population concentration, vacant land or lots with blighted structures should be assessed and taxed in excess of their contribution to overall real estate market value, in order to stimulate its use, to discourage the holding of vacant urban land for speculative purposes, and to encourage improvement of blighted structures.
US Banker and NE editor
St. Louis Post-Dispatch, Jo Mannies (April 15, via Joe Casey): “Retired investment banker, Rex Sinquefield, plans to invest millions in upcoming years in an effort to shape Missouri’s future. He also helped to establish the Show-Me Institute. He believes that state income taxes, as well as earnings taxes in St. Louis and Kansas City, hurt job growth and economic prosperity. He proposes replacing St. Louis’ earnings tax with a land tax that would be separate from a property tax.”
Hartford Courant, Tom Condon, editor of Place (June 10): “The thought is that the land tax, pioneered by 19th-century economist Henry George, will encourage owners to get the most out of the land by building on it, or selling it to someone who will build on it. Downtown seems like a very good candidate. Speculators are buying buildings and holding on to them. If owners had to pay higher taxes on land, this kind of bottom-feeding would be discouraged. Conversely, building in the trident areas would be encouraged.”
Gore, LA Times for shift
Before the House Energy and Commerce Committee on global warming, former vice president Al Gore urged Congress “to reduce taxes on employment and production and make up the difference with pollution taxes,” principally on carbon dioxide emissions. (The San Francisco Chronicle, March 23 (via Paul Martin)
Daniel Rosenblum, cofounder of the Carbon Tax Center, interviewed by Ray Suarez on PBS NewsHour (April 11): “So whenever the refiners or the oil companies sell oil into the pipeline, there will be a tax imposed there. When you take coal out of the ground, it will be taxed as it goes into commerce… Raise one tax, reduce another. You tax the bad, you tax pollution instead of productive work… We’re proposing that all the monies that are received from the carbon tax go back to all Americans, either by offsetting the payroll tax or through a rebate to all Americans, kind of like the Alaska Permanent Fund.” (via Paul Martin)
The Los Angeles Times (May 28): “While all the added costs under cap-and-trade go to companies, utilities, and traders, the added costs under a carbon tax would go to the government, which could use the revenues to offset other taxes. So while consumers would pay more for energy, they might pay less income tax, or some other tax.”
The Huffington Post (June 27): “They’re being showered with government subsidies to develop and deploy carbon capture and sequestration (CCS), whereby the emissions from coal-fired power plants are collected and stored underground. It’s technologically precarious and enormously expensive, but with taxpayers footing the bill, what the hell?”
FROM THE ARCHIVES
From Gutenburg Project
Eric Freyfogle, College of Law, U of Illinois: “To get people to mix labor with the land we need to protect the value of their labor. There is far less need to protect the land’s speculative value for future development… [M]any observers have reached these economic and moral conclusions. Among them was the late 19th-century economist Henry George, who based his enormously popular writings on this line of reasoning.” (APA journal, Planning & Environmental Law, 2006 June, Vol. 58 No. 6, via Chuck Metalitz via Bill Batt)
From Resurrection by Leo Tolstoy (1828-1910): “Henry George’s fundamental position recurred vividly to his mind and how he had once been carried away by it, and he was surprised that he could have forgotten it. The earth cannot be any one’s property; it cannot be bought or sold any more than water, air, or sunshine. All have an equal right to the advantages it gives to men… he formed a project in his mind to let the land to the peasants, and to acknowledge the rent they paid for it to be their property, to be kept to pay the taxes and for communal uses.”
Gamasutra, Ian Bogost (April 3): “In 1903, thirty years before the initial release of Monopoly as we know it, Elizabeth Magie Phillips designed The Landlord’s Game, a board game that aimed to teach and promote Georgism, an economic philosophy that claims land cannot be owned, but belongs to everyone equally. Henry George, after whom the philosophy is named, was a 19th century political economist who argued that industrial and real estate monopolists profit unjustly from both land appreciation and rising rents. To remedy this problem, he proposed a ‘single tax’ on landowners.”
It’s All For Sale
Subtitled, “The Control Of Global Resources”, it’s by James Ridgeway (2004). Five companies dominate the US petroleum industry. Five control the worldwide trade in grain. Two have a corner on the private market for drinking water. In terms of actual dollars, trade in heroin, cocaine, and tobacco ranks alongside grain or metals. There are more slaves in the world today than ever before. Resource by resource, It’s All For Sale uncovers and discloses who owns, buys, and sells what. Some resources—such as fuel, metals, fertilizers, drugs, fibers, food, forests, and flowers—have, for better or worse, long been thought of as commodities. Others—including fresh water, human beings, the sky, the oceans, and life itself (in the form of genetic codes)—are more startling to think of as products with price tags, but as Ridgeway shows, they are treated as such on a massive scale in lucrative markets around the world. Vandana Shiva calls it, “Essential reading for the ecology movement, the justice movement, the peace movement, and all who believe ‘Our World is not for sale.’” (Katipo Books website)
FCC defends EM auctions
“Spectrum Auctions Do Not Raise the Price of Wireless Services: Theory and Evidence” is by Evan Kwerel of the Office of Plans and Policy, Federal Communications Commission (2000 October). “A widely held misconception about auctions for spectrum licenses is that they will raise the price of wireless communications services. If licensees pay for their licenses instead of getting them for free, it is argued that they would have higher costs and that these costs would be passed on to their customers in the form of higher prices. This conventional wisdom is, however, contradicted by both economic theory and empirical evidence.” (via Heartland’s Institute’s Joe Bast) It’s good to know that Ricardo’s Law is still true after all these years (two centuries).
LA Times & Bulgaria
The Sofia (Bulgaria) Echo (June 25): “Subsidies create a culture of dependence and do not stimulate innovations and an enterprising spirit among market players. Subsidies are the reason for making short-sighted decisions and sustaining unprofitable and losing productions. European policy on banana production stimulates producers in France and Spain to increase output, although their costs are many times higher than the costs of Latin American producers. In the long run, without relying on EU officials for support, these producers will go bankrupt.”
Los Angeles Times (April 8): “Go ahead and rage at the peanut farmer, but in the government-handout economy – a world of concentrated benefits and distributed costs – he’d be a fool to say no to that money, and his representative in Congress would be a fool not to deliver it.”
Los Angeles Times (June 25): “Conservatives don’t like farm subsidies because they’re a waste of taxpayer money and interfere with free trade. Consumers don’t like them because they inflate food prices. Anti-poverty activists don’t like them because they encourage American farmers to overproduce certain crops and dump them on the world market, putting farmers in poor countries out of business. Even most U.S. farmers don’t like them because its benefits are distributed so unevenly; the top 20% of recipients collect 84% of crop payments, and roughly two-thirds of American farmers don’t get any subsidies at all. There are alternatives, particularly the bipartisan Farm 21 bill introduced in the Senate by Richard G. Lugar (R-Ind.) and in the House by Ron Kind (D-Wis.), Jeff Flake (R-Ariz.), Joseph Crowley (D-N.Y.) and Dave Reichert (R-Wash.). It would end crop subsidies and instead put the money in ‘risk management accounts’ – sort of like Individual Retirement Accounts for farmers – and end government payments entirely within seven years.”
The Twinkie offense
New York Times (Michael Pollan, April 22): “The Twinkie is basically an arrangement of carbohydrates and fats teased out of corn, soybeans, and wheat – three of the five commodity crops that the farm bill supports, to the tune of some $25 billion a year. (Rice and cotton are the others.) For the last several decades – for about as long as the American waistline has been ballooning – US agricultural policy has promoted the overproduction of these five commodities. The reason the least healthful calories in the supermarket are the cheapest is that those are the ones the farm bill encourages farmers to grow. By making it possible for American farmers to sell their crops abroad for considerably less than it costs to grow them, the farm bill helps determine the price of corn in Mexico and the price of cotton in Nigeria and therefore whether farmers in those places will survive or be forced off the land, to migrate to the cities or to the United States. The public-health community has come to recognize it can’t hope to address obesity and diabetes without addressing the farm bill. The environmental community recognizes that as long as we have a farm bill that promotes chemical and feedlot agriculture, clean water will remain a pipe dream. The development community has woken up to the fact that global poverty can’t be fought without confronting the ways the farm bill depresses world crop prices. Voting with our forks can advance reform only so far. It can’t, for example, change the fact that the system is rigged to make the most unhealthful calories in the marketplace the only ones the poor can afford. To change that, people will have to vote with their votes as well.” (via Bruno Moser)
Say “no” or say “share”?
Some wanna-be defenders of Earth rely on the same tactic that got Nancy Reagan ridiculed: “just say no”, as in “no” to misplaced development. It didn’t work for Nancy, it doesn’t work for “greens”. What would work is to propose a way for people to both receive profit from Earth and to live within natural constraints.
Presently, we profit only when we develop – needs of the ecosystem be damned – or when we sell out and move on – integrity of the community fabric be damned. An alternative is to share the region’s natural values. That is, owners would pay in land dues (or land taxes) to the public treasury according to the value of the land they claim and residents would get back rent dividends (like Alaska’s oil dividends) in equal shares. Most people – not owning oil fields or downtown blocks while living on sites of less than average value – would come out well ahead.
The land dues would make it unprofitable for absent owners to exploit or speculate. Alert residents, enjoying receipt of rent dividends, will want to keep sufficient space open since that’d maximize the region’s value. Thus without changing popular bottom line values, environmentalists can align profit with planet.
People sharing ground rent is not new. The words “own” and “owe” were one. Our ancestors understood landowners owed rent to their community, unlike contemporary property rightists who claim the socially-generated value of land for themselves exclusively.
When we get offended, our first response it to oppose. But our opposition goes unheeded if people still need to meet their needs the same old way. To succeed, we need to show others a win/win for all.
Private property a right?
If you’re the first person on a planet, and no one else will ever follow you, you neither have nor don’t have the right to own it all or exploit it all, since there’s nobody else there to suffer the consequences of your actions. Human rights exist only when there’s more than one person, putting them in competition for the same opportunity. Rights are a way to settle competing claims.
If I’m responsible enough to respect your rights, then they actually exist. If you respect mine, mine exist. Rights and duties are the flip side of each other.
And rights are equal. If you’re first and own all, that does not mean me, who comes second, loses my right to the same opportunity. You ever see the movie Whale Rider? In one scene, some tough motorcycle guys are sitting on a bench. When another shows up, they don’t fight; the seated ones slide their big butts over and make room. Eventho’ they all could’ve torn anyone from limb to limb, they quite naturally yielded ground and settled their competing claims peacefully, unconsciously.
A good way to settle two or more rightful claims is mutual compensation – you pay me what yours is worth annually in an open market and I do the same for you: we all pay land dues in to the common kitty and we all get rent dividends back.
Animals, humans too, need privacy and a place on Earth to call their own. So yes, there is a right to private property in land. Yet it doesn’t exclude the same right of everyone else. And the dues/dividend scheme is the most efficient way to settle competing claims.
How to get attention
David W Burdick, Portland economist (Apr 19): “What are the major categories of products and services purchased in the world (as a percentage of world GDP). Its a key figure for my presentation coming up soon.”
Editor: The World Bank site should break it out, or the UN. In the US economy, according to the official website of the US, it’s not any manufactured good or popular chain stores but FIRE (Finance, Insurance, and Real Estate). I suspect most economies are the same.
Tom Sherrard, San Diego ret. Lawyer (April 15): “This is the Georgists’ first problem: how do we get the attention of a growing number of people? We know how HG did: how do we do it today?”
Editor: Lose the identity of taxists. First focus on what it is you’d like to tax or somehow charge for, and that is the worth of Mother Earth, that multi-trillioin dollar flow of all the money we spend on the nature we use. Economists call it “rent” which misleads most people. So invent new words like other world-shakers did, coining “ego”, “dianetics”, “sexism”, “Reagonomics”, etc. Call it “society’s surplus”. Whatever, once you focus public attention on this natural bounty, the public will know what to do with it. At our easy urging, they’ll be happy to share it all out fairly. Then you can talk about losing the counterproductive taxes and subsidies.
Oregon reacts to action
The Oregon legislature considered a bill, HJR 45, which would lift the lid on the property tax. Several urged legislators to lift the lid only on land value while keeping the cap on built value. For writing, thanks to David W Burdick, Portland economist, Howard Kronish, Portland ret., Christine Yun, Portland supporter, Dr. Mason Gaffney, UC-Riverside, Al Sheahen, LA ret./BIG activist, Gilbert Herman, Connecticut ret., Wendy Rockwell, Costa Rican elected official, and Godfrey Dunkley, South African businessman and activist.
Lenny Dee, organizer of Onward Oregon and the Oregon Bus Project (May 20 & 21): “I’ve always thought the concept of givings would help turn the Oregon’s Measure 37 [compensate landowners for no growth] conversation. We’re adding technology to our site to create Conversation Circles. When it goes live you’d be welcome to post and see how folks respond.”
Laine Young, BS, MES, Landlinks Consulting LLC and organizer of Orenco Urban Farm, a Permaculture Site (May 14): “I don’t know you, but I’ve been watching the dialogue and appeals for action for Measure 37. I wholeheartedly agree that land-grab and undermining our planning process must be balanced with an equally strong message about sharing (a lesson lost for many of us after leaving our parent’s home) and 7-generations view of what we leave as our legacy. Let me know if there is an effort worth getting involved in.”
BlueOregon, the web discussion of progressive Oregonians, posted my guest editorial, “Environmental-ists: For or Against Reforming the Property Tax?” (May 29) which first appeared in The Progress Report. It generated about a dozen responses the first day, more later, evenly split between those who got it and those who thought they did. Seems unlearning must precede learning. Australian geoist Karl Williams wrote, “I’ve just read your great guest piece and would love to reprint it the Aussie journal Progress.” (Any other re-printers?)
In the media
Michael Strong, CEO and Chief Visionary Officer of FLOW, Inc, promotes Women’s Empowerment Free Zones where at least 50% of the land gains are distributed to women’s credit institutions and to health and education vouchers for women and children. In his “Sustainability in a Bright Green Future”, he cited Alan Durning of Sightline and our work. Tom Greco, author on consensual currencies, posted our article, “An Introduction to Geonomics” (Feb 23). The Robert Schalkenbach Fdn. hired me for an essay on attitudes towards property and environment during the debate over Oregon’s Measure 37 and to edit the monthly Georgist News and the daily Progress Report.
The Democratic Freedom Caucus responded June 18 to my comment: The call to limit government worries some people not because they want big government but because they don’t want big business, big religion, big military – or little lynch mobs. The issue is not size but coercion. Power cannot be banished. It can only be concentrated or spread around. That’s what we’re for, precluding a big government or big anything by empowering individuals with full rights and responsibilities. John: “Outstanding. I applaud your common sense.” William Cerf: ”This is so well spoken and really speaks to why I’m a Libertarian Democrat.”
Christian Butterbach of Germany (May 20): “I thank you. I am mostly on your side (geolibertarianism is almost never mentioned or taken seriously; if libertarians did, they would have to change too much of their ideology). I was happy to discover your site and hope to be able one day to get back at all this.”
Newcomers, old stayers
The fall Geonomist elicited enough renewals and newals to cover the costs of copying and postage: from super stalwarts Jing Chen (Canadian prof), Marion Sapiro (ret. CA prof) and Artie Yeatman (PA organic farmer), supporters Brian Beinlich (Oregon programmer), three friends of John Morales (ret. of Panama Canal), and subscribers Mario Cordero (Costa Rican American), John Fisher (ret. Canadian), Mark Nedleman (West Coast personal organizer), and Joan Sage (ret. Philadelphia), among others. Big thanks to all for re/joining, donating, and granting. If you don’t see your name above and know it belongs there, just send a check. We’ll know what to do with it.
The Robert Schalkenbach Foundation has contracted with us to produce the monthly e-newsletter, The Georgist News. It’s free, fact-packed, and timely. If you’d like a sample copy, let me know.
WHERE FROM HERE?
What you can do
Scott, The Roots, Oregon father (Apr 5): “Would like to get up to Portland to meet you in person. Your writings have had a profound effect on my understanding and am forever grateful for that. It took some time before Henry’s concepts sunk in but when they finally did they sunk all the way to the core. Given enough reflection, it is impossible for anyone to deny the Truth underlying the concepts. I was able to deny it for almost two years. For some reason it just didn’t click; strange when I think back about it. Lindy Davies was also a large part of my awakening as was Alanna Hartzok. Anyway, no turning back now – impossible. When it grabs you, it really grabs you. Thanks again.”
Editor: You echo Tolstoy, who kept a photo of George on his desk, warned the Czar that refusing to fairly share land and its rent would lead to revolution, whose dying words to passengers on a train were to tax land alone, and wrote: “People do not argue with the teaching of George, they simply do not know it. And it is impossible to do otherwise with his teaching, for he who becomes acquainted with it cannot but agree.” And thanks for the kind words. Would be great to meet you, too, and any other readers passing thru. Drop by whenever you can.
Greg Young, Missouri caregiver (April 13): “What it would take to get you to come to Springfield, MO before or after your St Louis talk. Call or write as soon as possible. Thanks.”
Editor: Thank you. All it takes, as always, is lucre. Won’t move mountains but it will me to any audience. Like the Conference of Georgist Organizations in Scranton PA the last week of July. It features a dialog of theologians and geoists. To join us, visit their website.
What else you can do
Rita Rowan, Common Ground NYC Chapter (April 10): “I’d like to get a hard copy of The Geonomist. I’d like to make a small donation to pay for it. Or better still, I could buy a regular subscription.”
Joan Sage, ret. (Apr 5): “Does one write a check to The Geonomy society?”
Editor: Yes, as often as one wishes. Our bank accepts any permutation, including Forum on Geonomics, The Geonomist, etc. Also, we are enrolled at Pay Pal.
Dear Forum on Geonomics (an educational IRS 501(c)(3));
Originally appeared as an Op-Ed in The Oregonian, July 26, 1998
While Oregonians have cut property taxes, we have saved little and increased land speculation. What we should cut is one part of the tax — the rate on huildings — while raising the rate on land. As it has elsewhere, this shift would save money for most homeowners and businesses while reinvigorating urban centers and protecting open space.
We send the wrong message by taxing buildings. We penalize owners who improve their properties and reward these who let property decline. On the other hand, cities that don’t tax buildings – such as those in Australia that tax only the land — double the built value per acre. Build a more efficient office or a better looking home and your tax liability does not go up.
Oregon reformers, however, threw out the good with the bad. Lowering the tax on property merely inflated the price of land. That’s a boon for some — those who sell out and move to cheaper digs, and those who stay and speculate in real estate. Yet for th ose who do neither, there is a price.
* First, rewarding speculators wastes land. When an owner keeps a central site vacant or underutilized, developers must turn to sites far ther out. Extending infrastructure past usable sites is expensive. If developers had to pay up front, many cit ies would stop sprawling.
* Second, the burgeoning price of land makes it hard for renters to become owners. Indeed, Katya Haub, a graduate student in communications at Portland State University, found that in Portland, as in other major U.S. cities, renters now outnumber owners. E xpensive land not only widens the gulf between haves and have-nots, it destabilizes democracy. Thomas Jefferson, who envisioned a nation of owner occupants, also proposed a “ground rent” In place of taxes on buildings and other goods.
* Third, higher-priced land means buyers must borrow more. Heavier mortgages and higher lending rates redirect money from savings, investment and job creation into the growing private debt. Excess debt devalues the dollar and is bad for business .
Australian towns that keep our kind of property tax have more bankruptcies, while towns taxing only land have more successful business start-ups. In the late ’50s, Denmark switched briefly to a land tax. Inflation dropped from 5 percent to 1 percent and i nterest rates fell from 6.25 percent to 5 percent while 100,000 new jobs were added. Even Fortune magazine, back in 1903, noted that the land tax “looks like an idea businessmen ought to embrace.”
Home buyers benefit, too. A tax on land lowers its price and spurs owners to erect homes. More homes means lower-priced housing. Affordable homes on affordable land put more people into their own homes, Pittsburgh, with 15 other cities in Pennsylvania, ta xes land at a rate six times higher than buildings and has more owner-occupants than most major U.S. cities.
Redirecting land values from speculator to society at large also bridles sprawl. Since sites closer to the center are worth more, those owners would pay more. They’d want to attract any development that might otherwise have gone to the suburbs, sparing fa rms. Instead of sprawling, cities recycle their sites. Johannesburg, South Africa, taxes land, not buildings, and reuses its sites in just over 20 years.
The move may silence the battle over open space. The tax makes land less of a lure to investors and more of an attainable dream to trusts that want to protect natural treasures.
As with any tax reform, some win, some lose. A study of Clark County. Wash., found that shifting the levy from buildings to locations woul more than double the tax on vacant buildings and parking lots and increase by up to one-fourth the tax on car-orien ted commercial strips.
However, most owners get a tax cut. The study found taxes would drop moderately on pedestrian-friendly neighborhood shopping areas, by 5 percent for single-family homes, by about one-third for multifamily units and by one-third or more for industrial site s.
Not only does the bottom line look good, so does the moral footing. As lone owners, we don’t do much to increase land value; as a community we do. If government fills the potholes, purifies the water and teaches the kids, site values rise. If more people pour into Portland, site value rises.
Land value is the perfect measure of how well a society is doing. If we don’t collect that rise. becomes a “giving.” Rather than reward sprawl, inflate housing prices and amass debt, Oregon could quit taxing all but locations. By sharing our land’s value, we could create the state we want.
Suburbonomics: Harnessing Land Values to Transform Sprawl
by Jeffery J. Smith
Video images from a time-lapse camera orbiting Earth would show cities erupting, spilling onto farmland, emptying out their cores. A close-up would reveal cities infested by the car virus; the urban cell membrane dissolves, leaking out human habitat. The alert eye would spot a basic cause: underutilized lots, the spoor of speculation. Harland Bartholomew, while doing work for the U.S. government in 1955 — about the time suburbia erupted — found that over one quarter of urban surface area was vacant or otherwise under used. Much of the idle land reflected the patience of owners. Rather than put their site to its best use, some waited for its value to rise — as near to a sure thing as one can get in a fast-growing region.
Speculation left its imprint upon metropolitan form. City sites withheld for future profit were not available for present use. So, exurbanites resettled upon nearby open space. Voila, suburbanization. According to Bill Batt, a retired professor and former tax researcher for the New York legislature, “forcing development to flow around vacant lots leaves an area pockmarked with invisible buttes, unbuildable upon until the owner, lord-like, gives his assent.”
Ironically, it’s not lone owners who generate the value of land but the surrounding community. While society may have a feeble claim to many of the things it taxes, the value of locations is precisely what society should not forgo. By leaving land value in private pockets we privatize publicly-created values – a “giving” every bit as unjust as any “taking”. Had society been collecting its own all along, “suburbia may never have been spewed forth in the first place,” observes Batt.
Instead of taxing land alone, most localities tax property, of which the most valuable part is the building. The better the building, the higher the tax. The worse the building, the lower the tax. Some architects argue — Frank Lloyd Wright argued strenuously — for taxing just sites, not structures.
Speculators, of course, lean the other way. Under the current regime, they can lower their tax liability by deferring maintenance, thereby lowering the value of their buildings. In poor neighborhoods, the conventional property tax induces slums. In better off areas, it rewards speculation. “While the property tax generates a centrifugal force, site value taxation (SVT) creates a centripetal force, easing the development pressure on suburbs,” explains Batt. To pay the SVT, owners put their parcels to better use. Owners of the most valuable sites, having to pay the most tax, are the ones most eager to attract development. Since the most valuable lots lie about the center, it is the center which draws development. In-fill happens. Seattle’s Northwest Environment Watch calls SVT the “sprawl tax.” In theory, it could contain — even reverse — sprawl.
Using data from Boston, Dr. Joseph DiMasi constructed a model that replaced the conventional property tax with one that taxed land at three times the rate as buildings. Development along the outer ring contracted toward the central business district by more than half a mile (summary from Rick Rybeck, researcher for the City of Washington, DC).
Owners of the most valuable sites, having to pay the most tax, are the ones most eager to attract development. Since the most valuable lots lie about the center, it is the center which draws development. In-fill happens.
In practice, some jurisdictions already do exempt improvements and tax only locations. Johannesburg, South Africa, is one such city. It enjoys the fastest site recycling rate in the world. By keeping sites at their best use, they keep development from wasting peripheral, undeveloped land.
In Australia (whose capital is built on publicly leased land), Sydney taxes land alone, Melbourne taxes land and buildings. Around Melbourne, half the suburbs tax land alone, half don’t. Those that do, found Dr. Kenneth Lusht of Pennsylvania State University, have 50 percent more built value per acre of those that don’t. On levied land, untaxed buildings come bigger and better.
In the U.S., Pittsburgh levies a much higher rate on land than on buildings. For its low housing costs and low, low crime rate, Rand-McNally has rated the Steel City “America’s Most Livable” twice. Livable cities not only make few exurbanites, they also make a good model for neighbors. Taxing land, not buildings, also counters the impact of automobiles on settlement patterns. To date, getting about in sprawl has meant driving. Such dependency has kept suburban transformation trussed up. Were we to cut this Gordian knot, the car count would drop. Then we could de-pave and revive some land, hospitable again to nature and man.
SVT helps people out of cars in two ways. First, by densifying a city, it provides more riders for mass transit. Carrying more fares, the system can add routes and rides for residents. Consultant Tom Gihring, formerly at Portland State University, adds, “a convenient alternative to cars would weaken their stranglehold on suburban form.” A drop in traffic would let bicyclists take back more of the street from automobiles, as well. Second, sedated by the property tax, some sites now languish as parking lots. SVT spurs owners of strip malls and cluster malls to find other uses for their asphalt aprons. “As in days gone by, stores might fill the streets with delivery vans,” offers Gihring, author of The Journal of the American Planning Association’s first article on revenue reform (1999 Winter). While parking grows scarce, and thus expensive, and as transit becomes convenient while remaining a bargain, people will switch from driving to riding. “If not phoning in their order, shoppers could dial a ride, walk, or pedal, besides take a bus,” Gihring says.
All love affairs, even those with two tons of gleaming steel, must eventually end — but not necessarily in heartbreak or cardiac arrest. Cars are fattening. Living car-free is to live carefree, actively, healthfully, and perhaps with a more discerning sense of esthetics.
No longer needing those car-first, keep-out-snout houses, “Owners might lavish more love upon habitats that put their human occupants first,” adds Gihring, who worked on a Seattle housing project design that won the APA’s 1999 National Award. With reclaiming more of the house for people, owners may release more of the yard to native wildlife. Under SVT, owners of large, valuable lots would owe more. To trim their liability, some might agree to trim off an edge of their lot.
In exchange for these strips of land, the jurisdiction could pay an annuity from collected site rents, thus avoiding any out-of-pocket expense. As these swaps become numerous, the locality could stitch together these shavings into bike paths, hiking trails, or wildlife corridors, planting a double hedgerow alongside. Besides having a loyal dog patrol the yard, and maybe a stray raccoon visit at night, split-level dwellers could share terrain with wild fox and rabbit.
In many places, site values are so high and still rising that were the jurisdiction to collect them, it could fund not only infrastructure and basic social services, it could even abolish other taxes — and still have a surplus to rebate as a per capita dividend to residents. Batt found that a nine-mile stretch of interstate cost $125 million in 1995 dollars, yet added $36 billion in value to the land within two miles of the highway. “Imagine receiving a share of the worth of the earth occupied by one’s community,” muses Batt. He continues, “Could we expect more gratitude toward nature and more civility to neighbors?” Just as privatized rents dispersed exurbanites into suburbia, perhaps shared rent can turn suburbanites into sensitive dwellers in the land.
While we do raze blocks for freeways, are we prepared to close blocks to traffic, to free streams from culverts? Transforming suburbia is not as simple as accommodating the amateur redecorator who, after several patience-trying moves, decides the sofa does go best over there after all. Conceivably, it could be as involved as moving the extra ranch home out to a ranch, the misplaced town home in to town. Wholesale restructuring of suburbia cannot be done by planners alone. Batt says, “mixing in other modes of transportation, other uses of land, must be the choice of residents. Although consumer preference alone did not create the ‘burbs — choices were limited and weighted — it can, with wise policy, transform this compromise between city and country.”
Currently, there is little cost associated with holding land out of use. We could, however make the cost dear. Doing so would place the full weight of the market on the planner’s side. As a growing number of ranch homesteaders vote against growth, they may soon have the chance to vote for the anti-sprawl SVT. Pushing the reform from cutting edge to mainstream are the Sierra Club, Friends of the Earth, writer James Howard Kunstler, and a host of others. They offer SVT as a way to “smart growth” which would change the face of suburbia. For going on ten millennia, farms have provided food and cities trade. Might suburbs, places for sleeping at night and gardening on weekends, last even a century? Film from our orbiting camera shot in the future might show the suburban lava sprawling farther still, or it might capture the suburbs receding, ghostlike. Or, it might render the metro region transformed into a healed central city with a ring of vibrant satellite urblings, like moons around a planet, adhering to a course set by the fair flow of the value of land.
For citizens to ecologize, governments need not favor efficiency – just stop favoring waste. The state grants subsidies and tax breaks to businesses who convert creation into production. Going beyond the call of duty, the state excuses their routine pollution. Without even trying to favor consumption over conservation; the state’s taxes do. To top it off, society’s custom of privatizing natural rent keeps producers and consumers grounded in old, slothful ways. By rewarding waste, we penalize efficiency. On this tilted playing field, one with the lumps of subsidies and the tilts of taxes, technologies lean and clean have a hard time competing.
Here’s how subsidies, license, taxes, and rent-retention impact extraction, agriculture, transportation, and energy.
* Government logging roads and way under-market leases favor miners and loggers, not selective harvesters and recyclers.
* Price supports and limited liability prop up mechani-chemical agri-business, not organic gardening.
* Freeways, overly wide streets, and free chastisement of overseas suppliers that everyone pays for, not just drivers, pave the way for car dependency, not an integrated use bikes and buses.
* Cost-plus contracts and the use of tax-free bonds, forcing other taxpayers to make up the difference, benefit power utilities, not solar converters.
Sometimes government subsidizes the alternatives a bit, yet it’s hard to know which ones to fund. A solar steam generator may be the most promising idea one day while photovoltaics are the next. A handout shields new industry from the forces that compel efficient growth.
2, License (the state fails to charge for “externalities”).
* The price of raw materials does not include the loss of habitat, other species, sources of new medicines, etc.
* The price of processed food does not include losses of soil fertility, bio-diversity, collapsed aquifers, poisoned ponds, etc.
* The price of gasoline does not include the losses from smog – damage to crops, lungs, buildings, etc.
* The price of AC electricity does not include losses from acid rain, nuclear radiation, inundated valleys, strip-mined meadows, etc.
When the state fails to uphold one’s right to a healthy environment, companies that don’t impose on nature are not benefited at all but lose a competitive advantage.
* The tax on sales complicates starting up a business, such as a store to sell ap-tech so every home can be an eco-home. One must do extra bookkeeping or hire an accountant. Being sneakily regressive, the tax nibbles away at would-be customers’ discretionary income.
* The tax on income makes labor more expensive, especially at the margin, where youths entering the workforce seek jobs in recycling, reforestation, organic agriculture, and deconstruction (what better outlet for male adolescent energy). Having to pay wages plus taxes on income and for social security, bosses employ fewer workers.
* The tax on income makes capital less remunerative, so a blue chip stock, not quite so visionary, becomes more attractive than a risky new start-up trying to make money doing good. A hybrid electric car or a fuel-cell light enough to power buses and trucks begs for funds while a GM doesn’t.
* The tax on property makes improvements to buildings more expensive year after year. For example, when homeowners add solar panels, they increase the value of their structure, so the municipality taxes them more, discouraging some owners from making ecological improvements.
While states exempt some ap-tech, exemptions shift tax burden elsewhere, where new firms pay it indirectly.
4, Rent retention (privatizing publicly-generated land values).
* Getting to keep rent makes extracting virgin materials extra remunerative; recycling used materials, wherein rent does not even exist, has no such gratis profit.
* Farm owners, by retaining rent, use land as collateral to qualify for loans to buy big-ticket combines and irrigators. Retained rent also raises the price of land, precluding poorer farmers who might try the less expensive organic methods.
* Not having to pay the rent to their community, owners awaiting a higher future return under-use prime sites, forcing development outward. Sprawl requires cars, displacing buses, bikes, and people.
* By taxing, rather than living off rent, governments can afford to lose land to a dam or its value to a nuclear power plant. Clean energy, on the other hand, would not depress land values, the proper source of public funds.
Together, subsidies, license, taxes, and privatized rent make the wrong way cheaper than the right. Businesses that waste – mechani-chemical agri-business, virgin extraction, fossil fuels, and car manufacture – benefit. Businesses that don’t waste – organic gardening, recycling, solar power, and mass transit – don’t benefit. High-input businesses can undercut low-input businesses. Efficiency looks expensive while waste looks like a bargain. Lower prices win over most customers and investors. As long as the economy is rigged against the eco-system, guess which one is going to continue to go downhill?
We are pleased to be the first to bring you this revolutionary article of wisdom from Jeff Smith. Highly recommended! Read carefully.
by Jeffery Smith
Money is the mother’s milk of politics. Yet the milk invested by lobbyists and those they represent is a drop in the bucket compared to the flow they get back from the public tit, thanks to the milkmaid state. Politicians grant well-connected big business es:
a. direct cash outlays, such as cash to corporations for advertising overseas, b. lucrative contracts, such as with weaponeers et al campaign contributors, and c. tax breaks that burden would-be competitors, such as tariffs that protect GM and Ford but not autoworkers. Even if we were to abolish subsidies (a) and taxes, eliminating the advantage of tax breaks (c), and negotiate responsible contracts (b), that’d still leave in place d. seven subtle privileges, mere pieces of paper that government grants its customers at nowhere near market value, positioning the privileged to claim all the surplus value of society.
1. The corporate charter‘s salient feature is to limit the liability of those choosing to profit by putting others at risk. As if such protection were not enough, legislatures even raise this limit as the “need” arises. In case of a nuclear meltdow n (this one’s for you, GE), oil transport spill (say “thanks”, Exxon), or software design bug (it’s on the house, Microsoft), the wealth of those responsible is kept safe. Under ancient common law, or if rights to a healthy planet were enshrined in modern constitutions, victims of premeditated risky decisions could collect full compensation from the responsible parties. Charters, and their companion pieces of legislation, are worth to those corporations putting nature, labor, and consumer at risk however much that year insurance companies would charge them, i.e., the losses due to unsafe products, workplaces, and pollution and depletion – hundreds of billions annually.
2. Pollution permits, performance waivers, land use exemptions — whether granted by bureaucracies, legislatures, or courts – are worth much more than however much government charges and business pays. The polluter saves by not having to invest in clean-up equipment or in production methods that waste less. And once government permits any deviation from the rule, then the recipient is sheltered from any future charges of malfeasance and can save again on insurance. It’s hard to figure how much such leniency is worth, since if a company were to capture its pollutants, often it could sell them at a profit as a secondary line of business.
3. Patents protect the basement inventor, right? Wrong. Most basement inventors who manage to win a patent never see a penny of profit. What patents do is tie up good ideas, skew techno-progress (e.g., automotive engine design eschews all fuels but one), and enrich those few well-enough endowed to carry innovation to market. Were government to charge each year full market value for protecting intellectual property, basement inventors would still pay only token amounts while GM, DuPont, and Microsof t would have to spend billions — the annual market value of their patents.
4. Utility franchises create monopolies in exchange for some public service, such as providing electricity, phone communication, etc. Yet are monopolies necessary? The power grid could be a public monopoly, for example, while the power suppliers co uld be private competitors, a model at last government is turning to. Government regulators are supposed to keep utility profits “fair”, but do they? Some of the most lucrative investments are in Enron and AT&T whose unearned monopoly profits in the billi ons represent the annual market value of franchises.
5. Communication licenses for TV, radio, cell phones, and the like are given away for free or for far less than market value, turning recipients into “instant billionaires” (the business press gleefully notes). Why does government let such assets g o for peanuts? Partly out of habit, partly because the recipients contribute mightily to political campaigns, but also because government can get the revenue it wants elsewhere — it can always tax income or sales or borrow. What are communication license s worth to Disney, Warner, and hopefully some day to us? Tally up how much TV charges for Superbowl Sunday and how much all stations charge for commercials and carriers charge to monthly subscribers. However many hundreds of billions of dollars that is ea ch year, a goodly portion of it is rent.
6. Resource leases for public oil, minerals, forests, and grazing land, are often let at “fire-sale” prices. If any private landlord squandered his own assets that way, he’d go broke overnight. How much more could our public steward collect from ca ttle ranchers, Chevron, Weyerhauser, and others leasing the public domain? At least as much as private landlords get per acre. It’s enough billions that the present beneficiaries spend fortunes on determining the outcome of elections, electing their water boys to Congress and state legislatures who keep the current largesse flowing.
7. Land titles do protect the average homeowners but because they cost virtually nothing (a paltry filing fee often about $2.00), they also protect enormously wealthy absentee landlords. Were government to charge full annual value fees for deeds (r emember, the words “own” and “owe” were once one), then it could afford to forgo taxation. Such a shift in the revenue base would save a vast majority thousands of dollars each year — and cost an elite some millions. What’s the value of today’s nearly fr ee deeds? Try a couple trillion or more dollars each year, the money we spend on the nature we use.
Land titles are the granddaddy of all privileges. Historically, titles preceded all others and created a class of elite owners with the power to win the six other indirect subsidies, along with the more direct ones — grants, contracts, and tax favors. To undo and reverse this history, it’s necessary to collect and share the natural rents from all seven inconspicuous privileges.
For these pieces of paper, government should charge full market value. A bank or insurance company does not charge a flat fee; they charge a rate geared to the value of the loan or insured property — and keep it as high as the market will bear. Good for the goose, good for the gander. Accepting the challenge of the conservatives, let’s run government like a business — and charge business as much as the market will bear. From these seven pieces of paper, we’ll reap trillions and afford the aboliti on of taxes. Then, like a successful publicly-held company, we’ll disburse the surplus in equitable shares among ourselves, we stakeholders, the citizenry.
Getting a Citizens Dividend would not only eliminate poverty, it’d also erase any rationale for subsidies – direct or indirect – to the poor or to the privileged. Repealing the free ride of privileges would be like repealing capitalism. Without those subt le detours imposed upon public revenue, owners would have to work to amass a fortune, and work is one of the worst ways known to strike it rich.
What you can do: Dry up the milkmaid state. Dispense with the notion that the state must meddle in enterprise. Dispense the notion from others, too. Focus government on its lone raison d’etre – defend rights. Demand your right to a fair share of na tural revenue.
by Lawrence E. Mitchell. New Haven: Yale University Press, 2001. Hardcover, 320 pages. ordering info
How Corporations Lost Their Compass
by Jeffery J. Smith
CORPORATE IRRESPONSIBILITY: Americas Newest Export by Lawrence E. Mitchell (2001, Yale U Press) is timely and fulsome with the inner workings of corporate law, how it is set up to reward the ever-fiercer search for higher stock prices in the very short term. Every player from director to investor wants higher prices now, and managers, who are even paid in stock options, are in no position to resist, or to plan for a longer horizon. Rather than invest in R&D, all resources are marshaled behind maximizing stock prices today.
Whats not addressed is why corporations who forego the future outperform those who think ahead. In another endeavor, in professional football, when the professional league expands, the newly admitted franchises get to select players from existing teams. During the last expansion, one new team selected older, proven players to try to win a championship as soon as possible. The other team gambled on younger players with perhaps more potential, hoping to be a contender for many years. While neither team reached the top, the former did play for a division championship in their second year then dropped out of sight, the latter went that far in their fourth year and stayed good for a while. So in sports, both strategies work, if imperfectly. Why is the market rigged so that only one strategy, the short term, always works best?
The lawyers reason is, even if you wanted to sue a corporation, in order to force it to consider the future, you could not. All the laws and judgments are set up to protect one goal - maximizing stock value. In this book, reading how these rules came into existence, seeing how players react, is like watching a high-stakes but one-sided chess match.
Even when law is counter-productive, people follow it as religiously as they do the law of gravity. While natural law never changes, legalisms evaporate with every metamorphosis of society. To explain corporate behavior, one can point to corporate law, but beneath that lies the instinct of every gregarious species, such as humans; to wit, what the boss says, goes. Thus to change law, we must change bosses; or reduce hierarchy, increase equality, and have everyone to some extent be their own boss.
However, Mitchell diagnoses America as suffering from too much individualism, which he defines as equality in freedom. Right after he disentangles liberty versus license, he bundles them back together again. He blames the pursuit of immediate profit über alles on too much liberty rather than on too little equality. A deeper analysis is found in Morton Horwitzs The Transformation of American Law, 1780-1860 (1977, Harvard Press), which links judicial favors for the well-connected corporations to industrialization, not to any new popular ideology of radical autonomy.
One might find a truer cause in psychology. At the same time publicly held corporations seek to pad their stock price, its also true, as Mitchell points out, that corporations which treat their workers well tend to profit very handsomely. Perhaps the compulsion to engross stock value is not simple materialism but something akin to machismo as well.
Mitchell does note that a corporation is merely a piece of paper in a bureaucrats office (p 42). To level the playing field, we could abolish the corporate charter, which would abolish limited liability. For the consequence of limited liability is to permit, if not encourage, the corporation to externalize the costs of its profit making upon others. If managers, directors, and investors were fully liable for the consequences of their economic actions, then theyd be more careful in their dealings with the health and safety of workers, consumers, and nature.
Mitchell overlooks that taxes and subsidies are two huge distorters of choices by business. Presently, business can avoid taxes by borrowing and writing off the debt, rather than use cash flow to invest in R&D. And subsidies bail out businesses when the market tries to correct their foolish behavior. Losing both taxes and subsidies, along with liability limits, would go a long way toward freeing business to plan for the future.
Rather than remove existing distortions, Mitchell would add new ones, a tax on short-term profits and more paperwork to report ones good deeds in dealing with workers, customers, and nature. Wasting trees and peoples time doesnt bother Mitchell, who is more concerned about people losing jobs, jobs that many workers do not like, that ruin their health and the health of the planet, jobs that Mitchell would probably never think of doing himself.
To free corporations to think ahead, Mitchell would abolish elections of the board, noting such elections are merely perfunctory anyway. He also cites the proposal of having everyone be stockholders, the old universal capitalism idea of Louis Kelso, but which Mitchell attributes to the better-known Peter Drucker. In the final analysis, the problem is the behavior and values of those wealthy enough to hold stock, and who hold the lives of workers in their hands. How people, or in this case the elite, feel and act always overrides whatever law - good, bad, or indifferent - is written.
The book has a few contradictions and inconsistencies, hard to avoid in any discussion of sex, politics, or religion. For instance, the author chides people for knowing so little about the companies whose stock they hold, yet extolls the business relationship founded on trust. If theres trust, why pry? An admitted leftist, his bias was not always kept in check - workers were loyal, rather than “stuck in a rut,” while corporations were “fickle,” rather than “dynamically adapting.” Referring to people as human capital he equates with slaves; but referring to humans as workers, meaty robots, does not rankle Mitchell at all.
Rather than try to regulate the wealthy, society could do a better job of sharing the wealth - not the wealth created by individuals but the wealth generated by society. That is, we all deserve a share of the rents paid to own or use nature, a la Alaskas oil dividend. Receiving a rent dividend would make us all equals and topple the hierarchy creating the problems.
Mitchells worldview leaves out the basic factor of land and, as a lawyer, he elevates law to a place of prominence in the causal chain of corporate behavior. Visiting his world, to learn the ins and outs of corporate law, is enlightening and thus useful. And for an academic writer, hes more readable than most, populating his explanations with real people and pithy, quotable observations: Instead of controlling (the corporation), we have allowed it to control us. That he anticipates arguments well, yet sticks to the position he himself critiqued, makes his book human and engrossing.
Below is a first-hand report by Geonomy Society president Jeffery J. Smith, on his recent economic justice voyage to Brazil.
by Jeffery J. Smith
“Success! The problem of wasteful cities has been solved. From rooftop gardens to solarized roofs, from recycling of water and waste to personal rapid transit, green ideas abound. What has been largely overlooked so far is how to pay for them. One way is to let appropriate technology pay for itself. Improving a city raises its land’s value. A tax or fee can collect this ground rent that can then be used to pay off the earlier investment in ecology. Usually, the rise in value is much more than the cost of new infrastructure. If this site rent is left in private pockets, land is made an object of speculation, which inflates its cost and the cost of housing. Speculating owners withhold some sites from use, which distorts the settlement pattern of the city. Yet if the land rent is collected and shared by the community, then they can eliminate taxes on sales, income, and homes. Presently, taxes fall on buildings, making improvements to them more costly. Ending taxes while sharing rents keeps all prices low, investment and employment high, and keeps owners using land efficiently. This is the policy of geonomics.”
Thus I began my presentation of geonomics. An abbreviated version won me an invitation to address the plenary of the IV EcoCity International Conference in Curitiba, Brazil, April 3 – 6. This periodic conference of EcoCity Builders was hosted this year by Universidad Livre, the City of Curitiba, and the State of Parana. My talk was made possible by a grant from New York’s Robert Schalkenbach Foundation (for which we are sincerely grateful).
Brazil titillates the first time visitor. From the plane, tiny turquoise rectangles dot the landscape, swimming-pool proof of a wealthy class larger than one might expect in a developing nation. The countryside is green and wooded, with large stands of trees even close to Sao Paulo (pop. 15 million), an enormously sprawling city.
Riding from the airport into the heart of the city, one passes the infamous “favelas”, squatter settlements whose children are preyed upon for their body parts, often by off-duty cops. America has its homeless vagabonds under freeway overpasses. Under elevated highways, Sao Paolo has whole villages of hundreds of huts packed tightly together, assembled from any handy wooden plank or tin sheet. One family’s wall was a political banner left over from a demonstration. Amid the mud and trash, kids run barefoot, play delightedly, oblivious to the squalor. The sight might disturb anyone with a conscience. To a geonomist, to one aware of a workable solution, the avoidable suffering is utterly maddening.
Dealing with the logistics of travel forces one to regain composure (soon lost for another reason). The tourist literature explains that in the middle of the 19th century in this southern part of Brazil, over half the population was foreigners. One sees many Central European names and people who look like they should speak better English than I do, or less Portuguese. The European descendants appear wealthier, the African ones poorer. Whether blond or black, merry Brazilians mix better than do the races in America, displaying more cross-race friendships, dancing in the street to music coming from inside a restaurant. Visitors would prepare better by taking a class in the samba than in Portuguese.
In a hierarchical society resigned to fate, bingo parlors abound. Frustrated by their lot in life, so do kidnappers. Huge anti-kidnapping vehicles made over from luxury buses cruise the streets. Like the average person one meets, police too are helpful, willing to take their finger off the trigger long enough to point out directions. Machismo also shows up in the “lonches”, diners frequented by males only.
Brazil should never lose a futbol match or a beauty contest. While males dress ordinarily, the females – of all ages and all marital statuses – dress provocatively in smoothly tight garments (national motto: if it’s not tight, it doesn’t fit), accentuating every curve, revealing more than enough for mere ventilation. One can’t avoid getting an eyeful of navel. Two stroll down the street in boots, lace stockings, hotpants, and haltertops. One is the seven year-old granddaughter, the other is the 67 year-old grandmother. These are the conservatives; you can tell because the zippers are all the way up. The more liberated ones probably need a police permit – or would in the rest of the world.
To get my bearings after a day-night flight, I arrived a couple days early. I wasn’t in the country even 24 hours before I first made a fool of myself in public. At a popular outdoor market stretching across the city, I came upon a madman pounding a sack with a stick, causing its contents to howl in pain. Having lived in Nicaragua and Mexico, I’m used to some Latin Americans abusing animals, while others sit idly by ignoring the abuse. So it was up to the outsider to put a stop to it. By intervening, speaking in Spanuguese, I did draw a few natives to my side. It turns out, though, that the sack-whacker himself was doing the excruciating meowing, to sell little tablets that when sucked upon alter one’s voice to that of a cat. To demonstrate, a hefty, youthful bystander stomped the tattered sack. Again it cried out piteously. No longer trusting my senses, I had to look inside. Nothing but dirty rags. Everyone got a good laugh, me more at myself than at the charade of cat-clobbering. For his performance, I paid the street performer enough local currency to equal about 50 cents then ambled away, shaken but relieved.
Curitiba (pop. 1.5 million) and its former mayor, Jaime Lerner, now governor of the state of Parana, are famous in environmental circles. He founded the Open University that is funded by the city. Situated in a lush abandoned quarry, the college offers to the general public free adult-ed courses on environmental topics taught by invited experts. Six thousand residents enroll for classes each year.
The city enjoys record-high rates of recycling, mass transit use, park acreage, and water quality (the number one issue in the developing world). Main transit stops have clear tubes, elevated to the height of buses (looking like sets for a science fiction movie). People pay to enter these bus-size tubes where they wait just minutes for the next bus. The time needed to drop off and pick up passengers is a fraction of the minutes needed at a conventional stop. The city, which is more European than Latin American in its wealth and cleanliness, also banned cars from the main street that now is thronged with busy and carefree pedestrians. Showing more modesty than some pedestrians, skyscrapers under construction or renovation are draped with long colored veils that reach the ground. But not all is perfect. The sidewalks of uneven cobblestone hinder those who like to walk fast. One occasionally catches a whiff of a diesel bus or a sluggish sewer, to mar the perfume of people and plants.
To this newly storied setting, about 150 academics, activists, officials, and legislators from around the world came for the latest on ecologizing cities. Addressing the gathering were Gov. Jaime Lerner, the leader responsible for the city’s high quality of life, and Curitiba’s current mayor, Cassio Taniguchi. The event was videotaped and covered by the local media. Both political leaders were whisked in by their dark-suited staffs and whisked out, so I did not have a chance to speak to them directly, but they did receive a copy of my complete paper in the conference packet.
Thanks to the help of one the conference organizers, Glenio Bongiolo, I presented my slides from my laptop while the audience saw them on the big screen (and Brazilians simultaneously heard them translated into Portuguese). It’s no longer unusual to have a conference respond positively to geonomics. Afterwards, most questioners said something like, “you’ve already convinced me that it’s right and that it works; now I just need to know how it doesn’t hurt low-income landowners and how to implement it.” I emphasized that the rebate – a dividend or housing voucher – should more than take care of the progressivity problem. Yet most people assumed that a government would not initially accept the complete geonomic package (collection and disbursement) but try the collection half (tax, fee, or dues) first.
As usual, many people asked to buy a book on geonomics; I told them I was finishing it (while living in Mexico) and would have it out later this year. The mayor of a small German town said that if what he had heard was true, then I should be awarded a Nobel prize (hah! too bad he’s not on the nominating committee).
The main organizer of the conference (Cleon Ricardo dos Santos) is the director of the Open (or Free) University. Dos Santos liked geonomics enough to raise the idea of a course in geonomics. His staff made an extra effort to introduce me to officials who work on taxes, who were not swamped (Brazil is currently reforming its tax code), were in town (not at the capitol), and speak English. On such a short notice, they could only find a property tax attorney, Daniel Gaio, who was very informative (Curitiba will raise its property tax to 3.0% next year; not a popular move), but no one else. Yet even their effort to explain my purpose to government officials helped spread the geonomic message.
Glauco Larre Borges , a former councilman and current advisor of a nearby town, Canela, introduced me to his current mayor, Jose Vellinho Pinto, and other councilors and translated for me. (Portuguese and Spanish, which I speak, are similar enough that one can muddle thru, but the process is laborious and frustrating.) While they liked the geonomic logic, they in a sense already use it. Their property tax rate on land is about five times their rate on buildings (2.5 to 0.5). Even though collecting more rent would improve land use efficiency, draw investment, and stimulate employment, given the number of complaints they receive now over assessments (which are current and accurate), and the fact that they have no control over other taxes, they are not eager to increase their land tax rate.
Here is a perfect example of when some sort of rebate – a dividend or voucher – makes a better focus of the geoist proposal than the tax. Senor Borges grasped that fact and promised to send a formal invitation to the Geonomy Society to return and do an in-depth study of a new bottom-line for residents after a tax shift and rent rebate.
Besides Dos Santos of the Open University, other professors and leaders from around Brazil promised to organize future presentations of geonomics. After the initial enthusiasm dies down, follow-thru becomes uncertain in these situations, but one invitation should bear concrete fruit. Ruben Pesci, the editor of the continent’s glossy architectural magazine (co-published in Spanish), invited me to write a 1,500 word article for the next issue, which of course I’ll do. The Brazilians who work along the southern border with Uruguay and Argentina speak Spanish.
Others in the audience who responded well to my talk include Bryan O’Bryen, an architect in Ireland who also works in the developing world, who now wants to geonomize Dublin. Some American movers-and-shakers may actually try to implement geonomics. Michael Caplan is the city planner for Berkeley. Richard Register, who asked about my screenplay, Geotopia, is the grandfather of the eco-city movement and well-connected to many other prominent people. Jim Converse develops then builds on land trusts in the Cleveland region. Joan Bokaer directs an eco-village on the other side of Ithaca from Cornell. These people, plus a magazine writer doing an article on the symposium, and others engaged me in many conversations during breaks, meals, and nights out (which is why it’s important to be able to afford to stay in the same hotel as everyone else). The evenings celebrated the solidarity forged during the day. While we Northerners tried to dance, our hosts moved with the grace of people who’ve been dancing and singing almost as long as they’ve been walking and talking. Some of the most popular songs, “Bom Bee Bom”, to Northern ears sounded scarcely removed from the cradle. Ironically, I went to Brazil, where the fun doesn’t start until midnight, and caught up on my sleep (laptopitis).
The day after my talk, Alan Dawson, the mayor of Midrand, the most ecological town in South Africa, put the icing on the cake. Nonchalantly he reported to the plenary that his town levies a land tax only (no tax on improvements), which concentrates development and falls most heavily on the most expensive downtown sites, so that about 20% of the sites (mostly commercial) pay about 80% of the tax. The glowing results of his real-world practice capped my introductory theory nicely. The South African contingent, who’ll host the conference next year, had the hardest time believing that anyone could consider the land tax controversial at all. And they set their rate at 6.8%! Undoubtedly, however, no one would have noticed his reference to the land tax if I had not gone before and made such a big deal about it and the entire geonomic alternative. For the South Africans, who already have the land tax and who confront dire poverty besides environmental abuse, a rent rebate to residents was the most attractive feature of geonomics.
Judging by the total absence of disagreement, the land-tax-cum-citizens-dividend has finally come of age in the environmental movement. It seemed the people from the developing South were more interested in the morality and philosophy while people from the developed North were more interested in results and implementation. Which makes sense. Given our mature democracies, First World citizens actually have a chance to introduce and a campaign for reforms that they like. In Latin America, however, with its more rigid hierarchical societies, the key to change is to win intellectual respectability then hope for the best. This Eco-City Conference gave the reform of Henry George a bit of both. Because Brazil is in the midst of a major tax overhaul, I will do more than just keep in touch via e-mail with my contacts; I will continue to press them to find the right people to dialog with about using rent for revenue.
You can find out more about Jeffery J. Smith and the Geonomy Society by clicking here.
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What is the PTS? The conventional property tax is two taxes in one. One falls on buildings, the other on land. Some places don’t tax improvements at all, just sites. They did the Property Tax Shift (the PTS).
Why is the PTS better than the conventional property tax? Taxing buildings raises their cost and discourages improvements, resulting in slums and loss of construction jobs. Taxing parcels, on the other hand, lowers their price and spurs development, result ing in compact, more esthetic cities offering plenty of good work.
Where has the PTS been tried and how did it do? The PTS operates in Pittsburgh, twice named America’s Most Livable City for its affordable housing and low crime, and in 14 other towns in Pennsylvania. Taiwan taxed ag land and converted from poverty to prosperity in record time. While taxing land, some places fully exempted structures. New Zealand enjoyed seven years of 99% employment. Johannesburg, South Africa, had the fastest site-recycling rate in the world. Some Australian towns added business during the last recession. Other places, such as the Port District of San Diego, Canberra (the capitol of Australia), and Hong Kong, exist on public land leased to homes and businesses. All three raise lots of public revenue. Hong Kong often rates as the world’s best city for business. (See our “Where Tax Reform Has Worked: 20 Case Summaries”.)
How is taxing the land being friendly to the earth? Un-taxing buildings means owners can improve them – weatherize, solarize, add heat exchangers, etc – and not incur a higher tax liability. Up-taxing land means owners must put theirs to best use. Those who’d pay the most, owners of the valuable central sites, would be the most eager to develop, absorbing the development that now spills over into leap-frog sprawl.
Transportation drives land use; where does the PTS fit in? The PTS makes the tax overhead on parking lots too high for owners and the revenue lost from overly wide streets too high for municipalities. Changing the use of these lands make driving less convenient than riding. Plus, transit can be funded from the values around its stops.
Won’t the PTS spur over-building, too much density? Not likely. (a) The very heart of big cities, where value peaks, becomes hard for private parties to afford, easy for the public who could there create a plaza. (b) Taxing land reduces the profit from speculation, making it easier politically to zone. (c) It also reduces the price of land, making it affordable to buy and protect fragile sites. (d) As building on under-used appropriate sites satisfies demand, it becomes feasible to de-build from streams, banks, cliffs, and ridge tops. Along with plazas, freeing up these natural features provides sufficient open space.
Is this urban medicine, the PTS, good for farms and forests? The PTS drives compact urban form, sparing suburban farms. As the Tax Shift advances, de-taxing work and profit while collecting natural rents, investment is moved in the opposite direction, from extracting natural resources to recycling used materials. As recycling takes labor and extraction takes capital, de-taxing both ends the tax-breaks now enjoyed by extraction. On a level playing field, recycling can roll over extraction, sparing forests and the wilderness in general.
What’s the new bottom line? Who pays more? Who less? The PTS is inherently progressive. The site value ratio from city center to rural fringe is typically 2,000 to one. Only the very rich own very valuable land. Most people own land of less than average value. Usually, 75% save, 20% break even, and 5% pay more after the PTS.
What about low income earners who do lose after the PTS? Occasionally a poor person owns a valuable lot – a small one close in or a large one far out – that’d owe more than before. Deferring the poor owner’s obligation could let them continue to under-use their location. That forces development to inappropriate sites. Eventho’ it is society, not owners, who makes land valuable and thus own this value, society should bear the initial cost of the PTS. Government could offer the land-poor a bond of equivalent value in exchange for the land.
How do you tell how much a lot is worth? (no pun intended) People are already figuring out how much a parcel is worth. Buyers and sellers do it for each transaction. Both parties look at the social factors: foot traffic, ambient income, proximity to parks, shops, et al., density, growth rate, etc. Then they conclude a deal that is fair to both sides (or they wouldn’t deal). Both private appraisers and public assessors track these (relatively) free market sales.
Won’t shifting the property tax take a constitutional amendment? Amending a state or federal constitution would be the direct approach. But as laws are written by lawyers and include loopholes, an ambush may work more easily. Activists could persuade their local jurisdiction to give residents the same property tax breaks that politicians give big corporations, meanwhile establishing a Benefit District to collect rent to fund a Housing Voucher, good for taxes, mortgages, and lease payments. Pretty shifty, eh?
Who supports paying higher dues for one’s land? The idea is just becoming popular among environmentalists (see our “97 Notables on Taxing Land Alone’) and libertarians. Because the PTS is both fair and efficient, a few civic leaders, both liberal and conservative, campaign for it (in Mexicali, the mayor won it). And sometimes, an overwhelming majority votes it in, as in Allentown in 1996. Historically, versions of the PTS have blossomed each century (see our “101 Famous Thinkers on Owning Earth”).
Is the PTS really necessary? As long as we let rapidly rising land values reward urban speculation and rural over-extraction, permanent peace with the earth is not possible. This torrential flow of revenue must be put at the service of sustainability if ever we are to enjoy it. So, how about it? Ready to help shift taxes now and subsidies later? Just use the coupon below. Thanks, on behalf of the planet.
WHERE THE PROPERTY TAX SHIFT HAS WORKED: 26 CASE SUMMARIES
by Jeffery J. Smith
Usually, a “reform” of taxes fails to live up to its advance billing. Yet there is one reform, albeit little known, that has an unbroken record of customer satisfaction. For whatever accidents of history, some peoples have tried it; and wherever tried, to the degree tried, it has worked. What is this tax reform that has remained a secret to most taxpayers? It is to reduce levies on wages and enterprise while collecting natural Rent.
1, France, 1790s. Back when the noble savage and natural law and natural rights were all the rage, the in philosophy was physiocracy, the idea that economies could run best by themselves, sans state interference, and government should sustain itself off the Rent people pay for nature. In 1798, the nouveau Republic of France paid for 80% of its budget out of collected land Rent. Might this tapping into the flow of Rent, as much as any other revolutionary reform, have motivated Europe’s monarchs, whose fortunes were little more than concentrations of land Rent, to attack France en masse? If the monarchies had left France in peace, might the Revolution have been less bloody? In 1807 Napoleon’s government crafted a tax on the increase in land value to be levied when parcels were sold but never applied the law (probably due to war, also why England never applied its land tax law a century later). By 1830, Rent as revenue was down to 25%. In 1980, France still collected enough Rent to fund 13% of its budget, more than do many other far less successful nations. (Vincent Renaud in Lincoln Institute monograph #82-3; Land taxation and land use; Laconte, editor)
2, Denmark, 1840s. One crown prince was so convinced of the rightness of physiocracy that he impatiently overthrew his uncle, the king, in 1784. The new King Frederick then ended serfdom, proclaimed tenants’ rights, and helped peasants become owners. He also proposed reforming the land tax so that its amount was geared to site value, not size (as was traditional thru-out Europe). His reform finally became law in 1844, giving Denmark the widest distribution of titles to land in Europe, a distinction the nation has held since. (Michael Silagi, American Journal of Economics & Sociology, 1994 Oct)
After the physiocrats, the best-known proponent of this tax and property reform was the American Henry George (1839-1897), author of the classic Progress and Poverty (1879). An inspiring speaker, George toured most of the US and British Empire, planting the seed of reform. He left a legacy we can measure today.
3, California, 1890s. Back then, many farmers and miners went without water because cattlemen like Henry Miller owned 1,000,000 acres of land. Miller could drive his herds from Mexico to Oregon and spend every night on his own land. In 1886 Miller won full rights to the water of the Kern River. Some people concerned with justice figured the cattlemen had gone far enough. The state government passed the 1887 Wright Act which allowed communities to create by popular vote irrigation districts to build dams and canals and pay for them by taxing the resultant rise in land value. Once irrigated, land was too valuable to use for grazing, and the tax made it too costly for hoarding. So cattlemen sold off fields to farmers and at prices the farmers could afford. In ten years, the Central Valley was transformed into over 7,000 independent farms. Over the next few decades, those tree-less, semi-arid plains became the “bread basket of America”, one of the most productive areas on the planet. (magazine of the Historical Society of California)
4, Kiaochow, China 1900s. The German Imperial Commissioner for Kiaochow (by the Yellow Sea, also Chiaochou and now Jiaoxian) was Ludwig Wilhelm Schrameier, also a member of the German Land Reformers. Having read the works of Henry George, at the founding of the colony (about 200 square miles in Shangdong, formerly Shantung) in 1898, Schrameier established a land-value tax. At 6%, this levy prevented land speculation, collected about half the land Rent, and funded government services until the Germans lost their colony at the outbreak of World War I. Sun Yat-sen (below #10) was impressed by the results in Kiaochow whose main city, Qingdao (also Tsingtao) had modernized. (Adapted from www.progress.org by Fred Foldvary, after Michael Silagi in the American Journal of Economics and Sociology, 1984 April)
5, Australia, 1900s. While some towns Down Under were born taxing land (late 1800s), some states adopted the idea in the wee 1900s (New South Wales in 1905), and the federacy did so in 1910. In 1920 the continent’s capitol (designed by a Georgist) was established on public land. Canberra owns and lets its land to residents and businesses. The biggest city, Sydney, levies only one tax – on land. Neither Sydney’s tax nor Canberra’s lease recovers all the land’s Rent, so these cities also get revenue from the federal government. But the poorer sections of both cities bear no resemblance to the degrading slums of nearly all American cities. Around Melbourne, some towns tax land alone. Dr. Ken Lusht, visiting from Penn State, found they have 50% more built value per acre than those that tax both land and buildings. Between 1974 and 1984 (last year the government released these statistics), coinciding with some recession years, the number of businesses in the towns taxing property decreased by 20% while in the towns taxing only land it increased by more than 10%. (Phil Anderson, Economic Indicator Services, Melbourne, Australia)
6, New Zealand, 1910s. Many settlements in “Kiwi Country” began with taxing land, peaking at 80%. Even the nation levied land. Employment averaged 99% from 1966 until 1975. When the oil shock hit, making their export goods too expensive since they had to be shipped so far by oil-burning freighters, employment dropped to a true (not fudged) 94%. Then the federal government repealed the national land tax, leaving Rent to localities, who did not always pick it up. Now about 2/3 of the jurisdictions tax land, not buildings. (Incentive Taxation)
7, Western Canada, 1910s. As they came into being, many towns of the prairie provinces decided to go with the collection of site Rent exclusively. Generally they outgrew and out-served their neighboring towns. Besides the surface, British Columbia recognized living nature as a legitimate source of public revenue, too. Royalty from forests funds much of BC’s budget. (ex-BC Assessor Ted Gwartney, Incentive Taxation, ’87 March)
8, England, 1910s. Impressed by George’s argument but skeptical of its political chances, Ebenezer Howard began the Garden Cities. These exist on land owned by a corporation that consists of residents and investors. Letchworth, the oldest of these model towns, serves residents grandly from vaultfuls of collected land Rent. The experiment spread as far as Russia. For a while, Great Britain did pass land value taxation but could not implement it until reassessing all the land, and due to manpower constraints could not do that until World War I was over. By then, the political winds had shifted and the reform was never adopted. Between the world wars in Vienna and Budapest, Georgists also had success briefly, but an alliance of left and right quickly repealed the reform. (Michael Silagi, American Journal of Economics & Sociology, 1994 Oct) Elsewhere, Alexander Kerensky proposed taxing land in Russia and Francisco I. Madero did so in Mexico. Kerensky was thwarted by revolution, Madero by assassination. (Steve Cord, Henry George Fdn). One country did buck the trend that Howard hoped to circumvent. In Denmark in the wee 1900s, the Liberals replaced the land value tax with a conventional property tax plus an income tax. In the 1920s, Georgists reformed the property tax so that it fell more heavily on land, lighter on buildings.
9, New York City, 1920s. After World War I, many New Yorkers suffered from lack of housing. To solve the problem, Governor Al Smith borrowed a page from Henry George (who ran for mayor of New York City in 1886, finishing second ahead of Teddy Roosevelt, and again in 1897, dying four days before the election). Smith persuaded the New York legislature to pass a law allowing New York City for the next ten years to tax land but not the buildings on it. New construction more than tripled while in other big cities it barely doubled. Not only was there more housing, and thus lower cost apartments, there were more jobs and higher wages for construction workers, and more business for merchants who sold goods to the employed workers. Economic good times in New York came to an end, though, when owners in 1928 began to anticipate the expiration of the tax-shift law. (“How New York Solved Its Housing Crisis”,Charles Johnson Post, 1931?, Schalkenbach Fdn, Mason Gaffney, 2001) Some say that the drastic decline in building starts, not the stock market crash of 1929, was the real trigger of the Great Depression of the 1930s. Other geonomists say it was the Dust Bowl, the collapse of the agrarian sector of the economy. Watching land prices inflate in the 80′s, followed by farm takeovers and slowed housing starts, land-focused econometricians predicted land prices to hit bottom in about 1990, then next around 2008.
10, South America, 1930s. Some Hispanic republics continued the physiocratic tradition. In the 1840s, Argentina had a president who tried to capture ground rent for social betterment – until the army put an end to his flirtation with justice. In the 1920s, both Colombia and Uruguay passed laws letting commissions build new roads using funds collected from roadside landowners. After a few decades of success, this mechanism declined. Confusion arose when one property was near more than one road. And as the roads pushed up land values, land assessments lagged behind. With corruption and inflation, poor people could not afford to pay even the assessments lagging behind. Still, as late as the 90s, Bogota used resultant rent to pay for 80% of a new road. For the general fund, Columbia has a city land tax at 1% and a national one at 2%, and a land gains tax up to 50%, yet land is registered at 20% of its value. (Ortiz, Alexandra. Economic analysis of a land value capture system used to finance road infrastructure: the case of Bogota, Colombia; 1996, and Prest, A. P. Transport Economics in Developing Countries; Praeger, 1969)
11, Taiwan, 1940s. Old Formosa was mired in poverty and fast-breeding. Hunger afflicted the majority of people who were landless peasants. Less than 20 families monopolized the entire island. Then the Nationalist Army, led by Chiang Kai-shek, retreated to Taiwan. General Chiang figured he lost mainland China in part by not reforming land-holding. Chiang did not want to risk losing his last refuge – east of that isle lay nothing but open ocean. A follower of Sun Yat-sen, the father of modern China and an adherent of Henry George, Chiang knew of the Single Tax. Borrowing a page from George via Sun, the new Nationalist Government of Taiwan instituted its “land to the tiller program” which taxed farm land according to its value. Soon the large plantation owners found themselves paying out about as much in taxes as they were getting back as Rent. Being a middle-man was no longer worth the bother, so they sold off their excess to farmers at prices the peasants could afford. Working their own land with newly marketed fertilizers, new owners worked harder. They produced more, and after years of paying taxes to cover the onerous public debt, at last kept more and lived better. From 1950 to 1970 population growth dropped 40%, and hunger was ended. Taiwan began to set world records with growth rates of 10% per annum in their GDP and 20% in their industry. (Fred Harrison, Power in the Land)
12, Third World, 1950s. While British territories, Jamaica (1957-1962) and East African nations taxed land and exempted all improvements. However, as land value grew, the governments did not keep assessments in pace. Today, there’s little to show for such meager taxes on land. (Dr. Mason Gaffney, UC-Riverside)
13, Denmark, 1950s. The Danes built on their land tax heritage. In 1957, the tiny Georgist Justice Party won a few seats and a role in the ruling coalition. Anticipating a higher rate on land, investors switched from real estate to real enterprise. One year later, inflation had gone from 5% to under 1%; bank interest dropped from 6.25% to 5%. By 1960, 100,000 unemployed in a country of just five million had found jobs. Tho’ many people were better off, next election landowners spent enough money to convince people otherwise. The Justice Party lost its seats, the land rate lost its boost, and investors again became land speculators. Quickly inflation climbed back up to 5% and by 1964 reached 8%. From 1960 to 1981, land prices sky-rocketed, increasing 19-fold while prices of goods and services went up merely fourfold. (Knud Tholstrup, MP, A Third Way)
14, Denmark, 1960s. In 1968, the Danish government decided to redefine taxable income. To make this bureaucratic change, they froze everyone’s maximal tax liability for one year. Earners realized that all income above the previous year’s amount would not be taxed. Their response, from 1968 to 1969, was to double the increase in production (4% to 8%), halve the inflation rate (8% to 3.5%), quadruple investment increases (5% to 20.5%), raise savings by a quarter (from 2.9 million kroner to 3.8), and employ nearly all workers. (Knud Tholstrup, MP, A Third Way)
15, Hawai’i, 1960s. To build up their tourist economy, the newest state in 1963 reformed their conventional property tax. In place of one rate on both land and buildings, they began to lower the rate on structures while leaving a high rate on sites (with many technical complexities yet no surcharges to protect open space). Within a few years, this property tax shift led to 30 large resort hotels in Honolulu’s Waikiki Beach. Built value was up to 25% more than it would have been, concluded Richard Pollack and Donald C. Shoup in Land Economics 53, no 1 (1977), p 67-77. Opponents of Rent-sharing dragged out implementation for years, and as growth drove up site values, and no collected Rent was returned as a dividend or voucher, residents and speculators rebelled. In 1977, the legislature knuckled under and repealed this graded property tax, phasing out in two years what had taken 14 to phase in.
16, San Diego City, 1960s. When under Spanish, then Mexican control, much good land in California was “pueblo” (public). Very little of that remains today. Some of it, tho’, is quite valuable. One lucrative pueblo land is the Port District of San Diego, formed in the ’60s by the various towns sitting on San Diego Bay. The Port Authority collects hundreds of millions of dollars of Rent each year and is the only local government agency with a positive cash flow (SDPD Annual Report). Where does that cash flow? Not into the bank accounts of its owners – the “pueblo”. The Rent collected from the Yacht Club, a social club for millionaires, is only $1.00 per annum. (The San Diego Union-Tribune)
17, Kansas City (Missouri), 1970s. KC levied one site value tax for parks and parkways (pleasant streets that wend through parks in ravines) built in the 1930s. Another was for trafficways, multilane throughways that move traffic with synchronized traffic lights built in the 1940s or 1950s. To fund boulevards (thru streets with synchronized lights that preceded the trafficways), KC levied a “front-foot” tax rate on each lot’s front footage on the boulevard. This is close to a land value basis because all the boulevards are straight and in a grid pattern. When the city charter was revised in the 1950s, the site-value tax was included. Under the leadership of Mayor Bartels, the city used straw parties in the 1950s to secretly buy up half of Platte County (then rural farmland) for an airport. The city leased sites around its new airport opened in 1972 at full market value for hotels, warehouses, an aircraft overhaul base, postal distribution center, etc – even to farmers. Outside airport land, investors bought land and built hotels. When the 1970s recession hit, all the hotels buying land went broke while the hotels renting city land survived. Able to learn, some big hotel chains survived the crash at the end of the 80s by separating the hotel real estate into REITs apart from corporate hotel operators. In the 1980s, voters approved by referendum doubling the land tax rates. Speculators challenged the land taxes as against the state requirement for all real estate taxes to be levied on the value of land and buildings. The Missouri court (most of KC is not in Kansas but in Missouri) ruled that the land taxes were “special assessments” and not subject to the state requirements for taxes.
18, Vermont, 1970s. To thwart speculators, Vermont taxes land sales when the turnaround is under six years. Now more people, including lower income people, are buying land for farming. Conversely, fewer people, especially out-of-state investors, are buying land for speculation or sprawl-type development. (R. Lisle Baker, Suffolk U Law Schl, Boston, MA)
19, Arabia, 1970s. Thanks to the oil under desert sands, Saudi Arabia, United Arab Emirates, and Kuwait collect enough oil royalty that they can afford to build a modern, large-scale infrastructure without taxing their citizens. Kuwait even paid their people Heritage Shares. Formerly nomadic tribesmen moved to cities where they live more sophisticated lives. Now Kuwait pays citizens (not guest workers, about 2/3 the population) bonuses for marriage and monthly stipends for children and provides free schooling and doctoring ChrSciMnr, 2001 Apr 18). Another Muslim petrol-nation, tho’ beyond the Persian Gulf, is Bahrain; like the others, it is taxless and busily building.
20, North America, 1980s. Thanks to the oil under Arctic-windswept plains, the province of Alberta, Canada, and the state of Alaska, America, have lower taxes. Alberta has no sales tax, pays part of its citizens federal income tax, part of their utility bills, a small, unvarying energy refund, and provides more free social services, such as excellent health care and university education. (Alberta Heritage Fund Annual Report) In Canada, all minerals and forests belong to the people. In America, we don’t enjoy that justice. But with 12.5% of the market value of Prudhoe Bay oil, Alaska pays 80% of its state budget. It also pays a share to its citizens, about $1500 per annum (varying with the price of oil and the return on their investments).
While mineral land, such as oil fields, is an obvious source of plentiful public revenue, old-fashioned surface values also abound.
21, Georgist Colonies, 1980s. Followers of Henry George after his passing (1897) founded three country towns: Free Acres (New Jersey), Arden (Delaware), and Fairhope (Alabama). As trusts they leased land, collecting Rent for public goods. Compared to other towns in their counties, they are cleaner, enjoy more services at lower costs (parks, libraries, and schools) and make decisions in town hall meetings. Fairhope, whose Quakers resettled in Monte Verde, Costa Rica to avoid the draft and taxes of the Korean War, was one of only four towns on the Gulf of Mexico recommended in the 80s for retirement by Consumers’ Guide.
22, The “Four Tigers”, 1980s. Hong Kong, often voted the world’s best city for business, exists on crown land, funding 4/5 of their budget with 2/5 of site Rent (Yu-Hung Hong, Landlines, 1999 March, Lincoln Inst., Cambridge, MA). Hong Kong also uses land rent to fund their new metro. Singapore, founded on Georgist tax principles, now taxes land at 16%. Taiwan (above) also taxes land. Gen. Douglas MacArthur, an admirer of Henry George, forced the Japanese provisional government to write land reform into their new democratic constitution that limited Rent paid by tenants to owners. South Korea adopted a similar Rent reform. A World Bank study credited land reform with creating the basis for their economic miracles. To develop successfully, economies must build on a healthy base of secure farmers who can afford to consume manufactured goods. Such markets can attract investment and modernize without too much outside aid (altho’ Taiwan did receive a billion dollars from the US, mostly military aid, spread out over eight years). Soon they become independent industrial powers and trading partners with other developed nations. Today, to try to control their skyrocketing location values, both Japan and Korea have tried to tax land, tho’ still minuscully. In many of the United States, the land tax is unconstitutional. When the Single Tax movement was at its peak and a threat to absentee landlords, they lobbied legislators to require the taxing of location and improvement together. Many states, such as California, succumbed to the pressure. In other states, such as New York, localities may levy separate rates only with permission from the legislature.
23, Pennsylvania, 1980s. Penn’s Woods is the only state granting cities outright the option to levy different rates. The state went from two cities in 1975 (Pittsburgh and Scranton), to 16 in 1996 who practiced this reform. All these cities, sited in the midst of impoverished Appalachia, are developing 16% more per year than their neighbors (Dr. Nic Tideman, VPI, Blacksburg, VA), and growing denser, meaning they can provide public services like mass transit at lower cost. Pittsburgh renewed its urban core without substantial federal subsidy and created an urban park out of its most prime location, the Golden Triangle, without an agonizing citizens effort to overcome developer resistance. Housing costs and crime rate, like a small town’s, are far below the national average. Rand-McNally named the Steel City “America’s Most Livable City” twice, in 1985 and 1986.
24, Mexicali, BC, Mexico, 1990s. Seeking funds for new and better infrastructure, the mayor of Mexicali, Baja California, Milton Castellanos Gout, on the advice of a graduate from the U of California – Berkeley (Sergio Flores Pena), jettisoned the entire conventional property tax and replaced it with a land tax. For a few years, bureaucrats opposed updating the cadastre, yet subsequent civic administrations continued to modernize official land values. Revenue went from under three million pesos in 1988 from the property tax to over 63 million in 1998 from the land tax. This rapid rise was accompanied by no complaints from landowners. It must be better to own serviced land that is taxed than unserved land that is tax-free. In 1995, Mexicali drew 15.3% of its revenue from its land tax while others cities in BC drew only 8.4% from their property tax, and other cities around the country averaged only 10.3%. Hence the Mexicali land tax has been adopted by other cities in BC and in the neighboring state of BC Sur. (Lincoln Inst’s Land Lines, 1999 Sep)
25, Ethiopia, 1990s. Around the outskirts of the capital, Addis Ababa, shanty towns sprung up on land that had been used to feed the city, pushing out farmers on to land that had lain fallow for centuries. The longer trek to central markets raised the price of food there. So the Regional Government, against the advice of the IMF, adopted a tax on land values and parcel size. The tax on structures inside city limits was drastically reduced. The Economics Section of the Ethiopian Embassy in Washington, DC reports greater occupancy and refurbishing of older structures in the city. (Henry George Fdn, Columbia, MD)
26, Estonia, 1990s. After the break up of the Soviet Union, each newly separate republic had to find its own way of raising revenue. Estonia, across the gulf from Finland, found the tax for farmland. Because neither land nor its value can be hidden, it was the most feasible way for the new government to raise funds. Collecting from farmowners was vastly more successful than trying to collect from others, succeeding over 95% of the time. The low rate of 2%, which even governmental owners of public land had to pay, was still enough to spur efficient use of land. (The Economist, 1998 Feb 28)
These 26 case summaries of real-world successes suggest that the number should grow. Society could secure everyone’s earning while sharing Earth’s worth. Which society will be next to prove the merit of geonomics?
Copyright 1990, 1999-2001 by Jeffery J. Smith. All rights reserved.
The Geonomy Society Jeffery J. Smith, President 1611 SE Nehalem St, #2 Portland OR 97202-6700 USA 503/236-1968; email@example.com; www.progress.org/geonomy
Can you think of another success story? Tell it or your other views to The Progress Report!
Since forever, humans have claimed and counter-claimed every square inch of this planet. Occasionally, these disputes have ended peacefully. What has worked in other times and places might work again in the Mideast. Delivering a double dividend, which settled land disputes, also developed moribund economies and revived developed ones. Among others, New York, now aiming to rebuild, has used this policy before. Because it’s growing popular among environmentalists, greens could lead the US to geonomics.
On a distant ridge at dawn, a Palestinian might gaze across the desert at the hills where his fathers before him had grazed sheep, where now sprout Israeli settlements. Many American suburbanites, too, cannot go home anymore, to childhood’s field or woods or marsh, now filled or clear-cut or leveled and covered by monotonous boxy structures. An Australian aborigine knows a similar scene of displacement – and an effective means of redress.
At a British Parliament hearing, an elder testified, “our land claim doesn’t take one piece of land from anybody.” What they want instead is a share of land’s rent. Redirecting rent – the money we spend on the nature we use – enables society to curb taxes on useful effort. Minimizing taxes on things we create individually, while collecting rent from things created to benefit us all equally, is geonomics. Wherever tried, to the degree tried, geonomics has worked.
Three times in history, territorial antagonists yielded peacefully to geonomics. In Denmark, the crown prince was so eager to try physiocracy (the then-current version of geonomics), that he deposed his uncle, the king. In California, runaway land concentration (one rancher had over a million acres) provoked a schoolteacher to run for office just to legislate a tax on land values, not buildings. And in Taiwan, a retreating general was so desperate that he implemented on the island what he had merely promised on the mainland. Thus, during the 1840s in Denmark, the 1890s in California, and the 1940s in Taiwan, large landowners found it too expensive — due to geonomic policy — to hoard land, so they sold off their excess at prices the peasants could afford – and the tedious struggle between landlord and tenant ended without bloodshed.
These cases involved different classes, not different cultures. Yet with a new twist – the rent rebate – what worked within society may work between societies. The Koran urges landlords to not gouge tenants but to consider land a trust. In Israel, admonished to “not own land forever, since the land is Mine” (Leviticus), the National Trust leases all the land to the occupants. These strictures could lead to geonomics.
Israel and Palestine would establish a steward to collect land dues and disburse rent dividends – a la Alaska’s oil dividend. Since land is more valuable in Israel than in Palestine, Jews would pay in more than Arabs, yet everyone would get back the same. And since Israelis prosper, they drive up land values; having Jews as co-owners – developing land, raising its value, fattening everyone’s Citizens Dividend – Arabs might accept that. Profit does make for strange bedfellows. Two archrivals, China and Taiwan, recently agreed to explore for oil together.
While sharing rent may soothe hurt feelings, collecting it stimulates development. As a World Bank report acknowledged, all the Asian Tigers first had land reform before becoming Tigers. Land taxes impel owners to put their land to its best use, which requires employment and construction. As workers exchange wages for goods, they generate more output for everyone.
Using geonomics, people have turned some of the poorest lands into the richest economies. Hong Kong is a barren rock owned by the public. The city collects enough site-rent to keep taxes on effort way down. Thus prices are low and investment and income high, moving Fortune magazine to name Hong Kong the world’s best city for business. In a different culture, Mexicali (in México) replaced the property tax with a land tax and bettered itself.
If Palestine does forego taxes, it’d become a tax haven, attracting money from wealthier neighbors without incurring debt. As Palestine sustains development, it could sell bonds at a lower rate. When Palestinian bonds are selling on Wall Street, overlapping self-interest will wither the appeal of terrorist rhetoric.
New York, Old Story
New Yorkers benefited before from geonomics. After World War I, the city lacked housing. Borrowing a page from former mayoral candidate Henry George, the council exempted new buildings but not underlying sites from taxation for the next ten years. During the first half of the Roaring 20s, new construction more than tripled while in other big cities it barely doubled. Economic good times came to an end when owners in 1928 began to anticipate the expiration of the exemption. Stalled housing starts helped trigger the Great Depression.
More recently, Mayor Rudy Giuliani used to welcome the school year by suspending for a week the tax on shoes and clothes. Shoppers saved, stores profited, and the city took in more revenue. If the city zeroed out taxes on all sales and wages, customers and workers would flock to the Big Apple, pumping up site values even higher, providing a fat fund for fixing up infrastructure. That’d help owners redevelop both lower Manhattan and the blocks of vacant lots and abandoned buildings in the Bronx and Bedford-Stuyvesant.
To invigorate our traumatized economy, politicians push tax buttons and pull subsidy levers. Sometimes they get it right. In the 1970s around the city of Melbourne (Australia), some towns lost businesses while others gained new firms even as the economy was shrinking. The towns losing companies had the conventional property tax, which falls mainly on buildings, not on land speculation. The towns gaining enterprise had a site-value tax that prodded owners to keep their land at its best use – which meant having tenants who hired people and sold goods. Denmark in the 1950s raised its rate on land, quickening employment while slowing inflation. Then in the 60s the nation reduced its income tax burden for one year – both investment and output soared.
When Johannesburg (SA) taxed land three times greater rate than buildings, it recycled sites faster than any other city in the world. Using urban land efficiently over and over absorbs development that would otherwise sprawl onto rural land. Since taxing site-values, not improvements, in-fills cities, Seattle’s Northwest Environment Watch, a spin-off of WorldWatch (which also endorses geonomic policy), dubbed the property tax shift “the sprawl tax”. The Sierra Club, Friends of the Earth, and most major groups endorse shifting the property tax from buildings to locations.
Some influential constituencies have supported geonomics. In the 80s, thanks to taxing land six times higher than buildings, Pittsburgh kept neighborhoods stable, housing affordable, and crime low. Rand-McNally named the Steel City “America’s Most Livable City” twice. And the Commission on Barriers to Affordable Housing set up by the first President Bush endorsed this property tax shift. Pro-business supporters include Milton Friedman, Jack Kemp, and the Philadelphia Association of Realtors.
As the Chinese character notes, crisis is half opportunity. To counter global recession and resolve the Mideast stalemate, Western governments would: (1) eliminate tariffs on imports from Palestine and elsewhere; (2) eliminate subsides to domestic producers, so they must compete with imports; and (3) set a good example; shift from subsidies to a Citizens Dividend and from taxes to resource dues. All of us would save boatloads of money from no taxes on imports, sales, salaries, and homes. Our governments would stuff their treasuries with the rent from sites, resources, and sinks (charge for using the environment as a storage site).
Besides rent from land titles, resource leases, broadcast licenses, and standards waivers, revenue could be raised, too, from monopoly patents, utility franchises, and corporate charters. Charging full market value for these pieces of papers, we’d rake in trillions each year from the privileged elite. We’d still be the envy of the world but no longer the master of the world. The terrorist crisis would make America better; it’d get us to do what we should have been doing all along.
After terrorists toppled New York’s twin trade towers, young males in the dusty streets of Palestine danced in celebration. They wore blue jeans, t-shirts, and Nike shoes. Our influence extends everywhere; we have no choice but to lead. The US should put these geonomic reforms on the table and not budge until a Mideast economic partnership treaty gets signed. We’d make all future aid contingent upon reaching an accord.
Where to draw a line in the sand becomes a lot less contentious when land and oil are no longer spoils of war and when neighbors do not endure drastically different standards of living. Growing up, we learn to not fight over toys but to take turns. Societies need to learn lessons like this, too.
Early last century, Gifford Pinchot, first head of the US Forest Service, said: “The earth belongs of right to all its people and not to a minority, insignificant in numbers but tremendous in wealth and power. The people shall get their fair share of the benefit which comes from the development of the country which belongs to us all with equal opportunity for all and special privileges for none.” A man in a Republican administration could say that then. We need to hear it again now.
The Progress Report is pleased to present a guest op-ed on the topic of government finance.
Citizen Dividends or Public Goods?
by Al Date
This article presumes an understanding of the political philosophy of John Locke, who held that
the fruits of labor belong entirely to the human-producer; but that
land should be privatized only to the extent that equally good land is still available for others to use.
This article presumes an agreement that the primary source of public funds should come from site-rent (a.k.a. land rent), and from “other economic-privatizations of naturally-occurring opportunities,” such as rights to the use of certain airwaves, or rights of mineral-extraction. Taxation of income or sales would be entirely prohibited.
This article is an argument for a limited constitutional government which attempts to provide “public goods” such as national defense, impartial justice, infrastructure for a free/open market — including protection of property rights, and limits on pollution. The author believes that a properly-constituted government would preclude the need for forced income-redistribution, since 100% of income would accrue to the earners, since the cost of land would be minimized by the removal of speculative premiums, and since local public goods would be provided for.
Site-rent collection requires an Entity with enforcement powers, beginning with hegemony over the viable rent-producing land mass — a national government. I fail to see how this could ever be achieved under anarchism.
In a modern setting, this Entity would ensure property and contracts, engage in some environmental protection, prosecute violent criminals, police the roads and sea-fares — and provide a public currency. (I would argued that a uniform national currency is a necessary infrastructure for efficient markets).
It’s amazing how many public goods are under-provided by the private free market. Even my friend David Friedman, the famous libertarian anarchist, freely admits this. But rent-collection gives us a golden opportunity to provide the public goods that are generally associated with advanced civilizations — while leaving the fruits of labor to enrich individuals/families, and to propel the private markets.
Rent is not created by individual human beings, but by an entire vibrant community of economically-active human beings all bidding for land-use.
Thus, rent is not owed to individuals, but to the community in toto. Calculating an average citizen’s dividend is misleading and propagandistic, because there can be no dividend of any kind without the primary public collection of what is OWED. Hence, it is more correct and more fundamental to say that
EACH LAND-USING RESIDENT OWES RENT; she is not necessarily owed any rent!
She IS OWED justice and defense of property rights, clean air, sound currency and other public goods, etc. — all of which are provided by the public spending of collected-rent by some form of democratic government under a constitution.
Since rent is inherently public, and since we have so many justifiable and necessary public expenses, the idea of a citizen’s dividend strikes me as defeating the whole spirit and purpose of rent collection. It is an unwise, unjust re-privatization of public assets. Rent collection is the ONLY JUST PUBLICIFICATION (meaning the opposite of privatization) OF PRIVATE ASSETS. Let us protect that essential principle, by leaving what is private private, and what is public, public.
And, I’m sorry, but I cannot ignore the obvious secondary effect of a substantial citizen dividend which would allow people to avoid having to do any work. Now, being lazy myself, I can be tempted with the utopian idea of not having to lift a finger to survive, but in reality, a society which encourages people to be lazy will suffer economically. And a society which provides laziness-inducing citizen dividends without FIRST taking care of the public business is simply loony and will not be able to sustain itself.
If there is ANY MONEY LEFT OVER after the provision of essential public goods, shall we have a dividend? I admit that this is a great idea for attracting adherents to the “cause.”
But NO, I say! It would be better “to throw that extra rent into the sea,” if we cannot find some marginal public good to provide. (That’s an inside joke — I do not really favor feeding money to crustaceans.) In modern life, there is no limit to the extent of the provision of marginal public goods, such as local transit systems, except as provided by the discipline of collecting all the rent, and not a penny more — thus spending only what is taken in. No deficit spending at the national level.
Civic life in a rent-collecting democracy would basically be a matter of prioritizing which public goods were more important than others, and which marginal ones would be provided only if there was money left over.
For example, in times of war, it is likely that most rent would be spent on the war, and other public goods deferred or reduced until peace returned.
suitable for framing by Green Parties. When Greens began in Germany two decades ago, they defined themselves as neither left nor right but in front. Geonomics fits that description. The Green Parties have their Four Pillars; geonomists have four ways to apply them:
Ecological Wisdom. Want people to use the eco-system wisely? Charge them Rent and, to end corporate license, add surcharges. To minimize these costs, people will use less Earth.
Nonviolence. Want people to settle disputes nonviolently? Set a good example; don’t levy taxes, which rely on the threat of incarceration, to take people’s money. Try quid pro quo fees and dues.
Social Responsibility. Want people to be responsible for their actions? Don’t make basic choices for them by subsidizing services, addicting them to a caretaker state. Let people spend shares of social surplus.
Grassroots Democracy. Better have grassroots prosperity. Remember, political power follows economic. Pay people a Citizens Dividend; to keep it, they’ll show up at the polls, public hearings, and conventions.
the policy that the earth’s natural patterns suggests. Use the eco-system’s self-regulating feedback loops as a model. What then needs changing? Basically, the flow of money spent to own or use Earth (both sites and resources) must visit each of us. Our agent, government, exists to collect this natural rent via fees and to disburse the collected revenue via dividends. Doing this, we could forgo taxes on homes and earnings and subsidies of either the needy or the greedy. For more, see our web site, our pamphlet of the title above, or any of our other lit pieces; ask for our literature list.
not exactly Georgism, the Single Tax on land value proposed by Henry George. He did, tho’, inspire most of the real-world implementations of the land tax that some jurisdictions enjoy today, and modern thinkers to craft geonomics. While his name and our remedy both begin with “geo” since both words refer to “Earth”, the two have their differences. (a) George pegs land monopoly as the fundamental flaw while geonomics faults Rent retention. (b) To fix the flaw, George was content to use a tax, while geonomics jettisons them in favor of price-like fees. (c) George focused on the taking while geonomics headlines the sharing. George envisioned an enlightened state judiciously spending the collected Rent while geonomics would turn the lion’s share over to the citizens via a dividend. (d) And George, as was everyone in his era, was pro-growth while geonomics sees economies as alive, growing, maturing, and stabilizing. Despite these differences, George should be recognized as great an economist as Euclid was a geometrician.
the study of the money we spend on the nature we use. When we pay that money to private owners, we reward both speculation and over-extraction. Robert Kiyosaki’s bestseller, Rich Dad’s Prophecy, says, “One of the reasons McDonald’s is such a rich company is not because it sells a lot of burgers but because it owns the land at some of the best intersections in the world. The main reason Kim and I invest in such properties is to own the land at the corner of the intersection. (p 200) My real estate advisor states that the rich either made their money in real estate or hold their money in real estate.” (p 141, via Greg Young) When government recovers the rents for natural advantages for everyone, it can save citizens millions. Ben Sevack, Montreal steel manufacturer, tells us (August 12) that Alberta, by leasing oil & gas fields, recovers enough revenue to be the only province in Canada to get by without a sales tax and to levy a flat provincial income tax. While running for re-election, provincial Premier Ralph Klein proposes to abolish their income tax and promises to eliminate medical insurance premiums and use resource revenue to pay for all medical expense for seniors. After all this planned tax-cutting and greater expense, they still expect a large budget surplus. Even places without oil and gas have high site values in their downtowns, and high values in their utility franchises. Recover the values of locations and privileges, displace the harmful taxes on sales, salaries, and structures, then use the revenue to fund basic government and pay residents a dividend, and you have geonomics in action.
a neologism for sharing “rent” or “social surplus” – the money we spend on the nature we use. When we buy land, such as the land beneath a home, we typically pay the wrong person – the homeowner. Instead, since land cost us nothing to make and is the common heri-tage of us all, rather than pay the owner, we should pay ourselves, our neighbors, our community. That is, we should all pay land dues to the public treasury, then our government would pay us land dividends from this collected revenue. It’s similar to the Alaska oil dividend, almost $2,000 last year. Indeed, the annual rental value of land, oil, all other natural resources, including the broadcast spectrum and other government-granted permits such as corporate charters, totals several trillion dollars each year. It’s so much that some could be spent on basic social services, the rest parceled out as a divi-dend, as Tom Paine suggested, and taxes (except any on natural rents) could be abolished, as Thomas Jeffer-son suggested. Were we sharing Earth by sharing her worth, territorial disputes would be fewer, less intense, and more resolvable.
a way to redirect all the money we spend on the nature we use – trillions of dollars annually. We can’t pay the Creator of sites and resources and are mistaken to pay their owners this biggest stream in our economy. Instead, as owners we should pay our neighbors for respecting our claims to land. Owners could pay in land dues to the public treasury, a la Sydney Australia’s land tax, and residents could get back a “rent” dividend, a la Alaska’s oil dividend. We’d pay for owning sites, resources, EM spectrum, or emitting pollutants into the ecosphere, then get a fair share of the recovered revenue. The economy would finally have a thermostat, the dividend. When it’s small, people would work more; when it’s big, they’d work less. Sharing Earth’s worth, we could jettison counterproductive taxes and addictive subsidies. Prices would become precise; things like sprawl, sprayed food, gasoline engines, coal-burning plants would no longer seem cheap; things like compact towns, organic foods, fuel cells, and solar powers would become affordable. Getting shares, people could spend their expanded leisure socializing, making art, enjoying nature, or just chilling. Economies let us produce wealth efficiently; geonomics lets us share it fairly.
a scientific look at how we divvy up the work and the wealth, how some of us end up with too much or too little effort or reward. That’s partly due to Ricardo’s Law of Rent, showing how wasteful use of Earth cuts wages. And it’s partly due to how a society’s elite runs government around like water boys, dishing out subsidies and tax breaks. While geonomists look political reality right in the eye, without blinking, conventional economists flinch. When Paul Volcker, ex-chief of the Federal Reserve, moved on to a cushy professorship at Princeton cum book contract, the crush of deadlines bore down. So Volcker asked a junior associate to help with the book. The guy refused, explaining that giving serious consideration to policy would ruin his academic career. The ex-Fed chief couldn’t believe it and asked the department chair if truly that were the case. That head honcho pondered the question then replied no, not if he only does it once. And economics was AKA political economy!
not a panacea, but like John Muir said, “pull on any one thing, and find it connected to everything else.” Recall last month’s earthquake in El Salvador. We felt it and its formidable after-shocks in Nicaragua. Immediately afterwards, my host nation, one of the poorest in the Western Hemisphere, sent aid to its Central American neighbor. The Nica newspapers carried photos of the devastation. They showed that the cliff sides that crumbled had had homes built on them while the cliffs left pristine withstood the shock. Could monopoly of good, safe, flat land be pushing people to build on risky, unstable cliffs? If so, that’s just one more good reason to break up land monopoly. What works to break up land monopoly, history shows, is for society to collect the annual rental value of the underlying sites and resources. That’d spur owners to use level land efficiently, so no one would be excluded, forced to resort to cliffs. To prevent another man-induced landslide is yet another reason to spread geonomics.
a way to have everybody pulling on the same end of the rope. Last summer’s expansive forest fires shed light on growing class resentment in the West. Old loggers and ranchers rankled at the new urgency to stamp out the blazes that threatened the recent Aspenesque settlers. The newcomers expected working class firemen to make protecting their expensive homes top priority. (Chr Sci Mntr, Spt 7) The tinder for this envy? Rich people moving in bid up the price of land, making it hard to afford by people on the margin. The fault really lies with our system of privatizing land value. If this rising value were collected by land dues and shared by rent dividends – the essence of geonomic policy – who’d complain? The more people move in, the higher the land value, and the fatter the dividend paid to residents. Then people on the margin might go out of their way to invite rich outsiders in.
about the money we spend on the nature we use. It flows torrentially yet invisibly, often submerged in the price of housing, food, fuel, and everything else. Flowing from the many to the few, natural rent distorts prices and rewards unjust and unsustainable choices. Redirected via dues and dividends to flow from each to all, “rent” payments would level the playing field and empower neighbors to shrink their workweek and expand their horizons. Modeled on nature’s feedback loops, earlier proposals to redirect rent found favor with Paine, Tolstoy, and Einstein. Wherever tried, to the degree tried, redirecting rent worked. One of today’s versions, the green tax shift, spreads out of Europe. Another, the Property Tax Shift, activists can win at the local level, building a world that works right for everyone.